[00:00:00] Stephanie: Welcome back to Lords of Lending. I am Steph the Banker, and joining me again today are my longtime trusted partners, Shane Pearson. Brian Conjole, AKA, the Lord of Law. And today we’re gonna talk about buying or scaling a business and how to evaluate your human capital.

[00:00:20] So if you’re in the process of buying or expanding a business, the first step is understanding what employees you’ve inherited, who your under performers are, and how to provide the tools needed to your star performers. Today we’re gonna look at acquiring businesses, scaling businesses, and fueling that human capital.

[00:00:40] Before we get into it, remember to hit subscribe and follow our podcast for our future upcoming episodes. All right, let’s jump in. Shane, you just bought a business, you inherited some employees.

[00:00:52] How do you start the evaluation process with who your under performers are, who your star performers are? Where do you start?

[00:01:00] Shane: Well, it’s important to know that when you buy a business, you’re not just getting a brand, a customers or any type of equipment. You’re really inheriting people, and that can either be your biggest asset or your biggest liability. The biggest mistake that I see is that buyers don’t assess the workforce fast enough.

[00:01:16] They go at it looking for the bottom line. They assume that everyone on payroll is critical and when in reality some of those people might be holding the business back.

[00:01:26] A business acquisition isn’t just a financial transaction, it’s actually a talent evaluation. So the first step is to really conduct a, a workforce audit. So identify the p the key players and who they are, the people who truly drive revenue and operations and look at their performance data. If the previous owner didn’t track it, just, uh, don’t trust but actually verify.

[00:01:49] So talk to the department leads, review customer relationships, and really evaluate their contributions. if someone is there because they’ve always been there but isn’t adding any value, that’s really the payroll you need to reassess. So a couple things that we should be looking for in those situations is for the, the key revenue generators versus the support roles. Identify like duplicated roles that can be streamlined. And an example of that would be in a business acquisition, a business has three managers overseeing a five person team.

[00:02:17] So, you know, you’ve got overload, you’ve got overlap, and there’s, there’s no really efficiency in the revenue being generated and it really’s just an a too high of an overhead problem. Now, Brian, I know that you had read that book, I think it’s called The Hard Thing About Hard Things by Ben Horowitz. He had some in input on this. What, what was it that that he said that applies to this situation?

[00:02:36] Brian: Yeah, so what I looked up from that book, um, there was a quote that I liked said, as you’re taking over a business, you have to focus on and prioritize the people, the products, and the profits in that order. So what that means is in an acquisition, this principle means you gotta put people first and then comes the product, and then comes the profits.

[00:03:04] In my experience, I can see, you know, in my background as an attorney, obviously the product is. Kind of the people in a, in a law firm, for the most part, that interface between the client and the legal work are the attorneys. You’re more so underscoring in that situation that the talent are the people.

[00:03:25] But in an acquisition of, let’s say, uh, FedEx route or another type of business, I think that, that, like you’re saying Shane, it gets overlooked a lot. And so evaluating your team, evaluating the people who does what, uh, and tying the revenue generation or certain metrics in the business to those individuals and, and their job roles and tasks, I think is extremely important.

[00:03:57] Stephanie: Yeah, I agree with that. I think, you know, one, a starting point too for me has always been to measure what really matters. And there was that John Doer said, uh, the OKR framework of measuring outcomes, not just activities. And boy do we talk about this, right? It’s not just about, oh, so and so is just busy all day work.

[00:04:16] So like 15 hour days. Well, it’s about. Not measuring those superficial metrics like tenure or hours worked, but actually what each person accomplishes and what truly matters, right? So at a company, the CEO sets the vision and then it’s all up to all of us to go out and execute on that vision. So we really need to make sure every day we’re measuring what matters versus just being busy.

[00:04:43] And what matters is that product, like you said, Brian. Good point. 

[00:04:47] Shane: Well, what I think about is, I, I mean, how many companies have we been a part of? We, you know, us working in the, the lending world, and I’m sure this applies to small businesses as well. Like how do you, what kind of metric can you put on that actually, like, is one that you think will move the needle by measurement?

[00:05:01] Because it’s not necessarily about micromanagement of people. You go back and you hire talent that you know can perform and you can train them with the skills that they need to actually, uh, perform. Any said job that’s, uh, you know, a lot of people go into it. I think the higher, larger corporations will.

[00:05:16] Hire just based off a resume thinking that they’re getting talent. But I, I don’t think there’s a, a good enough analysis of the individual. Maybe I, if anything, maybe emotions go deeper than, uh, like the, the person’s emotional intelligence level, I think has a higher play in their success rate and their ability to be me met, to be measured and not, uh, feel as though they’re, they’re being kind of watched over by Big Brother.

[00:05:39] You know, like that old school, what is the eighties or that book in the,

[00:05:41] Stephanie: 1984 or something.

