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ENTREPRENEURSHIP 2, 2.05 (V) 2.4 Hiring Key Management

As you've seen in prior lectures, the team is incredibly important to making your start-up succeed. And in order to be successful as possible, you need to think hard and work hard, to make sure you have the best key management people involved in a company, as possible. How do you do this? The first thing you need to do is decide who to hire. And the next thing is decide how to hire. This might seem very obvious, but there's actually a science behind hiring, and we want to cover that in this lecture here. So, the first thing you want to think about is what roles you are hiring for. And they're many managerial roles in an organization. Some roles might be filled already, some roles might not be filled. But you should consider growing by division. What does growing by division mean? That means that if you are overwhelmed by your job, and you probably will be as a founder, what part of your job can you divide and give to somebody else? For the other people in your company who are overwhelmed, what part of their job can you divide and give to someone else? So that's a good way to think about roles, is by dividing up into individual tasks, when you're overwhelmed and there's too many roles under one person. Whatever you're doing, you should think about the danger of imprinting. What does imprinting mean? Imprinting means that the early decisions you make about hiring in a company have long term implications for the company's success. And so let's use an example. Let's say you hire an HR manager. Now, HR can do many roles within your organization. HR can have a legal role. They can have recruiting role and they have a role setting policy inside the company. So you hire an HR person early in your company that doesn't do any legal stuff but does do recruiting and does do internal company policy. Great, your company does really well. You eventually get to 100 employees 200 employees and your HR director leaves. Now it's time to hire new HR director. Because your first HR director didn't do legal issues, it's almost certain that you had to hire or bring in lawyers into your company who handled those sets of issues. Maybe now there is a new division or group within your company that is the legal department. If that was in your HR people's purview early on maybe, Legal would have been in HR. Now Legal is a separate part of the company. Further, if you want to hire a new HR person, you can no longer hire an HR person who has a legal background because that's a separate part of your company now. So you have to hire an HR person who has the same skills as the HR person who left. Basically the person who left left a hole the size of their roles inside the company. So the decisions you make early on help set the tone for what happens in your company's future. And we actually have evidence going back hundreds of years showing that companies often get formed by the early imprints of what their early jobs are. So you want to think hard about that you make sure you're hiring for the skills that you're interested in hiring for. Now about those skills, a really important thing to think about early on is what the roles actually are in the company, and what the roles are actually going to do. So you want to think about functional skills. What does the person actually do all day? Do they they need to be able to program? Do they need to do marketing writing? What managerial skills are these people going to have? Do they need to manage other people, be able to grow a team? And do they need industry or domain skills? Do they need to know something about contact lenses or Ethiopian fast food or whatever industry area you're thinking about moving into?. Once you've figured out what their role is, then you have to think about how you're going to source the employees to fill out that role. And the general rule is "A" hires attract "A" hires. What does that mean? The best people tend to get the best people onboard. There's a lot of reasons for that. If you have an "A" hires, your company is going to perform better. And that means that you'll be able to attract more high-performing people. If you have "A" hires they'll have networks of other "A" hire people that you could bring on board so it tends to be self fulfilling. "A" hires are often less threatened by bringing in other top people, so they'll be more likely to get "A" hires on board. And other "A" hires are attracted to top people. So they'll be interested in joining companies where the best people work. So it's very important early on to get the get the best possible people inside your company, and it becomes a self-fulfilling prophecy when you continue to get those best people moving forward. Then how do you actually find the people you want to hire? Well, a lot of it depends on the specificity of the skills of your company. So what does that mean? Highly specific skills might be somebody in your company has to do with Gamma PNA solutions. Well, there's very few in the world that know how to use Gamma PNA and they probably all work for somebody else. Which means that if you need to hire somebody who has really specific skills, you'll need to go to somebody who already works at other companies. Might be the same thing with Artificial Intelligence. Might be the same thing with really talented chefs. On the other hand, there are low specificity skills. Really good sales people, good marketing people, where there are many people out there who might have that skill set. And they're often looking for other jobs. So for highly specific skills, if you have a very prominent job, you're looking for a C-level top management team employee, you probably might need to use headhunters to go after those sets of people. For less prominent roles, you will need to pick up the phone and call people at your competitors and get them on board. For low specificity skills, you're going to actually advertise. And if you advertise with good filters, you can actually get very high-level people. And you can consider doing university visits and other things for low prominent skills. So the first thing you