Posts from Employment

I do believe we may have reached peak employment, as discussed in the comments here recently, and as my partner Albert has been discussing on his blog over the past several months. Any serious and intellectually honest jobs agenda must deal with that reality.

But I also believe stagnating wages here in the US vs escalating wages around the world presents an opportunity for the US that we are not, as yet, doing much with. This was in the WSJ today (or maybe yesterday):

While wage costs in the U.S. have been about flat in recent years, they have been rising 20% a year in China, a trend Mr. McNamara expects to continue for at least five years. He said labor costs for Flextronics rose about 30% last year in Malaysia and 40% in Indonesia.

The WSJ post was about high tech manufacturing but I think the same is true of outsourcing of back office, customer support, and programming jobs to India and elsewhere.

There are parts of the industrialized midwest, like Detroit, Cleveland, and Buffalo, where you have well educated workforces stuck in regions where housing prices have declined for more than a decade and wages have declined as well, where jobless rates are at catastrophic levels. A house that would cost $500,000 in the NY metro area can be had for less than $100,000 in these regions.

This is both a problem and an opportunity. It is time to bring these jobs back that we have moved elsewhere. Although I have not done any sort of analysis here, I would be shocked if one could not make a strong cost based economic argument to do so.

I am certain that there are plenty of reasons why it is not happening, or happening at scale. Clearly there are a bunch of one time costs, for facilities, for job training, for other stuff. And then there are the regulatory burdens that we in the US throw at our job creators. Again, from the WSJ post:

The difference in labor costs is narrowing and local officials in America have been giving more financial incentives to companies setting up plants in the U.S., Mike McNamara, chief executive of Flextronics, said in an interview Friday. Mr. McNamara said he could even imagine some smartphones being made in the U.S. eventually. But he cautioned that the return of manufacturing to the U.S. is likely to be a "slow and evolving process" rather than a flood. Many obstacles remain, including relatively high U.S. taxes, health-care expenses and regulatory costs, he said.

If jobs is our number one economic issue in the US (I believe it is), then policy makers at the federal, state, and local levels need to be all over this stuff. We can reverse the outsourcing & offshoring trends of the past thirty years. The era of gloabal wage arbitrage is over or will soon be over. But we need to make a bunch of smart investments and we need to make them now.

As the world moves from web to mobile (our theme this summer), the idea of one click to do something becomes more powerful.

Did you know you can apply for a job with one click?

There are two services that make such a thing possible, LinkedIn Apply and Indeed Apply. In the spirit of full disclosure, Indeed is a USV portfolio company.

If you have your resume on LinkedIn or Indeed and you come across a job posting where the service has implemented the LinkedIn Apply and Indeed Apply buttons (think tweet and like buttons), then you can apply for the job with one click.

It turns out this is pretty popular. ZipRecruiter, a site that lets you easily post your job broadly across the web, put Linked and Indeed Apply buttons on their service and saw an almost 22% increase in job applications as a result. It makes sense, people will do more of something they can do easily.

So what does this mean for the job seeker? It means you should get your resume on LinkedIn and Indeed. What does it mean for the employer? It means you should put these one-click apply buttons on your job postings.

Some other interesting things came out of that ZipRecruiter blog post:

1) they get 3x the one click applications from Indeed vs LinkedIn

2) Indeed's resume database is growing at over 1mm resumes a month

3) Indeed is better for most job types other than management and executive

The world of recruiting has changed a lot in the past ten years and companies like LinkedIn and Indeed are driving much of that change. One click job applications is yet another example of this.

Now we start the guest post part of this MBA Mondays series on People. First up is AVC regular Donna White. In this post, Donna explains that recruiting is fun if you approach it the right way. I know many founders who don't really enjoy recruiting so this post is for all of you.

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Recruiting is Fun!

My husband convinced me to use this title for my post.  This is his observation of how I approach my work as an executive recruiter.

I can honestly say that I do find recruiting to be fun.  Perhaps this why it is still fresh and interesting to me after close to two decades.  Don’t get me wrong, recruiting is hard and strenuous work.  I probably don’t have to tell most of you this.  Yet, the more challenging it is, the more I seem to enjoy it.  

