Help Wanted – The Perils of Staffing Up Too Fast

Part two of my interview w/Tom Eisenmann of Harvard Business School is now live. In this part, we discuss a bunch of more advanced topics. One that stuck with me is the challenge in staffing up rapidly when the founders are hiring for functions they do not understand well. Add speed to this, and things can get real ugly fast.

Here’s that excerpt from this week’s episode of Startup Confidential 

ME: So you talk a lot about problems staffing up, and I appreciated that discussion. It clarified a bunch of things for me that have been very messy. This Help Wanted theme was compelling to me. Can you talk about the problems you’ve seen?

Prof. Tom Eisenmann (9:56): This can happen at any stage in a startup, but it’s a considerable risk at the later stages. So after you’ve scaled, to some extent, I’ll illustrate with a case that we use in the book to talk about this Help Wanted pattern. It’s Dot and Bo. And it’s online retailing of home furnishings. So couches and lamps and chairs and things like that. And there’ve been some pretty spectacular disasters in that space. The founder and CEO was a TV guy, and he’d learned TV storytelling. And he turned the room into an episode, and the furnishings were characters. And people related to that in a weird way; they wanted to keep all the characters together. So, you’re going to buy the chair and the lamp….But it turns out it’s tough to ship a couch from a warehouse in California to Kansas City… it’s not like your Amazon books. If they come two days early, you’re delighted. It can’t come early. It can’t come late and then you don’t want it to come damaged. And this, it turns out to be remarkably hard to do, remarkably hard. Because the thing also was made in Asia, and you had to figure out it is actually in the warehouse in California before you commit to filling the order. And so, this excellent demand generator could not get the operations under control. They bought the wrong ERP system. So they had no idea what was in inventory. They had no tracking of customer orders and the ability to communicate with customers. 

And his first solution was, well, let’s get a seasoned chief operating officer type. And he hired a generalist general manager who didn’t know… is the person who did the wrong ERP system and couldn’t get the operations working…. So the backlogs are growing. Customer service queries are going unanswered. So round two is a dude from… A corporate guy from Netflix, Netflix now being a big corporation which in theory knows something about shipping things.

He shipped hundreds of millions of tiny red envelopes, but shipping a little red envelope is different than shipping a couch. He gets some stuff under control cause he’s an experienced operations guy but manages to piss off the founders. He’s doing corporate stuff. He’s sort of massaging the numbers. So the things he’s supposed to be working on look great, but he’s ignoring all the other things, not thinking like an entrepreneur and owner. And so, they fire him, even though he’s made some solid progress. And it took three tries basically before they found somebody who could get the operations under control. And the third guy did, but by then, the company had burned through so much cash, and the e-commerce markets slammed shut in 2015, and the company died. And so the point is, it’s not just big company employees, and I’ll come back to that.

But it’s often the case that the CEO founder, the entrepreneur will have experience in one function but have no clue how to evaluate a candidate. They don’t have a network rich with candidates. It’s not like I can just sort of go through my Rolodex and pick out the 17 people who will be good at this. And then, even if you bring them in, I can’t tell a good one from another one. The world is just scaling startups, rife with these hiring errors in these crucial functions.”

Listen to more on the latest episode of Startup Confidential 

Dr. James Richardson

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