First On: Talent with Maddy Cross
Topics Covered
Talent benchmarks
Hiring process
External hire vs. internal promotion
People management
Executive Search
Today I’m speaking with Maddy Cross, one of Europe’s best minds on early stage startup talent. Maddy has spent the past few years building the talent offering of Notion Capital and has worked alongside some of the fastest growing businesses in recent memory. This month Maddy transitions to a new chapter in her career as a Partner with Erevena, one of the most respected executive search firms working with venture backed companies today. Maddy has been one of my best friends for several years but it wasn’t until this interview that I truly understood what a talent expert she had become. My original plan for the First On series was to end with this conversation as a sort of implementation plan to the operator lessons before it. But after talking to Maddy I realized that she had provided me with the perfect primer to a series about talent. We cover everything from hiring, compensation, people management, company building and more. If you’re a founder or have any future aspirations to be one someday, this article is a must read.
To start I’ll ask, can you walk us through what your career path within Talent?
I joined Notion Capital as Head of Talent three and a half years ago. Before that, I had hired a lot of people as a Marketing leader and learned the challenges of building teams in early stage businesses. After my MBA I couldn't get excited about Marketing jobs and realized that most of my career had been about managing, hiring, onboarding and understanding when it’s best for people to leave a business or leave a role.
Joining Notion gave me the chance to work on those topics with the portfolio and to understand what the common themes and challenges are from seed to Series B. The reality is that most founders experience the same people challenges in different guises, all of which culminate with the challenge of ensuring that you've got the right people in the job at the right time.
To do that of course you need to hire for experience well, onboard and manage well and compensate well. Everyone struggles with this. Even Founders who are amazing at this still get it wrong from time to time. Before Series A, leadership success is more founder-lead but eventually it becomes more about the aggregate level of the leadership team. At Notion I quickly realized that helping Founders to build the right group of VP / C suite people post Series A was probably the single biggest impact one can have, if they’re in VC Talent.
How often did the conversation come up about hiring externally for those key executive roles versus bringing up from within?
All the time. Founders frequently want to bring people up through the business, which is completely understandable; they see it as being the right thing to do culturally, because it’s a sign of the company being a meritocracy.
But what can get missed in doing this is that if the Founder puts someone in a leadership job that's too big for them, they might struggle with it and it’s possible that everyone else in the organization will too. Generally people respond much better to not getting a role they want as long as they know exactly why. A Head of Sales will likely respond much better to not being promoted to VP of Sales if they completely understand why that decision was made. For example if the person hired as VP of Sales has 10 more years experience than the Head of Sales, it’s likely that they can teach the team and develop them more effectively.
Hiring people externally doesn't mean you can't have meritocracy: it just means that the meritocracy needs to be more structured and understood. It needs to be clear what you're going to have to do to stretch yourself into that role. If you do them, the job is yours. If you can't do those things yet then the last thing we want is to see you fail, so stay where you are for the moment, we'll find a great leader to help you get there.
In B2B software Unicorns, one out of every five VP / C suite people was brought up through the organization, the other four were hired externally. This is a pretty clear signal that it’s not a bad idea to be bringing people in from outside.
It's probably also an argument to have a really tight, structured hiring process. If you’re internal but you go through the same robust process then you feel more like, “Yeah, this was fair. I know what I was tested on and any external candidate was also put through the ringer.”
Exactly. For example, if you have interview scorecards you can say to internal candidates who may not be as strong as external candidates, “We asked you these questions and these are the answers we were looking for. You scored a three and the candidate we gave the job to scored a five, for these reasons.” The same logic works for compensation as well. Most people are fine with being paid less than other people in the business as long as they know why that is, and what they need to do to be paid more.
When is the right time to start thinking about compensation in that more formal, rigid way?
Honestly, as soon as you can. We always talk about technical debt: accidentally building problems into your product that only appear as things scale, which need to be unpicked later. Human capital debt is exactly the same: if you have people on different compensation levels who are doing the same job or people doing very different jobs who are on the same compensation then it’s just a matter of time that you’ll need to unpick it. Every time that you add a new person to that system the problem compounds. The sooner you do it the less of a mess it becomes later. But equally I am fully aware that Founders have so many things going on so they often don't have loads of time to focus on compensation structures. So my advice is that they should do the absolute best they can early on or find someone to do it for them, like a Talent Acquisition Manager.
One of the most comprehensive things I’ve ever seen on talent is your Unicorn Trajectory report. Could you walk through that and some of your key findings?
