201 - Use AI to Cut 20% of Labor—Then Hire $1,500 VAs to Scale with Parker Cox

26:07All right. Even still, that is significantly lower than that. From a headhunting standpoint, it's 10 % of the headhunting fee. And from an ongoing staffing standpoint, it's, what is that? 25 %? Let's just, let's say I'm smart and say 25, 25 % of the recurring revenue. Math would tell me that your margins are going to suck. Why do your margins suck? So video is cool, but I have what scientists call a face for radio. And so it's even cooler is long form audio via my podcast and my newsletter, niconomicspod.com. Go there for free, subscribe to my newsletter. It's one email per week, super tactical.

26:46And then go to my audio podcast. I do three to five episodes a week, depending on how curious I am. And it's stuff like this. It's all free. No sleazy sales pitches. Nickonomicspod.com. Why do your margins suck? Our margins do not suck. We are, you know, we are still very much growing. So our gross margins are good. Our net margins are about zero because we put everything back into growth and we're bootstrapping. But no, I mean, I think you probably underestimate just how much, how good everybody else's margins are. we're trying to build a business as far as I know we're the first company in the space that will say like without being embarrassed I'm trying to help a million people get hired we want to be the first giant platform that's very different than other people who you've had on this podcast who it's like no they're trying to build like the next seven eight figure company like that's not our goal I want to help a million people get hired I want tens of thousands of clients and right now Now it's a service business.

27:47We're in the transition to a tech platform. We're building out a lot of our own infrastructure, AI solutions to support a platform that will actually facilitate this. There's areas of the value chain, but the reality is that we are very intentionally building the thing that scales with our clients. Can you tell me what your margins are or where they will be at stasis? Yeah, we pretty comfortably model between 50 and 70%, depending upon churn that we'll see with candidates. One thing about our model that's different than everyone else, and it's both a benefit and a challenge for us, but it's a benefit for our clients, which is when you pay$3.29 a month and you can terminate anyone at any time, we want our clients to terminate and get only the best people.

28:33So we are actually pretty quick to encourage, if you're not super happy with this hire, start looking for the next person. That cost will be the difference between I mean, if a candidate only lasts or a hire only lasts for 14 months on average versus 21 months on average, that's the 50 % to 70 % prediction. And so still TBD. Just model this out with me. Traditional staffing model. For 12 months, I hire somebody and that staffing company places them with me. Staffing company charges me$3 ,500 a month. They pay the independent contractor$1 ,500 a month. Probably a little less. Probably more like$1 ,200.

29:11It'll make the math easier. So just$1 ,500 a month. So there's a spread there of$2 ,000 a month that I, the staffing company, am keeping. So for over 12 months, that is$2 ,400. No, that's more than that,$24 ,000. Yeah, I'm special. For you though, you hire one person. And let's just say that one company comes in, they join and they hire one employee. $500 to join plus$329 a month. So we're looking at 32, I'm going to round up and just say$4 ,000 a year,$4 ,500 for those 12 months in aggregate revenue that you are getting versus what a staff, a staffing company would be getting$24 ,000 a year. What am I missing?

29:56Well, one of your favorite guests, their margin is my opportunity. What I will say is, uh, first off the staffing agency carries a lot of risk that we don't. And I think I have a better lesson in risk than most. And it may be small for most people's perspective, but I don't employ the hundreds of people that my clients do. That's actually really important when you scale this to 10 ,000 people. Staffing agencies are the employer, whether they only have independent contractors, which is its own form of risk, or they're the employer of record in the local country. They're the employer and that matters.

30:32The second piece is if they are actually employing the people in this country, then those risks transfer, right? It's like having W-2s in the US as opposed to 1099s. But the cost is much higher because you actually need an entity locally. You're going to be paying the taxes. So that$1 ,500 employee cost could actually be$2 ,300 or$2 ,400 after taxes. So for these companies, do they get to a certain size where they actually have to employ these people in those countries? basically if you don't want to really piss off the filipino government oh okay so the government could potentially come after you yeah it's just the same way you know every country's different but if you have a bunch of misclassified contractors in california that's a problem so i mean it's it's jeff bezos saying your margin is my opportunity yeah basically does it ever does it become a race to the bottom though like what's okay cool now you're at 50 60 margins why doesn't somebody come in and just charge a hundred dollars a month and they'll have 30 net margin do you get what I'm saying?