need do is make sure you know what your roles are, and make sure you're sourcing properly. After that, what are you looking for in an employee? Well, the first thing you're looking for is skills, and there's a huge difference between the top and bottom hires. So this is actually some results from some studies that I did, looking at the performance of people in the video game industry. And looking at the performance of entire teams, so C-level staff or the entire company as a whole, the performance of middle managers and the performance of the innovators, people who come with ideas within the game industry. What I found was 20% of the variation for performance, that means 20% of the variation of these games that make hundreds of millions of dollars and that 20% of that revenue variance came from who their middle manager was. 21% came from the rest of the company as a whole and only 7% came from who the innovator employee was. This tells you that, even when hiring middle managers, getting the best people in the job matters a lot. And we already know there's huge differences in technical employees as well. The difference between an employee in the top 25th percentile versus the bottom 75th percentile among programmers can be somewhere between eight and 28 times performance differences. So you need to hire, whether they're mill managers or potentially the technology people, that you're getting the very best employees because there are huge productivity differences come as a result. So you're not just hiring for early employees for their skills and for their roles, you are also hiring for their networks. There's some evidence that suggest that the social capital people bring to the table is at least as important as human capital for early stage companies. That means the networks people bring to the table matter a lot. So how can you think about the networks people are bringing to the table? You can think about this as thinking about four different kinds of networks we're interested in. You're interested in people who bring networks of connections to potential future employees, potential partner companies. You're interested in people who have networks that extend to users and customers. You're interested in people who have networks that extend to potential investors. And also people whose networks might extend to suppliers and other kinds of partnership with other companies. So you want to actually, when you're thinking about hiring people, decide what kinds of networks and connections they have and how good those network connections are. So do they have easy connections to potential customers? Do they work for the company that you've actually you want to bring on as a customer? Well, that's a really powerful connection there. The person might have important network connections in their inner circle. On the other hand, if they just vaguely know a bunch of people, that network is not as useful. So you want to sit down and actually think about the networks that people are bringing to the table, as you do this early stage hiring. Once you do this, how do you actually do hiring? Well, there's a whole science behind human capital that is very deep, and we'll cover just in basics here today. So one key thing you want to do is have a scorecard. So you have those roles that you've determined earlier and you've figured out whether people have, what functional roles, what managerial roles, what skills people have. You want to actually write those all down and have a common scorecard which judges all those characteristics. Then you want to talk with other interviewers and you need to have at least three to five interviews, which means that if you're the only person in your company, you need to find some friends to help you do interviews or hire people to help you with interviews. But, you need to have a formal approach and agree with your interviewers about what kinds of questions you're all going to ask. You might want to have some basic screening in advance. So, you can do that through lunch, through phone calls with your high quality candidates. But you want to be careful to avoid homophily. What's homophily? Homophily is the natural principle that we like people who are like ourselves. So we tend to be attracted to and find interesting people who share similar backgrounds to ourselves. But if you're a business person, you're hiring a programmer, there's a good chance the good programmer won't share all the same skills and interests and background that you do. So you might naturally not have that connection or fit with that person. And what you want to make sure is that you're not overvaluing that sort of personal connection or fit because that may only get you people who just look like you in the organization, not get the diversity of skills and experience you actually need. You also should consider assigning pre-work. What is pre-work? Pre-work is stuff that people do before they come to your interview. So there's a bunch of things you can do for pre-work. You can ask people to do a report on your product. You can ask people to come and observe your business and come up with ideas on how to improve it. But regardless, you only want to do pre-work if it's meaningful, if it teaches the person who's doing the pre-work whether they want the job, ultimately. And also if it's respectful. So you don't want to just give people pre-work because it'll turn them off. If it's disrespectful, it requires too much work. But do think about pre-work if its useful. Once you're in the interview, the best kind of questions to ask tend to be questions where you actually walk people through their resume, and look for the characteristics that are spelled out in your scorecard. So you don't want to ask people what their biggest weakness is, if that's not an issue for your score card. You want people just tell you about, tell me about a time that you were able to do this functional management activity that is for our primary score card. Were you were able to work with a team under adversity. And then when they tell you about the time, you want to ask lots of questions about it. So how did your team get in that situation? Did anyone else try