We had a $9,000,000 surprise tax bill…(what I learned about employees)

Summary

• Accelerate business growth by recognizing where you might lack expertise and hiring people with the necessary experience.
• Understand the financial implications of business decisions, such as tax obligations related to equity in a company.
• Make strategic decisions about hiring based on the knowledge gap you need to fill, especially for roles critical to your company's success.
• Recognizing the challenges in finance, I learned that hiring specialists with industry experience and those who have been in similar company sizes is crucial.
• From personal experience, when problems arose due to inexperienced team members, I found that hiring practiced individuals lessened risks and improved team performance.
• A healthy team balance is approximately 20% of team members with solid experience ('been there, done that'), especially in key areas or leadership positions.
• To ascertain if potential hires truly have "been there, done that," evaluate their experience across three areas: industry or market experience, role familiarity, and experience within a similar type of company.
• A mismatch in company culture or the type of company experience can result in difficulty adapting, even for those with extensive experience.
• Regularly reviewing your team composition and experience levels each quarter ensures you have the right balance of expertise to drive the company forward.

Video

How To Take Action

I would suggest implementing strategies to fill knowledge gaps in your small business by bringing in experienced personnel. First, evaluate your company's needs and identify areas where you may lack expertise. Look for potential hires who have a solid track record in the industry or market relevant to your business, are familiar with the roles you need to fill, and have worked in companies of a similar size and type.

A good way of doing this is by reviewing your team's composition every quarter. You want to maintain a healthy balance with approximately 20% of your team members having solid experience, particularly in key areas or leadership positions. This helps in reducing risks and improves team performance.

To ensure you're making financially sound decisions, you need to be aware of the tax obligations related to equity in a company. For example, when gaining equity, you should understand the implications of capital gains tax. This will help in strategic planning and avoiding unexpected financial burdens. It could be beneficial to consult with a financial advisor if you're unsure about these issues.

When hiring, to ascertain if potential hires really have "been there, done that," evaluate their experience across three areas: industry or market experience, role familiarity, and experience within a similar type of company. A mismatch in company culture or type of company experience can cause difficulty in adapting, even for those with extensive experience.

Finally, it's important to realize that a lack of experienced team members can be costly, as seen in my personal experience. Inexperienced team members can lead to significant issues like the mishandling of tax obligations, which could lead to financial strain or even bankruptcy. By having a mix of seasoned and less experienced team members, you can foster growth with minimized risk. Take the time to carefully select individuals who not only match the job description but also fit into the company culture and have appropriate experience for the company's stage and strategy.

Quotes by Leila Hormozi

"You want 80% of people to be new, can have areas of inexperience, as long as you have 20% who damn well have."

– Leila Hormozi

"Every single person that has been there done that… the amount of effect that they can have on others and how much they can raise others up is tremendous."

– Leila Hormozi

"If there's someone that's on the team that's been there done this before, they can usually pull from their experience."

– Leila Hormozi

"When you bring on someone who has experience, you decrease your risk immensely."

– Leila Hormozi

"Experience has to have context, otherwise it actually can be more harmful than good."

