Hiring Before You're Ready

The decision to hire your first employee is one of the scariest steps I’ve had to face in growing my business. I’m about to hire a second employee and this time it feels even scarier. For a bootstrapped business, which relies solely on revenue from customers to keep things afloat, I’ve found hiring to be the most challenging step to date.

Hiring an employee is not as easy as hiring a contractor for a one-time project. In a project-based contractor scenario, the money (to pay the contractor) is already there. If you’re bringing them in to work on one of your client projects, then the math is easy. Client is paying you X, so you have X minus your profit margin left over to hire a contractor or two.

But hiring an employee is different. These are the scary questions that float around the decision to hire:

• Maybe I have the cash to pay their first or second month salary. But I don’t (yet) have it for month 3 and beyond. Can the business support this (ongoing) salary?
• Will I have enough things for them to work on? Will I struggle to keep them busy?
• I’ll need to spend a lot of time training a new employee. Will this cause a setback or delay progress?
• Hiring the wrong person can be very costly. How will I know who is the right person for the job?
• How can I make sure the job is attractive to the right candidates? How can I make sure they remain committed, challenged, and engaged over time?

NOTE: I’m making a distinction between “contractor” and “employee” not in the sense of W-2 vs 1099. I’m considering an “employee” someone who works on a regular weekly schedule on an ongoing basis with no end date. A.k.a. In it for the long haul. Technically, they might be paid as a contractor with an hourly wage, at least in the beginning. There are lots of additional costs and things to consider when hiring a W-2 employee… That’s not what this post is about.

In my journey scaling up my business, I’ve come to figure out a few pointers that helped me finally move through the seemingly mile-high hump of hiring my first (and next) employee. These tips apply especially if you’re bootstrapping and keeping a watchful eye on cash flow. If you’re in this position, maybe these can help you navigate this tough decision ahead:

You’ll never feel “ready”

Don’t wait for revenue levels and growth to be perfectly predictable enough to support an additional salary. Don’t fall victim to the “chicken or egg” mentality (as I have for too long). That is – I know that if these activities and tasks are executed, I’ll be able to reach my target revenue and growth levels (to support an additional salary). But I can’t execute those activities without a team in place.

At a certain point, you have to treat hiring as an investment. You won’t see the ROI until a few months in. Waiting is only hurting the business.

Fund growth with consulting

A couple of months ago I returned to consulting after taking about a year off to focus solely on products. There are a number of reasons why I made this shift (a topic for another day), but one obvious reason is the infusion of cash flow that consulting can bring.

Income from consulting is funding the growth of my product business. In the early days, building and launching the product, I lived off of savings and income from consulting. Now I’m using that same strategy to fund the growth of the team.

Using consulting income to reinvest into your product business can be a great alternative to going into debt or seeking outside investors. I’ve always been attracted to the simplicity of it. Earn some cash. Put a bunch of it away. Then spend it wisely. Repeat. Of course, there are other benefits too, like the fact that you don’t need to give away equity, or hire lawyers and accountants to iron out the details. Self-funding is a clean, no-friction way to move forward.

But don’t get me wrong, this approach has it’s challenges. The big one is time. Consulting eats up a large chunk of your time, even when you bring on contractors to help out (you still need to manage and direct projects). This means things move slower on the product front, which can lead to drains in momentum. It’s a significant risk to be aware of.

Plan what you will do (with your newfound freedom)

Don’t lose sight of why you’re hiring someone: The goal is to free up your time to focus on other (revenue-generating) things.

So as you plan the tasks and responsibilities to include in the job description of your new hire, you must also be listing and planning all of the things you will be doing once those other things are removed from your plate.

For example, I’m getting ready to hire a second customer service person. They will be talking to customers and assisting with onboarding and support. Once I’m no longer devoting time to phone calls, emails, and chats, what will I be doing? I’ll be planning and executing new marketing initiatives, working on product improvements, and spending more time on conversion optimization.

By planning my new tasks alongside the tasks of the new hire, I’m literally mapping out what the return on this investment will look like.

Embrace Outsourcing & Remote

As a cashflow-sensitive startup, keeping costs down is a must.  There’s no doubting the benefits of growing a tight-nit team, all working in the same local office, collaborating in person.  But the fact is, for a bootstrapped web-based startup, you can, and should, embrace remote working and outsourcing.

