Thursday, October 4, 2012

Hiring Experts v. Staying Lean

I recently came across a white paper written by Vinod Khosla titled "Gene Pool Engineering for Entrepreneurs." In the paper, Khosla describes a process for creating the right "Gene Pool" for a company by (1) aligning your critical first few hires with the key risks and opportunities for the business, and (2) by consciously hiring for diversity across skills, background, experience, and mindset. By following rule #1, you ensure that you find the best experts that you can that will help you solve the biggest problems for your business. By following rule #2, you include the diverse perspectives necessary to foster creative problem-solving and also prevent groupthink. 

I generally agree with Khosla's recommended approach-- you should always keep in mind what the key risks are to your business, and which experts (from which "centers of excellence") would you like to recruit to address those risks. And when evaluating any new candidate, don't just think about how they will address the key risk or opportunity that you will point them at, but also think about the impact he or she will have on the "gene pool" of your business.

After reading the paper, though, I remembered the book Getting Real by 37 Signals, which had a chapter of their book called, "Less Mass." In this chapter, the authors advise startups to avoid taking on too much mass, in the form of product features, customers, and employees. The core argument is that one of the greatest advantages that a startup has is its agility, its ability to stay nimble and adapt to new customer needs and changing market conditions. As you take on more mass, it becomes difficult for a startup to change. 

I have firsthand experience with this advice -- at Dasient, we made technology, product, and hiring decisions based on our initial vision of providing web security (in a similar market to vulnerability scanning). However, as we began to see opportunities in the mobile security space, we had taken on too much mass to adapt quickly to take advantage of the new opportunities. For better or for worse, we were committed to the original vision for the business, and it would be difficult to change.

So how do you reconcile the advice from 37 Signals -- avoid taking on mass, avoid over-hiring, stay lean and nimble so that you can adapt -- with the advice from Khosla, which is to identify the key risks to your business and hire people specifically to address those risks? Suppose you start with an original vision for the business, and you hire experts to help you address risks for that vision. But then the company needs to pivot and the experts you had hired for the previous vision are now obsolete? 

Here is a proposal: figure out which risks to your business may cause you to pivot to a "plan B" if the answer comes back a certain way. Think explicitly about what that "plan B" is. If you plan to hire a person to address the risk that has a good chance of becoming obsolete if you pivot to plan B, don't hire that person yet. The founders should continue to address that risk until in your judgment you have more certainty around whether you need to pivot. Only when you are relatively "committed" to a certain path, then make the hire.

Another option is to screen your hire for their "option value": can they help you address the risk if you stay the course with plan A, and could they also be valuable to the business if you pivoted to plan B. Can they multi-task and add value in multiple areas (and delay your hiring someone else)? And, importantly, do they have the experimentation mindset; the scrappy, can-do, entrepreneurial spirit; and the attitude to adapt well to changing conditions, lack of clarity, and lack of resources? 

I believe that rather than treating the risks to your business as static, think of the risks as dynamic depending on whether you stay with plan A or pivot to plan B. Prioritize addressing those risks that may cause you to pivot, and tackle those yourself if possible. If you decide to make a hire, screen them for their option value-- could they be valuable in plan A and plan B? This will help you avoid some of the downside of "taking on more mass." As you become more mature and more certain that you will continue to stay with plan A, you can veer more towards hiring experts for specific risks and opportunities for your business.


Raj said...
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Raj said...

Great post Ameet! I personally saw a startup layoff several people because it decided to pivot in one of the areas in which it operates. People were so scared that they may be the next to get the axe. Indeed, two of our engineers voluntarily left the company, saying that they were worried about their jobs due to the layoff saga that unraveled. Those resignations were not only a big loss for the company but they had to spend extra resource ($$$) to find new engineers to replace those two that left. Our CEO then sent a startup-wide e-mail saying that he had to layoff those folks' because their expertise did not jive well with the new plan, but reiterated multiple times that everybody else job is safe.

One more important consequence of scaling too fast and too early is that you lose focus as people-related problems creep in. I think Square is a classic example: