How To Hire Your First Employees: Salary or Equity?

Should you pay your first employees salary or equity? This is a great question that came in from one of my YouTube viewers, Pak Media, who wrote in, "On which terms should I hire my first few employees, salary or equity?" Almost always I would pick salary if you had a choice between the two. The reason is you usually make mistakes on your first hires. If you look at most successful business and you look at who their first hire was, they're rarely still with the business. So you don't want somebody who's not with the business long-term to have equity in your company. You have to be really careful about who you give equity to and how much. When you first start hiring people, it's exciting, right? You have somebody on your team, you're giving away the tasks that you don't want to do, you're hiring someone who's better than you at some of these tasks, and it lets you focus on the bigger picture stuff to grow your business, and it's great. And I highly recommend it. The challenge is if you've never hired people before, you're gonna make mistakes, right? You're gonna make mistakes in managing, you're gonna make mistakes in interviewing, you're gonna make mistakes in actually bringing them on board and in training. Your company will probably change its product or service a number of times, and maybe the skills that you hired that first person for are not useful anymore. You're going to make mistakes, your business is going to change. So the people you bring on board may not be the right fit for you long term with the business. So I would generally lean towards salary. Now you may not have a lot of salary, that's the thing. "Oh great Evan, let's give them all salary, but I don't have any money to pay these guys." There's a couple ways you can do it, okay? First, hire part-time. The first guy I hired was for 1 hour a day. 1 hour a day to free up my time to do other things. I hate hiring people, I hate spending money until I'm making money. So I, at the start of any project, put in my own my own guts, my own effort, my own energy. I'm doing everything, even if I'm not great at it. I start doing it myself to learn about it, see if I want to keep doing this, see if I'm excited by it, to start trying to make some money at it. And if I make some money, then I start investing that back into the project. And that might be technology, it might be resources, but it might be people, right? I might delegate this off to somebody else to do. But I know I'm committed to it. This is the path I'm going to follow. I'm not just testing a few things, and I know I have a way to make money, so I know I can afford to pay this person. So I encourage entrepreneurs at the start to do everything yourself, and once you start making money and you know you're going to continue on this path, bring on people to support you. But it doesn't have to be a full-time person. Start part-time and build up from there. Another way to do it is based on success of projects. And this is where you have a little more trust with the person. If they have something that, that can be measured, can be defined easily, then you can give them a split of the revenue that comes in from that project. You're not giving up equity in your business, but you're giving them ownership of a specific project that if it makes money, they're going to make part of it back as well. Now, the exception: if you find somebody who you think could really be a good long-term piece of your business, there could be an option to give them some equity. I want to warn you though, bringing on a partner is like getting married. You have to really know them, like them, trust them, believe they have the same values as you, have the same goals and vision as you. It's not just somebody off the street. It's really, really hard to find good partners. And if you bring on the wrong person, it could sink your business. They could sink your business. Even a minority shareholder can hold a lot of stuff back. From your business moving forward, and you don't need people who are not in line with what you're trying to do with the business. You need someone who can contribute, be there long-term, believe in the same thing you do, have the same values, and be on board with the plan for the business. If not, you can't give up equity. If you are going to give up some equity, I would strongly also encourage you to have some kind of built-in program so they don't get it right from the start. They have to prove themselves. They have some milestones to reach, both in terms of how long they're with you for and in terms of results that you're looking for. In one of my software companies, I started with a business partner of mine. We had another business together, so I worked well with him, and we were bringing on a third person to be our salesperson. And he worked out great at the start, and we looked at giving him some equity, but it wasn't just, "Oh, here, here's, you know, 30% of the business." go for it. He had to earn in, he had to go out and meet quotas, he had to go and sell, he had to meet these expectations. And after 3 months he got a certain amount, 6 months a certain amount, a year a certain amount of equity if he hit his milestones. And that's laid out from the beginning. So there's expectations of what to do. But more important than just reaching results is again making sure they have the same values as you do and they're a right fit long-term for your business. You see this as somebody who you can work with Even if it wasn't this business, something totally different, you want to work with this person long term in tons of businesses. That's when you want to bring on an equity partner. So for the most part, I'm looking salary, I'm looking part-time at the beginning, and I'm looking to only spend when I'm making a little bit of money, building that up to eventually getting full-time people and building up to going from 1 person to 2 people to 5 people to 10 people to as many as you need to grow this thing. And in the rare circumstance that you find somebody who would be a good partner for your business, vet them, work with them over a period of time to make sure you guys agree on things, and have a system where they have to earn in or buy in over a period of time when they're meeting their deadlines. There's no hard and fast rule. Each person, each case, you gotta take one by one. That's part of the thrill and the challenge of being an entrepreneur. But if you do it properly, it can make all the difference in the world for your business. Believe. For those of you watching, like the video, please give it a thumbs up below. It makes me want to do more for you. And if you have a comment or a question, leave it below. I love seeing them come in. They make my day every day, so I really appreciate it. Those comments keep me going in doing what I'm doing. So thank you so much. Leave a comment and I'll see you soon.