Transitioning from DIY to CEO

[Tonearm]

I've been working on my ecommerce business for about 12 years. For most of the time I've done everything myself, but over the last few years I've hired a few people for shipping, receiving, customer service, and some other non-technical stuff. I'm ready to change the business into a more conventional (non-DIY) organization and I'm hoping to hear from anyone who has gone through this sort of a transition, or anyone who can point me in the right direction as far as how to get more info or advice on this.

I think the main issue is handing off technical stuff like programming and system administration. I think this is absolutely necessary so I can focus my time and effort on making business decisions and coordinating projects, but I worry about things like:

1. how to avoid the obvious mistakes that aren't obvious to me since the business has been DIY-style up until now

2. the security of company code and ideas both in their current state and as they continue to develop

3. how to hire effective coders and system administrators

4. how to manage those technical people once they've been hired

5. whether or not I should initiate some sort of profit-sharing or stock option thing in order to motivate technical people to do a good job and to stick around

6. whether or not I'll be able to successfully initiate some non-ecommerce online projects I have in mind

7. how to do all of this remotely*

I have a few things in my favor, including 12 years of hands-on experience, a profitable ecommerce business, and a good amount of money saved.

(*) This is weird, I know. Unfortunately my wife and I find that the sorts of places we'd like to live are not ideal places to find technical folks. We've lived away from the (small) warehouse for years and that's been no problem at all, but I don't know if that will work with others handling technical duties.

[Marketing Guy]

Perhaps you could consider off loading all the technical maintenance and development of your site to an established agency? That would address most of your questions easily and leave you to develop the business end of things.

They would have an established organisation, processes and would deal with any staffing / management related issues. You'd probably look at paying them a set retainer or giving them an equity share in your business, but it would mean you could agree on the level of service you get in return.

In the short to medium term, working from a client > agency relationship instead of jumping straight into employer > employee relationship may be an easier transition for you. And it would give you some time to see how they manage the project - take plenty of notes!

[JackieBlue]

Although I am still very hands on in a lot of ways (we are not as far along as you), I've had great success handing off technical duties to free lancers - especially since I do not have time to keep up with the technical changes to do everything myself.

I write up business requirements and a general guideline for technical requirements for projects and allow bids. I have a few that are better than others and try to work with them often. I'm in the US, one is in Thailand and the other in Austria. They provide test software, code and documentation, and are very helpful in making sure everything works to my specifications. It is also much cheaper than hiring a full time programmer. But these are more for business processes. In terms of SEO and marketing, that is a weak spot for us and I am trying to figure out how I can strengthen that with outside assistance.

[RhinoFish]

"4. how to manage those technical people once they've been hired"

Start with the disciplines that are more autonomous, that don't need as much of your management time. Outsource your paid search, your aff program management (OPM) - especially if these are weak areas for you. Find people who will work on a performance basis, to lower your risks.

[anallawalla]

Profit share is good, but it kicks in after <some minimum number of months). Equity is not good unless it kicks in after x years. You may not want a few equity owners who are not connected with the company after they leave, but you may be OK with this if they were great contributors when they worked for you.

Set good admin processes in place, e.g. password changing every month or when someone leaves, whichever happens first; backups, recovery, disaster plan, etc.

One reads about great developers or writers who live in the mountains but are great contributors. You may find one by hanging out in some of the sites devoted to the great outdoors.

[Automan Empire]

This is an important point in the growth of a business. Ultimately, you want to be able to spend your time working ON your business, rather than in it. You don't want to feel like a Ray Kroc, so busy flipping burgers all day that it makes you angry that the men in suits keep wanting to talk to you about some franchise thingy.

Whether it is freelancers or staff in a physical site, be careful about hiring too many people too fast at first; slow to hire and quick to fire. New hires need enough of your daily attention that you can get them to a sufficient level of autonomy quickly, or realize even quicker that this one is not going to work out and replace them. Firing even a bad employee can be as difficult as a romantic breakup, and is also worsened by delaying the necessary.

It may take some trial and error, but (depending widely on the type of business) it is probably best to manage two or three employees yourself, building each to a point where they're making you and your company so much more effective that they are more than paying for themselves, before it is time to hire a manager. You'll need some hands on experience managing people in your business, to hire and manage an effective manager. Also, adding a non-production employee to the payroll is risky, before you have enough effective production employees to support them.

You said you have some money saved up, but making an effective team from scratch is difficult even with experience, and you'll be unpleasantly surprised how fast an oversized (for the current revenue) payroll eats through savings. Growing too fast at once can have you running from newbie to newbie all day, as everyone sits back and smirks at you desperately trying to get the company kick-started, taking home your last dollar in their paychecks and leaving en masse, the second one bounces.

