The best piece of advice I ever doled out to someone was the following:
“I would rather invest in A Grade people with a B Grade idea than with B Grade People with an A Grade idea”
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The logic, of course, is that A Grade people can adapt a B Grade idea into something more, while B Grade people will always be just that.
I rate this as my best piece of advice ever, as it played an integral part in someone investing into a business which has gone global and provided a very, very handy return.
Incidentally, the revenue model underpinning that idea was completely flawed and needed to be completely reworked.
Sometimes you need to dive the plane
Applied to the entrepreneur’s world, finding those A Grade people is probably the most important task you will ever attempt. I rate it as even more important than your idea itself.
Most start-ups are cash constrained, so the question is how do you afford A Grade people?
The mistake that many young companies make is to hire more junior staff to get warm bodies in the required roles without having to pay the associated costs.
I appreciate the dilemma as well as anyone, having been there and often not adhering my own advice.
It is scary as hell looking at dwindling cash reserves and contemplating adding to the burn by bringing in a heavy hitter.
However, a cash negative start-up can be likened to a plane with an engine on fire.
Sometimes you have to dive the plane (I saw this in a movie so if it’s technically inaccurate, don’t sue me) to put out the fire.
You just hope you can put it out and pull up in time to soar through the sky before hitting the ground. Simply trying to minimise altitude loss might keep you in the sky for longer, but eventually you will crash.
A Grade people don’t sit on a linear scale
Getting in an A Grade person can be just the thing to help a young growing business.
In my experience, the reason most young businesses don’t do this is because they assess salary grades on a linear scale.
If Person B is valued at 100k per year, while Person A is valued at 200k per year, it is not necessarily the case that Person A will only provide twice the value to your business as Person B.
Think of the following analogy. In the above scenario, you could argue that Person A with their salary has twice the purchasing power as Person B on their salary.
However, everyone has certain basic needs. Let’s assume that both individuals need to pay rent, groceries, and fundamental living expenses, and that this tallies to 50k per year.
Ignoring tax, this would mean that after the “fixed” spend components, Person A has 150k at their disposal compared to Person B’s 50k, or three times the “discretionary” purchasing power.
From a job perspective, I consider having a warm body in a role to be the basic or “fixed” benefits that accrue to employment.
The value add over and above daily tasks is what needs to drive a start-up, and this is exponentially more for Person A the closer Person B comes to having their total value equal the fixed value of doing daily tasks (the more rent, groceries, etc approach 100k in the above example).
Hiring the B Grader might allow a job to get done. Hiring the A Grader can allow the job to get done, but also more of your job to get done, freeing you up to then pursue higher level priorities.
In other words, the A Grader can end up paying for themselves many times over.
No guts, no glory!
Starting up a new business is a risky venture. I recall a more experienced entrepreneur telling me that if he was going to go under, it wasn’t going to be for the sake of a few dollars.
He surrounded himself with the best of the best, paid their market worth and let them get on with the job of building his company.
He simply coordinated, provided vision and created an environment to allow them to do their thing. His cash burn spiked and then dried up prior to him hitting the ground.
It is a gutsy call to bring in A Graders before being sure you can afford them.
Then again, the start-up world is for gutsy folks. His decision allowed him to work on his business rather than in it.
The million dollar question is how do you identify who is an A Grade Person? I’ve had my successes and failures on this one.
Perhaps a topic for another blog. And if any of you have a foolproof answer, feel free to send it my way.