The first hires are the hardest

What makes someone take the risk of working at an early-stage startup?

Welcome to this edition of The Operators, a recurring Extra Crunch column, podcast and YouTube show that brings you insights and information from inside of tech companies. Our guests are execs with operational experience at both fast-rising startups like Brex, Calm, DocSend and Zeus Living, along with more established companies like AirBnB, Facebook, Google and Uber. Here, they share strategies and tactics for building your first company and charting your career in tech.

In this episode, we’re talking about hiring and recruiting:

  1. Why people take the risk of working at early-stage startups
  2. When and how to work with recruiters
  3. How to make your first hires

A company’s first hires are often the hardest; money is usually too tight to pay competitive salaries, there’s no recognizable brand or reputation yet and most people would prefer to work at a company their friends and family have heard of before. There’s also fair presumption of risk and unviability — who wants to take a job that might not be around in a year?

Startup founders overcome these odds on a regular basis. To figure out how, we spoke with two experts:

Farah Sharghi-Dolatabadi began her career as a software developer and financial advisor before moving into recruiting. She’s been a recruiter at startups in addition to companies like Google and Lyft. She’s currently a senior technical recruiter at Uber and an active career coach at HireClub.

Kelly Kinnard is Vice President of Talent at Battery Ventures, where she’s worked with startups like Wag, Coupa, Fastly, and Gainsight. She also has experience at top recruiting firms and in executive search at Oracle.

Below is a synthesized summary of our conversation; check out The Operators for the full episode.

Why people take the risk of working at early-stage startups

Most early-stage startups fail. That shouldn’t be news to anyone. Still, however unlikely big outcomes are, the possibility of being a part of the next Facebook or Uber is tempting, and taking a job at a brand new company may even rational on an expected value basis.

Sometimes it’s not just the chance at a big financial outcome. We’ve heard early-stage employees say they made their choice based for more intangible reasons, like having more autonomy in their work, seeking a less structured environment, working with a certain type or set of colleagues, wanting a sense of adventure or purpose and the opportunity for more rapid career progression.

It may not be possible for an early-stage startup to offer market-rate compensation, but they can personalize the opportunity for early employees.

“Be creative and do things like cater to that individual and think about it on a case by case basis,” said Kinnard. “If that candidate really wants to work from home two days a week because they have a dog and you can’t allow dogs in the office, and they want to be able to walk their dog or go pick up their child from school after school, then try to customize things according to each individual.” But don’t forget that compensation still matters, as do market rates. According to Kinnard, “cash is still king, and I think sometimes I see founders and I see CEOs be unrealistic about what they expect to be able to pay people. A part of what I do is provide them with competitive comp data so they can look at the data and [see] here’s what 3000 companies that we’ve surveyed have suggested the compensation ranges.”

Creative problem-solving pays dividends in recruiting, just like in does with most other problems startups need to solve. Experienced recruiters can help companies figure out how to get creative, but how do you know if working a recruiter is right for you?


When and how to work with recruiters

There’s no common or singular background for a recruiter, i.e. there aren’t college majors or fields of study more suited to recruiting than others. As Kinnard shared with us, “Recruiting is not a career that anyone thinks they aspire to when they’re in high school or college. It’s an odd career that people tend to fall into.” Selecting the right recruiter requires an understanding of your hiring needs and desired interactions with a recruiter. With no academic background for the field, experience and general aptitude are often the best indicators of knowledge and skill.

Recruiters either work in-house, where the recruiter is an exclusive employee of the company, or as contracted vendor, usually in the form of a services firm. Recruiting firms are typically either retained (paid as consultants from day one) or on a contingency basis (paid only on success). In most cases, firms require a commission payment of anywhere between 20% and 35% of the hired candidate’s first year salary, subject to a refund or repetition of the service if the hired candidate leaves the company in less than 12 months.

