Startup Q&A #4: Allocating Profit, Finding Service Professionals, Selling an Equity Stake and Hiring

Hey, everybody. Matthew Paulson here. Today we are going to talk about hiring service professionals, reinvesting money in a business, selling shares of a private company, and hiring great talent. Let's do this. This is officially episode 4 of Startup Q and A, the online video show that helps small business owners, startup founders and entrepreneurs grow their businesses faster and achieve financial freedom. Whether you have 100 employees or you're just getting started, Startup Q and A gives you the actionable ideas and strategies that you need to grow your business. Before we dive into the questions today, I want to share a tip in a segment that I refer to as the growth Hack of the week, where I provide you with a tip or strategy that you can use to grow your business faster. So the growth hack of the week is to export your LinkedIn email list. Whether you know it or not, you have an email list inside LinkedIn that you can use for marketing in your business. The way this works is that LinkedIn maintains a database of all of your contacts and you have the ability to export the people that you are connected to so you can get their name, their email address, the company they work for, and their job title. And LinkedIn will provide this to you in pretty much a spreadsheet, a CSV file that you can download and do pretty much whatever you want with. So that is a really valuable kind of marketing list that most of us don't even know that we have. So if you want to grab this from LinkedIn, and you probably should, because you're going to assume they're just going to take it away at some point, but you go to LinkedIn.com people export, there will be a link where you can download your CSV file, which is obviously very helpful. So by using this export tool, I was able to get an email list of the nearly 3,000 people that I'm connected to on LinkedIn. So then I can take that email list and import it into my email service provider, which Happens to be SendGrid, and then email those people whenever I have something to announce. A note of caution. You have to be pretty careful with this because these people haven't opted into your email list. So if you mail them too often, they're going to call you a spammer and yell at you. And depending on what country you live in, they may sue you. In the United States, it is still perfectly legal to email people that haven't opted into your list. You just have to be compliant with all of the other can spam regulations. So obviously no deceptive subject lines. You have to Be honest about who you are emailing from. So your from name should be your name and not something you make up. You should have your mailing address, an email somewhere, have a valid unsubscribe link, and you can look on Wikipedia to see all of those specific requirements. If you live in Canada or some other countries in the world, they have more stringent laws and require a double opt in to email somebody. So if you live in one of those countries, you probably shouldn't use this strategy. So let's assume you're living in a country like the US where it's perfectly legal to do this. And assuming you're complying with all the can spam requirements. There are ways to use your LinkedIn email list without annoying people. You can send people valuable content. You just be careful not to email them too often. So with my LinkedIn email list that I've exported, I only send that list a message whenever I announce a new book or have something really major that I want to share with them. For example, my book Automatic Income just launched and then I sent an email to my LinkedIn list saying hey, come check out my book by the way. And then all the marketing material for the book. But then at the bottom I said, hey, by the way, I got your email just from LinkedIn. No need to unsubscribe. This is a one time email. I'm not going to be sending you a bunch of crap that you don't want. So you can do it. You can use this as a marketing list pretty effectively and then write the email such in a way that people can understand how you got their email list. And also there's kind of an inherent promise in that email saying yes, I'm sending this one email, but I'm not going to send you a crap ton more emails just like this and annoy you. So that's kind of how you would use your LinkedIn email list. Well, without being annoying or kind of breaking the law. I don't think most people know that this ability to export your email contacts in LinkedIn exists, so I would strongly encourage you to check that out. I think it's a great way to get another marketing channel that you might not be aware of. You just do have to be careful not to annoy people too much by sending them a bunch of email that they don't want. I probably only email my LinkedIn list five, six times a year. It's pretty rare that I do it. So once every other month is probably about right for that contact list. Really just don't be annoying and then give people a great way to opt out and you'll be fine. Let's dive into the questions. Every week we take five questions that are submitted through Facebook or through our website and we try to answer them or I try to answer them. So if you would like to have your question answered on the show, go to StartupQ and A Co and fill out the form to ask your question. Alright. The first question comes from Anthony Fasano. I helped Anthony publish a book this year and