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Re: Hiring someone

5/6/2003 6:52 PM
LFOscalator	Re: Hiring someone These comments are based on a small software business I started and ran from my home: When is it time? When you can no longer do eveything yourself and when the new hire will immediately pay off in terms of sales and profit. My experience is that you have to have customers in hand at that point and there has to be quantifiable demand for your product. Persuading yourself? It's easiest when you use cost accounting to identify exactly what the marginal cost vs marginal revenue is for a new employee. Obviously you want MR > MC. And don't forget, you can only compute MR if you already have demand for your product. Unfortunately, figuring MC is extremely difficult to do when you have fixed costs associated with your employment business model (See RG's famous post for a list of many annoying fixed costs). For a microbusiness run out of your home, I'm one for getting rid of fixed costs as much as possible by using subcontractors. It then becomes a virtual business rather than a traditional real business. If you didn't catch the point that ZVEX made about using subcontractors, go and re-read his famous memo again. His advice is pure gold. Finding Someone? In the software business you can attract very good people by advertising in the newspaper that you will pay them very good money on a project basis. Many programmers will be turned off and won't want to work on a project basis. That's OK because I don't want them to respond to my add anyways. The people that reply are usually those who are the most entrepreneurial. I get the kind of person I want. Not sure how this applies to the effects business. The key is that you want to subcontract your work out to other microbusiness 'entrepreneurs' who are self starters that will get it done for you on a variable cost basis. Different Path? The virtual business model works best in my opinion for a small in home business. Budgeting Considerations? When MR > MC and all fixed costs have been minimized, cash flow is your only real concern. RG's approach will take an enourmous budget because of high fixed costs. ZV's approach will work almost completely off cash flow with minimal budget since mostly only inventory has to be financed. I have found that I work best in partnerships where people look at fixed costs the same way I do. It's tough having a business partner in a small business who immediately wants to run up fixed costs. LFO

5/6/2003 6:52 PM

LFOscalator

Re: Hiring someone

These comments are based on a small software business I started and ran from my home:

When is it time? When you can no longer do eveything yourself and when the new hire will immediately pay off in terms of sales and profit. My experience is that you have to have customers in hand at that point and there has to be quantifiable demand for your product.

Persuading yourself? It's easiest when you use cost accounting to identify exactly what the marginal cost vs marginal revenue is for a new employee. Obviously you want MR > MC. And don't forget, you can only compute MR if you already have demand for your product. Unfortunately, figuring MC is extremely difficult to do when you have fixed costs associated with your employment business model (See RG's famous post for a list of many annoying fixed costs). For a microbusiness run out of your home, I'm one for getting rid of fixed costs as much as possible by using subcontractors. It then becomes a virtual business rather than a traditional real business. If you didn't catch the point that ZVEX made about using subcontractors, go and re-read his famous memo again. His advice is pure gold.

Finding Someone? In the software business you can attract very good people by advertising in the newspaper that you will pay them very good money on a project basis. Many programmers will be turned off and won't want to work on a project basis. That's OK because I don't want them to respond to my add anyways. The people that reply are usually those who are the most entrepreneurial. I get the kind of person I want. Not sure how this applies to the effects business. The key is that you want to subcontract your work out to other microbusiness 'entrepreneurs' who are self starters that will get it done for you on a variable cost basis.

Different Path? The virtual business model works best in my opinion for a small in home business.

Budgeting Considerations? When MR > MC and all fixed costs have been minimized, cash flow is your only real concern. RG's approach will take an enourmous budget because of high fixed costs. ZV's approach will work almost completely off cash flow with minimal budget since mostly only inventory has to be financed. I have found that I work best in partnerships where people look at fixed costs the same way I do. It's tough having a business partner in a small business who immediately wants to run up fixed costs.

LFO