Common Hiring Mistakes Entrepreneurs Can Avoid

When most entrepreneurs are ready to hire their first employee, they cant afford the services of an experienced executive recruiter. But attracting people with the right skills and chemistry is essential to getting a new business off the ground. Your first people are your most critical hires, says Francois Gossieux, an entrepreneur in Andover, MA, who has three start-ups under his belt including his latest, Synopia, which makes software used in product development. If you ask a venture capitalist, he'll tell you the team is the top thing they look for. Whether you plan to seek outside investors or intend to grow your company by its bootstraps, finding and keeping good people is a top priority. Hiring isnt easy. You need to find people who not only have the experience you need, but also whose personalities complement your own, and who appreciate and can stomach the financial risks and unpredictability that go with working for a fledgling company. And you need to protect yourself by making sure everything you negotiate with your new hires is clear and in writing. With start-up activity on the rise again, more budding business owners are facing this complex hiring equation. The Kauffman Foundation of Kansas City, MO, reports that 11.3 percent of American adults were engaged in entrepreneurial activity in 2003, up from 10.5 percent in 2002. Veteran entrepreneurs and venture capitalists cite common hiring mistakes and suggest some practical solutions: Dont Oversell Your Company Because founders often are good salespeople, they can persuade a person to take a job, observes David Friend, who started five companies as an entrepreneur and is now a partner with the Boston venture firm Orchid Partners. But too often, such personalities focus too much on the positive and too little on what can go wrong, he says. I've pushed too hard to convince someone to join me when they weren't sure they had the temperament for a start-up, Mr. Friend says. "It backfired because from day one they were saying to themselves, What have I done? Jim Finkelstein, who has recently been hiring key executives for his Silicon Valley start-up, Futuresense, spends a lot of time talking with prospective employees to make sure they fit both him and his start-up. I tell people that I can offer them total flexibility and a lot of freedom to act. And I ask if they like a lot of structure and guidance. If they do, this is not the place for them, he says. When possible, Mr. Finkelstein brings even top-level managers in on a consulting basis for three to six months before offering them a full-time job. This is an opportunity to see their work style, and to make sure they enjoy and understand his company's unstructured, fastpaced environment before committing to it. Don't Call All Your Old Cronies Your first instinct is grab people you know and trust, with whom you were successful in another setting, but sometimes that's not appropriate, says Chris Pacitti, a general partner at Austin

Ventures in Austin. Such hiring causes Mr. Pacitti's caution flag to go up because, even though the old cronies clearly have good chemistry, it could signal that the founder has simply fallen back on the familiar and comfortable rather then thinking through what skills and experience he'll need to make his venture work. For example, you might love the crackerjack sales director who successfully launched a new product with you at the large company you just left. But he might not be as good at selling without the resources and reputation of a big company behind him. Mr. Pacitti says he likes to see a balance of old folks and new in the mix. Mr. Gossieux took that approach when hiring for Synopia. "Out of six of us here now, only two have worked together before," he says. If you're going to tackle a new product in a new space in a new time you have to be able to do things differently. If you have only people who have worked together before, you can fall back on what you did before, which might not work, he explains. Instead, You need people who will challenge what you did before. If you get different backgrounds, you have different kinds of ideas and questions coming in. Think Like a VC Before you seek outside money, put yourself in the shoes of venture capitalists, think about the shortcomings they'll see in your team and set to work addressing them. Mr. Friend explains, You might think Shoot, I don't need a sales guy for six months. Why pay for him now? But you might need the whole team to be credible to an investor. I might know you're a good engineer and the product is good, but if you don't have a salesperson I don't know who's gonna open the door and get his or her hands on those key first customers, he says. Or, I might see good engineers and salesmen, but I know none of them are good at controlling budgets, so I want to see a [chief financial officer] in there, even if you don't need it at the moment. In other words, have at the ready all the people who will reduce the risk of your company failing. Put Everything in Writing Finally, Mr. Friend observes, put together an employee handbook or write up detailed employment-offer letters, even though you may be pressed for time. People who are [starting a business] for the first time are distracted. They have things that are more interesting and important to do." And, he adds, they haven't been bitten yet. James O'Hare, an attorney who works with start-ups at the Boston office of Kirkpatrick & Lockhart, says a detailed offer letter can prevent future disagreements that could damage your credibility and relationships. You do make a mistake if you don't lay it all out, he says. And it could affect your ability to get funding. He suggests making sure an offer letter covers not only issues such as compensation, options and the parameters for bonuses and severance, but also intellectual property rights, nondisclosure and noncompete clauses. Mr. Gossieux concurs. I'm a firm believer that you should put everything on paper. Incorporate right away, get a company lawyer right away," he says. "It's real people and real money, so its better to have it all in writing. Beyond the legal and financial entanglements, Mr. O'Hare points out that misunderstanding with

