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Should I Hire My First Employee?

This post comes from a former employee of mine, Joe.  He is from Europe and moved there about a year ago.  He started a small consultancy there, and we keep in touch. 

 

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Hi Greg,

 

I hope all is well with you and Infusion.   I spoke with **** recently and he indicated that business was good which is great to hear.   I’m doing well and am enjoying running my own little business.  I have a question for you, and am hoping I still qualify for the ‘Ask Greg’ category.  Whether you want to answer this on your blog or not is up to you.

 I am in a position where I am getting many more work offers than I can handle and it’s starting to bug me.  I’m seriously thinking about hiring someone in the New Year and while it is still a few months off, I want to prepare as best as I can.  To that end, do you have any advice of things I need to look for and look out for?  I realize the legal matters are much different here in Europe, but I believe there is much more than legal issues when trying to go from a one man show to a multiple person company.  I remember your advice to start a product business but I have yet to stumble upon a good idea for that.  In the meantime I am doing consulting work and having a great time with it. 

 

Thanks for any advice and all the best to you and all the folks at Infusion.

 

Joe

 

 

 

Well, I think the first order of business is that you need to be very honest with yourself. Honest about a couple of things.  First, you aren’t running a business yet.  You are an individual sub-contractor.  And while you can do quite well this way for a time, there is an ultimate limit on your compensation (there is only so-high an hourly rate you can get, regardless of your skills), so you are well advised to be thinking of hiring other people.   Bringing on other people is an entirely new dimension.

 

The thing you have to be honest about when bringing on another employee into a services company, is whether or not you legitimately have something to offer them relative to other opportunities they can pursue.  And this goes to the heart of what kind of company you want to be.  As a services company, you need to make a choice up front: you are going to go commodity or high-end.   You cannot do both.  Choose now.

 

Commodity (sometimes known as “body shop”) is where you will compete with Indian, Chinese, and other vendors for on-site positions.  You are looking at lower-end development talent, not necessarily the brightest stars, but folks that have a demonstrated ability in a specific technical area that you clients ask for.  This is really a war of resumes and rates.  We at Infusion didn’t take that path (we chose to go high-end, but more on that in a moment) but that doesn’t mean you can’t make money at the lower end.  In fact, the market is much much larger for lower end talent than higher end.   The good part of commodity services is that it is relatively easy to hire a given skill set if that is all you are hiring for.  So your client says, “I need a VB.NET guy to do some winforms” and you go off and look for exactly that skillset.  He might not have good communications skills or have other deficits, but he meets the client-stated criteria.  You place this guy in the position, and make a cut of their billable.  They might even be subcontractors of yours as opposed to employees.   You will have to do a lot of volume to make any money and your turnover is high, but you grow to a significant size doing this.  And for wrong or right, there are many clients who are just looking to hire a “VB guy” or a “C#” guy or a “BizTalk guy”  and don’t know how to evaluate the person overall.

 

 

For a commodity (body shop) business:

 

Positives:

·         Easy to find and hire people, you can scale quickly

·         People are not expensive

·         Many clients are only focused on resume and skillset, so very large market for these type of resources.  Especially in government.

·         You can get quite large very quickly just filling open requisition.

Negatives:

·         You will not be known for quality or exceptional work, quality will always be a problem

·         Very high turnover, your people will be opportunistic and not have loyalty.  Your clients will convert your best people to full-time eventually.

·         Very low margin (you will have to do a lot of volume)

·         Not much fun, you won’t be working with the best and brightest

·         A *lot* of competition.  You will have to be very aggressive in selling clients and selling recruits

·         Impossible to distinguish yourself from thousands of other companies doing similar work

·         A down market will wipe our most your business.  You will only make money when the market is up.

·         Managing lower-end talent is difficult and draining, you will have to put out many fires as they leave, disappoint, or otherwise cause difficulties with your clients.

·         You need to be an *excellent* judge of character.  You will come across liars, cheats, dishonest, disingenuous, lazy, angry, disturbed people.  You will encounter the whole range of the human spectrum.  And some are dangerous to your business.  You need to make sure they don’t get in.

 

Personally, I got into IT to do solutions and change the way (for the better) business gets done.   So although there is money in the commodity model, I wasn’t interested in it.  We went high-end.

 

High-end is where you become more of a boutique.  Your people are of unusually high quality, and clients come to know you for exceptional service.  Here are the pros and cons

 

Positives:

·         You will establish very loyal customer base that will sustain you even during down markets

·         Easy to distinguish yourselves from competitors, very few quality shops out there that deliver as promised

·         Over time you will get more and more interesting strategic projects as your firm gains reputation and matures

·         Sales become progressively easier as you a build a network of satisfied clients

·         Good retention of your best people

·         Many new business opportunities for products, new services, etc. will open up for you as clients come to know, like and trust you. 

