Somewhere between Jackpocket's Series A and Series B financing rounds, founder and CEO Peter Sullivan realized he needed more managers.

His small team--including his three co-founders--was stretched too thin to handle the New York City-based lottery app's increasingly complicated finances. Meanwhile, the growing demands on Sullivan's time made it difficult for him to continue overseeing day-to-day operations: "I wasn't at the office when people needed me the most," he admits.

But hiring people to manage his original partners and early employees has been a tricky process, one that many founders of fast-growing startups must navigate. If mishandled, you can hurt feelings--or, worse, unintentionally lose the people who helped get your company off the ground. "You want to make sure people are appreciated," as Sullivan puts it. "Doing an org chart right now is definitely delicate."

Such organizational shifts, in which outside talent comes on to lead legacy staff, are commonplace. Nearly 40 percent of companies invest more in recruiting externally than in training and promoting employees, according to a 2018 survey by management consultancy Korn Ferry. But hiring external managers is particularly challenging for startups that, like Jackpocket, need new bosses for early-stage employees.

"When new managers come into a business that you've helped build, it can be a trauma," says David Wise, who leads Korn Ferry's North American private equity group. "There's a natural inclination to be suspicious of any newcomers, because they don't know the business or the culture and there's a risk that they will mess up what you've worked so hard to build."

So if your company now needs to hire above your existing staff, start by being transparent with those legacy employees. "Let them know you're considering it," says Alan Cutter, CEO of recruiting firm AC Lion. "You give them the reasons and you allow them to speak their minds, and then you empower them to actually interview the candidate."

Next, gently remind your team that they have a vested interest in growing the company. "If you have employees who are at an early-stage startup, a lot of times they have equity," says Bonnie Zaben, AC Lion's chief operating officer. Their options become more valuable as the company becomes profitable, so early-stage employees often stand to benefit when experienced moneymakers join the team.

It's also important to implement a robust interview process, to demonstrate to your employees that the person you will be bringing in above them is truly qualified to take over. "The team has to really respect this person and want to work with them," says Michael Mandel, CEO of New York City-based CompStak, a crowdsourced commercial real estate data platform. "You've got to feel really good about the hire."

Some startups even invite more junior employees to attend final presentations by senior-level job candidates. For example, real estate service Perch, also in New York City, is hiring a head of design, and plans to have a product designer attend those candidates' presentations. Inviting employees to vet a potential manager "is helpful for us to get their feedback and also just helps them see, 'Oh, wow. I'm really impressed with this person's work and I can really learn a lot from them,' " says Phil DeGisi, Perch's co-founder and head of growth.

Still, you have to expect--and even embrace--some turnover as you hire above your original team. "I used to pound the table in jest and say, 'Nobody leaves,' but the fact is that's not always a good thing," says Arun Gupta, CEO of Grailed, an online marketplace for menswear in New York. "When you're very small, you have to do what you need to do to survive to get to the next stage. You have to make pragmatic choices."

At Jackpocket, Sullivan lost one early employee after launching a job search for a more senior manager. But he's kept his co-founders so far, even after hiring a managing director above two of them. (The third now reports to the chief technology officer.) Bringing in the managing director has "allowed for a better flow" of information between Sullivan and his co-founders: "We haven't seen that tension yet," he says, adding that his company has approached its hiring spree with lots of preemptive conversation and careful planning. Which is an ongoing and often tedious but crucial stage for any fast-growing startup. As Sullivan puts it: "It's a learning process."

From the May 2019 issue of Inc. Magazine