In my experience, technical people are far more autonomous and easy to manage even across the world, compared to a general laborer in the same room as you.

Benefits appeal differently across demographics. General laborers, short to medium duration contract workers, elancers, or under 25 tend to be very motivated by bit-better-than-average pay always delivered promptly, and could hardly care less about profit sharing, retirement accounts, and other non-instant gratifications. Family breadwinners, homeowners, people with their eye on eventual retirement are going to be more motivated by the security of a strong company, defined and reachable career growth pathway, physical location, profit sharing and the like, and are usually the ones filling management and critical long term positions. Once you have a few employees and departments, you'll need at least a 3 size fits all motivation plan.

Critical for doing things remotely and managing a distributed workforce is an effective system of objectively measuring each worker's productivity. This doesn't guarantee effective workers, but it is a necessary tool for management. Choose your platform carefully, it isn't easy to get everyone to change systems later.

Hire a good accountant first, to keep all your payroll and tax issues in order. This is critical, and too specialized to handle yourself and still manage your business. A lawyer should be consulted about intellectual property; collaberative development makes it more complicated. There goes more seed money.

Read up on corporate structures, processes, procedures etc; you won't reinvent this wheel in your lifetime. Become familiar with your local labor laws, there are serious but predictable pitfalls. With a staff, you become responsible for things you never dreamed of while running your business yourself- goofing off on the clock, malevolent cliques, sexual harassment, coming back from lunch tipsy, unaccountable mood swings. The challenges of a completely distributed workforce are less daunting when you consider all that can go wrong with a traditional physical business.

As for branching out into completely new endeavors, there is a certain balance to spreading yourself too thin, and getting so entrenched in a routine that you never reach for your dreams. Getting one business to run well without you is a challenge, but make that a priority if you want sufficient time and attention to effectively pursue these other opportunites.

I'm also 12 years in business, and last year made the step from small to medium. Hope it goes well for you, Tonearm.

[agtsai]

Tonearm,

I was in a similar situation as you.

Background: I run a content site. Millions of visitors. Needed to scale into a real business fhat need me.

1. Read. A lot. Whatever bits of advice I can give pales in comparison to true knowledge. Specifically:

a. The E-Myth Revisited -- understand that "running a business" is completely different that "doing the job." Look at systemizing and building processes so that a monkey could do it. Remember: a good business isn't one that requires good employees. That's a flaw in the system. A good business is one that can take mediocre employees and through a good system produce superior products. Think McDonald's SOP.

b. Delivering Happiness. Hire for personality, train the skill. I can't emphasize this enough. You can always teach people skills but you CANNOT teach someone to be a good person. I made the mistake of hiring good writers, regardless of personality. The culture was horrible -- people were selfish, the culture was a mess. Eventually I fired everyone and started from scratch. The second time I did it the right way.

c. From Good to Great. Another culture book about building a sustainable business. There's two types of leaders: 1. Those that plan a direction, then find people to do the tasks and 2. Those who hire good people and then figure where to go. In 1. you're screwed if it doesn't work out as you planned. It never works out. In 2. you don't know where you're going but you'll eventually get somewhere good.

2. You'll need to beef up a different set of muscles. Yes, you're good at "doing the work." But you'll need to be good at "building a good team." Think of your role as being a coach rather than a player. Hire slowly, fire quickly. Spend your time hiring well.

I hate to cut it short but I'm typing from an iPhone. I run my company remotely. But really, if you do it right, it won't even need you. Don't worry about keeping your "secrets" safe. The truth is, your system and processes are your secrets. Not your ideas or your code. Ideas are a dime a dozen. Execution is where it's at.

[Vamm]

I'd rather say don't.

[Whitey]

@Tonearm - the fact that you ask this question, is a reflection on where you're at personally. Make sure you engage good decisions, which is what you're asking for.

Sometimes it's good to bring a good set of skills in alongside you, to help you make those decisions and strengthen your plans. I'd look for a good manager - even if it's part time. Build around that, and scale from there.

Arguments about in-house , contracting outside all revolve around your capacity to adequately manage the issues of your business SWOT.

[Tonearm]

Everyone, thank you for taking the time to write.

5. whether or not I should initiate some sort of profit-sharing or stock option thing in order to motivate technical people to do a good job and to stick around

Profit share is good, but it kicks in after <some minimum number of months). Equity is not good unless it kicks in after x years. You may not want a few equity owners who are not connected with the company after they leave, but you may be OK with this if they were great contributors when they worked for you.

I first started thinking about this recently after hearing for the 100th time that the early Google employees got rich once the company went public. For some reason it clicked the last time I heard it and I realized that Google must have been handing out equity even in the very early stages of the business. Surely this was done in order to motivate people to do a good job and to stick around, and it worked.

slow to hire and quick to fire

This is a policy repeated several times in this thread. Please consider it adopted.

In my experience, technical people are far more autonomous and easy to manage even across the world, compared to a general laborer in the same room as you.

I would like very much to believe that's true. Have you had much experience managing technical people remotely?

Critical for doing things remotely and managing a distributed workforce is an effective system of objectively measuring each worker's productivity. This doesn't guarantee effective workers, but it is a necessary tool for management. Choose your platform carefully, it isn't easy to get everyone to change systems later.

I'm really interested in this. We have a very rudimentary system in place for this in the warehouse. You mention platforms. Are there software packages for this sort of thing?

Hire a good accountant first, to keep all your payroll and tax issues in order. This is critical, and too specialized to handle yourself and still manage your business.

I'm glad you brought this up. I don't see why accounting needs to fill even a single part-time position, but I'm sure this is due to my own naivete. From my perspective, accounting is made up of bookkeeping, income statement preparation, payroll twice a month, payroll tax each quarter, and income tax each year. I've always done all of this myself except in the last 2 or 3 years I've had a CPA do my income taxes for $250 and I just trained my wife to handle payroll and bookkeeping. Income statement preparation is just a click. Payroll taxes are a hassle (and expensive!) but it's only every 3 months. When is a "good" accountant necessary?

Read up on corporate structures, processes, procedures etc; you won't reinvent this wheel in your lifetime.

I have to admit my instinct is to reinvent this wheel. I've read about and been inspired by the unconventional aspects of Google's processes and procedures.

sexual harassment

Does a general liability insurance policy usually cover this sort of thing?

Look at systemizing and building processes so that a monkey could do it. Remember: a good business isn't one that requires good employees. That's a flaw in the system. A good business is one that can take mediocre employees and through a good system produce superior products.

This is a big deal and I think it ties back in to what I wrote above about Google's processes and procedures. From what I understand, they're focused on hiring good employees and empowering them to make a lot of autonomous decisions. To me, this is scary but also intriguing. Obviously Google is thriving.

Hire for personality, train the skill. I can't emphasize this enough. You can always teach people skills but you CANNOT teach someone to be a good person.

Brilliant. I love this. Can you elaborate on what sort of personality traits you look for?

There's two types of leaders: 1. Those that plan a direction, then find people to do the tasks and 2. Those who hire good people and then figure where to go. In 1. you're screwed if it doesn't work out as you planned. It never works out. In 2. you don't know where you're going but you'll eventually get somewhere good.

Counter-intuitive but super-intriguing. Any other thoughts on this?

I run my company remotely. But really, if you do it right, it won't even need you.

Are your technical people employees or contractors? I'm really curious how well either can be managed from a remote location.

Don't worry about keeping your "secrets" safe. The truth is, your system and processes are your secrets. Not your ideas or your code.

Any other opinions on this? This sort of mindset is very attractive, but I wonder if it could lead to disaster.

I'd rather say don't.

Then don't.

Arguments about in-house , contracting outside all revolve around your capacity to adequately manage the issues of your business SWOT.

I've read about SWOT, but could you elaborate on this a bit?

[Whitey]

I've read about SWOT, but could you elaborate on this a bit?

....plenty of references online. This will help you and can be used in every aspect of your business. [en.wikipedia.org...]

Best to have a good manager walk through this with you.

[JonW]

Tonearm,

I'm kinda in the same position, I've been running a business/website for 7 years and have to consider when to expand and mature the business.

I've tried to keep things simple. I don't have employees, but I could find things for them to do if I did. My accountant recommended I incorporate to save a few thousand a year on taxes, but it makes accountant much more complicated. I decide not too. I usually decide to keep things simple, private unless there is a really good reason. I don't hire outside, whether that's contractors or employees. Contractors are simpler than employees (There are legal issues here and questions about whether you can trust contract workers as much as someone you know and work with each day--can't give away the business's intellectual property to some guy in Tawain just to fix bugs now.)

Contractors not employees. No need for HR manager or legal consult, no ugly benefits issues. Doing it in-house, even better.

Sole prop not corp, No need for fancy AR/AP, accountants or legal services.

