One Bad Early Hire Can Kill a Startup

It Comes Down to Managing Expectations and Staying Agile
by Joe Procopio
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Two years ago, an entrepreneur came to me with a dilemma. She had been approached by another entrepreneur who was being forced to wind down his own fledgling startup as his funding dried up. He was a one-person shop, he had made a decent run of it, but time was up.

Now he wanted to go to work for her.

I walked her through the dilemma. The guy had great tech and had been able to do a lot in a short amount of time with limited funds and resources. His was a tragic and all-too-common story. He raised a small seed round, crushed his milestones, a lot of investors were saying "maybe," and he just ran out of runway.

Happens.

So I asked her: Where's the dilemma? He didn't want a lot of money or equity. He wasn't looking for a specific role, but he came with ideas. He had connections, experience, and he filled a gap in a place she wasn't super strong. He came with zero baggage. He wasn't a jerk, no blemishes on his personal record.

She then explained, in a long, roundabout way, that he didn't fit the plan.

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She already had a tech lead

The potential hire, let's call him Jeremy, was a coder who could manage and sell, a triple-threat on the technology side. He could come in and lead developers, he could add value to product and sales, or he could just put his hands on the keyboard and knock out new features more quickly.

The problem was that she, let's call her Sheila, already had a tech lead, and Jeremy was better.

Well, no, wait. That's not a problem at all. The problem was that Sheila had brought her tech lead into the company early, he came in cheap, and in return she gave him more equity than he deserved and a CTO title. He was a super-skilled coder, but he was young and the company had outgrown him quickly. He was having trouble managing people, he wasn't invested in Sheila's plans for growth, but he was super defensive about his position and his role.

Jeremy would be an immediate threat.

Sheila pointed to her org structure, which she drew for me. Amazingly, out of her dozen-or-so employees, more than half of them had titles of director or above.

This is a struggle for young startups. Sheila had essentially filled gaps in what she was able to offer in terms of salary with equity and titles, not with the promise of her idea. That approach had actually worked great. The people Sheila surrounded herself with were brilliant and awesome. But now it was coming back to bite her, as she was locked into a corporate structure that was organizationally and culturally rigid at a time when a flaw was beginning to show.

This hire wasn't in budget

Sheila had money. She was at the phase where she was weaning off a sizable fundraise and getting to the point where the company could live off revenue, ahead of schedule. But to get there, she had stopped innovating and was instead accelerating sales and marketing. She needed salespeople. So the current pipeline didn't include many product enhancements.

We unraveled this strategy and found a couple hidden reasons for it.

One. Churn was high. Sheila was bringing on new customers at a good clip, but they weren't sticking around. Why? She didn't know. But she did know that she needed to bring in two new customers for every customer she lost.

This is almost like a pyramid scheme for new products and I see it way too often. Founders get so obsessed with converting new customers that as soon as they do, they freeze everything and try to pump that well until it's dry.

Two. She had lost the vision battle with her tech lead. She was tired of arguing about which features needed to be built and why. In fact, she and her tech lead had been building two different products for some time, and he finally just wore her down.

Cultural battles are killers, and you can't fight those battles with sticks and carrots, you have to fight them with cannons.

She was past the point of hiring another entrepreneur

Sheila had developed a bias against hiring entrepreneurial talent, and after some probing, we realized that this was also due to the mistake she had made with her tech lead. Besides, she said, at some point you stop being a startup and start hiring employees.

My response was that you never stop hiring entrepreneurs. I get the fear, that you wind up with people who could leave at any moment. But I would rather get two good years out of an entrepreneur than five mediocre years out of someone who isn't sold in because they don't know what it means to be sold in.

Sure, you have to have both types at some point, but anytime I'm presented with the former, I'll take it.

Besides that, true entrepreneurs are entrepreneurial in spirit and ethic. They're not building your company, they're building OUR company. You may have to read that sentence a couple times for it to make sense. My apologies.

As a founder and/or leader of a startup, you essentially have one job: Bend, don't break. Corporate org structures, titles, cultural baggage, and comfort all get in the way of that. Fear and risk eat away at it.

But this story has a happy ending.

Sheila hired Jeremy with no title and no specific role, and slowly worked him into the company structure and culture while she revisited it. Jeremy is now her tech lead. The former tech lead is gone, and it was painful, but the company is back on a track that blends innovation and sales. She's keeping customers, and she only had to hire half the salespeople she had in her original plan.

Sheila was lucky for two reasons. One, she caught her structural problems in enough time to fix them. Two, the fixes took. Those two things rarely happen. So when you think about an ounce of prevention being worth a pound of cure, make sure that when you hire, whether it's early, middle, or late stage, you set the right expectations and you stay flexible. You never know when your next hero is going to walk through the door.

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