CHAPTER 9

Selecting Your Inner Circle

Diving Deeper into the WHO

We can see that all the desirable experiences that we cherish or aspire to attain are dependent upon cooperation and interaction with other sentient beings.

—Dalai Lama

In Chapter 3, “The WHO,” we discussed the necessity of selecting the right people to associate with, people who support your lifestyle and ambitions and can help pull you forward. By now, hopefully you are beyond the planning stage, which means selecting or hiring an inner circle who will help you grow and operate the different functions of your business. WHO you choose to go into business with, take council from, and hire can make or break you. And side hustlers often make some common mistakes in this area that we would like to help you avoid.

First, when starting a side hustle, it’s important to take inventory of your own skills, strengths, weaknesses, likes, and dislikes, so you can properly offset them with other business partners, employees, professionals, or vendors. Everyone has blind spots, and surrounding ourselves with top-level experts or those highly skilled where a person may easily fumble can make a business excel that would otherwise flounder.

Second, aspiring business owners often make the mistake of basing these crucial decisions exclusively on who they already know or like without evaluating essential characteristics that their current sphere of influence may or may not have. This chapter teaches you how and why to expand your scope of selection along with how to better evaluate your potential inner circle.

The Function of Your Inner Circle

While it goes beyond the scope of this book to help you identify all your advantages and limitations, we have listed some critical components of a side hustle that we have found are necessary for success. In the event you have some glaring shortcomings, consider some of the following relationships to offset your weaknesses, preferably proactively! Michael Gerber, author of The E-Myth Revisited: Why Most Small Business Don’t Work and What to Do About It, shares that every successful business has three key personnel: the entrepreneur, the technician, and the manager. Most people are strong in one department, mediocre in another, and weak in the third.

Common side hustle duties include sales, marketing, advertising, accounting, operations, product development and distribution, inventory management, customer relations, social media, PR, public speaking, networking, website management, and others. So begin by asking yourself which items on this list energize you, what can you live with doing, what do you loathe, and what, if any, are you flat-out incompetent or unwilling to do? Depending on your answers and their corresponding severity, there are different inner-circle relationships you should forge to balance these weaknesses.

Partnerships

When you find a solid business partner you diversify everything: ownership, investment, risk, skills, perspective, and of course, profit. You can create an immense amount of leverage by having other people with strong expertise and skills who also have skin in the game. Partners are particularly useful when you have major ongoing constraints such as capital, time, or a key technical expertise. Also note, business partnership arrangements can be of varying splits. Everything we own together is 50/50. We recently bought a lake house, which we occasionally use as a short-term rental, and went in 50/50 with some other business partners, but ownership doesn’t have to be equally divided. We have seen successful partnerships with 25/75 or even 1/99 splits! Just make sure each person has a clearly defined role and corresponding responsibilities to avoid confusion.

Contractors

These are typically individuals you bring in for a set amount of work to handle a specific project: web developers, virtual assistants, design consultants, and so on. Many people can build their own website (if they are willing to invest the time) or design their own logo, but oftentimes hiring an expert can be both more efficient and effective than fumbling around with a graphic design software you don’t understand as you attempt to create a polished end product. If necessary, circle back to our last chapter on decision making for additional support.

Professional Advisors

When you just need a specific type of advice on occasion, or a few times a year, this is a great type of relationship to have. We discuss how to identify these advisors—CPAs, attorneys, wealth advisors, insurance specialists—later in this chapter.

Employees

We placed employees last because most side hustlers are not as interested in fronting the necessary capital it requires to finance someone else’s job if they haven’t generated enough cash to replace their own. There are exceptions, of course. However, the great advantages of having (well-chosen) employees are:

They can often perform a wide range of tasks and can provide air coverage for areas of your business that you don’t have the time or energy to manage.

They can completely take things off your plate and buy back time into your life or business to focus on the things that matter more or only you can do.

They can be fluid in their role. Once you train an employee, you can create a large return on having someone equipped and anchored internally.

They bring new, fresh perspectives and expertise with the interest of the company in mind. An employee likely won’t be as invested as the owner or a partner; however, if carefully selected and compensated, they can add additional horsepower to the growth of the firm.

