All Hiring Decisions Are a Gamble (and That’s Okay). | by Matt Schellhas | Aug, 2022

Hiring is filled with uncertainty. It always will be. And uncertainty is the realm of gamblers.

Photo by DEAR on Unsplash

You wish it weren’t true.

In a just world, people would be hired on their merits. Skilled managers would know exactly what qualifications they needed for the team. Candidates would go through a rigorous (but humane!) interview process to assess the needed expertise without bias. Compensation would be transparent and fair regardless of your location or your ability to negotiate. In a just world, the objectively best candidate would win every time.

That is not our world.

In our world, hiring managers make bets. They plop down large piles of money for the chance of making even more money with this person’s help. And they do so based on imperfect knowledge. They don’t really know what the future holds for their team. They don’t really know how the candidate will perform in their environment. And they don’t really know that much about a candidate based on a few conversations — especially when the candidate is the only one is guaranteed to profit if the manager place that bet.

Nothing you can do can change that. You will never be able to tell the future. Trial periods are only a marginally better approximation of work, and interview alternatives still provide an incomplete picture of a candidate’s skills and potential. Even extremely thorough vetting processes like security clearances don’t entirely eliminate risk.

Companies wish it weren’t true. At time of writing, the first page of Google search results for “hiring is a gamble” is one well written but misguided thinkpiece, one quora question wondering why companies risk external hires rather than internal promotions (sorry, promotions are still a gamble), and eight articles selling some tool or process that promises to objectively quantify human aptitude. Companies resort to all sorts of things to treat hiring like anything but an expensive wager. They imagine people to be resources to be mined, or like gentle elephants they need to save from poaching, or maybe like ordering humans off of a menu. “I’d like two software engineers, medium rare, with a side of QA.”

As you might imagine, hoping that reality is wrong tends to be a bad way to do things, hiring included. So today we’re going to talk a little bit about how those hopes get in the way of an effective hiring process.

Let’s say that I offer you two bets. In each one, you’ll roll a normal, 6 sided die.

In the first bet, you will bet $1. If you roll a one, then I keep your dollar. If the dice comes up with any other number, I will give you $2. This is a good bet. Every 6 rolls, you expect to win $4. It’s also a very safe bet. About 85% of the time you will win money.

Just like the first bet, the second bet costs you $1. But I will keep that dollar unless you roll a six. If you roll a six, I will give you $20. This is also a good bet — a better bet even. Every six rolls, you expect to win $14. But it is a less safe bet. You only win money about 15% of the time.

Sometimes the safe bet is the right bet. Maybe you’re evaluating candidates for Top Secret clearance or to be an airline pilot… something where the cost of a missed bet is extremely high. Or maybe you’re hiring a fry cook or assembly line worker where the difference between the best candidate and the 12th best candidate is negligible. In these two cases the right decision is to get someone you’re pretty sure can do at least an adequate job.

The modern workforce is usually in the middle of these extremes though. You might not believe in the 10x engineer, but there is certainly a wide gap between the best engineer and the median engineer. The same applies to most of the modern workforce. The best support person is astoundingly better than the norm. The best manager is light years beyond the average manager. Same for sales, lawyers, nurses, teachers, artists, and pretty much anyone whose work isn’t primarily operating a machine.

For most of you, the safe bet will not be the right bet. Safe bets lead to a perfectly capable, pleasant team that consistently loses to your competition. If your goal is to try to build a good, more than merely capable team, then you will need to take hiring risks. Like any other gamble, bigger wins come with increased risks.

Hiring a fantastic employee tends to go one of two risky routes. One is that you are a super attractive place to work and/or pay a dumptruck full of cash to get the best candidates. And what if they don’t work out? What if their reputation is bigger than their reality? What if they’re a bit of an asshole and make your workplace less attractive? A bigger stake means more is at risk.

The other route is to try to find the “hidden gems” — unproven candidates with the potential for greatness. That’s harder to evaluate in the first place (or else they wouldn’t be hidden). There’s going to be some reason they haven’t achieved greatness yet and they’re probably going to bring that hang up with them. History has a long line of people who had mountains of potential and never reached greatness. It’s harder to mitigate affinity bias when we’re looking for potential. This route is riskier because these bets miss more often.

Most people conflate goodness with safety. And why not? Recruiters aren’t incentivized to find great employees. They’re incentivized to find good enough employees as quickly (and cheaply) as possible. Hiring managers aren’t incentivized to find great employees. They won’t get a bonus or promotion for great hiring, but they’ll sure as hell get punished for poor hires. Loss aversion plagues everyone. So instead we get garbage like “entry level” job postings that require 3+ years of experience. Because the safest candidate for a job is the one who has done it before.

The safest hire in the world still isn’t a guaranteed thing. “Oh I know them, we worked together before. They are a Great Employee!” is a trap. It is a fallacy. Being a great employee isn’t some intrinsic trait that someone has. If someone was great at their last job, then they were great then. They were great there. Past performance does not guarantee future results.

The blame for hiring failures usually fall on the hiring manager. They have the final decision, and staffing is not a small part of their job. When you view hiring as a purchase then it’s easy to blame the manager. They looked at all of their options and made a bad decision. But the reality is that sometimes gambles don’t pay off. The hiring manager and all of the interviewers can make great decisions, do their best to eliminate risk, yet still hire someone who struggles to do the work.

So you need to prepare for that. Failure is always an option.

Because let’s be honest here, your interviewers aren’t going to always do everything right, hiring managers aren’t always going to make the best decisions, and candidates aren’t always going to represent their experience faithfully. You would fail sometimes even in ideal situations, and your situation will not be ideal. Since you’re looking to hire well, you’re going to take that less-than-ideal situation and add some risk to it.

What does “prepare for failure” look like? It looks the same as it does for the Vegas gamblers: you hedge your bets.

Hiring is fairly risky because of all of the money and all of the unknowns. But hiring isn’t the only contributing factor to employee success. For example, investing in a training or mentorship program can help move some of the bad hires into the success column. Spending time and money on DEI programs will expand your candidate pool, and create the space for atypically great employees to thrive. Having great tools and a good environment makes the rest of the work easier. These smaller bets increase your odds of hiring success and can help mitigate the inevitable failures.

Another hedging technique is simply making more bets. If you’re consistently making good bets, they’ll pay off in the long term. Think of this like a preemptive bus factor. If you’re putting all of your hopes and dreams (and money) into one person, it’s very easy for that one gamble to ruin you. But if you hire three people then the risk of none of them working out or having a particular skill is much lower. Obviously, companies won’t be able to hire three people for every opening. Budgets are still finite. But they can be a little more flexible in their job requirements.

Hiring isn’t like ordering off of a menu. By thoroughly defining roles ahead of time, hoping they actually represent what the team will need in the future and then betting on them once, companies only increase their chance of failure. Hiring managers can’t take prudent risks since there won’t be another opportunity to find the skills they need. The candidate pool is smaller for well-defined roles, because naturally fewer people fit into a very specific mold. By making job requirements flexible, you can spread the risk of not finding the secondary skills you need across multiple hiring decisions.

These mitigation strategies won’t entirely eliminate the risk of a bad hire. “Bad hire” here is even a bit vague, because sometimes a gamble will simply return lower than expected results. You might aim for greatness, and get a few fantastic employees and a handful of mediocre ones. That’s not a failure. That is a normal result from an imperfect process. But at some point, you’re going to want to fire people. Maybe because they’re worse than mediocre. Maybe because the opportunity cost of keeping them versus replacing them is too high. Some gambles don’t pay off. Part of being a good gambler is knowing when to cut your losses.

A curious thing happens as organizations grow: they develop layers. What works for three people won’t work for thirty. What works for thirty won’t work for three hundred. I’ve written before about how collaboration patterns need to change. One day I’ll write about your initial managers pivot from business management towards people management as the company matures (and how most people can’t do it). Another thing that layers bring is a sort of multiplicative indirection to your hiring risks. Now you’re gambling on the gamblers.

That sort of thing is obvious when you’re sorting out cofounders, or searching for your first engineer. When you’re only making a few bets, risk increases. Folks instinctually know that these early hires will have outsized impact on the path of the company. When the organization is only a handful of people, everyone can see that impact in real time.

After a lot of hard work, you build the start of something. Maybe you have a few customers. With a few dozen employees (almost always later than they should have) the org decides to add a layer of management. This is a big bet! There’s been big bets in the company’s past — cofounders, investment, business plans, even an office for some. This one is different. This bet is usually one of the first ones where the org has something to lose. And this bet is usually one of the first ones where executives can’t see the results themselves.

Most companies stumble here.

Some don’t see the risk. They’re too busy or too overconfident or too dismissive of people management. So they take their gamble simply assuming it’s going to work. These companies usually promote some poor, ambitious fool. They won’t get any training. They probably still have their IC responsibilities in addition to all the management work. They probably haven’t had hiring responsibilities before. They probably won’t have enough budget. And now that person gets to make about a million dollars’ worth of bets as they help grow the organization? That my friends is a bad bet.

Some companies see the risk and overcompensate. The executives know that this one decision will probably decide the fate of an entire department and they know that they probably won’t hire another manager for this department for years. They look around at all they’ve built and they don’t want to lose it. Many fear giving away control. So they try to make the safest bet they can. They hire friends or past coworkers. They make an arduous interview process to “make sure” the manager is great, leading to a pile of false negatives. They tend to overvalue past success. Not only are they likely to end up with a mediocre manager of a mediocre department, but they’ve also built a rubbish hiring process that will be the model at their organization for years to come.

Yes, gambling on the gamblers puts more at risk. It’s scarier. It’s harder to evaluate success when your hire is making their own risky bets. But a win also pays out more. If you hire (or promote) someone who becomes a great manager for you, their consistently good bets will cascade through the hiring decisions they make. These big bets are still bets. Hedging your bets, preparing for failure, and taking prudent risks is still important. Over the long term, good bets beat safe bets.

Yeah, it sucks.

As a manager, it is uncomfortable to know that I can do everything right and still make a bad hire. As a candidate, I hate selling myself — especially when I don’t really know if the company is looking for safe candidates or great candidates, or if they’re one of the many who think they can reliably get both.

But wishing it weren’t so won’t change the facts. You can’t tell the future. Interviewing is a clusterfuck. Not everyone is a super candidate (thankfully). Even the great candidates might not thrive in your environment. Failure is always an option.

Knowing that allows you to prepare for it.

Candidates can redirect interviewers away from the risk of a bad hire and towards the reward of a good hire. They can avoid the companies who make very rigid job descriptions. They can judge for themselves if the company is satisfied with safe mediocrity.

Companies can hedge their bets so that more of them need to miss before things fail. They can develop a good firing culture to limit their losses from gambles that don’t pay off. They can learn to tolerate the short term bumps that come with good long term risk-taking.

Hiring is filled with uncertainty. It always will be. And uncertainty is the realm of gamblers.

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