Hiring Your First Employee As An Entrepreneur
This question comes in from column, Collom says, I have worked well as a Facebook advertising specialist and now moving into more full service offering for a particular niche. However, I have used veejays and subcontractors to date and was reluctant to hire in scale. How do you know when to hire? And what are the main obstacles that stop agency owners from scaling?
Awesome question. I think you're doing it right. My playbook is usually do it all yourself until you have traction, till you have product market fit. And people like you and you know, you're good at it and you belong here.
Second thing is take a low risk way of having other people do some of the work that's repetitive that you don't want to do yourself. And so that's the visas and subcontractors. And then finally, it's to say, am I ready to go all in on this thing and to grow it into something that's greater than I could ever do on my own. And that's basically starting an agency.
And so I think you've gone through the steps to the point where you're ready to make a decision as to when you should become an agency. And from this point, it really comes down to the hiring, you know. How does a cash flow situation work with what you're doing and how do you do a projection or a spreadsheet projection as to how do you get to where you are?
So I've talked about this inside my agency Jumpstart program. So if you're a member of that, make sure to go revisit this video at the beginning of Agency Jumpstart. And if you're not a member of the program, it might be worth checking out because it's actually geared exactly for somebody like you. But I'll give you the paraphrasing of it here. And that is you have to decide what level of tolerance or risk you want to take on with hiring somebody.
Now, I recommend having a minimum of three months of being able to pay that person in the bank or in accounts receivable that you can have. If you're going to bring somebody on, so have to be to pay them minimum three months. And that's pretty risky.
Still more comfortable version would be six months. And that's usually the recommended one. So if you can pay them for the next six months or you know that there's enough revenue coming in, that you can pay them for six months barring Black Swan events happening in the world like we just had. But obviously, this question came in after COVA 19. So you're asking this still. So that's a good sign. And so, yeah, that's the minimum. The middle middle version is six months. And then that really conservative version is 12 months. And so it's cash flow that you can dedicated paying them.
Now, there's a few things to note. One is that you will lose money immediately if you take the extra money you have in the bank and you pay somebody else instead of taking it and paying it to your you know, it's coming out of your pocket and sort of said, are you paying yourself at the end of the year? Or whenever you pay yourself, you're paying somebody else. So you are losing money when you do this. But two is that you have to lose money eventually or at some point you have to lose money in order to scale past that point and to make that money back in spades later on.
Now, the dirty little secret of agency life that nobody really tells you and that I am hesitant to say because it's daunting, is that you'll probably lose money for the first five to 10 hires. You have maybe up to 20 hires. You'll lose money over what you were doing as a freelancer. And then eventually the economies of scale will kick in and you'll make way more money than you could have ever done on your own. You know, you can make the point where you're you're generating six figures or even sometimes seven figures just in profit from that business because you made those investments, whereas usually a freelancer caps out somewhere around 200000 U.S. dollars. That's usually where you cap out no matter how hard you work. And no matter how good you are, just doing it on your own. And so that's usually the cap out.
Some people might make more than that, but it doesn't usually last much longer than a couple of years to do better than that because of these various corrections in the market, so on and so forth. So, yeah, that's that's what I would recommend is being is just deciding how much money do you want to lose and how fast you want to lose it. Are you prepared to lose? And then how much faith do you have that you're going to make it up in spades moving forward?
And then that's where you'd want to invest. If you're a go getter and your aggressive three months, if you're middle of the road in six months and if you're conservative, then 12 months of money in the bank to pay them is the way to go. Most people look back at it and they say, I wish I'd hired sooner. No. Very few. Very rarely do people look back at this thing when they're successful. Mind you, and say I hired too soon. I wish I would have waited longer to hire those who are not successful.
Oftentimes the ones who fail or who give up, they're the ones I hired too soon and I need to get out of this mess. And so it does go both ways. I'm going to paint you only the sunny picture that hiring now is gonna lead to success. But if you are going to be successful, hiring now is give me a big part of it. It's a catch 22 double edged sword chicken before the egg situation. And hopefully this just gives you some kind of idea as to what you're looking at down the road. Com Thanks for submitting your question. And I look forward to talking to you more in the future.
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