Hire Learning
Lyfe Marketing’s founders have been growing their startup at breakneck speed—and now their hiring strategy is showing signs of wear. So fellow Atlantan and Kabbage CEO Rob Frohwein shared some of the cultural knowhow that made his $1 billion company one of Inc.’ s Best Workplaces two years running.
The founders of Atlanta’s Lyfe Marketing may all be under 30 years old, but Keran Smith and brothers Sean Standberry and Sherman Standberry have the chops to oversee digital marketing for 400 small businesses—earning $3 million in revenue last year and the No. 299 spot on this year’s Inc. 5000 list of America’s fastest-growing private companies. As these Founders Project mentees add the talent to shore up highvolume sales, they’re worried rapid growth will weaken their company’s tight-knit culture. That makes their mentor, Kabbage co-founder and CEO and fellow Atlantan Rob Frohwein, a great match. A small-business-funding platform that reached a $1.2 billion valuation in 2017, Kabbage is so beloved by its 600 employees that it earned a spot on Inc.’ s Best Workplaces list in 2018 and 2019. (It’s also a sponsor of the Inc. Founders Project.) As Frohwein advises, sometimes recruiting and retaining the right people starts with letting the wrong ones go.
Sherman Standberry I used to think it was so cheesy, hearing Bill Gates say, “You need people to grow a successful business.” Now, it’s one of our biggest challenges—getting good people in the door.
Frohwein One of the most important things we’ve done is design job interviews to figure out whether people are self-aware. We ask a bunch of really bizarre questions: What’s the one word you’d like on your tombstone? What’s your favorite curse word? People are like, “Why the heck are they asking those questions?” They’re intended to see if people know what they’re good at and know what they suck at. You also figure out whether they’re willing to lend a hand when somebody raises one and willing to raise their hand when they need help— whether they’re comfortable being vulnerable in the workplace and whether they’re respectful of others and caring.
Sherman Standberry How do you feel about remote work? We’ve read statistics that say people who work remotely stay at their jobs longer and are happier, but from a business perspective, you risk a lack of productivity and collaboration that some people feel they need.
Frohwein We hire people who are remote if they have a very specialized skill that I can’t get somewhere else, but for the most part, I ask people to be in the office. We just implemented a floating work-from-home day. At first, the team wanted to make it on Fridays, and I said that if you coordinate a work-from-home day for everyone, it will stall produc
tivity. So, if you’re going to do work-from-home, don’t do it every day. You allow a single day, and you make it random.
Smith What about culture? Millennials want the freedom to work when they want, game rooms, and things of that nature. We’ve been a little hesitant to have a culture like that.
Frohwein Somebody once said to me, “Today, offices have pinball machines and Ping-Pong tables and a kegerator: Young people need those things.” But that’s not culture. That emanates from culture. First, you have to have people who genuinely want to drink a beer with one another, play a game with one another.
Sean Standberry I’m sure there are people who abuse those perks, though. How do you prevent that?
Frohwein Treat everybody like an adult. Make sure they understand what their responsibilities are. And if they get it done, then what do I care?
Most people are going to do the right thing, and there are going to be a few who try to take advantage of every last thing you do. So many people end up letting a few problematic customers or employees ruin the opportunity for everyone else.
Create policies for the many. Don’t create policies for the few. Then, be willing to fire people who aren’t working out. How are you at letting people go?
Smith Terrible. People stay longer than they should because we don’t have anyone to replace them.
Frohwein You need a bench, a farm, and a path. A bench is a network of people you might want to work with in the future. So when you’re ready to let someone go—or someone quits on you—you have three people you can call and say,
“Hey, a great opportunity just opened up.”
A farm is people who are cross-functionally trained. If you have a specialist focusing on one area, you should have two other people who, combined, could take care of that job. You might have to allow that training to take 10 percent of their time—on a continual basis—but it’ll allow you to fire or replace somebody very easily.
Lastly, a path. It’s important to figure out what people’s paths are, where they want to be, and how you can help them get there. If that’s outside the company, they end up leaving anyway— but they’ll take care of you while they’re making that transition, and be a loudspeaker for others to join your company.
Smith A comment on your Glassdoor stated that if someone doesn’t fit your culture, that person will be let go. This is a very real scenario for us: Would you fire a top performer who doesn’t fit the culture?
Frohwein First, you try to get them to change. I always believe in trying to help people get to a better place, especially a top performer. But sometimes you see things in their behavior—like if they’re harassing someone—and you have to cut the cancer out. Those are the hardest changes to make. We had one recently, and we took care of it right away.
Del Frisco’s steakhouse chain, which Landry’s agreed to buy in late September for a reported $300 million. Explaining the opportunity, Fertitta says, “It’s a great brand and a poorly run company.” He will simply roll Del Frisco’s into his own well-oiled machine.
Fertitta is among the few industry CEOs who have held every restaurant job and studied every aspect of running a successful eatery. “You couldn’t go to a restaurant with him and not be taught a lesson,” says Patrick Fertitta, “either from a server’s perspective, or the way a dish is prepared, or how a host or a hostess deals with a wait.” It galls Patrick’s father that CEOs of publicly traded restaurant companies couldn’t so much as fold a napkin properly while being overpaid to underperform in the top job.
