Can't go it alone? Make sure your first hire will help--and not hurt--your budding business. Learn how to sidestep traps that can ensnare new companies as they grow.
When most entrepreneurs are ready to hire their first employee, they can't afford the services of an experienced executive recruiter. But attracting people with the right skills and chemistry is essential to getting a new business off the ground.
"Your first people are your most critical hires," says Francois Gossieux, an entrepreneur in Andover, Mass., who has three start-ups under his belt including his latest, Synopia, which makes software used in product development. "If you ask a venture capitalist, he'll tell you the team is the top thing they look for."
Whether you plan to seek outside investors or intend to grow your company by its bootstraps, finding and keeping good people is a top priority.
Hiring isn't easy. You need to find people who not only have the experience you need, but also whose personalities complement your own, and who appreciate and can stomach the financial risks and unpredictability that go with working for a fledgling company. And you need to protect yourself by making sure everything you negotiate with your new hires is clear and in writing.
With startup activity on the rise again, more budding business owners are facing this complex hiring equation. The Kauffman Foundation of Kansas City, Mo., reports that 11.3% of American adults were "engaged in entrepreneurial activity" in 2003, up from 10.5% in 2002.
Veteran entrepreneurs and venture capitalists cite common hiring mistakes and suggest some practical solutions:
Don't Oversell Your Company
Because founders often "are good salespeople, they can persuade a person to take a job," observes David Friend, who started five companies as an entrepreneur and is now a partner with the Boston venture firm Orchid Partners.
But too often, such personalities focus too much on the positive and too little on what can go wrong, he says. "I've pushed too hard to convince someone to join me when they weren't sure they had the temperament for a startup," Mr. Friend says. "It backfired because from day one they were saying to themselves, 'What have I done?'"
Jim Finkelstein, who has recently been hiring key executives for his Silicon Valley startup, Futuresense, spends a lot of time talking with prospective employees to make sure they fit both him and his startup. "I tell people that I can offer them total flexibility and a lot of freedom to act. And I ask if they like a lot of structure and guidance. If they do, this is not the place for them," he says. When possible, Mr. Finkelstein brings even top-level managers in on a consulting basis for three to six months before offering them a full-time job. "This is an opportunity to see their work style," and to make sure they enjoy and understand his company's unstructured, fast-paced environment before committing to it.
Don't Call All Your Old Cronies
"Your first instinct is grab people you know and trust, with whom you were successful in another setting, but sometimes that's not appropriate," says Chris Pacitti, a general partner at Austin Ventures in Austin.
Such hiring causes Mr. Pacitti's caution flag to go up because, even though the old cronies clearly have good chemistry, it could signal that the founder has simply fallen back on the familiar and comfortable rather then thinking through what skills and experience he'll need to make his venture work.
For example, you might love the crackerjack sales director who successfully launched a new product with you at the large company you just left. But he might not be as good at selling without the resources and reputation of a big company behind him. Mr. Pacitti says he likes to see "a balance of old folks and new in the mix."
Mr. Gossieux took that approach when hiring for Synopia. "Out of six of us here now, only two have worked together before," he says. "If you're going to tackle a new product in a new space in a new time you have to be able to do things differently. If you have only people who have worked together before, you can fall back on what you did before, which might not work," he explains. Instead, "You need people who will challenge what you did before. If you get different backgrounds, you have different kinds of ideas and questions coming in."
Think Like a VC
Before you seek outside money, put yourself in the shoes of venture capitalists, think about the shortcomings they'll see in your team and set to work addressing them. Mr. Friend explains, "You might think 'Shoot, I don't need a sales guy for six months. Why pay for him now?' But you might need the whole team to be credible to an investor.
"I might know you're a good engineer and the product is good, but if you don't have a salesperson I don't know who's gonna open the door and get his or her hands on those key first customers," he says. "Or, I might see good engineers and salesmen, but I know none of them are good at controlling budgets, so I want to see a [chief financial officer] in there, even if you don't need it at the moment." In other words, "have at the ready all the people who will reduce the risk" of your company failing.
Put Everything in Writing
Finally, Mr. Friend observes, put together an employee handbook or write up detailed employment-offer letters, even though you may be pressed for time. "People who are [starting a business] for the first time are distracted. They have things that are more interesting and important to do." And, he adds, "they haven't been bitten yet."
James O'Hare, an attorney who works with start-ups at the Boston office of Kirkpatrick & Lockhart, says a detailed offer letter can prevent future disagreements that could damage your credibility and relationships. "You do make a mistake if you don't lay it all out," he says. "And it could affect your ability to get funding."
He suggests making sure an offer letter covers not only issues such as compensation, options and the parameters for bonuses and severance, but also intellectual property rights, nondisclosure and noncompete clauses.
Mr. Gossieux concurs. "I'm a firm believer that you should put everything on paper. Incorporate right away, get a company lawyer right away," he says. "It's real people and real money, so it's better to have it all in writing."
Beyond the legal and financial entanglements, Mr. O'Hare points out that misunderstandings with employees can also hurt your long-term career prospects. "People are part of your network and reputation," he says. You might want to sell your successful company and start a new one. You might need to try again if your first venture fails. Or you might one day want to stop being an entrepreneur and work for someone else again. "The way you treat people will affect your ability to do" any of those things," Mr. O'Hare cautions.
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