Designing a Startup Hiring Strategy
Metcalfe's Law, often used to represent the value of a digital network, states that the number of additional nodes on a network is proportional to the square number of connections within that network. In other words, as you add team members, your communication structure within the team becomes exponentially more complex. In practice, rapid hiring can lead to disastrous communication lapses unless planned for ahead of time.
At my current company's stage, hiring is a necessary accelerant for growth. We are at a point where processes exist, roles are clearly defined, and positions are ready to be filled. But for most companies, hiring plans are range-bound by resources and often result from fill poorly defined roles. There is a tendency to hire generalists in the first months and years of a startup, and as the company grows, specialized hiring begins to occur. This transition is not always obvious and necessitates a few strong operational best practices when approaching hiring.
In early-stage startups, hiring can often be a death knell for a fledgling young company. Properly evaluating your team’s need to hire and then establishing a clear path to candidate success are critical. Failure to adopt a robust hiring strategy may not outright kill your startup, but it will almost certainly leave lingering scars that will impair your future growth. Let’s take a walk down the path to a robust hiring strategy and process that has worked for my teams.
Overhead walks on two legs
Ask any founder or CEO what their biggest expense is, and they will tell you employee compensation. According to the U.S. Bureau of Labor Statistics, employee compensation accounts for 68.7% of business expenses. Ignoring the astronomical amount each employee adds, you need to consider the lasting impact individual personalities will have on your startup’s trajectory. With expense in mind, there are a few questions that can help you determine if now is the right time to hire:
- Can you easily define the role? And are there current operational processes in place to allow for reporting and KPI-driven success? Figure out what the measures of success will be for this new team member, and build a job description from there.
- Is there a current process or workflow in place for this role? Follow along First Round’s sage advice to hire for your first 10 processes.
- Will this role fill a gap or build a layer? In the early days, focus on filling gaps. Strategically plan for when it is appropriate to add a layer. Mileage may vary here. For example, if you are a non-technical founder managing a team of developers, it may be time to bring in an Engineer Manager. Following Andy Grove’s model in High Output Management, I generally try to keep direct reports between five and nine per manager. As you scale, this number should shrink towards what I believe is the true ideal of 4-5 direct reports. This reporting structure is known as the ‘fire squad’ model一 a derivative of how Navy SEALs operate small, effective teams.
- Are you over-hiring or hiring for hypothetical situations? At Kard, we hired quickly to deal with anticipated customer demand. But the demand never became a reality, so I had to let team members go. If you have contractual commitments from big clients, you may be ready to hire. If you aren’t truly confident money will hit the bank, then perhaps hold off.
If you can confidently answer these questions, it is time to start laying the groundwork for your hiring process.
Who is calling the shots?
Before you can get the right people on the bus (sorry, Jim Collins), you need to get the right people in the room. Knowing who owns the hiring process (usually a team manager) and who has input in the decision-making process is hypercritical. Companies are lambasted on the internet for abusively long and sloppy interview processes. Make sure you don’t end up on that wall of shame and assign a hiring manager from day one. Your hiring manager will be 100% responsible for three things:
- Writing the job description
- Selecting team members who will run the interview(s)
- Making the final decision
While some teams take a democratic approach to hiring, your hiring managers should have the absolute final say on a candidate.
The hiring manager has to wrangle one more task: getting compensation approved. Larger companies will have pre-approved salary and equity bands for specific roles. Most startups shoot off the hip in the early days, paying just enough to entice people to hop on the rocket ship. It can be hard to determine salary and equity compensation when you hear whispers of what FAANG employees are receiving.
At Next Caller, we rely on Option Impact to, at the very least, inform our compensation structures. There are similar free services out there such as Glassdoor and Comparably. As a more mature startup, compensation is always reviewed by the CEO and typically requires board approval (especially if equity is involved). Early-stage managers should keep spreadsheets indicating the top-end pay for specific roles. Doing so will set the goalposts when negotiating offers with candidates and prevent you from under or over-paying a new team member.
Process, Process, Process
Whole books could be written on how to run an effective hiring process. There is no one-size-fits-all approach for each company, let alone teams within the company, on how to interview candidates.
Small companies often don't have dedicated recruiters, so doing things that scale early will be super important. Oftentimes the hiring manager is tasked as the lead recruiter. Having been in this position before, the first thing I do is search LinkedIn for former co-workers that might be a good fit for the role I am hiring for. I am a big fan of recruitment automation tools like Trinsly that allow you to create drip sequences of recruiting emails to candidates. Automation tools like this help when there is limited time to scour LinkedIn and handcraft emails to all the awesome candidates.
Once you have a healthy pile of resumes, you need to begin interviewing. While running your cold outreach process, the hiring manager should outline the interview process. An example process for what we typically do for Next Caller’s engineering team is as follows:
- 20-30 minute phone screen with hiring manager - This often includes a few high-level technical questions and casual conversation.
- 45 minute Technical Interview - For both junior and senior candidates, this will often include a live coding exercise on a screen share. We keep our questions applicable to real engineering problems (e.g. get data from an API and transform its shape) and avoid overly academic or esoteric topics (e.g. reversing a binary tree).
- 45 min "On-site" technical: group interview with engineers - This functions as a way to meet the team and to hear the candidate discuss relevant technical topics.
- 30 minute "On-site" cross-team: group interview with non-engineers - This is for the candidate to meet the team and answer questions.
- 45-60 minute "On-site" hiring manager 1:1 - Depending on role, this can be very technical in nature and often involves architectural and system-level questions. The last half of this interview is meant to offer the candidate an opportunity to learn more about the role.
Because we have our process dialed in and have checkpoints along the way to evaluate candidates, we can make offers very quickly. Speed is a huge advantage when it comes to hiring great candidates. The only way you can be fast and still make high-quality hires is by having your ducks in a row. Know precisely the role you are filling, know your compensation packages (and get them approved, if necessary), and know your interview process.
Communication is critical
For my team, heavy reliance on Slack and clear frameworks and cadences of team-wide communication have been essential to managing new team members. This is doubly important in the era of remote-first work where you don’t get to chat at the water cooler between meetings. If you are at the point where you are beginning to make multiple hires, you need to evaluate your People Ops processes and communication cadences to ensure the structure you are building doesn’t collapse under its own weight.
Mindful planning for new employees is the most important factor in the growth of a startup. Overshoot and you end up in the graveyard of startups past, undershoot and you end up in the early-stage struggles forever.
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