[00:05:42] Shane: We all were forced to read in elementary school.

[00:05:44] Stephanie: Yeah. All right, Brian, how about this? Okay, so it sounds like not all inherited employees are worth the paycheck, right? That’s the question. All right. What about the ones that just need a leadership shift? You know, two, as leaders, it’s not a one size fit all leadership approach, right?

[00:06:02] And I don’t think the M word is that dirty micromanagement. It’s not just a, micromanagement to me is not a dirty word. Some employees need the, and it’s not even micromanagement. Some employees need and enjoy that camaraderie, the daily, the daily insight and fact sharing. And so Brian, what’s your approach to keeping top talent engaged while making sure that payroll still makes sense?

[00:06:30] Brian: So a couple of thoughts come to mind when you ask that question first. Uh, something that Shane had kind of started off, which with, which was meeting with employees in an acquisition early on in the process, understanding what motivates them, understanding, just about them and figuring out how, what are the things that you need to do as a leader in order to actually motivate them and incentivize them to get the jobs done as efficiently as possible. The other, the other thought that I have, um, it, it makes me think a little bit of, of playing sports. 

[00:07:11] Going around, getting to know each player, figuring out what makes him tick, figuring out how to get maximum performance out of ’em. And I think so many times, I know all of us have either played on teams or been at jobs that. There’s a disconnect with management and yourself. They don’t understand you. They don’t understand what makes you tick, what motivates you. And so consequently, they’re not able to extract everything out of you that will benefit ultimately the company and also benefit your own career. Um, so to me, getting, getting granular with that, and there’s kind of the, the thought also that goes along with it.

[00:08:00] You know, where are you doing it out of love or are you doing it out of hate? Right? Are you gonna, are you gonna inspire people because they fear you? Or are you gonna inspire people because they love you? And to me. I look back, this is the thought I was gonna go with, um, when I was thinking about the sports analogy.

[00:08:20] But I look back on my sports days and the coaches that actually made me want to play, and the, the even other employers that I’ve worked for, the ones that actually made me wanna play did so because I felt like they cared about me. And they would sit down and, you know, in the heat of battle when I’m upset and I don’t wanna do anything, they come over and they have a little heart to heart.

[00:08:47] And that sort of thing for me in particular, worked really well. Just having someone come over and say, Hey, I get it. This is terrible. So-and-so’s not doing a good job, but I still need you to perform. And it was like, okay, in that moment I can recenter and I can do this. And I think a lot of employees respond to that sort of thing.

[00:09:08] There’s, of course there’s gonna be employees that are black box you, you can’t figure out. What they respond to, what works, what doesn’t. And those ones, you know, it’s, it’s a tricky situation, how to deal with them. But for the most part, if you’re getting the right people on board, then part of it is going to be understanding what does, what does it take to get this person to give me their maximum performance.

[00:09:38] Stephanie: I love

[00:09:38] Brian: I 

[00:09:38] Shane: have a 

[00:09:38] Brian: that. 

[00:09:39] And that’s the trick as a leader, right?

[00:09:41] Shane: I have a question on that too. So I, I just started thinking about all of the, the different transactions that we’ve actually worked on, and I, I’d say 70% of my business is business acquisitions. So I have this dialogue almost every single time I start looking at a loan. And the first thing that comes to mind is, how the hell are you gonna manage this business?

[00:09:58] Like the, the storylines that people come up with to answer that question when I, when I say it from the very beginning, are, are very interesting. Everyone has a different approach in how they do it. I mean, maybe not all small business owners are in a position that they’re a good enough leader to, to actually run a small business that relies heavily on the people that work in it.

[00:10:17] I mean, I think that anybody going into buy a small business needs to do their own evaluation of themselves. They’re try to educate themselves on emotional intelligence level, try to, to understand people, be more empathetic, um, and, and more exact in how you deal with people. I’m, I’m, I’m one that is known as Fat Fingers, so I, I, I get the, uh, the emotional.

[00:10:38] I, I get lost in my emotions often and unfortunately push enter on that, that, that, uh, send button a little too quickly. That kind of thing doesn’t go very well, especially if you’re a new business buyer and you walk in and you start blowing off any smoke at people, they’re gonna, I mean, they’re already gonna be on edge.

[00:10:52] The fact that their whole life is changing with the new leader that coming into really control ’em day to day. So before I go into buying a business, it’s imperative that I prepare myself to, to be the leader that, that business needs to be successful.

[00:11:06] And I think that comes from not just doing a talent evaluation of the business that you’re buying, but find out where your weaknesses are and the gaps that you need filled in your own weaknesses. And find people, whether it’s already on existing staff, if you can actually even get to talk to them. I know a lot of sellers don’t necessarily want you talking to their people yet, but find people, whether it’s somebody that you can bring in that’ll sit on your board.

