I used to believe that there were two critical startup skills:
1. Building a great product that has clear product/market fit.
2. Building a sales and marketing machine.
I would argue with my partner at Matrix Partners, Antonio Rodriguez about whether you could get away with just having a great product. Or whether you could take an organization that was spectacular at sales and marketing and sell anything. Ultimately, for most companies, I personally concluded that you’d need both of these skills to be really successful in the B2B world.
In the last two or three years, I’ve witnessed something new: a hiring crisis so severe that it is crippling startup’s abilities to get products built on time, and starving them of the talent they need to market and sell those products. There is an intense skills shortage created by the explosion in startups over the past few years. Demand has drastically outstripped supply. I’m pretty sure that I don’t need to describe this phenomenon as most of my readers are living with this problem day to day.
When I talk with the founders of my portfolio companies, much of the discussion is about hiring, and how hard it is. It’s no longer surprising to hear that as much as 70% of their time is spent on hiring. There are plenty of candidates out there, but finding the right candidates is a huge challenge.
Something important has changed in the recruiting process: the best people are almost never on the market, and you are going to have to develop recruiting processes to find and sell passive candidates. In many cases, it will take months or years of relationship building with these candidates to find the right moment when they are open to considering a change. And closing them takes greater selling efforts than in the past due to the intense competition over the good candidates.
This leads me to believe that there is now a third crucial startup skill that needs to be developed: recruiting. Before 2012, it was usually sufficient to work with outside firms for most recruiting needs until the company became fairly large. In the key tech centers this strategy no longer works, and the successful startups are those that are building in-house recruiting muscles early in their lifecycle.
Unfortunately recruiting is not a skill that is typically taught in college, even at the best business schools. Some VC firms have tried providing their portfolio companies in-house recruiting. Having a senior person from your VC advising and working on a few key exec hires makes a lot of sense. Beyond that, I believe companies are better served developing this muscle internally. At my firm, Matrix Partners, we host intensive recruiting seminars for our portfolio executives to equip them with the skills to build their own highly effective recruiting funnel. As I’ve heard very strong feedback that these sessions have been invaluable, I thought it would be helpful to write this post and share some of the insights.
The Recruiting Funnel
Much like sales and marketing, recruiting is a funnel process that needs attention at the top of the funnel (ToFU), middle of the funnel (MoFU), and at the bottom of the funnel (Selling), as well as in a fourth phase, On-Boarding, after you have successfully hired someone.
Top of the Funnel – Sourcing: the Primary Bottleneck
The hardest part of recruiting is the top of the funnel – Sourcing: finding candidates that possess the right skills and talent. This used to be a lot easier, using job postings, and external recruiters. Today, the chances of finding great developers, marketers, and executives that aren’t already working for another company is extremely low. So startups have to target passive candidates, and go through a sales process to first convince them to have a conversation, and then ultimately to leave their current jobs.
Hiring a full time recruiter in-house
Sourcing is the starting point for building the recruiting muscle. The work needed to build a pipeline has grown dramatically, and as a result I’m finding most startups are better served bringing on a full-time recruiter at a much earlier stage than ever before. In today’s environment, contingent recruiters aren’t working well for anything beyond one or two hires, as demand has way outstripped supply. Using part-time contract recruiters can work, but it’s very hard to find good people and get their undivided attention.
By bringing on your own full-time recruiter, early in your growth, you get total focus on this function.
A full-time recruiter can spend the time needed on research and sourcing, and they become great at selling your company, knowing which companies and web sites work best for sourcing, and identifying which candidate attributes lead to successful outcomes. In many ways it’s like the difference between using a rented sales person and a salesperson who is a full time employee that you have trained, and that stays on the job and builds a long term understanding of how best to build a pipeline and sell in your particular environment. For top-notch recruiters you may need to start working on a full-time contract basis, and then bring them in-house after you’ve both proven yourselves to each other.
The advantage of an in-house recruiter is that they are better positioned to also take on the work of creating a great candidate experience–managing the process which includes scheduling, gathering feedback, getting back to candidates, etc. This frees founders and executives to focus their recruiting energies on networking to find new candidates, as well as qualifying, vetting and selling the best candidates.
CEO involvement is critical
Here’s a great comment from hiring expert, Jordan Burton “I have seen some companies get into trouble when team members think that having an in-house recruiter means they can now “pitch this problem over the fence.” I am really big on telling clients (from CEO on down) that they are all part-time recruiters, and ensuring that the CEO in particular visibly embodies this behavior.”
The recruiter’s job: sourcing, and managing candidate flow through the funnel
Without a doubt the richest source of new candidates are referrals from existing employees. Great talent hangs out with other great talent, and assuming your initial hires are outstanding, they will know others who are similarly talented and likely good cultural fits.
