[00:00] Rob: This is Startups for the Rest of Us, episode 33.
[00:12] Rob: Welcome to Startups for the Rest of Us, the podcast that helps developers be awesome at launching software products, whether you’ve built your first product or are just thinking about it. I’m Rob.
[00:20] Mike: And I’m Mike.
[00:21] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made.
[00:26] Mike: So for today’s podcast, this is going to be a continuation of last week’s podcast where we were talking with Harry Hollander of Moraware Software about some of the different professional services you may need for your business.
[00:40] Harry Hollander: The other topic that we’re going to talk about is corporate benefits and payroll services, and maybe then HR. For us, even though we have five employees, we’re spread out in four different states, and dealing with healthcare, vision plans, 401Ks, payroll and benefits would have just been a nightmare for us to manage individually. Just the amount of time and effort it would have taken to figure out what to do and how to do it would have been really difficult.
[01:07] So when Ted and I hired our first employee, already the two of us were in two different states, and our employee was going to be in the first state, we decided the only way we could do it practically was to get a professional employer organization.
[01:20] Basically, what that is, it’s outsourced HR. It’s been awesome. It’s definitely a cost for us, but everything related to all of the benefits you would expect if you go to work at a big company, we’re able to offer to our employees and not have to deal with anything in terms of the time it would take to figure out what to do.
[01:41] Like, for example, I’m in Oregon. I have Blue Cross insurance. Our employees in California have Kaiser or whatever they want. There’s choices, and we do the 401K plan for everyone. And it’s been really awesome to be able to consolidate that and not have to deal with it.
[01:57] Rob, how do you deal with your own benefits, and retirement savings, and that kind of stuff?
[02:02] Rob: Yeah, that’s a good question, actually. I noticed really early on, before I had transitioned fulltime into the business, I was saving in a personal IRA or whatever. But it tops out at like, what, three grand or four grand a year? And I was thinking like, “I’m never going to be able to save as much money as I need to save.”
[02:18] And so pretty quickly, I think I did a simple first and then a SEP IRA, and those are just sole proprietor type things. But they’re very simple. And even if I hired a couple of employees, I could still maintain that structure. So I wouldn’t have needed to gone down the 401K route, which, from what I’ve heard it just gets a lot more complicated. You don’t tend to want to administer that yourself.
[02:39] But that is how I handle retirement now. And I talk to my accountant about that every year. So if someone’s out there and you’re thinking, “I want to be able to put a lot more away for retirement, more than this $4,000 personal limit,” then I would definitely recommend looking into something like that.
[02:55] And then in terms of insurance, I’ve been lucky enough…I did pay my own insurance a few years ago, and I would just go out and find insurance. Again, since I don’t have employees, I don’t have to worry about real complexity there. And now my wife has a fulltime job. She has her PhD now, so I’m able to be on her insurance, which has been quite a welcomed change.
[03:14] And then in terms of payroll, that actually was a bit of a challenge, and I was trying to figure out how to do that, and then Mike recommended Paychex. I think similar to your experience with kind of outsourcing the employee benefits, Paychex has been a godsend. They’re super inexpensive for their one person companies. I think it’s like $49 a month. It is an absolute no-brainer for how much stuff they do and how many forms I see them fill out and sending to the government, and all the taxes they retain. And just the amount of time and effort it would require me to manage this, it’s insane. I bet it’d be five to 10 hours a month for me, probably, to do what they do. And I pay $49 a month for it. So I’m definitely glad there are companies like that out there!
[03:52] Harry: What I heard is that companies like Paychex also offer, if you are willing to move up beyond just the payroll part of it, they can also offer the 401K and benefits and all of that stuff as well. And I think you can kind of do it cafeteria style and choose just the things that you don’t want to handle yourself.
[04:09] Rob: And that makes sense, because now they have me, right, at $49, and I love their service, and I know the people in the local branch. And absolutely, if I hired employees, I would totally go to them and say, “Do you offer this?” It totally makes sense why they have this low price point thing for someone like me. Because I’m not going to look around if I need a 401K. I would totally go to them.
[04:27] Mike: I’ve had pretty good experience with Paychex as well. I used Paychex several years ago and then I stopped, and I switched over to ADP for a while, and then I ended up canceling that at the end of the year and I switched back to Paychex, mainly because I felt like I was getting charged for things and I just had no idea what they were. And so I just got sick of it.
