Building Your Own Start-up Technology Company, Part 3

By Dirk Knemeyer

Published on May 30, 2006

The third part of the series talks about two critical elements to operating any business: figuring out where to locate your company and—most important of all—hiring employees.

#10. Setting up your base

Part of being a company instead of an independent contractor or solo developer is assuming a certain degree of formality. One of the first things that most people do when starting a company is lease office space. However, this should not be an automatic decision or something to be taken lightly.

Even though the freedom and prestige of having your own business address are enticing, it comes with a steep price. Leasing office space represents a relatively large fixed cost that you need to pay every month, regardless of how much or if you are generating income. Expect to pay at least $1000 for any kind of professional office space that you would be proud to call your own, and large enough to scale up with you, at least in the short-term.

Additionally, there are utility costs that need to be paid—money that is due each month—regardless of how much income you are bringing in. Here are some likely examples:

• Internet access (DSL/Cable service)
• Telephone service
• Electric/gas
• Dumpster rental/Garbage/recycling
• Water/sewage
• Cleaning service
• Business/commercial security
• Higher liability insurance

Some of those things will be included in your lease, while others aren’t absolutely necessary when you’re starting out. Still, at best, you’re looking at a minimum $150 a month to cover the bare basics, and up to $400 for a small space/company at the high end.

So you are looking at the neighborhood of $1500 a month for a nice, roomy office space and all of the other important fixed costs and services that come with it. That might not seem like much, but when you’re just getting started and not making much or any money, it’s not fun to pay these bills.

But it doesn’t end with the fixed, ongoing costs. You’re going to spend more money than you expect on one-time equipment costs, too. Here’s a starter list for a little taste:

• Computer(s) for each employee
• Software for each employee
• Printer(s)
• Scanner
• Stereo and/or speakers
• Telephone(s)
• Desks and chairs for each employee
• Table and chairs for public spaces, such as a lunch table or conference room setup
• Filing cabinet(s) and file folders
• Paper, pens and pencils
• Lighting
• Art and decoration
• Coffee Maker
• Dishes/silverware/kitchen stuff
• Snacks and beverages
• Magazines/newspapers/books
• Toys and games
• Tissues
• Toilet paper

There are also additional, often unexpected costs, like:

• Movers
• Data recovery services
• Plumbers
• AC Repairs
• Computer repair
• IT Asset Disposal

The variables in the total cost of outfitting your office vary wildly, based on the number of employees you have, how well outfitted your office is (Does it have a kitchen?). Most of these are one-time costs that you can budget and not worry about for a while thereafter; however, some of these are additional fixed costs that affect your budget every month. These costs lower your profits.

Considering all of these costs, there’s something to be said for initially holding off on getting office space. Many companies make the investment before they need it, adding a layer of financial risk. Particularly in software, when a company is getting started, there are often not enough people to require office space (four full-time people is a good over/under number) or a real need for it (clients and investors often like to meet in their own offices, not come to yours).

We didn’t have office space until we were in business for a 18 months, and during that time we landed a bunch of sweet clients, companies like PayPal, Shutterfly, and MITRE, an arm of MIT and a service provider for the U.S. Department of Defense. While we would have liked working in a sexy office space right from the beginning, we didn’t need it.

So while you might have hired a handful of people or about to hire, a lot of revenues coming in that you can count on for some months into the future, or both; more often you’re not that large or financially stable enough to make moving into dedicated space a priority. Don’t be afraid to get things started out of your house and evolve into a “real” home base when the timing is more appropriate.

#11. Hiring the right people

The most important thing your company does is hire people. The employees ultimately determine the personality and culture of your company, the content and quality of the products and services you create, and set the trajectory for eventual success or failure. Smart hiring becomes one of the most important skills to cultivate as a business owner.

One simple tactic to weed out strong hires from weaker ones is to start employees on a contract-to-hire basis. Not only does this let you try working with people before they are on payroll and more intertwined into your company, but also it comes with financial benefits. It’s less expensive for a company to compensate contracted employees than to put them on payroll, which includes a variety of additional taxes and insurance classes.

Make sure each of them fill out a 1099, and report the contract to your state. This is typically required for child support reporting purposes and applies to all employees—whether or not they have children.

You should also try to hire people who come with strong, direct recommendations from your first person network. Getting employees who have earned the trust of people that you already trust adds a high degree of confidence to the hiring process. While your company will eventually grow to the point where you might not be able to sustain that, at least in the early days you should be able to handle basic staffing through direct relationships. This helps you build a strong base.

Also, pay more for good, experienced people—instead of saving money by hiring young or junior people. It’s essential that your core team is experienced and able to effectively do their job without too much administration or oversight. In growing a solid foundation, you can’t afford spread in too many different directions. Every hour you spend helping to educate someone is time that you’re not running the business, or time that you’re using the essential skills that led you to the point of opening your own company. While long-term profitability and scalability requires a nice mix of senior and junior employees—especially in the beginning—invest in people who’ve done it before, and done it well.

Staff turnover is one of the most expensive costs that companies incur. The cost includes the time and effort to find new people, and more time and effort to properly educate new employees so they’re “up to speed” with everything they need to know. While many of these responsibilities will ultimately be part of HR in a larger company, you should think about creating a system or process for new hires right from the beginning. Document the steps, and learn how to improve the process. Make hiring as quick and easy as possible for employees to get up and running.

Finally, hiring the best people for your specific needs is a tricky process. While advising you on hiring talent could be a master course itself, here are quick guidelines to get you off on the right foot:

• Hire for personality first

  Nothing is more important to the long-term health of a company than a strong work environment, which comes from people whose attitudes and personalities fit with your company culture. One bad apple can lead to a big setback for your organization, so don’t be dazzled by someone’s résumé or portfolio.

• Hire for work ethic second

  Hungry employees drive you forward, doing what it takes to complete their assignments—and often more. Get people who have a gleam in their eye and either a strong willingness to please or personal ambition in their hearts.

• Use someone’s experience and expertise for doing the job as the basic consideration set, not the factor that determines the hiring.

  Doing the job is table stakes. And the more qualified someone is, the more potential they have. But show discipline by picking those who fit best both culturally and in terms of work ethic; regardless of how impressive a candidate’s track record looks.

• Think about “fit”

  Someone might have a great personality, but doesn’t fit with the character of your team. Someone else might be brilliant, but their best strengths are not in the specific skills you desperately need. Be clear with yourself about how well people fit, and choose the people that match your organization the best—instead of who is necessarily the most impressive.

• Check their references—especially the ones they don’t volunteer

  People typically give potential employers their very best three references to contact, some of whom are more their friends than somewhat objective colleagues. So while you should check the references employees give you, ask for a couple more as well. The deeper you dig, the more likely you are to get exposed to the various facets of a potential hire, not just the brightest sides that they want you to see.

Conclusion

The fourth and final article in this series will cover the things that build your business, including sales, service, management, and the all-important getting paid.

Related Topics: Business, Client Management