In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to make your first hire. They discuss how to decide if you need to hire full-time or part-time, the pros and cons of each, and some tips on the hiring process.
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Mike [00:00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about how to make your first hire. This is “Startups for the Rest of Us,” episode 285.
Mike [00:00:16]: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike –
Rob [00:00:24]: And I’m Rob.
Mike [00:00:25]: – and we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Rob?
Rob [00:00:28]: You know, I’m pretty good. It’s nice to be a week away from MicroConf and kind of get my feet back under me. It feels like … you know, we’re done with queue one of 2016 already and heading into the midyear, so I’ve been looking out: what’s the next 90 days, what’s the next six months looking like, and revisiting the goals and the direction and the vision that I set out in my retreat, which was at the very beginning of January. There was both some personal stuff and some work and Drip-oriented growth stuff that I’m just revisiting and figuring out: am I on track for those? Do I need to adjust them? Are we ahead of schedule, or behind, or whatever? So, that’s been kind of fun, just to go back and review. I think that’s important to do, whether you do it monthly, or quarterly is to review those goals and figure out where you are with them.
And with that in mind, we’re trying to find new growth channels and starting to make some progress on a few fronts. Finally starting to get a little bit of traction with paid traffic, which has been something we’ve been working on on and off for a while with Drip, and seems like we’ve got our foot in the door with a couple avenues that I’m pretty excited about.
Mike [00:01:28]: Very cool.
Rob [00:01:29]: How about you?
Mike [00:01:29]: Recently, I kind of did the same thing. I looked back over quarterly progress because, as you said, it’s the end of the quarter. I look at that, and say it almost sucks because the last three months have just flown by, and it feels like my head is down almost the entire time. But at the same time, things are moving forward. I looked back at some of my annual goals for this year, and for revenue on Bluetick, already I’m to 17 percent of my goal. It’s, obviously, about 25 percent of the way through the year; but I also haven’t really got the product out the door to anyone beyond the people who are doing preorders. The fact that I don’t have the product out the door, really, and I’m still at that point, it’s not like I’m very far behind is really what it comes down to.
Rob [00:02:08]: Right. It’s not atypical. I think most of our goals are ambitious. Do you feel like your Bluetick goal was ambitious?
Mike [00:02:14]: Oh, yeah. It was one of those big, fat, hairy, audacious goals.
Rob [00:02:17]: Yeah. You don’t want to shrug it off and be like, “Oh, well, I just missed it.” I think now it’s like, “Okay, how can I make up that eight percent over the next month or two?” “How can I get to the point where I am actually back on track?”
Mike [00:02:29]: Yeah, and I think that that’ll come with actually launching the product publicly and getting it out there and making it available for people to sign up for; because right now, it’s just based off of what’s going to my mailing list and the little things that I’m doing there. Longer term, obviously, there’s a lot that goes into it.
Rob [00:02:44]: Yeah, and that’s the hard part. When you’re setting these goals, sometimes they are a shot in the dark, especially if you just have revenue goals. If you have milestones of like getting a launch by this date, then it’s a little more easy to quantify. But it’s like do you really know what your revenue is going to be until you’re at a sustainable, repeatable process where you know how many trials are coming in, you know what your conversion rates are? At that point, then you can project it out, but before then it is a bit more of a guessing game. So, I’ve always taken it if I’m ahead of my projected, then I figured I guessed too low. If I’m behind it, then I’m trying to figure out how to get there without letting it destroy me. You can’t let it beat you up or make you feel like a failure. It needs to be motivation rather than making you feel like you’ve dropped the ball.
Mike [00:03:28]: Yeah. The fact that I’m only eight percent behind a quarter of the way through the year, and the product’s just not out the doorm that, to me, bodes really well; because I didn’t expect to have it out there for public consumption until about halfway through the year. In some ways, I almost feel like I’m ahead. You could almost kind of fast-forward to say, “That revenue goal was really for the last six months of the year.”
