5 Tips about When to Hire More People (and when NOT to)

I understand that when you want to grow and you're feeling like you're at your limit of work and time, of course you think about hiring on to help you grow your business.

Below are 5 "tips" on when and whom to hire based on my personal experience building multiple businesses.

Too many business owners don't build a business, they build a job for themselves.  And they end up trapped inside the very businesses they working so hard to build.  If they don't show up each day, or something happens to them, their businesses die. 

Okay, on with my 5 tips on when to staff up...

Five Tips on When to Hire More People (and when NOT to hire more people)

1.    Only hire as cash flow can afford to pay for your new hires.  Too many business owners get in trouble by staffing up in anticipation of increased sales but when they don't see fast results it strains their cash flow and they end up having to lay people off or worse, suffer negative cash flow.  

To protect yourself, hire only as your business can afford to pay for your new hires (with a cushion.)

I can already hear you say, "But David, I need more help so I can free up more time to sell more."  With the exception of a personal assistant (see Tip 3), beware the lure of hiring in advance of sales. You may need to get creative.  Can you hire on sales staff on commission (Tip 4) or pay an outsource contractor based on results such as a flat fee for a specific type of production?  You may pay more this way, but you'll only pay as you need to and you're limiting risk by paying a set fee for a result. This result could be per sale (commissioned sales person), per completed project (contract sub-contractor), or some other arrangement.

2.    When you're looking to staff up to scale, always lead with sales... then marketing... then production...and then and only then with "admin".  Okay, "always" may be a strong word, but 95 percent of the time you will want your staffing up to begin with expanding your sales team (more sales people, perhaps even a sales manager). Then you'll want to hire on more marketing talent.  Then as your production capacity to fulfill on your sales is strained because of your increased sales, then you will hire in your production area (whether you make a product or deliver a service).

When you lead with sales, then marketing you are hedging your bets. First, most sales people are wholly or at least partially commission based, which means you are paying only when they bring you profitable business (assuming you set up your commission structure wisely.)  Second, hiring on more sales talent is often the fastest way to increase sales.  Third, sales people generate revenue.  They are a cash producer.

Marketing is next to make sure you've got the lead flow and upsell/cross sell/referral and other marketing systems in place to stabilize your revenue streams.

Obviously you will at some point need to increase your production capacity, just make sure to let this decision be driven by sales and not by your love of making your product or service, nor by your fantasy of all the business that will soon materialize.  

As for admin help, if that admin help replaces admin work that YOU personally must do, then by all means, hire that help early (see Tip 3) but when hiring admin help to have a more orderly and precise back office, I feel strongly that you'd do well to invest in sales, then marketing, then production/fulfillment capacity first, then  and only then to staff up your admin team.  Your admin team is a cost center for your business (a needed one surely, but still not a revenue producer.)

3.    Hiring on a personal assistant (full or part time) to leverage your personal time so that you can produce more for your business is almost always a smart immediate hiring decision.  Considering you can pay this person a fraction of what you are able to generate, why in the world would you stay mired in the day-to-day low level, low value tasks that you could quickly and easily hand off to your assistant?  The answer is you shouldn't!

This same tip applies to hiring a book keeper and other early admin help that frees you up from low level, low value work that you are currently stuck in, provided you can use the freed up time to quickly increase sales, and produce more value for your business.

4.     Where possible, when you are not certain of the result, pay more but pay for results and not for time.  Take the example of Peter, a consulting client with an internet marketing company.  He needs more help to fulfill on programming  projects he's taken on, and the cheapest way to hire that talent would be to hire a programmer full time.  I cautioned him from doing this because he doesn't yet KNOW he'll have the work to fully utilize that person.  Instead, I suggested he pay a subcontracting programmer, even though when he does that he'll have to pay more for this freelance talent than if they were a full time staff member.

Guard your cash flow!  Hire sales people on commission so you pay only for profitable new business... Outsource to part time contractors you can control the time and expenses of more closely than you could a full time employee.  Yes you'll pay more, but you'll have the flexibility to adjust as you need.

Once you are certain of your needs and of the results you can reasonably expect, then by all means hire versus contract.

5.    Beware measuring success and growth by headcount!  Once upon a time I thought the number of team members in my business was a measure of how far we'd come.  "Oh we're up to 15 team members...now we just hit 50!"

The truth is that the number of team members is a distraction, and even at times an impediment, to your business's success.  

Instead measure your business by more meaningful numbers such as your gross margins... your operating profits... your sales per employee... your profit per employee...

I hope you found these tips provocative and useful.  Staffing up is often a winning strategy to help you grow, you just need to make sure you do it intelligently.

I hope you finish out the work week strong! 

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