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Hiring Your First Employee: Key Considerations for Entrepreneurs
00:44:51
Hiring your first employee is one of the biggest decisions you’ll make as a business owner. In this episode of Build Your Business, Matt and Chris Reynolds explore everything you need to know before making that first hire—from financial readiness to ensuring a strong cultural fit.
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- [00:01]
CJ
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- [00:48]
Matt Reynolds
You'Re listening to the Build you'd business podcast powered by Turnkey Coach, where we help business owners find freedom over fear. I'm Matt Reynolds and I'm his brother Chris Reynolds.
- [00:58]
Chris Reynolds
Join us as we help build your business and move from fear to freedom together. You're listening to another episode of the Build your business podcast where we take you from fear to freedom. We really walk through the things that make business owners anxious and hopefully take away some of that anxiety. We are your co hosts, Matt and Chris Reynolds. We're brothers. We Both have about 20 years of business experience each, so almost 40 years of business experience between us. Welcome to the show, sir.
- [01:37]
Matt Reynolds
Thank you. Looking forward to it.
- [01:39]
Chris Reynolds
We're going to talk about something that we hear all the time, which is the question of am I ready to hire my first employee or how do I know when it's time to hire? I'm a business owner of one and I need to become a business of two, which is usually what happens. It usually doesn't go from 1 to 5. Occasionally it does, but most of the time it's 1 to 2. And so I think the thing I want to spend the bulk of the time on on this episode and as we get through, like as you, once you've hired that person, we'll do additional episodes on how to onboard them, how to make sure they fit into company culture, all those sorts of things. Some of those company culture things should be things, you know, when you hire them, you're hiring not just on their skill set but for culture. But what I want to do first is answer that question, like, am I ready?
- [02:25]
Matt Reynolds
Yep.
- [02:26]
Chris Reynolds
And so when I started to think about whether I was ready and you and I talked about this a little bit in the show notes ahead of time, so jump in at any point. I am trying to find the best combination of one, what the business needs and where the bottleneck is. Like, where am I as the only employee as the founder slowing the business down. 2. What do I suck at and or what do I hate? For example, one of the first things that I hired out was payroll. I was fine at payroll. I didn't suck at payroll. I just hated it. And so I hired it out. There are other things. Okay, where or what tasks are you doing as a founder or owner that's costing the company and you money that you could hire out at a cheaper wage so that you don't have to do that so that you can focus on the things that are more valuable to the company? Is that fair?
- [03:26]
Matt Reynolds
That's exactly. I mean, look, the reality is the things that will drive whether or not you decide or who the right person is to hire first. Yep, definitely.
- [03:37]
Chris Reynolds
So typically, most of the time you're going to hire a lower wage, and it's not always the case that it's a lower wage position so that you can do the things that are most valuable. Now, no matter whether it's a low wage, let's say a $20 an hour job or $100 an hour job, one of the things you have to make sure, and you can look at previous episodes, is just you're financially ready to hire. So maybe go into that. Like how. How many months of Runway, if you've added this salaried person on or hourly wage person or even a contractor on, should you make sure you're in a good spot that you say, not only do I have a bottleneck, not only am I doing things that I suck at or hate, not only am I doing things that's costing the company money, but if I bring them on and the business doesn't grow for the first three to four months. And by the way, this will slow you down when you hire your first employee, it's not like they're off and running the first week. There's a lot of training and onboarding. And again, we'll get to that in a future episode. How. How do I know that the finances are in a good spot where I can actually make that hire?
- [04:46]
Matt Reynolds
Yeah, I think the metric that I've always used is whatever you're committing to that employee, contractor, whoever, you need to basically have six months of their pay sitting there ready to go like that needs to be something that you've got, you know, in the bank. If you want to be even more conservative, you want to feel even more comfortable, you want to sleep a little better at night, make it a year, sure. But, you know, in most businesses, especially new businesses, cash flow is the thing. And so you're probably not going to have just a giant pile of cash. The thing to remember is when you have six months of cash for somebody that's not, you know, you're not going to spend that down over time.
- [05:26]
Chris Reynolds
Right.
- [05:26]
Matt Reynolds
You know, theoretically, like, if you do this right, you should be getting cash.
- [05:30]
Chris Reynolds
Inflows, additional cash inflows, even from their position.
