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Recruiting Is A Never-Ending Process

Bringing The Best People Into Your Best Company

"Recruiting is a never-ending process," says Mario Morino, Chairman of the Morino Institute, "There shouldn't be a day that goes by when you are not on the hunt." Here are his comments on issues like the current recruiting climate, setting expectations, warning signs, compensation packages and how you can avoid most potential problems by hiring the right people. They come from a Netpreneur Program's Coffee and DoughNets meeting on April 23, 1998.

This transcript in Rich Text Format (RTF 49K)

Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.  

Copyright 2002 Morino Institute. All rights reserved. Edited for length and clarity.  

Recruiting and retaining people is probably the single biggest challenge you face in creating a business. Sure, finding funding is important and all of the other things are important, but without the right staff, the right people, it's also all moot. You grow and develop yourself and your business with good people.

Recruiting is the responsibility of every executive in your business, not just of the CEO. More than anything else, the thing you look for in an executive candidate is the ability to recruit and develop people. Candidly, everything else is secondary. You can avoid many problems by hiring the right people.

Hiring people is a time-consuming process that can have enormous payoff. However, every time you make a mistake it can be just as enormously catastrophic. What's subtle is that the sub-optimal people you hire can wear at you and take you down. Sometimes, you don't even know it's taking you down. There can be huge costs for making the wrong hiring decision. When you are small, the costs of making the wrong hire can be devastating. When there are only two or three of you and no money in the bank, you have so little recovery time that you can be destroyed right then and there. Recruiting is as much about avoiding the people you should not hire as it is about attracting the right ones. Sure, there will be times you have to sub-optimize, perhaps you have no choice, but if you do, do it consciously, not out of expediency or availability. Too many of our hiring processes are rooted in those two words—expediency and availability—rather than getting the person who is really going to help you and your company grow.

A lot of us look at recruiting as a finite process—we recruit when we need somebody. If you do that, you'll always come up short. Recruiting is a never-ending process. There shouldn't be a day that goes by when you are not on the hunt for top talent. If you're at a customer site or a conference, look for the people whom you want in your company two years from now. Continuously think about people and seed them with ideas. You'll find somebody who's a star and, though it may take you three years to land him, plant the seed that at some point he will be working with you. Court people. Keep building relationships because, eventually, you want them to join you in some fashion.

There is nothing grandiose about recruiting. As many of you know, I believe that what makes people successful is their ability to execute. Successful recruiting is a series of blocking and tackling issues. Just like selling or developing, it is a process, and one that requires very specific execution to do it well. Some of it may seem pretty obvious, but if it's so obvious, how come so few of us do it well? So, I'll unabashedly hit the obvious and focus on the simple things that we tend to overlook in recruiting. Hopefully, it will help us all be a little more effective.

 It's A Tough Market

What makes recruiting so challenging in the 'Net space today? I think we all know the answer—it's a tough market. If the person who wants the job is the seller, than this is a seller's market. Many of you may be the sellers. You may not appreciate it, but this is a booming market for you right now. You can almost dictate the terms of the deal. It's not quite as bad as it is in the Valley where you hear about the huge signing bonuses and the billboard signs, but it's getting there. Many of the things you'd like to do as the employer you just don't do, because you will never get away with it in the negotiation. The candidate, the seller in this case, has the leverage in the transaction.

In your business you have to create an environment that is so attractive that the person wants to be with you. You must create the differentiation—why they will want to work with you. The seller's market makes it very difficult, so you're seeing dramatically escalating compensation.

I've got to tell you that I get a kick out of this because so many people think it's a first time occurrence. It isn't. Many of you may remember that there was a big Amdahl center in Columbia, Maryland. When Amdahl moved into the region—in the late '70s or early '80s, I believe—they just drained the systems programming community dry. They hired 500 people and I was watching salaries change in $5K increments by the week. That's exactly what's going on now. But don't fight it. That's the game. It's a given, so work it.

One of my good friends, Patrick Arnone, has a long background in sales and now runs an executive search group. He gave me some numbers on what's happening in sales compensation. Within a two-year period, the income target for quota for an individual sales rep has risen from $150-175K to $170-190K, with the high end hitting $200-250K. That's for simply making quota. It's a big change. Some of you who don't come from a world where you're used to salespeople may choke on that number, but that's the payment the piper will require.

No question about it, you've got a challenge. First, you have to know the market movement and where the trends are flowing. Then you have to ask yourself, "How do I get balance?" You are facing the need to perform. It's imminent, so you have balance getting quality individuals—the optimum individual—while making sure your meet your numbers, which creates the pressure to sub-optimize. You'll have to figure out what to trade off and what the costs of those tradeoffs are.