That said, right now we’re going through, and we’re plugging away at trying to onboard people who’ve placed preorders. I have to be honest, some of the stuff that we’re running into is just flat-out embarrassing. The earliest thing that we tried to do when onboarding – the signup itself was just completely fundamentally broken. I had to do some things on the fly to get somebody on there. It’s generally working at this point. We’re just trying to work through any of the UI and UX issues with people. It’s coming along, but it’s obviously slower than I’d like. One of my developers is getting married on Monday, so he’s out of commission for at least the next week or two.
Rob [00:04:23]: Yeah, that’s always a bummer when you’re pushing hard and something comes up for anyone. Obviously, very important and worth doing, but it’s tough. I think we’re impatient as founders, and we want to hit the goals.
So, what are we talking about this week?
Mike [00:04:35]: This week, we’re going to be talking about how to make your first hire. This is a question that was asked by somebody inside of Founder Café. We’ve mentioned Founder Café before. It’s our online membership site. The question was really geared towards how do you decide whether you need somebody for part-time or full-time, and how do you approach those two, different scenarios; because, obviously, that’s going to be dictated by what your revenue is and what your strengths and weaknesses are in both your skill set and in the business itself in terms of the revenue that’s coming in.
Rob [00:05:07]: Yeah. In your early days, the advice I would give is stay with part-time and contractors for as long as you possibly can. There’s no reason to jump to W-2 employees until you absolutely need to, because it brings complexity. I think in our circles that’s probably pretty well known, but I think if you’re in doubt, part-time contractors give you the flexibility of being able to only pay hourly and flex up and down as you need. There are some pros and cons to doing it that we’ll get into in this episode, but that’s probably a thought that I would start the episode with in terms of thinking about your first hire.
Mike [00:05:40]: To start off with, I know that we’re going to talk about some of the differences and pros and cons for hiring part-time and full-time; but I think what we want to do first is to talk about some of the things that are applicable to both, because I think that there’s definitely a lot of overlap between hiring for part-time versus hiring for full-time.
The first one is to look for self-starters who can dive in and are going to find ways to improve the business and the products that you’re working on. I think this is really important, because you don’t want to hire somebody who is going to come to you and every time they complete a task, they come back to you and say, “What do you want me to work on next?” Then it turns you into more of a micromanager, and it’s very difficult to get away from that. There’s going to be a little bit of that, I think, up front; because they’re going to want to know what the general direction of the business is and the product and everything else, but you don’t want to be in the position where every, single time they finish something you have to find something else for them to do. You really want them to be essentially generating their own tasks and having some sort of awareness of what your overreaching goals are, and then be able to just go do those things without you telling them, “You need to do X, Y and Z.”
Rob [00:06:50]: Well, I think, in an ideal world, you would do this; but I think in the early days when your budget is tight, it’s hard to find people like this. These are the people that everybody wants. I think that there is, perhaps, an approach you can take, even if you can’t find self-starters, that can still work. This is what I did in the early days, and a lot of people who are cash-strapped in the early days do. It’s to find people are really good at a single skill and then slowly basically fire yourself from the jobs that you are doing. The example that I often give is to hire that first tier-one email support person. They may not be that much of a self-starter. They may not figure out ways to improve stuff, but just getting that email support off your plate in the early days with someone who is good at that single skill – there’s a focus lift. There’s a time benefit, and it’s a recurring task that happens every day, or every week. I think if you’ve never hired before and you’ve never even hired a contractor, that would probably be the simplest, little baby step that I would take.
This actually may speak to a point I was going to bring up, which is that hiring is a learned skill. The more you do it, the better you get. When you start, you’re going to be pretty bad at it, and you’re going to have a bunch of missteps. I don’t know anyone who goes out of the gate and hires really well the first time. In the early days, when I was first trying to figure out who to hire and what to hire for – you want to look at your recurring tasks, the ones that are going to be relatively simple to outsource, and then you work way up to the more complex tasks; and this is all based on your budget. The more budget you have, the better people, in general, you can hire; but in the early days, if you really are bootstrapping, then you have to cobble it together and limp along for a while, even if you’re not as efficient.
[00:08:26] That’s one of the reasons some people raise funding. If you did raise an angel round of a quarter million or a half million bucks, it can make this part easier, because then you do have the budget to hire better people from the start. But if you truly are bootstrapping, you want to self-fund this, that’s okay, too. Just know that you’re going to have some limitations in the early days in terms of the quality and the effectiveness of people you can hire.
