Think Like a VC When Hiring

 

Think Like a VC When Hiring

Applying Investment Criteria When Evaluating Candidates

By Joe Payne

Since our firm focuses on executive search for venture-backed technology companies, I have had the privilege of getting to know a number of people in the Venture Capital community. Working closely with them on hiring for some of their portfolio companies, they have shared with me some of their insight into how they evaluate companies. Several of their key criteria also apply to evaluating candidates when hiring for your company – here are the top four.

1. Is there a compelling value proposition?
When thinking about companies, a compelling value proposition is one where the benefit that an organization can provide to its customers significantly exceeds the cost (including risk)¹ . Applying this to a candidate you are considering for a position with your company: Will this person provide a benefit to the organization that will exceed his/her cost (factoring in the associated risk)?

    How do we determine the benefit a potential employee will provide? First, let’s look at the benefit they provided to their previous employer(s):
  • What were their specific (quantifiable) accomplishments?
  • How similar are they to what you need done?

    Next, look at their cost to your organization:
    (This is not just salary and benefits; you need to include the training costs and ramp-up time.)
  • What impact will this person have on customers, vendors, other employees, etc.?
  • How will this person impact your organizational and political structure?

    Finally, factor in the associated risk:
  • What happens if they are not successful? How will that impact your organization?
  • What will you lose if they leave before you have planned?

 

2. What is their competitive differentiator?
When evaluating companies or products, investors look to see that they stand out from all the other alternatives. When evaluating a candidate, is he or she significantly better than all of the others? [Note: Be careful when comparing candidates to each other. First, make sure that every one of your finalists meets the specific requirements for the position. You want to be comparing the best of the best, not the "cream of the crap".] A “star” generally contributes at least twice as much as an average employee.

3. Do they have a repeatable, scalable process?
Entrepreneurial companies that succeed are able to handle a high rate of growth, usually because they have a process in place that is well defined and can be repeated from a small scale to a large scale. The best people have developed a process for what they do. If you ask them about their approach to their job, you will discover that they have developed a way of working that is highly efficient and productive.

4. Do they adapt well to changing market conditions?
Several venture investors have told me that the business plan they originally funded was not the one that was eventually successful. Investors look for a management team that is responsive and adaptable to changing market conditions. You should look for people that are adaptable as well. My grandfather (a trim carpenter) used to tell me: “if the only tool you have is a hammer, everything looks like a nail.” Make sure that the people you are hiring have more than one tool in their toolbox and know the right one to use for different situations.

When you add a new person to your organization, you are making an investment in them. You should evaluate each new hire like an investment, and venture capitalists are experts at evaluating investments. Take a tip from the VCs and apply these criteria when you are evaluating candidates for your company.

Joe Payne (jpayne@integrasearch.com) is Managing Director of Integra Search, an Atlanta-based retained search and recruiting consulting firm that serves early-stage technology companies. Joe estimates that he has conducted over 12,000 interviews in his 25 year career in search.

Copyright 2011 by Integra Search, Inc. www.integrasearch.com

¹Barnes, Cindy; Blake, Helen; Pinder, David. Creating and Delivering Your Value Proposition: Managing Customer Experience for Profit, Kogan Page, 2009. ISBN 978-0-7494-5512-5

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