27 March 2007
Expand or stay comfortable?
We’re at an interesting place right now at Carson Systems. Up until now, we’ve been very conservative with our cash flow and not hired until he we had more than enough money in the bank.
However, we’re in a place right now where we know that if we hire two more key people, the business will really go crazy and grow even more. But here’s the catch: cashflow will be a little tight.
Normally, we’d sit tight and wait till there was more cash in the bank. However, Gill and I had a talk and we feel that the company is actually being held back because we’ve been too conservative. We’re going full steam ahead and hiring two folks (a designer/front end developer and an events manager).
It’s a tough call. It’s a bit uncomfortable, but we know it’s the right thing for the biz.
If you’ve faced a similar situation, please share! It would be interesting to see how you all make your decisions on things like this.
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Cemonko
# March 27, 2007 - 7:09 am
Jason, your business can not get bigger unless you invest on it. Of course, keep yourself safe by holding a cash in your bank, but you should invest on your business by hiring new staff, etc.
This is the only way to improve your business. You should expand your team in order to let your business grow.
Thijs van der Vossen
# March 27, 2007 - 7:11 am
Take your business plan to the bank. Get some credit. Time to invest. :)
Rob Smith, Blockquote
# March 27, 2007 - 7:29 am
We’ve faced this many times – you need to have the feeling that you can pay the wage bill each month, that’s all. Money in the bank is useful, but on that kind of note you’d never buy a house, buy a new car etc due to having it on mortgage/finance?
As long as the new hires generate more cash than they cost – no worries :)
Grow grow grow!
Marston A.
# March 27, 2007 - 8:20 am
I think if growing is one of your goals then definitely do it. It is a *risk* and that is why it feels uncomfortable, but risks have to be taken.
But then again what is a risk (aka a fear) other than ones perspective on something. You could always change the way you look at it to make it seem less uncomfortable. See it as a “strategic business move for efficient and optimal growth” (or however you’d like to phrase it).
Do what you can to take the validity out of these fears and know that even in the unlikely worst case scenario that life (and business) will move on. It always helps me to look at things in different ways in many situations in order to put things into perspective.
I think in the end if the business is something you’re confident in, passionate about and love doing (Which sounds to be true in your case) then that will shine through and further facilitate your goals of success and growth.
Also seeing that you’re already a (relatively) established business and have a presence in the space, I think that makes it even more of a no brainer. I know taking such an intuitive a illogical view on such important business decisions may not be so common in the big business world but it has yet to fail me (Personally and Professionally).
Do what stirs your passion and feeds your soul. As you said: “We know it’s the right thing for the biz” as only you truly would. Good luck guys :-)
john
# March 27, 2007 - 9:08 am
We’ve faced the same situation and I think one has to consider carefully the motivations. Is growth what it’s all about? If so then you need to hire and expand, hire and expand, hire and expand. However, if it’s not just about growth, if it’s about sustaining what you have, keeping a balance between what you’re doing, what you’d like to do and what you can do, then perhaps you’ve no need to hire more staff. Do you need to be bigger? Is that what you want, to run a company with a staff of many?
There have been times when we have had the cash and the work to hire more staff, but we have not done so. End result was that we possibly wouldn’t have been able to sustain that particular growth long term. It’s a tough call, because maybe, had we hired someone else that would have enabled us to go in a new direction.
Most business books say don’t expand too quickly – don’t get an office if you don’t have an immediate need, don’t buy equipment if there’s no obvious requirement etc. It’s good advice. . . but it’s a balance. You have to question whether more staff equals a stronger business or just a bigger business.
Matt Carey
# March 27, 2007 - 9:26 am
Agree with all the comments about taking the ‘risk’ (a calculated one mind you) of hiring over keeping the money in the bank. We have done the same thing — hiring would mean cashflow is *tight* but it has worked out each time. It was the right thing to do.
But there is another issue — there is a limit on the amount of money to be made in relation to the size of the team. When it was just 2 of us we worked like crazy but only ever made a certain amount of profit. We knew we needed someone else. Taking on the extra person frees everyone up and the amount of profit increases.
