This week I chatted with a founder who wants to hire for a key role but feels he can’t afford to do so. The business is bootstrapped and hasn’t received any external growth capital. I faced the same situation when I bootstrapped my company. I was drowning and needed someone who could think strategically and execute. I wanted to hire someone in a leadership role, but the business wasn’t generating enough cash to support an additional leadership-level salary.
I ultimately realized that I would be adding this person to help grow the business, not stagnate it. If the business grew, then the incremental cash generated by the business could cover the additional salary expense.
I couldn’t afford to pay someone for a year if they didn’t help move the business forward. I also couldn’t expect them to move mountains on their first day. There would be an evaluation and ramp-up period, and at the end of it, I should know if their contributions could help grow the business and if they were a good culture fit. Because I was hiring a leader, I estimated that within three months I should know. After reframing it like this, I realized that I didn’t need to think in terms of the business’s current state absorbing this leader’s entire annual salary. It just needed to be able to absorb three months’ worth or so. Said differently, I needed to be able to invest just one-fourth of their annual salary. Since this amount was much lower, thinking of it this way made the decision seem less risky.
I ended up hiring someone, and it worked out perfectly. Within a few months, he had learned the specifics of the business and our industry and was contributing in a meaningful way. The business began generating more cash around the third month, and within twelve months the growth more than covered his salary.
My big takeaway is to not think in terms of annual salary when resources are limited at an early-stage company. Instead, think of hiring as making a three-month (or so) investment in someone to accelerate business growth (and cash generation). By the end of three months, you can usually tell if you’ve made the right decision. This isn’t a hard-and-fast rule and doesn’t work for all roles or at all companies, but it’s an alternative way to think about hiring when things are tight.