Foreword
Part I: Hiring: The Difference Between Success and Failure is below.
Part II: The Interview and How To Get the Most From It and Part III: Other Perspectives are internal Khosla Ventures documents that we don’t generally share outside our portfolio companies because with that information it is easy for candidates to game the interview
The full document addresses how to hire high level positions including, but not exclusively, the CEO: what to look for, how to interview, and pitfalls to avoid in your thinking. While different styles work for different people, I strongly feel that much of what I see stated about hiring and recruiting is either categorically wrong or is incorrectly prioritized for a startup. Here I hope to dispel those misconceptions and provide a roadmap for how to recruit. Talent density is the single most important variable and determinant of success in a startup. Getting this right is the difference between success and failure.
Bear in mind that the diversity of hiring situations is vast. Here I am mostly concerned with building a startup in its formative stages and growth stage, when “figuring it out” and aggressive exploitation of an early position supersedes “maintenance.” I am focused more on senior leadership and CEO hires rather than a task-oriented hire.
Part I: Hiring: The Difference Between Success and Failure
What to Look for in an Executive is not Obvious
Identifying whether a role is for value creation or protection should be the first fulcrum upon which the remainder of your process rests. Most startups should mostly be focused on value creation from the first “S” curve of growth to the addition of new “S” curves that continue the growth as the first S curve starts to peter out.
First identify whether the objective of the open role is value creating, value protecting, figuring out the business strategy or turning the company around. Candidates for value creation need to have a record of taking an idea from inception to successful execution, even if unrelated to the role. Candidates for value protection should have relevant domain expertise related to the value that needs protecting. usually operating chops, but “operating excellence” can be dangerous if not paired with a founder looking for the upside view. Too pragmatic an approach is great in the short run but can be dangerous for the longer run. Figuring-it-out stages need a “less sensible” business mind who is open to experimentation, someone who is less rigid and more trial-and-test oriented. Turnaround CEO hires depend upon the time frame the board feels they have in which to achieve the turnaround. Is it “fix it fast” or “change the fundamentals” to change the trajectory? How big a constraint is cash and runway?
Startups are born with zero value. Executives need to take big swings and big risks to disproportionately create and increase their company’s value. For a value creation role, you want an ambitious risk taker. The best candidates you interview will not need to have had this role previously in their career, but is used to ambiguity, a balance between focus and defocused exploration, risk taking. Learning on the job is ok and first principles, instead of experience based thinking, is critical.
However, after your Series B/C, you now have a business with real customers at a decent scale. The CFO of a later stage company is typically looking to protect the value that has been created. The company is now worth something.You want them taking measured risk , though I don’t personally consider “having taken a company public before” or having “public company experience” critical, even for a CEO or CFO. Those functions are easy to learn and figure out. Raw smarts and street smarts are generally more important than a particular “experience” and boards often get this requirement wrong. The person you are hiring should be thoughtful but not too conservative, with some experience doing exactly what you are asking them to do. A mix of first principles- and experience-based thinking is critical, though I always favor the former over the latter.
To give an example, we invested in an early stage local marketplace startup (think DoorDash, Uber, Thumbtack etc) that had to very consciously manage its margins. They decided that the first executive hire would be the VP of Finance/CFO. Now, traditionally, a VP of Finance is a value protection role, and dangerous unless they are used to mostly formulate the path to long term margins and cash flow management. However, since this was an early stage startup, every executive should be a value creator. The company was choosing between two candidates. The first, which the company was leaning towards, had previously run finance at a local operations marketplace. In some ways, a perfect fit… if the role was a value protection role. The second, had limited experience managing margins since he came from a social media startup, but had built up a large finance team before making a switch into product and growth. If this portfolio company had been later stage, then the first hire would have been the more obvious way to go. But in this case, you want to take the risk on the candidate, who yes, might have no idea how to run finance at a local operations marketplace, but that candidate was a fast learner and immediately suggesting game-changing ideas in their first few interviews and doing far better on all the other traits discussed below.
The questions in a value protection interview, CEO or CFO or other, should focus on assessing whether they already have the necessary experience needed for the role if time to value is limited in the board's view. The questions in a value creation interview should focus on understanding if they’ve implemented important initiatives at prior roles, and focus less on whether their prior experience lines up with this role. Smarts, first principles thinking, and creativity become more important than experience. But team building and leadership almost always trumps most other skills, especially in a CEO.
