There are so many wonderful things about working for yourself. Not having a boss. Scheduling your own time. The freedom and flexibility. The cash! But as a friend would say, "Ah, horseshit!"
Please don't get me wrong. The potential is there for all those things, but the perception associated with being a business owner can be, shall we say, highly entertaining. Depending on the status of the business - independent contractor or small business - the reality and perception not only change over time, but can be vastly different depending on who is doing the looking.
My personal favorite perception of a small business owner is that life must be grand because I don't have a boss! To an extent that's true, and I wholeheartedly admit that I would make a terrible employee after ten years of independence. However, the truth of the situation is that every customer is essentially my boss. Especially when first starting out, or working independently, the customer is the ultimate boss and arguably more difficult to work for than in a normal employee-employer relationship. Our customers demand more of us as contractors or vendors than they ever would of their own employees. Think about it this way - you will happily try to get better terms from a vendor or contractor. Do you ever negotiate with an employee? Not a chance! So, as business owners, our bosses (customers) are always demanding the most while trying to pay the least. Great fun!
Now, Big Bang is in a comfortable spot for me as the owner, because our customers love our product and tend to be very reasonable. Add to that a growing group of awesome employees, and I do currently live the life of not having a boss, wife excepted. But, if Big Bang continues to grow and eventually considers something like investors or a public offering, suddenly the board of directors, investors, and shareholders become my boss. Here's to growing organically, and never having to deal with those headaches!
And what about the freedom and flexibility? I can make my own schedule, set the path for the business, golf when I want to! Again, that has become a bit more of my reality as the business has grown and I am incredibly grateful for that, but for the first several years that was certainly not the case. Technology deals aren't made on the golf course in my reality. Might I golf with my banker once a year? Sure. But as the owner, you are continually pulled by employees, customers, product development, outside interests, etc. I can't tell you how many times I have received a call to play hooky because of the perception that I've obviously got the freedom to do anything at any time. When independent, perhaps I could put work off until "after hours" or the weekend. If you have a family or deadlines though, that may not be an option. In my opinion, this is the greatest misperception people have of small business owners. Many, perhaps even most, small business owners put in far more time than anyone ever knows.
The most difficult perception to deal with though is the one associated with the financial state of the business, and the perception can go either way. For example. my grandfather is perpetually worried about me as we grow. But at 83 years old, and as someone that worked for one company all his life, when he sees us buying property and an office for Big Bang and doing renovations and hiring employees, he sees the risks I'm taking. For him, those risks are huge, arguably overwhelming. The numbers are bigger than he can fathom. So I do what I can to explain the business and the money and the risks to him so he's comfortable with what we do here. He worries and I appreciate it. It reminds me to evaluate what we're doing from a different perspective.
The flip side of that coin is the perception of financial success. Of course, that term means something different to everyone and changes over time - a topic for another time. But it is amazing how people and organizations perceive you and the business as it prospers and gains traction. The best example I can offer is from when Big Bang was awarded a Future 50 award for the Milwaukee Metro area a couple years ago. We were subsequently bombarded by people and organizations wanting us to buy virtually everything and donate to every cause under the sun. I have actually been yelled at and chastised for not being willing to donate to a cause that I have no knowledge of or connection to, by random phone solicitors! It still amazes me.
Whether an independent or an owner, the perception of you and your business will vary dramatically depending on the viewer. The perception will likely not match with reality, and that can be incredibly difficult to deal with because it is very personal. Remember though, most people have no experience as a business owner. My suggestion is to help teach them what you can.
There are three very distinct areas to consider when hiring your first employee. The first is the financial side. Which is what should create the impetus for hiring. Will this decision help make more money? It may sound cold, but every major decision for a business must start there. Lose money as a small business and you lose the business, and maybe far more.
The second aspect of hiring is you, the business owner. Are you ready for an employee and the risks and challenges that go along with it? How will your reality change, and can you accept those changes?
