Read & Save Millions: Bad Hire VS Opportunity Cost of Average
By: Alex Shattuck
I told them they should let me go. I offered my resignation.
I kept making mistakes.
I was bringing nothing to the table of any significant value.
I put no effort into getting better.
I invested nothing to hone my skills.
I was simply going through the motions.
I was strictly taking up a seat and there were only so many seats available. Four seats to be exact.
I was very clear with my message.
“Look, you guys need to make a decision. You need to decide what you want out of this. Do you want to be a winning team, or are you just here to have a good time? I’m a liability, and you can find someone better for the job.”
Harsh but true. I kept slicing my drive, I couldn’t chip to save my life and when I sunk a putt it was a fluke. Lucky for me we’re talking golf. We’ll see what they decide as we head into the golf outing season.
Do they want a shot at winning or are they cool with being average and having a good time?
There’s really no wrong answer when it comes to golf. You may miss out on a few hundred bucks here and there, but nothing devastating. I can’t say the same about business.
When I speak on the topic of recruiting I’ll often let the audience know that what they need isn’t necessarily one more lead, one more estimate given, one more quote, one more sale, or one more referral source… I tell them it is ONE MORE SEAT!
This is where I can immediately feel the tension because their minds go to payroll and the assumption is that I’m going to ask them to reach deeper into their pockets and add staff, add payroll dollars to their already hefty expenses. Typically, this is not what I ask of them, and this is not what I’ll be asking of you.
Most likely, you won’t need to add a seat (employee). It will most likely be a one for one swap. Think about who you have on your team that plays a role in growing your business. How many seats do you have? Who specifically is in each one?
If you have two- someone is in second place. If you have three- someone is wearing the bronze and if you have 10 you have number 10 hanging on for dear life.
I want you to ask yourself a question: What would your business look like in 12 months if you were to upgrade that last seat?
Seriously, take a moment and think about that…
Now you may be one of the few and the proud that are saying; “I have three. They are all rockin’ it, doing the right thing, making me money, and I can’t imagine life without ‘em.” If this is you- GOOD! This is outstanding news but if you’re batting 1000 and have a true record of success here, and all 3 are making you money- hire a 4th. You’ll make more money.
But let’s assume you are a mere mortal like myself, and the others reading, and you have that average player in that last seat. This is where it gets a little tricky. This is where we start to feel uncomfortable. This conversation is hard for us and there are two main reasons that I can point to that I believe are the biggest drivers of us not taking action here.
- We’re loyal people.
WE ARE LOYAL PEOPLE! This isn’t a bad thing BUT here’s the deal- loyalty is a two-way street and LONGEVITY does not equal LOYALTY. Anyone that has been in business for an extended period of time has had to wrestle with this. Many are in the midst of the battle right now. This is tough, but remember that longevity does not equal loyalty in business.
2. Making a bad hire is expensive.
IT’S CRAZY EXPENSIVE! First, we’re consistently beaten over the head with the data. We all know that we should expect to lose at least 30% of that bad hire’s expected first year earnings. Not only that, we’ve experienced this loss. We’ve felt it in our bottom lines. Forget the data- we remember this suckyness.
I’m all for loyalty and I’m all for the healthy fear of losing 30% of a bad hire’s first year expected earnings. We must do some math though. My vote is to make it simple math… Let’s say that 30% loss is $10,000. Real money. I’m not taking anything away from that but if we’re going to bring this into our headspace while trying to make financial decisions for the business we can’t stop there. We also have to factor in the opportunity cost of keeping an average (or below average) employee in that last seat. Part of me wants to make the point that the average employee IS a bad hire, but that’s subjective. Let’s stick to the math.
Think about your top performer and what she does for you. (If you don’t have anyone that crushes it look to someone in your industry and in your market to compare to.) Now start doing some simple math focusing on the difference from your top performer to the bottom performer. What is that difference? Now you’ll need to look at what your revenue would look like if you upgraded that bottom player and his performance to a clone of your top performer and her performance. What you’ll find is that first year, immediate shot in the arm, revenue alone will break even with the bad hire. This revenue bump will be $10,000 all day. Unless you’re 9 and your business is a lemonade stand- we’re talking 10k plus.
You can’t stop there though. What else did that increase in production in year one do for you? Is there a bonus it impacted? Do you get paid residually on any of your business? How many more referrals did your business earn from it? Were you able to decrease your marketing spend now that you have someone who doesn’t need you to buy his success for him? What did it do for morale and culture? Did it raise the bar for others on your team?
We aren’t talking ten thousand dollars. We are talking TENS OF THOUSANDS OF DOLLARS. This is 10’s of thousands of dollars year over year and when you compound that over the course of decades we are talking MILLIONS OF DOLLARS.
That is what an average player in that last seat is costing you. Millions.
1. “we should expect to lose at least 30% of that bad hire’s expected first year earnings” northwestern.edu 2021; U.S. Department of Labor estimate
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You probably started your business with dreams of having a high income and freedom. You may have found that you sacrificed one, if not both, of these objectives. In this book Alex masterfully applies the brutal lessons he learned in Iraq to business here at home.