One of the challenges of running a bootstrapped business is determining when to make the next hire. Funding, being severely limited, must come from banks (including credit cards) or customers buying the goods or services. Banks, as we know, aren’t in the market of lending money without collateral to back it up. So, when do you increase the monthly nut and hire a new employee?
My recommendation varies based on the type of business. Let’s look at a few:
- Traditional installed software — start hiring once current assets are equal to the three times the trailing 90 days monthly average (known as the GPA)
- Software as a service — this one is easy due to the recurring nature of the business (just hire once the cash is coming in)
- Hybrid with part up-front and part recurring — look at the percentage of revenue that is recurring and discount the GPA value by that percent
Determining when there’s enough momentum and cash to hire more people is difficult. I hope this advice helps.
David Cummings on Startups 