Just because you can hire more staff doesn't mean you should.
As a small business owner, you work long hours, dreaming of the day when you can finally grow your company and hire a proper staff. Then when that day arrives, it creates more problems than it solves.
That's what happened to Scott Lerner, founder of Solixir, a line of all-natural, no-sugar-added energy drinks sold in about 850 stores nationwide, and with annual revenues of about $1 million. Lerner founded the company in 2008, and for the first four years Solixir consisted of three people, including him. Then in March 2012, the company landed an investor who provided Solixir with several million dollars in cash.
Lerner immediately started hiring, building out what he thought of as the right size company. "I'd been a classic bootstrap entrepreneur, doing everything myself," he says. "Now I thought it was time to bring in a marketing director and positions like that." Solixir tripled its staff from three to nine over the next five months. But soon he realized he'd made a big mistake.
"My role as CEO is to evaluate the productivity of the organization, watch the value that people were bringing in, and also whether the lines of communication are clear or fuzzy," he says. When he took that strategic view, he didn't like what he saw. "We'd gone from being entrepreneurial and snappy to fat and happy." At the same time, he realized that he was spending his capital too quickly.
Lerner made the difficult decision to cut back Solixir's staff to its current level of seven. It was a hard way to learn, he says, and he especially regrets disrupting the lives of those he hired--and then had to fire--less than a year later. But he came away with some valuable lessons that apply to every start-up:
1. Don't replicate other companies.
It's easy to assume your company should have the same positions as your competitors, or of other organizations you admire. This assumption was a real issue for Lerner, who'd been a PepsiCo executive at one time. "The mentality was 'Now I can get back to my comfort zone,'" he says. I compared Solixir to where I was before, and that nice, big org chart. That's where the misstep happened."
2. Don't hire until it hurts not to.
When everyone in your company is working evenings and weekends, and there are opportunities you're missing because no one has the time to pursue them--that's the right time to hire. "Wait till you feel there's an overload of work within the organization," Lerner says.
Hiring this way will help you stay attuned to creating positions as they are needed, rather than following a blueprint you've laid out. "The plan we wrote on paper wasn't what we executed in the market," Lerner says. "We thought we needed a representative in one market, but then realized we needed someone someplace else instead." Waiting before you make a hire gives you more time to figure out what help you really need, and where.
3. If you make a mistake, fix it fast.
One of Lerner's regrets is that he didn't eliminate the unneeded positions even more quickly than he did. "In your gut, you know what's right and wrong, especially as an entrepreneur," he says. "My gut said to make the move a little earlier."
He knew for sure it was the right move when eliminating the extra jobs actually made the company stronger. "There was more work to be done, but it wasn't a negative," he says now. Having fewer managers meant some people in the company could take on more responsibility, as well as more work, and it gave them a chance to shine. "It empowered some people," he says.