Category Archives: HR

Meeting a founder’s team

Most investors state that, together with the market, founders are one of the two key determinants of a startup’s success. While this is true, a founder is only as good as the team they’ve built. As a result, meeting a founder’s team, consisting of the founder’s direct reports and any other key team members, is a great way to evaluate the founder and their startup.

The first benefit of meeting a founder’s key team members is that they reveal how good the founder is at identifying and attracting talent. The more impressed you are with a founder’s key team members, the more impressive the founder who built the team.

The second benefit is in observing the interactions between the founder and their key team members. Who speaks more often on issues pertaining to the team member’s responsibility? How does the founder address their team and vice versa? Do the founder and team members seem perfectly aligned, which is usually a sign that they are not expressing their differences in viewpoint, or do they point out where their perspectives are different and how they’ve decided to move forward to either test out the different hypotheses they hold, or despite their different perspectives?

Meeting a founder’s team in a series of one on one’s, together with holding a group session in which each key team member participates, is a half to one day exercise that greatly improves the quality of an investor’s investment decision.

Parting on good terms

Startups have high turnover. The reasons are both due to the nature of startups and the nature of the people they tend to attract. Specifically, startups are bumpy rides where the bumps can throw many people off the ride, and they tend to attract people who are too restless to stand still in one place for an extended period of time.

As a result of this high turnover, when you work with a startup, you eventually develop a wide network of people who go on to roles outside of the startup. And many of these roles are once again in the startup community. You eventually reach a position where you know more people outside the startup than in it. In other words, you know more people who have left the startup than people who continue to work there.

If you hope to retain the option to continue to work with the people who have left, it’s important to part on good terms. This isn’t always possible, because it requires that both parties leave on terms where they believe that they were treated fairly, or that a party who believes that they were treated unfairly chooses to part on good terms despite this.

Not everyone is prepared to do this. However, it’s worth doing for the part that’s in your control.

From the perspective of the employer, this means things like agreeing to serve as a reference for the employee in the future, or at least not speaking poorly of them unless there’s a very strong reason to do so, and not nickel and diming the employee’s exit terms.

From the perspective of the employee, this means things like continuing to work hard until the day you leave, transferring your workload to the organization or another employee who will take over your responsibilities, and not speaking poorly about the organization following your departure.

I’ve seen both good and bad departures. The former sometimes produce new opportunities which carry more value than what the original appeared to hold at the time. The latter don’t.

Parodying different roles in tech

I recently came across the following tweet from TechCrunch’s founder Michael Arrington.

It does a great job of parodying how developers, designers, project managers, quality assurance, and system administrators see themselves and one another.

I recommend taking the time to go through each entry in the matrix. The laughs make it well worth it.

Always be recruiting

I was recently speaking with the co-founder of a successful regional tech business. We’re not investors in the company, and the co-founder was looking for insights into the Turkish market.

In the middle of the discussion, I was caught by surprise when the co-founder asked whether I’d like to join the company. This is the first time that I’ve been on the receiving end of a startup co-founder offering an investor a job.

I like investing too much to make the shift, so I politely declined.

However, the anecdote is a great reminder that great founders are always recruiting.

Hiring undervalued people

I wrote about the importance of doing fundamental research in an earlier post.

The summary of the post is that, in order to outperform the market, you need to develop your own view about specific investment opportunities. If you rely instead on the thoughts and social signal sent by other investors, you will at best get market returns. To outperform the market, you need to evaluate the source material (team, market, product, …) yourself and come up with informed views based on this source material.

The same reasoning applies for talent. Evaluating a candidate consists of two things. The first is your own evaluation and the second is the external evaluation which results from the candidate’s formal background and reference checks of people who have worked with the candidate. Both should be part of your process. However, you should weight your own evaluation more heavily.

The reason is that the external evaluation in the form of the candidate’s formal background and reference checks is accessible to everyone. As a result, this information will already be baked into the cost of working with the candidate. You’ll be paying the market price for whatever you think you’re getting.

This approach is available to you if you can afford to pay the market price, so it might work if you’re a market leading company with significant resources. But it’s not how great startups are built.

Great startups are built by recruiting candidates who the market undervalues. This requires knowing the market value which results from the candidate’s formal background and references, having an insight as to the candidate’s actual value from your own evaluation, and having the conviction to bet on someone where the latter exceeds the former.

Getting in on the ground floor

After a new venture begins to take off, many people want to get onboard. Competition to join the venture increases.

