The Crucial Differences Between Hiring for Startups vs Established Companies

A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth. — Paul Graham, Y Combinator

A startup needs to grow fast, and it’s first hires are responsible for helping it beat the odds. A study from CBI Insights found that 70 percent of VC backed startups studied eventually fail or become self sustaining. Among the top reasons for failure, are financial issues 29%, having the wrong team 23%, and not putting enough importance in adapting to user and customer needs 31%. Whilst there are many factors contributing to various reasons for failure, the risks can and should be lessened by hiring for the right mix of competencies and skills at an early stage.

The startup environment differs from established companies in four crucial ways:

#1 Startup environments are high risk, high reward. With the odds of failure or funding cessation at 70% or more, the risks of working in a startup far outweigh that of a traditional company.

#2 Startup environments are also high stress, high pressure. Whilst stress is something we all face in today’s working environment, the senior team in a startup not only has to deal with traditional stressors like tight deadlines, or pressure from management. They additionally have to face the struggles of finding funding, managing investor pressure, running a whole company and managing a team at the minimum. Which brings us to the third point.

#3 Compared to sharing responsibilities for the success of a company with a staff of thousands, every startup employee has to take on high impact tasks and make critical decisions.

#4 Finally, high growth startups are regularly evolving their business structure, and making little to big adjustments in response to customer data, consultant advice, and market research at a rate far faster than a traditional company.

Therefore it is vital to hire differently for a startup. Here are three key focus areas that you as a hiring manager or talent acquisition expert should look into.

#1 Hire for Competence, Not Potential

It is a myth that the successful startup founder is in his/her 20s and got their start from coding in their basements. An MIT Sloan study conducted in 2018 has shown that the average age of entrepreneurs who started a company that went on to hire just one company is 41.9, and the average age of founders who started a high growth company is 45. Whilst age is just a number, and young entrepreneurs have been shown to have advantages in innovation and technology as they are less attached to existing paradigms of thought and practice and are potentially less distracted by family and other opportunities, they are also less likely to have experience running companies — managing operations, regulatory, marketing/sales, finance, human resources etc., they may also lack access to greater human, social and financial capital.

The takeaway message though is not to focus on age, but skills and competencies. Whilst it is tempting to hire the 23 year old business graduate as your first business development manager because the candidate is willing to work for a low salary and is passionate about your organization, find an answer to these basic questions first:

1. What are your goals for business development?
2. Has the candidate shown strong and reliable evidence that they are able to meet those goals on their own initiative?

If your answer to question 2 is no, then stop the conversation. A startup’s goal is to grow and beat the odds. There are enough challenges that the founding team will need to face together. Hire people that you can trust to drive your business, not people that have the potential to do well but need guidance, or experience — they cannot hit the ground running the way you need them to.

#2 Hire for Independent Solution Finders

With a regularly evolving work environment, the person that can bring most value to the startup is one that is able to identify and solve new problems that crop up on their own, or with their team. This might mean simple things like volunteering to source for a name card printer as a designer, or large things like noticing that a new marketing campaign is not creating desired results, and proposing new options as the marketing manager.

Hiring for an independent solution finder means that you have a team member that is able to drive their own goals, set their own deadlines, and solve their own problems. This leaves you free to focus on you own priorities instead of always having to manage and juggle everyone else’s.

#3 Hire for Openness and Adaptability

One of the top reasons for the failure of a startup is when the team does not put enough importance in adapting to user and customer needs. The willingness to listen to feedback from customers, investors, mentors, and be open to critical insights from employees leads to higher chances for VC funding, stronger relationships, and opportunities to improve their product, service or business model.

You want to hire software engineers that are open to feedback about customer needs, business developers that understand the constraints of development, a finance manager that is open to a more efficient way of fund allocation, and a team that is willing and able to adapt when needed.

In Conclusion

As an organizational psychologist that has worked with traditional organizations and startups, I can unequivocally say that the consequences of a bad hire at a startup are so much worse than in a traditional organization for all the reasons stated above. Startups that are rapidly growing are often in desperate need to hire, however it is worth taking a little bit of time upfront to modify your assessment and hiring methods to take into account the above three recommendations. Have fun hiring!

We've covered the "What to Hire for" in this article, read ahead to "How to Hire for Startups" for a concrete guide on how to hire for the types of talent discussed in this article today.