Introduction: Building out the management team with the right expertise and experience is critical when scaling your SaaS company. But cultural alignment and a balance between experience and hunger/ambition are every bit as important. This article looks at the best practices to follow in order to avoid costly mistakes when building out your senior management team.
So, you founded a company and built an initial team. You’ve built a product and landed an early customer base. You’ve reached one or maybe a couple of $-millions of ARR. Perhaps you’ve raised your first significant outside round of investment. Congratulations! You’ve done the impossible and now, everywhere you look, opportunities and challenges appear. You want to accelerate, but at the same time, your founding team is getting increasingly stretched and facing situations that are out of your domain of expertise. It is time to add talent and leadership that can help you build all the different functions that your organization needs for the next phase. You might be looking for a VP Marketing who can clearly position your product in a global market and build a demand generation program that scales internationally. Or a VP Sales who can build a repeatable and predictable sales process, recruit the right reps and set an effective comp structure. Maybe you need a VP Finance or a CFO who can deal with cash management, reporting, and IR. Perhaps a VP Development who can build and scale your dev organization to multiple agile teams, possibly across multiple time zones. No matter what positions you are recruiting for there are a few general recommendations that apply as you take your company from Product-Market Fit into the next stage of building for Go-To-Market Fit. I’ve summarized four of the major ones below:
1. Hire Managers, not Managers of Managers
I get it – of course, you want to hire the best possible candidate with the most impressive CV who has successfully been part of teams building one or several companies before. That makes perfect sense but comes with major caution. At the stage you are at, don’t hire someone who has already “graduated” from directly managing people and resources and who is used to managing managers (that comes later). If you are hiring your first VP Sales whose task will be to establish a repeatable, scalable, and predictable sales process and recruit the first 5-10 reps into that structure, that is a fundamentally different job compared to a CRO who manages an established 30 people sales organization with 5 direct reports across regions, industries and channels. The hard truth is that if the CRO considers your offer they’re probably not very good in the first place. If they were they’d be looking for a role like the one they have, or an even bigger role, elsewhere.
2. Balance between established experts and step-up candidates
Buying a plug-and-play solution to your growing pains by recruiting an established expert who has done the job before is effective and convenient but can sometimes come with a risk of complacency and churn. Most ambitious people want to grow their mandate and responsibilities so if they’re settling for more of the same, there could be a lack of ambition hiding somewhere. Or it could be that for some reason they just didn’t want to stick around at their current company so took your offer only to churn out six months later when a bigger opportunity presents itself.
Hiring a step-up candidate, someone who is being promoted into the role comes with different tradeoffs and risks. The obvious risk is that they haven’t done the exact job before so don’t have their own playbook ready at hand and may therefore take longer to become productive or, worse, not able to figure things out at all. The main benefit of step-up candidates is that you can often find really ambitious and talented people who will go the extra mile to be successful in the role. It is also a way to promote internal talent to bigger positions making sure you are developing and retaining your most talented people. The best step-up hires are often people who have served as a no 2 to an established expert and learned the playbook and best practices by observation and osmosis. This could be someone who has held a role as head of / director of demand generation reporting to a VP marketing for example. Or a finance director working for a VP finance.
In the end, there’s no perfect way to manage this, but it makes sense to find a balance between established experts and step-up candidates on your senior team.
3. Don’t break comp structures – except in very special cases
Compensation is important, but for most talented people it is a hygiene factor – they want to feel they are paid their worth, both in absolute and relative terms. Yet, it is very easy to mess up comp when recruiting senior managers to your team, and if you do, it will become very costly and, maybe worse, disruptive to your organization when the comp structure breaks down as people start jockeying for higher personal comp.
So, If your dream CFO candidate comes with an ask for cash compensation that is 2x of what anyone else in your company is making (including the founding CEO), you’re probably not recruiting from the right “shelf”. Same thing for other senior management roles with perhaps one exception in the VP Sales. Successful salespeople make a lot of money, and rightfully so, but that comes with a significant variable part to their comp which only gets paid out if they are indeed very successful.
Cash compensation aside, perhaps the most common way to break the comp structure relates to equity compensation, both in absolute and relative terms. If landing your ideal VP sales takes a 5% equity package it is time to broaden your search. Similarly, if your preferred VP development candidate wants 2x the equity package of any of your other VPs – that will not fly. I can think of two main exceptions where it could be warranted to go the extra mile. 1 – if you are lacking a core product or technical co-founder and are looking to recruit one as CTO or CPO with a co-founder status. And 2 – if you’re looking to get an outside CEO in early, as a co-founder, to complement an otherwise very technical team.
4. Hire for Cultural fit
No matter how good a potential hire is at their job, things will not work out unless there is a strong cultural fit between them and your organization. Therefore, it is critical to hire for cultural fit and to rigorously test this during the recruitment process. A few ideas on how to do this are:
- Make sure that the candidate gets to meet several people, both people who will be management team peers and ideally also team members who will be reporting to this person. Your board or advisors can also be very helpful in assessing the cultural fit of a candidate.
- Structure interview questions & cases around how to solve functional problems within the candidate’s area of functional expertise and around how to handle situations where culture shines through very clearly, such as customer complaints, employee morale, improper conduct etc.
- Make the candidate take structured personality tests where characteristics identified can be effectively matched to your organization’s core values
- Make sure to research the culture of the organizations the candidate has been with before and take first-hand, ideally unsolicited, references on the candidate from people they’ve worked with before.
Talented people can often learn on the job and compensate for a lack of experience, but people who are a bad fit culturally will never work out – never! So, be diligent and do your homework to establish a cultural fit, and don’t compromise on an otherwise brilliant candidate who is a bad cultural fit.
● Hire managers – not managers of managers. Those come later as your company goes through the next growth phase growing to several hundreds of people.
● Seek to find a mix between established experts and step-up candidates to effectively balance readily available know-how and playbooks with hunger and ambition in your team
● Don’t break comp structures – except in very special cases
● Never compromise on cultural fit