Decisions, decisions, decisions. It never stops, if you are a founder of a startup. Hiring decisions are an area where the decisions are critical to the success of the startup. After reading about all the hiring dilemmas in Noah Wasserman’s, The Founder’s Dilemmas, it is amazing a startup ever gets off the ground. Wasserman believes that these hiring dilemmas fall into the “Three Rs” framework: relationships – whom to hire; roles – what positions to create, when to move people to a different position, what types of people to hire; and rewards – compensation and equity. (Wasserman) These decisions are made at the beginning and will need to be adjusted as the startup begins, grows, and evolves.
Those first few hires for the CEO may seem easy, as he or she reaches out to his or her networks for the teams. Wasserman’s research showed that 49% of the first hires came from the CEO’s network. (Wasserman) This can make for a solid foundation as these people are familiar with the industry and understand the systems that the CEO will have in place. In turn, these people may reach into their social networks and bring in employees that will fit the company culture. Of course, the CEO will feel more familiar with his or her own hires. What about the interests of the involved investors? Will they have input into the hiring of the team? Maybe they will not be involved with hiring the entire team, perhaps only the CFO. Investors are the source of 26% of all CFO hires, more than any other non-CEO position. (Wasserman) That makes sense as it is their money. When the investor hires this person, he or she may have more allegiance to the investor than the CEO. I already see conflict down the road on this one.
After the CEO has tapped his or her network and there are still positions that need to be filled, it may be advantageous to have one of the key team members take over the recruiting. The key team members have their social network to draw from and as the company grows this will be a natural progression, giving valuable time back to the CEO to focus on strategy, fund raising and other responsibilities. After all possible candidates from the networks of all hires have been exhausted, it will be necessary to go deep for other candidates. Spreading the wings of the search using industry job boards, trade magazines, executive search firms, want ads, and industry related organizations will give the startup ample candidates to interview. It is important that the candidates match not only with experience, knowledge, initiative and skills but with culture as well. If it is difficult to find a match, some people may call on friends and family to take a position or hire the person that looks good on a resume. BEWARE of both groups. The friends and family may be relationships that work well outside of work, but cannot handle the inherent conflict of a daily business relationship. One must ask him-or herself is it worth risking? People that look good on paper may not make the cultural or work fit for your team. Both of these groups can cause problems down the road when they are not performing to expectations and they may need to be let go.
The team is hired and now the roles need to be decided. In startups there is so much to do and everyone wants to be part of it, that roles tend to be less defined in the beginning. I think most startups are run lean and mean because of the lack of finances in the beginning. This is good for cross utilization of the team. With more funding the opportunity to hire more people will be available and as the company grows roles and responsibilities will become more defined. Does that mean just because you have money you should hire more people? No, hiring has to make sense. Is there a need for that position? If so, remember to recruit wisely. Are you looking for experienced or inexperienced candidates? Do they need to be generalist or specialists? Are they going to be doers or managers? Startups need doers and not just people who are good at managing teams. (Wasserman)
The last of the Three R’s is reward. Compensation. That word alone is sensitive for many people. In a startup it is even more difficult because at the beginning funds are limited. Salaries will be dependent upon the level the individuals were hired at, when they started with the company, and the experience they bring to the company. It will be important to have open and honest discussions with your team about the different options. Although everyone is on the same team, compensation will and should vary. Salary, equity, vesting, bonuses, and bonuses based on performance are a few of the varied ways to compensate employees. The compensation alternatives depend upon the factors listed above and the resources of the company. Some employees may need a more stable salary; others may be more comfortable with a smaller salary and a performance based bonus; and others still may be able to see the founder’s vision and prefer an equity stake.
The team is hired and their initial roles, responsibilities and compensation have been decided. One might think the CEO has made enough decisions on recruiting and he or she could relax for a day or two. Oh no! Now he or she must be aware of the challenges of keeping the A players. It used to be that financial security was the main reason that people would stay at a particular company; but A Players know that there are other companies out there where that need can be met. In addition, the work force of even ten years ago is not the same as the workforce of today. As the world around us changes, especially with all the technology and access to information, the motivations for employees are changing too.
The CEO must work on retaining this team of talent with a retention plan. This plan is what will increase the success of the organization as well as continue to bring in new A player talent to the growing operation. How is this done? Eric Herrenkohl, in How To Hire A Players, suggests creating a retention plan that was as thoughtful and meaningful as the recruitment strategies during the hiring process and it starts with having a strong leader. A strong leader can prepare for this by using the organizational chart as a way to analyze his or her team. The organizational chart can show strengths, weaknesses, opportunities and threats within the team. (Herrenkohl)
I imagine that if I asked you if you worked for a strong leader many would say no. I know this too well as I have changed careers a few times and had many managers, many of whom were more interested in the work for the day or week, not the future. Not only did they not see beyond the day or week for the company, they never took the time to have any type of future career conversations with employees that were excelling. This is a sure way to lose the A Players.
We know A players are flexible and do not need their hands held. What they need are for leaders to be thinking about them and take on the role of a coach for the A Player’s future role within the company. We know that A Players want to be challenged and there will be a time they need to move from one role to another role with changing responsibilities. If the leader stays on top of his or her organizational chart, it can lead to finding movement within the organization for the A Player. It is not just about the leader finding a new spot for the A player. It needs to be a collaboration. What the leader thinks is good for the A Player may not be his or her idea of a new spot. This can be prevented by taking the time to sit down with the employee. I do not mean once a year for the “annual review”; by that time, the A player might already be in pursuit of work outside the company. Set up a meeting with the employee — it does not have to be formal. Merely an opportunity for both the leader and the employee to talk about the future plans of the company, the growth opportunities for the employee and how he or she fits into the company’s growth will be a welcome discussion.
It is all about being proactive. People want to know that their contributions now and in the future fit within the company. How many times have you seen someone leave a company because he or she felt neglected and after the individual left, the company realized what it had lost? I have a friend who worked in purchasing and left due to the feeling of neglect. They had to replace her with three people. She was an A Player having deep knowledge of her position with many contacts within the industry. She had systems to be efficient doing the work. Yet no one was listening or paying attention. Not many companies can afford that kind of additional payroll after an A Player leaves. Please do not misunderstand me, I realize there are many varied reasons for people leaving their jobs, yet there are many that just feel underappreciated and money does not equate to appreciation.
If I have learned anything about starting a business it is the importance of recruitment and retention within a startup. Both done well can lead to growth, success, and opportunity for founders and employees; one or both not done well can lead to average growth, minimal success, little opportunity for founders, employees and more than enough stress and conflict for everyone. We can say the idea was great, but I repeat from my last post: “execution is everything” and execution requires excellent strategies for recruitment and retention to make that idea come alive.
Resources and Links:
Amundson, N. E. “The Influence of Workplace Attraction on Recruitment and Retention.” Journal Of Employment Counseling,44(4) (2007), 154-162.
Herrenkohl, Eric How To Hire A-Players. New Jersey: John Wiley & Sons, Inc., 2010
Wasserman, Noam The Founder’s Dilemmas. New Jersey: Princeton UP, 2012.
“How to Identify, Motivate and Keep Your Company’s Top Performers.” Zapier.com., 2015
Web. 20 Apr. 2015.
“Six Reasons Your Best Employees Quit You.” Forbes.com., 2013
Web. 24 Jun. 2013