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A Glut of Hiring Alternatives

(Removes reference to nonprofit website in the ninth and tenth paragraphs.)

Private-sector job creation has been weak in recent months, as few companies seem comfortable taking on the risk of new hires. But anemic job reports may also be attributable, at least in part, to hiring alternatives that are becoming increasingly attractive to small businesses.

New technology is allowing entrepreneurs to connect with and pay for specialized labor that does not add to the full-time company roster—or incur payroll taxes and worker's comp costs. Between interns, temporary employees, freelance contractors, and overseas outsourcing shops, small businesses can get much of what they need done without hiring a single full-time employee.

That's been the case for Adam Carroll, who, with his wife, Jennifer, founded National Financial Educators, a seminar company in Iowa that teaches personal finance to college students. The $500,000 business relies on four professional speakers who work as independent contractors, occasional help on projects from professionals based abroad, and interns.

A Problem With Millennials

At one time, Carroll says, he had a sales staff of seven 20-somethings, but he found their work ethic lacking. "I felt like I wasn't doing the business; I was babysitting the employees," he says. Increasing commissions didn't help. "Millennials have a very different view of work. Money doesn't drive them, because they perceive that they don't need it," Carroll says. In contrast, he's found an extra $50 goes a long way to motivate contractors based in India or the Philippines.

Naja Hayward, who founded Naja Tea in Long Beach, Calif., after losing her job at a nonprofit in January 2008, has had similar experiences. She estimates that she has saved several thousand dollars using interns and independent contractors at her company, which wholesales packaged, loose-leaf teas to retailers and provides tea service for restaurants, cafes, and bars. The business now has $250,000 in annual revenue and two full-time employees.

Hayward outsources special projects, such as overhauling her website, to international contractors in such countries as Bolivia, India, Pakistan, and Germany. She finds them through oDesk, a company that brokers work mostly between U.S. companies and 700,000 contractors and freelancers around the world.

"I look for strong experience in choosing candidates and good communication skills," Hayward says. Language problems can be a barrier, she says: "When a person is difficult to communicate with, a project can go on longer and cost more than it should."

The Value of Direct Conversation

She recommends speaking directly with potential contractors via Skype or gTalk. "I have seen e-mails that look like you or I could've written them, but when I interview them they can barely speak English," Hayward says. "If they are asking me a lot of questions and after a certain amount of time they don't seem to be getting it, I move on to someone else."

Benjamin Munoz, an Austin-based entrepreneur, has used several international outsourcers whose lower costs have benefitted his three startup companies. "If we had to pay for U.S. or Western talent, it would be pretty difficult to do what we're doing," he says.

Recently he created a 90-second video for, his networking site for people with rare diseases that cost him a little over $300 working with an artist and a musician in the Philippines. That's about one-tenth of what he expected to pay using domestic talent.

Unorthodox Vetting

Munoz has a nontraditional vetting method for overseas contractors that he says works well. He starts by advertising very small projects, then hires the two or three best prospects. Based on how they perform, he may use them again for slightly larger projects. In the long run, he believes, this method costs less and takes less time than more formal interviewing and screening.

For instance, he first gave his virtual administrative assistant the task of finding a coffee table online. "Several people I had hired sent me lists of available coffee tables. She went on Facebook, looked at my local classified ads, sent me pictures, gave me prices, went on Google (GOOG) maps to show me locations, and gave me a recommendation of which table she thought would look nice in the space," he recalls.

Munoz has been happy with his experiences hiring internationally. But Bill Bartmann, chief executive of Bartmann Enterprises, a small business consulting firm in Tulsa, was not impressed with contractors he hired from Russia and India. "We were spending so much time babysitting these projects that the cost savings didn't work out. Most small businesses don't have the monitoring capability to send lots of projects overseas," Bartmann says.

Evolving into Permanent Employees

Instead, he uses a temp-to-perm employment model. "You pay a premium, but you don't have to have a full-time HR person, you get a 90-day dating process, and you don't deal with withholding or FICA until you're committed and they're committed to you," he says. About 90 percent of his current 52 employees started as temporary workers, he says.

The agency model eliminates the costly process of advertising, screening, and interviewing candidates, something Bartmann says he can't afford to do in-house. And while he pays a premium for temps, Bartmann likes the fact that he incurs the cost only when he's adding employees. "If we're not hiring this week, we have no outside expense and no HR person to keep on salary," Bartmann says.

Rick Walker, the founder and CEO of Green Efficient, a Houston-based consolidated building management service for LEED-certified buildings, has found a similar solution. He uses a service that helps small and midsize companies build on-demand teams.

The service, Solvate in New York, has helped Walker source nearly a dozen individuals who've provided support in sales, marketing, and IT. In 2009, when many of his clients' buildings were empty and several defaulted on their contracts, Walker was in no position to make new hires.

But he says he could quickly find the qualified contractors he needed through Solvate. "There's not a lot of training to do, because they have very, very smart people who can get up to speed quickly. I needed a Google professional, for instance, and they found me someone who had worked at Google," he says.

The ability to scale overhead up or down with the economy is key for small-company success, as is finding premium labor. "Why can't you work with a freelancer from the New York Times or a former employee at Google who worked on analytics? Small businesses should have access to those kinds of people, too," says Julie Ruvolo, Solvate's co-founder and chief operating officer.

Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

Your Small Business Questions, Answered

Send us your questions on challenges you face in your business. Journalist Karen E. Klein will interview experts and distill their insights into answers.

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