By Austin Miller, Content Marketing Manager
If you’re wondering how to hire for a startup company, you’re not alone. Every month, thousands of entrepreneurs Hit the Search ENgines to Ask the Same Thing. In this article we’ll breakdown how you can hire startup employees with little to no capital.
Bootstrapping a new company, getting it off the ground and producing income is a challenging process. By definition, bootstrapping is a "means of advancing oneself or accomplishing something, relying entirely on one's efforts and resources." When you're trying to hire a new sales person or operations person but don't yet have sales revenue to back up the payroll, it's time to get creative. That's what bootstrapping is all about!
Startup Hiring Tip** Know the Difference Between Employees and Contractors
As it happens, there are three proven ways to hire new employees who will work for your company when you have no cash. In most cases those people you hire will not be your employees—they'll be contractors. Now there's nothing wrong with hiring contractors, but you'll need to know the pros and cons (such as the tax implications) if you decide to pursue this route. The Internal Revenue Service has a strict set of rules that determine whether a person is an employee or a contractor. For example, the IRS considers a person an employee if you control what will be done and how it will be done.
If you spell out the time the person needs to be at work; if you require the person to follow a certain procedure in completing the work; if you specify how the work needs to be completed—you are treating that person as an employee. You are required by law to withhold payroll taxes from that person's paycheck.
However, if you allow a person to use his or her own methods in completing the work, allow them to work on their own schedule and otherwise treat that person as an independent business person performing a task for you, it's likely that the IRS will classify that person as a contractor. Contractors are responsible for paying their own payroll taxes.
Imagine that a large oak tree has been weakened by a storm and threatens to fall upon your business office. You hire a tree removal company to cut the tree down and haul it away. That removal company is a contractor. You would certainly not presume to tell them how to do their work, require them to be on site at a specific time nor dictate what tools they should use. They are contractors. Similarly, your contractors must be allowed to work for you using their own methods, tools and techniques.
Special allowances are made for sales people you might hire. It seems the IRS understands the bootstrapping process by acknowledging that sales must occur if a company is to survive. Therefore, the tax code automatically places most sales people into an independent contractor role by default.
The IRS rules are important. If a company hires a person as a contractor, but lays down policies and procedures that must be followed—such as what time to report to the job each day, or how to complete the work—the IRS is likely to find that person is an employee. The tax courts are filled with cases where companies were obligated to pay back payroll taxes for improperly classified workers, often over many years with costs and penalties running into tens of thousands of dollars.
How to Hire for a Startup Company When Strapped for Cash: 3 Different Approaches
Now that you’ve got a general review of the IRS rules, let's look at three ways you can find and hire qualified candidates for your bootstrapped startup.
Most every college and university has an intern program that aims to give students real world experience in their major field of study. For example, a student studying accounting might seek out an internship position with a cloud-based bookkeeping company, working without pay, but accumulating college credits for his or her efforts. Multimedia art students might be able to help a company grow by designing the company's web site and advertising material. An accounting major might keep the books. Computer and IT students might develop software. Marketing students might contribute to the business plan.
Interns can be found by contacting the local college or university and asking for the person who handles the internship program. In most cases each speciality will have its own contact person. That is, the school of marketing will have a person who oversees the internship program, while the computer programming school will have a different person. A few calls will get you in touch with qualified, motivated students who can help bootstrap your company—even though you have no cash.
2. Commission Deals
Most new companies face the issue of building awareness in the marketplace—letting prospective customers know that the company exists and that its products and services deserve their attention. The people who specialize in that area are in the business development, marketing and sales specialties. It’s entirely possible to hire people who have extensive backgrounds and substantial expertise on a commission basis. As the person closes or contributes to sales, the company pays him or her a portion of the sales revenue as commission.
Finding these people is not difficult. Job openings can be posted at both Craigslist and Indeed. It's important to post an opening that is written professionally. Too many postings scream, "Make $3000 per Month, No Experience Necessary." Honesty, professionalism and integrity are the best policies when writing job postings. Be sure to explain that the company is a start-up and that the job is commission-only. Give the respondent a way to reach you with his or her resume, then do the courtesy of replying to each applicant.
3. Manufacturer Rep Firms
If you sell a product, rather than a service, manufacturer rep firms may help you build your business. These firms are in business to represent and sell products from a variety of similar manufacturers. Some manufacturers use these firms as their sales division, rather than hiring in-house sales people. A given rep firm usually has a focus. Perhaps they handle industrial chemicals, machine tools or technology products. They work on a commission basis, so it is rarely necessary to pay them up front. Your only financial exposure would be providing demonstration models of your product which the rep firm would use in their sales process.
Again, finding a rep firm is not difficult. Do a web search for "manufacturer rep [product type]" where you insert the kind of product you want to sell. These firms have an established team of professional sales people and a base of customers who may well begin buying your company's products in short order.
Bootstrapping a company is challenging. However, finding people who will work for a company with no cash on hand is easier today than ever before, thanks to the resources available via the Internet. Begin your search today using the startup hiring tips we’ve discussed and you’re likely to find your startup being one step closer to become a profitable business.