According to CB Insights, hiring the wrong team is the third most common reason startups fail. The company surveyed 156 companies to identify the top 20 reasons for collapse.  

This should come as no surprise, because when you're a small company each team member has a big impact.

When you’re a small team, one person could be one-tenth of your company,” says Maren Kate Donovan, founder of AVRA Talent Partners, a talent acquisition firm that takes the pain out of hiring and retaining the best talent. “The cost of a bad hire is astronomical. You’re never too small to put time, money and effort into this.

Building an amazing team is every bit as important as building a great product and customer-base. Unfortunately, most traditional thinking on hiring is based on big-company thinking, which is not applicable to startups. 

At the Founder Institute, we see startups struggle with hiring great talent ALL of the time. Which is why we asked Donovan, a Silicon Valley Founder Institute Graduate, to tell us everything she knows about sourcing, hiring and interviewing top talent.

In this article, I’ll summarize her agency’s step-by-step process for helping mission-driven startups procure the right candidates.

8 Steps to Recruiting Your First Team Members

1. Identify core competencies

As job-seekers, people are trained to think in terms of titles. In other words, they specialize in skills and obtain degrees and certifications in order to prepare themselves for popular and well-defined corporate roles.  

However, when you are hiring employees for your startup, you need to shed these beliefs and shift your perspective. Titles now become irrelevant. Instead of assuming you need to hire a specific title, you should instead begin by mapping out a desired outcome.

For example, let’s assume you want to achieve +25% ARR (Annual Reccuring Revenue) next year. Before you start thinking about titles, you should instead ask yourself the following questions:

1. What immediate actions will have the biggest impact toward achieving this goal?

2. Which aspects of the business would benefit from someone else taking over (i.e. things I’m mediocre or bad at doing)?

3. What would this person have to accomplish within 6 months of starting to be considered successful?

Hiring “the best fit” is dependent upon matching candidates to your most pressing objectives. Basically, you need to determine your objectives, work backwards from there, and only then can you begin to evaluate a candidate's skills, traits, and probability of reaching the specific milestones you have laid out.

This quantifiable way of hiring separates needs from wants, which brings us to our next step:

2. Separate “must-haves” from “nice-to-haves”

When sourcing candidates for startup clients, Donovan prioritizes one thing above all else — hiring FSO (Figure Shit Out) people:

Any day, I would take a more junior person who has grit, who has character, who has hustle, over a more senior person," says Donovan. “A more senior person that comes from the traditional world is going to have a really hard time with the ambiguity and chaos of an early-stage startup. Far better, usually, to get someone who has the raw talent and help them grow with you.

This is something we can definitely relate to at the Founder Institute. In fact, the entrepreneur testing our startup accelerator uses for our admissions process is highly geared towards finding people that are industrious, and that can learn quickly and solve unique problems. These are the types of people that typically excel in crazy world of early-stage startups, so I would argue that most all startups should optimize for hiring "FSO" people. 

Of course, this situation isn’t always straightforward. Having an early team member with a deep understanding of your industry or technology can also be extremely beneficial, and that may require courting candidates with very specific experience and skillsets.

For example, if you are building a blockchain startup that wants to disrupt the shipping industry, someone with a decade of experience managing ocean-liners can offer insights, challenge assumptions and provide crucial feedback that will strongly influence direction. The same principles apply for high-level engineers, programmers and developers. Basically, anyone responsible for forming core products and services should fill a long list of requirements.

However, other supporting positions should be met with more flexibility.

For example, if you’re considering a sales person who’s an exceptional written communicator, but lackluster on the phone, you must determine if “their weakness” is going to impact their ability to succeed. If your sales process involves cold email, and very little phone time, this is a “nice-to-have” skill — don’t rule them out. Conversely, if the position requires 24/7 cold calling, it’s not a good fit.

In addition, for any early-stage startup I would definitely consider cultural fit as a "must-have" trait, infinitely more important than a candidate's skillset, which is a "nice-to-have" trait. 

3. Rely on consultants and freelancers

What if you can’t afford to hire “all-stars” for key positions right now? Do you just wait until you get more funding?

There are ways around this problem. For example, you can consider paying for experience by the minute. Sites like earn.com, clarity.fm and others connect startup founders with world-class experts at reasonable rates. For a few hundred dollars, you can tap into the mind of someone who has already accomplished exactly what you’re trying to do.

Alternatively, you can join a startup accelerator to get access to startup mentors and advisors that can help point you in the right direction. 