[04:47] And when I talked to Paychex, they had that thing that I introduced you to, which was $49 a month for a sole proprietor, or for a single owner of a company. And, as you said, it was just a no-brainer. So they help me out with quite a few things, actually. Probably a lot more than that $50 a month would actually cover. But they’ve been really good so far. And I’m in the same boat with you; I’d probably take a serious look at them if I were looking at other things.
[05:14] One of the things I ran into, though, was at the very beginning I was trying to look at places where I could cut costs. And it looked to me like, “Oh, I can just write myself a check every month.” And on the surface that sounds like a great idea, but then when you get into having to withhold state taxes and federal taxes, and do all these fancy things with Medicaid and Medicare, and do all those withholdings and send those in, it just becomes a nightmare very, very quickly, and it was just not worth it.
[05:42] One of the other things that I did early on was I was on my wife’s health insurance, probably just like you were when you started, Rob. And I did that for a couple of years. And then when she decided that she wanted to stay home with the kids, then I decided that I was going to go out and start looking for healthcare. And at the time, I had somebody who I brought on in a 1099 basis. And long story short, I basically brought him on fulltime and handed everything off to him and said, “Hey, I need you to go find out this information for us. We need a health plan, we need a dental plan, we need to do payroll, we need to do all these different things, and I need you to take care of it,” because I just didn’t want to deal with it.
[06:19] So he went out and he found all these different plans, and we worked through a local health insurance underwriting agency that focused on small companies that basically have less than 10 employees. And they basically handled everything. And I’ve been working with them for, I don’t know, probably four or five years now.
[06:34] They keep me notified of all the different options, all the different changes from one year to the next. And Massachusetts is a little different than other states, where our healthcare is basically mandatory at this point. So there’s all these new state laws that we have to adhere to. And it’s honestly kind of a mess, and I’m glad that they take care of that and I don’t have to handle it.
[06:53] Harry: So Mike, do you put away retirement money into a 401K, or also a SEP plan or something like that?
[07:01] Mike: I have a couple of different things. I have some accounts with a third-party financial institution that I basically send them money every month. And then I also have a SEP IRA account. What I was told when I started looking at that was that I could get a SEP IRA account, but as soon as I hired employees, I had to offer them the exact same benefits that I was getting with a SEP IRA account.
[07:24] Rob: Yep. I remember that.
[07:25] Mike: Yeah, that was the one thing that struck me as not necessarily odd, but it was one of those things like, “Ooh, I didn’t know that.” And I’m glad somebody told me.
[07:34] Harry: We discovered a couple years ago one of the dirty secrets of the 401K. When I had a real job, my employers were being kind by offering matching to the 401K. But it turns out that, as an employer, if you offer the matching, it lets you, as the owner, actually put in more into the plan, and that’s the reason that most companies do it. And we ended up offering matching on our 401K for the same reason, because basically, because we’re small, Ted and I are the owners, and we contribute a significant amount from the whole pool of employees into the 401K.
[08:06] Rob: So in terms of other corporate benefits, what about $10 discounts on tickets to Disneyland? How do you guys handle those?
[08:14] Mike: I mean the thing is I’ll occasionally pay for things that I don’t necessarily need to. And in a way, I look at them as a corporate benefit. So let me give you an example. It was probably three years ago, I think. I was teaching a class for Symantec, and I had a bunch of people come up to my office here in the Boston area. I was teaching this class, it was probably six students or so, and brought them in and just said, “Hey, do you guys want to go to a Red Sox game this week?”
[08:41] And I went out and I used the corporate expense account and just decided to buy everybody Red Sox tickets. And I actually brought the employees that I had with me as well, and we went to a Red Sox game. You can almost think of that as a corporate benefit, because obviously we wouldn’t have been able to go to a Red Sox game otherwise. But that’s money I didn’t have to spend, but I was able to write it off completely as a marketing expense because we sat there and we talked to those guys, trying to…I’ll be honest, we were trying to solicit additional business. We didn’t have to, but we did.
[09:11] There’s a lot of ways that you can be creative with the money that you spend in a business and how you categorize it. Obviously, you can’t just flagrantly disobey the rules and stuff, but there are certainly things that people are interested in doing, and you can essentially write those off as either team building exercises or research or development. You know, it depends on what you’re doing and what your business is.
[09:32] Rob: Yeah, that brings up an interesting question, Harry. Since you guys are all distributed, do you ever get the whole gang together for a company meeting annually or something and make that a team building thing and pay for everybody?
