19 July 2020
’’Hire fast, fire faster’’ is the most dangerous startup mantra and this calculation proves why.
Yesterday someone asked me: ‘’What are the aspects that you think can make or break a startup?’’ My answer was team, product and market.
Subsequently, this same person asked me: ‘’And what if you would need to rank these three factors? What’s the number one thing you should worry about then?’’ And of course, having an HR tech startup myself makes me absolutely biased, but my answer was the team.
Why? Well, because although we are building a tech company, we need amazing people to actually do so. We need people to analyse the market. We need people to build the product based on our market research. We need people to gain and retain new customers. And we need people who constantly assess our product-market fit. So yes, product and market is extremely important as well, but you will never be able to focus on these two aspects on your own.
Fear of missing out
Building a startup team is a tough challenge, though. Especially tech startups often find themselves in a situation where they reach that point of hyper-growth ‘all of a sudden’, requiring them to rapidly build their teams under significant time pressure. Also, startups have a lot of fluctuations in their hiring needs. Just after raising funding, the hiring machine in most cases starts running, while somewhere halfway this investment, things will likely slow down again for a while.
Another challenge that startups are facing is the war for talent. Everyone is looking for rockstar developers, supersonic sales stars and product gurus. And believe me, the chance of finding this rockstar, supersonic star or guru is pretty small. But since everyone is looking for them, you will likely find yourself looking for these exact same superstars with this rare ‘startup mentality’ as well (tip: listen to a chat with CharlieHR CEO Ben Gateley about the danger of the startup mentality).
As a result of having this mindset, you tend to hire people as fast as possible before they sign a contract at your competitor. And by hiring someone that rapidly, your initial hiring costs will likely be reduced. In practice, however, you will also experience the costs of letting people go as fast as you’ve hired them (or even faster).
My observation of this ‘’hire fast, fire faster’’ mentality: Startups stick to this mantra out of fear. Fear of missing out on the best candidates. Fear of not being able to grow as fast as you would like to grow. And fear of never building the right product and selling to the right market.
Here’s my business case for stop letting fear determine our team building strategy.
Calculation: The savings of hiring fast vs. costs of firing faster
Calculation 1. Savings of reduced hiring hours
Let’s say you hire 50% faster than companies that don’t live by this mantra, as a result of having less interviews and less hiring stages. Here at Equalture, where we don’t want to hire fast, we spend on average 30 hours on one hire, when taking the hours of all team members participating in this process together. This includes the hours to:
- Create and distribute a job opening;
- Check the incoming applications (which goes very quickly since we are of course using our own platform and therefore receive a complete Candidate Matching Profile for each new application);
- Have a quick chat on the phone with the candidates who have passed the first review (we have this call to check whether the candidate has the same view on the job as we have);
- Conduct some first and second interviews (in which always two people from our team are joining);
- Finalise the paperwork.
So when applying this hire fast, fire faster principle, we could save 15 hours. Now let’s say that we are worth €100 p/hour – this then means that we could save €1,500 per hire.
Calculation 2. Financial impact of a mishire
Research into startup hiring has shown that 46% of all mishires were a result of the company’s need to fill the position quickly and only 25% of all startup hires turn out to be successful. On average, the costs of a mishire are 1.3x this person’s annual salary(!). This is built up from the following costs:
- Hiring costs;
- Onboarding costs;
- Delay on targets as a result of non-performance;
- Impact on team dynamics and team performance.
Now let’s say that, since you will be likely to fire people faster, the costs of a mishire are only 0.65x the annual salary.
This means that, when hiring for instance a Business Developer, having a yearly salary of €36,000, this person will now cost you €23,400 if (s)he turns out to be a mishire.
So you saved €1,500 by hiring fast, while you risk the chance of making a mishire, costing you the doubled amount, when firing faster. Hopefully this calculation therefore starts to make you reconsider this mantra.
And although I am a big fan of calculations and business cases, since it creates more urgency, let’s definitely not forget about the human aspect in here – both for the people you hire, as well as your current team. When easily hiring and firing people, you can heavily impact their vision on employers. And at the same time, there’s nothing more damaging for your company culture and team spirit than constantly adding and removing people.
Building up a team shouldn’t be done over-rushed out of this fear to not grow quickly enough, because this might seem to help you on the short run, but it will definitely hurt your company on the long run. Here at Equalture, we also learnt from feeling rushed in people decisions, and fortunately we were able to learn from this in an early stage already.
That’s why we now take the team to reveal our needs, translate these needs into a hiring profile and only talk to candidates who have taken the effort to apply to our position themselves. No rush. No fear. And that’s how I believe you should build your startup team and culture.