hopefully that's coming out pretty soon. But he asks you, you know, if you have a decent profit at the end of the year with your online business and you want to reinvest it in your company, how do you decide where to spend it on? Do you build a revenue generating stream, hiring somebody, doing sales, et cetera? And then Jordan Decker asks a very related question. He says, for somebody who is building an online business and continually reinvesting everything back into it, when do they consider taking somebody out to enjoy or to splurge or just to live on? So really the question is, how do you know how much money to leave in your business? How do you know how much money to take out and live on and then what are good things to reinvest in and what should you not waste your money on? So typically what most people do is that they pay all of the regular expenses out of the money that comes in every month. So this is payroll, this is inventory, rent, utilities, marketing expenses, website hosting, all the stuff that you normally pay every month or pretty much close to every month, you pay that stuff first. And then the money that's left over, you have a few options that's kind of your profit. So you can leave the money in your bank account and assume that you're going to need it at some point in the future for something else. You can take that money home as profit or you can decide, I'm going to buy this piece of equipment, hire this person, do something that will create long term growth for my business. So really kind of what I do in my business and maybe this will probably be helpful to you, or maybe it won't be relevant to your business. But kind of what I do is at the end of the month I make sure I have all my expenses paid. Everything that I usually pay in a month, I pay off. I pay off my credit cards and any invoices that I owe money on, I pay those all off so that I'm not starting the following month in debt. So I kind of clear the house of expenses and then anything left over in my bank account that is obviously the profit at the end of the month. So kind of the first thing I do is I leave about 50 grand in my bank account, my business bank account, and that is just to get a head start on the next month expenses. 50 grand is probably about a month and a half worth of business expenses for me. And really that's not a lot. But MarketBeat is a pretty cash flow heavy business. So I don't need to leave a lot of money in the business. You know, most businesses you probably want to keep that three to six months expenses in your bank account or something pretty close to that. So let's say I have 100k in my bank account. I leave 50k in there. That means there is $50,000 worth of profit to spend first. My company is an S corp. That means I am going to be taxed on the profit whether I leave it in the business or not. So right away I will take about 35% of my money, put it in a separate savings account for my quarterly estimate so I don't get behind on my taxes. So out of 50 grand, that'd be 15, 17 grand somewhere in there. And out of the money that's left over after that, you can then kind of decide do I want to leave this money in, which I never do because I just don't need to, or I could reinvest it in something. And the way that I kind of decide that if I want to reinvest the money is I look at the return on investment or kind of the break even point for anything that I would buy. So let's say that I am able to do some additional marketing spend and I know that for every $2 I spend, I'll make seven or eight dollars back over the course of two years. Obviously that's a pretty easy yes. But if there's something that has a five year or ten year payback window, you know, that's much less of a sure thing, who knows if your business is even going to be around then. So that's the type of thing that you probably wouldn't want to do. If you buy a new piece of equipment that will let you do more stuff and will grow your business by say a thousand bucks every month and it costs 10 grand, you're going to get that money back in 10 months. That's an easy yes. So after I decide is there anything I want to reinvest in a business? Then I just take the rest home as profit and usually throw it in my Vanguard account because that's typically where extra money goes and then I just buy some more dividend stocks to create a long term income stream for me to live off of. Alright, next question. Lisa Gruen asks what are some good steps to follow when looking for an attorney or an accountant? That is a great question, Lisa. The first thing that I look for in any service professional, whether this is a legal person, a financial person, real estate agent, anything like that, I say one, does this person offer good customer service? So does this professional respond to my emails, do they respond to my phone calls or do I have to chase after them? Life's too short and money is too valuable to hire people that you have to chase after. If somebody can't return a phone call or return an email within 24 hours, I just don't want to do business with them. So that's kind of the first criteria or screening tool that I put into place. Second criteria is kind of the knowledge of the industry that you're in. You want to hire an attorney or an accountant or anything like that that has some specialized knowledge of the type of business that you're going to run or your non profit or whatever. You generally don't want somebody. I mean you would never have, you would never have an estate