Chapter 34:
You Want to Pay How Much? Or, How We Moved Again
This is probably how a “real” company decides to move their operations:
- Based on future plans and internal feedback, decides they need to have more space/less space/different space/different location (more tax favorable, etc).
- Gets input from key management on the kind of space they need.
- Surveys the available space in their target area with the help of an industrial lessor/realtor.
- Weighs the options available and decides on one.
- Plans well in advance for the business disruption of a move.
- Has any build-out done, and a floor schematic ready, at the new office before the move commences.
- Moves in to the new built-out, planned office space with minimum fuss and muss.
Here’s how we moved, late in 2013:
- The landlord came to us and said, “Hey, we have someone who wants to buy the building you’re in. Can you move?”
- I laughed and said “Sure, have them pay us a year’s rent for the business disruption.” Expecting them to laugh in return.
- Unexpectedly, they paid, and we moved. Total time elapsed: about 2 months.
Yeah. There you go. We don’t do anything by the book.
Except there’s more to the story than that, which I’ll get into. But I want to riff on some of
Mike’s comments about trusting your employees, rewarding them well, and thereby ending up with a highly motivated, self-policing team. Which plays into the move as well.
Condensed Employee Advice
Okay, you can take any number of shill courses on how best to motivate your employees—the bottom line of most being that “they want to be recognized and appreciated, more than just paid well.”
This is 100% total bullschiit.
Exactly two things motivate high-performing people:
That’s it. If you meet someone who really, truly believes their “employee of the month” cake is a big deal, or who thinks the free soft drinks are a sign that the company really loves you, or who’s a head cheerleader at the company’s monthly corporate pride rallies, or who says, “whatever they want to pay me is OK with me,” do this:
run. Fast. This is not a person you want in a high-functioning company.
High-performing people know they’re good. They expect to be paid well. Period.
High-performing people also value freedom, such as flexible work hours. Sometimes this can be traded off against overall salary.
This tradeoff works very well in the agency world. Many creative directors would be happy with, say 75% of a top salary and truly flexible hours (work from home 4 days, come in 1 day, for example), rather than a top salary and the 12-hour/7-day grind of a typical agency.
This tradeoff works less well in a business that has to run during typical business hours, but, truth be told, there are no expected times of arrival or number of hours per day for anyone at Schiit. Our assembly team usually works nights, because they want to. Alex and tech usually work during the day, because they’re motivated to. And not vampires. Unlike our assemblers, who I sometimes wonder about.
So, how do you pay good salaries when you’re just starting up and money is tight? Great question. Tricky answers, too. Because the first temptation usually is to give away a percentage of the business. Which is exactly the worst thing you can do.
“What?” some of you are yelling now. “Why wouldn’t I show my trust in who I bring on by making them a partner? That way, both rewards and risks are shared.”
It also makes running the business much more complicated. Co-owners may be on a high for a while—until they find out the business isn’t going to do as well as they thought, and their portion of the profits is small…or non-existent. Co-owners also may share with each other their percentage…and it’s gonna be a bad day if the guy who got 2.5% thinks he’s more important than the lady who got 5%. And when the majority owner (or owners) have to outvote the minority owners on something, buckle up for a significant productivity hit…or even discord that could end up with partners exiting.
And when they exit, remember, you have to buy back their shares—either per your buy-sell agreement (you have this, right?) or by some kind of entrail-reading known as “professional business valuation.” Oh hey, the partner doesn’t agree with your valuator’s figures? Buckle down for a lawyer orgy, featuring painful forensic accounting, and “expert witness” tea-leaf prognostication of the company’s future value.
Bottom line: you’ll both pay lawyers, you’ll both lose, the lawyers have a party.
And I haven’t even gotten into the tax ramifications of giving away shares. It’s complex, painful, not pretty…and can be costly, for both you and the awardee.
And yes, having an agency for 20 years, and making this give-away-the-farm mistake more than once…it is, as they say, a “learning experience.”
Effective Motivation—Without Giving Away the Farm
Okay, so how do you create a high-functioning team without giving away parts of the company?
First, by realizing the extreme worth and intelligence of a motivated, engaged person. Don’t minimize their worth, and don’t insult their intelligence. If you don’t literally want to create everything by hand, yourself, you
need great people.
Repeat after me:
- Don’t minimize their worth.
- Don’t insult their intelligence.
Now, say it again.
I had a boss in a former life who loved to do #1: go around saying, “Nobody is irreplaceable!” Usually after I offered an unpopular opinion or asked for more money. I had a business partner on the agency side who loved to do #2: “We’re doing this for you, we all have to make sacrifices.”
Riiiiigghhhhttt.
“Anyone can be replaced,” should be amended to “Anyone can be replaced, but there are people worth keeping, and be very, very scared of who might come after.”