This is one of the many reasons I am attracted to recruiting for startups where you have to hold both the present and the future in your head at the same time and, simultaneously, be both visionary and pragmatic, among other challenges.  

Here is an excerpt from a Twitter exchange that I had with AVC regular, Aaron Klein, Founder/CEO of Riskalyze:

Aaron’s words represent what I enjoy most about recruiting.  It wasn’t until after this exchange that it occurred to me – these words could also describe running a startup: challenging, exhilarating, high stakes.

As I thought about writing this post, I wondered if, in general, people for whom recruiting is part of other responsibilities have a different perception than I do as a professional recruiter.  I used the Honestly Now site (Tereza Nemessanyi, Founder/CEO) and Quipol (Max Yoder, Founder) to do some cursory research.  As of this writing, the votes on whether or not people enjoy recruiting are about 50/50 from both sources (excluding those who chose “none of the above”).  Perhaps, not conclusive, but indicative.

I thought it would be interesting to bring the Quipol over to this post so that AVC readers could also chime in:

In the end, it is not my enjoyment of the work of recruiting that represents my true motivation. 

The true motivation and why it is a passion is summed up in a statement made by Fred in another MBA Mondays post earlier in the year:   “Building the business largely means building the management team. They are one and the same.”  I have a passion for helping entrepreneurs build businesses.  

Fred’s words represent why many of you who are founders and/or CEOs have shared in the AVC comments that recruiting is one of the most important things that you do.  In questioning William Mougayar (Founder/CEO, Engagio) about his underlying motivations in recruiting, one of the reasons that he gave was:  “I need to find the best talent that can give me a competitive advantage.”  

It is not a matter of whether or not you enjoy it, it is something that needs to be done.  The life of your company depends upon it.  As Aaron said, the stakes are high.

There are a number of directions that I could take from here, but I am going back to the beginning of the post.  It would be understandable if you thought “So what!  Who cares whether or not recruiting is enjoyable. It just needs to get done.”  

Even for me, as someone who does enjoy recruiting, the enjoyment in itself is not what motivates me.  However, enjoyment is a huge contributing factor toward excelling in my work and approaching a client’s hiring need with excitement and enthusiasm.  I believe that doing something that you enjoy turns out a better quality product on a more consistent basis.  Attitude and perspective in recruiting influence results and may even produce a better team in the long run.

Some ideas for transforming your perception of recruiting:

Recognize recruiting as a source of opportunity beyond hiring.   The insights gained, and discoveries and contacts made during the recruiting process can be an invaluable investment into your business.  For instance, you may learn of business opportunities, build your network, gain market intelligence, be exposed to new ways of thinking and of doing things, and introduce your product to people who will become evangelists.  

Use the activities involved in recruiting to strengthen abilities that will contribute to your overall effectiveness.  There are elements of recruiting that you probably already enjoy and that exercise the same abilities that you use in other aspects of running your business, such as:  creating something out of nothing, analyzing and solving problems, devising strategies, making new contacts, crafting and relaying your company’s story, negotiating and closing deals. 

Think of your staffing need in terms of an opportunity rather than filling a job.  What is the opportunity that you are presenting and why is it great?  What problem is being solved by this hire?  What challenge is being met?  What opportunities will your business be better positioned for?

Create a recruiting culture.  Build elements of recruiting into the fabric of your business and use this to galvanize your team and increase their engagement.  More in this post.

The goal I had in writing this post was to share my enthusiasm for recruiting in the hope that some of you will be inspired and will take a fresh look at recruiting.  One thing I appreciate about this community is that a post doesn’t need to supply all the answers and typically merely serves as a conversation starter.  I look forward to where you take this.  Carry on, please…

I don't like using terms like "fire" or "terminate." To me they have too much emotion attached to them to be appropriate when splitting with an employee. I like to say that "fred was asked to leave the company" or "fred, we need you to leave the company." That works better for me and, I think, it also works better for the person who is being asked to leave the company.

But more than how to say it, I think how you do it is paramount. Here are some simple rules along with some color commentary on each:

1) Be quick – once you've made a decision to let someone go, move quickly to do it. Don't procrastinate. Do get things buttoned up (terms of departure, departure date, how it will be communicated, etc) but once you've got things in order, have the conversation.

