Pretend you have an important position you have to fill. Do you hire from the outside or do you promote from within?

This is a very important question you have to answer, and it is imperative that you weight the costs and benefits of each strategy.

Why You Should Promote from Within

Increased Employee Motivation

Promoting from within is a great way to motivate your employees. It lets them know that their goals for career growth can be attained within your company with just a little bit of hard work.

Promoting from within ensures your staff won’t feel as if their job status will remain static while under your employ. Instead, your staff is given an opportunity to grow and further their career.

Not only will this make your employees want to stay and work for you, but will also make them want to work harder to receive a promotion.

Retain Top Talent

If you don’t promote from within, your staff will be under the impression that they will have to leave your company in order to grow.

Losing talented staff members is expensive and potentially damaging to your business. By promoting from within, you increase your chances of retaining talented employees and ensuring they wind up in a position that suits them and your company well.

You Provide a Culture that Values Hard Work

Having a promote from within policy reinforces the value of hard work. Your staff will understand that they have a chance to succeed in a new position if they work harder and prove themselves worthy for that position.

This will not only motivate people to work harder for a desired position, but your employees will also appreciate the hard work of others. This is great for productivity.

Your Staff Will Know They are Favored

You don’t want your staff to feel as if they are less favored than an outsider with experience at another company. You want your staff to feel as if experience within your company is preferred above experience elsewhere.

You also want your staff to know that their history with your company has not gone unnoticed and that you’d prefer to hire someone who has already provided you with something of great value.

It will be Easier to Identify Qualified Candidates

It is much easier to identify a qualified candidate who you have already worked with. You know their credentials, qualifications, areas of improvement and if they are capable of handing a new position.

This makes it very easy to select a candidate. You have firsthand knowledge of ones experience and expertise, rather than just a resume. It is a much safer bet to hire based on what you have already observed in ones job performance and it will also save you a lot of money in hiring costs.

Less Training of Candidates

For new hires, there is always an seasoning period where new staff members must get used to the new culture, company and social environment.

This is not so with existing employees. Promote-from-within employees need not take company-level training or get acclimated with the social environment. All they need is training for their new position.

This makes for less expensive training and less loss of productivity.

The Benefits of Outside Hiring

You’ll Bring in a New Perspective

This is probably the most important reason to hire someone from the outside.

Having a certain way of doing things in a company is great. But over time, employees may get a little too used to doing things a certain way, and problems will begin to go by unnoticed.

Also, better ways of doing something can go by undiscovered.

An outside hire has experience in other companies, possibly even with competitors, who may know of some industry best practices you can benefit from.

An outside hire can also bring a fresh perspective during brainstorming sessions. Vetted staff members may be slowly getting uniform in their idea generation and may have developed a closed mind to new ideas.

Bringing in a new outside hire is a great chance to introduce new ideas and give your existing staff a quick burst in new ways of thinking.

Replenish Your Labor Supply

If you only maintain a promote from within policy, your are eventually going to run out of employees in certain positions.

Hiring candidates from the outside not only allows you to bring in new perspectives, but also gives you more staff members to develop. You’ll have more flexibility with promotions, and not have to worry about running out of staff members in certain positions.

You Can Hire Someone with Existing Experience in the Position

Hiring someone from the outside gives you the opportunity to leverage existing experience for the position you are looking to fill.

While a new hire may need some training to get acclimated with the company, they may require less training to effectively manage or lead a department.

Some productivity might be lost during a period of acclimation, but an experienced new hire will require less time to get comfortable with the duties of this new position.

Less Risk of Potentially Harmful Cliques

Existing employees might have established friendships or cliques with other staff members.

This isn’t necessarily a bad thing, but can cause trouble if one gets promoted ahead of the others. It can create tension among friends, or it can invite collusion or fraud.

Bringing in someone new ensures this isn’t the case. A new person might also be able to identify potentially dangerous cliques you might have overlooked.

Training Flaws will be More Apparent

Existing employees already know what your training is like and will know which material to pick and choose from.

New hires, on the other hand, will more easily make a training flaw visible, since they won’t be able to distinguish between useful and not useful practices.

This may sound like a bad thing, but being able to identify training flaws in your programs is a great opportunity to improve, so you can better train future employees and ensure these mistakes will not be made again.

Gives a Greater Sense of Competition to Existing Employees

If employees know they have to compete with outside hires, they may work extra hard to try to get an open position.

Having a feeling of entitlement to a position is not good for morale or productivity. So by establishing that selecting an outside hire is an option, you ensure your staff won’t try to slip anything past you.

. . .

Ultimately, you want a balance between promoting from within and outside hiring. Since there are very good reasons to promote from within and hire from the outside, doing both will allow you to mitigate the drawbacks of each and enjoy the benefits of both.