Mike [00:08:47]: I think kind of a subtext to what you just said is that for something like support, it’s time-consuming, but doesn’t necessarily add a huge amount of topline revenue value to the business. It needs to be done, but it isn’t necessarily you that needs to do it. Because it’s time-consuming, it’s best to start with something like that for you to outsource.
Rob [00:09:07]: Yeah, that’s exactly right. Time-consuming and attention-grabbing. Email support is a bummer because it’s interruptive, and it’s really hard to just batch that because you can’t just do that once a week. Even doing it once a day is not ideal. In a perfect world, you would check every couple hours and take care of that stuff. So, I think there’s the time, and then there’s that focus or attention element. If you have recurring things that take time and attention, those are the first ones you want to look at hiring for.
Mike [00:09:36]: The next thing that’s applicable to both part-time and full-time hiring is that you should always be interviewing multiple candidates. Any time I’ve gone through and hired somebody and whittled it down to just one or two people and then only interviewed one person, it seems to never work out. I feel like that’s because you don’t necessarily have a good basis for comparison of gauging that person’s skills or abilities against the other people who, obviously, you haven’t interviewed. I think that’s one of those recommendations – that you have to interview multiple candidates. If you’re at a point where you don’t have multiple candidates, then that should be a red flag. You need to go find more, or there’s something broken in your hiring process.
Rob [00:10:17]: Yeah, absolutely. It’s pretty rare. I think in all the hiring I’ve done over the years, there’s probably been one or two hires where we knew the perfect person for the job, and it was someone we already knew or were acquainted with. We knew that they’d be fit and all that stuff, so we didn’t interview multiple candidates. But far and wide, the literally dozens of positions I’ve hired for, including – I used to be a development lead and a tech lead and a manager for some companies down in L.A. when I was still doing salary work. It’s got to be approaching, like, a hundred people that I was involved in the hiring process of. With all those, you just have to get a lot of candidates through the door, or at least on the phone. We used to do a lot of phone screenings in advance. Nowadays, you’d just do it via Skype, and you would never actually meet with people in person anyways. But interviewing multiple candidates is absolutely the way to go, and it’s the only way you’re going to get an idea of the skill level and what’s really available on the market at that time.
Mike [00:11:13]: The next thing that’s applicable to both is that a bad hire is orders of magnitude worse than no hire. If you hire somebody who is not a good fit for either the position or for the company culture – and you can have a company culture even if it’s just you and one other person – in those situations, if you’re not able to hire somebody, you’re better off than if you make a mistake in hiring, because those early mistakes are so incredibly time-consuming to deal with and difficult on the business, both in terms of revenue and time spent and opportunity lost.
Rob [00:11:46]: Yeah. The way that I used to combat this – I think over time, I’ve gotten better, naturally, at hiring just because you do it more. You get picker and know what to look for. In the early days, I would recommend that when you hire those first few people, you do all the training via screencast and/or in writing; because you want to have it repeatable. We had multiple situations where we’d hire a VA to help with support and setup and this other stuff, and then that VA wouldn’t work out. Sometimes it was them. They just flaked. Sometimes found out they didn’t have the skills, and having to repeat the training if you had just done it live on Skype or something would be such a pain in the butt, right? Makes it really time-consuming. So, try to make your training as repeatable as possible, especially in the early days; because you’re probably going to have to take a few swings at bat and get a few people through the door, get them trained up before you find that right fit.
[00:12:37] Another thing to keep in mind is that entry-level people are the least expensive, and you can find some pretty good deals, but you have to spend the time to train them on the tasks. Experienced people who already know how to do something – let’s say you’re hiring for email support, and they’ve already done it; or, you’re hiring to manage Facebook ads; or, you’re hiring to help handle integrations and help with stuff. Experienced people are a lot more expensive. If they actually have experience in what you’re doing, they tend to be two times, four times more expensive for the same task; but they can hit the ground running. So, it’s very important to keep in mind “how much budget do I have?” and realizing that trying to find a competent person at a highly sought-after skill set is going to cost a lot of money. You have to think through at what level can you hire.
