How to be a startup CEO: 1-5 employees
nce you have employees, you transition from being the Chief Everything Officer to the Chief Energy Officer. It’s no longer your job to do everything. Now, you get things done based on the quality of the team around you and your ability to clearly communicate and guide the team toward a shared outcome.
This article was written by the original owner of startupguide.com, Ryan Allis, and published on his website in 2012. Read more about why Ryan was happy to hand over his website domain to us here.
Two really crazy things happen when you hire your first employee. Suddenly you’re responsible for the livelihood for another human being. You also have to manage someone.
If you’ve been a parent, you have nothing to worry about. Managing an employee is much easier than managing a child. But if you’ve never been a parent before, watch out. Your life forever changes as a CEO when it’s no longer just you and a partner or two to worry about.
The most important things to know about management are these:
Your first few hires will absolutely be critical in the long term success of your business. But know that you won’t get it perfectly right, no matter what you do.
Read also: How to build systems
The most important thing is that you hire someone to begin taking over the basic operational tasks. If they’re not right, you can get someone else.
You must begin the process of scaling yourself by hiring others who can free up your time to focus on growing the business instead of working in the business. If you don’t, you’ll forever have a job and never a business.
The importance of making the first hire
When I was fourteen and living in Bradenton, Florida, I built a website for a lady named Lois.
Lois was a flight attendant with Northwest Airlines. She would fly on the international routes to China once a month. She began bringing back freshwater pearl necklaces, pendants, rings, and earrings to sell to her friends. They became quite popular and she would get many requests.
When Lois and I met in the Spring of 1998, she asked if I could build a website for her at freshwaterpearls.com. She incorporated and we set up the merchant account, shopping cart, and ecommerce store. We got listed in the major search engines, which at the time were Yahoo, Lycos, Dogpile, and Northern Lights.
Six months in, her company was up to about $5,000 per month in sales and about $1,500 per month in net profit. She came to a critical decision point. Should she continue to do everything herself or hire her first employee to take over customer service and product fulfillment?
At fourteen, I learned the key lesson that as soon as you can afford to, hire your first employee.
Lois decided that she would give up too much of her profit if she hired someone, so continued to do the customer service and product fulfillment herself. The business continued to grow. By month nine the business was up to about $7,000 per month in sales and $2,000 per month in profit.
But after going through some family issues, Lois decided to shut down the business because the $2,000 per month she was making wasn’t worth the hassle to her. Lois no doubt lost out on a multi-million dollar opportunity by choosing to shut the business down, rather than taking a leap of faith and hiring her first employee and beginning to scale the organization.
So at fourteen, I learned the key lesson that as soon as you can afford to, hire your first employee, even if you have to use every single dollar of net profit, you have to do it. Hiring this person will enable you to focus on growing the business well beyond its current level.
Turning your job into a business
It’s an exciting time when you’re hiring your first employees. You are in the process of turning a job into a true business. If your business isn’t making money while you’re sleeping, you have a job and not a business. And if you can’t take two months off and come back to find your business doing better than when you left, you have a job and not a business.
Hiring your first team members is the first step in this process of removing yourself from the day-to-day operations so you can work on the business instead of in the business.
During this phase, do all you can to enable the company to survive. You should be in charge of product development or sales, or both. Keep your costs low and focus on product development and sales. “Sell, sell, sell” should be your motto, with “listen, listen, listen” as a secondary mantra.
Building an advisory board
Surrounding yourself with individuals much more experienced than yourself, who have already achieved what you want to achieve, is critical to your ability to quickly learn what you need to learn in order to succeed in building your business.
I strongly recommend spending some time identifying people who have already done what you want to do and reaching out to them. Invite them to coffee and lunch. You can increase your chances of success by getting an introduction from someone you know who also knows them.
Read also: How to find a great mentor
Take these potential mentors out to lunch and tell them briefly what you do and then ask them questions. Don’t try to sell them on anything or convince them to invest or join anything yet.
At the end of the first meeting, tell them you really enjoyed meeting with them and ask if you could meet again in a few months, or once you’ve made some further progress. Almost everyone will say yes to this request if made in person, simply because they know that so few people actually follow up in these cases.
Two months later, follow up and schedule a second lunch or coffee. At the end of this second lunch or coffee with your prospective mentor, you will have done what only five percent of the people who have ever asked them for help have ever done: you have met with them twice.
In the early stages, keep your monthly costs as low as possible and your length of commitment as short as possible.
At this point, ask if they’d be willing to meet with you once per quarter. If you want, you can also ask if you can list them as a member of your informal advisory board on your website, or in your investor deck. Now, you’ve got them, and as long as you curate the relationship carefully over time, they will always be available to you as a mentor and guide.
The mistake most people make in building an advisory board is asking people to join something formal with a defined commitment after one hour of talking. Most busy people don’t have time for another formal commitment, except to individuals they’ve known for years. So build the relationship over time and then ask for an informal commitment.
As they get to know you and your business, and see you doing what you say you’re going to do, they will be more and more willing to help you. Why? Because they get the benefit of giving back and perhaps being able to brag to their friends that they were part of something that became successful at the very early stages.
Setting up office space
Once you have a few employees, it may be time to find some space for people to work out of. You can probably keep working out of your house or garage until your team numbers around five people, but once you get there it may be time to sign a lease.
You can work with a commercial real estate broker for free, so it is worth reaching out to one to get their assistance in finding the right space for your business. In the early stages, keep your monthly costs as low as possible and your length of commitment as short as possible.
One of the biggest mistakes I made as a young manager was being a micromanager. I would give unclear directions and then come back the next day and suggest minute changes, like adjusting the font size on something. I can only imagine that it was a bit frustrating working for me back then.
I learned later that the only way to scale yourself is to hire individuals who can do their job much better than you could do their job. Set goals with them and hold them accountable to their goals, but avoid telling them how to do their job.
I learned early that a business can only scale its revenues as fast as the quality of the people it hires.
Cash is king
At this point in your business’s early existence, cash is king. The most important figure is the amount of cash you have in the bank, with the second most important figure being the amount of outstanding checks you have. Your job is to do everything necessary to keep the bank balance above zero.
With two to five employees, you don’t need to worry yet about communication or processes, especially if you’re all working within a few feet of each other.
Just survive and get a product to market that you can sell over and over and constantly improve. Put every dollar you make back into people, product, technology, sales, and marketing.
Put every dollar you make back into people, product, technology, sales, and marketing.
Holding your first board meeting
There are certain things you have to do in order to make sure your status as a corporation is protected. The most important thing is to make sure you have a separate bank account for your business and to make sure you don’t run personal expenses through the business bank account.
The second thing you need to do is to hold a meeting of your Board of Directors at least annually, and take and capture minutes from the meeting.
In the beginning, you, or you and your business partner, may be the only Board Member(s). That is okay. You can add other board members later if you raise funding.
Document the attendees and decisions the Board makes in your minutes and file them away. Your law firm can provide forms to help you capture the minutes. Over time, you’ll build a professional Board of Directors who can serve as mentors and guides as the business grows into new levels of complexity.
This is the second in a three-part series of articles which give an overview of how to be a startup CEO while growing as a company. Read the third part, how to be a startup CEO with 6-25 employees, here.
Main photo: Unplash/Priscilla du Preez
*This article was originally published on October 17th, 2018 and updated on December 11th, 2018.