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What You Need to Know About Making Hires for Your Growing Startup

What You Need to Know About Making Hires for Your Growing Startup
From Recruiter - December 1, 2016

Early in a companys lifecycle, the first thing business managers should ask themselves when considering a new hire is whether or not theyshould 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. Its 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 therunway and making sure not to miss payroll. A lot of well-funded businesses get tripped up here. The thingto 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 Costand 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 eachhire. 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 lookat 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 wouldlook at how many months it would take forthe 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 Ihad 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 itcan be donewith any role in the business.



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