Readers on the Mirasee email list might be familiar with the reader question below that Danny answered in one of his recent bulletins.
“I started my business almost 2 years ago and have changed it around a few times to make it work. I have had a bit of help from un paid interns I bring on but am in need of serious help and am thinking of taking out a small biz loan so I can hire a couple of my well dedicated interns. I am not yet profitable but I am at least getting sales weekly now where in my first year I was lucky if I got 1 sales in a few months. I feel I’m ready even though I am not yet profitable. My question: when do you know whether or not it is the right time to hire help?” ~Melissa
In his reply Danny essentially made the point that the decision to hire staff or not carries risk either way and offered some guidance on points to consider when making that decision.
While that guidance is valid in the case of a business that’s ready to hire, my take on Melissa’s situation is that yes, she is certainly in need of serious help but right now, inexperienced interns is not the type of help she needs.
Danny was kind enough to allow me to present the case here.
Obviously there’s more to the question than meets the eye. In a coaching situation I would be going for more detail so the comments below are given based on the face value of the question only. More details might deliver a slight variation on the answer but the generic answer might help anyone else in a similar position. For the purposes of clarity, the comments are written as if a direct answer to the question. (If you think I’m talking to you, then yes, I’m talking to you.)
Let’s start with the question – When do you know whether or not it’s the right time to hire help? Answer – When you’ve done financial projections ranging from the worst case scenario to best case scenario and know what the possible outcomes are.
You’re looking for a ‘moderate’ scenario that shows a profit, a weak scenario that shows break even, and a worst case scenario that you can live with. The worst case scenario might be that you lose the house and the pickup truck but keep the dog, but if you can live with that then that’s fine. If not, then you need to improve your worst case scenario before you move forward.
Having said that, I can tell you now that your business is not ready to hire additional staff. It does need help but it doesn’t need staff yet and especially not inexperienced staff.
In the first instance, you say you’ve changed the business around a few times to ‘make it work’ yet you also say it’s not profitable. Sorry to be blunt but if it’s not profitable yet then it still isn’t working.
The Price of Sweat Equity
Many businesses go for two, three, even five years before turning a profit (Amazon.com for example) but that’s because they are investing heavily in infrastructure in the early years and investors have a shared stake in that risk. They usually have the revenue projections to back up that risk though and investors put their money in as ‘risk capital’ rather than as a loan. If such a business bombs, the investors walk away with their tails between their legs whereas in the case of a loan, the loan provider still counts that money as a debt and still expects payback. So a small biz loan could hang around your neck for years, even if the business ceases to function.
In the case of a sole trader or a ‘bootstrapper’ the initial investment is much lower and usually takes the form of time and ‘experiences’ rather than money and infrastructure so it’s generally expected that the early loss making period be a lot shorter than for big business.
If a sole trader hasn’t turned a profit within two years, there’s a clear indicator that the business model itself still needs work. Right now the business ‘owes’ you for all the ‘sweat equity’ you’ve put into it so I’d be looking for a payback on that before investing more into paying the wage of others.
Unpaid sweat equity always results in resentment towards the business and after two years it’s only a matter of time before that begins to be felt. I wouldn’t mind betting you are showing signs already. Ironically, the return on investment for ‘too much’ sweat equity isn’t interest, it’s lack of interest.
It’s subtle to start with but it won’t take long before the business becomes a burden and you have to drag yourself out of bed each day to face the music. Having to pay staff on top of that will only add to that burden so it’s better to be getting some cash back into your own pocket before you start lining anyone else’s.
Your lack of profit also suggests that there isn’t a proven revenue generation system in place and without that, extra staff will only add to the problem rather than provide a solution. Even though you are ‘at least getting sales weekly now’ I’d be looking for something more affirming – ‘I’ve got a proven system in place that generates weekly sales of $x and can demonstrate that if I scale that system, sales will grow accordingly.’ Compare that statement to your original statement which essentially says, ‘Well at least sales aren’t as bad as they used to be…’
Bottom line, businesses are built by increasing revenue, not by increasing expenditure.
Being Systems Driven
The next concern is that there is no clear indication of what the interns would actually do. Though they may be helpful and dedicated, and perhaps even inexpensive, in the early days of up-scaling you should be looking for people to fill specific roles rather than bums on seats.
If you haven’t already read the E-Myth Revisited by Michael Gerber, I’d encourage you to read that before you do anything else in the business. In putting the E-Myth practices into place, you’ll not only understand the value of systems but you’ll also understand the importance of defining roles within the business.
Then, when the time is right for adding staff, you’ll know the specific roles you are looking to fill. Rather than looking for interns, you’d want to be looking for ‘administrative support’ or ‘marketing’ staff for example.
If you’ve got robust systems and processes in place it may well be that interns are suitable but if you don’t then you will probably be better to hire someone with more experience to help you establish those systems. A coach or consultant may also be able to help with systems. Once the systems are in place and proven to work, that would be the time to consider someone with less experience to fill an execution role.
Beyond that, the temptation to go with an intern because of the lower cost may turn out to be false economics. Though you may have to pay more for experienced staff, you could well end up paying less through the shorter learning curve that comes with it.
Wearing the Management Hat
Back now to your earlier point about ‘being in need of serious help’. This ties in to the previous point about systems as it suggests that you are overworked at the moment. That’s often the case with sole traders and an understandable position you find yourself in. My concern here is that it is ‘Overworked Melissa’ that’s asking for the extra help.
I mentioned roles in the business when I referenced the E-Myth book. Right now you are playing multiple roles – manager, product developer, customer service, delivery, perhaps even IT and bookkeeping, among others. Many of these are what I would call ‘shop floor’ tasks – head down, tail up, getting on with the detail – and these are the roles that generally cry out for help first.
However, as a rule, you wouldn’t want to delegate important staffing decisions to shop floor staff. It’s a managerial decision and in order to make that decision you need to put your management hat on. Wearing your ‘Management Melissa’ hat and distancing yourself from the ‘grind’ of the detail, from ‘Overworked Melissa’, puts you in a position where you can look at the situation more objectively, perhaps even dispassionately.
This doesn’t mean you have to ignore the pain of the shop floor staff (i.e. you) but you can make decisions based on what’s best for the business rather than what might make the floor staff more comfortable. With your manager hat on, you can decide whether the serious help you need is by way of extra staff or by way of refining systems.
The Small Business Lifecycle
As well as the E-Myth, an excellent tool to help you with management decisions in the business is Charlie Gilkey’s book, The Small Business Lifecycle. Charlie explains five stages in the lifecycle of a small business and the ‘right moves’ to take in each stage.
I recommend reading the book in detail but, based on your question, you seem to be on the cusp of Stage 1 (Entry stage) and 2 (Growth stage). In order to get firmly into Stage 2 you need to remove any doubt that you ‘have a viable business model.’ Quickest way to do that is to get into profit ASAP.
This may require outsourcing some work in the business (to specialists) or getting help with systems (from specialists) but only when you are turning a profit or can accurately predict a profit will you be ready to consider expanding your internal team. Ideally, you want to be firmly in Stage 3 (Crucible stage).
As frustrating as things might seem at the moment, it’s important to understand that the solution to overwhelm isn’t always about throwing more people at the problem. And even when more people is the solution, they need to be the right people with the experience and skills to help you move forward.