- [05:36]
Matt Reynolds
That's exactly right. So the thing to always make sure that you're thinking about here is you kind of got to model this out. And we'll probably do a separate episode also on financial modeling for founders. Just like early stuff that you want to be able to do. But one of the first things you'll do is, you know, you can just plot out your expected cash flow on an Excel sheet and go, all right, here's how much comes in, here's how much goes out. And if I put their amount in there as well, it's this. But then also by hiring this employee, it either adds additional revenue to the top line because it's freeing up some of my time and I can go get some more sales or deliver on some more contracts or whatever it is you're doing. And you know, and you plot that out. The great thing about doing it that way is that it gives you a very concrete set of expectations for that person that you're bringing in. And that's one thing that I would say you want to communicate early. Listen, we're going to do this six month trial or whatever, however you want to say it, we're going to, you know, I can absolutely, I guarantee that for the next six months, I've got this. And we'll, we'll, you know, we'll talk through what that looks like. But my expectation of you during that six months is that you are doing this so that I can do this other stuff because that's what brings in the revenue that allows me to keep paying you. Right. And early, that first employee, I think you want to be on your first employee. It's probably better to be more transparent. You're going to get less transparent over time because. And we'll talk about why later, but less transparent around things they can't control. But employee number one can control a lot.
- [07:17]
Chris Reynolds
Right.
- [07:17]
Matt Reynolds
And you want to, you want to be as, you want to be as transparent and as brutally honest as possible. Make sure they know what they're getting into.
- [07:24]
Chris Reynolds
Yep.
- [07:24]
Matt Reynolds
Because if the time comes where it doesn't work out, you don't want to be in a situation where you told them you've got this totally Stable job, I've got everything taken care of and oh, sorry things went the way that I didn't expect it to go. You want to say, look, I don't know, I got you for six months. That much I know. And every month after, we can talk about how far out we are. Right?
- [07:44]
Chris Reynolds
Yep. Yeah, I totally agree. And you know, as the business gets bigger, you hear a lot of other entrepreneurs talk about hire slow fire, fast. Oh, and this doesn't necessarily apply to employee number one unless you're hiring a total stranger. Right. And so first I would say that let's give some examples of what that employee number one, some of those positions might be. So for example, at the gym, I've mentioned this before, the first person that I hired was the custodian because it was the lowest paying job. I was cleaning the toilets. Not that I wasn't, you know, or that I was too good to clean the toilets. It's just it was costing the business money to have the guy that owns the business clean the toilets. So. So we hired a custodian. My first employee at Barbalogic was Nikki Sims. And that's because I was, I'm a pretty good people person. And from a customer service standpoint, I was very careful to make sure that the deep in our core values, we were a company that treated people awesome. And at some point I was getting so many emails, customer service emails, not because something was screwing up or that we were failing, but it was just we had hundreds and hundreds of clients and I couldn't keep up with the customer service aspect of that and I needed somebody to help me with payroll. And we don't really like the term HR around here or in German. When I think of hr, I may have said this before too. I think of Toby from the office. I don't want that in the building. So on the custodian side, I didn't know that person. But that is such a low risk job and a low pay job that I could take any homeless guy off the street and if he could read the SOP or a college kid or a high school kid, they could do it. So that was not as important. For the first position at Barbalogic, I hired somebody I knew, somebody that was in my network that I knew had the skill set to help us be successful. So there wasn't really an intense interview process. You know, now when we have to hire out and they're like, when we hired our VP of Finance, you know, leading into CFO, we did the full like gathered 250 resumes, worked through them all, did top grading interviews. This is not that. This is here's the bottleneck, here's where I need help and I'm gonna hire a person for that help. Another one that I think is probably would be fairly common for a business that's growing quickly and that you are doing all of the work as the founder is an ea, is an executive assistant, somebody to just manage my calendar, manage my emails, do project management stuff. Tell me what you need from me. We do a check in every morning. And so I have a great ea, Dan Shell. He's fantastic. And we walk through very quickly whether it's over the phone or whether like it's a, like a screen recording of here's my task list today we can go to HubSpot and see what my tasks are. And then he sends me back like basically a roger, here are your task lists. They're in order of priority. Also here's what's on your calendar. You know you're podcasting with Chris at 7:00am, you got a meeting with mission control at 10:00am so those, those times are blocked out of your calendar. And so these other things will be done in the spaces between. And so that's not a super high paying job. Now again, if you're in a massive company and you've got a big executive team, an EA is a often a six figure plus salaried position. But for this first hire you may just need somebody to help you get organized and that might be somebody in your town where they can come into your home, work in an office in your home, go through your mail, throw away the junk mail, go fill up the truck with gas. It could be that Dan Schell is in Ohio and so he does all of my business, technical, anything that's on the Internet. And he also helps with show notes and does podcast administration for us. So lots of help there as well. That's another great position that anything really what we're doing in hiring this first position, this first employee is you're doing the things that will free you up to do the more important things. So it really comes back down to that urgency versus importance. I'm trying to hire out the urgent so that I can focus on the important.
