Early employees at WayUp. Cofounder Liz Wessel is second from left.
Courtesy of WayUp
Forty-four percent of small business owners in April of 2021 said they had jobs they couldn’t fill, making it harder to scale their companies.
This is an ultimate guide to hiring the first 5 employees at your startup and making sure they’re stars, from founders and investors who have done it
This article is part of Talent Insider, a series containing expert advice to help small business owners tackle a range of hiring challenges.
It’s easy for new founders to fall for the “superhero mythology.”
That’s Jason Nazar’s term for thinking you personally have all the diverse skills required to build a company from scratch. But no one does.
Nazar, the cofounder and CEO of Comparably, told Insider he was a victim of the superhero mythology when he first launched the company, a website that monitors workplace culture and compensation.
In reality, though, companies are successful because of the dream teams that are built around the founder, Nazar said.
As a new startup founder, you’ll want to hire people who can fill the gaps in your skill set and rocket the company to success. However, it’s easier said than done, especially as the country is undergoing an economic downturn.
Nearly half of small business owners in July said they had jobs they couldn’t fill, according to the National Federation of Independent Business.
“The labor shortage remains frustrating for many small business owners as they continue to manage inflation and other economic headwinds,” said Bill Dunkelberg, the chief economist at the National Federation of Independent Business, in the report.
We asked a series of entrepreneurship experts — including founders, investors, and business professors — to outline some best hiring practices. In exclusive conversations, they shared revealing interview questions, common pitfalls to avoid, and how to know when you’re ready to bring on your first employee.
Our sources include:
Krystle Mobayeni, cofounder and CEO of BentoBox, which helps restaurants design their websitesLiz Wessel, cofounder and former CEO of WayUp, a job platform for college students and early-stage professionalsTomas Chamorro-Premuzic, professor of business psychology at University College London and Columbia UniversityCat Hernandez, partner at the venture-capital firm The Venture CollectiveChristine Beckman, the Price Family Chair in Social Innovation and Professor of Public Policy at USC PriceGlen Evans, partner of core talent at the venture-capital firm Greylock PartnersKim Taylor, cofounder and CEO at Cluster, which recruits for advanced roles in manufacturingCesar Carvalho, cofounder and CEO at the corporate fitness program GymPassMark Leslie, managing general partner at Leslie Ventures and lecturer at Stanford Graduate School of Business.
Read on and learn how to navigate hiring in an early-stage startup.
Know when it’s the right time to expand your team
You (and your cofounders, if you have them) may have secured seed funding before adding anyone else to the team.
Read more: The first-time founder’s ultimate guide to pitching a VC
Now, your goal in hiring the company’s first few employees is to get the product or service to market.
Evans, of Greylock, said the specific type of hire will depend on factors including the skills and experience of the founding team, the experience necessary to build the business or product, and how much progress you’ve made so far toward product-market fit.
At software companies, for example, the first few hires are typically engineers. Based on her prior experience at Primary Venture Capital, Hernandez said those engineers are either building a minimum viable product or optimizing the baseline product the founders put together. From there, Hernandez said, founders usually look for business roles to support the initial go-to market.
And if you’re considering bringing on a contractor instead of a full-time employee, Evans said there are two key questions to help you decide:
What skills are missing that would be critical to building the company or product?Is this a long-term or short-term need?
If the skills are critical and it’s a long-term need, “it’s probably a good time to consider hiring someone [full-time] to round out the team,” Evans wrote in an email to Business Insider.
Hire to fill the gaps in your skill set
Among the entrepreneurs Hernandez worked with at Primary, she said, the most successful founders “have a self-awareness about their strengths and weaknesses.” Plus, they’re able to hire people to complement their skill sets as their business grows, Hernandez added.
If the founder is a visionary, for example, they bring on someone who’s good at execution. Or, if they’ve got an engineering background, they look for an experienced marketer.
