Venture Capitalist at Theory

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4 minute read / Mar 4, 2013 /

Searching for Eric Schmidt

For over two years, Larry and Sergey met CEO candidates before deciding to hire Eric Schmidt. Hiring a CEO was a condition investors imposed as part of the Series A terms. After the investment closed, the founders wanted to renege on that part of the agreement, but the board asked the duo to meet some of the valley’s top CEOs. At which point, Larry and Sergey only wanted to hire Steve Jobs. Eventually, they found and hired Eric.

From Netflix to Facebook, Twitter to Google, successful startups build great management teams. But it isn’t easy to hire an executive of any sort (CEO, VP Marketing, VP of Sales, etc) because the executive hiring process is radically different from every previous hire in the startup’s life.

It’s the first hire that requires trust.

The Perfect Process

During the early stages of a startup, founders perfect the art of hiring individual contributors, employees who are hired to accomplish particular tasks. Cofounders join forces often because of their complimentary tactical skills: product manager meets engineer. Then, the co-founders scale the engineering team to code faster. Next, the company hires a young salesperson or entry-level marketer.

The hiring processes for each of these roles is similar: interviewers test core relevant skills during the interview with coding challenges, mock sales pitches, brainteasers, marketing funnel optimization, and so on. All of these tests are tactical tests for individual contributor roles.

But what skills do you test in a CEO interview? Or a head of marketing search? And once hired, how is the candidate evaluated?

By definition, these roles are management roles, not individual contributor roles so the tactical tests aren’t the right ones. Which means the interview and evaluation process is different and new and scary.

Time to Failure

What’s more, the time to failure for a management hire is much longer than a new lackluster individual contributor whose subpar performance is noticed immediately.

Unlike individual contributors, managers are hired to build teams. Your new head of sales will hire a team of 1 to 3 people in the next six months. And it will be hard to gauge the success of the four-person team in less than a year. If the head of sales is the wrong fit, it’s likely the whole team has to be let go - an expensive mistake: 9 months of 3 people’s salaries, not including the opportunity cost of having found the right person.

In other words, an individual contributor hire is a short-term leveraged experiment: only one hire, less capital at risk and immediate criteria for evaluation.

The Grand Bargain

Then, why take the risk of hiring an executive to build a team? Three reasons: (i) attract top talent, (ii) learn and iterate faster, and (iii) grow the business faster.

The right high profile hire will be able to recruit top level talent to work for the team. Talent magnets like John Allspaw, Adam Nash, Kenny van Zant and others build great teams because of their gravity within their respective ecosystems.

Like engineering design patterns or marketing best practices, management is a learned and perfected skill. Great managers bring with them expertise in team and culture building. Hiring that proficiency instead of re-inventing the wheel saves time.

Hiring the right team and enabling that team to be more productive will grow the business faster. Startups are built person by person, team by team. Entrusting a worthy manager with that responsibility can drive tremendous leverage in the business.

Setting Yourself Up for Success

During the beginning of their lives, early stage startups develop processes to find the best individual contributors. As startups mature, their management teams need to add a new hiring process - one that finds the most capable and trustworthy managers to help grow the business.

Every management hiring process is different. Larry and Sergey took Eric to Burning Man to develop their relationship and build trust. Whether action sports, alternative music festivals or brainstorming sessions late into the night, the most important part of this essential transition for startups is building trust - the basis of all great relationships.

NB: h/t to Josh Reeves who each helped me articulate many of the ideas in this post.

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