This blog addresses a recurring topic for our CEOs — how to think about the value of experience at a technology startup, the seniority of a company’s team, and when it’s the right time to make certain executive hires.
I was on the phone the other day with a talented engineer who is speaking to one of my current favorite sub-10-person companies. It was recently founded by some very talented university students, one of whom dropped out while the other finished and worked part time. These two cofounders hired their smartest friends and started building and iterating. This new potential hire was worried that the team lacks senior, experienced people and thought that it might be a bad sign.
I gave him my honest view, which is that I thought his prospect looked a lot like Palantir, FB, or many of the other great technology companies I saw early on. It has a lot of extremely talented, hard-working, and excited engineers surrounded by great advisors. My view is that they don’t need experienced people as full time employees yet. In their infancy, startups need geniuses who fit their current tight-knit culture and will iterate quickly as they push towards an ambitious vision — and they need a scaffolding of advisors, strategists, early-users and product-thinkers around these savants to guide them. Only once a company is ready to scale into a large business should it hire more seasoned, experienced management.
Those who ultimately shake up an industry are often outsiders who don’t know any better. Companies at this stage are messy and make lots of mistakes, but what matters is producing something that works and has signs of product-market fit and that learns through its early trials.
A recipe I’ve seen work in early-stage startups is a small tight-knit group of passionate people who are obsessed with their vision of how to fix a particular industry. Conversely, teams composed of people with a lot of specialized experience at running a large business are not as likely to do very well in the first year or two of a startup. Early on, what you need is rapid technical and product innovation from dangerously high IQ, often imbalanced, driven people — not a lot of high-salaried experts used to running a big machine.
You might ask: but if a startup company team is composed of a lot of inexperienced people who’ve never run a big company before, isn’t that a bad sign? Shouldn’t I join or invest in companies where there are superstars who have done it before? How can I learn if there is nobody to teach me?
The answer is that you learn primarily by building and doing — by falling on your face and getting up and falling on your face again. This isn’t to say that you don’t want great company advisors, and people around early who can help out with specialized skills or knowledge. But few mentors are going to teach you how to be an entrepreneur with vision and passion and to create something new — and that is what matters at the start.
I have seen a lot of now-great companies at their earliest stages, and these early stage startups are not built by the senior people who know how to run and scale big-company machines.
Innovation is not a business process. Of course, there may be product geniuses and serial entrepreneurs who know how to set a direction and iterate on a vision, and these types of ‘experienced’ people are helpful early on in cofounder roles. But the people who know how to run businesses processes — the company “adults” as we like to say — are often the wrong hires in year 1. These may be heads of BD or CMOs, experienced VPs of Engineering or big company HR managers to name a few. They are likely to come in and focus on things that they have learned matter… but in so doing they can obstruct innovation if the company is not ready for their skillset. I say “adults” loosely, because people well past their middle age can play the early innovative role, and an experienced executive who is brought in to help scale a company may only be in her late twenties. However, age and experience are often close proxies. Moreover it’s important to clarify that these experienced management figures are not necessarily the core leadership of a company, who will be galvanic, inspirational individuals with a broad vision of the firm’s place in the world and a well-defined set of values. Nonetheless these operational experts — “adults” — play a uniquely valuable role in scaling and streamlining a company when hired at the right time.
When is the right time to make more senior hires?
You make senior hires when you know that you need to bring in and leverage a business process — when you are instantiating something that has been repeated hundreds of times before in other contexts. At that point you can bring in somebody who knows how to optimize that process to help build that part of the organization and scale the business. Given the constantly evolving nature of a start-up it can be difficult to identify exactly when business processes are in place and an executive team should be installed; the truth is that there is no precise formula since every company and market is different. The main things to keep in mind are how to manage growing teams, keep an attention to detail and define the right KPI’s throughout your individual teams, as well as enable the CEO by reducing the number of direct reports. We’ve often seen C-suites installed after the series A, when the company is generating revenue and looking to grow based on an established view of the product and market opportunity.
