Announcer: Please note disclaimers at end of show. Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the Complete Solution for Real Estate Investors™.
Jason Hartman: Thank you for joining me today. This is Jason Hartman and this is the Creating Wealth, Episode No. 142.
Today, we are going to talk about something that is very, very costly. It is probably the single largest expense you have in your business, and that is the subject of human resources, something that either makes or breaks your business. Remember on this show, of course, we talk about profits from businesses, entrepreneurship, and of course, the best investment out there in the world, which is income property, real estate. And this show will focus largely on the topic of people and human resources, and the importance of hiring right and retaining the right people.
If you’ve been in business or if you’ve worked in another business, I’m sure you’ve witnessed, at one time or another, the costly problems that people create within a company, C-level players versus A-level players, onboard terrorists that appear to be good people and appear to be A-players, but are really sabotaging you behind your back all the time. That happens in businesses. How do you vet these people? How do you hire the right people? We will have an interview for you here in just a moment with Brad Smart, the author of a very famous book, actually a series of books now, called Top-Grading, which talks all about hiring and retaining the right people in your business.
And this applies even if you are a solopreneur and you are doing a lot of outsourcing, where you have one of these fantastic lean and mean businesses that is outsourcing. You still need to hire the right people because you’re always working with somebody and depending on other people. I think you’ll find this very informative, and it can also work in your social life, interestingly enough, too. We’ll have that for you in just a moment.
Of course, there are a couple of events coming up. The conference call, which is “Our Predictions for 2010,” and our accompanying white paper, which you’ll definitely want to get a hold of, is on January 7. It’s free, so join us for that. Sign up at HYPERLINK “http://jasonhartman.webimpakt-green.com” www.JasonHartman.com. Creating Wealth Bootcamp on January 23, the Masters Weekend in March, and let me talk to you today about a couple of properties real quick, since we’re not making the major part of the show on the real estate investment topic. Let’s just chat about this for a moment here.
We have a fully rehabbed property, built in 2007 – so this property is literally just like a year and a half old – four-bedroom, two-bath, 1,861 square feet, and I am looking at a picture of this property, which is in Covington, Georgia. You can see all of these at HYPERLINK “http://jasonhartman.webimpakt-green.com/properties” www.JasonHartman.com/properties. This is a gorgeous little house. It is really, really pretty, almost new, $106,250. You only need $6,500 to buy this property. Projected rent is $1,000 per month, and it has a projected return on investment with a fixed-rate loan – no low teaser rates that all change later – a projected return on investment of 57 percent. Yes, you heard that right. Given the multi-dimensional nature of a real estate investment, this pre-rented, ranch-style, almost new house is 57 percent annual return on investment.
Why is that? You have a lot of great leverage on this property, only $6,500 total cash in approximately. And after tax benefits, assuming you qualify for all the tax benefits, your projected return on investment would be 70 percent. I kid you not. Folks, this is why people become so wealthy with their income properties because they have multi-dimensional characteristics that make the return phenomenal.
This is only banking on a projected 3 percent appreciation, which when you hear our conference call on the 7th and you read our white paper, you will see that that is probably a very realistic number.
But let’s assume that it doesn’t work out that well. Let’s assume it only works out half as good as projected. Remember this house is pre-rented, so the cash flow is already happening now. So say your return on investment is 28 percent return on investment, after tax benefits, 35 percent on investment on this specific property right here. You can see it at HYPERLINK “http://jasonhartman.webimpakt-green.com/properties” www.JasonHartman.com/properties. And that’s only if it works out half as well as we’re projecting.
Here’s another one. This is one of the brand new properties. I think we only have one or two of these left in Columbia, South Carolina, student housing, well rented. One of my friends is going to college at USC, the University of South Carolina there in Columbia, and she is actually renting in one of these properties. And I believe she told me she is paying $470 a month for one room in a house with four other girls, as a college student. So phenomenal cash flow on these. This is brand new and it’s a five-bedroom home, right near USC, and it’s 1,836 square feet, $250,000, in a student-oriented community. Positive cash flow of $189 per month. No special financing on this deal, so you have to put more down and that lowers your return on investment to a projected 20 percent ROI, and after taxes benefits, a projected 22 percent ROI.
And I bet you’re getting about 1.5 percent in the bank and maybe, if you’re lucky, you’re getting 6 percent in the stock market, maybe 10, maybe negative 10. It depends on what you’re invested in.
So again, we have some phenomenal opportunities. The deals are better than ever out there. So be sure to go to HYPERLINK “http://jasonhartman.webimpakt-green.com” www.JasonHartman.com. Register for these events and check out the properties there as well. Also, be sure you check out our products. We did not launch our new website yet, but hopefully, we’re going to have that up very soon for the New Year.
And lastly, before we go to the interview with Brad Smart, I just want to ask you, I hope you are thinking about your New Year’s goals. 2009 wasn’t a very good year for most people. Hopefully, you are not an optimist, as I am not an optimist. I am an opportunist, and I think that the overall economy does not have a lot of good news ahead. I do not think we’re in a recovery. But I do think we’re in a phase of some pretty terrific opportunities, so be sure you’re out there shopping for them because fortunes are made when there’s blood in the streets and everybody is nervous. That is the time for you to have the courage to be building your business, to be building your investment portfolio. We’ll talk on future shows about New Year’s goals and resolutions and stuff like that, but I just want to wish you a very happy 2010 as we approach the New Year. And let’s listen in to the interview with Brad Smart.
