As a Founder-CEO you’ll find yourself hiring-in expertise that you lack, and at some point you’ll have to hire your first executive – likely CFO, VP Marketing or VP Sales. When going through the process myself for the first time, although I had the benefit of exceptional advisers and mentors to prepare me, it was still an intense experience. These questions are my abridged version of hours of advisory sessions, interviews and recruiting processes planning. I selected these four particular questions because they were the most helpful to me as a founder in narrowing down our search. Furthermore, they challenged how I thought about hiring, and as a result they’ve better equip me as a CEO.
As you read these questions, be sure to adjust them to fit you and your business culture – although these questions worked for me (someone with a technical background and moderate entrepreneurial experience), they may not be the most provocative questions for you. If you find variations that are more effective, please follow them instead.
Q1: How do I hope they ask to be compensated?
When hiring our first executive, I was fortunate enough to have extremely detailed market data for the new role in addition to the extensive experience offered by our investors. Because of this, it was a fairly academic exercise to place boundary conditions on the three compensation components: base salary, bonus, and equity. As you design compensation packages, an increase in one component typically implies a decrease in the others – as CEO you need to balance the mix such that the executive is fairly compensated, but the package is sustainable for the company. What you might not be prepared for, however, is how different candidate reactions and motivations might affect your impression of the candidate.
For me, I quickly learned that I preferred candidates that looked for a large outcome-based component to their compensation. The personal desire to tie their compensation to business metrics (e.g. a quarterly bonus based on conversion rates or sales numbers, or a stepped-up base salary tied to funding milestones) demonstrated a dedication to the business as well as an awareness that their value to the organization is directly linked to how well they can affect a material change in our business’s health. Although there are benefits to having a bonus-less compensation structure (less distraction, less administration, etc.), it quickly became clear that I was reacting more positively to candidates that were interested in tying their futures to the business performance.
Similarly, as I was expose to the many ways in which candidates valued equity compensation, the differences made a significant impact on my interest in the candidate. Some candidates inquired about the structure of the cap-table, and although this was expected, I found that I was reacting negatively to those candidates who did. The question communicated that they were more interested about how their compensation compared to others than they were about being compensated fairly. Similarly, although we had several candidates that were interested in a shorter vesting schedule, there was a subtle difference between those who were clearly hedging their bets in case of early-departure, and those who recognized that a reduced vesting period increased the likelihood of future ever-greening grants. It was this latter version that was the most compelling – it was a clear indication that the candidates had belief in the business, an interest in being involved for the long run, and an interest in delivering work that deserved increase equity compensation.
Finally, as we looked at our expected range of base-salary compensation, I quickly learned that I had a greater affinity with those candidates who expressed comfort with the lower-end of that range. Although I respected and looked for candidates who could command a larger over-all compensation (we want to work with top-tier people), I learned that, as a founder, I needed someone who was sensitive to the fact that cash is a dear commodity in a startup and so was comfortable shifting a larger portion of their compensation out of their base and into bonuses. Although we’ll likely end up paying more in the long-term, as a founder it leaves me feeling that we’re much better aligned.
So, pulling these thoughts together, I quickly found that I was ideally interested in a candidate who wanted:
- Significant performance-based bonus or milestone-based compensation
- The opportunity to earn additional equity
- Higher over-all compensation, but a lower base
Q2: Why will they suggest change?
I’m a very strong proponent of a “try before you buy” approach to hiring – get them in to not only meet the team, but also spend some time digging into your challenges. It’s a fairly straightforward process to pick out a few topics where you could benefit from some consulting help, without disclosing anything dangerously confidential. This process benefits the employer and the employee as they can evaluate the fit based on a more realistic data set and scenario. The inevitable outcome is that it’ll either become quite clear that the fit is poor, or the candidate will be able to offer insights along with clear recommendations for change.
And therein lies the rub – by virtue of hiring an executive that should “provide value” you are placing them in the situation where they have to recommend changes even if no changes are truly needed. Furthermore, because it’s often so easy to associate large changes with larger value, and because we’re asking new hires to ramp up so quickly, we’re actually incentivizing people to make large sweeping changes on inadequate information.
Bringing this back to hiring, although it is useful to have prospective hires work through some challenges with your team, by asking myself the question about why changes were being recommended, I was able to evaluate candidates in a new light.
Some of the answers I found included
They are trying to replicate past strategies in a different segment.
