A founder, sometimes a business person or early CEO and maybe one or two engineers: this is the typical size of a startup team presenting to us for the first time here at Khosla Ventures. Let’s assume that we like the technology, team and market, and decide to fund them. Of course, in every pitch, there’s a lot of talk of funding and development milestones, and there also are outlines for which hires will happen when: “We will hire two more engineers in the first three months and a sales guy once we have a first rev on the product.” As the entrepreneur though, you may never have recruited a team before. You may not even know enough people in the industry to have a clue where to start looking for those engineers or that one right “sales guy.” How many people should you hire? Where should you look? How should you approach them? These are questions that are as important as they are inevitable for every single entrepreneur. Engaging them as early as possible is a key to startup success.
A strong team is the most important element of a company’s ability to achieve success. That wisdom is often stated but seldom turned into specific “actions.” I would suggest, especially in startups, a company becomes the people it hires. The first few hires help the founders create the environment they will all work in and help drive the product development process. It is also the team that drives (and interviews) all future hires and their ideas and biases get incorporated in the team. More importantly, without the right first few people, the culture of the startup might not be conducive to what the founders envision for its future. On the flip side, a few mediocre or unmotivated people at the beginning of the startup generally spell doom before the first product is released. There is always talk of startup culture, but it is the founders and their first round of hires that define that culture.
A company becomes the people it hires
So how does an entrepreneur find the right people? While entire books and journals are devoted to outlining management techniques and secrets and platitudes about good people are abundant, there are far fewer strategies outlined for building successful and, more importantly, “precisely engineered” teams through an “actionable and teachable” process. The standard corporate practice for both Fortune 500 firms and startup companies is functional recruiting or recruiting to fit a pre-cast organizational structure. While this can work because it creates a familiar working dynamic for a company’s management team, the approach is not sufficient or optimal for the special needs of technology startups. In technology startups, risk management and evolution of plans are the key requirements (hence my statement that a startup becomes the people it hires because they determine evolution of plans and risk/opportunity tradeoffs), more so than standard strategy, operational and business planning and financial management as in more mature companies. Although these big company attributes are also important in startups, much more is needed in a startup environment. In a startup environment, especially in the early days, one is not expected to solely fulfill a specific function – often it isn’t even known what exactly is needed, beyond someone who can add more than just their expertise and contribute to a dynamic culture.
Successful startups seldom follow their original plans. The early team not only determines how the usual risks are handled but also evolves the plans to better utilize their opportunities and to address and redefine their risks continuously
Experience has shown me that successful startups seldom follow their original plans. The early team not only determines how the usual risks are handled but also evolves the plans to better utilize their opportunities and to address and redefine their risks continuously. One quantifiable, teachable and actionable hiring method successfully practiced by Khosla Ventures for developing the optimal mix of team member backgrounds and maximizing the probability of success is “gene pool engineering.” This process is not constrained to engineering positions, but we have decided to showcase it in this paper as an example. We suspect the applicability of this technique is far broader than just technology startups but the focus here is on technology startups and teams to address the needs for innovation and high-risk management.
The traditional organizational structure consists of groups headed by senior leadership. We are all familiar with the standard organizational chart comprised of separate teams for marketing, sales, engineering, human resources, etc. Alcatel-Lucent has 16 groups reporting directly to the CEO. Within each silo, a combination of merit, seniority and responsibility determines titles and roles. For example, the organizational structure of Lucent (or NBC or insert the name of your favorite typical large company) consists of product line engineers at 100 and 200 level designations reporting into the more experienced 300 level project managers and vice presidents who are the decision-makers. Within companies adopting this traditional hierarchy, senior managers can become mere tollgates in the decision-making process rather than participants in the problem solving exercise [1]. Most of the time, startups need a culture of experimentation, and an attitude of “change the industry rules, not play by them” is a key requirement. Often in larger, more stable enterprises, repeating yesterday’s strategy is 90-percent of the job. In startups, there was no yesterday and one can’t use “industry rules” to cause disruption. Knowing how the industry works and having experiences from it – as long as that knowledge does not dominate decision-making – can reduce risks and also help identify new opportunities and industry vulnerabilities. Since generally a startup is trying to upend the industry rules of yesterday, one has to have enough talent to meet industry “requirements” and have knowledge of existing systems while changing the rules of engagement.
Startups need a culture of experimentation, and an attitude of “change the industry rules, not play by them”
This nuanced approach to change, innovation and disruption is dependent upon the team one builds. One needs team members to lead and add to the thinking rather than follow a process. To think of and execute on experiments, to lead thinking instead of simply responding to competition and the next increment on a broad base are significant differences in the needs of startups versus bigger, more established entities. This “beyond the functional role” thinking can come from any level of an organization, and team leaders should be open-minded and encouraging of this “experimental” behavior. If a startup instead takes the big company approach, team members are prone to adopt “more of the usual” mentalities and act as individuals who simply feed information up the chain versus cooperate in an environment more conducive to problem-solving, evolutionary planning, flex-planning and experimentation. This big company mentality can be disastrous, as team dynamics driven by a sense of loyalty can often easily encourage individuals to tell the leader exactly what he or she wants to hear, rather than challenge the status quo and tell leaders what they need to hear. This does not apply just to the leadership. Each new hire improves and stretches all of the existing team members in various functional areas beyond their immediate expertise.[2]
Diversity in all forms helps drive “figure out the new” behavior. I recently asked a CEO if he had enough talent. His response was to assure me that he had “15 PhD’s” – impressive for a startup project. But when I asked how many were from outside their market, the answer was none. When I asked how many were under age 35, the answer again was zero. In my view, both are signs of sub-optimal teams. Beyond diversity, hiring tuned to key risks and opportunity is very critical and very different. What I mean by diversity here is not in the generic sense of the word. I mean diversity in very specific dimensions of hiring, which from our experience has shown the highest yield of the high-innovation teams that we are looking for are at Khosla Ventures: