I recently did a three part posting about hiring the first employee - taking the first major plunge into business ownership. Welcome to being the boss. And my suggestion for that first employee was that you may well need someone very similar to yourself. That will change as time goes on and the business grows. Too many of me around would be wholly unbearable.
Over the years here at Big Bang we have hired people from several different backgrounds and experience levels. Some were IT people, some were, and are still, as far from IT as you can imagine. The key issue for us though, is personality. A small business works like a family, except that you get to pick who's in it.
Rarely have we hired someone and had them do the exact job they were initially interviewing for. It's the advantage, or challenge, of a small business. The Boss isn't the only one that has to wear multiple hats.
Our interview and hiring processes have changed and evolved over time. We still ask the occasional odd question like, "Who is your favorite comedian?," or "What football team do you support?" (We hired a Bears fan here in Packer country. I'm still baffled by that!) However, there is one question that I will continue to ask that truly throws most candidates:
What do you want to make?
I let people know that I don't expect an immediate answer - they can think about it. Get back to me later. And, of course, we have a range in mind that we feel is reasonable based on the position and experience of the person.
I don't ask this question to make people uncomfortable or to put them on the spot. Instead, I ask it because it gives me great insight into how they think, what their motivations are, and how they value themselves. It is also an opportunity for them to take a look at themselves, and a little introspection goes a long way.
Here's how it plays out, (and I normally explain this to them after they get back to me with a number.) First off, I get to see their critical thinking skills in action. When someone gets back to me with a salary request, I then get to ask them, "Why?"
Interestingly, most people underbid themselves. Perhaps it's because we are a small company, so they expect less pay. Perhaps they have heard about our benefits, such as our open vacation policy including a vacation stipend. Perhaps they are looking to leave their existing job and consequently willing to take a pay cut. Regardless, it gives me insight. Also, in many cases, it has worked as a great morale boost, because if I can offer more than they asked for, all the better!
Perhaps they did research on the industry, and found that the average position in Milwaukee pays $X.00, and so they used that. Maybe they did that research, and feel that their experience is more or less than what the position calls for. It gives them the opportunity to explain their position, and me the opportunity to understand how they value themselves.
I've also been told, "I currently make $X.00, but I can come on for $Y.00," which is generally lower. Here I get to delve into whether it is a career change the person is looking for, or perhaps a location change instead? Why the willingness to take a pay cut?
One of my favorites was one of our temporary/contract employees, who wanted to split the difference between what he was getting from the temp company and what Big Bang was paying the temp company! Awesome answer, and justifiable. Of course, I then spent time with him explaining exactly what it costs Big Bang for an employee - employer paid Social Security and Medicare, Unemployment, Insurance - Health, Life, and Disability, vacation time, etc. Sadly, this is rarely explained to employees in detail. (Did you know when the government cut the Social Security tax employees pay from 6% to 4%, but they didn't change the employer contribution? The business still pays 6% on top of the employee portion. Did you even know that your employer pays into Social Security? Many people don't!)
We give everyone the numbers for their benefits so they understand their true cost. An employee costs about 50% above their salary, on average. Once we walked through that math, he accepted a salary less than requested, and has worked out incredibly well for us. I hope he feels the same.
The point is this. As an employer, I will establish what I feel comfortable paying someone, but that number has changed based on what they bring to the table. Establishing a specific salary for a small business employee doesn't work for me because depending on the person, I may change the job. Establish the salary up front, and you will only get people who are willing to work for that number. Instead, I like to get the best people I can find, and help adjust the job to them.
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.
In my opinion, hiring your first employee is when a business actually becomes a business. As the owner, you are responsible for the livelihood of someone else, and that person is ultimately responsible for yours.
I have said many times that the scariest decision I ever made was my first hire. Getting engaged? Easier. Getting married? Easier. A million dollar loan for office buildings? Easier! Firing an employee? Incredibly difficult, but easier. If I had children I would liken it to finding out your wife is pregnant with your first child. It is exciting and terrifying at the same time. Employee number two is a cake walk, probably like child number two.