[09:45] Harry: A couple years ago we had a party, and we all got together at that point. But in general, we go to trade shows, and that’s the opportunity that we take to all get together and hang out.
[09:56] Rob: Got ya. Yeah, that makes sense.
[09:58] Harry: So I think that’s part of the value of the trade shows for us. In addition to soliciting more business and meeting customers, it’s a really good excuse to all get together. If we didn’t have that, we would still do it. That’s one of the downsides of being a distributed company, is you don’t get to have those casual conversations that you normally do if you’re all sitting in the same office.
[10:19] Rob: Right.
[10:20] Mike: But with a tradeshow you can basically write off the entire thing as a business expense, because those dollars come out of your marketing budget, I assume, because you all have to go, you all have to do different things for the tradeshow. You know, different people contribute different things. Some people man the booths, some people set it up, some people do some of the marketing things associated with the booth and building the collateral, and making sure that everything’s there, because there’s logistical headaches.
[10:46] I mean I’ve done conferences as well and they can be quite expensive. And it’d be very easy to write that entire thing off. And especially if you just stay an extra day or two, I mean that can be a corporate strategy meeting. Who knows? There’s lots of ways that you can write those trips off and still make it beneficial for everybody, because everybody’s getting together and getting that face time that they need.
[11:07] Harry: I think that’s true. And it sounds like we have a similar philosophy to you guys. In general, we’re pretty cheap guys. But when it comes to doing things that benefit our business and benefit our customers, we’re willing to spend money and it’s totally an allowable thing to spend money on your business. And your accountants can take care of that.
[11:25] Mike: The word is frugal. We are frugal, not cheap. [laughs]
[11:28] Harry: Oh, I’m sorry. Yeah, for example, we recently bought an Aeron Chair. Those are expensive chairs, but when you think about the fact that you’re sitting in front of a computer for 8, 10 hours a day, that’s a very obvious place to spend some money on your business.
[11:45] Rob: Yeah, totally. Did you buy an Aeron for everyone? Just the owners? If you say just the owners, so help me…! [laughs]
[11:52] Harry: It’s really embarrassing. I don’t even have a chair. I have too much nervous energy to sit down, so I pace around all day. [laughs]
[12:01] Rob: Huh! Do you work at a standing table then?
[12:03] Harry: I’ve got kind of a high table. At some point, when I get over my frugalness, I might get one of those tables that’s got a motorized engine to lift it up and take it down.
[12:12] Rob: Yeah, I’ve seen those. They’re awesome.
[12:13] Mike: Yeah, I have an Aeron chair.
[12:15] Rob: I have like an IKEA equivalent or something like that. Yeah, at some point I need to invest.
[12:21] Mike: Yeah, I’ve actually got a couple of Aeron chairs. I’ve got one of the regular Aeron chairs that everybody is probably kind of much more familiar with that I sit in on a regular basis, and then I also have what most people probably aren’t nearly as aware of. Herman Miller makes these Aeron side chairs which are, I don’t know, I think $400 or $500 a piece. But I got a pair of those to sit in my office so if I have people in here I can just kind of sit down with them and have an actual meeting with them without them having to stand the whole time.
[12:48] Harry: You know, that reminds me of a funny story. When we were still really early on, we had a customer who didn’t want to just buy our software over the phone or the Internet. So he decided he was going to, on his own dime, fly to Ted’s house and sit in his living room and get a demo, you know, with Ted’s dog crawling all around him and that kind of stuff. So I’m not shocked at all that you might expect someone to show up at your house and want to see you in person.
[13:13] Mike: Well the other thing is I used to have an office, and I closed it down because it was an expense that I didn’t necessarily need. I mean I was blowing…and I say blowing because it really was blowing money. But I was blowing about, it was like $2,100 or $2,200 a month in rent, and it was ridiculous. I mean it was awful. So I said, “This is enough.”
[13:32] So I basically closed the office. And I actually bought out the least to get out of it early, because it was cheaper for me to buy out the lease and leave than it was to stick around. But then I had all this extra equipment and stuff that I had to find a place to put it. So in my basement, I basically redid my basement and I’ve got a nice setup down here.
[13:53] Rob: Yeah, if we were doing video Skype, you would see just boxes and boxes behind Mike. He basically has like a server farm in his basement, but it’s like in boxes!
[14:02] Mike: You know those 42U rack chassis? Well I have a half chassis that’s got 21U in it. And I’ve got, let’s see here, 10, 11, 12, 13, I think 13 servers in it.
