My company does both consulting and products. In the past, I have been able to hire sub-contractors on an as-needed (per project) basis when my workload increased (have large client projects, launching a new product etc.). I also handle a lot of the creative/production work myself. Now I want to grow my company and build a small team of full-time employees. My dream is to build a cohesive, collaborative team that produces amazing work together. Contractors work out great for short bursts of work, but not ideal for a longterm growth strategy. My dilemma: I don't know that I have the consistent revenue to support FT salaries quite yet. My products alone bring in barely enough to pay my own (small) salary. My consulting work has lots of ups and downs and doesn't have a predictable revenue stream. I think the answer is to refine my marketing strategy to make my consulting work more predictable (develop the flywheel that brings new clients in consistently). I also need to work on growing the product income. But it's hard (and slow) doing these things without a team around me. So it's a chicken or the egg question. I've been wrestling with this hurdle for a couple years now, thinking at some point the revenue/predictability issue will be resolved, signaling it's time to hire and grow. But maybe I'll never truly be "ready" to hire until after it's done? What am I missing? Would I benefit from speaking with a business coach (and what specific type of coach)? Are there any books you'd recommend? I think I'm going to give E-Myth a 2nd read soon...
Growing up from 1+subs to a team like you're saying is a classic problem in consulting. The financial math is not in your favor until you get a consistent team.
Here's an article of mine detailing the issues and also detailing solutions: http://blog.asmartbear.com/consulting-company-accounting.html
Having said that, I would also say you're trying to do too many things at once with not enough resources, which means the chance of being successful with each one is diminished.
For example, you could focus on consulting revenue so you can build up your bench, so that you truly can self-fund the development of a product without distraction.
Or you could focus on product, investing time/money there with consulting only to pay for that, even using subs for that, until the revenue there gets to the point that it's scaling (which will be hard, as you can already see).
Building a product or a successful consultancy is individually very hard -- most fail. So trying to do both at the same time means you'll almost certainly fail.
Which is a shame, because that's "failure due to time-management / strategy" as opposed to actual market forces. i.e. something fixable!
I hope some of this helps, although I agree with you that talking through the details would probably be more helpful. The specific details of your situation matter.
Jason's answer is right-on. A rule of thumb that I've used when considering the big move from 1099ers to employees is if the employee's effectiveness in year one could recoup a 3x return on the investment of their salary. In other words, does the employee free you up to bring in more consulting clients, or generate sufficient product sales to justify their salary?
The issue you raise of not having a predictable revenue stream as a consultant is exactly what led to the creation of the Seal the Deal Success Kit, which we created for coaches, but works as well for any consultant who wants to level out the ups and downs of the unreliable in-flow of revenues. http://sealthedealsuccesskit.com/ It's essentially a fully-stocked kitchen of information about essential mindsets for integrating leveraged action across three domains simultaneously: Networking, Marketing, and Sales. Do you feel you have a sustainable system for generating new consulting work/ revenue?
A business coach could make sense for you...there's a great article out recently citing Stanford research into the value of having a coach for your business. Here's that article. http://www.suzipomerantz.com/stanford-executive-coaching-study-reveals-most-ceos-want-coaching/
Books I'd recommend include: Seal the Deal (by me), Upside Down Selling (by Ian Altman), Beyond Referrals (by Bill Cates), Made to Stick (Heath brothers), and Dynamic Laws of Prosperity (Catherine Ponder).
Hope this is somewhat helpful!
E-Myth offers a good model for businesses that fit the "machine" metaphor well, but does not work as well for businesses that are better described by a "people over process" organic metaphor. For the latter kind of business, even if you can afford it, the wrong first hire is far worse than no hire. E-Myth is dangerously biased towards highly legible business models where the machine can be automated using a mix of process and training for interchangeable people. If you are building a business model that needs unique rather than interchangeable people at this stage of growth, E-Myth is the wrong model for you.
Date before marriage, and make sure the person is The One. Then consider finances.
Your "fear" is not something to just get over. It is a valid signal that you should pay attention to. If your revenue volatility is so high that you cannot smooth it out with savings/credit to pay an employee, perhaps you should not hire one. It's a huge level-up in terms of complexity of running the business.
Beyond this, there are no general answers. All "machine" businesses (a la E-Myth) are alike, but every non-machine business is non-machine-like in its own unique way.