Friday, January 28, 2011

Entrepreneurship - Avoid the following hiring mistakes

In last 3 years I have seen several startups set up shop in Bangalore. Over this period of time, I have seen several hiring disasters. These hiring mistakes are specific to Indian culture and are common in many startups. But these disasters could have been avoided. I am therefore documenting them here.

1. Hiring from big name organizations for experience

Business was expanding rapidly, the company had lots of orders and to deliver them, there was great need for experienced project managers. The company hired three experienced project managers. These new employees had the right credentials and experience on working on complex projects at IBM, Accenture & Philips. The new employees had no experience working in a start up, the start up lacked systems to support its new employees - as a result the new project managers quit within few weeks putting the project in jeopardy. The founder had to scramble in the end to get the projects completed.
Experienced project managers were used to working in large well established organizations and could not adjust to the new working environment. As a result new project managers and the start up never got along. Project managers wanted a lot in terms of systems and reports to monitor the project which the company could not provide. There was absolute mismatch between the new project managers style of functioning and the company.
Hiring people based only on their past experience will not work for startups. It is essential to hire people who have experience working in startups or in a startup like environments, and there should be a cultural fit between the founders and experienced employees.

2. Hiring friends and family members

Founder of one company had hired his friend after two years of operations. By then the company was doing quite well, and was cash flow positive. He was hired on social pressure - to help his friend. The new employee often flaunted his friendship with the founder, would often bypass the organization hierarchy, and soon began to boss over other employees. This led to fall in morale and productivity in the organization. Over a period of time, the company started loosing its existing customers and only then the founder woke up to the reality. He now had to make a difficult decision of firing his friend to save the company.
Hiring friends or relatives is acceptable only if they can perform. In a startup, the hiring costs have to be minimized and founders like to hire people whom they know. But when these friends/relatives do not perform, then the founder must take swift action - either to correct the errant employee or by firing.

3. Hiring some one to please others

In India, there can be lot of undesired political advances on any organizations. One of the common tactics is to request a startup to hire persons recommended by the local politician. This leads to an uncomfortable situation for the entrepreneur. He cannot afford to antagonize the politician & often succumbs to hiring the "recommended" candidate. This new hire soon becomes a liability to the organization - thus bleeding the company of its valuable resources. Startups which have faced this problem eventually will end up firing the errant employee and thereby facing the wrath of the local politician or end up creating a constant drain on their resources.

Founders must make a clear decision on the terms of hiring such "recommended" employees - and workout an agreement with various stake holders - including the "recommended" employee & his sponsor on the terms of employment and termination criteria. Smart entrepreneurs turn this bad situation into an advantage - by seeking out favors from the politician/sponsor to grow their business.

4. Hiring house wives or students to cut costs

Many people are willing to take a lower salary in return for having the flexibility or opportunity to work from home. For a startup, this represents a significant cost savings - but such savings typically come with several hidden costs.

In India, housewives & students seek part time or full time employment - for tasks that they can do from their homes. Hiring such employees creates lots of management overheads and introduces risks to projects - in terms of delivery timelines and quality. Often times house wives and students are driven by different priorities and may not be in a position to complete their tasks in a timely manner. This could potentially upset the delivery timelines and project schedules. So for critical projects, such part time or work-from-home employees are best avoided.

Hiring house wives or students is not necessarily a bad thing. But for a startup, it can create several overheads in terms of management - that the cost savings are often washed out by management overheads. Once the company has established a process to manage house wives or students, then only it makes sense to use such resources. But this takes both time and management expertise - which many startups do not possess.

5. Hiring rapidly to scale up operations

A startup got an order to setup a media BPO operations. This project required getting 20 people hired and trained in screening cable TV channels for particular advertisements and creating reports in a predefined format. The task was simple enough for high school graduates. So the company put out advertisements in local paper and hired the first 20 people who accepted the offer. Many of the new hires had no experience working in a regular 9AM-5PM job. As a result many of the new employees quit within few weeks. Company was now desperate to staff up the operations to avoid slippage on delivery. Again the company hired few others - who too were fresh out of school, and they too quit. After a few cycles of hiring, company learnt its lesson and in next hiring cycle, the company hired the right set of employees. In the process, company wasted money, and time - but could prevent loss of customer.
Hiring rapidly for a project is mandatory, but do not cut short on the required due diligence - do not trade quality of hires for lack of time.

Closing thoughts

Hiring is a critical activity in a startup - which can make or break the company. Startups should be very careful in hiring. Getting a wrong hire can cost a lot for the startup and if the mistakes are not corrected quickly, the business can be severely damaged.

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