The uncomfortable difference between being a founder and an employer
It's a common gripe about tech blogs: They spend so much time focusing launches and exits that they don't write much about the stuff in between. And that stuff is exactly where companies are made or broken. We're guilty of this too. Which is why we're following up our previous series on the Art of Starting Up with two sections on June about what comes next.
One of our June special reports will focus on the art of going global, and the other will focus on the art of scaling up. The latter is sponsored by TriNet, a company that makes a software platform to manage human resources and legal compliance around hiring for rapidly growing companies. As the partner who gets called in once companies get big enough they need to worry about stuff like this but not yet big enough they need to do it all in house, TriNet has seen a lot of what has gone well and what hasn't when it comes to scaling.
To kick off this series, I caught up with TriNet's CEO Burton Goldfield. I started out with a plain vanilla question on why he started his company and he came back with a tirade on the state of business regulation today.
Why are you passionate about small businesses and TriNet?
I am passionate about small businesses in America. Entrepreneurs are not only putting people back to work, but they are curing cancer, cleaning the water, and building the next generation of software. Those entrepreneurs are faced with a tremendous amount of challenges as it relates to the US legal and regulatory environment. We want to apply technology to solve those challenges.
It's interesting that you bring up the regulatory and legal requirements – do you think it's gotten worse over the past 5-10 years?
It's gotten markedly worse, not only in terms of the number of different laws companies have to comply with, but particularly as it relates to reporting requirements and the penalties associated with them. The worst will be the Affordable Care Act. It will be administered by the IRS, which is no surprise because it is essentially an additional tax on business. As with every other tax, it takes a lot of time to meet the compliance and reporting the government is requiring. That's just one of a thousand laws. Following them has nothing to do with an entrepreneur's passion, but that they have to comply with them to achieve the results they want as a business. That's what I want to help them do.
When do companies need to start paying attention to all of this?
Most companies start as an individual who just has an idea but once that idea takes hold, entrepreneurs quickly realize they are really in the business of being employers. It's surprising how many didn't think about the fact that they were becoming employers. If I start with you and I building a company, there's probably not much of a regulatory challenge there. But if an idea takes hold and we need another ten people doing this and another ten employees doing that, quickly you find out you're an employer and you need to start to be aware of all these requirements. It can be as small as five to ten employees; the key is whether you are going to grow. If you are not going to grow, you can get away without worrying too much.
What's the difference you see in customers coming out of Silicon Valley and ones in the rest of the world? I feel like startups in Silicon Valley are better prepared for this because there's so much of a system for starting companies and people who've done it over and over again.
I think there's really four areas that make the Valley radically different. The first is that employees are sophisticated. They really want a software based environment to manage their lives and payroll. In Kansas that's not as important as it is in Silicon Valley.
The second is there is a fight for great talent. A company really needs to have top tier benefits because employees are being pulled by Google, Facebook, Yahoo, and others.
The third you really have a set of laws in California that are second to none. The penalties and requirements are the most stringent. If you reach fifty employees and you haven't done sexual harassment training and an employee files a claim, good luck defending that claim. You are defenseless.
The fourth is that it's the only place in the country where companies are either growing or dying very rapidly. In other parts of the country, an entrepreneur may open a flower shop with six employees and five years later you have six employees. Here you go from zero employees to 1,300 or 1,300 to zero quickly. That needs very different infrastructure.
When do you know when to outsource something like HR and when do you bring it back in house?
You outsource it when you find you are outgunned in terms of benefits, employee experience and recruiting capability. You bring it back in house when you believe there's a competitive advantage to focus on your own HR infrastructure.
You've seen a lot of companies grow very quickly. What makes a great CEO in terms of scaling?
Three things come to mind. The first is people who genuinely care about their people. If they didn't, they wouldn't care about employee benefits. Over the last year our clients grew north of 10% and the economy grew north of 1%. I think that has to do with CEOs who genuinely believe their competitive advantage is the intellectual property housed by their employees. They aren't going to pay for TriNet if they don't care about their people.
The second is that a CEO can do a lot of things right and if they do one or two things really wrong the company doesn't survive. Great CEOs are able to execute on their vision in tough times. Finally, I would say companies that are succeeding today have vast markets.
You referenced it earlier and we've written about it a lot-- California has incredibly arduous laws and regulations for companies. If California is the worst, who is the best?
Each state is radically different. It doesn't really matter where you are based, as soon as you hire your first rep in Boston or your first rep in New York things change. We had a client who gave someone an offer letter in Boston and that person took the letter to the Department of Labor. It was a thirty person company in the middle of a recession, and they made a visit to the department of labor because the offer letter had a trial period in it. It turns out that's illegal in Boston, even though it is legal in San Francisco. It is the complexity of the differences that make it so tricky. What's OK in one state is patently not in another state.
Every big vision I've seen in my career entails people in multiple geographies with many people doing many different things.
Is it getting better or worse for companies? I guess those terms are relative. What's bad for entrepreneurs is good for you as entrepreneur isn't it?
Yeah, I have to separate my political views from my business views. We built this company on the pretense that building a business in America will get more complex not less. So far I haven't been wrong. The Affordable Care Act is the next incarnation of complexity for a small business owner. The premise that this will only get more complex is a pretty easy sell to my investors.
Do you have advice or war stories when it comes to scaling up or going global? Email our editorial team at tips(at)PandoDaily.com, and check back all month for more on these topics.