Negatives:

·         Very hard to hire people.  You will go through 100-300 resumes and almost that many interviews …and if you find one person of quality, you are doing quite well.   Quality is very, very tough to find.  Your size will always be constrained by your rate of hire.

·         Challenging to find growth paths for all your motivated people.  A “job” is not enough.  You will need to show career road-maps to people.

·         High maintenance.  Quality, high-end people often have egos or a slightly self-inflated sense of entitlement and accomplishment.  It can be difficult to navigate, so unless you are comfortable wearing “kid gloves” and spending a lot of time explaining your strategies to them, this is not the path for you. 

·         Very capital intensive, you have to provide higher-end salaries, bonuses, and additional incentives to keep your people happy.  Takes a lot of money to find, recruit, and keep high-end talent.   Often your talent will ask for salaries and bonuses that leave to margin.  So you need to offer compensation in other ways, such as percentage of revenue of the people they manage, etc.  Very difficult to set this up effectively.

·         Cash Flow Crunch: you must pay salaries regularly, but clients and work bring in revenues sporadically.  A client slow to pay can put you out of business.  You need a capital source behind you, a sizable one, to ride through delayed projects and late payments. You will be most stressed financially and most likely to go out of business when business is good!

 

Anyway, if you go body-shop, not much to tell you.  Put an add on monster, you’ll get 300 applicants from all over the world in 15 minutes. But you are best off finding the position first based on your own reputation and then hiring to fill it quickly.  You do not want to hire ahead of the position, or you’ll end up with this person on the bench, sucking all the resources out of your company.  You become like a trader, you’ll need to identify the opportunities quickly, find the resumes, get the resumes to the client asap, bill as low as you possibly can, and get the guy in there.  Then repeat.   And that’s all there is to body shop.

 

For high-end, like I said, it is tough.   The idea here is, you want to hire someone *better* than you.  Or at least as good.  But smart people will quickly look around and say, “hey, you are billing me at Y but only paying me X!” and you’d better have an answer for that, or they will simply leave you or take your client.   Which brings me back to what I said earlier: you have to have something compelling to offer them.  For Infusion , we offer a drastically ramped up skillset (we work with the latest techs), interesting resume enhancing clients, work in New York City, Boston or Toronto (or all three at different times) and have different paths to different forms of management.  Most recently, we added the opportunity for our folks to actually start their own businesses with us backing them through Infusion Angels.   But most significantly, while at Infusion, you’ll always be learning. 

 

For a one man shop, you don’t have all this yet.   Expect to go through a few different first hires before you find one that sticks.  Also, be prepared for every spur and dark thought you directed at any of your bosses to revisit you (now that YOU are the boss) one thousand-fold!   You will be astounded at the things you find out your employees believe about you, your company, the way you do business, you name it.

I would recommend you look to find a business partner or two to start the company with you.  That way, one partner can bill to pay the salaries of, say,  one employee and the other partner, who can then sell, recruit, etc. 

 

In conclusion, whatever path you take, the main skill you need to develop is the ability to gauge and motivate other people.  To divine their motivations, reliability, ability…and to be able to motivate them and align them with your vision.  That is, you need to become a leader.   In my experience, leadership has an innate component to it, you either have the seed or you don’t.  Some people are great executers but need to be directed.  Nothing wrong with that…executers/lieutenants are the ones that actually get things done.  First thing is to figure out whether you are a leader or not.  Don’t be sure you know.   See what success you have in managing other people and whether you are successful at it.  If you don’t enjoy it and/or are not able to make it work, you might be a “behind the scenes” person…which is fine, but if that’s the case you’d better be honest with yourself and find another, more outward-facing partner to supplement you.

 

But if you are a leader, understand also that a good deal of leadership is learned from experience; prepare to make a number of mistakes for a number of years.  It is also good to keep contact and seek the advice of people who you respect as leaders themselves.   And my final suggestion is to read, read every decently rated book on leadership and business that you can.  For most of my twenties, there was never a time I wasn’t actively reading a business book.  Everything ranging from biographies of companies, to business leaders, to history.  I could fill a small library with the number of titles I read.  And I still have a few and reread from time to time.  

 

So, I recommend that you *do* hire.  But understand that this first employee will teach you far more than you will teach him or her.  Good luck.

 

 

 

 

 

 

 

 

 

posted on August 13, 2006 12:11 PM by Greg

# re: Should I Hire My First Employee? @ August 19, 2006 12:06 AM

Hi Greg,
could you recommend a few titles to get us started? =)

Tim.

Timothy Li

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