Hiring your first employee is one of the most exciting decisions any entrepreneur will make. It can also be one of the scariest. Think about it: that first employee doubles the head count of your company! In many ways this makes it the most important hire you'll ever make. Every year thousands of business owners make this first hire decision and each one faces all the same questions and anxieties such a big step can create.
Is this the right time to hire someone?
Can I afford to hire/can I afford not to hire?
How do I recruit?
How do I interview?
What if business falls off?
What if they don't care about my business like I do?
What if they prove unmanageable?
What if I train them and then they decide to move on?
In many instances, your business growth is determined by the people you hire, so you can't afford to make mistakes.
One of the mistakes entrepreneurs make with a first hire is not doing it soon enough. Consumed with survival, many solo business owners miss key opportunities. Engulfed by the technical work, (doing it, doing it doing it) they fail to innovate and become obsolete in the face of more nimble competitors. Waiting too long may also force you into a hurried hire which greatly increases the likelihood of ending up with the wrong person.
So what signals the right time to bring on that first employee? It could be that you're suddenly having to turn away customers, or that you find you're spending too much time on lower-level administrative work instead of concentrating on the strategic activities required for business growth. It might be spurred by the absolute necessity of gaining expertise in an area that you don't possess. Or perhaps you've simply realized that it takes a team to satisfy your target market.
Whatever the cues, you need to back away from the business a bit and look at it objectively. Ask questions. Quantify. Do whatever it takes to determine whether adding your first employee will remove the current frustrations... not add to them. For example, if you're a contractor feeling overwhelmed with the amount of work on your plate, your first instinct may be to hire another contractor to help you do that technical work. But upon closer examination, your business may in fact be better served by bringing on a part-time administrative assistant.
Think the decision through carefully and consider the exact results you expect to achieve by doubling your head count overnight. How will adding this person help you make more revenue or better serve the customer?
Remember, even if clients don't pay on time, your employee expects to be paid. Taking on an employee is a commitment of your time, your money and other resources. Double check your basic premise surrounding this new hire. How quick do you need to see sustainable results? What type of training needs to be involved? How will their coming on board further your sales effort, handle a critical area of the company or free you up to focus on generating more income? If you can't ask and answer a series of questions like these, then maybe it's not the right time for you.
Besides the timing and finance issues, another source of anxiety in hiring is how to choose the right person.
First, create a position agreement for the new hire and be absolutely certain you can afford to pay them while you're waiting for the results of their position to ramp up. You might consider starting them out as a contractor since it's easier to extricate yourself from a contractor relationship than an employee if things go sour. In keeping with the E-Myth perspective, your first priority shouldn't necessarily focus on a particular skill but rather on identifying the right attitude. Are they passionate about the business you're in? Do they have that certain knack for responding to customers? Do they have a high energy level coupled with a good equilibrium to handle the rapid changes in a small business? Remember skills can be learned, attitude rarely can.
Recruitment and hiring decisions are surely some of the most important ones you'll make in growing your business. Don't rush it. You may have friends, family or acquaintances that fit the job requirements, but don't settle too early on a particular candidate. Cast a wide net in your recruitment efforts by thoroughly understanding where the best candidates search for work and communicate what you're looking for and why you're a great opportunity for a lucky first employee.
One valuable tip: besides the position agreement, develop a ‘behind the scenes' ideal candidate profile listing all the qualities and skills you're seeking so you know precisely what you want in that first employee. Then gear your interview questions to determining if they fit your profile.
Many solo entrepreneurs break out into a nervous sweat as they attempt to make the right decision about hiring their first employee. But as you've seen, this decision requires a combination of art and science, working through the numbers and the necessary tasks and deciding it's the right time.
