Startups Must Hire The Right People And Watch Every Penny. Or Fail.

Yesterday Jason Calacanis, the founder of Mahalo (and, full disclosure, our partner at TechCrunch40), wrote a blog post titled “How to save money running a startup.” Boy was he attacked. Bloggers lined up to take their shots at him. Examples are here, here, here and, especially, here.

Our own Duncan Riley also wrote a post criticizing Calacanis and a firestorm of comments blew in. He took a more humorous approach to make his points, but his opinion on the matter was clear.

I happen to disagree with Duncan and the others criticizing Calacanis, though. Our writers have complete editorial discretion, and I would never ask him to change his overall tone or message. But I do want to chime in with my own thoughts because this is an important cultural issue and worthy of further discussion.

Some of Calacanis’ points were probably written in haste, like his statement “Fire people who are not workaholics” (he later changed it to “Fire people who don’t love their work”). Others were not controversial, like his advice to “Buy cheap tables and expensive chairs.” Overall, I get the impression that if he had spent just a few minutes editing his post, he would have had a 100% different reaction from readers.

I’m not that interested in analyzing each of his 17 suggestions – some I agree with, some I don’t. But I am interested in adding my thoughts to what I believe are (or should be) his underlying messages:

Startups Must Hire The Right People

Startups that hire incorrectly fail. They don’t probably fail, or maybe fail. They just plain fail.

You must hire the right people. In particular, the early employees must be perfect. This is more important than anything else, including the product or business idea. Perfect teams can adapt to failing products or market/competitive issues and correct for that. That’s why great teams tend to work together over and over again, and sometimes start companies even before they know what the product will be.

The most important part of hiring correctly is to not hire the wrong people. The second most important part of hiring correctly is to hire the right people. What that means is that it is better to not hire anyone at all if you can’t find the right person. And if your startup fails, all the perks, time off and general coddling that many outraged commenters called for isn’t all that useful.

So who are the right people and who are the wrong people? It’s not that hard to tell. The right people are the ones that really, really want to work with you. You can tell they’re excited to be a part of the team. They actively look for problems to solve, and then solve them. This is a personality type that is very easy to spot once you know what to look for – they have fire in their eyes. They’re warriors.

I’ll take the fired up warrior any day over the more experienced but otherwise meek alternative. Skills can be learned quickly on the job (excluding certain specialized skills, which mostly means developers for a young startup). But if you aren’t already the kind of person who’ll just get the job done no matter what, you’ll likely never be.

Warning signs to look out for during an interview: people who care about status symbols like titles, people who resent the success of others, people who act like they’re doing you a favor by talking to you. And people who want to negotiate salary endlessly but couldn’t care less about the stock options.

If you hire badly, it isn’t just that employee who’s not performing. They poison the entire organization. If everyone is pushing hard to get a product out the door, but one sulking individual is passive aggressive about working late, morale drops across the company. It spreads like cancer.

I’m not saying you should chain people to the desk. I’m not saying you should make them work 24 hours a day. What I’m saying is that you should hire people who work 24 hours a day because there is nothing else they’d rather do. If you’ve got a product to launch and you’re ultimately trying to disrupt a bigger and better funded company, it’s likely that you are going to need a superhuman effort from the team. I doubt Google’s early employees complained about the hours (and take a wild guess as to why Google gives employees free lunch and free dinners).

If something about this doesn’t sit well with you, that’s ok because you are part of the vast majority of people out there who have an appropriate work-life balance. That doesn’t make you a bad person. It just makes you a bad hire for a resource-strapped startup that needs a team of kick ass all-stars to have a hope in hell of succeeding.

The bottom line is this. The only people in the world that should feel warm and fuzzy around you are your customers/users. Your employees don’t want to feel warm and fuzzy. They want to win. If they are warriors, they’ll respect what you are doing and follow you into the wee hours of every morning to mark their place in history and fill their bank accounts with stock option dollars.

Watch Every Penny

Startups cannot waste money. If they do, they’ll fail. As I said above, they don’t probably fail, or maybe fail. They just plain fail.

That means a really cheap office, to start. Don’t even think about an administrative assistant. Or flying business class. Double up in hotel rooms. And even things like telephones are probably not needed. You have cell phones and skype for that. Matching 401k plans? HAH. Three weeks vacation? Not going to happen. You cannot waste money because every dollar is an amount of time you can keep running the business before you have to shut down. Run out of dollars before you reach profitability or convince investors to double down, and you’re done.

However…you cannot be penny wise and pound foolish. Get your developers the hardware and software they need. Pay your employee’s cell phone bills (the nice thing about reimbursing expenses is that it’s tax efficient to both the company and the employee v. income). Attend the conferences you need to attend to push the business forward (but try to sneak in for free)(unless it’s TechCrunch40).

Here’s another tip – make sure your accountants and lawyers know that you are watching every penny. Bring up cost issues to them on every other call. They’ll be far less likely to pad their bills if you do. But also make sure they know that there’s upside – a successful client that raises venture capital, gets sold, enters into a lot of deals, etc. will generate fees for them down the road. Make sure they see you as a partner, not an ATM machine.

Something else that I’ll pass on – when startups raise their first big round of financing, they are at their most vulnerable point. The new investors want results. Expansion. Market domination. Etc. Too many startups start to spend that money on really dumb stuff – new employees that aren’t needed, new office space, etc. It’s incredible how a company that got to launch on $200k will start to spend that amount every month after they raise $5 million. And the results – bad hires who not only don’t perform, but who also bring the rest of the team down. When and if you raise that money, make sure you are doubly cautious about spending.

Push to the breaking point on everything. Pay money out as slowly as possible. Collect revenue aggressively and quickly. And never miss payroll.

If you do all of these things you will have a 2 in 10 chance of middling success, and a 1 in 10 chance of a serious win. Don’t do these things and you’ll fail.