Welcome back. So, in previous modules, I have discussed a bit about why hiring is so important to startups and the huge differences in talent between top employees and mediocre employees and the influence on your company. So I want to spend a little time today talking to you about how you actually think about hiring talent and retaining talent in your startup. And again, getting this stuff right is absolutely critical to the success of your company, but it's also really hard to do. And we're not going to be able to cover everything today but I'll give you a good start in terms of thinking about how you do start up hiring. This is especially important because most entrepreneurs have not done a lot of hiring in the past. Or if they have they've been part of an interview process and haven't really actively run searches. So there's a lot to learn and a lot to think about here and we're going to cover some of that today. And again, we'll go through the basics. There's a lot more information you can find out about hiring and startups but this will give you a good starting point to work from. I think the best way to introduce the importance of hiring and the reason why you, as an entrepreneur, are so important when you make a hiring decision is to talk about some interesting research done by Smart in 1998 looking at hiring techniques in a startup environment. In this case what Smart was looking at was how venture capitalists chose which entrepreneurs to work with. So high uncertainty environments, you're looking for a team that's flexible for the future, the kinds of things that you are looking for in the very early days of a startup company. What this study found was that there were five basic techniques that people used in order to be able to interview people in these environments, the airline pilot, the infiltrator, the artist, the sponge, and the prosecutor, and I want to talk about those techniques because I think they'll resonate with you. If you've been hired before, you've probably seen some of these techniques in use. And what's nice about this particular study is it can tie the use of these techniques to actual percentage outcomes. So in the case of venture capital, as you'll hear more in the venture capital module, VC is looking to maximize something called the IRR, or internal rate of return, and generally, sort of over 40 or 50 is the goal. So what's nice about this, as you'll see, we can actually tie the interview techniques to IRR outcomes and get a sense of which ones are more effective or less effective. Again, this isn't the end all or be all of this sort of research. But I think gives you a nice view of the kind of styles involved in doing hiring. So the first style is the artist. So the artist is somebody who doesn't really believe in data, they believe that they're really good judges of character. They're like an art critic who can look at something and say this is good, this is bad and judge it in the sort of large scale way, and so you don't need a lot of information. You're making gut decisions based on your knowledge of people. The IRR for this approach is 25%, which is a low IRR. It's not really effective and you should avoid it. So we're not very good at this kind of conceptual judgment of people. The second technique that was identified in the study was the sponge. The sponge is someone who seeks data in all kinds of ways, they don't have a plan on how they're going to use this data, but it might do testing of the potential candidates, they might ask them for work samples, they might try them on the job, they might give hypothetical questions. They might do reference checks. The hope is that they're getting some kind of information out of this long search process that give them something useful. Again, the IRR in this approach is quite low. 20%, so even worse than the artist. So this just gathering data with no purpose doesn't actually help you very much in terms of determining what sort of outcomes you'll get from the hiring process. The third approach that was identified was a prosecutor. So if you've been interviewed by a prosecutor, you'd certainly know a prosecutor is somebody who aggressively questions candidates, tries to get them to break on the stand as it were like a lawyer would. So always questions them, interrupts them, and basically tries to put them under stress to see how they operate and get them to break down and give you the right answer. Perhaps unsurprisingly, this prosecutor approach also is not a very good one. In fact, it's the worst of the approaches, 10% IRR on average. So this idea that I'm just trying to throw you into a stressful situation and get results doesn't seem to work very well. Instead, there were two approaches that worked much better. The first of these was the spy, or the infiltrator. So the spy, in this case, was limited to a very small set of VCs because the spy approach involves basically living with the candidate. So the spy would travel with the candidate to client meetings. They'd sit with them every day, they'd share hotels with them, and over the course of many days really learn how this works. Surprisingly, this approach is terrific, 100% IRR it's very effective in picking the right kind of candidates in entrepreneurial setting. Unsurprisingly though this takes a huge amount of time and is very difficult to do, so it's not something most people could do. So if you can afford to live with and travel with your job candidates, great. But that means you going to have a lot less job candidates to work with and it's not very practical. Instead, the best approach seems to be what we call the airline pilot. The airline pilot, like the pilots you see in the picture, depend on checklists. They know everything they want to accomplish in advance and they stick with that plan moving forward, checking things off on the list. So, are they looking for someone who has previous sales experience? Are they looking for someone who has this