I knew the labor shortage was acute when I started seeing signs out on the street advertising for employees. The University’s parking services as signs in all the parking lots describing “great jobs” for students on campus, retail stores are trying to persuade customers to become workers, and companies are using signs out by the road and on the highways hoping someone driving by will decide it is a good day to apply for a new job. The shortage of qualified job applicants is particularly severe in many professional areas. It has gotten to the point that CEOs are approaching me at events and whispering: “Got any accountants you can send me?”

One approach to managing recruiting — and it is the approach most often used in Utah — is to let the market dictate the hiring process and just roll with the situation. This, however, can be a problem. When the business cycle is down and there is a labor surplus, firms can hire outstanding people, often at a bargain. But what about when business is expanding and there is a labor shortage? The difficulty is growth is impeded by an inability to hire qualified employees, and failure to grow in the good times means the company never grows to its full potential. Sure, some companies grow during when the general economy is in a slowdown, but even this growth tends to be during the transition from start-up to mature company, so at some point every firm needs to be poised to take advantage of the “good times.”

There is another hiring strategy that is based on establishing relationships in the job market, and this strategy yields the very best employees in good and bad times. In one sense it is more expensive because it incurs some costs that market-driven firms do not incur, but it is much more effective because it ensures firms have access to top employees when there are labor shortages and they need to take advantage of growth opportunities. Plus, these firms are not putting clowns in sandwich signs on the sidewalk out front trying to hire right now, which I have to believe is not the image you want to project for your business.

Firms that emphasize relationship building in human resources recruiting have a strong presence on university campuses with two types of programs, internships and campus recruiting. Companies with internship program are incurring costs with the pay for interns and some marginal costs for supervision of the interns, but they are saving an enormous amount by not making bad hires that take months to unwind and by hiring individuals who they know will be immediately productive, which can save months of learning investments in a new professional employee who is likely to make a lot more while they are learning than three interns. Plus, interns can be highly productive individuals who can be let loose on lingering problems that need fresh ideas and creative solutions. Finally, the management effort necessary to run an intern program is an excellent management development opportunity for a young manager who needs experience managing complex projects and running professional teams, i.e., every manager who is working up to higher level responsibilities.

In addition to the “preview” an internship provides, the internship program is a point of interaction with an emerging professional labor pool that is going to be working in Utah for the next 40 years. This group is not very experienced at age 22, but they may be just the people a firm hopes to attract when they are 42 and well established in professional careers. Internship and recruiting programs are an opportunity to establish a human resources brand in the labor market, and for some firms this is also an important opportunity to establish their services brand as well. The professional accounting firms “get it,” understanding presentations on campus to potential interns and as part of their recruiting effort are also an opportunity to tell the firm’s story as a service provider to a group who will need to hiring accounting firms in the future.

The second practice that defines excellent hiring is recruiting on campus. I have had several CEOs tell me, “Recruiting on campus is too much trouble. We just put an ad in the newspaper and your students apply.” Forget all the issues around labor shortages and the fact that newspaper ads do not seem to work right now and consider the possibility that “students apply” might just be the individuals who did not successfully interview with the companies that come to campus, i.e., you are getting the lower tail of the distribution. A president of a large national financial institution with a local office was stunned when I shared this comment with him, so he decided to do some “campus screening” to see how recruiting on campus might work. He told me he did not expect to hire, but he thought I had good points about having a campus presence. He ended up hiring two individuals from the first interview pool and is now on campus every year.

In addition to adopting the simple steps of establishing an internship program and recruiting on campus, firms with excellent hiring practices sustain their programs even when they are not hiring a lot of employees. First, most firms need to hire a few replacements for positions that are vacated by retirements and normal turnover every year, and excellent hiring practices are about getting the very best employees every year. Second, “employer of choice” is an investment worth sustaining, and like all investments, it is best made in advance of when the business needs the resources to grow and prosper. In the scheme of the investments most businesses are making every year, excellent hiring practices are a trivial cost with a high return. They just require a commitment to excellence.

And the answer is, “No, I do not have any accountants.” They all had offers in November to start jobs when they graduate in May. About all I can suggest is a clown with a sandwich sign down on State Street.

Later.

I must confess I am much more comfortable writing a contract than a blog.  Being unsure of what topic might be more salient to ConnectBlogs readers has resulted in weeks of not posting.  Much is written in Connect about entrepreneurship.  I work and have worked with a good number of entrepreneurs, their companies and those who invest in them.  There are a number of legal matters that regularly face those in the entrepreneurial world.  I have decided there might be some value in a series of blogs related those legal matters.  My hope is that at least some of you will find this blog worthwhile and useful, if for nothing else, to get you thinking about these issues.  My intent is not to give legal advice and my ramblings should not be construed as such (if you didn’t recognize, that was my CYA disclaimer).  Actually, my hope is that some of you will respond and even challenge me.  I would love this to be a collaborative effort.

I should also note that I plan to keep these posts fairly short.  I am doing this for two reasons: (1) to enable me to post more often and give the impression I am more of a productive blogger than I really am and (2) I don’t like reading long blogs and figure I am not alone.

With that, Topic 1…

Part 1:  Entity Formation - To Form or not to Form?

There is a lot to say here, and I could see this topic turning into several subtopics.  However, I’ll start from the beginning with what I think are some basic considerations.

Suppose you just invented a better mousetrap or perhaps a kit to make a snowman.  You begin having visions of success and decide quit your secure day for your shot at independent wealth.  What are the next steps?  Putting aside the bothersome details of creating and executing on a business plan, you need to determine whether to create a formal entity through which to operate your business, and if so, when (and what type - which I’ll cover on another post).  I can think of few if any good examples where a serious business endeavor (or at least one that has more permanence than, say, a lemonade stand or a yard sale) should not to form a business entity.  I recommend doing this prior to beginning business operations.  Businesses operated without creating a formal legal entity are deemed to be either sole proprietorships (1 owner) or general partnerships (more than 1 owner).  Sole prioprietorships and general partnerships offer little or no protection from personal exposure to the liabilities of the company (including those arising from lawsuits).  Better said, there isn’t a legal distinction between the sole prioprietorship or general partnership and their respective owners.  In other words, you could lose much more than just your investment in the company.  To the extent you begin business operations before you create a legal entity, you are exposing yourself (and most people don’t want that).  If you must conduct business operations before creating an entity, be careful (not to say shouldn’t be careful after you create an entity).

[Next topic: Entity Formation - Choice of Entity]