2) Be generous – Unless the employee has acted in extreme bad faith or done something terribly wrong, I like to be generous on the way out. I like to give some severance even if it is not required by company policy or contract. I like to vest some stock that may not be required to be vested. I like to paint the departure in as favorable light as possible. And I like to say good things about the person once they are gone. I like to be generous in financial terms and emotional terms. It makes things go easier for everyone.

3) Be clear – Do not beat around the bush. Start the conversation with the hard stuff. They will be leaving the company. Be clear about when and how. And be clear about the financial terms and other aspects of the separation. Do not mince words and do not say confusing things. Most employees in this situation will ask for reasons. Have them lined up in advance and be clear and crisp when describing the reasons. The reasons for a split do not have to be the employee's fault. They can, and often are, the company's fault. In startups, employees are almost always at will and it is the CEO's right to ask anyone to leave the company for any reason. So just be as honest as possible, be clear and crisp about the reasons, and don't turn this into a long involved discussion.

4) Get advice – There are some situations where the company has some potential legal exposure in these situations. When you are a small company, ask your lawyer about the specific situation so you know when you have one of them on your hands. When you are a larger company, your HR team should know when you have one of these situations on your hands. But make sure you are appropriately advised about a departure before sitting down and having the conversation. In the off chance you have a tricky situation, you will need to handle it differently and you will need advice on how to do that beyond what is written in this post.

5) Communicate – Once the employee has been told about their departure, you should immediately communicate it to those who will be affected in the company. For executives and co-founders, that means the entire company. So figure out how you are going to have that conversation immediately after you have the conversation with the departing employee. Be consistent with your messaging. Don't tell a departing employee one thing and the team another. People talk. And they will quickly figure out that you are spinning, bullshitting, or something worse if you give different messages.

When an employee is asked to leave the company there are two constituencies you need to think about. The first is the departing employee. The second are the remaining employees. How you deal with the departing employee will be noticed by the remaining employees. Even if the departing employee was not liked, a bad cultural fit, or worse incompetent, the remaining employees will have some empathy for them on the way out and if you handle it well, that will send an important message to the team. I find that a lot of inexperienced managers miss this nuance and it hurts them. They think they need to "look strong" to the team. They do. But they also need to look fair and humane. This is a big opportunity to do that.

I will finish with a few words aimed at the boss' own psyche and then suggest some further reading on this topic.

Asking someone to leave the company is never easy. I don't know anyone who enjoys doing it. But it comes with the territory. You don't have to learn to like it, but you have to learn to do it well. The thing that helps me and, I believe, helps everyone in this situation is knowing that you are doing the right thing for the company, the remaining team, and all the stakeholders in the business including customers, partners, investors, etc. When you put it in those terms, doing this unpopular chore becomes a bit easier.

If you'd like to read more on this topic, I think Ben Horowitz has written well on this subject a few times. I found these links below from Ben's writings and would encourage you to go and read them.

Preparing To Fire An Executive

Demoting A Loyal Friend

Lies That Losers Tell

I hate to see employees leave our portfolio companies for many reasons, among them the loss of continuity and camaraderie and the knowledge of how hard everyone will have to work to replace them. Many people see churn of employees in and out of companies as a given and build a recruiting machine to deal with this reality. While building a recruiting machine is necessary in any case, I prefer to see our portfolio companies focus on building retention into their mission and culture and reducing churn as much as humanly possible.

There isn't one secret method to retain employees but there are a few things that make a big difference.

1) Communication – the single greatest contributor to low morale is lack of communication. Employees need to know where the company is headed, what they can do to help get there, and why. You cannot overcommunicate with your team. Best practices include frequent one on ones between the managers and their team members, regular (weekly?) all hands meetings, quick standup meetings on a regular basis for the teams to communicate with each other, and a CEO who is out and about and available and not stuck in his/her office.

2) Getting the hiring process right – a lot of churn results from bad hiring. The employee is asked to leave because they are not up to the job. Or the employee leaves on their own because they don't enjoy the job. Either way, this was a screwup on the company's part. They got the hiring process wrong. The last MBA Mondays post (two weeks ago) was about best hiring practices. Focus on getting those right and you will make less hiring mistakes and experience less churn.

