How To Avoid A Train Wreck With Your Startup’s First C-Level Hire
When bringing a senior new hire into your business, there are three things you can do at each stage to increase the chances of success
“I’m so excited,” said Edouard. “He’s going to solve all my problems. He’ll take over half the team, I won’t have to manage him at all, and he’s going to be like the co-founder I never had. He’s going to transform the business.”
That’s a message I’ve heard several times from startup founders. They got their company going by a combination of daring, intellect, and sheer grit. But now things have changed. Their first product has some traction, they’ve raised some money, and they’re ready to get more professional. It’s time to hire in someone senior from the industry, they conclude, who can help turn this into a serious business.
This impulse is valuable, and investors ought to applaud, not criticise, when they hear it. Founder-CEOs of average quality get comfortable having a crew of junior people. They don’t actually want anyone in the company cleverer or more experienced than them. Only the top quartile are humble (and self-aware) enough to risk senior hires. The team at Notion, a top London VC firm, have collected data showing that companies that reach the mythical $1bn ‘unicorn’ valuation tend to add 3–4 new senior people in the year after their first venture round, while those not destined to be unicorns don’t add any, with the result that the proto-unicorns have 77% more years of management experience a year after Series A.
But for founders like Edouard, hiring in your first C-level executive is a risk. It’s a risk not just that the hire won’t turn out to be successful, but that it’ll be a train-wreck. A slow, expensive, painful, heartbreaking train-wreck.
Partly this is because of the endowment effect (the phenomenon in behavioural economics that we value things more highly when we already own them). Partly it’s the sunk cost effect, because it takes more time, effort and cost to bring in a senior person than a junior. And partly it’s because senior hires are more demanding and high-maintenance, and more skilful at managing upwards to an inexperienced CEO. It can take a long time for a founder-CEOs to admit to themselves, let alone to their boards, that the impressive new hire hasn’t worked out.
So what’s the best way to avoid the train wreck? After observing lots of these situations as an investor and a coach, I’ve identified three things that contribute to success at each stage — before hiring, during negotiations, after they’ve started, and once they are up to speed. If you know a CEO who is about to embark on their first C-level hire, it might be kind to share this with them.
Before hiring: make sure you are ready
- Your company needs to be at the right point to get value from a senior hire. In the case of a VP Sales, for instance, you need to have a sellable product before an skilled but expensive can turn it into revenue.
- You’ll need the right infrastructure to support them. Big-company people have lots of support services available for the asking: three interns to work on this project, a conference room for 1pm with sandwiches for six, an assistant to manage their diary and protect their office door from invaders. You can’t replicate these. But you need to be sure you can provide what they need to be happy and functional.
- You will need to be ready for specialisation. As Andrew Chen wisely points out, the best early-stage hires at startups are often T-shaped people: deep in one area, but with a broad range of competences. That’s not how a good C-level hire works. Their years of experience have made them great at one thing, whether it’s HR, running a large tech team, or business development. If you need someone to contribute across the board, hire a smart graduate.
If you need breadth and flexibility, hire a smart graduate instead
During negotiations, establish that there’s a good fit
- To persuade an accomplished senior person with a track record in an established business to take a risk on your company, you need to demonstrate two things: that you’ve made real progress beyond the deck-and-a-dream stage, and that the potential opportunity is huge — or ‘blue ocean’, as Christina Desmarais puts it. You’ll probably want to sell them on the idea of building a legacy. If they’re only here for the stock options, they’ll start taking calls from recruiters the minute things look bad.
- Be aware of adverse selection risk. Senior jobs in big companies bring prestige, money and security. On a strict calculation of present value, those things are worth more than working much longer hours at a startup. So a chunk of the candidates for your C-level job will be applying not because they’re so enthused by your mission, but simply because their current career ain’t going anywhere, or they’re about to get fired. You’ll need rigorous screening, interviewing and referencing to weed them out.
- Manage expectations on both sides. It often works well to have dinner with them and their spouse or partner, and start an honest discussion about the sacrifices involved in joining your business. On your side, you’ll need to up your game as CEO. You’ll have to banish any remaining tendency you have to micromanage, but be sure not to mistake skilful office politics for high performance.
Banish any remaining tendencies you have to micromanaging
After they’ve started, have a structured process ready
- Setting a six-month probationary period may be the worst way to verify that a new senior hire is working out. You don’t need temptations to postpone reflection on what is going well and what is going badly; you need forcing mechanisms to bring that reflection forward. A good approach is to set waypoints at which you will check progress — not regularly, like every month or two, but at increasing intervals. One CEO does a successful reality check after one week, after two more weeks, and after one more month.
- It makes sense to separate knowledge from action — to have a plan for what you hope the new senior hire will know, and what they will have achieved, by each waypoint. The actions are likely to be targets you will already have thought of, like ‘ assess the skills of the tech team within two weeks’, ‘update our roadmap in a month’, ‘redesign our channel strategy in three months’. This knowledge is often more subtle. It can range from the banal (people’s names, how to use our CRM) to the significant (the special needs of customers in our industries). But you and the new hire can agree together a set of targets matched to the waypoints. Althugh it may take the new hire six months to become fully productive, these two types of waypoints will help you tell early on whether things are heading in the right direction — and prompt you to do something about it if not.
- Hold a premortem. Whatever was said during the hiring process, there’s room for extra frankness once the contract has been signed and the person is aboard. It’s often valuable to have a confidential conversation about what might go wrong in the relationship, and to come up with some ideas for solving problems when they emerge. This can be two-way, and shared between the parties.
The classic six-month probationary period is probably the very worst way to verify that a new senior hire is working out
Ensure the relations are right once the new hire is settled
- Your job as the manager of this new hire isn’t over once you have successfully helped them stay in the job for six months and start to work productively. If you’re going to keep them, it will require continued monitoring — not just one-on-ones, which good managers do with all their reports, but also paying particular attention to the special issues facing someone who has taken a big salary cut or made a huge lifestyle changes.
- A good C-level hire can often make a significant contribution to your company strategy. But although it may be tempting to treat someone fifteen years older than you as your mentor, confessor or shrink, it’s not advisable. If they are good, they are likely to receive inbound approaches from competitors or their old employer. Pushing them into a relationship that goes beyond the professional may tempt them to accept one of these approaches. At the very least, separate the two: don’t use the one-on-ones in which you manage their performance as advisory sessions on company strategy or on your own personal growth.
- Use your board as a reality check. If you have venture-capital investors, they are likely to have seen C-level hires in startups several times before. It can be helpful if one or more of your board members chats periodically with the new hire, and gives you a candid assessment of how things are going. Of course, this requires confidence on your part: the paranoid founder will be terrified that the new hire will reveal to the investors that the company is run by an impostor.
The new hire isn’t your mentor, your confessor, your shrink or your dad
To sum up: that first C-level hire is never going to be easy. But if you the advice above — or even just some of it — you can significantly increase the chance that it will work out. And in recruitment fees, lost opportunities, strategic turmoil and frayed relationships, the saving to your company can be immense.
I’m Tim, and I run a seed fund out of London that invests in SAAS, platforms, marketplaces and tools. I’ve backed 50 companies and sat on 19 boards, and I coach Series A and B CEOs introduced by VC firms in Europe, America and Asia. I founded a startup and took it to an IPO on the NASDAQ, and before that worked for The Economist and the Financial Times.
About this publication
This is one in a series of blog posts covering nine of the most important skills I’ve seen in founders who successfully scale their companies. If you’d like to read more of them, please follow.