The final piece to hiring that first employee is, "Who to hire?" Assuming you have detailed what you want this person to do, that should help identify the traits and skills and talents required. It is unlikely that this first employee will fall into a specific and limited role - bookkeeper, for example - because you should be able to do your own books as a single person business.
It is far more likely that you will need to hire someone who will answer the phone, interact with customers, handle quotes and sales, help provide a service or create a product, support your customers - basically someone like you. It's really something to consider - can you handle someone like you in your space? To be a business owner generally requires more than a little bit of ego, and someone talented enough to be your Number One will not come with a small ego. And you don't want them to either! Consider yourself warned.
There are two ways to approach this first hire - either as a Partner, or as an Employee. A partner may mean some level of financial buy-in from that person. It may mean some level of control in the company. There is a lot to consider here, and a partner is a whole different venture. Personally, I don't recommend it, but that's a decision only you can make. I have mentioned the NY Times Small Business Blog before, and Paul Downs has a few great posts about his Partner Experience. Here I will stick to actually hiring an Employee.
Of course, hiring a first employee is obviously something you only do once, so my thoughts on it are based on my limited experience. Your situation may be vastly different. There are four groups to consider when hiring - Family, Friends, Acquaintances, Strangers.
Generally speaking, I am opposed to family members working together. The holidays are difficult enough without added stress. Do I know people who have had some success working with their families? Yes... and she now works for me while her sister works somewhere else. They no longer work together, but as a plus, they still love each other! The biggest challenge with hiring a family member is that you are essentially hiring that whole side of the family. You can not expect privacy. Add to that the family members who feel they are qualified to work for you, and you are setting yourself up for planning Thanksgiving vacations away from the family for the rest of your life.
Strangers I think, is a difficult group to consider at first as well. It may be difficult for someone to take your business seriously as a one-man shop. Also, it can be very difficult to judge a potential hire's enthusiasm for your business early on. Once you grow and have a reputation, it's much easier to attract and hire the type of people you want for the business. But initially, that first person is such a make it or break it proposition, I think hiring blind would be tough. Also, it will represent a tremendous amount of time, effort, and perhaps cash that you likely don't have the ability to spend.
So, Friends and Acquaintances is where I would draw from first - leaning towards Acquaintances. I have hired friends and friends of employees, and actually found that to be extremely beneficial. They know your quirks, you know theirs. They know about the business and the passion you have. It can really work out well... for the third or fourth person you hire. Try for and Acquaintance first. Here's who I hired and why.
One of the odd jobs I did for twelve years was to deal craps (yes, the dice game) for a local casino party company. I got into it because I loved the game and I stayed because I really came to enjoy teaching people how to play a very complicated game. Jason was another dealer whom I got to know over the years. We would probably see each other fifteen to twenty times a year - a lot more regularly around the holidays - and the group would often head out for a beverage after a gig. So, my definition of an Acquaintance. We later became friends.
What I learned about Jason during these years was that he was arguably one of the smartest people I'd met - quick with math, capable of multi-tasking, picked stuff up incredibly quickly. He was also good at instructing people. We spent a lot of time teaching people who had never played craps, how to play correctly, and that's not always easy depending on the amount of alcohol flowing at a party. I knew that he had been in the banking industry, doing loans and mortgages, so his business skills were there. He had also moved over into the IT department of his bank, and he complimented my technical skills well. The final piece that fell into place was perhaps a bit of luck on my part - his bank was bought out right at the time I was looking to hire, so he was about to be free.
It was the perfect hire, and he helped Big Bang grow into the business it is today.
The first part of this post briefly delved into the financial part of hiring your first employee. Basically, is the math there to consider moving from independent consultant to small business owner with employees. My feeling on it was that the bottom line should forecast revenue increase with any early hire.
I would argue that issues like customer support, product development, etc. will help drive later hires, but the profitability should already be there and the finances of any hire must still make sense. However, employee number ten has far less of an impact from a percentage basis than does employee number one, and as a business owner, both the specific numbers ($40,000 salary) and the percentages are important to pay attention to. We sometimes get caught up on one or the other.
