0:07
have to look on a Zoom camera when I’m talking to my guests. Today, I have the unmititigated pleasure of another bald
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guy. Uh, Nathaniel Elely is here in studio and we’re going to talk about business. We’re going to talk about the
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business of construction and a bunch of other businesses that Nathaniel’s involved in. So, Nathaniel, you have
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started a variety of businesses. You’re an entrepreneur. maybe you could give me uh and our listening guests a quick
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rundown on some of the businesses that you’ve started and are running now. Sure. First off, just thanks for having
0:36
me. I appreciate it to be here with another bald bald guy, you know. So, y uh and uh we currently own and operate
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three businesses. Um Elie Construction, that’s a design, build, remodeling company. Y had that for 18 years. Um and then we
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acquired Moscow Glass and Awning, another construction company, uh about a year and a half ago. And we just
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launched a completely unrelated business, a tax savings service and software uh called the August rule where
1:01
we automate tax savings for business owners. That’s really cool. Okay. So, so we’re going to talk a bit about the construction business and just kind of
1:08
how do you think about construction? And for those who don’t know who aren’t bald and don’t have the inside track, bald
1:13
guys, when you see another bald guy, there’s an instant affinity. Like I’ll see a guy on the street and it’s just like, hey, nice haircut. It’s just a
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thing we do. So, um there you go. Not related at all to what we’re doing here. So, when you started Elite
1:24
Construction 18 years ago, let’s start with that. Um, did you get investors? Did you bootstrap? Um, how’d you buy the
1:30
tools? Like, what does it take to start a construction business? If you have a young entrepreneur out there thinking about it,
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sure. I think everybody’s story is going to be different. Um, mine was that I was being asked over and over again to do
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work for people um, out of college because I had construction skills. I’d been raised in a a family with a lead
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carpenter. My dad’s a lead carpenter still to this day. uh 50 some years uh you know later full-time and so I had a
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lot of skills already built up because I was made to work in the family business growing up which I did not appreciate it
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was very good for me but you’re grateful now. Very grateful now. Exactly. Yep. And uh out of college I uh you know tried
2:07
different things because I graduated a semester early but then it was a boom time in construction. So I got asked to work and I just kind of jumped up the
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ladder 6 months here, six months there, foreman, project manager and I was actually asked to start a company by
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another gentleman in town that ultimately failed. Um and it failed in large part because of character flaws in
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myself. Um but uh and I and I own just my side of it, you know. So, uh, but the
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market conditions were also terrible at the time. We were just getting into the recession, the great recession. Yep. So, so at that time I’m like, I I didn’t
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pay attention. I’m like, oh, okay. I just lost my job. So, what am I going to do? Well, I did get a little bit of a check
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and I took that check and bought tools and was already in relationship with people. I think that’s the key. I had
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relationships. People knew me. They trusted me. They asked me to do work for them. So, I immediately had work. Six
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months later, I had five people on my team because there was it was a boom time, right? So, you kind of came out of this recession. Y
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um a painful experience, character flaws, all the things. And I would say so many entrepreneurs have to deal with
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that all the time, right? Whether it’s your mistakes, whether it’s other people’s mistakes, whether it’s market conditions, um you just need to deal
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with the fact that uh businesses fail sometimes and you can either, you know, sit on your couch and cry in your beer
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or you can go take your little check, buy some tools, and just get back to work. Yep. And the I think the biggest thing
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to highlight there is that timing matters, right? Yep. Yep. For sure. Okay. Okay. So, as you started adding employees, um,
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talk me through what it took to put people on payroll, um, to, uh, manage people, to build culture around hard
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work. Yeah. So, uh, basically people ask, okay, how’d you get where you’re at? And my answer is typically trial and error,
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mostly error. And that applies to this area specifically. So, totally. Yeah. Totally.
3:52
So, um, I did everything wrong. Um, basically, uh, I hired people who were
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all 1099 contractors. Okay. Which is not even legal anymore. That’s right. At the time it was like gray, not that
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gray, you know, you could get away with it, basically. Um, and I thought, okay, well, employees are expensive.
4:09
Yes. I I thought, okay, uh, well, I need to have people, but I can’t afford them, so
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what do I do? And I just basically anybody who was breathing who would show an interest, I would I would hire them,
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right? Put them to work and set them up. Yep. Basically. So we did that for a few years and then as we kept growing I
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think we had eight or nine people and the recession to be clear already happened like it it started down in
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California. Yes. I we were watching it occur and did nothing. Yeah. Okay. That’s how smart we were.
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This isn’t going to come to my town. Exactly. Yeah. That worked out. And so we’re we’re evolving and growing.
