All cash strapped operators who take their hiring seriously eventually end up designing a system with the same four principles. These are:
- You have a differentiated set of hiring criteria, and you are able to evaluate it during the hiring process.
- You have some method for onboarding the talent you find in this way.
- Because of 1 and 2, you are able to focus your hiring efforts on specific pools of talent.
- You are willing and able to iterate on 1 through 3 above.
There’s this belief that in order to hire well as an underfunded startup, you need to hire via compelling vision. I remember asking advice from a founder in early 2015, back when I was new to this whole hiring thing, and he kindly agreed to get coffee with me at L’Usine in downtown Saigon.
“How do you do hiring?” I asked, “We can’t compete with the big companies. We can’t pay as much. Isn’t it really hard?”
“Yes, yes, it’s hard.” he said, “You have to sell them on the vision thing.” And then I went away feeling dejected — because I was running a consulting company at the time, and there simply wasn’t anything visionary about it. Later, when we had pivoted into making Point of Sale systems (and we made a good deal more money than when we were consulting), there wasn’t anything intrinsically appealing about our company’s products — much less its vision. I never once managed to use the ‘vision’ thing to my advantage. And to make things worse, we were bootstrapped, which meant that we never really had the advantage of hiring from a position of high comp.
I think there’s this widespread belief that if you can’t pay as well as, say, Google, you’ll have to sell people on a compelling startup vision — some combination of “impact” and “we’re going to change the world” and “come join us on an exciting adventure.” But I’ve always found these techniques to be somewhat limited as a hiring strategy. What if you aren’t working on a vision problem, for instance? Or what if you’re an SME — the opposite of a high-growth startup, and you have to compete in the same labour market against those who are funded by the richest cats in town?
This question is more interesting to answer, and it was the challenge that I faced when I started hiring seriously in the summer of 2015. I eventually figured out a set of practices that were effective for our bootstrapped context, that I think aren’t talked about as much in the world of venture-funded startups.
What was even more interesting to me was that I then started seeing it everywhere — which made me think that maybe effective hiring organisations all eventually evolve to use the same set of strategies, especially when they cannot afford to hire at the top of their markets. This set of practices is what I want to talk about today.
Before we get to my answer, though, I want to point out that there are other hiring moves, and you hear these bandied around a lot:
- You take on investment from a brand-name VC, and use that as external validation when hiring. The problem with this approach is that other startups are likely to use the same strategy, often to hire from the same pools of talent, driving up comp for everyone.
- You hire from your network (which is obvious — but then what happens when you run out of people to talk to?)
- You figure out a pitch that’s based on something other than vision — like culture, or work-life balance, or pets in the office (yay). Before the pandemic, remote-friendliness was a boon that many bootstrapped software companies used to their benefit. Unfortunately, this differentiator has eroded in the years since COVID-19.
- You get coverage from tech/mainstream press — which typically doesn’t help you with customers, but certainly helps you with hiring ...
- You move to a less competitive labour market, and settle for ‘lower quality’ talent.
- And so on.
I don’t want to dismiss these strategies — certainly, every little trick helps when you’re hiring. But I want to talk about a set of practices that I find repeatedly effective, that underpin some really good hiring orgs, and that don’t seem to be talked about as much.
Let’s get started.
The Four Properties of Good Cash-Strapped Hiring
I currently believe that every competent cash strapped company iterates their way to the same set of hiring strategies. These are:
- You have a differentiated set of hiring criteria, and you are able to evaluate it during the hiring process. This means that you’re looking for certain properties that are critical to your business, which you optimise for at the expense of other traits. The word ‘differentiated’ is key here — it means you are looking for characteristics that other companies are not. So if Google is hiring in your area, you do not want to focus on the same kinds of talent they target. You are, in essence, looking for underpriced talent — where value is defined by some set of traits that is more valuable to your company than to your competitors.
