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The time-money trade-off for entrepreneurs: when to hire the first employee?

Yoo, OS; Corbett, CJ; Roels, G; (2016) The time-money trade-off for entrepreneurs: when to hire the first employee? Manufacturing and Service Operations Management , 18 (4) pp. 559-569. 10.1287/msom.2016.0587. Green open access

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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 understand 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 s/he provides to the entrepreneur. We characterize the optimal timing of hiring in terms of the firm's cash position and how it is affected if it requires an upfront fixed investment in time and/or money. We find that an upfront investment in time needed for hiring cannot be converted to an equivalent upfront investment in money and that mis-timing hiring can be very costly, especially when these upfront investments are high.

Type: Article
Title: The time-money trade-off for entrepreneurs: when to hire the first employee?
Open access status: An open access version is available from UCL Discovery
DOI: 10.1287/msom.2016.0587
Publisher version: http://dx.doi.org/10.1287/msom.2016.0587
Language: English
Additional information: © 2016 INFORMS. This manuscript was accepted for publication in Management Science. The version of record can be found at http://pubsonline.informs.org/doi/abs/10.1287/msom.2016.0587
Keywords: Entrepreneurial operations, hiring, optimal stopping problem
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: http://discovery.ucl.ac.uk/id/eprint/1482129
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