You also have to add into this mixture that recruiting into a start-up firm is itself a challenge. I actually think it's more of a benefit than a detriment, but I know some will disagree with me on that. You're going to have to sell the fact that you're a start-up, because there are a lot of people here who have never worked in that environment before. It's an exciting world and, since so many people today are no longer trustful of their relationships with traditional employers, they are more open to going into start-ups for the first time. I think we are seeing a change, evidenced by you in this room. People are looking to smaller firms, to start-up enterprises. It's more exciting. They're going to learn more. Things are faster. They can have an impact. They are going to get more satisfaction and they are going to take a little risk. That's the big change. They're going to take a little risk, and I think the mentality is setting in to allow it to happen.

Your job is to balance these factors so you can get the people you need. It's tough, but it's an exciting challenge.

 Some General Pointers

Only you can address the recruiting challenge for your business, but let me start out by offering a few overarching points which can help. They are going to sound like motherhood and apple pie, but like I said, it's the basics that are important and we forget them too often.

- Treat Everyone With Respect

Have you ever been interviewed and you leave the room thinking, "Boy, these guys are really jerks?" When you interview people, keep something in mind: whether you hire that person or not, you will see them again at another time. Chances are you will see them as a customer. Remember that. Worse, you could see them as a competitor.

Treat every person you bring through with respect. Treat them well. Create a good image, whether you hire them or not. It's a very, very important element of recruiting and you'll see it missed a lot of times. People wonder why someone is ticked at them, why they didn't get an order. It's because you stiffed that person seven months ago and didn't realize it.

- Sell The Opportunity, Not The Job

When you are recruiting somebody, you are not recruiting them into a job. In fact, I think you want to avoid the person who is trying to take a job. You want a person who wants to join you and your mission to create a business. There is a huge difference in perspective in that process. When you are selling, don't sell the job, sell the opportunity, sell the business. Don't talk about how great this position is, because in our world, that position can be redefined eight times in the next twelve months.

- Don't Sell The Candidate

Make sure that they're buying into what the company is. It is important that they make the decision to join you, as opposed to allowing themselves to be sold by you. When you get into elements of the position, emphasize things like ambiguity. The person who is looking for a structured life is going to have a really anxious 20 years ahead of them. Your world simply isn't structured like that. If you need structure in that way, I suggest you get a shrink on the phone soon because your life has changed. When you see that procedural person coming through the door, be very polite, close your book, give them a cup of coffee,. . . and move on to the next candidate. You have to get people who are going to be comfortable, reasonably comfortable, with ambiguity because that's the norm we face. It's constant change. People who can't deal with that will be a tremendous liability to a startup business. You simply don't know what's going to happen in the next two days, let alone the next two weeks, so you are going to have to have people who can trust the fact that ambiguity will exist.

 Preparing For The Recruitment

- Know Your Value System

In preparing for recruitment—who you go after and how you go after them—the most important thing is cultural fit. That even supersedes competency skills.

When you are just one person, it's pretty easy to define your culture, because it's you. Still, you have to take the time to understand your culture, since you must make sure that this person will mesh with it. It's not a question of right or wrong; it's a question of profile, a question of fit.

This doesn't mean you are trying to create a harmonious environment. That's not what this is about. You're not trying to get people who are going to agree together, but you do want people who share a common set of values so that they can function together. This is the most important decision in your process. You've got to understand what you are made of and what you want to be, then make sure you are bringing in people who fit that model and are going to be comfortable in it.

Whenever I violated that rule, I paid dearly. It's essential that you understand yourself and that you can articulate your business values. If someone were to ask you what those values are, what would you tell them? Be prepared to give that answer, And, you want to know about their value structure. You want to be able to validate it. It's far more important in a smaller business than a larger one, but it never loses its importance, no matter how big you get.

- Pinpoint The Skills You Need

People often hire to an abstraction. We know we need a chief technology officer or a chief financial officer, a programmer or a salesperson. We come up with a really nice job description or position description and we never take the time to specifically identify the skills that this person is going to require to be successful. As a result, an interview becomes a harmonious mating process rather than a check-off of skill one, skill two, skill three. That means, for example, if you are looking for a certain type of manager, you can ask: what is their background in project management? in partnering? Specifically, go down the traits you need in that role and hire to them. That also allows you to give people a justified "no" when they don't fit the job. You move the decision out of emotion and personality to skills and competencies. The trouble with an abstraction is that no one ever agrees on what it is. We all walk away with our own interpretations.

Be very specific. It's a lot easier for a person coming in to understand specifics. If you are talking about communication skills, which communication skills? Written communication skills? Research communication skills? Interpersonal communication skills? Public speaking skills? Visual communication skills?

Once you've created this skill map to go with your cultural map, you have a way to judge quickly whether someone fits. This applies to any position from CEO to a person in the mail room. There is no exception. You look at the value set, that's match number one. Do we have a fit on skill set? Match number two.

- Is It A Bubble Need?

Understand whether the position is a long-term need or a bubble need. Sometimes there is an apparent need in front of us. We'll take the time to recruit, we hire for it and then realize it was a six-month demand. Now we are through the bubble and trying to figure out how to redeploy this person.

If you hired to a certain set of skills for one job, and now you are changing everything, you have a problem.

You'll save yourself a lot of aggravation if you know whether you are after a sustaining or a passing need. If it's a passing need, just contract it. Don't attempt to hire. It's a very simple question, but one that's very seldom asked.

- Find People Who Are Entrepreneurial

It's a different style, coming from a large firm, IBM or Bell Atlantic, where you have had a good resource base behind you, and going to a three-person company. I'm not picking on those two firms. I'm talking about any large company, any large environment. It is absolutely critical that you hire people who are entrepreneurial. This is not to say that everyone has to be a person who will start their own business, but it is cultural and it goes back to values.

What does it mean to be entrepreneurial? It's attitudinal. They need to accept certain things—these are my ideas, by the way, which you may not buy into—but in a small firm everybody is a jack of all trades. I mean, you're faxing one day, you're washing bottles and dishes, the next day you are out doing a pitch to a CEO wearing a suit and tie. If a person isn't able to operate outside a caste system, they don't fit in a small company. It's that simple. You can't have the person who's going to sit in a lovely office, in the corner of the building, expect two secretaries at their disposal and resources at their beck and call. I have seen small businesses hire executives like this and then wonder why it doesn't work. They are in two different worlds.

What do you look for in entrepreneurial people? The key word is resourcefulness. Even though an individual is in a larger firm, you can determine if they have been resourceful, either individually or through the system. If they are resourceful through the system, they may not be of much value to you internally because they are used to doing things through other people. In a small business, you don't have the luxury of doing things through other people. You have to perform.

Look at their backgrounds to see if someone has been individually resourceful. You will find people, like Joe Henson who came to Legent as Chairman and CEO. Even though Legent was large, it was pretty small by Joe's standards, yet if you tracked his background, Joe was not the kind of person who had to have somebody waiting on him to come in and run the business. He'd be down in the depths of the company within 24 hours.

As I've said, it's so important that you find out if people can deal with ambiguity. Entrepreneurial people can. Are they able to deal with significant change on a regular basis? Are they going to be individually resourceful? Are they self-starters? Anything short of "yes" penalizes you. That's how you have to look at it. When you make the wrong call, it's going to penalize you. It will take up your time trying to rehabilitate this individual.

 Going After Candidates

When we are going to hire somebody, we put ads in the paper, we bring in recruitment firms. We get the people who come to us.

Frankly, it befuddles me. Maybe we are not confident in ourselves.

We should be audacious and say, "Who is the absolute best person that I know for this spot? I'm going after them."

People don't think that way enough. They think, "Well, we're not going to get him." You didn't ask them, did you? How do you know?

Since you are always recruiting, keep thinking of the best, the very best. The person you really want is the person who is not looking for a new position. I'm not trying to insult anyone, but if you are talking to someone who is looking for a position, you are often already one notch down.

I want the person who is happy in a position, moving like mad in a position, driving other business. I want to pull that best person and put them in our company. All that's going to happen is he or she might say, "No." Maybe the first time. Maybe the second time. But you know what? You keep going to that person, and maybe the third or the fourth time you are going to get them. Remember, recruiting is a continuous process.

Be very aggressive. Actually, you'll be respected for this. Think about the best possible person you can get for the role. Very strategically, go out to the best possible candidate and ask them. If you can't get the best one, get the second best, third best. Keep working the pecking order.

Sure, you are going to look at who's available from the ads and recruiters. That's another source. But given your druthers, go after it strategically.

Think about the people in this room for a minute, the ones who might make excellent partners for you in your business today. You might not even think about asking them that question, because, well, they're doing their own thing. But, just maybe they've got a few doubts in their mind. Go after them. Find out.

One other point on this subject, be sure that you are not making decisions from a universe of one. So many times you'll see somebody going after a position, they find a person, they get all excited about the individual and they hire them. Hired them compared to what? You have to have options. You should be able to benchmark a candidate and say, "Is this person good or bad?" Give yourself alternatives; force options in the recruiting process. Don't allow somebody to come back and say, "I have a candidate!" Nine out of ten times you have a loser at that moment in time. You may be lucky and get a winner. You want to say, "I have three good candidates!" You want to have a choice. And, yes, I know I'm saying this within the context of a very tough market. But if you want to be the best, these are the steps you want to consider.

 Make Recruitment A Company Priority

You can't assume that you are going to be the one who does all of the recruiting, all of the time. I'll return here to my earlier point—when you are about to hire somebody, especially another executive, find out how good he or she is at recruiting and retaining people. And, who will they bring with them?

You want to chain opportunities. That's what you do. I can give you examples where a company was acquired and we went after one of their executives. Then, in serial order, we went after eight more from the same company. We got them all. Everybody thought we were crazy and it actually saved us for two years.