Finally, don’t forget about freelancers. As reported by Intuit, 25 to 30 percent of the U.S. workforce is now comprised of contingent workers, and some reports estimate as much as 50 percent of the workforce will be remote by 2020. At the Founder Institute, we actually have freelancers that we have worked with for over 7 years, and we know many other companies that have built similarly strong relationships.

At Picpal, I’ve worked with two freelancers who became full-time team members,” says Mahesh Rajagopalan, Co-Founder of Picpal. “They both started out on a short-term project, but as the company grew, their positions grew as well, allowing them to stay on as permanent team members.

Translation: Freelancers are now more qualified than ever before. This is great news considering a startup’s largest line item is salary.

For this reason, consider maximizing the usage of consultants and freelancers wherever possible.

4. Create an amazing job description

At this point, you have identified your core competencies, separated “must-haves” from “nice-to-haves”, and determined some tasks that could be outsourced.

Now you’re ready to create a kick-ass job description for the team member you need most. Again, the best way to approach the task is to work backwards.

For example, let’s assume you are generating $50,000 MRR (Monthly Recurring Revenue), and you need to get to $100,000 within the next 6 months. What tasks will this person be responsible for toward achieving that goal? What does success look like?

The more detailed you are the better. After all, you can’t find a street if you don’t know what it’s called.

Once you’ve answered the hard questions, begin the job description with a small paragraph that emphasizes the most enticing aspects of the job.

Here’s an example from Donavan’s domain expert job description:

You’re a badass in your field, but instead of 401Ks, starched shirts and a corner office downtown, you ventured out and did your own thing. We at AVRA Talent salute you! But, it can be lonely flying solo. Why not join us? Get paid $$ by the hour for your finely tuned skill set while you work with interesting startups and witty coworkers all from the luxury of…wherever you please!

Begin outlining your objectives before backing into the nitty gritty responsibilities of the title. A good job description will be polarizing; some people will love it, and others will hate it.

Here's a job description template for getting started.

5. Know where to look

Now, it’s time to get some eyeballs on your job description. Here are some great resources for getting noticed:

• AngelList: Nearly 100,000 startups have a presence on the platform and job board for startups. The best part? Postings are free. Stand out by a). Telling a good origin story on your company page and b). Reaching out to desirable candidates directly. Keep in mind that AngelList requires maintenaince: if you are matched with a potential candidate, that match will timeout in about 1 week's time if you don't follow through. 

• ZipRecruiter: ZipRecruiter is expensive, but it also is more like a marketing service than a job board. As soon as you post on a job on here it will start matching you with canidates from a huge pool. There are great candidates on here, but there will also be a lot of unqualified people. Put recruiting filters in place, so you aren’t bombarded with thousands of resumes.  

• Craigslist: Craigslist? Yes, you can find good candidates here. Actually, I basically found my career, home, and dog to Craigslist, so I'm a big fan :). Like I said above on ZipRecruiter, you will get varying quality but can easily deal with it by putting filters in place. For example, ask candidates to fill out a Google form with many required fields instead of replying directly to the Craigslist ad, and ignore all of those that don't follow the instructions. 

• Remote.co: This job board attracts a high-quality audience that is exclusively focused on remote work; starts at $200.  

• Idealist: Idealist is a fantastic resource for reaching social enterprise candidates interested in changing the world; starts at $90.

• Dribbble: Where designers showcase their work.

• GitHub: Where developers showcase their work.  

Job boards are great, but don’t limit yourself to them. Ask yourself where your ideal candidate hangs out and go there. That’s how Colin Darretta, co-founder of DojoMojo, met his sidekick:

Rather than spend your precious time competing with global leaders as you build your team, look for pools of talent where you can stand out from the crowd,” says Darretta. “My technical co-founder came out of a coding bootcamp (App Academy) where, in truth, had we been competing with Google, we may never have been able to bring him onto our team.

Conferences, seminars, coworking spaces, startup accelerators, startup events, and startup meetups are all awesome places to meet like-minded talent.

6. Determine compensation

If you haven’t already, prepare to discuss compensation. Determine your position’s market rate market with a tool like PayScale, and identify where your company lands within the provided salary range.

As a scrappy startup, you’re probably somewhere within the 20th percentile. A quick Google search will also reveal several formulas for determining compensation and equity arrangements with startup employees. Whichever method you choose should be utilized for all future hires.

When negotiating salary, the goal should always be win-win. The amount should be motivating enough to inspire employee loyalty, yet low enough to keep you comfortable.

No matter how much you may want someone, if you guys aren’t aligned, you need to let that person go or it will come back to haunt you,” says Donovan. “Know your walk-away and know your ideal rate.

Don’t hide the fact that you’re trying to conserve cash to have the largest amount of runway. But, also, be open to reevaluating the person’s salary contingent upon growth.

