Taking the Plunge -- When to Hire the First Employee

Starting a company can be awesome, especially in the ideation phase—when everything is blue sky and possibility, and nobody has to worry about making payroll. But no founder or even founding team can be successful going it alone. Eventually you have to hire others to help you get the job done and move from a fantastic idea to a real company.

So when do you know you are ready for that first hire? Being too early to hire your first full-time employee creates hidden debts, but so does being too late. Hiring too early can strain cash flow and leave you managing people instead of building customer relationships, raising money, and charting a path for the startup. But too late leaves critical tasks undone and possibly creates unhappy stakeholders with poor products or service. 

There are no hard and fast rules as to when to hire the first full-time employee, but here are some guidelines as to when to pull the trigger:

  1. When the startup can afford to. If there is cash to last six months or more, the startup is in a position to offer stability for at least that much time—but should communicate the risks to recruits. This typically means you have raised funds. (When you run out of those funds, given expected expenses, is your fume date.)

  2. When the needs of the business dictate it. Once a startup has paying customers, you likely need a dedicated resource to service them. You can’t disappoint your first customers!

  3. When there is a job to do. When the startup has demand in one functional area that needs forty to sixty hours a week or more from a dedicated individual, it needs an employee. This may or may not be attached to a sales order or customer.

  4. When the opportunity costs on founders becomes too high. Founders can carry the load only so far. When getting necessary work done precludes spending time on strategy and fundraising, it is time to hire the first employee.

When you do make that first hire, think carefully about what you need. You never know how long that person might be with you. Ideally they should be adaptable enough to grow with the inevitably changing needs of a startup—not hired full-time for a specific task and capability that will change.

In our local venture ecosystem of Central Indiana, the first full-time employee at Exact Target is still working for Salesforce.com (who acquired Exact Target). Here are three other famous first hires:

  •  @Google’s employee #3 @Craig Silverstein, Ph.D. is credited with designing the data mining behind the first search engine. He reportedly worked for free originally and was hired after some funding came through in 1998. He left Google in 2012 for @Khan Academy and is recognized for his philanthropy.

  • @Apple’s first employee, @Bill Fernandez, was friends with both of the Steves (Jobs and Wozniak) and introduced them to each other. They needed an electronic technician and he was ready to get out of the corporate environment at HP. He left after a couple of years, explored the world, and then bounced back to the Macintosh team.

  • @Microsoft’s first salaried employee is reputed to be @Marc McDonald who left after 9 years because the company was getting too big. He then became the first employee at @Asymetrix, another @Paul Allen firm. He later bounced back to Microsoft for another 11 years before moving on to another startup. Check him out in the photo below – middle right, reddish hair and glasses.

When you do hire an employee, look around for a local PEO (professional employee organization) that targets startups to help with your HR infrastructure needs.

Microsoft’s Founding Team

Microsoft’s Founding Team

Whether you are a founder, a potential first employee, or a supporter, if you are getting excited for the book to arrive, check out where you can pre-order The Titanic Effect. Subscribe to our mail list below, and you’ll get these weekly tips sent right to your inbox.