- [12:08]
Matt Reynolds
Yeah, that's exactly right. I mean I think it is the most common thing to hire somebody that you know as the first employee. And I, I have, looking back at, at my businesses, I have always done that. Even today, you know, it's look, it's, it's always there's Always a risk. Right. So if you know them, you know, you might be good friends with this person. You might think part of what you're hiring for, and you have to, you just need to recognize this, part of what you're hiring for is that you have pre established trust.
- [12:40]
Chris Reynolds
Right? Right.
- [12:41]
Matt Reynolds
And if you have pre established trust, you are almost certainly friends of some kind. Right. That you have to have a relationship with this person in some way. The thing to recognize is that business has a way of tearing that apart.
- [12:55]
Chris Reynolds
Yep.
- [12:56]
Matt Reynolds
And so you need to go into it with eyes wide open about what that could mean. If that happens, if you're okay with that and they're okay with that, so be it. Right?
- [13:07]
Chris Reynolds
Yep.
- [13:07]
Matt Reynolds
But I think that you definitely don't want to go into it thinking, oh, you know, it's. The relationship is going to be exactly the same way that it was before. It won't be. It can't be. Actually, in many ways, you know, you are now their boss and that means, you know, if they're not performing, you got to tell them about it. I mean, like so, so those things are things to just keep in mind. But there are also big advantages. If you truly know them well and you understand, you know, you already trust them and you know that their skill set is the skill set for the thing that you need, then honestly, it removes a big portion of the risk to hiring some rando that you don't know.
- [13:46]
Chris Reynolds
Right.
- [13:47]
Matt Reynolds
That's a, that's always a higher risk thing. So I definitely would say, as long as, you know, be open and honest about it, make sure that you've had that conversation with them about, hey, this can very likely change the relationship. I just want you to know that, you know, I got like a, There's a business side of me, there's a personal side of me. It's a little, could be a little bit different. You should, I just want you to know, like I said, the transparency is higher with this first role. So make sure that all of those things are out on the table, part of the discussion and that you're clear on what's going to happen. The only caveat I would put on this is here's an early mistake that I made and I just want to keep you from making the same mistake. And that is don't fall into the trap that smart people, people that you know are particularly smart or whatever, or just people you like, like, like be, be cautious on this one too. Right.
- [14:38]
Chris Reynolds
Sure.
- [14:39]
Matt Reynolds
That they can do any job. Like what you want to do is think to yourself, Like, I. I think this is maybe the. The bar that everyone has to cross whenever it comes to hiring. And it is. Is this person who they are, like, in their personality, in the way their brain works and all of those things, are they capable of becoming great at this position?
- [15:01]
Chris Reynolds
Right.
- [15:01]
Matt Reynolds
May not be great day one, but are they capable of becoming great? And maybe even are they likely to become great? You're looking to take advantage of someone's natural propensity for greatness in a particular area of their life. Right.
- [15:17]
Chris Reynolds
Right.
- [15:17]
Matt Reynolds
You wouldn't take somebody who, let's say when you go to their house, there's just piles of mail everywhere to come over and be your ea and help you deal with mail. Right, Right. Not a good. Not a good fit just because they're.
- [15:28]
Chris Reynolds
Your friend and you like them. Yeah. But in their personality and their skill set, there's not a high potential of success there. Correct.
- [15:35]
Matt Reynolds
And they may be the kind of person that you could trust with a secret to their grave.
- [15:40]
Chris Reynolds
Right, Right.
- [15:41]
Matt Reynolds
That's great. Good. I'm glad you have that relationship. Not the kind of person to deal with your mail. Right. So I just think you have to be very cognizant of the reality that people are different.
- [15:52]
Chris Reynolds
Okay.
- [15:53]
Matt Reynolds
They just are. People are different. Not all people are the same. And the way that people are put together, the way they, you know, their background experiences, the way they were raised, what they know, what they've been trained on, all these things, but particularly what they're good at and like, needs to align with the thing that you are hiring them for, which very frequently is a thing that you do not like. Right.
- [16:16]
Chris Reynolds
Yep.
- [16:17]
Matt Reynolds
These are the filters that you need to put on as you're thinking about, who should I hire for this first hire somebody that's going to, you know, where the odds are, like 90% or higher that they're going to knock it out of the park.
- [16:30]
Chris Reynolds
Yeah. Because 50%, then there's a 50% chance that you will not be friends at the end of this process and that you lost.
- [16:39]
Matt Reynolds
And that you lost a ton of time and money trying to hire people.
