There are several sets of questions that face every startup entrepreneur in the early days of their business adventure. These include:
When do I hire my first employee?
Who do I hire first?
What or how do I pay my employees?
When do I start thinking about raising money, and from whom?
No situation is the same. In this scenario, we will assume that you have a great idea, some mad skills and you are seriously wondering what to do next.
In the first article in this series, I talked about things you might do when the initial idea hits you, and how you can decide if your idea is real or not. Let’s assume you are here because you followed my advice and have talked to someone you trust, written your idea down, creating the seed of a business plan and have maybe even written a little code.
Exploring When to Hire Your First Employee
A couple questions that come up a lot are, “How do I know when to hire my first employee?” and “Do I need to hire my first employee or build a team at this point?” You are also wondering about where to find some financing or seed capital for your startup, so you can continue to pursue your idea.
The definitive answer to both questions is the same: it depends.
Sorry, maybe you were expecting some sort of algorithm or rules. It doesn’t work that way. Every situation is different. Instead of looking for non-existent, definitive answers to questions of when to hire your first employee and when to raise growth capital, over the next few weeks we will explore different scenarios for hiring and raising capital, depending on where you are in your startup.
Let’s start by exploring who you should be hiring first.
How to Know Who You Need to Hire First
This current scenario is actually a little easier to deal with than some. You have a great idea and you need some help getting it off the ground. Let’s start with who you don’t need to hire as your first employee.
You don’t need to hire a CFO, VP of anything, accountant, administrative assistant, customer support, marketing, sales, tester, copy machine or latte cart.
If you are proficient in whatever field your idea is in (software typically) and implementing it is more than one person can handle, then you really want a partner or partners to help you build a functional prototype. That needs to be your first goal, the functional prototype, if you plan to raise money in one form or another.
So, if you’ve thought about when to hire your first employee and decided that time is now, you may want to consider hiring someone with similar skills as you; someone who can help carry the load and is capable of helping you build a functional prototype that can propel your business to the next stage of growth.
What to Consider Before You Hire Your First Employee
Let’s assume for this scenario that you need some help creating your prototype. What should you be thinking about before you hire your first employee?
When the time comes to hire your first employee – or possibly business partner, founding partner, etc. – it can be terrifying. At least it was for me. I was running a very small (2 of us) software consulting firm back when the Intel 8086 microprocessor was brand new. My business partner and I were both software developers and had our hands full with work from Intel and other smaller companies trying to make sense out of personal computers and software. Heady days indeed.
We found that we had way more work than we had hours, so we ultimately decided to hire a programmer to help us. Our first employee!
We found a wonderful young woman to join us, and when she showed up on her first day, we were a lot like new parents, not really having any idea what to do. We did have the foresight to have a desk, chair and computer ready, but little else. It took another week or so to get comfortable with the idea that this person had to be paid, fed, watered, talked to and managed. It took another year before we figured out how to do all that. Fortunately, she stuck around while we made mistake after mistake.
In a startup environment, every decision you make affects you, your company and ultimately your employees. Just like with children, there is no real way to be totally ready for your first hire, just be sure to hire someone that has a sense of humor and fully understands what they are getting into.
The Role of Your First Hire
When you hire your first employee, it needs to be another you; for instance, someone you can sit around with for long hours (probably late at night) bouncing ideas around and writing code. Your first hire should be someone you can get along with for long periods of time (at this stage, personalities are very important) and who shares your passion for your idea.
You’re going to debate with this person, spend tons of time with them, argue with them and get really frustrated at times, so it has to be someone who will survive this. It’s not that different than getting married, so choose wisely and do not make the decision lightly.
You may also need to hire more than one employee, which I cover in greater detail here: Strategies for Raising Capital to Build a Startup Team. A company I started back in the mid 90’s required three very seasoned developers and the prototype took us almost a year to develop. If you need more than one new hire to build your functional prototype, don’t hesitate to do so, but building a comprehensive startup team with leadership roles should come later.
Focus on Developing a Functional Prototype
So, what’s all this about a functional prototype? The functional prototype serves several purposes.
First, of course, the process of creating it makes you think hard about what you are trying to accomplish. It allows you to build more realistic goals regarding its ultimate functionality, and you begin to get some sense of the total effort required to productize your idea. Having a prototype also allows you to show other people – future partners or investors perhaps – not only what you are trying to do, but also that you are capable of doing it. A PowerPoint deck is one thing, something actually working is way better.
You will find that raising capital is much easier when you can prove your idea in some way and you may end up with more ownership after raising money.
With how important this prototype can be in acquiring funding, the difference between having one and not having one can be the difference between success and failure. So, if you are still wondering when to hire your first employee and are just now realizing that you won’t be able to create a functional prototype on your own, you should also be realizing that now is the time to hire a programmer – it is imperative that you do so soon.
Download our free Raising Capital for Tech Startups Guide for a comprehensive look at the most important components of a successful fundraising strategy – learn how to land the funding deal you want.