and help you? Was anyone resentful about it? And talk through those issues and you're looking for behaviors in that scorecard that you've already decided on that are important. So you're digging through people's pasts. Maybe you'll ask questions about the future. How would you handle a situation where your team was under pressure, and had to deliver a product under time and it wasn't ready? What would you do? But you want to ask behavior questions that are focused on exactly the behaviors that are in your scorecard. After the interview, you should think about using references. Now part of the problem with references is many large companies don't actually give good references and some companies that do give references, the person in the room will just write down references that are potentially useful to them. So when you do those interviews, you can use the threat of reference check to help surface interesting ideas. So as you talk to somebody, and they tell you about what happened at the team that was operating under adversity for example, you can ask them, so who was your boss during that time? And they might ask you why you're asking that. And you could say I might want to cal this person as a reference. What would they say when I call them? And that's a really good way for them to give you a preparation for why they think this person would be a good reference or not and really explain that. And so you can get some of the benefits of a reference without actually having to go through the process of reference check. Ultimately, after the interview, everybody needs to make a go or no go decision based on the scorecard. So have you objected to discussions, based on that scorecard that you've filled out and you're not making any sort of hemming and hawing? People have to decide is this someone we're going to hire or not. And ultimately, you need to close very hard. You need to make sure that you've gone through the process and now that you've gone through all this effort to hire somebody, that you actually go through the process of making sure you're hiring them by doing everything you can to give them power. Have everyone in your company email them and tell them how excited they are to get them on board. Negotiate with them about stock options immediately. Ask them what kind of office furniture they want. Whatever you need to do to get somebody excited about the company and feel like they really should take the job, that's what you're going to do here. Hiring is this really important. Hiring key people is even more important. You need to consider roles, skills, and networks. For roles you need to be aware of imprints, think about growing by division, make sure you're sourcing properly. For skills, realize the best and worst employees are very different from each other. Use their history in those interviews to judge who is good and who isn't. And with networks, consider the diversity of the network, and how well people understand how deeply those network connections work. If you think about these sets of issues, you'll be better able to hire key managers.



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As you've seen in prior lectures, the team is incredibly important to making your start-up succeed. And in order to be successful as possible, you need to think hard and work hard, to make sure you have the best key management people involved in a company, as possible. How do you do this? The first thing you need to do is decide who to hire. And the next thing is decide how to hire. This might seem very obvious, but there's actually a science behind hiring, and we want to cover that in this lecture here. So, the first thing you want to think about is what roles you are hiring for. And they're many managerial roles in an organization. Some roles might be filled already, some roles might not be filled. But you should consider growing by division. What does growing by division mean? That means that if you are overwhelmed by your job, and you probably will be as a founder, what part of your job can you divide and give to somebody else? For the other people in your company who are overwhelmed, what part of their job can you divide and give to someone else? So that's a good way to think about roles, is by dividing up into individual tasks, when you're overwhelmed and there's too many roles under one person. Whatever you're doing, you should think about the danger of imprinting. What does imprinting mean? Imprinting means that the early decisions you make about hiring in a company have long term implications for the company's success. And so let's use an example. Let's say you hire an HR manager. Now, HR can do many roles within your organization. HR can have a legal role. They can have recruiting role and they have a role setting policy inside the company. So you hire an HR person early in your company that doesn't do any legal stuff but does do recruiting and does do internal company policy. Great, your company does really well. You eventually get to 100 employees 200 employees and your HR director leaves. Now it's time to hire new HR director. Because your first HR director didn't do legal issues, it's almost certain that you had to hire or bring in lawyers into your company who handled those sets of issues. Maybe now there is a new division or group within your company that is the legal department. If that was in your HR people's purview early on maybe, Legal would have been in HR. Now Legal is a separate part of the company. Further, if you want to hire a new HR person, you can no longer hire an HR person who has a legal background because that's a separate part of your company now. So you have to hire an HR person who has the same skills as the HR person who left. Basically the person who left left a hole the size of their roles inside the company. So the decisions you make early on help set the tone for what happens in your company's future. And we actually have evidence going back hundreds of years showing that companies often get formed by the early imprints of what their early jobs are. So you want to think hard about that you make sure you're hiring for the skills that you're interested in hiring