employees can also hurt your long-term career prospects. People are part of your network and reputation, he says. You might want to sell your successful company and start a new one. You might need to try again if your first venture fails. Or you might one day want to stop being an entrepreneur and work for someone else again. The way you treat people will affect your ability to do" any of those things, Mr. O'Hare cautions. Costly Problem of Unscheduled Absenteeism Continues to Perplex Employers Two out of Three Workers Leave Employers in a Lurch for Reasons Other than Illness with Flu Season Looming, Presenteeism a Growing Problem With the cost of last-minute employee no-shows climbing, employers are still struggling to find effective programs that keep healthy workers on the job, according to the Unscheduled Absence Survey The 2005 survey found that while the rate of unscheduled absenteeism barely budged since last year, the average per-employee cost has risen to $660 per employee costing some large employers over $1 million per year. What may be of most concern to employers is that almost two out of three employees who fail to show up for work arent physically ill, according to the survey. The survey found that Personal Illness accounts for only 35 percent of unscheduled absences , while 65 percent of absences are due to other reasons, including Family Issues (21 percent), Personal Needs (18 percent), Entitlement Mentality (14 percent) and Stress (12 percent). The survey found that both the Entitlement Mentality and Stress numbers are higher in 2005 than in the previous two years (Entitlement Mentality: 2004, 10 percent; 2003, 13 percent. Stress: 11 percent in 2004 and 2003.) Lean staffing levels over the past several years have intensified workloads for those employees who avoided layoffs. Now that the labor market is opening up, those survivors may not be as fearful of losing their jobs and may be taking the mental health breaks they feel they deserve, said workplace analyst Lisa Franke, CCP, SPHR. Employers may even see a culture of entitlement emerge as the economy strengthens further. According to the 2005 Unscheduled Absence Survey, conducted for CCH by Harris Interactive , the absenteeism rate was 2.3 percent in 2005 down slightly from 2.4 percent last year. The average cost of absenteeism rose to $660 per person per year, up from $610 in 2004. Notably, the survey only measures direct payroll costs for paid, unproductive time. The high cost of absenteeism hurts organizations even more when other costs, such as lost productivity, morale and temporary labor costs, are considered. Companies with low morale saw higher rates and costs of unscheduled absences. The rate of unscheduled absenteeism is twice as high at companies with Poor/Fair morale (3.2 percent) than those with Good/Very Good morale (1.5 percent). The Unscheduled Absence Survey, conducted annually by for the past 15 years, is the definitive survey on absenteeism in the workplace and the only one that measures costs associated with unscheduled absences. Organizations Search for Solutions Employers are concerned about the impact of unscheduled absenteeism, with nearly one in three (31 percent) reporting that it is a serious problem, and 87 percent stating that they think the problem may stay the same, or worsen, in the next two years.

