HR 101: Hiring and Scaling Challenges

The chart below shows the percentage of start-ups that had each “C-level” position, categorized by the rounds of financing raised by the company. (This is from the start-up survey conducted in early 2005, which had responses from 263 private IT companies.)

For some of the positions just below C-level, the chart below shows the percentage of start-ups that had each position.

These charts bring to mind 2 recurring hiring issues that founders pose to me.

ISSUE #1: Hire ahead vs. Hire for now

Should you hire senior people before you need them, or hire junior people now and then add senior people above them as the venture grows?

The benefits of hiring ahead (i.e., hiring senior people before you need them) might include:

  • Having the senior people hire their own teams below them, possibly increasing the chance that they will work together effectively.
  • Avoiding having the junior person (e.g., the early-stage Head of Engineering) feel “displaced” when you hire a C-level person (e.g., CTO) to whom he now reports, rather than promoting the junior person to CTO.

The benefits of hiring for now (i.e., hiring junior people now and then adding senior people above them later) might include:

  • Having a much lower burn rate during your cash-poor stage of growth.
  • Being able to wait and see which early junior hires can “scale” (i.e., become those senior people) and which will have to be supplanted (i.e., either replaced or moved into a less important role while reporting to someone new).

Questions: Are there other benefits of each approach? How have you approached this hiring issue?

ISSUE #2: Signs of scalability

The last bullet above brings us to a related question posed by founders: How can you tell ahead of time if a person will be able to “scale with the company” or whether that person will have to be replaced?

Questions: Have you found reliable indicators of whether or not someone will be able to scale with the venture? More generally, what other hiring challenges have you faced?

Note: This applies both at the founder-CEO level itself (i.e., for VCs and other board members who are evaluating whether a founder-CEO will be able to remain CEO for a while) and below the CEO level (when the founder-CEO has to judge whether the people she is hiring will be able to grow with the company).

Posted in hiring
11 comments on “HR 101: Hiring and Scaling Challenges
  1. Jüri Kaljundi says:

    While expanding my company CV-Online across various countries in Europe we tried both approaches in various countries, and even now it is hard to say which approach was the best. In some cases we did not have a local country manager / managing director for each subsidiary, but kept managing the local salespeople, consultants etc from a distance from HQ in Estonia. It helped to keep the costs low, build the subsidiaries more similar to other countries and get rolling faster. The downside was when the local offices grew and we needed country managers, then when hiring someone above the fairly independent local team it created a lot of emotional conflicts. First in many cases we thought the CM’s we had hired were no good, but later we understood, it was just a conflict of power and authority. Hiring good top managers first is good if your financing permits you to do that. A good CFO from early on is just great, as well as a good Sales Director. The team and whole organisation will be stronger and healthier over long term, but you have then to make up the bigger costs from higher revenues and profits over time. As a founder you also must remember the more top-level external people you bring in, the more independence you must give them. You have less control over where the company will be going, but that might be a good thing, trusting others, not just yourself. Depending on occasion, I would still use both ways.

  2. Noam says:

    <>Chris: Really liked the title you used when you linked to this on < HREF="" REL="nofollow">your blog<>. For everyone else, here’s the title and opening of Chris’ post, which is followed by the insightful entry he posted above.<><>Mr. Right or Mr. Right Now?<>Noam Wasserman at Founders Frustrations raises a good point about which strategy a start-up should pursue when hiring senior staff. Hire ahead or hire for now.His point about the trade off between burn rate and organizational ‘displacement’ are things that every entrepreneur has had to address….

  3. Noam says:

    <>Juri<>: Like your extension of the issue to the international-expansion context.There’s also an interesting linkage between your points and < HREF="" REL="nofollow">“Rich vs. King”<> — that your choice of Mr. Right vs. Mr. Right Now (thanks again, Chris :->) should affect your ability to keep control, the size of the pie you grow, and possibly your share of that pie.

