Ask any entrepreneur to name their single biggest challenge, and most will reply, almost instinctively, with the same answer:
Hiring new employees for your business can be an overwhelming and frustrating journey. In addition to being incredibly time-intensive, the process of selecting the right person for the job can be downright daunting. Add in the massive costs associated with making the wrong choice (think wasted salary and benefits, culture issues, and lost business opportunities, just for starters), and it’s no wonder that most entrepreneurs approach hiring with a mixture of fear and apprehension.
So, why are some early-stage companies successful with hiring, while others fail? Are 1099’s a viable option? How do you know when you’ve made a bad hire, and, more importantly, what do you do about it? And can Chicago-based startups find the talent they need to succeed? We asked several of Chicago’s leading entrepreneurs to share with us their approach to hiring and selecting talent and their answers provide something of a guidebook for early-stage firms working to build high-performance organizations.
It’s an Investment
An entrepreneur’s plate is already filled with delivering on promises to customers, managing cash flow, and growing in a tough economic environment. Carving out extra time during the week to focus on hiring new employees is a tall order – but an absolutely necessary one, according to these Chicago-based founders.
“Hiring is the most important, and, usually, the most difficult, thing you’ll do as an entrepreneur,” says Shawn Riegsecker, President and CEO of Centro, a digital media company. “At Centro, we spend what I’m sure many would consider to be an excessive amount of time in our hiring and selection process – 10 hours with each new hire. Up until we reached 75 employees, I personally spent two hours with each candidate before we hired them.”
Bryan Johnson, CEO of credit card processor, Braintree, voices a similar view.
“Because we have a flat organization, hiring the right people is paramount. A bad hire can’t be swept under the rug or ignored, because they can’t be sent to a different department or overlooked.”
According to these founders, the process of selecting great talent begins with a decision by the CEO to invest the time and resources required to do it right, with some allocating as much at 50% of their time to hiring new employees. But what if your team is spread across the country, or the world? According to Ajay Goel, founder and CEO of Jango Mail, you’re not off the hook.
“As a virtual company, we hire from all over the world and let employees work from home,” says Goel, whose company produces a leading email marketing platform. “In the past, when I’ve found a seemingly well-qualified candidate in another part of the world, I would forego an in-person meeting because of the difficult logistics involved, and that was a mistake every time.”
Riegsecker sums up the importance of getting it right when it comes to hiring: “The cost of making a wrong hiring decision, especially when you’re a start-up with limited funds, is the most expensive cost you’ll incur.”
Keys to success:
When you’re thinking about adding staff to your company,
- plan on investing anywhere from 30-50% of your time directly involved with interviewing and selection
- run your candidates through a standardized, repeatable process, ensuring that you get a consistent evaluation (i.e., don’t wing it!)
- start recruiting at least 60 days before you need the position filled
The right stuff
You’ve seen this movie before: John Smith’s resume looked like a million bucks, showing experience as a developer for a highly successful tech startup and an engineering degree from M.I.T. He possessed an off-the-charts ability to crank out great code, and interviewed exceptionally well. Tom Entrepreneur hires John, who immediately begins acting like his singular purpose on earth is to destroy the company’s culture. Nine days into John’s employment, Tom is trying to figure out how to get this disaster out of his company…and fast.
It’s extremely hard to determine whether or not someone will be a bad culture fit by focusing only on skills and experience. So, what’s the most important x-factor these founders consider before extending that offer?
“We want enthusiastic, engaged and passionate team members. We want people who will help us build and strengthen our culture,” says Johnson. “We look for people jumping out of their seats saying, ‘This is what I’m looking for!’ We want people who care deeply about their work environment and value the same things we do.”
Things you can’t get from a resume, in other words?
“I once hired a lead developer who came from a big company background,” explains Goel, “and his development approach – following a rigid software development methodology and architecting for large scale – didn’t fit with my start-up philosophy of building something quickly so we could get our customers using it. In the end, he left. It was a cultural mismatch.”
One thing that’s clear from listening to these early-stage leaders: the best skills on the planet are not much use when the employee doesn’t fit in.
Keys to success:
When you’re writing your job description,
- describe a day-in-the-life, or what behaviors separate good fits from bad fits, and write these details into the job description; candidates will know whether or not to apply
- talk about the position in terms of desired outcomes – “what specific, measurable things will my new employee have to accomplish by the end of their first year in order for me to feel like I made the right decision?”
Despite the weak economy, the marketplace for skilled talent has never been more competitive. The shortage of tech labor causes many CEOs to look outside the startup community and consider pulling talent from larger companies to fill the void. Can it work?
Andrew Crestodina of Orbit Media Studios says that it can, given the right circumstances. “When looking at the background of a candidate, the culture of past employers is more important than the size. Everyone should have a strong service ethic. Having said that, sometimes people who worked for huge companies forget how to ‘speak English.’ People here need to get ideas across clearly without using PowerPoint.”
Be aware of the differences between large and small business cultures, say several of these founders.