A good recruiter will spend time with existing employees and work through their networks from all their past jobs, supplying lists of people to help jog their memories.
Bounties are another way to incent your employees. However, I’ve found a proactive recruiter and a culture where employees are aligned with the mission and strategy, and are happy–more so than bounties– are your best tools for driving referrals. You never exhaust your internal network – you just have to keep working it.
In addition to the internal network, sourcing will need to look elsewhere. Fortunately we have new tools to help with this search. LinkedIn is one of the most important, but if you’re looking for developers, GitHub, StackOverflow, blogs, Open Source contributions, conference speaker lists, and other similar tools can be even more useful. LinkedIn has shared that only 25% of the workforce is actively looking at any given time, but 85% is willing to talk about a potential new opportunity. This is good news for recruiters looking to reach out and start a conversation.
Building a brand
To aid all of your sourcing efforts and out compete the market, one of the most overlooked but important aspects of recruiting is building a brand that attracts the best talent. I recommend you spend time thinking about what is your brand as experienced by your employees. Why is it a great experience to come and work at your startup? Is it the nature of the work they will do? Is it the importance of your mission to change the world? Is it the wonderful way in which you treat employees, i.e. open communication, meritocracy, equal opportunity, great perks, etc. Or is it the other highly talented people they will have a chance to work with?
Then, think of ways to publicize your brand. Consider publishing a presentation that details your culture (see HubSpot’s culture deck here and Netflix’s deck here.) or a YouTube video that describes what it is like to work at your company (an example from Inflection here, and two more interesting HubSpot examples here and here). Other techniques that I have seen include YouTube videos that show your employees having fun in a way that is worth posting on-line: another HubSpot example. (Apologies for all the HubSpot examples, but this is one company that knows how to do a great job of marketing its brand.)
If this seems like a lot of work, remember this is a funnel that is very similar to your marketing and sales funnel, and the better tools you build the more successful you will be at attracting people into the funnel, and converting them.
Companies with a strong talent brand (as measured by LinkedIn’s Talent Brand Index) see a 43% decrease in cost per hire, and 20% faster rate of hire.
A key part of building an employment brand is the candidate experience. A great candidate experience means that anybody who walks through the door of your company will become a promoter, even when they are rejected. To get this right, most companies need to make changes to their process. This takes effort, but it pays off, as word of mouth will spread about your company being a great place to work.
The importance of a good candidate specification
It is imperative to start the hiring process with a clear idea of what you are looking for. As a CEO you should not allow a position to be posted unless there is a real job description in place. Without this, you may find your team wasting a lot of time in the hiring process trying to figure this out. In the Matrix seminars on recruiting, which loosely follow the recommendations you will find in the book: Who, The A Method for Hiring and the TopGrading methodology, we suggest you start by building a Scorecard. A scorecard is the internal version of an outward job description that includes:
- the mission statement–a short summary of the role
- the specific outcomes the person in role should accomplish
- the competencies the individual must possess to be a fit
Click here to see an example Scorecard. It can also be helpful to add the names of companies where you’d expect to find such a person. You probably have a good idea of of which companies have done a good job hiring the kind of people you are looking for. But, watch out for listing companies like Google, who offer high compensation you can’t compete with.
The scorecard makes sourcing and interviewing much easier, as now you have a clear tool that all interviewers can use to score candidates.
The Middle of the Funnel: Selling and Evaluating
In the past, the middle of the funnel was all about evaluating the candidate. However, in today’s environment, a lot of the candidates you source will be happily employed, and not looking to leave their current jobs. Consequently I recommend you develop a process to keep nurturing and selling passive candidates to get some smaller number of them to the point where they are willing to talk. Often the first conversations will be more about selling them on why they should consider the job, than about interviewing and evaluating them.
During this phase, the recruiter’s job is to schedule execs and others to do the selling and evaluating, collect feedback, and manage communication flow back to the candidates.
Modern recruiting tools: Lever, etc.
At some point, your pipeline of candidates to nurture becomes too large to manage via spreadsheets. At this point, it will be extremely helpful to have a good modern SaaS recruiting tool such as Lever to manage the funnel. Note–we are investors in Lever, so my view is biased. However before making that investment we looked carefully at all the other SaaS recruiting tools and concluded that Lever was the only one that was built around the recognition of this huge change, where almost all of the really important recruits are now passive candidates, who are hard to source, and require a ton of selling work. Other tools appeared to be developed around a different scenario, where there were tons of applicants applying to job postings. As a result of this realization, Lever is equal parts CRM tool and Applicant Tracking tool. The CRM part helps the recruiter research and source passive candidates, and manage nurturing in extended sales cycles. One example of a nice feature is the ability to grab any LinkedIn profile for a prospective candidate and drop it into the system with a single click. Another is the automatic syncing of all external email correspondence to make sure the complete history of interaction with the candidate is known. This is important when there are multiple people that are communicating with the candidate.
