Venture Capitalist Advice: Startups Need To Hire A Recruiter...Now

Venture Capitalist Advice: Startups Need To Hire A Recruiter...Now
Jeff Bussgang is a former entrepreneur turned venture capitalist at Flybridge Capital Partners in Boston

The unemployment rate in America is hovering around 9%. But if you are a competent engineer, sales executive, online marketer or general manager in Silicon Valley, NYC, Boston, or other startup hotspots, the unemployment rate is 0%.
The talent market has gotten as competitive and aggressive as I have ever seen in the last 20 years. CNN recently reported that 40% of the 130,000 job openings in Silicon Valley are for software engineers. Senior executives have never been harder to secure. That's why, even though it flies in the face of conventional wisdom, I'm advocating that all my portfolio companies hire recruiters when they are trying to fill senior or key positions. Immediately.
Typically, when a young company gets financing and begins to hire, they seek to leverage the network of the founding team and their investors. This network provides some valuable leads and perhaps a few hires. Leveraging existing networks has greater benefits than simply cost savings and convenience. Teams that have worked together in the past simpy are well-positioned to out-execute those that haven't due to their common history, language and relationships.
I have read studies that show that one of the factors that correlates highly for success in a startup is if the team has worked together and made money together in a previous startup. But tapping those informal networks alone doesn't scale. And reacting to inbound people flow generates an adverse selection bias - the best people are not looking, so they will never contact you and respond to your job posting.
As an entrepreneur, I was initially very skeptical of fast-talking, expensive recruiters. I thought hiring them represented a personal failure on my part as an entrepreneur. After all, it was my job to secure the best and brightest talent through my own efforts and my own network. But my years of recruiting have taught me that startup CEOs are at a distinct competitive disadvantage if they don't get outside help for recruiting.

Here are the top five reasons why:
1) You Never Have Enough Proactive Time. As an entrepreneur, you are always battling dividing your efforts into proactive time (where you direct the activities through your own energy) versus reactive time (where you are reacting to people and forces around you). With the inflow of real-time information and people coming at you from all sides and demanding your attention (employees, investors, customers, etc), it's hard to find enough proactive time in the day. Recruiting is a proactive exercise. It requires effort and energy from the entrepreneur to generate candidate flow, meet candidates, vet them, check references. It is therefore important to have an outside force push you to react to candidates and help you prioritize the recruiting effort, just as your VP Sales is pushing you to prioritize sales and your VP Marketing is pushing you to prioritize marketing.
2) Hiring Inexperience. Most entrepreneurs are first time CEOs or even second time CEOs who simply do not have a lot of experience hiring, particularly hiring the particular executives they're hiring for (Try this exercise - ask your favorite CEO/entrepreneur how many times they've hired a CFO. Most never have but even if they've done it once or twice in the past, are they really now an expert at it?). Like anything else, hiring is a science. A recruiting friend of mine likes to say, "interviews are inquisitions, not discussions". Too many entrepreneurs don't actually know how to interview well. Further, they're not experienced at assessing their current human capital needs, analyzing the gaps of management team members, and then understanding the market and how to fill the gaps. Good recruiters are invaluable in this regard.
3) Shallow reference checking. Busy entrepreneurs and busy VCs typically do cursory reference checking when making even senior hires. They allow themselves to be swayed by their own conviction, let the candidates spoon feed them their top fans from past jobs and ignore the opportunity to push for a deep understanding of candidates' histories and claims. When I make an investment in a company, I typically do 8-10 reference checks and get a wide variety of perspectives from people who have worked with the entrepreneur in the past and seen them in a range of different situations. It's hard to have the discipline to replicate this thoroughness when making a senior hire, particularly when trying to move quickly in a competitive hiring market (see "You Never Have Enough Proactive Time" above).
4) Quarterbacking the Selling Process. Many hiring managers don't realize that the due diligence process for a candidate is as thorough, if not more so, than your due diligence on them. The best candidates have choices and are sought after. Even though you are deciding whether to "buy" over the course of a series of interviews, you need to be in a position to sell every step of the way. "Everyone's trying to be the coolest place to work," observed one Stanford junior who is being barraged with job opportunities. Recruiters can be very helpful in quarterbacking the selling process - proactively surfacing objections and handling them with data and follow-up conversations, linking candidates to the right people at the right time in the process.
5) Focus on closing. Closing candidates in this competitive a market is very hard. counter-offers, compressed timeframes and personal considerations all get in the way of smooth closes. Again, if you don't have alot of proactive time available to you (and who does?!), there's great benefit to having a focused closer.
Further, I have found having an intermediary helps tremendously with the negotiations. A candidate will be unafraid to tell a recruiter what it takes to get the deal done, and a tough back and forth with the help of an intermediary can avoid bad feelings afterwards between two principals that will need to work together as a team when the dust settles. Too often I hear entrepreneurs say, "I'll work my network for a few weeks and then we'll hire a recruiter."
Many VCs are over-confident about their own recruiting prowess and will tell entrepreneurs to wait until they talk to their partners and surface a few great candidates from their network. The problem, of course, is that everyone gets busy and distracted. A few weeks turns into a few months, a few candidates get turned up and interviewed but then discarded, and finally when the network comes up dry, the group reconvenes and decides to hire a recruiter. Now the recruiters need to be selected, interviewed, reference checked, negotitated with and ramped up - causing more delay. By the time you get around to getting the recruiter ramped up, the board and CEO feel frustrated that they are already behind.
To be clear, not all recruiters are created equal and some are a waste of time and money. But if you can find a good one, don't let them go. Paul English, cofounder of Kayak, is a truly gifted recruiter and there has been a lot written about his approach to hiring. If you can be that exceptional, perhaps you don't need a recruiter. And, believe me, the price you pay for these folks feels exorbitant, particularly if you are in the scrappy, lean start-up phase of development.
My bottom line advice is to just bite the bullet and hire a recruiter now. The difference will cost you an incremental $50-100k, but everyone knows hiring an "A" has a massive positive impact as compared to a "B" - and that impact is compounded if it can be achieved 3-6 months sooner.

