So you have this great idea for a business. You are prepared to make the sacrifices to self finance until sales can support the company. You’ve analyzed your personal strengths and weaknesses and recognize you lack some of the critical skills required to get the business off the ground. You need help. But you can’t afford the full time salaries to hire the talent your business demands.
What do you do?
This is one of the recurring scenarios I have seen with start-ups. It’s an ugly sight really; watching a founder run full speed into this brick wall of reality. And my advice is always the same. If you do not have a solution to overcome this particular weakness then STOP. Don’t continue to build, or develop or spend time or money on this business idea because you will fail.
The staffing shortfall I see most often is the role of sales – sales strategy and implementation. Most founders first believe that selling is the easy part, that it’s something they can do themselves. Or, there are those who attempt the, “if I build it, they will come” philosophy of sales. And finally, the last group, believing that social media and email blast will be a sufficient sales force. They eventually learn that selling is crucial to the business and requires a level of expertise and experience.
So, assuming you need more talent than is available through a free intern, what are the options for securing such talent? Let’s run down the choices.
- Commission only. This approach will have the least impact on cash flow because you only pay when sales are generated. Yes, you might have to pay upfront for car allowances, cell phones and computer charges but that’s about it. However, you’ve heard the saying, “you get what you pay for”? This applies here. Those who will take a commission only job are no doubt self starters but they will also ditch you in a heartbeat for a better offer. Their bottom line is the driving concern not your company nor your customers. If your product or service is a fairly easy sell and the rewards flow quickly this may be a good option for your start-up business. On the other hand, if it is a longer more challenging sales cycle and pay-out of commissions will take longer, I have found that more time will be spent by your new salesperson revising his or her resume and looking for a better gig than actually selling.
- Base pay plus commission. This is by far the surest method for hiring the exact talent you need – qualifications, industry experience, past performance. The downside of course is impact on cashflow. You will be writing checks before any sales are generated. Striking the right balance between the amount of base pay necessary to secure talent while keeping the motivating force of the commission will be one of your tougher challenges.
- Deferred pay plus commission. This is an interesting variation of the base pay plus commission approach. Here you and the candidate agree upon a market base pay and commission structure. Then, predicated on current and future cash flow projections, you decide how much of the base pay you can afford to pay now and how much you will ask the prospect to defer to a specific date or milestone. The prospect is basically letting you use his pay as operating capital until there is sufficient cash flow. Here are the four areas available for negotiation (flexibility) with this approach:
- the length of the deferral,
- the interest rate applied to amounts deferred,
- the amount of compensation deferred, and
- the pay mix or combination of cash and noncash forms of compensation that are ultimately paid.
This can be a particularly compelling tactic if there is a milestone on the horizon that will trigger an influx of new capital (meeting a performance standard, venture capital infusion, achieve positive cash flow status). As you might expect significant trust in the business idea, the business model and most importantly the management team to execute and monetize the idea is critical. As founder it is your job to instill that trust and make absolutely certain you pay the deferred amounts with interest as promised.
Having the right talent on hand to support your start-up is crucial to success. Attracting that talent can be a challenge with limited cash flow. It starts with identifying the roles and responsibilities you expect that person to fulfill. Follow that with writing down the qualifications and experience you feel are necessary for that person to be successful. Lastly is outlining a cash flow appropriate compensation plan that you will use to attract that individual.