31:31Like a hundred percent. And I, so I think that that's a flashy headline. You and I riff out on this sort of stuff a lot. The race to the bottom isn't as real as people think that it is because there's a place where value becomes more important. So like we're working on a solution for people who want to pay a hundred dollars a month, how bare bones can we get this? And where like, when we get really serious on what are they paying us for? Hey, you can offer that in a really good effective way where it's like, yeah, a hundred bucks a month, you do the hiring, but we'll do the top of the net. Where do we cut off our involvement?

32:03Right. And what's our ongoing support? I think far more important than that is where is the true value. And we feel that we've set ourselves in a, in a robust way that gives us the mentality we use is we're trying to offer a wonderful service at fair prices, not a fair service at wonderful prices. And I think that's a important distinction. Stealing from Warren Buffett, dude. It's monger, but yeah. Berkshire Hathaway. But that's exactly where we took it from. And it's the same thing we tell our clients about who they should hire. Hire wonderful talent at fair prices, not fair talent at wonderful prices.

32:39That principle is not a race to the bottom. That'd be like saying, is Costco a race to the bottom? Is Amazon Prime a race to the bottom? Like they found a floor, but that floor has reach and that's what we're going for. That's an interesting way to put it. I don't know that a race to the bottom necessarily means, like I think of it as a race to the bottom of pricing. So like nobody's going to come and undercut Costco or Walmart or Amazon. They can't. They don't have the scale that any of those companies have. They're not going to be undercut. So they've kind of set the floor effectively, if you will.

33:13And now because nobody can compete with them, they have a moat and they're able to move forward. however they own the distribution it sounds like that's actually a really important component of launching these companies it's like you have to you have to be able to get your message out there because if everybody knew about pavago or sagan or these other companies that are cheaper than somewhere they wouldn't necessarily be going and paying the massive headhunter fee they'd be going to these smaller companies how do you think about growth because like you said john matsner i've had him on here a number of times i think he's probably the best focused marketer on twitter all he posts about is his business every single post hitting you over the head nom nom nom i love your margins i'm munching your margins you know yada yada yada but he's got to do that because he doesn't have distribution like jesse puji or or near or uh what's the one that oh austin reef i don't know what his company's name is so yeah but they they have distribution right so like they don't necessarily need to yeah hit it on every single time how do you think about distribution and the opportunity to go out and grab market share.

34:17Well, as you can tell by my massive Twitter audience and my continual posting on Offshore, that's what I care about. So let's say one thing clearly. I think that just about everybody you listed found a less ugly course. That's what Offshore has been on Twitter in the past three years. It's like it is an influencer's way of driving value from their audience that is more valuable than buy my course on how to be a seven-figure house flipper, right? Like there is a point there where remember the incentives. This isn't always find a business and then find the best way to grow it. Often it's, I have an audience, what's a business?

35:01I can sleep at night pitching to that audience. Chris is doing that right now. Exactly. Like Chris is trying to figure out, okay, I have this audience, what's the best way for me? To monetize it. To utilize it, yeah, and monetize the audience. I do think to your point, like it is a course, like you are offering a course because there's a value proposition in hiring offshore. It's cheaper. Cool. Great. But there's also massive value in understanding how to onboard those people, how to train them, how to follow up with them, how to hold them accountable. How do I talk to somebody in the Philippines?

35:33Do they have the same type of culture that somebody in Pakistan has or South Africa or South America? The answer is no. You're delivering value in that space because you have these courses, you have SOP templates, et cetera. So they kind of morph from, oh, this is a course on how you hire outsource talent to, well, I'll just help you hire outsource talent for these influencers. Yeah, Steve Jobs has the famous thing where a CEO's job is two things, marketing and getting the best people on the team. Our goal is to create a frictionless hiring opportunity for our clients that's de-risking it if it goes wrong, fire fast, right?

