Recruiting and Selecting High-Performing Employees
Earlier in this book, we suggested that new ventures are at a serious disadvantage when they enter the labor market to attract high-quality employees. Because they are new, they are relatively unknown to potential employees and cannot offer the security or “brand familiarity” of established firms. Although there is currently little direct evidence on this issue, it seems reasonable to suggest that unless new ventures succeed in overcoming these obstacles, they might be doomed to failure—after all, they cannot grow if they fail to attract and retain essential and dedicated employees. How, then, should entrepreneurs approach this important task? To provide you with some useful guidelines, we will consider two basic questions: (a) Where should entrepreneurs search for high-quality employees? and (b) What specific techniques should they use to identify the best among them?
The Search for High-Performing Employees: Knowing What You Need and Where to Look
There is an old saying: It’s hard to get somewhere unless you know where you want to go. In other words, it is hard to reach a goal unless you have defined it clearly. That is certainly true with respect to hiring high-quality employees. Before beginning a search for such people, it is crucial to first determine just what it is that your new venture is seeking. In the field of human resource management, this implies two preliminary tasks: (a) a job analysis—determining just what the job involves and what it requires in terms of specific knowledge, skills, and abilities1—and (b) formulation of a clear job description—an overview of what the job involves in terms of its duties, responsibilities, and working conditions. In large companies, job analyses can be very detailed and lead to highly specific job descriptions, but for entrepreneurs, especially in the very hectic early days of a new venture, when founders have to do virtually everything, it is usually sufficient for them to simply have a clear idea of what the person or persons they are seeking will actually do, and a brief written description of the major duties and tasks that they will perform.
Why are these initial steps so important? Because they provide a basis for choosing among potential employees, for selecting the ones most likely to succeed in a specific job. The best choice, all other factors being equal, is the person whose knowledge, skills, and abilities provide the closest match to the requirements of the job. If they have not conducted a job analysis and formulated a clear job description for a particular position, entrepreneurs (or the people to whom they delegate this task) will still need to proceed with choosing among potential employees; it is a task that must be accomplished. However, it will be more difficult for them to make these choices on the basis of job requirements. Instead, for example, they might choose the people they find most congenial or attractive, or applicants who somehow “stand out from the crowd” rather than the person best qualified for the job. For this reason, it is best to formulate a clear idea of the specific requirements of any job before beginning the search-and-selection process.
Having said that, we should add that in some industries—those that are on the cutting edge of technological advancement, such as biotechnology—it might be very difficult to specify the requirements of various positions very precisely because conditions are changing so rapidly that the tasks people perform, too, will certainly change. But insofar as conditions will permit, it is a good idea to first determine, as precisely as possible, what’s needed before beginning the search for new employees.
Once the task of specifying precisely what is needed—what skills and abilities new employees will provide to the growing venture—has been completed, the search for these people can begin. Earlier, we noted that new ventures often fill their initial needs for additional human resources largely through their founders’ social networks. In other words, they tend to hire people they know either directly, from personal contact, or indirectly, through recommendations from people they do know and trust.2 Here we will expand on those comments by indicating that referrals from current or former employees are often especially helpful in this regard. If new ventures continue to grow, however, these sources might soon prove to be inadequate; they simply do not produce a sufficient number of potential employees or ones with the full array of knowledge and skills the new venture needs.
At that point, entrepreneurs must expand their searches. One way of doing so is through advertisements in carefully selected publications. For example, ads might be placed in trade journals that reach specific, targeted audiences. Since new ventures usually lack the resources to screen large numbers of applicants, it is generally less useful for them to advertise in mass-circulation outlets such as large local newspapers (although, of course, there might be exceptions to this general rule). Other useful sources include visits to college and university employment centers; here, once again, it is possible to specify job requirements quite precisely and to be reasonably certain of interviewing only individuals whose qualifications match these closely. In recent years, Internet sites have been developed to assist companies in finding employees, and potential employees in finding jobs (e.g., CareerBuilder.com, Headhunters.com, and Monster.com).
