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

What is up? In this video today, what I want to talk about is how to expedite growth of your business and minimize and mitigate mistakes and slowdowns. And so the reason I'm making this video, um, kind of off the cuff— I actually just got done driving like 6 hours from Arizona with my husband and I was gonna go unpack and I was like, I have this video on my mind, I need to make it right now. Um, it's because I had a dinner last night with a couple entrepreneurs that really triggered my thinking about this, and I hope it's valuable for all of you because it's something that if I had known, um, you know, 5, 6 years ago, I think that we would have been able to grow and be maybe even 2 years ahead of where we are now. So I'll explain that, what, what that is after the story. So we went to dinner with this entrepreneur last night, and they were telling us about their new business model. And in their new business model, they essentially take equity from companies. And so what they said they were going to do is they're like, we're going to go in, we're going to find companies that have a great product, they have great retention, they have good operations, but they don't know how to scale it. They've had trouble scaling it. In the past. And so we're going to come in and we're going to plug in our sales and marketing, and we're going to grow the business. We're going to get a 50/50 split on the profit of the growth of the business. And then once we hit an additional $1 million per month, I think it was something like that, in profit that we've added, then we're going to get 50% equity of the company. As they were saying this, I was like, okay, cool, understand, blah, blah. And, you know, my brain starts working in the background as we're continuing the conversation. And I'm like, oh, and I'm like, okay, so what they didn't know is that when you buy equity of a company, or you, when you acquire equity from a company, you have to pay capital gains tax on that equity upon the time that you, you know, for that tax year. And so even if you don't realize any of the gains, say they don't sell the company, you don't actually get any of the money, you still have to pay for your equity. And so this is why you see a lot of really disgruntled high-level corporate employees who are like, I paid $100 grand for my equity. I haven't seen shit from that. You know, it's why people are pissed off about it. Now, there's ways to get around this if you understand legal, but they were new and so they didn't understand that. And so, you know, as the conversation went on, I said, hey, did you know that you actually have to pay— you're gonna have to pay for that equity? So to me, I would want to buy my 50% equity before I grew the business, not after, because it's way more expensive after. And they were like, holy crap, this is why we're like blown away. Like, we didn't know that. That's something that we have no idea about. Like, how do you know all this, etc., etc.? And I said, you know, obviously just experience, time, and, um, you know, hiring the right people, hiring the right vendors, etc. I've learned these things over time. Just think about that, right? So if I had not said that to them, think about the difference if they go into a company that's doing $1 million a year versus a company that's doing $12 million per year. How much difference they're gonna have to pay in the equity. And that would have just been a surprise to them because it's just like, you just don't know. And a lot of people don't know that's how things like that work. This reminded me of a mistake that I made in my company. I want to say, how long ago was that? About 3 and a half years ago. And it goes along a similar line, which is you are an inexperienced founder, right? You are not nearly as experience as many other people in the marketplace, right? Which I consider myself to be very inexperienced. And at that time I was even more so. I would consider them to be in that category. And you don't have enough people with gray hair around you. You don't have enough people with experience around you, right? Gray hair, experience, etc. You can call it what you want. Not people have been there, done that. And that's what I didn't have 3 and a half years ago when I made this mistake. We had a finance team. I think it was 7 or 8 people on the team. Really big for a finance team. We did have 3 companies. Granted. But now, you know, we're able to do that with half the amount of people, and that's because we have a really good person in there. And so at that time, I hired somebody for finance, and they had not been at a company as big as ours, and they didn't really have industry experience either. And I made the mistake of hiring a person who had no industry experience, they had no experience with a company of our size, and then I also promoted them to be a director of finance. Which they had never been in that role before. So there are 3 unknowns. There's 3 areas in which they lacked all of them. They had no experience in either of those areas. I put that person in there and I felt after a certain amount of time, you know, we're talking as an executive team, we're like, I just don't think this person's working out. Things don't feel right. The team doesn't seem like they're congealing. It's just not going in the right direction. I don't— the reporting every week is completely different. The finances change like week to week. I mean, just stuff that's like, you know, obvious that it's not correct. And so When that happened, I'm like, okay, I don't think this person's working out. But I sent her to actually like a CFO boot camp, kind of like a last like Hail Mary, like, God, like, please, like, you know, tell me it's not me. Is it her? Is it me? You know, I don't want to be wrong. And so sent her there. While she was at that boot camp, she had kept telling us that we were going to owe taxes and we were going to have to pay them in October. So each month I was setting the money aside to pay the taxes in October. I get an email, it's March or March or April, whatever, tax season. It's on Friday at 2:30 PM and the email says Oops, I made a mistake in my calculations. Just got off the phone with our CPA. Turns out that we owe taxes Monday. It's $9 million. Looks like you're gonna have to move some things around. Let me know how it goes. And I mean, I honestly, I started laughing like that because I was just like, this is so absurd. Because one, to just surprise somebody with $9 million in taxes if they didn't have $9 million, and that'd be an extremely detrimental problem that could put most people into bankruptcy. The second piece is that to even transfer that amount of money when it's Friday and you can't transfer over the weekend, like that in itself is a pain in the ass and going to be something that's nearly impossible to get done. And so I was like, holy crap. That was the moment that I realized that you cannot have a lack of people on your team that have never been there, done that. And I'd read it in all the management books and in all the books that say, you know, the average startup, only 90% of the first team even survives to year 5, which I can tell you is true. But that was the moment that I realized I can't have an entire team of people who have never been there, done that. And for myself, I had to realize that as a founder, as somebody who is young and inexperienced, I had to hire people who were experienced, especially in the areas of my weaknesses, right? And so if you look at those entrepreneurs that we went to dinner with, they were marketing-heavy, sales-heavy. They didn't have experience in operations or finance or anything. And they don't