[00:11:27] Or somebody who’s gonna come in to help you run the day to day that can fill the, the gaps that you know you have weaknesses in. ’cause it will get sniffed out that, like I said, the the employees are on, they’re on edge with this transition. So it’s imperative that you find a way to identify your weaknesses and even be transparent with the people that you’re actually going to take over.

[00:11:47] Once you actually do acquire the business, let them know, say, Hey, I’m really good at this guys, but I need your help doing X, Y, Z. And see who steps up to the plate. I think the, the cream will rise to the top with the, the employees as you step into that role and into that relationship and see who steps in that.

[00:12:02] That is probably the first part of the talent, the talent, uh, evaluation that you’re doing that I think will help to, to know who you’ve got long term and who really is gonna be a revenue driver for you and, and somebody who’s worth rewarding for their, their efforts.

[00:12:16] Stephanie: I would say another, another key element, to buying an existing business. And inheriting a a group of employees, you really go need to, as you said, go into fact finding mode because the reality of small business is this. And we’ve all experienced this.

[00:12:34] Small businesses hire you historically, people they know and trust. So that oftentimes will consist of family members. So if you’re buying an existing business, you need to really look at, all right, who here is related to the prior owner? What are the dynamics in managing, effectively managing family members?

[00:13:00] And so, I mean, let’s start with you Shane. We’ve had experiences over the last 20 years and I, and I’ve, every bank I’ve ever worked for, there were family members on payroll. It was just, that’s the dynamic of small business. It’s a blessing and a curse. ’cause you have loyal, dedicated people, but then when you’re buying an existing business, you’re buying.

[00:13:19] The sellers, uh, employees that were related to the seller. So how do you shift that loyalty to now you and your vision and, and how to manage, how to effectively manage family, that that could be a topic all on its own right? How to effectively manage and grow and scale a company with family. Is it possible, I dunno, I still don’t know.

[00:13:42] I go back and forth on this. Is it possible to effectively manage a relative.

[00:13:48] Shane: Only when their motivation is in play. Like when, when they are motivated to wanna achieve something or the, like, the, the cost of, um, of their effort is gonna reap a higher reward. So that, that, and this is, I failed that myself in setting those expectations upfront. It’s, it’s creating a framework, uh, that shows them the success path of their performance and doing your best to actually step away from the relationship, uh, as, uh, in whatever way is possible, if it’s getting them to report to somebody else so that the performance measurements elsewhere, but just making sure that, that those metrics are very clear and that you don’t have the, kind of the ax in your own hand.

[00:14:25] ’cause it’s gonna be very hard to let that ax drop. So, um, luck. Luckily we’ve had, we’ve worked at banks where, you know, they, they’ve, they understand the idea of what nepotism really is and, and what problems it can create. And so we’ve been able to avoid having to. To see that ax fall too hard. But I think the reality is, is just making sure that, that there are clear lines and clear understandings of what the performance needs to be and that the discussion is had with those individuals.

[00:14:51] That that’s what they are willing to do. I mean, I think about how much time can be wasted on, on assumptions and expectations that somebody’s gonna be performing their job in a certain manner, but the emotions are gonna drive them elsewhere. If there’s not that framework, that system, that very clear path that says, this is what I expect outta you from output.

[00:15:10] I’m not gonna micromanage, but I want to see just these elements to know that we’re progressing in the right way and that this is, that this is gonna be a good relationship and a good fit. I mean, I don’t know. Brian, what do you think about that?

[00:15:21] Brian: No, I think that the thought that came to my mind as you were saying that is communication, and it’s something that. On a personal level that I struggle with communicating and, and being completely transparent and, setting those expectations clearly, especially with family or friends. Um, so being very clear, very upfront and having an ongoing dialogue, uh, through, throughout the process, throughout, you know, the employment, whatever it is you bring in family, there’s gotta be that initial, Hey, this is the expectation, this is the goals, this is where I’m at. Tell me where you’re at, tell me what you see as well. And then having regular dialogue. I was talking to a friend who’s a business owner, and he was saying that the thing that he initially did when he took over his business was instead of having, uh, you know, formal performance reviews, he. Took his, his, uh, project managers out to lunch and every month would sit there and talk with him and go through things.

[00:16:35] And he said when he was doing that, he was much more successful in getting that feedback, having that, um, that feedback, uh, loop so that he could understand where they were at, how they were feeling, the things that they thought needed to change. And then as things got busier, he said he let that go and wasn’t engaging quite as much.

[00:17:01] And since then, has noticed things starting to slip and there’s not that same level of open dialogue and communication and comfort to be able to say, Hey, this is going on, or, you know, we’re messing up here, or, Hey, I’m not really happy about this. And so now it feels like more of there, there’s more of a barrier to be able to. Get across and communicate those things. So to me, that communication level and having it be something consistent and, and it can be as simple as a lunch every month or every quarter or every six months that, you know, that’s in the schedule, both of your planning on it. So you’re, you’re sure that communication is gonna happen.