Interview with Brad Smart, author of Topgrading
Jason Hartman: It’s my pleasure to welcome Brad Smart to the show. He is the author of a very well known book, entitled Topgrading, How Leading Companies Win by Hiring, Coaching, and Keeping the Best People. This is such an important part for any businessperson.
Brad will also talk to us today about topgrading your life, so it’s not just applicable to business and it’s not just applicable to hiring and human resources and so forth. We’re really lucky to have him. Brad, welcome to the show.
Brad Smart: Thank you, Jason. It’s nice to be with you.
Jason Hartman: Tell us about topgrading and what it’s all about. Your book has really made a lot of inroads into the business world and I’ve read about it in many articles and so forth. I believe I may have seen you or one of your disciples speak at a Young Entrepreneurs Organization University before as well, so it’s certainly well known. What’s it all about?
Brad Smart: It’s all about packing your team with A-players, whether your team consists of two or three people as in my company, or two or three hundred thousand people. You and I, Jason, were talking before we began the recording about titles of books, and the title of my book, Topgrading, How Leading Companies Win, in retrospect, I wish I hadn’t gone along with the publisher about how “leading” companies topgrade because they made the point a bunch of leading companies had more than tripled their hiring success. You have to drop names, General Electric, Honeywell, American Heart Association.
The trouble is they say somewhere in that book that small companies and individual business people with a team of ten people reporting to them, that’s where I have the most fun, and the concepts are really common sense and it’s all about recruiting and selecting the very best people that you can, whatever the salary level is. It could be $20,000 for a part timer or $2 million for a CEO. And it really is. It’s all common sense once you know the right principles, so I guess it’s common sense on steroids.
Jason Hartman: Brad, this is just probably the most important part of business and it’s so amorphoused. It’s just hard to get your head around it, your arms around it because people are people and they’re not rational, they’re not logical; everybody’s different. Things change. They hide their motivations sometimes. This is a complicated area. Is it psychology? Is it personality testing? What’s it all about?
Brad Smart: It’s like a pilot, who’s supposed to go through the checklist before taking off, and the world out there has pilots who are not even checking to see if they have enough fuel so that 50 – 75 percent of the takeoffs end in crashes. It is so common sense. I know what you’re saying. It’s absolutely the case and that’s why I have a 650-page book, plus a number of other books, including, by the way, a free 50-page eBook that your listeners can download today and read through to get a lot of these principles.
Jason Hartman: Yeah, by the way, go ahead and give out your website, if you would. We always do that.
Brad Smart: Sure. It’s HYPERLINK “http://www.SmartTopgrading.com” www.SmartTopgrading.com. And right there on the homepage, it says give us your email address and we’ll send you this eBook, entitled “Avoid Costly Mis-Hires.” Boy, they are costly. Everyone who has ever managed anyone knows how costly mis-hires are.
But I’m going to give you the brief history. A lot of years ago, I started my profession, my career, and I was doing what everyone else was doing, administering tests and doing competency or behavioral interviews, and they just didn’t work. I did a lot of research on this in my doctorate program. Nothing seemed to be working, and as I got into my career, I was interviewing candidates for selection to senior management positions, and any time anyone had any good ideas, I borrowed them. What it amounts to in abbreviated form is some really straightforward principles that anyone listening can learn. Here’s one tip.
If someone has to go into a meeting in two minutes and they just get this one tip, they’re going to avoid some mis-hires in the next year for sure. And here’s what it is. Every step of the way, let candidates know that, in order to get a job offer at the appropriate time, toward the end of the process, they’ll be asked to arrange for personal reference calls, mostly the bosses they’ve had in the past few years, maybe some others. They will do the arranging. If that’s not acceptable to them, end of discussion.
And you know what? A-players love that. Yes, they love to have you talk. They say, Jason, sure; talk to my previous bosses because they’re going to sing my praises and you’re probably going to be more inclined to offer me a job. C-players, lousy candidates, are scared to death of that. They don’t want you talking to their previous bosses.
So that is a truth serum that’s sorely lacking in our society. Boy, I’ll tell you, if you go to Borders or Amazon, any of the books on how to get a job make it very clear. You have to hype your resume and you have to B.S. your way through interviews. And that’s the disadvantage that everyone listening to this program is faced with, that it’s okay in our society to hype the positives, conceal the negatives, and so forth. But that’s the truth serum right off the bat, and that’s reinforced every step of the way. In order to get a job offer, we’ll ask you to, Mr. or Mrs. Candidate, to arrange for personal reference calls. Boy, that gets people really motivated to tell you the truth, which is very refreshing. It will save you a lot of mis-hires.
Jason Hartman: So what you’re saying there is they disqualify themselves a lot of times. That will take the first cut. Maybe that will take 40 – 50 percent out of the hiring pool basically?