Benefits of hiring and working remotely:

• Your hiring pool is exponentially greater.  By limiting your candidate search to your local zip code, you’re severely limiting the number of talented people who might fit your position.  Remember, it’s not just about checking boxes for skillsets.  You also need the right cultural fit.  It’s hard to find that perfect match in one local area.  Go remote and find that perfect fit.
• More attractive to (some) employees.  There are lots of people who much prefer working from home or from a coffee shop.  This is a major perk that can help attract the right candidates for your position.
• Save costs:  You don’t need such a large office when you have a remote team.  Your employees don’t need to pay for communicating costs.  Win Win.
• For more, go read 37Signals’ new book, Remote.

About Outsourcing… What I mean here is not only searching for candidates beyond your local area, but also looking beyond your borders, and overseas. Not a new concept, by any means.  But it’s an approach that is still met with some skepticism and hesitation.

Everyone knows the benefits in terms of cost savings.  But that is usually met with the notion that what you save in costs, you pay for in terms of quality of work and communication issues.  I found this not to be the case, but only after years of trial and error.

My first full-time employee works from his home in the Philippines.  He’s a truly outstanding employee and surpassed all of my expectations.  But it took me several years to get this position right.  Here are a few things I learned:

• I favor the Philippines.  Not only because my wife is Filipino and I have a special bond with her culture, but also because I found workers in the Philippines to be great communicators, which is something I value extremely highly (in any position, not just customer support).
• Hire the person directly, not through an agency.  There are many agencies who manage a workforce of workers, and act as a middle man between you and your team.  While they offer benefits in terms of organization and reliability, I much prefer hiring one single individual and being in direct contact with them (and paying them directly).  This helps build a real, collaborative working relationship built on trust, and brings the person in as an integral part of my team (not someone else’s).
• Don’t expect to get it right on your first hire.  This probably goes for any hire, but I found it to be especially true when hiring across oceans.  I worked with 4 different assistants, each lasting less than 3 months, before I found my current assistant (with me 8 months now).  No matter how well they perform during interviews, you never truly know their work ethic until they’re on the job.  Plus, I’ve seen some workers do a great job the first month, then lose steam and flake in months 2 and 3.  It’s really just a matter of trial and error.  Know that going in.
• Be specific about communication policies.  Working overseas, especially in the Philippines, comes with reliability issues.  Internet connections are not the most reliable in that part of the world.  After several unexpected power and Internet outages, I made sure my assistant knows he should send me an SMS message to let me know what’s going on.

Seek Entry-Level Employees

One difference between hiring a contractor for a project vs. hiring a new (early) employee is their experience level.  When I hire a contractor for a project, I tend to seek out more experienced people who demand a high pay rate.  One-off projects tend to have the budget to afford great contractors, so my goal is to get someone who will do an amazing job, and get it done right (and on time) the first time.

But bringing on a new employee is different.  Here, my goal is to keep costs down and find people who can grow and progress along with the company.  So when it comes to hiring an employee, I tend to seek an entry-level person with less experience, but one who shows great potential to learn and grow.

Of course, hiring entry-level people comes with challenges.  It takes more time and effort on my part to train them, and more time for them to get up to speed.  It’s also difficult to pinpoint the real star candidates.  I try to look for certain traits, like excellent communication skills.  I also favor candidates who have their own blog or build their own things on the side, which shows initiative and creativity.

My next hire (the position I’m currently hiring for) will be US-based, which makes keeping costs low a challenge.  But seeking an entry-level person rather than an industry veteran with higher salary requirements makes this workable.

 

Start With Part Time

Finally, one more tip I use to ease into the prospect of growing a team beyond just yourself is start with part-time and progress to full-time. My first employee started at 20 hours per week and now works 40.  I plan to start the second employee at part-time to grow into full-time as well.

This not only eases the way into paying a new salary, it also helps me figure out exactly what can get done in a given set of hours.  When the new employee’s to-do list can’t get be completed in one week, it could be an indicator it’s time to increase their hours.

Your tips?

As you can see, I’m still very new at this.  I’d love to hear from those of you who’ve grown teams beyond 3 full-time employees.  What am I missing?  What have you learned over the course of growing your team?  Share your wisdom in the comments.