[00:17:47] Stephanie: All right, let’s pull that thread, and this is one of my big hot topics is how to do all that. I completely agree. I, I believe that effective leadership comes from having valued relationships because you have to have open communication to understand how to lead that person and what tools they need. But also it has to be a two-way relationship, right?

[00:18:10] It can’t just be the stoic one-on-ones that we’ve migrated to right now are these remote one-on-ones where you have a five bullet points, you talk about the five bullet points, and you’re done. It’s very unemotional. There’s no human connection. I could have just sent that in an email, quite frankly, and it’s almost like leaders thinking, all right, I gotta do it.

[00:18:31] ’cause it checks my HR box off. Oh, we’re doing our weekly one-on-ones. I’m a good leader, pat on my back. Right? Uh, but checking a box is not establishing relationships. So how do we continue those human relationships and the leadership aspects needed in a remote environment, how you can’t, we’re not taking each other to lunch anymore.

[00:18:54] Shane: You know, I, I, I heard this in, or I saw this Instagram reel today as I was sitting in my car after working out. And, uh, it was, you know, uh, make somebody fight you or something in one sentence or less. And this lady basically said. Manager payroll should be based on the evaluations of the employees that are underneath them, right?

[00:19:12] So the man, the evaluation of that manager. So their payroll, then their, their compensation is strictly based off what the people actually say about them. And so I think that, that directly relates is when you go to say, Hey, I wanna have, I want this to be a time that’s actually for you. So as a manager, I want this to be your time to tell me what the, basically tell me how you wanna make this the most effective for you.

[00:19:35] So I, I, you know, if you want this to be the, the, the session where we get together and you just tell me what’s wrong with everything, I will shut up and let you tell me that. But it, there’s, it goes back to effective communication. Let them set the expectation of what’s gonna get the most out of it so that you are addressing those factors.

[00:19:51] You can still come at it with your own elements, but going into that conversation ahead of time, setting that framework for them to feel like they can say what they need to say and that it’s gonna be effective for their time. And then ask them, how much time do you really wanna invest in this? I can spend a half hour on this call with you.

[00:20:07] It could be five minutes, but I just wanna make sure that we’re, that I’m helping you move forward and that you feel like you’re progressing, that you’re not stuck, that you’re not hitting walls, and, and so I can try to go remove those and make you more effective at your job. So I, I don’t know. I mean, Steph, we have this call every day.

[00:20:21] You’ve, you’re, you’ve been my manager every, every place that we’ve gone and, and set up departments. And I think that it sometimes you just, that they want to use that as a time to get, get their frustrations out, right? Just things that they, they know they can’t control, but they want to talk through and figure out an alternative way.

[00:20:36] And you’re just a sounding board for helping them get through that. It’s a great time to obviously hold metrics and, but like you said, all of that, a lot of that can be done through email just to be constantly transparent and up to date. But I think the, the effectiveness really comes from, from letting the employee identify how it’s the most effective for them to have that call.

[00:20:54] And so it’s not just this droney on like long conversation of. How you doing? What’d you eat for lunch today? Like that kind of bull crap. Like nobody, nobody cares about that. They, a lot of people just wanna get back to freaking work.

[00:21:06] Stephanie: Well, in my opinion, effective leadership and job satisfaction comes from feeling like you’re, you matter both, both sides, right? So for me as a, you know, as a, as a woman, a type a personality woman, my interpretation of I matter to you is when you give me time. That’s my interpretation, that’s my love language.

[00:21:32] In, in at work, I. Is if someone spend cares enough to talk to me or spend time with me, I, I matter. I’m being, that’s, I think that’s the number one employee, uh, response is they just wanna be heard. Everyone just wants to be heard, right? So I, my effective leadership is spending time with people. And this is why Shane, you and I probably talk every single day.

[00:21:56] We talk every single day. And that to me is very important. If I don’t talk to you immediately, I think what’s happening? Is he sick? Is he not working? Where is he today? Why haven’t I talked to him today? And I think the same is true when you buy a business, you have to insert yourself very quickly. You may come across as too loud, too abrasive, too, too much in someone’s face.

[00:22:20] They’ll tell you how much time they need from you, but you gotta get in there fast. You gotta introduce yourself, tell them they’re important to you, that you care about them, that you wanna give them as much time as they need. And, you know, all of course being, uh, understanding time management, but it is very important to give people time.

[00:22:41] And the same is true if you don’t get your boss’s time, you feel really unimportant and you feel very undervalued if you don’t get any time with your boss. And this goes on for days, weeks, months, that becomes the, what do we call that? The si silent retrieval. Right. Or the silent quitting. ’cause we feel like, yeah, we feel like, all right, well they don’t care about me because they don’t even know if I’m here anymore.

