If you are going to hire staff, then time it well, learn fast and loosen the reins.
One of the biggest leaps of faith a startup founder faces is to bring staff onto payroll. After all the improvisation, goodwill, and fun of the early days, it begins to get serious.
I’ve been talking to a few of the startups and small companies that I know to explore their experiences of making the leap to bring the first salaried employees into the business. Their paths are different, but some thoughts keep coming to the surface.
These revolve around the challenges of letting go, the responsibility of working to provide for other people’s salaries, and the need to address bad choices that were made with the best of intentions.
Solo or co-founders?
The very origins of the business will influence the approach to bringing early staff on board. Solo founders have a very personal view of the business and where they think it is going.
Similarly, co-founders that begin the business together are typically on the same page and share the vision, plan and culture of the enterprise. Co-founders may have complementary skills and so the initial pressure is most likely to be on capacity. Solo founders will have gaps in their toolkit, and so often will find a functional support most valuable to let them get on with their main tasks.
Either way, when they run out of capacity, or don’t have the skills or inclination for a certain function, the only option is more people.
In the early days, there are three main paths that can be followed:
- Create a role and employ someone on a pay-as-you-earn salary arrangement. This is well structured with lots of established practice, regulations and protections for both employer and employee. These standards and procedures can be followed if the relationship breaks down and/or they should leave.
- Subcontract work packages to specialist providers. This is more flexible, as the subcontractors are committed for fixed terms and only paid when there is work to do. However, they do not provide continuity and do not allow you to build a company culture as they are transient. Subcontractors are governed by the contract that will have a scope and duration. When it ends, they walk away if the founder does not want to renew.
- Use the co-founder path to bring on a first senior employee. A solo founder may know someone suitable, and they may even share some of the ambitions for the business. They will be aware of the risk/reward balance, and so take minimal cash out of the business in exchange for an equity share. This sounds good on the surface but has some hidden trapdoors. Co-founder agreements are more difficult and variable, and so great care should be taken to cover the exit provisions should performance be below expectations, or the relationship breaks down. A solo founder has a lot to lose if this path is taken in the early stages.
Founders are typically optimists. With a bit of inspiration and a can-do attitude they will cover all the bases and try hard to solve all the problems before them. At this stage, if it goes wrong the impact is only on them.
That changes dramatically when a salary must be met at the end of every month. One account spoke of two founders with a flexible approach, who took from profit only what was available each month. Adding a third pair of hands as an employee not only pushed the wage bill up by 50%, but that had to be paid first. The sudden realisation of responsibility for another person (and their family) placed big pressure on the founders, at least until the business volumes grew to cover it comfortably, and even then, it never really went away.
Shifting a relationship
First ‘real’ employees most often come from known sources like friends, family, or past colleagues. They are thought to be a known quantity when they come on board, but founders need to be ready for the change of gears in the relationship. One leader told me how we don’t really know someone until they come to work for us. The change from friend to colleague or subordinate is huge, especially if you find yourselves locked together in a small office or workshop all day every day.
What do you need?
All founders are different and will set their businesses up in different ways. One solo founder I have worked with had set things up, and as a generally capable person was gaining traction. Orders, fulfilment, administration were all going well until the capacity of a team of one became stretched. Did it need a peer-level boost or a subordinate assistant? Should they be a flexible generalist or a functional specialist? In this case the choice was driven by the tasks that brought least value into the company and were also what the founder least wanted to do.
This had its benefits, as functional specialists are easier to define and find, and can be left to do their job as a known package. In this case a part-time bookkeeper was referred by a friend, which allowed the founder to focus on customer-related activity and continue building the business.
In other cases, the role is less clearly defined, and this is where the ‘T-shaped’ skills come into their own. Here, the deep skills are generally technical and remain the primary focus, but the ability and willingness to roll sleeves up to get on with other stuff as it becomes urgent is a blessing. Many times, I have gathered a diverse team of colleagues to pack deliveries in the last hours before a shipping deadline. T-shape is as much about attitude and flexibility as it is about a range of additional skills, and this is vital in the very early stages.
Sometimes, however, it doesn’t go to plan. One of the most frequent lessons learned that I have heard from my community is the wish that they had sorted a problem out sooner or cleaner.
The responsibility to provide for employees is great, and good employees pay that back many times over, but the scope for a founder to make a mistake is huge. It’s tempting to take on available people, especially friends or family, even if they don’t have all the necessary skills. Maybe the role isn’t well enough understood or defined, so how can they interview for it effectively? At the personal level, perhaps the founder doesn’t have the time or skills to ‘read’ a candidate and imagine how they will work with the rest of the team. The potential for teething problems is very high, and when they arise, the disruption can become a problem. Demands on the founders’ time to fix things is a distraction from the main purpose of growing the business.
There are key lessons to be learned from these experiences: don’t leave it and hope it will sort itself out; be quicker to weed out the unsuitable team members, and learn the techniques to move people on legally, fairly, and firmly. Then move on, and try not to make the same mistake a second time.
Top tips for founders
- Manage the pressure by timing it right – hiring speculatively is risky so if you can see the work ahead and build some cash into the business, it makes those first hires easier to cover and avoids those difficult decisions if the cash isn’t there.
- Be very clear about the skills you need – then look for the best match you can find or afford as long-term training programmes don’t suit the startup company.
- Remove people who don’t fit – be straight with them, do it quickly and fairly so that the business can continue positively and without the resource-sapping distractions.
- Above all, learn to let go – embrace the idea that the company will grow, and that means more people doing more things and adding more value. As a founder it will be necessary to delegate and to trust others. That is a big step, but it is well worth taking.
Please share your own experiences of bringing the first employees into your business in the comments section below. I will return to matters affecting early-stage startups soon, so your insights will feed the path of future posts.