Brad Smart: Exactly. Do you want to hear the silver bullet right off the bat?
Jason Hartman: Sure.
Brad Smart: This is what I hit on in the first year and I’ve developed it, refined it, and then working, frankly, with some leading companies, like General Electric, we proved that people that don’t do this for a living, people without a PhD in psychology and 6,000 interviews as I’ve done, can do this and they can achieve 90 percent hiring success. And that’s not just someone who’s okay and not going to be fired, but true high performers.
So I thank Jack Welch, big company, CEO because consulting with him, he helped me refine this process, which I’ll tell you about in just a second, but it really works. So now GE and so many companies have more than tripled their hiring success. It’s not just okay people, but really good people.
And here’s what it is. Again, if someone listening in has to go to a meeting in two minutes, this is it. Ask the candidate in an interview that frankly, will probably be three hours long if you’re talking about a key management job – maybe it’s an hour long for someone who’s going to be an administrative assistant or something like that – but you say, if I were going to be interviewing you, Jason, I’d say thanks for agreeing to spend the afternoon, and what I’d like to do, Jason, as I told you on the phone, is go through your background chronologically, a little bit about your education and so forth. But more than any, going through every single job you’ve had, spending more time, obviously, on more recent jobs. But I want to know what you did, how you did, how you liked it, how bosses would rate you, and don’t forget – to get a job offer, you have to arrange for reference calls with bosses.
But I want to hear about all your successes and accomplishments, how you achieved those. And to balance it, I want to hear about mistakes and failures as well. And let’s go back now to your very first job. I see after college, you did blah, blah, blah. And then we’re into it. In my book, if you have that handy, you can see that there are 16 basic questions about every job. That’s the essence of it. What were your successes? What were your failures? Tell me about your boss, what your best guess is to what your boss would say were your strengths, your weaker points, and your overall performance. Why did you leave? And on to the next job.
So we go through job after job after job, and boy, I’ll tell you, it becomes so clear what the patterns are. And Jason, if you’re well organized, I’ll hear about it 15 times. If you relate well with bosses, well, I’ll hear about that. I can’t tell you how many people have told me this – “I was interviewing a person and we went through the last four bosses the individual had that candidates said were turkeys, jerks, and worse.
Jason Hartman: Yeah, right. It was always the boss’ fault.
Brad Smart: Exactly. So that is a silver bullet. It has been called the Holy Grail. And what happened over 30 years ago is I embraced that interview process, plus some other significant tweaks. But that was what helped me go from 25 – 30 percent hiring success for clients to more than 90 percent of the candidates I recommended turned out to be high performers.
And then flash forward to about 15 years of consulting with GE, we show that, my gosh, people who don’t do this for a living, any manager, who’s sharp as a manager – it doesn’t work for people who are terrible – but sharp managers can learn how to do that interview and the reference checks, and they, too, can more than triple their hiring success.
Those are the kind of case studies that are in that big, fat book, and yeah, we drop a lot of names just because it’s huge and it shows that just about anyone can learn this stuff. But small business people are the ones that really need this. They just can’t afford to hire –
Jason Hartman: Because there’s so much investment in one or a few people, yeah, definitely. You’re not kidding. Your book is giant. I have it here. It’s a huge, weighty book. There’s a lot here, a lot of meat to it. Let me ask you a couple questions that are just about the process. When you say you go through each past job and ask that series of questions about each job and you notice the patterns, how long would you say you spend on each prior position?
Brad Smart: Suppose you have a 20-year career. Those first jobs, back 20 years, maybe the first job was two years and it was an accountant in an accounting firm. That’s two or three minutes. Here’s a general guideline. If you figure you’re interviewing a manager – this is going to be a three-hour interview that’s halfway through, so one and a half hours remaining, you’re up to the most recent decade. So that’s pretty good timing. You’re spending a lot more time on the most recent jobs because you have a lot more follow-up questions. You’re digging in and noting if there might be contradictions, or you’re getting elaboration on how that success was achieved.
So you have to spend most of the time on the most recent jobs, but don’t skip those early ones because those early ones will give you insights into the individual so your hypotheses, your hunches, your personal, psychological insights of the person get better and better and better. And then when you get into the most recent decade, the most recent five years, the most recent two years, bam! You really have this person pegged, and today, there are about 40 topgrading professionals and half the topgrading professionals don’t have a PhD in psychology. They’re just businesspeople. Anyone can do this.
Jason Hartman: You learn a lot by just asking simple questions. Now, what if the person is young and maybe they’re just a college grad. And I do want to ask you later about the differences in generational things with Gen Y, Gen X, and Baby Boomers. But right now, what if you don’t have all that experience to go back on? Their résumé is fresh. They’ve had one part-time job. They’re just out of school. What do you do then?
Brad Smart: I have a very good answer to that and I wish I had thought of it because through all my career, I was looking at senior managers, senior managers, senior managers, and then the first edition of Topgrading came out in 2009, and then the new edition in 2005, and last year, published Topgrading for Sales. Even in a down economy, you want to get the very best sales reps around and so forth. It was my clients who were coming back and saying, “Brad, you have to start communicating that topgrading interviews are to be done on every single employee.”