[00:23:07] So it’s kind of like being left alone. Right. Um, so, okay, let’s talk about dead weight and business buyers. Don’t just, you know, I I would say employees and payroll is not just an expense, it’s an investment, really. So the, I, I read something over the weekend, a profitable, private, well run company. 65% of managers have a negative net value.

[00:23:37] 65% of managers have a negative net value. So, so that means of your managers, and Brian, you touched on this earlier of your managers, the square root of your managers actually equates to half of the work at the company. So this brings me back, and not to get political, but if you think about what Doja is doing and what Elon Musk did it when he bought Twitter, all right, perfect case study, right?

[00:24:05] He bought Twitter and he fired 50% of the people. That’s, that’s the metric guys. The square root of your employees do half the work. So if you have a hundred employees, and let’s call it a hundred of a hundred managers, 10 managers are actually valuable. The others are dead weight. So think on that guys. I mean, we are in a political environment right now where the hot topic is waste, fraud, and abuse, right?

[00:24:35] And if you’re buying a company and you walk in and you have a hundred employees, boy, those numbers have really changed. It used to be the 80 20 rule. Right now it’s the square root of your a hundred are actually doing all the work,

[00:24:50] Shane: Well, that makes me question something that I, and you know, I think all three of us see, so we, when, when a business owner tries to go and scale it, not, not just buying a business, right? So I know that there’s plenty of traps and things that stop you when you’re, when you’re trying to buy a business, there’s walls that are up that you’ve gotta break down.

[00:25:05] And like Brian said, taking ’em to lunch, kind of doing all of those, those activities to build relationship with people you don’t know is, is kind of like just building relationships 101. But when you already have a relationship with people, maybe you already have a batch of employees and you’re trying to scale and grow.

[00:25:19] Uh, I, I’ve seen guys come at me and they say immediately they wanna hire 10 to 15 employees over the next six months. Uh, and, and never once have I heard them say, I wanna try to get. 10 to 15 times the amount of revenue outta the existing employees that I have. Right? So my, my plan for scaling is throwing bodies at it.

[00:25:35] That’s always, we’ve seen that everywhere in the SBA world. It’s a common, it’s a common way that I think that everybody has tried to address that as they, they say up, I need more bodies. Need more bodies. I need more bodies. And I, I think it fits only when it’s actually a duplication of somebody who’s already a top performer.

[00:25:51] Now granted that’s kind of selfish ’cause that’s the way that I think, but I’ve, I’ve proven it for myself, is that, that I can get bogged down and, and only do one fourth the amount of work and, and essentially I can only do 25 to 30 million by myself. But the moment you give me an analyst or somebody who can come in to think like me, I can produce 60 to 75 million.

[00:26:10] You gimme a second one. We’re talking a hundred million all through one, one main revenue generator source, like myself. So now you just, you’re, you’re putting these two extra people on there. Or you can go out and hire four BDOs. They’re gonna cost about the same as me. And each do 20 to 25 million. Then you gotta pay their benefits.

[00:26:26] Then you gotta pay for their office. Then you gotta deal with their emotions and their personality and their inefficiencies. And then you run the, the gambit of that square root problem. Where are they really? Somebody good. And then you have to run into this 15 x problem. It’s 15 times more expensive to bring somebody on and get rid of them, as opposed to just doubling down on the people that you have in front of you.

[00:26:43] So knowing, knowing how to scale your existing team, give them, giving them whatever tools that they might need, or system adjustments to be able to scale as opposed to just thinking, I gotta add more bodies. Granted, I, I’ve, I’ve seen it across many different industries. How did Brian, how did that work really in the attorney world?

[00:26:59] Brian: ’cause I know that there’s a heavy lift and heavy workload that has to be done. Actual physical, Physical execution. There we go. I could speak English today, guys. Um, but how, how did that fit that environment? How do you see that translate kind of into the majority of small business owners we talked to? 

[00:27:12] Before I get to the attorney world, uh, the, the thought that came to my mind as you were describing what it takes to scale for you in, in this business and knowing that, hey, it’s more, it’s more profitable to hire someone under you. To do work so that you can go out and get more deals. Uh, the thing that I think folks listening may not understand is that the reason that works is because you have taken the time in your own workflow to understand completely what are all of the tasks and almost assigning to each a task like a, a revenue generation, measurement.

[00:27:56] Brian: So you’re, you’re looking at your workflow and you’re saying, if I can have someone do these four or five specific things, I know that that gets me an extra 10 loans a year, let’s say. And so by hiring more people under you, you know, that that equates to each person that comes in, oh, that’s an extra 10 to 20 loans, that’s an another 10 to 20 loans and so forth.

