While no entrepreneur can successfully run their startup alone, research shows that most small business owners wind up handling the majority of their business functions themselves—not because they want to, but because they have to.
This doesn’t mean that startups aren’t hiring, however. It just means that in that busy first year, they’re more inclined to contract out specialty work, such as legal and technological services, and take on the rest of the work themselves.
SCORE’s latest infographic, “The Megaphone of Main Street: Startups - Finding the Right Team” highlights Part 3 of our latest data report.
Data from a SCORE survey of roughly 1,000 small business startups from across the country show that whether it’s strategy and planning, sales and marketing, or product development, startup owners are more likely to wear a multitude of hats in their first year of operation.
The survey served as the foundation of SCORE’s fall 2019 “Megaphone of Mainstreet: Startups” data report. Part 1 of that report, “Finding Your Way, Finding Customers,” revealed that one of the top concerns that startup owners have is securing enough cash flow to maintain their business and support their personal needs. Part 2, “Finding Financing: Funding the Dream,” showed that most small business owners choose to bootstrap their first year by financing their businesses themselves, rather than taking on debt.
Part 3 of the data report, “Finding the Right Team: Staffing and Labor Challenges,” explores how startups mine the labor force for qualified workers—and frequently come up short.
Here are some key takeaways (all statistics are taken from the survey):
In Their First Year of Business, Startup Owners Choose Contractors Over Employees
The added expense of hiring employees, as well as the temporary or seasonal nature of some of the work, doesn’t always justify hiring full-time employees, according to the survey. This was consistent across geographic demographics, and it makes sense: payroll expenses, workers’ compensation requirements, health care costs, and taxes all conspire to make adding employees difficult unless the business is more well-established. Contractors, on the other hand, cost less and provide the key services necessary to move the startup forward. Entrepreneurs only pay for the work that’s performed and don’t have to worry about downtime, perks, and benefits.
When asked who handled the following functions of their business in their first year, entrepreneurs overwhelmingly reported that they relied on themselves (and it wasn’t even close):
- Strategy/Planning: 96.6%
- Sales: 92.9%
- Marketing: 92.3%
- Logistics/Inventory/Distribution 88.9%
- Service Delivery or Product Creation/Manufacturing: 82.6%
- Technology: 79.1%
- Accounting/Finance: 76.7%
- Manufacturing: 72.7%
- Legal: 60.5%
When They Are Ready to Hire, Entrepreneurs Struggle to Find Qualified Workers
With the economy continuing to improve over the last two years, it may not come as a surprise that entrepreneurs had a tougher time filling open positions. When comparing this 2019 Megaphone of Main Street data report to our 2017 Megaphone report, we found some interesting trends:
In 2019, more startup owners reported trying to hire than they did in 2017: 54% of entrepreneurs responded that they attempted to hire someone, compared to 38.2% in 2017.
Also, 52% of startup owners reported having difficulty hiring in 2019—an increase of 11% over those entrepreneurs who were asked the same question in 2017.
Surprisingly, nearly one-third (32.9%) of all startup owners looking to hire in 2019 was unable to do so—a dramatic jump from the 14.3% who were unable to do so in 2017.
When asked why they had such a difficult time finding employees to fill their job openings, small business owners overwhelmingly cited a lack of qualified talent:
- Cannot find qualified applicants (skills/expertise): 75.7%
- Need to raise salary/wages to be competitive: 28.8%
- Do not offer health care benefits: 27%
- Too time-consuming to hire qualified workers: 24.3%
- Company location not desirable to candidates: 7.2%
- Candidates do not pass drug-testing requirements: 6.3%
What should YOU do?
When it comes to staffing their operations, the data from our Megaphone of Main Street Startups report show that entrepreneurs prefer to go it alone. Whether it’s due to a difficulty in finding qualified employees or an unwillingness to put in the time and money necessary to attract them, first-year small business owners often resort to outsourcing to contractors and tackle day-to-day operations themselves.
If you’re ready to launch a business but are unsure how to staff it, turn to the guidance and expertise of a SCORE mentor. Contact a SCORE mentor today, and get your startup going! Remember, SCORE mentors are available also for those already in business or looking to exit.