Knowledge Center: Article

Leadership Consulting

Five Questions a Small Company Should Answer Before Hiring an Executive from a Large Company

10/23/2014 Rebecca Foreman Janjic

When it comes to talent, entrepreneurial and smaller companies have little room for error. With lean staffs and sobering failure rates, every hire is critical – none more so than executives with large company experience. With such executives increasingly seeking the challenges of small-company life – and small companies needing their experience in order to scale – hiring managers must make sure that candidates are genuinely prepared for such a dramatic career move.

According the U.S. Bureau of Labor Statistics, 20-25% of new enterprises fail within two years of their founding. More than half fail within five years. Within 10 years, almost two thirds have fallen by the wayside. The causes of failure can be many, but they usually lie in one or more of three areas: resources, the value proposition, and talent. As the enterprise grows, all three evolve, presenting new challenges: investment must be augmented by revenue, the value proposition must find real customers, and visionary talent must be complemented by the ability to operate a growing company. Otherwise, the company will stall and possibly starve.

To help meet these challenges, many smaller companies (defined as having revenues of less than $250 million) welcome executives who have big company experience and who come from a scaled environment. And they increasingly see more candidates who find the move to a smaller company highly attractive. However, evaluating the motives, competencies, and fit of candidates with large company experience can be difficult. The hiring executive is often the CEO/Founder or someone else with little experience in human resources. Where there is a human resources function, it is often lean, focused on the transactional aspects of HR like payroll. And even larger HR operations often lack the resources, time, and expertise to thoroughly interview, evaluate, and reference candidates. Most importantly, the hiring managers or HR leaders lack large company experience, leaving them with no frame of reference for probing candidates’ backgrounds or their fit with an entrepreneurial company.

To help often overstretched hiring executives better understand candidates who wish to move from a well-established large company to a smaller company, we conducted in-depth interviews with more than 20 executives who have successfully made the transition. These executives represent a mix of industries and roles, including marketing, operations and management, sales, and human capital management. In some instances, the executive moved to a start-up with little or no revenue. In other cases, the executive made a move to a company with less revenue than their previous employer. All of them spoke to us candidly about their reasons for moving, what they found unfulfilling in their old surroundings, and what surprised them in their new environment. From these candid conversations, we distilled five questions that smaller companies should ask before hiring a key executive from a larger company. These questions by no means exhaust all of the dimensions of evaluation, but in the big company to small company transition, they are critical – for candidates and companies alike:

Are the candidate’s deepest motives for the move in sync with the kind of personal and professional satisfactions the company can deliver?

The mix of personal and professional motives driving most people can be difficult to disentangle or prioritize. Candidates for whom an industry is new may be drawn by the opportunity to learn new things. Others may be drawn by the opportunity to work in an innovative environment, or by the professional appeal of having greater scope and responsibility, or the challenge of building something from the ground up. Others may seek the higher-risk/higher-reward that entrepreneurial companies offer.

As many of the executives we spoke with noted, working for a small firm is not for everyone. Interestingly, most said that they had made the decision to move for reasons that defy conventional wisdom or the appearance of an orderly, linear career trajectory. “I thought through all of the options,” says one recent transplant. “But at the end of the day, for me, I wanted that bucket list thing. I wanted the pure exhilaration of going after a problem that hadn’t been solved yet.”

The hiring executive should dig as deeply as possible, examine the candidates’ motives for making the change, weigh their importance and – most importantly – be frank about the degree to which the company can satisfy them.

What is the candidate glad to say good-bye to?

Candidates moving from a large company to a small one are not only running to something, but often they are also running from something. An impossible boss, an intolerable culture, limited opportunities, slow decision-making, too much bureaucracy, unrewarding work, a company in decline – any or all of these could be reasons for their wanting to leave. These dissatisfactions can provide additional insight into the candidate’s motives and potential fit with another company.

The executives we talked with were all quick to say that they were delighted to escape the bureaucratic matrices that typify larger firms. “There is a tax on your time and effort in operating in a large company,” says an executive who moved from a technology firm of more than 100,000 employees to a firm of fewer than one thousand. “At a large company, 30-50% of your time is spent on things that are totally about scale. Big companies are like Sweden and smaller firms are like Monaco – the benefit of moving to a small company is losing that tax.”

Says an executive who had worked at one of the world’s largest consumer products companies, “The challenge with the company was the matrix environment. Part of being good at your job was being good at the politics so you could better navigate the matrix.” While he acknowledges that such a skill is valuable and that he might not have acquired it elsewhere, he was not sorry to leave the matrix behind.