Curating Your Inner Circle: Deciding Who Makes the Cut

Your capacity to interview and evaluate character, motivation, resourcefulness, competency, and personality can flip the scale on creating a successful relationship versus a painful misfire. As you strengthen your ability to assess the core qualities that are required of successful business relationships, you will experience greater continuity and health in your growth.

There are many things at stake when you pull people around a business plan with the intention of creating growth—your time, money, livelihood, and reputation. When deciding who makes the cut, we advise considering many factors beyond just skill or likeability.

Character

This is by far the most important factor to consider when selecting a potential business partner or employee. Great skill, likability, and work ethic are valuable, but they are multiplied by zero if someone’s character or integrity are weak. A few ways to confirm good character: What does their work history look like? Have they shown consistency, or has there consistently been issues? Does drama follow them like a Wisconsin midsummer mosquito? Have they received increased responsibility in their work history?

I decided to invest the money. Against some of the advice I received, I did not gain majority control and invested double my initial threshold of comfort. I did not properly vet the third partner (this was my biggest mistake). I also invested some time, but it was limited (thank goodness for my mentor’s suggestion as I set pretty strong boundaries around this).

Within six months the company was no longer operational, let alone profitable. After 12 months none of the other three partners would have conversations with each other. Now several years later, the firm still hasn’t yet filed for bankruptcy, let alone paid out any distributions. I lost everything (well, except a capital loss deduction on our taxes).

As painful and expensive as a lesson like that can be, I learned a ton (remember our antifragile self-image from Chapter 6) about myself, about investing, and about people. Just because I was a banker, knew how to shred a financial statement, made other smart investments, and had other businesses did not guarantee success in a new environment. Interestingly, in my emotionally charged haste I had broken several of my own investing rules.

Had I looked deeper into the relationships of the primary owner, I would have discovered a lack of continuity, several prior busted business partnerships, broken personal relationships, and a shortfall of objective references. How someone has conducted themselves with other people matters. If you can’t confirm solid references, consider partnering with someone else, or limit the scope or responsibilities of the individual in question.

In addition, what good was all that great mentorship and advice I received if I wasn’t willing to apply it? There is nothing more frustrating for a mentor than to provide council to someone in good faith, knowing it will be extremely valuable, only to have the mentee not apply the advice and fail in the process.

Financial Resources

A potential business partner’s financial strength is not the only factor to consider, but it is relevant. We are not going to imply someone must have strong financial resources to start a business or be a good partner—many entrepreneurs do not! But if someone is financially destitute, it doesn’t give them or you a lot of cushion if things do get tough financially (and they invariably will). The financial responsibility will fall squarely on your shoulders. If they are not young, a deeper concern would be why are they still financially struggling? What is the quality of their thinking related to money management? If they do have resources, what is their motivation for going into business?

Motivation

Why someone may be getting into business with you is an important factor to understand. Here are a few questions you can ask yourself (or them, when reasonable). Many of these items can be stress tested by simply seeing the potential partner’s past behavior, asking these questions, or getting to know them or former associates over time.

Why are they getting into business with you? Are they someday planning to take over their parents’ multimillion-dollar business, and this will be a fun little temporary project for them? Or are they financially desperate and need to make some cash ASAP?

Does their Lifeset look good, meaning does it appear they have healthy long-term professional and personal relationships in their life?

Do they have a history of being an “idea” person and hop from project to project? Many pseudo-entrepreneurs have brilliant ideas but couldn’t put a balance sheet together, let alone a functioning business, if their life was at stake.

Are they addicted to the rush of doing something new and to the notion of entrepreneurship, not entrepreneurship itself?

Are they motivated because they sense you are already on the way up and can take them to the promised land? This is not necessarily a negative motivation; just make sure they are also willing to do the work to help you get there.

You can go into business with someone even if they are not a model citizen. They don’t need to take a lie detector test to confirm their motivation. But again, past behavioral patterns leave clues.

