$1M Mistake #2 Firing 20 People Because of A Bad Call Ep 279

Summary Notes


In a candid reflection on business growth and management, the host recounts a costly oversight in scaling a customer service department for their supplement company, Prestige Labs. Initially buoyed by significant revenue growth, they hired 25 customer service reps based on the promising performance of their consulting firm, Gym Launch. However, the host admits to a critical misstep: the director, promoted from within, lacked experience in building a department and managing a physical product line. This led to inefficiencies, with work that four employees could manage being handled by 25. A new director introduced time studies and utilization tracking, streamlining the department to a more efficient and transparent operation, ultimately teaching the host valuable lessons in industry-specific experience, oversight, and the importance of metrics-driven management.

Summary Notes

Introduction to Business Challenges and Growth

  • Speaker A reflects on a challenging period in their business career during the launch of a supplement company.
  • The company had experienced significant growth, doing $28 million the year before the supplement launch.
  • Speaker A discusses the importance of customer service and the hiring of an experienced employee to manage this aspect.

Right. We realized that obviously it was over and then we ended up having to cut 20 people, which was horrible.

This quote sets the stage for a discussion about the difficult decisions that come with business management, specifically the need to lay off employees when circumstances change.

Launching a Supplement Company

  • The supplement company, Prestige Labs, was expected to perform well financially following the business's previous success.
  • The first few months saw substantial revenue, with $1.7 million in the first month, followed by $1.5 million and $1.6 million.

And so this was two years or two and a half years in. And so at this point we had just done 28 million the year before.

This quote provides context for the timeline and financial background of the business before the launch of the supplement company.

Scaling Customer Service

  • The company took a successful customer service representative and promoted her to manage the new physical product line.
  • Speaker A emphasizes the importance of maintaining high-quality customer service with the new product launch.

So we took one of our heads who had worked up from the bottom. She was a frontline customer service rep who had been a frontline customer service rep at a different big company.

The quote explains the career progression of an employee who was promoted due to her experience and performance in customer service.

Anticipating and Managing Growth

  • In anticipation of high demand, the company hired 25 customer service reps.
  • A beta launch of the product line was conducted, which brought in $600,000 and indicated a need for more staff to manage the workload.

And so what we did was in anticipation of the volume that was going to happen, we hired 25 customer service reps.

This quote discusses the proactive measures taken to handle expected customer service volume following the launch of the new product line.

Lessons Learned from Business Mistakes

  • Speaker A alludes to many lessons learned from the experience, suggesting that the story will highlight mistakes and the knowledge gained from them.

There's a bunch of lessons that I learned from this.

The quote introduces the idea that the experience with the supplement company provided valuable business lessons, setting the stage for further discussion on those points.

Inefficiency in Workforce Management

  • A company with four full-time employees was compared to another with 25 employees doing the same amount of work, highlighting a significant discrepancy in workforce efficiency.
  • The speaker points out a lack of transparency and accountability in remote work settings, where employees claimed to be overworked but were actually underperforming.
  • This situation was likened to theft, not because they were stealing, but because they were paid for work they were not doing.

"The same amount of work that currently is done by four people is being done by 25. And by being done, I mean not doing anything."

This quote emphasizes the stark contrast in productivity between two groups of employees, where one smaller team is as productive as a much larger team, which is essentially unproductive.

Lessons Learned from Mismanagement

  • The speaker learned valuable lessons from trusting an inexperienced individual who had never built a department before.
  • The individual's experience in a service business did not translate well to managing a physical products B2C company.
  • Differences between B2B services and B2C product lines require different levels of service which was not acknowledged in this scenario.
  • The speaker admits fault in delegating authority to someone who was not equipped for the role, leading to poor decision-making.

"The first one was this individual had never grown, who had never built an apartment, right? So they had no experience doing it, number one."

This quote reveals the first lesson about the importance of experience in building and managing a department, which the individual in question lacked.

"Number two, the experience that they had in our service business was not relevant to a physical products b to C company."

Here, the speaker identifies the mismatch between the individual's experience in a service-based business and the requirements of a product-based B2C company.

"But we like to delegate authority, like to delegate decision making so that we can trust people to make good calls. That was a bad one."

The speaker reflects on the practice of delegating authority and admits that in this case, it led to a poor outcome due to the wrong person being entrusted with decision-making.

Realization and Action

  • Upon closer examination of work processes, it became clear that the workload did not justify the size of the department.
  • The speaker identifies that there were only six main tasks that needed to be completed, implying that the work could be managed with fewer resources.

"It can't take that long to do these tickets. There's only six main things that have to happen, right?"

This quote suggests that upon reviewing the ticket volume, the speaker realized the tasks were not as time-consuming as previously thought, indicating a potential overstaffing issue.

Call to Action for Podcast Support

  • The speaker does not run ads or sell products through the podcast and instead asks listeners for support to spread the word.
  • The goal is to help more entrepreneurs through the podcast's content, and listeners are encouraged to leave reviews and share the podcast to achieve this.

"The only ask that I can ever have of you guys is that you help me spread the word so we can help more entrepreneurs make more money, feed their families, make better products, and have better experiences for their employees and customers."

This quote is a direct request from the speaker to the listeners, emphasizing the importance of sharing and supporting the podcast to benefit the entrepreneurial community.

