Most startups struggle with three hiring questions: Who to hire, When to hire and How to hire? To help answer the HOW question, I roped in four Hyde Park VP advisors: entrepreneurs Gregg Kaplan (Redbox), Sam Yagan (Match.com) and Jim Gagnard (SmartSignal) and former Chicago Bulls team psychologist Steve Julius to share their experiences and best practices.
HIRING RIGHT IS HARD BUT CRITICALLY IMPORTANT
Myriad depressing stats circulate on the ineffectiveness of hiring practices. HR.com reports that46% of new hires fail within 18 months. Further, they find that 89% of failures are attitude/culture related – not skill related – emphasizing the importance of understanding how people do a job, not whether they can do it. Hiring guru Barry Deutsch puts the failure rate even higher for executives at a whopping 56%!
Yet businesses and startups are all about people; making good hiring decisions is critical. We’ve all heard a great developer can be 10x more productive than an average one, and a bad executive or manager can demoralize a team and kill a startup.
STARTUPS IN PARTICULAR STRUGGLE WITH HIRING
Many founders are young and have not managed teams or hired employees before. Few benefit from corporate interviewer training and hiring experience. Startups are also more dynamic than corporations – it is often unclear what roles and when to hire given changing priorities, cash constraints and scaling questions. Finally, the cost of a bad choice is higher in a startup where wasted capital is paid for with precious equity.
SO HOW CAN YOU AVOID MAKING (too many) MISTAKES?
A great place to start is to read ghSmart’s Who: The A Method for Hiring. Authors Geoff Smart and Randy Street combine years of experience over thousands of executive searches to delineate a simple but effective framework for hiring: Scorecard (eg, decide what you want),Source, Select and Sell. I use this framework with their permission and the inputs of Yagan, Kaplan, Gagnard and Julius below to highlight some best practices. When done right, hiring better talent with higher success rates is a huge competitive advantage.
SCORECARD (deciding what you want):
The what and the how: While you care what people will do in a job, how they do it matters just as much. This goes to the tangibles versus intangibles question. Create a scorecard with the top 5-10 functional skills (the what) and also the top 5-10 attributes of cultural and values fit (the how). These can be “graded” on a 1-3, 1-5 or A-F scale in screening and interviewing.
Tie scorecard to posted job description: There should be a direct link between how you measure candidates and what you tell them you are looking for!
The CEO is the Chief Sourcing Officer (sorcerer?): The CEO is always looking for talent and is involved in every hire during the early days of a startup (<25 ppl). The chart below based on CompStudy data shows just how important the CEO and other executives are to a startup or growth company’s talent pipeline.
Here’s why the chart looks like this: Consistent with the HR.com study mentioned earlier, our CEO advisors agree that many of their hiring mistakes are tied to intangibles (attitude, values, style) not tangibles (skills). The best way to screen for intangibles is to hire from you and your team’s network, with strong references from people you know AND trust. Also notice in the chart that 23% of CEO replacements are sourced by the former CEO (often a founder)… great entrepreneurs often source someone themselves to take their business to the next level.
All employees, investors and advisors source talent: Our advisors’ startups offered employees $500-1K bonuses for referrals that led to hires. This widens the pipeline and increases quality due to employees’ understanding of culture fit while giving employees a greater stake in their growing company and culture. Investors and advisors are also a great source of talent… makes sure to keep them up-to-date on what you are looking for.
Hire a full time recruiter if you are at $5-10M and growing fast: At some point, hiring managers can no longer manage the talent funnel, and an in house HR/recruiter role is necessary. This in itself is an important hiring decision and is not a junior job. For ~$100K a year, this person manages your social, campus and local sourcing efforts. They may also do the first phone screen on candidate pools to cull the herd for hiring managers.
Tech hiring – watch out for deities in skinny jeans: Tech hiring is a huge pain point for startups because of market demand for developers. But some of the pain is self-inflicted, driven by CEOs’ relentless quest for the 10x superstar – a deity in skinny jeans. Our CEO advisors warn against this obsession. Superstars/geniuses can be great early on when creativity and speed are all that matter, but they may be disruptive to growing teams. They are also expensive, may be less committed and rarely make good managers. One of our advisors instead focuses on junior campus hires, carefully building brand recognition and interest over the campus recruiting season to yield a top-notch batch of smart and moldable programmers each spring. The catch is that his tech organization is optimized to train and develop these fledglings. Some startups hire junior but without the capability to train and mentor, which is a mistake.
Screen efficiently: When you are inundated with resumes, lean towards ones from a known source. Keep screening interviews down to 20-30 minute phone screens focusing on motivations, goals and fit (why do you want another job, what do you want in your career, what kind of place do you like to work), and don’t forget to sell a bit. Also test for basic skills of the job. While I have mixed feelings about the approach, some companies will not even consider candidates who don’t have a current job.