The first question in your mind should be: how good is this person at recruiting? What's their track record? Whom have they brought on? Whom have they hired? When did they hire them and how successful were they? Did they stay? Specifically ask them, "Who can you bring on as we expand?" If they can't answer that question, you want to pass and go to the next one. Recruit people who are great recruiters themselves, and who can retain the people they recruit.

 Sources Of Recruiting

Let me cover sources for recruiting lightly. There's a lot that could be said, but we'll stay at a high level.

- Advertising.

I'm very biased here. I think advertising is close to a waste of time unless you are a large corporation. When you advertise, most of the time you get the driftwood. I'm sorry if I'm offending somebody, but I'm trying to speak as somebody who hires people into start-up firms. I want somebody who is not looking for a job. Okay, sometimes I want somebody who's out there that I can pull in or I want somebody who is consciously deciding about making a change. Anyone who is very good has people or opportunities they know about, so they're not even going to bother reading an ad. Yes, I know it's a harsh view.

- Recruiters.

Recruiters can be very useful. They're very good in high volume situations when you need a lot of people. They can take a big work load off you in the process. The one thing I'll suggest in dealing with a recruiter—and I'm separating recruiters from search firms—you want to watch what I call the "revolving Rolodex recruiter." It's the technology industry's version of the insurance salesman. What happens is you attach to a recruiter and for some period of time they are giving you all these great names. They are giving you the same names they gave the last guy, last year. In another 12 months, they're going to be giving the same people to somebody else. That's not a partnership. You can figure out this process and get out of it. There are quality recruiters out there.

How do you find a good recruiter? How do you find a good search firm? It's tough. There are a lot of them and it's like anything else, there are good and bad. You've got to do due diligence. You've got to go to people who have used them, both on the employment side and the search process. Validate that they are consistently good. The other thing I'll suggest is that you never simply hire a firm, but that you are specific as to the partner or an individual you want. A lot of firms will hate that comment but I'll stand by it. XYZ may have a great reputation, but if you don't get the right partner, you don't get the value you need.

- Search Firms

We have used recruiters and search firms very differently. Recruiters you use to bring in a lot of people—programmers, sales folks, etc. Recruiters can be very effective there. You've got to focus on quality or they can cause you as much grief, candidly, as doing it yourself. Search firms are a little different. You are going to be paying a fixed fee to this search firm whether you get the person or not, in all honesty. It's a much more disciplined process. I tend to like the process when you are going after an executive. It helps you formulate your own ideas because that's what they do for a living, and it gives you a one-two punch in dealing with the executive recruiting process. It's also very strategic, because a good search firm is going to come in and say, "Who do you want?"

In fact, you'll actually get aggravated at the beginning. You are going to say, "Wait a minute, I'm going to give you the names? I hired you to do this." Then you'll realize, that's what they do. If you give them the names, they are going to get other names but they want to create the target list to go after. I find them very effective in that role, and they give you a very good buffer. It's expensive. Search firms make some good money, so you have to make some trade-offs, do some deals. If you are going after a CEO or an operating person or a VP of sales, I would strongly suggest that you suck it up and use a search firm, a very good one. It will help you raise your horizon and change who you can get access to.

- Your Contact Network

At the end of the day, this is what it's all really about. It's why I keep saying that recruitment is a 24-hour, 7 days-a-week task. You want to constantly keep in touch with people. When you need somebody, you want to go to your network and work it hard. Just keep pounding away at your own network and one level beyond your network. Do it off the 'Net, do it on the 'Net. The 'Net makes it a lot easier.

- Current Staff

Bonus your staff. In the beginning I was always reluctant to do this, because it's such a key responsibility of any manager, but the reality is that it works. Give people in the firm a healthy bonus if they find somebody. It gets a very good internal reaction. They become much more engaged in the recruiting process and it's a win/win proposition.

On the flip side of this, the market is so intense today that you should get all your bio information off your Web sites. The recruiters are checking out your sites to find your people and snatch them. You're telling them, "Here are my guys, come and get 'em."

As a side note, recruiting takes time and dedicated attention. We have people with good managerial skills in this region who are available right now. Don't be afraid to retain them for 60-90 days to help you in this process. They've been through it and they could be of great assistance to you in your efforts. Or just bring them in as a mentor to help you through the recruiting effort, because it is a disciplined process.

 Warning Signs

I'll preface what I'm about to say with a reminder about the context. These are good tips until you get into the supply and demand balance (or imbalance) of our current market where things become more competitive.

- Test People

Most of your companies have ten people or less, so anyone you hire is going to have a big impact. How do you know what they do well? How do you know how they respond? I think it's important to test a candidate, even though it's risky when the supply/demand ratio is out of balance. Set up times when they have to call you back. Set up times when they have to do something in the recruiting process. See if they do it.

If they blow one, that's strike three; they're out. They just told you something, haven't they? I like to push something back in a candidate's court because I want to see what they are going to do. "That's a great idea, why don't you write that up for me?" "Could you come in and present that to our team?"

