One of the fundamental truths of hiring and recruiting is that every new hire carries a high level of risk.

It’s easy to agree with it in concept.

But in our experience, most leaders can’t clearly communicate their approach to risk when hiring talent.

Or, worse, don’t have a strategy to minimize risk.

When you talk to a financial advisor, they will want to understand your personal situation, your approach to risk and explain what that risk means. Depending on the conversation, you will define the exposure you’re comfortable with.

For example, if you put your entire portfolio in one stock, there’s a significant risk it going down. Therefore, people usually avoid that strategy.

Similarly, there are strategies for hiring that can minimize your risk.

There are some other fundamental similarities between investment decisions and hiring decisions.

  • You can have a 10x or more upside, but it’s rare
  • Your investment can go down to zero
  • Any strategy needs time to yield results
  • You can benefit more from avoiding mistakes than from seeking brilliance

You can have a 10x or more upside, but it’s rare

We believe human potential has no limit. That said, it’s rare to meet someone who outperforms their peers 10 times or more. But they exist.

It’s common to see a Pareto distribution in sales teams, with 20% to 30% of the best sales reps accounting for 70% to 80% of sales or revenue.

It’s harder to measure the impact of a high-performing individual in some areas, such as software engineering – but every engineer you meet will have a story of a 10x engineer.

Top 1% professionals don’t go unnoticed for long. They rise within the ranks and are poached by the best companies. Eventually they become very well compensated and known in the industry.

If your strategy is to hire the top 1%, you need to answer the following questions:

  • Are you a top 1% employer?
  • Do you offer top 1% compensation?
  • Do you have top 1% career opportunities?

If the answer is no, adjusting the process to maximize performance within the talent pool you can realistically hire from is the better strategy.

Your investment can go down to zero

The smaller the company, the greater the potential impact a single hire has.

Hiring requires a significant investment of time and resources. New hires are expected to perform at a certain level for a certain amount of time. When they don’t, your TLVT/TAC goes down.

But apart from having low performance, a wrong hire can have disastrous consequences for a company – especially a small one.

It’s hard to list all the harm that a bad hire can cause, especially if they are in a leadership position.

  • They can create relationship problems, distracting the team from what matters
  • They can create a toxic environment that will push away the best talent
  • They can impact your company’s reputation by being the cause of bad reviews on platforms such as Glassdoor and Blind
  • They can block projects and innovation
  • They can hire people who will ally with them and propagate the negative influence

Some people can leave a lasting negative impact on a company’s culture that can take years to reverse. Or worse, they can undermine the company’s chances to succeed in the market.

Any strategy needs time to yield results

Greatness takes time.

Talent strategy is not a one-and-done type of project. The company can have more sophisticated strategies as it changes, grows, and understands what drives the needle.

A strategy that works for a 50 people startup may not be ideal when it grows to 500 people.

However, most companies don’t have an iterative approach to Talent strategy.

They hire Recruiters, define an interview process, and hope to hire the best candidate as fast as possible. But they can’t measure if they hired the best candidate because they rely on subjective factors. Therefore they have no way to improve the process.

This is not a strategy.

A Talent strategy involves having objectives, a path to get there, and a way to measure progress. If you can measure it, you can manage it.

Plenty of iterative frameworks exist for building products, services, growth, and sales.

Concepts such as building an MVP, iterating the design, and building predictable revenue funnels are widely accepted as the norm.

You can do the same for Talent.

The impact of a successful Talent strategy can give early signs of success, but it takes time to build a culture of greatness around talent. Short sprints are short-lived.

Define the best possible outcome within the current constraints, measure your success within a set of criteria, set milestones, review and improve.

You can benefit more from avoiding mistakes than from seeking brilliance

“Avoiding stupidity is easier than seeking brilliance” ~ Charlie Munger.

Charlie Munger is known for his success in building Berkshire Hathaway with Warren Buffet. This advice applies to investing as it does for many other fields, including hiring.

Before trying to build a great hiring process, we ensure that known and obvious mistakes are being avoided.

Such mistakes include, for example:

  • Creating a process that only the best candidate can pass, but that is so time-consuming that the best candidates end up losing interest
  • Being too impressed with the candidate’s experience at a larger competitor and neglecting the red flags
  • Prioritizing speed to hire and making bad decisions to “fill a seat”
  • Waiting to accumulate a certain number of candidates in a certain stage instead of moving forward with a great candidate, and losing them to a competing offer from another company

Experienced Recruiters and hiring managers have probably suffered the consequences of bad decisions enough to know they should avoid these mistakes.

However, every company will have new and inexperienced managers that are not aware of them. It’s better to get in front of this problem instead of paying the high cost of learning from hiring mistakes.

We’ve also seen too many experienced leaders lose sight of these mistakes in pursuit of “brilliance”.

That’s why we recommend keeping a list of “Mistakes to Avoid”.

Send this list to every hiring manager when opening a role. Ideally, go over them with newly promoted people managers before their first hire.

One Difference – The Spill Over Effect

The most important fundamental difference of risk in hiring is that one great hire can positively impact all others in the same team. The same is true with a bad hire.

This effect was measured in an office environment. Sitting close to high-performing individuals improves performance. This was called the spill-over effect.

Therefore, risk in hiring should be taken even more seriously, since one mistake can cost a few good decisions.

That’s why avoiding clear mistakes is so important. If your high performing talent starts to wonder why the company is tolerating certain performance and behavior issues, they will start to think they don’t belong there.

On the other hand, if you have a great Talent strategy, people outside the organization will start to wonder what the company has that’s so special to attract the best people they know and achieve such great results.

Looking at hiring as a decision that impacts the whole company, not only a single team, is reason enough to take it more seriously.

Defining Risk in Hiring

There are two dimensions of risk to consider when hiring:

  1. Risk of low performance
  2. Risk of bad behaviors

A bad hire can be a poor performer, a detractor to the work environment, or both.

Negative Behavior Positive Behavior
High Performance  Bad Hire Great hire
Poor Performance  Bad Hire Recover

Notice we purposely stay away from the term “culture fit”.

Cultural fit can easily become a proxy for “I like this person”. In other words, it’s an enabler of bias.

It’s better to avoid bad behaviors than try to assess culture fit.

When emphasizing culture fit, you tend to miss out on “culture add”. That is, people with different backgrounds, opinions, and communication styles who can completely transform your business and improve performance.

The first goal of the hiring process is to reduce the risk of a bad hire.

The questions then become:

  1. How do we reduce the risk of low performance?
  2. How do we reduce the risk of bad behaviors?

Note: Hiring Is But A Step

We don’t believe you can eliminate the risk and improve performance by relying solely on a good hiring process.

Even the best hiring process has its flaws. There’s only so much you can do to assess candidates without working with them.

Everyone has stories of candidates who were great in the process but ended up being bad hires.

Our method goes beyond the hiring process because a significant part of accelerating performance lies in the onboarding phase and in the 180d performance assessment.

This happens because there is a limitation to the correlation between assessment methods and performance. Some methods have a better correlation than others, but it’s still not very promising.

That said, there are steps to ensure your process reduces the risk of bad hires.

Reducing Risk in Performance

As mentioned in the previous section, there’s a limit to the correlation between assessment methods and performance in the role. That’s because past performance doesn’t ensure future performance.

Therefore, past accomplishments shouldn’t be an item in itself. They should be considered information to assess the skills required to achieve them.

We recommend starting every hiring process with a clear plan. We call it the 3C method.

  • Candidate: What skills and experiences are needed to perform
  • Context: What’s the competition for talent and can you attract them
  • Competence: What are the expectations for proving competence in the first 180d

You can read more about this method here.

Without a hiring plan, you are relying on luck. As the saying goes, even a broken clock is right twice a day.

You want to be right more often than not. To be right, you need to know what you need and have a way to measure it.

For each skill and experience listed, you will assign a level of competence and grade it according to the level of the role. Ideally, they will also carry a weight to measure the most important skills and experiences according to their value.

Candidates will be graded on each of them by going through structured interviews.

This is important since unstructured interviews correlate almost as little with performance as reading someone’s calligraphy.

You can download this Skills and Experience rubric template.

This grade will then be tied into the Quality of Hire (QoH) metric, which will measure the candidate’s adherence to the skills and experience required, their onboarding program, and their 180d performance.

By measuring QoH you can start to identify if the skills and experiences you are valuing so highly are relevant and correlating with performance. If not, it’s time to reframe how the company thinks about talent.

Learn more about measuring QoH here.

This iterative approach to skills and experiences will gradually improve your understanding of your organization and who has the potential to move the needle.

Reducing Risk in Behavior

In our experience, most companies have a hard time defining their values and expected behaviors in useful terms.

What we mean by useful is by defining traits that also represent trade-offs.

For example, having “honesty” as one of the values is not very useful.

Honesty is a virtue that no one can disagree with, and people won’t self-select out of a company because of it. Everyone will describe themselves as honest since the opposite would be to identify as a liar.

A more helpful value would be to expand the definition of honesty by being more specific about how it manifests in the organization and which trade-offs it elicits. For example:

We are radically transparent. We provide feedback openly without fearing consequences, are thankful when receiving it, and don’t take it personally. We believe holding back feedback limits our colleague’s ability to improve and our organization’s potential for excellence. We say what we believe is important for the organization, even if it hurts someone’s feelings.

This is an extreme expansion of honesty. Being specific is more useful because it makes it clear that there is a trade-off.

Another example would be teamwork. You can expand teamwork into a more collective and empathetic definition of kindness and consideration for each other’s work. Or you can describe your company as a professional sports team where everyone should be excellent in their roles and not drop the ball.

Both work. But you need to be specific about it.

However, if not reinforced enough to become culture, values and behaviors become wallpaper and decoration.

Therefore we don’t believe in hiring for “culture fit” when you don’t have a strong and well-defined culture.

It’s a better strategy to make it a habit to eliminate candidates based on clear red flags. This is where having a great Talent partner helps. Talent partners can help identify patterns of behavior and decision-making that are strong enough to consider.

One example is to pay attention to how a candidate describes both positive and, more importantly, negative situations.

Here are a few examples that we like to use:

  • Accountability: Do they know where they fall short, or are they always a victim of circumstances? Do they learn from their mistakes?
  • Emotional maturity: Do they express excessive negative emotions towards a past employer or colleague?
  • Adaptation: Can they perform when conditions are not ideal? What is their understanding of sub-optimal conditions?
  • Positive attitude: Do they display an optimistic outlook on work and life?

It’s important to remember all of these when going through the structured interview.

Charisma can be a dangerous trait. Charismatic leaders can fool untrained interviewers and hiring managers and cause serious damage to your company.

Charismatic leaders can either be the best or the worst hires you’ll ever make. The reason is that they will undoubtedly sway people.

Be extra careful when assessing charismatic candidates. Do they have the accountability and emotional maturity to lead? Can they adapt to sub-optimal conditions? Do they have grit? Can they make a negative team believe that there’s a positive solution?

Reducing risk in behaviors is an elusive strategy since we can’t be objective about behaviors. The way others perceive behaviors change according to context.

Aggressiveness can be extremely variable depending on the environment. Some environments may consider someone too aggressive while others would assess the same candidate as not being aggressive enough.

Focus on identifying patterns of decision-making, coupled with the desirable traits, in a structured interview.