Sunday, February 2, 2014

Hire an employee or ... buy management software

To answer this question we need to think about why we hire an employee. Several scenarios exist and some are very positive but others...not so much. For example, if you hire a salesperson to manage a new sector it's probably a good sign: more sellers, more sales, more revenues. However, if you hire someone to delegate or distribute administrative tasks, its obviously less profitable: more employees, more spending, same revenues, less profits.

I'm not trying to say that no employee should be assigned to administrative duties. However, I am clearly saying we must keep this number to a minimum. How? Often by setting up an effective management software.

To help you understand my point, imagine a small company that has two employees. These two employees are the heart and soul of their business and must work more than 60 hours per week. Having a little more income, they decide to hire a third person to delegate administrative tasks. Doing so, they reduce their weekly effort to 45 hours. Problem solved! More or less. An employee hired will cost at least $ 25,000 per year. This person does not sell and is not attributed to business operations. We're therefore confronted to an expense: what I call an "expense-employee".

If, instead, these entrepreneurs had invested in software that managed their billing, accounting and operations, they might find themselves in better posture after a short amount of time. Such software, if well established, could allow our entrepreneurs to reduce their workload substantially since they will not have to enter data redundantly through their various systems. They'll avoid hiring someone and, once the software is paid, its more profits straight in their pockets.

It is true that custom management software for a small business can cost in the tens of thousands of dollars. However, compared to the salary of an employee, it's an expense that is only done once. Small businesses will therefore find a return on investment usually within a year.

Another important advantage of custom software is that it provides guidance to employees. Without software, processes are known only by employees. They therefore all become key employees. They are expensive and essential to the business. With good software, processes and data are contained in the software, facilitating the work of employees, reducing their training time and making employee rotation less of a hassle.

By making such remarks, I'm often told that if everyone thought like me, we wouldn't have jobs as we would all be replaced by "machines". Nothing is farther from the truth. My goal is not to reduce the number of employees but to increase the proportion of employees with added value vs. "expense-employees". What must be understood is that in the business world when spending is reduced, profits are increased. This usually translates in a greater re-investment in the company to increase revenues and grow the business and thus increasing the number of employees.

This article is meant as a wake up call for entrepreneurs that are on the verge of hiring but that haven't yet put proper processes and software in place. There are obviously a lot of circumstances and all businesses are different. Nevertheless, when the time comes to hire, take the time to ask yourself: why am I hiring? Could it be avoided? Would a proper software help me reduce my current tasks and better support my current and future employees? What is the best investment?