If you are sourcing effectively, you will always have a set of interesting people that you come across that won’t be ready to leave their current positions. We recommend these prospects go into a nurturing bucket.
There is a good chance that somewhere down the road, there will be a trigger that makes your top passive candidates open to looking, and you want to be top of mind when that happens.
Nurturing works best when it’s personalized and coming from the hiring manager. It could include emails sent around exciting company milestones, invites to company events, reconnecting for lunches from time to time, etc. This is one of the features you should be looking for in your modern SaaS recruiting tool–it should maintain a CRM-like database of inactive candidates, and give you tools such as reminders to reconnect at regular intervals to maintain these relationships.
Interviewing and evaluating
A key part of the recruiting process is creating a structured interview process that evaluates whether the candidate has the necessary skills and cultural fit to be a good hire. My partner at Matrix, Dana Stalder, has written a blog post on a data-centric approach to interviewing, a specific skill where a lot can be learned from the very best.
Few founders and managers have had any training on the best way to conduct an interview, and fail to ask the questions that get to the heart of whether a candidate possesses the key competencies.
In the Matrix seminars, we spend a lot of time on interviewing and again, we loosely follow The A Method for Hiring, and TopGrading. We discuss how to incorporate three types of interviews into the evaluation process:
- Screening Interview – 30-60 minute phone or in-person screening interview.
- TopGrading Interview – Chronological history of the career, to understand successes, failures, and results achieved by the specific individual. This is typically conducted by the hiring manager and emphasizes diving into the details of what the candidate personally achieved in each of their jobs, particularly around the specific functions that are relevant to the role you are hiring for. Avoid questions like “How would you handle XYZ situation?” which can be answered with theoretical answers that give no insight into whether the individual could actually do those things. Instead focus on what they have actually done in the past, as this is factual and cannot be invented on the fly. Remember, you are looking to uncover demonstrable proof of necessary skills and experience. Without a structured interview process such as TopGrading, there is a risk of candidates spending time talking about topics such as how the company performed, which may have had nothing to do with them, and also of different interviewers introducing accidental biases into their assessments.
- Focused Interviews – Conducted by team members to ensure candidates possess the core competencies. I recommend assigning different topics–based on the outcomes and competencies on your Scorecard–to different employees on the interviewing team. There’s no point having your team ask all the same questions, and by having people stick with their topic area across candidates, they will be better able to calibrate the responses. These interviews might include tests such as getting developers to walk through how they might code a particular problem, or having sales people present your own sales deck to you. Laszlo Bock, Google’s head of People Operations, writes in his book Work Rules! that the best predictor of how individual contributor candidates will perform on a job is a work sample. Giving someone a piece of work, similar to what they’d do on the job, and assessing their performance at it predicts 29% of an employee’s performance, which is higher than the interview or reference checks.
Reference checks are still critical to validating what you discovered during the interview process.
When hiring senior people, I have found that references are far more important than the interview.
Those who are new to hiring can be tempted to cut short the reference checking after a good interview. Experienced recruiters know that is a huge mistake that can have costly repercussions. I can’t tell you how many candidates I’ve interviewed appeared great in the interview, only to find that there was a major flaw through the reference check.
The ideal reference check is from a trusted, and calibrated source in your own network, that you are closer to than is the candidate. (Use LinkedIn to search for overlapping connections.) When this is not possible, we recommend candidates be asked to provide personal references from any of their former bosses that you choose. (If they refuse, this is a major red flag that may indicate they have something to hide, which is something you’ll want to get to the bottom of.)
Knowing how to conduct a reference call is another important skill that is not obvious without some training. It is easy to have the call led by the person giving the reference, and not to cover the detailed validation of their achievements and attributes. This is another area that Matrix focuses attention on during our recruiting seminars. Similar to the advice above for interviewing, we strongly recommend probing the exact details of what the candidate achieved while they were on the job, which gets at factual details, instead of relying on their opinions of the candidate, which can easily be biased by personal friendships. Sometimes references can be reluctant to tell you negative things. One way to get at weaknesses is to ask them to rank the candidate against the best person they’ve ever worked with in that role. If they are not the best person, ask them to tell you what things the candidate would have needed to improve to be the best.
When checking references with people that are not known to you, I have usually found that it is necessary to do more of these to get at the real story. I feel like I know the true story when I am hearing consistent feedback, and no longer learning anything new on each additional call. In cases where you have specific concerns, it’s also extremely valuable to try to get blind references from people that were not on the candidate’s list of references. To get at these, I’ve found a useful technique is to tell the candidate’s reference that it is our policy to always get blind references, and to ask them for introductions to peers that worked alongside of this individual. These are best done at the candidate’s previous employers. Asking this of their current employer could put them at risk.
