Should I hire a contractor or a permanent employee?

In this uncertain economy, a startup is often caught in a Catch 22 situation when it comes to staffing and team building.  What do you do when you have a lot of work now, but you cannot predict whether the work will be there in 6 or 12 months?  Should you hire a contractor or a permanent employee?

Nobody likes to let good people go.  A decision to take on a permanent new hire is not something I take lightly.  To avoid hiring on spec, a lot of people turn to hiring consultants or contractors to get the work done while mitigating risk.  The thinking is that we can plug the current need with contractors now without resulting in a long term bump in the company’s operating budget. If the work stays and there is budget for it, wonderful.  If not, no hard feelings – we simply part ways when the work goes away.

This method can work wonders, but I have seen it being taken too far.  This is particularly problematic if some specific and esoteric domain knowledge is required to build the product itself.  So the next time the company needs to get something done, they have to incur the learning curve all over again.

I believe in striving for balance between the conflicting needs of not over-hiring and not building core competencies. I like the following model:

  • Hire contractors with domain expertise to address specific and transient project needs
  • Hire excellent generalists to become permanent members of the team. Do temp-to-hire if possible so we can test-drive the relationship and make sure the team member will thrive in the company in the long run.
  • Have the contractors work with in-house staff to complete their projects.  The project is done as quickly as possible, the in-house staff is cross trained in a new area they are unfamiliar with, and the company gets to build up its core competencies. It’s a win-win situation.

How have you addressed this challenge in your company?

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