The Startup Hire Trifecta

Unlike giant NASDAQ companies where employees are unimpressionable pencil-pushers devoid of personality, startup hires have an outstanding effect on the trajectory of their fledging company. Many regard early hiring as the most important foundation upon which a startup grows.

The world of startups is quite different than the world of NASDAQ companies: people take less pay for more work, and the pressure of the venture is only matched by the exhilaration of living on the frontier of disruptive innovation.

When considering the aspects of joining/acquiring talent, I believe there are 3 aspects to consider for hiring an early employee at startups: passion, culture, and compensation.

Passion

Larger companies usually have a corporate “mission” that embodies their core values, e.g. Robinhood wants to “democratize finance,” but it feels a tad grandiose for a few scrappy entrepreneurs working out of a garage to feel like they’re on a mission. Therefore, I think “passion” is more appropriate to describe those early stage goals and purpose.

Compared to FAANG (or, if you like, MANGA) companies, a startup cannot reasonably compete on monetary or numerical values. Instead, its biggest advantage is giving people a vision of the future, a chance to bring change, be the rebels.

The human heart demands an adventure, and there’s no adventure more thrilling than the unstructured, unfettered, capitalistic clusterf*ck of a startup venture.

If you join a team for one of the following reasons, you are guaranteed at least a story to tell regardless of success or failure:

• You are helping people in a meaningful way
• The tech is deeply meaningful, e.g. I love NLP and I would love to be in a GPT-3 startup

Compensation

It’d be a mistake to disregard compensation

It’d be a mistake to regard compensation to be everything that makes a good match between a hire and a startup.

That being said, common sense dedicates that the reward structure should be within the range of “respectful” to “generous.” After all, how foolish would it be to lose a talented dev because he’s paid like a junior-level?

There are two components to consider:
1. Base salary
2. Equity

For the base salary, one strategy is to initiate with a competitive range around the ballpark 50th-100th percentiles of market rate. These numbers can be researched via multiple sources such as:
https://topstartups.io/startup-salary-equity-database/
https://levels.fyi/
https://h1bdata.info/

Even for very T-shaped candidates with relevant deep skills, initially giving a respectful starting range can kickstart the negotiation.

For the equity, we have to understand that this is where people actually get rich. I remember asking Carolyn Rodz of Hello Alice about this, and she recommends offering equity so that, on an exit, the employee would:
* Get 1x-2x their salary (for junior employees)
* Get 3x-5x their salary (for directors)
* Get enough to retire (for senior leadership)
* Get 1% or some amount (for a CFO or similar)
Of course, this depends on the founding round, since during seed we only have the founders and a few senior-level employees.

There are many caveats to this, and people have written at length about it. For early startup hiring, some relevant points are:

• For people who are already rich, compensation is completely inconsequential.
• For some folks, compensation is less a source of income and more a show of respect.
• People who has passion might be riskier and prefer more equity.
• The early hires are make-or-break, and losing one is a significant impediment. Hence, offering generous compensation may be good practice, simply because the marginal cost of an employee (which is a smaller % compared to the overall cost that includes healthcare/taxes) is not worth the potential risk of them leaving disgruntled. Consider the scenario of an engineer with unfinished work at 6PM on a Friday: are they more likely to put in the extra mile if the compensation is the market rate versus +25% higher?

Culture

Culture is about the social, emotional, and interpersonal relationships in the team. Having the right culture is important, and often is something amorphous that’s detected through an interview conversation or through the persona of a candidate expressed through their online profile.

As a candidate, you may be drawn to a startup because:

• You are in the same community e.g. entrepreneurs / gamers / physicists
• You share similar values e.g. politics / belief systems
• You are excited to be exposed to new challenges
• You are in an environment where you can improve and grow in different directions

Conversly, hires should not hinder the culture of the company. Willingness to listen, to be open-minded, and to separate ad hominem attacks from ideas and work output — each person has to have a base level of morals and emotional management. The most brilliant engineers are terrible team players (which ironically begs the question: is an engineer brilliant if he is not smart enough to communicate effectively?)

There is a danger in recruiting the best talent, however, because sometimes they come with egos. We can debate whether a great dev should be considered “great” if he does not have the mental faculty to work with others, but suffice it to say that toxic behavior destroy teams from within.

For engineering teams, perhaps the best culture is when each dev has “strong opinions, loosely held.” Humility is often disregarded in American culture, but is the greatest trait when you work with world-class people.

There’s a Chinese proverb 三人走路 必有我师 meaning “in any group of 3 people, there’s bound to be one who can be my teacher.”

Overall Hiring Strategy

A hire and a startup should resonate with 2.5+ of the 3 aforementioned aspects:

• Someone who’s into the “startup life,” 1 compensation + 1 culture, may jump ship at the next shining thing
• Someone who is dogmatic about his own engineering principles, 1 passion + 1 compensation, would be a detriment to the team culture
• Someone compassionate working at a non-profit startup, 1 passion + 1 culture + 0.5 compensation, would be a good hire

Ultimately, we are assigning numerical values to a subjective matter with various corner cases. This model can get out of hand when we start using decimals, so please take everything with a grain of salt!

As a final note, some founders have a leg up:

• Early hiring can be alleviated when the founder has close relationships with talented folks. For example, CTO Paul English thinks his greatest blessing is having 4 engineers that he met through his previous work. When he founded Kayak.com, those 4 engineers were the first people he called. One of his engineers were making 400k+ at Intuit, and decided to join Paul for 2% + office location preferences.
• When hunting for talent outside of 2nd degree connections, you have to be creative & attentive in finding early talent: go to conferences and hackathons, asking in your community. Think like a director scouting for the perfect actor! As a personal anecdote, when working on my stealth project I intentionally took notes of people with potential whenever I see them: an engineer who has a long-term hobby project, an artist in the community whose style is a great fit for my product, or a social media person who worked in a competitor.

Assembling the avengers in a startup is both painstaking and fascinating. At the end of the day, it’s a mix of good judgment, trusting our guts, and luck.