Entrepreneurs should not overlook current customers as a potential source of new employees. Customers know the new ventures’ products and are familiar with its operations, so they can often be a very helpful source of referrals. Finally, professional “headhunters” are often helpful. Venture capitalists (VCs) often have working relationships with such firms to help the start-ups they fund obtain management talent. So this can be a very useful source for entrepreneurs who have obtained financial support from VCs. Together, the sources outlined here are often sufficient to provide growing new ventures with a pool of applicants from which they can choose. And that brings us to the next important step in the process: techniques for selecting the best people in this pool.
Selection: Techniques for Choosing the “Cream of the Crop”
Our experience tells us that in many cases, new ventures do a reasonably good job of assembling a pool of potential employees: Their social networks, current customers, and other sources yield a number of people who could, at first glance, be hired. Choosing among them, however, is another story. This is a difficult task under the best of conditions even in large organizations that have human resource departments with experts specifically trained to perform this task. (These are rarely found in companies that have fewer than several hundred employees.) Entrepreneurs, in contrast, often lack such specialized experience and, moreover, must try to fit the task of making these decisions into their extremely busy days. Furthermore, serious mistakes—hiring an incompetent or unethical person—are even more costly for new ventures, with their limited resources, than for large, preexisting companies. So how can entrepreneurs accomplish this task effectively? The answer, basically, is through a combination of several techniques.
First, it is essential for us to add a few words on the topics of reliability and validity, because these concepts are closely related to the question of selecting the best employees. Reliability refers to the extent to which measurements are consistent across time or between judges. For example, if you step on your bathroom scale this morning and it reads “150 pounds,” but then you get back on it 10 minutes later and it reads, “140 pounds,” you might question its reliability; your weight has not changed in 10 minutes, so the scale does not seem to be providing consistent measurements. (Perhaps it needs a new battery.) A good illustration of reliability across judges is the ratings given to champion figure skaters by a panel of judges. The more the judges agree, the more reliable (consistent) their ratings are viewed to be. In contrast to reliability, validity refers to the extent to which measurements actually reflect the underlying dimension to which they refer.
Reliability and validity are closely related to the task of selecting the best people for specific jobs; only selection tools or techniques that are both reliable and valid are useful for this purpose—and legal under existing laws (e.g., the Equal Employment Opportunity Commission’s Americans with Disability Act). In fact, if the validity of any technique used for selection is doubtful, using that technique can result in costly lawsuits; keep this fact in mind if this is a type of trouble that you would rather avoid!
So where do various selection tools stand with respect to reliability and validity? Many, it turns out, are quite low on both of these dimensions. Letters of recommendation, for example, have been found to be almost totally unrelated to actual on-the-job performance, which means that they are very low in validity. Surprisingly, the same is true for standard employment interviews—the selection technique that is by far the most widely used. Traditional interviews, which are largely unstructured in nature and proceed in any way that the interviewer wishes, suffer from several major problems that tend to reduce their validity. For example, interviewers often make their decisions very early, after only a few minutes—well before they have had a chance to gather pertinent information about an applicant.3 Second, if interviewers ask different questions of each applicant and allow the length of the interview to vary greatly, how can they later compare the various applicants in a systematic manner?4 The answer is that they cannot, so validity suffers.
Additional problems involve the fact that interviewers, like everyone else, are subject to subtle forms of bias in the way that they perceive applicants. A large body of evidence indicates that attractive applicants, those who are similar to the interviewer in various respects (age, background, ethnic identity), and those who are good at impression management tend to have a major edge over applicants who are less attractive, less similar to the interviewer, and less skilled at impression management.5 Such factors are largely unrelated to the ability of various persons to perform the jobs for which they are being interviewed, so this means that the validity of such interviews is questionable, at best.
