Every week, we will seek out expert advice to help a small or medium-sized company overcome a key issue it is facing in its business.
For the last five years, Dan Yurman has run his company all by himself.
But now, he needs help.
The founder of Page 7 Copywriting, a Toronto-based copywriting agency, is working 18-hours days, mostly writing advertising copy for numerous clients, such as Google Inc., Rogers Communications Inc. and Spin Master Ltd. He expects revenues to top $300,000 for this fiscal year, his busiest, and best, ever.
Mr. Yurman knows he could bring in even more business, but can't work any more than he already does. He has offloaded some work to freelancers, but hasn't been satisfied with the results.
So now his question is: Should he hire his first employee or take on a partner?
A partner, he believes, would be more invested in the business's long-term success, might give up a high salary in exchange for part ownership, and team up on pitches and business generation. Someone buying into the business would also produce some cash that could help pay off expenses.
However, Mr. Yurman worries about the downside: giving up part of his company.
An employee on the other hand, could be trained, mentored and assigned some of the less interesting work. It would also be easier to part ways with an employee if it didn't work out.
The drawbacks: Paying a big salary – some initial prospects have requested six figures – along with benefits.
"There's a lot of good people out there, but I have to lure them from full-time jobs, where they have things like benefits and vacation pay that, right now, I can't offer," he says.
The Challenge: Hire a first employee or take on a business partner?
THE EXPERTS WEIGH IN
Karen Adams, senior vice-president and head of business banking at HSBC , Toronto
It's wise to tread lightly with an equity partner. You need to establish exactly who has controlling interest and who makes decisions. In an equal partnership, when there's a difference of opinion in strategic direction, it's often very difficult to come to a final decision. Relationships get ruined and the two sides often walk away.
I recommend hiring someone. If his company continues to grow, he'll have to hire an employee at some point, so why not start now?
But to get to a decision, he should look at the structure of competitors. What do the same sort of companies as his, but in the $500,000 annual revenue range, look like? Partners or an equity owner and employees? Get involved in industry groups and see how other businesses have structured themselves.
Bruce Lacroix, founder of Lacroix and Associates Consulting , Nelson, B.C.
If he wants to hire an employee, he needs to make sure he'll be able to make double his cost. If, say, he pays someone $10 an hour, CPP and EI [Canada Pension Plan and Employment Insurance contributions]would add another $3 or so onto that. Then you have to train the employee. If you're only bringing in $15 an hour with an extra employee, is all that work really worth an extra $2 in profit? If he thinks he can make double, then it's worth hiring someone and paying them benefits and a [higher salary] You have to spend money to make money.
Finding a partner with complementary skills and common vision could take a while and it'll be a lot of work to find the right person.
He might want to consider another approach: Maybe he could gently drop the less-profitable clients and market to more profit-friendly ones. This would bring in more money with the same or less work.
Steve Izen, founder and chief marketing officer of Orderbot Software Inc., Vancouver
In my last business, I took on a partner after I had already started the company. It didn't work out. I learned that taking on a new partner, versus starting a business with a partner — which I've done with Orderbot — is extremely difficult. It's like buying a house and then having someone else move into it. When you start from the get-go, you have someone engaged in the creation of the business and it's more likely it's someone you know well.
In this case, it's better to start with a model of working with an employee and generating more revenue and then he can hire another person and then another one. He may not realize it, but bringing on a partner is expensive, too. You're diluting your stake and that's huge because it's forever.
THREE THINGS PAGE 7 SHOULD DO NOW
Look at the structure of other agencies
Talk to people in the industry to find out how their companies are structured, and whether they tend to go with employees or partners
Do a cost-benefit analysis
Do some math. Figure out what you'd have to bring in to cover all associated costs of an employee before making a profit. Consider whether that or giving up a piece of the pie to a partner would be better.
Consider how a partnership would work
Decide how a union would look. How would it be split up? Who would get final say? How much are you willing to give up short-term and longterm. Note that dissolving a partnershipo may be tougher than parting ways with an employee.
Special to The Globe and Mail
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