Better Reference Checking

“Nearly every mistake I have made has been in picking the wrong people, not the wrong idea” – Arthur Rock (Davis & Rock), Arthur Rock Center for Entrepreneurship, Harvard

Seems to me that among startups these days, solid reference checking is becoming a lost art, especially when making key hires. This is a little counter-intuitive to me based on the substantial negative impact a bad hire in an important position can have on a small team. However given the speed of business today and the subsequent pain and lost momentum it takes to unwind a bad hire,  it’s more important than ever to nail it when hiring someone who’s going to have a meaningful influence on your success (or failure).

There’s no doubt that the litigious nature of our society has created an environment in business where nobody wants to say anything negative about anybody. I remember when I first got into the venture business, Paul Maeder (Founder of Highland Capital) told me that whenever possible, he tried to reference check in person because it’s much harder to look someone in the eye and not give them the real story.

Want a tidy example of why good reference checking is so important? Years ago, I was in the final stages of diligence on a startup that we were definitely inclined to invest it. There were a lot of investors circling and there wasn’t a ton of time for extensive diligence. Late in the process, just as a gut check, I reached out to a woman who was a C-level executive at company where the founder had worked previously to get a little more comfort with this founder that I didn’t know particularly well. Verbatim, here was her reply:

“John Smith?  I’d f*^k a goat before I’d work with him.  If you even proceed to discussion phase with him, I’d be mortified.  Suffice it to say that when he was lead architect at our company, he had his engineers covering for him to both senior management and his fiancé and saying he was at a meeting and/or on a customer call, etc., while he was off having sex with the perky cashier from the local coffee shop.  Enough said?”

Anyone who’s been through startups will tell you that the penalty for making a bad bet on a key hire is tremendous. Yet too often I see startups rush the process in a fever to get an important position filled. I’ve been around startups a long time and I’ve seen some great practices employed around this, so if you’re making an important hire at a senior level, here’s a few unique methods I’ve seen used that helps peel back the hiring onion:

When meeting with a candidate for the first time, have them diagram the last one or two (ore even three) organization charts associated with their prior most meaningful jobs. These charts should include managers, peers and direct reports by name. For each individual on the chart, ask the following:

  • “How would you describe this person’s work style?” (assembling context).
  • “If we were to talk to this person with your permission (if they don’t allow you, you’ve got yourself a yellow flag), how would they describe your strengths?”
  • “How would this person describe your areas for improvement?”
  • “Who might your manager say you had the most difficult time with?” (definitely hunt those folks down)
  • “If we were to talk to these individuals, how would they say you were perceived in the organization?”
  • “Among the people on the org chart, who would rank you a 1, 2 or a 3?” (more context)

This is obviously a pretty tedious process and not for every hire. However, for a senior member of your management team, it’s absolutely worth it. What does this exercise accomplish? First, you’re assembling a killer list of people that are probably not on the candidates “official” reference list. With tools like LinkedIn, these people are easier than ever to reach. Now, when you call these references, you will surely receive far more candid feedback than you would from the candidate’s reference list (largely worthless). Lastly, you can learn a lot about someone’s character as they get up to the whiteboard and lead you through this process.

Other important things to do when considering a key hire:

  • Take copious notes in the first meeting, and get them to corroborate key points at later meetings. If there are inconsistencies, you have a yellow flag, dig deeper.
  • Background checks – Cheap. I’ve been simply amazed at the stuff I’ve found in my career.
  • If you can, spend time with them away from the office. Get to know them as a person, not a candidate.
  • If you can meet their spouse, you’ll learn even more – I promise.

Finally, here’s another method I’ve used with great success when doing my homework on someone that I’m considering investing millions of dollars in. I’ll email as many people as I can who know the person and write the following:

John Smith, who used to work with you at XYZ Company is co-founder of a new startup called “NewCo” which I’m considering investing in. I’m reaching out to you for some background on him. Preferring not to put you in an awkward situation, you need only respond to me if you have positive things to say about him or didn’t work with him.  Thanks, I appreciate it – Mark

If you do this with a dozen or more people who have worked with John Smith and more than one doesn’t respond, you’ve got a signal that you need to dig deeper. Sometimes, the silence can be deafening.