Repeatable, scalable processes are where experience is key, and this is where startups often screw up. Many entrepreneurs fail to realize that as well as raw talent you should hire experienced team members as soon as you need them — the key is identifying when that is.
The mistaken thinking tends to be “We made it this far without any of these know-nothing business characters, why should we suddenly change our culture? They have nothing to teach us; business works differently than it used to, and we will figure out better processes.” Ironically, the kind of confidence that empowers you to start a company, build a great team, and achieve some early success is often a product of the same kind of over-inflated ego that will drive you to make this mistake. (I speak from personal experience in my 20's). This mentality is especially apparent in SV’s approach to MBA’s. Everyone remembers Guy Kawasaki’s tweet about valuing companies: “add $1,000,000 for every engineer, and subtract $250,000 for every MBA”, or Peter Thiel’s pronouncement that MBA’s are “high extrovert, low conviction people” a combination that he says “leads towards extremely herd-like thinking and behavior”. But the reality is more nuanced and decisions about hiring based on experience are as much a function of timing and keeping a pulse on the life-cycle of a company as any other major hiring decision. In fact, a composite analysis of “big tech companies” shows that they have more than double the proportion of job offerings requiring MBA’s than big banks and the Dow Jones Index companies. However, for many of these technology companies, the MBA’s were not around at the start — there are exceptions, but an MBA is usually tied to business scaling and negatively correlated to innovative startup leadership. Instead, they were brought in to run and iterate the business machine once their experience was needed.
If something has been done hundreds of thousands of times before, you can learn a lot by bringing in an expert. It’s hard to overestimate how valuable a great VP of sales is, and what he or she can do for your company when you need to hire sales reps, create a culture that will make smart decisions, and scale on the sales side. Or to understand why a great head of HR is so key and how this person and his or her team can complement your leadership and culture; or to realize the practices that an experienced engineering manager brings to the table and how they make your company work better as it grows… to name a few examples. Most of the first-time founders we’ve worked with who have made amazing early progress on the product and engineering side don’t actually understand what a CMO does. When they learn about what it means to map out a market and develop a strategy based on the data concerning product demand and market segment interaction they get really excited and realize they need one in order to scale. CFOs, CSOs, and many other experienced leaders also play critical roles at the right time.
The reality of a great startup is that it always feels very messy. It will always feel like you should have made key hires months ago. But startups are messy by design, especially if you are getting things right. If you ever feel like you’ve made all the hires and have all the expertise you need in-house, something is wrong and your business is going too slowly — you’ve probably way over-hired. But when you reach some sort of early product-market fit and it’s time to run businesses processes and scale, you need to make these senior hires right away — usually at least a few at once. A lot of great companies go through stages where they realize this and “upgrade” their executive team with awesome experienced talent.
In some cases I’ve seen, these hires were made late and it would have been great to have them a year earlier. In these cases, it’s tempting to wish you could have started with all of these awesome “adults” around. But in many cases bringing veteran management into the picture immediately can stultify a start-up’s culture of innovation. Some of the best Series A investments are into companies that don’t have any “adults” and aren’t quite ready for them yet. I have noticed that this stage often scares off less sophisticated technology investors from outside SV, who use the presence of these experienced experts as markers that it’s safe to invest rather than evaluating the early technology culture, metrics, and strategy. When the company is ready to bring in more senior people in order to scale, one of the roles of a great investor is to help the CEO realize this and quickly pull the trigger on the right executive hires at the right times.
“I have noticed that this stage often scares off less sophisticated technology investors from outside SV, who use the presence of these experienced experts as markers that it’s safe to invest rather than evaluating the early technology culture, metrics, and strategy.”
In conclusion, take solace in the fact that a lot of the best early-stage companies don’t have a strong “adult” presence — and focus on talent and a culture of passionate innovation instead. Don’t feel pressured to bring in experienced executives too early. But as soon as you’ve gone from 0 to 1 on the product/innovation side, you should go from 0 to 1 on hiring the experts and getting a star team of senior people around you who know how to run the machine and scale the business. Only then are you ready to say:
Bring in the adults!