Keep putting something into their court. Test them. What have they have done? Collect physical things—code, production, creative work, reports. See what they have done. Make sure they did it, by the way. One of the hard parts of business today is to figure out who really did what. I'm amazed how many people claim to have helped develop our Legent products today. I can go around the country and there are thousands of people who believe they helped develop the product we developed. I don't even know their names. You need to understand who was the trigger person because you get a lot of hangers-on. If someone says, "I did such and such," make sure you call somebody and find out if they did. You want to find the people who did things, not those who were around the people who did things.

- Did They Do Their Homework?

It was true before, and it's even more true now that we have the Web, that if you are recruiting somebody, they should know an awful lot about you. If they don't, they have told you something so important that it is almost enough to reject them outright. Think about it. If they really cared about this opportunity, wouldn't they want to find out who you are and what you are doing? Ask them, "What have you learned about us?" If that's a 20-second conversation, your interview probably shouldn't be much longer.

- What Goes Around, Comes Around

Give people time to talk. Test yourself, by the way. In your next interview, figure out how much time you're talking versus the candidate. You shouldn't be talking a lot. Give them more and more time, let them just talk freely because the ones who talk aimlessly are telling you something about their ability to focus.

People have a tendency to say the wrong thing. You want to bait them. You want to set them up to start talking and hear what they tell you. The cogent person is going to be very articulate; they are going to come back to you with very good responses—you have a winner.

Also, look for whiners. That's cancerous. End of conversation, meeting's over. Avoid people who makes accusations. I love the person who may have had difficulty with the previous job and says very little about it, just, "It didn't work out." That's a pro. When someone starts telling me what their boss did wrong, what the problem with the business was, all I keep thinking is "They're talking about us 12 months from now."

What I really like to do is probe them on how much they will tell us about the trade secrets of what they do. Remember this: whatever they are doing in front of you now, for you, they will be doing to you downstream—whether they do it professionally or unethically. Test it, because when you are small, they are going to be part of you. You are going to give them a lot and, in return, they should be willing to give you a lot. That's the trade. That's the trust bond you're trying to create.

- Focus On The Opportunity

This point may seem arbitrary, but it's not. If you are in the first meeting and somebody talks about compensation and benefits and driving time—end the meeting right there. They are focused on the wrong issue. Those are all important, but you worry about them later. The conversation should be about the opportunity. Are they excited about it? Are they excited about the challenge? Do they see what you are laying out as something that's really interesting? Are they talking about what they can do and what you can do to help them? That's the essence of the relationship.

If they're already talking about comp and benefits and vacation time, I'm out of that meeting. They're telling me that they're a nine-to-fiver. You cannot live with a nine-to-fiver, period. They'll kill you.

You want the person who is excited about the opportunity, who is focused on it—whether it's a CFO or an administrative assistant or a network administrator. You want them excited about the challenge and focused on discussing the challenge. The other stuff gets worked out. If the job works, then the compensation will work, the benefits will be there, all that other stuff will flow. You have to have that perspective.

- Find The Curious, Positive Mind

Get candidates to start asking questions. Make them ask questions. You want individuals who are curious, who have the desire to learn. Go after what's behind their questions. You want to see the positive, constructive question. That's a sign of how they are going to think. What you are looking out for, trying to test for, are the skeptical, cynical questions. Again, that's cancerous to an organization. They are going to do that for the next two years of your life. You don't need that.

Life is too short. You don't need the whiner. You don't need the one who thinks their job is to be the contrarian. You don't need the one who has to be your cynical conscience. You have to live your life. I'm serious, be that decisive. Otherwise, it's going to take time from you, from your family and from your best people. Look at it that selfishly. You want people who are going to help you, not take away from you or drain you.

Nothing drains a manager more than a personnel problem. Nothing. It drains a great manager tremendously because they care. If you have done everything else right in your recruiting, you're getting caring people. Now you get these insidious personnel problems. You are working on all negative things as opposed to your product and your business.

Related to that, let me urge you to avoid rehabilitation projects. As a start-up, you do not have time to rehabilitate someone else's life. If you do it consciously, that's fine. It's your call. But as a business, you don't have time for it. If someone has big problems, wish them well, help them as an individual, but don't bring them into your company. Again, I'm not trying to be harsh, I feel for these people, too. Remember my comment, though. It's your life, it's your spouse's life and it's the lives of the rest of the people in your business.

 Some Rules Of Thumb

In recruitment, there are many different paths you can follow. Some lead to success, others have pitfalls you need to avoid. Here are a few things to keep in mind.

- Avoid Hiring Overhead

As your business grows, avoid, with every ounce of energy in your body, hiring overhead costs.

An overhead cost could be an administrative person. It could be a CFO. An overhead cost is anybody who is not producing product or service or who is generating dollars, like a salesperson. When you are small, you can't afford anything but those kinds of resources. Anything else is a drain.

Of course, there is always a balance. You have to make these people more productive. But the balance is found in what the people from McDonald's used to tell us. We would go to them with a large proposal and they would say, "Okay, we can either buy all your products or we can build this many new stores to sell this many more hamburgers. What should we do?" That's the way they decided it.

You have to look at it the same way. If I put out $40,000 for an administrative person or an office manager, what happens? If I put the same $40,000 into another technical person or a creative individual or a salesperson, but I stress my internal structure, then what happens?

As an investor, let me tell you that the last thing I want to see is a very smooth internal structure. Nothing scares me more than somebody who has all their systems worked out. They're showing me that they are not worried about their marketplace; they're worried about their internal systems. You don't have that many resources. You are not that rich. Where is your focus?

- Put Great Talent On Ice

When you spot great people, you never want to forget them. Court them. Do anything you can to keep them close to you. Bring them in as advisors. Involve them. It's a slow engagement process. At some point you want to land those people. I call it putting them on ice. You may not hire them for three years, but you have it in your head that you are going to get them.

- Hire Rainmakers

Whenever you can find a rainmaker, move him or her right to the top of the stack. A rainmaker can be at any level of the organization. A rainmaker is a person who causes things to happen on their own. It's a magic element in people.

You'll hear it when you start getting references. You'll hear, "She can take something and make it succeed." Those are the people you want around you, because you can't give all the orders and you can't make all the decisions. You need people to do this of their own accord.

 Recruiting For Different Types Of Positions

Let's talk about types of recruiting. Recruiting executives is very different from recruiting staff. Recruiting salespeople is different from recruiting creative development people. Recruiting boards is different from all of those things. Since it's not homogeneous, you need different kinds of help in different sectors.

- Recruiting Executives

Here's where I would really consider using a search firm because they give you balance and credibility in dealing with candidates. If you do this properly, you are going to be hiring people who are probably better than you at that moment. It's a very disconcerting feeling. Remember, if you're the start-up candidate today, you're trying to bring in executives who have been where you are going. By definition they are more experienced than you are. If you are not looking for these people, you are going to fail.

The challenge here is that you are sitting at a table interviewing people who are far more accomplished than you. This was a remarkably intimidating thing for me to go through. I was sitting with guys who ran massive companies thinking to myself, "Why isn't this guy interviewing me?" I've actually apologized in an interview. I'd say, "I feel funny interviewing you. You know more about management than I've even thought about."

That's what you're going to do. That's what you want to do. Get somebody to help you through the process. And remember the upside: you have a story to tell. They're not coming to you because you're a great manager; they're coming because you are a great entrepreneur. You have great vision and they see an opportunity. That's what you're after. They'll blow you right off if they don't see some common sense, and you need somebody to help position a relationship with that executive candidate.

- Recruiting Sales People

I simply want to emphasize here that production teams and sales teams are absolutely different breeds of people.

Let me be blunt again. You really want to get mercenary salespeople. You want them to care, you want to make sure they have ethics and a value system, but they've got to have a love of money and an ego because that's what drives them. They've got to be able to walk into a bar and brag about how they just closed a $2 million deal.

If you do what I did, and hire them on egalitarian standards, you're going to fail. Really, that's exactly what we did at first.

You need people who are going to be aggressive and relentless in that marketplace. The key is for them to be aggressive and to really care about the business. That they fit your value structure. It calls for a special recruiting process. If you are technical, or you came up from the production or creative ranks, it's very hard to do that kind of recruiting. It's where you likely will need outside assistance.

- Recruiting Board Members

Dealing with boards is one of the most important things you do. Putting a corporate board together is often very difficult for a young company. If you can do it, do it. If you can't do a corporate board, put together an advisory board.

An advisory board has no liability involved, which can be a very big issue for corporate board members today. Advisory boards can still give you good advice, and, if you pick the right people and the right skill sets, they can give you greater credibility.

One difference between an advisory board and a corporate board is that the advisory board cannot hold you accountable. That's a big, brave thing to do, by the way, to actually take your own company and make yourself accountable to a board of directors, even if it's just two or three members. At the end of the day, you've got to be held accountable to somebody as a CEO. I tell you, it's going to change how you do things. It's an essential check and balance system for your own growth and success.

You want to make sure that the people on your board will help your business grow and help you grow as an individual. Sometimes we forget that last part. Make sure there are at least one or two people on the board to whom you can turn about your own development. How are you going to continue to learn as an executive?

When you're looking at the board recruitment process, we tend, at times, to recruit personalities. Don't do that. Recruit for the need. What does your business need at that point in time in terms of market penetrations, market linkages and skill sets? Maybe somebody with a financial background?—although I'll argue you don't really need that on a board. Somebody with a technology background because you have a heavy sales and marketing view? A strong distribution background?

As in any kind of recruiting, know your needs first, then find the individual who fits the need. Don't jimmy in a personality who might be a great individual, but whose skills aren't really needed. Look at market penetration, executive skills, technology and distribution, then recruit the board to that level.