Cemonko
# March 27, 2007 - 10:26 am
I agree with all comments. As Matt said, when you make a right move and expand your team (at the right time), your profit/revenue will increase as well. I notice this in my business as well. There is a ‘mystic’ proportion between the size of the team and profit/revenue :)
Ryan Carson
# March 27, 2007 - 11:12 am
Thanks guys – appreciate the feedback.
It’s nice to know there are others out there who’ve faced the same decision.
Warren
# March 27, 2007 - 11:47 am
Going through this at the moment matey
No 1 tip
Make sure you keep a supply of clean underpants at the office ;o)
Ross Williams
# March 27, 2007 - 12:45 pm
Do it.
We went through a period of “shoring up” whereby we grew to a certain point, then stalled and took stock of where we were and planned growth again.
If you’re an entrepreneur, GROW – build it up, take (calculated) risks.
You may need to remind yourself from time to time that you’re an entrepreneur which means taking risk but reaping rewards.
Just be sure that you don’t abdicate responsibility to new hires – keep them targetted with measurable goals.
Ross
Martin Crockett
# March 27, 2007 - 1:20 pm
How about taking on staff on 3- or 6- month contracts to start? That’s what Sony do to keep headcount flexible. Offer a perm role when things work out.
Or, as Thijs mentioned, go “Dragon’s Den” and approach your bank manager with your plans, just to cover you with a subsidy if cashflow gets tight.
5Tacos
# March 27, 2007 - 2:11 pm
“Failure is simply the opportunity to begin again, this time more intelligently”. – Henry Ford
Think about what result/place you want to be in 1 yr, 2 yrs, 5 yrs…if achieving those outlooks requires growth in your organization, then go for it.
5tacos
Keith
# March 27, 2007 - 3:15 pm
We’ve been there twice in the last year. The first time felt like a big risk. Up until then we’d had no employees at Blue Flavor and we’d actually been really tight cash flow-wise. But we’d hit kind of a tipping point where we were getting more work and doing a better job with that work. And we were all really getting overworked. So we jumped in and hired two people. That was about 1 year into the business.
So far that’s worked out well. We’ve not grown much as far as workload, but enough to add another full time employee who I think really rounds out our team and sets us up for the perfect kind of growth. Cash flow is still a concern, but we’ve been getting more quality work and that should eventually turn itself around.
The thing is, we had to test if our model and our philosophy could scale and we figured sooner rather than later. It is important to note that we own 100% of our business and have never borrowed. The only risk is to ourselves and we’re all pretty confident we could make it work.
Time will tell, but I’ve a feeling that adding people and testing that model early will pay off. If not — it’ll be a lesson learned. ;0)
Michael T. Halligan
# March 27, 2007 - 4:54 pm
Ryan,
My opinion on this matter is pretty simple. If you have cash in the bank, and feel that you’re not utilizing it wisely enough, then you probably aren’t. It’s time to Leverage. If you have enough cash flow to make this new stage happen, but are worried about a diminished comfort zone, then perhaps you need to go for the UK’s equivalent of an SBA loan.
Figure out what you need for an expansion (think through all the costs.. Office furniture, laptops, marketing materials, salary, adwords campaigns), and apply for a loan 1.5x that size (because your estimate is too low) at some local banks who you can sit down with, and have experience funding small businesses.
The capital you have saved up can be a cushion, and it can also be collateral towards a larger set of financing.
Your blog has ridiculous exposure. Just write a blog post saying “I need debt financing” and you’ll probably have 100 VCs banging on your door!
Michael
Tanny O'Haley
# March 27, 2007 - 9:35 pm
@Ryan,
What does Gillian think? If you decide to use credit, just make sure that the collateral is the business not yourself (just in case).
@Rob Smith, Blockquote,
Not everyone takes out a loan to buy a car. Some keep their car after paying it off and pay the car payment to savings or a CD. After three years they are able to buy a car without the huge interest payment.
Ryan Carson
# March 28, 2007 - 6:49 am
It was her idea in the first place :)
Cemonko
# March 28, 2007 - 7:13 am
I don’t like using credits. If you have a good cash flow and a good amount of cash in the bank, I would be using our own resources to hire new staff(s). But of course, this is my opinion. Using credit is the best way for most companies. I just don’t like credits.
Expanding Team, Expanding Your Revenue : Life and Business
# March 28, 2007 - 8:01 am
[...] I wanted to write about this topic after reading a discussion at Ryan Carson’s blog, Carsonified, here. [...]