This is a reason in the early days when you’re bootstrapping, you may need to invest more time, because you don’t have as much money. You may need to work more hours in the early days to get this thing going. That doesn’t mean you have to work the crazy, 80-hour startup weeks forever, but if you’re hiring people and you’re having to train them from scratch, you’re putting in your sweat equity because you don’t have the cash to put up. I see it as exchanging value there, and you have to weigh that out in your own mind.
Mike [00:13:41]: I think the next thing you have to remember is that going from zero to one employees is the hardest. I think this is applicable whether you are a solo founder, or whether you have co-founders. The fact of the matter is that you’re bringing somebody else into the mix that is not familiar with your company, or where it came from, or the roots, or maybe not even the problem space itself. Especially if you’re hiring a new developer and they don’t know the problems that you have been working on and are intimately familiar with, they’re going to have to learn some of those things. They may know their job very well, and they may be an expert in the things that they do, but they’re not necessarily an expert in not just your systems themselves, but also how your business operates and what your customer base looks like.
Rob [00:14:24]: The other thing to think about is as your budget grows, you can hire better people. I do think that you should stair-step your way up as you’re able to because, in general, when you have more money, you can hire better people, like I’ve already said. The other thing that I’ve realized is that in the early days, as a founder, you’re probably going to be the best at any given task because you don’t have the budget to hire subject matter experts. You’re going to have to hire entry-level people, and so if you’ve learned Facebook ads, you’re then going to have to train them. If you know how to do the email support, you’re going to have to train them. At a certain point, that flips. Then you’ll be able to hire people who are actually better than you at a given task, and that’s when things definitely get more expensive; but it becomes so much easier, because you can go out and pay a Facebook ad consultant, or someone who has experience doing this. Or, you can pay a professional senior developer who’s been building and writing code for years and is on par with you. Long-term, that’s the ultimate goal. That’s not your first hire – right – but think about that over the course of several years as your business grows, that you probably want to go from being able to train people and hire people where you’re the subject matter expert; but as soon as you can, get to the other one, because it’ll allow you to move faster.
Mike [00:15:39]: With those things in mind, let’s move on and talk a little bit about the differences between the part-time hires and full-time hires. I think that, generally speaking, as you said before, when you’re looking to hire and you’re first starting to do that in your business, you should probably start with a part-time person. When you’re doing that, if you’re looking specifically at people who are doing contracting, that’s probably the best place to start. I don’t think that you want to go out and look for people who are currently working full-time and then just picking up something on the side. I think there’s a big difference between those types of people versus people who are doing contracting full-time; because they might only work for you four or ten hours a week or something like that, but they’re used to that mode of working. They’re experienced at working remotely. They’re experienced at dealing with people over the phone, or via Skype, or Slack and email; and that’s just their primary mode of operation versus those people who are in an office environment, and that’s what they’re used to. For lack of a better way to put it, that’s how they’ve been conditioned to work. I think that it’s easier to bring on those people on a part-time basis who are doing contracting full-time, because they’re used to being treated like a contractor.
Rob [00:16:52]: Yeah, I can’t underscore this enough: a) someone who’s used to working remotely, and b) who’s not working around another full-time job, or a full-time job and contracting a few nights and weekends. I’ve never had that work out – ever. Every time, their job takes precedent, and they only have a few hours a week to do it, and they get behind on stuff, and they’re just trying to fit you in around other things. It doesn’t work, so I would never – that’s one of the early things I ask now when I go to hire: “Are you currently doing this full-time,” or, “Do you have a full-time job?” because it’s an absolute nonstarter. I think at this point, if I were to find someone who was really good and I wanted to hire and they had a full-time job, I would consider trying to have them leave the job and come on with us; but in the early days you can’t do that, because they might only have three, four, five hours a week where they can work for you. So, try to find people who are a full-time contracting. Upwork is a decent place to do this, because there are a lot of people that are taking that stance.