With traditional sick time programs clearly out of sync with the times, the survey found that employers are increasingly offering programs to help employees manage in a more planned way the issues that take them away from work. Traditional sick leave policies that allow time off only for illness may put an employee in the position of having to conjure up a cold at the last minute to get the time off they really need for taking a parent or child to a pre-arranged medical appointment, noted Franke. The Survey found that employers increasingly are adopting programs that recognize that the issues keeping an employee away from work often have nothing to do with a stuffy nose. Work-life programs The 2005 Unscheduled Absence Survey found that U.S. companies now offer an average of 9 work-life programs, up from 8 in 2004 and 7 in 2003. It takes time for the adoption of work-life programs to have an impact on absenteeism rates, noted Franke, and the small decline that we saw in this years unscheduled absenteeism rate may be the beginning of a bigger payoff for employers in years to come. Of the work-life programs offered by employers, the top five in usage Employee Assistance Plans, Leave for School Functions, Wellness Programs , Flu Shot Programs and Fitness Facility recognize that helping employees manage the many aspects of their lives is increasingly important. The blend of programs being offered to help people proactively manage their work schedule, family and health is a sign that employers are viewing employees more holistically, noted Franke. This will be very welcome news to employees, most of whom juggle the demands of their jobs with personal obligations and family responsibilities. On a scale of 1 to 5 (with 5 being most effective), the work-life programs rated highest by human resource executives for reducing unscheduled absences are Alternative Work Arrangements (3.5), Flu Shot Programs (3.4), Leave for School Functions, Telecommuting, Compressed Work Week and On-site Child Care (each at 3.3). Effectiveness and Use of Work-life Programs Work-life Program Effectiveness Rating (1: Not Very Effective to 5: Very Effective) 3.5 3.4 3.3 3.3 3.3 3.3 Percent Use

Alternative Work Arrangement Flu Shot Programs Leave for School Functions Telecommuting Compressed Work Week On-site Child Care

54% 61% 65% 53% 47% 33%

Emergency Child Care Employee Assistance Plans Wellness Programs On-site Health Services Fitness Facility Satellite Workplaces Job Sharing Elder Care Services

3.1 3.1 3.0 2.9 2.8 2.8 2.8 2.8

33% 73% 64% 40% 55% 40% 45% 34%

Absence Control Programs Employers report they use an average of 6 absence control programs, up from 5 programs in 2004. Disciplinary Action remains the single-most used absence control program, with 90 percent of surveyed organizations reporting use. The other leading absence control programs in use are Yearly Review (79 percent), Verification of Illness (76 percent), Paid Leave Banks (67 percent), Personal Recognition (66 percent) and No Fault (63 percent). The use of Paid Leave Banks (also known as Paid Time Off) continues to climb in popularity, rising from 59 percent in 2003, to 63 percent in 2004 and 67 percent in 2005. Paid Leave Banks provide employees with a bank of hours to be used for various purposes instead of traditional separate leave programs for sick, vacation and personal time. Buy Back programs, under which the employer buys back in cash or vacation time all or some of an employees unused sick time, saw a 20-percent increase in popularity, from 48 percent in 2004 to 58 percent in 2005. Paid Leave Banks along with Buy Back programswere rated as the most effective absence control programs, each with a 3.5 rating. Effectiveness and Use of Absence Control Programs Absence Control Program Effectiveness Rating (1: Not Very Effective to 5: Very Effective) 3.5 3.5 Percent Use

Paid Leave Bank Buy Back

67% 58%

Disciplinary Action Bonus Verification of Illness Yearly Review No Fault Personal Recognition

