Why You Shouldn’t Settle for Hiring Anyone Below the Top 10 Percent of Talent in a Paygrade

by | BiggerPockets.com

For anyone who has hired an employee before, you know that it can be both extremely liberating and extremely debilitating. It all depends on who you get on your team. Indeed, once you’ve reached the point in your business that you can bring on employees, hiring, training, disciplining, and firing are the most important things that you do.

Great employees can bring you to new heights that you wouldn’t have thought possible. A great property manager my dad once had was mostly responsible for designing the turnover system we use for student rentals (which all happen at about the same time, so it’s quite the challenge). A later property manager slacked on repairs and purposely kept rents lower than they could have been to make it easy to rent them. It took over a year to catch up on the deferred maintenance. In Kansas City, we had a rehab coordinator who took kickbacks and a property manager who would overspend on everything (often by selectively hiring her son-in-law at inflated prices). Personnel can make you, and personnel can break you.

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First Who Then What

In Jim Collins book Good to Great, he describes the difference between 11 firms that went from mediocre to beating the Dow Jones’ average threefold for 15 consecutive years and then compared them to a control group of similar firms that didn’t make such a leap to find what sparked that transformation. As he describes:

“When we began the research project, we expected to find that the first step in taking a company from good to great would be to set a new direction, a new vision and strategy aligned behind that new direction.

“We found something quite opposite.

“The executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. They said, in essence, ‘Look, I don’t really know where we should take this bus. But I know this much: If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great” (Collins 41).

Personnel was the most important distinction between the firms that became great and those that did not. Firing sucks, but it’s something you need to be able to do and do relatively quickly. That being said, Jim Collins does note that you need to make sure people are in the right seat. We have an accountant with real estate investment experience. So, when we were short on staff, we let him help in rehab, and it turned into a bit of a mess. He wanted to do things his way, and we wanted to do them ours, and it was just too many cooks in the kitchen. However, once we returned him to accounting, he excelled.

free-mentor

Related: 7 Small Things You Can Do to Boost Team Strength

So, keep in mind that if someone isn’t getting the job done, they might be in the wrong seat.

Topgrading

In a previous article, I described the method for hiring that Geoff Smart and Randy Street describe in their book Who. I highly recommend that book for hiring. But there’s more to getting great employees than just hiring. You also need to train them and let them go if they are not getting the job done. For this, we turn to their follow up book Topgrading.

“Topgrading is simply defined defined as achieving teams of almost all A players: those in the top 10 percent of talent available for the pay” (Smart IX). So, for example, an A player at the $50,000 salary range might be a C player at the $100,000 range. The goal of their system is to orient your business to create extremely productive teams by hiring and promoting A players while training Bs and Cs to become As or letting them go (or, as they rather euphemistically call it, “redeploy them”).

After someone has been hired, you need to coach and measure their performance. The more objective standards you can find, the better. It’s not uncommon for bad employees to try to gaslight you into thinking it’s always someone else’s fault (or perhaps yours). Indeed, if you notice someone always has an excuse, that’s almost certainly a sign that there is something wrong. The Law of Big Numbers states that it just doesn’t work that way. If one person is consistently failing, the odds it’s merely bad luck or someone else’s fault are close to zero.

But again, the more objective measures you can have for them to be judged by, the better. For example, with leasing agents, ratios of showings to applications and leases is a good measure. For rehab coordinators, how close they are to hitting your budget is good, although the problem might be on the budgeting side. For maintenance technicians, the percentage of call backs and the number of complaints are quality measures.

Regardless, you need to be coaching. And this should be a participatory process. People are much more likely to engage and buy into something if they are part of putting it together rather than just being told what to do. When it comes to action plans for improvement, having your employee come up with the goals (with your input and veto power, of course) can really aid this.

Smart provides 10 key characteristics a “supercoach” must possess:

“1. A partner. ‘Hey, you’ve got a problem, let’s work on it together.’ Interested, engaged, respectful, and respected.

2. Promotes autonomy. Helps the coachee to independently diagnose problems and consider solutions; makes informed choices regarding development. [I personally think this is the most important.]

3. Positive…

4. Trustworthy…

5. Caring…

6. Patient. Understands how hard it is to change. Is tolerant and reasonable.

7. Results-oriented. Focuses only on important issues. Is proactive and infectiously committed to helping coachee perform. Follows through on promises.

8. Perceptive. Understand coachee’s strengths, shorcomings, goals, and needs.

9. Authoritative…

10. Active Listener…” (251)

Of course, all that is easier said than done. But first and foremost, you need to make a concerted effort to consistently coach and work to develop and evaluate your employees. You don’t want to settle for C players. But these people can often get the job done, at least sort of. Sometimes it’s just easier to let them do their thing, however mediocre, and focus on something else. Great companies aren’t built on what is easier, though.

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Related: 20 Must-Have Team Members for Real Estate Investing Newbies

On the other hand, Smart describes the “psychological stages in change” that you should look for in an employee. If an employee is too stubborn to consider changing or only makes a half-hearted effort, it’s probably best to move on.

“1. Awareness. ‘I seem to have a need to change.’

2. Rational acceptance. ‘I definitely need to change.’

3. Emotional commitment. ‘I not only own the problem, I own responsibility to fix it.’

4. Individual Development Plan for development. ‘I fully embrace this program, with specific activities.’

5. Reinforcement. ‘I need internal and/or external reinforcement and feedback for maximum growth.’

6. Monitoring progress. ‘I embrace measurement and my progress.’

7. Conclusion. ‘I’ve fixed this problem; while recognizing that for some issues a lifelong effort is necessary, I have achieved the specific goal of eliminating a potential career derailer'” (260).

Again, this sounds like a lot. But we just had a recent success (at least so far) with an employee on the edge who put together an individual development plan and has made significant improvements.

Smart estimates that the cost of a mis-hire is 15 times their annual salary. In other words, a bad $50,000 employee will cost you $750,000. That feels a bit high, but it is no doubt a major loss, even if it’s an opportunity cost you don’t directly see. On the other hand, great employees can bring your business to new heights. You absolutely need to make hiring, firing, and coaching a priority in your business.

How do you ensure that you onboard quality team members who excel in their positions?

Let me know your experiences with a comment!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

4 Comments

  1. Cindy Larsen

    Andrew,

    Great post. Even if the people you select are not actually employess, but non-employeqe team members that are 1099 contractors performin the same functions, everythung you said still applies.

    One key thing is to do a high quality interview process. First make sure you understand what the job entails, in as much detail as possible. Then get the potential emplyee to tell you. Get them to talk about specifically how they do their job, how they handle problems that might occur, with examples of problems they have had in the past, and how they solved them. Have multiple members of your team interview them to get different viewpoints, and ask different questions. Ask them to describe the preferred management style they would like or expect from a manager. ASk about conflicts they have had in the past with other managers, coworkers, customers. Ask them about their strengts and weaknesses. ASk them which aspects of the job they enjoy most, and then, which ones they don’t enjoy, and if they have any ideas on how to improve those things. Ask them about their short term and long term goal. ASk them anything you can think of that will help you understand what kind of employee they will be. ASk how they prefer to have assignments given to them, and what methods they think would be reasonable to evaluate their performance.

    Another very important thing, after the hiring decision is made, is to establish and maintain crystal clear communication with the new employee. Your expectations, how they will be measured, communication with team members, again, anything you can think of. Have a process in place to establish how the job is to be done, and how progress is to be reported. Have a process in place to allow them to ask questions without penalty. have a process in place to give feedback. remenber to give positive feedback as often as you can do it sincerely. Have and communicate your management philosophy: this can empower of cripple performance. For example, the best company I ever worked for had two unwritten, but often communicated rules:
    1) Do the right thing
    2) It is better to ask for forgiveness than permission.
    I’ve never seen such an empowered and productive group of people since.

  2. Naren Gunasekera

    I would add one caveat from my experience in running a business for four years (non real estate related). I would take a B+ employee who is better at working as part of a team than an A+ employee, who despite producing excellent work cannot be part of a team. I kept such an employee on for a few years because he was great at dealing with customers but his influence on the rest of the team was caustic and looking back I realize I should have fired him earlier.

    • Andrew Syrios

      I would note that working as part of a team is part of being an A player. Someone who’s great on their own, but only on their own can be a great A player in certain jobs, but in others, that person will cause a lot of problems.

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