Much noise is made about the hiring potential of small business. There's the oft-quoted statistic that it's Australia's biggest employer; that a reduction in penalty rates will enable owners to hire more workers; that there are substantial advantages in working for a small employer over a large one. All of that may be true but what these discussions rarely appreciate is the sheer enormity of even deciding to hire an employee, especially when that employee is your first.
Doing so as a manager in a large corporation is less of a big deal. You're usually protected by a HR department and supported by a payroll team that takes care of the wages and the super and the taxes and the HECS and the who-knows-what-else is involved in keeping the wheels turning.
But when the business is your own, and recruiting someone is an entirely foreign experience, I imagine the exercise would be immensely daunting. The risks – both financial and psychological – must at times be overwhelming. Because one rotten apple in a small business can create far more damage and distraction than a rotten apple in a large enterprise where incompetence can more easily hide.
For business owners, getting their head around matters like industrial relations, workers' compensation and adequate insurance is one thing, but the preoccupation of never truly knowing how long revenues will continue to sustain the new employee must ramp up nerves to a whole new level.
So in light of all that copious stress, it's a wonder why only now has a study been published on the factors that characterise an entrepreneur's transition from being a soloist to being an employer. The researchers, from the University of California, have published their findings in the latest issue of the Journal of Economics and Management Strategy.
The researchers relied on three sources of data: census information that comprised every business in the US; a survey consisting of almost 5000 business owners; and an entrepreneurial training program with 4000 participants. All in all, an extremely comprehensive dataset, and even though it's based on Americans rather than Australians, there are inferences we can draw on.
Let's begin with the curious fact that the chances of hiring an employee decrease the longer a start-up is operational. Approximately one third of business owners recruited someone in their first year, almost 13 per cent did so in their second, and then it drops even more markedly thereafter. In short, if you haven't hired your first employee in your initial two years, it's unlikely you ever will.
And at a time of anti-immigrant sentiment, it's interesting that migrants are roughly 7 per cent more likely to become employers in their first two years in business, although their native-born compatriots manage to catch up by the seventh. In contrast, men are about 10 per cent more likely to hire someone in their early years but women unfortunately don't ever seem to catch up.
Also, in an era when more people are going to university than ever, and when entrepreneurship courses and workshops are becoming ubiquitous, you might think a better education would make new employers more likely to hire. Not so. There's no difference between their hiring inclination and that of their less educated peers. What matters (slightly) more? Prior industry work experience.
Just as surprising is the monetary equation. I once thought revenues correlate strongly with the decision to employ. Wrong. Those with zero revenues are actually more likely to hire someone than those with revenues of up to $100,000, and only marginally less than those beyond that level.
In modern society, successful entrepreneurs are lauded for their boldness and courage, but to know many of them hire their first employee despite low revenues, negligible education, and possibly a limited command of the English language, well, that's just nuts. But also bloody inspiring.
James Adonis is the author of Employee Enragement. Follow MySmallBusiness on Twitter, Facebook and LinkedIn.
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