And bam, bam, bam, I’ll tell you. Clients were deluging me. I sent out an email to a bunch of clients and asked what do you think of this? And they’re coming back to me and saying, “Brad, are you an idiot? Of course!” Of course, it’s every single job. And it’s the college graduates – and I guess it had some statistics on this – college graduates these days have internships, they have summer jobs, they had leadership positions in school. Yeah, you can’t extract and see patterns that you can extrapolate from because of a 20-year career, but here’s what my clients told me. These are those larger clients. It used to be that we hired new college graduates, that two-thirds of them would be gone within three years. Not that they were good people or even great people, but there was not a good match. They didn’t know themselves in the interview, all those reasons.
But here’s what has happened. That turnover rate has been cut in half because people are saying you do get good insights. You find out, because you’re spending more time on their high school days and their high school jobs and influences in high school, the teachers and parents, and of course, what they liked and disliked, and how they made decisions; going to college, high points and low points during their college years and internships and coops and summer jobs.
Jason Hartman: Okay, I got you. There’s stuff to talk about there. No question about it. Now, on the interview process, big corporate jobs and higher-level jobs as well, it’s usually a multi-stage interview process. Most small business people I know, it’s one interview, maybe a second meeting possibly. Do you have a recommendation as to number of meetings? Interview them once. If you like the candidate, should you go have lunch with them? In the big corporate world, I know they do these multi-stage meetings. They have you meet with all these different people in different departments. How should that work?
Brad Smart: I’ll give you the bare minimum, and that requires telling you about a very important pre-screening tool. It’s an appendix in the back of the book, but it’s simply called “The Topgrading Career History Form.” If you don’t pre-screen people well and you get a bunch of candidates in front of you, if not one of those candidates is any good, you can be doing this long, detailed interview and still end up with a mis-hire. So the Career History Form asks everything that you wish candidates had in their resume, but don’t. It has full compensation history. It has month and year for every job so that they can’t hide any jobs. It has boss ratings, true reasons for leaving, self-appraisal. It has all of that information, plus the truth serum is on the front page. “Thank you for responding to the ad. In order to continue, please fill out this career history form.”
Jason Hartman: Oh, so that’s something you give to them to complete prior to meeting with them. And is that prior to a phone interview? Do you suggest a phone interview first?
Brad Smart: Yes. The phone interview comes next. So say you ran an ad. You have the resume, and then just shoot the email out to them. They fill out the Career History Form. The C-players drop out because they saw that, in order to get a job, I’m going to have to eventually arrange for references calls to bosses. C-players drop out. The better candidates stay in. Then you pick up the phone and I say, “Jason, hey, thanks a lot for, No. 1, applying for the job, and No. 2, taking the time to complete that Career History Form. Do you have a few minutes now to talk?”
And then we go into it and we just have perhaps a 30-minute interview in which I say, “Well, here’s the job.” You ask me questions about the job. And I want to take you through your most recent jobs, your present job, but we’ll start with the job just before that, and go through those same topgrading questions, what you did, Jason, how you did, successes, failures, how you liked it, your boss, how your boss appraised you, why you left. And that will be about a 30 – 40-minute interview. And boy, anyone who passes that – they indicated on that Career History Form ‘my bosses in the past ten years would give me excellent overall performance ratings.’ My reasons for leaving jobs were my initiative, where people came after me. I wasn’t fired. And that’s one of the questions on the Career History Form. So that’s a really great form.
Jason Hartman: This is a great document. I’m looking at it now. It’s fantastic. Okay, so I don’t want to miss anything. It’s receive resume, shoot out Career History Form, then conduct a phone interview.
Brad Smart: A telephone screen.
Jason Hartman: How long?
Brad Smart: About a half hour, 45 minutes.
Jason Hartman: So you’re listing some time here, but of course, this is really important obviously, as we know. So phone interview and then meeting in person.
Brad Smart: Yeah, in person, and in the middle, you do this full topgrading interview, which, as I said earlier, an administrative assistant might be an hour, or a sales rep might be an hour and a half. A key manager would be three hours. And then at the end of that, if you and the candidate want to move forward, boy, you know everything about their career. I would say to you, Jason, “Boy, I’m really excited about moving ahead. Are you still interested in the job?” And you say yes. And I say, “Okay, Jason, you’ve told me about these five bosses you’ve had and some of the peers and subordinates, people you’ve worked with. Here are four people I’d really love to talk with. Would you arrange for reference calls to those people?” You say yes. Within a day, you email me their availability, here’s their cell number, and those are very interesting calls. Those are maybe 15-minute phone calls.
Jason Hartman: Got a question for you about the reference calls before you go on. References are getting lower and lower quality. What I mean by that is this. Employers are scared of litigation. They’re scared to say anything bad about a lousy employee because they’re afraid they’ll get sued.
Brad Smart: I hate this litigation-minded society just the way you do. There are 30 laws that should scare the heck out of any employer and says they should make it the company policy ‘do not accept any reference calls.’ What’s really cool – and again, I’m kind of embarrassed. This is not my idea, but about 25 years ago, someone said all you do is tell candidates they have to arrange for those reference calls. When they do it and their former bosses might violate their own company policy, the risk is not on our side. The risk is on the side of the former boss that you might connect me with if you were doing this, Jason.
