It's the People, Stupid!

There have been a number of posts from Fred Wilson, Michael Arrington, Jason Calcanis and others over the weekend about the need for startups to save money by watching their pennies.  I agree with some, but not all of the ideas on saving money but I think Michael Arrington got it right - hiring the right people is what matters most.  You can save a few dollars here and there but there's no substitute for great talent.  Besides, the "right" people will look for ways to pinch pennies and turn $1 into $10. 

The classic argument within the VC community is what matters most - people, market or product?  I'm not going to rehash that argument here but through my experience 90% of success in venture is due to the people.  If you'd like empirical evidence take a look at the scientific study conducted by ghSmart.

There are three primary challenges in filling your organization with "A" players.  First, you have to find and source talent from the right candidate pool.  Second, you need the skill to identify an "A" player when they're in front of you.  Finally, you need to convince the "A" player to join your company.  All 3 of these tasks are not easy but let's deal with them one at a time.

- There are many methods to identify and source candidates including executive recruiters, email blasts, LinkedIn, job boards, etc.  I've found that using a combination of sources usually leads to the best results.  All of them can be effective depending on your time frame and the role you're seeking to fill.  Fred Wilson wrote here not to waste money on recruiters but I'd disagree.  You'll waste a lot more money by making the wrong hire, losing 6-12 months and having to start all over again.  Recruiters can be more effective than other sources (particularly for senior level jobs) and having a firm that spends each and every day wading in the talent pool can often give you a broader view of the high quality talent market than LinkedIn.  Most startups dip in and out of the talent market and as a result only get a snapshot of the available talent, not the full movie.  One of my portfolio companies used an executive recruiter last year to attract one of the top online marketers in the country to become their new CMO.  Her last two gigs she was a key factor in taking the companies from startup to $75m+ in sales in 4 years or less.  When we did our references (provided and back-channel) every person told us she was one of the top 10 online marketers in the country.  You may be able to find and recruit this kind of talent on LinkedIn but it's unlikely.

- Knowing you've got an "A" player when they're in front of you can be tough.  The biggest mistake startups make is hiring the wrong people.  The reason is simple.  The ability to interview is one of the most ignored skill sets in almost every company but especially within startups.  Startups are usually strained for resources as it is and often don't make time to train their team to interview effectively.  I find it amazing that in a world where talent defines success that very few people have gone through formal interview training to properly assess a candidate.  ghSmart talks about four types of approaches to evaluating talent by VCs but I think they apply to anyone that's interviewing a prospective employee.  They are the:

Airline Captain - assessment is a formal, structured process (like a pre-flight checklist)

Art Critic - not sure how to describe a good candidate, but I know one when I see one (like a painting)

Prosecutor - assesses candidate like a prosecuting attorney (sharp, challenging questions)

Sponge - assess candidate by soaking up information (spending a lot of time with them)

The best method to insure success is the Airline Captain.  Statistically, most VCs are Art Critics or Prosecutors.  Airline Captains post investment results that are 4x the next best method (art critic).  My belief is that most startups use the Art Critic or Prosecutor methods as well.  If you want to hire right then try to become an Airline Captain.  Learn how to conduct structured, behavioral based interviews and have a defined process with a clear understanding of the needs of the position.  Create a scorecard with the most important attributes and have all the interviewers rank candidates accordingly.  Don't wing it or suffer the consequences.  It's not a coincidence that the 2 companies that have dominated the tech landscape over the last 20 years (Microsoft and Google) are also known for their rigorous and structured interviewing process.  I've found that "A" players are attracted to companies that have rigorous, process oriented hiring practices.  They want to be with other talented people and "A" players that see a rigorous hiring process will expect the company to be talent rich. 

- So now you have found the "A" candidate and you've put them through the ringer and it's time to close them.  I find the best approach is the full court press.  Come up with a fair offer and add 5% to show them you love them.  In other words, give the candidate the love hug.  Use a team effort to get them on board.  Involve anyone from your team that can help seal the deal - managers, board members, investors or your mom.  Yes, I once backed a startup were the founder's mom came in every day with fresh, home baked cookies for the entire company.  The mom helped close an executive by telling him he was joining a family and handing him a warm chocolate chip cookie. 

Over time if you have markedly better talent than your competitors you're likely to win.  Pinching pennies is great and can help you tread water a while longer but consistently screw up on your hiring and you'll be dead in the water.      

   

      

 

   

Comments

[Steve Rosenbaum]

This is the best post on this topic i've seen so far. I've tried not to wade in to the whole debate about multiple monitors and aeon chairs, but every start up i've ever done the money went to getting the right people in the doors. Sometimes it was a hungry smart young person, or a smart adult with real cash needs - but that wasn't the deciding factor. Given the choice between investing in chairs or brains - give me brains any day. Oh, and btw, the really good folks don't spend their day in a chair - they're on the move, up and down, in and out - building, networking, engaging... so a 1k chair is going to sit empty a bunch of the time...