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And then we get the advice. we finally got, you know, a lawyer and the accountant, you know, the bookkeeper,
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like everybody in the room, all the professionals, and be like, “All right, what do we need to do for employees?” And they’re like, “No, you got to do this.” And so, we made that switch right
4:57
before the recession hit our town. Brutal. So, it was brutal. So, it wiped us out. Um, you know, I think I think uh
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construction or housing sales in our town dropped by like 25%, you know, within a single quarter. Yep. And that’s
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a direct uh supply of remodel projects. And so, our work got wiped out. I mean, there’s so many other things we had
5:15
wrong, our pricing model, like all kinds of other things. And so, I had to lay off all my my now employees. And it was
5:22
just me and it was the year I got married. And so, there’s there’s me and my new wife and my my brother-in-law
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looking at her and being like, “Can this loser provide for you?” Literally. Right. Yeah. Right. And uh it worked out
5:32
because you’re still married. Still married. Still have the business. Um and what it was before or after you
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lost the fingers? This was after. So, I lost the fingers. This would have been
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the dangers of construction, ladies and gentlemen. This the fingers went uh actually at the the second to last day that I ever
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worked in the field for somebody else. Really? Yeah. This became the last day. Yeah, it became the last day. That’s
5:56
exactly I’m headed to the hospital. See you later. I’ve been head-hunted to to go from a
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lead carpenter position to a project manager position to launch that new company and lop these puppies off.
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Yeah, you did. Why would on a Thursday? Why wouldn’t you? Yep. So, there you go. Yeah. Table saw. table saw. Okay. So, um from the lessons you
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learned, how did you change the way you started doing hiring and thinking about employees?
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Um from all the lessons from firing people, from 1099s and all that. Slowly.
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Yeah. Very slowly. Okay. So, very dense. Uh I had basically the way I think of it is I had a bunch of
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head trash. I had a bunch of lies that I believed were the truth about employees, about hiring. And I had to get I had to
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work my way through all these things. What is some of your head trash? Let’s let’s talk about my hedge. Let’s talk about hedge crash.
6:46
So, uh again, I already referenced I thought they were too expensive, you know, to have. I thought things like,
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oh, I don’t need to market. I have plenty of work because work would come in, right? But it wasn’t necessarily A+ work. It
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wasn’t ideal clients, right? We would just take whatever came. Well, I have plenty of work. I don’t have to market. I thought I thought helping always
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looked like having one or more uh drug addicts or alcoholics or recovering
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recovering of those two on the team at all times because that’s that’s what the picture of helping I had was in the in
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my past. So I continued that forward and it took really the the the break point was uh when two of these guys who
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were in that position stole some prescription drugs from a client of mine, lied about it to my face. I
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couldn’t tell. And the client turns to me and says, “Nathaniel, my brother died on that very prescription drug,
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overdosed and and killed himself.” And I about vomited. And I said, “This will never happen again.” Yeah, that would pretty awful.
7:40
That that would do it. And and so yeah, when you tried to kind of combine ministry/ business,
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um you you have to be really careful about that. Correct. You have to understand things in their in their sphere, and their
7:52
place and and have some humility about your lane, right? You know, so I realized that by loving these guys, I was hating my clients.
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Yeah. And you can and you can still love your your employees. You can still bless your employees, but um not by, you know,
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that’s not how you do it. But that’s not how you do it. And that’s the thing. So, Red Balloon, we’re like, hey, we want to bless our customers. We want our customers to be better because
8:13
they interact with us whether they buy anything or not. We want to bless our employees. We want them to be better people because they’re working here. And
8:19
we want to bless our shareholders. And we want to check all three boxes with every decision we make, right? And so,
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it’s very easy to get obsessed with one of those boxes. And I think even some of the social movement that’s happened over
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the last several years um forgot at least two of those stakeholders. They
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talk about stakeholder capitalism, but if you care about your customers and your employees and your shareholders,
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it’s hard to do really stupid things in business um and still be a blessing to all three of those categories. Right.
8:49
That’s correct. Yeah. You have to have the hierarchy in place of of thought of priority. Yeah. Okay. So anyway, so that was some
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of your head track around thinking around employees. We we’re entrepreneurs. Of course, we have head
9:00
trash. It’s just, you know, we have these ideas we’re absolutely fixed in. And the thing is, as an entrepreneur, and I’ve heard this from multiple
9:06
people, you have to be dead set on an idea or else it’ll never work anyway, whether
9:12
it’s the right idea or not. And so, we tend to be really stubborn people because we’re like, “No, this has to be
9:17
the way.” Because we’re trying to pitch everyone on why we think this business will work, why they should invest in the
9:22
business, why they should buy our products, whatever it is. High pain tolerance, right? High pain tolerance. Um, but there’s a dark side to that and and
9:28
that’s where some of the head trash comes from. So once you’ve kind of identified head trash, you’ve removed
9:34
some head trash. Um, what are some of the principles you try and use when hiring now besides slow?
9:39
Yeah. Yeah, that’s that’s right. Um, right now at this point we have a a 10-step documented hiring process in our
9:45
construction business. And then we actually uh we actually leverage that unique ability in that business to do
9:50
our hiring for other businesses because it’s so strong. Um, and so, uh, basically the thing that I would say to
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that get to get clear on first that we had to get clear on first was our core values. And that’s the five things that
10:01
differentiate us from the market. And I would refer to, uh, Gino Wickman’s traction for this. He’s got the best, I
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think, discussion on on core values that I’ve seen. You know, just a few pages, but very powerful. And so, we got uh,
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really clear on those. And those for the audience, you don’t need to have those 100% right off the off the bat, but you
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do need to work on them. And so for us, we have those five. We hire, fire, promote, and demote on those. They’re
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they’re published, you know, on our walls. They’re in our hiring material, everything. And then, uh, once we did
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that, we, you know, more formalized our interview process. We made it, you know, really just like this step, this step,
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this step. I mean, we did things like not have them fill out a form to begin with. And we literally hired people that had no driver’s license.
