One of the biggest transitions for any entrepreneur is making the leap to employer. While it’s important to know how you’ll handle the cost of adding staff, recruitment and human resource professionals say there’s much more to figuring out whom you should be adding to your company, and when.
When you’ve been doing it all yourself, the challenge is learning how to let go, and what to let go of, says Scott Ragusa, president of contract staffing for WinterWyman, a recruitment firm based in Boston and New York City. For the passionate entrepreneur who has been living and breathing his or her business from day one, this marks a huge shift in thinking. It requires planning, self-awareness, and trust.
“An entrepreneur will hold onto the parts of the business he or she is not built for longer than they should,” Ragusa cautions. “The reality is, if Bill Gates was writing all the code, Microsoft would not have become Microsoft.”
Investing in people: the opportunity cost
As executive director of human capital services for TriNet, a third-party HR solutions firm based in the San Francisco Bay area, Debra Squyres guides startups and sole business owners on planning for staffing and growth. She sees entrepreneurs confronting the same dilemma over and over: they feel divided between selling and delivering their product or service. They experience peaks and valleys because they can’t sustain both in a scalable way. They realize they need help, but they’re worried about the cost.
Too often, she says, they haven’t forecast for staffing needs. “So many people default into growth, as opposed to having a strategy and a plan around it,” Squyres says.
When you realize you need help, that’s the perfect time to take the long view on your financials. Squyres recommends looking well beyond your month-to-month revenue and instead look at profit projections into the next two years or longer. Calculate revenue and profitability for each employee you want to hire, and build toward that.
Cliff Dank understands this both as a recruiting professional and as an entrepreneur. Three years ago, he started Elm Talent Group in New Haven, Connecticut, and now serves as the boutique recruiting firm’s president and managing partner. Dank says most small business owners are constantly looking at the opportunity cost of any investment, of time or resources. They should view staffing the same way.
“What would you otherwise spend this money on?” Dank asks. “If you include people as an investment, you can contrast that against other opportunities.”
Small businesses are necessarily frugal, but Ragusa cautions against going overboard. He urges business owners to view hiring not as an expense but as a revenue generator. Consider how extra staff will drive your production in six months, a year, or two years.
“Companies that do this well continually think about the future, not just about their exciting product but what it’s going to take to bring them to the next level. They’re not afraid to trust other people to help them with that,” Ragusa says.
When you’ve been a one-man band for a while, it’s hard to know which part to hand off to someone else. Squyres says this is the time to review your strengths. Then, invest in someone who will complement your skill set. “It’s critical in the early stages of development that business owners look for utility players, as opposed to specialists,” she says.
You’re not looking for your polar opposite. An entrepreneur needs to surround herself at first with other people who can also wear many hats, be flexible, and share her love of the bootstrap spirit. The workload will still be heavy.
Squyres recommends an exercise to get some perspective on where you might need help. Keep a time log for at least a month, and track what you spend your time on. Be sure to span a few periods of high and low activity to be as comprehensive as you can. As you analyze the log, key pivot points will begin to emerge.
“Look for what can easily be outsourced or delegated to someone you can hire at a reasonable salary so you can focus on activities with the greater ROI,” Squyres says.
For Dank, a different writing exercise helped with his clarity. When considering where you need help, think about where you might be the bottleneck in your process. Write down all the ways that additional staff could help you get unstuck, he says, and quantify which would be the most valuable thing to free up.
“Any effort toward being analytical is better than none,” Dank says.
Hire or outsource?
If you feel that the business of running a company is pulling too much of your focus, you may be able to move back-office functions off your plate through outsourcing. “That’s what those sole practitioners get bogged down in,” Squyres says. “They’re so busy selling and doing the work that there’s no one to send out the invoices or pay the electric bill.”
You may not need your own people to do the books, the billing, human resources, or risk management. More and more small businesses are turning to third-party companies to handle these functions. The National Association for Professional Employer Organizations (NAPEO) estimates its industry grew by $10 billion in gross revenues in 2010. About 110,000 small to mid-size U.S. businesses use a PEO.
Depending on the nature of your business, an independent contractor may also make for a good alternative to a full-time employee. In one survey, the Bureau of Labor Statistics found 7.4 percent of the U.S. work force was made up of these freelancers, consultants, and other “alternatively employed” workers who typically work on a project basis.
Ragusa says a common mistake among entrepreneurs is thinking you can continue to do everything singlehandedly just because you’re doing it now. “It’s not so hard being the accountant when there’s only one employee. But can you do that forever?” he says.
The hiring advantage of startups
Squyres watched one startup grow ambitiously, hiring top talent away from Fortune 500 firms. Problem was, they paid like they were already one of them. Those generous 95th-percentile compensation packages ultimately sunk the company.
The moral of the story is, you don’t have to pay top dollar to attract top talent. Squyres says small businesses commonly misjudge just how attractive they are to people looking for that kind of work environment. Stick to your budget and you can still hire talented, passionate people.
“What you find is that not everybody makes a decision based on compensation alone. You have to be competitive, but you don’t have to lead the market,” Squyres says. “Owners underestimate the value proposition they have to people who are hungry to be a big fish in a small pond.”
You want to find the people who are drawn to the energy and promise of a startup—and they’re out there. Like the entrepreneur, Ragusa says, they’re forward-thinking. They will relish the chance to touch many aspects of the business. Or they may be enticed by the chance to share in your future success.
“Someone who thinks, wow, if this thing takes off, what is my stake in it? That’s the person you want to hire,” Ragusa says.