By Richard J. Anthony, Sr.
For almost ten years, as founder of The Entrepreneurs Network, I have marveled at the diversity of the hundreds of aspiring and serial entrepreneurs who attend the networking meetings we host every seven weeks. Transcending their differences are the seven deadly sins many entrepreneurs commit when acquiring and building the human capital they need to grow their ventures.
1. Entrepreneurs mistakenly hire on gut and instinct. They often become fixated on an impressive looking resume and a skills set that is a cut above their own. In their eagerness to give their venture the needed gravitas of a senior hire, they ignore signs that impartial observers would see as reasons to slow the process and look behind the boasts of past accomplishments. Some entrepreneurs are lucky; their first hire is one of their best. In my experience, the first hire most entrepreneurs make is driven by expediency uncluttered by deliberate analysis or fact-checking. That's when first-time entrepreneurs learn that an impetuous hire can be an expensive and lingering mistake.
SOLUTIONS: (a) Interview several candidates; (b) Have others whose impartial judgment you trust interview the candidates and rank them: (c) Consider using one or more of the better assessment tools; (d) Conduct a thorough background check, and (e) Get professional help - it will pay for itself in the long run.
2. Entrepreneurs make one-off compensation deals that come back to bite.
Even the most expert business people often over pay in cash and equity when they have convinced themselves that the venture must have a particular candidate for a key position. The details are scribbled on a napkin or its equivalent, memorialized in a brief offer letter and put safely away until the relationship sours and the lawyers call for documents containing ambiguous commitments that should never have been made.
How often entrepreneurs rue the day they agreed to terms that later become impediments to recruiting others, raising capital or selling the company. The consequences of taking shortcuts to designing short and long-term compensation packages for key positions can be very expensive and wasteful.
SOLUTIONS: (a) Make certain the candidates understand that any discussion of compensation during the interviewing process is not final until the offer letter is completed; (b) Seek the expert advice of legal, financial and compensation specialist in designing short term and long term compensation plans, and (c) To avoid a patch quilt pay program, invest the time and effort to develop a compensation philosophy and structure as the framework for decisions about pay.
3. Entrepreneurs ignore the need for non-compete protection when hiring.
In the exuberance of the dance leading up to an important hire, entrepreneurs often don't want to risk complicating the deal by inserting a non-compete provision in the written agreement. They rationalize the omission by citing evidence that non-competes can be difficult and expensive to enforce. Besides, good old George is a man of integrity; he'd never try to hurt the company if he left. Funny thing what acrimony, financial distress and the prospect of personal gain can do to integrity.
SOLUTIONS: (a) Formulate some basic HR policies that spell out the terms and conditions of employment, including confidentiality, non-compete and non-solicitation provisions that apply in the event of voluntary or involuntary termination of employment; (b) Check the Internet for samples and templates of policies; (c) Have your policies reviewed by an employment attorney and HR professional, and (c) Make certain the relevant provisions are included in all offer letters and are disseminated in writing to all employees covered by the provisions.
4. Well intentioned entrepreneurs go to excess in creating a family environment. Creating one big happy family is thought to be the elixir for organizational success. Happy employees make productive employees, the logic goes, despite research that shows no meaningful correlation between happiness and productivity. Sooner or later, every company has to have rules that apply to everyone. Otherwise, the company manages by exception, which creates morale problems and invites legal reprisals by employees who allege favoritism or worse. This is a case of good intentions producing unintended consequences.
SOLUTIONS: (a) Invest the time to write brief descriptions of the venture's mission, vision and culture; (b) Now write out a human resources strategy that describes how the company will treat its employees to ensure regulatory compliance, fair and equitable treatment and good will among employees; (c) Communicate the information to all employees in writing, and (d) Educate all management and supervisory staff to ensure they understand the adverse business consequences of inconsistent or discriminatory application of HR policies.
5. Entrepreneurs often ignore the rules about exempt and non-exempt employees. People who work for start-ups are expected to log long hours and wear many hats. As the organization grows, however, and jobs become more structured, federal and state laws require that employers differentiate between "exempt" employees who are exempt from overtime regulations and "nonexempt" employees who must be paid for every hour of overtime they work. Many employers mistakenly believe that all salaried employees are exempt or that by paying an employee a salary, they automatically become exempt. However, just as classifying a person "employee" and "independent contractor" doesn't determine a worker's status in the eyes of the IRS, calling employees exempt and nonexempt does not automatically meet the test of the federal Fair Labor Standards Act (FLSA) and the laws of the 50 states that regulate what constitutes "overtime." Ignoring the rules can be very expensive.
SOLUTIONS: (a) Check the Fair Labor Standards Act and the pertinent state regulations that define "exempt" and "nonexempt" status; (b) Don't succumb to the delusion that noncompliance is OK because others do it, and (c) Fix a problem or run the risk of having the government at your door.
6. Short-sighted entrepreneurs give the employee benefits business to their brother-in-law. Entrepreneurs tend to follow the line of least resistance to get the job done. What could be easier, therefore, than using a family member to handle the complexities of health and welfare benefits and needed business insurances? In many cases, the coverage is placed by the family member or friend and forgotten. Annual reviews are not done, coverages are not put out to bid, service is barely existent. After all, it's in the family. What could go wrong? But when something does go wrong, moving the business to another broker can make family reunions very uncomfortable.
SOLUTIONS: (a) Use the Internet to learn the basics about health and welfare benefits in order to be conversant when shopping for suitable programs; (b) Check with trade and professional organizations to see what they offer small business; (c) Invite two or three brokers who deal with small companies to submit proposals, and (d) Don't buy on price alone - select a broker that has a track record of helping small businesses manage costs and has a reputation for reliable client service..
7. Otherwise bright entrepreneurs make the same HR mistakes over and over again. Entrepreneurs derive energy from the adage that failures and mistakes are simply milestones on the road to success. Learn from your mistakes and keep moving forward. Yet, in my consulting with early and later-stage companies, I see entrepreneurs making many of the same human resource mistakes repeatedly. They reflexively lump HR in with all of the other business risks they are confident they can handle. My caution to them is that they put the entire venture at risk with the first person they hire. My advice is to take the time to do it right the first time.
SOLUTIONS: (a) Have the intellectual honesty to know you're strengths and where you need help from experts; (b) Do your homework before hiring a consultant and make certain there is agreement on what you're getting for the fee, and (c) If you make the same mistake twice, delegate.
Economic recovery and expansion in the US will come from small companies that break loose from the gravitational pull of failure on a course to growth. Even for early stage companies, human resource management should be a priority; as important as managing any other resource needed for success.
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Richard J. Anthony, Sr., is founder and managing director of The Solutions Network, Inc., a management consulting firm specializing in business advisory services, human resource management and performance improvement. He is also founder of The Entrepreneurs Network, a venue for aspiring and serial entrepreneurs and accredited angel investors. His Book, Organizations, People & Effective Communication , is available at Amazon. He can be reached at 610.225.0277 or This email address is being protected from spambots. You need JavaScript enabled to view it..