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We we did we did some of the dumbest stuff. We had some somebody whose spouse was about to be on trial for for
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manslaughter and we didn’t like you laugh at this. Can you say baggage?
10:54
Yeah, exactly. I mean, so like if there’s a way that it could have been done wrong, but we’ve all but we’ve all done that, right? Um and you think I but I have to
11:00
fill this job right now and I’ve seen a lot of desperation hiring and that generally doesn’t go well. No, where it’s like I’ve got a project, I’ve got a
11:07
customer, the customer’s going to be disappointed, I’m going to hold a mirror under this person nose if it fogs up,
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they’re good to go. Um, back to your principles, core values. Um, what what are those for EL construction?
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Yeah, El Construction. Uh, we borrow one from Patrick Lenion. So, that’s that’s humble, hungry, smart. So, we’re looking
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for people who are are, you know, they think the rightly of themselves. Uh, they think they’re like, look, I’m here
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to learn. I want to learn. They’re hungry for a raise. They’re hungry to learn more and to be promoted. And
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they’re not only actually, you know, they not only have a high IQ and they’re they’re actually intelligent, but they’re also emotionally intelligent.
11:42
Um, so that’s one. And then another one is uh the three loves. So and that that’s very similar to to yours which is
11:48
ours is you know love the team, love the client, love the work. The three loves and then yeah it’s very
11:54
similar. So and then another one is organized organizer. So we only hire people who are not only individually organized but they create an
12:00
everexpanding sphere of organization around themselves. Okay. Yep. Unpack that a little bit. What does that what does that mean? So do you need all
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kind of anally retentive people who are have to have everything just so and are a little OCD?
12:13
Not at all. So one of the things we do in our hiring process, one of the 10 steps is we do a colby a assessment and
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that is a basic assessment to fast forward understanding of people’s mode of operation. So how do you initiate
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action? Um and sometimes we have people who are super high detail. I mean they need every little detail to function and they
12:30
are phenomenal in their roles. And then we have people who are very low on detail. This guy Yeah. you know, don’t
12:35
like they and they literally know not to tell me all the details. Um, and so how that ties in with the organized
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organizer is within that context of everyone’s unique ability because we use that language a lot. Come come come
12:47
straight from strategic coach Dan Sullivan unique ability. That’s your god-given gifts. Um, and uh, within that
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context, we’re having people who are high detail and low detail, but all of them are oriented around those core
13:00
values and they’re all oriented around the mission and they understand their place in the mission. And when they look at other people, we we literally had
13:06
this talk in our our meeting this morning. We have a Tuesday meeting that we we asked the question, what should change about our company and some of the
13:13
things that people highlighted were the fact that look, there’s no classic boss here. That does not mean nobody’s in
13:18
charge, right? It means that they are so clear on what needs to happen that they know what to
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do in their role. They know how to initiate in their unique ability and they know how to get stuff done and
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they’re respected by other people. So when I look at the the person who’s opening the mail or the person who is
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signing the checks or the person anybody, I’m like, you do what you do so uniquely, I respect it.
13:40
Yeah. Okay, that makes a lot of sense. Now, uh, and we’re not done. I’ve heard three so far. But um if if I hear all
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this and I’m a business, I’m like, “Yeah, but if the more steps and process I put between where I am today and
13:55
hiring someone, the more friction I’m adding, which means it’s going to be harder to hire people or they need a
14:00
reason to come work for you. So, do you pay better? Do you have a great employment brand or do you just assume
14:07
we’re going to find the people? It might take longer to get them through the process, but we’re going to find them.” So we actually find people a lot faster
14:13
than most companies we found a lot faster. Um and there so there’s a number of steps to this. Um so it starts with
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that core value and then on top of that when we market to uh get people to come
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in our pipeline for interviews we’re using um sales copy um oriented uh job
14:33
descriptions. That’s right. It’s a it’s an it’s an ad. It’s an ad. It’s a marketing piece. I think so many businesses get this wrong.
14:38
So job description terrible. It’s like eating a case of saltine crackers with no water when you read the job description. It’s just like awful,
14:45
right? And so ours opened with two questions. And one is top of funnel. For example, if we need to hire like a high detail
14:51
person, it would say something like, let’s say it’s for like bookkeeping or something. It would say, uh, do people make fun of you for how organized you
14:58
are? Right? Like that turns the brains off of like everybody. Most people their
15:03
brain turns off, they walk away, you’d think that would repel people from your job, okay? which it does, but the right
15:09
people it attracts irresistibly. Right. Right. They cannot not read the next paragraph. Right.
