Steve Jobs once said, “The secret to my success is that we have gone to exceptional lengths to hire the best people in the world.”
One of the most important decisions you will make as an early-venture CEO is who to hire for your executive team. Today, it’s no secret that there is a huge talent shortage in high-tech. US talent shortages are at a 10-year high and Korn Ferry estimates that the global talent shortage could reach 85.2 million people by 2030 resulting in the loss of trillions of dollars in economic opportunity for companies, with the high-tech industry being the most affected (Forbes). Why high-tech? Today, technology is evolving so rapidly and future workers aren’t able to keep up in terms of education, as the knowledge/skills needed in cyber or general enterprise software (for example) take longer to acquire than the rate at which workers are needed. This along with many other factors like millennial burnout, pandemic circumstances, and more, contributed to the shift in the market where skilled workers hold a significant upper hand. With the abundance of new startups established post-COVID, the urgency for hand-picking the right executive team that will help you build your dreams has never been greater, as losing out on executive talent during such fast-moving times, and especially to a competitor, could put you at a huge disadvantage.
Having said that, who you invite to help build your dream is one of the most important decisions you’ll make as a founder and chances are, they’re already helping someone else build their dream. So how should you go about this? There are four parts to consider:
- Build or utilize your network of potential candidates
- Build a network of trusted headhunters
- Incorporate the right tools to decide on an adequate compensation plan
- Make your dream their dream
1. Candidate pool:
As a founder, you most likely have a good network of other founders, high-tech engineers, and innovators that you can reach out to. If you’re a first-time founder or a very young entrepreneur, it might be a bit more challenging, in which case I recommend really focusing on building your network of forward-thinkers. The first thing I would do is find those people on LinkedIn that you want to form connections with (anyone you think looks like a forward-thinker or innovator) and ask to go for a coffee. Before you know it, one introduction leads to the next, which leads to the next, which leads to you finding your candidate. A lot of founders ask me what to say on this reach out and if it really works – it does! I’ve done it hundreds of times with executive teams, with other venture capital folks, and so forth, and often these coffee meetings lead to opportunities you didn’t even think of at the time.
- You can just say, “Hey ___, I saw that you are doing XYZ (or I saw you posted a very interesting blog…) and thought it would be great to sit for a coffee sometime to explore how we can help each other.”
Beyond cold reach-outs, you can join forums, Whatsapp Groups that are specifically for founders, and go to networking events (even if the event is not in your specific area, you never know who you will meet). And of course, use the network of your VC. VC-backed startups can utilize the candidate pools of their investors which can be very effective as those relationships are already established and strong.
2. Hire trusted experts:
There are three types of partners you can work with.
- Contingent recruitment firms – This type of firm only gets paid if you hire their candidate (typically 20-25% of annual base salary).
- Retained executive search firms – The firm works with you on an exclusive basis and guarantees placement (typically 30-33% of the on-target earnings (OTE) with a typical minimum of $90K).
- Recruitment process outsourcing (RPO) – Think of it as an extension of your HR function, providing full-cycle recruitment. The typical payment is $25K/month and placement is not guaranteed.
Retained search firms can be a great option for young portfolio companies. The work with these headhunters requires dedication, time and money. It is not cheap, but can be extremely worthwhile. Some guidelines:
- Find the firm that specializes in the role you are searching for and the location (I.e., VP Sales based in the USA)
- Find the right person within that firm that you can trust. Talk to references to get a sense of how their experience was. Talk to your investors to see who they recommend.
- Set the expectations with the headhunter. Working with a headhunter is a two-way street and it’s important to understand that you both need to be extremely dedicated to ensure success.
- If and when you start working with them, discuss the cadence for syncs (weekly or bi-weekly is recommended) and communicate your thoughts on the candidates they send you as you go along so that they can optimize their search based on what you want.
- Have a dedicated POC in your company that will work with the headhunter. For executive positions, this should either be the CEO or Head of HR, depending on the growth stage of your company. For seed to A, I personally recommend it be the CEO (you might not even have hired HR yet).
- Negotiate your terms. Ask your investors if the terms they gave you seem reasonable and go from there.
Let’s say you have found the executive you want to hire – how should you compensate them?
Compensation is not just base salary, but also a bonus plan, equity, and additional benefits, and it is up to you, the CEO, to decide how you want to structure each. For example, for your first VP Sales, what monetary value will this person bring to you? Will they get you from a $2M ARR to $5M ARR? The compensation package should be based on what you aim to get from this person. You can use a compensation benchmarking tool for guidance. Some good ones are Options Impact, Comptryx, Willis Tower Watson, Radford Aon, Zviran (IL-focused).
4. Finally, and often most importantly, make your dream their dream
Top-notch candidates have many options. The best candidates are likely already taken and getting them to leave their comfortable, 6-figure position to join an early-stage startup can be an emotional decision for them. These types of forward-thinkers are often motivated by company potential, rather than by compensation. Compensation is important, but not as important as the story you are selling – your dream! Your dream should come through in every single conversation, every interview, every job description, on your website, and so forth. It is your brand. Moreover, highlighting the impact that a candidate will have in developing this dream is crucial and it is also a huge advantage that startups have over large corporations where it is much harder for the individual to make an impact. Speak about how they will shape your product or speak about the effect they will have on the valuation at which you raise your next round. When you talk with a candidate, form that personal connection, understand what drives them, and show them that together, you can achieve *big* things.