Mike [00:17:43]: The other advantage of hiring people part-time is that you can generally afford them a little bit better. You can hire experts, and you can get them for a few hours of their time. As Rob said earlier, you may not be able to get the best person in the world, but you may be able to get somebody who has comparable skills to yours or even better, and at a price that isn’t going to break the bank. If you try to hire those people full-time, chances are really good you just simply can’t afford them, and it’s because of your budget.
The other thing that hiring part-time allows you to do is it allows you to practice being a manager. Just like hiring, being a manager is a learned skill, and you need to be able to practice that in order to get better at it, because if you’re not a good manager, then the results that you’re getting out of people that you hire are probably also not going to be good; and it’s going to be due to miscommunication issues.
Rob [00:18:31]: Yeah, and there are pros and cons to hiring part-time contractors where their hours can flex up and down. Obviously, the pros are that you don’t need to have a fixed budget. So, if work slows down or whatever, you’re not paying out of pocket a fixed amount every month, when you may not have that because you’re bootstrapping. Then there’s also the flexibility that, as more work comes in, you can ramp them up pretty quickly. In the early days, you don’t have to worry, necessarily, about career advancement and annual reviews and all the stuff dealing with taxes and healthcare. There’s a time for that. There’s a time where that’s worth it, but in the early days when you’re just trying to get a business off the ground, it’s just so much to worry about.
Now, the cons of this are that – it depends on the specifics, but if you can actually find someone comparable who is willing to work for you as a full-time employee – in the U.S., it’s called “W-2” – there are some advantages to that. One is that, overall, it’ll probably be less expensive if you actually keep them busy full-time, because contractors tend to have a premium that they put on their pricing. Another advantage is there’s a loyalty thing. People who work for you tend to get more involved, tend to care more about the outcome, and they’re going to tend to stick around longer.
Those are the major things to think about when you’re comparing, “Should I hire contractors, or should I hire W-2 employees?” I think that, as we said, in the early days, by necessity, you’re going to want to stick with contractors as long as you can. Long-term, it is tough to grow a huge business solely with contractors. I know a few people have done it, but most of the time, getting that loyalty and that team camaraderie really only comes with a group of full-time employees.
Mike [00:20:06]: To kick us off on the side of full-time employees, I think that one of the important things is that you need to hire before you have a particular need for something. If you wait until the last second – let’s say that you’re working on something and you need a Facebook ads expert, and you say, “Okay. I want to kick that off in a couple of weeks,” and you wait around, and you don’t go through a hiring process. Then it comes time, and you say, “Now I need to hire somebody, because I need somebody by the end of this week.” It can be really challenging to get those people lined up for interviews in advance and go through the hiring process if you don’t do that in advance. Make sure that you are hiring before you actually need somebody to get started on that work. It sounds obvious, but I also think that it’s very easy to underestimate how long that hiring process can take in some cases.
Rob [00:20:55]: Yeah. I think there’s a balance here. If you have a lot of money in the bank, if you’re funded, then hiring well ahead of the need is what people do. They hire months ahead, because they know they’re going to be scaling up. If you’re tighter on cash, I think hiring before the need, like you said, which is really just weeks in advance – it’s kind of like looking out 30 days and realizing it’s going to take you a month to hire. I think that’s perfectly acceptable; but I think that, as a cash-constrained startup or a business, I don’t know if it’s as much as hiring before the need, or it’s as much as hire when it’s really painful. As a founder, you’re going to be taking up the slack with anything, and so as you feel stuff start to just get piled and piled on top of you, hire before it breaks you. Hire before it completely derails what you’re doing. I think looking out two to four weeks on what is going to breaking you soon is probably the way that I think you have to do it in the early days.
Mike [00:21:48]: Yeah, I think Peldi ran his business, Balsamiq, to the point where – he decided to hire when he felt like he was going to die because of all the work. That was really kind of the main point, but making sure that you have things lined up so that you can put a full-time offer in front of somebody if they’re the right fit? I think that it’s important to always be looking. It doesn’t necessarily mean that you need to make an offer to everybody, but at the same time, you also need to be aware that that process can take a while. If it’s a full-time hire, then chances are really good that they’re probably going to give two weeks’ notice to their existing employer, and you may need to not necessarily coach them, but be cognizant of the fact that they may use that as a negotiating tactic, or their existing company may use that to say, “Let me give you more money to keep you.”