I often find boards of startups taking — what I consider to be — less-than-perfect approaches to hiring executives. The focus is often on “experience in the space” of the startup, irrespective of how qualified an individual is to lead a startup, which means they’re optimizing for short term value protection, “continue the strategy” approach instead of realizing that startup businesses go from an MVP “peak” to much bigger mountains to climb and figuring out this path is far more critical than optimizing the current business! Square’s (now Block’s) business went from a $10 hardware dongle to accepting payments to small business payment to small business services to Cash App to lending services. It evolved just like most startup businesses do if they are going to be highly successful. Further, experience in the space/industry of an early stage startup can be a bias when trying to innovate in a company like SpaceX or Rocket Lab, especially in the CEO position. Below I’ve boiled my approach down to 8 main qualities I look for when conducting searches for portfolio companies in need of an executive.
Conducting a Search & What to Look For
1. Define the Ideal Candidate Through Real Examples
Instead of writing a spec, which generally looks like god in hard to meet form, start with a dozen top resumes that you can annotate. Highlight positive and negative experiences and characteristics to create a spec based on realistic candidates, and then hand these markups, including preferred tradeoffs, to your recruiter. A robust discussion among the interviewing team will be very valuable to agree on the tradeoffs and lead to a better understanding of the requirements. It will avoid misunderstandings months into a search and help better position the company in the candidate's mind. I find recruiter specs too generic and mostly worthless. Actual annotated resumes are a much better place to start and get the recruiting team on the same page.
Defining the candidate through real examples helps ground the search in reality. For non-CEO hires, I often find that the CEO or hiring manager may ask for a specific type of profile that doesn't actually solve their needs. They are often better at articulating the problem/need of the business vs creating a candidate profile and more importantly candidate personality, and this helps solve for that.
2. Choose the Right Search Firm
Smaller search firms often have a better network and instinct for entrepreneurial candidates than large firms that are used to staffing F500 companies. I have generally found that their instincts for entrepreneurial talent can be off. Smaller firms are more attuned to the needs of startups and early growth-stage companies (>50% growth) in their more dynamic phases, instead of the “next year is mostly the same as this year” kind of large company business that grows <20% per year. “Experience” and “experience with rapid change” are very different things.
The most important way to downselect further is to look at the network they have developed. Ask them who in their network might be a fit. If they cannot immediately fire off some names without further research that fit your needs, they are probably operating in the wrong network. Lastly, ask them for their latest six searches and who the leading and runner-up candidates were. Judge these profiles for what their client in that search was looking for. Are you impressed with their performance? Each company has different drawing power for great candidates. Did they find candidates above or below each company's punching weight?
3. The Technical Athlete, Not the “Expert”
My bias is to find someone who hasn’t spent too much time in the industry to which the startup belongs (Really! You don’t want too much of the old way of doing things, and those biases, brought to your approach). Some time in the relevant industry is helpful, but too much “veteran experience” leads to sclerosis and the old way of doing things when a startup is trying to innovate and reinvent the business. For example, when hiring for a medical device business, avoid candidates with too much time in medical devices. But the candidate should have experience working in complex engineering outside of medtech. The latter, coupled with deep technical expertise and just a small dose of medtech experience is likely to be more innovative and faster-moving. A traditional big name retailer hired into a new ecommerce startup with a new strategy for customer acquisition can often be a disaster.
There are very few areas where somebody innovated in an area where they’ve spent their life deeply entrenched. In the 40 years in which I’ve participated in disruptive innovation, I actually can’t think of one example. That’s an unusual kind of statement, and I’ve looked hard. Were space launches disrupted by Airbus, Lockheed and Boeing? No. It was SpaceX and Rocket Lab. Was automotive disrupted by GM or VW or by Waymo and Tesla? Did anyone from traditional media, CBS, NBC, ABC, Fox, Viacom, Holywood, innovate media or did Youtube, Netflix, Twitter, Facebook? All that activity is coming from people who weren’t in the business.