36:10Hire slow, take whatever time you need. You're in charge of this process. They work for you. I think when you really compare, and I think Huber, like to go back to your question on distribution, Huber has spoken openly about this and it's something somewhere's had to grapple with. We immediately went outside of audience-based distribution because I don't think, it's not that it's not a real company without that, but you have a massive key man risk that also requires, like I don't want to be Mr. Pavago for the rest of my life. I don't want it entirely dependent upon how happy or not my audience is.

36:49So we immediately went and said, can we create consistent distribution under other methods? That has been, I think, a real advantage that has forced us to grow slower than, say, John or Nick or Sahil or even Nir. But it has also given us a power that over time, I think, will work in our favor. Well, have you – I'll try not to pontificate too much. Keynesian economics. The most famous phrase that he has is, in the long run, we're all dead. And the reason he says that is because – well, actually, we're short-term actors and we make decisions in the short term because we don't think about the long term.

37:30Even if in economics, like, well, in the long run, there will be equilibrium. In the short run, if you don't optimize for that, you're dead. But so what I would say, though, is they're optimizing for the short run to get them to the long run where it's like, OK, cool. There's this underpriced distribution channel. It's not paid ads. It's not meta. It's not mailers, whatever it is. It's distribution through an audience. And they're pushing on it. And they're really trying to leverage that. From your perspective, why not lean into that? Like, why not try and push that when it still is an underutilized, undervalued distribution channel?

38:06So I don't blame anyone for doing it. We do it some. I mean, I've generated a good chunk of business from both relationships and social media posting, especially more LinkedIn than Twitter, because Twitter is a little crowded. At the same time, I think you have to have the humility that it's like I could totally be wrong here and I could be the idiot who is proven to not know what they were doing and be totally wrong. I do think that it comes back to some of your fundamental beliefs. So out of everybody you listed or you've had on this show, I know a few of them and it's like, they're looking for a very cushy seven figure income.

38:43That's like, they're open about that. Yeah. That's not what I'm looking for. And I have a couple of very hard seven figure. Yeah. I'd actually like to make six figures really, really hard. Yeah. As I've proven with all of my previous life choices, but what I'm trying to do is is build a bigger business than that and I have the advantage of of kind of other companies that have me covered yeah and I'm one of the few out of this group that is the operator as well as the the voice right if you take Jesse Pooji he doesn't run the company he's just the funnel right Sean Puri and Nick Huber like they're not Huber for all the way he's going out he's just funnel he's not like gonna walk after this I gotta go check in with my team and make sure that our marketing L10 today went well.

39:30Honestly, I think the last year he's become more of that because he's been forced to like, dude took a freaking massive swing. Sure. Sure. Like a$50 million purchase. I think anybody in that position would be like, yeah, I better figure out. But he did immediately install the CEO too. I know. Right. So I agree with you, but my only point is I think, you know, even Matzner, it's like, well, Matzner's not operating that business yet. Exactly. Point being, I'm not the marketer. I'm the CEO. And And so it's trying to create both levels of value, but I'm also trying to create something that eventually, hopefully we'll be able to exist much more strongly without my brand.

40:08And maybe that's, maybe I'm doing it in the wrong order, right? Maybe it was like, I should have sold my soul, but I thought go to where I know I'm going to be on the backend and then keep my socials as supplemental, but not the only core growth strategy. Well, I mean, we've privately had debates about that, right? Where it's like, you need to go harder into this. But the truth is objectively, if you looked at this, you launched this business and your first clients came from Twitter. A hundred percent. Right. Like you created, I don't even know what, what's your current MRR or are you willing to say?

40:39Or like, what do you guys, we will break into the seven figures ARR within the next 90 days. Okay, cool. I think you were able to build a six figure ARR company just on a small, you know, comparatively small Twitter following, 5 ,000 followers. I just look at that and I'm like, man, ROI to follower ratio is insane. If that scaled, I would just be leaning every single day. I'd be doing what master's doing, right? It's just like every single day hitting somebody over the head. But your point of like, I'm going to sleep better at night knowing that my distribution channel is not dependent on an algorithm change or whether or not I can reach the people who actually follow me for content or piss somebody off or whatever the key man risk.