Once you decide to make that first offer, on the first day as you greet your new employee on the job, be intentional about the one fact that changes with your first hire: you're now a manager. If you're not used to wearing the Manager's hat, along with that of the Technician and Entrepreneur then commit yourself to learning about management and realizing that your new hire needs your support and guidance as much as you need their energy and skills. If you begin engaging with the managerial part of yourself with that first hire and adopt strong management systems, you'll be that much further on your way towards creating a world class company, one team member at a time.
The Managerial Perspective
5 Common Hiring Mistakes
How to Hire Employees Safely
Engaging Employees in Your Strategic Objective
The Self-Employment Myth
Tell us about your first hire. What did you learn? What would you do differently? Post a comment and tell us about it.
Jack o. says:
all of my new employees' work on commisssion--but so many times i wish i had one regular employee who did alot of the field work for me. I keep working on it, but it is hard to bring in to the fold when business is slower than usual--
Submitted Jul 8, 2009 12:55 PM
Matthew H. says:
After 8 years of being a one-man-show a brought an employee on about a year ago...It's turning out to be a great decision but it was definetly a little nerve wracking at 1st. The salary that I am paying him is more than I made myself, but is worth it. I am able to charge around 3x's his hourly rate when he is billiable. My job is now becoming more & more about making sure there is billable work instead of actually doing it. I would like to grow to at least 1 or 2 more billiable employees. At that point, I feel I could make what I want to per year (my goal has always been 100k/yr, which I haven't yet acheived) without actually having to billable for myself. Anybody have any thoughts on this, I would love to hear them. Also the employee pay vs. hourly billiable rate. Any rule of thumb on that? (is 3x's good?)
Submitted Jul 8, 2009 4:48 PM
Frederika H. says:
Great article, but I have to comment on two things. I write as someone who has worked in Human Resources for 20 years, with a focus on staffing and recruiting, helping small and mid-size businesses with their staffing issues.
One, you recommend creating a position agreement. In many states, creating any sort of agreement with an employee could suspend "at-will employment." In an at-will employment situation, either the employer may fire an employee with or without cause, just as an employee may leave the employer, with no liability, as long as there is no contract or agreement. Particularly for California, anything perceived as an agreement can suspend the at-will employment provision (even an offer letter that isn't carefully worded). My recommendation is to create a position description, with two variations: a brief one for advertising the position on the internet, and a more comprehensive one to share with the hired employee, and keep on file internally.
This next point also concerns me, "starting them out as a contractor since it's easier to extricate yourself from a contractor relationship than an employee if things go sour." I would advise (and have advised) employers to simply hire temporary or contract workers for a period of time as they evaluate their needs. During the time the temporary worker or contractor performs the duties assigned to them, the business owner can evaluate what is really working, and what isn't, and develop a position description from this experience. Why do I create this distinction? Because several federal and state agencies are keeping an eye on those situations where someone is working on a temporary or contract basis, and really should be classified as an employee. This has been so for several years. While the risk for very small employers may not be as great as for medium to larger employers, I believe it is wise to "begin as you mean to continue," and not establish a practice of hiring temporary or contract workers to "test them out." If the working relationship goes sour, even a temp or contractor can claim they should have been classified as an employee, creating a world of trouble for the employer. Keeping a temporary or contract worker on board for a long time makes this risk that much greater. There are several other factors which go into determining whether someone ought to be classified as an employee or a contractor, and anyone hiring under any of these scenarios would be wise to be familiar with what those factors are. (Google "IRS 20 factors" and a bunch of information pops up.)
With employees, establishing an "introductory period" of 90 days is customary, and within that 90 days, if the working relationship is not what is desired, then that relationship can end more easily for both parties.
Hopefully, the employer has done their homework and in so doing, taken a strong preventive action: plenty of interviewing time asking situational (not hypothetical) questions, checking references, conducting background checks, etc.
As for Matthew H: Staffing agencies who place professional contractors often charge 50-70% mark-up on their placements, so the client is paying that much over top of what the worker is receiving in gross pay. Some mark-up even more. Don't know if that helps...