planning attorney, you know, file a lawsuit for you on a business. You would never have a personal injury attorney do your will. It's just there's, there's specialties in law just like there's specialties in medicine. And you need to find somebody that has experience with your type of business and the types of needs that you have. So just be careful with that. The same is true for an accountant or anything like that. Books can be complicated and if you're running a SaaS business and your accountant has never dealt with that, they might not do it right. So find an accountant where you're not the first person that they have in your industry or your kind of category. Third, I look for people that are proactive and will kind of look on the horizon and say, you know, what problems is Matt going to face down the line and how can I make him aware of these before they smack him in the face? So you know, my attorney has done this, my accountant has done this. She says, hey, you're doing this right now. You should probably do it this way in case if you ever get audited, it's more defensible. Not that what you're doing is wrong, but you know, this would probably come across better in the event that you are Audited, So stuff like that. Anybody that was proactively looking out for me, I consider that a big plus. Fourth, obviously cost. That is an important consideration. Typically in any type of service professional, there's a local guy or gal that's a single practitioner that does their own thing. They're usually kind of the cheapest route. And then there's kind of the big expensive national firm, whether this is a cpa, a lawyer, law firm or whatever. And they tend to be the most expensive. And there's kind of a, it's kind of a spectrum in between. So you have to decide, do I want the cheap and local person that has maybe less experience but you know will save me a lot of money, or do I want the big national firm that's going to cost me a lot of money, but you know they're going to cross all your T's and dot all your I's. And obviously this will change with the size of business you have or the kind of legal liability your business has. So, you know, if you're a low revenue, you know, less than 100k kind of business, you know, you could probably get away with a cheaper lawyer. It's just you have to make that decision in your own business. And then finally, number five, I look for a service professional that I can get a personal recommendation on. So I hate to buy something from somebody cold or sign up for a service cold. I always try to find somebody that knows them personally or has used their business or their services before and just ask them, you know, how is this person, how are they to work with? Did they answer your emails, did they answer your phone calls? Did you have a good experience with them? And if I can get a couple recommendations, usually that's, that's about as close to a green light as you can get. So, so those are the five kind of criteria. Customer service, knowledge of your industry, are they proactively looking out for me? Cost, and then can I get a personal recommendation on them? So if you can find somebody that meets as many of these as possible, you will more than likely have a good experience. Okay, the next question comes from an anonymous listener. Anonymous asks. I have a modest equity stake in a startup company that has received significant VC funding. I'd love to keep the investment because I see nothing but growth in its future. But I have a career transition in process and I would love to have access to the capital if I need it. How would you advise engaging the investor community in an efficient way to share the potential investment? Currently, there is no other way to get shares of this company. So Anonymous really wants to know, how do you sell shares of a private company? It's generally pretty difficult to do this because there just typically isn't a lot of liquidity in these types of things. There's no public market where you can sell shares to, and the people that own the company probably don't want to buy those shares back from you because they don't have the money to do that. And sometimes there are restrictions on selling shares you need to be aware of. And I'm not saying it's impossible, it's just going to be somewhat difficult to sell shares in a private company. So the first thing you need to do, you really have to have a good understanding of the shareholder agreement that you signed. Whether or not you know you signed one, you probably did. So often inside a shareholder agreement, there are restrictions about who you can sell your stock to. You might not be able to sell it at all that you might need to get approval from the board to sell that stock. So I would take a really strong read through it, maybe hand it to a lawyer and say, what can I do with the stock? It might be a good idea. So just first kind of be aware what your options are and whose approval you need or even if you can sell shares before trying to do that. Then. So let's just assume that you can sell your shares based on your shareholder agreement. Then the next thing is don't make a big mistake and publicly say, hey, I've got shares of Twitter, Facebook or whoever to sell. That is not a good idea. You could get in hot water with the SEC for offering securities publicly without a license. That would be a very bad thing. Second, it makes the company not look so good. It's like you're trying to dump out of the company. And if you