Hiring too early is a bad idea.
I advocate avoiding hiring until you hit $300,000 a year in revenue. I really ought to revise that number upward. I haven’t changed it in quite some time. Most ignore me anyway.
I hired someone before I hit that number. I moved fast to have an assistant. I was certain that I’d look illegitimate without a staff. I needed someone to answer the phone, sort out my stuff, and count the money (I hoped).
But I was wrong. I made a mistake. I screwed up.
The urge to hire someone is strong. I felt it then, and I can access those feelings today. That urge needs to be repressed.
You should wait until you hit that minimum revenue target before you hire someone. And, if you’ve already hired someone, you should fix it. In fact, if you hired someone a few years ago, before you hit the minimum, and have continued to grow, you likely still need to fix it. Hiring before the business is ready isn’t something you grow out of, skip over, or solve later. It creates long-lasting problems. These are often the firms mired in the dreaded $100,000 in revenue per employee cesspool.
Fixing the problem after the fact is tough. It’s like what they do when the foundation of a home starts to crack or sink. Sometimes they jack up the structure and reinforce the ground beneath the house. Sometimes they pump grout beneath the slab to restore the original elevation. Sometimes they drive steel posts through the soil to stabilize the home.
Why do I suggest a revenue minimum before hiring?
Because most of us, myself included, start our businesses with a handicap. We start without working capital. We’re desperate for cash, and our desperation drives us to take shortcuts that hurt our long-term goals.
The mistake we make most often is undercharging. Most of us do it. We charge less than we should because it gets the money in the door fast.
When we charge too little—something, thankfully but regretfully, good happens—we get busy.
Then we hire help because we’re busy. It’s rational, sort of, because we actually need help to service all the clients.
Unfortunately, it’s the way we take a shaky foundation and build something bigger on our unstable ground.
Now, having hired someone, we’ve created a business with a bad business model. We’ve created a business that keeps us too busy for not enough money. We’re charging too little. We’re spending too much. We’re not taking home enough.
Our vivid imaginations and our desperate need to achieve success encourage us to believe that being busy on ultra-low margin work somehow makes economic sense. It doesn’t.
My suggestion that you hold off on hiring is really about holding off until you have a proven model for growth. If you don’t have a service or product you can deliver profitably, then selling more of it is a no-good, very bad idea.
Ignoring my recommendation, which you will be tempted to do because we are powerfully driven by ego, busyness, self-imposed pressure, fear of embarrassment, etc., will cause you years of disappointing income. You’ll wallow around, wondering why you’re so busy, have built such a big practice, and are taking home less money than you should.
The shaky foundation grows into a big, shaky structure where you worry about meeting payroll, about your limited cash reserves, and about how to pay your income taxes.
I’m constantly being asked to consult for practices stuck in the trap created by premature hiring and growth. The owners usually believe they need more revenue. The prescription I often give, and no one wants to hear it, is to raise prices and let revenue stabilize after taking a hit. They need to shrink the team and improve the marketing so they can support the higher price. We’re repairing the damage done by adding too many people too fast long ago. It’s painful.
Forcing yourself to wait allows you to get the business model, the pricing, and the marketing straightened out. Growing a losing model is a bad plan. A small practice with a bad model is bad. A bigger practice with a bad model is worse.
Staying small and keeping expenses low while you work out the model is the best approach. That means passing over the low-profit cases if you can and accepting only those you feel forced to accept to put food on the table. That means building the referral network so that you’re attracting clients who can pay a fee that meets the needs of the business. That means growing a marketing machine that brings in clients who can pay the bills and not just clients looking for a price that makes it impossible to make a profit.
At some point, you’ll have built a practice that brings in dollars and leaves some extra income for reinvestment in the business so it can grow and thrive. When that happens, it’s time to scale the business up. Once you know what you’re doing, it’s time to take it to the next level. Until then, don’t start adding expenses to service a money-losing model.
[ While I have you here, I wanted to remind you that you can get the latest articles delivered to your inbox a week before they go up on the web. Just one email per week. Sign up here. ]
Hiring early doesn’t just trip you up now. It cuts off your access to those funds for reinvestment. It makes you scramble, and it keeps you scrambling long after you’ve made that first premature hire.