Characteristics that typify today's business world include rapidly changing technology, fierce cost pressures and global competitors nipping at the markets of even smaller businesses. And what is key to success in this predatory world? Talented, motivated employees, and plenty of them.

Yet the reality--an unemployment rate at its lowest in a generation and a dearth of loyalty between employees and employers--makes finding, and keeping, skilled employees harder than ever. "Recruiting is our number one issue," states Jeff Colosimo, chief executive officer at Alternative Solutions, a computer system integrator in Camp Hill, Pennsylvania.

To be brutally frank, if hiring, retaining and firing employees isn't your forte, your firm's days may be numbered. A workforce is usually a company's most valuable asset. Improve the quality of this asset, even a modest amount, and you'll improve your competitiveness, be able to take better advantage of opportunities as they arise, and boost your bottom line. Fail to hire an effective workforce and, well, your business will never be as successful as it could be. Because no enterprise thrives for long with a pool of mediocre workers.

What generally stops entrepreneurs and managers cold in the world of hiring and firing is a lack of know-how. They understand the technical aspects of their business, but have never been trained in the art--and it is an art--of attracting and keeping employees. "Hiring and firing is the most frustrating part of my job," admits Teri Rutigliano, co-owner of Mother Mousse, a two-store bakery chain in the New York City borough of Staten Island.

Hiring, retaining and firing employees is not easy, but these are skills that can be learned. First, learn to hire right.

Know What You Really Need--And Can Do Without

Before beginning your hiring efforts, know what you want--what skills, experience and other attributes each job position requires. Gopal K. Kapur, president of the Center for Project Management, a San Ramon, California-based consulting and training firm, recommends dividing needs into three types:

1. Must-haves: Those skills you do not have the time, money or desire to teach--but which are absolutely necessary to the job--are must-haves. The new employee needs these to get off to a running start. Examples: The vocabulary a technical person must possess, or basic welding skills for a welder.

2. Should-haves: Typically, should-haves are sets of skills, of which the applicant needs at least some. Examples: Computer programmers should know at least one out of three programming languages, and sales reps should have good contacts in two out of four major market segments.

3. Nice-to-haves: Nice-to-haves are your wish list, those skills, experience, education or other things you'd love the applicant to have, but can live without, at least for now.

Generally, the candidate should have the ability to acquire these nice-to-haves over time. For example, it would be nice for the mechanic to have experience as a team leader, but if that role won't open up for another 12 months, it's okay if the candidate lacks this experience now, but has the potential to become a team leader. Between now and the time the skill is needed, the candidate can be trained.

Another example: You have an opening for a marketing/public relations person, with marketing comprising the dominant part of the job. The ideal applicant would have experience in both areas, but you can live with someone who has strong marketing skills and weak public relations experience, providing the candidate can be trained in PR over time.

These distinctions help you focus on what is important and immediate, and what can wait. They also influence what you say in your classified ads.

The Do's and Don'ts of Advertisements

If you are a business that doesn't need highly trained or educated employees and operate in a small town or suburb of a large city, skip the big city daily, advises Jerry Bellun, editor of the Lexington (South Carolina) County Chronicle, a weekly newspaper. It's going to be expensive and will reach a universe of people who are probably outside a comfortable drive to your location.

Instead, you want your ad to be read by those with qualifications that meet your needs, and who are close enough to your place of business that it's going to be attractive for them to come and work for you. Waitresses, manual labors, secretaries, sales clerks and the like are unlikely to travel across town since they can probably get comparable positions much closer to home.

Use local media such as newspapers and radio, plus your state's employment development department, as places to advertise. Also consider using employment-oriented sites on the Internet. [See the Resource Directory for a list of sites.] Basically, the harder it is for you to find the skills you need, the wider the net you must cast. View any employment ad as a marketing tool for your company, making it as appealing as possible. Spend a few extra dollars to make it large enough to be eye-catching.

As an example of what not to do, Bellun refers to a recent ad in his paper: "Experienced collector needed for in-house collections. No outside calling. Must have experience, be self-motivated and show a willingness to succeed."

That's poor copy, he says, because it lacks zip and lists no benefits that would interest a job seeker. "I would put a headline on the ad that describes the absolutely best benefit you can offer," Bellun suggests. "If it's 'make more money,' use that for the headline. If it's 'earn a thousand dollars a week,' use that." Also add your must-haves-the skills, experience and education the applicant must bring to the job.

Be sure you understand your audience. Rick Pescovitz, president of Professional Image Apparel Inc., a custom apparel and promotional products company in Cincinnati, Ohio, used to place such benefits as 401(k) pension plans and health insurance in his ads for sewing machine operators. That bombed. "Production people want a nickel more an hour, which means more to them than me paying their health insurance," he notes. So now Pescovitz mentions in his ads that he provides good pay and a fun place to work.

However, when he advertises for sales people, Pescovitz includes the pension plan and health insurance benefits, because these benefits appeal to them.

Don't exaggerate or be so vague that half the people in town think your job opening is for them. Comments Bellun, "I see a lot of ads in metropolitan newspapers that say, for example, 'Nurses needed. Start at $75,000 a year,' and they get inundated with resumes that somebody's going to have to read through. To get to qualified people, be specific about what you say and very selective about where you place the ad."

While advertising is widely used in the recruiting process, referrals from current employees "is the single best source" of finding staff, reports Barry Shamis, president of Selecting Winners Inc., a training and consulting company in Mercer Island, Washington. Ask your employees if they know someone who would fit into your organization and might be interested in joining it. This works because people tend to hang around with like-minded people, so if your employees fit well with your company, chances are good some of their friends and acquaintances will too.

Be prepared to pay. "I've never seen an effective employee referral program without a financial reward," Shamis says. He's seen rewards as small as $50 to $100, and as large as $4,000 to $5,000 per referral. Shamis also reminds business owners and managers that many no- or low-cost ways of advertising for workers exist, including:

• A sign in your front window--Help Wanted. Apply Within.

• A sign in the reception area of your office.

• Bulletin boards at grocery stores or community centers.

• Networking with community leaders such as clergy and business executives.

• Your local state employment development department.

Know What to Look for in a Resume

Before sorting through your pile of resumes, have a checklist of "must-haves," those attributes the applicant must have at a basic minimum. Some common must-haves:

• Education--how much, degrees, professional training, quality of university. Experience with specifics of the job: model of machine, particular software package, type of selling.

• Experience--of a more general nature, such as supervisory experience, dealing with customers, working in a particular industry, managing projects.

• Skills/Performance--can produce so many widgets on such-and-such machine in an hour, knows how to write print advertising.

Sara Brown, head of Sara Brown & Associates, a human resources consulting firm in Hamden, Connecticut, recommends setting up three resume piles: Pile A consists of resumes that look very good; Pile B is promising candidates, but you have some questions; Pile C is for the definite nos. This technique starts your elimination of prospects. Discard the "Cs." And if you have plenty of "As," you can probably quickly rid yourself of all or most "Bs." Check for specifics. These include:

• Dates: Look for unexplained periods of time. A few months here or there may mean the person was unemployed, but longer unexplained periods, or multiple periods, may suggest something else, such as jobs the person had that did not work out that the applicant doesn't want you to know about.

• Length of time with organization: While job hopping has become more commonplace, and even expected, depending on the industry, it is usually a plus when someone stays for a long time with an organization. It shows loyalty and remember, the fewer the people who quit your company, the fewer the number of folks you have to hire.

• Job responsibilities and accomplishments: Beware of resumes filled with vague responsibilities and claims.

The words, "supervisory experience" don't tell you nearly as much as: "Supervised seven employees. Responsible for hiring them, providing their job performance reviews, giving assignments and monitoring results."

How to Interview

Before the interview, set goals such as:

• Finding out job-related facts and information that don't appear on the candidate's resume or your job application.

• Giving the applicant a complete and positive picture of your company. In today's tight job market, you have to sell both yourself and your company. Cover the job's must-haves, should-haves and nice-to-haves, and be sure to obtain a clear picture of where the candidate is in relationship to these attributes. Write down questions beforehand that you need to ask. This will also help keep you focused on what's important and prevent you from inadvertently getting sidetracked.

If you are interviewing for a sales position, your list of questions might include:

• How long have you worked in sales?

• Do you have experience selling to our market?

• Do you have contacts with any prospective customers? If so, which ones?

• Are you familiar with the products you would be selling?

• What are the volume and dollar amount of sales you generated in each of the last three years? (You not only want to see how many widgets a candidate has sold and for how much, but the trend--have this person's sales been steadily going up?)

