Tuesday, April 01, 2008

Hiring Your First Employee

We Get Email.

Chadi from biztek.ca asked me a great question: How do you maximize your chances of success when you hire your first employee?

I'm not sure I have much to offer here except my experience.

I took several stabs at hiring someone before I got it right. And even then, I don't know if I got it right or just pushed on to two, three, four, . . . eight employees.

My first experience, as with most of us, was to subcontract with other consultants. To some extent we still do this today. The rules are pretty simple:

1) They are not an employee. You pay them money and they are responsible for taxes, insurance, mileage, meals, etc.

2) You need to figure out fair pricing. Fair is whatever the two of you agree on. Having said that, you want to come up with a proposal that you can offer up.

Based on discussions with the folks at SMBTN, we do a 30/70 split. Here's how that works. If you brought the work (it's your job) and they bring the labor (the sub performs the work), then you keep 30% and they keep 70%.

If you charge $100/hr, then it's pretty simple. You pay them $70/hr.

Now, if you have to work together, they need some training, they need assistance, etc., then you might drop this to $60/hr. But I wouldn't go below that.

If they're really just not worth $60/hr, go find someone who is.

The next step in your evolution is to simply state a price and pay it as an hourly. So you might pay $60/hr until you're sure they'll work out, then move to $65 and $70.

Employees - Full Time
My second experience was in 2000 when I was so busy I couldn't see straight. I hired someone full time. We went through a training period, which was not intended to be profitable. Then we caught up on the work in short order. Then we added one big client who consumed a bunch of time.

Then I realized that I was spending all my time keeping my employee fully occupied. I was doing sales. But he couldn't bring in enough hours to feed both of our families. I had basically turned over 90% of the work.

What I needed to do was to double the workload and do 50% of it.

Awesome employee and a good friend. But I had to let him go because I couldn't sustain the deal.

I don't recommend hiring a full-timer right off unless you've got some kind of a contract that will pay for it.

Employees - Part Time
So my next attempt was to hire someone on an as-needed basis. The basic deal was: If I bill the client for your time, I pay you for your time. This worked well. My goal was 10-20 hours a week. I found someone who was strictly a beginner and strictly desktops. No server work. No exchange. No ISA. No firewalls. Windows and Office.

So, I could pay him $30/hr.

That system worked well until . . .

One day I realized that I had enough work to give someone a sustained 20 hours per week.

And I had been paying a part-time employee the same wages I would expect to pay a contractor. If he went to full time, he'd be at $60,000/year. But he wasn't worth $60K.

So we had a friendly goodbye. And we're still friends. And he's now worth more than that!

Now I had enough sustained work to promise 10 hrs/week and have a goal of 20+. And the price was more like $20/hr. With regular reviews and wage increases as appropriate.

Note: This actually worked. This was sustainable. It was fair to everyone. I didn't get an MCSE for this, but I got a Microsoft Certified Professional who was willing to work for a living.

When Tech 1 got to a sustained 25-30 hours/week, I hired a second part-time tech. I wanted to make the first tech full time, but it just couldn't happen. One person can only run around and scratch out so many hours. I could get more billable hours from two 20-hour techs than from one 40-hour tech.

Enter "The Meeting."

Suddenly, there were three of us. I was working 50 hours/week. They were working 20-30 each. So we communicated by cell phone. I coordinated everything. And it worked.

But I'm an arrogant, opinionated perfectionist. So everything had to be done my way. Documented. By the book. All that.

And so we started having meetings to coordinate. Which job is first? Who does what? Training. Teaching. Team building. Coffee and donuts.

We had no office, so we met at the local Java Cafe.

So now I was paying for a sustained 30 hrs each per week. And I was billing out 20-25 hours each per week.

Lesson: Meetings and overhead are necessary.
At some level you know that. But it's different when you reconsider things and make a conscious decision to pay people for arguing with you about how you should run your own company (which, by God, you built all by yourself without them, and maybe you know more than they do about how to do what it takes to get where you are).

Enter The Office

Then something else happened. I finally got to the point where I could not longer ignore the fact that I needed an assistant. I needed someone who could do all the things I shouldn't be doing: Stuffing envelopes. Folding newsletters. Opening boxes. Balancing the checkbook.

See the post on The $200 Miracle.

So I hired an assistant. None of the temp agencies wanted to send someone to a home, which I understand. So I needed a place of business for someone to go to. And, after discussions with my wife, decided to simply hire someone part time rather than a temp.

We found another certified partner who had extra office space. He notched out a room about 10x15 feet for us. Cheap rent. And we could use his conference room for meetings.

I interviewed people and found someone very willing to work $10/hr for 20 hours/week.

Now there were four of us and we had an office.

Lesson: Hire the assistant first
If I could do it all over again, I would absolutely (absolutely, absolutely) hire the administrative assistant first.

By simply taking about 10-20 hours of labor per week, I could have been out billing more hours immediately. Even if I paid her to sit around doing nothing, it would be worthwhile. At $200/week, I only need to bill two hours to pay for it.

My first technical hire should have been ME billing an extra ten hours!

Anyway. Those are my introductory thoughts.

More to come.


  1. Anonymous8:56 AM

    Fabulous post Karl - and really useful to somebody like myself who is going through the same "growing pains" you mentioned you went through yourself. Many thanks for sharing your experiences - very much appreciated.

  2. As our governor would say, "No problemo."

  3. Karl,

    Great information here, thank you very much.

    You recommend hiring an assistant first. Would you also recommend they "follow you around" all day, assisting and organizing tasks and appointments or leave them at the office while you are running around? I sometimes feel I need someone following me around keeping track of every non-technical thing (scheduling, entering items into schedule, tracking billable time, tracking sales opportunities, answering my phone when I'm busy, etc).

    We are looking at a PSA solution and I'm hoping that will offset some work time that I might be able to better manage day to day operations without an assistant. Is that realistic?

    Thanks for any additional insight.



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