were an early advisor or a board member that is no longer actively involved in a company and you're getting rid of your shares, that's kind of can be seen as kind of a vote of no confidence and you don't want to do that either. And then finally, when you make a public ask like that, most of the people that would come and talk to you about maybe doing it aren't going to be qualified. And you probably have to be an accredited investor to even buy those shares. And you'll just probably end up with a bunch of time wasters who either don't have money or aren't accredited talking to you about buying their shares. So don't do that. Don't make a public statement saying, hey, I've got shares to sell. What you should do is kind of identify investors that might be interested in a deal. The first place you start is existing investors in the business. So you find somebody else that has made an investment in the same business that you did. Maybe they're excited about the business and they want it to grow and they just see great things for that company in the future and they want a bigger stake than they already have. You could approach that other shareholder and say, hey, for personal financial reasons, I need to sell these shares. Are you interested in buying them? That's probably the best route to go. Somebody who really believes in a company and wants a bigger stake. That would certainly be my first place to start. Other than that, I might look for people that I know that invest in companies of a similar size. So if it's a small startup and you know some angel investors, you might talk to them saying, hey, I've got these shares of a company, I need some money right now. Are you interested in buying them? So find somebody that is also invested in companies that are kind of at a similar investment level. So if it's a seed stage kind of thing, find other seed stage investors. Find people that invest in companies in the same kind of space. So it's the same kind of category of startup. It's a financial startup. Find somebody that invested in a different financial startup and see if they are interested in this is probably going to be a pretty big hill to climb. There's no guarantee that you're going to be able to do this, but I don't want to say it's impossible and totally take it off the table either. So I wish the best of luck to you. Anonymous okay, next question comes from Kevin Gilbertson. He's the founder of tinyurl and he is also a repeat question asker on Startup Q and A. And he says how do you hire great talent, how do you vet people, how do you find them and how do you let go of control? I want to hire people and get out of their way, but that's not always the easy thing to do. I need to know that I've hired great people and that I might be able to let go of control. Any tips? So first, my kind of approach to hiring is that I never do a public job posting on like career.com or monster.com or hotwired or any of those job sites. Mostly because all of the great people that I want to hire probably already have a job somewhere. So if you don't have a job when we're in a country that has an unemployment rate of 5% and you're a high skilled person and you're not already working, there's probably something wrong with you or your skills or how you present yourself. So my assumption is always that the great person that I want to hire already has a job somewhere else and that I'm going to have to figure out a way to hire them away from their current employer. So when I kind of need somebody for a specific thing, like right now, I think I need to hire a part time bookkeeper to do my month to month books and so I can hand it off to my accountant without having a big back and forth, you know, I need to hire that position. So when I need to hire somebody, I will look around business, social groups, networking events and things like that and ask around saying, hey, I need this bookkeeper. Do you know anybody that would be good? Can you recommend anybody? Do you know anybody that does a great job with this that I can hire? So after I get a bunch of recommendations, I'll kind of try to scope out the top candidates. I'll look at their LinkedIn profiles, I'll look at their Facebook profiles, I'll ask around about them and just kind of try to get what the community's vibe is on that person. People have nice things to say about that person and then I will try to hire them away. And the way that I kind of do that, there's two things. One, marketbee is a completely remote business. We have no offices that people work at other than me. I have an office downtown, but it's got one desk in it and that's mine. My employees are remote. They're free to work where and when they want. One employee, Stevie, chooses to work at home all the time. My other employee, Rebecca, likes to work at a co working space and also at her house and at coffee shops. Totally fine with that. I have contractors that work for me all over the place. I have no idea where they work and I also don't care as long as they get their stuff done. So that is something that I offer that no big company can offer. You can work literally wherever you want. I genuinely don't care. So that is one perk that I can offer that any big company in town just can't or doesn't offer. And then second, I always try to pay above market rates. So I try to pay good people what they're worth and then a little bit more so that if they ever think, hey, maybe I could go make a little bit More somewhere else. Usually that's