Are there any other benefits or drawbacks to the promote from within or outside hire strategies?

Stuck looking for start-up capital? Don’t want to give up equity to a Venture Capitalist in exchange for funding?

Your business is in desperate need of seed money, yet you don’t want to sell our soul (or your ownership) to get it.

So what is a new entrepreneur to do? Unfortunately, if we are going to be picky with how we get funding, we must resort to the one thing that has caused us to go out on our own in the first place: getting a job.

Yes, that’s right. If you are strapped for cash and don’t want to give up equity, the only way out is to get a job. The only other option is a loan, and banks won’t lend you money if you don’t have income.

The trick to staying committed to your business is not getting trapped at your job. Below are some ways you can ensure that you don’t get trapped at a job meant only to fund your business.

Get a part time job

This is one sure-fire way to ensure that you don’t get trapped at a job. A part-time job is exactly that: part-time. You are only contributing a fraction of standard job hours towards work, so you never become invested enough in the job to get trapped there. Plus there is the added bonus that you get more time to work on your business than you did if it was a full-time job.

This lack of commitment goes both ways. Employers will generally view a part time worker as someone who doesn’t have a career-grade investment in this job, so they may ask less of you. This is good for you so most of your time and attention can be contributed towards your business.

Quit as soon as your profits can replace your salary

Telling yourself at the beginning that you will leave as soon as your profits can replace your salary will enhance the temporary feeling of the job.

The less permanent the job feels, the easier it will be to leave and the less likely that you will feel trapped at the job.

There is no reason to stay at the job anyway if your profit from your business is equal to your salary. Don’t get greedy and enjoy the extra income both bring you–the more time you can spend on your business, the easier it will be to grow your profits. The same can’t be said about a job.

Don’t get too invested in your job

This may be kind of obvious, but just try not to get to attached to the job. Making friends and establishing networks is one thing, but don’t allow yourself to begin considering this as permanent.

Always keep in the back of your mind that the job is temporary. As long as you keep remembering that, you will never allow yourself to get trapped.

Avoid any serious, high commitment jobs

Okay, so a part time salary doesn’t yield enough income for your business’ needs. Going full-time seems like the only option.

If this is the case, avoid any jobs that require high commitment, working hours in excess of 40 hours and those that are generally career-oriented jobs.

Looking for these types of jobs sends employers the wrong signal: that you are looking for employment for the long haul. You are destined to under-perform or even get fired at this type of job if you are treating it as temporary, while your employer thinks you are permanent.

Also, for those entrepreneurs that are especially ambitious, getting involved with a high commitment job can get you trapped because you will want to fulfill or even outperform on your required commitments at this job because that is the type of person you are: ambitious and demanding of excellence.

Either way, it’s best to just avoid the high commitment jobs altogether.

Consider pursuing a job that you don’t love

You certainly won’t stay at a job that you don’t enjoy, or at least don’t enjoy that much. Getting this type of job will ensure that you are viewing this job as temporary, something just to get you some seed money.

If you don’t like the job, you can’t wait to leave, so you will have no problem quitting when the time comes, and you will be unwilling to work extra hours if your boss asks you to. Remember, you don’t want to work more than you have to. You want as many precious hours as possible to work on your business.

Consider a job that you would enjoy as a casual hobby

Conversely, taking on a job that you would enjoy, just as a casual hobby might not be such a bad idea. The goal is to keep this job temporary, or at least low priority.

If you enjoy the essence of the job enough for it to be a hobby (a part-time hobby), than there is no reason why you shouldn’t do it. After-all, entrepreneurship is supposed to afford you the time so you can do what you love.

If you can find a job that you enjoy part-time, yet one that would never eclipse the importance of your own business, you should consider this as well.

Are there any other tips on how to avoid getting trapped at a job? Do you know of other creative ways of generating seed money without sacrificing equity?

I think our traditional view of the role of a true entrepreneur has to be re-looked.

A month ago I wrote a post discussing why working for a salary is stupid, and that the only reason you should go into business is either to: a) grow income, or b) work less.

I have given these points a lot of thought and, while these are two very valid reasons to work for yourself, I don’t think that they are the only ones. More precisely, I don’t think these reasons tell the full story as to the true benefits to entrepreneurship.

Let me start by asking this simple question: what if you don’t want income growth or less work? Does this mean you shouldn’t be an entrepreneur?

My initial answer would have been no, you shouldn’t be an entrepreneur. However, I have come to change my mind as I have rethought the benefits of entrepreneurship.

Many business owners out there do not want the complexity that comes with growth and instead enjoy the familiar simplicity that relatively fixed income brings them.