- [16:42]
Chris Reynolds
That's exactly right. Right. So. So we're hiring on skill set. Not that they have to be an expert in the skill, but they should have the skill. They should have some level of skill for the thing you're hiring for. There are times in businesses where someone is so intelligent and so good, but they're being hired for a completely new position, but the business has so much cash reserves and so many employees that they have the time to train someone up to learn the new job. That is not this. Right. This is the onboarding process for this first hire should be like two weeks or less and they should be off and running now at two weeks. They may not be as good as you were, but they're already taking things off your plate so that you can do the things that matter. So skill set and personality. And personality is kind of the bridge between the skill set and the other thing you're hiring for is culture fit. Are they going to be a good culture fit to this company? Can they? If, for example, I don't have any problem compartmentalizing between business. Matt. And friend, family, whatever. Matt. Right. And not every founder is that way, although I think a lot of founders lean that direction. Like, this is business. And then we can go out and, you know, even if there's a screw up in the business, we can still go have dinner together and be fine. But employees are different and they're all over the place. They can sometimes compartmentalize, but more often than not, if you have to give them a stern talking to about something that needs to be fixed, they will internalize that and be like, matt doesn't like me. Matt doesn't want to go have a beer with me. And that's not true at all for me. But you have to understand who you're dealing with. If you already know this person, then you also should know that or have an idea of how they're going to handle that sort of situation. And by the way, that's something I think this should be talked about in the hiring process. Like, hey, we're friends. Like, we can go to a show together. We can go, our families can go have a meal together. Even if the business day is hard, even if the business day is long, even if there's times when I've had to get onto you and say, like, hey, this wasn't done well, it needs to be done better. That doesn't have an effect on our friendship. Now, at some point, sometimes an employee will try to totally screw you over, which is why you're trying to hire somebody that you know wouldn't and that you trust. And certainly I can look back over the years that I've owned business and there are employees who I was like, they treated us really poorly. And I do not want to be friends with them anymore. I was 20 years ago, but I am not today. And we're not going to talk probably for the rest of our lives. So you certainly can cross a line. But if somebody makes a genuine mistake in the business, or you're training them through that, or you have to correct them and give them some sort of admonition. That doesn't mean that it affects the friendship, especially in the beginning as they're learning this process.
- [19:36]
Matt Reynolds
Yeah, all it really is, I think when you get to boil that down to what is the thing that would actually, like ruin it? It's breaking the trust. That's right. So like when trust is broken, trust is broken between two humans. Not between an employee and a boss, not between a friend and a friend.
- [19:51]
Chris Reynolds
That's right.
- [19:52]
Matt Reynolds
Once two humans no longer have trust, the trust is gone in all versions of that relationship and it's almost impossible.
- [19:58]
Chris Reynolds
To ever build back.
- [19:59]
Matt Reynolds
That's correct.
- [20:00]
Chris Reynolds
As a matter of fact, the only time I've really ever seen it being built back is like blood relation. And even then sometimes it doesn't get built back.
- [20:08]
Matt Reynolds
Yeah, it's a tough reality. But look, there are some really positive things that come out of this if you do it well. So just because you like somebody is not the reason to hire them. Okay. Like, that's the primary thing. I want to make sure people understand.
- [20:24]
Chris Reynolds
So if we check our. Are we ready? We've got six months of their pay already in the bank. So we know even if the business doesn't grow, we can still make payroll, which is something that you're now making because as a, as a owner, founder of one, you can just take draws off the business. You may not be getting a payroll or a salary or, you know, it's basically how the business does that month. And maybe you take a percentage out or whatever for yourself. We've obviously got podcasts on that. So do you have that money in the bank? Where is the bottleneck in the business? Right. What does the business need? What do you suck at or hate at or hate doing? What work are you doing that's costing you money? Because it's a lower wage job than what you should be doing. And in the end you're trying to hire somebody that you already have. Trust that has that skill set and is a good culture fit for the business understanding going into it. I think if you have all those things, then you could say, like, yeah, it's time to start looking. And here's the reality of the situation. For those of you who haven't done this yet and are thinking about it, you probably have somebody in your mind right now. Yeah, it's not like I have to start thinking about who my network is. I've hired many people, as I know you have where I just go, I've gone to my team and go, we need to hire this person because they're awesome at this and we suck at this and we trust them already and we've worked with them, they own their own little business or they're a contractor or whatever. And we go, hey, it's time to make an offer to bring them on because, because how much can I learn from somebody? And certainly we'll go through top grading stuff down, down the ways. But like from a resume and a couple interviews, you're not going to learn very much. But if you worked with somebody for five, 10 years, you knew them for 20 years. I was a deal with Nikki Sims. She was so great at customer service. I started to get to the point where I was overwhelmed with customer service. And one in, I don't know, 25 emails be a