- You have some method for onboarding the talent you find this way. If you’re optimising for underpriced talent, you’re likely to get folk that are deficient in certain ways. To deal with this deficiency, all good hiring organisations build some method for onboarding or training to compensate.
- Because of 1 and 2, you are able to focus your hiring efforts on specific pools of talent. Once you know what types of talent you desire, you may go hunting for them in a more targeted fashion. This may take on many forms: it could mean that you change the way you write your job ads, in order to induce a selection effect, but it could also mean that you pick where you go to look for potential hires — often in places that larger companies overlook.
- You are wiling and able to iterate on 1 through 3 above. Over time, all of the following will change: the labour market, your competition, and the nature of your business, which means you’ll need to go through repeated cycles of 1 through 3. A good hiring organisation builds adaptation into their process.
These are the bones of the strategy, but as we know from learning theory — concepts are useless if you don’t know how they instantiate in reality. Let’s walk through some examples.
Hiring in Vietnam
After a few months of trial and error, I closed in on a handful of requirements that we wanted in our candidates. These were:
- Ability to speak decent English — We wanted to rotate our engineers through Singapore, since we’d learnt — by accident! — that doing so embedded them in a real customer context, and having had that experience, resulted in better product intuition when they came back to Vietnam. It very often resulted in better software.
- Good debugging ability — We realised that programmers who could debug weren’t necessarily good, but programmers who were bad at debugging were most certainly bad. Consequently, we made a debugging test one of the first exercises in our screening interview.
- Comfortable in a programming language they were not familiar with — In the early years of our business we weren’t entirely sure what platforms we needed to build on. To give you a taste of what this meant: our Point of Sales software had to run on Windows machines, since Windows was what most businesses used. This meant that we had to build on a Microsoft stack. A few months into our journey, my boss decided to have a go at selling mobile ordering kiosks — which meant writing code for large Android screens. I think we churned through five different products on three different platforms over the course of two years. Consequently, I decided that we would hire people who could switch platforms quickly — as most of our team were able to at the time.
How did we evaluate these properties?
- We would conduct all of our interviews in English, and would use the first interview as a screening test for the candidate. In fact, at the start of the screening interview, we would open with “I understand that you might feel more comfortable in Vietnamese, but we are going to use English because we send all our software engineers to Singapore at least once every year, and we expect you to be able to talk to our customers there. We do this because we think it is important for our engineers to deeply understand the customer.” Interviewers were then instructed to cut the call short if it was clear that the candidate was not fluent in English.
- We built a debugging test into our first interview — usually the second of three tests.
- And the very first test we gave them would evaluate them on their comfort with Python — an uncommon programming language in Vietnam at the time (and incidentally, one of four that we used).
What did these requirements do for us? Well, for starters, once we had these requirements down, it became marginally easier to decide who to target:
- Our job ads were tighter — we wrote, for instance, that we did not care if you had a computing degree, only that you could code.
- We said that we sent our engineers to Singapore, and expected some competency with English.
- We could present a coherent picture of what we were expecting from our candidates. In particular, we said that we did not really care what programming languages you were most familiar with — only that you were willing to pick up new ones, as product development dictated. This was unusual at the time, when most software job descriptions in Vietnam listed programming language as one of the first requirements.
Hiring in this manner meant that we were hiring candidates from a diverse set of backgrounds. This was both good and bad: it meant that not every programmer came in with familiarity with the programming languages we used. I took two months to design and debug a training program that was guaranteed to get our new hires up to speed, enough to tackle simple support tickets or feature requests after about two weeks. With that in place, I became a lot more confident with the range of candidates we could hire and deploy productively.
All that was left, at this point, was to systematically test our way through several hiring channels. Here the set of differentiated criteria helped us. I quickly figured out that we could afford to pay near the top of market for junior engineers — the ones straight out of college. On a relative basis we were paying more than the competitors we were up against, but on an absolute basis junior software engineering salaries weren’t exorbitantly expensive; with this pay scale, we hired from some of Ho Chi Minh City’s top universities. But senior engineers presented us with a challenge. Where to find them?
