Hire people smarter than you?

In Robert Kiyosaki's best-selling book Rich Dad, Poor Dad he mentions that one of the secret's of success is to "hire people who are smarter than you." Due to the best-selling nature of the book, that saying quickly became a common platitude, which eventually led to satire, culminating in one of my favorite Dilbert cartoons where a conversation goes as follows:

PHB: A good manager is one who hires people smarter than he is.

Wally: So... Your boss is dumber than you?

Alice: And your boss's boss is dumber yet?

Dilbert: According to your theory, our CEO is the dumbest person in the company.

Obviously this touch of wisdom is comparable to the warm leavings of a male bovine, but like many trite sayings, it contains a slight nugget of truth at its center. When you hire someone to do a job for you, you hire them for one of two reasons:

1. You don't have the time to do the job
2. You don't have the expertise to do the job

To further differentiate, in the first you retain decision making powers, and expect your employee to carry out your wishes. In the second option you are giving your decision making powers over to someone that you hope will make better choices than you (which, of course, is the type of hiring that Kiyosaki is talking about).

Janitors, and the kid next door who mows your lawn, are obvious examples of the first type of hiring. That kid next door isn't smarter than you (well... at least not yet) so you're not hiring him for his expertise. You are hiring him because it's worth the $20 a week to free up your time for other activities that you find important.

Bill Gate's accountant was hired because Bill Gates doesn't have the necessary education to understand the laws surrounding the management of his extraordinary wealth. Nor does he care to spend the time to get that education. Bill Gates is almost certainly more intelligent than his accountant, but he doesn't have the specific expertise.

Some jobs can swing back and forth between the two. I'm a computer programmer, and at my first job I was one of 8 programmers on the team. We were all managed by an environmental engineer who thought he had seen code once. We were hired because of our expertise, if the manager were left on his own he'd be incapable of doing the work. Today I work at a different company and I'm managed by a very intelligent programmer. He never asks me to do anything he couldn't do himself, but due to the sheer volume of work involved, he can't do it on his own.

So what does this have to do with real estate? When hiring people to help you run your company, you need to clearly identify which sort of hire you are making. In a previous post I wrote about an investor wanting to hire someone to manage her property. The investor was clearly capable of doing the job herself, she just lacked the time. The only things she needs to look for in her interviews are reliability and competence. She can show her managers what to do, they just need to be able to do it. The potential managers would have some limited decision-making related to their jobs, but she would probably be making all of the important decisions.

On the other hand look at Frugal over at My 1st Million. In one of his posts (which actually was the inspiration for this entire post) he had decided to try to find a money manager that could better his performance AND give him more free time. The problem, he found, was that he felt he knew more about money than any of the so-called advisers.

Many "information-specialty" occupations (real estate agents, financial advisers, debt counselors) are filled with young kids (or old kids) who don't necessarily know any more than you do. In fact, their knowledge (which can sound awfully impressive when you hear their sales shpeel) can be limited to what their employers are asking them to push. But since you are hiring them for knowledge that you don't have, how can you possibly tell the difference?

Frugal's solution was to create a simple, four question, binary test. Every question on that test is fair (I answered all of them in a matter of seconds), yet demonstrates at least a basic level of economic understanding. That way he could very quickly discover if the individual he was speaking with was worth interviewing further.

His solution is practical and elegant, and repeatable. If you are ever stuck hiring someone for their expertise, do a little research and make a quiz. The purpose would be to give the individual a chance to prove that their knowledge of the material is both wide and deep and that they are, at the very least, as knowledgeable as you are. This should go for everything from Real Estate Agents who want to sell your house, to accountants who want your tax business, to money managers.

Just remember, other people are rarely looking out for you.