Workforce Optimization and Efficiency

  • The speaker's organization faced an issue with overstaffing.
  • A candid admission from an employee revealed that they were underutilized.
  • The speaker recognized their own fault in the situation leading to layoffs.
  • A new director with experience was brought in to address inefficiencies.
  • The director implemented time studies and utilization tracking.
  • The process involved assessing time taken for various tasks and the volume of those tasks.
  • The goal was to match the inflow of work with appropriate labor time allocation.
  • Regular reports on workforce utilization help in managing staffing levels and preventing burnout.

"And then we ended up having to cut 20 people, which was horrible."

This quote reveals the difficult decision the organization had to make in laying off employees due to overstaffing, which significantly impacted the company's reputation.

"And so we got a new director in there who had experience, and what she did to fix the department was she went in and did time studies."

The quote explains the introduction of a new director who brought in expertise to address the department's inefficiencies through the use of time studies.

"So how much time does it take to respond to an email, on average? How much time does it respond to a support ticket, on average?"

This quote illustrates the director's method of calculating the average time required for various tasks to determine the appropriate staffing levels and work allocation.

"And so with that, like, every week, I get a report says we're at 72% utilization. We're at 88% utilization."

The quote indicates the establishment of a system that provides weekly reports on workforce utilization, allowing for informed decisions regarding staffing and preventing employee burnout.

Accountability and Management Responsibility

  • The speaker took full responsibility for the initial oversight leading to overstaffing.
  • Recognizing their fault, they took steps to correct the situation.
  • The experience led to a more data-driven approach to managing the workforce.

"It's horrible. I mean, our glass door got slammed as a result of that. You ruined my life. And I'm like, weren't working. And it's hard. And it was my fault. It was 100% my fault."

This quote shows the speaker's acknowledgement of their responsibility for the negative consequences of overstaffing, including the impact on employees and the company's reputation.

Strategic Workforce Planning

  • The company learned to align workforce capacity with actual work inflow.
  • Utilization tracking became a key tool in strategic planning.
  • The aim is to maintain high utilization without overburdening employees.

"If we get over 90, we're like, okay, we're getting close to, we need another person, but we usually try and stay in the high 80s because then you're not burning people out, but it's just well utilized."

This quote emphasizes the balance the company seeks to maintain between high utilization rates and the well-being of their employees, using strategic workforce planning to avoid overstaffing or understaffing.

Importance of Experience and Expertise

  • Emphasize the need for hiring individuals with experience in the relevant industry.
  • The significance of verifying the claims of potential employees.
  • The consequences of not thoroughly vetting employees can lead to inefficiency and negative company reviews.

One is make sure that the experience that, a, make sure someone is experienced. B, make sure that they're experienced in the exact same industry.

This quote highlights the first key lesson about the importance of not just experience, but industry-specific experience when hiring for a business.

C, sometimes you have to investigate and not take people's word.

This quote underscores the necessity of due diligence in the hiring process to ensure the credibility of potential employees.

Quality Assurance in Business

  • Quality Assurance (QA) is crucial for verifying the validity of data and the honesty of employees.
  • Accepting responsibility for failures as an entrepreneur is essential.
  • The impact of dishonest or disengaged employees on the company's reputation and internal morale.

And it sucks, but it's part of business, and that's called QA. It's quality assurance.

The speaker is explaining that QA is an integral part of business that involves validation of information, even though it may not always be a pleasant task.

Everything's your fault. As an entrepreneur, it was my fault.

Here, the speaker takes ownership of the mistakes made, emphasizing the responsibility of an entrepreneur for the shortcomings within their business.

Transparency and Metrics in Management

  • The importance of quantifying tasks to remove ambiguity and increase transparency.
  • Metrics-driven management helps in assessing the productivity and efficiency of employees.
  • Creating a transparent work environment can reduce employees' job insecurity.

The thing is, once you quantify everything, there's no fluff.

This quote means that by measuring and quantifying work tasks, management can clearly see performance levels without any ambiguity or superfluous elements.

Everyone feels they don't feel like they're at risk because on some level, teammates can know if their jobs at risk, right?

The speaker suggests that when performance is quantified, employees have a clear understanding of expectations and job security, which can alleviate stress.

Building a Productive Team Culture

  • The negative impact of a culture with unproductive employees is likened to a "cancer" in a company.
  • The role of proper systems and experienced leadership in fostering a productive team.
  • The ultimate goal is to avoid costly mistakes and create a thriving work environment.

If you put those layers in place, you put the tracking in place, and you hire somebody who already has the experience to have built a team, not just been on one, but built a team for the specific type of business that you're in, you will be so much further ahead.

This quote stresses the importance of implementing structured systems and hiring leaders with experience in building teams within the specific business industry, which can lead to greater success.

It's the biggest cancer you could possibly have in your company.

The speaker uses the metaphor of cancer to describe the detrimental effect of having unproductive employees in a company.

Conclusion and Encouragement

  • The speaker hopes their advice helps others avoid making similar costly mistakes.
  • An expression of goodwill and a teaser for future content.

So hopefully that's valuable for you. Hopefully you can avoid that landmine and otherwise, have an amazing, amazing day and keeping awesome.

The speaker concludes by expressing hope that the advice shared will be beneficial to the listener and wishes them well.

And I'll tell you the next terrible mistake I've made in my life. See you in the next video.

This quote indicates the speaker's intention to share more lessons from their own mistakes in future content, encouraging listeners to stay tuned.

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