12 keys to creating long-term success for your organization by putting meaningful measures on strategic activities

The most common performance measurements in organizations are traditional financial reports, yet these numbers reflect decisions made months, if not years, before. While it is important to track financials, they only keep score of how well decisions were made in the past. A pro-active leader focuses on measuring strategic items that will create positive results months and years in the future. For example, continuous development and sales of new products may be a crucial strategy of a high-tech company. An appropriate measure might be the percentage of sales generated by products developed in the last 12 months.

Effective organizations have strategic plans with specific strategies that help accomplish their missions. Those who understand the Continuous Improvement process realize that "you can't control what you don't measure," and according to CEO Neal Keefer, "you probably won't improve what you don't measure." 'This implies that successfully implementing a strategic plan requires measurable strategies with frequent reviews. Yet strategies are often broad and difficult to measure. In addition, our efforts to accomplish them may not bear fruit for several months or more. How do we put meaningful short-term measures on long-term strategic activities? Almost any strategy can have an effective measurement associated with it if the suggestions below are followed.
1. Form a strategy team to implement the strategy, determine the measure, and drive the improvement process. This team should consist of the people who are affected by the strategy, who can impact the implementation, and who have a strong desire to see the strategy implemented.
2. Keep it simple and easy to capture the data and track the results — one company wanted an indicator of employee morale, so they did a "rate my day," asking employees to rate their day from one to five on a slip of paper. Obviously you should always measure this one on the same day of the week
3. Use measures that will respond fairly quickly to actions intended to improve them — to improve sales in a new market might require activities that do not produce results for several months. Rather than tracking actual sales, you might measure the percentage of activities in the marketing plan that is on schedule.
4. Measure the desired end result (the output), rather than a step (the process) that leads to the end result. If your strategy is to take advantage of employee suggestions, measure the number of employee suggestions implemented rather than the number submitted. This guideline can conflict with number 3 above; the team will have to find an appropriate balance, possibly by using more than one measure.
5. Watch for the quality-quantity conflict — in the example in number 4 above, it would be tempting to use the dollar savings from suggestions as a more results-oriented measure, but this could deter suggestions that would have dramatic, but unquantifiable, effects on morale. Here again, the team may need more than one measure to maintain a balance.

6. Use measures that are minimally impacted by issues outside the strategy team's control. Using the employee suggestions example again, if your workforce varies seasonally, the number of suggestions implemented per employee on the payroll would be a better measure than the total number of suggestions implemented. A company that sells products to truck manufacturers, a very cyclic market, could measure sales in terms of products per one thousand trucks manufactured. This indicates their market penetration regardless of the overall level of activity in the market.
7. Support your organizational values — measuring the number of suggestions per employee might promote suggestions from individual employees, but it might not encourage people to work together to create better suggestions. If you want to promote teamwork, count only suggestions from two or more employees, or give greater weight in the measure to suggestions from teams.
8. Avoid conflict with other strategies and activities — A strategy team promoting employee training might consider measuring the number of hours spent in training each month. This, however, may conflict with the time needed to get production work done. A better measure might be the percentage of employees who have completed training in certain key competencies; this measure emphasizes the most important training without promoting excessive time in training at the expense of other activities.
9. Use measures that are not influenced by weekly, monthly, or seasonal causes. One company has a four-day workweek, Monday through Thursday, but their biggest customer has a five-day workweek, making Thursdays extra busy for the supplier. Any measure they use should average an entire week as opposed to measuring the results of one day of the week.
10. Use "positive" measures that increase, rather than decrease, with improvement. For example, measure the ratio of customer compliments to complaints, instead of just complaints. (Using a ratio of good to bad also eliminates the impact of any periodic variation in overall response rate from customers.)
11. Do not set numeric goals or objectives; instead focus on continuous improvement of the measure. Numeric objectives are rarely realistic because no one can anticipate all the obstacles or breakthroughs that a team will encounter. Goals that are too easily accomplished trivialize the importance of the team's work. Goals that are set too high demoralize them. As leader of a volunteer organization, I took responsibility for measuring the number of acknowledgments given for supporting our objectives. I never would have believed that an organization that held only two regular monthly meetings could give over 50 acknowledgments in a month, but, after a few months of tracking, this happened regularly. If a goal is truly needed, the team will set it, and will usually set it higher than any manager would. Given the necessary training, resources, information, authority, and support, teams will produce amazing results.
12. Team representatives must meet with the leadership of the organization regularly, usually monthly, to report on their measures. When positive trends occur, acknowledgment and congratulations are in order. When measures go down, attack the problem, not the person (or team). What problem-solving techniques can the team use to address the situation? Are additional training, resources, information, authority, or support needed? Is management somehow hindering progress?
The checklist below can help teams review a proposed measure against these criteria. But even well thought-out measures sometimes aren't adequate. Don't be concerned if a team's measure goes down because of some unexpected factor, or if it causes problems in other areas — remember Continuous Improvement is a journey, not a destination. Change either the measure or the system being measured, and learn from the experience.
A final suggestion — be creative! One organization has a strategy to make their workplace less stressful. My associate, Chip Phelps, had a great suggestion — regularly measure the blood pressure of the employees.

-Gabe Fasolino owns Spirited Venture
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