15:14
Okay. Right. And then the next paragraph is more specific to the position in our company. Y which means and then it just follows. So
15:19
the purpose of each one is just to read the next paragraph. Right. Because that’s sales copy, right? So yeah, we actually had to learn that
15:26
and apply it after complaining for a decade like everybody else in our industry, right? Add that skill to our to our business,
15:31
right? And so, uh, an example of of our hiring is we needed a GM for Moscow Glass. We put the position out. We had
15:39
61 applicants and hired a guy in 10 days and moved him from out of state. Okay. And you and you ran them through
15:44
the whole process when you did this. Okay. Amazing. Okay. All right. So, now the whole process did not take
15:50
10 days, right? But we identified him and started him in our hiring process. Yes. Our hiring process does take longer than most. If
15:56
we fast track it, it’s two weeks. Okay. So, it does take a while. It is robust. Yeah. Yeah. Our current average is 55
16:02
applicants to one hire. Yeah. 55 to one. Yeah. Okay. So, let’s finish going through the kind of the core values. And
16:09
then I do want to hear more about the hiring process. Yeah. Sure. Uh well, let’s see if I can get my core values all all nailed down,
16:15
memorized. Another one is grateful enjoyer, right? Because we want we we actually love Mondays.
16:20
Like our our whole team likes to show up for work. And if they don’t, we have the unmitigated privilege of working
16:26
anywhere we want, right? And it doesn’t have to be in our company, right? you know, like yeah, if you don’t enjoy it, go find
16:33
somewhere you do enjoy as as human beings in the United States right now, you can work anywhere you want. There are a lot of options.
16:39
There’s so much freedom. So, if you don’t want to work here, you’re free to work somewhere else, you know, and we actually like showing up. We and we’re
16:45
grateful for it. We’re grateful for the challenges that we have in our job. Um, and so that’s a that’s a core value for
16:50
sure. Um, and then, uh, I think the last one is golden rule, caring. You know, we
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are literally just looking to love our neighbors like we want to be loved. And that doesn’t always mean the client’s right, but it means that we should be
17:01
expertly loving them with our with our guidance. Yeah, I love that. Um, and so and and you know, it kind of ties into the three
17:08
loves that talked about already. Okay, so core values. How often do you talk about those core values with the entire
17:13
team? Yeah. So, uh, we talk about them every week at our weekly meeting in one form or another. So, we have a weekly
17:20
cadence. Um, there’s just a 15minute all company meeting and that is a major element of that all company meeting.
17:26
Yeah. Yeah. Other other than that, it’s just this it’s special teams meetings. That’s right. And I think that’s a a
17:31
principle that I’ve talked to many entrepreneurs and owners about is um you need to understand that you think about
17:37
the company core values all the time. You think about your business all the time. Um your employees, you’d be
17:43
surprised if they don’t know. uh they’re not opposed to knowing about or or
17:48
obsessing even about these company values, but you need to be the one taking the lead on actually talking
17:53
about it, bringing it forward, or else it’s going to be forgotten. Right. So, I think has to be embodied, has to be
17:58
highlighted, has to be praised. That’s right. That’s right. That’s right. That’s right. And you can’t be a hypocrite about it, right? Um you need
18:04
to live them out yourself. Yep. Um but and and but when you do that,
18:09
people internalize them. They just naturally do because you’re talking about them all the time. you’re thinking about them all the time. You’re
18:15
embodying them all the time. Um, but you need to do that or else you can’t just
18:20
put them on a wall and it will it they will be ignored. I guarant. And so the bridge from doing everything all wrong
18:26
to where we are now, we haven’t lost a single team member in that business that we have not wanted to leave in over eight years. We just actually lost the
18:32
first one and it was because uh his family is on the east coast and he had an opportunity through his wife’s job
18:38
like a once in a lifetime hiring opportunity over there through her to be near their family and he so he wasn’t looking to leave and that’s the
18:44
first time in eight years we’ve lost a team member that we have not wanted to leave the company. Yeah, that’s amazing. And so to go, you know, the bridge
18:50
between those two, there’s a number of steps, right? So we got clear on the core values. We got we started a process of of
18:55
interviewing people, which was really rudimentary to begin with. Like it was not great. Yeah. Well, let’s talk about that a
19:01
little bit. So let’s hear u So where did you start and where are you now when it comes to your kind of hiring process?
19:07
Yeah. So we I described where we started, which was absolutely no process. If they could fog a mirror, you can, you know, jump on board, right? And
19:14
you know, you could have a literal open criminal case and we might have hired you
19:19
or your spouse at least. Yeah. Perfect. No problem. To today where we haven’t lost a single person we haven’t wanted to lose in
19:25
eight years. And not only that, but we have at this point we just got our eighth regional and national award like two
19:31
weeks ago for like best project in the country in its category. Wow. So an incredible award-winning team. Um
19:38
you know in every single success metric that I can think of, our team absolutely kills it. It’s a model company. It’s a
19:44
self-managing company. So, I’m involved for the 15-minute meeting every week and I stay for the production meeting,
19:50
another 45 minutes because I really want to keep a tempo what’s going on and what my team’s facing. And then after that,
19:55
it’s purely elective. So, I’m a company owner. Y got it. Okay. Um, so what does your
20:00
hiring process look like today? You said it’s a if you fast track it, it’s two weeks. Um, walk us through that.