Similarly, many of the other executives we talked with felt that their freedom to make decisions was often inhibited by bureaucracy and that instead of concentrating on problem-solving they spent far too much time on organizational politics. While these attitudes bode well for such candidates moving to smaller companies, the challenge for the hiring manager is to determine whether they are merely ritual responses to bureaucracy – favored by no one – or a genuine desire to embrace the sometimes unsettling freedom of the small company, where working without a net is often the norm. Will the candidate be able to make hands-on decisions, with little supporting staff and no place to hide?

Is the financial fit right?

Another executive, who moved from major cloud computing company to a far smaller software company, found the matrix so restricting that he was willing to make financial sacrifices to be free of it. For him, moving to a firm where he could make a decision that would not be questioned and overly processed was a relief. “You cannot put a price on making a decision and really owning it,” he says. “I would take a 100k salary cut every time to have that ability.”

HR and executive search professionals know that money is often less a factor in job moves than many people assume, and many executives will say that compensation is relatively far down on their list of reasons for a career move. “Job security is important, and so is long-term financial security,” says another transplant. “You may lose that security, but you grow to understand that working in a role that motivates you is just as important.”

Nevertheless, the uncertainties that attend small companies introduce complexities and concerns that candidates may not have thought through carefully. And it is in no one’s interest – neither the candidate’s nor the company’s – to skate over financial issues that could later make the executive a flight risk for a better paying, more secure job in the future. You should therefore make sure that the candidate and the candidate’s family have considered what is important to them financially. Ask if they are at a life stage where they can deal with a great amount of financial insecurity? Do they have the resources to sustain a financially lean period in the event of a setback for the company?

As the hiring company, you should also be prepared to answer fully the questions that candidates need to ask in order to exercise due diligence about the company. Says one transplant to a smaller company, “Candidates absolutely need to understand the financial situation of the company. Having a genuine sense of ownership – of having a stake in the company – means nothing if the company is destined to fail.”

Small companies, especially startups, are often in ‘selling’ mode. They are accustomed to talking up the company’s glowing prospects to potential investors, customers, and the press. Little is to be gained, however, from overselling the company to job candidates. They should be encouraged to assess the company’s financial situation – its funding now and in the near future and its chances of success in the competitive space it has carved out. Only through candor on the part of the hiring manager and clear-eyed assessment on the part of the candidate will the two parties arrive at an accurate evaluation of their financial fit. And if the fit is poor, both will benefit from recognizing it sooner rather than later.

Do the candidate’s skills and competencies fit with the company’s stage of development?

The organizational and leadership competencies of a candidate from a large, matrixed company may range from the ability to influence others and build relationships to the ability to execute initiatives. Some candidates may be equally accomplished at working both ends of that spectrum, while the talents of others may skew toward one end or the other. The question for the hiring manager is the mix of these competencies that is most appropriate for the developmental stage of the company and the plans for taking it forward.

In the early entrepreneurial stages of development, when the product and value proposition are being refined and tested, everyone – from the founder/CEO on down – typically performs a variety of jobs, with little infrastructure support. All of the executives we interviewed were surprised at the lack of infrastructure in their new companies, whether they moved from a large public company to a smaller one or from a large company to a start-up. The hiring manager should therefore be aware that when executives with experience in a large company suddenly find themselves charged with doing more jobs, with less, they sometimes gravitate toward doing what they know, rather than fully sympathizing with the small company’s current situation. Those whose skillset is not innovating, but navigating an organization, make particularly risky hires at this stage. “They do not know how to execute,” says one of our interviewees. “They don’t have the adaptability or experience to scale down.”.”

Given the many hats that executives must wear in the early stages of development, the hiring manager must determine the real value of the candidate, apart from experience in a specific role at a larger company. Does the candidate have a skill set broader than those entailed in her current functional role or professional discipline and is she interested in expanding into other areas? “When you are at a bigger company, you really do not have a lot of say about your role,” says an executive who moved from a multinational computer technology company to a small software firm still run by its founder. “You just figure out how to optimize being in the box that they have put you in. But in a small company, there is much more ‘defining the role’.”

As one highly self-aware candidate observed, “The challenge for me when I was contemplating leaving one of the largest and most successful tech companies in the world was to acknowledge that my value outside of that very well-known company might not be the same.” Hiring managers, he cautioned, should not be captivated by the cachet of a candidate’s business card, especially in the early stages of the small company’s development. Further, in our experience, small company hiring managers often overvalue likeability in a candidate or intellectual firepower instead of looking systematically and deeply at the candidate’s competencies, experience, and potential.

Once the company acquires customers, employees begin to specialize so that the product can be marketed, sold, and delivered reliably. And as the company grows and seeks ever larger numbers of customers, the emphasis falls on creating robust processes to make the company profitable, scalable, and competitive – requiring executives who can help make that happen. Candidates from large companies can reasonably be expected to possess such skills, and small companies entering later stages of development often hire them for precisely that reason.

