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Midstage Founders' Frequently Asked Questions | See all

How and why to keep hiring under control

Why to keep hiring under control

Financial Stress Most people finding this article are in a situation where funding is not forthcoming as fast as anticipated, the hiring plan was too aggressive for revenue results or some other form of financial stress. it is only natural that, in these situations, hiring targets should come down. Even if there was an originally approved plan that took a lot of concensus building to put in place.

Ensuring Osmosis However, even in great times, the best startups keep hiring under control. The reason is that midstage startups rely so much on their culture as an organizing principle, and they realize that the only way a culture gets transferred reliably is through osmosis. Osmosis to all newcomers from reliably enough “veterans”. This typically puts an upper bound on the ratio between new hires and existing employees. If you bring in too many new employees at once, they might start creating a new culture different from what you wanted to convey.

Can the culture bear the growth? For example, when Google was a midstage startup and growing very fast, Eric Schmidt decided that the culture could only bear hiring three new employees in a year for every existing employee. Google’s funding could have supported much faster growth, but Eric and the founders decided that this was the most the culture could stretch.

Free for all Without central hiring targets - or when managers learn that exceptions can be applied easily - each manager starts having an incentive to hire as many people as possible “before the money runs out”. In economic terms, this is called the Tragedy of the Commons. Everyone agrees that the organization should not be hiring that many new people, yet everyone has an individual incentive to hire as many as possilble.

How to keep hiring under control

Set a global hiring target. The business should set itself a global hiring target for each year and each quarter, regardless of the needs of individual functions. This target should be clear and communicated to everyone an upper bound. It should not be subject to change unless the economic circumstances of the company deteriorate, in which case it could reduce. Best practice is to have a clear round number such as “max 100 new hires this year”.

Issue mandatory “hiring tokens”. Google had a clear idea about the 100 people it could hire, but their business was in enough flux not to be too certain on how to allocate those positions. This is what most midstage startup companies experience. The solution? Google distributed 100 fake dollar bills with founders Larry Page and Sergey Brin on it, and told HR not to accept any new hiring request unless one of the dollar bills was attached. While they initially distributed the dollar bills to managers in line with expected alloctions, they also allowed flexibility. Eg the head of sales who badly needed a feature could give a dollar bill to the head of engineering to prioritize a new engineer on the condition that they worked on the feature so desired by sales. The point is that there is an upper bound on the number of positions but you allow “the free market” to ensure that the resources get allocated where they are most needed.

Insist on a clear mission for each hire. In a free for all situation, managers may prioritize getting resources in over having a clear idea what these people should be doing. All companies require job descriptions but these are often copy-paste jobs and describe a laundry list of responsibilities that are often hard to operationalize. To put more of a lid on hiring and to ensure managers give each position great thought, require that the position have a specific mission: “What exactly is this person going to have to change in the next two years on the job, that will make the company different from what it is now?”

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