I get it. Most startups operate on fumes, in terms of available cash resources. So, the natural instinct of most entrepreneurs is to pay as little as they can for most of the expenses in their business. And, I agree with that for most all expense categories, except one: human talent. Building the right team for your startup is the single most important thing you will do in terms of putting your business on a path toward success or failure. You try to cut corners with your talent decisions and you are toast.
When hiring employees.
There are many ways startups try to save payroll costs. Sometimes they find the candidate willing to do the job for less money. Sometimes they downgrade the position (e.g., from a VP of Marketing to a Marketing Manager). Sometimes they try to avoid paying expensive benefits or giving out dilutive stock options in their business. Each of these examples are filled with opportunities to fall on your sword.
Related: How to Hire Like a Pro
You have to ask yourself these key questions before going down one of these routes. Why is that person willing to work for less money than their peers; maybe they are desperate, hopping from one job to the next? Who has the most experience to help you achieve your desired goals; the first timer experimenting with your business, or the proven veteran that can shorten the learning curve making fewer costly mistakes? Do you really think you are going to be competitive to attract the best talent up against other high-flying startups when others are offering meaningful benefits and upside incentives and you are not? As you can see, hiring talent has much higher potential costs, than just their line item in the budget, if you make the short-sighted, cash-saving decision.
When engaging professionals.
The same holds true when you are engaging professionals (e.g., accountants, lawyers, consultants). If one professional is saying they will do the work for $100 per hour and another is quoting you $200 per hour, your instinct shouldn’t immediately jump to the one offering the lowest price.
As an example, maybe the higher-priced solution has the learnings from a 20 year career vs. a five year career, to help you avoid more known pitfalls that you don’t even see coming. Or, they have helped 20 clients succeed in similar situations, vs. two clients who succeeded (the ones they tell you about) and 10 clients who did not succeed (the ones they don’t tell you about)? Or, the higher priced consultant can afford to charge those rates, because their time is limited and everyone is fighting to get his or her involvement with their business because they are simply the best? Again, not all professionals are created equal, and you need to peel back the layers of the onion far deeper than just jumping to the lowest-priced solution.
When seeking mentors.
As a mentor myself, I am very selective with my time. There are only so many hours in the day, and I have to prioritize with whom I invest my limited time. In any given year, there may be hundreds of startups looking for free help and less than 10 percent of them have any chance for long term scalable success. And, from those dozens that have a fighting chance, the best mentors typically only have time to work with a couple. So, to the extent you can offer them a good reason to pick your business (e.g., stock options, advisor fees), you want to make sure you break through the clutter, to ensure they work with you.
Related: The Key to Hiring the Best Employees
Equally important, make sure the mentor is qualified to be advising you on that specific topic at hand. Getting free mentorship on marketing ideas from your lawyer, is probably not as effective as getting professional marketing advice from a proven marketer, even if you have to incentivize that mentor to get it. So, don’t go down the cheapest route looking for advice, go down the best route.
When raising capital.
I have often said that venture capitalists would rather invest in an A+ team with a B+ idea, than a B+ team with an A+ idea. First of all, that is not a lot of margin for error in your hiring decisions, so it is critical you get it right in order to get investors excited about your business. And, secondly, when doing your budgeting work, you can’t only look at the talent as an expense line in your payroll; you have to think about if that talent can help you open up additional investment resources that otherwise would not be available to you. Said another way, you need to invest money in experienced talent that investors are looking for, to help you raise money, that will help take your business to new heights. So, stop thinking about talent as simply line items in your budgets, as their value can help you many other ways than simply doing their job.
Payroll mistakes are the most costly.
Hopefully, what you have seen in this post is: (i) decisions around human talent will be the most important ones you will make; (ii) going down the cheapest route, is often times a recipe for disaster; and (iii) the costs of making a talent mistake can often end up being materially more expensive than the originally monies you were trying to save in the first place. To pound home this last point, you hire the wrong enterprise sales guy, trying to save a short term buck, and you lose precious months of selling time and revenues, and potentially just put yourself out of business.
Related: The Case for Blind Hiring
So, long story short: don’t think cheap with your talent decisions; think the best, even if it comes at a higher cost. What you are losing in short term cash, you are more than going to make up for in long term success. As the old adage says -- you get what you pay for.