Doing a thorough job at reference checking can be tedious and time consuming. However, understanding the high cost of making a mistake when hiring for important positions should motivate you to go the extra mile. If you have other suggestions on how to improve reference checking for startups, I’d love to hear about them.

Nate and Natty

Last night was a special evening for me. The calendar finally cooperated and allowed me to have a long overdue celebration dinner with Nate Abbott and Natty Zola, two of my favorite entrepreneurs I’ve ever had the pleasure to know and work with. They’re amazing people and I feel lucky to count them as close friends.

Nate, myself and Natty at dinner last night

Nate, myself and Natty last night

Back in 2009, we invested in a TechStars company called Everlater, founded by Nate and Natty. They had developed an innovative online travel journal that gave users a simple to use, rich media platform for capturing and sharing their travel experiences using text, maps, photos and video with easy sharing across social sites. The only thing stereotypical about Nate and Natty is that like most entrepreneurs, they’re very smart and incredibly passionate about what they work on and they’re relentless in the pursuit of realizing their dream.  The rest, well – not so much.

Let me explain. In 2007 Nate and Natty had lucrative finance jobs in New York City. They both loved and excelled in finance but felt there was more to life than corporate finance so they hatched an evil plan. Nate set off to bike across Europe, spent time in Morocco and then went to India for four months to train future Indian investment bankers.  Natty worked an additional six months before meeting Nate in Argentina.  They then spent six months traveling from the Southern tip of Chile to Mexico.  It was their reward for working hundred hour weeks for so long.

During their adventure, they did amazing things.  They climbed 21,000 foot mountains, surfed remote beaches, explored exotic cities and immersed themselves in new cultures. They wanted to share their stories, photos and experiences with their friends and family but struggled to find an online tool which easily and effectively captured what they were doing.  On a sailboat between Colombia and Panama, they decided to scratch their own itch and began formulating their vision for a new travel journaling business.  Two months later, they moved to Boulder to pursue and build their dream full time.

Nate & Natty in Altiplano, Bolivia

Since they were both born and raised in Boulder (and best friends since kindergarten), they decided it would be easiest and cheapest to get their idea off the ground if they moved back home with their parents.  Their families were extremely supportive and welcomed them back home to help get Everlater off the ground.

Having been away, they didn’t know much about the amazing entrepreneurial ecosystem that had flourished in Boulder.  Immediately they had access to incredible mentors in the form of venture capitalists, fellow entrepreneurs, and a very close developer community which they tapped in to to learn how to code themselves.  That’s right; they learned how to code and built Everlater themselves. They applied and were accepted into TechStars and that’s where I met them. Truth was, I was so impressed by their chutzpah and Joie de vivre, I knew we were going to invest in their company at the very first meeting.

We were the only institutional investor in Everlater and the board comprised of Nate, Natty and myself. Our board meetings were always improptu (“Hey guys, I’m going to be in Boulder next week, how about a board meeting?”) and super casual. In fact, most of them revolved around fun meals or long bike rides.

Nate, Natty and I during one of our "board meetings"

Nate, Natty and I (along with a couple of friends) during one of our “board meetings”

This past November, it was announced that AOL/MapQuest had acquired Everlater. It was a terrific outcome for everyone involved. I am so incredibly happy for Nate and Natty. They’ve already been promoted at AOL and are spearheading a significant and important new initiative for them. I’m a big believer in karma. These two guys paid their dues in building Everlater and it’s tremendously gratifying for me to see them reap the rewards.  

It meant so much to me to spend the evening with them (along with Jenna and Pam) last night and celebrate all they’ve accomplished. It was also the first time I’ve seen Natty and Pam since they were married in February! I am so proud of you guys. Your ever-present optimism and outlook on life inspires everyone around you. I especially admire the child-like wonder about this world you’ve both been able to take with you into adulthood. Thank you for letting me be part of your journey and I’m looking forward to what I know will be very special and lifelong friendships with both of you.