This is more of an issue for a new business than it is for an existing business, the good question of “should you bring on contractors or hire full-time employees?”

Everyone has their own opinion on this topic - here is mine (that I stand by adamantly).

Any chance you get, you should HIRE employees rather than just contractors.

Why?

Because as a company, your value is much higher if you’ve been able to build a TEAM that is 100% dedicated to your company rather than easily distracted by a wide-range of products. Of course, however, hiring talent full-time is easier said than done (especially for new businesses tight on cash).

Hiring full-time has two main hurdles involved:

1. Finding the talent and then convincing that talent to work FOR you.
2. Affording the talent

Of course #2 is not as big of an issue if you’re running a $100M+ a year company, but since I’m not - I’ve faced issue #2 with every major hire. With some of our key hires, we’ve had very creative packages (for example, tying compensation to projects they lead and offering a combination of a modest salary with a good revenue share program).

Problem #1 is all about being networked in your industry and having a great idea that others can get excited about. There are many ways to build a list of good talent to hire, I will share them with you periodically in the coming days.

INTERESTING NOTE: Hiring someone means you can add instantly add about 17% to their base salary in other costs such as benefits, taxes, etc…

Right off of that note, you can understand why small businesses may choose to contract more work than hire it in. However, never forget that someone who works ONLY for you may actually produce more efficiently (hence covering that extra cost).

If you’re looking to build a $100 Million+ company that you one day sell - start thinking about making your talent IN-HOUSE. Your valuation when it comes time to sell will be much greater if you have a talented team that works very well together.

Another Tip: If you’re very strapped for cash, never reject talent because you have to bring them on as a contractor - go for it and test them on projects. During the testing time, re-work your financials to make room for that person. This is also a great way to avoid getting “burned” by acting too quickly to hire someone.

Remember, it IS much easier to “let go” of a contractor than it is of an employee.

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Tags: contractors, employees, Hiring

This entry was posted on Thursday, March 13th, 2008 at 10:50 am and is filed under Hiring. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.