Today, Kurt Wilkin, the founder of Bee Cave Capital and HireBetter, talks to us about how companies can solve stagnant growth or maturity by hiring seasoned employees. He walks us through the “founder’s trap” and gives us hints on what sort of strategic hire a company needs to make depending on growth trajectories. He also let’s us in how to afford that big new salary.
Summary Of Thinking Strategically About Talent Acquisition:
- Acknowledge that founder’s tend to be overly optimistic about people they interview
- Understand the founder trap and that you probably suffer from it
- Use company financials to see what’s needed in your talent roadmap
- Do you need operational efficiency or a sales boost or both? What can you afford?
- How to budget for an expensive first major hire
- How to think about a sales engine and how to build one
- What does an incredible operator look like?
Chris: Kurt, you said, “Founders ‘generally’ don’t know how to hire.” Can you tell us about that?
Kurt: ‘Generally’, founders are sales people who like to tell you all about their business, their mission, and their vision. They don’t ‘generally’ do a great job of truly vetting candidates. And speaking from my personal experience as a founder, I like people, so I want to see their potential – I will make bad hires if my team doesn’t screen out all of the ones I shouldn’t see. Many of HireBetter’s clients are the same. We have to screen candidates and only show the founder the absolute best potential employees. Another common mistake we find in founders is that they have a knack for picking things up quickly in their field of expertise. So they read a book about interviewing and all of a sudden, think they are stud interviewers. Finally, they often get some advice from an advisor who tells them what to look for and they just use that advice as their only filter for hiring a candidate.
Chris: Given the recent economic downturn, has it become easier to find talent?
Kurt: It’s becoming a bit easier to find people who are willing to interview for the position you want to hire for. However, the number of perfect candidates has not changed so it’s actually a bit more difficult to sift through the noise and find the right person.
Chris: Before HireBetter, you started TCG (The Controller Group), and Bee Cave Capital. Was Bee Cave Capital the result of seeing deal flow through The Controller Group?
Kurt: Bee Cave Capital started because we had friends that we worked with and other friends that we just knew that needed capital. As I mentioned before, I’m a people person and I like to invest in people more than the business itself. Our first few investments were almost entirely based on the team instead of the product and it’s turned out really well. Those first few investments included Open Lending and later on, Tecovas and Chinook Seedery. Getting a couple great investments early on can make you look smarter than you are.
TCG was an accounting and audit support firm. Initially, I started it because I had to do some consulting to make ends meet. I had a young child and no prospects for a job because the economy was down and out. I always had wanted to be an entrepreneur and I started working with smaller businesses and more and more work landed on my plate. Our big value prop was that we would come in before a major audit and get the books in order so that the actual audit would happen more quickly and cost less. We were working with companies in the lower middle market, between fifty and a few hundred million dollars. One day we landed a huge re-statement project for a firm that lasted 9 months. That really put us on the map as major players in the space. Then Sarbanes Oxley came out and all of a sudden, we had more work than we could handle. I was the rainmaker for deals, and my partners were the real geniuses with the internal controls and audit work.
Chris: Can you tell us about growing HireBetter?
Kurt: I bought it from someone in 2011. When we bought it, it was super small. We had about 20 people but most of them were part time and working from home. We’re about 10x that size now. One of the things we learned from growing TCG was just how important having the right talent in the right place was. When I bought HireBetter, the focus was on growth, not on getting a quick sale after a few years.
Acquisitions are hard, and they are particularly difficult in the people business. The guy who founded it was wickedly smart. My plan was to keep him around as a subject matter expert and then have my old employees run HireBetter while I managed the business from the Board level. Unfortunately, it didn’t turn out that way. He had the same problem that a lot of founders that try to stick around have and we had to part ways as friends.
Chris: You mentioned the ‘founder trap’ and that you’ve built a sales engine over the last 12 months for HireBetter. A lot of business owners struggle with the Founder Trap and they really want to build a sales engine so they can step out of business development. Can you explain what that looks like for the small business owners reading this right now?
Kurt: The Founder trap is when the founder is actually getting in the way of scaling a business. We often see it in sales – the Founder is able to get to a certain stage of growth based on their network, their salesmanship, or their product knowledge. The organization needs a different way to sell in order to scale the business. This is the type of business that we work with the most at HireBetter. A lot of times the first big hire at a founder-led business is going to be an operating partner that can do all the things that are required for scaling; usually things the founder isn’t great at and shouldn’t be focused on anyways.
Alternatively, sometimes you have a business that has been founded by someone who is an operational expert and they have been able to project manage the product and initial traction but they need a sales engine. In that case, we will be looking at a key sales hire. Either way, most founders crave having a system, processes, and the structure needed to scale. They know that they need it, but they aren’t quite sure how to make that happen. Often, they read about how to do it and they try to implement it with a framework or by getting an outsourced sales team, etc. There are a lot of people selling silver bullets to solve for “scaling your business”. There are dozens of frameworks out there like EOS or Gazelles.
Often, founders will read a book like Mastering The Rockefeller Habits and then come in guns blazing for a week and try to change everything and implement this new “growth framework”. It all sounds great and then a week later we change direction again or it’s not working because we don’t know how to hold people accountable.
Chris: Why did you decide to build a sales engine at HireBetter?
Kurt: I didn’t want sales to be relying on me anymore. I want the sales I bring into the business to be a “nice to have”, not a “need to have”. A big mistake that I’ve seen companies make when trying to build a sales engine is attempting to recreate the founder as the sales engine. Most of the time that’s not going to work. You don’t want to have to rely on one person’s specific background and role in the company. You need an independent sales process that is self sufficient with it’s own collateral, messaging, marketing, etc. Then you need to identify the right people to help lead it and drive it.
