This explains why the current owners will also meet £9m worth of liabilities as part of the sale.

However, the key is that it shows how long term liabilities can sink a business. How on earth did the independent get it self into this state? Probably by negotiating cheap print deals in return for long term commitments? And, of course, staff redundancy costs and office leases…. Time for a new way of doing business – contractors and freelancers and short term contracts, anyone?

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.

Are you wasting money? But more importantly, missing out on talent?

Dear successful entrepreneurs,

Here is my warning…

Just remember if you do employ traditionally (and ignore the freelance model), here is what you will be paying for sooner or later.

• paying for stationery to make your employees feel comfortable and valued
• paying for storage to store the excess stationery they order
• paying for staff to file bits of paper in the endless lever arch folders they felt they needed in order to do the job
• paying for someone to reduce the filing and throw away the useless information stored
• paying for an intranet to allow triplicate filling of digital copies of all items filed
• paying for server costs to allow maintenance of digital files
• paying for someone to go through all the digital files and delete them all

and then

• paying to provide email support when staff break their email accounts
• paying to stop your staff doing silly things, like downloading viruses or looking at pornography
• paying for human resource staff to listen to their whinges
• paying staff to smoke cigarettes
• paying managers to provide written staff objectives which staff can then safely ignore
• paying staff to have new ideas on how to do things better, which ultimately don´t work and then paying someone else to take down the new idea and get on with doing it the way it works best

and then

• paying for staff to have grievance procedures which can be brought against any managers whether legitimate or not – all payable out of company time and resources
• paying for senior management to sit listening to pointless complaints
• paying for someone else to wash up the mugs that staff use and don´t wash  up (do they do that at home?)
• paying for the tea and coffee
• paying for someone to clean up behind them
• paying for management to regularly walk around the office to ask staff to please throw away old paper, bits of sandwich left-overs and old newspapers and magazine

and then the obvious stuff

• paying for holidays
• paying for sick leave
• paying whether they do their job properly or not
• paying to hire staff (recruitment fees)
• paying to hire the temporary replacement when on maternity or paternity leave
• paying for someone to fill a key role during maternity
• paying to make weak staff members redundant because firing average performing staff is too long winded and every business opts for the more expensive but quicker route of redundancy
• paying for holiday rights accrued whilst on maternity leave (whilst also paying the person who fills the maternity role the same holiday rights)

and then

• paying for an internet connection to allow them to keep on surfing whilst in your office
• paying to post personal letters and provide their homes with a suitable supply of pens
• paying for mobile phones and laptops so staff can work from home on Fridays and have a nice long weekend

Okay, you think I’m being a little extreme? I promise you, I have seen all of these in the business I created and it was a problem of employed staff and never an issue with freelancers and contractors.

I do accept that if you have contractors in your office, which you will almost certainly want to do, that you will have to pay for their office space too and provide tea and coffee etc. You may even pay them slightly more such that there is no real National Insurance or employers tax saving (it might just get paid to the freelancer to allow him to cover these costs himself).

However, in my recent business which ceased training in Aug 09, I did not encounter abuse of these or any of the other issues with freelance and contracting staff; only with the traditionally employed.

The point here is not that using freelancers and contractors is primarily about a tax saving – although it may a secondary benefit – it is that you have a different grown up relationship with fellow business people who share your desire to make the project work.

And, you have the minimum of distraction from achieving the goals of the project because you do not have the bureacratic and overbearing risk of employment law hanging over every decision you make like the sword of Damocles.

Do you know the story of Damocles? It is worth knowing and no, you don’t want to be Damocles.

Instead, if you are an entrepreneur build a business which stays true to its founder – entrepreneurial. Build a business that is exciting and focused on achievement of goals and objectives and the fun and enjoyment that comes with that.

Find the best freelance and contractors you can. Pay them well, pay them fairly and a bit more. Share bonuses with them if you have financial success. Create an atmosphere of business partners working together to achieve win/win results.

You will have more fun, your team will have more fun, you’ll all perform better and you’ll all get better results. And yes, you will save money too – but this isn’t about saving money – it is about creating the right atmosphere in which success is most likely to flourish.

Be brave and do it and don’t compromise. After all, you do call yourself an entrepreneur don’t you?

Dr James Bellini

“The glue that holds the company together is trust” said Dr James Bellini, a forecaster of employment trends, and therefore not employment.

This statement stands in direct conflict with some of the comments expressed in response to my article ‘Entrepreneurs – never employ anyone’.

The reason that staff traditionally sought employment and employers believed that employment was important to ‘attract the right person’ is because that way of doing things has been deeply embedded in our society and well understood – it used to be the trusted way.

However, this doesn’t mean that a new contract for work can’t be established. The 1m official self-employed or freelance people now recorded by the UK employment Statistics is a clear sign that things are already changing.

The standard employment way of doing things also comes at great cost. Dr Bellini, director of the Talent Foundation,  made an extraordinary claim. He stated that only ’4% of staff are located where they want to be’. A full 96% of staff would rather work in a different geographical location – perhaps closer to home, perhaps in another town or city.

Perhaps this explains the length of commuter frowns and stress of rush hour traffic? We are always in the wrong place desperately trying to get back to where we want to be.

So much better then to be a freelancer? And here, please note, the benefit is for the freelancer themselves not just the company that is hiring or contracting with them.

In Dr Bellini’s vision of the future ‘the company of the future will have next to no assets – having outsourced the technology and office’ and it will rely in substantial part if not entirely on trusted freelanced or contracted workforce.

The issue that is left now for freelancers – is personal branding. That is, being able to explain to potential companies that might hire the freelancers skills or time what the freelancer can do as well as give them confidence that they can do the job well and deliver on time.

As students of branding know, the essence of a strong brand is trust.

Ah yes, and that was exactly what Dr Bellini said in the first place ‘the glue that holds a company together is trust’.

So, perhaps we can see the future of freelancing as a series of strong trust based personal and agency brands working with other partners in a larger organisation.

The future of freelancing then, is the future of brands – and for a freelancer to build trust in his personal brand he will need to develop and deliver trust. To do this, he will need to deliver his projects on time to budget and keep his client happy.

The freelancer in this world can not walk out on a job. He can not call in sick to take time off and go and watch a football match. He can not drop the project and take another – without seriously impairing his brand and affecting his ability to secure future contracts.

Therefore, the freelancer is motivated to keep the client happy in a way that the employee is not.

No wonder that business strategists forecast that companies and successful entrepreneurs will be able to build better and stronger corporate brands on the back of a strong, experienced and highly trust worthy freelance resource.

What a huge business advantage this will be for the entrepreneur or business manager willing to encourage the freelance model in his or her work force. And, for the freelancers, what a great place to work.

Click here to listen to Dr Bellini’s interview with the PCG.

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This series on the future of freelancing was inspired by the PCG’s National Freelancing Day held on 23rd of November 2009. You can find out more about the PCG here.

If you want to receive updates of future articles in the Freelancing – the Future Looks Like This series - then please join our newsletter and also get the first chapter of Rags to Wreckages free.

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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.