“Can I afford it?”

Cost is the biggest reservation we hear from founders and entrepreneurs who are contemplating their first hire.

Affordability is obviously a critical part of the hiring analysis — and there’s a lot more to it. Whether you’re ready to hire and (perhaps the bigger question) who you should hire depends on multiple factors.

So let’s jump in.

The finances of hiring your first employee

If you’re contemplating your first hire, you’re in one of three places financially:

You’re pre-revenue and spending whatever seed capital you’ve put into the business.
You have revenue, but it’s not covering your costs.
You’re operating at cash-flow break-even or better.

If you’re pre-revenue, you’re considering taking a measured risk: is this hire necessary for you to get your business to revenue? If not, you accelerate the burn of your capital, and you’ll have less runway until you’re out of cash.

If you’re bringing in some revenue, you’re measuring your confidence: do you believe that making this investment will continue and accelerate your growth?

Once you’re at break-even (or, better, profitability), you’re evaluating opportunity costs. Your risk is smaller, and you likely have confidence. You could do plenty of things with the money you’re bringing in, so can you get a better return on your investment if you spend it elsewhere? You could put it back into the business for customer acquisition or product development.

Regardless of where you are financially, ask yourself these questions to decide whether hiring is a practical option for you:

Do you have the resources to provide the necessary compensation? Having enough to pay an entry level salary isn’t meaningful if what you really need is a skilled expert.

What is the hiring market for people who have the needed skill or background? It’s good to know before you start whether you’re going to have trouble finding someone qualified or if you’re going to be competing with more established companies that can pay more with better benefits.

How much of a distraction will it be to do the hiring search? What’s the opportunity cost of doing that? Hiring takes time and energy — and possibly money. Identify what you won’t be able to do while you’re focused on the hiring process.

Who to hire

Every business that wants to scale must eventually hire employees. People are the path to scalability.

So if you know you’re ready to bring someone on board, the question shifts to who (or what role) to hire.

Hire for things you don’t enjoy. If you delegate something not in your wheelhouse, you have more time to focus on the business. You might even get a positive energy boost — especially if you take a responsibility off your plate that fills you with dread.

Hire for expertise you don’t have. Maybe you need to up your internet marketing game. You could add that to the list of things you’ll research and learn, as many entrepreneurs do. Or you could delegate it to someone who’ll do it better than you could.

Hire for credibility. You had a brilliant idea for a business app, and maybe created your minimum viable product. As you build reputation, it would be helpful to have a CTO on your team — someone that gives your company the technical chops it needs to succeed.

Hire for scale. You need to raise money, or sell to enterprise, and you’re looking for leverage. Hire someone who’s done it before, who has a strong network and relationships with the constituents you need to meet.

Hire for expansion. You sell a software product, and you see the need for custom installations or education or professional services. You want to hire someone you can deploy to a client site for incremental revenue and get them using your software better.

Do you outsource or do you hire?

The decision whether to outsource or to hire has to be made on an individual basis for each company — and it won’t be the same for every role. There are a few questions that can help you decide what’s best for this first hire.

Is this a core competency that my team needs? Investing the time and money into training someone that will grow with your team makes more sense when you’re filling a core competency.

Is the need long-term or temporary? Creating an employee relationship for a role that you’re only going to need for a few weeks or months may be overkill.

Is your need for this role predictable and consistent? If you have a strong need for the role some weeks and not at all others, providing consistent work could be challenging. A freelancer may be more appropriate.

How much can you afford? Outsourcing agencies provide economies of scale you don’t have within a new organization. They’ve already set up systems and processes. If you can’t afford to set those up, consider outsourcing.

Can you support the infrastructure of an employee? Once you hire someone, you’re accountable for them professionally, administratively, and legally. You’ll have to be a leader, deal with payroll and payroll taxes, and consider their professional development.

See: Should You Outsource Your Hiring?

Making subsequent hires

Once you have one hire under your belt, you’ll have a bit more confidence about the process. Hopefully you’ll collect some data for yourself — has your investment paid off?

And you can assess whether there’s more potential in your existing employee. Can you expand their role or have them work temporarily on something that’s slightly outside their wheelhouse?

Even when you’ve moved past your first hire, you’re still deciding whether you have enough revenue to support an employee position, whether hiring someone is a good investment, and what role will have the most positive impact on your organization’s growth.

Of course, each subsequent hire gets more specialized with narrowly defined roles. Your first hire needs to understand the business and the customers. You’ll probably need them to wear a bunch of hats. When you’re making your 15th or 20th hire, you might be hiring someone who won’t have a thorough grasp of the business as a whole but understands a specific report-writing tool because that’s a full-time job.

Signs that you should consider hiring someone

Hiring your first employee is a big commitment. Understandably, some entrepreneurs are reluctant to take that step. They may keep putting it off — even when they have the revenue to support the role.

Here are some signs it might be time to consider bringing in an employee (or at least outsourcing work to a contractor).

You’re burning yourself out. If you’re doing more than you can reasonably manage and feeling stressed and tired, it’s time to bring in help.

You’re losing traction. There are dozens of reasons businesses could be suffering, but it might be that you’ve starved your company of oxygen. You’re stuck. Remember that people are what make business happen.

You’re doing things you’re not good at. Entrepreneurs get good at doing everything, especially in the early stages. At some point, that do-it-all spirit leads to loss of productivity and inefficiency.

You’re lonely. Not everyone is built to go solo for long periods of time. If you don’t want to be alone in your business, hiring someone might be a good next step.

See: Being a Solo Founder: How to Combat the Loneliness of Entrepreneurship

I hired the first coach at Trajectify (and soon after, the second) because I got distracted by a different project, and I wanted to turn my existing work over to someone like me.

Once I jumped back into Trajectify full-time, I realized these coaches I’d hired were generating revenue. Continuing with them, for the most part, was a no-brainer. On the other hand, hiring an assistant was a more challenging question. I believed an assistant would help me, but they would also be an expense. In the beginning, I started with a temporary, part-time assistant until I confirmed I needed more consistency and commitment.

That was an evolution. I had to try a few things, get some data, get some feedback, and let my business evolve as well.

Final thoughts

A few years ago, I spoke with an entrepreneur at one of our events. He had ten employees and about a million dollars in annual revenue. The business was just about to break even. He was stuck in operations and knew he needed to hire a COO. All ten of his employees were reporting directly to him. At the same time, he was anxious about spending the money, and he was also uncomfortable delegating.

Eventually he took the plunge. He hired a COO, and his revenue expanded. His team tops 40 employees now.

Hiring your first employee — or your first management-level employee — requires a leap. It will require sacrifices. One of the biggest challenges entrepreneurs face is that when they hire someone new, they go through a period of inefficiency. They have to find the person, onboard and train them, coach them, figure out how and what to delegate.

And if you’re not willing to make that investment at some point, your business will never scale.

Still not sure? Try outsourcing some of your work to a virtual assistant. For many, it’s a safe first step to offload some administrative things, get help keeping down the noise. You’ll learn a bit about yourself as a manager and get some practice delegating, a process that almost always has room for improvement.