little snarky from me. And she's like, I'm going to take over all those at this point. And I've never seen her be snarky. And then the payroll, which I don't think she particularly likes either, but we just, I allowed her to manage that and hire that out as well to another service to, you know, we use Trinet now, which was Zenefits. And so anyway, so that's a good way to know that you need to hire somebody. Now next, next thing, are we talking about hiring a full time employee, a part time employee or a contractor? Right. And this is, I want to be really careful here because again, we're not lawyers. But here's what I know and here's what you know because we both have employees and contractors all over the world and we don't have any employees international employees, we just have a few contractors, but we have employees like all over the United States. And every state has wildly different rules for employment. For example, and again, this is, I'll use this as a, I don't know, as a, as an anecdote that may or may not be true because I don't want to get myself in trouble with what I'm about to say. California sucks. Trying to get into a contract with a 1099, which is essentially not even allowable in California anymore. You basically cannot have a 1099 in California. And they also suck with all their employee rules. All the stuff you have to do for California paperwork, you have to keep hours, you have to keep making sure even if they're on a salary job, there's all sorts of things that you have to check off the list that if you have an all hands, like crisis mode. And you need people to work 60, 70 hours that week. If they are upper management executive level, that can be asked of them and they just get paid their salary. But if they're not that, and they don't fulfill all of the requirements, they have to keep their hours and you're paying them overtime and then there's overtime rules about how much overtime they can work and all that stuff. So I would say, I'm not saying that Matt will never hire another employee from California. And by the way, if you're listening to this, because I do have a handful of employees from California and they're fantastic. It has nothing to do with them, nor am I considering getting rid of them because of the state they live in. I wouldn't do that. But for those of you who have not hired someone yet, especially if you don't live in California and you're looking to bring somebody on, I would look real in depth at the state. And by the way, California is not the only one. There's a handful of states. California is the worst. And so that's, that's number one.
- [24:57]
Matt Reynolds
Yeah, I would just as a, as a way to sort of think about this. Three podcasts just before this podcast on AI and all the various places that AI can help you. This is a really good place to use ChatGPT deep research or one of the deep Research items. Because all you need to do is say, this is what I need, this is what I'm needing. What should I be careful about in terms of employment type and state and all of that kind of thing. Right? Yeah, because you can get some very clear instruction about what is real at this point in time. These things change as, you know, state governments change and rules change and all that kind of stuff. But I definitely would echo that there are states and California is certainly one of them where it is significantly harder to hire a 1099 contractor if that's, you know, what you're needing to do.
- [25:49]
Chris Reynolds
Now from a 1099 employee. So I think most people know this, but if you, if you, you don't hire a 1099, but you, you have a contract with a contractor who 1099 is their, is their tax code, basically. So, so they fill out W9, I think instead of a W2, my suggestion would be, and be very careful, if they qualify, clearly qualify as being a contractor, I would have a contract with them. Oh, for sure. And that also makes this way easier limit. So you just enter into a three to six month contract with them. A six month Contract for work, enough for hire for contracted labor. And typically in the vast majority of businesses and states, you can end that contract for any reason whatsoever. They don't have to do a bad work. You could just, I mean, you don't have to have a reason to end the contract with a contractor.
- [26:43]
Matt Reynolds
Yep, that's right.
- [26:44]
Chris Reynolds
So however, if you hire an employee so like you're telling them what hours they have to work, they have to come to a specific location, maybe they have to wear a specific uniform or outfit or whatever, like that's an employee. Right. And so if they're an employee, one thing that most founders don't know is that if I'm going to pay, let's just say I'm going to hire a contractor and I'm going to pay them $50,000 a year. Let's say the real cost to the company is $50,000 minus whatever little bit you have to pay for the payroll service to make sure they get paid and whatnot. But no taxes are getting taken out. You're not paying Social Security. Some states require workman's comp for 1099. So you may have some of that. If you hire an employee at $50,000 a year, then you need to understand that the cost to the company is actually going to be 1.3 to 1.45x of that of what you're hiring them for. And some of that's dependent upon whether they're part time, which by the way, there's states have lots of rules about part time employees or full time and the benefits that are then offered based on part time or full time. So you're paying a portion of their taxes, their payroll taxes, like federal taxes, income tax, Social Security, workman's comp, often insurance, often a retirement package. Now when you're hiring your first employee, you probably don't have any of that stuff in place. And so it shouldn't matter unless ChatGPT and or preferably a tax attorney that you call up, they say, yeah, you gotta give them insurance or you've gotta give them this. And there are states that will do that. Just know that the cost for an employee, always for the taxes are going to increase the cost of that employee by I, I'd say on average 20%.
- [28:35]
Matt Reynolds
Yeah.
- [28:35]
Chris Reynolds
And in upwards of 50%, depending on what kind of additional benefits and packages they have.