41:23Like I totally get it. I'm not, I'm not faulting it by any stretch of the imagination. So the only thing I'll say is I think that one of the key differences, and I tend to be a student of history and business biographies and otherwise, and all of the most successful companies that any of us have ever heard of are thinking in decades, not in quarters and i'm trying to emulate that that means that if pavago wins it'll win really really big there is absolutely a sacrifice to not prioritizing what is the fastest way we can grow in the next 90 days that could be wrong like i am full transparency it's like if this doesn't become a decade-long survivor then we have questions but no no i don't think it's wrong it's just a choice it's your choice.

42:12I did the same thing. So my home health and hospice company, I haven't talked about this a ton, but we grew from zero to$12 million in like less than three years. It's a really, really fast growth. But I prioritized long-term because I wanted to go and have multiple locations. I wanted to have a centralized team. I wanted to bring in the best people so that we could actually scale. But there had been a fundamental misunderstanding, I'll call it, with my other partners. They wanted to optimize for cashflow much quicker and I wasn't optimizing for cashflow. So even though I had grown the top line revenue, bottom line performance wasn't where they wanted it to be.

42:46And that's ultimately what got us to a point where I was like, all right, well, I want to do this. You guys want to do this. Let's go ahead and just sell this and we can exit. It was amicable. It was fine. But there were just different priorities, right? And not that any one of those decisions was necessarily right or wrong. for you, it's just you and your partners have made the decision. This is the way we're going to go about it. And who cares if somebody else is doing something different? Yeah. And I think you're identifying a big pieces. At some point we all have to make the choices. What are you going to charge for your product?

43:17Right. For us, it's, it's very much, we're trying, we believe that offshore is a phenomenal pathway that it's like, it's going to be bigger in five years than it is right now. And that instead of doing what everybody else is doing to make a million bucks as fast as possible. We should be, like, the market is expanding. Be prepared, because the pie is going to be a lot bigger. So we've built a business model that is trying to be decided for that. We've built a system of customer acquisition. Dude, that's interesting. So you think the pie is going to get bigger in this market? You don't think AI is going to come in and eat all these overseas jobs?

43:54No. I think, if anything, AI is going to make it more common and more usable. Why? to me that feels like a not a defensive take but like you're not incentivized to think ai is going to eat your lunch right like you're incentivized to think no the ai is going to make my our job better it just seems like all those jobs could be easily automated away through artificial intelligence i think you have to go real specific right it's like are there going to be as many bookkeeping jobs in the next five years like probably not right low-level bookkeeping is very base administrative, right? Add stuff into a spreadsheet, like really low level VA work, probably not.

44:33But it's like, I don't think AI is taking over digital marketing anytime soon. And this isn't even a question of offshore or onshore. My controversial take or contrarian take on this is that I think we're going to see minor job loss. I have a unique advantage of growing up in Silicon Valley in the 90s and seeing people get rich and go through all of this. AI is going to supplement all of what we're doing. If I look at AI right now, it's probably replaced to the tune of 20 % of my team's labor, but added all of these things we were never doing before. Hey, here's feedback on how your sales call just went that we created a custom prompt and GPT workflow on, right?

45:13Like, hey, this is how it's giving us deep research into the way that we want to go and implement these new things. And I think that when you actually look at the combination of if my thesis around supplemental AI plus offshore means that it's going to be more entrenched and more valuable, not less. And I think that we'll also see AI lead to a lot of, a lot more like an entrepreneurial wave in the U S and those entrepreneurs that are now doing one to 25 person companies are going to go offshore first. So I think penetration is going to be greater. And I think we deeply underestimate the amount of utility that it has.

45:52You and I can walk out this room right now and it's like, see all the companies around here, how many of them use offshore. If it's 2%, I'd be shocked. Like shocked. It's so new. We just live in Twitter. So everybody it's like, well, I just hired my AI engineer from, you know, Indonesia. And it's like, that makes it sound normal. It's like, go to the auto body down the street. If you told them to hire a Mexican phone answerer, they'd be like, this is impossible. I don't even understand. Those are the people in the next five years that'll start to get it. How? A, from all the noise we're all making.