“There is a learning curve – large companies waste a lot of time,” suggests Philip Tadros, CEO of Doejo, a web design firm. “We jump in and get dirty and productive right away, and sometimes people from large companies have a hard time keeping up.”
Riegsecker’s experience has produced similar feelings about hiring talent from larger firms. “We haven’t found much success hiring from large corporations. Although there are exceptions, the speed, work ethic, long hours, and team intimacy are difficult for many people who work in large, bureaucratic corporations. Also, many of the skills required to move up in large companies, such as understanding office politics, aren’t useful and most often will be destructive to working in a start-up environment.”
“Start-ups have a romantic and nostalgic appeal – real or perceived – for many,” warns Johnson. “They are places where anything is possible, and where big company irritations are absent. As conceptually appealing as a start-up is, the reality is that not everyone succeeds in this type of environment. Our rule is that unless someone has previously worked in an environment similar to ours, it’s too big of a risk for us to take.”
Shradha Agarwal, co-founder and Chief Marketing Officer at Context Media, has a balanced view of candidates from large vs. small firms.
“We have seen advantages and disadvantages of both,” shares Agarwal. “It depends on what the candidate liked and disliked in their environment, and why they think a start-up environment will be the right choice for them. While candidates at larger companies bring a sense of organization and can see the big picture, they can also be prone to compete for internal resources.”
Keys to success:
Before you hire talent from a large corporation,
- spend extra time during the interview process focusing on the candidate’s ability to work in ambiguous, fast-paced, and/or under-resourced situations; have them describe times where they accomplished their goals in these situations
- ask the candidate to outline what they’ll accomplish in their first 30 days, and hold them to it; corporate America tends to move a lot more slowly than your typical early-stage firm
1099 or W2?
One way entrepreneurs can cut their exposure to bad hiring choices is to work with potential employees on a 1099, or self-employed, basis. Hiring workers as 1099s keeps them off the company payroll, but may expose the firm to massive tax liability, if not handled correctly.
Corey Michael Blake, President of Writers of the Round Table, Inc., has made hiring part-timers a key part of his team-building strategy.
“I always hire talent part-time, to give them an opportunity to impress our team. We have a network of about 25 freelancers on 1099s and slowly we have been growing our base of W2s.”
In Blake’s industry, freelancers make sense. “We’re in the creative business where we partner up talent with specific projects, so it often makes sense to use people on a freelance basis until we have a long-term project – in which case we move them over to a W2.”
Crestodina says emphatically that he’s never been that interested in freelancers, although people think he’s crazy for saying so. “If you invest time in training a freelancer and they leave, that’s time and energy lost. When you’re thinking about people, you should be thinking long term; I much prefer W2. We want Orbit to be a home, not a halfway house for contractors.”
Context Media’s Agarwal reports that hiring new sales staff on a 1099 basis has produced great results.
“Sales is the one position where we’ve experimented with the short-term 1099 hires,” explains Agarwal.” We’ll convert into W2 employees once they demonstrate performance, usually in a 30-60 day timeframe.”
Entrepreneurs who choose to employ 1099s should be aware of the potential risks, says Ajay Goel, who has first-hand experience in the pitfalls of using 1099s to build his software company. “Many states will categorize a 1099 contractor as an employee if certain conditions aren’t met,” warns Goel, “such as the contractor controlling their own hours and using their own equipment.”
Goel continues, “I used to prefer 1099, because I thought it gave me some protection from employment-related liability, but recent experiences have taught me otherwise. We were recently audited, and were found liable to pay state unemployment tax on 1099 contractors because the contractor fit the statutory definition of an employee.”
Keys to success:
(CONSULT AN ATTORNEY before hiring anyone on a 1099 basis!)
To prevent a massive tax debacle, be sure that your 1099 employees:
- aren’t required to work on-site in your company’s office
- use their own equipment (laptop, cell-phone, etc.)
- are free to choose the manner by which they complete their assignment, as opposed to you dictating their every move
- sign a legally-sound subcontractor agreement that states, in no uncertain terms, that they are not considered an employee, nor are they entitled to any additional benefits or compensation outside the rate being paid
Worst. Hire. Ever.
Despite the right attitude and a well-intentioned selection process, even these founders make the occasional hiring mistake. Listening to their stories of new employees gone bad provides a lesson in how to mitigate the risk of choosing the bad apple.
Joseph Colosi of MILK Design Company offers up a great tip based on an unfortunate experience.
Says Colosi, “In manufacturing always, always, always Google ‘(person’s name) workman’s compensation.’ It will show how many, if any workman’s comp cases the person’s had. I had a pro come through here and really stir up the OSHA hornet’s nest; he faked an injury, lied profusely, and caused a lot of strife for myself and our insurance agency.”
Blake recounts the story of two hiring decisions gone horribly wrong.
“My worst hire had trouble keeping the drama confined to the work. This individual prayed on our family-oriented kindness, and it was incredibly difficult for me to face reality – which was that I was being manipulated.”
Adds Blake, “I’ve also hired someone who did great work for us for a long time…before stealing clients from us as she moved off on her own. That was painful to deal with.” Indeed.
Ajay Goel’s hiring nightmare reads like something out of a sitcom.