The area where I'm mostly likely to develop is in profitable areas. There are some sets of tasks that could generate income, that I just don't have time to do. This is where I want to look to further the business. Can I find a contractor, partner, or employee who can improve my ad sales, for example, earning more than all the costs to bring that person in.

If a hire some SEO guy, can he earn his keep. Is it easier just to hire a firm?

Should I hire someone to do some techincal infrastructure work. I'm no expert in various technical fields, but the business requires some expert designs and implementations so that the business can grow upon those technologies. Would the business be more profitable in the long run if I brought in some key experts. (hehe, "key experts"--one of the experts I was considering looking for is a PKI guy)

Just my two cents.

[jrockfl]

@Tonearm
I'm a senior .net developer and have worked on w2 and 1099. In 2009 I worked solely on 1099 and did about 1/3 of my billable hours for SaaS credit repair software company.

I worked with 3 other 1099 developers for this credit repair software company.

"The truth is, your system and processes are your secrets. Not your ideas or your code. Ideas are a dime a dozen."

I agree with this statement. All of us developers had access to the code, we could have done whatever we wanted, but we didn't. We were there to do something we enjoy, programming.

I worked remotely for this company and was pretty much available anytime for them. Unlike your typical w2 employee.

In 2009 I started my own e-commerce web site selling products. I have worked on many e-commerce web sites and decided I would create my own and sell products. I'm very familiar with our dedicated server, code, source control, database, etc..etc.. since I'm the one who set it all up.

If I were to start handing over some of the IT work that was involved with the web site, I would look for a 1099 contractor that would be able to dedicate the needed time to my web site.

I would start the contractor off on a small project and see how he/she does. I would go over the framework of the web site and show them the ropes.

After they have completed their first project, they would check in their code, I could review it etc..etc..

I have worked with a lot of developers all over the world and none of them have done anything malignant.

Make sure you have source control and backup procedures in place.

@JonW
I have two part time employees and 2 1099 contractors. Paying them is pretty simple for me.
I trust them them just the same.

I'm an LLC, but next year my cpa will change it and file me as a corp. It will cost more for him to prepare my return, but I will save thousands.

It sounds like you have a lot of decisions you need to make. Maybe just start with one. For example, SEO.

I'm sure you are already familiar with your web sites current metrics. Possibly hire a guy or a firm for the next 6 months and see if there are improvements.

For me, I hired a company that just does backlinks. They have done pretty well and my rankings have gone up.

I used to do contract work for an SEO firm. I contacted them and they want $2200 a month for SEO. Maybe in the future, but right now that is too steep for me. haha

[Tonearm]

jrockfl,

I agree with this statement. All of us developers had access to the code, we could have done whatever we wanted, but we didn't. We were there to do something we enjoy, programming.

How should a guy like me find developers like yourself and your co-workers? LinkedIn maybe? eLance and hope for the best?

In 2009 I started my own e-commerce web site selling products. I have worked on many e-commerce web sites and decided I would create my own and sell products. I'm very familiar with our dedicated server, code, source control, database, etc..etc.. since I'm the one who set it all up.

This is one of the things that concerns me. Any of my developers could decide they'd like to become my competitor. It wouldn't be legal for them to use my code, but what's really stopping them?

If I were to start handing over some of the IT work that was involved with the web site, I would look for a 1099 contractor that would be able to dedicate the needed time to my web site.

I would start the contractor off on a small project and see how he/she does. I would go over the framework of the web site and show them the ropes.

After they have completed their first project, they would check in their code, I could review it etc..etc..

You would give the new developer full access to your code from the beginning?

[edited by: Tonearm at 9:07 am (utc) on Apr 3, 2012]

[Tonearm]

I think these are the main dichotomies proposed in this thread:

1. technical people
a. should be in-house employees
b. should be remote independent contractors

2. technical people
a. should be put under strict controls and their performance measured objectively
b. should be given a large degree of autonomy, decision-making power, and creative allowance

3. conventional corporate structures, processes, and procedures
a. should be studied and replicated
b. should be evaluated and considered for replacement

4. hire people
a. with the right skills
b. with the right personality and teach them the right skills

5. hire people
a. to match a carefully planned and clear path forward
b. with good general attributes and move forward without a clear plan

6. the security of company code and ideas
a. should be a concern
b. should not be a concern

Any comments on this stuff?

[jrockfl]

I have had great results with using elance. I have been a member there for around 10 years.
You can work with companies or individuals. Read their reviews, the number of projects they have completed, and discusss things with them before you hire them.