[14:15] Rob: Geez.
[14:15] Mike: Plus I’ve got another rack off to the side. And those servers that are in there are just my Windows servers. And then I’ve got another rack that is kind of one of those…it looks more like a shelf, to be perfectly honest. But it basically contains my Unix lab. So I have a Windows lab and a Unix lab. And one of the machines I have in my Windows lab, so to speak, is an ESX server with dual quad core 32 gigs of ram that I just load that up with all these virtual machines. And then I have all these other ones that basically interact between each other. And in my Unix lab, I have AIX, HPUX, Linux, Solaris, what have you in there just because I do a lot of things with a lot of different operating systems, so I kinda need it all.
[14:57] Rob: You know, it’s funny, there’s such a stark contrast between how you’re set up and how I am. We just do different things. I mean I don’t do all the complex…like you need a whole networking environment to test all kinds of crazy stuff out.
[15:09] But I don’t have any of that. I have a desktop computer to edit videos, and then I work off my laptop 24/7 and that’s it. I can just pick up the laptop and be gone. I can’t imagine having all that hardware and having to, I don’t know, maintain it, and keep it around, and keep all the virus stuff up to date and all that.
[15:27] Mike: Well, it’s a nice way to network, so not everything is completely up to date. But I mean the other thing is, some of the software I work with is patching software and software delivery. So honestly, some of it needs to be a little bit out of date because I need to be able to test and make sure the software works. And I can deploy software to it and deploy patches and things like that.
[15:46] Rob: Right. Harry, how about your guys’ setup? Are you co-located at a data center?
[15:52] Harry: We just rent all of our equipment. So other than our laptops, we don’t have a lot of computers either. None of us even has a desktop computer, to be honest.
[16:02] Rob: Yeah, that’s a good way to go. The only reason I went with a desktop, by the way, is because I edit HD video and you need just massive hard drives, and I wanted RAID and blah, blah, blah. So yeah, if I wasn’t doing that specifically, there’s no way I’d have a desktop anymore.
[16:15] So that’s interesting, yeah. So you guys lease, right?
[16:20] Harry: Exactly.
[16:21] Rob: Is that purely from a cash flow standpoint that it works out, or what made you decide to do that instead of buy and maintain?
[16:27] Harry: Well, the main reason is that maintaining servers is no fun. So it seems like based on the price of upgrading things and all that, leasing equipment for a short period of time, maybe a year or two at a time, means that you can constantly be upgrading all of your servers, and that’s what we end up doing. I think our oldest server is like two years old, and that’s probably about to go as well. Because the price of hardware keeps going down, you can always get the latest greatest machine for less than the old one that you have sitting there.
[16:56] Mike: Yeah, I mean one of the things to point out, in my lab environment, for 10 of those machines that I have in my lab, I bought them for, collectively, I think $6,000 or $8,000 or so off of Ebay. And it was just some distributor who goes out to these companies who are either shutting down or selling off some of their old equipment, and they just basically turn around and resell it for them. And I presume that they mark it up, but I just bought it from them and got this rack of 10 servers that I just threw into my rack, and I’m able to configure them in any way that I want and use them.
[17:30] But they don’t need to be top of the line. So I don’t necessarily care if they have 10 cores in each of them. It’s not really that big of a deal. I use them for testing and for building a distributed network that’s got all these different machines and the way they interact.
[17:44] Rob: Right. Oh, that makes sense. I didn’t realize that. I thought you..you know, when we always talked about our hardware, I thought you’d bought everything new from Dell or whatever.
[17:51] Mike: Yeah, my entire Unix lab is all secondhand stuff. I didn’t buy any of it new. So, for example, I have three Solaris machines. I have a Solaris 8, Solaris 9, and Solaris 10, and all of them are the Spark architecture. And I believe I paid $60 for one of them, and I paid $75 for shipping on it, which is ridiculous. But I mean they were cheap. And they do what I need them to do. They’re not great machines. I think they have 20 or 30 gig hard drives or something ridiculous like that, but I don’t need them for much. I mean I need them to run the operating system and that’s about it, to be perfectly honest.
[18:26] Harry: You know, what frustrates me about this whole topic is these are all things that you have to have at some point in your business. I feel like even though we’ve gone through this process, all of us have, right? None of us knows the answer. And we’re not even sure if what we did is the right thing. And I don’ t know if there’s other resources or something where you can find more. That’s what I wish existed.