Submitted Jul 8, 2009 5:27 PM
Stephen A. says:
This was a very good article. We started about a year and a half ago and have gone thru three employees already and am on the verge of letting go of another. I think our biggest problem is we don't have everything written down and our job descriptions aren't as clear as they need to be. I will get to work on tightening up the job descriptions, creating solid position agreements, and managing by agreement and exception. It's much easier said than done though.
Submitted Jul 8, 2009 8:51 PM
Jeff C. says:
This article describes exactly where I am with my business and the timing couldn't be any better. I need a contract resource to handle my overflow workload for now - all technical work and work that is not steady. I've been fortunate to find a former colleague who has time available to work on projects, so I'm getting a known and qualified person. But the next step really scares me, and that is bringing someone on board who very likely will not be doing billable work. Instinct tells you that the person you bring on needs to make you money directly (think billable), but if you think through it and look at it objectively as the article says, more often than not what you really need is something different. Good advice.
Submitted Jul 8, 2009 9:28 PM
David S. says:
Any thoughts on how the situation changes if one is operating in a market with extremely high rates of unemployment? Operating businesses in developing countries has challenges like collecting money from clients even if an agreement exists. Court processes to recover fees take very long to conclude, and yet one has to hire employees in order to handle increasing business. I would like to her your thoughts on how one should still apply your suggestions in such a market..
Submitted Jul 8, 2009 9:46 PM
Alan L. says:
A timely article! One aspect of the whole hiring process which is omitted from articles and book chapters focusing on business start-ups is "How to DEFINE a job which a hired employee can work on" - this is surely a pre-requisite, before hiring the employee, isn't it?!
At present my job involves strategic business planning (first and foremost!), concept innovation, monitoring and testing those innovations, writing reviews, reports, comments, blog-posts, RSS, reading and contributing to web forums, moderating my own forum, adding, editing & moderating posts on various third-party social media platforms, keeping on top of web-related technological developments as well as page layout & information architecture current best practices, putting together graphic designs, scripting, stylesheets & markup, handling CPM, CPC & CPA campaign surveillance and optimisation, organic search engine optimisation, client correspondence, consumer advice, field-research, interviewing, pro-consumer journalism, co-operation with various industry partners, attending professional industry events (two industries: the industry I cover and the industry I work in!), face-to-face networking, promotions and marketing, in-house administration, invoicing and accounting.
That sounds like a lot (and it is!) but it isn't clear to me how any of it can be 'broken off and parcelled out' to an employee. Because (it seems to me) to know how to do one bit the right way requires knowing how all the other bits fit together!
Or am I missing something?
Submitted Jul 9, 2009 2:19 AM
GEORGE W. says:
I concur with the point in the article that the right timing is the way to go in determining when a new and first employee should be brought on board into a small business. For me this article is timely as I am in the process of making this very crucial decision in my business. My kind of business requires a personalised relationship with my customers. I have grown the clientelle base by employing the power inherent in referals. One client refers their friends to me and the network has now been sizable that I cannot be the jack of all trade to ensure effective coordiantion and delivery of my services to the clients. I have to bring in someone to help me in managing the growing clientelle. In my quest to bring someone on board, a) I have ensured that my cash flows are adequate to take care of the pay of the employee for the next 6 months, b) I have estabished a structure in place that will ensure a smooth reporting framework from the employee to me, c) I have instituted reliable internal controls which will guide the employee even in my absence, d) I have put in place all the equipments and facillities that will enable the employee to discahrge his/her mandate without much struggles, e) I have come up with a detailed job desciption detailing the specific tasks that will be required of the employee, f) I have come up with a manual that details traning needs of the employee.
As I conclude I want to advise that the most important facotor to consider in hiring the first employee is the timing as had been pointed out in the article and the preparedness on the part of the entrepreneur. You have to first put your house in order before you can attract a suitable employee. People do not want to work for or follow a disorganized person or business. People want to engage their time and skills in a business that displays a futuristic potential. So preparing for the employee is paramount......