After a few months of trial and error, I figured out that we could target outsourcing companies. The ideal profile for us was a software engineer with the traits we desired, who was stuck in an outsourcing company for awhile, and was dissatisfied with the endless treadmill of similar products they were asked to build. These software engineers often did not come from name-brand universities; having an outsourcing company on their resumes did not make them appear impressive to large company recruiters. They were often also not likely to be familiar with the more theoretical bits of Computer Science. But this did not matter to us — we did not evaluate them using algorithmic interviews, and we were stack and language agnostic. The ideal candidates we wanted had, by dint of their jobs, learnt enough real world software engineering to be effective in the context of our business. We merely needed to filter for the properties we wanted.
And it worked like a charm.
I feel comfortable telling this story because the hiring environment in Saigon is vastly different today from what it was when I came up with this strategy. Nothing I’ve described above works now, or at least not as well as when I first came up with it. It meant that my successors have had to iterate on all three properties, as they well should.
I don’t want to make this entire process seem like some unusually rare thing. Over the years, as I’ve compared notes with other founders and operators, I’ve observed the same four properties pop up again and again in their companies. In many cases I’ve stolen some of their practices for myself. I’ve found that competent bootstrapped operators who take their hiring seriously eventually converge on the same set of principles — and while I don’t have permission to tell their stories, there are publicly available accounts that say the same thing, if you know how to look.
HubSpot’s Sales Team
Mark Roberge was HubSpot’s fourth employee and its first sales hire. In The Sales Acceleration Formula he describes how he came up with a hiring process for sales that contains the first three properties I’ve described above. He writes:
(Hubspot in 2007 required) an evangelistic sale with a not-yet-obvious value proposition and a not-yet-established company brand. It required tremendous education in the market. Unfortunately, high-activity salespeople coming from an established company with a no-brainer value proposition were not equipped with the skills to succeed in our context, even if they had been the top dog in their last role.
I realized that the characteristics of a top-performing salesperson would be unique to our business. I needed to figure out what kind of salesperson would be ideal for our company (emphasis added). I needed to engineer the ideal sales hiring formula. Fortunately, this engineering process is applicable to any company.
The ideal sales hiring formula is different for every company…but the process to engineer the formula is the same.
The process went like this:
- Establish a theory of the ideal sales characteristics — Roberge would list the characteristics he thought would correlate with sales success. For each characteristic, he would define exactly what it meant to be a 1 or a 10 — so, for instance, he had to state what it meant to be a ‘1’ in ‘aggressiveness’, or a ‘7’ in ‘intelligence’, and so on.
- Define an evaluation strategy for each characteristic — Roberge then came up with a plan to evaluate each and every characteristic. What sorts of behavioural questions could he ask? Should he use role plays? Should there be a written exercise before or after the interview? What could be evaluated through reference checks?
- Score candidates against the theoretical ideal sales characteristics — In the early days of HubSpot Roberge simply filled out an Interview Scorecard after each interview. Nothing too sophisticated — just numerical scores in an Excel spreadsheet.
- Learn and iterate on the model while engineering the sales hiring formula — A few months into each hire, Roberge would return to the Interview Scorecard for each candidate and ask a series of questions: what characteristics do these top performers have in common? Are these characteristics predictors of success at HubSpot? Which characteristics did not seem to matter? What was he missing (that wasn’t included in the scorecard)? He would tweak the scores and the model based on his observation.
After about a year of hiring Roberge had enough data points to do a regression on his spreadsheet. What he found was not surprising to him, but is perhaps surprising to an outsider: typical sales attributes like aggression, objection handling, needs identification and closing ability were negatively correlated with success at HubSpot. In the end, he boiled his model down to five characteristics:
- Coachability — defined as the ability to absorb and apply coaching. Roberge would evaluate this by performing a role play during the candidate interview, and then evaluate the candidate’s self-evaluation, as well as the ability for the candidate to apply advice in a follow-up role play.