  4. Chris Marino says:

    Noam, in addition to the issues you raise, there is the practical reality of your circumstances. Most of the time, you can’t hire ahead since seasoned executives often have different risk profiles and don’t seriously consider start-up opportunities.On the flip side, if you need to raise financing, (VC or not), most smart money investors want to back the strongest teams.So the paradox is that you have to hire to complete the team to attract financing, but the caliber of executive isn’t what you might have been able to attract, if you had already been funded. So you often find yourself in the position of needing to ‘upgrade’ certain members of the team.Now, upgrading isn’t necessarily a bad thing. It often indicates success and effectively managing risk. Any CEO that doesn’t recognize this isn’t doing their job. The troubling thing about upgrading is that personalities and expectations sometimes get in the way and the organization can suffer.Second, the requirements of the jobs often change. Start-ups often have to ‘pivot’ to pursue a different strategy, so the guy that you hired out of Cisco for his networking expertise might not be the right guy when you find yourself selling security solutions.This point supports the notion of hiring the best ‘athlete’ that is smart enough to adapt to changing circumstances.My advice is always hire the best guys you can. Even if it means increasing the burn rate.As for reliable indicators to determine if an executive can scale, the only one that I’ve found is their own ability to hire strong teams. Early on, most VPs are doing pretty low level things just to get the job done (sales tools, coding, etc.) any scalable VP is going to be able to hire someone strong enough to do the job to his own satisfaction. When you find that they hire others and micro manage them and continue to get bogged down in the minutia of the job, you know you’re in trouble.

  5. Martin L. Martens says:

    Hi Noam -What about the issue of control by the VC. The substantial increase in the CFO position suggests to me that the VCs may be using the position as a monitor and control function for the VC. The answer may be deeper in the data by comparing when the CFO position appears to particular rounds of financing. In my data, I’m trying to track percentage of outsiders on the TMT as it changes with each round of VC financing.On the hire now vs hire ahead, displacing TMT members with outsiders may contribute to the disruption of the firm’s cultural blueprint that could contribute to worse performance over the longer term.

  6. Anonymous says:

    In terms of hiring Mr. Right vs. Mr. Right now, entrepreneur Dharmesh Shah had a great post on his blog last March on criteria for hiring for startups.< HREF="" REL="nofollow"><> His 5 main debate points are:1) The Idea Will Change2) Help The Best Find You3) What Can You Do For Them? 4) Specialists vs. Generalists5) Skill vs. TalentFrom my personal experience, on the Specialists vs. Generalists debate, I definitely agree with Darmesh that the mix of employees should be company and context specific more than anything. I also agree with him that generalists tend to be more important in early days, while specialists are critical later. The only thing I would add to that however is the recurring need for technical/specialized experience at the prototype building stage early in the venture’s life. A common reflex, perhaps a mistaken one, for the entrepreneur is to get the product “out there” as soon as possible for customers and financiers, and thus pitch a largely incomplete beta that is only a vague and often untested proxy for the actual product. (The HBS < HREF="" REL="nofollow"> Smartix <> case about an electronic-ticketing startup provides an eloquent argument for building out a more robust prototype and actually experimenting with the concept on a larger scale before getting buy-in from customers and VCs, which will help to preempt some “easy to answer” real-life questions about the concept.)This Specialist vs. Generalist debate for hiring new employees into a young venture has left me with a few additional questions:1) Can early Generalists be converted into Specialists at some point (possibly through additional experience or formal training)? Do they naturally transition from one to the other as their industry experience grows? Would that be a way to keep the same people aboard?2) What about the actual founder himself?!!! Is he better off as a Generalist or a Specialist in some industry/vertical? Can he and should he be both? (This obviously had huge implications in terms of career choices prior to starting up the venture…)The CEO of an IT firm visiting campus that I spoke to recently mentioned, when I prompted him about why he had changed most of his management team in the last few years, replied by pointing to the need of management team members (so both Generalists and Specialists) to reinvent themselves constantly, every 1-2 years maybe, independently of their skill profile, to avoid being outgrown by the startup. Perhaps that is the best answer to this debate…

  7. Sendside: Sales Automation says:

    There are often two sides to hiring and scaling. When you're growing fast, and when you stumble, which is pretty common in tech startups. We're around sales automation and, while growing fast, it's important not to just hire like crazy.

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