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The Biggest Hiring Mistake You Can Make

Landing top talent is never easy, but there are ways to sweeten the deal. Here's the biggest tool in your arsenal and how to put it to use.
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In case you weren't aware, it's incredibly difficult to hire software engineers right now. This problem is not relegated to Silicon Valley, New York City, or Washington D.C. It's everywhere. And for a software startup, not having the right talent at your disposal will be a real game-ender. 

Here at The Startup Factory in Durham, North Carolina, I'm constantly being asked for connections to talent. In fact, I get asked for talent so much that I created a job fair specifically for tech companies to pitch the audience on why they should work for them. 

So what can entrepreneurs do to recruit top talent? Or put another way, how will you compete with others for talent? 

The first thing you've got to do is avoid shooting yourself in the foot. This usually happens when you find the right hire, but make a bad offer. As a startup you're obviously low on cash, but you're most definitely rich in equity. Future stock ownership granted through a stock option is the best compensation tool in your arsenal right now.

As a founder, or set of founders, you own all or most of your company. So an option grant has to be the most important part of your compensation offer because it represents the future value of your vision. If you are hiring a new vice president of technology to build out the tech side of your business, for example, then this set of skills may cost $175,000 or more outside the startup world. Allocating that much cash would be crazy, so you need to convince this person to take equity and a smaller amount of cash as part of her total compensation.

Too many times I've seen founders or chief executives present a weak equity offer thinking that giving up part of their ownership will only dilute the massive payday coming to them as visionary founders. The paradox is that the equity is not worth anything if you never get past the development side of your vision. And if you need to hire a VP-level superstar--who has the skills and experience you don’t--that is simply not going to happen.

By definition, your first hire should propel the company forward, and in a big way. So will you recruit her by offering a measly 0.2 percent of the company? If so, that's a big mistake, as one of two things will happen. First, the person who would accept that offer is the wrong person for the job, as she won't understand what this means. Or more likely, she'll walk away because you don't get it.

A terrific hire deserves 10 to 50 of the company's equity, which are big numbers indeed. But that's because it's not about your idea but about the execution of your idea. This person is being hired to help make it happen.

Now that you are over your sticker shock, allow me to offer some comfort. Every stock option plan should have a one-year cliff to vesting the options, so offer your new hire a realistic stock option grant that gets her interested and build from there. If you don’t see momentum from this employee in a year, it's probably best to part ways. And if the new hire moves the company forward, trust me: It will be the best investment you ever made.

IMAGE: Corbis
Last updated: Apr 8, 2014

CHRIS HEIVLY | Columnist | Managing Director

Chris Heivly was a co-founder of MapQuest (which sold to AOL for $1.2 billion), sole managing director of 77 Capital (a $25 million venture fund), and an executive at five software companies. Currently, he is one of two managing directors of The Startup Factory, a seed investment fund making 10 to 14 new investments per year. A national writer and speaker about startups and startup communities, Heivly is also the founder of the Big Top Job Fair.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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