for. Now about those skills, a really important thing to think about early on is what the roles actually are in the company, and what the roles are actually going to do. So you want to think about functional skills. What does the person actually do all day? Do they they need to be able to program? Do they need to do marketing writing? What managerial skills are these people going to have? Do they need to manage other people, be able to grow a team? And do they need industry or domain skills? Do they need to know something about contact lenses or Ethiopian fast food or whatever industry area you're thinking about moving into?. Once you've figured out what their role is, then you have to think about how you're going to source the employees to fill out that role. And the general rule is "A" hires attract "A" hires. What does that mean? The best people tend to get the best people onboard. There's a lot of reasons for that. If you have an "A" hires, your company is going to perform better. And that means that you'll be able to attract more high-performing people. If you have "A" hires they'll have networks of other "A" hire people that you could bring on board so it tends to be self fulfilling. "A" hires are often less threatened by bringing in other top people, so they'll be more likely to get "A" hires on board. And other "A" hires are attracted to top people. So they'll be interested in joining companies where the best people work. So it's very important early on to get the get the best possible people inside your company, and it becomes a self-fulfilling prophecy when you continue to get those best people moving forward. Then how do you actually find the people you want to hire? Well, a lot of it depends on the specificity of the skills of your company. So what does that mean? Highly specific skills might be somebody in your company has to do with Gamma PNA solutions. Well, there's very few in the world that know how to use Gamma PNA and they probably all work for somebody else. Which means that if you need to hire somebody who has really specific skills, you'll need to go to somebody who already works at other companies. Might be the same thing with Artificial Intelligence. Might be the same thing with really talented chefs. On the other hand, there are low specificity skills. Really good sales people, good marketing people, where there are many people out there who might have that skill set. And they're often looking for other jobs. So for highly specific skills, if you have a very prominent job, you're looking for a C-level top management team employee, you probably might need to use headhunters to go after those sets of people. For less prominent roles, you will need to pick up the phone and call people at your competitors and get them on board. For low specificity skills, you're going to actually advertise. And if you advertise with good filters, you can actually get very high-level people. And you can consider doing university visits and other things for low prominent skills. So the first thing you need do is make sure you know what your roles are, and make sure you're sourcing properly. After that, what are you looking for in an employee? Well, the first thing you're looking for is skills, and there's a huge difference between the top and bottom hires. So this is actually some results from some studies that I did, looking at the performance of people in the video game industry. And looking at the performance of entire teams, so C-level staff or the entire company as a whole, the performance of middle managers and the performance of the innovators, people who come with ideas within the game industry. What I found was 20% of the variation for performance, that means 20% of the variation of these games that make hundreds of millions of dollars and that 20% of that revenue variance came from who their middle manager was. 21% came from the rest of the company as a whole and only 7% came from who the innovator employee was. This tells you that, even when hiring middle managers, getting the best people in the job matters a lot. And we already know there's huge differences in technical employees as well. The difference between an employee in the top 25th percentile versus the bottom 75th percentile among programmers can be somewhere between eight and 28 times performance differences. So you need to hire, whether they're mill managers or potentially the technology people, that you're getting the very best employees because there are huge productivity differences come as a result. So you're not just hiring for early employees for their skills and for their roles, you are also hiring for their networks. There's some evidence that suggest that the social capital people bring to the table is at least as important as human capital for early stage companies. That means the networks people bring to the table matter a lot. So how can you think about the networks people are bringing to the table? You can think about this as thinking about four different kinds of networks we're interested in. You're interested in people who bring networks of connections to potential future employees, potential partner companies. You're interested in people who have networks that extend to users and customers. You're interested in people who have networks that extend to potential investors. And also people whose networks might extend to suppliers and other kinds of partnership with other companies. So you want to actually, when you're thinking about hiring people, decide what kinds of networks and connections they have and how good those network connections are. So do they have easy connections to potential customers? Do they work for the company that you've actually you want to bring on as a customer? Well, that's a really powerful connection there. The person might have important network connections in their inner circle. On the other hand, if they just vaguely know a bunch of people, that network is not as useful. So you want to sit down and actually think about the networks that people are bringing to the table, as you do this early stage hiring. Once you do this, how do you actually do hiring? Well, there's a whole science behind