Recruiting a corporate board can be expensive. It's not unusual, for example, that a director will expect to make at least $500,000 in a three to five-year period. That means you are going to give them a decent option program and, at some point, you are probably going to give them meeting fees.

 The Decision And The Offer

- All For One, One For All

If you are very small—five people, ten people, maybe even a little larger—consider using the "unanimous rule" on recruiting. Everybody gets a black marble and a white marble. When you're considering a development candidate, everyone in the development team drops a marble in the box and, if any of them are black, that person isn't hired. As an executive, it can cause you some consternation, but it can be a great way to make sure that everybody is intensely involved in every hiring decision. That's important when you're small, knowing they're part of the decision process and that you respect their vote.

We did that for years. If we didn't have everybody in agreement, we just didn't go with that person. I violated it one time and paid dearly for it. It can be a hard way of doing things, and it depends on your group, but it really speaks volumes to both teamwork and trust. It shows that you are all in this together.

- Avoid Surprises

When you're ready to make an offer to somebody, be crystal clear about your expectations. We often tend to sugarcoat things. We aren't specific in what we expect, and neither are they. Unfortunately, surprises can be dangerous.

Get into their minds. What do they think? You could go all the way down the line and end up with a big mismatch on expectations, so be very specific. It will help in the recruiting, in the dialogue, in the negotiation and it will help even more after they're on board. Make sure there are no surprises when somebody comes in. No hidden agendas. Get everything on the table.

- Compensation: A Piece Of The Action

Compensation is tough in today's market for all the reasons we discussed before. You're looking at the tradeoffs of stock and salary. I wish I could give you the answers, but I can't. Nobody can because it's a highly subjective subject. People who have been through it enough times can give you models which you can consider and apply in your case.

You're going to give people a certain package of compensation which includes a certain amount of stock. Stock, in the early stages, is typically made as grants. You're going to give people a piece of the action. Stop giving grants as soon as you can, and get into a stock option program because it has a better sustaining value for you.

We get all hung up on valuations at this stage. Look, you are either going to make it or you're not going to make it. If you don't make it, valuation doesn't make any difference. If you do make it, the number you set today is somewhat irrelevant to the final call, anyway. Think about it. Whether you are valuing the stock at 10 or $5, if that's what you're selling at, you're washed up to begin with. Why worry about it? At the early stages, you can just give the stock away. Put a penny on it, put a dollar on it, not everybody agrees with this, but it shouldn't be that big of an issue at this stage unless you have real asset value.

If you do have real asset value, then it's a different ballgame and you have to get a valuation. Most of us don't have asset value when we start—a time that could last well into the first year or year and a half into the business.

By the way, you only give stock to your keepers and your rainmakers. Don't pass out stock indiscriminately.

- Stock Option Programs

As soon as you can, go to an option program. Options are a lot different because you can put a program in place that has vesting and structures.

It's important, if you do stock granting, to be sure you put in a repurchase provision. We nearly died on that one. Few people think about it, but, if the person leaves, do you want them to go with the stock, especially if it's a big chunk? What's your exit strategy if someone wants to leave? It can almost take apart a company. What's really dangerous is when somebody's holding 5% of your stock, because that's what you gave them, and you get a chance to do a big venture deal. They don't have a right to do anything, but if they make noise, they can shake up the whole deal. It's legal extortion, and it happens more than you'd like know. It happened to us. Set up repurchase terms and make them fair. It has to be win/win. People need to know the repurchase terms. You don't have to exercise them, but it's your call.

When it comes to stock, it's very important to the executive recruitment, to your board recruitment and your people that you don't just say, "Here's stock!" Put a model together, just make sure that you have good legal disclaimers on the statement. For example, we said, "Look, we believe we have a value of X today,"—it could have been zero. Then we said, "Here's the game. We expect to grow the business in the following way over five years. If we do that, we believe we'll have a valuation of Y. If we get that valuation, and you own this percentage of the business, or this number shares, here's what your take will be." Don't leave that open to interpretation. It doesn't mean everything will work out, but it's your best guess as an executive as to how your business is going to grow. By the way, it will probably cause you to really pare back your astounding projections from your business plan when you do this. You'll have to face these projections for the first time, and you'll have to put a quid pro quo on them.

I'll give you an example from a larger company. In one case we brought in a CEO, and we put on the table that if in five years he could take us from $30 to $100 a share, he would make a lot of money. That's how you map it. You take a number of shares, you put in a realistic growth rate, you assume a stock valuation change in the market or fair market valuation and you show what the net worth could be at a given point. You do that for everybody. It's the only way somebody can understand an element like an option. Realize that most people in this region are absolutely inexperienced in stock handling. You'll do yourself a big favor by helping people understand the legal rules of stock.