- Curiosity — defined as the ability to understand a potential customer’s context through effective questioning and listening. Roberge would evaluate this by observing how often the candidate asks questions during their interview, as well as the number of good questions the candidate asks during their role play.
- Prior success — defined as a history of top performance or remarkable achievement. Roberge would evaluate this by looking at prior performance in a reasonably sized sales organisation; he explicitly says he is looking for candidates in the top 10%. If the candidate is not from a reasonably sized sales org (or from sales at all), Roberge would look for prior success in other activities in the candidate’s life.
- Intelligence — defined as the ability to learn complex concepts quickly and communicate those concepts in an easy-to-understand manner. Roberge evaluated this by commencing HubSpot sales training during the interview process. He would expose candidates to new information early on in the process and observe their ability to absorb the information and then communicate it back to him at a later stage in the process. For instance, at the end of the first phone screen, Roberge designed the interview process to send the candidate information about inbound marketing, SEO, blogging, and social media. The process would then explicitly evaluate the candidate’s ability to explain these concepts during the next interview, during the role-play (“Jess, I noticed on your website that you offer SEO services. I’ve always wanted to better understand how I could improve my business’s ranking in Google searchers. Could you explain how I might go about doing that?”)
- Work ethic — defined as proactively pursuing the company mission with a high degree of energy and daily activity. Roberge notes that this is the most difficult of the five characteristics to evaluate during an interview. He attempts to get at it by observing the candidate during the interview process, by running reference checks, and by asking behavioural questions.
With these differentiated criteria in hand, Roberge could move on to the next step: design a training program adapted specifically to HubSpot’s sales context, and target a differentiated set of hiring channels.
Allow me to take you back to September 2007. It was time to scale the team. What did I do? I posted ads across every job board I could find. I received hundreds of applications from a variety of applicants. I probably completed about 50 phone screens and dozens of in-person interviews. I hired zero candidates. Zero!
At that point, I had an important revelation about hiring salespeople. Great salespeople never have to apply for a job. Great salespeople never need to pull together a resume. Truly great salespeople have multiple job offers at all times, even if they are not in the job market. Their old bosses are calling them, probably quarterly. “Can I take you to a ball game?” “How is the new gig?” “Are you still happy?” “Are you making money?” “Did they change the compensation plan on you?” “You'll never believe how good things are going over here.” “You have an open invitation to be on my team.
He had to adapt to this reality. Roberge’s solution was to start iterating on something he called a ‘passive recruiting strategy’ — that is, to figure out methods for recruiting salespeople who weren’t looking for jobs. To this end, he did three things:
- He started an in-house recruiting agency, where recruiters were properly incentivised (and compensated) for bringing in good sales talent.
- He used LinkedIn to develop a map of adjacent talent (“you start to identify local companies that have large sales teams with quality training programs”). He would then selectively email certain prescreened candidates that he found through LinkedIn — at least a few every week, and usually through mutual introductions whenever possible.
- The final strategy Roberge developed was that he systematically built a deep understanding of the sales teams in Boston, from which he recruited the initial team. I’ll quote him directly on this one:
As I combed through candidates on LinkedIn, I developed a list of all the companies with inside sales teams in Boston. It was not long before I had interviewed at least one person from each of those teams. In fact, I purposely hit each company. Even if the background of the salesperson looked mediocre, I often took the interview to find out more about the company's sales team.
Here are some examples of questions I asked during these interviews:
- How much does the company pay their salespeople? How are the compensation plans structured?
- What is the buyer context like? Is it transactional or complex? Is it enterprise or SMB? Do they mostly have outbound leads or inbound leads?
- How many reps are at the company? What are the different sales roles? How is the sales team structured?
