This article was originally posted over at Business Chicks

When one becomes more

How do you know when you need to hire your first employee? Here's four ways to work it out ...

No-one builds a business alone. Not even soloists. Sooner or later whether we are building a big business or small, we all need help.

Help comes packaged up in many different ways. Early on in a business’s life it might be in the shape of a contractor (to develop a logo), a coach (to help articulate the strategy) or an adviser (to help with legal stuff). But often even the most ardent soloist realises that while this sort of help is great, what the business really needs is an employee.

We’re often hopelessly late in hiring our first employee. Not that that’s surprising - becoming an employer is a big decision. But I think we shut down our thoughts on the prospect of taking on an employee because, frankly, it’s a bit scary.

It’s not great to leave hiring our first employee until we’re desperate - when that happens we tend to hire the first vaguely appropriate person we meet and spend the next few months wondering how to, er ... exit them. As they say, it’s better to dig your well before you are thirsty.

So how do you know when you need to hire an employee, whether you can afford one and whether hiring an employee is actually the right answer? Here are four ways to think about it.

 1. What’s the problem?

Start by asking yourself what’s stopping you progressing your business. If the answer is one of these three then it’s probably time to hire:

?     You are too busy. Basically you don’t have enough time to do all the things that need doing (selling, marketing, making, delivering etc) and as a result you are either losing opportunities or making mistakes.

?     You are out of your depth. This happens when you realise that your business requires a skill that you don’t have. For many business owners that skill is simply administration (business builders often love doing new stuff and the technician stuff but are stifled by admin). For others it’s often actually selling and marketing.

?     You aren’t enjoying the work. It’s quite possible to be skilled at what you do but dislike doing it. If this is the case, it blocks your ability to get on with other stuff. Wouldn’t it be marvellous if someone could do it for you?

2. If you could hire an employee what would you get them to do?

Before worrying about how you can afford an employee, think first about what you would like them to do.

 A great starting point exercise is this: imagine that money is no option which one person would you hire first and what would the specifics of their role be?

 For example would they be hired to sell (find customers), do (perform revenue generating work) or support (admin)?

 Thinking in this way frees you up from the confines of your financial position and allows your mind to work out what the best help for your business would be.

Once you’ve done the wishful thinking exercise use this (with a good dose of reality) to scope out the role of your first employee.

3. Can you afford to hire an employee?

There are two parts to looking at the vexing question of ‘can you afford an employee?’.

The first part is the big picture bit. The thinking is this. Provided your employee brings in more dollars than she costs, you can afford to hire her.

This works in two ways: if she’s a sales person she should literally pay for herself by bringing in enough profitable work, if she’s a support person she frees you up so that you can do the additional profitable work. Either way it’s maths. If you are going to pay an employee $40,000 a year, can you calculate how you will use her time to cover her costs?

The second part is the short term cash flow implications of hiring someone. Can you actually afford to pay her? My quick tip here is to save up in cash the equivalent of about three months of your employee’s salary before you hire her. It can easily take that long before you start to see the impact of having the extra pair of hands.

4. Are you ready to be an employer or is outsourcing a better option?

Having an employee is not just about being able to afford it - the whole relationship is quite different to outsourcing to a contractor. You will need, for example, to train your employee, keep them busy, look after them, manage your employer obligations (working conditions etc) and of course you can’t just show them the door if you fall out of love with them.

But don’t let that put you off. Becoming an employer is the start of building a proper business, one that’s no longer just about you. It’s exciting, rewarding, challenging and a relief. Oh yes and it makes for a better Christmas Party too.

As they say

This article was originally posted over at Flying Solo.

Should I charge the same as my competitors?

Previously we looked at calculating our absolute minimum hourly rate – not in order to price our work at that rate, but to ensure we don’t go below it. It sounds obvious but scarily we often get it wrong. Now that we know how low we can (or can’t) go, we need to get an idea of how high we can pitch our price. 

A favourite way of doing this for most soloists and small businesses is simply to charge the same as everyone else. This has appeal because it is quick (a few secret shopper phone calls and you’ve got your price*) and it’s comfortable (if everyone else is doing it, then it must be right). 

But isn’t this lazy-man pricing? Shouldn’t we, as they say, be running our own race?

The answer is to do a bit of both. 

I don’t think you can set prices without having some idea of what competitors are charging. On the rare occasion that I have seen businesses set prices with complete disregard to competitors’ pricing, they have, funnily enough, charged less than the market rate. In each case this turned out to be an unprofitable strategy. 

Keeping an eye on competitor pricing is essential as it gives you a useful benchmark, but that is all. Charging the same as competitors could cause you to under- or over-charge. Why? Because your offering isn’t the same as theirs. 

Unless you are in the business of selling an indistinguishable commodity (where price is the sole defining characteristic of your product) then you are different to your competitors and you need to price accordingly. 

Here is how you can price with reference to your competitors: 

1. Identify competitors that are most like your business. This means the businesses that sell a product similar to yours to the same (tightly defined) customer. If you don’t have a close competitor – that’s great news, just pick those that are closest.
2. Find the price of your competitor’s offering (research between three and five competitors so that you can get a good broad range).
3. Clearly articulate the differences between your offering and your competitor’s offering. What extra things do you do? What do you do less of? What do you do more of? What are you better at? What are you weaker at? Who has the better reputation?
4. Consider those differences, and determine which ones are worth something to your customer. If you were to start your price at that of your competitor’s, and added and subtracted your differences, should your offering be higher or lower? Think about it in percentage terms: is your offering two per cent higher, 20 per cent higher, or more? 

This is a thought process rather than a scientific calculation, but you’ll find it gives you a good idea of where your pricing should be. 

* Finding out your competitor’s pricing is not always easy. It’s hard to know exactly how much other businesses would quote for the work involved in your bespoke project, but you can get an idea by finding out how they have priced other projects. It takes a little detective work, but it’s (ethically) possible.