The Time–Money Trade-Off for Entrepreneurs: When to Hire the First Employee?

Onesun Steve Yoo (), Guillaume Roels () and Charles J. Corbett ()
Additional contact information
Onesun Steve Yoo: UCL School of Management, University College London, London E14 5AB, United Kingdom
Guillaume Roels: UCLA Anderson School of Management, Los Angeles, California 90095
Charles J. Corbett: UCLA Anderson School of Management, Los Angeles, California 90095

Manufacturing & Service Operations Management, 2016, vol. 18, issue 4, 559-569

Abstract: For many early-stage entrepreneurs, hiring the first employee is a critical step in the firm’s growth. Doing so often requires significant time and monetary investments. To understand the trade-offs involved in deciding when to hire the first employee and how hiring differs in entrepreneurial settings from more established firm settings, we present a simple growth model that depends on two critical inputs for revenue generation: the entrepreneur’s time and money. We show that without hiring, the entrepreneur’s time eventually becomes more valuable than money in contributing to the firm’s growth. In that context, the value of the employee is driven by how much relief he provides to the entrepreneur. We characterize the optimal timing of hiring in terms of the firm’s cash position and how the firm is affected if it requires an upfront fixed investment in time and/or money. We find that the upfront investment in time needed for hiring cannot be converted to an equivalent upfront investment in money and that mistiming hiring can be very costly, especially when these upfront investments are high.

Keywords: entrepreneurial operations; hiring; optimal stopping problem (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://dx.doi.org/10.1287/msom.2016.0587 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:18:y:2016:i:4:p:559-569

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().