Why Startup Exec Hires Fail — Avoid €250K Mistakes with Diagnostic Hiring

Foreign. Your podcast and YouTube blog covering the German startup scene with news, interviews and live events. Hello and welcome everybody. This is Joe from StartupReady IO. Today we're flipping the coin on leadership hiring. The did you know more than 50% of startup leadership hires fail within 18 months? That means founders are gambling with the company's future and often are losing. Today's guest, Dominic Roth has concluded over 400 executive searches. But he's

not your traditional headhunter. He's a diagnostic based CEO selector using psychology insights and behavioral prediction, not just glossy resumes to spot winners. In this episode we will explore why startup leaders fail, even if they've scaled before the personality patterns of high performing CEOs, what to do before you hire your first VP or C level exec, and how to avoid a €250,000 mistake. Hey guys, welcome to Startupgrade IO. Today I'd like

to welcome Dominic Hort. He's one of Europe's top executives search professionals with 400 plus leadership placements across VCPE backed companies. He specializes in diagnostic hiring, predictive behavior and fit beyond the cv. He's also host of the number one dach leadership podcast, CEO Career Code. I think we'll link it down here in the show notes. Dominic, welcome. Thanks for having me here Joe. My pleasure. We're speaking about the founders folk in the road.

When a founder approaches you about hiring a vp, Vice president or C level executives, think about Chief Marketing Officer, Chief Technology Officer, leaders. What's the biggest red flag you listen for in the way they ask for help? That's a good question because it's not exactly

a red flag, but more of an expectation that I need to question. In general we have the saying. It'S something that can do everything like it gives you wool, it gives you milk, it gives you meat. That's right. And in the context of hiring, it describes candidate who is required to have competencies in various and often unrelated fields such as finance and also deep knowledge in technology at the same time. As an example. Yeah,

and this is the one challenge. The other one is that founders often overestimate the ability to choose the right executives for the companies while underestimating the failure rate of executive hires in the startup environment by data because the data we have on the cost of failed hires is quite alarming as you said also in the intro, but I guess we will deep dive into that later. And if we talk about they overestimate, it's that they often hire for their family and friends

and that comes along with a lot of biases. In the selection of executives. I see. So what I like the film is so can be translated I just looked it up is something like a jack of all trades, a Swiss army knife or one size fits all solution. That's. That's what you've been prefer referring to. Yes. You've said 50% of external startup leadership hires fail. Can you share cases where on paper everything looked right but diagnostics told you a different story? Of course I can.

But what I would like to introduce you first is a study because it doesn't come from myself. It's like not a claim that I say that's realistic. It's a study conducted by Kiefer, Martin and Hunt from 2022 on 2020 and it says that in approximately 50% of cases an executive turns out to be a misfit within the new company within 18 months. This is quite important. The result results are based on representative sample of 20,000 hiring processes. And

these hiring processes even involved headhunters. And that is the point. Headhunters have not been able to reduce this 50 failure rate through the conventional methods I would name it. So in fact you could flip a coin and have the same result and. Yeah, and save money by it. Right. It's like in my cases I often have technology companies that approaching me in order to select executives and sometimes the fit in the CV and the. The interviewing part is

so well done and well perceived by the decision makers. Also VCs, NPS that yeah. That they would like to hire this person because of that. And then later we find out that maybe this person comes from other environment more politics, has not the right capabilities in personality traits to perform. I have a lot of stories about that. I cannot name a company of course because I'm quite confidential but we can come to that a little bit later.

I'm just curious, what kind of diagnostics do you do here? Yeah, there are a lot of tests out there. Right. So we all know them. And it is that it is not about the test. In a nutshell, how does valid diagnostics work? So it is the combinations of tests. So the combination of statements from personality questionnaire on the one hand and the result of cognitive performance test on the other hand. And this only provides hypothesis

to need. They need to be further validated in an in depth interview and should not be taken as a fact only if the person states yeah those personality traits on his or her self perception and this makes a difference. The test results are not final and must be further challenged through behavioral based interviewing. And also we need to Consider the situation and the cultural aspects of the company. And this procedure leads to accurate behavioral

prediction, so to say. Yeah, so if you ask someone how is your empathy level in a test? Can you imagine someone, Joe, who will, who will state him or herself like. Yeah, it's two or three out of 10. So that's the problem with those tests. Yeah, it's. It's basically only for people who don't want the job. That's right. Yeah, but they need to, they. They tend to sell themselves of course, and that's also okay. But it is our job to

figure out what is the real behavior states. And it's not about personality and description, it's about behavioral aspects of the job and of the performing person. Founders do have to convert from operator to evaluate because they say I know what looks good, I just trust my guard in German. Bauchefuhl What? Why is this dangerous? Is this a dangerous mindset for hiring executives? That's a good question.

And maybe I forgot that to mention with your first question as an answer because after 400 executive searches and thousands of interviews, plus having studied psychology beforehand, I cannot even trust my gut feeling. So let's assume there's already a solid job profile where the company is. This has a distinction between technical criteria and personality. Personality related aspects

upfront. So this is already existing. Right. What I believe is that nobody would just conclude from gut feeling hiring a CTO without having done a deep dive in the technical competencies of this person. Yeah, but we are all experts and that is quite superficial if it comes to the evolution of the personality only by our gut feeling. So they're required superficial and

required confident. But they've come if it comes to the technical, technical requirements we always need experts, we need cases etc this is the common case. But we should in at least invest the same effort to get a deep understanding of the personality and behavior and not only in the technical expertise. And what I often see is that there are several

HR questions referring to strength weaknesses and the interpretation of the answers are based on several biases that come from like what we call shortcutting in psychology, stereotyping or subjectivity. And that is what we mean if we talk about gut feelings in fact that are biases and I say personally I'm not immune against them to be honest. I also need management diagnostics and methodology to take a good decision

or to give a recommendation. Founders, when did you first doubt your gut in a hiring decision? Drop your story in the comments or DM us for example on threads we're talking about here Dominic, because this is very expensive. You've talked about the cost of a failed exec hire could be up to 28x their salary in a startup. What does that actually look like? Is there a story that shows the real world impact? There are a lot of stories and studies about that. And of course I'm not the one to examine

this study or evaluate it. I just trust in studies that are there out there. And you know you need to take into account different aspects in terms of costs. It's that we have internal external costs. Yeah. You have like client retention costs often. Or reputation. Yeah. And also in Germany we should not forget it. It's severance pay. I think that's the term. Severance pay. Yeah, severance pay. Right. Sorry for that. And of course cost of

recruiting, costs of onboarding the next employee. And if we talk about real costs we also need to include opportunity costs. Yeah. And that is those costs that, that we, that we need to take into account if there were someone who did the job right like winning new clients, doing business development, especially in the startup environment, being hands on. So what are the missed out opportunities by hiring the wrong person? And then it comes to a quite high number. And this is

what studies said. What I would indicate for you as a startup founder is at least to have with a senior executive on VP level and or on C level. That is the real minimum. That's the other study I could found. It's 250 or 240.250k euro for. For small caps. Yeah. For a mishire. So that's the real minimum we can state here. I see. What is a common personality trait in startup founders that like clashes with traditional corporate style execs and how do you screen for it in advance? Mm, mm, mm.

I think looking at backgrounds alone is not sufficient

in this case. I often See also VCs conclude that candidates from a large cap won't perform well in a starboard environment. While there is some correlation, we shouldn't exclude these candidates too early in the process of the recruitment. A candidate's personality might enable them the candidate to adopt to a startup setting. And the desire for change could come from a motivation to break free from the constraints of established structures and processes in a

large cap. Right. So I guess by traditional style you mean that we talking about the manager of a large cap company who has the ability to delegate while it's in the starter. They must do everything themselves. Right. That's maybe what you mean by the question. And also the behavioral and what we call in Diagnostics feeling of power. Yeah. So you, you would like to perceive this the boss of the pack, so to say. Yeah. And this traditional multivita is definitely a red flag. We have to figure

it out. But we need to do it in the interview phase and in the assessment and not upfront. If we read a cv. Yeah. Because we have a narrow niche to recruit in. Not everyone is motivated to join a startup. But if someone is motivated to join a startup coming from a mid cap or even large cap, from a business unit manager position for example, then we have to select is someone really willing to invest is someone really willing to invest in autonomy and is this person changing because a lack of,

a lack of autonomy. And this is a motivator and the selection criteria at the same time. So we need to hire for expertise. So we cannot exclude bigger cases. Bigger, bigger, large gaps. But we also see is this person motivated enough for the startup environment. Mm. When I was thinking about the questions I thought about something like the emotional hangover. Founders often don't realize how much their emotional, emotional energy goes into managing

a mis hire. What patterns do you see in founder burnout linked to leadership mismatch? Okay. I believe there are multiple reasons for founder burnout. So it's not a funny story. It's not. It's always multifactual. I think that's the English expression what we psychologists say so. However the intense engagement with a mishire is certainly energy consuming. Often VCs tell me that that a founder holds on to a non performing colleague. And this is the most common pattern I, I

observe. It is better to hire slow, carefully and to fire fast. To be honest it's not, it's. That is the best way. And also the, the main problem is and that is also linked to the feeling we should not invest too much feeling in like this family and friends set up. It's a company and the VCs and the vessels are expecting something from the founders. Yeah. To be a manager and not to be the father of the family. We'll be back after short ad break.

Stay tuned to learn about the first VP dilemma and resume versus readiness and much more. Hey guys, welcome back to our interview with Dominic Headhunter who had made more than 400 placements of executives and we talked about how to get external executives into startups and common mistakes. Let's call this the first repeat dilemma. Meeting the first vice president for startups hiring their like first ever external vice president of sales, marketing,

operations or something. What's the single most overlooked mistake you see in the Briefing or screening phase. And it's a very good question.

In the first phase in the breathing so to say there is a wish list of expertise criteria and also personality traits like soft skills and this is the. A volume style. Referring to the beginning of our talk. Yeah. So this is a wish list. The first step for me is then to challenge the startup's job profile and differ between what is the mandatory criteria and what is nice to have and what can be also then compensated by team members.

So let's hire for potential and not too much for expertise in every field of the competence profile as it becomes quite expensive. So what can we. What is. What can be covered by personality and potential and what is really a must have criteria. So that is the first step. Yeah. And the. In the screening of like sales candidates. Let's take this example because it's the. The second role that I am recruiting, at least in startups it's always head of business development or

cso. Yeah. The founders often overvalue the network aspect so candidates overestimate their network themselves. And in addition candidates are not able to reactivate the network for other products in most of the cases. So example is if I am hiring a headhunter for my team. Network is quite crucial, Joe. That is maybe what we rely on and I think

it's also in technical companies the same story. But my belief is I went for one third rule, so to say one third of the customers remain with the old company, one third follow the consultant and one third turn away from both the company and the consultant. And that is a realistic estimation of network. So we should not focus too much on it, but more on potential and capabilities. And the second problem,

especially with VPs or. Yeah, the first CSO is that we tend to favor candidates with a high level of, let's name it, extroversion and strong communication skills. During the interviews, we assume that this candidate will also succeed in acquiring new customers because of the way he or she communicates. However, this is a bias. We should not infer sales competence from an observed presence in the meeting. It requires much more. Such as resilience, such as influence.

Yeah. Which must be evaluated separately in the process and later in the process. We cannot generalize from one trait to another. At the end of the day the person might just be extrovert but. And charismatic maybe, but not have the ability to deliver results. So these are the most common common observations I have. Mm, I see we've been talking about this. And your edge is empirical.

You apply management diagnostics to assess behavior and fit can you walk us through a specific test or signal you use that startups wouldn't typically consider? Yeah, most VCs nowadays at least consider personality tests. But that is the problem. It's just a test like the inside personality test that ranks personalities in colors. Maybe you know that. Yeah and it's an interesting indication but it's not valid enough

to predict behavior. And the tests are not aligned to the specific situations, culture and challenges of the vacancies. And the results are over all statements about personality. So this is a frame what you shouldn't do. So the first problem is that they are mostly descriptions of trades, self descriptions which doesn't need help us forward. The second problem is that yeah it's. It's not aligned to the context of the role these self descriptions.

So if you looking for a good test, it's not a test, it's a whole assessment that you should have cognitive abilities, you should have personality traits and then test this in an in depth

interview with an expert. So that would be the best setup for a startup. I talked about the best setup for startup here. I was wondering for our audience what's one interview question you've used to uncover leadership behavior, share it on LinkedIn and tag startup? Curious question what the data didn't say. Can you share a time when the CV and diagnostics aligned but still the hire didn't work out? What did you miss and what did you learn? I also had failures especially

in the beginning of my career. Maybe I underestimated the stakeholders in my first year for for example or first years I just listened to the PE or the BC owner and his or her expectations from the future position holder in the portfolio company. But I did not interview the management team in order to get a holistic view of the situation, challenges and also of the DNA of the company. That is something

I learned. So it is just one view. I need to really deep dive and understand what is the challenge, what is the situation and the DNA and in order to derive from that a competence profile and then do assessments and the whole executive search process. That was the main failure I made. I would say you talk about the executive search process founders do already have like guesstimate about what how long it takes to hire somebody like an employee, like a like

a team lead. How long should founders actually estimate between the first email to you and the first working day of the new VP or executive? Very good question. Let's try to to find an appropriate answer. It is the first step is that is our executive search process which I won't deep dive here, but it's about 10 weeks that we need to have someone signed a contract with the company. And then of course you have

notice periods to be taken into account. So I would indicate on for notice period at least three months to be very conservative in the estimation. So if eight weeks plus three months, I would say 10 weeks. 10. Eight to 10 weeks plus three months. Yeah. That's also something I would have in mind. If you say like 10 weeks, there's always somebody traveling, somebody on vacation and make it

three months at least. I do believe if you're talking like a Chief Technology Officer for example, right now with AI skills or somebody who will take over as a CEO, I would say you can more than double it. Sorry, sorry. The time you need if you're looking for vp something like three month guesstimate. But if you're looking for somebody like an external CTO with crucial for example AI skill. Exactly. Or even CEOs, how long do you think you should take there? Maybe up to a year.

I would say the process is quite the same with this, with this CEO or a CTO with a vp. It's just like the availability we are relying on. The availability depends on the what, what, what month we are heading to like summer etc. But the, the notice period is the crucial point. And you know there are often like notice periods written down for one year. But it's not that the candidate will stick to that period written down agreement. You can also talk to your employer and say

okay, I have a new opportunity. You will also save costs. Yeah, let's, let's find an agreement like I can get out here after six months. So we should manage to have someone. Yeah. In a shorter period, not one year. Because in one year a startup environment is, is based on dynamics and pace. You can wait one year for a CEO. Yeah. Yes, exactly. That's always an issue. You've done more than 400 searches. I'm sure you recognize some patterns. For hundreds of VC and PE backed firms.

What personality patterns or behaviors have you consistently seen in the top performing startup leaders? The first is simple and related to what I just said. The pace and the dynamics of the VC and PE universe. It is the ability to take a very fast decision without having sufficient data.

You can quickly adapt after having taken the wrong decision in this environment. But you cannot miss out chances and opportunities and slow down the scaling by overthinking. That is relevant for both mid caps and also startups. That is one personality pattern for very good performing leaders to take fast decisions. And yeah, the second I would say if I have to name it, is the ability not to be a team player at every single certain stages of scaling.

What I mean is that often the founder is the protector of a harmonious environment in a startup when it scales up. So co founders have a common vision of course, and also perceive their startup as a family and friends setup. But the investors don't invest in family, they invest in business. And to see also it is not the CEO's job to provide a harmonious environment, but also to take sometimes unpopular decisions in order to save the company's health.

So taking fast decision and unpopular decisions, I think I don't like that idea to be honest. But it's the truth. I'm talking now a little bit about future you. If your future self looked back at this conversation 10 years from now, what would they say about your mission to change how leadership hiring works in startups? I would say it is awareness. Awareness of the common mistakes in hiring executives and maybe a formula how it can work out.

And yeah, in order to ensure performance of the company. I still believe in our duck region, innovation and discipline and that we have an impact on the world's economy. So that is real my focus. And if I have a footprint small or big in this direction, I would be more than happy.

Dominik, thank you very much. It was a pleasure having you as guests here. Hope to have you back soon. Thank you. That's all folks. Find more news, streams, events and interviews@www.startuprad.IO. remember, sharing is caring.