human capital that is very deep, and we'll cover just in basics here today. So one key thing you want to do is have a scorecard. So you have those roles that you've determined earlier and you've figured out whether people have, what functional roles, what managerial roles, what skills people have. You want to actually write those all down and have a common scorecard which judges all those characteristics. Then you want to talk with other interviewers and you need to have at least three to five interviews, which means that if you're the only person in your company, you need to find some friends to help you do interviews or hire people to help you with interviews. But, you need to have a formal approach and agree with your interviewers about what kinds of questions you're all going to ask. You might want to have some basic screening in advance. So, you can do that through lunch, through phone calls with your high quality candidates. But you want to be careful to avoid homophily. What's homophily? Homophily is the natural principle that we like people who are like ourselves. So we tend to be attracted to and find interesting people who share similar backgrounds to ourselves. But if you're a business person, you're hiring a programmer, there's a good chance the good programmer won't share all the same skills and interests and background that you do. So you might naturally not have that connection or fit with that person. And what you want to make sure is that you're not overvaluing that sort of personal connection or fit because that may only get you people who just look like you in the organization, not get the diversity of skills and experience you actually need. You also should consider assigning pre-work. What is pre-work? Pre-work is stuff that people do before they come to your interview. So there's a bunch of things you can do for pre-work. You can ask people to do a report on your product. You can ask people to come and observe your business and come up with ideas on how to improve it. But regardless, you only want to do pre-work if it's meaningful, if it teaches the person who's doing the pre-work whether they want the job, ultimately. And also if it's respectful. So you don't want to just give people pre-work because it'll turn them off. If it's disrespectful, it requires too much work. But do think about pre-work if its useful. Once you're in the interview, the best kind of questions to ask tend to be questions where you actually walk people through their resume, and look for the characteristics that are spelled out in your scorecard. So you don't want to ask people what their biggest weakness is, if that's not an issue for your score card. You want people just tell you about, tell me about a time that you were able to do this functional management activity that is for our primary score card. Were you were able to work with a team under adversity. And then when they tell you about the time, you want to ask lots of questions about it. So how did your team get in that situation? Did anyone else try and help you? Was anyone resentful about it? And talk through those issues and you're looking for behaviors in that scorecard that you've already decided on that are important. So you're digging through people's pasts. Maybe you'll ask questions about the future. How would you handle a situation where your team was under pressure, and had to deliver a product under time and it wasn't ready? What would you do? But you want to ask behavior questions that are focused on exactly the behaviors that are in your scorecard. After the interview, you should think about using references. Now part of the problem with references is many large companies don't actually give good references and some companies that do give references, the person in the room will just write down references that are potentially useful to them. So when you do those interviews, you can use the threat of reference check to help surface interesting ideas. So as you talk to somebody, and they tell you about what happened at the team that was operating under adversity for example, you can ask them, so who was your boss during that time? And they might ask you why you're asking that. And you could say I might want to cal this person as a reference. What would they say when I call them? And that's a really good way for them to give you a preparation for why they think this person would be a good reference or not and really explain that. And so you can get some of the benefits of a reference without actually having to go through the process of reference check. Ultimately, after the interview, everybody needs to make a go or no go decision based on the scorecard. So have you objected to discussions, based on that scorecard that you've filled out and you're not making any sort of hemming and hawing? People have to decide is this someone we're going to hire or not. And ultimately, you need to close very hard. You need to make sure that you've gone through the process and now that you've gone through all this effort to hire somebody, that you actually go through the process of making sure you're hiring them by doing everything you can to give them power. Have everyone in your company email them and tell them how excited they are to get them on board. Negotiate with them about stock options immediately. Ask them what kind of office furniture they want. Whatever you need to do to get somebody excited about the company and feel like they really should take the job, that's what you're going to do here. Hiring is this really important. Hiring key people is even more important. You need to consider roles, skills, and networks. For roles you need to be aware of imprints, think about growing by division, make sure you're sourcing properly. For skills, realize the best and worst employees are very different from each other. Use their history in those interviews to judge who is good and who isn't. And with networks, consider the diversity of the network, and how well people understand how deeply those network connections work. If you think about these sets of issues, you'll be better able to hire key managers.


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