Jason Hartman: But what I’m saying, though, is that former boss clams up.
Brad Smart: No, they don’t. That’s not true. We’ve done research across thousands and thousands of people. They say 90 percent of the time, those former bosses talk. And here’s why. The phraseology is important. Jason, please arrange for a personal – not business – but a personal reference call. I don’t know what the heck the difference is, but it gives an out for that former boss. This is a personal reference, not business. And these days, this is kind of clever, too, and not my cleverness, but clients have informed me that all you do is say, “Jason, would you ask those former bosses and others if they would participate in an oral survey for developmental purposes.” Don’t even call it a reference. They know it’s a reference. But call it an oral survey for development. These are very popular today.
So if it’s a personal reference or if it’s a personal oral survey – but hey, you know what? Let’s switch it around. Suppose I had been your boss from 2004 – 2006. You left me. I wish you the best, but I’d sure love to have you come back to me. And then you say, Brad, in order to get this other job, I’d really appreciate it if you’d talk to the hiring manager. And I’d say, Jason, okay, you’re not going to come back with me; then of course, I’ll talk to that person. And even though I might be technically violating my company policy, am I worried about Jason suing me? Of course not. So there’s zero risk.
So we don’t take the risk as hiring managers. It’s no risk to us. And I should tell you this. Across 40 topgrading professionals total and there has to be 600 – 700 years of professional experience, there has not been one instance of a lawsuit connected to anything with Topgrading. It’s not with references. It’s not discrimination; nothing, nothing, nothing. And Chapter 12 of that big, fat book that’s on your lap right now was written by the largest employment law firm in the U.S. So you can stay out of a minimum-security prison if you read that.
Jason Hartman: Okay, good. So that’s the process here, and I have a lot of questions. I want to get these out here. So back to process, it’s receive resume, shoot out the Career History Form, and then it’s phone interview, and then what?
Brad Smart: Phone interview, and then – I didn’t really answer that question earlier, but in person. If it’s a lower level job, a cashier in a grocery company or something like that, then there’s this quick version of the Topgrading interview that might be another 45 minutes or an hour. Let’s get up to the management or senior professional, public relations, something like that, some important jobs. A-players want to talk with more than just the hiring manager. They want to ask others. If I were considering hiring you and I have 20 people in my company, which I don’t, but you want to talk with some of those others and say, hey, what’s Brad like as a boss? What’s the culture like? How are decisions made? What’s the good news? What’s the bad news? What do you not like about working here?
So okay, that’s what A-players want, so in addition to that thorough Topgrading interview, then have a series of typically one-hour interviews, and they’re called “behavioral” or “competency” interviews, in which people might ask you questions about your technical skills or whether you’re a good team player, what your leadership skills are like. But the main thing is, in those interviews, a little Topgrading addition to that is the last 15 minutes are for the candidate. Just tell the candidate in advance. For each of these interviews, you’ll have an opportunity to ask your interviewer anything you want. And that’s what A-players require.
So then it becomes for an upper level job maybe the morning in these round robin, one-hour interviews, the afternoon in the Topgrading interview, and then reference checks after that.
Jason Hartman: Okay. So that’s one meeting for a lower level hire, and maybe a day of sort of multiple meetings for a higher-level person.
Brad Smart: Exactly.
Jason Hartman: And then it’s a hiring decision after that?
Brad Smart: Yes, and all the reference calls and so forth, and then you’re ready to rock and roll. It’s time to put an offer together. But you’re not really done. Topgrading then suggests after that, within the first week or two, you have a ton of information. If you were coming to work for me, and maybe I had offices in four locations and you’re coming on in a professional capacity, and you know that I have all this information on you, the Career History Form, the telephone screens, those round robin, competency or behavioral interviews, that in-depth Topgrading interview, and I talked to three of your bosses and two peers. I have a ton of information. Jason, you’d be knocking on my door saying, Brad, how about some feedback, some coaching? Help me assimilate into your company smoothly. And as you know, I want to rise in a leadership job. Maybe we can get some development things going on.
Well, topgrading companies promise that feedback and coaching to the individual. It’s fun. It’s easy, and it really does help the new employee get to be very productive very soon. And boy, every small business particularly needs that. You need people productive soon. And because you’ve hired an A-player, it’s easy feedback coaching and it goes very well.
Jason Hartman: Okay, excellent. Just quickly, can you talk about some of the differences between the generational types of hires? In the workforce nowadays, we have Gen Y, Gen X, and we have Baby Boomers. What are the differences in dealing with them, and what should people know that are hiring?
Brad Smart: I’m laughing because back in the late 1990’s, when everything was booming and companies like Cisco Systems were buying companies with 200 employees –
Jason Hartman: They were buying one or two companies a week.
Brad Smart: Yeah, exactly. Just to get the bodies, just to get some smart people. And particularly in Silicon Valley, oh, my gosh, it was a joke. Companies were offering pedicures and manicures and sabbaticals.
Jason Hartman: Crazy.
Brad Smart: Yep. Then what happened? The recession, and boom, there goes a real dose of reality. Just before the crash here, our present crash, I was in Houston with American Productivity and Quality Center at a meeting with 200 human resource executives, and I was a special advisor and then someone else was a special advisor. The other guy was the expert on generations. I was the expert on hiring and keeping A-players. So we had a day just for the final results, and all these company HR executives from Microsoft and Abbott Laboratories and Lincoln Financial and so forth were saying, oh, my gosh, the younger generation, the Gen Y’s are so hard. They want to have total job satisfaction right now. They want mentoring and coaching and 35-hour workweeks and lots of vacations and health centers where they can work out, and on and on.
Okay, that was the reality again, just in the past two years, and then wham-o, 10 percent unemployment, another 6 or 7 percent underemployment, and the kids who expected – the young people who, understandably, wanted this total satisfaction life plan, blah, blah, blah, are now just desperate for work.
And you know what? This relates to topgrading your kids. Those parents who spoiled their kids and made them think they’re the center of the universe and every job should lead to their total life satisfaction did a great disservice to them because I’m talking about across the world. My clients are from Dubai and Japan and Europe and so forth, U.S. Everyone is hiring the kids, who are self-made, and they might not be totally from the other side of the tracks, but just as Jack Welch used to tell me, he wanted to hire hungry young people from South Boston. So those are the young people that are being hired today, the ones that had the jobs in high school and college because they had to work. They’ve already proven they can work hard and they can be highly productive, and they’re not going to whine if the health club isn’t open Saturday morning.
I think the economy does a whole lot to change the mindset of the different generations. To be fair, this will happen again. And what we heard was a lot of wailing and gnashing of teeth in Houston where all these HR people are kind of resenting having to be flexible, and yet they reinforce each other. They said if we’re going to be the brand, the recruitment brand of choice, if young people are going to think Microsoft and Abbott Laboratories and so forth, we have to cater to them. So we have to just grit our teeth and make it attractive. Get the best and the brightest, even if we think they’re kind of spoiled. We better take that out of our skulls. So that will happen again.
Jason Hartman: I really like the Gen Y’ers that I’ve hired mostly. However, I do find that they don’t want to really work that much. They’re not like the Baby Boomers or the Gen X’ers in the sense that they won’t work a 50-hour week. They really want to have work as part of their life. They’re good at it. But they want to leave at the end of the day. They’re not too into staying late, even if they can grab overtime hours and be paid at a higher rate. Work doesn’t sort of – I don’t know. The money thing doesn’t really dominate their life. People might call them well balanced.
Brad Smart: I was just going to say they’ll probably live longer than you and me.
Jason Hartman: Maybe.
Brad Smart: And yet, I think I told you before we started the recording that I’ve given speeches in front of over 1,000 small business owners this year. I just love these – well, they’re 20s or they’re 30s – I love to hear. I have a Topgrading Tips article. If people go to my website and they want to sign up for Topgrading Tips, if you just give me your email address, you get the free book and you get the Topgrading Tips article. And one of the Topgrading Tips coming up is a 28-year-old and how about this for a title? “Topgrader Makes $170 Million at Age 28.”
Jason Hartman: There’s a title for you.
Brad Smart: Aaron Patzer, you can Google it; Mint.com. Truly has never done any leadership things. He’s kind of frustrated with the IBM thing and he was also frustrated that he was a work-a-holic like you and me, and he’d go to Quicken or something – he tried to do his finances online and it was a total pain in the neck. So he wrote the code that became Mint.com, which is free.
Jason Hartman: I’m looking at it now.
Brad Smart: By the way, no small thing, he picked up my book and he just used that Career History Form and the Topgrading Interview that’s right there in the book, and over 90 percent, he told me. Over 90 percent, not just good people, but high performers – but wham! He has 40 of them; small company, but sold it to Intuit for $170 million.
Jason Hartman: Nice job.
Brad Smart: His attitude is what are you going to do, go learn how to play golf? No, he loves working. So there’s a subset of the Gen Y who just got that gene for working hard, and they just get such a kick out of creating things and working hard, that to them, if you ask, “Why are you a work-a-holic?” “I’m not. This is my hobby as well as my interest.”
Jason Hartman: Yeah, that’s how I feel about my work. It really is a hobby. I love it. So what’s the difference between, if you can just quickly contrast, the Gen Y, the Gen X, and the boomer? What are they like?
Brad Smart: Well, actually, what are they like? Actually, they are, in my opinion, similar. My daughter, who has a PhD in psychology, and I published a book, Smart Parenting, which is like Topgrade Your Kids. My son has his own business, but he has 30 topgraded professionals reporting to him. We talk about this all the time.
From World War II on, so that hits those three generations, all three spoiled in a sense. It’s across the entire generation. Now, I don’t feel spoiled. You probably don’t feel spoiled. But the dads came back from World War II. They had the G.I. bill, went to college, and were going to make it easier for their kids, so it’s really kind of three generations that were totally different from all previous generations in having a lot more opportunity and parents catering to them.