So, that report looked at 50 B2B software unicorns and 50 B2B software non-unicorns, defined as companies that were never valued greater than $100 million. All the companies analyzed were more than five years old, all had raised Series A rounds of between $3 million and $15 million, and the average Series A in both groups was the same at $7 million.
So within those two groups of companies I found everyone who'd been a VP / C-suite or founder in each of those 100 businesses and mapped out over time what each of their hiring patterns were. I knew who those people were, what functions they filled, how many years experience they had, whether they went to university or not, and if they did where they went. I wanted to understand what leadership hiring decisions Series A founders can make that replicate the things that successful companies did.
And what did you find separated the hiring patterns or unicorns and non-unicorns?
Generally unicorns had a much greater range of experience (years) within their VP / C-suite. The average unicorn had only one or two people with fewer than 15 years of experience in the leadership team, not including founders. Unicorns were really good at hiring people that were way more experienced than the founders. So if you're a founder who's got 10 years of experience, you’d have no problem hiring someone who's got 30 years of experience. That pattern didn't really show up in the non-unicorn group.
The other big thing was the cadence of hiring: in the first five years after raising a Series A, the average unicorn hired one VP / C-suite person per quarter, every quarter. I've actually heard that anecdotally before. Sameer Dholakia, who was the CEO of SendGrid, gave a talk at SaaStr and said of his early days at SendGrid “I’m going to do one [leadership hire] per quarter for the next two years. That’s exactly what we ended up doing.” And in the non-unicorn group they hired an average of one VP / C-suite person every two years.
Is there some circular logic to this though? Sure cadence is needed when a company is growing. But at that pace you’re going to make hiring mistakes so maybe some of it is actually replacement? I think the idea of hiring four executives a year for five years would throw off a lot of founders.
Yeah, absolutely! But there is a valid argument to be made that after Series A, the job of the founder needs to become, as quickly as possible, all about hiring leaders, raising money, and continuing to push the vision and mission. Ultimately that’s the job. As a founder-CEO you have to get very good at working with exec search firms or hiring people yourself into VP / C-suite jobs. That's one thing that is quite difficult to delegate.
One of the questions that frequently came up with the Unicorn Trajectory research was founders saying, “Yes, but the unicorns could hire more VPs because they were more successful.” But they weren't at the starting point of the data. At that start point the businesses in each group had raised the same amount of money from very similar funds. There were businesses in the non-unicorn group that had raised from Sequoia and Andreessen Horowitz so there wasn’t a real brand difference. Within the first two years after Series A, the main difference was that unicorns started hiring leaders and non-unicorns didn’t.
A lot of founders I know may accept the importance of hiring really experienced people, but believe that they just can't compete with the big tech salaries and comp packages. I imagine you run into this quite a bit.
Yeah all the time, so I have a few thoughts on this. Equity is something that you're going to have to give up for those hires. For a C-suite appointment somewhere between 1% and 3% is about right. I've seen people get a lot more but generally that’s the range.
The other thing is, often founders think they can't compete with big tech companies when it comes to hiring leaders so they won't try. But you have to be in it to win it, which is why executive hiring can take a long time. There's not an endless pool of people out there that are willing to take a huge cut in salary to come and join you. But they are out there and I’ve seen them join businesses and have a huge impact. If you aren't looking for them, you're not going to find them but if you're actively looking for them, they do show up. They’re fully aware of what it means to take a lower salary, they’re fully aware of what the equity means, they're fully aware of what the job entails. Those are the people that you want on your side.
The last thing to mention is that getting really great execs to join you is the biggest sale you have to make as a CEO. It’s probably bigger than selling to your biggest potential client and probably a bigger sale than raising from a VC. It’s important that founders don’t forget that. They may think that they’re interviewing a person when actually they should be selling to a person, in the same way that they sell to VCs, they should be selling to candidates.
Do you often see founders struggle with this idea? As in, they hold the view, “I only want to hire people that are completely bought into what we’re doing. I shouldn't have to sell them.”
The reality is that no one is ever going to care about your business more than you do, ever. Your mid-level marketing manager doesn't care about your business as much as you do and that's fine. It's not their job to care about it as much as you care about it. Their job is to do really great marketing.
I would never say that you should hire someone that actively doesn't believe in the vision. That's not a great idea. People that work for you ideally need to have an adequate level of passion for the business. But an adequate level of passion doesn't need to mean evangelism.
You've mentioned executive search firms a number of times today and I’m glad you did. This seems to be one of the most misunderstood areas of company building and probably something you’ve thought about a lot. What do you think founders or leaders get wrong about search firms?