But candidates may nevertheless underestimate the difficulty of scaling a company that remains close to its entrepreneurial roots and retains vestiges of earlier stages of development. As an executive who went from a global telecommunications company to a company that had already attained $400 million in revenues says, “I knew they wanted to take a high school football team and get them to compete in the pros, but what I did not expect was that I’d have to tell them to put their pads on before their jerseys.” Hiring managers should therefore be clear about precisely where the company stands in its development, and make sure that candidates understand the scope of the challenges they will face.

Says another executive who made a similar move, “Depending on the company you join, you assume that there is a common set of stipulated facts with which the company operates. You cannot make these same assumptions when working for a small company.” Jettisoning those assumptions, he says, were “the biggest cultural challenge that I had to deal with.”

Being aware of the differences in scale, he says, is particularly important. “When you go large to small, you automatically three-dimensionalize everything: I’ve seen this at this scale, and I’m seeing it now, thus I know how to get from here to there. But when you are working with people who are doing the biggest thing they have ever done – something whose growth they are viewing linearly – it is very hard to get the nuances of your operational vision across.”

The hiring manager will therefore want to make sure that the candidate has the patience and temperament to work with people, including the CEO, who may not understand how a professional, scaled company operates. Candidates should not only empathize with people who are accustomed to working in a different operating environment, but also have demonstrated a willingness and ability to mentor others. As one executive who made this difficult cultural and temperamental transition cautions: “Executives from large companies should refrain from projecting a sense of intellectual superiority. If you want to coach people, see people improve, and you have the patience to help them, those activities can mitigate the frustrations that arise when building something new.”

For every stage of a small company’s development, candidates should have experience making decisions autonomously, with limited information and little time to conduct analysis. Such autonomy is often what executives are seeking when they move to a smaller company. Says a business development and marketing executive who left Goldman Sachs for a series of smaller retail startups, “You are closer to the actual outcome of your work. Things happen so fast that you cannot help but feel more engaged than you were when working at the big company.”

Hiring managers should determine not only whether candidates have the ability and experience to make such decisions, but whether they possess the confidence to tolerate a greater degree of risk than they may be accustomed to. And having made decisions, are they willing to stand behind them?

Will the candidate thrive under a leader or founders who are inexperienced at operations?

For small companies led by seasoned CEOs, this question is likely to be moot. Candidates from large companies are accustomed to working with professional and experienced CEOs who are comfortable with strategy, operations, planning, and leadership. But such candidates are usually unaccustomed to working with founder/CEOs who are in the top job because they generated the ideas that animate the company, not necessarily because they are great leaders or operators.

In companies led by founder/CEOs, the hiring manager should probe to make sure that the candidate fully appreciates the difference between working for a professional CEO and a founder/CEO. “You’re used to somebody who has already done it before, someone who has a very keen sense of scale,” says an interviewee who was greatly surprised at the inexperience of the founder/CEO of the small company he joined. Also, if the hiring manager is the CEO/Founder, he or she needs to be open to “reverse mentoring,” where the subordinate mentors the superior, which can not only broaden the CEO/Founder’s skills but also help retain talent.

As with the discussion of financial issues, candor now can prevent regrets later. The candidate should be given some sense of the kind of management and leadership style to expect. Is the boss a player coach, a highly directive manager, a passionate visionary, or some other kind of leader? What are the boss’s strengths and weaknesses as a leader and executive? Is there a cult of personality around the founder; and if he or she is young, as is often the case, the candidate should understand whether that is a factor in the culture and, if so, how? If more than one founder is active in the company, the candidate should be given some sense of the dynamics in play among them and their respective roles. This candor on the hiring manager’s part can lead to a searching discussion about how the candidate responds to differing leadership styles, how the candidate’s attributes might complement – or conflict with – those of the founder/CEO and other founders, and how the candidate will cope with aspects of the culture that cause discomfort.

Above all, these probing questions and candid conversations should take place in the context of a hiring process that incorporates best practices in all of its phases – talent scanning, recruiting, interviewing, referencing, and compensation negotiations. Candidates from large companies are accustomed to fully professional, comprehensive, and well-structured HR processes. They have likely had experience with talent acquisition themselves, working with HR departments and third-party search professionals to fill critical positions in their organizations. And they are just as likely to see your hiring process as a reflection of your company’s operational style and culture. Disciplined or disorganized? Rigorous or ragged? Those are the kinds of questions they will ask themselves about your process – from its larger framework to nuances like the pacing of interview sessions, the composition of interviewing panels, and the quality of communication during the decision-making period.

To make sure that they answer those questions in your favor, make sure you have fully professionalized the process from top to bottom – whether through recruiting the right human capital officer, seeking the assistance of search professionals, or a combination of the two. After all, you are about to scale up your other processes; the hiring process should be no exception.

Rebecca Foreman Janjic Partner +1 415 291 5215

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