- What is the company's sales training like? Do they use a formal sales methodology? Do they invest in outside training or have a full-time staff?
- Were there any major changes at the company that could cause top performers to consider leaving? Did the commission plan change? Did the leadership change?
- Who are the top salespeople at the company? For example, you may ask if they are the top salesperson. If they say “no,” many salespeople blame the territory. You can ask which territory the best salesperson is in and find a way to network to her. I actually never used this tactic, but I had peers at other companies who used the approach successfully. Apply at your own risk. The point here is to think creatively about gathering valuable information to find top talent (emphasis added).
Union Square Hospitality Group
We’ve spent some time covering Danny Meyer’s company — which has been remarkably successful at creating and delivering good service across a range of restaurants. A huge part of delivering this service is a differentiated hiring process.
In Setting The Table, Meyer describes his hiring process as follows:
Over time, we can almost always train for technical prowess. We can teach people how to deliver bread or olives, take orders for drinks or present menus; how to describe specials and make recommendations from the wine list; or how to explain the cheese selection. And it’s straightforward to teach table numbers and seat positions to avoid asking “Who gets the chicken?” (That question sounds amateurish and makes a guest feel as if the waiter didn’t pay attention to him or her in the first place.) A cook needs to know from his chef precisely what the sautéed sea bass is supposed to look like when it’s sautéed properly, how it tastes when it is seasoned perfectly, and what its texture should be when it has been cooked gently and properly. We can and do train for all that. Training for emotional skills is next to impossible.
Meyer describes the type of people he aims to hire “51 percenters” — or people who have 51% emotional job performance, and 49% technical job performance. Over time, USHG has whittled down the set of emotional skills they evaluate down to five:
- Optimistic warmth — defined as genuine kindness, thoughtfulness, and a sense that the glass is at least half full).
- Intelligence — defined as not just “smarts” but rather an insatiable curiosity to learn for the sake of learning.
- Work ethic — defined as a natural tendency to do something as well as it can possibly be done.
- Empathy — defined as awareness of, care for, and connection to how others feel and how your actions make others feel.
- Self-awareness and integrity — defined as an understanding of what makes you tick and a natural inclination to be accountable for doing the right thing with honest and superb judgment.
As you might imagine, these characteristics are more difficult to evaluate than the more legible qualities that define technical performance. The techniques that Meyer uses are too numerous and too nuanced to summarise comprehensively here, but I want to call out two more famous practices:
- USHG has developed a unique vocabulary around service, which it uses to train staff, but also to identify deviations from performance. So, for instance, Meyer talks a lot about ‘connecting the dots’ — noticing details that allows service staff to engage with guests more effectively (an example of dot connecting: “if the direction of my guests’s eyes intersects at the center of the table, I know they are actively engaged with each other and everything is fine; the waiter should not intrude. But if the direction of someone’s eyes is not bisecting the center of the table, then a visit may be warranted. I am not certain that something is wrong, but I am certain that there is an opportunity to make a connection without feeling like an intruder.” Meyer tells the story of a waiter noticing that a guest has left their fries untouched, and — having engaged the guest on why; the guest’s eyes were not bisecting the centre of the table — comps the dish, while making a note to send feedback along to the kitchen for improvement.)
- They also use a system called ‘trailing’ to both test and hone a prospect’s technical skills, while assessing their emotional skills, in a real restaurant context. This gives evaluators more data to work with, especially when evaluating qualitatively difficult emotional skills.
I’ll quote directly from Setting The Table here, since Meyer’s description of this practice is compelling:
Our frontline managers arrange for trails in each job category. Most prospective employees go through four, five, or six trails, during meal periods and often trail with a different waiter or cook each time. For each trail after the first, there is a specific and increasingly advanced list of what needs to be learned and accomplished during that session. Trails begin with a physical orientation to the restaurant and culminate with “taking a station” while being closely monitored by the trainer. Trailers are paid for their shifts, whether they’re hired or not. In the dining room, our guests can tell who the trailers are by the fact that they are not wearing an official uniform, or by noticing that a trainer is the one standing back, observing.
