David Gardner is a serial entrepreneur and angel investor based in Cary. He sold ProviderLink to Compuware for $12 million in 2006. Four years later, he sold Peopleclick to a New York private equity firm for $100 million. Among his portfolio of 25 local startups are FilterEasy, Stealz, Validic, ArchiveSocial, FotoSwipe and Fortnight Brewing. He had two exits in 2013: Magnus Health (after it raised a round) and ChannelAdvisor.
Gardner wrote The Startup Hats over Christmas 2013 and publishes it as an e-book this week. In the meantime, he shares excerpts of each chapter with ExitEvent readers in 13 installments. Here’s part seven.
In my youth, I worked for a while at a staffing agency. It was just a placeholder job for me at the time and I had no idea how extremely valuable that experience was going to be for my career as an entrepreneur.
This may be a hat you didn’t expect to see in the entrepreneur’s wardrobe, but I assure you that this is one of the most important chapters in this book. In fact, if your venture is very successful, you may even find that you are spending the majority of your day wearing this hat.
As an entrepreneur, I was always amazed at how much time I spent each day finding, vetting, and hiring superstars who could do their particular job better than me. This is how you build a company beyond its humble beginnings.
After your product launch and first revenue, as things really get going, you’ll start to detect a subtle shift in your business. The emphasis starts to gravitate away from what you can do as a single individual and it moves towards what you can inspire and lead others to do. But before you can lead, you have to successfully recruit. Of all the entrepreneur’s hats, this one is the least appreciated.
Hire superstars—it’s worth it.
At one point early in my career, I had nearly 200 software developers working for me at one of my companies. I had a reputation for paying my developers well, but that’s not the whole story. When the company was just starting to take off, I discovered something extremely important. As I assigned projects and reviewed deliverables over time, I discovered that the productivity of my few coding “superstars” was up to three or four times greater than that of my typical coder. It became apparent to me that paying my superstars a third more salary was a great value and no-brain-required decision.
The superstar phenomenon seems to hold true across all disciplines. It is a commonly-heard statistic that in sales, 80 percent of a company’s revenue is generated by only 20 percent of its sales team. A superstar is someone who has the full package—the drive, experience, intelligence, work ethic, attitude and desire to really make a difference. A lot of personal self esteem is tied to how well they perform at the job and they are always on a mission. If you have a small startup and you’ve found even one or two superstars, then you are extremely fortunate.
Some of the largest and fastest growing companies today were built using superstar hiring policies. Managers are required to fire up to five percent of their lowest performing staff each year to create openings for potential new superstar hires. This may sound ruthless, but the logic is sound. Mediocre hires are the most common hires made, but tragically, they are also the worst possible hire you can make. Why? Because, you will fire a bad hire and get another chance at bat, but mediocre hires just hang around doing just enough; not really good enough to keep, but not bad enough to fire either. They are blocking the opening for that superstar that could be working for you.
Good recruiting is extremely important because, more than your idea, business model, or technology, the success of your venture is dependent on the people you choose to hire. They are the company. Your venture will be no more exceptional than the people who comprise it.
You are ultimately responsible for all of your company’s successes and failures, regardless of which staff person did what. Whatever good they accomplish and whatever failures they cause, it is all on you because ultimately you hired them.
Why first-timers struggle with recruiting
Almost all of the first-time entrepreneurs I work with struggle with the recruiting hat. Life in a startup is usually governed by “go as fast as you can”, but when it comes to hiring, I encourage teams to slow down, take your time, interview several candidates meticulously, and make no hire rather than a mediocre one.
As I’ve pointed out before, we entrepreneurs tend to be optimists. We expect things to go well and for new hires to just work out. In addition to this, we are always busier than a mosquito at a nudist camp. Sometime you may think that any warm body to carry some of the load would be better than what you are currently up against.
Don’t be lured into quick easy solutions.
Most people aren’t superstars and a good number of them can even make you regret ever starting your venture. Making a bad hire is always painful, but it is especially costly in a startup where founders are often doing most of the hiring and training. Your personal lost productivity is usually the greatest casualty of a poor hiring decision.
What would happen if your startup was made up entirely of superstars? Is that even possible? I believe that it is, but it requires a lot of work under the recruiter’s hat and the stomach to let poor and mediocre hires go. Once you’ve got your product, pitch, and process down, it’s all about the recruiting. The only way to increase the caliber of your hires is to increase the caliber of your hiring practices.
How to recruit superstars
OK, I’ve probably beat the importance of recruiting into your head enough. So how do you become a superstar recruiter? Recruiting effectively is a lot like sales, only harder because you not only have to find and vet the best candidates, you then have to sell them on why they should come work for your risky little startup. That sounds like a good outline for the rest of this chapter; 1) finding, 2) vetting and 3) hiring superstars.
When it comes to finding superstars, if you don’t start recruiting until you need someone, then you are probably too late. Recruiting is something an entrepreneur is always doing. The way to get more sales through to the bottom of your pipeline is to start with more prospects in the top of your funnel. This same rule applies to recruiting. Successful entrepreneurs develop superstar radar. Everywhere we go, we are on the lookout for people who are at the top of their game; star performers in their current position.
