A MATTER OF PERSPECTIVE 1/20/14

Hiring Overhead

Justifying a non-production employee
Ben and Jeremy think back to 2012, when they hired their first administrator. How did they make the decision to hire an employee who wouldn't directly bring money into the company?

Benjamin Wills

Decisions to hire are difficult when the business is a one or two man shop.

Hiring for non-direct production, such as an administrative assistant, can be a tougher decision than hiring a production position (in our case, a technician or engineer). There is a point when hiring admins or managers becomes necessary, but where is that point?

When AIE had to make the administrative hiring decision, the reasoning was built around the economic idea of comparative advantage — the name for the ability of one business entity to engage in production at a lower opportunity cost than another entity. In the AIE case, when administration work began to encroach on Jeremy’s and my ability to produce more billing opportunities, we knew we needed to hire an administrative person. The value of those lost billing opportunities became higher than the cost of hiring an administrative assistant.

In the end, hiring for production or non-production positions really requires the same decision framework.

The business decision maker should always have two clear thoughts when making any hiring decision.  One, what is the marginal return of benefit on this person’s labor?  Second, what are the opportunity costs of making the decision to hire or not?

If the decision to hire has a high benefit to risk ratio and new opportunities become exploitable, make the hire!

___________________

Jeremy Wills

Quantifying “overhead,” or non-producing, employees can be a very difficult task. 

And, when considering the hiring of our first administrator, we finally pulled the trigger after many months and experiences. Early in the business, there were many conversations between Ben and I about what roles need to be filled and when. The engine of the company, cash flow, is what drives business forward. And so rightfully, the initial plans were to identify at what point in time the first engineer would be needed. In the end, we had two contractors that fulfilled varying IT engineering needs, and they both ultimately grew into full time employees.

As we grew on the engineering side, there was a natural increase in back-office tasks that needed to be done.

Since I initially handled all areas of operations, sales, marketing and administration, I had a keen awareness of the growing demands on my time in these various aspects of the business. Additionally, my goal was (and is) to continue to shed areas of the business where I am weakest, and identify and hire the talent to assume these roles. This was most true with administration. As time progressed, I was being consumed by more complex administrative responsibilities that were pulling me away from both our sales and marketing efforts as well as the need to continue to build a successful operation. So, at the end of 2011, we began the hunt for my replacement.

The job description was less about specific tasks and more about personal characteristics. 

We built a job description and posted the job in places we believed would attract these types of people. While we only received a few resumes, we knew we had landed the jackpot when we read the cover letter of one particular candidate. What stood out the most was this candidate’s ability to clearly articulate her objectives, while expressing a specific interest in the role within our company. While her resume didn’t carry a lot in terms of work history, it held its own weight and had plenty of reason for us to believe she would succeed in the role. So, we brought her in for an interview.

Ben shared an excellent article with me written by the CEO of oDesk. The article included a chart which stack-ranked key requirements to look for within a potential hire. The article boiled it down to personal characteristics, motivation, skills and knowledge. I printed this chart out and have it sitting in my office as a constant reminder when interviewing for any position within our company.  

As the administrator role is a key role that is not easily replaceable, we needed someone who was trustworthy, self-driven, intelligent and teachable.

The interview immediately solidified our initial impressions. And opportunely, her need for part-time work while she finished up some schooling lined up with our need for hiring only a part-time administrator until we had enough work to warrant a full-time employment opportunity.

As we enter 2014, I can confidently write that this was one of our best decisions. As difficult as the decision to hire overhead employees can be, a decision well made in this area has played a key part in our ability to maintain our balance throughout our company’s growth.