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Hiring

Successful startups add people to their team all the time, and obviously it's the great people in your team what make a company successful (for the most part). So it's no surprise that hiring is one the most important priorities for founders and management teams. It's also one of the areas where a lot can go wrong, sometimes with severe consequences.

According to Smart and Street in their well-known book "Who", four things most frequently go wrong when hires turn out to be not successful:

  1. Unclear requirements for a job
  2. Weak flow of suitable candidates
  3. Trouble to pick out the right candidate out of a group of similar looking ones
  4. Losing candidates that the company wanted to hire

Sourcing candidates

A precondition for successful hiring is to first feed the "funnel" with promising candidates. According to some studies, here are the typical channels in decreasing order of effectiveness:

  1. Referrals from business network: Recommendations from business peers often provide the best candidates because most people will only refer someone they really appreciate.
  2. Referrals from personal network: This can be equally effective, but might be a bit less filtered.
  3. External recruiter: This is the most costly form of recruiting. Recruiting firms who have a strong network in the right skill types can often be the quickest way to find candidates, and the good ones provide a strongly pre-filtered list of candidates. It's important to choose a recruiting firm that is competent in the skill type, seniority level and geography that you want to hire in.
  4. Recruiting researcher: This is a person who uses LinkedIn and other sources to generate a list of potential candidates that the hiring manager then can access. This can take a lot of workload away from the hiring manager, but it's normally not a strong filter.
  5. Internal recruiter: When a company hires many new people, having recruiters on staff is often efficient. However, when internal recruiters have to hire very broadly, their effectiveness can be limited due to a limited network.
  6. Job ads: This tactic is often used in combination with the methods mentioned above, but it rarely leads to great success in isolation. Job ads are most effective for more junior roles where there is a sufficient supply of interested candidates.

In order to create referrals, your employees should be motivated to do so. Some tactics include:

  • A substantial reward for every successfully hired referral candidate
  • A small reward for every referral that fits the profile
  • Sitting down people once a quarter with a recruiter and going through their LinkedIn contacts to search for potential candidates

Mistakes to avoid in the hiring process

Hiring successfully is often still seen as a "black art" with little scientific or even systematic background. That's not true anymore. But very frequently hiring managers and team members fall victim to a number of biases and unsuccessful patterns:

  • Trusting your "gut feeling" over everything else. While a candidate has to be a strong cultural fit and it's important that you want to work with them, most people systematically overestimate how good they are at "reading" people.
  • Being overly critical or overly salesy. Interviewing a candidate should be a balanced activity, a process of give and take. The candidate has to convince the company, but the company also has to convince the candidate. If these elements are not balanced through an overly aggressive interview style or, on the opposite end, an exaggerated focus on selling the company to the candidate, things rarely go well.
  • Falling prey to gimmicks. Some people believe that simple behavior patterns or personality traits have strong predictive power on candidates. Some go to lunch with candidates to watch their table manners. Others ask about pets and hobbies. Some just do small talk to see how much they enjoy the candidate's personality. Some use tricks from movies such as "Sell me this pen". While all of that might be entertaining, it typically has very little predictable power.
  • "Scientific" tests with limited validity. Personality tests like MBTI have some limited value in that they allow you to get an impression of the approximate personality traits of a candidate. But their validity as a predictor of job performance has been debunked. More structured aptitude tests might give you data on a candidate's skills, but that's only part of a larger success equation. Use tests as data points, not as a true selection device.

Scorecards

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Most experienced recruiting experts point out that the best way to finding the right candidate is to be extremely clear about what you want and need. The necessary level of detail goes beyond a simple job description.

The method recommended by Smart and Street (and others) is a scorecard that defines exactly what you expect the new hire to accomplish in their role. A detailed and well structured scorecard has a number of advantages:

  • It forces the hiring manager to be crystal clear about requirements for the role
  • It lets you communicate these requirements to other members of the hiring team in a very specific way
  • It allows you to structure the interview process, e.g. by assigning different aspects of the scorecard to different interviewers

A scorecard has the following elements:

  1. Mission: This summarizes the job's core purpose — the overarching goal, not the tactics, in clear language. For example, for a CPO the mission could be "To lead our product organization, increase the speed of product innovation and improve customer satisfaction with our product."
  2. Outcomes: Specify what the expected results of the role are. This is conceptually very similar to the objectives in the OKR management methodology, so a well-run company should have most elements in place already. For example, for a VP of Sales this would be the expected revenue increase. For a CPO it could be the number of new features released and an improvement in customer NPS. In any case these outcomes should be specific, measurable and ideally quantitive.
  3. Competencies: In a third step you need to define how you expect the new hire to accomplish the desired outcomes — what skills, characteristics and behavior patterns they need to be successful. For example, in a managerial role you would expect the person to be able to hire A players and develop a team. Competencies cover both "hard" factors such as skills but also "soft" factors such as culture fit.

Interview questions

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There are plenty of studies that show that questions about a candidate's experience in past (or current) jobs have by far the best predictive value.

Ideally you should ask a candidate about each of their previous jobs in detail to learn about their particular approach and behavior patterns.

Some examples:

  • What were you hired to do in this job and how did that change over time?
  • What accomplishments are you most proud of?
  • What would you describe as your biggest failure in this job?
  • Who was your boss and how did you work with them? What would she/he tell me your biggest strengths were?
  • Which peers did you work with? Who was the strongest and who needed the most improvement?
  • Why did you leave that job?

Very young candidates might of course have limited relevant experience but might be able to talk about a role in a volunteer organization or other situation.

Skill tests

As mentioned above, structured aptitude tests rarely have strong predictive value for job performance. However, particularly when you hire for technical roles, testing a candidate's skill level is important.

Something that rarely works are purely theoretical technical whiteboard interviews ("How do you balance a binary tree?") or brainteaser questions ("How many golfballs fit into a school bus?"). By now most serious candidates will be prepared to answer artificial questions because they can be trained for and are often repeated between companies.

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The most qualified candidates will likely think that your company is incompetent at hiring and will go somewhere else if you offend them with this widely discredited form of interviewing.

Getting a better insight into a candidate's competencies requires a bit more work and should therefore be reserved for the most promising candidates. The best approach is to present the candidate with a task that is closely related to what they would actually do in their real job. Examples include:

  1. A technical task such as writing some code for a real-world problem taken out of your current roadmap. This can often be done in 2-3 hours plus another hour or so of review (where you talk with the candidate about their solution approach to understand their thinking), so it's a serious time commitment on both sides. Important: Allow the use of any tool that the candidate could use in their real job. Engineers google stuff all the time, so of course they should be allowed to do that in such a test.
  2. For business functions, a short case study can have some predictive value in terms of how the candidate approaches the problem, how they ask for more information, how they structure their output and how much attention to detail they put into their deliverable. Avoid case studies that are too hypothetical and be forthcoming with additional information that might help them come to a good solution.
  3. For managerial roles, a 30/60/90 days exercise is often useful at a point where the candidate has already been through some interviews with you and should know quite a bit about the situation in their future department. The question asked is "What do you think you will do in your first 30, 60, and 90 days in this role?" This allows you to test for a candidates holistic understanding with the role, their alignment with the expected outcome and their ability to prioritize realistically.
  4. Some companies require candidates, particularly those for a key role, to spend up to a full day working alongside their future team mates on specific problems that the team is currently dealing with. This is often a great way for both sides to get to know each other much more closely than otherwise possible. However, the time commitment is substantial, and therefore this approach is not always possible.

Who should interview?

For a successful interview process it has to be entirely clear who the hiring manager is (which surprisingly is not always the case in some organizations). This is the person that the future role holder will report to, and the hiring manager should therefore lead the process.

Pre-screening interviews can be done by recruiters or HR staff, but the hiring manager should conduct the first deep interview and the final wrap-up interview. They will discuss compensation, benefits, other expectations that the candidate might have, and the timeline for joining. Other logistics can be handled by HR, but the hiring manager needs to be in the loop about these details too.

In some companies, the hiring manager is pretty much the only person to interview a candidate. This rarely leads to successful outcomes because it will rely on the judgement and perspective of one single person who obviously will have biases and blind spots.

It is much better to put together a small hiring committee of 3-5 people. These should be people from different levels of the organization, e.g. future superiors, peers and direct reports of the role holder. They should ideally have different backgrounds in terms of their skills, superiority, etc. It is also important to task each member with a particular focus when they interview the candidate, e.g. technical skills, previous experience and behavior patterns, or cultural fit. Depending on the necessary depth, the interview time with each member should be 30-60 minutes.

Each committee member should rate the candidate on the scorecard, as far as they can judge the different criteria. This will rapidly give the hiring manager a holistic picture of the candidate and enable them to ask for specifics if needed.

For key roles it is often a good idea to even involve people outside the relevant team environment, for example board members or investors. They are often also able to give the candidate a different perspective on the company, answer critical questions and give them reassurance about the future prospects of the company.

