The Ultimate Guide To Startup Hiring
How to Determine Who To Hire and When
One of the most common questions I get from company leaders is about who to hire and when.
It doesn’t matter if your company is two people or 20 or 200, your next hire is always the most important hire. Filling the wrong role at the wrong time is a waste of money and potentially even a waste of talent.
But how do you know when the time is right and which skills are most critical for your success? Here’s a guide I put together, based on building dozens of companies, for all stages of a company’s growth cycle — from the first hire to the 500th.
After that you’re on your own.
First: Should You Hire At All?
When I get asked for help on a hiring decision, nine times out of ten it comes to me as “What role should we hire for next?” And nine times out of nine I try to gut-check whether a hire needs to be made at all.
Here’s the rule: Good hires are like bullets, you don’t want to use them until you’ve locked in on a target and you’re 100% sure you want to pull the trigger.
During the early days, a hire shouldn’t be made until the pain of missing that additional resource is twice the value of the total hire package. In other words, if it’s going to cost $100K all-in to bring on a resource, it shouldn’t be done until the company is feeling $200K worth of pain.
That’s not always an easy metric to gauge, let alone live by, so it’s more of a guideline than a hard-and-fast rule. Just keep in mind that the only thing worse than living without a needed resource is paying a salary plus benefits for the wrong resource.
A second factor in a growth hiring decision, and maybe even more important than relieving pain, is grabbing opportunity. Employees are the biggest gamble a company makes, but growth just doesn’t happen without talent. So sometimes we need to hire opportunistically, rolling the dice on great talent in the hopes that the payoff will be exponential.
I’d always rather hire for opportunity over pain management, and I try my best to make the money work out.
Next: Full Time vs. Contract vs. Consultant
Here’s the rule: Try not to hire a full-time resource right out of the gate. This is something I’ve done my entire career and actually adopted as policy at Automated Insights until we reached about 60 full-time people.
Here’s how it worked: Instead of the normal screen-interview-welcome-aboard process, we put all new hires on a 60-day consulting contract. This allowed us to do several things.
- It gave us runway to be able to weigh the risk-reward factor of the hire in real time.
- It provided a window to make sure we weren’t imagining the fit.
- It allowed us to take our time on benefits and equipment and onboarding. This was critical when we had a shoestring budget for HR.
- It actually allowed us to take more risks with our hires. We landed some extremely valuable talent we probably wouldn’t have taken a chance on if faced with the specter of commitment after a couple of short interview sessions.
We hired 98% of the folks that went through the consultant-to-hire process, and both we and they were more productive for having gone through it.
That covers when and how to hire, so let’s talk about who to hire. The top two things we’re usually looking for are makers and sellers.
“We have too many developers.” — No growing company ever.
A startup can never have too many makers — and by makers I mean whoever is actually using their hands and brains to build the product or deliver the service. Since most of my readers are in the business of tech, I’ll use developers to discuss this role, but the advice applies to any product or any model.
Here’s the rule: We should always be hiring makers.
Strip away all the nuance and sunshine and we’re left with the fact that businesses exist to make things and sell things. So the question isn’t “Should we hire a developer?” so much as it is “When should we hire our next developer?”
And that’s the trick — managing supply so that it slightly exceeds demand. It’s a balance, and the equation seems simple: When the revenue realized by adding a developer exceeds the cost of adding a developer, add the developer.
However, we need to keep a close eye on the future, both opportunistically and cautiously. If we see an opportunity to add an innovative developer to help us deliver better product at lower cost, we need to take it. These hires are the difference between growth and stagnation.
On the flip side, we also need to account for the fact that sales rarely go up and to the right perpetually. Companies get into trouble when they hire up to meet a demand that stars to erode over time.
So there’s a second, broader balance: All demand peaks if left unprovoked, and opportunistic hires delay the inevitable erosion. With that in mind, our decision becomes less whether to hire another developer, but more about what we’re hiring that developer for — either to generate more revenue or build a better product or both.
Be careful with “both.” Revenue generation and innovation require two different skill sets.
Finally, this maker hiring question shouldn’t be confused with another maker hiring question: Should we bring production in-house? A lot of startups farm out the building of their product to a third party, especially at the beginning. My answer to that question is almost always: Yes, as soon as possible. Bringing production in-house gives us the control we need and the flexibility we’ll want in order to be able to scale at a faster pace.
This is the second and last of our basic need hires — the “sell things” part of business. And this hire is about putting that function into the hands of a professional.
But we don’t hire our first salespeople to sell more product, we hire our first salespeople to develop a systematic sales strategy for our product. We might be really good at throwing our product against a wall and watching it stick, but even if that’s working, we’re leaving money on the table.
So ideally, we want to hire our first salesperson just after the realization of a working product. As for when to hire additional salespeople, it’s important to realize that we don’t just hire a bunch of salespeople and set them loose to sell. We need to think about how we break up their territories — by product line, by location, by customer size, or some combination.
Here’s the rule: When penetration in a single territory gets too deep for the person who owns it, we break the territory into two and give the other half to a new hire, under the tutelage of the original owner. Repeat this until we’ve built a solid sales organization.