And don't just take at face value whatever the applicant says. Gay Burke, president of Pumpkin Masters Inc., which designs and manufactures Halloween items from its Denver headquarters, tells of an applicant who changed jobs frequently. When asked why, the woman said it was for better opportunities. But when Burke pressed her about what made the new jobs better, "she stumbled all over herself," recalls Burke. "Sometimes you need to challenge candidates," she asserts. Some tips for choosing who to hire include:

1. Go with your gut. Yes, your intuition is often right. Don't ignore it.

2. Accomplishments are what really matter. Yes, credentials--college degrees, professional certificates, job experience--are all important. But nothing is a better predictor of future success than an applicant's accomplishments. And, while accomplishments are not a perfect crystal ball, they come as close as you can get to having one.

3. Attitude counts. A good attitude goes a long way toward creating success on the job, while a negative attitude holds a person back. Always consider a candidate's attitude--toward the job, toward your company, toward you, toward themselves.

4. Be objective. You've been using a list of must-haves to judge each candidate, but then a candidate walks into your office who is very engaging and witty, and you enjoy his or her company and personality and, bam, this is the person you hire. Mistake. Be objective. An engaging personality might be important (more so in some positions than in others), but don't let that blind you to the person's shortcomings in other areas.

Retaining Employees

The cost of hiring one person can easily run thousands of dollars, especially when you factor in paying someone for a month or two only to have that person leave for another job. In fact, retaining good employees can be harder then hiring them in the first place. And, according to a survey by the Atlanta-based executive search firm TranSearch North America, the number one concern among executives is "finding good people and keeping them." It even beat out the second-ranked issue of "generating profits."

Among the things you can do to hang on to your talented people is to provide them with jobs that fit them personally. Understand what motivates individual employees. If you don't know your employees--what they want, what they dislike, what their goals are--you'll have trouble retaining them.

Ray Taggart, vice president of Ikon Office Solutions Technology Services in Salt Lake City, says his technicians--who fix computers and networks that are broken or malfunctioning--look for technical challenges that can be resolved quickly. "They need the satisfaction of completing a job," he notes. "If the job goes on longer than two weeks, they may get cabin fever."

On the other hand, Taggert has detailed-oriented managers who like the big picture and prefer working on large, prestigious projects. They don't want a small assignment that's quickly over and forgotten. What Taggart and his partner Kevin Plumb do is try to match the project to the personality of the employee. The technicians are moved from job to job, while the more detailed-oriented folks are given the longer-running assignments.

Money is also a motivator, and business owners are finding it is worthwhile to pay a bit more than the market rate because, in the long run, this reduces turnover--which cuts their recruitment costs and boosts productivity. "We try to pay our people more than our competitors," says Pescovitz. "I've learned that to find new people and train them is more difficult and expensive than paying them a little more and keeping them."

Chuck Mott also takes this approach with his employees at Innovative Vacuum Services Inc., a commercial and residential vacuum services firm in Edmonds, Washington--and for similar reasons. "We pay them very well to begin with, better than our competitors, and provide full benefits including medical, dental and a 401(k)," he says.

Rutigliano of Mother Mousse gives raises when employees learn a new skill. For example, when writing an inscription on a cake is mastered, employees get a boost in their hourly pay.

Mott is a believer in the value of publicly recognizing staff members. He has an employee-of-the-month award, where winners gets their name on a brass plaque and dinner for two at a nice restaurant. The company also sponsors an annual picnic and Christmas dinner.

For production workers who value money now, Pescovitz takes another approach: "If we have a good day in production, I'll give each employee a $20 bill. They appreciate it." He also buys all his employees lunch every two weeks, and sponsors a volleyball team. "We do a lot of little things," he explains.

Burke likes to take into account the personal needs of her employees. At one time, she worked for one of Denver's major law firms, and never felt she could take any time off for important personal matters such as parent-teacher conferences. She's made Pumpkin Masters different. "It's okay to go to the doctor or even go out for a few hours and not tell anybody why," she says. "We acknowledge that people have a life outside this place."

Another option is to make a career path available. Mott provides a series of positions employees can move up to, as does Taggart of Ikon Office Solutions Technology Services. Career paths help people feel they are progressing with their careers, and not remaining stagnant. However, the promotions must be "real," and not just job titles lacking substance.

