Founders Should Delay Hiring Until Commitment Truly Matters

2022-09-21 original Teams & Careers

I once quietly remarked, watching the behavior of a certain CEO in Silicon Valley, that it felt like “playing Power Pros.”

At the time his company had just launched, and he, a pure businessman with no engineering background, had secured the first round of investment on nothing but a vision and a pitch deck. Naturally he could not turn his own vision into reality by himself, so he needed to hire engineering staff. What he did was scoop up nothing but stars. All of them had graduated from Stanford, MIT, or Harvard, and all of them had come from Silicon Valley’s so-called famous companies.

Even so, that in itself was a common sight in Silicon Valley.

What caught my attention was that this aggressive hiring included poaching, at high salaries, staff with tremendous mass-production experience even though the prototype wasn’t working properly yet, and lining up a row of QA engineers with nothing to evaluate, who just sat around idle.

They hired first and figured it out later. Even so, this too was a common sight.

Now, returning to the question at the outset, we first need to think carefully about what employment means for both sides.

The two sides are the “employer” and the “employee.”

For the employer, I think the benefit of employment is “raising commitment.” Someone under an employment contract, for example, is unlikely to suddenly stop showing up tomorrow, and unlikely to suddenly demand termination of the contract midway through a project. Shortened working hours have become mainstream lately, but employment still lets you demand “full commitment.” In other words, working full time as one’s “main job.”

Especially at an early-stage startup, working “around the clock” is practically the norm. Against that backdrop, you can easily imagine how troublesome it would be if someone disappeared, saying, “My contract is for 80 hours a month.”

For the employee, on the other hand, I think the biggest benefit of employment is “security.” In Japan in particular, once someone is employed, they cannot easily be fired. There is normally a required process: pointing out issues with job performance, setting a period for improvement, and only moving forward if there is still no improvement after that, or repeatedly warning in writing about negative effects on colleagues. Companies are expected to give proper evaluation, feedback, and opportunities, and in some cases to impose measures such as pay cuts, before termination becomes an option.

In other cases, there may have been pressure from HR or a manager, but on the books it still has to be treated as voluntary resignation. This next example is from the US, but health insurance there is eye-wateringly expensive (I know this well, having paid for it individually for a while), and it’s common for a company to enroll its employees as a group at a discounted rate and cover the cost. Japan has something similar, but benefits occupy a very important place as a form of security.

Now that I’ve laid out the benefits for both sides, let’s look at the drawbacks.

For the employer, the drawback of employment is “reduced management flexibility.” In my experience, employment is the highest-risk issue, one that should be approached with the most caution. First, fixed costs increase. And fine-tuning those fixed costs becomes very difficult. Especially at early-stage startups, major pivots in business strategy are not uncommon. Someone hired as an iOS engineer having to start implementing in Android from tomorrow because of a company policy change is a minor injury by comparison. An engineer doing sales, an accounting person thrown temporarily into a debugging team, someone who can’t speak a word of English put in charge of overseas operations. It becomes utter chaos.

Even so, if things can somehow be made to work through reassignment, there’s still hope. But in some cases, certain people simply become unnecessary. Naturally you can’t keep paying wasted salaries, so you end up having them leave amicably, which itself carries a communication cost. In the US, it’s common to attach a package (additional benefits, or short-term pay provided without requiring work) for those who resign voluntarily at the company’s request. This too is a painful expense.

For the employee, there are actually not many drawbacks to employment. If the company allows side jobs, there’s no problem having a side project, and in Japan job-hopping has become fairly common as well, so I don’t see a major issue there. That said, some people may feel negatively about having a fixed chunk of time always tied up, but realistically, the benefits gained from that dedication likely outweigh this by far.

Bringing the focus back to early-stage startups, this is a period when many things are still uncertain, and in the interest of keeping flexibility, casually increasing headcount is not a great strategy. Also, from the perspective of the person being hired, rather than committing full time to a company that might go under at any moment, it’s lower risk to keep one foot planted elsewhere and be involved on a side basis. In the end, I think it all comes down to how you think about the question of “where to hit the accelerator.” If the number of employees stays at zero forever, it becomes extremely difficult to assure partners and customers that the company’s business will keep running stably and continuously (at the very least, the other side will grow suspicious). Conversely, if you increase hiring too much early on, and that sunk cost ends up distorting management decisions, that defeats the purpose too.

In running a business, there should always be a point where you think, “this is where it matters.” (Incidentally, I’m not particularly fond of the idea that “every year matters.”) The ideal is to build the organization with foresight from the start, so that you can increase hiring and strengthen the team smoothly when that moment comes.

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Originally published in Japanese at https://clazytech.com/2022/09/1198/. Translated with LLM assistance and reviewed before publication.