A new survey says there’s almost a one in four chance your management team will end up cratering your startup through sheer lack of relevant abilities. That ought to chill the bones of every startup CEO.
CB Insights surveyed 156 companies to find the Top 20 reasons why startups failed. The top two reasons were no surprise — the new companies got the product wrong product or were undercapitalized and ran out of cash.
But, No. 3 on the list was hiring the wrong team. Having a mismatch of skills with what the market demands from a new entrant caused 23 percent of the startups surveyed to fail.
That can mean anything from hiring an under-motivated team to individuals with the wrong skills. It can even mean that those team members weren’t willing or able to get on the same page with the founder’s vision.
However it’s interpreted, company builders need to put process over personal style and follow 10 steps to hire the right team:
Work with a recruiter.
Good recruiters typically charge 25 percent of first year salary for the candidate hired, but their experience is especially helpful for start-ups not used to hiring key personnel. Encourage your recruiter to spend time in your office, soaking up the culture of your team to understand the right professional and cultural fit. That will give them a great gut feeling for who will best succeed.
Hire a diverse team.
When hiring staff, it’s crucial to ensure diversity. It’s not only the right thing to do, it boosts profits too. Research from McKinsey & Company reveals that firms in the top quartile for racial diversity are 35 percent likelier to have better financial results while those in the top quartile for gender diversity are 15 percent likelier to have stronger performance compared to average companies. Hiring people like yourself can be more comfortable but a diverse team will be more productive.
Hire for domain expertise.
Having staff with a deep understanding of a particular industry or a certain technology is vital. For example, if you’re building a fintech company that wants to disrupt retail banking, hire an expert who has worked extensively in that field. Someone with 20 years of specialized experience can help challenge assumptions and shore up any shortcomings among company founders. Use an advisor, investor or recruiter who can ask the right questions to hire people in areas outside your area of expertise.
Ask candidates about their secondary expertise.
Startups lack the deep bench of talent that larger firms have, so secondary skills matter. Consider candidates with multiple degrees, certificates in another field or experience working in a variety of settings. Startups need a minimum level of expertise in a large array of skills. Finding employees with valuable secondary skills can help solve problems tomorrow that you might not even contemplate today.
Ask about character.
It’s vital for startups to hire people with integrity and character and not just a strong resume. Certain characteristics produce outperformance, such as grit, perseverance and resilience. Ask probing questions to reveal character traits like integrity, such as, “Tell me the most ethically sensitive situation you encountered at work and what did you do about it? And, how did you feel about that?” Answers will reveal whether the person even has an awareness of ethics and can address those issues without alienating others.
Ask complex questions.
Ask the unexpected, such as a math question, to reveal work behavior patterns. Getting the question correct doesn’t matter, it’s about how they think and behave: Do they ask questions or incorrectly assume they cannot ask questions? Do they approach the question logically? Do they demonstrate skills? If so, they might do the same when facing a complex problem at work. Asking a candidate to do something or share what they have done reveals a great deal about how they interact with others and what thought processes and trade-offs they make to get the job done.
Test communication skills.
If you are hiring an expert, such as a computer programmer or a lawyer, ask them to explain a particularly complex concept using everyday language that a non-expert can grasp without using jargon. Being able to talk to people such as customers and clients without appearing arrogant is vital. Someone with a true command of a subject is able to explain it in simple terms.
Try before you buy.
Choosing from the final two or three candidates is a lot easier if you can work with them for a month, or if possible, three months. Ask potential employees if they would start as consultants—it’s an approach that can save a lot of headaches in the long run.
Consider the cultural fit.
Have an honest discussion about the company’s culture and what the new employee wants in a job. Are the expected work hours going to fit their lifestyle? Is the vacation schedule OK? Is the mix of salary and other compensation appropriate? Would they really rather work at another company or in another field? Having a frank discussion can head off making a poor hiring decision. As a hiring manager with over 150 hires at Google, I looked to hire “true believers”—people that would have killer execution because their passion for the mission of the company wouldn’t allow anything less.
Check secondary references.
References provided by candidates are unlikely to be negative, so ask for a background check waiver that allows you to talk to secondary references, such as mutual connections on LinkedIn, who may give you honest insight on how the candidate really performs.
Beware of leaning on perks.
The best candidates are excited by the team and the challenge. If you need to rely on crazy perks — free lunches, laundry service, gym memberships, etc., you may find those same employees become entirely demotivated if you go through lean times and need to cut back. You don’t want your best talent to exit stage left right when they’re most needed.
Hiring the right person at a startup is the difference between success and failure — 46 percent of employees will fail within 18 months of being hired and only 19 percent are deemed an unequivocal success, according to a study by Leadership IQ. The reason new hires fail is not because they don’t have the right professional experience, it’s because they cannot accept feedback (26 percent), are unable to manage emotions (23 percent), don’t having the motivation to excel (17 percent) or they simply have the wrong temperament (15 percent).
All that suggests that it’s important to get the interview right. Finally, if you do end up hiring the wrong person, move them out before they become destructive to your culture at work. There’s nothing more important at a startup than hiring the right talent.