even know what they don't know, right? Because it's this big abyss of unknown, you assume that you are, you know, You only can comprehend the depths of what you already know. You can't comprehend what you don't know. And so because of that, you don't go searching for somebody who might understand the things that you don't know. You just kind of are naive about it. And so if you look at that, like, how much would that have bitten them in the ass, right? If I didn't have, you know, we weren't, you know, a very profitable company, that $9 million would have sent us into bankruptcy. And so that was when I was like, I need people on this team who have been there, done that. And it's not gonna be the whole team, and I'm not gonna like completely overhaul everything, but I cannot have an entire team of people who we're constantly coaching and bringing up and have never done the role before. I started reading a lot of books about, you know, just like different ratios of how you want to build your team. And I came across one and I agree with this philosophy. I don't remember what book it is, so please don't ask me. But it was like, you want 80% of people— 80% of people can be new, can have areas of inexperience, cannot have been there, done that— as long as you have 20% who damn well have. I read that and I was like, I think that's correct because every single person that has been there, done that, and I can stand behind that because now every person that's been there, done that on our team, I mean, the amount of effect that they can have on others and how much they can raise others up is tremendous, right? Especially if they're a leader. That is now the principle that I kind of adhere to. So when I'm looking at not just my entire team, okay, so when I look at my entire team, I want to see, are there at least 20% people have been there, done that? Then I even look at it on a micro level, okay? So if I'm going to pull apart, say, the sales team or the customer service team, I'm going to say, are there at least 20% of people in here who have been there, done that? Doesn't even need to be the leader necessarily, as long as the leader is open to feedback. But people in there have to have been there, done that. And so there's 3 lenses that I look at that through. Okay. When I'm looking for someone who's been there, done that, here's how I quantify that. Whatever. Um, one is, do they have industry or market experience? That's one way in which people have been there, done that. It's very valuable for someone to have industry or market experience, right? So for a lot of people that we hire, they have experience in the fitness industry, they have experience in gyms, they have experience in brick and mortar. Okay, the second is that have they been in that exact role before? And it doesn't mean that the title matches, but that, that role, the activities they're doing, that they have done those before. So if I'm hiring a media buyer that I want to run Facebook ads, I'm not going to hire somebody who's just been running SEO. I'm probably going to hire somebody that's been running Facebook ads. That's the second piece. Have they been doing— the people on the team, have they been doing the role that they're doing here? And then the third piece is, have they been in this type of company before? Your company is a product of its own, right? It's a product that attracts talent. It's a product that you can sell to market. It's a product that you can leverage for assets and for expansion. And if you look at your product or your company, you want to say, have they worked with similar products before?? Because I can tell you that you can bring in someone who's been in the industry and they've had that exact same job, but they have been in a deeply or heavily, heavily funded VC-backed company. And so the way that they operate is polar different than how they're going to operate in an entrepreneurial company. And so those are the 3 lenses that I use to look through that. Since I've started doing this, it has completely changed my way of thinking when there's a problem on the team. Because a lot of the times, the problems on the teams or when specific teams have problems, I'm looking at it and a lot of times I'll find that there's nobody there that's ever been there, done that. Because if there's someone that's on the team that's been there, done this before, then they can usually pull from their experience and say, well, we had this problem at the past company I was at and here's how we solved it. Right? Or they know 3 other people that are peers of theirs who have had that problem at their company and they can pull them in, they can talk to them, they can phone call them. If you don't have that, then people often remain stuck and there's problems that are pretty rudimentary that are unable to be solved because people just don't know because they don't have the experience. And so if you are building your company and you're new and you are an inexperienced entrepreneur, which I would say like less than 10 years in my opinion is like pretty inexperienced, which I include myself in, I would say look at it like that, right? You want to make sure that you have 20% of people have been there, done that. 80% of people can be, you know, you can be coaching them up. They maybe haven't— they might, out of those 3 pieces where it's like market, job, company type, they might have 1, they might even have 2, but you need 20% of people to have a 3 for 3. And so that is what I've discovered in terms of how to grow companies faster without having as much risk. I think that every time you bring on someone who has experience, you decrease your risk immensely. And I can say that because, you know, when I brought in new financial leaders, and then when I brought in new sales leaders, and when I brought in new product leaders, all of those people brought with them experience, and they greatly decreased the risk of that company not succeeding because they know how to make a company that is very similar succeed. And so I hope that helps. I hope it gives you a framework to think from because I think a lot of the time we're actually just fearful of hiring people that are experienced because we don't know what we don't know. And I think if you think through it with that lens, what if you're thinking industry/market, you're thinking about the role, and then you're thinking about the type of company they've been in. If you find someone that matches all three, it's, and they fit your culture, right? I find it highly unlikely that they will not succeed. But I think a lot of times when people are hiring experienced people, they get so enamored with, oh my gosh, their resume and their experience, this, that, but they don't even think of what type of experience it was. It might've been like, you know, he ran operations at big pharma, you know, and now he's coming into your, you know, marketing sales agency and running operations, like he's probably gonna fuck shit up. And so you have to think through those lenses because experience has to have context. Otherwise, it actually can be more harmful than good. Use that framework next time you're thinking about how to fix your team, how to grow your team. I suggest every quarter looking at the ratio you have on each team. Because when I'm doing my analysis each quarter of the teams and looking at the org chart, I'm thinking with that. I'm thinking, Where are we missing experience? Where are we missing talent? Where are we kind of flopping around because we don't have someone that knows what direction to go? And so with that, I hope you have a fantastic rest of your day, morning, afternoon, bike ride, car ride, whatever it may be. I will see you on the next video.