However, at the same time, since the risks of the venture have decreased, the potential intrinsic and extrinsic rewards it offers also decline. So you’re faced with an environment that’s simultaneously more competitive and has lower prospective returns.

This is why you want to get in on new ventures on the ground floor. That’s when there’s little competition and it’s easiest to get in. It’s also when there’s the prospect of disproportionately high intrinsic and extrinsic returns.

The challenge, of course, is identifying the right new ventures to get into on the ground floor. Fortunately, you can take multiple swings during the course of your life. And with each swing you learn a bit more about the defining characteristics of the right new ventures. So your probability of getting in on the right one improves with time.

And you only need to hit one home run in your life. You only need to get in on the ground floor of the right venture once. The intrinsic and extrinsic returns of doing so are often enough to keep you feeling happy and successful for a lifetime.

But chances are that once you experience this thrill once, you’ll want to experience it again.

Investor help to convince candidates

As investors, we’re in a great position to help our founders convince candidates who are on the fence about joining their company.

First, we’ve seen hundreds of candidates being hired across tens of companies. This gives us more data points than those available to most founders about which approaches work and which ones don’t when trying to convince different types of candidates with different motivations and concerns to join a company.

This doesn’t mean that we get every candidate to cross the finish line. However, we improve the odds that they do.

Second, an investor is able to provide a more objective, bird’s-eye view of the company. Although we’re also biased because of our equity stake in the company, we have less skin in the game than founders. This helps us balance the founder’s more subjective view from living in the trenches with a more objective view from thirty thousand feet.

The founder’s view is more important because that’s what will eventually determine the company’s success. It is the founder’s view that the candidate needs to believe. However, an investor can provide a valuable complementary perspective.

Third, having an investor spend time speaking with a candidate prior to their decision shows that the investor cares. And for an investor to care, the founder must have communicated to the investor how much they care about the candidate. This means that the founder also cares. And candidates want to work with founders who care.

Several of our founders regularly ask for our help to convince candidates to join their company. I wish that even more did.

Punching above your weight when recruiting

I was recently speaking with another investor about how successful our companies are at recruiting.

At the surface, one might expect a company’s recruiting success to be tied to the strength of their brand and the financial offer they make to candidates. Traction is a pretty good proxy for the former and the combination of profitability (or a lower net burn rate) and funding are good proxies for the latter. And this is indeed broadly the case. Companies with more traction and a better net funding position are more successful at recruiting.

However, during our talk we also identified several outliers in our portfolios. Specifically, some companies were punching well above their weight by attracting a level of talent that’s difficult to justify by looking only at their traction and net funding position. So there must be at least one, or perhaps more, variables that we’re missing. I think there are two.

The first is the founder’s ability to inspire others to join them in the pursuit of a shared vision. This comes from being authentic, being able to clearly communicate your vision, and caring about the people you work with.

The second is how much time the founder spends recruiting. All else equal, the more time you spend meeting candidates the more likely you are to hire the right people. Together with setting the company’s vision and keeping it funded, recruiting is one of the three most important responsibilities of a startup founder. And some founders have internalized this more than others.

Your traction and net funding position determine your weight when recruiting. Your ability to communicate your vision in a way that inspires others and the time that you dedicate to recruiting let you punch above your weight.

Hiring and team management insights

Steve Newcomb was the founder of PowerSet, the developer of a natural language search engine which was acquired by Microsoft for ~$100M and is now part of Microsoft’s search engine Bing.

In his 29 page write-up entitled “Cult Creation“, Steve summarizes some of his unconventional hiring and team management insights. These include his suggestions to:

  1. Try before you buy when hiring
  2. Treat all candidates including those that you won’t be hiring like gold
  3. Develop and communicate a worst case scenario for your startup that’s better than the middle or even best case scenario of most other startups
  4. Set the salaries and equity awards corresponding to different competency levels for each talent type (engineering, marketing, product, …) and don’t allow for negotiations within a specific competency level
  5. Incentivize employees to live close to the office

You can read the full piece here.

The hero hire

Whenever a startup says that they’ve found a hero hire, a red flag goes up in my mind. There are two reasons for this.

The first is that the need for a hero implies a big problem. If you feel like you need a hero, it’s likely that things aren’t going well. Otherwise you wouldn’t be looking to a single person to save your startup.

The second reason is that a single hero doesn’t exist in real life. It’s just a romantic ideal. In reality, success calls for a team consisting of many heroes who excel in their respective roles. But when you’ve built such a team, since there’s no single individual who stands out, they’re no longer heroes but a collection of great people. They’re no longer the romantic ideal but the reality.