Let me give you a case in point. A lot of young kids working at an ISP got stock options not long ago. They were exercising their options so they could hold the stock and show people. Do you know what that means? They bought the stock. In a stock option, they have now have an appreciated gain. They haven't sold the stock so they have no cash, but they have incurred a tax liability to the IRS. If that price goes down before they sell the stock, they are in trouble. Tell your folks that. I have seen kids take it on the chin right there. They're so excited, they exercise the options and six months later the market changes. Boom. They have no money, they get a tax bill and they have no idea what the IRS is talking about.

- Lawyers, Guns And Money Can't Get Me Out Of This

Legal restrictions are tough subjects today. Non-compete issues are tough to negotiate. I would still argue you should try. They are enforceable. You've got to be realistic and specific, and often you have got to be geographically-based. You can't have a universal clause, but you can be specific and it can have merit. You may not get it, but you should try.

Nondisclosure agreements are essential. You don't want people talking about your business when they are no longer with you. That's a simple clause and it's not an undue constraint.

Another thing that's very important is the non-hiring clause. If someone leaves, they are not going to hire from you directly for a one to three-year period. That's always a big risk because if you get the person who has brought everybody in and she leaves, guess what, they're all gone. Well, is it legally enforceable? Yes, it's legally enforceable, but its shadow alone is very effective, especially if it's a little larger company. When you simply put that in front of their legal staff and human resources team, you'll get a suitably nervous reaction.

Intellectual property—who owns what? Where is the line between work and home? We take a very hard-line position here. It comes from a lot of experience. We start out requiring that we, the organization, own anything anybody does, with the proviso that a person can request to create some intellectual property that is outside the scope of our work and that will not materially affect their responsibilities to the firm, and it will not be unreasonably withheld. We take this approach not to force controlled ownership, but rather to force the decision at the most relevant time. The ownership of intellectual property is seldom an argument when it's just an idea; only when it has value does it become a contested matter. You set up a process that's very fair and clear legally that if somebody has an idea they want to pursue, they lay out certain steps and conditions and there is no ambiguity about that. The key to success for this approach is: be clear in communicating the policy when recruiting someone and be fair in its execution.

This is not about restricting people. You are trying to make sure it's going to be eminently clear who owns something, them or you. This clarity is important to the individual and to your business. If you leave this matter ambiguous, you will leave yourself and the business open to claims that could arise at the most unfortunate times. It happened to us. Somebody claimed ownership of a technology, they retained an attorney and only brought the matter up when we were considering an investment by a venture firm. Until we could get the matter resolved, it hung things up. This type of situation is especially foreboding if you are considering an IPO.

In all of these agreements, be fair with all of your people, because it's a quid pro quo. It's a relationship you're trying to build. If you're not successful, you don't have to worry about them, but if you are successful, they will all come into play.

- Change Of Control

What happens if you are acquired? If you've given somebody stock and options, what happens? Do you have change of control provisions? Do you accelerate vesting schedules? These are important issues that apply to small firms. I've seen cases where companies are acquired for stock in a pooling transaction, and the stock option programs do not provide for acceleration of vesting schedules. With the transaction, those unvested options are in limbo and the individuals are the losers. You're dead. You cannot change capitalization in a pooling transaction. By that I mean, if you have a stock option program and it does not provide for acceleration of vesting schedules in stock transaction deals, people cannot get their unvested stock, period. Any promise you made that they would be taken care of if you ever sold goes out the window.

- On Negotiations And Trust

Don't low-ball people or negotiate hard when offering people positions with your firm, because if you do, you are already sending a signal of your mistrust. Put together an offer that you think is a good one. Put it out there and explain why it's a good offer, why you think it's fair. If it's not fair, or if it misses, talk about it. Do it collaboratively to arrive at a mutually acceptable solution, but avoid making it a hard negotiation.

You are starting a relationship counterproductively if you're thinking, "Well, I should give them $90K but I'm going to go in at $82K to see what happens." Now, at times in the process, you may want to test people, but make sure that your offer is the first signal of your trust in the relationship. Make a good offer from that standpoint.

 Keeping Good People

Recruiting never ends. Retention is simply another form of recruiting. You should be recruiting the people on your staff as intensely as you are recruiting people outside. Just because they are on board, you don't quit caring about them. Recruiting is a never-ending process.

If you change the status quo, be fair. I've seen people break the salary cap—this isn't unusual, by the way in these crazy times —but you hire somebody and you have to pay them more than you're giving other people in the same role. You know what I suggest you do? Go back and make everybody whole – over time. You'll have a lot better company. When you're at 2,000 people you can have caps and stages and hierarchies. When you're at 10 or 15 or 20 people, you're trying to create equitable and relevant compensation. Be able to justify why there are differences in what each person is given. You've got to go to bed at night knowing you did your best to create fairness and parity in how people are compensated for what they do to help build your business. Be very conscious of that.

Well, I hope this has helped you. Recruiting may be a never-ending process, but Coffee & DoughNets isn't, so with that, let me thank you and we'll look forward to seeing you again.



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