[18:47] Mike: Well I think part of the reason is there’s no hard and fast rule for any of these things, because what you do is going to be different depending on where you are, how much money you’re bringing in, how much time you’re spending on your business, what your liabilities are, what your expected assets coming in are going to be. I mean there’s all these different things that kind of factor into it. And because some of the process for getting some of it is just very opaque, you don’t know what the rules are, it just makes it hard to judge whether you got a good deal or whether you should have done something different.
[19:18] Harry: Well what I want to say is that with your listener base, people thinking of starting companies, someone should build marketplaces for each of these professional services and make it an open process, because that probably would make me a lot happier.
[19:31] Rob: Yeah. I was actually just looking on Angie’s List to try to figure out if they have CPAs and lawyers and all that. I know they have contractors and doctors…Oh, here’s the list. Yeah, I’m not really seeing professional services people here. It’s more contractors, health folks, outdoor type stuff.
[19:50] There’s a company starting locally here in Fresno called BusinessBites.com. And they are actually looking to get…I think they’re going to start with lawyers and perhaps accountants. And they’re going to do…well, it’s kind of an interesting business model. But they’re going to have ratings for them, and also, you are going to be able to engage someone just to get advice for a very short period of time online. So you can click and schedule a five minute console with somebody and they bill you by the minute. So I thought that was an interesting idea as well.
[20:20] And then, not only could you ask a quick question if you had it, and hopefully get a good answer, but then if you found someone you liked in that five minutes, then you could obviously engage them. I mean that’s the whole point of why the lawyer would do it, right? It’s kind of a lead generation thing from their end.
[20:33] But yeah, I haven’t heard of a good one stop shop for this kind of stuff. So hopefully we’ve provided some value today and we are at least offering enough advice for folks who are listening that they have some type of bearing on how we might do it.
[20:47] I’m struck by how our approaches were all fairly similar. Even though we are in different situations, and maybe we have some different recommendations, that we really did kinda go about getting recommendations and moved forward with each of them in a fairly similar manner. I think that’s a good sign.
[21:01] Harry: You know, it’s funny. When I told Ted you invited me on your show, he’s like, “So you’re going to talk for an hour about something that you just hate?”
[21:10] Rob: Well I was thinking the same thing. I was thinking, “This is going to be a really valuable show, but it’s going to be really boring, in my opinion, because of the subject matter. I hate this stuff.”
[21:19] Harry: Right. Yeah, I feel the same way.
[21:22] Rob: This is totally not our core competency.
[21:26] Harry: Right. Well, and I assume that we have more experience than most folks out there who are starting, right? And that’s just scary. I imagine the impact of doing it wrong has got to be high. At some point, if someone sues you and you’re not prepared for it, it’s probably a big deal. I mean I feel like we’ve been lucky enough that that hasn’t happened, but I’m sure it’s just a matter of time.
[21:47] Mike: Honestly, I almost feel like you have to screw up pretty bad, beyond what common sense would allow, in order for something to seriously bite you. I mean I’m done some things in the past that I would certainly not do again. And there are places where I can think of specifically where having an attorney probably would have helped me a lot more.
[22:09] I mean, for example, one time back in the past, I had signed a contract where I was basically a subcontractor, and I would get paid within seven days after they got paid. Well, their customer didn’t pay them. And this went on for like six months. So unfortunately, because I had signed the contract that said I would not get paid until seven days after they did, they were not in breach of contract in any way, shape, or form.
[22:35] But a good attorney would have probably looked at that and said, “That’s not a good idea for you to agree to that, and here’s why.” Whereas I’m looking at it and saying, “Well, this is perfectly reasonable. They get paid, and within seven days I get paid.” That sounds reasonable. But it turns out that it just wasn’t.
[22:51] And I think that whatever the professional service is, whether it’s CPA, or insurance, or attorney, they can certainly help prevent you from mistakes that are probably more common, but at the end of the day, I mean you use some common sense and you’re not going to get bit too badly.
[23:07] Rob: So, I think you’re right. Using common sense can get you most of the way, and then good luck, I think, or just reasonable luck is the other thing that will keep you from running into real issues with this.
[23:19] Mike: So I think that about wraps it up for today’s episode. Rob, why don’t you take it away?
[23:24] Rob: If you have a question or comment, call it into our voicemail number at 888-801-9690. Or you can email it in MP3 or text format to firstname.lastname@example.org
[23:34] Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons.
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[23:50] A full transcript of this podcast is available at our website, startupsfortherestofus.com. We’ll see ya next time.