Situation: The CEO of an early stage company has identified a person to help her as an assistant. This will be her first real employee. Prior hires have been contractors who have been paid on revenue generated. This individual’s salary will be an expense without clear association to revenue. What guidelines do you suggest as she makes this hire? How do you hire your first employee?
Advice from the CEOs:
Create a cash flow projection to make sure that you have the cash to afford an employee.
If you consistently expect 40+ hours of work from this individual, consider a salaried position which will give both of you more flexibility.
Paychex currently handles your payroll and benefits. Work with them to make sure that all labor law compliance issues are covered. Also, consider hiring a labor law consultant to help you avoid minefields.
Do a background check even if you have known this individual for a long time.
Consider working with a professional employment organization that can provide back-office HR support for you.
An employee handbook is unnecessary at this point. However, think through how you will want to handle issues that may come up including vacation, benefits and paid/unpaid leave like bereavement leave. Document these for inclusion in a future employee handbook.
Under the current health care law employers with less than fifty employees are not required to provide health benefits without paying a penalty. This may change as the law continues to evolve.
Situation: A Silicon Valley company is considering starting a second office both to reduce costs and to diversify its geographic client base. What are best practices for starting your first remote office?
Advice from the CEOs:
Do you really need to have an office, or can your employees be virtual?
Look at your business model and what aspects of your business require an office. Within Silicon Valley, some companies have established local remote offices to enable staff to reduce commutes. These offices include full computer and audio-visual facilities so that remote office staff can participate in home office team meetings. There are an increasing number of cloud-based services that facilitate collaboration between widely distributed teams in different geographic areas. These include Go-to-Meeting, WebEx and Sococo. Can a model like this work for you? If so, then locating an office in a different region is not very different from a remote local office.
Outside of your current client base, what customer companies would you like to target?
Where are they located? Is there a significant geographic concentration of potential customers in other regions? This might tell you where you would want to put either a real or a virtual local office.
Locating an office in a location with numerous potential clients also increases the likelihood that you will find a trained and experienced local talent pool to staff your office.
Make sure that you analyze and understand your business model and what portions are exportable.
What is your culture and how much does it rely on interaction between home office and consultant staff? Avoid a situation where remote staff feel 2nd class.
The solution is to fully understand your model, and to manage both local and remote office staff through the model. Make it simple to monitor people and their activities.
Situation: A company lost money last year, but turned the corner with a profitable final quarter. One of the company’s divisions continues to lose money, though the losses are small compared to the total picture. The CEO is considering cutting this business. What factors should the CEO consider in making this decision?
Advice from the CEOs:
What expense factors contributed to the loss?
The biggest factor was allocation of vehicle and space expense. This division has seasonal revenue but carries the allocated expenses for the full year.
Make sure that your allocated expenses are fair to the business. Do overhead allocations reflect utilization? Unless closing the business eliminates vehicles or space, if you terminate this business these expenses will be borne by the rest of the company.
Study your allocations by shifting the allocation made to this business to other businesses. What is the impact on their profitability?
If you find that the current allocation does not reflect utilization and adjust accordingly, does the business still lose money?
If this division covers its direct expenses along with most of its allocated expenses, a small loss in this division may be preferable to a reduction in profitability of other businesses from closing the division.
How strategic is this division to the overall business mix?
Is this business essential to your product/service mix or just a customer convenience? If you terminated the business will customers be upset?
Do competitors offer this service, and would you be disadvantaged by discontinuing it?
What are the alternatives?
Can you raise prices to increase profitability and refuse business that does not meet this pricing?
Can you restrict the offering to less price sensitive customers?
Can you refer customers to other vendors or sub out this business?
Can you reduce the scope of the offering while adjusting pricing to enhance profitability?
Can you source other labor alternatives to reduce cost?