[00:28:24] And so I think that, the same thing applies with legal work. Uh, and, and it applies across the board, right? Once you are able to quantify what each, you know, new person can do, how many widgets they can turn out, then all of a sudden you, you can better plan for how do I scale this venture? How do I scale what I’m doing?

[00:28:50] And so a lot of business owners, like you’re saying, they they come in and they say immediately, oh yeah, I’m gonna hire all these people. Right? That doesn’t always make sense because they’re stepping into something that’s so new to them and they don’t fully grasp all of the ins and outs. They haven’t done the, the inventory of their human capital.

[00:29:13] And a lot of times I don’t think that they know what really drives, uh, their revenue metrics. And so they come in and they say, well, I just need to hire 10 more people. Why? Right. And I don’t know that a lot of those people really understand why that is. And so when I look at it, I think based on what you’re saying, people really need to understand that in order to take over a business or in order to scale a business, you really need to grasp, you really need to quantify what each person’s job role does and how that equates to pushing the company forward and scaling. Right.

[00:29:59] Shane: I wish people would’ve, would come to me to when, when they come to get a loan and they’re asking for 500 grand to go hire people could back into the number. Like I, most of them think, well, you know, that’ll maybe help me generate a million dollars. And they’re having that kind of conversation with me.

[00:30:12] The maybe kind of sorta dialogue. I’m like, guys, that’s not, I mean, I’m really hoping you’re using a little bit more precision than knowing that if I just throw more cooks in the kitchen, that all of a sudden that that’s gonna allow me to serve more people like that. That doesn’t make sense. If they say, look, I analyze my staff and knowing this for every cook and waiter, I can serve three people, and my marketing profile has allowed me to go out and, and bring in double the customers from this tool I’m gonna implement.

[00:30:40] So I need the support staff knowing that I can execute BBB, B, B. Right? So like that, that kind line of, of, of thought and line of, of understanding. And hell, you could do that with chat GPT like you could use AI today to, to, to analyze your, your own processes and procedures, to know where you can, how you can quantify that and, and use that to back into a way that yeah, maybe, maybe getting some working capital to invest in those people if it’s, if it’s a loan that you’re trying to do or just gonna invest from cash on your balance sheet before you go out and hire ’em.

[00:31:09] Make sure you’ve got those metrics in place. And I think that we’re, we’re trying to figure that out, Steph, right? Where this is constantly something that we’re, we’re battling and, and thinking about as we’re looking to grow teams and that, that we’ve built.

[00:31:20] Stephanie: Well, that’s every dynamic of every company, whether it’s a for-profit, non-profit, any company in the world or any organization in the world, or even a sports team. The first step is when you walk through those doors, the first step is assess your people and your human capital. What is the ROI of each person?

[00:31:40] And try as best you can to remove any emotional dynamics if there are any family dynamics in the company that you’ve inherited or you’re walking in on. But you really need to make those hard assessments on what the ROI is of each employee. Ask yourself what the square root is of that team, right? The reality is historically, the mindset has been add more bodies.

[00:32:08] How many times have we been in a meeting where our boss tells us, don’t say the answer is add more bodies. Please don’t tell me that’s your only solution. And and it took time and a lot of case studies for us to realize adding more bodies isn’t not the first answer. The first step is assessing your current human capital.

[00:32:30] What is our square root, uh, equation here? And we need to first clean house. Any business you buy and any company you walk in on, there is a period of assessment. And, and you have to ask yourself, who here is doing the work? That shows a return on investment. And then here’s another thing too. You know, when you’re, when you’re scaling, the, the key to scaling is understanding what the maximum output is and when it’s time to add more bodies.

[00:33:05] But today, in today’s day and age, I mean I think bodies is the last solution. ’cause it’s process first, then technology, then people. And you asked Brian about the, his, uh, prior life as an attorney. Boy there are the industries that are impacted the most right now by AI are legal, accounting, all those jobs that you’re right.

[00:33:29] When we asked ourselves what’s our highest and best use, it used to be let’s hire juniors to do the work that is not our highest and best use. Now it’s, let’s just get an AI app to do that work. So there’s a big shift going on right now in this industry, in all industries. ’cause we need less. The reality is, guys, no one wants to admit this, but we all know it.

[00:33:54] The reality is we need less bodies now because there are other solutions. There are other tools.

[00:34:01] Shane: Well, it’s interesting. There’s a guy that, uh, that named Michael, uh, ic, I think I’m saying his name right, but, uh, he said essentially he was saying to treat payroll as like a fixed percentage of income. So you, you, you insist that you, you never expand expenses like salaries beyond kind of a set allocation.

[00:34:19] So I think about that growth and it’s like, look at your, analyze your top line revenue, analyze your team, set a metric as a fixed number that you don’t want it to grow past unless you have the revenue to, to compensate for it. Or your plan is I’m bringing on these people so that I can grow my revenue by X dollars.