20:06
Yeah. So, there’s there’s I know there’s 10. And do you think it’s the right thing for everybody? That’s the other thing I want you to hear. It’s a great question, right? Yeah. Um I
20:13
would say it’s not the right thing for every person, right? So because we’ve built up to this point, we have a
20:18
natural immune system to bringing on the right people and repelling the wrong people, but you have to build up to
20:23
that. So you have to get that first key higher. So I would say it’s not it’s not right for everybody. Um but it is an
20:30
ideal to work towards, I would say. And I would say that just because it’s the success that we’ve had with it,
20:35
right? Yep. So as far as the 10 steps, I am not the person to rattle those off because I have a self-managing company. I have
20:40
people who do this for me. Yes. So you help you you helped design it maybe or at least you were involved in that design. I was and I have input.
20:46
Yes. And the most probably half of those 10 steps did not come from me. And I think that’s a key point to take away for your
20:51
audience. That’s true. Like you don’t need to be the process person, right? I’m not the process guy.
20:56
Like I’m not I’m terrible at it. In fact, that as shown by my history of hiring,
21:02
right? In fact, you know, I don’t know about you, but when I’m just like this is the greatest place to work. You should come work for our company. It’s
21:07
awesome. Yes. Right. Yeah. Well, we’re the on we’re the cheerleader. We’re the, you know, Yeah. chief entertainment officer.
21:15
Best place to work, you know? So, you need people who are like squinty eyed like, who are you? Like, why are you here?
21:21
Yeah. Why should I hire you? Yeah. Exactly. Right. Right. And you need those people on your team. Some people might be that. I’m not. So,
21:26
what I’m saying is you need to actually hire to your strengths. Right. So, whatever is a complimentary strength, meaning the one that you don’t
21:32
have, y, you probably need to hire for that first. Yep. Yep. um you can’t rattle off the 10, but can you give me at least
21:39
yeah some some pointers some pointers to companies who are thinking about bringing more sophistication to their
21:44
hiring process? So, initially just having a checklist because if they can’t fill out a checklist, like why are you
21:50
talking to them, you know? Um, but even it goes back to when we have them apply, we we require a cover letter letter and
21:55
it’s not because we want them to write us some like beautiful poem or essay. I just want to see if you can spell,
22:00
right? Can you spell? I can’t spell. But but you know what? Your word processor can.
22:07
Yes. And there’s these little red squiggly lines under them. You want to see how functional individuals are, right? Cuz core values
22:13
are great. But the next half of the equation is skill. Right. Right. You can have we can you can have the most amazing core value match and
22:20
the skill’s lacking and you’re you’re you’re failed on launch. Right. Right. Right. And so that’s actually part of it. Like
22:26
can you actually write a sentence? Right. Yeah. And so there’s that. Then there’s a checklist and then uh we do we actually do uh a
22:34
little bit of our own investigation on an individual if they’ve given us enough information. Yep. You know, whatever we can find publicly.
22:40
Um then we’re going to have a brief 15-minute interview. low commitment, low bar of entry. We just want to hear how
22:45
they talk on the phone. How do you present yourself? Yep. Right. That’s very basic. Yep. If they pass that, then they go on to a
22:51
full hour interview and we try to get those in person. Yeah. Um we’ve even flown people in for those. So it just it just that’s rare for us.
22:58
Usually they’re willing to travel, but but we will. Okay. Um and then uh we actually before or after that interview
23:04
is the Colby assessment. So that’s where we’re getting there. You know, how do you initiate action? Are you high detail, low detail? you know, you work
23:10
with your, you know, the built environment in this way or that way. There’s different things there. And then after that one, we’re going to
23:17
do uh an extended interview, usually an hour, I think, with who would be their
23:22
direct report in the company. So, whoever their direct report would be, then it’s an interview with them. Um,
23:28
and then we actually do a we actually hire people before we hire them. So, what I mean by this is we will then
23:34
hire someone on paper. They’re officially hired. They’re legally hired and everything. Yeah. We we we literally tell you we will pay you minimum wage at
23:40
least, right? And you will come work for us for two days. Yeah. On in person trial and we’re going to see how it goes.
23:46
And we’re going to see how it goes and then we’ll find out how much you’re getting paid after that. Yep. And we’ve already bracketed the position
23:51
in terms of this is how much we can pay for it. Again, state laws vary on this, right? Y um
23:56
but uh you know, when they’re done with that, we’re like, here’s how much we can pay you. Here’s how much you did. Two days is is ideal. One, they can get that
24:02
amount of time off from their job. Typically speaking, we’ve had some people who do find the first day and they don’t show up the
24:07
second. Really? It’s just it’s interesting. I’m tell is the sweet spot for us. It’s probably different for different
24:12
industries. Yep. Totally. So, we do that and then after that um depending on if they traveled or not, we
24:18
go we go right to um you know, here’s your offer, you know, an actual letter, official job offer, description, all
24:24
that type of stuff. Um and and or you know, dinner with my my family and I
24:29
and we send out and that’s actually a last step. And that’s straight from Dave Ramsey like with the spouse, you know, are you bringing crazy into
24:35
the company inadvertently? Yep. Yep. I did that once. I I was I had a a VP of sales at a previous business
24:41
that I was interviewing. Phenomenal guy, like really really sharp. Um and so we flew him in flew his
24:47
family in um which is bunch of expense, but it’s but it’s important. This is and this is a very key position.
