How to Staff Your Company - Part 1

author: Lee Buttolph

All owners of small businesses dream of the day when they have a deep bench of outstanding, talented people that can run the day to day of their company will minimal input. This will leave the owner with the ability to come in late, leave early for golf and take the cold month of February off to go to the beaches in the Florida.

Unfortunately, small business owners can rarely afford to pay the salaries of all those outstanding, talented people. The business owner must balance paying for exceptional talent, paying for supporting talent and doing the work themselves (DIY).

I have used the following analogy in the past to help owners understand how to think of hiring for their business.

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The following scenario plays out in the world of private label manufacturing all the time (private label manufacturing is when one company contracts out the manufacturing of their goods to another company -- more). Let’s look at a retailer that has a new cake mix they would like to have another company private label manufacture for them so they can put it in their retail stores for sale.

It normally starts out with a concept from the retail company. They want a cake mix, that is made with all non-GMO, Organic ingredients, is Kosher certified, Gluten free and their sugar is Fair Trade certified. We sell high quality products and this cake mix will be no exception.

The retailer takes the cake mix concept to their private label manufacturer and asks them to price out the product for them. The manufacturer’s food scientist takes a look and comes back with a price for every box of $8.

“Holy cow!” says the retailer. “We can’t pay that much. Our market research says we have to buy it at $4 per box.”

The price of super expensive ingredients.

“Well,” says the manufacturer’s sales rep “you did demand the best of the best ingredients. If you would allow us to make a few modifications we could get the price down quite a bit. Can you rank the importance of your ingredients to your target market?”

“Okay, we care the most about Gluten Free and Organic. The next most important is non-GMO, then Kosher and finally Fair Trade sugar.”

A week later the sales rep and food scientist come back and say “We were able to keep it Gluten free and Organic, some of the ingredients are non-GMO but we dropped the Kosher certification and went with regular old cane sugar. With these changes the boxes now cost $4.”

Here is how it looks on a graph:

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Think of your employees the same way. Every small business owner would love to have best of the best employees in every position of the company. They should all be professionals with master’s degrees and 20+ years of relevant experience. Unfortunately, for the amount of sales you do and the profit you bring in this would bankrupt you in six months. Employee experience trade offs must be made.

Let’s replace the ingredients with the different functions of your organization.

How to staff a company for the Warehouse, Accounting, General Manager, Sales Director and IT Manager.

In this scenario, you have decided to hire and pay top dollar for the best of the best people for the positions of Accounting and Sales Director. You are terrible at math and sales is critical to your success. In addition, since having the owner sitting on a forklift in a warehouse isn’t cost effective you decide to hire a warehouse manager too. But, since you are going to take on the role of General Manager you decide to hire a warehouse manager at a lower price point since you will have direct control over his day to day activities. You also have an IT background so you decide to keep that job yourself instead of paying someone.

Five years go by and you have now grown from sales of $5 million per year company to sales of $10 million per year company. Your Net Margin has also increased from an industry average of 10% to 15%. It is now time to invest some of that extra margin back into your people.

Here is what you decide to do:

You decide that since your knowledge of the operations of your business has hit a wall, you will spend the money to bring in a professional general manager that has advanced schooling and experience in your industry. You still hold onto the IT role and the Warehouse Manager stays the same but you no longer have to deal with the hassle of running the day to day of the operations.

This is a repeatable process that you can use as your grow. It is also possible that your high priced accountant at $5 million would be considered inexperienced for a $20 million dollar a year company and would need to be upgraded to a CPA (Certified Public Accountant).

Using this technique will keep you from hiring the wrong people at the wrong time. Know what you can afford, know what you are good at and where you weaknesses are and hire appropriately for them.