In the self-funded world, there is a pervasive and popular idea that when you start a company, your first hires should be for administrative tasks.
Popular advice essentially says to delegate the little tasks that you hate doing to focus on the “big picture”.
The most common way for you to get rid of these tasks (according to this advice) is to hire a virtual assistant.
The tasks could include data entry, data mining, email answering, content creation, calendar management, and a host of other things that you’d probably like to get off your plate.
It’s sounds good, but it’s bad advice. Trying to hire out a couple of mundane tasks can actually make things worse in your business and harder on you.
It’s certainly not how you put together your first management team.
Allow me to explain exactly why:
Let’s say you want to offload some of your inbox disaster to a VA that is well-worth $10 an hour. We’ll also assume that you have calculated that you are worth $100 an hour if you are working on those forward thinking tasks.
Sounds good, right?
For every hour that you free up, you generate an extra $100 in revenue. If your VA comes on for $10 an hour, then that’s 90 bucks every time that person frees up an hour of your time.
At this point in the plan, things are still looking good (on paper). We are going to relieve ourselves of the small tasks so we can do more revenue-generating activities in that same time-frame.
Most of those who suggest a VA as a viable option for business owners usually conclude that it is a part-time solution. Essentially, finding a suitable VA to handle maybe 3-5 hours a week of work on those menial tasks we mentioned earlier.
The downside starts to come in with the hiring process.
You might spend as many as 12 hours—a month of your new assistant’s work—into hiring that person worth the initial $10/hour. To be a bit more than fair, we’ll say that it includes the basic training to get your new hire up and running. There are services to help you out, but those cost between $100 and $500.
The fact remains, that you have to get a good month out of them before you “break even”.
Then there is the time you are going to have to spend managing somebody. So, if this person is only working four hours per week and you are managing that time, then it might be an hour a week of your time doing that.
You only freed up three hours because you have one hour of managing the process. Keep in mind, you spent an hour managing a person to do tasks that may not have taken you an hour to complete. It will take at least a few months for the VA to be comfortable and efficient at the tasks in most cases.
Bottom Line: You might not actually see any real return on that investment for months.
So what happens if you made that mistake of listening to all the people who told you to hire VAs first?
How do you fix it?
You build a management team. And since we did such a detailed job explaining why a PT VA isn’t a great idea, let me lay out the 5 key areas to hire for your organization. After that, we’ll touch on some key advice to lead them into the next phase of your business.
5 Key Areas For Hiring And Building Your Management Team
Let’s look at five areas that you should hire for when you’re ready to offload some serious weight. The first three (operations, marketing and sales) should be team members. The other two (bookkeeping and accounting, legal) can be contractors in most cases.
If you didn’t hear it enough from the opening of this post—your first hire shouldn’t be for administrative tasks. You want somebody who is going to have a major impact. Almost always, this person is in operations (I call this right-hand person a “lieutenant”).
Here’s why in one point:
- Founders Stereotypically Aren’t Great at Operations: Most entrepreneurs like making new things. Taking the initiative to get an idea and turn it into a reality. Founders like doing that, and they are good at it. But they don’t like to maintain the things they have built because it gets boring and impedes them from the next thing.
As you grow and make more money, there are a lot of moving parts. Those details need to someone to manage them. The creativity of the founder either has to give way to being a manager, or you have to get someone over your ops.
If you don’t like either of those ideas, then your company is going to stagnate. It will get frustrating.
So, I usually recommend an operations manager as one of, if not, the first hires. The bigger you get, the more responsibility that operations person has, and eventually you end up with a Chief Operating Officer (COO). This is someone who is going to make sure the whole company is running smoothly.
When you are a small company in the low millions, your operations manager is vital. You need someone who can oversee the day-to-day functions of the company so you can do what is mission-critical for you and your company.
Your mission-critical work (the stuff you should be concentrating on) are things like:
- Setting up much larger business deals.
- Spending more time on the profit centers to increase business.
- Figuring out how to get the profit centers making more money.
- Marketing and sales (but maybe not forever, more on this further down).
Pretty much everything else needs to be in the wheelhouse of your ops person. Responsibilities may include creating policies and operating procedures to make things in your current business more fluid.
For most businesses, the next manager should probably be marketing because there are so many moving parts to doing it well. You may already have contractors working on part or even all your promotions. You might have:
- Someone managing your Facebook and FB ads.
- Someone managing your Adwords account.
- Someone who is doing SEO.
- And someone doing content marketing.
These all could be part-time contractors rather than full-time employees inside the company—and that’s why you may want to look at a marketing manager even before a sales manager.
You could even be good with marketing, but it usually ends up with the founder doing too much at the same time, or trying to manage all the pieces with other elements of the business slacking.
It’s better to start building out a marketing team, but you can (and should) oversee it.
You understand your customers, your product, and the direction of the company. Spending time with your marketing team helps them understand that branding and will end up in a better message rather than letting them flounder on their own.
