The owner of any new business is likely to experience many exciting “firsts,” but one is nerve-wracking enough to give even the most resilient entrepreneur a few sleepless nights.
When do you hire that first employee?
“I think that every hire I made, I thought I was going to run out of money,” recalled Anne Cull, founder of ThinkViral, a Kansas City-area social media company with offices on both sides of the Missouri-Kansas border.
“It is never going to be comfortable because it is a risk, and the more employees you get, the more you realize how much of a risk it is because you are investing so much in these people,” she said.
Cash is one of the most common concerns for startups looking to expand. Unfortunately, there isn’t a one-size-fits-all formula for making sure the wallet is full enough to make that initial step into the daunting world of employing others.
“There is a mix of things that affect the timing of the first hire,” said St. Louis-area entrepreneur Andrew Glantz. “I think it is important to try and push as far as you can before making that hire because people cost a lot of money.”
But hiring can require a delicate balancing act, cautioned Glantz, who in 2015 founded GiftAMeal, a company built around a socially conscious dining app.
“On the flip side, if you are waiting too long then you might be missing out because you also have a ticking clock as an entrepreneur to make something happen, both for you and for the investors to see whether your startup can actually hit scale and whether it has product-market fit,” he said.
Shauna Huntington, president of Fortiviti, an accounting operations provider based in Olathe, Kansas, said a new company might set certain revenue thresholds to trigger hiring or forecast the next three to six months to make sure the position is sustainable.
Whatever metric you choose, be aware that salary isn’t the true bottom line. A new employee may come attached to bills for everything from extra equipment and new software licenses to additional taxes, higher insurance and health benefits.
“I think that’s something we run into a lot with people,” Huntington said. “They think they’re going to hire somebody for $36,000 a year, and they think it is going to cost them $3,000 a month and they don’t understand the full cost of having that person.”
Karen Hughey, founder and CEO of KR-HR, an Overland Park human resources consulting firm, advised entrepreneurs to develop an idea of what other companies in their area are paying for a given position. If you can offer only the bare minimum, the best talent may pass you up.
“You might be ready to hire people, but if you are not competitive with the guys down the street, you are not going to get them coming to you — or if you do, they are going to be the ones that probably got fired from the other places,” she said.
You have to be competitive in other ways too. In a tight labor market, attracting top employees means more than simply placing a want ad. A company has to sell itself to get the cream of the crop.
“They’ve got to market their organizations — why it is a good place to work,” she said.
The decision to hire also should involve deliberations that go beyond dollars. Rebecca Gubbels, a consultant for the Missouri Small Business Development Center at the University of Missouri-Kansas City, said entrepreneurs need to take a hard look at whether they are spreading themselves too thin, leading to a drop in product quality.
“The only reason any business exists is because of the customer, so you have to be thinking about their experience,” Gubbels said. “If you’ve chosen to take on too much work, frequently the customer experience declines.”
Huntington said one also can make the judgment by looking at “capacity planning,” an understanding of the level of workflow the operation currently can handle. Some businesses may take the leap at 60 percent. Others may hold off until 90. Whatever the number, she recommends not delaying until it hits 100 percent.
Cull of ThinkViral agreed.
“Don’t wait for all seven days of your calendar to be full before you decide to hire somebody because you are going to have to allow extra time to train the person,” she said.
Cull, who chuckled when she admitted she “didn’t do anything right” when she first began hiring for what is now a decade-old enterprise, said the biggest key may not be money but mindset. The owner must make a fundamental decision to give up control. That means becoming a boss heading a business rather than a lone wolf whose talents represent the totality of the operation.
“Are they going to become a company at that point? Or are they going to continue being a solopreneur with helpers?” she said. “Because those are two completely very different things.”
The former represents a shift away from taskwork and personally serving customers and towards training, managing others and laying out processes, rules and guidelines. The owner isn’t down in the weeds creating a product anymore. Instead, he or she is overseeing the operation and crafting a corporate culture where others can succeed.
Also, entrepreneurs shouldn’t simply leap into hiring until they have a solid idea of how the new person will fit in at the company. Job descriptions that outline duties and levels of autonomy are vital, Glantz said.
“There is a big difference in having that first hire be someone that is point-and-shoot to a very specific goal you have in mind versus someone who is going to have ownership over the direction of the company,” he said. “Having that be very clear to the potential hires could really affect the applicant pool. If you aren’t clear about it, it could be a big waste of your time.”
The process of writing a job description also can highlight other problems. Every manager loves flexibility, but Huntington pointed out that a nascent company’s needs might be so far-flung in different areas that they are difficult to service through a single hire. If you simultaneously require help in accounting, operations, marketing and communications, you might be better off looking at multiple part-time people, freelance contractors or some other form of outsourcing.
“What is it that they need assistance in, and does it make more sense to find pieces of that assistance through other means before they hire their first person?” she said.
Hughey said applicants aren’t the only ones who need to prep for an interview. Entrepreneurs also should make sure that they have done their homework before they start the hiring process. That means becoming educated on legal employment issues. Many innocent “getting to know you” questions common in a social environment — such as “Are you married?” or “Where are you from?” — might result in a discrimination suit if posed in the context of a job interview.
She also recommended having a standard set of questions based on job qualifications, vocational experience, behavioral characteristics and how candidates have handled relevant work situations in the past. Make sure the questions are the same for everyone so you are measuring apples to apples in the final analysis.
“Then after you’ve interviewed three or four candidates, it is much easier to compare one candidate to the other,” she said.
In any event, bringing on a new person is never easy.
Glantz put it simply: “It has huge potential for the company to add another hire, but it is also a huge risk.”