“We’re doing this for you, we all have to make sacrifices,” should just be banned from ever being said. Any person with more than a few active neurons know you’re doing it for the company, and that people who are laid off are making a much bigger sacrifice than you are. Just say it like it is, do what needs to be done, and treat everyone like an adult, not a child.
So what do you do?
- Tell the truth and keep your promises. Okay, you’re just getting started. You can’t pay someone what they’re worth on the open market. But if they believe in your company and its potential, they may start for less, and bet on the promise of future rewards. But let them know exactly how it is, and set some dates and measurements on when they can begin seeing the rewards. If you don’t meet goals, let them know, and don’t sugar-coat it. But, always, always, always keep your promises. Because it’s gonna get really ugly if you forget about them and buy a new Mercedes first. Remember: good people aren’t dumb.
- Provide personal motivation. And by “motivation,” I mean money. This is the better way. Start with a livable salary, and add bonuses that are based on visible personal or company metrics. Number of products shipped. Number of products built. A bonus on experimenting with, and getting the company into a new channel. Royalties for products developed on the side. Stuff that can be translated into dollars, without having to reconcile profit, and without having to resort to nebulous proclamations like, “If we’re doing well.” This is really the best way to do things—and it is the best way to get your company running at a 5-10x productivity advantage, relative to the “norm.”
Schiit has done both of the above. The result? A recent meeting with the city economic development manager revealed our sales, etc (we’re going for becoming a duty-free export zone). He said, “Oh, you must have about 40-50 employees, then.”
“We have 6,” I told him.
The guy nearly fell on the floor. “How do you do it?”
I told him (pretty much the same as above.) He shook his head. “That would never work in most companies.”
I disagreed. It has worked everywhere I’ve applied it, without exception. The key is getting smart, motivated people to start with. And that, as I’ve explained in previous chapters, is less of a “checking off things on a resume” thing, and more of a “gut reaction” thing. Every time I’ve ignored my gut, I’ve screwed myself.
So, how weird are we, besides breaking the productivity/employee ratio really badly? Let’s look at 2 other figures.
- We don’t have a sales department at all (something I realized when writing last week’s chapter.) There’s not one single “salesperson” here. Nobody to pimp us out to dealers or distributors, either. Nor anyone on contract.
- We spend only about 0.2% of our revenue on marketing. That’s 10X less than the smallest figure advised for startups, and 50x less than what’s considered “typical” for a sustaining company.
So much for us being “just a marketing and sales company.”
Bottom line: your people matter,
and your customers matter. Treat them both right. Don’t insult their intelligence, and know their value. Do that (for real), and you don’t have to do the normal BS babysitting/micromanaging/spoon-feeding/infighting/sales/shilling/promo/hype thing.
And, I think, your life will be a lot more sane.
One Other Overlooked Rule
I had the surreal experience of going through the first Great Internet Boom, and seeing what happens when companies get way too much of Other People’s Money. Celebrity chefs making lunch for everyone everyday. Any drink or snack they wanted. Playrooms full of arcade games, bean bag chairs, and foosball tables. You know, stuff like that. Perks.
Except, when things started to get tight, when the investors started getting nervous about cash burn, what did they do? They started taking these things away.
And what happened after that? Yeah, you guessed it. The best and brightest smelled blood, and made their exit. The downward spiral in many companies was started by the lack of free Red Bull.
So here’s the rule: once you give something, never take it away.
If you have free food and drinks, they have to stay, forever. No matter how bad things are going. If you have free daycare and company cars, they have to stay, forever.
So…the corollary is…don’t give them. Motivate your team with individual, easily quantifiable bonuses, and let them make tons of money for their own Red Bull, daycare, etc. That always works. And if the bonuses are based on visible metrics, there won’t be any complaints if the metrics end up sliding.
So, On This Move Thing?
Why is the above employee motivational blather important? Well, beyond the productivity advantage outlined above, it also made for a smooth, uneventful transition into the new space. Because Mike and I don’t have to babysit anyone, we were involved at only two points:
- Looking at the available space (with Alex.)
- Showing up when the move was complete.
That’s it. Fully empowered employees take care of everything else—including finding and booking the movers, packing things up, unpacking and getting set back up, arranging things once we were there, buying things we didn’t have, etc.
And…they were ready to move. The place was packed and overflowing. We wouldn’t have been there much longer if there’d been no buyer. It just moved up the timeline about 3 months.
Looking at the space was fun. We were in the market for, as I told our real estate guy, “Something 3000 to 5000 square feet,” which would give us 1.5-2.5x as much space as the old place. I expected to see a long list of candidates, since Valencia Industrial Center is the largest industrial development in Southern California, and 3K to 5K is above the starter spaces and below the 20K-100K foot boxes.
And the list was pretty long…until we got to particulars.
The one particular that broke the back of most of the candidates was “air conditioned throughout.” Most industrial spaces have AC only in the office section, while the warehouse remains uncooled (and, in some cases, unheated.) This is less than great in 110 degree summer days.