So, for that first employee, the math may be that as one person, you make $100,000.00, and 100% of the revenue (after expenses) goes to you. Adding that first employee at $40,000.00 (which costs you $60,000.00 really), needs to increase sales to $200,000.00 in my mind. That means that as the owner your percentage decreases to 70%, and honestly some people have a terrible time adjusting to that idea. Of course, you also make $140,000.00 now, so it's good math. Trust me when I say that 15% of $1,000,000.00 and ten employees will give you far more personal time and satisfaction than busting your ass for sixty to eighty hours a week for $100,000.00!
But the idea of the first employee really is incredibly difficult for some people. It was for me. Again, without having children of my own, I can only hypothesize, but I liken it to the first child a couple has. You read the books, you talk to people, you plan and plan and plan, and then the baby comes, and it's nothing like you expected or planned for. Perhaps your first employee isn't quite as disruptive, but the planning and fear and excitement and trepidation is all there. Which means you need to decide whether you are ready because here's a few examples of how it will change your life - both from a personal and business standpoint.
Do you communicate well? You will need to identify what you want that new person to do, and perhaps not do, and be able to explain it clearly and quickly.
Can you delegate? You haven't had to so far. Can you give up some responsibilities and duties? Micro managing one person is an easy trap to fall into. So is letting them run free. Neither is a good idea.
What will this person be responsible for? Like with planning for the baby, the plan will change Day 1, but do you at least have something in place for what you want this person to do and why. Are you giving up aspects of the business you don't like or are not your strengths? Are you planning to give up areas that are your strengths or passions in order to focus on another part of the business? Are you strategically planning how to best utilize this person?
Can you share? Delegating is one thing, but you may well need to share a lot of information that many business owners consider personal. How much are you billing? What are the business expenses? Even if you don't advertise your salary or profitability, the savvy employee will likely have some idea. Some people are incredibly uncomfortable with that idea.
Are you patient? When I hired my first employee, I had been training and consulting on Symantec Ghost for three years, and had spent several months working on development of the UIU. I understood it, but I had to have the patience to let my new employee catch up.
Can you handle the responsibility? I've said it before, but this was the scariest thing I've done because I would now be responsible for someone's livelihood. You should be nervous, but if it keeps you up a night with a bleeding ulcer, it's a bad decision! And if you're flippant about it with a "someone can always get another job" mentality, I think you would do an injustice to your employee.
Can you let someone else be responsible for you? That's essentially what employees do. How they interact with customers or develop your product will directly impact you in so many ways. If you are fiercely independent, an employee may be an incredibly difficult thing for you to accept.
Do you have the rest of your business in order to accommodate an employee? Have you talked to an accountant about expenses and taxes? What about benefits? Do you have a lawyer that you've discussed an employment contract with, if it's necessary? How will you handle payroll? I started using Paychex with my first hire so as to ensure his paycheck was always there for him regardless of whether I was in the office or traveling around the country.
This list can go on and on, and as the business grows, the list will change. At this stage in the game for Big Bang, adding an employee now brings little if any stress associated with that individual hire. However, Big Bang is nearing the point where I won't have as much of a direct connection with new employees as I once did, and that's my next horizon of fear and trepidation. Of course, it also means exciting opportunities and growth for the business as well as for my employees and that's hard to ignore.
What it comes down to though, is that hiring requires a lot of thought and reflection. Each person has brought something to the company that has made it better, and I am so very thankful that I took that step. But it's not a step to be taken lightly, nor is it a step everyone should take. Think long and hard about whether you are ready.
My Sales Director, Kelley, recently nicknamed me "Captain Morgan" because I've been spending money like a drunken sailor. Big Bang is doing what we can to help stimulate the economy, I guess!