not the case. When I hire people, it's always several dollars an hour above what they were making before. And that way, staying to work for MarketBeat generally is their best option because any other job they would take would pay less money, and that would also require them to be in an office, which none of my employees really want to do. So that makes MarketBeat a really good place to work. And our employee retention has been very high. Granted, I've only ever hired two people, and they are both still working for me, so that's good. And then obviously, the other thing is just to treat your employees right. Take care of them, be nice to them, provide them constructive feedback. Don't yell at them, offer them real benefits. So give them a 401k, give them some money for their health insurance, do nice things for them. Every now and then we do, like, movie tickets. You know, we do a Christmas bonus. Sometimes I'll send out, like an Amazon gift card just a few times a year. Remember their birthdays. That's an easy thing to do. I always put everybody's birthday on my calendar so I don't forget it. I know Rebecca's is coming up on January 11th. Rebecca, who was my editor, and I will not forget that date. So do those types of things and you will be able to find great employees, hire them away, and then keep them happy. It's really not hard. You just have to be a nice person to them and treat them how you would want to be treated. And you can really attract and keep great talent. So there's also kind of the aspect of, you know, how do I get them to do great work for me and kind of make sure that they're on track. You know, after I hire somebody, I kind of set clear kind of goals and benchmarks for them. Like I might say, you know, Stevie, it is your responsibility to answer every customer service email that comes in and, you know, answer to the client's satisfaction. And then I will check, you know, every week and make sure that she does that. Spot check a few of her emails if there is, you know, something that she needs improvement on, or give that feedback to her. And then after a while, she just does such a good job with it that I don't really need to keep an eye on her anymore. I just know that she does it. And then I can always keep an eye on her. Just take a glance at her work cue and just make sure it continues to be done. I try to meet with my employees mostly every couple weeks and Say, all right, what are you working on? What do you need help with? That way they don't get stuck on something and work on it forever without help. So just do stuff like that. It's not hard. You don't want to just neglect them entirely. You want to give them clear goals, you want to check up on them, ask them what they need to be successful, and just kind of go from there. Just encourage your employees to ask you questions, do all sorts of stuff like that so that there is good communication back and forth. We use slack for communication in our business. That works pretty well. But as much talking you can do without being, you know, a micromanager, you know, more is usually better than less. So that's my advice for that. Find somebody who's working somewhere else, doing good work, pay them above market rates, let them work remotely, or find some other benefit that a big company can't give them, keep them happy as an employee, and then have good communication with them. I hope that answers your question, Kevin. And those are the questions this week. So let's move on to the final segment of the show, the Resource of the Week. In this segment, I recommend a book, a podcast, a resource or a tool that will help you grow your business faster. So today's resource of the week is the Publisher Lab podcast. This is a relatively new podcast that is published by a company called Ezoic E Z O I C. And the Publisher podcast really focuses on some things that not a lot of other online business podcasts have focused on and I really find that encouraging. So they are really kind of all about running content websites. How do you create great content? How do you do SEO? How do you monetize that content through advertising stuff like ad tech, web hosting. They really take a nice approach to talking about kind of the whole content driven website based Internet business. So really like what MarketBeat is and what my personal finance blogs before that. If you have a website that's got content on it and you make money from ads, the Publisher Lab podcast is a great resource to check out. So they've done about 10 episodes. It's still pretty early on, but I'm optimistic about this one. I've subscribed to it. Hopefully they continue to produce great episodes. I'd encourage you to check out the Publisher podcast. Cool. And that is the resource of the week. If you'd like to subscribe to Startup Q and A and get next Monday's show delivered to you automatically, go to the domain startupqa co. So startup the letter Q the letter A co not.com and there are links there. So you can subscribe by email, via Facebook, via RSS, iTunes, YouTube and Stitcher. You can also follow me personally on facebook@facebook.com MatthewPaulsonpage and on Twitter I'm attudp. So the name Matthew, the letter D as in dog and then the letter P as in pony. So MatthewDP on Twitter, check me out there as well. And if you are watching this on YouTube, don't forget to subscribe to this channel so that you can get new episodes delivered to you automatically. That's it for this show. I'll see you guys next week. Sa.