[00:34:36] So just being able to service it, you know, just bringing on people without ha quantifying it back against revenue as a, as a, as a way to measure their, their input leaves you at a disadvantage and you’ll end up really bloating with, with people on staff that are doing admin work, things that, that aren’t needed.

[00:34:52] So, funneling back to what Steph said is that you, you go through that process of analysis, understanding and making sure that you have really broken down the, the process. Or Brian, I think you mentioned this, you have broken down the process, you’ve broken down the system, then you look at your existing staff.

[00:35:06] Maybe there’s things you can do to actually get more output from them. One, I have a good buddy named Jesse that, uh, Brian knows that’s here in Charlotte. And the guy’s, the dude’s brilliant, one of the smartest guys I’ve ever met as far as how he analyzes problems and, and really consults. Um, but he, he taught me a little bit about the, the idea of gamification of performance.

[00:35:25] So I, I had not really even thought about that before, but trying to think about a way to, to, it’s, it’s really a way to motivate people. And I, I haven’t, I’ve always wanted to see that work in the lending world, to see people be motivated and kind of have fun with it. Like, how the hell can we have fun with under, like, underwriting and closing alone?

[00:35:45] There’s nothing super exciting about that paperwork mount that we, that we have to put the poor borrower through, let alone that we have to process internally. It’s like watching, it’s like watching a, a towel dry out on a, on a rack or, well, that’s not a good analogy. You guys gotta help me on that one.

[00:35:59] Paint dry. There we go. It’s like, it’s like watching paint dry. That’s, there’s nothing exciting about watching an SBA loan get processed. But if there’s a way that we can build into some type of gamification process, something that rewards like short term goals or has like mini games and bonus plans, that could be, Hey, I got this thing done in three days instead of five days and, and that that translates and it was a good output that a manager signs off on and boom.

[00:36:23] Yes, and everyone has a reward and gets excited about it. There’s some element of energy beyond the monotonous drone of, ugh, here comes another loan. Oh, let’s go hire another body to throw in the line that everybody gets pissed off with one another as we’re trying to drive a deal through. So, so being creative in your approach to how these simple workflows can be rewarded if performed better, could create a steamroll that gets more output prior to going, investing in new people.

[00:36:48] Right? So you’ve already got that, that crew kind of working.

[00:36:51] Stephanie: yeah. We definitely need to get creative. Sorry, go ahead, Brian.

[00:36:54] Brian: I was gonna say one thing, you know, with business owners, they don’t, they’re not always. That sophisticated. Right. A lot of the things I, I think that we’re talking about, not every mom and pop business owner understands, but a lot of these guys do. You know, they just have this, they’re really good at being entrepreneurs, so they, in their gut know, if I do this, I’m gonna make money. If I do that, I’m gonna make money. If I do that, I’m not. And so, even, even if you simplify all of this down, you know, we talk about quantifying all these metrics and things like that, even if you just simplify it down and say, Hey, I know that if that person does that, he’s gonna make us more money, which means that I then have to hire another person here Having some sort of plan and critically thinking about it, whether it’s in really simple terms or more complex, as complex as you want to get it.

[00:37:56] But at the end of the day, just really understanding what. Kind of what you were saying, Steph, understanding where, uh, what are your revenue generators and what people contribute to that and what people don’t, which ones actually are necessary. I think just having that, that mental process done in your mind, at a minimum will go take you a lot further as a, as a business owner, either trying to grow or, or take over a business.

[00:38:28] Stephanie: I like that and I like tying in numbers too. ’cause I’m a, I’m a very number oriented person. That’s how I can. Set benchmarks. So as a business owner, I like to look at, usually payroll. To me, rule of thumb is in the 20 to 30% of gross revenues, that should be your expected expense for payroll. If it’s way higher or way lower, you get need to reassess, like, all right, am I investing properly in my people, or, uh, am I paying my people way more than I should be?

[00:38:59] And for me, individually, I’ve always thought to myself, first of all, high performers shouldn’t need motivation. So what you talked about, Shane, was kind of like being a parent. And I, you know, when my, you know, my son is, is a handful, and I tell him, all right, if you finish your homework, you’re gonna get an ice cream cone.

[00:39:18] But now every time he does something, he wants an ice cream cone. So I’m like, okay, so either you’re gonna be very unhealthy and diabetic, or I need to find a different way to motivate you. Like we, we can’t be doing this all the time.

[00:39:29] Shane: For real, right?

[00:39:30] Stephanie: Highly motivated people. Are born that way, that’s what you wanna seek out.

[00:39:36] ’cause we can’t be in the business of just giving people ice cream cones, right? Every time they do something good, they should wanna do something good. But for me, as a, as an employee, I’ve always thought to myself, all right, whatever I expect as financial compensation, I should be giving three to five times that back.