Management and Executives
This role is always tricky, especially for young companies. But first things first, there’s a difference between leadership and management. Your company needs leaders right away, managers can wait.
In the beginning, the founder is (or cofounders are) the leader for everything. For hires in any leadership area, much like as it is with sales, we’re hiring to remove that burden from the founder(s). Unlike with sales, and despite conventional wisdom, initial leadership hires don’t have to be an experienced visionary or a strategy guru. For example, a good, strategic-thinking developer, maybe senior, can fill the technology leadership role for a long time.
So be careful that you don’t hand out executive leadership roles too early. Is the CTO you’re about to hire really an experienced CTO? Maybe it’s just a great developer and, since you don’t have any great developers yet, this looks like your CTO.
Here’s the rule: We should always be hiring leadership for one step ahead of where we are today. So if we’re in the early stage, we’ll need to bring in leaders with experience growing a company. If we’re in the growth stage, we’ll need leaders who can stabilize growth. And so on.
On the other hand, managers are growth-triggered hires. These are big company roles, and really shouldn’t happen until the 50–75 employee stage. We know we need a manager when we’ve hired enough individuals in a critical area to allow us to form a team. We’ll need a manager to run the team.
Here’s the rule: When our company is generating revenue but we believe it could be generating a lot more revenue, we need to fill the product role.
At some point between the early stage and the growth stage, the evolution of the product pushes it out of the domain of the CEO or CTO. When this happens, we need someone who is tasked solely with figuring out how the product makes money and grows.
A lot of company leaders wait too long on this role. Product is a relatively new science that uses sales data, performance data, marketing data, and industry and market knowledge to build the best product to grow the company.
I’m a big fan of hiring a product role early in the company lifecycle. This will kick-start a data-driven and quantifiable approach to growth from the beginning.
Support should never be an afterthought, and the days of farming out support to call centers overseas are ending. A good customer support presence can elevate a company, and a poor one can bring it down.
In the beginning, it makes sense to create a support role as soon as it becomes affordable and just before it becomes painful to not have it. The expansion of a support team has its own rhythm as well. We don’t want to hire support to meet peak levels, because when we get off peak, we’ll have a lot of people with nothing to do. So this is a situation where we’re always trying to do more with less.
Here’s the rule: Once we have our minimum support requirements filled, we should avoid hiring more CSRs and instead start looking to technology and automation to allow those minimum resources to handle peak volume without falling over.
There are two approaches for hiring marketing. In some businesses, getting marketing right and fully functional from the launch of the product is mandatory to get to the growth stage. In other businesses, marketing is only there to craft the message and build the brand, and it’s well into the growth stage before a resource is even needed.
So first we need to figure out which kind of business we are.
A lot of this comes down to B2B vs. B2C. In B2C businesses, forward-thinking companies will launch the product and the marketing at the same time, with at least one dedicated marketing resource to build an audience that can turn into customers. In B2B, the sales team was traditionally responsible for building the brand and getting the message out through one-to-one contact.
But the lines between sales and marketing are blurring in B2B. Business buying decisions are starting to look more like personal buying decisions, sometimes with no salesperson in the middle, especially at first contact.
Here’s the rule: If our sales process contains the notion of turning a broader audience into sales prospects, we need a marketing resource. For example: If there is any ad spend going on, it makes sense to hire a marketing resource to create and manage the advertising campaigns.
The growth-triggered hires are those roles we bring on not because we need them to grow, but because we’ve grown to need them.
Now, all of these roles are important to fill from the beginning, but in the beginning, they can usually be filled part-time, on a consultative basis, or with a third-party service, like an accounting firm or legal firm or recruiting firm on retainer.
The question here then becomes when do we hire to bring these roles in-house. And in all cases, here’s the rule: We hire when we want the function to evolve from reactive to proactive.
Human Resources: Any recruiting service, web or human or otherwise, can help find us candidates for our open positions. When we outgrow the ability to take action on the great candidates, we’ll need an HR resource to marshal this process. That same resource should also be able to manage benefits, policy, and the general upkeep and happiness of our workforce.
Finance: From the first days of our company, we should have access to an accounting firm. When our sales contracts start to become more custom, or too voluminous, or when we’re looking to raise money, we’ll want a finance resource at least half time. When we generally get to 50 employees, payroll will be another reason to drive the need to full time.
Legal: Like finance, we’ll want to have a relationship with a legal firm from the beginning. But unless our business has specific legal requirements or risks, we generally don’t need legal on staff until we’re paying the firm more than we’d pay to hire someone.
Administration and Assistants: No slight intended, but in the startup world, these roles are generally considered luxuries. It’s rare that I meet a startup executive who has an assistant where I’ve thought they needed that assistant. As for administration, usually at about 50 employees we’re established enough to have logistical and office tasks that can no longer be shared among the employees. A great Admin makes everyone’s lives easier.
Bear in mind the exact timing to add any of these resources is a decision that can only be made by the executive team. In general, it’s always better to hire a little too late rather than a little too early. But the most important thing is to always hire the right person for the right role, regardless of when we bring them on.