- [28:40]
Matt Reynolds
Yeah, that's right. That's exactly right. And this is just an area where again, you know, we talked at the beginning about when you lay out the financial picture and you're you know, the way I've always done this is in Excel, you're going to have a column for each month. Basically, figure out what the income is, figure out what your revenue is coming in, figure out what your expenses are going out, and make sure you don't miss that row. That is the tax expense on their salary.
- [29:06]
Chris Reynolds
Right.
- [29:06]
Matt Reynolds
Like, you got to get that in there. And most of the services that you will use for payroll will also estimate this for you. So our company uses Gusto. I've actually been very happy with Gusto. It's done a great job for us. And if you go in and put a salary number in for somebody, or you put in a contract amount for somebody or whatever, it'll do a bunch of calculations for you and say, this is. This is the cost of the company.
- [29:30]
Chris Reynolds
Always ask for the state of residence and things like that. So same thing for us for. For Trinet. But the key there is that if I'm going to take that employee, let's say I'm going to pay him $5,000 a month. I take five, I multiply it by six months. I say, okay, I need $30,000 in the bank. Wrong. What you have to do is you have to take the $5,000 or the $30,000 and multiply it by 1.3, 1.35. So now I actually need $40,000 of money in the bank if I want six months to make sure that I can take care of that. Okay, so now you know, if you should hire an employee, you have some general ideas of what that looks like. Let's actually talk about or finding that person or making them an employee and how to do that research. Here is how I approach it. If you are doing this well and you've listened to the podcast so far, you should have a SOP for their job already, because you're doing that job right. So you should have a SOP for how I do my emails or how I do my basecamp project management, or how I clean the gym or whatever the thing is. So you already have a sop. Then you go in based on the SOP and you write a very clear responsibilities and expectations document, which will be a contract essentially for them. That's what we call an R and E. And that R and E is going to have. It's not very long. It's usually like a couple pages long, two pages, let's say. And it's going to have their job title. It's going to have a summary of the role it's going to have. Who Their direct report is, which is going to not be very hard to understand if you're the boss and they're the only employee. But as the business grows, we always make sure they understand who are they reporting to. Right. Here's the summary of the role. Here are the role specific duties and deliverables like this is what we expect from you, which includes expected output or hours. And we'll do one another podcast. I'm sure I couldn't care less about hours unless states tell me I have to. I care about output. So I just want high output whether it takes that employee 30 hours or 100 hours. And if it takes them 100 hours, we've screwed something up and they're working way too much. But we give compensation, pay increases, promotions based on output, based on doing excellent work. It's a meritocracy. That's how you get. Not because you were in the office the longest. And by the way, I think it's still a great idea like dress for the part, show up early, leave late, all great things. Right. And certainly that doesn't hurt. But just because you hit your one year anniversary or your three year anniversary or your five year anniversary doesn't mean you automatically get the pay bump. The pay bump comes from the output. Right? Well, that all stems from this two page document. This is your job, this is what you do here, right. This is your responsibilities and expectations. Before we ever get to. I don't even have a place for them to sign it. I send it to them. If I know they're who I want to hire, I say I send it to him, Nikki actually sends it to them and they go over it and they often go over it with their direct report and they ask questions and we often change a few of the bullet points and we delete this one and this one and we add a couple more. And that is the working document, that is the contract that then you have them sign. And of course it has their pay and their benefits usually at the bottom. So pay is X amount per month, which I like doing monthly by the way, and not annual salary because especially for this first employee, we're not guaranteed to have to be able to do 12 months. So you're gonna get paid this much per month. Here's the benefits we're gonna offer or at three months in health insurance kicks in or whatever thing. Or you're offered the 401k or the simple IRA or whatever. But the, the key here is that everybody actually wants this. Yeah, they want to know what's expected of them, number one, because they want to do a good job for you if they're. If they're going to. Especially if they're going to leave their job to take this job with you. But they also should have. It should be discussed, and probably even in the R and E, although I actually like to discuss it verbally with them more face to face or over a zoom call where they have a clear plan of success and upward mobility in the company. They want to know if you're hiring me at 2,500 bucks a month or $3,000 a month or what is not very good pay. Five years from now, am I still making $3,000 a month? Well, no. If you do this really, really well, these are the opportunities that will open up for you. And so that's. You start with the sop, you take the stop, and you turn that into a responsibilities and expectations document with all of those specific directives for them and the specific work for them. Discuss it with them, make sure that we're all on the same page. And then we put the signature line in and we sign and we're good to go. And then they're officially hired.
- [34:38]
Matt Reynolds
Yeah, I think that practice is extremely good, actually. And I think that a lot of businesses don't do this, so this is a great place to, you know, look. Again, I know I'm going to be the guy that drills on this constantly, but we just did three episodes where we talked about AI. This is not that big of a project. Okay. Like, you can do these documents really fast.