Recruiters on contingency are often in competition with one another, with multiple firms able to source and vet candidates for the same roles. They focus on larger sets of rank-and-file roles that can be filled more easily and rapidly, don’t require exclusivity and can be more aligned to find quick wins.

Comparatively, retained recruiters usually focus on executive hiring, require exclusivity on the roles they work on, spend more time ensuring roles are scoped correctly and rely on their reputation for success. Retained recruiters are known to be more holistic and methodical, whereas contingency recruiters are scrappier and more outcomes-driven.

For the earliest-stage companies, especially those with financial constraints, doing your own recruiting is often the best bet. When that doesn’t work or scale, Sharghi-Dolatabadi recommends starting with a contingency firm: “contingency firms are really great because again, it’s catch and kill. If they don’t make the hire, they don’t get paid. They’re more incentivized to actually get you somebody that’s going to hit the ground running and stay.”

When it comes to bringing in an in-house recruiter early on, “if you’re going to bring someone in-house, do the math, see if it makes sense,” Sharghi-Dolatabadi added. “I think hiring an outside agency at first is fine, but also if you hire somebody to come in-house, make sure they’re really good at what they do and then really have a broad spectrum of abilities in terms of roles they feel comfortable filling, they can hire engineers, and they can hire the office manager.” Even if you’re not hiring year-round, if you’re otherwise using a firm and making at least three hires each year, a full-time recruiter may be justified. Ensuring your recruiter can be valuable in other ways increases the return on the investment of finding and hiring that person. This is another good time to be creative.

Correctly deciding whether to use an in-house recruiter, a retained firm, or a contingency firm depends on which roles are being hired for, budgetary constraints, how return on investment is being calculated and self-awareness about one’s position in the market. That last point is a place where the best recruiters can add value, as Kinnard affirmed, “that’s part of our job, to educate [clients] on the market, on the candidates, on their company, how their company is coming across. The challenge in Silicon Valley is that everyone is being approached by tons of recruiters on a weekly basis, on a monthly basis. And sometimes these companies don’t realize and understand that their company sounds and looks like to an outside candidate who’s being heavily recruited, it sounds like one of maybe twelve in that zip code that all look and sound the same, but that team thinks, well, we’re the best and we’re brilliant, we’re working so hard and we have differentiated disruptive technology.” 

How to make your first hires

In addition to deciding whether to run your own process, hire a recruiter in-house, or work with an outside firm, you need to have a clear picture of who to hire. Early employees play outsized roles in defining company culture and should be able to grow with the company. At the beginning of most companies, there are only two jobs: building product and selling it. Deciding who to hire should be based on an audit of the founding team and what’s missing: builders, sellers, or both? As Kinnard suggests, “Be self-aware and honest with what you’re suited for and what someone else could counterbalance you with by bringing in somebody who ideally has those specific skills.” 

There are several additional characteristics we’ve seen that drive employee success: at least one area of expertise but able to learn others rapidly, a bias towards action and taking accountability, and the ability to quickly prioritize across competing interests. Beyond considering the aforementioned criteria of why someone would work at a startup and what skillsets they’d need to bring, you need to know where to look. Some startups swear by hiring from their extended network: friends, family, colleagues, and classmates as well the potential in those networks. Others suggest running broad and inclusive processes from day one, incorporating diversity from the very beginning. In both approaches, whenever possible, companies should balance their expectations for candidates’ qualifications and performance with having enough of them such that at least a few make it through the entire process to the offer stage.

Regardless of the approach you take, before hiring, consider whether you can “fire fast” if and when required. Sharghi-Dolatabadi cautions, “if you can’t fire them, don’t hire them. Meaning if you can’t hire friends or family, and then fire them, don’t do it.” Because of the challenges, hiring often takes longer than expected. This can cause an avoidance of firing as it means going back to square one.

But not firing a bad fit can be much costlier than having a role empty or taking too long to hire. In the most extreme cases, it can even kill the company. So when there’s no clear path forward, don’t delay.