4. The Golden Goose not the Golden Egg
Prioritize finding someone who is the absolute best team builder and a good leader. That will give you the agility to navigate anything from complex engineering problems to an FDA process to evolution of the market. A great team builder who can hire the relevant team, who can think and evolve the mission, and who can execute the job is more valuable than someone with narrow expertise who knows how to execute that particular job in a big company where next year's strategy is an incremental change from last year's strategy. The ability to assemble a kick ass team is crucial for startups, as is hiring above the startup’s punching weight. And with the frequency of changing plans in a startup, someone who can constantly adapt and build for the next playbook or “figure it out in an ambiguous market” will pay dividends over someone whose “expertise” and “experience” handles the issue at present. Remember that over four years the biggest difference a senior new hire makes is to build the team i.e., the next 20-100 hires. Does the person understand what it takes to be the size of the company you want to be in 4-5 years or are you optimizing for the short run? If you are, it can’t usually be changed later as the leader will bring in the rest of the team in their current worldview, and the 20-100 folks will be ill equipped for the big vision.
With regard to more technically complex projects, especially one that spans a multitude of different types of engineering, a CEO with a diversity of technical skill is required to make judgment calls, but again, the most valuable skill set will be in building stellar teams in specialized domains. In technology businesses I prefer leaders who understand technology and can direct it instead of “business people”. Imagine if Microsoft had hired the CEO of Ford (as was rumored) instead of Satya Nadella! Would they have good instincts about open source, cloud evolution, AI….
5. Growth Velocity Over Experience
When considering a startup exec, the most crucial factors for me are their quality of thinking and their ability to grow rapidly. It’s challenging to define this in a job specification, but I prioritize finding someone who can manage change, adapt to new situations, and build a great team over domain expertise. I prefer individuals who can quickly learn and grow, rather than those with extensive experience, especially in new and evolving fields. I prefer not to hire twenty year veterans in an area. They often are a distinct disadvantage though exceptions exist. Twenty years of experience ta IBM, Cisco, GE or Pfizer are generally a no-go but “once removed from these companies” and 3-5 years in retraining at a startup they can be quite good if they relearned a lot.
For example, while domain expertise is important for getting a device to FDA approval, I might prioritize someone who demonstrates rapid learning and critical thinking and who can hire the domain expert. Experience can mostly be traded off for these qualities. A candidate who is a great thinker, learner, and team builder is ideal from my point of view. Leadership, goal setting, and understanding the technical space are key, as these are harder to learn from scratch.
I am open to giving someone a chance to grow into the role, even if they may not be the definitive long-term executive. But they’d better be curious, a broad thinker, a first principle thinker, action oriented, take ownership, be a great recruiter and be able to lead with vision… Cultural fit is also important if the goal is to preserve the current team instead of revamping it which is often the key problem in a problem situation. Be honest with yourself.
6. Synthesize Diverse Information
The second important aspect is aligning the expectations of all stakeholders involved but this can be dangerous. The CEO of such a company must integrate feedback and relay it effectively to the relevant team members to both understand each of those stakeholder’s “workflows” and how the tech fits in and solves their problem. They must be a good communicator. A CEO must gain a deep understanding of all involved constituents; integrating and addressing diverse needs is a must. But they should be very discerning about whose opinion to take on what topic and have courage to politely ignore less relevant advice, even from board members. In the early stages, sufficient technical/scientific background is often preferred but not essential to be able to exercise judgment on hard technical/scientific choices. Recognize that some stakeholders want to build a big company and realize a larger vision even at higher risk, others want a lower risk, more pragmatic approach (not my favorite word) to building a safer path to a decent outcome, while others just want to package it for a quick sale. Recognize the differences and founders should engineer the interviewing team for their desired outcome.
7. Prioritize Effectively and Make Trade-offs Wisely
Smart individuals can quickly figure out a thorny issue if they can pare it down into its structural components, prioritize, and make decisions effectively based on the identified fulcrums. Thinking clearly and critically is often more important than experience in new technical areas. What have they done when they had hard choices to make? What bias did they display and what tradeoffs did they make in the past? What did they learn from their mistakes?
8. Raise Funds
For a CEO, even at the development stage, it’s important to find a candidate who can raise funds effectively. This ability can be crucial for sustaining and growing a company. Selling investors, employees, and partners is also a critical skill. Developing and selling a vision is a critical skill if you are trying to build a big company. Presence and optimism matter in this.