The hardest part of building a start-up is hiring good people.  I realize this may not be intuitive with high unemployment nationally, but there is a shortage of talent when it comes to software development, sales leadership, marketing, web design, and finance positions that are the building blocks of Internet companies.

Companies typically come through my office looking to finance growth, which inevitably means hiring a lot of people, so I deal with this on a daily basis.  A common story is that a company has 10 or 15 employees at the time we invest, with a budget calling for 20 or 30 new employees in the first year.  Looking back I have found that companies almost always fall short of this hiring plan, and it gets worse as time goes on.  As a result I have developed a few rules and tips when it comes to hiring:

1.) Start with an attainable goal of doubling your workforce in the first 12 months.  It is hard to grow headcount faster than 100% per year.  There are many practical reasons for this, but it usually takes an in-house recruiter to grow more than 100% per year unless you really lower your standards.

2.) Location matters.  It is hard to grow an employee base unless your city has 3 or 4 large technology companies to recruit from.  And by “large technology companies”, I mean businesses with 2,000+ employees, where you can recruit 25 people per year without getting a cease and desist.  If your city does not fit this criteria, then you probably need to open a satellite office in a city like NY or SF in the first two years.  Managing multiple offices is not easy to do, so you have to ask yourself if it is better to move headquarters early or to juggle hiring issues later.

3.) Plan for employee turnover.  If your budget calls for a “net” increase of 20 people, you probably need to hire 24 people.  If you have a business with 400 employees, you need to hire 50 or 60 people per year just to stay flat.

There are a lot more pitfalls when it comes to scaling teams.  In reflection it seems like the #1 pattern for success in my business is investing behind a CEO who has successfully built and sold a company, and then recruits his former team into a new venture.  This makes it much faster to scale and execute, with much less risk.  We have been successful with this formula a number of times, and whenever we have passed on this pattern it has come back to haunt us.