Adrian Oh
# March 28, 2007 - 1:54 pm
Since you know the business will “explode” once you have new hire, why worry and hesitate? Tight cashflow on happen at initial stage. I would say, let’s just do it. You cannot do all the work by yourself, and it’s not like you are hiring a team of army anwyay.
Cemonko
# March 28, 2007 - 2:54 pm
Ryan,
Keep us informed about things changing in your company after hiring those two new staffs. I am sure you will have positive feedbacks.
Luciano
# March 28, 2007 - 2:56 pm
I can give you our own methology
We have 10 employees
We have the 75% rule
We must always have 75% of our costs(salary/rent/utilities) cover with signed contracts
When we have new contracts and this 75% grows we grow
Matt
# March 28, 2007 - 5:24 pm
You definitely have to make that leap of faith in order to grow the business. We’ve done it several times, more often than not it’s worked and it’s been the correct decision to make the hire – we’ve had the occasional painful experience, but that’s all part of the game and as long as you cut your losses quickly enough, you’ll be OK.
Ironically, we’re now in the opposite situation. We have more than enough reserves and retained revenue to hire more staff, we just can’t find good enough people. If there’s one thing I’ve learned it’s that getting the wrong people in can be an exceptionally expensive mistake.
Guillaume Justier
# March 29, 2007 - 8:37 am
We use the same technique previously mentioned:
When we have 50% of the cost of the new person, we go for it.
The idea being that this person will generate the other 50% of the money very quickly (if only by freeing up time for you to find more business).
My feeling is if you wait until you have 100% of the cost saved in the bank before you recruit, you are probably slowing your business down by not reacting quick enough.
Of course feel free to adjust the 50% to whatever percentage you feel comfortable with.
aaron dragushan
# March 29, 2007 - 8:51 am
Hey Ryan,
I hear ya. One way to approach the decision is to consider the rate at which the new person would pay for their own salary.
If you’re hiring a salesperson or marketer, they might be paying for themselves within a month if your business has enough volume for them to work with.
If you’re hiring a designer it might take 6 months or longer.
Another factor to consider is how long the job search will take (we usually figure 1-1.5 months) and then how long it will be until their first paycheque. If the sales figures for your app are *reliably* going up over time, you can hire a bit before you can afford it, but you have to be very careful.
I enjoyed meeting you in Austin btw, and your talks were great. Keep up the good work!
- aaron
Ryan Carson
# March 29, 2007 - 10:53 am
Wow, thanks for the flood of good advice. You guys/gals are brilliant! :)
Jeff White
# March 29, 2007 - 10:42 pm
I was in a similar position with my company about six months ago. I was working 90+ hours a week, never seeing my family and not having any time for myself. That lasted for close to a year. In December, I made the decision to hire someone and chose a designer who has been a huge boon to my business.
He has allowed me to spend more time building the company and it has also given me more time to spend with my family.
I say if you’ve got a good bit of cash saved and think that these people will allow you to really do more, go for it. As has been said already, business is all about calculated risk. There will always be something keeping you up at night, so you may as well go for it. Like my accountant says, if it doesn’t work out, you can always let them go and move on from there.
I also brought my new designer on as a three month trial period, and he and I both knew that we would re-evaluate the situation at that time. It basically means that neither of us will have lost a whole lot if it doesn’t work out after the trial.
Good luck!
simon r jones
# March 30, 2007 - 1:22 pm
Hiring new staff can be one of the most valuable things you can do to grow your business. We find having staff in-house developing your products has huge benefits. Plus it’s nice to have more people around the office ;-)
Good luck!
Ideate - Small Business in South Africa » Taking the plunge to grow
# March 30, 2007 - 8:25 pm
[...] Ryan Carson runs a software company and is facing that issue right now. He wrote about it here. Most of the comments say “go for it!”, which is a very easy thing to say from the sidelines. However, there was a pearl of wisdom in Ross Williams’ comment (about half-way down) who said, “Just be sure that you don’t abdicate responsibility to new hires – keep them targetted with measurable goals.” I think that is an excellent piece of advice. Abdication is delegation’s evil sister, and the sooner I learn to tell the difference between them, the better! [...]