How to Build a Culture that Creates a Cycle of Success by Hiring Well.
Every business that wants to grow needs to master recruiting key team members. I refer to the top three to five people in a ten to twenty-five-person company and every manager in any company. Managers are the “tip of the spear” and will set the tone for culture, hire and determine success or failure in their area. They make or break every company. believe there are several key mistakes that most hiring managers, and even professional recruiters, make.
We define scaling as 25% to 100% annual growth. Hypergrowth is over 100% and very rare. Any growth less than 10% is slow death as with inflation you are flat or shrinking.
I have been doing an informal survey of CEOs in my network for the past two months asking them the #1 challenge they are facing in this year’s corporate goals. So far #1 is hiring top people and #2 is raising capital. The capital markets are contracting (~20% since last year) but there is always money for the best deals. This is a cycle and venture capital has had poor returns in the last decade and many will close their doors slowly over the next five years, winding down their funds.
Recruiting top people is almost always the same and most companies get it terribly wrong with a 50% failure rate on hiring senior people. I believe 85% success is very achievable as defined by that manager or senior person staying five years or more. Anything less is costly and subpar.
I have staffed entire management teams for clients, and this has gotten easier with LinkedIn now too, without spending a small fortune on ads. And bear in mind this article is about hiring managers and key professionals, not everyone.
I follow ads for CEO and COOs on LinkedIn closely because I do Fractional CEO/COO work and interim positions. It is amazing how ads on LinkedIn will have 100+ applicants in 24 hours or less. Though I suspect well over 50% are totally unqualified people too.
SIDE NOTE: Job board services like Ziprecruiter and others do a horrible job of matching people to jobs, basically they SPAM candidates. I get solicitations for programmers, Uber drivers and jobs with $30K salaries all the time. Insanely bad, and it should be embarrassing to these companies that they add no value here with what is the most basic IT data screening. Obviously, they have no customer value awareness and institutional feedback loop to improve their services. Not even good basic filtering on salary, geography, industries, remote/on-site and other “must have” criteria most candidates would desire. They do a horrible job of matching that is mostly keyword driven and title driven. It is a disservice to both sides as a waste of time at least 90% of the time. I have been waiting for a new company to solve this problem and grab a large market share in recruiting for a couple decades and no one has solved this problem well yet. And with today’s AI tools they could do 500% better than just filtering by fixed criteria too.
I know that there is huge market pressure on recruiting firms for over a decade now with direct connections to candidates getting easier every day. I certainly do not have the perspective of doing this full-time recruiting, but I do know it does not work well. I believe there at least five common errors that I see professional recruiters, hiring managers and CEOs make all the time.
Here are a few strategic mistakes I see all the time in recruiting:
- Thinking industry and domain experience is #1 and filtering 95% or more of people out for not having ten years in X industry. Putting this requirement in the first paragraph of a job description or ad is a big mistake. Professional recruiters should never let their clients make this mistake. i.e. “20 Years as COO in < insert small, esoteric industry here>. Wow, this eliminates the vast majority of the best people in the world in the first sentence. And even those that ignore it will likely never get past the resume screener (software or person). This mistake almost guarantees a failed, or suboptimal, result with little or no choice from teh best candidates. It is just dumb.
- At the senior level domain experience is easy to pick up quickly and should be provided by the team underneath that manager anyway. I have worked in over forty industries now, and I can tell you that 95% of what I do has nothing to do with the industry. Leadership and management are about people, strategy, execution and discipline. I know I could learn 90% of most any industry’s quirks in a month. It has been proven again and again that you can hire from any industry at the senior levels because you are hiring for people skills, intellect, integrity, strategy, planning, leadership, and other things that take decades to develop. It takes a decade or two to develop strong management and leadership skills and a month to adjust to a new industry. Which should matter most?
- Even the CEO of IBM (Lou Gerstner, 1993) was hired from RJR Nabisco and executed a successful turnaround of the $85 billion IBM very well. He never worked at any technology firm (I checked), never mind a computer company, and only had four years prior as a CEO too. Industry just does not matter much with a few exceptions like government, military, medical and other highly regulated (also stuck and lacking innovation) industries. Most of the time industry experience just does not matter that much. This is all perception, not reality. In fact, if you want to disrupt an industry, and leap ahead, you are better off hiring someone without the traditional industry mindset and thinking. It just supports groupthink. Your odds of disruption are higher creating new innovations in the space without that industry knowledge because you will question everything. The path to real innovation.
- Not looking at intellect, curiosity, motivation and constant learning as the top indicators of the best people. These are the things that drive real growth in managers and create the best people in almost any job. Or creativity and entrepreneurial skills. Many studies show, like in Darwinism, that adaptability is far more important for survival and performance than any specific skill. I find it best to separate “Skills” and “Arts”. Skills are things you can pick up in a month or two, and things your team should be doing at the tactical level. Obviously, there is a spectrum here and some skills take five or more years to master, these are usually dedicated “professions” and not managerial jobs. That is not the topic of this article. The much harder challenges and decisions are around the “Arts” that take decades to learn as I mentioned above.
- Not working on the culture to keep and grow current employees with mentoring, coaching and training (L & D), and hence many companies get a revolving door in middle and senior positions. Growing your own best people is far better than recruiting new people. Granted if you are growing at 100% you need to hire from outside too, but you can still likely promote from within for 50% of the new positions created by that growth. That should be a goal. Research shows that 78% of employees want this professional growth and training opportunity, and I bet it is near 100% of the top people you want to keep. Like in sales where keeping existing customers is the cheapest solution and upselling them new products when you have an established relationship, it is always cheaper to upgrade than replace. The same is true of employees. The best employees want growth and learning as part of their month, every month. And the ROI on this is very high because you save on recruiting, morale, retraining, lost customers due to holes in the team and more. You also get more team engagement and ownership of the key strategic priorities and continuity instead of brain drain. Dilution of institutional knowledge is very dangerous and has killed many companies. Larger companies know this and run many kinds of Learning and Development (L & D) programs, training, mentoring and even have their own “Universities” like GE. However, smaller companies tend to ignore this method and hire more from outside.
- Not using equity incentives well to keep people and have them focus on long-term results and act as owners building enterprise value/equity. Here is a a little off topic bonus that I will write more about elsewhere. I prefer a three-tier compensation system tied into three timeframes that has become popular since high-tech and venture capital started in the 1970s. This has been proven effective by the creation of the entire high-tech sector.
- The first tier is a base salary that may be just a little less than the market. This screens out the bad candidates that will change jobs for another $1 per hour. You do not want those people, send them to your competitors. You want people with long-term thinking, loyalty, a career path in mind who respect and value culture and your mission.
- Second, a performance bonus that would take the good performers above market. This is best done annually as a retention tool but can be quarterly too. It should be a meaningful percentage of their salary, often 10% to 25% or more. The more senior the person the bigger this absolute dollar number and percentage.
- And tier three of a top compensation package is stock options with a life changing, seven or eight figure (for C-Level) people that vest over 3-4 years. This may be a six-figure amount for professionals but it is not meaningful unless it can double their salary with an exit event in five years or so. Often this will be “golden handcuffs” that prevents people from even talking to recruiters. When someone does not value equity, they are likely a bad employee in the c-suite or even as a manager. They are basically telling you they are not here for the long-term, mission and team just an opportunist that will jump ship at the first sign of trouble. And that they have no clue about compensation, economics and how people almost never get rich on just a salary. I have seen clients hire these people and it never, ever works out. Most often, they are gone in a year or two. And they told you this before you hired them! So, shame on you for not listening.
- As a startup you must use equity, those that do not will be stuck with company valuations under $20 million and likely level outgrowth around fifty employees and never go further. They will have a revolving door in management and always be recruiting and retraining becuase the top people want that upside in their compensation package. You will not get and keep the top people you need to crush markets without sharing that enterprise value upside with the top people on your team. They will be recruited away by the companies that do this. Studies have shown the ROI on this is very positive becuase frankly the pie just gets bigger, and not linearly.
- Hire based only on merit only, nothing else. This can include personality, cultural fit, and many other things, but this is mostly what I have already listed above. Merit should be 90% of any hiring decision and if you use the criteria that I listed above more, then I guarantee you will attract and keep better people. This can create a virtuous circle of success, or an upward spiral. Even a self-fulfilling prophecy of success. The best teams will always attract capital at higher valuations, generate more innovation and hence more sustainable competitive advantage. This creates a cycle of growth and success. The result is higher P/E multiples and better exits for all. Which loops back to your ability to attract the best people. See how that works? If you can paint a picture of an exit at a P/E multiple of 30 to 80 instead of the average of around eight times EBITDA, don’t you think you will have an advantage hiring smarter people? That is part of “Selling the vision”.
I call the perfect culture a Darwinian Meritocracy(TM). Darwinian because companies must always evolve and change with growth, and outside market and world forces. A meritocracy is best because companies need to eliminate politics and infighting and focus the most attention on value creation for customers. This is what gels a team and creates high-performance teams that support each other well. You must always hire and promote on merit alone. Never this “diversity, equity, and inclusion” (DEI) crap. Any company with a DEI executive position is likely on the downside of their life cycle. Just hire the best people for the job. Period.
Now don’t have a twinkie you left wing, liberal, and “woke” folk (and anyone under 30). Of course, diversity is a good thing, but quotas and bias against anyone not “diverse”, is bad too. It is just the KKK with good public relations and spin. Quotas are just reverse discrimination (or prejudice) labeled as “good”. SCOTUS just last week reversed “affirmative action” after six decades of this nonsense being legal (signed by Kennedy, 1961). Now decisions based on this stuff are illegal again. Therefore, I am not preaching politics, but law. So, it took the judicial system sixty-two years to figure out it was against the Fourteenth Amendment of equal treatment. YIKES! That’s the government for you. Always incompetent. Always slow. Always costing ten times more than it should and usually just plain wrong.
Companies using gender, ethnicity and any criteria other than merit are just virtue signaling, which has no real value to a company or its customers. Of course, consumer companies are especially vulnerable to this stuff with boycotts (that never really work) that are bad PR.
Politics and ideology have no place in corporate America and any CEO that lets the twenty somethings, or even 30-somethings, set their agenda and corporate culture based on this nonsense will be unemployed in a few years. Mark my words. EIther they will get fired or their company will tank. Adults, please speak up. Negative feedback is necessary to improve, stop being so politically correct and create value for customers. That is a company’s only job. And the fiduciary responsibility of every corporate officer.
I have written many articles and produced videos as part of our AirTight Management System #6 – Human Capital Acquisition and Development (HCAD), System #6 culture and organizational development philosophies.
See my blog at https://airtightgrowth.com/blog
For companies that want exceptional growth, controlling and building a culture is a required task for success and too many CEOs are passive about this letting it evolve on its own instead of creating the perfect culture for their company.
If you want to scale a substantial company then you need to let the merit of people, and facts not feelings, drive the key decisions, philosophy and foundation of your culture. Otherwise free markets and Darwin will certainly kill you eventually.
May all your hiring be successful.
Free Webinar Replay: Top 10 Challenges of Scaling a Business:
Click here to check the replay
Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
What can we help you with today? Scaling, training, consulting, coaching?
Call (619) SCALE06 or (619) 722-5306 9am-6pm CT
Or Schedule a free 30-minute strategy session by clicking here.