In the heady days when founders are working furiously to get their startups off the ground, many figure that if they get something wrong, they can always correct it later. That’s true to some extent, but when it comes to key roles, there are certain mistakes that management experts say avoiding will save you huge headaches as your company scales.
“As a former founder, your first hires really determine the future of the company,” says Meredith Meyer Grelli, assistant professor at Carnegie Mellon University’s Tepper School of Business and assistant dean of entrepreneurship initiatives at the school of computer science. “People coming in at that stage have such an outsize impact on the immediate success of the business, from their skills to their attitude toward the mission.”
So it’s crucial for founders not to make mistakes like promoting employees with little managerial expertise into executive-level roles, or not hiring an HR person early enough. Growing a company successfully doesn’t just mean bringing on more people, it means bringing on the right people with the right skills at the right time. Here are three of the top mistakes workplace experts see founders making—and how to avoid them.
Building out the C-suite too early
When there are only, say, five people at a company, it’s easy to to consider each one an expert in their field and hand out a C-suite level position to match.
For instance, as Meyer Grelli points out, young founders often get “enamored” with bringing on a product engineer from a top tech firm, or take the most technically skilled person at their company and designate them as CTO. Sometimes, she notes, these technical founders really are best at being CTO, but more likely than not, company leaders are going to have to eventually bring on someone else who “has go-to-market experience and knows how to lead teams as part of a more structured organization.”
And these kinds of early C-suite-level decisions happen often, not just with the CTO, but with other key C-suite positions such as CFO and COO. That’s why it may be best to delay C-suite decisions, and save them for folks with more institutional knowledge who are more likely to stay in the position as the company grows, says Jeffrey Rayport, senior lecturer of business administration at Harvard Business School who teaches at the school’s MBA and executive education programs. That’s because having to demote an employee who’s been there since day one is not a fun conversation to have.
“There are certain kinds of people who work better in the early stages of a business, and while there’s nothing wrong with that, they need to be aware of this, and what they’re capable of taking on and not taking on, as the company grows,” he says.
If need be, there are ways to handle these conversations so they won’t ruffle feathers. For instance, Meyer Grelli suggests walking these employees through a simple self-reflection exercise, asking them what their future goals are, and prodding them to be realistic about their personality type and what kind of environment they thrive in. Usually, she notes, that will help recognize why they might not be the best person for a particular role moving forward, and not take the decision too personally.
Not hiring people outside of traditional networks
When thinking about first hires, many founders will focus on the particular skills they need to get their company off the ground: engineers to build the product, a marketing person to help with the initial launch, or perhaps even a logistical person to let up supply chains. And often the first people they go to are their friends, acquaintances, or those directly in their network. But experts say doing so often keeps founders from seeing the long-term potential of that hire, who may end up needing to be replaced down the line.
“Especially for startups early on, founders are often trying to just fill seats and fill vacancies, rather than looking for long-term employees,” Kyle M.K., talent strategy advisor at job site Indeed, says. “Those who typically have air on fire at all times will look for someone who matches all the right skill sets in the immediate sense but not in the long term.”
Massimo Mazza, a senior partner of strategy and corporate finance at consulting firm McKinsey, agrees and says he often asks founders one simple question to see if the close friend or family member they hired is actually an essential part of the organization, or someone who has been kept on due to other relationship-related ties.
“I ask them how many tough calls they’ve had to take with that person over the last year,” he says. “And if the answer is zero, that’s a potential red flag.”
He also suggests founders ask themselves if they’re often in a room with someone who provides a completely different perspective then their own. If not, he says, company leaders may want to focus on looking for folks who can bring new and different perspectives to the table.
Onboarding HR too late
Reaching 50 employees is a milestone for many businesses. At that number, employers are subject to several federal labor laws including the Family and Medical Leave Act, the Fair Labor Standards Act, and the Affordable Care Act, all of which provide certain benefits and protections for workers. It’s at this same point, experts say, that culture at a company truly starts to develop.
“Think of it as a transition from family into a town, from a place where everyone knows each other to one where you need to have some sort of infrastructure, some sort of governance for it to be effective,” says Maza.
That’s why it’s essential to bring on a head of HR before hitting that mark, he notes, ideally around the 20-to-30-employee range, to ensure that policies and practices are implemented and there’s a designated point person to handle issues like benefits, PTO, and remote/hybrid work arrangements. As Meyer Grelli says, “informal practices start to fray around the 50-employee mark.”
It’s also a good idea to ensure that some kind of HR department be set up, regardless of company size, before landing any kind of institutional funding, she says, especially large venture capital raises. Because once the money comes in, investors will likely put pressure on the executive team to start hiring fast, especially if they’re looking to reach a certain growth milestone or profitability and it’s important to have a designated team of people to handle that in advance.
“As soon as you take external funding, you can no longer wait to hire, because you have to hit certain milestones and the clock is ticking and it’s not your clock anymore, it’s the investors’,” says Meyer Grelli.
This article is part of The Must-Read Playbook for Small Business.
