A couple of weeks ago I was visiting with the co-founders of a fascinating deep tech startup. This company has been successfully hitting the necessary milestones, securing additional venture funding, and growing in both its employee base and also its complexity. I was excited to chat with them to learn about their technology and approach, and I had a lot of questions about their business. But the meeting quickly turned into a discussion about a dilemma they were facing: increase the capacity of their stretched executive team (just the two co-founders) by hiring an experienced outsider or promoting a promising insider.
While I shared my best off-the-cuff advice with them, I was admittedly not expecting that conversation and thus hadn’t organized my thoughts. Since then, I’ve had plenty of time to mull this over, and rather than just sharing directly with them, I figured I’d post more broadly in case anyone else finds value from this. In making such a decision, whether it be for an executive team or some other leadership group, I think there are at least 5 things to keep in mind (I’m sure there are more - these are just the ones that rise to the top for me).
It’s about the Team
First off, it’s not as much about the role as it is about the team. To be clear, I mean the team this person will be a member of, not the team or department that will report to them, aka the “first team” (see Patrick Lencioni’s works The Five Dysfunctions of a Team and The Advantage). You aren’t just trying to find somebody to manage some group of people, you’re looking for someone who can slot into an existing team and improve its functioning. So it’s not just a matter of asking “Will this person effectively lead this department?”, but equally (if not more) importantly, you need to be asking “Will this person improve the ability of this team to make effective decisions and execute on them, even in areas outside of the department they lead?”
In any leadership role, I think of three rough groupings of activities: down-and-in, side-to-side, and up-and-out. “Down-and-In” refers to how an individual leads the people that report to them - how they plan with their people, help them set goals for business value delivery, help them execute on those goals, provide them feedback, help them grow, etc. “Up-and-Out” refers to how an individual “manages up” - how they communicate progress effectively, request for support as appropriate, help their leaders see blind spots, etc. “Side-to-Side” refers to how an individual collaborates with their peers, builds strong relationships of trust so that they can effectively cover and move for each other, help work through cross-disciplinary challenges or conflicts, and enable increasingly complex delivery.
So when thinking about a new leadership position, keep in mind not just their “Down-and-In” impact, but also their “Side-to-Side” and “Up-and-Out” impact.
Balance
One thing I learned serving on Recursion’s executive team for 4 years was that balance is critical. Echo-chambers are the death of critical thinking. Without a balance of perspectives, backgrounds, experience and domain knowledge, it can be difficult for a leadership team to make effective decisions. I don’t just mean a balance across the various disciplines needed for a deep tech startup to be successful (business, technology, science, etc.), but also a balance of real world experience and tabula rasa thinking.
This is particularly important when considering the original question (hiring from outside vs promoting from within). Bringing in an experienced, outside leader can be incredibly valuable, especially if they have experienced and led a team or company through similar challenges that you face. They will have a wealth of knowledge and experience in things you may not even be aware are important. A key here is translatability of experience. Just because someone had been an executive at a previous company does not mean their experience will translate well; size, stage and nature of the business matters more in many ways than the domain - if you are in scale-up mode, then there’s far more value in bringing somebody on that has recently experienced scale-up mode in an analogous startup than in bringing an extremely seasoned executive from a Fortune 500 company.
On the other hand, if you saturate your leadership team with too many experienced outsiders, you risk diluting your leadership team’s understanding of the mission, vision and culture of your company, something that is often understood much more deeply by your insiders. This is critical to keep a pulse on. In growing and maturing a leadership team, it is often valuable to also promote some from within - those who “get it,” who deeply understand the founding principles of your startup, what distinguishes it from others in the space, and aren’t as fettered with biases as many who have decades of experience are.
So it’s critical to have a balance. You need some outside experience that bring wisdom gained from having “been there, done that” and who haven’t already drunk your pink koolaid, but you also need those who deeply understand your company, principles and values who do not bring with them a plethora of biased thinking. You need balance.
Signaling and Precedence
So when do you bring on which kind of people? When do you get the seasoned veteran vs promote a rising star? Another thing to keep in mind is that your first moves here will be remembered and serve as a signal to the company. If your first expansion of your executive team is to go out and seek an experienced executor, you send a signal to the company (and the world) that you are building something serious and that is deeply compelling to those who are somewhat removed from your immediate circle. It can send an external signal of credibility - a stamp of approval - if an experienced leader joins your ranks, and this kind of validation is valuable for a startup.
Promoting a promising individual from within sends a different kind of signal to a different audience. Internally, it can be recognized as a statement that there are growth opportunities within the company, all the way to the top. It can be motivating and inspiring to others in the company, and if the person you pull up into your leadership team is well trusted and respected by their peers, it can signal a sense of safety and security for the rest of your company because they are dealing with a known, rather than an unknown, element.
At the beginning though, it also sets a precedent. Your first move will have a larger impact on near-term expectations than subsequent moves. Combining this with the commentary on balance, if it’s your first expansion of your leadership team since the original founding, it’s probably best to pull somebody in with real, lived experience than to promote from within. It sets a precedent that your leadership team will consist of multiple phenotypes and backgrounds, which is important to set early on.
One-way Doors
This point is one of caution. A key element of decision making is to assess whether the decision is a two-way or a one-way door. Most decisions are actually two-way doors - if you gain additional data that suggests your decision is having more negative consequences than positive, you can simply reverse the decision. You may lose a bit of credibility, but you’ll also gain respect by recognizing your mistake and fixing it. If it’s a two-way door decision, then quickly use your best judgment and move forward. Companies don’t fail due to bad two-way door decision making - they more often fail from standing still.
Some decisions, however, are one-way door decisions. There isn’t really a way to undo them. In my experience, decisions pertaining to people tend to be one-way door decisions. You typically can’t walk them back without serious consequences. Few people, upon being given a promotion or advancement, will then accept somebody else’s decision to reverse them back to a previous role (note: some may opt for this if they are sufficiently self-aware and self-consistent and recognize they don’t want the promotion role upon experiencing it - but that’s their decision, not yours). So when expanding your leadership team by hiring from within, recognize that you’re likely putting somebody through a one-way door. If things don’t work out, if they struggle on any of the three high-level dimensions (down-and-in, side-to-side or up-and-out), you will likely either have to accept lower performance on your executive team (not something you want) or will need to transition the person out of the company (and the loss of their experience, knowledge and all of the good things that led you to select them for promotion to begin with). Which puts you in a difficult position - you probably wouldn’t be promoting somebody if you felt you could afford to lose them, but to promote them may incur extra risk of losing them. What this means is that you probably should have a higher burden of confidence that things will work out when promoting from within.
Skill Gaps
The last concept to keep in mind is one of skill gaps. You might think I’m talking about assessing what skill gaps you have on your leadership team and filling those. While that is important, it’s also kind of obvious, so I’m not putting a lot of energy into that here. What I’m referring to are the skill gaps left behind by the promotion of an individual into a leadership team. Are you creating a vacuum there? Who will it be filled by? Do you have somebody ready to step up into that role? Or are you going to hire somebody in, and if so, will they bring the right level of understanding to smoothly continue delivering value for the company? You may have people ready to fill the gaps (and you probably do), or you may even be in a position where you have too many cooks in the kitchen at that level anyway, where bringing somebody up to the next level can enable easier clarity creation there. But it’s something to pay attention to. Hiring from the outside does not create an internal vacuum, but promoting from within often does.
Conclusion
There is no simple, universal answer to the original question: “Do we increase the capacity of our stretched executive team by hiring an experienced outsider or promoting a promising insider?” Such an answer would ignore the situational context and nuance of the company in question. Instead, I would rather focus on establishing principles to guide my thinking and judgment, and to which I can apply my nuance and context to make an appropriate decision more clear. Hopefully these principles will be of use when you encounter similar questions or challenges, whether you are the one needing to make the decisions or whether you are trying to interpret leadership changes around you.