Don’t Hire Anyone Else Until You Listen To This… | Ep 64 14:12

I pay top of market. I pay above market for some roles. Why? Because I can. I don't want to lose people. And so if you can, there's no reason that you shouldn't. How do you create an unshakable business? I crossed $100 million in net worth by the age of 28. Now I'm growing acquisition.com into a billion dollar portfolio. In this podcast, I share the lessons I've learned in scaling big businesses and helping our portfolio companies do the same. Buckle up and let's build.

What is up? Today, I'm talking about something really top of mind. And it's something that a lot of people have been asking me about recently. That is the rising cost of labor. And the reason that's so top of mind for me is actually, you know, at acquisition.com, one of the biggest things that we do with the companies that we belong is we help them find talent. And so we assess their talent, we figure out, you know, what it needs to look like in the next year, two, three years, and then we help them fill the slots that they have open. And the thing

that I've realized is I find it funny because, you know, you look at like things like the cost of inflation and the cost of consumer goods and all those things that are increasing. I feel like what's not talked about is actually the cost of labor. And the reason that I talk about that is because I myself am someone who has started four businesses in the last six and a half years. The first business I started when I was hiring for somebody, the role specifically that I was hiring for was about $40,000 per year. That's

same role now I'm helping these companies hire for, it's not competitive at all at $40,000 per year. It's competitive at maybe $60,000. And so I was like, this is mind blowing. And it's frustrating because, you know, you see the profits margins going down, you see the cost of labor going up, but it's understandable because the cost of

Goods are going up. And so what I want to talk about is really what the fuck is going on and what should you actually do about it? It's really like, what is going on? What does this mean for you, your business and your employees? And so what is going on right now? Well, inflation is at its highest in 40 years. Okay, we can all say that. It's apparently at 7.5%. I would argue that's higher than 7.5%, but that is

what's been reported is 7.5%. So where do you go with that? This then forces the Federal Reserve to raise rates to prevent prices from climbing any higher. So I think what a lot of people are anticipating right now, myself even, I'm in the middle of buying a home and I don't feel like putting all my cash in my home, but rates right now, you can't even lock in because nobody wants to lock them in because they know they're about to raise. And so that's what happens next is then all of a sudden interest rates go up. It's been awesome because they've been so low and people have been taking advantage of it. Now people are anticipating that they're going to go up again.

right? On top of this, there's all the turmoil with Ukraine. And so things like gas prices are hitting record highs. I mean, I saw someone screenshot the other day, they had like 560 a gallon in gas. I don't know because I don't pay attention because we barely fill our car because it's half electric, but apparently it's very high. On top of that,

food prices are now 5.4%, right? They went up 5.4% last year. And as interest rates rises, the cost of housing also seems to be rising. So if you look at it right now, they're anticipating the cost of housing is going to increase 11% next year. It has already increased 19.5% last year. Why? Cost of materials, demand for homes is higher because of COVID and people staying home, et cetera, et cetera, inflation. Um...

And then on top of this, what's really, really interesting is that there are 11 million open jobs and only 5% unemployment, which is interesting that you have 5% unemployment and 11 million open jobs. So what that tells me, one, that's what's going on, right? Like I'm not a newscaster. I'm not like an analyst. I'm not in finance. I don't do any of that shit.

But what I can tell you is what I've seen and heard. I do think a lot of these numbers are fudged. I think a lot of them are actually higher. I think inflation is higher than it is. I think the unemployment is probably due to, I don't actually think that the, and this is just my anecdotal, like my opinion. I don't think employment is actually that high of unemployment.

I think it's actually lower. I think a lot of people have different jobs now. So I think that one, traditional companies are having a harder time getting people to work for them because they're not as incentivizing as doing like Web3, investing in crypto, doing day trading on Robinhood. Like there's so many options nowadays. So I think that it's felt by the companies that are bigger and have the more traditional jobs. But us that are more like on the ground entrepreneurial probably know that there's just a lot more opportunity out there. And so that's what's going on, right?

Essentially, prices are going up everywhere. And so the question is, why am I talking about this when I am normally talking about leadership in business? Well, because it affects business. And so this is how, or this is what's possible and what like a lot of experts and people are talking about. I don't know if it's going to happen. I don't know if it's likely to happen. Things are so different right now. But here's why it causes concern for employers and people that especially like specialize in HR and labor costs, which is

As prices increase, workers demand higher wages. Reasonable, right? Like the cost of their homes goes up 10, 15%. If you don't raise their salaries with that, they can't afford to do anything. So that makes sense. We

With that, as the pay increases, so does the demand to buy items, right? Which then causes the prices to increase even further. And then it's this vicious cycle. It's like demand more pay, get more pay, raise prices, demand more pay, get more pay, raise prices. And so it's this vicious cycle that people call the wage price spiral. Now,

We're not in one of those right now, but there are telltale signs of it. It happened in the 1970s. And the weirdest part and the most, the part that like freaks me out the most as an employer is that actually people started demanding more pay, not when prices increased, but because they thought they were going to increase. They expected that they were going to increase.

So you could say people would do that right now. They're like, I hear interest rates are about to go up. They're going to go up to God knows what. Like, I need to get a raise. I need to get a better job because I'm expecting it to happen. That was a huge part of the 1970s. And so the real question is, what does that mean for us? What does that mean for us as business owners? And what should we be doing about it? Well, this is something that's really top of mind because especially with the companies that we have in acquisition.com, we always look at putting in place a compensation plan, compensation package. How are you going to attract customers?

talent. And it's getting harder and harder because there's a lot of other reasons people wouldn't work for you besides the fact that you're maybe not paying enough, right? It could be that they're getting money from the government. It could be that they could just make more money trading stocks on Robinhood. It could be that they'd rather do something with Web3 and get paid in crypto. There's so many more tantalizing opportunities out there. And so the question is, what does this mean for you, right? Well, right now, compensation

compensation relative to prices is actually lower than it was in 2019. And that's because most companies actually haven't kept up with inflation. The reason they haven't kept up the salaries with inflation is because the cost of goods for the companies is so high. It's like you call it supply shock or something like that. Again, I'm not an expert. But because of that, the cost of all their goods are so high, their margin is already deteriorating. The last thing they want to do is add in more fixed costs of labor. And so that's probably why another reason that can contribute to the fact that why there's the quote unemployment of that percentage, which again, I don't know if I agree with it or if it's correct.

That's because companies aren't willing to match salaries with inflation. So people are just going to places that will, right? And so I think a lot of the companies that report on these things are probably the kind of companies that don't raise their rates because they probably have really high fixed costs because they're probably like being corporate. And it's not people I'm talking to right now. And so what's happening is that what you see is that really big companies are...

going to, and what I've seen happen, increase wages despite the increased cost of goods. And so, or with the increased cost of goods. So the biggest companies are increasing wages with the cost of goods. And so that's going to do is that's going to attract more talent to those companies. Home

prices and wages are also usually in lop step. And what you're seeing right now is that the home prices have increased a ton. Wages haven't. And so what that tells me is like, and again, I don't know, I'm not an expert or an analyst, but this is just what I'm guessing is that eventually, and what the expectations are going to be is that salaries are going to need to be higher. And I can tell you as someone who's boots on the ground interviewing, I've interviewed thousands of people. I do believe that salary increases are demanded right now. And not

necessarily demanded. But what I see is that with like, what you could post a year ago or two years ago for a job with salary requirements. Now I feel like the average for what that same job is about 20% more. And that's just like my feelings about it. What I think is that overall, a lot of people are just choosing not to work, right? And so they're just like, I'd rather just get paid by the government or go do something else instead.

But that being said, that's what it kind of means for companies is that other companies are going to get more competitive with how they pay people, their perks are, what they're going to do to attract talent, because it's kind of like looming in the background that this is going to happen.

And so the question is, and the point of this is what can you do? And people ask this all the time. They're like, and especially small business owners, people that are, you know, you're not venture backed, you're bootstrapped, it's your own money you're using. You're like, I want to pay people. I know I do. It's like, you want to pay people fair. You want to be reasonable, but I know not everyone here can pay top of market. And like, so first off, here's my first piece of advice. If you can pay top of market, fucking do it. I pay top of market. I pay

above market for some roles. Why? Because I can. I don't want to lose people. And so if you can, there's no reason that you shouldn't. The second thing that you can do, which most people can't pay top of market, I get it. I'm just saying if you can, I would just do it. The second thing is that if you cannot pay top of market, the best thing that you can do for your business is

is pay for performance. So a small business, someone that's self-funded, it's really difficult when you have really high fixed costs. It makes it very ineffective for you as a business owner. And so what you want to do is you want to attract people with maybe lower base salaries, but higher variable pay. So maybe retention bonuses, they can have quarterly bonuses, they can have performance pay based on certain KPIs that are tied to their roles. That's something that I think is just a good practice for small businesses in general, specifically in this market. If you're trying to attract talent, if they can see that they have the

to make that amount of money, that's what you can advertise for. I think that that's probably the first strategy that I would take if I were like a smaller business with shorter margins, trying to figure out what I can do to attract talent right now, or what I can do as the cost of labor continues to rise. The second thing is that perks.

So really interesting is that I had a couple of people on my team in one of my companies that I own a percentage of, and they ended up leaving because, you know, we reorganized the company and their roles didn't really fit and they went to other places. And they, I asked them like, how's your new job? What's it like? All these things. And I always like to keep in touch, especially if it's just like not a fit anymore. And they're all telling me, they're like, Layla, have you seen the job market nowadays? And many have heard the war for talent, right? It's insane what some of these big companies are offering in terms of perks for employees.

employees. One of them, it was about $15,000 per year towards fitness help. I mean, and it's not like doctor health, it's like benefits. This is like ancillary, nice to have health, go take a Pilates class or buy a Peloton. That's what that money was going towards. It's insane. And it's because the amount of open jobs is so high and the amount of people that are able to fill those jobs or want to fill those jobs are so low that people are getting really competitive.

And so if you can, if you're a smaller business, how can you combat this? What you can do is you can come up with your own kind of perks. So like if you're a company, you're an online business that like you say are e-learning or any kind of digital goods, I'll say that, right? Why not give free digital goods to the people that work for you? Why not make affiliations with other companies of digital goods and say, I'll give your employees my training for free if you give them your training for free. There's so many things that you can do that are perks that can help invest in your employees. It takes effort from you. It's just not monetary effort. So you're paying with either

effort, money, time. In this one, you would pay with, you know, effort. And so that's one thing that you can do. Another piece is flexibility that you can provide. A lot of people still value the flexibility over the money. So that's something that if you can't provide top of market pay, you can at least be flexible in terms of the hours you allow people to work. So maybe that means that you can go pick your kids up before and after school. You can take a lunch break. You can take half days on these days. You can work night shifts if you want to work them. You can work later. You can not start meetings till 10.

There's all sorts of flexibility that you can build in, especially if you're an online or remote business that will allow people more flexibility that is probably more incentivizing than some of these big corps that are offering more pay. And along with that is the work from home. So I feel like, and I'll tell you, I was in the work from home before it was a thing. When we started doing work from home six and a half years ago, people would be like, what's wrong with you? You don't have an office. I remember there was an HR software that literally wouldn't take us on as a client because I couldn't take a picture of my physical employee files. And I was like, I don't know.

have physical files. I have them in the computer. They wouldn't take us on. And so people used to tell me that we were crazy for doing work from home. They're like, how would you have? How do you have a company of over 100 people with work from home? Well, now it's the norm. And so something else is that if you're not work from home and you're requiring companies to even be in the office for like a

couple days a week. I'm hearing people left and right quitting jobs because they're like, I don't want to go in for one to two days per week. It's inconvenient. It's less effective. I don't get as much work done. I have to find a babysitter. It's a huge hassle. And so even if you have, you're like, oh, it's not bad. It's just one to two days per week. Yeah, but they have to put the same amount of effort in to figure out what they're gonna do with their kids that day, what they're gonna do with, you know, their spouse who's getting dinner, all that, that they would for, you know, if you had to in general. It's almost more of a nuisance because it's not normal. It's like once a week.

And so that's another thing that you can do is if you are not fully work from home, it's like, how can you make that jump? Because the companies that have are staying competitive. And then lastly is professional development. Kind of going hand in hand with perks. I like to think of perks and professional development kind of in the same bucket, which is how can I further advance or invest in my employees in a way that is intellectual rather than financial.

And that's like taking them to seminars, allowing them to join groups that you're in, buying courses for them. There's a lot of things that maybe don't cost as much as paying someone an extra $10,000 a year that actually might be more meaningful to them because they wouldn't do it for themselves. They wouldn't buy that course for themselves. They wouldn't invest in that learning. They wouldn't go to that conference. Or they couldn't because they'd be working for you and they're like, I can't take three days to go to this conference.

And those things are also variable costs. They're not fixed. So you can do them when the business is healthy and you're able to. And if the business isn't doing well, then you can cut those things out. And so all that to say, my summary of all of this is that it is a tough time right now to find great talent if you can't

can't pay top of market and supply all of the benefits that everybody else is trying to do, right? But it's fair to say that people should and will expect to get paid more because the cost of goods is going up. They're not going to be able to pay for basics, let alone, you know, a shirt.

if the cost of salaries does increase. And so I just see it coming. And I think like, I would want to get ahead of that. I am ahead of it. I suggest if you can get ahead of it, do that. If not, follow one of those tips, either add in more performance pay, add in more flexibility, think about different bonuses that are not fixed, they're variable, or look at different

professional development programs that you can put in place. And so all that to say, I hope this was of use to you. I know a lot of people have been asking, how is this going to affect employment? How is all the turmoil in all the countries and all the inflation, all this? And it all just boils down to this, which is the prices go up, people demand more pay. And so it is something to be expected to say if we're going to go into like a wage price spiral. I don't know. To say if it's going to go into a recession, I don't know. I don't know any of that. All I know is how it affects business. And I am on the front lines interviewing people on a regular basis. And I see it actually happening.