One thing I do when I’m trying to build out something I have never done, is to talk to a bunch of people who have already done that in a similar space. They are going to save you so much time in terms of insights and saving you from mistakes they paid for. However, having too much advice is a problem.
My advice is to get five people that I absolutely trust into a room together, get their advice, and calibrate their different thoughts into a direction that I feel confident with.
Chris: You mentioned finding the right people to lead your sales engine. How does HireBetter play a role there for other businesses?
Kurt: The beauty of HireBetter is that we’re not just recruiters. We are in the recruiting space but we bring a business mindset to recruiting. In fact, we think the recruiting industry is desperately broken. We even have an eBook called, “The Recruiting Industry Is Broken.” So don’t think of us as typical recruiters. We come into play when a business has maxed out their existing team and you’ve hit a limit in terms of growth and maturity.
One example I like to use for Founder-led organizations is this: If you have an executive team of five people, and all five of you are doing this for the first time, you’re going to make a boatload of mistakes. Some of those mistakes don’t have to be made if you are willing to add one or two people to the mix who have done this before. We can benefit from their previous mistakes.
Chris: How do business owners budget for an expensive strategic hire and the fees associated with a recruiting firm?
Kurt: We have a product that we call Strategic Talent Planning. It’s our process of taking your long term vision or strategy and building a talent roadmap that aligns with that. Part of that process is assessing the existing team. With how fast most entrepreneurial companies have grown over the last 3-5 years, and how quickly the business plans to grow going forward, there are going to be employees on that team that haven’t been able to keep up and that won’t be able to continue to keep up. While it’s uncomfortable, you can often save enough money by letting folks go that are no longer a great fit and bringing in an operator that can accomplish much more with much less.
The processes and efficiencies that an experienced operator can bring will more than pay for themselves.
From my story with HireBetter, when I took over in 2011, we were growing tremendously year after year but we weren’t making money. I kept telling myself we were investing in the future. But the reality was that I had a bloated team and I wasn’t holding people accountable. We just weren’t very efficient. Eventually, when I wanted to hire that expensive operator for HireBetter that had the perfect skill set to take us to the next level, I asked myself if I could afford to hire them. I concluded that I couldn’t afford not to.
Chris: What does a great operator look like?
Kurt: Usually someone who has run a business or a line of business before. The best ones either have a background in a CFO suite or some finance function with strong operational skills (including creating and running processes and teams) or they are operators with strong financial skills.
Chris: From your investing background in Bee Cave Capital, what are the common mistakes you are seeing in CPG businesses?
Kurt: In the CPG space, the biggest reason I see companies fail is that they just don’t have the gross margins. If you have 20% gross margins, you’re just not going to make it. There are always going to be exceptions but I feel comfortable with that statement as a generalization. I really like to see CPG business north of 40-50% in gross margins.
The other problem we see a lot is the “Out Of Control Entrepreneur.” This is when you have an entrepreneur who’s ‘smarter’ than everybody in the room. They have control issues. They have to be all over everything in an organization. Even the ones who are willing to hire an operator to help them scale the business – if they are the smartest person in the room – they’ll hire one, and fire them. Then rinse and repeat over and over – always blaming the other person.
Chris: How do you counsel businesses that have had stagnant revenues for a few years?
Kurt: Great question. We get businesses that come to us with this problem and don’t know what they are doing wrong. As you can probably tell, I gravitate towards the people. I think you need people in there that can think differently. If you’ve already tried to build sales team and that’s not working, then you can look at a better sales leader. If you’ve already grown sales but you’re not seeing margin growth, then you probably need to look at an operator who can focus on efficiencies.
“Right now, with COVID, I think businesses have a once in a lifetime opportunity to re-assess their business and the direction they want to go for the next 5-10 years. A lot of business models are being exposed right now. Entrepreneurs need to be asking themselves, “How can we re-invent ourselves and come out of this stronger?””
We are seeing that people in this country are over-retailed. That consumption has to come back down a bit. We are also seeing that businesses have been overly leveraged with cheap debt. Because of the tailwinds we’ve had in the economy, businesses have been able to limp along just paying debt notes they had. Now they can’t pay the note. It’s time to take a hard look at how businesses are structured.
Chris: Any surprising traction channels that you’ve seen work out for CPG companies?
Kurt: Let’s talk about Tecovas. I was lucky to be an early investor in their business. They had a direct to consumer model, a complete eCommerce play. They decided that they wanted to open retail shops. The first time they shared that with me, I thought it sounded like a mistake. They were a perfect eCommerce business, so why mess it up with brick and mortar? However, they have been doing really well with their stores and that’s a business shift I would have maybe advised against. But the founder explained the strategy behind it and how it was going to help with branding, customer acquisition, and a number of other initiatives. It was genius.
There is another company in town that has been selling mostly through local retailers, local groceries stores, and farmers markets. They were just about to get into national grocery stores but then this COVID thing happened. So they were forced to dig into eCommerce and selling direct to consumer. I think it’s ultimately going to be a great long term solution for them because of challenges selling into grocery and through distributors.
Chris: What did I forget to ask you that business owners need to know?
Kurt: Here’s what they need to hear. And I’m going to give a little plug for you guys. What they need to hear is that they need a good accounting structure to maintain records. But what they really need is that finance function, that CFO. Most small businesses don’t realize that accounting is just counting what you had in the past and you know, keeping score. A good finance function is going to be able to help you be strategic and know how to spend your money going forward and plan properly.
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