Our training is designed not as a hazing, but as a healthy way to foster a stronger team. Staff members, by being directly involved in the decision making, have a good deal of influence over who is hired and thus a stake in the ongoing success of the outcome. Trailers don’t advance to their second trail unless the first trainer recommends this to the manager; they don’t move on to their third unless the second trainer endorses it; and so on. After five or six trails we end up with a well-trained candidate who has also been endorsed by as many as half a dozen team members. And the candidate doesn’t move along unless he or she agrees that the fit seems good. By creating a built-in support system for new hires, we greatly enrich the subsequent team-building experience (emphasis added).
Where did Meyer get his candidates from? How does he compete in the market for labour? We’ve discussed this in last week’s piece, on the nature of his business expertise. But to recap:
Fortunately, a wave of highly intelligent and creative people has swept into the hospitality business since the early 1990s (emphasis added). Many of them have been attracted to our restaurants for a variety of reasons: to express a spirit of caring for others, to advance their culinary skills, to pursue a passion for wine, or to fulfill an entrepreneurial vision. Others join us for the purpose of making a living with a flexible schedule while they in fact pursue a separate career.
One reason for this surge in interest in the hospitality profession is that newspapers, television, magazines, websites, and cookbooks have made celebrities not just of chefs but also of restaurants themselves (emphasis added). After Eleven Madison Park was featured as a location in an episode of Sex and the City, hordes of people (even a bus tour) descended on the restaurant just to experience a stage set for the hit television show. Having a resumé that includes working for a celebrity restaurant or chef confers legitimacy within the industry and usually ensures at least an initial interview for a job applicant. (It also assuages the parents of a recent college graduate who’s getting a first job at a restaurant to know it’s a good one.) The restaurant business has at last arrived as a legitimate, valid career choice and entrepreneurial pursuit.
The short of it is that USHG has brand-name recognition by this point, and the group structure allows candidates to grow professionally within the company — moving from restaurant to restaurant as they do so.
Why Does This Work?
What have we discussed today? I’ve given you a way of thinking about hiring that is hopefully more scalable, more efficient, and more useful than simple bromides like “hire from your network” and “get brand-name VCs to invest and pray that your competition remains limited”. I then gave you three examples so that you have some idea of how this approach to hiring instantiates in the real world.
It’s probably worth it to spend a little time discussing why this works. Why do so many entrepreneurs converge on these four properties of hiring? If I might hazard a guess:
- A differentiated hiring criteria allows you to target candidates that are underpriced by the market, and therefore are not as difficult to compete for. It is easy to say “startups succeed and fail based on the quality of their talent”; in reality the talent you need is not likely to be the same talent that Google, say, needs — and so there is little reason to compete directly for the same people.
- A training program that is designed in conjunction with the hiring process shores up the inevitable deficiencies in your candidates when you select for underpriced traits.
- A differentiated approach to finding and recruiting candidates is only possible when you have both a differentiated hiring criteria and a training program that works in tandem with it. In certain labour markets (such as sales), a differentiated approach is necessary because you cannot find the candidates you desire through a ‘spray-and-pray’ job board approach.
- And, finally, adaptation is necessary because all of the following evolve: the job market, the labour market, and the types of talent your business most needs.
Hiring is hard, but competent operators all eventually get decent at solving for their business’s needs. Hopefully this essay gives you an important piece of the puzzle.
If you enjoyed this essay, you might also enjoy The Skill of Org Design, Using Head Fake Questions To Achieve Your Career Goals, and The Games People Play With Cash Flow.
Free Hiring Worksheet
If you'd like an actionable version of this post, I've prepared a PDF worksheet below.
Members may download the worksheet here. If you're not already a member, enter your email below to download a copy of the actionable worksheet for cash-strapped hiring: