When to hire big company people into your startup

Investors often put pressure on startups to hire senior people from big companies. Sometimes that’s for good reasons, but sometimes it’s because it gives them good sound bites and the illusion of progress. When VCs can say “Our investment just hired the product manager for ‘XYZ important product’ from Facebook” it makes them feel better and look good at cocktail parties. Cynics call these ‘CV hires’, and it’s not just VCs who make this mistake. CEOs and founders do too.

Over the last few years it’s we’ve seen an explosion in the number of European startups that have reached scale, and that’s changing the hiring equation. It used to be that if you wanted a big name on the CV you had to go for a large established business, and probably one that was headquartered in the UK. There are now a good number of sizeable scaleups with people who were there when they grew from being a small company to a larger one and want to go and do it again at another startup. These people combine bigco experience with an understanding of startups and are gold-dust if you can get them.

However, if you can’t, and I’m thinking about companies with up to around 40 people, I would say that generally speaking it only makes sense to go to an established big company when something specific in your business is lacking or broken. If you’re digital marketing is failing, then there’s a good chance that someone from Booking.com or Expedia might be your best bet to fix it. They have large teams of people who live and breathe data and someone there has probably seen your situation before.

Conversely, if the requirement is continuous incremental improvement then hiring for talent over experience is often better. If your digital marketing challenge is more about squeezing the pips or looking for the next leg up for growth then going lighter on experience and longer on raw talent and hunger (and salary) often works better.

Thinking about the general case, the advantage of big company people is that when they work you have a solution that should scale effortlessly with the company for some time to come. The disadvantage is that when they don’t work the cost is much higher – not only will bigco people be on larger salaries, they typically demand more resources and hence waste more money before they leave than less experienced alternatives. Worse, experienced people demand more autonomy and are often more skilled at managing upwards, so it takes longer to know when they aren’t working out and it’s harder to fix when they go.

Finally, and this is the kicker, from what I’ve seen, high salary hires from big companies work out much less often than you would expect. I think that’s because there’s an adverse selection problem – the best people from large companies generally don’t want to work at startups. They prefer to take the high salary and continue with what’s working for them. When people do risk weighted analyses of total comp likely to be earned in a startup vs a bigco it shows that bigco is the rational path.

Additionally, adjusting from big company life to startup life is famously hard. Work at a startup is invariably broad and scrappy. You have to work across the whole product or business and without much admin support of many team members. Big company folk are used to working on narrow subsets of products or on segments of the customer base and they are used to having most of their small problems and tedious admin tasks taken care of for them.

Once startups get bigger than around 40 people they start becoming more like big companies and have more resources, so the calculus changes.

 

 

  • Dave

    Nic – great article and perspective. Here is another view also. The mega large companies would serve them better also to have on their Board a successful serial entrepreneur.or two. Entrepreneurs have a different experience at looking at costs, growth, market timing and spending capital.

    I am all things digital my entire career. I am on the Board of a Securities Company; prior to myself everyone was from the financial industry. What value did this company see? It’s a digital world and they did not have anyone on their Board that understands the range of digital technology, networks, cryptography, ethereum blockchain, data, clouds, virtualization, etc and associated Rolodex of contacts. They made a conscious decision to have someone on the Board as a hedge against being disrupted. They have also come to find, given my career; in serving various Industries across the Globe I have seen many different business models and strategies – a bonus. There are occasions where one can adopt something from another Industry as a competitive advantage; but not if you have a Board of group think experts.

    Lastly, and this drives me up a wall. Executive Recruiters. When are they going to get into the 21st century. They seem to like to look at myself as a digital CEO and want to pigeon hole me. I have the skills and experience to turnaround and or grow just about any business, but there is this narrow view they have – this also applies when they seek outside Board Directors. Like above; how many of these Executive Recruiters do not look or sell their client on candidates that bring different industry and especially digital experience to a Board Room for intellectual diversity!

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