Rob [00:22:34]: Yeah. To give you an idea, I think some of the fastest hires that we’ve done in the past couple years have been about two weeks from posting a job to having someone start working, and that’s when they didn’t already have another job already going on. The longest one was probably three months, maybe four, from the time we posted; and we had to post it multiple times. That was for a senior Rails developer, and we were very picky about that. We wanted some very specific skill sets. We actually looked local first, and when we couldn’t find anyone, then we went remote. It was a drawn-out process. That was actually over the Christmas and, I think, the Thanksgiving holidays as well, so that extended it even further. But that gives you an idea of the range when looking for someone.
Another point that we want to talk about is not to rule out remote workers. Obviously, there’s a movement of working remotely, and “37 Signals” talks about this in their book and all that. There’s definitely value in being able to find the best people anywhere in the world, no matter where they live. So, I think there’s a balancing act here, because what we found – I was totally remote for years when I had all the contractors. No one ever lived in the same city. Then as soon as Derek and I started working together in the same city, here in Fresno, it made me realize just how valuable that face-time can be and the advantages of it. So, I don’t think that either one is the best. Everyone going into an office five days a week is not optimal either because of the interruptions and just all the overhead involved with that. I don’t think being totally remote is the best either. The optimal approach, we’ve found, is to actually have an office where all of us are in it two days a week. So we tend to go in Tuesday, Thursdays; and then other people go in as needed, and they have a space where they can work.
All that said, I think the hybrid approach, personally, is something that I would love to have. I’d love to have everybody local, but only meet a couple days a week so that you can go into your home office and actually get all the work done that you need to; because we stuff the meetings, and there’s a lot of interruption and discussion on the other days, but that’s super valuable. That’s when we get a lot of the hard work done.
Mike [00:24:27]: Something else to look at when you’re hiring for full-time employees is to hire for the most time-consuming tasks that you’re already doing first. This is an effort to offload those things. It kind of goes back to what we had talked about earlier, and you pointed out that one of your recommendations for people is to hire for support first. It’s because it’s so time-consuming. If there are other things that are time-consuming for you, regardless of whether they’re really driving the business forward a lot or just a little bit, the fact of the matter is that if they’re taking up a lot of your time, chances are good that there’s probably other areas of the business that you could be spending that valuable time on. It’s probably best to be hiring for those positions first, assuming that you can afford it.
Rob [00:25:10]: Another thing when you’re hiring for full-time is, if you can, like I said earlier, try to hire people who are experienced, especially if you have the budget. It’s tough to burden yourself with intense training, like hiring interns, in the early days. I know they can work out. I’ve heard of them working out. I’ve never been able to justify spending the time to train someone who truly is intern-level. It’s just so much work, and in the early days of your business, you don’t have a lot of time. Time is such a limited factor. With that in mind, you want to look for people who can actually show accomplishments. They’re not just talking about experience. You don’t just read it on a resumé, but in what way can they show you? If they’re a developer, can they show you a source code? If they’re a designer, can they show you past designs? If they’re going to do email support, can you do a short test where you send them three questions about your app? You have them look through and figure out how they would respond to it. You want to be able to see what people have done in the past, not just who they have worked for and for how long.
Mike [00:26:04]: That’s one of the dangers of hiring – is just, in general, that usually their previous experience and the things that they’ve done on a day-to-day basis – your ability to see into that can be somewhat limited. You essentially have elevated the risk by not being able to see their work, and that’s why I think a lot of companies like the fact that there are developers out there who have public GitHub repositories, and they can go take a look at their source code. Then you have Stack Overflow, where you’ve got people’s reputation on there, and you can see questions they’ve answered and how they talk to people and how they answer deeply technical questions. That’s extremely valuable from a hiring standpoint, because you get that visibility. You get to see stuff versus you get a resumé, and everything looks great. There’s no red flags, but you don’t necessarily see any really good strengths either. That’s one of the downsides of going through a hiring process and not being able to see any specific work that they’ve done.
[00:27:00] That brings me to another point about when you are hiring, look specifically for the strengths of people, not just a lack of weaknesses. That’s, I think, a very easy trap to fall into.