In the end, the hiring manager will make the final decision for a candidate.

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Some companies have the rule that each member of the hiring committee has a veto right if they strongly feel that something is off with a candidate. That's often a good approach because particular weaknesses of a candidate might only become apparent in one interview with a particular focus.

Reference calls

References can give you a different perspective. In the worst case, you will learn something that will prevent you from hiring the person. In the best case, you will learn something that will help you close the candidate and manage them better once they join the team.

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It's an essential rule to never skip reference calls about a candidate, even if they passed the interviews with flying colors.

Two to three reference calls are normally sufficient. Candidates will of course provide you with reference contacts for past bosses. If they refuse to provide a particular contact, that's a warning sign — not a deal killer (sometimes things go wrong even in the best careers) but something that needs to be discussed. Some companies have policies that prevent their employees from serving as references beyond confirming that the person worked there. That's a legitimate restriction.

Of course candidates have an incentive to provide reference contacts that will talk positively about them, so for high-stakes roles it's often a good and legitimate idea to get backchannel references from a person in the candidate's past that they didn't provide as a reference.

The most effective reference questions are:

  1. In which capacity did you work with the person?
  2. What were the person's biggest accomplishments? Biggest challenges?
  3. How would you describe their biggest strengths and weaknesses?
  4. How would you rate the person compared to their peers in the team?
  5. * add specific questions that refer to something you learned from the candidate or other reference *

Purely hypothetical questions like "Would you hire this person again?" are rarely effective since most people will just say "yes" to avoid confrontation.

Decision timeline

The competition over highly talented candidates is intense, and therefore a hiring decision should be made as quickly as possible while still preserving appropriate levels of diligence.

Some companies go as far as making a hiring decision at the end of the interview day and then require the candidate to accept the offer immediately or by the next morning. Such pressure tactics won't work with the best candidates, so the company should give the candidate a reasonable timeframe to decide, e.g. a couple of days or up to a week. Any time longer than that will reduce the probability to close the candidate and hold up the process of looking for alternatives.

Negotiation compensation

Compensation is always a tricky topic. You probably have a budget in mind for the role but don't want to disclose it right away in case you can get a good deal. The candidate has similar incentives.

A traditional method is to ask the candidate what they made in their previous job. Most candidates will be truthful about this, but some might inflate the truth a bit, and it's tricky to reject this number because most former employers will not disclose what they really paid. In this case, you have anchored the compensation probably at a higher level than you were happy with.

If you recruit a candidate through an external recruiter, it should be their task to ask for compensation levels. They often are a neutral party with insight into market levels and can advise the candidate if they think their expectations are overblown.

A good approach is to have compensation bandwidths for each level of seniority and role at your company. You can then tell the candidate "employees in our company with a comparable role and skill set make EUR x in salary and EUR y in bonus, would that be a level that sounds attractive to you?" x and y should be slightly at the lower end of the bandwidth so that you have room for negotiation, unless you feel the candidate will be disappointed by this offer from the outset.

Stock options are of course a great point of leverage for a startup. You should have clarity about how many options (or phantom stock, or similar incentive) you can offer in advance. There should be a defined bandwidth for each role and seniority level. Make sure to also keep an eye on your overall ESOP — spending options too quickly is a frequent problem in startups.

Most people have a hard time understanding options, so make sure you can make them tangible for them: "If our company gets an exit for $500M, this option package will likely be worth between $x and $y."

See more in the chapter on compensation.

When you lose a candidate

Hiring top talent is a two-way street. Of course you want to select the very best candidate for the job, but you also have to sell your company and the position to them. This doesn't always work out. Seeing a top candidate pick another job over your offer is not a rare occurrence.

If you really want to hire the candidate, it's legitimate to contact them again even after they have declined your offer. Don't try to sell them aggressively on your opening, particularly not by badmouthing other companies. Ask them for feedback about your company and the interview process. Ask them why they chose the other opportunity. If you feel there could be an opening, ask them if there would be something you could adapt in their offer to change their mind. This works in maybe 10-20% of cases, but it's worth a try.

Even if you end losing a candidate for good, you should do a quick post-mortem with the hiring committee, particularly if the candidate had concerns about the interview process. Hiring great candidates is a skill that you should develop as a team.

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Typical Role Profiles
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Diverse Hiring

Useful Resources

Smart and Street: Who

The classic startup hiring book. Essential reading for anybody who needs to hire people.

Bock: Work Rules

An overview of culture and HR principles that made Google successful.