the leverage loop, how to hire without getting stuck

Summary

every entrepreneur hits a wall called the leverage loop. it goes like this.

1. you start a business. profit goes up. time goes up. it feels great.

2. you hit a ceiling. you can’t grow without help. profit starts to dip. time starts to dip. you tell yourself you don’t need to hire.

3. eventually you hire. and the first thing that happens is profit AND time get worse. you have to train, onboard, and integrate a new human. that’s the loop.

4. if the hire is good, you climb out. profit goes up, time goes up, and you’re at a new ceiling. you can do it again.

5. if the hire is bad, you stay in the loop. sometimes for years. I’ve watched entrepreneurs lose a decade to one bad early hire.

the move is to not get stuck in step 5. three rules:

1. personality match first. I use the DISC assessment internally. know your strengths, know theirs, hire complementary not similar.

2. hire slow. multiple interviews. assessments. probationary period. never hire out of desperation.

3. fire fast. 60 to 90 days is enough to know. if it’s wrong, end it. dragging it out for a year costs more than the awkward conversation does.

the leverage loop is real. you don’t avoid it. you get through it cleanly.

Transcript

introduction to the importance of avoiding entrepreneurial burnout

Today, let’s talk about the leverage loop so you can get more time and more profit in your business. So the leverage loop is something I talk to a lot of entrepreneurs about. The main reason being is because I really harp on the fact that to be good at business you have to continually develop yourself.

You have to read the books. You have to work on your mind. You have to exercise. You have to eat right. The more you take care of yourself, the faster your business can actually grow. But it always comes with this, I don’t have time to do those things. And it’s true. As an entrepreneur, especially in the early stages, you get squeezed for time and money as you’re trying to scale and it’s very, very difficult.

But as you free up more time and you free up more money, you’re able to focus more on yourself and developing yourself so you can actually do the things that are required to become a better human and ultimately grow your business faster. But I see a lot of entrepreneurs get stuck in the leverage loop, which I’m going to be talking about today.

So one is to recognize where you’re at in the loop, avoid the biggest mistake inside the loop, and then from there catapult yourself to new levels of profitability and free time or time to do what you want, live a larger life. So let’s talk about it. Let’s dive into the leverage loop. So leverage loop is on the X and Y axis.

You have the Y axis, Y axis would be profit and the X axis would be time. And people like to think that as you hire people, things just go up and to the right forever. But in reality, that’s not really what happens. So what happens when you’re first starting a business is you’re going to start to become more profitable and you’re going to start to get more time, but there’s going to be this area where it kind of maxes out.

understanding the leverage loop

You kind of max out the amount of free time you can have with the amount of profit that you can have before there’s going to be some sort of a dip. And the dip’s going to start happening either, you know, the profit’s going to start to come down because you’re getting burned out, you can’t handle anymore, or the free time is starting to come down.

And sometimes it’s both, ultimately because you’re working so much, you don’t have any time to do what you really want. And you will think right before this happens to you, maybe I don’t need to hire. Maybe I can just be this solo entrepreneur and make plenty of money and I’ll be happy doing that. And we see a lot of people try and stop there, but eventually they realize this isn’t what I truly want and you have to nudge these entrepreneurs along.

So if you’re thinking like, no, I’m good, I’m just going to stay in this beginning stage, maybe you think that now, or maybe you just need someone to push you a little bit harder to decide, hey, I’m ready to scale, I want to go to the next level. And so once you finally decide that, you’re going to be like, okay, I’ll hire.

And the reason you’ll do it is because you’ll realize, whether that takes you three months or three years to realize, doing it by yourself or you and one other person isn’t really going to cut it. The profit will start to dip, your time will start to dip, and you will finally be at the point where you’re like, you know what, okay, I’m going to hire.

And when you get there, you’re officially in the leverage loop, you’re getting there because you are starting to see your profit take a dip and you’re starting to see your time take a dip and you know the only thing left for you to do is to hire somebody. And so then you get to stage three here and that’s when you go to hire someone and you’re going to wish that you didn’t do it at all.

identifying signs of potential burnout

And the reason you’re going to feel that way is because when you hire a new human being, you’re going to take a dip in profit and you’re going to take a dip in time. So the whole reason you decided to hire in the first place was because you wanted to make more money and you wanted more time. At a minimum, this new hire should free up some time, right?

Well, what happens is they take up more of your time in the short term. This is acute because they take a lot of time, energy, and attention. You have to train them. You have to onboard them. And when you are a solo entrepreneur, it’s very difficult to find the time to do those things. So now you’re taking a back step in time.

Your time is going down significantly because now you don’t have as much time to focus on the business. You’re trying to focus on this other person you’ve brought in and your profits taking a significant hit because you have had to hire somebody. So at some point you will say to yourself when you’ve hired somebody, you’re going to be like, why did I do this in the first place?

And ultimately you’re going to start to rebound. Now time and profit will get at its ultimate worst right after you’ve hired someone. And this could be a couple of months. This could be six months. This could be a quarter. This could be a year. It really depends on your business and your marketing strategy and the things that you’re selling.

