The Peter Principle Can Paralyze Your Startup Team

The good news is that recent big company financial woes and layoffs have generated a flood of candidates with real experience seeking positions at startups. The bad news is that many of these frustrated employees may have already reached their level of incompetence (The Peter Principle). They are not the ones you need in the few key team positions to drive your startup.

Back in 1968, Dr. Laurence J. Peter first published evidence that most organizational promotion strategies are based on current task fit, and result over time in every role being occupied by an employee who is in over his head. Thus all innovative critical work is accomplished by team members who have not yet reached their level of incompetence.

Too many entrepreneurs naively believe that candidates with lofty titles from a larger company can easily do the same job for their startups. Nothing could be further from the truth. Titles don’t reflect competence, even in a big company, and the unstructured domain of a new startup is a whole new creative and innovative challenge.

Related Article: 5 Tips for Hiring Only the Best Startup Talent

Starting from the top, it’s a broadly accepted axiom that big company CEOs are rarely good candidates for a startup CEO position. The worlds are simply too different. In the same fashion, we all know excellent technologists are not usually good business people. The challenge of bringing in strong team members, rather than helpers, is job one in every startup.

My recommendation is to fill every team position based only on demonstrated fit, motivation, commitment and results, not based on any past title or their ability to convince you that they can do the job. Here are some key things an entrepreneur must do in selecting team members to minimize exposure to the devastating effects of the Peter Principle:

1. Select people who can both communicate and perform well. Startups can’t afford two or more people for every task—one to do work, and others to communicate results to all constituents. As the founder, you won’t have a finance chief, a marketing staff or a requirements manager. Everyone must know how to listen, talk and write.
2. Look for existing skills and a demonstrated ability to learn. People who haven’t changed in a while find it harder and harder to do so. If you don’t hear an enthusiasm for new challenges, you won’t find the flexibility you need to anticipate and create the pivots required for success. People trapped by the Peter Principle won’t be happy fixing chaos.
3. Keep the focus on results. Don’t hire or reward for effort. A common refrain I hear from team members in over their heads is how many hours they work and how busy they are. If you hear that in the interview process, change the subject to results, and then move on quickly to the next candidate. Set your own metrics and rewards to map to results.
4. Practice an “up or out” growth policy to prevent role stagnation. Look for team members that see every job as a step to a new opportunity as the company grows. Make it clear through your words and actions that you expect upward growth, and no growth is a failure for both of you. The alternative is to lose your best people to new startups.
5. Look for ability to manage a task, as well as do the task. Some people are workers, and others just want to be managers. The best have done both, and approach every task from both perspectives. Most big company executives have forgotten how to do the work—they make decisions and expect staff members to implement them. This doesn’t work in a startup.
6. Provide mentoring and self-learning opportunities. Most startups don’t have the time or resources to send team members to formal training classes, either in-house or off-site. Yet every new team member can be assigned an in-house mentor, provided with online seminar opportunities and given special assignments to facilitate new learning.

The hard part for most entrepreneurs is being able to deal immediately with the Peter Principle in team members, once they see it or recognize that they made a hiring mistake. It’s as hard as every other pivot you will have to make as a startup, with the same penalty that the longer you wait, the higher the cost of recovery.

If you as the leader don’t deal quickly with incompetent people in key team positions, they will paralyze your startup. The best people will drift away, and only the ineffective ones will remain. That makes you the final proof of the Peter Principle.