I also strongly recommend that you take a look at my fellow partner Josh Hannah’s blog post “Executive Hires: The Case for Extreme Referencing.”
Bottom of the Funnel: Selling & Closing
The bottom of the funnel is all about closing the candidates that have made it through the evaluation gauntlet. Frequently we see startups making the mistake of underestimating how much effort is needed to close a candidate. This is particularly true for executive level positions. As in any strong sales process, make sure you understand all of the decision making criteria that your candidate will be using, what they care about most, and where your company stands relative to their other options. Understand if their spouse or significant other plays a role in the decision. If so, consider inviting both out to dinner so you can sell the significant other. For more senior hires, don’t hesitate to use dinners instead of meetings or lunches, as these are a great way to create a relaxed atmosphere that is free of time pressure.
Sarah Nahm, the CEO of Lever, offers a helpful comment: “I’d really encourage founders to strategize about what their winning advantages are and to develop confident playbooks for competitive offers with a) larger cash-rich companies, and b) smaller startups offering high-ownership. All the better if you can train your managers on the same playbook and democratize the skill.“
Don’t be afraid to use your VC’s to help with closing. Their stories of why they chose to invest can be very powerful in the sales process.
Selling isn’t over when your candidate signs your offer letter
As Mark Suster points out in this blog post:”Why recruiting isn’t over when an employee accepts your offer” you enter the most vulnerable period right after a candidate signs your offer letter. That’s when their current employee, and any other firms that they are turning down will turn on their most aggressive attempts to change the candidate’s mind. In particular, for executive hires, watch the date when the candidate will resign from their current company, and consider setting up a big dinner with them and the rest of your management team, and possibly board members that same evening. That way they will go into their resignation meeting more committed, as it would be embarrassing for them to have to cancel the dinner and back out.
Executive recruiting is one area where we usually recommend that our portfolio companies hire a recruiting firm to help.
You still need to actively search your own network, but a strong executive recruiter, despite the cost, can bring talent to the table that you’d likely miss. And they can bring several good candidates to your attention at the same time so you can make comparative assessments. As with any service provider, you’ll want to reference check the individual that you’ll be working with, who is more important to check out than the firm. It’s also useful to get recommendations from your VCs, or friends.
Using your VC’s
Good VC board members can help with several aspects of executive recruiting:
- If they have seen a lot of companies growing through their full lifecycle, they can be very helpful to you as you design your management team, and can usually spot when you need to start the hiring process for your next executive hire well before you’ve seen the pain. That’s important given how long it usually takes to hire an executive (typically you should allow six months).
- They can help you write the job description, and Scorecard, which can be particularly useful for positions that a founder may not yet have experience with.
- They can help figure out the right compensation
- They can help you source candidates from their network
- They can often find a trusted and calibrated reference via their network
- They can help interview candidates
- They can help you sell the candidate on why joining your company is a great idea, and assure them that they are not taking a huge risk in doing so
Once you have put this much energy into recruiting great candidates, it makes sense to invest the time to make them productive as fast as possible. The impact of doing this well cannot be understated. In areas such as sales and development, it can make a dramatic difference to the productivity levels. Similarly for other positions such as customer success where new employees will talk to your customers, it’s also easy to understand the importance of great on-boarding. To read in more depth about onboarding, click here.
It’s no longer enough to be great at developing products that your customers desperately want, and to know how to market, sell, and retain these customers using a repeatable and scalable machine. There is now a third skill you must master, and that is how to build a recruiting machine that can land the best talent in an incredibly tough competitive environment. This is a function that almost every part of the company needs to be involved with to make it work, but it also works best when there is a single person who owns the function. In the early days, it’s more helpful for this person to be a recruiter, not a recruiting manager. But if they can manage other recruiters as they join later on, as well as be an active recruiter in the early days, so much the better.
A key recommendation of this article is that you consider hiring your own in-house recruiter far earlier than you would have done in the past. For many companies the right timing would be as soon as you have raised your Series A round and need to staff up engineering, marketing, sales, etc. For some others, if the Series A round is small and only allows you to hire a small team, it could be after your Series B.
And while I believe hiring an in-house recruiter at an early stage is a must, this doesn’t remove the need for Founders and Execs to stay involved and retain high level ownership of the function. Founders and execs need to become great recruiters themselves. They must understand what it takes to build and cultivate a pipeline of talent, and contribute to building that pipeline. They should also spend time thinking of how they can close that talent, and how to develop the company’s employment brand.
While it is tough for a new founder to think of spending this much time away from the other functions where their passions lie, more experienced founders and execs know that the only way they can build a scalable business is to build a team of A-players that can do most of that work for them.
Thanks to Sarah Nahm, Scott Khanna, Rob Stevens, Philip Wickline, Jordan Burton, Josh Hannah, and Mollie Carter for their input and help on this post.