Starting a company is hard, and the success or failure of a start-up ultimately almost always lies with the founder. Many decisions in a start-up’s early existence are crucial, such as creating a promising business model, securing access to funding, and receiving intellectual property protection, yet nothing affects a startup’s success more than the hiring decisions founders make. In this two-part series, we will go through some of the most common reasons why start-ups fail.

The Cascading Effect

According to Jessie Schwimmer – Consultant at Raines International Inc – “nothing affects a start-up’s success more than the hiring decisions founders make”. There are numerous reasons why hiring is so important, but the main one is the cascading effect; “B players attract more B players who are comfortable with C players, who do not threaten their position”.[1] Simply put, if your core team is all B’s, they will bring more B’s and more C’s instead of hiring the best, because the best might threaten them. This results in an exponentially declining quality of employees. However, if you start with A players they will attract other A’s, making the company more profitable and faster at reaching sustained business success.

But not all A’s are the right A’s

But you can’t just take any top talent, you need the ones who also match the company culture and business goals. A recent CBInsights post-mortem study of 101 start-ups showed that 23% of start-ups fail because they had the ‘wrong team’.[2] Ignoring cultural matching is one of the first mistakes founders make, and a deciding factor between success and failure. A team with bad culture match can never compare to one where employees work well together, share goals and values and trust in their colleagues. So make sure cultural matching is present throughout your entire recruitment process.

If you missed our article on the Culture Matching, I suggest reading it right away and then coming back to this article.

It’s not just about the who

It’s also about hiring the right talent at the right time. Elizabeth Patterson – Talent Partner at Sapphire Ventures – says that at the start, founders should focus on hiring employees who are “goal oriented, able to go the distance, curious, and display hunger, grit, and persistence.” However, after a B or C Series funding round, you need seasoned executives. People with proven track records, those who have succeeded with growing companies before, and who knows the things you don’t. But don’t take just any executive! “The most important tension a founder will face arises when the company’s board is trying to push someone onto your executive team who is not a cultural fit with the founders. It can be a fit for needed skills but not a fit for having a working relationship that will be productive.” So no matter what stage of growth you’re at, or how desperately you need someone, cultural matching always comes first.

The biggest danger

We all know that creating, and maintaining, a successful business is immensely challenging, but luckily there are now more resources than ever before to help you get it right! Next week we leave the practical mistakes and talk about the biggest threat to a successful start-up of them all: ego-based decision-making.

 

If you want to know more about Nova, and how we can help you save both time and money, just click here. And if you are looking for more knowledge on what attracts and engages the rising stars of tomorrow, you will find our other articles, blog posts, guides, and webinars here.

 

[1] https://www.linkedin.com/pulse/ego-trap-how-founders-can-fail-startup-jesse-schwimmer/
[2] https://www.cbinsights.com/research/startup-failure-post-mortem/