The Fine Points of Firing

Of all business chores, many managers cite firing as the most difficult. "That's the hardest thing I've had to do," admits Pescovitz. And that leads to the biggest mistake, Kapur says, which is letting a situation go on too long. When employees have been on a job for years and not been fired, they believe they have sufficient value to be paid each month. If subsequently fired, they don't understand why," he comments. Although Rutigliano dreads the tension and conflict inherent in a firing, "when I finally do it, I'm so glad that I wonder why I didn't act sooner."

A firing can suggest that the manager who hired the employee in the first place made a mistake, which is another reason firings are often put off. But after realizing that someone is not working out, you do neither the employee nor yourself any favors by keeping this person any longer.

Who should do the firing? As a rule, the best person is the employee's immediate supervisor. That's because generally this person hired the employee in the first place and probably initiated the firing action or, at least, was heavily involved in the decision. Also, this person has had immediate responsibility for the employee in all other ways during the person's employment at the company, so why should this responsibility be passed to someone else now?

Even before choosing the executioner, you need to create a paper trail to substantiate your case against the employee. Keep copies of all written, as well as verbal, communication in the employee's file, including anything that pertains to the problems the employee is causing. These could include:

• Notes of verbal warnings you gave the employee.

• Written warnings.

• Complaints by fellow employees, customers or vendors.

• Notes of discussions or meetings where problems were addressed. These may not be "warnings," per se, but perhaps informal discussions where you noted that the employee was exhibiting troublesome behavior or was not performing up to stated expectations and requested the employee to start improving the situation.

• Signed agreements by the employee. When you want to highlight a problem, write it out and include a goal. For example, if an employee has been taking four hours to handle service calls other employees complete in two hours, write this on paper and set a goal: Within three weeks of today, you will reduce the time it takes you to handle service calls to an average of two hours. And have the employee sign it so that he or she acknowledges reading the document. Remember that you can't force the employee to sign it, however.

• Supporting documentation such as time sheets, production records, or records of missed deadlines. This paper trail supports your claim that the employee was not performing well or was otherwise a problem, and that you warned the employee that the problem existed. This documentation also demonstrates that despite your best efforts, the employee's behavior or performance did not improve and you were left with no choice but to fire the individual. The more documentation you have collected, and the more detail it contains, the better your case and your legal protection.

A warning, however: don't try to create these documents after you have fired the employee. While you can claim to have recreated them from memory, if you have a file filled with documents created ex post facto, you lose credibility if dragged into court or arbitration by the fired employee.

The single most important thing to remember in dealing with a problem employee--whether in trying to try to "save" that employee or to protect yourself if a firing is inevitable--is to communicate. Don't ignore the problem, or assume it will go away. For many managers, communicating--especially communicating unpleasant messages such as when an employee is not performing adequately--is the most difficult aspect of their job.

You have to let the employee know:

• That there is a problem.

• What the problem is.

• What you want to see accomplished that will indicate the problem is being taken care of.

• When you want to see it.

Rutigliano has a three-part communication plan she follows: First she gives a verbal warning, then she gives another verbal warning and, if the problem remains unresolved, she fires the employee. "I have never done it in anger," Rutigliano claims. She always does the firing after careful thought and preparation, including planning what she will say during the firing interview.

Speaking of the exit or firing interview, it is often a good idea to have a third person from the company present, ideally a human resources person. If you do not have such a person, choose another manager. This person can serve as a witness and provide an objective view of what happened at the exit meeting if questions arise later in court or elsewhere. A third party can also help assure the procedure goes smoothly by exerting a calming influence if the person being fired becomes agitated.

Do not get drawn into a debate. Calmly state your reasons for the termination and say that the situation just didn't work out. It's impossible to win a debate with someone you just fired, so don't try. And don't attack the person. This is not a time to personalize the situation, vent your anger, air all your personal grievances or make up for perceived past wrongs.

The exit interview shouldn't take more than 10 or 15 minutes. Be firm and unambiguous. Managers anxious to avoid a confrontation have been known to be so indirect or vague that the employee did not even realize a termination had taken place.

Don't make any promises--such as providing favorable references or help in finding a new job--unless they are sincere. While you may want to make the employee feel better, unfulfilled promises can come back to haunt you via a lawsuit or other trouble. The process of hiring, retaining and firing employees is not easy, but with preparation and practice, these skills can be mastered. And in today's competitive world, these skills are not merely tangential to your business, but absolutely essential to its success. So don't take hiring and firing lightly. Your future and that of your business may well depend on how well you perform.

Excerpted with permission from Small Business Success, Volume XII, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration.