The talent question: how to think about building and hiring in early growth-stage businesses

It’s not a stretch to suggest that for many start-ups, building their teams as they grow is one of — if not the — top priority. And that priority doesn’t ever go away. In fact, the more successful you are, the more investment you raise, the more challenging talent management and building the right team becomes. It is a topic that all of our portfolio company founders have faced at one point or another in their own growth journey. Our Canada-focused Partner Laura Lenz sat down with our Talent Director Jenny do Forno to really dive into some of the questions Laura has heard from founders she’s worked with over the last 15 years.

LAURA LENZ: Jenny, let’s start with a basic but important question: as a general rule, as a startup founder should I be hiring someone who I can see growing into the role my company will eventually need, or should I look for someone who fills my immediate needs for the next year or two?

JENNY DO FORNO: Experience has taught me that the most successful founders will focus on finding people who fit the business’s immediate needs over the coming 12 to 18 months. At the early stages of company growth, it’s about survival, or making it to the next funding round, not to IPO or exit. If you find someone who fits your immediate need and has the potential to support your more medium term needs too, that’s a bonus, but don’t make it your priority.

LL: An early growth-stage company might be hiring 50 or 75 people in a year. How do you set up the appropriate hiring process to match that level of recruitment?

JDF: When you get to that sort of level it’s all about scale and process. You want to define and implement a repeatable program that works. By the time you get to the point where you are hiring 10 people a year you should strongly consider bringing on an in-house recruiter — someone who can help build that repeatable process and who is also steeped in your company culture. And at the 50–75 hires per year mark, you probably have two internal recruiters. Don’t shy away from it — the economics are almost always better, and if you get the right person, the results will be better too.

Remember, at the 50–75 new hires per year level you are not ad-hoc hiring anymore. You need things you may not have had before — job descriptions, a formal compensation and performance review process (to read more about compensation, check out these insights from Jenny).You need to have your finger on the pulse of fair market compensation and you also need to make sure that your team members who are doing the hiring have some level of training in how to interview candidates effectively. Part of the role in recruiting top talent is in understanding how to ‘sell’ the opportunity to the people you believe are a great fit. It’s not always an easy decision for someone to join a start-up.

And at some point, you may also want to look at bringing in a third-party recruiter to help you accelerate through certain periods where you have a big hiring push. They can come in useful when timeframes are tight or if, for example, you are looking for specific and competitive skillsets.

LL: What do you think about having the founder/ CEO meet with every candidate?

JDF: I would love it for CEOs to meet everyone that an organization hires, because it sets a great tone and gives the CEO a pulse for what’s happening. A meeting with the CEO/ founder also creates energy in the process. But realistically, it is not scalable. If you rely on the CEO to make the final decision on all candidates, your hiring process will become a bottleneck very quickly. A strong CEO will have directly hired functional leaders that she trusts implicitly. Demonstrating that trust by empowering your functional leaders to make strong hires is an important part of the growth journey. For many founders that’s tricky, but it is also critical if you plan to grow a scalable, high-functioning business.

As a company grows, hiring becomes a more structured, more mature function. In the early days, the CEO and senior leadership often try to be involved in every hire; later on, they don’t. They simply can’t. Large scale hiring needs to be supported by a more material company culture, and you rely on that culture to establish the traits you’re looking to see in new hires. Getting the first 10 hires right is critical because they are the cultural standard-bearers. Those 10 hire the next 100, ideally selecting people who will contribute to the team and the culture in a positive way.

LL: Most founders, by their nature, wear a number of functional hats in the business, but usually there’s one where they really stand out. If a founder is strong in a certain area (product, say), as the company scales, when is the right time to let that go and hire a Head of Product?

JDF: The answer to this question is going to be different for every founder and will depend on their specific area of expertise. Experience would suggest that a CEO will have enough on her plate in setting the vision for the business and ensuring the company delivers on that vision, across the board. So, adding a specific function to that task will inevitably be challenging. But it doesn’t mean it can’t — or shouldn’t — be done. But if a founder is that tied to a functional area, maybe there’s another discussion to be had around whether they should in fact be bringing in (or appointing an existing co-founder?) to be the CEO.

Or as a less radical alternative, it may be worth exploring options around hiring a second-in-command in the area where the founder is strongest whose explicit role is to be a first class implementer of the founder’s vision.

It’s a very challenging one because the real question may not be so much around a founder maintaining responsibility for a specialist area than it is about coaching a founder to let go of things and stop micro-managing, as the company starts to scale.

LL: What about when a company simply can’t find the right person for a role?

JDF: Well, if you’ve got a strong job spec and a competitive compensation package, I don’t accept that candidates are simply unfindable; they do exist, they’re out there. If you are finding great candidates but they aren’t accepting the role, that’s a different issue. If that’s the case, maybe you have to ask if there’s something in the company that’s holding you back from landing the candidates. Perhaps the team is just not selling it, getting people excited about the opportunity or about the salary.

If a company finds itself unable to fill a role, I always suggest they go back and look through their process, figure out where the biggest gap is, where they haven’t paid attention. Look at the job spec with fresh eyes: the reporting lines, the compensation, the benefits, the profile of person you want. Question it all. Know that candidates are out there — you just have to put in a lot of work to find them and convince them to join you!

LL: OK, so if we push this question a bit further, how do we retain talent when people are looking at global opportunities, not local anymore. There is a significant delta in compensation and this is tough to compete with.

I think Melissa Nightingale put it succinctly in a recent interview with Betakit when she said (of Canadian salaries):

“Part of competing in a global landscape means you have to be competitive.

I don’t want to be your farm team. I don’t want to be your cheap talent because I’m paid in Canadian dollars.”

If we want to compete on a global stage, we need to take a look at what we are doing to attract top talent. Part of that will be paying competitive salaries. Canadian companies need to think bigger and bolder, including their talent strategy.

Of course, people work for a lot of things beyond compensation. Take a long hard look at your brand, your total rewards, the values in the business, feedback from exit interviews. All of those things add up to make somewhere a compelling place to work. Before blaming the ‘competitive’ global market I think it pays to look inward, first. The best founders know this is hard, committed, but worthwhile work.

LL: This is a tough one for a lot of founders, but how do you let an employee go that’s been with the company since the beginning?

JDF: That’s one of the hardest questions and situations that founders encounter. I haven’t spoken to a founder yet who doesn’t have a story about it, because it’s natural in the evolution of a company. One thing that founders have to get comfortable with is the idea that, as a general concept, it is not a bad outcome to outgrow an employee. It’s a natural outcome; some will grow with you, others will not. Embracing that reality informs how you deal with having to cut ties on a personal level.

It’s important for employees to understand this too. Build a culture where people know and understand from the outset that as you grow as a company there will be different needs at different stages, some that you might not even be able to anticipate right now. As the company grows, its needs change. People usually know if they are no longer a good fit in a company. Treat them fairly and they’ll remember it.

LL: Often we recruit from our own networks. But how do we make sure we’re recruiting more diverse candidates?

JDF: As a general rule, I encourage everyone to expand their networks, all the time, not just when you are recruiting. There are countless organizations supporting under-represented individuals in just about every sector. Seek out these groups and share opportunities as they arise in your business. Look at your current network to see if it as homogeneous as you think it might be (it usually is). Then seek out introductions or groups who can help facilitate a move outside of your traditional go-to comfort zone.

LL: What are some of the problems startups encounter when they bring on a handful or dozen employees at the same time? And when you’re growing from a handful to hundreds, what are the growing pains?

JDF: We need be careful not to generalize, but there are a few numbers we typically see as inflection points in the life of a startup: 50 and 100–150.

When you get to 50 people process becomes important. Prior to 50 employees, a Founder/ CEO typically has a direct relationship with the individual carrying out a specific function. At this size it is relatively easy to maintain a consistent culture, but as you reach 50 people you’ll start to find a need to formalize how the growth engine runs, without the CEO involved at every turn.

The second critical number is usually 100–150, and this is based on something called ‘Dunbar’s number’ — a concept that suggests a personal span of influence exists up to 150 people, and beyond that, influence doesn’t function in the same way. In the early days, a company is heavily led by the personality of the CEO. At 100–150, that has its challenges. The CEO is not walking around, motivating everyone to stay committed to the organization. This is the point at which a company needs a strong senior leadership team that embodies the culture, vision, and clearly articulated values of the company.

These two big tipping points usually happen when you look at Series A, B, and C. They are real cultural shifts. I always encourage founders who are approaching these numbers to reflect on what the company needs, and to start to put the right structures in place that will take the company to the next stage of growth.

LL: So interesting. But we may need to rethink these numbers in the remote work environment, depending on where we end up with the future of work?

This is an interesting and valid point. I’m not sure anyone has studied the impact of fully remote workforces on culture. It will be fascinating to watch it unfold and to see whether these traditional inflection points differ in a remote world. I’m really excited to see how this all plays out. And it is a privilege to be working with many of our own portfolio companies as they navigate these uncharted waters.

Originally published at https://medium.com on May 26, 2021.