STEVE BENSON | December 2016 | Early in a company’s lifecycle, the first thing business managers should ask themselves when considering a new hire is whether or not they should make a hire at all. You know the answer when a role you would hire for costs an employee 20 hours a week as a “part-time” activity. It’s important, especially in the early stages of a company, to recognize when to hire and when to hold off.
In order to avoid going broke, startups need to hire when they have the money to hire. Nothing is more important for a new company than keeping an eye on the runway and making sure not to miss payroll. A lot of well-funded businesses get tripped up here. The thing to be aware of is how much cash you have on hand and how fast you are spending it.
Counterintuitively, this is more difficult to do when you have more invested money on hand. You have to carefully watch the speed at which all your hires are burning cash, and you have to time your burn with either a new capital infusion or revenue.
How Much Does the Hire Cost – and How Much Value Will They Create?
As our company matured and gained access to capital and revenue, I found I could hire more people. I made decisions about the right time to hire by analyzing the cash returns from each hire. I looked at the number of months it would take to pay back the cash investment needed to bring the hire up to the point where they started to pay for themselves on a monthly basis. That is the “break-even point.”
After determining the break-even point, I would look at how long it would take to pay the original investment back. For example, if you were going to pay someone $10,000 a month, you would look at how many months it would take for the monthly value created by the employee to exceed $10,000. If it took eight months before the original investment were paid back, you would be down about $80,000.
After calculating all of this, I would check if I had that much to spend (and, of course, compare that price with the opportunity cost of not making other hires) before making any hiring decisions.
This method is easier to carry out with a sales role than it is with, say, an engineer, but it can be done with any role in the business.
So You’ve Decided to Make a Hire – But Whom Should You Hire?
Once you have made the decision to hire, you need to make sure you hire the right person. A business leader has no more important responsibility than hiring well. If you only get one thing right, it has to be this. Customers are won and products are built by great team members. Any shortcomings a business has can be fixed by making a good hire. Any strategic mistake can be caught and corrected by great employees. But a bunch of bad hires can cause problems that are far more difficult to fix.
When it comes to interviewing, I have a different philosophy from traditional interviewers. I do not believe that there is a magic question, process, brainteaser, or case study that can separate the wheat from the chaff. I believe in a fluid and conversational process of determining fit. In my opinion, if an organization is too rigid in its questions and too formulaic in its process, that can lead to bias toward certain backgrounds – educational, experiential, and cultural. I know this contradicts the conventional wisdom that highly structured interviews combat bias, but in my experience, a more open-ended and flexible interview process has increased the diversity of our team and helped us identify great candidates.
In general, I think that to run a successful business, you need to stay focused on hiring, culture, and how to make the team more successful. This isn’t intuitive, but in a growing company, I feel like the main job of a leader is in the HR department. I spend most of my time hiring, removing roadblocks, teaching, and coaching.
I truly believe that recruiting is a core role at a startup, and if you are growing fast, it needs to be one of your first 12 hires.
Steve Benson is the Founder and CEO of Badger Maps.