[00:39:54] And that’s just who I am as a person. You know, like, and with my friends, with family, with colleagues at work, I, I think it’s, it always has to be win-win. And so as a business owner, you have to think about what you’re paying people. And it’s funny ’cause you know, sometimes you hear, oh, you know, we’re overpaying our sales guys.

[00:40:15] You’re not overpaying a sales guy. If a sales guy brings back three to five times what you’re paying them, like, you need to run the, run the math and you’ll see what someone’s worth. And that goes for all employees. All employees, whatever you pay them. We could be known as the company that pays the highest salaries, but if we get three to five times back, we’re winning.

[00:40:40] Shane: That makes me think about the, uh, the early dialogues that need to be had and, and how important it is to do that assessment and talk to your people, actually get in and talk to your people. I, I think a lot of people get lost. Business owners get lost in the, in running the business and not working on the business.

[00:40:59] And this, a lot of what we’re talking about today is really the working on the business part of, of doing this job, of doing your job, uh, with your employees. And it’s, it’s something that I, I’ve seen the difference between those two different types of owners with the thousands of people that I’ve talked to over the last 19 years of doing SBA loans.

[00:41:19] There is a distinct difference between the success of those that have found a way to cut aside time to work on their business compared to working in it. And your people, your payroll, they know it. I know me, Brian and Steph know it. We’ve, we’ve gone through, we’ve been on the receiving end of those that are working in it and those that are working on it, and also those that aren’t working in it at all.

[00:41:42] Stephanie: Those are

[00:41:43] Shane: Complete absentees. Sadly, sadly, those, those have also hit. But the, uh, are the disengaged from the, the, the levels up, if you will, that they, they, and it’s okay to be left alone. It employees want that. They’ll tell you, say, you know what? I will output for you. Just get outta my way and then listen to ’em, dammit. 

[00:41:58] Stop getting in their way. Stop putting up obstacles that create it. But when you’re, when there, when there’s a fire, when there’s thing that needs, needs to change and you’re going to try to grow and expand and you can see where, where things are, you gotta go put those fires out. You gotta be able to scale it.

[00:42:12] With, uh, with an efficient plan. And I’ll tell you, I’ll, I’ll be a lot quicker to push your loan through. If you came asking for money for, for salary, if I knew that you had that kind of an organization, it’d be a lot easier to sell to our credit manager. Heavens knows I don’t have the pen, but I know I can.

[00:42:26] If I can take that dialogue and you can sell me on it, I can turn around and do the job and sell, sell an approver on, on helping you get the capital to actually move past it. So think about, think about those ways that, that, those adjustments need to be made. Use the tools that are around you that are free.

[00:42:41] Call one of us to do it for heaven’s sake and we’ll help you brainstorm for 5, 10, 15 minutes on, on ways that you can, can actually expand your business. That’s one of my favorite things to do. I know, Stephanie, you’re a business owner. Brian and I have been, um, pushing to be business owners in various elements with the knowledge and stuff we’ve got, but that, that working on the business part, I know is the most critical in going in with the plan for, for pure execution to, to be able to actually scale.

[00:43:06] Brian: every time I get a new business owner who is that dialed in like you were describing, it is so easy to get them alone. You know, they’re, they’re not only motivated to get us all the paperwork that we need, but they also have an explanation for literally every single thing.

[00:43:27] And so the minute you get someone like that on the phone and then you pass that along to credit, and credit says they take a look at something, they’re like, oh, I don’t know about this. Having a borrower who knows their stuff that well gives you so much more ability to go back to a credit officer and say, no, no, no.

[00:43:48] Here’s why. Here’s what the borrower told me. And if you want, we can get you on the phone with a borrower and they can tell you exactly every single thing that they have planned out. Those guys, they get money fast. They get, they get their businesses up and running and scaling, and then in six months to a year, they’re calling me back and saying, Hey, I need another loan because I’m gonna buy another business now.

[00:44:13] Same sort of deal. Those are the guys and, and, uh, those are the borrowers that I love the most. And those are the ones that are easiest to get loans for.

[00:44:22] Shane: And honestly the ones that actually are gonna kill it, right? That, that, that are doing the best with their business. They feel like they’ve got their hand on the wheel. Yeah, that’s a, it’s easy to, it’s an easy read. It’s an easy read.

[00:44:31] Brian: Yeah.

[00:44:32] Stephanie: All right. We covered a lot today, how to evaluate an inherited business, how to scale an existing business, and how to hire smart and make firing decisions. So if you’re growing a business, first step is you have to do your human capital audit. If you’re growing type payroll to revenue, what is the ROI try to make it unemotional as hard as it is as human beings.

[00:44:57] And if you’re struggling with payroll financing, use smart funding. But it’s always an investment. I would, I’m gonna close with my high school coach wrote in my yearbook. May the win always be at your back and I’m gonna add to Brian’s point, and may you always be dialed in.