– Leila Hormozi

Full Transcript

want to talk about is how to expedite growth of your business and minimize and mitigate mistakes and slow downs and so the reason i'm making this video um kind of off the cup i actually just got done driving like six hours from arizona with my husband and i was gonna go unpack and i was like i have this video on my mind i need to make it right now and it's because i had a dinner last night with a couple entrepreneurs that really triggered my thinking about this and i hope it's valuable for all of you because it's something that if i had known um you know five six years ago i think that we would have been able to grow and be maybe even two years ahead of where we are now so i'll explain that with what that is after the story so we went to dinner with this entrepreneur last night and they were telling us about their new business model and in their new business model they essentially take equity from companies and so what they said they were going to do is they're like we're going to go in we're going to find companies that have a great product they have great retention they have good operations but they don't know how to scale it they've had trouble scaling it in the past and so we're going to come in and we're going to plug in our sales and marketing and we're going to grow the business we're going to get a 50 50 split on the profit of the growth of the business and then once we hit an additional 1 million per month i think it's something like that in profit that we've added then we're going to get 50 equity of the company as they were saying this i was like okay cool understand blah blah and you know my brain starts working the background as we're continuing the conversation and i'm like oh and i'm like okay so what they didn't know is that when you buy equity of a company or you when you acquire equity from a company you have to pay capital gains tax on that equity upon the time that you you know for that tax year and so even if you don't realize any of the gains say they don't sell the company you don't actually get any of the money you still have to pay for your equity and so this is why you see a lot of really disgruntled uh high-level corporate employees who are like i paid 100 grand for my equity i haven't seen from that you know it's why people are pissed off about it now there's ways to get around this um if you understand legal but they were new and so they didn't understand that and so you know as a conversation i said hey did you know that you actually have to pay you're going to pay for that equity so to me i would want to buy my 50 equity before i grew the business not after because it's way more expensive after and they were like holy crap this is why we're like blown away like we didn't know that that's something that we have no idea about like how do you know all this et cetera et cetera and i said you know obviously just experience time and um you know hiring right people hiring their vendors et cetera i've learned these things over time just think about that right so if i had not said that to them think about the difference if they go into a company that's doing a million dollars a year versus coming in and doing uh 12 million dollars per year how much difference they have to pay in the equity and that would have just been a surprise to them because it's just like you just don't know and a lot of people don't know that's how things like that work this reminded me of a mistake that i made in my company um i want to say how long ago about three and a half years ago and it goes along a similar line which is you are an inexperienced founder right you are not nearly as you know experienced as many other people in the marketplace right which i consider myself to be very inexperienced and at that time i was even more so i would consider them to be in that category and you don't have enough people with gray hair around you you don't have enough people with experience around you right gray hair experience etc you can call what you want not people have been there done that and that's what i didn't have three and a half years ago when i made this mistake we had a finance team there was seven or eight people on the team really big for finance team we did have three companies granted but now you know we're able to uh do that with half the amount of people and that's because we have a really good person in there and so at that time um i hired somebody for finance and they had not been at a company as big as ours and they didn't really have an industry experience either and i made the mistake of hiring person who had no industry experience they had no experience with a company of our size and then i also promoted them to be a director of finance which they had never been in that role before so there are three unknowns there's three areas in which they lacked all of them they had no experience in either of those areas i put that person in there and i felt after a certain amount of time you know we're talking as an executive team we're like i just don't think this person's working out things don't feel right the team doesn't seem like they're congealing it's just not going in the right direction i don't the reporting every week is completely different the finances change like week to week i mean just stuff that's like you know obvious that it's not correct and so uh when that happened i'm like okay i don't think this person's working out but i sent her to actually like a cfo boot camp um kind of like a last like hail mary like god like please like you know tell me it's not me is it her is it me you know i don't want to be wrong and so sent her there while she was at that boot camp um she had kept telling us that we were gonna owe taxes and we're gonna have to pay them in october so each month i was setting the money aside to pay the taxes in october i get an email it's march or march or april whatever tax season it's on friday at 2 30 p.m and the email says oops i made a mistake in my calculations uh just got off the phone with our cpa turns out that we owe taxes monday uh it's 9 million looks like you're gonna have to move some things around let me know how it goes and i i honestly i started laughing like that because i was just like this is so absurd because one to just surprise somebody with nine million dollars in taxes if they didn't have nine million dollars that would be an extremely uh detrimental problem that could put most people into bankruptcy right the second piece is that to even transfer that amount of money when it's friday and you can't transfer over the weekend like that in itself is a pain in the ass and going to be saying that's nearly impossible to uh get done and so i was like holy crap that was the moment that i realized that you cannot have a lack of people on your team that have never been there done that and i've read it in all the management books and in all the books that say you know the average startup only 90 of the first team even survives to year five which i can tell you is true but that was the moment that i realized i was i can't have an entire team of people i've never been there done that and for myself i had to realize that as a founder as somebody who was young and inexperienced i had to hire people who were experienced especially in the areas of my weaknesses right and so if you look at those um entrepreneurs we went to dinner with they were marketing heavy sales heavy they didn't have experience in operations or finance or anything and they don't even know what they don't know