These changes are low-hanging fruit that would allow quick, incremental, improvement
They have honed in on my dissatisfaction in what we’ve done in this area and are mirroring me
I had challenges with each of these answers – they all spoke to someone with intelligence and aptitude, but they also highlighted what was essentially a shortcut. By the end of the process, I was looking for candidates who would elicit one specific answer to the question: they are recommending the change because they believe it is the best course of action for the company. This answer neatly accounts for the company’s strategic goals, current core business needs, available resources, and our priorities. For some challenges, tackling the low-hanging fruit would be a waste of time, for other challenges past playbooks would be irrelevant. Each situation is different, and to help identify candidates who would trigger the right answer, I started looking for candidates who:
- Demonstrated a high level of preparation before any working sessions
- Could identify as many elements in our current process that they wouldn’t change as elements they would change
- Provided solutions and strategies that none of our team had already thought of and suggested
- Took the time to learn as much about our business environment as possible before making any concrete changes
By looking at things through the lens of “why”, we were able to realize even higher value from working sessions during the recruiting process and were able to spend more time with candidates who were best-calibrated to our business needs and priorities.
Q3: Will our team follow them?
This question requires very little in the way of explanation of augmentation – either your team will follow your new hire or they won’t.
For us, although our original founding team was comprised of various levels of work and managerial experience, our first executive hire was our first experienced executive and as such would form the kernel of our executive team. Going forward, it would be important for me to stay well synchronized with this new executive, and to ensure that we could rely on each other to lead and execute when the other was absent. So that this would work, we were looking for rapport and respect – it was important that the team not only enjoy working with but also understand that he was operating with the full authority of an executive team member.
To accomplish this we had candidates spend time with us in roles where they were an authority figure (e.g. running a working session, as mentioned earlier) as well as spending time in more casual situations (e.g. out for a team lunch). To share our intent with the team in advance, we made it clear that while on the one hand we were actively recruiting candidates, at the same time we were trying to gauge fit. By framing the objective in advance, we could openly ask our team about how follow-worthy a candidate was. Once we finally narrowed things down to the final candidate, there are a strong consensus with everyone involved that not only was he fun to spend time with, but that he was a someone they could follow.
Although it’s not directly applicable to our experience, I’d like to contrast this process with one implemented by another startup friend – in his company they knew they were bringing in someone that was critical to the company, and rather than involving everyone in what could be a complicated process (the intent was to let the team focus on product, rather than on recruiting), they kept the entire process confidential till the offer had been signed and the person was starting. Within the first week it became clear that there were significant issues of confidence from within a development team – the end result was that several developers were let go soon after the executive started, the executive never really developed the trust of the rest of the organization, and he resigned six-months into his employ. My friend’s company is still running, but he now describes the process as a 12-month setback to his company’s growth.
Q4: Will we have each others backs?
This final question is easily the most important, and simultaneously the most difficult to answer; this question was as much about the candidate we were considering, as it was a question about myself.
I know that as our company experiences challenges, I’ll be relying on my executive team and they’ll be relying on me at all levels: employee relations, customer issues, product design, business metrics and even board conversations. When things are difficult, interpersonal relations are at their most vulnerable, and the worst thing that can happen is a VP undermining the CEO or the CEO undermining a VP – even if unintentionally.
I’ll share another example.
Another founder I know hired a VP Product to help with product vision and planning. Shortly after joining, during a planning session with the development team, the new VP mapped out a set of product features planned over the next quarter. Several developers were uncertain about the changes, and asked one of their more experienced team members to bring it up with the CEO, who used to be more involved in product design questions. The CEO, after listening to the concerns, agreed with the underlying uncertainty and essential said (I’m paraphrasing here), “Let me talk to him – I can explain things.” In one short statement, the CEO not only authorized his employees to circumvent the VP Product, but also destroyed any credibility the VP Product had in the space of product design.
This story isn’t unique. It can play out exactly the same if we replace “development team” with “the board” and imagine a director going straight to the VP Product, circumventing the CEO. In either scenario, it would have been a strictly better solution for the CEO or VP Product to back the others decision then follow-up privately with any concerns.
As we were hiring our first executive, it was crucially important to me that we bring on a candidate that I felt would have my back and whose back I knew I would have as well. Although it’s easy to make a call on the first, the latter proved to be the much meatier question, and one I’m glad I asked of myself.
Afterthoughts and Conclusions
Pulling this all together, while I hope the questions above will help you better evaluate potential candidates, I suspect they will also help you better understand your own thought processes and improve your relationship with your new executive team member.
If after reading this, you can think of any superb questions that have been left out, please let me know – I’d love to learn from your experience and I’m sure others would too. Here are my four again, in summary:
- How do I hope they will ask to be compensated?
- Why will they suggest change?
- Will our team follow them?
- Will we have each others backs?
As well, let me also leave you with a list of other materials I read during this recruiting process, that I found helpful.
- Do 4-Year Vesting Schedules Still Make Sense?
- The Situational Leader
- The CEO’s Role in Talent Management
- Hiring Executives: If You’ve Never Done The Job, How Do You Hire Somebody Good?
- Hiring, firing and managing executives
- Startup Compensation
Photo Credit: Alan Nakkash