Hiring for a Startup - The Definitive Guide

Startups that are successful have a great product AND a great team - you can't scale with bad hires. Our guide explains everything you need to know about hiring the best people to help grow your business

Updated 16 March 2022

Summary:

One of the critical elements to creating a successful start-up is hiring the right team. Find great people, then everything else becomes so much easier.
Most founders have only ever experienced the recruitment processes of a large corporate, designed to replenish the workforce within an established business.
Start-ups are fast-moving, dynamic businesses looking to minimise bureaucracy to focus on the value add. Therefore, it's essential to hire differently.

Avoid the common mistake of hiring "to impress" or "to be liked" - it's dangerous, doesn't work in the long-term and leaves you exposed. Also, hiring out of desperation can also be equally troublesome - the right person exists; it's up to you to find them, and as a founder, that is your job.

This guide outlines must-know tips and processes that help you set your startup up for success and avoid common mistakes that can make or break a newly launched business. We cover:

Know This First: Working in a start-up is very different to an established corporate job so you'll need employees who can handle the highs and lows

Start-ups are high risk, with the odds of failure stacked against you. This can create a high stress, high-pressure environment. Early employees will not only have to deal with traditional stressors (like tight deadlines), but they will also be intricately involved in supporting the founders in dealing with investors through to establishing the corporate structure for future success. This often unstructured and high-pressure environment isn't suited to everyone, and you must find the right people to support you during this period.
If it is a new venture, the number of full-time employees will likely be small but growing. Unlike working in a corporate, where a role may be one of thousands, an employee at a start-up has to take on a wide range of responsibilities and tasks and make critical decisions at pace.
The nature of any high growth start-up is that their business structure will be evolving at pace. There will often be changes in strategy and direction in response to market feedback, customer data, and external advice as a company quickly finds product-market fit. For many, constant change and a lack of clear structure may not be suitable.

Important: A study from CBI Insights found that among the top reasons for failure are financial issues (29%) followed by having the wrong team (23%). Therefore it is vital to hire the right team with the personality and skillsets to support you on this journey.

Key Things to Focus on When Hiring for a Start-up:

It can't be stated enough that hiring the wrong person can lead to unnecessary headaches, create distractions, and unbalance the team culture. This impacts growth and can severely disrupt the success of the business. To avoid this, we suggest the following three actions:

1. Don't hire just to fill a position description

Hire talented people you can trust to grow your business. Start-ups that hire successfully focus on the skills and competencies of the candidate, taking onboard a new employee because of their potential to add to the business irrespective of the intended role.
This means hiring people who understand the vision and can help accelerate what you want to accomplish.
Focus on the candidate's personality, goals and aspirations and ensure they align with your company's competencies.
These employees will deliver on the tasks in front of them, helping reduce your own stress, giving you the capacity to focus on the business.
Some employees will look to go above and beyond; these are valuable team members to the business, so long as they continue to achieve the key objectives.
When assessing candidates cultural fit, visionaries may not align with the needs of the business. Instead, they can create conflict with the business' existing vision and are not a culture fit.

2. Hire autonomous solution finders.

A founder's role is diverse and can be draining; find employees you can trust and give them the freedom to work autonomously.
Avoid micromanagement, and by sharing the responsibility of the vision, you will create a team culture that fosters innovation, with every member of the team able to see their own ideas come to life. This way, you will develop a team that can structure their own goals, set their own deadlines, and solve their own problems.
This leaves you free to focus on the business' overarching priorities instead of always managing and juggling everyone else's.

3. Conveying the bigger vision is an important responsibility of the founder.

By providing a clear vision, you can hire and build a team that is responsive and open to feedback, a team that is willing and able to adapt when needed. – i.e., hire for the vision, they are aligned on the larger goal and objective and can react to the short-term noise that occurs along that pathway - knowing when to escalate and when changes may need further discussion.

How to Hire: 8 Must-Know Ways to Make it Work

A great team isn't put together in one day. Your hiring plan needs to be robust and objective - hiring to "be liked" or to "impress people" is a dangerous (but common) issue with founders. To avoid problems, we suggest considering the following must-know pointers:

Start with known connections

Reach out to those you know well, who have aligned work ethics, values, and who you can work closely with. These first few hires will be intimately involved in every detail of the business, and having someone you can trust and can share the highs and lows with is important.

Network

It's all about networks for one simple reason: good people know good people. As your team grows and you establish the business culture, use this team to find new talent within their own network. Networking and leveraging existing connections reduces the risk that team members may not work cohesively together.

Engage your team

When bringing on a new team member, make sure the team members directly connected to the hire are engaged in the process. They should be advising what skill sets they need in their team going forward, what sort of traits they can work productively with, and ensure that you also consider each of their personal ambitions.

For example, does an existing team member have visions of going onto a team leadership role? If so, you need to consider hiring a potential junior for them if there is a business need.

Always be hiring

Hiring the right talent takes time and shouldn't be rushed. Don't be afraid to have job adverts listed constantly and to be regularly searching for new hires. This can also be an important signal to the market that you are a growing and an exciting place to work.

Be patient and don't hire out of urgency

You aren't obliged to fill an advertised role, be patient and don't take onboard a new hire just to fill a skills shortage if they are not the right fit for the business. This may solve a short-term resourcing need but will create far more issues down the line.

Be flexible

Remember, you are hiring for the skills and talent of an individual to support the growth of the business, not just to fill a position description. Successful hiring within a start-up focuses on the value the individual brings to the business, not on how their skills solve a specific position description.

Provide and ask for feedback

Start-up or not, it's important to provide feedback to any candidates that apply. They may not be a fit for you now, but their interest is important. Find out what attracted them to the role, their perceptions of the businesses, and share feedback on the elements that didn't align. The feedback from the applicant can be useful in how you shape future position descriptions to attract the type of candidates you are seeking.

Consider using an agency

While they can be expensive, if you are struggling to find the right talent for a position, this can open up a new channel. Sometimes the right candidate may not be actively looking for a new job; using an agency can sometimes get you access to these hidden talents. Remember, you should only be paying if you end up hiring a successful candidate.

Top Tip: The Importance on an HR Plan Can't Be Underestimated

When you are involved in a start-up, and everything is moving at pace, it can be tempting to skip the bureaucracy. However, failing to meet your HR obligations and having a clear strategy in place is setting yourself up for failure in the future.

Putting in the time upfront to develop a comprehensive HR plan will help you move at pace as your hiring rates begin to accelerate. Ensure you incorporate employee feedback and align the plan with the business' culture and values.

One of the critical items of any HR plan is an employment agreement. It's important you get advice when structuring your employment agreements. This guide from LawHawk can help you think about the important elements of an employment agreement. Ensure you consider each of these and structure them to align with your corporate values.

Putting in place an appropriate plan is also a way to establish the business's culture and attract talented employees. Items you should consider covering are:

How you will handle leave requests
The company's views on remote and flexible working
The company's dress code
Any other employment benefits you want to offer, such as gym membership, phone plans, a company car etc

If you are going to offer an ESOP scheme:

Are there bonus structures, and do they align with the company's values?
What training and development plans will you offer?

Answering these questions upfront to prospective employees is a great way to articulate the company's values and attract the right talent, particularly today as employees look beyond just the monetary rewards of a job opportunity.

Other key policies to think about which are important to the business include:

Confidentiality terms
Garden leave
IP protections
Restraints of trade

These will all form essential policies when an employee leaves or if there is a potential employment dispute.

Next Steps

Having clearly laid out the values and vision of your company, implemented an HR plan, and started networking, you have the structure to go and hire a talented team to make your start-up a success.
Once you have a talented team in place, you will undoubtedly come on the radar of competitors who will be looking at your team with envy. Staff will likely be approached with competitive employment offers from these larger or existing players.
You need to continually work hard at keeping engaged with your team and create an environment that supports their personal growth within the business. Focusing on these cultural elements that are of personal importance to your team members helps you compete for great talent, even when others may offer a higher monetary package.

Giving Away Equity Using a Share Option Plans

While it is less common in New Zealand, an Employee Share Option Plan (ESOP) is another way to attract and retain talent, particularly if you have a tight budget. ESOP plans need to be carefully considered upfront. They are complex and will require a significant investment upfront to establish the appropriate legal structure under which they will be offered. If you've already raised capital or have external investors, you may have constraints under which an ESOP can be offered.

Important considerations:

Questions you will need to consider include who will be eligible for the ESOP, how big the ESOP scheme will be, are the offer of options tied to KPIs or is it used as a remuneration tool and will cash bonuses be paid alongside the ESOP.
Given the complexity of an ESOP, its potentially material impact on the team culture, and the commercial implications of such a scheme, it is important to consider this upfront.
You may want to reach out to other start-ups and business groups you are involved in to find out if they have offered an ESOP plan and how they found the experience.

MoneyHub Founder Christopher Walsh shares his thoughts on ESOP:

"An ESOP is not something to rush into. If you're relying on capital raises, you'll need to balance employee entitlements with the need for new equity. Too often, I have seen founders give away too much equity (to both investors and staff) only to be heavily diluted themselves, sometimes down to 10% or even 5%. With one high profile company in New Zealand, the founder and CEO has 2% equity. I do not hold high hopes for the future of that company when the CEO is effectively working for other people".

"With such low founder equity (i.e. less than 20%), I would argue that there isn't any incentive to build the business as much. Equity doesn't cost anything to give away in the short-term, but in the long-term, not having much of it can really be problematic. For these reasons, don't rush into promising early employees buckets of equity without properly considering your future".

Payroll, Compliance and Administration Considerations

If you are a small and growing team, you may not yet have a finance manager in place. There are some great online tools to assist with employee management:

Payroll

There are several online payroll system providers which can make managing payroll a breeze.
Paysauce is one example; an NZX-listed payroll provider that links automatically with the IRD, Xero and your bank, calculating wages, PAYE, KiwiSaver, holiday pay and any extra obligations, sends payslips and reports, and files with the IRD.
All you have to do is approve timesheets and leave. If all staff are on salaries, you can automate the entire process, meaning you don't need to set reminders for pay runs and never have a missed payment.
You will still need to file your own ACC levies.
If you're using contractors who work exclusively with your startup, HNRY is an option to minimize the time you and your team spends on administration.

Shareholder/ESOP

One of the obligations of all businesses is to maintain an up-to-date share registry. If you like the idea of doing this in the cloud, with centralised reporting, then you should consider Orchestra. Orchestra holds your company share registry, share transactions, along with other key legal information, so the important bits of your business automatically stay up to date with minimal effort.
Orchestra can also help set up and maintain any nominee company or employee share scheme structures your company requires. Employees who are shareholders or have participated in an ESOP will get online access to see the latest information on the company, including any investor communications sent via the platform.

Part-Time CFO (also known as a VCFO)

Our guide to hiring a part-time or virtual CFO outlines what you need to know.

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