Two of the questions I often hear from new business owners is “When is the right time to hire my first employee?”, and secondly, “What role should I hire for?”
This on the surface is somewhat easy to answer, however, there is quite a lot that sits behind these two questions. To fully answer them, we need to examine how businesses grow and we need to also look at the roles and responsibilities of key staff in a small business. I will address each of these in turn.
How do small businesses grow?
The growth process of a business, big or small, is not linear. Growth occurs in a repeatable pattern of steps. Growing a business involves a constant battle between the need to create capacity to take on more work with the management of costs and revenues so that the business continues to be profitable over time.
The challenge with a growing business is that cash flow is like oxygen – without cash a growing small business will die. This means that without a constant stream of new clients and work, there simply isn’t enough money coming in to pay either your own salary, or to employ more staff.
The great paradox in business is that unless you create more capacity and hire staff, even on a contract-basis or part-time, then there isn’t the ability to actually deliver any new work or to service new clients. At some point, the business owner needs to bite the bullet, take a calculated risk and make the decision to hire.
The right time to hire can be calculated mathematically.
If you consider how many jobs a person can do in a day, the billable amount for each job taking into account the overheads and cost of the business. Productivity also plays a part, as the number of hours a person is available to do billable work is finite, and is around 40 hours for most people.
For example, if we can do a job in 2 hours on average, then we can get 4 jobs done per day, at a cost of $200 per job, will give us $800 per day gross revenue. Now there are obviously some assumptions here: firstly, that each job can be done in an average of two hours and is of a similar size. We are also assuming that you can generate enough work to keep someone fully billable day after day, which is not always possible, particularly if you are a solopreneur that has to both sell, deliver and do all the administration at the same time. In this instance reality is that you may spend at least 4 hours a day selling and doing admin.
If you are happy earning a $400 per day (approximately $90,000 per year) by doing everything yourself, then there is no need to grow. If on the other hand, $400 per day isn’t enough, or your expenses are more than this, then growth is what you need, and to grow you need to employ people to do the work.
What roles should I hire for?
In any business there are a number of key roles, namely: sales and marketing, delivery, and administration.
Sales and marketing is focused on finding new customers and generating sales. Sales and marketing creates the revenue that allows the business to pay the bills and to potentially grow. Without sales and marketing there is no income.
Delivery, is pretty self-evident, and is concerned with coordination and delivery of services for the customer. Without delivery, there are no clients paying for work.
Administration includes all the administrative and back office functions that are required to keep the organization running. This includes accounts payable and receivable, payroll (if you have employees), general administration, team management and general coordination. Generally administration costs a business money and does little to contribute to sales and marketing and whilst there may be some support provided, often there is no contribution to the delivery of services to the customer.
One of the biggest mistakes that new business owners make is that their first hire is often a person to help with the administration. This is not a good idea, as administration creates more cost, doesn’t generate any additional revenue and doesn’t help in the delivery of the services.
Instead, the first hire should be a delivery resource, as they can increase the capacity to deliver, or take some of the delivery load of the business owner allowing them to spend more time undertaking the sales and marketing activities and in doing do, generate more revenue.
So why shouldn’t we just hire a sales and marketing person instead?
For a sales and marketing manager to be effective, they need to have systems in place to support the sales and marketing activities. I most cases the business owner has not developed and tested the marketing strategy, their pitch and fully developed the offer. This is usually because most business owners come from a technical background rather than a sales and marketing background. This means that a sales person is usually ineffective and is without the marketing collateral and a proven sales pitch, they are unable to deliver few or any sales in the first 12 months in the role, despite them having a solid track record of success in past roles. In addition, the business owner often has a much higher level of product knowledge and the passion for the product or service, and it is these two things that often result in the sale.
The best person to hire as your first hire is a delivery person. In other words, someone to do the NatHERS, BASIX or thermal assessments. You generate revenue from the day you hire them, you create profit on the work done and this frees up the business owner to actually go out and get more clients.
Should I hire someone as an employee or contractor?
I often get asked whether you should hire someone as an employee, or whether it is better to bring them on as a contractor. Each has its own pros and cons and the preferred approach may depend entirely upon the preference of each business.
Contractors can be good, however you tend to pay a higher rate, and often contractors won’t have the same sense of belonging in a business and may also not be as invested in the outcome for the client. Contractors can however be used on a daily, hourly or per assessment type rate so that you often engage them to do the work as you win the work.
Employees are often cheaper to employ, have a higher level of commitment, but you need to employ people on a full-time or a part-time basis, regardless of whether there is any assessments to do. This puts a higher level of emphasis on the business owner to generate more clients and get more work.
For most businesses, a combination of employees and contractors is the best solution.
So who do I hire next?
The second hire should be a second delivery person, which then allows the business owner to do sales and marketing, and administration on a fulltime basis and to handle any overflow delivery work as needed.
Person Number 3 should be an admin person.
Person Number 4 should be a sales and marketing person.
If you then repeat the process, your business can scale and grow.