Should your startup develop leaders or hire them?

So where do you turn to create your growing startup’s leadership team? Inside your company or outside?

In over 20 years of building companies, sometimes starting from a single person (myself) and other times starting from a well-established point of 10 to 20 employees, I’ve learned that the answer to that question is different for every startup and every hire.

Let’s look at all the different scenarios and weigh the pros and cons. But first, let’s understand why it’s a thorny but common problem.

Startup leadership and the dilemma of balance 

At some point, every startup faces a dilemma of leadership balance: How do you guide a quickly maturing business without either driving it into a ditch of stagnation or a brick wall of rookie mistakes.

I’ve seen startups formed by super-experienced corporate folks looking to finally branch out on their own. I’ve seen others form around a handful of eager and hardworking but totally inexperienced college kids. And I’ve seen everything in between. Furthermore, I’ve been all those entrepreneurs at various points in my startup career.

I know one universal truth when it comes to company leadership: A startup’s leadership team, whether we’re talking about executive management or individual team leaders, needs to balance both the steady hand of experience with an unbiased approach to new ideas. You need that unbiased approach to take you to new places, but you need the steady hand to keep you away from those brick walls.

More often than not, those two traits seem mutually exclusive. But they don’t have to be. In most cases, developing leadership begins with the talent you already have.

In the beginning, you have chaos 

Usually, when a new company forms, the initial team is built almost magnetically, attracting and retaining people who are highly passionate about the idea and likely close by, either by physical proximity or relationship.

Because of that belief and that familiarity, this initial team — say the first five to 10 employees — will work harder and longer for less. But there’s only so much equity and so much goodwill to spread around.

Very quickly, a startup is faced with having to fill positions of authority within and around that initial team. Growth always brings chaos. When the chaos starts to boil over, that usually means that the demands of the business have outgrown the initial talent, and some critical decisions will need to be made.

There are no hard and fast rules for a startup about deciding who to hire and who to promote and when to do either. But here are some guidelines to keep your young company on the path to structure without overburdening your future company with too much structure.

Promote from within, whenever you can, to a point

There are very few downsides to promoting from within, especially at first. I think of it this way: One year of experience at the startup is equivalent to about two-to-three years of experience somewhere else.

If you haven’t made the common mistake of filling all the early leadership roles with C-level and VP-level titles, then you have a high ceiling and a lot of room to work with. I always like to keep titles nebulous in the beginning, right up until about that 10- to 20-employee mark, at which point leadership shifts from “assumed” to “defined.”

At that point, the business needs become a little clearer, and the leadership selection process becomes a matter of defining a leadership gap and filling it with the right resource.

If you’re lucky, those resources might even identify themselves, and one of the most freeing things about startups is that you can promote a team member to a leader without having to wade through a lot of corporate bullshit. In other words, if Tami has been naturally assuming the leadership role for technology, you promote Tami.

However, this method works up to a point. You can do a lot of damage promoting from within when the folks who are promoted aren’t yet ready to handle the responsibility and authority of leadership. Always bear in mind that any C-level employee should ultimately be prepared to lead dozens or even hundreds of different types of people. Just because they crush the leadership of a small team doesn’t mean they’ll grow to have that breadth.

Always be honest and transparent when promoting from within, especially if you’re making “battlefield” promotions where the growth is quick and the gaps need filling immediately. Let your leaders know what the expectations of that role are now and in the future, and that any time you promote from within, that promotion has to be perpetually re-earned as you grow.

Don’t confuse seniority with leadership 

This is almost the exact opposite of the above rule . A year at a startup is worth no more than two-to-three years elsewhere.

It’s rare that a startup comes together with an initial team built exclusively of leaders. In that first 10 to 20 employees, even within the founding team, you might have a leader or two, some mid-level experience, and a few worker bees.

Just because an employee, even a co-founder, was there at the beginning doesn’t necessarily line them up for leadership. Yes, those early folks are valuable and should be compensated for taking the early stage risk in ways above and beyond the outsized amount of equity they should have been granted for their role.

That said, extra compensation doesn’t have to take the form of a title they’re not suited for. In fact, if you do promote an early employee into a leadership role too far ahead of schedule, you’ll not only do harm to the company, you’ll do harm to them.

Reward early employees with money and equity, not with titles.

Do not hire in too much leadership at once

There was this company I consulted for a long time ago — and note that I was there doing technology and product, not company growth. Anyway, during my gig there, they raised their first big round and immediately hired a dozen VPs away from companies whose names you would be familiar with.

I’ve never seen 12 people do more damage to a business in a shorter amount of time. You couldn’t have more than two of them in the same meeting without that meeting devolving into an ugly, awkward argument over who knew better based on their experience at the dying brand-name corporation they were so eager to leave.

When you’re ready to hire someone with more experience than you already have, make sure they can operate in an early-to-growth stage startup. And hire them in slowly — one at a time if you’re under 20 employees, a few at a time if you’re under 50 employees.

If you need a more general example, I’ll ask you to watch the episode arc in the sitcom Silicon Valley when investors mandated the hire of “Action Jack” Barker, who had led several companies through billion-dollar exits with his conjoined triangles of success. I have had to deal with a couple of Action Jack Barkers in my career.

When you do hire in experienced leadership, team them with people who have been there for a long time. Even though these experienced folks have already learned the ropes, they need to learn your ropes.

Don’t hire industry leadership, hire growth leadership 

I’d always rather hire someone who has done growth across several different industries than hire someone who has been working in the same industry for ages.

There will always be the temptation to fall back to that experience, so make sure the experience you’re getting is about creating new solutions, not repurposing the same things your incumbents and competition are already doing.

Remember, if you’re doing startup the right way, you’re not copying the incumbents, you’re disrupting them. So find leaders who can and want to do that, and hire them.