Dan Martell knows too well how a bad hiring decision can derail a young growth company. A year ago, just as his three-year-old firm was gaining momentum, a newer employee blew a major contract with a multinational client, forcing Martell, the firm’s president, to dip into scarce cash reserves and re-establish the nascent reputation of Spheric Technologies Inc. (No. 45 on the 2008 PROFIT HOT 50). Add up the lost revenue, plus the time and money spent on firing and rehiring, and it was a $170,000 hiring mistake for Moncton, N.B.-based Spheric, which manages the deployment of Web portals for large corporations.
But by Martell’s own admission, it wasn’t all the employee’s fault; he simply needed more direction than the young company could provide: “He wasn’t a leader, he didn’t make decisions, he had paralysis by analysis. And you just can’t have that in a startup.”
Hiring the wrong people is an easy blunder for any entrepreneur to make, especially when there is pressure to fill a position quickly. In young or fast-growing companies, it’s even trickier — because the firm you’re hiring for is an incomplete, moving target. “The most common mistake entrepreneurs make is focusing too much on the technical skills of a potential hire and too little on whether they’ll do well within the startup environment,” says Valerie Henderson, president of Effective HR, a Vancouver-based consultancy focused on firms with 50 or fewer employees.
Corporate types who flourish within the strict parameters of their static job descriptions are likely to flop in a business whose hallmarks include quickly shifting priorities, rapidly evolving roles, flat hierarchies and too few hands on deck. For that reason, Henderson says it’s essential to focus on personality and cultural fit to find improvement-oriented people who can fly blind when processes aren’t in place, turn on a dime when priorities change, maintain high levels of energy over long hours and absorb the stresses of working in a tornado.
How best to identify this rare breed?
Martell, who has the added challenge of operating Spheric virtually (employees work remotely rather than in a central office), has one tool he swears by: psychological assessment. Working with Profiles International, an Austin, Tex.-based occupational-assessment firm, Martell created a 150-question online quiz based on his dream team’s traits, including assertiveness, decision-making skills and sociability. “It’s not a perfect science,” says Martell, “but it has allowed us to automate and quantify our recruiting process.”
In one example, a contender showed an 80% match, but the assessment indicated that his energy and decisiveness levels were below the baseline. A follow-up interview validated those findings, giving Martell enough evidence to make a firm decision not to make the hire. “His learning index was on the low end of our team’s average,” he says. “And we need people who can learn at an incredible pace.”
But Martell doesn’t limit himself to those who score high. Counter to the practices of more established companies, Martell actually seeks candidates who score low on manageability — who don’t necessarily do well within the confines of procedures and external controls. “Do I want someone who is going to follow procedure? Not really,” he says. “I’d rather have someone who can make decisions. I don’t want people who will wait to be told what to do.” At Spheric, only 10% of the candidates who take this test move on to an interview. Incidentally, the employee who lost the contract with the multinational was one of only two employees Martell has ever hired without the use of this tool; both candidates had come in with strong referrals. “Obviously, that didn’t work out,” he says.
While Martell swears by psychological testing, smart entrepreneurs will also focus on applicants’ chaos-resistance levels during a standard job interview. “This is when CEOs should really be assessing a candidate’s comfort level for working in a startup,” says Henderson, who recommends questioning candidates on how they’d act in potential job scenarios rather than probing for their skill sets. “I always ask candidates to describe how they’ve handled disagreements,” says Henderson. “Look for people who are decisive, and who have worked to find answers that have helped move things along.” It’s also worth asking what risks they’ve taken in previous jobs, what methods they use for making decisions and whether they feel comfortable criticizing their boss — one way to distinguish assertive, critical thinkers who challenge assumptions and standard operating procedures.
Chris Becker, CEO of Toronto-based Filemobile Inc. (No. 8), employs case studies and problem-solving scenarios in his formal interviews. He’s had his share of mishires: namely, an incident with an employee who, although he had interviewed well, lacked the necessary hard and soft skills he needed to do his job. “He was printing hundreds of pages from how-to guides,” says Becker, whose company creates social-media platforms for businesses. “It was painfully clear that he didn’t know what he was doing. But the real problem was that we’d hired somebody who was too shy to ask for help.” These days, Becker looks for people who are comfortable with uncertainty and, more importantly, are proactive communicators. “We’re a small company, so every new person has an impact on our culture,” he says. “When someone can’t communicate, it causes a ripple effect where problems go unnoticed and create bigger issues down the road.”
Becker employs another effective tactic long before a candidate is sitting in the interview hot seat. Attending industry events such as Toronto’s Democamp allows Becker and his team to spot like-minded people in a more informal setting. “These events are full of creative people who want to see their idea through, from conception to execution,” says Becker. It’s also a great way to test communication skills in a real-life setting. When he finds the ideal candidate, he may not always have a job for them. But he overcomes this loophole by offering special projects and by staying in touch regularly. When a job opens up, Becker already has a relationship with the candidate.
James Hutton, president of Kitchener, Ont.-based Hutton Forest Products Inc. (No. 30), is a big believer in targeting employees when they’re young. Frustrated with industry veterans and their “in my last company, we did it this way” attitudes, the distributor of wood products now looks to local universities and colleges when he’s recruiting. “The benefit of hiring people fresh out of school is that they’re aggressive,” says Hutton. “They’re mouldable, they’ll do what needs to be done to advance their careers and they are open to a fast-paced, changing environment.”
For others, there’s just no substitute for the referral approach. Apption Corp. (No. 5), an Ottawa-based IT consultancy, is CEO Brian Joe’s third startup venture, and he knows what works for him. “At least 75% of our permanent hires have come from staff referrals,” says Joe. Current staffers have a good understanding of what the environment is like and a good sense of who will fit in. “People come to the interview already knowing what our small, nimble company is all about, and they’re already motivated to challenge themselves within it.”
Of course, identifying and recruiting the right type of employee are just two pieces of the puzzle. In the competitive labour market, you also have to keep them. At Filemobile, this means offering a stock-option plan, one of the classic compensation alternatives that emerging — and underfunded — companies use to lure prospective staff. “Our employees take on additional risk being employed by a startup,” he says, “so they should be able to share in the potential upside.”
Other perks offered by this year’s HOT 50 CEOs include paid training opportunities and access to top-of-the-line equipment in the workplace. But for some, money still talks loud and clear. While Martell can’t always offer better compensation, he ensures his employees are compensated on par with larger, better-known employers — with the added bonus of being recognized as a valuable member of a small but expanding company.
With limited cash and just one or two shots at making it work, startups live and die by the quality of their people. “It takes a certain type of person to thrive in a startup,” says Martell. “The thing about bad hires is not so much that they’re bad — they may do well at a Fortune 500 company. It’s that they’re just not a good fit for us.”