Early Employees and Contractors

Cite this article as:"Early Employees and Contractors," in The Business Professor, updated July 21, 2014, last accessed June 7, 2020, https://thebusinessprofessor.com/lesson/early-employees-and-contractors/.

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Early Employees

Later stage employees of the business generally assume the role of salaried employees.  At this point, the business produces sufficient revenue (along with equity investment) to pay personnel a salary. The downside to this relationship is that the startup leadership has to develop ways of incentivizing and motivating employees to accept and continue the entrepreneurial spirit of the business. That is, these employees will be asked to work long hours on a variety of tasks to fulfill any random need of the business. The startup work environment can be stressful and more demanding that equivalent salaried positions. The characteristics of the job make it extremely important to focus on acquiring workers who have the same personal and professional fit as described above. Employees must have that same entrepreneurial spirit and drive that is motivated by achieving the growth-based goals of the startup.  Generally, the startup employee must be self-motivated and able to work and perform under conditions of little to no supervision. These are the employees that will form the backbone of the business, as they become managers of their own teams as the business grows.

  • Note: One important point is that the entrepreneurial nature of a firm necessarily changes as it grows.  The startup leadership should constantly be aware of the necessary changes in operations structure, benefits, authority, compensation, etc., that is necessary to motive the later stage startup employee.


At various stages of a startup’s growth, contractors will play an important role in the development of the business. That is, contractors can provide temporary or outsourced services that provide a high value proposition for the startup.  For example, early on starting the business may require accounting, legal, or other business consulting services.  Rather than hire employees to handle specific functions, it may be advantageous to outsource these functions to third parties who specialize in these functions. Generally, the temporary nature of these outside workers produces high quality work without having to invest significant time and effort in hiring a full-time employee with a particular skill set that may or may not fit within the startup culture.

The most common form of contracting in startup ventures is the outsourcing of product development.  Manufacturing is an expensive process given the high cost of equipment and personnel to operate the equipment.  As we discussed in the chapter on strategic planning, outsourcing the manufacturing of products is a primary method of reducing the cost associated with producing a product. Many people lament the trend of sending manufacturing work to lower-wage overseas locations.  In reality, this may be the only manner in which a startup can produce a product at a cost point that allows the business to be feasible.  I certainly don’t advocate the outsourcing of manufacturing to places that fail to adhere to decent standards for the employee work environment.  However, outsourcing the production of goods at the early stage of business growth can allow the business to grow and create value within the local market that previously did not exist.

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