Alejandro TauberFormer Editor-in-Chief, TNW
The line between startup and scaleup can be quite murky, but most agree that a startup becomes a scaleup once the “growth chasm” is crossed –– meaning they’ve solved challenges like market research and development, and have identified a scalable business model.
According to academics, a scaleup is, “a high growth firm whose accelerated cycle of growth and wealth creation is fundamentally based on the scalability of its business model.”
But having solved those initial problems, new problems arise. Techleap.nl, a team dedicated to empowering Dutch tech companies, recently released a series of video interviews in which they ask successful scaleup founders about the biggest issues they’ve encountered while growing. Hiring the right people and maintaining a close-knit community was one of them:
This is especially the case for your leadership team. As Skype founding management team member James Bilefield told McKinsey:
At the heart of every successful scaleup you need a great mix of skills, attitude, and resilience in the founding team, who make the time in their crazy schedules to attract, develop, and retain the very best talent.
While a certain drive is needed in a founding team to go from concept to startup. Sometimes new skills are needed to lead the bridge between startup and scaleup. This is typically the time when a company needs to bring onboard external CFOs, CTOs, CMOs, CPOs, COOs, and even CEOs with experience in managing the challenges faced by much larger and growing organizations.
But how do you know when you need to start looking? And who should you be looking for? We put these questions to some seasoned experts in the field to find out how to successfully hire into the C-Suite, without ruining your company on the way.
How to know when to start looking
Simple: “If things are not growing, that leads to problems.” Guido van Nispen, who has served in executive roles at corporates, public institutions and non-profits, held supervisory board positions across a broad range of companies, and founded a startup in the cybersecurity insurance industry, has pretty much seen it all.
According to him, the process of deciding to hire a new member of the C-suite is not something that happens overnight.
“Every phase of an organization has stakeholders, and those stakeholders ask for a type of management in the C-suite,” he says. For a startup, generalists are normally well suited people who are comfortable with ambiguity and can easily switch from customer service to pitching.
But when a company starts growing, this changes. “First you have no board. Then you might get investors. Then you get a board at the scaleup level. And once you land serious financing, you also get serious oversight,” van Nispen says. And that oversight can reveal that certain roles need to be created, or existing people need to be replaced.
This is also the phase when cracks in the founding team start to show themselves seriously. Before becoming founder of VC firm CapitalT, Eva de Mol, conducted research on psychological traits that can lead to these fissures. She says:
Moving into a scaleup, you need specialists. And that can be hard, because sometimes people who founded the company just don’t fit anymore.
Sometimes they just like being generalists, or the culture might have changed, and they no longer like working at the company.
Whatever the reason is, whether it’s to replace someone who’s not happy in their newly minted role as CFO after doing both finance and marketing, or because sales growth simply isn’t meeting expectations, this is when it’s time to start looking.
How to start looking
Once you know that it’s time to hire someone into an executive role, get ready for a process that can take a considerable amount of time.
First of all, the final decision to replace someone can often take six months or more.
“If you say we’ll grow 100% and become the market leader in two new countries in the next two quarters, then that’s what the board will be expecting,” van Nispen says. Often, the board will give the responsible department head a few board meetings to catch up.
“But if you see that things aren’t improving or keep being unpredictable,” van Nispen says, it’s time to put feelers out for possible replacements.
While there are many recruiters who offer executive search services, the search normally starts through the board according to van Nispen. Board members don’t only have a wide network at their disposal, they also know the company intimately and can introduce candidates who might be a good fit.
Two things are important to have clear before setting out to find a new candidate. First, a company needs to know the cause of the initial problem.
“Maybe the finances were a mess, but if you don’t know if that was because the current CFO was not great with spreadsheets or if the CTO consistently spent too much without oversight, you’re not going to solve the problem,” says van Nispen.
Second, you need to have a clear and unanimous strategic goal.
Say you want to conquer the German market in the next year. This market has its particularities, and if you hire someone who has to learn all of them, instead of someone who has expanded to Germany before, that’s a big risk.
How to attract experienced C-suite material
Now, let’s say you’ve set your goals and identified the problems. How do you attract suitable candidates?
Everyone is aware of the ongoing ‘war for talent’ facing scaleups. A seasoned CFO can have their pick of exciting companies to work for, so why should they choose you?
Good compensation is probably not the (only) answer. C-suite roles at scaleups all offer similar salaries, stock, and benefits.
There are some tweaks you could make in offering shorter vesting schedules, and tying incentive packages to clear growth paths — e.g. more shares after raising a next round, or at a certain revenue milestone, depending on the role you’re filling.
But van Nispen is convinced: “the most important thing is that you have to really sell the company and its mission.” It has to be an exciting opportunity that fits within their background and experience, and offers challenges that fit well with their personality.
Who should you look for
De Mol’s research focused on how different types of entrepreneurial passions in people work together to create better performing companies — or dysfunctional ones. She says:
It’s all about people. You can have great plans and amazing financial forecasts, but the people have to execute those. And that’s hard. So the team is incredibly important.
De Mol conducted research into the role of passion in entrepreneurship, and developed a model that scores passion intensity in three distinct categories.
First, there are entrepreneurs who are passionate about founding. They love setting up a business, scaling it, selling it, and doing it all over again. Second, there are people who are passionate about inventing — creating new, better products and innovations. And finally there are people who thrive on developing things like team-building, culture, and are more people-focused.
While her research focused more on early-stage startups, she found leadership teams that differed too much in their type of passion, “led to negative effects on fundraising, number of employees, and longevity.”
Difference in intensity of passion was another indicator of success or failure. Leadership teams that had some people scoring very high, and others very low often didn’t succeed in leading a company effectively.
She mentions that more and more VCs are taking these types of personality tests along with due diligence processes. So even for scaleups it can be useful to map out how the current leadership scores, and how potential hires fit in.
But most importantly
Everyone we spoke to agreed that one thing is most important in hiring into the C-suite: strategic alignment.
Having clear goals allows scaleups to determine what a new CTO, CFO, CPO, CCO, or even CEO needs to be good at, and what they need to focus on. This in turn creates a clear job description, with actionable challenges the company is facing. Ultimately, this leads to better communication with the board, allowing a company to make full use of its most experienced contributors.
Now whether the goal is to become a market leader in Germany within the next year, to gain the financing needed to scale to 1000 employees in two years, to create new products based on customer feedback, or, like Skype’s Bilefield “to become a verb,” it’s paramount that everybody involved agrees on these goals.
De Mol told us that with unanimous strategic alignment, even differences in type of passion can be overcome, and even be a strength, as complimentary passions leading to the same goal can strengthen each other.
Van Nispen also stressed that it might be wise to agree on what happens if those goals are not met — even before hiring a new leader. Doing that makes it clear for everyone what the steps are before having to go through the whole process again.
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This article is brought to you by Techleap.nl.