When startups fail, it’s usually due to decisions related to hiring and compensation.

It starts with the first major decision: forming the founding team by “hiring” one or more founders. As you know, founders may be good or great hires because they are true entrepreneurs with leadership capabilities. On the other hand, they may turn out to be “bad hires” for many reasons.

One way a founder proves to be a bad hire is that she becomes obsessed with putting her mark on every aspect of the company. Through that process, she commits creative destruction in meetings, interpersonal relationships, etc. Typically, this behavior stems from founder narcissism but also deep-seated resentment of inequitable founder equity splits or employee allocations.

Other early hiring mistakes happen as startups build out their broader teams. As these companies mature, success or failure comes down to hiring the “best” and “right” initial employees. Those are people who share the founding vision but have better skills than the founders.

To help leaders avoid making early hiring mistakes, here are some of the characteristics often found in initial employees who wind up being hiring errors.

Friends and Family. Founders and early-stage exec’s usually do not have resources or a strong bench to tap into for hiring. As a result, they hire people simply because they like them, or know them, or they are available. Or, they are related to them. While there are exceptions to the VC rule that you don’t hire family members, doing so is largely a surefire way to make hiring errors. When you hire an early-stage employee, you have to be 100% convinced (or as close to that as possible) that they are the right hire now and into the future; 100% comfortable saying “no” to them, and 100% certain that you can fire them anytime if they do not execute their job and assignments. Friends or family hires typically do not conform with this “3x 100% hiring formula”.
Rock Stars and Wannabes. There is a subset of rock stars who you should hire if you have the opportunity. They make significant short- and long-term contributions. There is uncertainty, however, in hiring Mick Jagger- or Axl Rose-types. Equally, there is the uncertainty that instead of a true star, you might be hiring a ‘one-hit wonder’. Not hiring a perceived rock star may mean passing on an engineer who may be a rock star one-day but is not one today. Or a recent graduate of a highly prestigious school who has the earmarks of a future rock star but no experience. You want long-term contributors with a proven track record who have the company’s best interests at heart.
Corporate Executives and Managers. Make sure you hire talent that can scale with each stage of your company and who possess realistic expectations relative to salary and equity. This is often an overlooked signal in the assessment of whether a candidate is going to turn out to be a good or bad hire. VCs are often the source of pressure to hire candidates with a heavy corporate background who will “professionalize” a VC-backed company. The venture crowd views these types as bringing “needed” experience with processes, industry contacts and logos on their resumes, which are attractive in Series B financings and beyond. Often the seal of approval is clinched by VC-sourced “back channel” endorsements, which turn out to be BS.
Narcissists. This group of early founders, executive hires and especially CEOs spend lavishly on sales talent, marketing agencies, lavish offices, other perks, and their own compensation and that of other, favored executives in the “C-Suite”. They want to “bring in” expensive public relations firms that issue frequent press releases and produce social media missives that are designed to generate “ToFu” (top-of-the-funnel) leads and focus attention on them. They are a new breed of cat in the age of startup unicorns: These narcissists are bent on self-promotion despite the fact that it drives the destruction of their companies. Conclusion: Don’t hire and don’t invest in them.
Sociopaths. Don’t hire executives, engineers or other employees who have a reputation for not being able to control their own emotions, or whose interactions with other people result consistently and predictably in highly fraught dealings, tensions, frustrations and worst of all, fights.

In today’s tight labor market, fast hiring has become SOP. The best practice is simple: Hire on a timely basis given the in-flow of (sales- related) cash and funding. The thinking is that in this scenario, it’s best to go with decathletes – as opposed to sprinters – who are intent on winning the race over the long-term. Take extra care in hiring (see process below), especially in key positions on the ELT, and with engineering and product management, as well as with sales enablement and customer service.

Beyond knowing who not to hire, having a clearly defined hiring process from the startup’s inception is essential to help avoid hiring errors. These hiring processes include:

A written job description: Multiple ‘must-have’ requirements must be highlighted and thoroughly diligenced.
A screening process: Candidates who don’t meet the job requirements must be identified definitively as a poor-fit for the role – and dismissed from consideration.
Practical skills tests: For data scientists, solving problem sets; for software engineers, a challenging programming problem; for marketing and sales, a presentation that comes from them and reflects their imprint.
Multiple Interviews: Candidates should meet with several people who provide different perspectives. Interview questions should be coordinated.
Immediate Post-Interview Feedback Sharing: Startup executives should make a commitment to sending an email or Slack after each interview while impressions are fresh. These communications should include comments on fit and a thumbs-up, thumbs-down decision on the candidate, or a request for a second or third subsequent interview.
Decide on Multiple Fits: Every candidate should be judged on the role they applied for, other future roles and, ultimately, company culture and skills fit, and their anticipated add to team chemistry.

Interviews shouldn’t be overly focused on quizzing candidates about their skills and knowledge of the job. Instead, they should be more about selling the candidates on the company and making sure they are a good fit for your startup’s culture, product and market.

Avoiding the obvious misfits and having hiring processes in place can help avoid early – and costly - errors in hiring.

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DougL’s Rumination

Avoid Early Errors in the Hiring Processes