programming language? And they're looking to find those characteristics and check that off. IRR here is 80%, which is great. Maybe not quite as good as that spy infiltrator approach, but still very high, and the resulting workload is much lower. So, this is probably the most powerful technique, and other research in HR and hiring has backed up the idea that checklist based approaches where you set up your expectations in advance and then look for those in the interview process are best. So you know you should use the airliner pilot approach, how do you actually do this? What you want to do is start by coming up with a score card, this is your checklist. In the score card approach what you'll do is you'll go through everything you need for this job and you'll write down these features. You're going to be specific, you're not going to say I want someone who's entrepreneurial. You're going to think about what that means. Does that mean they have experienced as an entrepreneur? Does that mean they're taking charge in uncertain situations. Whatever it is, that fact goes on your score card. And that's going to be something you're going to look for in the interviews. You also need to coordinate with your other interviewers both to create this score card and also to set up the actual structure you're going to use. You want to make sure people ask you different questions. All using the same shared score card and then you have a formal approach you use across every candidate that you're interviewing. So that way you can actually compare them. If everyone's improvising off the top of their head, you won't have any of that comparison to work with. Then you want to think about some sort of screening question. It might help you gather some basic information and that could be a luxury or phone call. But, the key issue when you start meeting people in this informal settings, before doing a formal interview is the danger of homophily. We've talked about homophily in prior lectures. Homophily is the idea that you like people who are like you, that birds of a feather flock together. So homophily means that you are more drawn to and more likely to be friends with people who share your ethnicity, who share your background, who share your social class, your education level. And as a result, you tend to have a natural connection, feel good about people that are most like you. And that can actually hurt both diversity of the company, which can be helpful for innovation, but also makes it so you hire from a much more narrow band of people because you hire based on liking rather than hiring based on these scorecards. So you have to be careful to be cognizant of the fact that you're going to have this homophilic reaction to people and you shouldn't let this sort of feeling connection blind you to the characteristics you're looking for in an employee. An interesting question you might want to ask in these sort of screening discussions because they tend to be full of lots of people telling you the answers you want to hear is what stuff people don't like to do at a job and that might be revealing in some cases. You also might want to consider assigning pre-work. Pre-work is anything that you do prior to coming into the interview. So it's very common in technical fields where you might ask someone to solve a problem either before the interview in the interview setting where you end up at asking people to solve a math problem or solve a programming problem. But you could ask this at almost any job. So a typical pre-interview might be asking somebody to go examine a competitor store and comeback with comments, or examine your store and comeback with comments for the interview about things that can be improved or made better. What pre-work has done right, what's great about it is you get actual information from somebody about how they actually work. And hopefully it helps the person who's being interviewed as well because they get to see what the job is actually like. If the pre-work is assigned properly, it will give them an experience about what, it will be like at the job that increases retention long term, increasing your hiring decision. And we doubt people who are not interested in the first place. So this can be a really powerful technique but you have to spend work to make sure you're pre-work is good, because there's nothing more depressing than pre-work where somebody just have to do busy work. It's not useful to anyone and they feel exploited. So make sure you do your pre-work properly that it could be a powerful technique to use in many cases. In the interview itself one thing that often is hard for founders is that you can't interview alone. You need 3- 5 people to conduct the interviews because you need multiple points of view. If you don't have 3-5 people in your company, that means you may have to pull in family or friends or outsiders who help you out. Especially if you don't know something like technology and you're looking to do something around hiring. Technology person, you don't have experience in that, you're going to need to either find a friend who can help you or pay some sort of outside consultant to help you evaluate the situation. When you actually do the interview, the most powerful predictor future performances is past performance. So I strongly recommend avoiding doing clever questions like asking people how they'd weigh a 747. Or brain teasers about light bulbs and cake and things like that that you might see or have heard about in puzzle interviews. Those are not predictive of future success. And they're kind of a waste of everyone's time. So instead, you want to think about historical questions. Ask people to walk through every job. Ask them to tell you about a time in each job where they did something. So tell me about a time you showed leadership under pressure. And then don't just look to tell you the story make it an interactive conversation where you start asking them questions about what they