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The Time-Money Trade-Off for Entrepreneurs: When to Hire the First Employee?

36 Pages Posted: 26 Jun 2013  

Onesun Steve Yoo

University College London - Department of Management Science and Innovation

Guillaume Roels

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area

Charles J. Corbett

University of California, Los Angeles - Anderson School of Business

Date Written: June 14, 2013

Abstract

Entrepreneurs need to invest money and time to grow their firms. Both money and time are often scarce, but the nature of these two resources is fundamentally different. Considering a small, fast-growing entrepreneurial firm, we show that the firm's key bottleneck resource shifts from money to time as the firm grows, and we characterize hiring as an operational mechanism for trading money for time to accelerate growth. The optimal time for entrepreneurs to hire their first employee occurs as soon as their available cash is sufficiently large, in order to alleviate the time bottleneck. We show that the cash threshold determined from a one-step look-ahead policy is optimal when growth is deterministic and performs well, even when that is not the case. We find that hiring costs delay hiring, whereas hiring times may either delay or expedite hiring, because of the non-trivial tradeoff between the need to preserve the growth momentum and the need to hire, before the opportunity cost of time becomes too large. Hence, time and money should be managed as distinct resources in growth-oriented firms.

Keywords: entrepreneurial operations, capacity investment, hiring, bottleneck, dynamic programming, super-modularity, heuristic

JEL Classification: C61, D24, M11, M13, M50

Suggested Citation

Yoo, Onesun Steve and Roels, Guillaume and Corbett, Charles J., The Time-Money Trade-Off for Entrepreneurs: When to Hire the First Employee? (June 14, 2013). Available at SSRN: https://ssrn.com/abstract=2279766 or http://dx.doi.org/10.2139/ssrn.2279766

Onesun Steve Yoo (Contact Author)

University College London - Department of Management Science and Innovation ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Guillaume Roels

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Charles J. Corbett

University of California, Los Angeles - Anderson School of Business ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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