- [35:01]
Chris Reynolds
Yeah.
- [35:01]
Matt Reynolds
With some of these tools. Right. It doesn't take that much, so there's no reason not to do it. But there are a million reasons to do it.
- [35:10]
Chris Reynolds
That's right.
- [35:11]
Matt Reynolds
So make sure that as you're doing this, you will cover a lot of your managerial sins by doing this.
- [35:18]
Chris Reynolds
Well.
- [35:19]
Matt Reynolds
And what. What do I mean by that? What I mean is, look, if this is your first employee, you're going to make some mistakes, okay? You are.
- [35:26]
Chris Reynolds
You're going to make it with every employee, by the way, with every executive. You're going to make it with your coo, you're going to make it with every. Your cto, your cfo. You're going to make mistakes for everyone. But this one. You definitely are, because it's the first time you're going to make the most on this one. That's right.
- [35:41]
Matt Reynolds
And you'll hopefully not make those same mistakes with some of the others, but because of that, make sure that you're just being really clear about what the expectations are because it is, it is a lack of communication about the expectations that ultimately breaks down this kind of relationship causes all the problems. So get clear about what this is.
- [35:59]
Chris Reynolds
Yep.
- [35:59]
Matt Reynolds
I also really like the idea that it's not you writing it and giving it to them to sign. I love this idea. I don't do this, by the way. And I think it's a great idea. This is in draft form. We're going to talk about the draft form. If they have input to the draft form, they are going to have more buy in to it.
- [36:17]
Chris Reynolds
That's right. Right.
- [36:18]
Matt Reynolds
Because they put it in there.
- [36:19]
Chris Reynolds
We literally put it in Google Docs and we might leave the pay and the benefits out the first time they see it. Maybe we've discussed a ballpark figure. Right. But we let them actually then make edits to it. So we give them suggesting they turn on. They're not editors, but they can make suggestions to the Google Doc or they can ask questions or comments or whatever. And you make those changes. Now here's where this also is phenomenal and I know we're getting to the end of the time, so we need to wrap this up. But you take that same r&e six months later and you sit, then you send it. You send the old R and E, the R and E that they had from six months ago. You make no changes off of it. Typically you send it to them and you say, now tell me, based on your last six months of work, where are the places that you're doing work that wasn't on this RNA that needs to be added and what are the things you're not doing? Right. And that should be taken away. Right. Not because you're failing at your job or whatever, but now we've got a working document that we can then tweak based on the amount of additional responsibility that they've taken on or whatever. We can then make the pay adjustments and start to have that conversation and then we load that right into our payroll side, our Trinet and you use gusto. What are those companies called? Just.
- [37:36]
Matt Reynolds
Yeah, the payroll company.
- [37:37]
Chris Reynolds
It's a payroll. It's just an HR type company, which again, I want that instead of a Toby. And that gets turned into a contract and they sign it and then their pay changes. So that R and E is not just great for day one, it's great. We do it every six months and we update those things. Yeah, and we update pay. And this is the time when employees also have opportunities to ask for raises or hey, I've taken on this additional responsibility. So, you know, those are the times to have that negotiation, not send them. Here's what the job looks like. And by the way, for people who have worked at my company, who have worked at multibillion dollar companies before they worked for us, those multibillion dollar companies never did that. They sent out, this is the job, this is the description, this is the pay. Sign the contract.
- [38:23]
Matt Reynolds
Yeah.
- [38:24]
Chris Reynolds
No changes.
- [38:24]
Matt Reynolds
Yeah. I mean, look, here's the thing. One of the things that this does if you, if you use this process is it keeps you in a good position to have an opportunity as an employee to have a conversation in a shorter period of time than a year, which is too long. Right. So like you can't, you can't say, hey, you're signing up for this thing. We're going to talk in a year to talk about like how this thing is going in reality, as your first employee, since that's sort of the point here, you're going to know on a daily basis probably because you're going to be so close to this one that it's like. But it won't always be that way. And this is a great time for you to set good practices in place if your company grows to utilize those same practices to continue to grow. You know, start with good habits now and build this out going forward. I love this document. I think it's a great idea. Going to implement this. I'm going to implement your R and E idea.
- [39:18]
Chris Reynolds
So I'll send you, I probably won't send anybody. I can send you one that we actually have. You could run it through AI and.
- [39:26]
Matt Reynolds
Make it generalized generic one. Yeah, for sure.
- [39:28]
Chris Reynolds
And then we could, we could put it out to the list.
- [39:29]
Matt Reynolds
That's a great idea.
- [39:30]
Chris Reynolds
So here's another thing, really quick, one last point about the R and E. Don't make it too stiff and don't make it too flexible.
