Jul 03

Brad asked a great question that I’d like to tackle …

When is it time to hire your first employee?

This will be determined primarily by profitability and cash in the bank. I’d recommend waiting to hire your first employee until you’ve …

  1. Built up at least three months of cash in the bank. Take all the company’s monthly expenses (include your salary as the owner) and multiply by three. Eventually you want this number to be 12 months, but that’s a lot harder to do.
  2. Reached net profitability each month. You can squeeze by with just breaking even, but it’s a good idea to be generating a few thousand dollars of net profit per month before you hire that first person. 

If you’ve raised angel or venture capital, then you can ignore these two things and hire right away. That’s the point of raising money after all - go faster than normal cashflow would allow.

Use freelancers first

One thing that has always worked really well for me is to hire a freelance designer and developer to build the first version of the product. 

This allows you to budget a certain amount to reach MVP and avoid the extra costs of hiring full time (pension contributions, employer taxes, health insurance, etc). You agree a fixed price for the design and the dev and then you all work towards releasing the first version of your product.

Usually, you will find these freelancers by asking friends for recommendations. Here’s how to avoid problems:

  1. Only use freelancers that have been recommended by people you trust. Do an initial Skype chat before you seriously consider hiring them. This chat will weed out any bad apples. Ask for two references and call or email them. Don’t skip this step even though it’s time consuming. 
  2. Do rough wireframe first and agree on the scope of the project.
  3. Agree a fixed fee for the job. Pay 20% up front, 20% on completion of rough beta, 40% on launch and 20% two weeks after launch (to iron out launch kinks). Define what “launch” means.
  4. Insist they use your company GitHub account for the code repo.
  5. Agree on a retainer for maintenance and updates after launch. I’d recommend 4-6 months as this will give you time to hire someone fulltime to replace the freelancers.
  6. Use a Gantt Chart to track the progress of the project. This will help you see dependencies that could delay the project and cause problems. I use Team Gantt and it works great.

Hiring Employee #1

Once you’ve taken care of having enough cash in the bank and hitting net profitability, then it’s time to think about hiring your first person.

I’d recommend waiting until you’re overwhelmed with your work. You should be doing all the customer support and marketing yourself (and the design and dev if you didn’t use freelancers) in the beginning. Once it’s clear that you can’t keep up, it’s time to hire your first person.

I’d recommend your first employee should be a designer with strong frontend dev skills. Do not hire a customer support person. The founder should always do customer support until it becomes impractical (too much volume to respond within 12-24 hours). A good designer/frontend dev will allow you to iterate quickly on the project and optimize sales funnels and UX problems.

You’ll need to research market rates for salaries so you’re clear about how much this person will be paid and what they’ll be doing. I usually do a bit of Googling and chatting to friends to get an idea of the salary range.

By the way, be generous with your benefits. It sends the right signals to potential employees and it builds a strong relationship with your Team. It also makes it easier to recruit.

Your employees are hugely important and it’s important to not cut costs on their benefits. They’ll be plenty of places to be frugal, but employee benefits are not one of them. I knew a company that bought their employees iPhones (yay!) but then asked for them back when they left of were fired. Stupid move. Any goodwill that was built instantly evaporates.

To find your first employee, I’d recommend using the following methods:

  1. Friend’s recommendations - Ask trusted friends if they know anyone who’s looking for work. This is how we find 80% of our employees.
  2. Job Boards - We use 37signals and Authentic Jobs primarily
  3. Twitter and our own blog

Warning: Avoid hiring a friend as a first employee. As soon as you hire them, you become their boss which means the dynamic changes. You control their salary, schedule and ultimately you may have to fire them. 

Once you start receiving applications, I’d recommend following a process like this.

Choosing the right employee

Your first employee needs to have the following traits …

  1. Flexible - Can do a number of different tasks and doesn’t mind jumping in and helping out in things that aren’t related to their job role
  2. Proactive - Someone who will actively look for problems and fix them without being asked
  3. Affordable - You shouldn’t hire someone who’s overqualified because they’ll be too expensive
  4. Enjoys change - As the company grows, this person’s role will change several times. Constant change needs to be fun for them, not stressful.
  5. Non Corporate-y - Don’t hire someone who wants a predictable career ladder to climb. Their role will change a lot and you can’t predict where they’ll be in 12 months.

Spinning them up

Once you pick someone as your first employee, use outsourced HR. We use TriNet and love them. This will ensure that the employee is paid consistently and fairly, taxes are accounted for, employment laws are followed, etc. Proper HR is a real time-suck, so it’s smart to outsource this. We now have 50 employees at Treehouse and we still use Trinet.

Important note: Don’t give your first employee a ‘Manager’ title. This will be tempting as they’re the first person on the Team. However, it’s impossible to know if they’ll be capable of leading the team as it grows so it’s best to just stick to something simple like ‘Designer’ or ‘Developer’. If that person kicks ass, then it’s easy to promote them to a leadership role later.

Clearly communicate your expectations on …

  1. Working hours
  2. Salary range and how you advance
  3. Responsibilities and deadlines
  4. Tools (todos, email, project management, etc)

Good luck! It’s exciting and scary to hire your first employee, but you can do it. Once it’s done, the real adventure begins :)

Please share your thoughts about hiring your first employee below in the comments!

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20 Notes

  1. zzpreneur reblogged this from ryanleecarson
  2. ohmblog reblogged this from ryanleecarson and added:
    Ryan Carson. The traits he lists (flexible, proactive, affordable, enjoys change, non corporate-y) resonate
  3. ype reblogged this from ryanleecarson
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