Freelancing is a hit - even for business old boys?

The article points out that the hiring process for CEOs is ‘hopelessly inefficient’ yet ends with the old adage that

The most successful companies, such as Procter & Gamble and General Electric, are more than just ever-shifting nexuses of contracts. They are self-replicating organisms that possess distinctive cultures and unique habits—cultures and habits that are preserved and perfected by a loyal cadre of managers. You can certainly buy lots of wonderful managerial skills on the open market. But true corporate greatness is home-grown.

Now, this is an important point, but is this true?

I think firstly, it is important to distinguish between an entrepreneurial company and a huge global conglomerate or business. In the case of entrepreneurial companies, you will almost certainly want to hire on a contract basis.

Larger companies may also like to consider this – if we can deal with three key prejudices.

Firstly, a CEO directs a number of senior managers and is him or herself directed by a board of non-exec directors (or at least this is the best balanced solution).

In this scenario, it is already well established that the non-exec are part time, perhaps one day per week or one day per month. It is also agreed that they are more effective in their role if they hold a number of non-exec posts.

In addition, any decent CEO is going to appear on boards on a number of other companies. Hence, the idea of freelancing or contracting or part time work is well established and considered to have benefits.

Secondly, if the board and the directors of the business do their job well, then the CEO is not the be all and end all of the company. Therefore, continuity in this particular seat is an overblown concern.

Lastly, if a company hires a team of senior execs to launch a new product and that project comes to an end, then one of two things will happen. Either the management of the project will be considered a success or failure. In the later case, the contract will no doubt be completed. But in the case of a success, then the key players may be offered a new role in a different company within the conglomerate or a part time role to maintain continuity, or the manager may leave for a new project, but return to the original company in 12 or 24 months time.

Essentially, if contractors are treated a key members of the team, then the freelance legal structure underpinning the relationship should increase the likelihood of success and the ability to maintain continuity will depend on whether both the contractor and company are happy to do so.

Which is what everyone would want wouldn’t they?

Hire Me and There is a 15% Chance I'll be Right

We have a recruitment interview Breakdown – 86% of interviews fail to pick the right person for the job.

According to a Michigan State University study on predictors of performance,

Some 90 per cent of hiring decisions are made as the result of the interview, but interviewing is only 14 per cent accurate

During an interview candidates are naturally on their best behaviour, acting to impress. However, it’s their true behavioural patterns you should focus on.

Studies of the recruitment interviews show that the typical outcomes are:

• 15% pick the right person
• 30% pick someone who can do the job
• 45% pick someone who fails

Okay, as an entrepreneur you need to make a choice. Either your new enterprise wants the best people and is committed to excellence in all that you do, in which case getting the right person into the right job is an absolute must or you are willing to get anyone so long as they can ’start right away’.

Clearly, if you are committed to excellence, then you will accept that the traditional way of recruitment isn’t working, but most business don’t accept this. Why is it that intelligent and able managers are reluctant to accept this finding?

Well, at one level, they just need to get on with the job (that is saying, get me anyone who can do it, forget about excellence) and at another level they may say, well, there isn’t a better way.

Well, in truth, there is a better way. Two ways in fact.

Firstly, you can stick with the traditional recruitment process but improve your success rate with testing tools such as McQuaig. Now McQuaig, for instance, claim that using their testing will significantly increase your recruitment success rate to:

• 65% Right person (up from 15%)
• 20% Will do job
• 15% Fail

If your business is focused on excellence, you will want to embrace this or a similar methodology. However, even those of us who know we should use these tools, we often don’t. Why? Because we are in a hurry.

That same desire to ‘get the job done’  is getting in the way of you hiring the best talent.

Now, let’s be clear here, we are not talking about the ‘best talent’ in the way that you might wish to hire the highest scoring striker in Football’s UK Premier League or a top Quarterback for American Football, but we are talking about someone who is right for the job – and can do it with excellence.

To say that there is more than one person who can do a job with excellence is is not a compromise on excellence. All businesses need to rely on the fact that staff are replaceable – otherwise you don’t have a business but a talent agency or football team!

Therefore, for us to remain true to our business objective of excellence, we need to get the right person in the right job.

Now, 85% failure rate isn’t good enough, so we must use other recruitment tools, right?

Yes, and… there are ways to increase your recruitment success – or at least to reduce the costs of your recruitment failures.

Not only is recruitment expensive in terms of time, but it also costs 15 to 20% of annual salary which goes to the recruitment agency, 1 or 2 months of training or below par performance to allow the new member to get their feet under the table, management time and support during this period too.

In my experience, you can quickly identify those people who simply can’t do the job, but it takes much longer to know that you’ve got the right person in the right job.

Hence, even though you can remove the obvious people who don’t fit, you still face up to 30% of the total or two thirds of your remaining team who aren’t going to work out longer term.

And yes, you can reduce this by metrics, but you want to make the problem go away as much as possible because it is the biggest threat to your organisations ability to deliver excellence.

Therefore, one way to improve this metric is to hire people on contract and, the more people that you know, the greater ability you will have to draw from your existing and widening base of freelancers or contractors.

If you combine some form of interview and metrics with a fixed contract or freelance structure, then you have a much higher chance of hiring excellence.

And, as we discussed before, allowing those freelancers to move onto other projects is a good idea, as it allows them to come back to your future projects refreshed emotionally and with new ideas.

Employ or Hire Freelancers and Contractors?

Okay – here is a radical business strategy for entrepreneurs that some of you won’t like – and that is that you should not employ anyone. Please, if you disagree, please don’t switch off but take a moment to think about the argument… you can always respond below…

Work with people on a freelance and contractual basis – yes, absolutely, you simply must. You can even have an office or a factory if you must, but never sign a standard UK or European employment contract.