- [39:38]
Matt Reynolds
Yeah, that's right.
- [39:39]
Chris Reynolds
So I would say you want about 75 to 80% of very clear expectations and responsibilities with 20 or 25% of flex built in. And that's because for people who are either super type A or kind of ocd, which both of us have some of those traits or just in general have a little bit of issues sometimes with authority or bosses. If you're in an important business meeting and you only have one employee and the business meeting is going long and you're at the conference table, you need to be able to text your employee and say, hey, I need you to order doordash or go pick us up Some food. And because we're in the middle of this meeting and you don't want an employee that says that ain't my job.
- [40:25]
Matt Reynolds
Right.
- [40:26]
Chris Reynolds
That would be red flag. Now also, if you're not hiring them to be an EA and you're hiring them to do a legit HR job, payroll, stuff like that, be careful about those ass. It's not their job to go get you coffee every day. That's not their job. But in a situation where I'm at a table making a business deal and the person I'm making the deal with has just told me they're starving or they would really love coffee. Hey, so and so could you grab us some coffee or some food or whatever the thing is that's outside their job. So you build a little bit of flex in 25% flex, 75%. Like very clear expectation roles, especially for these. Especially for these early ones. So that is most of it, man. I think. Anything else we need to cover?
- [41:14]
Matt Reynolds
No, I think here's the thing. This topic is probably very important to most of you as you think about your businesses. It's probably the biggest decision you make is employee number one. We'll do more podcasts around these really early hires and like the. The some of the things to help you navigate through it. But I think this is a great, good foundation for those of you that are thinking about bringing somebody on to really take your business to the next level.
- [41:40]
Chris Reynolds
Yep. It's really simple. You find the person that you trust that you probably know that has the skill set and is a good culture fit for your company and that you're not so worried that if it goes poorly, it's going to destroy the friendship that you have. You make sure that you choose to hire someone who has a skill set at a place that you don't that will make you better. You build out a nice sop, which you should already have for that position. You write the R and E. You let them give feedback on the R and E. You come to terms with the R and E. This is the responsibilities and expectations. You start the discussion on the pay. They maybe have already asked like, what's the. And I'll say it's a ballpark number because I'm not sure if you have the skill set to do this or this or this. And if you do, the pay would be higher and if not, maybe replaced. And then you sign the documents and now you have an employee and from there the next step is how to onboard well so that they stay because we don't Want turnover in our business because it's extremely expensive for businesses. So that's how you know if you need a first employee. If you do go out there and get them right. Follow, follow these rules, follow this list. It's a great place to start. And I think that's it. And we'll follow up with onboarding and what the next steps look like to make sure that they get in. The longer your company has existed, the more culture is deeply ingrained in that company, which includes unwritten rules like, oh, I didn't know that I wasn't supposed to use that bathroom. I'm supposed to use this bathroom because that's not an employee handbook. Right. And so that takes some time to get through that stuff and to think through that onboarding process. And as technology gets more and more complicated, certainly AI helps tremendously with this, making sure that you have all the steps in place to onboard them quickly and get them those little wins. Just like we've talked about in previous episodes, little wins are huge. If they can get through that first week and say, hey, the goal for the end of this week is to get this little win and it's an easy win, then you can just keep building up the wins. And then what you end up with is tremendous traction of a wonderful employee. And pretty quickly you're like, my life is so much easier because I have someone to do the stuff that I hated to do or that I suck.
- [43:57]
Matt Reynolds
At a hundred percent.
- [43:58]
Chris Reynolds
Awesome. That's another episode of the build your business podcast with Matt and Chris Reynolds taking you from fear to freedom. Thank you for listening. We would love a five star review on Apple podcasts or anywhere you listen to your podcast. By the way, audiobook came out yesterday for Undoing Urgency. I think it's 99 cents on Audible, which I would say just pay the 99 cents and not use the credit. And if you're not on Audible, I think it's $1.99. I don't know how long that'll last. It's just, I think a week or something. So if you've been waiting for the audiobook to come out of Undoing Urgency, I've listened to the first maybe four chapters just because I actually wanted to buy it and see how it worked on Audible and whatnot. Would love for you to pick up that book. Go to certain.coms u r t o N if you for all your development and engineering needs, technology, AI, et cetera. And if you're looking for a great coach or you are a great coach, and you're looking for an excellent software. If you are a great coach, you'll go to Turnkey Coach for that software. If you are a client or busy executive, you're like, I can only train 30 minutes a day, but I just need a professional coach somewhere that can walk me through the steps. Go to barbelllogic.com I think that's it. That's the sales ease I'm going to get. Awesome. Thanks so much for listening. We'll see you guys next Friday.