24:53
And um and his wife was crazy and told stories about how she doesn’t make her
24:59
children wear clothing. And they were at a friend’s house and the kids like to climb up the freezer and pee in the
25:05
guest freezer. They told you this. They told me this. I’m like dinner on dinner. That’s crazy. I don’t look crazy in my
25:11
business. So amazing what people tell you. Say and it cost me thousands of dollars to bring them in and saved me tens or
25:17
hundreds of thousands not to hire them. That is the thing you have to remember, right? It’s it actually is cheaper this way. And I think for the business owners
25:24
who just have a small team or are trying to figure this out, you’ve got to start incrementally and build up to these things. But you will learn one way or
25:30
the other. You either you can learn from this podcast or a book, right? Or you’re gonna pay your tuition fees. And those
25:36
tuition fees are steep. They’re very very expensive. I mean, and of course at Red Balloon, we talk to employers all the time who
25:43
hired a woke employee and literally shut their doors 6 months later because it that one employee
25:49
took their business out entirely. And what I like about this is I like that it’s very it’s it’s a system. It’s a
25:54
systematic process. You don’t need to necessarily be involved in all the process. you’re having someone run the
25:59
process. Um, and but there is a dark side to that too. Like everything, no matter what you’re doing, um, you can do
26:05
it badly because I’ve seen businesses that have a very sophisticated process and they’re super wooden about it. Like
26:12
we do this, even if it doesn’t make sense for this position, even if it doesn’t make sense, check the boxes.
26:17
We got to check all the boxes and we’re losing tons of good candidates because we don’t love the process. We’re just
26:23
running the process without thinking about it or explaining it or communicating or any of those things.
26:29
So, one of the things we do in our weekly meeting in the production meeting actually is we do a hiring review. So,
26:34
where are we at? Who are we hiring? Who’s in the pipeline? So, that way the whole team gets a little introduction to who’s in there, where are they at, you
26:41
know, what’s the feedback? So, when we do meet them on an interview call, if we have that, you know, that that duty or privilege,
26:46
um, we we’re not blindsided. Yeah. That’s good. That’s good. So, and we can we can slow down or speed up the process. Yep. Like if there’s uncertainty, slows
26:53
down. Yeah. Yeah. If there’s a lot of certainty, speeds up, right? If it’s a if it’s a laborer in construction, then hardly hardly any of
27:00
this process exists. Like, oh, great. You’re a laborer, you know? Yeah. As long as you don’t have a major
27:05
criminal background and doing drugs, right? Did you fill out the form? Did you show up? Okay, great. We’ll start you basically and then we’ll go from there.
27:11
Exactly. You know, it’s not You got to You got to have a different process depending on the level of responsibility, the level of their
27:17
ability and their position to shipwreck the business. That’s right. That’s right. That’s really really smart. Okay. So, this is
27:22
how you’ve built these businesses, which I think is amazing. Um, but we did want to talk about your new business. Great.
27:27
Which I have no idea what it is. So, I’m gonna learn real time. That’s right. Right in front of the camera what you’re
27:33
doing. Sure. So, uh, what we’re doing is we’re automating a rule that is somewhat known
27:38
to entrepreneurs. I would not say greatly known, somewhat known, and somewhat known, probably a little bit more known to their tax professionals,
27:45
CPAs, EAS, etc. Um, it’s known as the Augusta rule. And right away, if people know what that rule is, they’re like,
27:51
their brain kind of turns off a little bit. They’re like, “Yeah, I’ve heard about this, but whatever.” If they don’t know about it, they’re like, “Okay, well, what is that?” So, let’s talk
27:57
about what it is. And I and I’ll tell you why you should still pay attention if you’ve heard of it. And your brain turned off,
28:03
right? Because I find I mean, just speaking for myself, when uh my CPA
28:08
comes to me and like, “Okay, we could do these strategies to save on taxes.” I find it deeply uninteresting. Yeah. It’s
28:14
just not interesting to me, but it is meaningful. Yes. Yes. And it can save a lot of money. Correct. And you actually
28:20
So don’t turn your brain off. That’s right. Well, you actually just touched on what probably one of the central things with tax strategies. Business owners should not be distracted
28:26
from their business by tax strategies. That’s right. Because I’m like, it’s just not that interesting to me. Correct. You should be focused on how
28:32
you create value because you have unique abilities and you show up in the marketplace in a very specific way that God that I would say God made you for,
28:39
you know, and you should be so focused on that. And if a tax strategy takes you away from that, it’s it’s it’s failing.
28:44
it’s actually holding you back from value creation. Yep. Typically speaking, there’s there’s maybe some exceptions to that that are
28:50
mega mega bucks if you have a certain velocity of capital, right? But for most people, that’s the case.
28:55
Yes. Okay. So, let’s just put that down there as like baseline. Got it. Stay focused on what you do. Yep.