Fine, you may say. So then you should look to work less. But what if you enjoy your work so much that you WANT to work 40, 50 or 60 hours per week? Does that mean you shouldn’t be an entrepreneur?

Let me take this even one step further. What if you are employed by someone else (because you want to, not for start-up capital), while also running your own business. Do you have a right to call yourself an entrepreneur then?

The answer to this question is, yes, you do. Why? There is a similar theme to all of these points: you are doing what you WANT to do. You are choosing to stifle growth to keep things simple because you crave simplicity. You are choosing to work longer hours because you are enjoying it. You are even choosing to work for another employer because you find that work rewarding.

Therefore, I think the true reason to work for yourself isn’t to earn even greater profits or to reduce your working hours, but to attain the flexibility to do what YOU want to do.

Entrepreneurship should grant you financial freedom and remove the obligation to work. It should remove your reliance to work to earn income and instead put you in control of what you get to do every day. You get to choose what to do with your free time, even if it is more work. The important thing is that the power of choice is given back to you, where you can make the decision to do what you want.

Let’s pretend that you are 25 years old and you are running a very successful business. You absolutely love learning and academics and you are hoping to get an MBA someday. You receive an acceptance letter from Harvard Business School to study to get your graduates degree there, but the only way you can do this, is to spend less time on your business and lose 75% of your profits. What do you do?

The answer is: it’s up to you. You and only you should get to decide what you should pursue. Entrepreneurship should afford you that luxury of choice and if you enjoy academics that much, attending graduates school and sacrificing some profits is an acceptable decision, as long as you are happy.

This is the true meaning of financial freedom. You are not freed from work, but from the reliance of work. You can choose to continue to work, but you can quit at any time knowing your quality of life wont suffer. Entrepreneurship gives you the opportunity to be happy and choose the daily activities that you want to do and not have them dictated to you.

For some people, it is hard to convince them to go out on their own to work for themselves.

People will argue that with employment, the pay is more reliable and is a safer bet than with entrepreneurship.

While there are plenty of articles out there (as well as the current economic conditions) that prove employment to be unstable, I would like to present a brief case as to why entrepreneurship makes more fiscal sense, not in stability but in monetary value.

Below are two scenarios, one where you are employed and the other where you work for yourself.

Scenario 1: Employment

By definition, employment means perpetual work for perpetual pay. As long as you work, you will continue to get paid. Now with this statement you can draw two conclusions: a) you will not work forever, and b) you must spend time to earn money.

Lets say you start earning a generous salary of $150,000 at age 25, and you retire after 45 years. Lets also pretend you earn a 4% raise every year in order to slightly outpace inflation.

If we were to determine today’s value of all of your pay for the next 45 years (using a finance term called discounting), we arrive at a value of a little over 3 million dollars.

In other words, with this scenario, your entire salary paid to you from age 25 to 70 is equivalent to being paid a little over $3 million today.

Keep in mind that this scenario requires you to continue investing your time in order to earn this salary.

Scenario 2: Entrepreneurship

With entrepreneurship, you are not required to work in order to earn income. As long as you own a stake in your company, you are entitled to payments. Because of this you: a) can receive payments indefinitely since retirement won’t stop income, and b) you are only required to invest more of your time in the beginning.

Lets be a lot more conservative with this scenario. Pretend you start out earning $35,000 in profits in your new business. Granted the first few years you may be earning zero, but after that you will certainly be earning more than $35k.

Lets also say that your income will grow by 19% every year. This too, is modest because once your business takes off, your growth will not only be larger than this, but your growth rate will continually increase.

Considering this more modest scenario, today’s value of all of the income in this case amounts to $3.5 million.

In other words, all of this income you earn from entrepreneurship is equivalent to earning $3.5 million dollars today! This is almost $500k greater than the previous, generous employment scenario!

You will, in the long run get paid more in the modest entrepreneur scenario than you will in the generous employment scenario. PLUS you are not required to invest your time perpetually in order to get paid in scenario 2.

. . .

You can also look at it this way. Let’s say that you earn 150k per year as either an employee or entrepreneur. As an employee, you must work 40 hours per week in order to earn this. This is equivalent to being paid $75 per hour.

Conversely, as an entrepreneur, over the course of your entire working career, you average 20 hours per week, since you have the ability to delegate and outsource. This is equivalent to earning $150 per hour.

Under which scenario is your time valued to be greater?

The beginning stages of starting your own business is tough. It is both time consuming and financially difficult.

It is easy for business owners in the very beginning stages of starting a business to get discouraged and consider re-entering the workforce, since chances are that you are bringing in little revenue.

While this may seem tempting, it is also important to re-evaluate all of the reasons you initially left your previous job to start your own business.

Steve Pavlina, a blogger on personal development, wrote an incredible article on why getting a job is a bad idea. This posting really motivated me to quit my job and start my own business, and I would imagine it is equally useful in keeping you from looking for a job.

Among the reasons Steve points out, I would like to add some additional reasons as well as add to his points a bit.

1. Our time, as workers, is getting cheaper

With globalization and outsourcing as a common business practice, the workforces that are in danger of being outsourced (and that pretty much is everyone who hasn’t been outsourced or automated yet) needs to become more and more competitive and productive in order to keep their jobs.

Keep in mind, saving money by outsourcing is not just a function of spending less capital per hour, it is also finding the most productive and efficient workforce to do the work.

Therefore, the workforces that are in danger of being outsourced have to be more productive, work long hours to get the work done and be constantly available to be contacted via a smart phone, etc.

The result? We lose time with our families, friends, doing the things we love and the workplace follows us wherever we go. At the same time, our time, valued by the hour, is reduced due to longer working hours (and since we are often paid a salary) all to just stay competitive and keep our jobs. This doesn’t sound like a secure situation now does it?

If you work for yourself, however, you make the decisions. You decide how valuable your time is. Also, you can decide to outsource the work you do and still maintain the same revenue you were producing before, if not more.

2. There are fundamental flaws with the concept of retirement

Oh? What’s that you say? Your employer offers you a 401k with a company match? What funds do they make available for you to invest in? Just one fund with a 80% weight in company stock, huh?

This isn’t really always the case, and company matching is a great deal, however, this just shows you that even your retirement savings is left to the mercy of your employer’s decision makers.

If there is a heavy weight, or even any weight in that company’s stock, that is signs of trouble. Not only does your boss tell you what to do, and how much you are going to be paid while doing it, but you are also hamster fed a retirement fund that just might not suit you.

But this isn’t the biggest flaw with working hard your entire able-bodied life and then retiring. Tim Ferriss, author of The 4-Hour Workweek (a must read), calls this a “Deferred Life Plan” (or DLP).

Basically, Tim defines DLP as working hard and saving as much as you can during the time period in your life when you are at your physical and mental peak so you have enough money to retire, enjoy life and travel when your physical and mental peak is far passed. Why wait until you are 65, 70 or 80 to finally slow down and enjoy life? Why not do it now?

Well wage slaves can’t, because the amount of money they are paid is only a function of how long they work (see item # 1 in Steve Pavlina’s post).

Entrepreneurs, however, can, since they can choose the work they do and don’t do, hire staff to do the work for them and can outsource, a concept Tim discusses in his book.

It’s important to save for retirement, but don’t plan on actually living once you retire at 85. The simple answer is to not tie your money to your time. Don’t go work for someone else, keep working for you.

3. You can choose what time you get to work

Who defined working full time as working 9-5, Monday to Friday? Why is it that this specific block of time has to be dedicated to work?

What if you are most productive at night? In the morning? What if you have family obligations on Wednesday but Saturday you are doing absolutely nothing? Or what if you are a productivity machine and can actually get all of your work done on from 10am-4pm on Friday?

Too bad. As a member of the work force, your time is scheduled for you. Doesn’t seem fair does it?

Sigh…when you were working for yourself, you were able to pick your own hours…

4. You only answer to one person

Didn’t get some meaningless report finished on time? Well now you have to quickly make up an excuse and explain to your boss why.

Maybe your boss is nice and understanding, maybe not. But still, as a member of the workforce, do you decide the importance of certain tasks? Do you have the option to ignore these tasks and not excuse yourself? Didn’t think so.

Is this stress worth going through for a fixed salary with little growth potential? Do yourself a favor, stick to working for the best boss you could have, you. You only have to worry about the meaningless tasks you assign to yourself. And if you don’t do them, you only have one person to answer to.

5. You get paid for the value that you are adding

This goes along with items 4 and 7 in Steve’s post. Step back and think for a minute about how much income you would be generating for the company you are considering working for.

There is an extremely good chance (unless you would be working in a support department such as HR) that you will be paid nothing close to the amount of monetary value that you generate.

Think about it, would businesses hire you if you were making more than the value that you generate? Knowing this, why would you devalue your time and sell your valuable abilities for less money than it is actually worth?

It may take a little bit of time to generate the clientele to earn a decent income, but your income can continue to grow as you get more clients or customers. Your pay isn’t capped, and better yet, it is no longer tied to your time. Think about it, is it better to plan only for short-term gains or long-term wealth?

The beginning stages of business are particularly expensive, so seeking temporary employment is certainly reasonable. It’s definitely better than selling some of your ownership to a VC. But if you are in need of the money, please, for your own sake, don’t lose sight of your business and be tempted to permanently re-enter the workforce.