Prep for the interview: Before interviews of screened candidates start, have your interview team “huddle” to discuss the scorecard, agree on scoring calibration and divide up specific skills and attributes to test. You don’t want everyone to cover the same thing. Plan breaks in the schedule where interviewers can exchange notes so that later sessions with a specific candidate dig more deeply into question areas from earlier sessions.
The interview process should be deep and wide:
- Intense interview processes yield better results because they test candidate commitment to the process and fit with your culture and values – candidates cannot help but see what your company is like after spending that much time with you.
- Wide: All hires are interviewed by 3-7 people. 3-5 for a junior hire (sales or jr. programmer), 5-7 for a manager/director, 7+ for an executive hire. Members of non-relevant functions should be included to provide an opinion on fit and how someone works, even if they can’t test specific skills. It is okay to pair interviewers for efficiency so there are only 3-5 interview sessions. If you are a tiny 2-4 person startup and need some help interviewing, draft an advisor or investor.
- Deep: Several of our advisors use something similar to ghSMART’s “Top grading” interviewduring one of the interview sessions with a candidate – conducting a 2-3 hour laborious deep dive into every role the candidate has ever had. In this format you drill into successes, failures, how they managed supervisors/subordinates and whether they walked away with strong supporters or not. Ask for references for each job and see how they react visibly and what they say. There are lots of example topgrading interview guides available online. The other interviews are 45-60 minutes with focus on specific scorecard related areas. One advisor uses the “5 Whys” approach. Start with open-ended questions like “What decisions would you change from your last role?”, then keep drilling down with more “whys” (and “hows” and “whos”) to get to the unscripted truth. This question, for example, could be related to a scorecard attribute of “Makes decisions based on data and stakeholder input.”
- Actions speak louder than words: In addition to interviews, test candidates in role specific activities. Have developers do code tests; have sales or marketing people prepare and present a pitch; have executives present a 90 day plan. Include a real audience and Q&A where appropriate to test candidate ability under pressure. Some activity tests can be front-loaded in the screening stage, especially code tests.
- Role of the CEO: I’ll emphasize that early in a startup, the CEO is involved in EVERY hire. Even in the growth phase of 50+ employees, one of our CEO advisors gets involved early in almost every hiring process. This way he can have the biggest impact on defining company culture by helping to form pools of candidates that fit his culture vision.
Look for consistency over a few days and settings: Interview a candidate over more than one day to check for consistency of performance and commitment to the process. This also allows for both sides to absorb what they learn about the other and develop a relationship. For higher level roles, test professional and social performance over a meal – with a drink or two.
Hires are made unanimously: After interviews comes a ~30-60 minute discussion on a few top candidates and a decision to extend an offer. When speaking with our advisors, I was surprised that almost all of them require unanimity among the interview team to make an offer. In one case, each interviewer must clap for the candidate in order to move forward. In another case, signature is required from each interviewer endorsing their support. This seems extreme, but it raises the bar for moving candidates forward from screening to interviewing, making the process more efficient. It also forces any unease or concerns among interviewers into the open. Signing your name is a big deal, after all.
Other things to think about – references, testing and background checks:
- While many corporations have a “no reference” policy, most managers only adhere to it when an employee’s performance was bad. If a candidate’s former manager is not willing to talk to you, no go! For senior hires, no number of references is enough; use references they provide and ones you find on your own and keep going until you don’t learn anything new. For junior hires, 2-3 is enough. In references, focus on what and how that person achieved in their role, how they worked with/for/above others and where their weaknesses were.
- Testing is another outside source of information on candidates. There are an array of tests – some function specific (like Attributional Style testing for sales) and some broad (MBTI, EQ, DISC, Watson Glazer, etc). These are best used in tandem with organizational testing so that candidate profiles can be compared to profiles of existing average and exceptional employees to see how they compare and fit. Testing may not complement very early startups but makes a lot of sense at 25+ employees when norms are better defined.
- Do credit and background checks for all employees. This goes to trust and values.
Don’t forget that you are always selling. The best candidates – the “As” you want – have lots of options. Consider this throughout the process from initial contact to post-offer. Do you respond to their e-mails? Do you answer questions well? Are you arrogant or rude in interviews? An offeree’s decision will be based on your performance in the interviews. One of our CEO advisors calls offerees – even junior ones – to let them know he cares and wants them to join his very large company. As in any sales process, work to understand candidates’ objections and address them head on.
I hope others will share their best hiring practices below!
Guy is a Managing Director of Hyde Park Venture Partners. Follow @guyhturner