Although Fertitta votes for mass over class, his company won’t run with commodity dining players such as Chili’s, Olive Garden, and Applebee’s, which spend heavily on promotions, or “buying the business,” as it’s known. Across the industry, same-store sales are flat, a function of an increasing number of restaurants, so competition is heating up. “There are no spare customers” is a well-known Tilmanism. At places such as Willie G’s, the wait staff will treat you to a well-rehearsed dining experience, from the obligatory server introduction to the grand tour through the menu. Just don’t expect any all-you-can-eat shrimp deals.
People who have been with Fertitta the longest will tell you that his strength isn’t a gambler’s gut instincts but a mathematician’s rigor in problem solving. He preaches one message consistently: Know your numbers. Unless you fully understand how you’re making money or losing it, you have a hobby, not a business, and you’re likely to fail. “If you don’t have a financial statement to go on, you’re basically operating out of a cigar box,” he says. “You don’t know shit.” It seems like fairly prosaic advice, but if other companies had
followed it, he probably wouldn’t be buying them.
Every Wednesday, corporate and Golden Nugget execs gather in Fertitta’s office for a call to review the prior week’s numbers. The meeting covers occupancy rates, number of room nights versus the prior year, and standard industry barometers such as revPAR (revenue per available room) and ADR (average daily rate), while noting subtle changes in the calendar— one less Saturday night in a month, say—that influence revenue.
The attendees home in on the fine detail. The Golden Nugget in Laughlin is down 79 room nights in August but is still running near 90 percent occupancy. There’s a storm headed toward Biloxi, home to another Golden Nugget, and local officials have prohibited swimming, but the beach is open; media reports say the beach is closed. (“Fucking stupid media,” says a voice from Biloxi.) New competitors have opened in Atlantic City but profits are up $700,000 over last year. Why? A.C.’s managers haven’t caved to discounting. It’s a valuable lesson. “You don’t have to give it away,” Fertitta yells out. “That’s how casinos go out of business. They give too much away.”
After the meeting, Fertitta points to his watch. “We cover more in 17 minutes than most companies do in an hour because I will not have long meetings,” he says. His attention span is about as long as this sentence. Besides, the numbers tell him everything.
At his restaurant unit, executives get flash reports every morning detailing how each location performed the previous day. Exceptions are spotted quickly, which makes it difficult for a small problem to become a bigger one. That’s another Tilmanism: Focus on the 5 percent of your business that isn’t working well. “We can manage our business to within 1 percent of the forecast,” he says.
At the next meeting, in a conference room attached to his office, the issues are local, pertaining to the Post Oak Hotel and the Oak Room, the hotel’s glossy, decoratedto- death aerie. About a dozen people are there, and someone hands Fertitta a draft of a football promotion going out to members. He quickly realizes that the club isn’t open on one of the proposed dates. “If I don’t catch this, you’d send it out,” he admonishes the group. “There’s too many of y’all here [for that].” (After the meeting, he will say, “Mistakes seem to jump out at me.”) Then he selects a new robe for guests at the Post Oak, one that can weather 45 or 50 washes. It’s a level of detail beyond most CEOs. But, he says, “I’m there, so I might as well make the decision.”
He is unfailingly gracious with people—as if everyone he meets were a customer—and unfailingly direct, too. “One of the things my people like about me is that everybody always knows where they stand,” he says. “I am very straightforward.” At the gaming meeting, Fertitta chided one executive for not appearing at a dinner for high rollers the previous evening. The two meetings serve as a summary of his management style: deeply analytical yet with an understanding of the customer experience. And he leaves with decisions in hand.
Last summer, Fertitta made another seemingly risky decision. His Rockets traded away all-star guard Chris Paul and committed to spend $207 million for the contract of Oklahoma City’s all-world guard Russell Westbrook, who will serve as an oncourt partner for Houston’s all-universe guard James Harden. “The basketball people wanted to do it and I approved. Pretty simple,” he says. “They know how important it is for me to win.”
The trade rocked the NBA, but Fertitta says absorbing Westbrook’s contract was a smart risk. Because of NBA open-book policies, he knows the player budget of every team and the salary of every player—which makes life easy for a numbers guy like him. “This is what an entrepreneur does,” he says. “Every business stands on its own, and you can’t get caught up in the noise.”
In an era when decisions by stars about where they’ll play can decide championships, the owner is becoming another player. “Smart free agents are picking owners now,” says Rockets GM Daryl Morey. “And Russell picked Tilman.”
Fertitta isn’t planning to retire anytime soon, but he won’t be making these decisions forever. Son Patrick is clearly in the succession line, and his three siblings have always known they’d be joining the firm. Patrick’s older brother, Michael, 27, is finishing law school, while younger sister Blayne, 22, and brother Blake, 19, are still undergrads. Unlike their father, they will finish college before they go to work. “From an early age, not only did he encourage us to get involved in the business, but it was expected. It was demanded,” says Patrick.
And they will likely have more on their plates. Fertitta described the Rockets purchase as generational, a platform for the future that could easily include more teams. With one casino brand and just five locations—and an industry in constant churn—there is clearly room to add. Fertitta Entertainment could even become a public company again and shift some of the risk to shareholders.
Not that Fertitta is afraid of risk. Fearlessness is in the job description for empire builders. It’s recklessness that can destroy them. Fertitta has found his fortune by understanding the difference.