Despite these drawbacks and despite the bizarre results that they often yield, most companies—including new ventures—continue to employ brief job interviews as the primary means through which they choose their employees. Why is this so? Probably because most people, including entrepreneurs, suffer from the illusion that they are highly skilled at social perception. In other words, they believe that they can form an accurate impression of others’ major traits, motives, and talents on the basis of a brief conversation with them.6 In fact, however, systematic research suggests that we are unduly optimistic in this regard: The task of assessing others is far more difficult, and subject to many more sources of error, than most people realize. Suffice it to say that we are generally less successful at this task than we believe and that this calls the validity of traditional job interviews into serious question.
Fortunately, the validity of interviews can be greatly improved by switching to what are known as structured interviews, in which all applicants are asked the same questions—those chosen carefully to be truly job-related. Some of the questions (situational questions) ask the applicants how they would respond to particular work situations (e.g., “What would you do if you ran out of supplies?”), while others focus on job knowledge (e.g., “How did you acquire the necessary information to complete a particular task?”). Additional questions focus on applicants’ willingness to perform the job under current conditions (e.g., “What are your feelings about working overtime during very busy periods?”) Empirical evidence suggests that structured interviews are, perhaps, the most valid technique for selecting employees: Different interviewers come up with similar ratings for the same applicants, and these ratings do predict on-the-job performance. So although they are not perfect, structured interviews offer a useful technique—one that can help entrepreneurs make the correct decisions when choosing among several applicants.
Another technique for selecting employees that is reasonably high in validity involves biodata—information about their backgrounds, experiences, and preferences provided by employees on application forms. This information has been found to have moderate validity for predicting job performance—provided the questions asked are indeed relevant to the job in question. For example, suppose that a job requires a lot of travel; a question on the application form might ask, “How willing are you to travel on the job?” or “How frequently did you travel in your previous job?” Clearly, applicants who are willing to travel are a better choice than those who express reluctance to travel. But remember: Information collected in this manner is useful only to the extent that it is relevant to the job in question. In addition, certain kinds of questions cannot be asked, either in person or on application forms—questions that inquire about an applicant’s personal life, physical characteristics, personal health, prior arrest records, or personal habits can violate Equal Employment Opportunity laws and guidelines and can land an entrepreneur in hot water. As long as questions are focused directly on knowledge, skills, preferences, and experience related to the job, these problems can be avoided and structured interviews can be a valuable tool for choosing the best individuals for specific jobs.
Although we have been emphasizing the use of interviews as a tool for selecting employees, it is important to note that many companies—new ventures included—often use such meetings with job applicants for another purpose: to build the image of the company. Up to a point, this can be a good strategy. But research indicates that it is often a big mistake to oversell a company, whether it is a new start-up or an established corporation. Painting too positive or rosy a picture of working conditions can set employees up for major disappointments once they are on the job, and this can undermine both their motivation and commitment. In general, it is much better to make sure that interviews reflect what are known as realistic job previews—efforts to present a balanced and accurate picture of the company to potential employees. In that way, unpleasant surprises are minimized and new employees are more likely to remain on the job after they are hired.7
Why should you want to know about these techniques and procedures? For two reasons, which we have already noted above: (a) You will probably carry out the tasks of recruiting and selecting employees yourself, at least initially, and (b) later on, if you decide to delegate these tasks to others, you should still want to retain oversight, to assure that they are being handled correctly. Remember, not only is recruitment of excellent employees crucial to the future of a new venture, but carrying out this task in an inappropriate manner can put the company at risk for lawsuits. Clearly, this is one more instance where the adage “better safe than sorry” applies—with a vengeance.
One final point: It is absolutely crucial to carefully check all references provided by job applicants and all claims that they make concerning past experience and training. All people, unfortunately, are not completely honest, and applicants for jobs at new ventures are no exception to this general rule. To be on the safe side, entrepreneurs should check at least major aspects of an applicant’s resume before hiring this person. In all likelihood, the information is accurate, but in a few cases, there might be some big surprises lurking around the edges!