3.4 3.3 3.2 3.0 3.0 2.6

90% 57% 76% 79% 63% 66%

Overall, organizations with Good/Very Good morale rated their absence control policies and work-life programs more effective (3.7), than did their counterparts with Poor/Fair morale (2.4). Talking Bout My Generation? With a workforce that for the first time includes four generations of employees all at different life stages with different needs changing demographics may offer employers the next opportunity to further enhance the effectiveness of their work-life and absence control programs. Employers, however, appear to be hesitant to act. Only 29 percent of organizations say that demographic changes in the workforce will affect the work-life programs they offer, and 28 percent say it will affect their absence control programs. Companies may be reluctant to change programs because they perceive that it will be costly, but there are costs to complacency as well. Each generation of employees brings something unique to an organization. When employers evaluate their work-life programs they should consider employees changing needs based on life stages, said Tulay Turan, JD, CCH employee benefits analyst. Inattention to intergenerational issues could have long-term consequences, affecting not just the cost and rate of absenteeism, but many other issues such as recruitment, retention and morale. Morale Matters The effect of morale is reflected across the board in the 2005 Unscheduled Absence Survey. The survey found that employee morale can affect a companys absenteeism rate, with organizations with Good/Very Good morale experiencing a 1.5-percent rate of unscheduled absences while those reporting Poor/Fair morale had a rate of 3.2 percent. And, this low morale can cost employers. Overall, the survey found that employers set aside an average of 5.8 percent of their budgets for absenteeism. When morale is factored in, however, organizations with Poor/Fair morale set aside 6.2 percent of their budgets to cover the costs of absent workers compared to 5.5 percent in organizations with Good/Very Good morale. Morale also influences the reasons people call in sick at the last minute. Organizations reporting Poor/Fair morale were more likely to experience unscheduled absenteeism due to Stress (15 percent) than organizations reporting morale as Good/Very Good (10 percent). Also, while 20 percent of organizations reporting Good/Very Good morale believe that unscheduled

absenteeism is a serious problem for them, 48 percent of organizations reporting low morale find it to be a serious issue. Additionally, 39 percent of companies with Poor/Fair morale reported an increase in unscheduled absences over the past two years while only 14 percent of those with Good/Very Good morale reported an increase. And, the outlook by organizations with low morale is equally bleak. Forty-five percent of employers in organizations with Poor/Fair morale believe unscheduled absences will increase in the next two years. Only 15 percent of employers in companies with Good/Very Good morale shared this concern. Presenteeism: Bottom Line Gets Hit When Employees Punch In Sick The problem of presenteeism when employees come to work even though they are ill and pose problems of contagion and lower productivity is an emerging area of concern for organizations. Nearly half (48 percent) of employers surveyed reported that presenteeism is a problem in their organizations, up over 20 percent from the 39 percent who saw it as a problem last year. Here again, morale makes a difference. Despite higher rates of unscheduled absenteeism overall, companies with low morale also have more ill workers showing up for work. In fact, 55 percent of organizations with Poor/Fair morale reported presenteeism is a problem, while 43 percent of organizations reporting Good/Very Good morale see it as an issue. While the direct hit to the bottom line isnt immediately evident with presenteeism, the hidden, indirect costs are very high, noted Turan. When someone doesnt feel well, they are simply not as productive, nor is the quality of their work as high. Then, there is the added problem of spreading illnesses to other employees who in turn either call in sick, or come in sick, Turan added. With flu season just around the corner, employers should consider what they can do to break the cycle. For the first time, the 2005 Survey asked employers what they are doing to reduce presenteeism. Sixty-two percent of the organizations reported they send sick employees home, while 41 percent educate employees on the importance of staying home when sick and 36 percent try to foster a culture that discourages employees from coming to work sick. There is also a concern, however, that some traditional absence control and sick day policies may inadvertently encourage employee presenteeism. Organizations that adhere to traditional sick day policies, and take disciplinary action to enforce them, may be making it difficult for employees to do the right thing. If, for example, an organization allows each employee five sick days a year, and takes disciplinary action on the sixth absence, an employee who has been wiped out with the flu for several days may choose to come to work ill rather than risk the discipline. According to the 2005 Survey, Disciplinary Action is the single most common absence control program, used by 90 percent of organizations surveyed. Some employees can offset the risk of a poor health year if their employer allows them to carry over the sick days that they didnt use in healthier years. Only 38 percent of organizations surveyed, however, allow employees to carry over sick time from one year to the next a large decline from 51 percent in 2000. Having a Paid Time Off (PTO) program is an effective way employers can help manage the problem of presenteeism. With PTO, the employee has more discretion as to how to use an entire bank of days, so if shes sick, she can take a day from the bank and stay home, without the fear of being reprimanded or running out of sick days.

Dont let absenteeism bring your business down. Here are six ways to keep employees on the job: 1. Just Ask
If youre wondering why an employee has been calling in, why not ask? Employees may not always answer honestly, but some people who speak freely may tell you that the work is boring or they dont like their boss, says Frank Kuzmits, Ph.D., a professor of management at the University of Louisville. You can also ask employees for their feedback in exit interviews, where they may feel more comfortable to speak freely. Your employees comments will let you know whether theres something you need to change in the workplace, from an unpleasant atmosphere to an abusive supervisor or colleague. And dont just question the employees with a poor attendance record. Theres no reason you cant periodically sit down with people and ask why they come in regularly, Kuzmits says. This will let you know what is workingso you can do more of it.

2. Take It to The Bank

Many unscheduled absences are due to issues such as sick family members, doctor appointments and stress. According to the study, one of the most effective ways to combat this type of absenteeism is through a paid-leave bank. Instead of offering sick days, vacation days and so on, the employer offers a set number of paid-leave days that an employee can use for any reason. A paid-leave bank promotes scheduled as opposed to unscheduled absences, says Franke. Whats troublesome about unscheduled absences is that they hit employers at the last minute. With a paid-leave bank, employees dont have to call in in the morning and make up an excuse, and the business owner can take steps to have things covered. Also, when employers transition from a traditional sick-leave program to a paid-leave bank, they often trim the total number of days offered by two or three days, which saves them money. If employees look at it they may notice, but they appreciate the flexibility so they see it as a benefit, says Franke. 3. Get Well Soon if illness-related absences are making your bottom line look sick, look into ways to enhance your employees health. You could create an on-site fitness center or subsidize your employees gym memberships. You can also hire nutritionists, personal trainers and other health specialists to come into the workplace and give presentations on healthy living. Call your health insurance provider to see what it offers in the way of preventive care. If some of your employees smoke, encourage them to quit by offering financial rewards, such as $50 or $100, if they kick the habit. It sounds like a pricy program, but youll save in the long run: Research shows that people who smoke have more absences, says Kuzmits . 4. Hire Right Stop absenteeism before it happens by hiring the right employees. During the interview, discuss the values of the individual and the business, says Ray Silverstein, president of the small business network PRO, Presidents Resource Organization. Ask the candidate what their beliefs are regarding absenteeism, and tell the candidate that its a major criteria that you judge your employees by, and that excessive absenteeism is a cause for dismissal. The best predictor of future performance is past performance, says Kuzmits, so be sure to call the applicants references. Many employers are afraid to check (and give) references for

legal reasons, but, says Kuzmits, Theres no law that prevents an employer from communicating to another employer a verifiable, documented performance history. You shouldnt have a problem asking about attendance because most professionally run companies will have records on how much people showed up for work. 5. Motivate Them According to the study, businesses that were rated as having a good or very good morale had a 1.5 percent rate of unscheduled absences, while the rate for businesses with poor or fair morale was 3.2 percentmore than double. It makes sense: Happier employees are more likely to show up to work. You dont need to buy into those pricey incentive programs touted by consultants to increase employee morale. Look at your managers [to make sure they treat employees well], allow employees more decision-making authority, and recognize and reward your employees, suggests Franke. Even a Friday pizza party or free movie tickets to say thanks for a job well done can boost morale. 6. Create Peer Pressure Nothing motivates an employee to improve like peer pressure, says Silverstein. He suggests offering an incentive to all employees if absenteeism is kept below a certain amount. Find a reward that your employees will be excited about, i.e., not a pen engraved with the company name, and theyll pull together to reduce absenteeism.
1. Keep records of absences