Since August, we have had the outside of two of our buildings stripped and repainted, replaced fourteen windows on one building, built out a new conference room and three new offices, added two thousand square feet of concrete, replaced ten thousand square feet of asphalt in our parking lot, bought two new servers to replace three aging servers, added new network switches and massive storage, replaced laptops and bought huge monitors for employees, and.... The list goes on.
Some of this we have done because it was necessary. The windows leaked and the parking lot was not likely to survive another Wisconsin winter. Of course, we have had no snow as of December 27th, which is highly unusual, but I can only imagine what January will bring. Other purchases, like the servers, were not absolutely necessary, but we are able to take advantage of some of this year's tax laws regarding expensing equipment. You have probably read articles or received emails from your CPA or local car dealership about saving on taxes in 2011. We had the cash available, and so we made some purchases perhaps a bit earlier than we might have, but will help tremendously for 2012.
But our purchases this year because of 2011 tax savings reinforce my issue with the tax laws regarding businesses. Big Bang is an LLC, which means that in addition to my salary, the profits of the business flow directly through to my wife and I on our IRS 1040 forms. With this year's option of expensing equipment (up to certain dollar amounts), it means that the $30,000.00 we spent for servers and network equipment can be directly expensed, rather than depreciated over several years. That's awesome for a small business as it allows Big Bang to grow more quickly and serve our customers better.
However, many of the improvements we've made, can not be immediately expensed. Arguably, some will qualify as expensable repairs, but many are capital improvements, which must be depreciated over time. For example, we spent approximately $20,000.00 to replace the windows. My accountant could tell you the specific depreciation schedule, but I believe it's somewhere around twenty years. (I may be off on that, but it makes the math easier, and the outcome doesn't change much.)
Consequently, at a twenty year depreciation, I expense $1,000.00 of the windows. The other $19,000.00 come AFTER taxes. Next year I will be able to expense another $1,000.00, and so on. The math works out such that my depreciation from several projects will start to accumulate over the years, and sort of balance out, but that doesn't help me or the economy in the immediate future. Between state and federal taxes, we pay approximately 42%, so that $19,000.00 this year actually requires we make nearly $33,000.00 in profit this year in order to cover the project and the taxes.
Considering that Big Bang did approximately $100,000.00 in renovations, we will pay over $70,000.00 in taxes in order to accommodate that construction! Of course, we will get it back over time through depreciation, but there are two problems with that. First, imagine how much more Big Bang could do with the extra $70,000.00. Second, the depreciation schedule also assumes that Big Bang will be around in twenty or thirty years, and while I certainly expect we will, there are no guarantees.
So, we were in a fortunate cash position this year to be able to make some of these infrastructure investments, which should mean good things for us in 2012, but I would like to see the tax laws changed to make depreciation an option, rather than a requirement. As a business owner, I could do so much more with my money.
About Big Bang Blog
There are many reasons to write a small business blog, we wanted to bring you at least a few reasons to read one. The Big Bang Blog covers the ins and outs of running a small software business, as well as a variety of small business marketing and media topics. Please leave us your comments and questions.
Be sure to visit our UIU Blog for Industry Insights, Product Updates, Support Notes and more.
|About Adam Murphy -
Adam is the President and Owner of Big Bang LLC and espouses a pretty progressive small business philosophy based primarily around hiring the right people and getting the hell out of their way.
|About Nate Bauer -
Nate is the Marketing Director for Big Bang LLC and pretty much spends his days tip-toeing on the pinnacle of how to most effectively implement strategy given the wide open cookie jar of small business marketing possibilities. You can find him on Google+ here.
|About Kelley Burian - @kelleyburian
Kelley is the Sales Director for Big Bang LLC. Responsible for everything from GSA contracts, resellers and international customers, she has her hands full doing whatever she can to make sure our valued clients are thrilled with our fantastic products.
|About Justin McLaughlin -
Justin has over seventeen years in IT management and consulting with Fortune 500 and AmLaw 200 firms. His creds are way too many to mention here, but in addition to reading his posts, you can learn more about him here