The thing that founders typically get wrong about search firms is that they’re interested only in taking a brief to hire a person and then hiring that person as quickly as possible without paying attention to getting the right person. For me, joining Erevena means that my view on hiring is long term: my remit is to find candidates that will add huge value and stay in the role for a number of years.
The other thing is that the opportunity cost of not using a search firm can be pretty high. Yes exec search firms are not cheap, that's absolutely correct, but if you're a founder and you're spending hours on LinkedIn doing candidate outreach and screening calls, then you’re not spending that time raising your next round or closing a big deal. Even more importantly, if you hire the wrong person, the cost to your business can be huge - using an exec search firm can help to minimise this risk.
And what made you choose Erevena over other opportunities?
In my experience of working with a number of different search firms, Erevena has time and time again performed exceptionally well; I have seen them be genuine advisors who add value to the strategy of their clients beyond simply hiring people. I have seen them take a long time on a search to make sure they got the right person and I have seen them talk founders down from hiring specific candidates who they did not believe were right for the job. So I've seen them do all of those things first hand. And by the way, there are other search firms that do those things exceptionally well, but for me personally, I saw Erevena perform consistently across all Partners.
If founders are thinking about using a search firm and they wanted to do some sort of a head to head, what is your advice for assessing the quality or fit?
Great question. The first thing is cost as certain search firms are just not set up for seed and Series A. Egon Zehnder, Heidrick & Struggles are brilliant search firms further down the line but their base fee level just does not make sense for seed / series A.
The second thing is the track record of who they've hired before. Ask each search firm that you speak to, to send an overview of two or three people they’ve hired into similar roles in the recent past. Then either speak to the people that were hired, or ask the founders of those businesses about their experience with said search firm. Referencing is always important here.
The last part is whether you like them. The reality is if you're hiring an exec once per quarter you're probably going to end up working with that firm again. And you’re almost certainly going to spend quite a lot of time with them, even for that first hire. If you're on that path to unicorn and you don't like them, that's probably not going to be very fun.
Because the search firm tends to be opaque to many, could you walk through how an engagement is usually structured?
Generally, the search firm would be asked to pitch, during which they will explain how the process will work and get to the bottom of the role and requirements. That can be as informal or as formal as you like. The key thing is that you as a founder are very clear on what will be delivered, how much it will cost and who will be working on it. That stuff all needs to be clear before signing.
And then for commercials, some firms charge in increments of 30/60/90 days and others charge at different stages of the search, for example part of the fee will be paid at the start, part at the shortlist, and the final part on completion.
What are “pay on success” firms best for?
These are usually called “contingent recruiters” where they'll take 100% of their fee, which is usually between 15% - 25% of the base salary, only when the candidate joins the business. Generally speaking, contingent firms would be used for non leadership appointments, so anything that's Head of / Manager and down. Executive search firms are generally used for VP / C-suite / GM and above.
Contingent recruiters will look for candidates but they'll also have like a fair amount of inbound candidate traffic as well. Whereas executive search firms will usually be more active in going to look for candidates. So part of the reason you pay [executive search] a retainer up front is because there is a fair amount of work to begin the process of finding the right person for the job.
With some founders, one concern that comes up is how the search firm calibrates to the values and personality and the culture of the company. So how do you go about calibrating yourself to that component of the hiring process?
I think it's getting clear with the founder what their values are and this is where the consultative part of exec search comes in. The founder needs a very clear idea of what their values are and what behaviors they expect, for example, “we have an open source culture so we really want people from an open source background”. If the founder is not totally clear, then I can help them to get clear on it or direct them to a specialist culture/values consultant who can.
The other aspect of this is that, if you’re a founder then you should speak to more than one search firm. Every firm is different, and some will intrinsically be a better match for you than others.
The last thing I'll ask is; for founders currently in need of hiring support or are curious about learning more about the search process, what is the best way for founders to get in touch with you or Erevena?
Ping me on LinkedIn or my email address is on the Erevena website. And really ping me about anything leadership-wise. There is no expectation that if you ping me with a question about leadership, team formation, compensation, hiring, that I will immediately send you a contract. One of the reasons that I really enjoy working in the people/leadership space in startups is because it’s pretty satisfying to be able to give advice that can make the experience of being a founder a bit easier and more fun.
First On is an attempt to uncover functional greatness by asking the experts themselves. I hope you enjoy the mini-series and with enough interest I may extend this into a more ongoing effort. If you have any functions / roles you’d like covered or have ideas for future guests please let me know.