So our list of about 40 candidate spaces was reduced a bit. And by, “A bit,” I mean, it went down to 2.
Yes, 2.
Both spaces were in the same building, and right next to each other. I went through both of them with Alex and the realtor. One was just over 3000 square feet, one was about 5300. The 3000 SF space looked pretty much like the ideal place for us, except for one thing: a lot of these concrete tilt-up boxes have office built out in two levels up front, so you have upstairs and downstairs offices. Upstairs is useless to us (imagine carting products up and down stairs all day.) So, the 3K space really didn’t net us as big an increase in usable floor area as it seemed.
The 5.3K space? It looked stupidly huge. I mean, ridiculously, cavernously huge. Bigger than Theta was at its peak. Bigger than Sumo. (Though not bigger than Centric during the dot com boom, which was in a converted 7200 SF industrial building. How I wish we’d have stayed there.)
But 5.3K? That was silly. Even with the office buildout upstairs, there was no way we’d ever use all that space. I mean, really, we were a small manufacturer, right?
But it definitely had the floor area we needed, and more. It also had a glassed-off area that would be perfect for tech.
So, after another visit with Mike, we made them a lowball offer, and got it.
And yeah, I’ve said before that you shouldn’t haggle, etc, but this was more in line with bringing the price down to reality. It’s a 1980s building, not super well-kept, and the landlords were loathe to do anything at all to it—not even the usual new-paint-and-carpet deal you usually get when you sign a lease. So I said, “We’ll take it, no tenant improvement, at this rate.”
They jumped on it, and the rest was history.
The actual move took place as Mike and I were at RMAF 2013. We left for Can-Jam, and came back to a different building.
And that’s when the reality started setting in. This “huge” space turned out not to be so huge at all. With all the stuff we’d packed into the old building on the floor, there was a lot less space than I thought. It wasn’t disturbing, as in “having to look at moving immediately” disturbing, but we definitely didn’t have as much space to grow as I’d expected.
So what to do? Alex suggested racking the place out, so we could stack chassis and packaging up three levels high. Shortly before the end of the year, that’s exactly what we did—and that’s when we started to look like a real company.
And what would we do with all of that space upstairs? Sure, I could take an office up there, but Mike hated the heat, and didn’t want one. The bullpen area would be essentially useless as a listening room.
Rina came to our rescue. Her own business, Twilight’s Fancy, was growing too big for our house (now, we can claim 2 businesses launched there—one in a garage, and one in a spare bedroom…).
“I’ll take the upstairs,” she said. “I’ll sublease from you.”
“How much of it?” I asked, remembering the adage that “a turtle always grows to the size of its tank.”
“As much as you’ll let me have.”
Hmm. That saying really had me sweating now. Rina’s business is space-intensive, and she is, ah, well, apt to, um, disarray. And piles.
“Let me think about it.”
After some discussion, we came to an agreement where she took one of the upstairs offices, and much of the bullpen. So now we share our building with a seller of jewelry findings and ribbon chokers. Makes perfect sense, in a way.
What We Didn’t Do
Our new home, or “The Schiitbox,” as we call it (appropriate for a concrete tilt-up) was big, but it wasn’t opulent. The upstairs is carpeted with somewhat-worn, medium-blue industrial carpet that may have been the cat’s pajamas in the early 1990s. The downstairs is pure concrete floor, concrete walls, and sheetrock. The windows don’t open, there are no balconies, walls are painted utilitarian white.
In the peak agency days, this wouldn’t have stood. We would have ripped out walls, done new carpets, gotten rid of the drop ceilings, bought new desks, and generally gone on a remodeling spree to make it something we could be proud of.
At Schiit, we did none of that. The same ugly carpet, concrete walls, and white paint remain. We did put up some pictures, but that’s about it. Alex’s “office” is a desk downstairs by the side door (we don’t use the front door, that’s Mike’s office now.) We pulled the brand-new, nice carpet out of the tech area so it wouldn’t be a static threat, and left the bare concrete with glue marks.
We did, however, finally buy a full-sized refrigerator.
And racks. And desks. And more racks, as we expanded. And more test equipment. And shipping tables.
Why the focus on utility? Because we’re not a listening room, a lounge, or anywhere you would want to hang out (well, unless you’re super-geeky.)
And…because, when you have smart, engaged, motivated employees, it doesn’t really matter. They think it’s funny. They’re thrilled to help us grow. And growth doesn’t come from Hermann Miller chairs and Steelcase desks and faux-finish paint and $600 LED lamps.
It comes from, as Mike said,
giving a schiit.
Coda: We recently took the space next to ours, bringing us up to about 8300 square feet. The landlord was as cheap as ever. The carpet is as ugly as it’s always been. We needed the space for the Ragnarok/Yggdrasil lines, and some other future plans…
