How to hire (for startups)

From Henry Ward’s perspective (eShares CEO).

Hiring Principles:

  1. Hiring means we failed to execute and need help
  2. Startup employee effectiveness follows a power law
  3. False Positives are ok, False Negatives are not
  4. Culture is defined by who we hire

Hiring Heuristics:

  1. Hire for Strength vs Lack of Weakness
  2. Hire for Trajectory vs Experience
  3. Hire Doers vs Tellers
  4. Hire Learners vs Experts
  5. Hire Different vs Similar
  6. Always pass on ego

I’d say that’s a pretty great approach for startup companies, although some of those points apply to all companies (for example, principle #4). That’s just the TL;DR. He explains these points in detail. I only examined principles #2 and #3:

2. Employee effectiveness is a power law
Much like startup performance follows a power law, so do startup employees. The most effective employees create 20x more leverage than an average employee. This is not true in an efficiency company — the best employees might work 2x faster than their peers. But in a high-leverage startup like ours, the effectiveness gap between employees can be multiple orders of magnitude.

Our minds find it easier to think in terms of efficiency and normal distributions than leverage and power law distributions. So we mentally squash the employee power law curve into a normal distribution curve. We underestimate the most effective employees and overestimate the ineffective ones.

Emphasis mine. I’m somewhat familiar with power laws viz. the 80/20 rule, which can be phrased many ways, but which I remember as “80% of the results are due to 20% of the efforts.” The power law mantra gets bandied about a lot, and my own experience corroborates what Ward is saying here, but still I wonder if anyone’s got any hard data on it.

On to #3:

3. False Positives are ok, False Negatives are not
A False Positive (FP) is when we hire somebody who doesn’t work out (i.e. we falsely believed they would be great). A False Negative (FN) is when we did not hire somebody who would have been great. Hiring efficacy is measured by a low False Positive and False Negative rate. A perfect hiring team would never hire somebody that didn’t work out and never pass on somebody that would have been great.

The problem arises in measurement. It is easy to know False Positives but impossible to know False Negatives (i.e. we know if we made a bad hire but we know nothing about those we passed on). This, and a reluctance to fire, is why companies focus on reducing False Positives — it is their only measurement. The phrase “Hire slow, fire fast.” comes from this asymmetry. Companies hire slow because they fear False Positives.

We should not be afraid of False Positives. We can quickly fix a False Positive hiring decision. However, we should be afraid of False Negatives. We can never fix a False Negative mistake. And the cost is unknown and uncapped. Facebook passed on Brian Acton (WhatsApp cofounder) and it cost $8B and a board seat.

Interesting — I did not know that WhatsApp co-founder had been passed over for a job at Facebook (I assume prior to founding WhatsApp). Certainly, this is an example of basically the worst case downside outcome of a false negative hiring decision, but I completely agree that it is critical to not pass over great candidates. There are so few of them that, as a young company, it is very difficult to connect with them and they have a lot of other options — when they show up at your door, you had better be prepared to recognize them and add them to the team.

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