Beckman’s research suggests this kind of self-awareness can prevent problems down the line. One study indicates that founders who hire experienced specialists — say, in marketing or operations — early on are more successful than founders who wait until there’s a specific issue.
Founders who try to be generalists, Beckman said, can cause organizational bottlenecks because they lack the appropriate expertise for every domain and because every decision needs their approval.
Read more: A new book by Facebook’s HR consultant urges bosses to pass on well-rounded job candidates. Here’s the unconventional hire it recommends.
Avoid hiring clones of yourself
Tomas Chamorro-Premuzic is a professor of business psychology.
Courtesy of Tomas Chamorro-Premuzic
Chamorro-Premuzic, a business professor, said founders often make the mistake of hiring people just like themselves, an established bias in organization psychology. (Executives across industries are known to do the same thing.)
“When someone looks like us or behaves us like, we’re likely to say that we like that person,” he said. “It’s a socially acceptable way of being narcissistic.”
Indeed, Nazar said that one of his biggest mistakes as an entrepreneur was trying to hire people like him. “It was one of the things that I was just absolutely wrong about,” he said.
Read more: The ultimate guide to becoming a better boss in 30 days
A growing body of evidence suggests that diverse teams outperform more homogeneous ones. While it’s important that employees share your core values, it’s also important to look for people with different stories and experiences.
Diversity can refer to skill sets and personalities, or to gender and ethnic backgrounds. It allows for people who look at situations from different angles.
Avoid B-level employees
Founders need to ensure they hire the absolute top talent or they could pay for it later, said Mark Leslie, a VC investor and lecturer at Stanford Graduate School of Business.
For example, a B-quality employee leading the engineering department might hire another B-quality worker or worse, he said. Alternatively, entrepreneurs who hire an A-quality staffer can expect that individual to have a higher standard for bringing people onto the team.
Reference checks can help entrepreneurs avoid this mistake. Ask references how the employees did at their job, how respected they were, and identify strengths and weaknesses, Leslie said.
Assess whether job candidates are suited to the startup environment
Chamorro-Premuzic said founders should prioritize “learnability” above all in job candidates. Learnability refers to the willingness to grow and adapt your skills in a rapidly changing workplace. It’s similar to a growth mindset, or the belief that your talents can be developed through effort and feedback (i.e. they’re not fixed).
To suss out learnability, interviewers can ask indirect questions that point to curiosity, like if potential employees take a different route to work everyday.
Founders should also be wary of hiring people who need a lot of structure.
Kim Taylor is the founder and CEO of Cluster.
Courtesy of Kim Taylor
At Cluster, Taylor previously told Business Insider, she looks for people who will be “comfortable with the fact that their role will be changing; they’re going to be doing different things every day.”
To that end, Taylor gives job candidates “really unstructured problems” to solve, similar to those at Cluster. She said that it becomes clear quickly who needs hand-holding and who doesn’t. Those who fare better in unstructured environments may have a relatively low “need for closure,” a scientific term for the desire to know the answer and an aversion to ambiguity.
Nazar, for his part, is honest with potential employees about the realities of working at a startup. He often tries to “scare” people away by being frank about the challenges ahead.
“If they opt out, I know that they probably weren’t going to be a good long-term fit,” he said.
Be careful when hiring friends (of friends)
Across industries, your chances of landing the job are higher if you were referred by a current employee than if you weren’t. There’s a good chance that your first few hires will come from within your network.
But Mobayeni cautions that you should put the same magnifying glass on job candidates you know as on the people you don’t.
She learned that lesson the hard way. In the early days of BentoBox, she hired someone she knew socially. “I probably didn’t do the right diligence or ask the right questions in that process,” she said, which became “problematic in the long run.” They parted ways after a handful of months.
Don’t wing it
As with any hiring process, consistency in interview questions and procedures is key to ensuring that all candidates are screened through the same filter. If possible, WayUp cofounder Wessel said, have multiple people rate a candidate on the same factors and then discuss, so as to reduce the possibility of unconscious bias creeping in.
