It is all about hiring — lessons learnt from early stage B2B start-ups

We’ve seen entrepreneurs with great products in great markets who still didn’t manage to grow their start-up into a fast-scaling company, who couldn’t lift their start-up’s real potential and who suffered personally because they didn’t get out of the “Jack of all trades” role.

In those cases — if it’s not the product and market — it’s often the (mis-)hiring that prevents a start-up from taking-off. While it’s not a secret that hiring is one of the most important and difficult tasks any entrepreneur faces (even harder than fundraising), we still see that founders, business angels and investors not always take an orderly hiring approach in early stage companies. The fact that hires and in particular the first hires may “make or break” the start-up is often not taken seriously enough and uncared-for while other topics (CRM tools, pricing, incentive structures, etc.) are discussed prominently.

If funding is limited there sometimes is a spirit of “take what you get as long as the candidate is a good fit in general and available”. However, such opportunistic hires in the early stage have the potential to wreck the start-up.

What can you do? Let’s look at a fictitious example:

Start-up “Game Changing CRM Inc. — GCC Inc.” had a market ready SaaS product, 6 initial customers, it managed to raise some seed and pre-Series A money from business angels and had a remaining run rate of 12–15 months. The goal for the next 12 months was to prove “viable sales and marketing KPIs” — this is what potential Series A investors had told them as their requirement for a potential funding. The two founders Jef and Woz, who are rather technology minded persons, were at this time looking for someone who was able to help to achieve said goal. They knew Blake, a senior sales consultant at Loupon (a deal marketplace) who they thought may be a great fit as Loupon was known as a “sales machine”. They decided to approach Blake and to discuss with him the opportunity at their start-up. Blake talked about his vast outbound sales experience at Loupon and impressed Jef and Woz by his “Always Be Closing” attitude and “Don’t take no for an answer” energy. Blake asked for 5% equity in options and for a salary which was equal to his Loupon salary. The salary was a stretch for Jef and Woz, but they felt that as a sales expert Blake would be the missing piece in their leadership team, and they were proud to have found him with such little effort. Blake was introduced to the major business angel Mike, a former private equity manager. They met for a coffee and Mike agreed that Blake would be the right person. In his first three months at GCC Inc. Blake built up a team of 3 sales cold callers and invested into an outbound sales tool — and started to apply what he called “the Loupon blueprint”. After 6 months Blake and his team had sold a crushing poor number of 7 subscriptions via the outbound sales channel which was the only channel until then. It turned out that the monthly fee customers were willing to pay (around EUR 150) was far too low to allow for a profitable outbound only sale. Blake blamed the founders and the development team for this and argued that they should have come up with more features to justify a higher price and to allow the sales team to address a broader group. Meanwhile the runway had reduced to five months and Mike, the business angel, pushed for more marketing spent to create inbound traction. The founders agreed and tasked Blake to take the lead on that. The relationship between Blake and the founders was rather chilled by then and Blake’s background was not in marketing; however, Jef and Woz had no choice as time was running out. The sales cold callers were released to free up money for the marketing spent; the founders focused on fundraising. The remaining 5 months passed and neither the traction picked up nor did the founders find new investors. Blake and all employees had to leave. Since then the two founders ran the company cash break-even but never managed to get on a proper growth track. — and they all lived not so happily ever after.

Let’s assume GCC Inc. had a Pipedrive like product and the story played in the early 2010s, i.e. product and market weren’t the issue.

So, what was the problem? I firmly believe that Jef and Woz made a mistake by not applying a well-thought-out hiring process. As an entrepreneur it may be the first time that you’re hiring someone at all or at least someone that important. You shouldn’t take this task easy and don’t let yourself fool by easy catches.

Here are my 2 cents what I believe are often underestimated components of a well-thought-out hiring process. Note that, of course, there are more crucial components and there are some very good and very professional sources out there (blogs and books — e.g. “Who” by Geoff Smart and Randy Street) you should read, and which describe the hiring process very professionally. The following is my non-professional observation and highlights some particular learning only.

#Fill the pipeline. You only get the best when you’re attractive to the best. This is hard, in particular for early stage start-ups with no apparent wins yet. And there is no patent remedy. However, a good HR pipeline is like having enough fuel in your car — you can step on the gas when you need to accelerate. Recruiting is like a sales process and you should see it as a function of your organization. You should always be hiring. No matter where you are and what you do — at parties, on holidays, on LinkedIn, at meetups, always. And you should not be too secretive. Talk about your vision and strategy which has to be very clear and compelling. You’ll only get the best if it becomes a desire for the best to be part of your story. As a side effect you’ll get feedback from many smart people on your vision. Jef and Woz spoke to Blake only. I am quite sure that if they would have spoken to others as well Blake’s shortcomings would have become clear to them.

#Know your company culture. Make sure you’re able to describe the culture of your start-up. I think you should even spell it out on a piece of paper. Talk about the culture. A great culture (flat hierarchies, ownership of the individual contribution, win as a team, hungry but humble, lifestyle perks, etc.) will attract good people and draw away not so good people. Potential hires must unconditionally fit into your culture. Never ever compromise on this. If Jef and Woz would have considered this, they may not have hired Blake in the first place and at least would have dismissed him after he started to blame the lack of his own success on the product team.

#Know what you expect from a hire. Make sure you’re able to exactly describe what the role is you’re looking for and what you expect your new hire to achieve. You should be as specific as possible and have your potential hire to commit on these expectations. And this may mean some groundwork for you. Jeff and Woz should have talked to potential Series A investors to exactly understand what they meant by “viable sales and marketing KPIs”. I am pretty sure they would have learned that investors would like to see KPIs from more than one channel and that the inbound channel should be prominent given the rather low pricing of GCC Inc.’s product. Blake would not have been able to credibly commit on the inbound channel expectation — which would have meant the end of the GCC Inc./Blake story and may have saved GCC Inc. from crashing.

#Do the interviewing right. Be prepared. Have an interview guideline and know what you want to learn from the candidate. If you do not have the domain expertise yourself and if your investors / business angels don’t have it make sure you get some expert on board. Jef and Woz had no idea about sales, neither did their business angel Mike. They only asked superficial questions and they were unable to properly assess Blake’s polished answers. If they had asked someone with domain knowledge (e.g. CSO of a later stage start-up) to join an interview or at least to help them with an interview guideline they would have learned much more about Blake. At Senovo two of the approx. 100 questions we have on our “Sales Interview Questionnaire” are the following: “What deal sizes have you sold to, on average and rage? How did you generate leads?”. These simple questions would have unmasked that Blake was just not a right fit for GCC Inc.

#Go the extra mile. You should always go the extra mile and make sure that you’ve found the best person for doing the job you need done and who fits into your start-up’s culture. Your early hires set the tone, they are building your company. If you compromise you lose money which you can’t afford. The bitterness of poor quality remains long after the sweetness of low price is forgotten.

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We're a European early stage VC Fund focused on B2B SaaS…