right because it's this big abyss of unknown you assume that you are you know you only can comprehend the depths of what you already know you can't comprehend what you don't know and so because of that you don't go searching for somebody who might understand the things that you don't know you just kind of are naive about it and so if you look at that like how much would that have bitten them in the ass right if i didn't have you know we weren't you know a very profitable company that nine million dollars would send us in the bankruptcy and so that was when i was like i need people on this team who have been there done that and it's not gonna be the whole team and i'm not gonna like completely overhaul everything but i cannot have an entire team of people who were constantly coaching and bringing up and have never done the role before i started reading a lot of books about um you know just like different ratios of how you want to build your team and i came across one and i agree with this philosophy i don't remember what book it is so please don't ask me but it was like you want 80 of people 80 people can be new can have areas of an experience cannot have been there done that as long as you have 20 who damn well have i read that and i was like i think that's correct because every single person that has been there done that and i can stand behind that because now every person that's been there done that on our team i mean the amount of effect that they can have on others and how much they can raise others up is tremendous right especially if they're a leader that is now the principle that i kind of adhere to so when i'm looking at not just my entire team okay so when i look at my entire team i want to see are there at least 20 people who've been there done that then i even look at it on a micro level okay so i'm going to pull apart say the sales team or the customer service team i'm going to say are there at least 20 percent of people in here who have been there done that doesn't even need to be the leader necessarily as long as the leader is open to feedback but people in there have to have been there done that and so there's three lenses that i look at that through okay when i'm looking for someone who's been there done that here's how i quantify that whatever um one is do they have industry or market experience that's one way in which people have been there done that it's very valuable for someone have industry or market experience right so for a lot of people that we hire they have experience in the fitness industry they have experience in gyms they have experience in brick and mortar okay the second is that have they been in that exact role before and it doesn't mean that the title matches but that that role the activities they're doing that they have done those before so if i'm hiring a media buyer that i want to run facebook ads i'm not going to hire somebody who's just been running seo i'm probably going to hire somebody that's been running facebook ads that's the second piece have they been doing the the people on the team have they been doing the role that they're doing here and then the third piece is have they been this type of company before your company is a product of its own right it's a product that attracts uh talent it's a product that uh you can sell the market it's a product that you can leverage for assets and for uh expansion and if you look at your product or your company you want to say have they worked with similar products before because i can tell you that you can bring in someone who's been in the industry and they've had that exact same job but they have been in a deeply or heavily heavily funded vc-backed company and so the way that they operate is polar different than how they're going to operate in a entrepreneurial company and so those are the three lenses that i use to look through that since i've started doing this it has completely changed my way of thinking when there's a problem on the team because a lot of the times the problems on the teams or when specific teams have problems i'm looking at it and a lot of times i'll find that there's nobody there that's ever been there done that because if there's someone that's on the team that's been there done this before then they can usually uh pull from their experience and say well we had this problem with the past company i was out and here's how we solved right or they know three other people that are peers of theirs who have had that problem at their company and they can pull them in they can talk to them they can phone call them if you don't have that then people often remain stuck and there's problems that are pretty rudimentary that are unable to be solved because people just don't know because they don't have the experience and so if you are building your company and you're new and you are an inexperienced entrepreneur which i would say like less than 10 years in my opinion is like pretty inexperienced which i include myself in i would say look at it like that right you want to make sure that you have 20 people have been there done that eighty percent of people can be you know you can be coaching them up they maybe haven't they might out of those three pieces where it's like market job company type um they might have one they might even have two but you need 20 people to have a three for three and so that is what i've discovered um in terms of how to grow companies faster without having as much risk i think that every time you bring on someone who has experience you decrease your risk immensely and i can say that because you know when i brought in new financial leaders and then when i brought in new sales leaders and when i brought in new product leaders all those people brought with them experience and they greatly decreased the risk of that company not succeeding because they know how to make a company that is very similar succeed and so i hope that helps i hope it gives you a framework to think from because i think a lot of the time we're actually just fearful of hiring people that are experienced because we don't know what we don't know and i think if you think through with that lens what if you're thinking industry slash market you're thinking about the role and then you're thinking about the type of company they've been in if you find something that matches all three it's and they fit your culture right i find it highly unlikely that they will not succeed but i think a lot of times when people are hiring experienced people they get so enamored with oh my gosh their resume and their experiences that but they don't even think of what type of experience it was it might have been like you know he ran operations that big pharma you know and now he's coming into your you know marketing sales agency and running operations like he's probably gonna up and so you have to think through those lenses because experience has to have context otherwise it actually can be more harmful than good use that framework next time you're thinking about how to fix your team how to grow your team um i suggest every quarter looking at the ratio you have on each team because when i'm doing my analysis each quarter of the teams and looking at the org chart i'm thinking with that i'm thinking where are we missing experience where are we missing talent where are we kind of flopping around because we don't have someone that knows what direction to go and so with that i hope you have a fantastic rest of your day morning afternoon bike ride car ride whatever it may be i will see you on the next video