3) Culture and Fit – Employees leave because they don't feel like they fit in. Maybe they don't. Or maybe they just don't know that they do fit in. Another post in this series on People was about Culture and Fit. You must spend time working on culture, hiring for it, and creating an environment that people are happy working in. This is important stuff.

4) Promote from within. Create a career path for your most talented people. The best people are driven. They want to do more, develop, and earn more. If you are always hiring management from outside of the company, people will get the message that they need to leave to move up. Don't make that mistake. Hire from within whenever possible. Take that chance on the talented person who you think is great but maybe not yet ready. Work with them to get them ready and then give them the opportunity and then help them succeed in the position. Go outside only when you truly cannot fill the position from within.

5) Assess yourself, your team, and your company. We have discussed various feedback approaches here before. There is a lot of discomfort with annual 360 feedback processes out there. There is a growing movement toward continuous feedback systems. Whatever the process you use, you must give your team the ability to deliver feedback in a safe way and get feedback that they can internalize and act upon. You must tie feedback to development goals. Feedback alone will not be enough. Build a culture where people are allowed to make mistakes, get feedback, and grow from them. I have seen this approach work many times. It helps build companies where churn rates are extremely low.

6) Pay your team well. The startup world is full of companies where the cash compensation levels are lower than market. This results from the view that the big equity grants people get when they join more than makes up for it. There are a few problems with this point of view. First, the big option grants are usually limited to the first five or ten employees and the big management positions. And second, people can't use options to pay their rent/mortgage, send their kids to school, and go on a summer vacation with the family. Figure out what "market salaries" are for all the positions in your company and always be sure you are paying "market" or ideally above market for your employees. And review your team's compensation regularly and give out raises regularly. This stuff matters a lot. Most everyone is financially motivated at some level and if you don't show an interest in your team's compensation, they won't share an interest in yours (which is tied to the success of your company).

I believe these six things (communicate, hire well, culture matters, career paths, assessment, and compensation) are the key to retention. You must focus on all of them. Just doing one of them well will not help. Measure your employee churn and see if you can improve it over time. A healthy company doesn't churn more than five or ten percent of their employees every year. And you need to be healthy to succeed over the long run.

Hiring is a process and should be treated as such. It is serious business.

The first step is building a hiring roadmap which should lay out the hiring plan over time by job type. This should be built into your operating plan and budget. You want to be very strategic about how you invest your scarce resources into hiring and think carefully about when you need to add resources.

Once you have done that, you want to have a system for opening up these positions for hire. This should not be done lightly because each position will require a fair bit of work by a bunch of people to hire for. Don't open up your hiring process lightly.

The first step in opening up a position for hiring is to define the position you are looking for. Most companies call this a job specification (or spec). The spec should outline the role that is being filled and the characteristics of the person who will be successful in the job. Here is a job spec for a brand strategist job in Twitter's office in NYC. If you click on that link, you will see that it starts with a high level description of the role within the context of the larger Twitter organization. Then it gets into what it will take to be successful in the role. Then it lays out specific responsibilities and finishes with the background and experience that Twitter is looking for in the candidate.

The manager who is directly responsible for the person being hired should draft the job spec and it should be signed off on by the CEO and whomever is in charge of HR (which could be the CEO in a small company). Once this job spec is published on your jobs page, this position is officially open for hire and the process begins.

Your company should have a jobs page. Even if you are a five person startup, you should have one. It should articulate what it is like to work at your company and list any open jobs. It should be linked to at the bottom of your webpage, right next to the link to your about page. This is important. Don't put it off. Here is Etsy's "careers page". It's a good example of what you want to do on your jobs page.

There are web-based solutions to get your open positions onto your jobs page, track the candidates through the hiring process, and provide workflow for your hiring team. In the industry vernacular, these systems are called Applicant Tracking Systems (ATS). Many of our portfolio companies use Jobvite, but there are plenty of other options out there as well. You do not need to build this stuff yourself.