A successful entrepreneur we know was asked to participate in a very large real estate deal with some big-time players. He ended up backing out of the deal—not because he didn’t think it was good, but because all the other players involved were significantly further along financially. He wondered, why did they need his few hundred thousand when they were investing tens of millions? Something about people worth hundreds of millions asking him to get in just didn’t feel quite right. Because this entrepreneur, who already had numerous successful business partnerships, couldn’t understand the motivation behind their behavior, he decided to pass on the deal. He was thankful, as several years later two of the partners filed for bankruptcy. He never found out what the real issue was, but the entrepreneur we know was glad he took a pass.

Creating Balance and Offsetting Your Weaknesses

So many reasons to develop business partnerships are because someone can bring a strength to a company or team that you may not have. It could be financial, technical, or industry connections, etc. Introspection and understanding your own deficiencies are critical because they help you identify what talents you need on board and solicit them. A few questions you should ask yourself and them: What is the actual value they bring to the table? Is the value worth the ownership percentage or compensation they will acquire? What tangible resources or skills have they already demonstrated in their work history?

What do you bring to the table? Is it proportional to your contribution and does it line up with your ownership equitably? If not, it is likely just a matter of time before either one of you feel underpaid—or the other partners do.

Creating partnerships that complement each other is smart business strategy. If your potential partner or employee’s primary strength is creativity, but they are weak in processes or management, are you capable of bridging that gap or are you also totally incompetent in those areas? If you are strong at initiating or starting connections, is your potential partner a strong closer?

For instance, Craig here. Carrie knows if I’m on a call and there are certain things I say I will execute on a follow-up task when the call ends, there is a good chance I will not follow through in a reasonable time frame. It’s not that I’m lazy; trust me, I am nothing of the sort! My ADHD brain just naturally flows to the next shiny object at hand, and the simplest of items are temporarily (or sometime permanently) forgotten. She has learned not to count on me for that type of immediate follow-through and has luckily stepped up and overcompensated for my incompetence in this regard (and many others).

As another example, we know someone who runs a small retail business. One partner is an excellent salesman, and the other is brilliant with management and accounting. It’s the classic business partnership really. It works well for them and they don’t seem to judge one another for the strengths or weaknesses they have. It’s a great example of an effective interdependent relationship.

Personality

Unfortunately, most newly minted business owners make the mistake of leading with this when it comes to choosing who they go into business with. Enjoying someone’s company is a radically different experience than building a company; they are two totally different buckets. Just ask any married couple in business together.

We often jest about our differences in how we choose our healthcare providers. Carrie places a strong emphasis on how much she likes the medical professionals who have helped her on her health journey. She falls hard and fast for those who express great empathy, are kind, and build rapport. Craig is all for doctors and nurses having a wonderful bedside manner—but if it comes down to kindness or competence, Craig would choose competence every single time. The preference is to find both, of course!

But how nice someone is, is not always a good determinant of their technical competence or character. So many times, we have heard the statement, “Oh my financial planner, they are a great friend!” That’s fine. But if they are charging you excessive fees for your $250,000 in assets under management, putting your investments in heavily loaded and underperforming mutual funds (because there is extra commission), and overselling you whole or permanent life insurance, I’d say fire them and find someone competent. Or at least find someone with good pricing. Unless, of course, them being a “great friend” is worth thousands of dollars per year to you.

Learn to Draft Your Team Instead of Recruit

Explore. Check your options. This can help give you a much stronger perspective on moving forward by validating you got the best deal in town (or on Zoom). Having options can also give you better negotiating power.

One of the best areas we “invested” in a couple years ago was getting an au pair (aka a live-in nanny) from Colombia. Some people close to us were initially confused by this. We had someone ask us, “So she is going to like . . . live in your house?” None of our peers had used an au pair before, but we wanted to give it a go for a few reasons: we were paying about the same amount of money for a lot less childcare, we wanted our children to learn some Spanish and gain exposure to another language and culture firsthand, and we wanted to provide a great experience for someone who loved children and desired an opportunity to come to the States.

It’s important to interview more than one candidate before you settle on a random business partner, vendor, mentor, or spouse. Remember, Think NBA drafting, not collegiate recruiting.

When we started the interviewing process, we conducted over a dozen interviews. We went back and forth between our top couple selections and eventually extended an offer to Isa. She accepted, and it has worked out wonderfully—she is now completing her second year in our home. We are in the process of helping her apply for a master’s program to extend her time in the United States. She has become our fifth family member. Now, honestly, there is some luck involved in finding a great match, but we were surprised to hear how many of these pairings don’t go well. We asked several people how many nannies they interviewed, and someone responded, “You mean, you interviewed more than one?” Choosing an individual to live with our family was an extensive vetting process. Why would you let someone become a business partner in a major area of your life without a strong selection process?

So you mean to say you are going to start your first business; invest hours of time, sweat, blood, and your hard-earned capital; and not going to consider interviewing any other options for your possible business partner?

It’s important to note that the preceding recommendations are not hard lined. We all bring weaknesses and past mistakes to any venture. These are simply important things to consider prior to starting a business or bringing on a new supplier or relationship.

We have witnessed a large number of entrepreneurs who would have been considerably better off, and happier human beings, had they asked these questions.

Choosing Your Professional Advisors

Although much of the preceding information already applies when choosing which professionals to work with, here are a few additional thoughts to consider when hiring the following:

Bank, banker

Attorney

Accountant

Marketing, advertising company

Financial advisor

Contractor, realtor

Consulting for social media, advertising, IT, etc.

When choosing these professionals, consider whether they are generalists or if they specialize in your industry. Is it important to you to have a specialist? What phase of their career are they in? For example, you can find an accountant right out of college who may be economical, but if they haven’t handled more sophisticated taxes for businesses, they might not be your best option. You can also find an attorney or an accountant who is extremely sophisticated but at a premium price that may be unnecessary for some basic contract or legal work. Just because you know a bankruptcy attorney who works in contract law, doesn’t mean you want to hire them to advise you on a complicated intellectual property issue. With attorneys this is fairly obvious, but with many other professionals they might not always volunteer their experience or credibility unless you ask. Not all CPAs, financial advisors, and attorneys are created equal, so when possible get referrals from other business owners or contacts you know and trust.

Selecting Vendors, Suppliers, and Other B2B Relationships

A few additional things to consider when deciding between vendors, suppliers, and other business-to-business relationships.

What is the firm’s reputation in the industry? Have you even cross-referenced or checked? Ask their other customers what the firm is like to work with!

What are the vendor’s typical terms of paying their customers or suppliers? Depending on the amount of the contract involved you can run a Dun & Bradstreet Report, which provides some of this type of information. Consider running a pilot order through a vendor. This allows a test run and lets the vendor know you are serious about receiving a quality service or product before you go all in with them.

Set expectations clearly and establish a legal contract as necessary, so as to avoid any confusion later. If needed, have a trusted attorney create or review large contracts. Never be afraid to shop for a better deal—even just to keep your current supplier honest. Taking 20 minutes and making a couple quick phone calls (or having an employee do so) to cross-reference your pricing can oftentimes provide a lot of leverage.

Recently we had to hire an attorney to review some contracts. The attorney we worked with a few years ago was solid and came highly recommended, but was extremely hard to get a hold of and in process of phasing out of his career. We got a referral from a trusted business partner for an alternate option. The potential attorney’s pricing was good, but we were not comfortable with their communication style or background. So we ended up with an attorney who has done more sophisticated work in the areas we needed support in. At $500 an hour, it cost us $1,000 to have them review two contracts, but in the end we felt comfortable with the quality of the work.

As a business owner, you can shop almost all services and negotiate many of them. Negotiating pricing is more common as a business owner, as the transactions are larger and vendors generally have fewer clients, giving you more leverage. Don’t be afraid to challenge for the best pricing—especially if your business is on a tight budget. Of course, don’t be a jerk or challenge their pricing in every conversation, but smart business owners are skilled at receiving the value they are paying for.

People often ask us (generally individually) how we like running a business with our spouse. Sometimes they scoff and say, “Well, I could never run a business with my husband.” We have been fortunate in our partnership as we both took careful inventory early on to make sure we had a strong enough alignment in the areas covered in this chapter to actually be successful together. Whichever side hustle you choose and whoever you choose to accompany you, take your time—choose wisely. Making smart selections in this department can propel your side hustle forward in big ways, and good choices also make the adventure much more enjoyable!