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by Jon Leafstedt, Managing Partner
Many of us know how it feels to drive over a pothole and realize, “That damaged my vehicle.” Potholes exist along the search for talent, especially at the senior leadership level. For early stage companies that need to expand and mature, building the right leadership team is crucial. Each new leader can move the organization forward, slow it down, or steer it off track. How can you know whether your early stage company is steering toward a pothole or driving toward transformative talent?
1. Do you undervalue human capital?
It’s common for early stage company founders and CEOs to prioritize product and technology development, financing, or customer relationships. But, when building your leadership team comes first, everything else falls into place. A McKinsey study finds that hiring a top performer results in significant productivity increases. Publicly traded companies scoring in the top 20 percent of talent management practices outperform their industry average return to shareholders by 22 percentage points.
At first, hiring well is the founder’s or CEO’s responsibility. As the organization grows, it’s helpful to give an executive team member responsibility for attracting leaders who align with your organization’s unique personality and culture — someone responsible for people management and development who builds a talent infrastructure for long-term success. Having programs in place such as an employee referral program, an onboarding process, and a performance feedback process lays the foundation for a work environment that attracts, develops, and retains top talent — and demonstrates to incoming senior-level candidates that your organization is ready to scale.
2. Have you defined talent needs, now and for the future?
If you approach talent acquisition, especially at the senior-leadership level, thinking, “I’ll know the talent I want when I see it,” you’ve hit another pothole. Most senior executives can forecast company revenues for the next three years. Very few can similarly project the size and composition of their management team.
Define what your organizational structure will need to look like in one, three, and five years. Ask, “How many people will we need, in what positions, and having what qualities?” “What does our talent pipeline need today to be ready for tomorrow?” With these projections, you can systematically determine areas of opportunity and capability gaps for talent — and focus on specifics such as critical skills and behavioral attributes for success in a given position.
3. Do you have a diversity strategy?
Harvard Business Review reports diverse teams are smarter and more innovative than homogenous teams. Given these findings, it’s surprising that only 36 percent of early-stage startups (seed to series A round) have a diversity hiring goal. Only four percent have a senior leader tasked with seeking and attracting diverse candidates in an effort to reach that hiring goal (Lightspeed Venture Partners survey).
If you are not intentional about building a diverse leadership team, you are steering toward another talent pothole. Consider appointing a board member with a diverse network, and ensure your CEO is committed to developing a culture where diversity of thought and background is invited and encouraged. Then define your diversity goal, and appoint an executive responsible for attaining it.
4. Are you disregarding talent market realities?
It’s important to have realistic ideas about compensation and relocation. Entrepreneurs often over-weight the draw of a dynamic startup culture in recruiting high-level candidates. Compensation is the first reason executives reject offers from early stage companies, followed by counteroffer, scope of role, location, and job title (Lightspeed Venture Partners survey).
The reality is, superior talent requires competitive compensation, and high-quality candidates put a risk premium on small companies, so they tend to expect even more. When you attract the best candidate with a compelling compensation package that rewards the individual’s impact on the top and/or bottom line, you are making a good investment in the future of your organization.
On the subject of relocation, the willingness of executives to move has declined dramatically across all ages and nationalities. Individuals who are willing to move are more selective about where they will relocate. Be flexible about where your people live, and consider commuting options to accommodate top candidates.
5. Is your selection process crisp and professional?
A professional selection process reflects the quality of your organization and helps define your employer brand for every candidate. Assuming you interview five candidates, what do you want the four that did not join your organization to say when others in the industry ask about your company?
The selection process for top talent should be crisp and well-coordinated:
- Begin with an effective search. Limiting the source of candidates to your own personal networks is risky. A wider search can bring a full deck of well-qualified individuals.
- Next, a well-structured interview process is essential. Senior-level candidates, especially veteran talent coming from established companies, may be looking for flags that an early-stage company doesn’t have its act together. The interview process can solidify their impressions, good or bad.
- Also, use assessments carefully. Assessment tools are but one part of the picture, often best for evaluating cultural fit and highlighting areas for further exploration with candidates of interest.
Reach your goals faster and more effectively
As you build a leadership team to drive your organization’s success, learn to recognize and avoid these talent potholes. Attracting, developing, and retaining the right leaders will enable your organization to reach its goals faster and more effectively — and will lead to more success over the long term.