When to Hire Employees: Why Timing is Everything for Your Business
Recruiting people at the wrong time can be catastrophic for a business. Therefore, learn to recognise the stage in the life cycle that your business is in, or is about to enter, so that you can predict the recruitment problems you’ll likely face.
Business <> Recruitment Lifecycle
Many businesses are founded by entrepreneurs who start out as technicians and hit upon a “great idea” they want to do themselves. Being their own boss is often a big motivation.
As soon as they take risks, such as leasing an office or investing in products and services, the business is born. They then transition to Infancy.
Most companies entering this stage consist of just one person. They may have a company name, but they’re essentially a self-employed individual taking on the same risks as their previous employer. To that person, things can feel overwhelming and there’s little let-up because when they go on holiday so does their income!
This is rarely the right time to recruit staff. The business is often fighting for survival by trying to find a product-market fit that creates value and which customers are willing to pay for. Processes are often haphazard and inefficient. Most importantly, cash flow is often tight and the last thing the business owner should worry about is paying staff.
Although outsourcing might be an option, it’s important to focus on creating an efficient, replicable process that anyone can follow. (Most business owners overvalue their product and undervalue execution, yet in the end it’s all about execution.)
Infant businesses can’t progress to the next stage until they have a proven and efficient system of creating value that customers are willing to pay for.
This is when businesses can get into real trouble because often the hardest person to recruit is employee number two. Businesses now have enough cash flow to afford a few inexperienced staff. Unfortunately, this often means they make the mistake of hiring friends, family or trainees who will tend to want to maintain harmony rather than tell a business owner what they need to hear. And because family and friends are often cheap, they don’t accurately reflect how profitable the business is.
Recruitment at this stage is like putting a magnifying glass on a firm’s weaknesses: adding people to a company with a bad product-market fit or poor processes will only enlarge the problems and quickly bring about a crisis for organisations with low margins.
But if the business is in a healthy position, it has to scale by outsourcing, automating or possibly recruiting. Generally a business should only recruit when the owner is so busy it is “painful”. It’s often best to recruit a generalist who can adapt and thrives on “chaos” or lack of structure, rather than a specialist who needs to know exactly what the customer wants.
As new staff are gradually introduced, the business begins to “walk and talk” by itself and the owner has an option to “let go” a little.
Hopefully the business owner can now take a short holiday, but when they do productivity and profits might suffer because there aren’t yet strong processes and management in place.
“Teenager” is apt because firms in this category often take unnecessary risks through overconfidence and believing that they’re indestructible.
Confidence is often higher because cash flow is less of a concern. But this is when most business owners start to think that more staff will generate more value. While “vanity metrics” such as a large headcount may make you feel good, they may have little impact on your long-term success. Remember: the aim is to be efficient and effective, not necessarily big. Big companies go broke (e.g. General Motors) and are exponentially more complex (e.g. Nike). Being twice as big doesn’t mean you’re twice as successful. Don’t lose sight of cash flow and margins in the rush to grow a business.
The first few employees are critical because they will set the culture for a long period, so choose very wisely. Even a small mis-hire can have a big impact at this early stage.
A common problem I see is when an organisation tries to recruit one person for two specialist roles. For example a marketing and sales executive. They are both unique skill sets, personalities, and usually remunerated differently.
Most importantly, be careful about trying to mature quickly by seeking additional investment because you may not have a good enough product-market fit or capability to maximise delivery. It’s tempting to show money has been invested and to build a high head count, but this can lead to a company becoming overweight and on a fast-track to a Mid-Life Crisis.
At this point the business transitions from being in a stage of optimisation to one of maximisation.
Because the business now has cash flow, along with efficient processes and measurements to track progress, this is a good time to consider recruiting staff. In fact, the biggest constraint on growth may be recruitment and retainment of good staff while maintaining quality.
The business may transition from recruiting generalists to specialists. There might even be a cultural rebirth of its identity as staff suited to a start-up may not be best at developing the business further. But the business must be careful and hire staff that are right for the business now, and avoid being too aspirational in an often naive hope the business will continue growing.
At this stage, sales and profits are growing, creating more cash flow than is required for re-investment.
To ensure the right quantity and quality of recruitment, monitor staff effectiveness by tracking gross profit against total payroll and outsourcing costs. If this measure gets worse, then you’ve got a problem.
Unless the business can attract and retain key staff who can deliver sustained growth it may slip into a Mid-Life Crisis.
In a Mid-Life Crisis, enthusiasm and excitement begin to wane, particularly as professional managers start holding people accountable.
Recruitment is now focused on “backfilling” as the business loses great people.
It doesn’t need to be this way! Businesses at this stage in the life cycle should focus on making sure that staff are in roles that add value. I sometimes recommend a simple but risky way to find out is not to replace staff that leave!
Failure to take control of the situation takes you into the next stage of the life cycle.
Now lots of talented people begin to leave, often because they’re being blamed for the business’s woes. Those that remain are in a state of denial and refuse to recognise the problems – they’ve become “institutionalised”.
Though it may appear to be a hopeless situation, such businesses can often be rejuvenated with a new management team or using a turnaround situation that removes a lot of “deadwood”. Otherwise, Ageing leads to Death.
Sadly, there are no longer any talented people left; often the business will only survive through acquisition.
But, so we don’t finish on a downer, this isn’t inevitable: Sean’s Bar in Athlone in Ireland opened in 900 AD and is still going strong!
Understanding the Business Life Cycle Helps Your Recruitment
Have you considered what stage of the business life cycle you want to reach? You may not yet know whether your idea will be a good product-market fit, but it’s worth making some best guesses. It’s perfectly acceptable not to aspire to reach Maturity.
When you better understand where you’re going, you’ll be able to:
- Foresee potential issues and anticipate the future.
- Retain cash while you identify where you can add value that customers are willing to pay for.
- Build efficient processes that are easy to replicate and can be measured.
- Consider whether you need to hire a generalist or a specialist.
- Appreciate how the team dynamic changes as your business’s culture evolves.
- Recruit a professional management team and give them authority as cash flow grows.
When you do come up against a problem, you’ll know whether it’s normal or abnormal for the stage of development you’re at. It’s normal for a baby to suck from a bottle of milk, but not for a 40-year-old! Similarly, in a start-up it’s usual for the owner to invent new products, but much less likely in a large corporation.
<span class="grey-callout"><span class="text-color-purple">Take Action:</span> Take a moment to ask yourself: “Where is my business in the life cycle?”; “How should that influence my recruitment decisions?” and “What will likely happen to recruitment as I enter the next phase?”</span>
<span class="grey-callout"><span class="text-color-purple">Important:</span> From this point on my advice is geared towards organisations that have a great product-market fit, have outsourced and automated where possible and have efficient processes and measurements in place. If you’ve made the decision that recruitment is a valuable investment for your business, let's see how to take action. However, if you’re not quite ready yet, I’d advise you to return to this article when you are.</span>
From this point on my advice is geared towards organisations that have a great product-market fit, have outsourced and automated where possible and have efficient processes and measurements in place. If you’ve made the decision that recruitment is a valuable investment for your business, let's see how to take action. However, if you’re not quite ready yet, I’d advise you to return to this article when you are.
<div class="grey-callout"><h2>Key Takeaways</h2><p>
- Recruit people who have appropriate skills and approaches for the life stage of your organisation.
- Monitor the ratio of total payroll and outsourcing cost against gross profit. If it gets worse, it’s likely that your staff aren’t adding value and you’ll need to investigate further.