Once the position is open, you want to crank up the sourcing process. We talked about where to find strong talent two weeks ago. Do not take the "put the job opening up and let the applicants come" approach. That will not get you the best people. You must go out and find the talent you want to hire. You can use your existing team, that is where the best leads always come from. You can use your network. You can use recruiters, both contingency and retained, and you can use services like LinkedIn and Indeed. You want to cast a wide net and work hard to source the best candidates you can. This is a time intensive process. Many companies will hire an in-house recruiter to help with this process, particularly when recruiting engineers, designers, and product talent. I've seen companies as small as ten employees bring on in-house recruiters. I am a big fan of making that investment because it pays dividends in terms of better talent.

Once the candidates start coming in, you will need to vet them to determine who gets an interview and who does not. Someone inside the company must lead this process. If there are HR resources, this vetting process starts with them. But the manager who is hiring for this position must be directly engaged in this vetting process. A HR professional can identify the candidates who don't come close to meeting the requirements of the job and filter them out. But the hiring manager should go through the applications of everyone who is close to being a viable candidate. He or she knows best what the job entails and can make the kind of "gut calls" that often lead to the best candidates.

You will want to interview a decent number of folks for every position. There are no hard rules for this, but the more people you meet, the better job you will do with the hire. Of course you can't meet everyone. Many companies like a 15 minute phone call (the phone screen) as the first filter into the interview process. A skype video call is also a good way to do this.  At USV we have experimented with a video application (using a service called Take The Interview), with good results. The phone or video screen is an efficient way to identify the small group (a half dozen to a dozen) that you will want to do a face to face interview with.

Once you get to face to face interviews, you will want to figure out how to get as many folks in the company to meet the candidates as possible. Our portfolio company Return Path has each candidate meet with four to eight employees during their interview process. That is a lot but Return Path makes a huge investment in team, culture, and their employees and they feel it is worth it. It may be worth it for your company as well.

Many employees don't know how to interview and you should teach them the basics as well as educate them on what you are looking to learn from their interview. Some training on interviewing as well as a quick feedback form for each employee to fill out will provide consistency and clarity from the employee interview process.

Most CEOs I know interview every hire their company makes until they get to be more than 100 employees (or more). Even if you have a head of HR and a top notch recruiting team, the responsibility for hiring is yours and yours only. A bad hire is your fault. A good hire is your success. So do not abdicate your responsibility to make the final call on each hire until your company is developed enough and strong enough to start making these hires themselves. This is how you build a great team, a great culture, and a great company.

Once the successful candidate is identified, you will want to do some checking on the person. I am a fan of making reference calls on everyone. They are not that hard to do and you will learn more from them than any other source of background checking. LinkedIn is particularly good for this. If you connect to the candidate on LinkedIn, you can quickly figure out who you know that knows them. Call those people and do your homework. It is also pretty wasy to do a simple background check for criminal or civil information. We don't do that at USV but I know a lot of companies that do it as a matter of good corporate practice.

When you are ready to make the hire, you must prepare an offer letter. The offer letter will outline the compensation you are offering and any other salient terms of the employement offer. Have your lawyer help you draft the first one you send out and use it as a template for all future hires. Offer letter are written agreements between you and the employee and treat them as such. Sign the employment offer and have the employee sign it to acknowledge that they are accepting it.

That's the hiring process. Done right, it involves a huge investment in each and every position. So many startups cut corners on it because they simply don't have the time or the resources to do it right. I would encourage everyone to take a step back and think about the costs of not doing it right and commit themselves and their companies to doing it right. You will see the benefits in time. And they are large.

Based on the feedback I got on this topic last week, I've revised the title of the series and the topics we are going to cover.

The series will be called People. Human Capital is a turnoff. Businesses are all about people. And people aren't capital.

I've added posts on retention and asking someone to leave the company.

So here is the schedule of posts:

– The importance of culture and fit when hiring

– Where to find strong talent

– Optimal headcount at various stages

– Best hiring practices

– Retention

– Asking somone to leave your company

– How to leverage your partners (including your investors) in building and managing a team.

We also have lined up guest posts from Donna White, Dr Dana, Angela Baldonero, Susan Loh, and Chad Dickerson.

Should be a great series. I am looking forward to writing and reading it. It will go on for the next three months.

This is the third and final post on the subject of the management team. The final phase of company development I am going to cover is "building the business." Building the business largely means building the management team. They are one and the same.

Many founders are naturally talented at building product and building the user base. But building the company comes harder to them. I once discussed this with Roelof Botha and he made a fantastic suggestion. Founders should think of the business as yet another product they are building. It is the ultimate product they are building because from the company can come any number of additional products and any number of additional initiatives. The company, if built correctly, will be more important than any single product it can create. Think about Steve Jobs and all the amazing products he created. But Apple is the most important thing he created. So building the business requires a deep commitment from the founder. At the appropriate point, they must turn their attention to it and make it their top priority.

Let's quickly review the three stages so founders will know when they must turn their attention to building the company. The first stage is building the product. That is before product/market fit has been obtained. The second stage is building the user base. That is the period where you, either through organic growth or sales and marketing, build the user base to a level where you are certain you can build a long term sustainable business. Once you've built the user base to the point you know you can build a business, you enter the building the company stage.

As I said before building a company means building a management team. You start with a senior management team. You will need leaders for every part of the business. You will need a leader for your engineering team, you will need a leader for your product team, you will need a leader for your customer support/community team. You will need leaders for finance, marketing, sales, and business development. And to help you build and manage all of these people, you will need a experienced and talent HR leader.

Many founder/CEOs don't look for a partner to help them build the company. I think that is a mistake. The HR leader can be this person. But you need to recruit someone senior and experienced enough and make them an integral part of the senior team if you really want a partner to help build the company. I have also seen founder/CEOs recruit a strong number two, a President or COO, to help them with the company building piece. That can work too if the President or COO is a strong manager and team builder.

Companies are not people. But they are comprised of people. And the people side of the business is harder and way more complicated than building a product is. You have to start with culture, values, and a committment to creating a fantastic workplace. You can't fake these things. They have to come from the top. They are not bullshit. They are everything. There will be things that happen in the course of building a business that will challenge the belief in the leadership and the future of the company. If everyone is a mercenary and there is no shared culture and values, the team will blow apart. But if there is a meaningful culture that the entire team buys into, the team will stick together, double down, and get through those challenging situations.

Building a company is the most interesting work I know of. It is what every entrepreneur should set out to do. A company is a self sustaining entity that expresses the hopes, dreams, vision, values, and culture of the founder and leaders. It is an amazing thing and I have been blessed to watch a number of incredible companies be created.

Some startups won't reach this stage. That is the way it is. But for those that do reach this stage, I challenge all of you to step up to the work of company building with a passion and commitment for it. It will not be easy. It will be among the hardest things you will do. But the rewards are so great. Atoms and bits can be assembled to create fantastic things. But it is the things you build with people that are the most fulfilling of all.

Jobs seems to be all that Washington wants to talk about right now. And for good reason. A lot of people are out of work. And incumbent Presidents don't often get reelected when 10% of the workforce is out of work. I've said my piece on that whole thing already. I'm not looking for Washington to solve the jobs issue. I'm looking for entrepreneurs to solve it. And they will in time.

One thing entrepreneurs can do is to make it easier for people to find a job. And we have a company in our portfolio that does exactly that. It is called Indeed and is located in Austin, TX and the Stamford, CT.  We've been investors in Indeed for five or six years now. And it is one of our best investments by any metric you'd want to use. We love the Indeed team, the Indeed product, and the Indeed mission, which is to make it easier for people to find jobs.

Indeed's job search is used by between 30mm and 40mm people worldwide every month according to comScore. That's a lot of people looking for work. If you haven't used Indeed's job search, you should check it out. It's by far the most popular job search in the world.

Today, Indeed is launching a new service called Indeed Resume. They posted about it on their blog. It works just like Indeed job search. What and Where. That's it. But it returns resumes instead of jobs. So it's search built for employers instead of employees. I really like the way they showcase the resume in the right rail when you hover over a search result, like this:

If you'd like your resume to show up in Indeed Resume, post your resume here.

We can sit around arguing about how to solve the jobs issue in this country or we can do something about it. I'm happy to see some entrepreneurs doing something about it. And making money along the way. That's the way out of this jobs mess.