7. Build a hiring funnel

Like any other aspect of your business, recruiting requires implementing organizational systems. Donavan recommends using a Google Sheet to organize an "If/Then" hiring framework, where you can map out the steps the candidate will encounter each step of the way.

Follow the hiring funnel religiously,” she says. “Never make it too difficult, but make it comprehensive. Follow a point of truth.

Here’s a suggested framework:

Step 1: Pre-Screening

Start with a simple application requiring a candidate’s name, email and resume. Ask 2-3 questions that align directly with the job description, such as:

1. What draws you to this role?

2. Why are you interested in this company?

3. What do you love about X? 

The purpose of the pre-screening is to assess basic competencies and reduce the pool of applicants. For example, if someone ignores one of your questions, that shows lack of care — and they are out.

Step 2: Phone-Screening

Create 7 to 10 questions that tie back to the job description. These questions should help you answer your bigger questions, like:  

• Can this person meet objective outcomes?

• Are they a "FSO" person that thrives on uncertainty and self-management?

• Are they a cultural fit?

• Do they share the vision?  

The goal is to venture beyond the resume. Great interviewers are curious, inquisitive and comfortable talking with people.

Donavan recommends specifically asking why the person left each previous role, what they liked and what they disliked.

Step 3: Face-to-Face and/or Test Project

Once the person has passed the phone-screening, they are a serious candidate. The next step is usually a face-to-face interview, over video conference or in person. Also, if you’re screening for a more technical role, it’s standard to issue some type of performance-based assessment.

If you know nothing about the skill, consider paying an expert to conduct the interview with you. You’ll need someone to assess the candidate’s answers to tough, technical questions.

Otherwise, here are some interview question tips:

1. Ask complex questions:

• Pose math questions to reveal how they think and behave.

• Quiz them on what they consider their top abilities.

• Ask for their opinion on industry trends.

• Determine a cheap and fast "test project" where they can tackle a real issue your business is facing, in order to test compatibility on both sides.

2. Ask about secondary expertise:

• Consider candidates with multiple degrees, certificates in in other fields or experience working in a variety of settings.

• Startups need a minimum level of expertise in a large array of skills; don’t underestimate the value of secondary skills.

3. Consider cultural fit.

• Will the expected work hours fit their lifestyle?

• Is the mix of salary and compensation agreeable?

• Would they really rather work in another field?

• Invite them to lunch with the people they will work with every day, and keep the lunch more social than professional. Is it a fit?

Having frank discussions can both prevent poor hiring decisions and facilitate amazing hires who may have otherwise been overlooked.

Another one of our star players was an Eagle Scout", Darretta says. “He was also an avid fantasy baseball player, another signal that he was analytical and data-oriented. While he had not had direct experience in the role we were hiring him to do, we were confident, based on these small clues, that he could accomplish the role. Surely enough, he has exceeded our expectations and then some.

The bottom-line: Construct a hiring funnel that helps you go beyond the resume and get to know the person.

Step 4. Check “back channel” references

While it’s standard to check references, very few employers check what Donavon calls “back-channel” references.

Back-channel references are people who worked with the candidate, but have not been alerted of potential outreach.

After talking with the three references the candidate provides, we'll get [as many as] seven back-channel references," says Donovan. "It's just reaching out to people on LinkedIn, Facebook or email.

Surprisingly, most of these strangers are willing to accommodate. Donovan goes with something simple, like this: "Saw you worked with so-and-so at xyz. Do you mind hopping on a 5 minute call?"

While checking back-channel references may not be right for everyone, it’s a great option for founders feeling uncertain about particular candidates.  

In addition, I have gotten great, candid feedback from references candidates have provided by asking one simple question: "If I hire X, they will report directly to me. Is there anything you can tell me that would help me manage him/ her in the most effective way?"

This one question has gotten me amazing feedback over the years because it encourages people to be honest about the strengths and weaknesses of the candidate.

In short... startups need to hire for today — not tomorrow.

Undoubtedly, hiring your startup’s first employees is one of the most important decisions you'll ever make. Your early-stage team members will impact your ability to build a business, attract investors, and grow your initial revenue.

However, it is also important to understand that your startup will go through several different phases, and each phase will require several different skillsets. As a result, I always strongly recommend founders focus on hiring for the specific stage of their business.

In a perfect world you can identify people today that can grow with your business and be onboard for the long haul. However, the reality is that most early-stage startups don't have this luxury. You need to find people for your exact stage, or else you may never live to see the next stage. 

To learn more hiring tips for startups, check out the below interview with Maren Kate Donovan.