“I once hired an executive assistant, who, within three months, lost three sets of keys to our office. Another time, I asked her to pull up our company’s blog, and she launched my email account, clueless as to the difference. Once, while on the phone with her, I asked her to check the status of a flight on Southwest Airlines. After a few minutes she announced, ‘Google keeps pulling up the wrong site.’” Jokes Goel, “Umm…Google never pulls up the wrong site.”
For Orbit’s Andrew Crestodina, making the right choice boils down to knowing the subtle differences between building products and delivering services. “There are web-product people and web-service people. I was looking for a service-minded person, but ended up with a product-minded person. Huge difference.
What’s at the core of a bad hiring choice, according to Shawn Riegsecker? “It always comes down to character and integrity. If you have a team of people with great character and high integrity, when the going gets tough, the team finds a way to come together and succeed. If your employees lack these traits when the going gets tough, these employees become negative and can severely hurt your ability to come through a rough time in a healthy, productive and positive manner.”
How, then, do you prevent the horror story from unfolding? While the use of a systematic hiring process is the best way to cut your hiring risk, Riegsecker advises fellow entrepreneurs to never ignore their instincts. “Every single time, the worst hires are the ones in which you don’t listen to your gut,” says Riegsecker. “Your sixth sense always knows.”
Raman Chadha, Executive Director of the Coleman Entrepreneurship Center at DePaul University, sees entrepreneurs making the same classic hiring mistakes, over and over again. “From my experience, many first-time entrepreneurs make the mistake of hiring too quickly,” coaches Chadha. “Don’t cut corners, think through the cost-benefit of hiring new people, write a thorough job description, and use multiple recruiting channels.”
The real damage to a company isn’t done when you make a bad hiring decision, say these early-stage founders. It’s made when the CEO fails to take quick and decisive action to remove this person from their company.
According to Bryan Johnson, a strong company culture is self-policing. “When something is off, everyone feels it. As a result, the people working with a new hire typically have consensus within the first week of a person’s employment. I tell prospective candidates that I’ll conclude it’s a fit when their coworkers gush about how awesome they are.”
How long do you wait before firing a new employee who’s clearly a bad hire?
“I used to wait too long,” says Riegsecker. “Now I’ve instituted a 90 day trial, which has helped immensely. As we grow, I’m being more definitive with hiring and firing, though firing is still a challenging issue for me.”
“We hire slow and fire fast,” says Johnson, referring to that time-tested adage,” because we have a delicate ecosystem of unusual expectations. We expect people to run their own show and be exceptional. If that’s not happening, our structure breaks down.”
Most of the time, bad hires survive for a while because the entrepreneur is, well, too nice. Says Crestodina, “Firing is hard, because you really want everyone to succeed.”
Ajay Goel tells a similar story. “After I’ve determined someone isn’t a fit, I hem and haw for about a month, then I live in denial for another month, and then, by the third month, I get around to firing them.”
Keys to success:
Mitigate the fallout from bad hiring decisions by:
- resolving to take immediate action to address underperforming employees
- recognizing that the moment you feel the need to tightly manage a new employee, you have an issue
- considering the use of a 90-day trial period on all new hires, and writing the terms of the trial into the employee’s offer letter
Big on Chi-Town
Chicago tech startups rely on a steady stream of highly-skilled professionals to thrive. Some say that Chicago has a bad rap when it comes to hiring startup talent, with Silicon Valley, Boston, and Austin getting top billing as the top entrepreneurial hubs in the US. Nonsense, say these founders.
Andrew Crestodina looks no further than his own back yard, for a very simple reason. “Chicago draws in a lot of people from small mid-western towns. These are down-to-earth, hard-working, and friendly people. That makes it easier to build a strong culture. The schools in this area are good, but there are also a lot of self-taught technical people here. We like them.”
Corey Michael Blake agrees that Chicago is a top spot for recruiting top people. “As a Chicago-based company that employs staff and freelancers all over the globe, I love finding talent in our backyard. I find Chicagoans to be disciplined hard workers – certainly an exciting time to be doing business in Chicago.”
Many of entrepreneurs report the need to search outside of Chicago to meet their talent requirements, and Philip Tadros has turned this requirement into a positive.
“The challenges have been actually advantages,” says Tadros. “We have many talented people from Chicago, and many from places like Pennsylvania, Wisconsin, Florida, Alaska, and Russia.” As he would describe it, Doejo’s culture is better off as a result of their diversity.
“There is a talent war going on,” explains Bryan Johnson. “And it’s not just between Google and Facebook, or only in Silicon Valley. It’s challenging to find exceptional people everywhere. We’ve found some great people here in Chicago, but we’re always looking for more.”
Shawn Riegsecker is bullish on Windy City talent.
“Chicago is filled with people that embody great values. There is a goodness about people in and around Chicago that you don’t get everywhere else. When you combine this goodness with the great work ethic of the Midwest, I believe it represents a perfect mix for success. If you want to build a long-term, sustainable and successful business, I don’t know of a place better than Chicago, and the Midwest in general, to make it happen.”