(I accept that employment law in the US is a lot simpler and so this does not apply to the same degree, but employment law is bad in the UK and terrible in continental Europe for the entrepreneurial business).

Here’s how to start. Find a Human Resources training company’s website and look at all the training you’ll need to go through to be allowed to hire people. Here are three I selected from the UK

1. Employment law, discrimination, grievance, discipline, dismisal, data protection, maternity, paternity rights
2. Conducting disciplinary investigations, guides to contract law, workplace stress, unions, guides to managing redundancies
3. Employment law insurance – for when you really mess it up…

Now, let’s compare all this to something we all know about – qualifying to drive a car. Well, in comparison if you thought getting a licence to drive a car was tough, this is 10 times harder and takes 10 time longer to master.

Of course hiring people is different from driving – you are allowed to do it before you pass the exam – but you’ll be sued and screwed if you don’t know and follow the letter of the law. So read through the websites above, the message is clear enough. Either you need to perfect employment law – all aspects, you never know when you’ll need it, or you need to find another way.

And, the worst of it is that the more successful you are then the more people you hire, the more work you need to do to comply with legislation. In other words, as you get bigger, so the burden becomes greater and employment law becomes stricter.

Okay, you might say, I’m in the UK and once my business gets to 50 staff, I’ll just hire an HR (Human Resources) person, won’t I?

Sounds good, but has two problems.

But ask yourself, why should you do this? This is an entirely bureaucratic role required simply because you are a growing company. It will attack your profitability weakening your company.

Hiring an HR person will also create an extra layer between you and your revenue producing team and confusion between your managers and the HR person about who is responsible for employee performance. This is truely dangerous.

Recall that in nearly all start-ups and fast growth businesses the employee costs will be the largest component and will probably make up 80% of your costs and be responsible for 100% of your revenue.

If your managers are going to be responsible for the costs of their division, then they must be responsible for the staffing costs – including the time and monetary costs of any disputes. This can not shift to a central HR person, otherwise you’ll find the the HR person is actually running the business, which is your job or your Managing Director’s job.

Okay, I’ll make it simple for you – follow this link to see employment law training and note the headline quote that:

“100,000 employment tribunals in the UK each year, costing British business more than £250 million”

So, not only do traditional businesses using traditional employment need to hire a full time HR employee – who will deliver no benefit, but you also now face the risk of time consuming tribunals that could result in loss of time and more cash.

Of course, an HR person will be brought in to develop your staff, but hey, this happens when you get to 50 staff and have a successful business. How is it we are sold the idea that the HR person now adds value? Instead your aim should be to stop corporate and legalistic rot setting into your business.

So, you have the costs of the HR person. You have the cost of the tribunals or at least defending yourself and you have the distraction from the goals of the business. If you must go down the employment route then I would recommend that you put aside an additional 10% of employee costs to meet this extra drain on your time and money.

However, how much better would it be if your managers had to learn to live with large pools of freelancers and contractors who could walk out at any moment? They’d become great people managers right? And isn’t that what you want?

If you follow this business strategy then throughout your business growth, your managers would have learned to deal with staff being available and staff not being available. Staff who didn’t want to work for them anymore would just walk, and you would immediately know there was a problem with your manager because there would be a staff shortage.

Also, your managers will have to develop large networks of talented and motivated people they could call upon in an emergence. Many of those people will have developed new skills by working elsewhere which they can regularly bring back to your company (and the best part is that you didn’t pay for the training course, nor the days out of the office to take the course, nor the manager to set up and purchase the course!).

In this scenario, where is the problem now? We don’t need an HR person to ‘develop’ our staff – our managers have demonstrated an ability to do this and our ’staff’ are actually freelancers and contractors who have an utterly different approach to work – they need to make each project work in order to get the referral for the next piece of work or contract or project. And, usually, they are improving and upgrading their skills on their own time under their own motivation.

If your managers can not develop and keep your staff, and by that I mean freelance and contracting teams, then they have no place acting or being paid as managers of staff.

If HR managers are so good at developing staff as is often claimed, then they should be hired as managers (on a contract) with a revenue or p&l responsibility and given the task of building and holding together a team whilst delivering good profit to the original shareholders and investors.

If the HR managers can not do this, then they have no place in an entrepreneurial growing business and that means you need to develop a different culture – one based on personal motivation and the freelance and contracting concepts.

You need your business managers to grow up in this freelance and contracting climate so that they can cope when the business grows strongly.

You do not, I promise you, want to trade your role as an entrepreneur to become an HR expert. You are an entrepreneur, nothing will kill your entrepreneurial spirit faster than the dead hand of employment law and the endless tribunals that they entail.

Please, if you are a true entrepreneur and dedicated to a life of discovery and adventure – carried out in the business world – then value your freedom and don’t build a traditional business based on the screwed up incentives of the employment contract. If you can avoid this horror trap, you will go a long way to keep the spirit of enterprise alive in your business and what is more, you’ll encourage like-minded people to work with you who also share that spirit.

Give up on the excitement of the enterprise and you will chase away all your best people and nothing will achieve this faster than traditional employment contracts.

Now why on earth would you want to do that?

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Please note, as an entrepreneur I find that diversity of my teams in terms of age, race, religion, disability, criminal record or sexual orientation, is no hinderance to performance. In fact, often your best people may well be people who have suffered some form of discrimination and those who have life handing to them on a plate are lazier.

And if you focus your business on performance then you will allow people to prove themselves based on what they can deliver and not what they look or sound like or how they move. So my recommendation is in no way to avoid the intention of  employment law, but is has every intention of avoiding the spirit destroying effects of employment law on an entrepreneurial business.