46:24B, from interacting with them, with their competitors and other companies. And C, I think just the exposure to the increased quality. The number one thing that is shifting right now is we're going from viewing offshore global talent as cheap to offshore global talent as great. We are so terrified of the 1997 AT &T customer service that everybody hears global talent. And it's like, absolutely not. That person can never work for me. But you hear, you know, whether it's Pakistan or Columbia or South Africa, where it's like, I didn't even know you wait, you don't live in this country. I didn't even know.

47:03Then they, the light bulb goes off. oh, this is better people for less, not horrible people for nothing. Or same quality people for less. I think one of the things that was shocking to me recently is I've been having conversations when all the tariff stuff was going on. And I talked to Craig Fuller and then I talked to Hans Dose, who also has a company. And both of them were like, China is not cheap labor anymore. I mean, it's cheaper comparatively to the United States. China is where they have the manufacturing expertise. to do all of these limited quantity runs. We build all the manufacturing facilities to do these massive runs with Volkswagen and Panasonic and all these large companies.

47:44They have figured out a way to give access to the small business for these 100, 200, 300 quantity runs that we don't know how to do here in the United States. That was an interesting turning point for me. And so like what you're saying is the perception needs to change from, it's not just like cheaper labor. This is also gonna be labor where in the same way that my kids are growing up AI native, these people are growing up remote native and so you're tapping into a market that potentially yeah dude i use a story my sister runs social media for a cosmetics company based out of the city she lives in the the hills by sacramento okay and she's actually like one of the good ones she's 30 years old she probably makes 90 000 a year and she comes in early and she stays late and when she's looking she thinks she's competing with you know like steve in la and Cindy in Berkeley and Mike in Denver.

48:36And it's like, no, she's competing with somebody in Bogota or Ahmed in Pakistan who like, they're willing to do it. For 90 grand, you could replace her entire team with four people that have five times the designations and both of them have master's degrees. Now, I don't want to be doom and gloom around American work. I think it's still going to be, I think offshore will be supplemental to great American workers in the same way AI will be supplemental. But the reality is that the big light bulb is when you start to realize that the entitlement issues you get with low wage or at least like medium wage labor in the US, like, hey boss, it's 5.02 PM.

49:16Why'd you text me? Like that doesn't happen offshore. They're grateful for the work. They're gonna run through a wall for you. They've got a higher experience level, higher education level. And like, they see this as their pathway. They look at - You can take advantage of them. You can pay your low wages. Yeah, exactly. But that is what a lot of people hear when they hear that because they're like, oh, you can just take advantage of them. Oh, you can just pay them lower wages. The thing that's different, and I'm the son of an immigrant, is, dude, if you've seen Hamilton, immigrants get the job done, man.

49:45They just have a different work ethic. They have a different mentality. They do go above and beyond. And I'm not trying to paint with a totally broad brush. I'm going to get people who are like, you can't say that. That's totally racist. It's not racist. If you are the son or daughter of an immigrant, you know exactly what I'm talking about. immigrants have historically made this country great and they will historically make the country great as even as we move forward so i totally am with you you can pay a lower wage and you're going to get people who are 110 behind you the big downside is they didn't grow up in the united states and so they don't necessarily have the same cultural norms they don't necessarily they're not ai or tech native uh they don't necessarily understand which company is which company because they don't you know live in the states and see hp and ibm and whatever all these other company.

50:28So like there are downsides to it, but yeah, in terms of like committed workers, freaking immigrants are amazing. Yeah. I actually find them to be more tech forward, but also it's like, I think the virtue signaling around like payload wages, it's all utter BS, excuse me. Like what are you saying? If you hire somebody in Toledo, Ohio for the same job as San Francisco, like all of a sudden you're a monster. Cause there it's 140 grand versus the other it's 340. It's like, we're comfortable with cost of living adjustments within our own country. it's like$4 ,000 a month in Mexico is more than doctors make.