Now, you take the boomers. We’re sort of the tail end of kids whose moms said, “Hey, go out and play.” Ride your bike. Take the train into the city. And each generation from that point on became more protected. I would say overprotected. And let me tell you about something that I think is problematic with each successive generation that is going to be even worse for the next one. The kids lack resourcefulness. The most important career dimension is resourcefulness. It’s figuring out how to get over and around and through barriers to success. And boy, the Topgrading Interview, you really find out about that.
My daughter doing her doctorate dissertation surveyed 3,000 high performers and asked them what’s most important for success. Resourcefulness. What’s most important in your life? They said resourcefulness, being resourceful and figuring out your financial problems, your relationship problems, your health problems. It’s all that’s important. Resourcefulness is the most important of 50 competencies. “Great,” Kate said in her survey, “how are your kids doing?” Blah, blah, blah. These 3,000 high achievers acknowledged that they’re making so many decisions for their kids, they’re overprotecting them, they’re spoiling them so much, their kids are passive, helpless, and dependent. PhD.
And I like to keep this upbeat and positive, but our little book called Smart Parenting has 50 exercises for rekindling that natural resourcefulness. But the downside is, Jason that the kids are going off to college with record high depression and suicide. This is not doing them a favor.
Jason Hartman: I couldn’t agree more. I think it’s a huge problem in society. I also think – this isn’t an interview on parenting and I’m not a parent, but if I may chime in, I think parents are over structuring their kids’ lives. They need to let them have some free time so they can think and invent their own fun. They’re carting them around from soccer games to whatever else, and it’s kind of ridiculous. But Gen Y, we kind of have a nail on them. Gen X, a little bit of that, but a little different in a way. Baby Boomers, in topgrading for all of these – you talked about Gen Y, but what do we do for the other two to topgrade them?
Brad Smart: Exactly the same process, and that’s why a PhD is not necessary. I should probably tell you something else. There is one more – there are several more – but one more technique that makes it clear you don’t have to read books on different generations or birth order. You find out about this one human being in such incredible depth that there is not going to be any doubt about how motivated the person is or what motivates them, what their needs are, their values, and so forth. And that goes across every generation.
And by the way, everywhere in the world, here is one other really important point. Sorry to bring out a big company again, but General Electric improved from 25 to 50 percent. Jack Welch said, “Brad, how can we get up to 90 percent? The topgrading professionals are over 90 percent. How can we move our people up?” I said, “Jack, in the workshops, we use two interviewers.” And believe me; two interviewers are ten times better than one. They can share insights and perspectives, cover for the other, and I still do some consulting with Jack every now and then, and boy, he and I were reflecting on this recently. He didn’t hesitate one second and the good news is, within a year, GE managers were up to the level of us topgrading professionals, 90 percent success.
And then because GE was so successful, a lot of companies copied them and that led to the next edition of my book. And now tens of thousands, including small businesspeople, for those most important interviews, they pair off with someone. So my assistant, my No. 1 assistant, Margaret, when she hired her assistant, Margaret conducted a tandem – two interviewer – tandem, topgrading interview. And boy, I’ll tell you, that makes it easier, but more important than that, it gets that batting average, that success rate way up. So if you’re around 25 – 30 percent success now, you can do solo interviews and probably get the 50 percent. But for high level professional jobs or management jobs, add that second sharp person, and you be the tag team and you do that topgrading interview, and maybe split the reference checks, and you are home free for 2010.
Jason Hartman: Yeah. Okay, good advice. Two more areas I want to cover. We’re running low on time here. But coaching and retention.
Brad Smart: The last thing you want to do is go to these extraordinary efforts to bring really sharp people on board and then lose them. Retention is hardly an issue. You can Google on-boarding processes. You’ll see every large company has elaborate, expensive on-boarding in the simulation processes, and you don’t need that. With a topgrading interview and those reference checks, you learn so much about what people want.
So maybe it’s a Gen Y who wants 35-hour workweeks and that’s it. Okay, know that. That is how you retain the person. For high potential people, who really want challenge, well, you know that, so of course, you’re going to be more cognizant of that and think of opportunities to retain them through offering special projects here or there.
But the coaching, coaching is a nightmare to most managers. I’ve surveyed over a million, and 75 percent of us as managers get lousy ratings as coaches. But not the topgraders because when you go through that one thorough process and you hire someone who’s truly sharp, you know because you got somebody in a job, and in every job, what their successes were and their failures were and how bosses would rate their strengths and weaker points, and self-appraisal. You know what they know about themselves, so it’s so easy, two weeks after they started work with you, to sit down and do the first coaching session. It will go very easy.
And then it becomes natural to have a great relationship with that person, more like a peer relationship where you can give each other feedback and coaching and mentoring. Then it becomes a breeze.
So what we found, Jason, is we go back into topgrading companies, where it’s been launched maybe three or four years ago, and we surveyed them again, and instead of only 25 percent of managers considered very good or excellent coaches, it’s up to 75 – 80 percent. Why? Did you have any workshops on coaching? No. Simple fact, you hire sharp people. They’re easy to coach, they’re fun to coach, and you become a wonderful coach without doing anything else.