Rob [00:27:11]: Another thing to keep in mind is finding really good hires. They typically aren’t looking for jobs. They’re hard to find, and so typically when we’re going to hire, I think through, “Who do I know who knows someone who would be a perfect fit for this?” Referrals and recommendations using your network are the best channel, in my opinion, because: a) it’s going to shortcut the process, but b) that’s where you’re going to find the best people. You have to be careful. I rarely think of, “Who do I know who I could hire for this?” because I don’t like hiring close friends and family. I’ve seen it happen, and I’ve seen it just train-wreck businesses. I’ve seen it train-wreck relationships, so my personal stance is not to hire friends and family; but to hire friends of friends, or colleagues of friends, or folks that your network knows that you don’t have strong ties to. Having a dual relationship where you’re both a friend and a co-worker, or both family and a co-worker makes things way more complicated than I think they need to be.
Mike [00:28:07]: The last item on our list relates to paying for this. I think when you go to hire somebody and you make a full-time offer, you need to think about how you’re going to pay them and whether you’re going to use a payroll provider of some kind. If you have access to Gusto, which is formerly Zen Payroll, I would highly recommend that, but it does vary state to state or country to country. But any larger payroll provider should be able to provide those services for you. In addition to that, you’re probably going to need to offer some sort of benefits, like health insurance and dental and things like that. Those things add up. They can be really costly in addition to the cost of paying for the person’s payroll. Most people don’t realize this, but in the United States, you also end up paying employment taxes, which adds even more on top of that. You could count on adding anywhere from 25 to 50 percent of the cost of an employee on top of what it is that you make them an offer for. So, if you make somebody an offer for 40,000 a year, it could be up to 60,000 or potentially even more, depending on where you live and what sorts of benefits you’re offering.
So, again, this comes down to, in some senses, risk tolerance. Can you afford that? Can your business afford that? You need the business to be able to support those employees long-term, so the revenue has to be there as well. I think that’s where this hiring process becomes such a challenge, because until you get to that point where the business is making enough money to be able to, I’ll say, quote-unquote, “easily hire” somebody, or at least easily be able to afford to hire someone, you might be riding the business a little bit on a razor’s edge in some cases. If the economy goes through a downturn that you didn’t expect and your business starts to go down, you could be in a position where you hire somebody and then three months, six months later, you look at your finances and say, “You know what? We really can’t afford this anymore.” And firing somebody after they’ve only been working for you for a few weeks or a few months is very difficult to do, because it’s not like it was a performance issue. It’s just you made a wrong decision, and I think that that’s more difficult for most founders to accept because they’re the ones who are at fault. It’s not the employee. It’s not as if the employee made a mistake, or is not pulling their weight or doing the job. It’s you made a mistake in the business, and you’ve screwed up.
Rob [00:30:21]: Yeah. I think in terms of the benefits – you know, you mentioned that – that’d be something else. I know a lot of early-stage startups, when you’re below five employees, they don’t offer healthcare; because it is such an administrative – not only an expense; it’s just a big time suck to get that going. So, that’s something to think about. You obviously want to take care of your employees as soon as you can, but it’s something to think about – that it’s not necessarily a need, and it can negatively impact your business if you try to compete with the big boys and get a 401(k) out and you’re under ten employees, and get healthcare for everyone when you’re under five employees. It’s something to weigh and think about both in terms of the cost and the time. And I think what you just said about risk tolerance and having either the cash in the bank, or the MRR coming in to cover is something not to be taken lightly, because having to lay somebody off after you’ve done all the work of hiring them – it would feel terrible, and it would be a very stressful decision that you’d have to make. The nice part about if you do have a recurring revenue business, rather than one-time sales, is that that revenue tends to be more stable; so, definitely a plus of the SaaS or the membership model.
[00:31:24] I think that wraps us up for the day. If you have a question, you can call our voicemail number at: 888.801.9690. Or, email us at: email@example.com. Our theme music is “We’re Outta Control,” by MoOt, used under Creative Commons. Visit startupsfortherestofus.com for a full transcript of each episode.
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