Research has shown that people are less likely to be absent in companies where absence is recorded, monitored and managed. Document absences and check the extent to which you have a problem. Analyse patterns of short-term absence, for example by age and grade; focus on individuals whose attendance records need special attention; and evaluate trends in types of illness or accident which might indicate problems within the organisation. Feed the information back to line managers so that they know how effectively they are dealing with the situation. Encourage managers to keep absence levels under control by publishing comparative records or league tables of the performance of different parts of the organisation. Consider publishing these figures so that employees are aware how much time the organisation is losing through absenteeism. The most commonly used measure of absence is the lost time rate. This is usually calculated as the time lost due to sickness absence as a percentage of contracted working time in a defined period. Total absence (hours or days) in the period / possible total (hours or days) available in the period x 100=Lost rate time For example, if the total absence in the period is 124 hours, and the possible total is 1,550 hours, the lost time rate is: 124 / 1550 x 100=8% 2. Ensure that fair procedures are followed Approach the case of each employee who is frequently sick or has a long-term illness on an individual basis, as each situation will be different. Do not treat an underlying medical

condition on a disciplinary basis but with a sympathetic approach, thoroughly investigating the situation with the employee and doctors and following fair procedures. Should disciplinary action become necessary in the case of persistent, intermittent, unconnected illness for example, ensure that you comply with the laid down procedures. The situation should be reviewed and discussed with the employee and they should be given the opportunity to improve with a warning that appropriate disciplinary procedures may be invoked if the situation continues. 3. Define unacceptable levels of absence Consider setting trigger points where employees know that if they are absent more than a certain number of times, within a given period, the situation will be investigated, through counselling interviews for example. Don't tolerate a culture where absence is accepted without explanation, where staff feel they are entitled to take a certain number of days sick leave and where managers set bad examples. 4. Establish formal reporting procedures Require employees to notify either their line manager or personnel department of their absence by 10am on the first day of absence and to give some indication of the reason for the absence and how long it is likely to last. Make it clearly known what other notifications are needed to cover the employee's absence, including self-certification forms and doctors' medical certificates. 5. Hold return to work interviews Establish the reason for absence and whether the illness is likely to recur. If appropriate, the line manager should refer the employee to the company's doctor or occupational health service. The line manager should also take the opportunity to update the employee on developments that may have occurred during their absence. This approach will not worry those who have been genuinely sick, but may deter others from taking avoidable absence. Try to find out if there are underlying causes of absenteeism such as personal difficulties or problems of motivation. This should not be a substitute, however, for daily contact with employees; managers should be generally aware of their employees' attitudes and any problems they may be having. 6. Train line managers Explain to line managers why they are key figures in absence control and provide support and training for them. It is important to recognise that the policy will succeed or fail by their efforts. 7. Don't recruit poor attendees When recruiting, ask for references that refer to the candidate's attendance record and assure yourself of their fitness for work. Do not assume that disabled workers or older people will be poor attendees; it is often quite the reverse. 8. Maintain a safe and healthy workplace Ensure that you practice the legal requirements on health and safety at work. Consider

encouraging people in healthy lifestyles by introducing policies that embrace no-smoking and no-alcohol, and provide healthy eating options in the staff restaurant, access to exercise facilities, occupational health services and employee assistance programmes. Encourage people to take their annual leave and do not allow them to habitually work late and skip lunch. It is important, however, to consult employees about health promotion activities and not to be prescriptive. The provision of private health insurance can speed up medical treatment in certain cases. 9. Motivate and gain commitment from staff Find out what motivates staff and affects their commitment to the organisation. Think in terms of the way they are managed, the content of their job, their role within the organisation, and their employment and working conditions. Remember that poor management can contribute to high absenteeism. Ask if there are benefits which would help improve attendance, for example flexible working hours, loans for transport, or support in caring for children or elderly relatives. Motivated and committed staff are less likely to be absent, particularly in the case of minor ailments. 10. Consider offering incentives Consider offering attendance bonuses or rewards, or docking the pay of staff who take sick leave. Beware, however, of the longer term implications of such a move which might force genuinely ill people to come to work, perhaps thus creating additional problems. Avoid placing too much stress on the economic relationship between employer and employee to the detriment of other motivational policies. 11. Evaluate the absence control policy Monitor the effects of the policy by assessing absence levels. Is the policy more successful in some areas of the organisation than others? Offer support and training to line managers as necessary.