29:00
Okay. So, that’s what we’ve done with the Augusta rule. The the short answer is we’ve automated it so that you’re not
29:06
distracted. So, we’ve we’ve basically built a system and process, a software
29:12
and service that takes what used to be a super clunky, super paperwork heavy, distracting like don’t bother me, you
29:19
know, tax uh uh you know, strategy and now it’s just like sign up and you get
29:24
free money. So, that that’s the short answer. Sign up and you get free money. Exactly. Does that sound like a scam? Yes, it
29:31
does. Yes, it does. So, go ahead talking more. Unpack that. uh you get free money if you qualify,
29:37
right? So, we’ll talk about that. You get free money if if you sign up so that we actually do this for you. I don’t know if anybody else has a done for you
29:43
service. It’s a first-to-market product. Um and you get, you know, you have very unique uh situations that apply. So,
29:50
let’s unpack that. So, going back though, what is the August rule? The August rule has been in the tax code almost 50 years.
29:56
Okay? 50-0, a long time. Okay? The reason why it’s not super wellknown or popular is
30:01
because of all the compliance it takes on the on the the business owner side. That’s one reason. Another reason is because still a lot of
30:08
CPAs, in fact, I would venture to say most that’s that’s just my guess. That’s not a fact that I’ve nailed down. Most
30:15
that I’ve talked to still don’t know how this rule is applied to business owners. So, you have most of your tax
30:20
professionals don’t know how it’s applied to business owners. They have to then communicate it to a business owner. if they do understand it, the business
30:26
owner then has to actually do the compliance and do it correctly. Right? So there’s a number of loopholes here,
30:31
not loopholes, uh you know, a process. There’s a number of steps that have to be taken and you can get derailed in
30:37
each one of them. So what we’re doing is educating people on the rule and then we are actually collaborating with the tax professionals
30:44
to get it done and then we’re automating getting it done. Okay. So the rule itself 50 years in the
30:49
tax code is that you can actually rent your home for up to 14 days a year taxfree. Okay. Whatever. You can rent
30:56
your home. Okay. Well, I don’t want strangers in my home. I don’t want to rent my home. Right. Okay. So that turn me into an Airbnb. Yeah. Exactly. No interest. No interest.
31:03
Okay. So if you’re a business owner, you can rent your home to your business. Okay. So you can rent your home to your
31:09
business because your business is legally a separate person in the eyes of the IRS. It’s a different individual.
31:15
This does not apply to sole proprietorships. Okay. For that reason. Yeah. So again, there’s there’s a lot of nuance here.
31:20
So you need to be an LLC or a COP or correct and we have this all this is
31:25
again all part of our program. We we get through this for people. But assuming you qualify, majority of of businesses in the country qualify um or
31:33
the majority of businesses that have employees, let’s put it that way, qualify. Makes sense, right? Yeah. Uh and so at that point, you can rent
31:41
your home to your business. Okay. Well, why does that matter? Well, when your business rents a space for an actual
31:46
business purpose, you pay money for that, right? You and sometimes you pay a lot of money for that. That’s right. Okay. Like meeting spaces, seminar
31:53
spaces, maybe even like a wedding. This beautiful studio we’re in right now. Exactly. Right. Yes. Although I hope you don’t live here.
31:59
I don’t live here. But if you, let’s say, host a client dinner or let’s say you have your team
32:06
up for a quarterly meeting or something like that and you want to be like, “Look, I want to do it in my home because it’s actually set up for Yeah.
32:11
Exactly.” And so we do the same thing. We have a really nice 1,800 foot patio and home and we have large parties there
32:18
and we invite people over and there it’s a business focus and purpose, a client dinner or whatever. And so when we do
32:24
this, we can now take advantage of this tax rule and we we always could but but I told you the hurdles and you can rent
32:32
your home for a market value. Okay, so market value now there’s a problem. So
32:37
before we had our service, you had to go out and like grab Airbnb values or like Right. Like like how do you figure this
32:42
out? And are you somehow now like an expert at market appraisal and and
32:47
you’re going to take that liability on? Well, some people did who are really brave, right? And did that, right? Yeah. Okay. So now you’ve got that. Well, now
32:53
you have to have a rental agreement that’s compliant, that’s signed properly, stored and not in like a
32:59
minimal folder that you if the IRS goes after you like, “No, here it is. I’ve got it. Yeah, I’ve got it.” And then also, by
33:04
the way, do you have a home office deduction? Like maybe there’s a part of your home that you have a an office carved out and your tax professional is
33:11
now, you know, not charging that amount of your home. So you have a little tax savings. Well, you want to keep that. So
33:16
we need what’s called an accountable plan is best practice. Not required, but best practice. So we want best practice.
33:21
Yeah. So we have that document. You want to sign and capture so you can actually reimburse yourself from the business uh
33:27
as an employee outside of payroll. I mean there’s a number of things here that are fairly complicated that
33:33
business owners actually should not have to be experts in. Yeah. And they don’t want to spend their time thinking about it. And because if you’re using mental
33:39
cycles on this, you’re not using them on building your business and driving value for a customer. That’s exactly right. Right. Okay.