did, why they did it, why did the job not work the way they did, why did they have to step of a show of a leadership where they were junior person. What did their boss do? How do people react to them being a leader? So you're probing to get real answers and that way, even if people have prepared speeches that they give, you're going to push past that and get real details on what they did in their prior their work. You potentially want to ask hypothetical questions or behavioral questions, things like what company do you admire? And then once they give you that, how would you compete against that company? You might want to ask them how they'd handle a situation in the future that you think they'll encounter, but make sure you're crafting those well. And again, make it part of a conversation where you're trying to get at the factor on your checklist. And you're trying to figure out the answer there. You're going to make the experience as great and fair as possible. Remember, for a start up, most people who get to know you, especially the very early days, will be people you actually interviewed and that have gone back out into the world. What can be a problem is, if these people feel like you were treating them roughly or not fairly, they're going to badmouth you to other people. What you ideally want is everybody who's left your job after an interview could really have wanted to work for your company, and be disappointed but understanding about why they didn't get that job. So, it's important to try and make that experience great for everyone involved. Once you've interviewed everybody, your job then is to go through the checklist and objectively decide whether or not you want to hire someone. And no conditional, well, he's the best candidate and she wasn't very good, and so therefore we're going to go with him. You want actual enthusiasm. You want people to make sure that people are on the checklist, right, and evaluating based on the checklist, and that you're getting clear and objective answers about why someone should be hired, and then you make a clear go and no go decision. Once that happens, close hard. You've spent a lot of effort finding someone, now you bring them in as best you can. So that can be emailing them, having people from the company go out And meet them for dinner or for lunch. It can be asking them what kind of office chair they want, guilting them, whatever it takes to bring the people in the door once you've done this hiring process. So this is a really quick introduction to interviewing. That can be a very powerful set techniques that you can use. There's obviously a lot more there and we actually have working classes doing hierarchy things like that as well. But this will give you start in entrepreneur hiring and helps you avoid some of the major mistakes. Of course hiring isn't the only piece you also need to maintain performance. And that means you have to do something that often for people who've worked at large companies feels unnecessary, which is have a real performance review process. So you think, we've got ten employees who've got five employees, why do we need a performance review process? Well both for legal reasons but also because this is actually how you help people get better at their job, and you can't just assume we're adults here, we're all going to do well together, you need to actually go through a process. So performances should not be like a once a quarter thing, they should be 360 degrees, which means everyone's reviewing each other, so it's not just formal feedback, and it should be 365 days a year, so 360/365. You should be constantly giving feedback to each other. That feedback needs to be specific, so not I feel like you're not fitting in but very specific issues about you don't seem to be helping the company with our building a culture and let's talk about how that works. And if there's problems you offer him with real steps. So what's the next step we take, going forward? And then you also need to make sure you're reviewing yourself, right? So that's thinking back and having people review you, having people be self reflective on their own jobs and giving you feedback that way. So you need to build the culture of feedback early on in your company. And if you're going to need to fire someone, and you probably will, you want to fire as quickly as possible, but you also want to follow some very key steps, so the four Fs, which is that feedback In terms of firing. It should be frequent, formal, forward-looking, and filed. What does that mean? Frequent means that, as you get closer to firing someone, you're having more frequent feedback with them. You're talking to them regularly. Formal in that you sit down in a room, and you formally deliver this information. It's not an informal conversation. Forward looking, which is you need to be able to do this sort of thing or your job is in jeopardy. So tell people what they need to do in the future, don't just criticize them for the past. And filed, which means that everyone is signed off, so you'll actually present a formal note to somebody saying this is a problem. I agree I need to change this, have them sign it, have you sign it, have that paper put away. This helps you build up a process that if you need to let go of someone you can do that. For the people who don't need to be let go of, they actually get performance feedback that's useful, and it's very important to keep the process fair. So if people feel like the process of firing is fair, they are much less likely to sue or blacken the name of your company then, if they feel like the things are arbitrary so, your goal is to make sure everybody knows when to stand with the company and have the feedback they need to improve. So, both the hiring and firing process can be complicated but, spending some effort at the beginning to do them right and according to the evidence we have is really powerful a way to get you start off the ground correctly.