Read more: A former Google HR exec says he’s seen too many people make the same mistake trying to interview candidates for jobs
And if you’re not an expert in the area you’re hiring for, Wessel recommends that you find an advisor or friend who knows more to help you with the interview process.
You’ll also want to ensure that your hiring process is legally sound. Gusto, which makes human-resources software for small businesses, has a helpful guide to hiring your first employee (in the US). Rules vary by state, but every employer should get workers’ compensation insurance.
Once your first hires start, be sure to have them fill out a a W-4 form, which determines their tax withholding amount, and an I-9 form, which verifies their eligibility to work in the US. You’ll also need to set up a payroll schedule.
Hire for the jobs you’ll need in the next few years
Cesar Carvalho is the founder and CEO of Gympass.
Courtesy of Gympass
Every startup needs a long-term vision. And every new hire should contribute to making that vision a reality.
But it’s easy for founders to get caught up in what they need today.
Carvalho previously told Business Insider that his hiring decisions in the early days of Gympass “were not optimal” because they weren’t equipped to tackle new challenges as the company grew.
As a result, they had to keep bringing on more senior people. “What I learned from it is that being able to plan for the next two to three years helps a lot.”
Still, it’s worth noting that plans can change. You don’t have to keep employees on forever if they’re not suited to the company’s new strategic direction.
Patty McCord, former chief talent officer at Netflix, previously told Business Insider that managers should regularly evaluate whether their current team is equipped to tackle the next big challenge. If not, the manager may need to let some people go.
Think carefully about equity
Many early-stage startups offer employees equity in the business, partly as a way to woo them away from more established, higher-paying companies.
The process can be confusing.
In a blog post, the venture capitalist Fred Wilson outlines a series of steps for granting stock options:
Determine your company’s “best value.” That number can be, for example, the valuation on your last round of financing or a recent offer to buy your company that you declined.Break down your organization into different levels: the senior management team, director-level managers, key employees, and employees in non-critical functions.Assign each level a multiplier (e.g. 0.5x, 0.25x, 0.1x, and 0.05x, numbers that Wilson said were standard in 2010.)Multiply each employee’s base salary by the corresponding multiplier so you get a dollar value in equity.Divide the dollar value of equity by your company’s best value. Multiply that number by the number of fully diluted shares.Voila! You have the appropriate grant amount.
Explain to new hires what their compensation package really means
If you are granting equity, make sure to have a conversation with new hires about what their compensation package really means. After all, not every new hire will have worked at a startup before. And while it’s employees’ responsibility to ask questions, you should be willing to share as much information as you can to assuage their concerns.
As Sophie Kahn, cofounder of the sustainable jewelry company AUrate, told Business Insider, you can also consider your employees’ personal preferences. Some people care more about base salary, while others care more about equity, she said.
Offering customized compensation packages is a way to stay competitive because it’s a win-win. Founders are more likely to attract top talent (who can afford to be picky about where they work) and employees feel appropriately valued.
Remember, too: If you don’t yet have the funds to offer market-rate salaries (and you’re granting stock options to compensate), Wessel recommends being transparent about this with candidates.
Cultivate a culture of ownership
At BentoBox, Mobayeni wants employees to be empowered.
Read more: A former GE exec who trained new managers found that almost all of them were making the same mistake
“You want a team from the beginning that’s thinking about the business as much as you are,” she said. “If they’re being micromanaged, or if they’re just carrying out a to-do list that’s dictated from whoever is above them, then that sense of ownership and care is not there as much.”
Indeed, employee autonomy is a key driver of creativity and proactivity. Not to mention that if employees feel disconnected from the company mission, they’re more likely to leave.
To that end, Mobayeni lets her employees make mistakes (within reason) and celebrates when they come up with an idea and see it to fruition.
“Having that connection to the work that they’re doing is just super important,” she said.
Emily Canal and Sherin Shibu contributed to an earlier version of this article.