33:44
That’s exactly right. And so, uh, basically, you know, long story long, we’ve created a platform where the
33:51
business owner shows up for our our onboardings currently are between 15 and 45 minutes. It depends on how many questions the
33:56
owner has. That’s right. That’s a one-time annual onboarding for the for the customer. Okay. Okay. The business owner client.
34:02
Yep. When they onboard on, then what we do is we find out who on their team has access to the calendar of the owner,
34:10
right? Most companies at scale have have somebody who has access to the calendar. Okay?
34:15
And then we actually train that person to then run our software. Got it. Which is not crazy complicated, but we
34:22
don’t want that business owner doing it. And that was the key unlock that we that we made. Yeah. Right. And so then we have
34:27
because they just don’t want to. Correct. So we have the strategy call with the business owner. What’s what’s our strategy? What are we doing here?
34:32
you know, what are the comps that you can get in alignment with in terms of risk tolerance, what are the, you know,
34:38
any questions you have? And then we turn it over to their team member and then they don’t need to be in the picture anymore, the business owner. Makes
34:43
sense. And that’s the beauty. And so then we we’re then collaborating with their team member and what we’re doing then is
34:48
capturing money that they were previously throwing away to the IRS every time that they have a qualifying
34:53
meeting at their home. We train them on what a qualifying meeting is. We actually pre-enter all the notes for
34:59
those meetings in their calendar. We try to identify qualifying meetings on their calendar. We set the whole thing up
35:04
reminder templates and systems. And again, they have a team member running this sub three hours a year.
35:09
Okay. So, whatever your cost is in payroll for three hours of your of your employee, like that plus your 15 to 45 minute
35:15
onboarding y is your time into it. Yep. And your and then we what we charge is a flat 8% of deductions.
35:22
Okay. Whatever deductions we create for you. Yep. We charge 8% of that. because basically the uh the business is paying rent to
35:29
you for the use of your home and for 14 days if I remember correctly um that is
35:35
taxfree correct income% so you want to go up to 14 days as or as close as you
35:40
can within reason and so depending on what the rental rate is and so on and so
35:46
forth that’s all ends up being taxfree that’s correct got it interesting and so what we’ve also found is when
35:51
people do this on their own with a spreadsheet one they’re distracting themselves from their business purpose correct two, they’ve now got a spreadsheet or folders or something like
35:58
that that are just hanging out or can get lost, right? Um, and they’re not experts at creating those valuations. Uh, and then on top,
36:05
oh, so I didn’t even mention this. On top of that, so my partner in this is a 30-year tax attorney. Okay.
36:10
So, this isn’t just like me, Nathaniel, like really good tax code after all these, you know, construction businesses
36:16
I’ve started. Yeah. This is my tax attorney. 30-year. He’s arguably the country’s leading expert on this rule.
36:22
He’s the only one I’ve known that I’ve ever heard of that actually paid to purchase all the documentation of the
36:28
recent case that was on this in 2023. He read it like three times through. This is like a shopping cart full of
36:33
documents. That’s that to me is psycho. So horrible. I cannot even think about it. But that’s why so John John Hire is like
36:40
the man for this. You can’t even hire him anymore. Cannot engage him despite his last name. Correct. He’s working on this project
36:46
and he works for like ultra ultra high net worth, you know, like family office type thing and that’s it. Right. So uh basically he he is the
36:54
reason why this exists and is the expertise. So I’m the guy who knows how to build a team and you know move it forward as a
37:01
business but he is the deep expertise. And so when we when we built this program we said well how can we remove
37:07
risk from our from our owners? Yep. Right. And so we actually offer a guarantee which like you say that like
37:12
as a tax attorney that’s like a curse word. It’s like you know like we
37:17
it’s true. Right. So we offer an audit protection guarantee. Meaning if you get audited
37:23
for any reason Yeah. and it splashes on the Augusta rule, like anything that contacts us, we will not only defend,
37:29
right, the that we will pay for the defense. Okay. On this particular thing. Yep. So it’s just like, look, this is legit.
37:35
It’s been in the tax code forever. This is how it works. You know, sign up. We do. Here’s how we do it. Yep. Exactly. Amazing.
37:40
Y. So, it’s basically if you’ve got a decent home, if you, you know, are have or are willing to have people over, you
37:47
know, at your home for business purposes, then you literally have money that you’ve been giving the IRS that you no longer need to give them,
37:53
right? And, uh, that’s one of my least favorite activities is giving money to the IRS. So, that checks out. Okay.
37:58
Unfortunately, we’re out of time. Okay. Uh, fascinating discussion and I hope everyone has learned a lot about hiring,
38:03
about building culture, about building construction businesses, and then this really cool business. So, if people want
38:09
to find out more about uh your new business, um where should they go? The augusta.com.
38:15
The austerrule.com. Augusta like as in like the golf course. Augusta Golf Course because that’s the nickname of the rule and which we can’t
38:22
talk about now. Find out on the website. Fantastic. The augusta rule.com. Yes, sir.
38:27
Uh this has been Nathaniel Lely. I’m Andrew Krabshettz. This has been the pipeline. I hope you have an amazing
38:32
day. Thanks for joining me. Thanks a lot, Andrew. Appreciate it.