51:01Yeah. People just don't want to feel replaced. That's, that's the problem is that at least if you were like, Oh, we're moving the$340 ,000 job dollar job to Toledo for 140 ,000. It's like, okay, cool. Well, those are still Americans. If you're like, we're going to move$140 ,000 job for 40 ,000 to Argentina, then it's like, what the freak? Those aren't even Americans. So I do understand that perspective, right? Cause then they're feeling like, well, now I'm losing jobs. like at least I could have the opportunity to move to Toledo and make$140 ,000 a year I don't have to live in San Francisco but I'm not moving to Argentina do they even have McDonald's down there you know so like I I get it I really I do understand that part of the argument what I don't understand is this like you can't compare societies right like Chris had a tweet that went viral where he's like I paid a tutor to tutor my son she had like a freaking PhD in Pakistan done.

51:51And everyone was like, you're gross. You're racist. How could you pay so little? That woman from that tweet ended up sending Chris a message and was like, thank you so much. I've gotten more business than I've ever gotten. I'm making more, like three times more than the average annual salary. The local news did a story on me because it got so much publicity. Like her life was changed because of that. And you want to have people here who are like making moral calls from their cell phone sitting at a cafe, you know what I mean? In like Stockton, California or wherever they are. You can't even compare the two.

52:26Sorry, I'm ranting now. You interrupt me, but I'm with you. But I do understand people being worried about being replaced or like not having it here in the United States. Yeah. I mean, I think it, obviously I can understand the person who's like, well, my mom was the receptionist at the dental office for 16 years. and like she came in and she did her thing and, you know, they replaced her with two people in the Philippines for half her wage. You know, anytime there is a transition to a new paradigm, there is turbulence that creates risk and challenge. But when you put it over a long enough time horizon, it's always net positive.

53:04And I think that like anytime we get reductive and fear-based in these decision-making, like decisions, everybody is worse off, right? It's like, if somebody is willing to work in Pakistan, to use that example, cause we do a lot out of Pakistan, like$1 ,800 a month is like six figures. It is not cheap. You are making a ton of money locally in Pakistan at$1 ,800 a month. Like your wife can stay home. Your kids are going to a nice school. Like that is life-changing, especially to use Pakistan as the example, 25 years ago, their family was probably a peasant with no electricity and no running water in a village.

53:41It's like, this is massive benefit for that location in that region. All right, let me finish this out by asking some questions, which I'm freaking stoked about. One of the questions is, which country is the worst? But before I ask that question, where can people go to find you? Pavago.co. Look at the hat. P-A-V-A-G-O.co. Yep. And I believe you said anybody who enters a NIConomics code will get 10 % off their first year. I think that's what you do. No, it's just free if they enter NIConomics. No, I actually will create a forward slash NIConomics that you can add for anyone who signs up. First off, the$500 annual membership fee is already fully refundable if you don't hire, but that'll only be$250 for the first year.

54:25So half off. Half off. That's freaking amazing. Yep. Okay. We know about the Philippines. What are all the other countries that people are popular countries that people are pulling from right now? Pakistan, South Africa, Colombia, Costa Rica, Argentina, Mexico, and Sri Lanka. If we go to Europe, basically the Eastern Bloc. So, you know, Bulgaria, Ukraine, Romania, all very common. Okay. All right. Hopefully you liked that episode. And if you've made it this far, you're either really committed or you're stuck doing yard work and you can't actually skip on your phone. So while I have you, the show is growing, but I have a favor to ask of you.

55:02Will you please help me grow the show? I want to reach more people. There's a couple of things that you can do. Like and subscribe is the simplest thing. Obviously, you want to get notifications for when the next episode is coming out. But if you go the next step, will you leave me a review? Five star on Spotify or Apple. What that does is it tells the algorithm that, oh, hey, this is a high value podcast because more people are leaving reviews for it and it then pushes it out to more people. So that's why when people are like, will you log in, subscribe and put the five-star rating? It's not just to make themselves feel better.

55:34It's actually to get more exposure for the show. So if you do that for me, I would greatly appreciate it. And I'll see you next time.