Most consultants prefer to work independently or with a partner, or will sign on subcontractors when the workload is intense, but there comes a time when taking the leap and hiring an employee makes sense. As with any strategic decision, you must evaluate business needs before taking on the responsibility of an employee.
We spoke with two IT professionals who noted the difference between their technical roles and their jobs running a business. If you think you’re ready to begin hiring, ask yourself the following questions:
- Am I spending too much on freelancers?
- Am I ready to grow the business?
- Am I spending too much time in areas that do not utilize my talents?
- Am I ready to delegate tasks and manage people?
- Do I have the capital reserves and customer relationships?
Are you spending too much on freelancers?
Frustrated at the amount of time and money she spent locating contractors, Lori Ann Clark, president of J4 Web Services, an IT consulting firm in Cannon Falls, MN, hired her first full-time employee two months ago. She said that during her four years as a consultant to small businesses, she had paid thousands for freelance help.
“If you look at their hourly freelance rate—which is higher—vs. their full-time rate, there comes a point where you get 40 hours for the price of 20,” Clark said.
She also avoided having to fight to make her projects a priority for freelancers. For example, before hiring an employee, after booking several contracts, she would check her pool of freelancers and struggle to coordinate their work time with her schedule. “You might be the last priority,” she said. “They may work for you for one or two projects, then want a full-time job, or they move on to something else.”
Such scheduling conflicts affected the amount of business Clark was able to bring in and when the work could be completed. Clark calculated that if she could book work for an employee 10 days out of the month, that employee’s salary would be paid for, and anything after that would create direct revenues.
Are you ready to grow the business?
Adding an employee enables a business to handle additional clients, according to Jeremy Ziegler, CEO of Aware Web Solutions, an IT consulting company in Edina, MN. Ziegler, who started the business four years ago as an independent consultant and partnered with another independent to form the company, has hired 11 employees since early 2001 to manage a growing client base that includes the Toro lawnmower company.
“We needed to get more employees so we could get more customers—so that I could have somebody else doing my day-to-day stuff and I could go out and find new business,” Ziegler said.
Likewise, Clark was convinced to take the risk of hiring an employee when she realized that the extra hours an employee would have “left over” at the end of the week after working on client projects could be put toward helping her business grow. Now that employee is creating content management solutions to sell to clients.
“The problem when you’re an IT consultant or freelancer is that you need to have your technical hat on a lot because that’s where your billable hours are,” said Clark. “The real challenge to growing a business is working on your business, not in it. That means you have to get back into that entrepreneurial mode as much as possible.”
With an employee, Clark was freed of production responsibilities so that she could pursue new business.
Do you spend too much time in areas that don’t utilize your talents?
Ziegler says that another goal of hiring employees was to have them assume tasks in areas where he is weaker. For example, because sales is the least favorite part of his job, the company is in search of a sales-oriented employee.
“Can you find somebody to do the things you don’t want to do?” asked Ziegler. “I look at IT consultants, and what I’ve seen them do is hire other IT consultants who are now in charge of selling, and they can’t do it.”
For Clark, the production aspects of her job—design and coding—weren’t her strengths. Handling client relationships and bringing in work were the parts of the business she enjoyed most. Clark opted to hire a PHP programmer.
“I’m not the best person for it. I’m not the fastest,” she said. “And to really grow the business, I need someone who knows what they’re doing in this position. I wasn’t happy doing production.”
Are you ready to delegate tasks and manage people?
There are tradeoffs with taking on employees: Instead of managing clients and production, as a new employer, you’ll be concerned with employee vacations, doctor’s appointments, and personality conflicts between staff members, Ziegler said.
“If you don’t like the day-to-day book work of taking care of employee benefits, or setting up an employee handbook, it may not be for you,” he said. (His company hired an office manager to handle employee needs.)
Ziegler also recommends that consultancies considering hiring two or three employees should have the goal of hiring 10 or more because the employee benefit and payment infrastructure is already in place. He said his company is still striving to make its ROI on its employee setup.
Besides the paperwork, Ziegler says IT consultants should be ready to manage people and contend with the conflicts that almost always occur.
“Not all independent contractors are necessarily cut out to hire people. If you haven’t managed people successfully before, that could be a warning sign,” he said. “Do you really want the call at 8:00 P.M. on a weeknight from an employee that’s crying because she can’t get along with one of your other employees?”
Do you have the capital reserves and customer relationships?
Being able to afford salaries, income taxes, vacation, and medical and retirement benefits is often the last hurdle for a business in making a hiring decision. For Ziegler’s business, a switch to establishing contracts for ongoing work instead of only project work made the company feel secure enough to start hiring.
“We tried to set up relationships with our customers in which we would get a six-month contract for a certain number of hours a week. That way, you know how much time you have available as an owner, and how much time you can fill in with somebody else,” Ziegler said.
Besides a change in relationship with his clients, Ziegler says the company also had to save several months of capital reserves to assure that it could always meet payroll, no matter how the business was doing.
Clark says she was able to save money this past winter in order to make her hire in the spring, but that on payday, her heart still goes “pitter-patter” knowing she has to write a check.
Ziegler contends that he has accepted having so much responsibility on his shoulders. “If you’re an independent, you can do your own thing and move around a bit if you have to. If you’ve got employees, there are people relying on you to keep things going.”