Staffing a small business in Hawaii often follows a predictable pattern. First, the owner looks to family for help (which has its own set of considerations). Next they tap their circle of friends (which has definite pros and cons). Finally, business owners must delve into the realm of hiring strangers.
But wait! Before posting that Craigslist ad, take a moment to consider the implications. Businesses of all sizes make recruiting mistakes, but the stakes are higher for local companies and those just starting up. In fact, not having the right team in place accounts for 23% of new business closures (Source).
These are five challenges new businesses need to meet as they begin staffing up.
1. Unfavorable local market dynamics
Hawaii is notorious for being a difficult place to do business. Our state is regularly ranked low or even dead last in polls like Best State to Start a Business. One of the reasons is our historically low unemployment rate—2%, the lowest in the nation—which means the pool of potential employees is smaller than it has ever been. Every single employer in the state is feeling the pinch right now.
“Many clients do not seem to know or believe that the unemployment rate is at an all-time low and the choice of good candidates is limited,” says Claudette Miller, Placement Manager and Executive Recruiter at ALTRES with over 25 years of experience.
2018 is a job seeker’s market. Employers are taking extraordinary steps to recruit and retain people. Even if someone qualified does respond to your job ad, you need a fast, positive recruitment process and a strong value proposition as an employer in order to close the deal.
2. Competition from established employers
Recruiting new candidates can be tough for new businesses who lack both the brand appeal of established employers and the cash flow to offer attractive compensation and benefits packages. Even if your business is completely one-of-a-kind, as an employer you are in direct competition with every other company in the state. Jobseekers are judging you harshly—will this business last? Do they know what they’re doing? Can they pay?
If you’re cash-strapped on salaries or going bare bones on benefits, then what are you offering instead? Business owners need to be creative and flexible with alternative compensation strategies. Performance incentives, profit-sharing, training and growth opportunities, and generous vacation and leave policies will entice candidates to look beyond modest salaries.
At the same time, there is no benefit to low-balling talented applicants to save a couple dollars an hour.
3. Lack of experience in human resources planning
We’ve said it before and we’ll say it again (and again): your people are your most important asset. A human resources plan—backed by people with managerial experience—is a strategic, money-saving step too many new businesses overlook.
There are many pitfalls in managing employees; hiring too quickly, hiring too slowly, running afoul of employment law, failing to retain great people. All can potentially cost a company money and loss of reputation.
To really give your company a strong people foundation, we recommend a human resources mission statement. This guides all your people planning and strategy to help make human resources decisions more efficient.
Beyond that, it’s critical to put in writing the responsibilities of the people you need now, as well as the people you will eventually need as you grow. The importance of a detailed job description, for example, is important not only in hiring, but for setting compensation levels and evaluating employee performance.
Take care to avoid the pitfall of hiring too many people—your human resources plan should help with that. Do you really need an HR director, executive assistant, IT consultant and payroll admin? Every employee increases your tax liability, insurance expenses, overhead. Determine what tasks are absolutely necessary and hire for that.
4. Wearing too many hats
Balancing people management with getting a new company off the ground is incredibly challenging. The hours are long, your to-do list is never-ending, and new issues crop up every day demanding immediate attention. And, then there’s the paperwork!
Accounting, payroll, recruiting and other human resources tasks are an unavoidable, time-consuming administrative burden. In a small business environment where key staff typically juggle numerous roles, this means time spent on back office paperwork is time not spent on delivering value to your customer.
“I recommend doing a litmus test,” says simplicityHR by ALTRES President Barron Guss, a leader in human resources outsourcing. “Take all the things in the organization and run them through your customers’ eyes. Outsource what your customers have no value for, even if it costs you.
“For example, when was the last time you saw a restaurant and said: Let’s eat here because they have a great employee handbook?” asks Guss. “The customers care about the menu, recipes, and cooking—keep that close to you.”
5. Underestimating the cost of hiring
Many new businesses have no real sense of the cost of recruiting and hiring new talent to their team. Just think about the steps involved in a typical hiring process:
- Assess position requirements
- Create compliant and accurate job description
- Advertise open position
- Process applications
- Review and compare resumes
- Pre-screen candidates via telephone
- Schedule and conduct in-person interviews
- Assess soft skills (personality traits)
- Assess hard skills (technical competency)
- Conduct reference checks, including employment and education verifications
- Plan and execute the job offer
- Conduct background checks
- Coordinate drug tests, if needed
- Verify applicant’s right to work
All this needs to happen in a timely and efficient manner. Fail to do so and you risk losing the candidate or even harming your reputation as an employer. And this is just phase one! Onboarding, training, payroll, office space—the administrative and fixed costs add up fast.
Shockingly, even more expensive than hiring is the cost of making a bad hire. Whether the process was rushed or the need to have somebody led to a mediocre hire, the cost of a bad hire is large and the impact on productivity and morale cannot be overstated.
To replace an employee, the Center for American Progress estimates it costs 16% of annual salary to replace a worker earning less than $30,000 a year; 20% of annual salary for midrange positions; and up to 213% of annual salary for executive-level positions! That’s thousands of dollars, even at the low end, and tens of thousands for top positions.
“New businesses often have limited funds, but it’s worth it to spend the money to get the good candidate versus being frugal and getting an ‘ok’ one,” says Clerical and Technical ALTRES Personnel Manager Lynn Hiyane. “The top 20% are the ones you want. They will drive your growth.”
Have a question for one of our HR experts? To learn more about this issue or to schedule a free consultation on the advantages of human resources outsourcing, contact us today.
This article is for informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or adviser before acting upon any information in this article.