There are so many things to consider with that first employee, and I think it is worth walking through a few ideas.
When to hire:
Having quit my job with FedEx in 1999, I was working as an independent computer consultant. Most of my jobs were along the lines of creating Microsoft Access databases for customers. I also did a lot of training and consulting work, both with Microsoft products as well as Intuit's QuickBooks. A fair amount of work came from clients of my accountant as I helped them migrate from paper bookkeeping methods to electronic. Additionally, I handled some small network setups. Essentially, I worked as the IT department for small companies with five to twenty employees. Finally, in 2001, I added traveling to provide training and consulting for Symantec Ghost through Binary Research International.
The rates I charged my clients varied greatly, from as low as $60/hr to as high at $125/hr. For my traveling work, I generally charged $500/day plus travel expenses. And of course, like all independent consultants, if I wasn't working I wasn't making money. When you sell, you don't work, and when you work, you don't sell! Consequently, while $125/hr seems like great money, and it is, it does not translate to a $250,000.00 salary like it would if it were a job. So, my income varied dramatically from week-to-week and month-to-month.
I count myself incredibly fortunate to have had all that going on, and with gross sales of about $100,000.00 annually, it was time to hire someone. Here's what went into that decision, and it is all about math:
First, my new wife had a full time job which included our benefits. She wasn't making great money, but it was enough to live on and her opportunities were only going to grow. Not that we could support us and an employee on her salary, but it gave me a level of comfort to know there was a backup in place.
Next, business was growing. I had to spend less time "selling" because I was getting referrals and more work from my existing customers. Also, because I was providing training services for Binary Research, they were doing the selling for me. More billable hours for less selling time! If the graph is moving that way, you're going the right way.
Also, I was working more than I wanted to be. Weekends in a client's office and calls late at night. Traveling on Sundays. My life was being encroached upon. Should you be willing to bust ass and work hard? Yes. But you have to decide when too much is too much. I was reaching that point.
Finally, my customers were beginning to feel ignored. That can go on occasionally and they will understand, but it can't happen for long before you start to lose clients. If taking on a new client will negatively affect your relationships with your existing clients, or if you are turning away PROFITABLE work, then you are rapidly approaching the point of needing an employee.
You can afford to push your limits and client's limits for a while, and I encourage it in order to ensure the financial stability you need to hire. But really, the first hire should only be a math problem. Assuming you are charging the most you can in your market, you have some level of financial stability, and a reasonable forecast for growth, then you can do the following math problem:
If I make $100,000.00 annually and hire someone for $40,000.00, and don't increase sales, can I survive?
If I make $100,000.00 annually, and hire someone for $40,000.00, can I increase the amount of business I do by at least $60,000? (Figure salary plus 50% for true cost of an employee.)
If I make $100,000.00 annually, and hire someone for $40,000.00, can I increase the amount of business I do by at least $100,000?
If the answer to the first question is Yes, then you may really be considering a first hire, but without a plan for growth, or some major anticipated looming project, it's a bad idea. You are better off dropping a client or two to maintain the quality of your work. Don't hire!
If the answer to the second question is Yes, then you are actually in a position to hire, but to what benefit? Your salary and your new employee's are covered, but each employee, especially the first one, should represent an increase in BOTTOM line revenue. Paying someone $40,000.00 for a $40,000.00 project is bad math. I think this is one of the more damaging decisions people make because there are always expenses associated with employees that you don't foresee. And if sales dip, then you're back to question 1, and that's not a happy place to be.
If the answer to the third question is Yes, then you are ready to hire. In a small business, an employee should only be brought on if that hiring will increase the bottom line profit, and I think that amount should be at least equivalent to their annual salary, and preferably more.
If you can honestly do that math above - with whatever salary numbers are appropriate for you - then it's time to consider two more things. Are you personally ready for an employee, and who do you hire?
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|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.
|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.