Jason Hartman: Right. It comes in hiring the right person in the first place. It’s that foundational thing that makes the coaching and retention work so well. I said two more things. I actually want to insert one more. Just quickly, what are your tips on topgrading for sales reps? Sales reps are a different animal and I have both in my company, and a different kind of person.
Brad Smart: What we did in the book, and the idea for the book came from a super topgrading executive, who went from last to first at EMC, he said, “Brad, we have to write a book. Just focus on it.” And we have a lot of specific questions, like we have a 12-point interview guide that digs into and it has grocery lists of questions that are specific to sales people.
But here’s basically what it is. Before you hire any sales rep, No. 1, let them know that they’re going to have to arrange for reference calls with their sales managers in the past eight years. No. 2, you go through their career; you’re going to want to know about every quota, and every other accountability – not necessarily just the quotas, but the accountabilities and their performance against those. No. 3, Greg Alexander, my co-author, what he always does at his company, and he recommends that others do – and some do and some don’t – is get the W2s. Sales people can sometimes hide what their performance was. Let’s look at the W2s, so when they say this is my quota and I exceeded it by 20 percent and earned $150,000, that shows up. And of course, do the references.
But really the Topgrading for Sales book is only 140 pages with all the forms and guides in it, but the intent was to make it easy for the sales manager to have all the different likely accountabilities and competencies just for that sales job. So it’s really simpler than topgrading applied to management and leadership jobs.
Jason Hartman: Sure, yeah. That’s great. And it’s kind of an adjunct to Topgrading, the basic topgrading concept.
Brad Smart: The same thing.
Jason Hartman: So last area, Brad, and I did not know until we had a chat here before the interview that you even covered this, but topgrading your life. If someone wants to topgrade their life, can they take these ideas and techniques into other areas of life, and that includes parenting, maybe relationships, and then individual hiring of contractors. If you have someone you want to have landscape your house or remodel your kitchen, what can we learn from topgrading there?
Brad Smart: Yes. Is it a force for it? Yes, sort of, but topgraders have told me over the years that their time is so precious that they can’t afford to be wasting time with a landscaping service or a contractor that doesn’t work out and so forth. So they don’t do a full topgrading interview. But first of all, they get references – references, references, references; very thoroughly referenced. The house I’m in right now, I was so busy and my wife was so busy when we built this that we got references. We went to the individual. This was back in rolodex days. I asked if I could go through their rolodex. I, not they, could go through their rolodex of all the people they built houses for in the past two years so that I could pick out people that I wanted to call. And they’d call them and say would you serve as a reference, and they did. And that’s fine.
My son has a very dramatic example he has in a book. It was a best-selling book, published last year. And he said that he and his wife mis-hired a nanny. They just took the recommendation of a service, and when he saw one of his kids run down the driveway toward the road, they knew they had mis-hired. So subsequent to that, they do topgrading. They wan to go through the full life of a nanny or key babysitter, and including all the references.
A lot of topgrading companies, like me, require their contractors to be topgraders. For example, I’m spending a fair amount of money on some software to help create some of the new forms and guides. I don’t want a C-player software programmer. So when I outsource, I topgrade in the sense that I ask about their background and I get multiple references. That’s a general recommendation. Anyone that you contract with, who can mess up your life if they’re not an A-player, or if they don’t hire A-players, do a version of topgrading with them.
And really, topgrade for your kids, this is a book right now, called Smart Parenting: How to Raise Happy, Can-Do Kids. I’m going to have Topgrading Tips in December, which will be an eBook version of that, so it will be probably a 50-page book on how you can rekindle and stimulate your kids to be can-do, responsible, fun leaders, what they’re born to be really, and have a bunch of activities. The Smart Parenting book, which in the eBook form will be called Topgrade Your Kids; help them become A-players, responsible. This is wonderful for parents, not just kids. When they’re responsible and can-do, they figure things out for themselves. They don’t rely on Mommy and Daddy and coach and priest and teacher to make all their decisions for them. They are truly confident and capable in their lives. So hope everybody likes that.
Jason Hartman: Yeah, that’s fantastic. It’s good to see you’re expanding this in other areas. Well, Brad, what would you like people to know in closing on this all-important topic of topgrading?
Brad Smart: The message would be the same as if I were riding on an airplane, sitting next to any one of your listeners, and I’ve learned to carry some hard copies of this book, Avoid Costly Mis-hires, which is free eBook. Hey, if you’re doing any hiring – and you’ve just told me because you’re sitting next to me that you’ve had some costly mis-hires – the solution is really be more thorough. Do it in a common sense way. Here is the roadmap for it. I’ll give you this book, but you have to promise me if you use these techniques, you’re going to email me and tell me how you did. That’s what I suggest.
Go to Topgrading.com; download the eBook. Read the Topgrading Tips in the future, or go to the archives and just pick any topics out you like, and definitely anyone – anyone – can, at least, double their hiring success. And maybe some of these ideas would carry over into other aspects of their lives as well.
Jason Hartman: Fantastic. Well, Brad Smart, Topgrading, thank you so much for your insights today. We really appreciate it. And this is a very important topic, so I hope the listeners enjoyed it. It’s really, really important. Thank you so much.
Brad Smart: You’re very welcome, Jason.
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Duration: 53 minutes