Staffing Your Startup or Small Business (Opalesque)

Being a new, emerging manager or small business is tough. You have a lot on your plate besides trading; operations, legal, accounting, human resources, human resources, human resources, security, technology, marketing & sales, compliance, and risk management, and juggling all those areas with the added need to fund them can be daunting. So, let’s add one more to the mix:  Staffing, commonly referred to as being part of human resources.

Besides alpha, prospective investors are looking for professionalism and trust. That means having a real business including someone to answer phones, run errands and do the things that take time away from your trading. Investors don’t want to see you as the chief cook, bottle washer, coffee maker, and everything else. They want depth. So, you grudgingly agree to outsource certain functions and hire “someone” –a nephew, a friend’s daughter or son who desperately needs a job and who will work internally for practically nothing. Good choice?

Nahhhhhhhh….

As with anything, if you don’t know what you don’t know, you probably won’t be happy with the outcome, let alone if or when find you’re in violation of employment rules. And usually, it’s a disgruntled employee that blows the whistle. The result can be expensive for any sized firm – both reputationally as well as financially.

If you’re considering growing your business successfully, then you should consider the type of person to look for as your “Number Two” person, as well as having a basic understanding of employment law.

What Type of Person Do I Want/Need?

The ideal first in-house person for your startup is probably “T-shaped:” this means they’re broad in many different areas (the horizontal part of the “T”) and deep in a particular one (the vertical part of the “T”).  The concept of T-shaped skills was first described by David Guest in 1991, but was popularized by Tim Brown, CEO of design firm IDEO.  The idea is especially relevant to the emerging manager/small business population that is searching for their first hire.

You don’t want your first in-house hire to be someone whose specialization (“I-shaped”) might quickly be obsolete to your business. On the other hand, you don’t want someone who is so generalized that they don’t provide anything unique.

What does a T-shaped person look like? Maybe they’ve recently graduated from college or have had a year or two as an NFA auditor. Potential first hires could be anywhere from ages 23 to 40+ who grew up with computers, so technology/social media are second nature to them, but they additionally love working with numbers or doing research. They’re a people person, and respect confidentiality. This person should have the key skills of organization and attention-to-detail so they can grow with the company – hopefully, to become a manager or eventually your COO!

Per Aja Frost, in an article entitled “How to Hire Your First Employees While Running Your Startup,” it’s also important to prioritize cultural fit. The smaller the team, the more important it is that every member fits in, especially when they’re not on equal footing with the principal(s).

You should also think about how you and your co-founders communicate. If you prefer to hash things out in brainstorming sessions but hire #1 likes to discuss everything via text (e.g., a millennial or Gen Zer…), you won’t work well together—no matter how brilliant he or she is. And if you’re pretty informal, a buttoned-up, by-the-rules person could feel uncomfortable.

You also need to consider the practical aspects of your business, such as have you properly protected it by creating an LLC? Do you have insurance? Can you afford an employee?

Finally, you need to identify where your core competencies lie and what your needs are. As you create your organization, for example, you need to be mindful of the 8 Key Areas of Every Business, evaluating which are your strengths:  Operations (trading and reconciliation are part of this), Legal, Accounting (track records are part of this), Human Resources, Security, Technology, Marketing & Sales, and Compliance, with Risk Management going across all 8 areas.  You might want to outsource everything except Operations, which include trading, risk, and basic office operations. Eventually, you might in-source marketing & sales and co-source other functions like human resources.

Brass Tacks – Employment Law

In the US, the government has regulations that protect employees in a small firm, ranging from how the employees are treated to how the employee is paid, the benefits they receive and what posters should be displayed on your wall, informing employees about their rights. Once ready for your first hire there are three key areas to consider:

1.     The type of hire you make (or have made):

• Will your new hire be an independent contractor (1099) or an employee (W2)? What are the differences and consequences?

• If you decide to go the employee route, what type of employee will you have; Exempt or Non-Exempt? What’s the difference and why does it matter?

2.     The agencies you are accountable to:

• Department of Labor (“DOL”)

• Fair Labor Standards Act (“FLSA”) There are fines if you misclassify an employee to avoid paying them overtime!

• Occupational Safety and Hazard Act (“OSHA”) (Only ONE employee and you’re accountable to them!)

• Equal Employment Opportunity Commission (“EEOC”) (same as OSHA - (only ONE employee and you’re accountable to them!)

3.     The type of controls you need in place at your office

• Employee Handbook, stipulating the rules/culture of the office

• Appropriate agency flyers to post on your wall

• Employee contracts and reviews

• Recordkeeping requirements, which will depend on the size of your firm

2025’s BUZZWORD:  ICE (Immigration & Customs Enforcement)

Have you heard about all the recent activity  regarding ICE and ICE raids?

ICE stands for Immigration & Customs Enforcement and is a department under Homeland Security. Its mission is to protect America through criminal investigations and enforce immigration laws to preserve national security and public safety.

Every employer in the U.S. is legally obligated to verify that their employees are authorized to work in the country using a form called the Form I-9. Even if you only have one employee.

Most recently, ICE has been conducting I-9 audits to check if employers are following the I-9 regulations. These audits are designed to catch violations and prevent the hiring of unauthorized workers. Fines are steep, starting out at $289 per violation, not per Form I-9, so if there are 10 violations on one Form I-9, that’s a minimum of $2,890!

While new managers haven’t been the target of ICE, it’s important to stay on top of issues like these; you never know when the focus could change, and, as a professional, you need to be prepared.

Conclusion

In all the operational and compliance materials I’ve reviewed, it’s been rare to see a manager include an employee handbook, a code of ethics, or anything personnel related. But a handbook conveys the moral culture of a firm, dictating not only the rules as they relate to hours, benefits, privacy concerns, security of computers and other, compliance-related behavior, but the intangibles as to how employees should treat clients and each other. Additional materials, such as job descriptions, contracts and review procedures ensure that you grow your infrastructure with good, broad-based talent. It’s a lot easier to start out with the proper framework when you’re small, refining it as the company grows. Staffing is not an onerous task to address, but it’s a critical one in your quest for demonstrating professionalism and trust – to both investors and employees alike.

Carol R. Kaufman

Founder/CEO

Alternatives TLC, LLC

201-562-3500 (c)

ckaufman@alternativestlc.com 

Carol R. Kaufman, Founder/CEO of Alternatives TLC, LLC has been consulting to emerging and seasoned alternatives managers and various types of industry businesses since 2005. She performs operational and organizational due diligence using her Emerging Manager Roadmap, helping firms find the resources they need to successfully scale. Her first product, InvesTier^®, was acquired by SunGard in 2002. An entrepreneur for over 40 years, Ms. Kaufman’s specialties include public speaking, training, and software/service-based solutions to organizational problems. She resides in Hawthorne, NJ.