Superstars are rarely unemployed. They don’t read the classifieds or job posts on craigslist. They are precious assets that have to be lured away from less satisfying situations, less lucrative positions and less appreciative employers.
It’s time to add another tab to that spreadsheet called “possible superstars”. Every time you meet someone who might be a superstar, make sure to get contact information and to stay in touch. Send them company updates demonstrating what a great ground floor opportunity your startup is. Don’t go for a quick close. Just plant the seed and keep watering it periodically.
I would always try to keep a few dozen names on my list of potential superstars. They were my candidates in the wings and my first go-to list when a position on stage was created or came available.
Recruiting takes effort and forethought. Attend entrepreneurial and professional events. Collect business cards from people who impress you. Write down the name of that exceptional waiter. If you find yourself talking to a group of sales people, ask them, “Who is the top sales person in your company?” Who’s the best software engineer you’ve ever worked with; best marketer, book keeper, administrator, etc.?
I also maintain an email distribution list of people I know who tend to be in the know like attorneys, CPAs, accountants, bankers, professors, business journal reporters, angel investors, VC, and those guys who run startup incubators and accelerators. Whenever one of my companies is in the market for a superstar, the job descriptions get sent out to my network. I always get a few potential candidates from someone who knows someone.
As with all prospecting, remember to always ask for a referral. If you contact someone who is not available or ready to jump ship, ask that person to refer you to someone else that they know and respect who might be interested in your position. Some of my best superstars were actually references for another candidate I was vetting.
If you are an entrepreneur, then you are always recruiting. I remember at one of my companies, that I sat aside a couple of hours every afternoon to build my recruiting network and candidate pool. Every week, I’d try to take at least one known superstar to lunch and just talk. I’d tell him or her about how much fun we were having at my company and how one day we would be working together. I knew that if I did not carve out and schedule that time on my calendar, then I’d get busy and always have an excuse to be doing something else.
The first secret to hiring superstars is to recruit them before you need them. If you wait until you need a position filled to start recruiting, then the probability of making a knee jerk bad hire will go up exponentially.
Ask the right questions to find your superstar
OK, you’ve built your recruiting network and have a decent pool of potential candidates. Now how do you know which ones are really superstars?
This is where the science and psychology of predictive performance comes into play. More than any other factor, the single best predictor of future performance is past performance. Spend a lot of time really digging into what a candidate did at each previous job. Resumes are generally evasive and inflated, so force your candidates to give you objective information.
“So what percent of a typical day at that job did you spend actually coding?”
“Of the ten sales executives there, where did you rank in terms of new revenue generated?”
“Did you always make your quota?”
I’ve had to fire a number of employees that interviewed wonderfully. The problem was this. I simply was not skilled enough as an interviewer to create a clear picture of their past experience and attributes. Interviewing is hard work. Stay focused on your goals and don’t let candidates off the hook until you feel that you have really gotten to an objective quantifiable answer. Some candidates, especially sales executives, can be very evasive.
Here’s an example of a skilled interviewer refusing to let a customer support candidate dodge a question.
Interviewer: So you worked as a customer support representative at that company?
Candidate: Oh yes, that was my responsibility.
Interviewer: Was that your only responsibility?
Candidate: Well I was a team player who did whatever I was asked to do.
Interviewer: So what other responsibilities did you have?
Candidate: I did some QA, management and administrative work as well?
Interviewer: So what percentage of a typical day were you actually on a support call?
Candidate: Well actually, I just took a call if the regular support guys were all busy.
Interviewer: Did you receive any customer support training?
Candidate: No, only the customer support team had to be trained.
There are other telling questions you should always include. Most established companies have some formal performance evaluation in place. This is a good historical place to drill down: Tell me about your last employee evaluation? Did you agree with it? What were you praised most for? What areas for improvement were suggested? Do you think the reviewer was being fair? How did it compare to the previous assessment? Did you make any changes personally after the assessment?
Besides having the particular skills and experience you are looking for, there are several other important attributes you will need to assess. A number of attributes have to line up to create a superstar; intelligence, experience, manageability, integrity, desire, creativity, work ethic, etc. A very smart and talented person won’t contribute much unless they also have the drive to apply those skills.
To use a car analogy, you need a big motor and you need some gas in the tank. Until you get really good at interviewing, you may want to keep a list of telling questions in front of you as you interview. I like to organize my questions around the attribute that I’m attempting to assess.
Let’s start with manageability. In this chapter of the Startup Hats, I go on to discuss many more hiring attributes you need to assess when interviewing potential superstars. I provide telling questions that you can use to ascertain each character trait. I also cover the importance of reference checking and how to get a reference to tell you anything you want to know about a candidate.
Finally, I round this chapter out by discussing how to get a superstar to leave a well-paying secure job and come to work for your risky start up. The book is now available. Buy it here on Amazon.