But ultimately you will start to rebound out of this and you’ll start to see more profit and more time. But here’s the deal. A lot of people, and this is the biggest problem you want to avoid, they get stuck in this leverage loop on repeat. Okay? So the leverage loop is you go, you’re like, you think that you don’t need to hire.

strategic hiring to mitigate workload

You’re like, okay, I’ll hire. Then you get into this position and be like, why did I do this? And this can loop for infinity if you make a bad hire. This is going to be the thing that slows you down. And I’m not talking about for weeks. I’m talking about four years. A bad hire will slow you down if you do not figure this out.

A bad hire is the worst thing you can do when you’re stuck in the leverage loop. So a bad hire is just going to have you continually go through this loop of decreased profit, decreased time. Then you find out they’re a bad fit, so you have to go through this loop again. You fire them or they quit, so you keep going through this loop.

I’ve seen entrepreneurs get stuck in this loop for years, years, okay? Because they hired out of desperation. They hired too quickly. They didn’t do the things that were required when they brought this person on. They did it too fast and they get stuck in the leverage loop for years at a time. Now eventually you’ll get to stage four, you’ll hire somebody, you’ll get more time, you’ll get more profit.

The business is growing and you’re going to be like, that is awesome. This is awesome. I want to hire more people. But it doesn’t come without having to go through the leverage loop of taking a step backwards in time and the reduction in profit. But here’s the deal, I don’t want you to get stuck in this loop more than once, okay?

So you’re going to get stuck in this loop when you’re hiring your first couple of employees, this loop will probably happen, but then it’s going to catapult you to more profit and more free time. But how to avoid this loop or getting stuck in this loop for years, which I see happen to a lot of people, is you need to focus on this hire.

practical steps to implement the leverage loop

So I got three things for you when you’re hiring somebody for the first time. One, make sure that there is a personality match, meaning that you know their strengths and weaknesses, you know your strengths and weaknesses. A big thing that I like to use is the DISC, personality assessment, D-I-S-C, I have no affiliation with the company or anything like that, it’s something that we use internally.

It’s fairly inexpensive and they explain things really well through their website and you could even reach out to them to help making sure that you’re a good match with somebody that you want to hire. This is a big mistake that I made, was not running people through this to find out their strengths, their weaknesses, your strengths, your weaknesses, because sometimes you want to hire a complimentary or sometimes you want to hire somebody who’s to the contrary of you, depending on what the role is, and you can see that when you have somebody take a personality assessment.

So definitely go through that step, because our tendency, naturally, is going to be hiring somebody who’s exactly like we are, which can be a huge problem. Like if I’m not very detail oriented, and I’m not really into, you know, knowing all the minutia of things, and I’m not very thorough, right, and I’m hiring an admin role, and I interview the person and they’re like, I’m like, I like this person, they’re exactly like me.

It’s like, well, they’re exactly like you, but they’re a horrible fit for the job that you’re trying to, you know, have them come in for. So making sure that they’re complimentary to you, and most importantly, that their personality or their strengths, according to the DISC assessment, matches with their job, matches with their job role.

That’s the first thing. The second thing is hire slow, okay? Hire very slowly. Have them go through the personality assessment. Have multiple interviews. Go through this process very slow. Make sure that they are a really good fit. So never hire out of desperation, because I’ve seen a lot of people do that, and then they’re scared to fire, so they are stuck in the leverage loop, maybe forever, and this was what will hinder your business from growing, because you can’t bring on another person.

the importance of self-care and continuous learning

You don’t have the money, and you don’t have the time, but you’re afraid to fire this person who’s just doing okay, and so you get stuck here forever, and it could actually be the thing, the reason your business will not grow any bigger than it is. So hire very slow is the second thing, and then the third thing, you’ve probably heard it before, fire fast.

That is the last thing, so you don’t get stuck in this loop for too long. I don’t want to have somebody on the team for eight, nine, 10, 12 months before I decide to fire them. I need to decide that very quickly. They’re either a good fit, or they’re a bad fit, because I know this leverage loop exists, and I don’t want to get stuck in it.

I don’t want our team to get stuck in it, so you’ve got to get rid of people very, very quickly, and that might sound ruthless, but I’m not saying give somebody 30 days. Most of the time when you hire somebody, you have some sort of probationary period. For a lot of companies, it can be 60 to 90 days, and that is where it’s like, hey, we’re testing this out.

If it doesn’t work, it doesn’t work, so on and so forth. Sometimes you can even hire people in a contract role before you bring them on full-time W-2. There are a lot of ways to test the waters with somebody if you don’t feel like you’re that great at hiring, you don’t have those skills, but definitely go through that process and don’t be afraid to cut somebody out if they are not a good fit, because your business depends on you being a good leader, not getting stuck in these leverage loops, not being in these leverage loops for years.

You need to realize you need to hire, make the hire, you’re going to take a couple steps backwards, but then you’re going to catapult into a new, bigger, faster, stronger business, but you can only do that if you’re willing to make decisions quickly, you’re hiring the right people, and ultimately firing the wrong people who don’t need to be on the bus with you as you try and scale.

recap and final thoughts on building a sustainable business model

This is the leverage loop, hopefully just uncovering and identifying where you’re at and being able to go through the hiring process will help you to build a better business so you can live a bigger life. Try harder, live bigger.