Submitted Jul 9, 2009 3:36 AM
E-Myth Business Coach says:
First of all I am struck by, and acknowledge everyone for the depth of conversation this article has spurred. In response to Frederika H., there is a world of distinction between what E-Myth means when talking about a "position agreement" and what your concern points to - a document with potential legal ramifications. From the E-Myth perspective, the suggested "position agreement" goes beyond being simply a "job description". It is not intended to be a legal document, but rather one that establishes a basis for accountability. We do suggest that you check with your legal advisors if you have a question or concern. Starting with a result statement (the result the position is accountable for producing), the document includes (among other things) a list of the work to be done (for example: Evaluate performance of reporting positions) and position specific and company wide standards. It becomes a guideline, and is one of the core elements that support an E-Myth management sturcture where managers are mentors and the concept of management by agreement and management by exception is practiced.
Submitted Jul 9, 2009 9:30 AM
Marjorie C. says:
I wanted to read this article before I actually hired someone (this AM) and am relieved I did everything the article advised.
I've just hired my first part-time worker; the distinction between this position and the other sub-contractors I hire for individual projects, is that he will be helping take care of the little client requests and maintenance that keep me from working on the sales process and running the business. I have a long "to-do" list for him to work on, but our first task will be to automate my client cataloging system. Otherwise, I'd be spending time spoonfeeding him client information that is scribbled on the client's manilla folder. It's been bugging me for years and this is the perfect opportunity to streamline my business processes.
Marjorie Clark, owner, www.littlefishstudios.com
Submitted Jul 15, 2009 1:08 PM
E-Myth Business Coach says:
In response to # 7 Alan L. above:
You are absolutely correct that a job should be "defined" as much as possible prior to hiring an employee, and that is exactly what the process of creating a Position Agreement is all about!
A Position Agreement defines the results, the work, and the standards the employee will be accountable for, and it certainly is not an easy task to develop this agreement. The Position Agreement also helps the employee understand how their position and accountabilities fit in with the business as a whole.
If an employee has an understanding of how their position fits into the business as a whole that is sufficient, and they certainly do not need to know "how" to do every aspect of the business in order to perform the tasks that are specific to their position. For example, if you were to hire someone to simply do the "in-house administration, invoicing and accounting" work, they should know how important that work is and how it interrelates to other aspects of the business, but they do not necessarily need to know how to manage postings or keep on top of web-related technological developments at all!
In a situation like the one described above, your new employee would theoretically take care of certain administrative and financial tasks and your time would be "freed up" to work on the other aspects of the business. Ultimately, it is your decision how tasks are broken down and assigned to different positions, and by doing that you will not only be clarifying for yourself what work has to be done and how to do that work, but setting yourself up nicely to hire someone in the future.
Submitted Aug 11, 2009 9:24 AM
Alan L. says:
In response to # 11 E-Myth Business Coach above:
Thanks for the reply! This part is key: "Ultimately, it is your decision how tasks are broken down and assigned to different positions" because that's the bit I feel I really struggle with.
I don't really have an intuitive sense of how to break business tasks down and assign them to different positions. Or indeed what those 'positions' should be.
One thing that does make sense to me is that a position which pays directly for itself is one which can easily be delegated. But its a real struggle to come up with discrete positions which can pay directly for themselves.
Submitted Aug 12, 2009 1:31 AM
shadrack i. says:
Being overwhelmed by what i have to accomlish in order to meet the needs of my customers, i have had to get my first hire , firstly, on a training basis,and i tell you it is hectic to be a manager , a technician and a trainer at the same time.Anyway i feel abit releived because my ,now,trainee is catching up and can do a few of the things that i used to do alone.However, the training exercise is costly(time, money and skill) but i have agreed with e-myth that attitude towards what is being done matters more than the skill itself,thanks to e-myth.
Submitted Aug 22, 2009 11:07 AM
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