But you can’t manage five or six people doing the marketing tasks while running the other aspects of the company— so a marketing manager is great to have (again, you will likely have a marketing manager before a sales manager).
Resource: Here are 12 Marketing Job Descriptions from the friendly folks over at HubSpot.
Why Marketing Manager Before Sales
Here’s an important differentiation between what I call a sales-driven company versus a marketing-driven company.
Some companies start off as sales-driven. The founder of the company is good at sales, so they start off direct— going right to the customer. They build a sales team, and they may not even do any marketing until/unless they get past $5 million or so. They are good at just selling the product.
Those companies have what I’d label as a sales-driven organization. I come from a marketing background, so I go with marketing-driven every time.
You have to know where you lean.
Most people are promoting marketing-driven companies, which is okay, but in the early stages of a company, sales needs priority because you have to bring in the money or your company dies.
Believe it or not, that is exactly why I want a marketing team built before hiring a sales manager. Freeing the founder from marketing so he/she can be hustling and selling at a high level.
Bottom Line: A founder should have a marketing team to free up more time on sales and the direction of the company.
A lot of founders are pretty good at selling what they created. You made the products. You understand everything about how it works. This knowledge makes you one of the best at explaining its benefits to prospects.
In the event a founder is not good at selling, they should definitely try to get better at it.
Think about it: If a founder can’t do a decent job of selling their own product, it will create hard times when:
- Raising money from investors,
- Networking when they go to conferences,
- And with growing the company in general.
Developing some sales know-how and being a part of the selling, especially a part of the bigger deals, is a major skillset that will prove valuable through the course of your organization.
You may even be able to break the low millions before you ever have more than one or two salespeople. It is hard to get into those numbers without running several marketing campaigns combined with selling, which requires multiple people on the marketing team.
For sales at this level, depending on the structure of your company, you might have one or two sales reps including yourself going out pounding the pavement.
Yet, you are still running the company, so at this point you should hire a sales manager.
Resource: Here’s a great post describing a lot of things that you may want to see from your first sales manager.
Bottom Line: By the time you start looking for a sales head, revenue should be in the low millions.
4. Bookkeeping & Accounting
Right off the bat you should look to have a bookkeeper first, and accountant second.
Accounting and bookkeeping are the two forms of record keeping for businesses. It’s letting you know what the financial past was. Most people only use these services for the legal reason of filing taxes.
What a business should be doing with these numbers is forecasting.
Pro Tip: A properly trained accountant will be able to help their clients and employers in forecasting data.
They might not be good at it (at first) because most have not done it since they learned how in school. Most of their clients are exactly like you and don’t talk to them except when necessary.
The good news here is that you are probably already using someone’s services (who knows how to help you), but you need to use them to their full potential.
So, the first thing to do is schedule a meeting with your accountant. Pay them whatever their hourly rate is and chat with them for an hour. Start discussing the numbers.
In fact, you should say, “Tell me what I don’t know about my numbers.”
In the initial days, if you can convince your accountant to do so, meet with them once a month.
You can start understanding the numbers, your accountant can start understanding you and where you are going with the company. Afterwards, you’ll start getting some real advice.
Important Note: If your accountant is unwilling to meet with you once a month, get another accountant. If they are unwilling or unable to teach you how to forecast with your numbers, get a new accountant. You need somebody who can help you understand your numbers and how to use them for the future, not just for record-keeping.
If you have a product business, another main position you will hire for first is a comptroller or a controller. Essentially, this role makes sure that money spent is going to the right place.
Note: If you have just started your company, the numbers aren’t likely big enough for it to make economic sense to hire somebody to make sure your expenses are under control.
At some point along the way, you are going to need legal counsel. Most likely, this is going to be outside the company. Your company needs to be in the many millions to afford to have legal counsel on staff.
Real World Example:
Although just to show you a counter to that, Uber’s first executive hire was an attorney because they are in a highly regulated market that did not want them.
Lawsuits were going to be a part of their growth, and they knew they were going to get sued and sued and sued for years until finally the transit authorities collapsed around the world.
One of their first executive hires was legal (A brilliant yet necessary move).
Most companies are not like that and you will likely be fine for a long time with outside legal counsel.
Your Management Team Allows You To Work On Your Business
Now that you have this management team put together, you are at a stage where you get to do that mythical working on your business rather than in your business thing.
But what often happens now, is that some founders get stuck in a trap.
They become both arsonist and firefighter due to boredom. They don’t know what to do, and they don’t know how to take the company to a higher level. It comes from not making the full switch to executive mode.
What typically happens is the founder starts creating chaos inside the company so they’ll have something to do—which stagnates the company.
Wanting to feel useful, anytime a problem comes up, they jump in to solve it.
Once you have a management team, those managers are ready to solve these problems. You have to let them do their work.
Overcoming Founder Identity Crisis
Founders should deal with the identity crisis (if any) before you worry about your management team.
If they’re lucky enough to realize that they are causing chaos, their next thought is: “I am going to start another company. I am at $5 million, and I want to be making $50 million a year in revenue. I don’t know exactly how to do that, but I do know how to make a $5 million a year company, so I am going to create ten of them.”
I call this the lateral step.
If you don’t want to deal with the identity issues of being the arsonist and firefighter in your company, and if you want to get past the temptation of taking a lateral step, what is it that you actually want to do?
You want to look around at your market.
If you have made it to $5 million and haven’t looked to see if there is anyone doing $50 million in your industry yet, start looking around. There are probably several.
Do some reconnaissance to see what they did right to get to $50 million and break down the success. Ask yourself, “what can we do to get there?”
Your job becomes learning how to take your company from where it is to where you want it to be.
How To Lead Your Management Team
Once you have solved your identity crisis, you can figure out how much time to spend with your management team.
If you get to $5 million and are fairly stagnant (growing at a rate of 20% or less per year), you are probably not going to meet with your team often. The difference between yesterday and today is minimal.
If your company is growing really quickly (going from $5 million to $50 million within a couple of years), that is some rapid change. You are probably going to be meeting with your management team frequently, perhaps even weekly.
When you are first hiring your team, you will spend a lot of time with each new manager over the course of their first few months in the company. This is necessary because you want to build the culture and get them to understand your vision for their role and the business.
After that, you are probably not spending a lot of time with them on a day-to-day basis. They are good at what they do. If you meet with them day-to-day, it just becomes an interference and you should check to see if you’re the arsonist or the firefighter.
Guide (Don’t Smother) Your Team
You have to find the proper amount of time to spend with your management team. It’s different for every company. Odds are you will just have a weekly management meeting, a quick run-down of where things are at and where they’re going.
Although, you will definitely need at least one strategy session every quarter with your management teams. Get them all together and plan out the next 90 days.
You will make an annual plan about what you want to do over the course of the year. Then you will want to do quarterlies so you can build out the 90-day plans and make sure that the company is on track.
How To Afford Hiring Your Management Team
One of the questions I get asked is, “Tim, this sounds great. I want a management team. How do I afford it? I don’t have any money.”
In the early days, as a founder, you are self-funded. Hopefully you have cash in the bank to be able to start your company, or maybe you still have a job that is paying for the growth of your company.
What a lot of people do who work a job and start a company is essentially work two jobs. They work 40 hours at their employer and come home to work 40 hours on their brand-new business, all to keep expenses ultra-low.
Instead of taking any money out of the company to reward yourself for all of that extra hard work, delay your gratification longer and spend that money on someone who can help you grow the company (it will probably be someone related to operations).
If you are in something that is highly technical where you are actually selling augmented labor, which happens in programming all the time, you may be hiring out your development skills.
Look for the job that will have the biggest, earliest impact. Try to save up money and earn enough money from what you are doing to be able to pay that person a salary.
Get them working with you so you have at least two minds; you have doubled the brain power. Hopefully the person you have hired is smarter than you. That is a key component you should be after when hiring.
3 More Ways To Afford Hiring A Management Team
If you have already been in business for a while with some contractors and employees, but no one is in the management level, and if you tell me, “I can’t really grow because there just isn’t any money,” then you almost always have problems with your margins.
Either prices are too cheap, or expenses are too high. It’s usually both.
You need to figure out how to lower your expenses as a percentage of your total revenue, and you need to increase your total revenue. Here are three ways to do it.
Way #1: You raise your prices to increase your margin between cost of goods sold and the amount that you get paid for it. If after you have increased margins and you still can’t afford to hire, you may be suffering from “lifestyle creep.”
Way #2: If a company starts stagnating and it’s not their margins, the next thing I look at is the entrepreneur’s lifestyle. They are probably spending too much money on themselves and need to cut back.
I have watched too many entrepreneurs who started their business to gain more freedom in their life get trapped by their company.
They wanted to be their own boss, yet they become the worst boss that they have ever had. The worst working conditions. They don’t have freedom.
Many entrepreneurs have traded “stuff” for freedom. They can’t afford to hire people because they have increased their lifestyle as the money increased in the company.
That is extremely common with self-funded companies.
Way #3: The third thing is selling more. If you can’t afford to hire, you probably are not selling enough.
One question I ask clients is, “How many hours do you actually spend per week selling?” Most of them don’t even have a weekly number. They can’t say how much time they spend a week on conversions inside the company.
If you need to grow, then sell.
Don’t sit around waiting; get proactive, and get some customers. Call people. Have a conversation and move product. That will help fix the affordability issue.
There you have it. I hope this massive article/guide will help you wrap your mind around hiring your first management team as well as teach you a bit about managing and affording them.
What management role do you need to fill at your business right now?