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Chapter 3
Men Are Cheaper Than Guns


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Intellectual Capital And Bootstrapping


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The Employee Barrier

Human history is filled with stories of people pushing the envelope to do more and achieve more. Yet, for many people, trying new things is often less exhilarating than it is fearful. Many people like consistency and security in their lives.

This is not to say doing the same thing is bad. Many very successful people have a conservative bent. Warren Buffett, for example, is reputed to like consistency in his life. He'd prefer the usual, but tasty, hamburger to taking a flier on a new restaurant. Sure, the new place might have great food, but it might not be all that good either. When you find something that works, why not stay with it?

One of the stressful milestones to many small business people is hiring their first employee. Becoming an employer is a big step. Employers need to learn about withholding and other employee-employer issues. Payroll and fulfilling government obligations with respect to employment will be a new demand upon the employer's time. There is a landmine of rules, regulations, and government-imposed employer obligations.

There is the fear of hiring the wrong person. What if the person you hire turns out to be a real dud? How do you motivate the person and see that he gets the job done? Or, if you must fire the person, how do you do it most effectively?

Many new employers make the mistake of not being selective enough in whom they hire and not spending enough time learning about the process of hiring employees. Then the new employee becomes a liability rather than a benefit. Toss in the added time the new employer spends learning and keeping up with government employment issues, and the new employer says, "Never again."

Even if the new employee does a good job, you might think to yourself that the overhead spent in having the employee--measured in both time and money--just isn't worth it. This might be especially true if your new employee is part-time.

You have just hit the employee barrier. One employee can only do so much. Time spent in training, managing, and just processing payroll will be significant. Even with a good worker, one employee often offers little amortization of your time and effort as an employer.

It is probably not until your second, third, or maybe, fourth employee were you will be effectively amortizing your time in having employees. Then you will really start to see the power of hiring others.

Think of it this way: Spending 200 hours a year in employer-related duties to manage one 2,000-hour employee represents 10% employer overhead in time. But, if you have three employees working 6,000 hours, and it now takes you 300 hours in employer time to manage them, your employer overhead time drops to 5%.

You could think about this in a different way. In the first case, you are getting a return of 10-to-1 employee hours to invested employer hours. In the second case, you are getting 20-to-1 return. Of course, "employee" hours may not have the same value as "employer" hours.

Usually, the small business employer will feel any job the employee can do, the employer can do better!

In many cases, you, the employer, are capable of doing a better job because you are more dedicated to your company than the employee. You care more about doing the mundane little details with care. Many new employers are hesitant to trust their employees with even the most trivial jobs, like packing boxes.

While you have the right to expect your hires to do any give job adequately, it is unreasonable to expect them to care as much as you do. After all, you are the one benefiting from the extra special touch given any job.

To expect your employees to care, you must offer scope for their talents. The best employees are those who can not only contribute muscle to your organization, but who contribute brain power. Only you will be able to judge what level of dedication and contribution a given employee has to your organization. Ideally, someday, the average "employee" hour will be more valuable than the average "employer" hour.

It is also your responsibility to try to retain your best employees and reward them as best your organization can, both in financial terms and in showing your appreciation for a job well done. Especially today, skilled employees are in high demand, though it seems layoffs are becoming a bit more common.

One bit of management advice I read said that while hiring is always a bit arbitrary, firing is very selective. Because of this, in time, by ridding your organization of your least productive people, you can constantly improve.

One consultant actually suggested firing 10% of your staff annually. The theory is that every year, you make a list of the value to your organization of all your employees. Those at top are most treasured and productive, of course. By eliminating the bottom producers, and replacing them with new employees, you have built a selective mechanism (a la Darwin) which should improve your staff.

The above is a good example of where theory and reality don't jive. Just because something makes a limited sort of sense mathematically doesn't mean it's good business practice. Rather than creating a "competitive" spirit, you might well create a spirit of stress among some of your better employees. The best computer consulting companies in the country tend to have relatively high retention rates relative to their peers, for example.

With any employee initiative, be sure to learn how the employees view the initiative. Don't just assume your employees will look at things the same way you do.

Companies do have different views toward their employees. On the one extreme are the more ruthless, bottom-line employers, who will replace workers like ball bearings. At the other extreme are employers who feel they are personally responsible for the livelihood of their employees. As long as the person is doing a good job, the employer expects to keep him indefinitely.

Unfortunately, when a recession hits, many companies will not be able to retain all of their workers without endangering the business. The sad fact is that for many companies employees represent a buffer against bad times, expanding in good times and contracting in bad times, in the best interests of the company.

It always amazes me when one-year-old, start-up companies with no track record advertise for new employees demanding that the employee have five years' treasured experience. Who here is bearing the real risk in the employee-employer transaction? And, yet, the company founders balk when such a person expects stock options and a relatively high salary.

In all employer-employee relationships, fairness is the key and overriding goal. Consider the level of commitment the employee has to your company. Consider how you will confront a recession or other bump in the business road. Give some thought to severance packages and how you would deal with needing to layoff workers.

Planning ahead is one of the best things a new entrepreneur can do. This applies to hiring and employee-related issues also. Breaking the employee barrier is one key to growing your business.



Hiring and Firing Employees from our online guide to starting a small business.