Recently, I hired an overseas company on elance to create a mobile version of my e-commerce web site. They are creating all of the html and css and I'm using that and adding the code.
Now, they dont have access to my entire server they just send me the completed markup once it is completed. If I did decided to start outsourcing more of my work to them, I would feel comfortable
and setup access for them.

Programmers might the ability to write the code and create the application, but that does not mean they have the entrepreneurial skills needed to make everything successful.

Yes, I would start them off on a simple project to see how they do. For example on my category pages, there are no pagination of products. For example, 1- 10, 11 - 20, etc..
All of the products are displayed. At first this was ok, because I did not have many products, but now as it has increased I might want to have pagination or some filters at the top
of the page to limit the number of product to be displayed at one time.

But anyways, I would work on my requirements for the developer, setup the development environment for he/she and see how they do.

[Automan Empire]

Have you had much experience managing technical people remotely?

Yes, albeit on a piece work or project basis; banners and artwork here, setup or repair a forum or website there. Some of the lessons learned should apply to long term remote employees.

Generally, elancing or telecommuting employees are responsible for managing their own time, and reap their own rewards directly for efficiency and self-motivation. It is nearly impossible to approach the same conditions with in-house employees, even paying straight commission.

Set up the most ingenious, foolproof procedures, and fools will find ingenious ways to drag them out and mess them up. Skilled artists, craftsmen, tradesmen etc. may do technically dazzling work most of the time, but working with them in-house, you sometimes get bad days where they make newbie mistakes, friction with another employee they just don't like, primma donna attitudes, and other frictions that have nothing to do with the core task but generate heat anyhow. This is where the emphasis on hiring for personality comes from. Even with piece work like graphics, when working in person, it always seems to take more time and effort for the same quality finished product.

In contrast, TO A ONE, the jobs I have hired off to elancers were as close to mathematically perfect as possible for effort-->result. Contact is limited to discussing job specs, revisions, then "here's your final pay, thank you." AND THAT'S IT.

Some people thrive on the interpersonal aspects of a workplace, for better and worse, for their own sake. To me this is antithetical to an entrepreneur's necessary mindset, though some successful businesspeople are exceptions I suppose.

system of objectively measuring each worker's productivity...
I'm really interested in this... Are there software packages for this sort of thing?

Not that we can name names here, and there are many industry-specific off the shelf solutions along with customizable systems. Since you're looking to manage a distributed workforce, look for features built into whatever you choose that can measure things like order entry time, email response time, # of orders picked per employee, or whatever metrics are useful in your particular business. Living with too simple of a system for too long, and changing systems when the company has grown, cause productivity and morale problems that no company needs. This is one area where overbuying early and growing into it might be worthwhile.

Hire a good accountant first...
I'm glad you brought this up. I don't see why accounting needs to fill even a single part-time position ...trained my wife to handle payroll and bookkeeping. Income statement preparation is just a click. Payroll taxes are a hassle (and expensive!) but it's only every 3 months. When is a "good" accountant necessary?

You'd need a large company indeed to require your own in-house accountant. You can automate the day to day bookkeeping, payroll, inventory functions, and tax filings and payments. What you need your accountant for is to be sure that all of your necessary filings are made, and that your automated system is set up well and updated as tax codes and regulations change, and they do always change. A good accountant might find you exemptions and deductions you couldn't have known about yourself, which exceed the cost of her services. Any size business will benefit from hiring the services of an accountant.

sexual harassment

Does a general liability insurance policy usually cover this sort of thing?

Don't count on it- ask your agent. Aside from the law, your policy requires you to exercise due diligence to prevent a situation from arising, and a payout won't cover intangible costs of defending a case and dealing with the ripples this causes in the rest of the workforce.

Not to sound too pessimistic, as I am striving along the same path here, growing a business. Just make sure that the drive to go to each next level includes the mettle to deal with the often unforseen challenges there.

[Tonearm]

Thanks for sharing your experiences. I'm feeling a lot better about moving forward.

For those who use eLance, do you always work on a flat-rate basis, or always hourly, or a mix?

[JackieBlue]

@Tonearm I use Freelancer on a flat-rate basis (bids)

[MisterT]

@tonearm i've used elance both ways: flat rate or hourly. flat rate could be a dollar amount for the entire project, or a dollar amount for each task completed. for example, if you hire someone to list products on your website, you might pay them a dollar amount for each product listed. this gives them incentive to work fast and make more money, and you know exactly what you're paying for. when you pay workers hourly on elance, sometimes it's hard to know exactly what you're getting. some on elance prefer hourly pay though.