A New Hire vs. Promoting from Within

What's up, everyone? This is Alex Lieberman, co-founder and executive chairman of Morning Brew. Welcome back to Founders Journal, my personal audio diary, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. Today, I am talking about one of the toughest decisions that you can make in a business. Let's hop into it. I'm going to paint a picture for you. You are a leader at a company and you have the very difficult responsibility of hiring a new director in your division. You write up a job description and then you ask yourself an even more difficult question. Hire or promote? Hire or promote? Do you hire someone from outside of the company to fill the director role? Or do you promote someone internally from within the company, someone that you think can step up to the challenge? It is an age-old business and leadership question, but I've never seen someone give a really good answer. So that's what I'm going to try to do for you in this episode. And so let's start with my general rule of thumb. If you have an internal employee who is an absolute all-star in their job, meaning they have great work ethic, they are a great cultural fit, and they are great at adapting because of their ability to think critically, I would try as hard as possible to promote them. If they have, let's call it 70% of the experience or skills that they need for this director-level job that you want them in, I would say don't even think about it. Promote them. If they have less than 70% of the necessary skills and experience, then I think it becomes a very serious discussion about the risks of them not ramping up the curve fast enough versus the risks that come with hiring someone externally. But let's just say we're talking about the scenario where the internal employee has less than 70% of the right experience or skills that is needed for this elevated role. Here is the mental process that I would run through if I was going through this decision. I would start backwards from the role. So let me use an example. Let's say that I am hiring a head of operations. I would start by asking myself, if we went to market today, who would be the perfect head of operations to fill this role? And ideally what I'd do is I would simply just take the job description that I wrote up and post it on our company website, and I would look for that job description and the criteria we expect to be met in human form. Let's just say that this role, the head of operations role, requires 10 years of operational experience, experience in our industry, and experience managing at least the number of people that they would be managing at our company. I would basically find on LinkedIn who is that exact person, and I'd have that person in mind. But then I would also think about How if I was to hire this person, there are certain blind spots that they have. They don't have the same company or product knowledge that a potential internal hire would have, right? If you're bringing someone from the outside, they don't have all of that experience working with you, working with your teams, clearly being a cultural fit, knowing about the evolution of the product that would require ramp up on top of their blind spots. There are also blind spots that I would have if I decided to hire them. I could obviously test for culture fit, but it would be impossible to tell if they are actually a good fit for our culture in the company until we hired them. I could also test for things like critical thinking and adaptability. But again, it is so hard to actually know if they are a critical thinker until they're actually working for you. And so by asking these questions, I basically am forming an image of a perfect external candidate with a clear understanding of what experience they would have, and the tradeoffs that I would have to consider if I was going to hire them. So that's the first set of questions. Next questions I would ask would be about the internal person who I am considering promoting into this more senior head of operations role. And I would ask myself the following about this person. First, how far off is this internal person from having the exact experience necessary to be perfect for the head of operations role? Is it 3 months? Is it 6 months? Are they 1 year off from having the right experience? And the amount of time needed for skill acquisition is a really important question because it basically forces you to think about, will they hold the company's progress back because there's too big of a gap between them and the role? The second question I would ask is, how fast has this internal person proven to be able to grow themselves into new areas in the past? Basically, how good are they at critical thinking and having a strong work ethic so they can learn things they don't already know? It's not just about how big the skill or experience gap is that I mentioned in the first question. This second question forces you to think about how adaptable is the person and can they work up the curve faster than most? And then the third question I would ask is, can we, we as a company, afford the time to allow the internal person to ramp up or no? Said differently, how mission critical is this person's role within the company strategy, and how much will our goals and company morale suffer if we cannot execute on the timeline that we wanted because we need to buy ourselves time for this internal person to get the right experience and skills? If we can afford the time, can we be flexible on the time that it takes in order to enjoy the benefits of internal promotion. And the benefits being they're already culture fit and we get to forego the time and energy cost of running an external hiring process. So ultimately, when you end up making this decision, you're basically just deciding what tradeoffs or unknowns that you're willing to live with. For an external hire, you are willing to live with questions around Work ethic, culture fit, the person's ability to gain product and company knowledge fast, and an understanding of does this person have an ego if they're a more senior employee? And then finally, would employees worry that our company's default is to hire people externally versus promote people internally? Right. That can create some cultural concerns if people feel like there's no trajectory for them in the company because you're just hiring external folks. That's if you hire an external person. If you decide to promote the person internally, basically there's one big question you're willing to live with having to answer whether you're right or wrong. And that question is, can this internal person gain the skills and experience fast enough to close the gap between where they are now and what they need to be able to do an exceptional job in the head of operations role? And so that's my process. I default to internal promotion if it's an all-star internal employee who has the majority of the skills or experience that they need to succeed in a more senior role. And if they don't have the majority of skills or experience, I go through the line of questioning that I just shared with you. Now, before we go, I want to just share one other founder's approach to this same question. Jason Lemkin, who's the founder of SaaStr, said 8 times out of 10, if they want the management role, Hiring the best internal candidate as a stretch hire works out. Basically, he's saying if you decide to promote internally, the vast majority of the time it will work out well. And Jason goes on to say that he follows a 50/50 rule when deciding whether to promote internally or hire externally. His approach is you should force yourself to hire 50% of your management roles internally and then force yourself to hire 50% of them from outside of the company. And he thinks that this 50/50 balance gives you a few big advantages. The first is it creates clarity for current employees. As you scale, a lot of your employees may want promotions, and this 50/50 approach helps take some of the drama and the pressure out of basically what happens in your company when everyone internally knows that it's one from the outside and it's one promotion from the inside. So everyone knows there is a chance that there is trajectory for them in the company if they perform. The second benefit of the 50/50 rule is it holds you as a CEO, a leader, or manager accountable to nurturing talent. You just inherently are going to focus more on mentoring your top individual employees when you know that at least 50% of them are going to turn into managers over the next 3 to 12 months. And the third benefit of the 50/50 rule is it takes less pressure off of your recruiting team. Once you know that 50% of your managers are coming from internal promotion and 50% are happening with external hires, you will be able to scale faster knowing that you only have to source half of your managers through recruitment outside of your company. And it also will help you backfill where existing folks on the team may need help. And so that's how I think about the question of do I promote internally or hire externally, as well as how another successful founder does as well. Well, now I would love to hear from you for upcoming Founders Journal episodes. If you could hear me talk about one topic related to business, startups, or career, what would it be? I really want to source upcoming episodes from the community, so shoot me an email to alex@morningbrew.com, and I'm going to try to get back to you as quickly as possible. And I'm going to have these inform what the future of the show looks like. Thanks so much for listening, and I'll catch you next episode.