The More Success You Have, The More You Can (and Should) Hire Appropriately-Rated People

Talent markets tend to be efficient. In a given industry, great people are in high demand and command high salaries commensurate with their value, and bad people are in low demand and receive low salaries.

Of course, there are plenty of inefficiencies. We all know amazing people overlooked by employers for whatever reason. I’ve written about some of the “tells” of underrated people — for example, people who are especially bad at self-promotion, physically unattractive, socially awkward, etc. Auren Hoffman has a great list too of traits that signal underratedness.

Early in one’s entrepreneurial career — as you start companies, recruit people, corral support for your various projects — your only talent strategy option involves “talent arbitrage”: finding underrated people. You don’t have much money or status, so you bargain shop to find deals: people who provide outsize value for their cost.

I believe an important evolution to go through as a talent manager is to recognize when it makes sense to not default to prioritizing underrated people. When you have money and status, you can actually pay what it takes to get people who are “appropriately rated” on the open talent market.

Two reasons why you seek appropriately rated people:

1. Lower variance. Talent markets generally rate people accurately. High priced people are more reliably of the quality you expect. “Underrated” people can work out spectacularly from an ROI perspective but in my experience they can backfire more often, too.

2. Speed. The more successful you are, the higher your opportunity cost of time. So speed of process becomes relevant. It’s usually faster to partner with or hire people who are appropriately priced vs. scouring the earth for the hidden gem. This is especially the case if you’re hiring within a team and need to convince others of a given candidate’s abilities. Underrated people are by definition not obvious, which includes not obvious to your teammates whose buy-in you seek.

The recruiting strategies of startups vs. big companies illustrate this point. When a startup is looking for an ML engineer, and can only afford to pay the person scraps, they might find the college dropout who’s mostly self-taught but wicked smart and, of course, cheap, because Google doesn’t know he exists. When Google is looking for an ML engineer, they might make offers to all the PhDs coming out of Stanford’s CS department. The Google approach is more expensive, but more likely a reliable (not perfect!) filter for high talent, and certainly a lot faster. This is an imperfect example because what a company like Google needs in terms of talent make-up differs from what a start-up needs (e.g. hustle). But the overall point holds nonetheless, I think.

Now, the amount of success necessary to switch from “hire underrated people” to “hire appropriately rated people” can vary based on industry, functional area, etc. To take an extreme: If you’re a tech startup recruiting software engineers, even if you’ve raised a Series C and have breakout success — you might still need to employ a talent arbitrage strategy and hunt for underrated gems, because you’re still competing against enormous Google salaries.

Admittedly, this overall idea may not be earth shatteringly novel: it’s consistent with how humans generally approach consumption as their wealth increases. But it has special importance when you’re on a team or building an organization. The normal “life” pattern is that the broke college kid shops when things are on sale and the rich middle aged adult ignores discounts and shops when convenient. Some billionaires never kick their frugality habit in their personal lives. It can be irrational at times, even amusing, but it’s a personal decision. However, when talent managers fail to kick their “underrated” talent strategy even as their company or team obtains greater and greater power, it can be detrimental to the success of their overall organization. They’re missing out on reliably high quality people and they’re likely moving too slowly.

Bottom Line: “Talent arbitrage” of targeting underrated people is a necessary strategy in the early days as a talent manager. As you get more and more successful though, it makes sense to relax into the wisdom of the market, and cultivate a habit of hiring appropriately rated people.

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A somewhat related, somewhat unrelated idea: I remember in my youth thinking I’d never spend more than X dollars on a piece of clothing or a meal or whatever. I simply could not understand why someone would spend $120 on a pair of jeans or $300 on a dinner. Now that I’ve had some outrageously expensive meals and few other expensive goods or experiences, I can see the appeal. I’m not just talking about the signaling benefits of conspicuous consumption. I’m talking about genuine appreciation for a product or service or experience that’s absolutely world class in quality.

Sometimes the attributes that makes a product, service, or experience world-class are subtle. The marker of a luxury hotel is usually not a flashy lobby; instead, it might show up in how the cleaning staff cleans and organizes your toiletries during housekeeping, and in a hundred other ways like that.

Is there a similarity here with “high end” talent? Do really expensive talent sometimes possess characteristics that are harder to appreciate from afar, but once you’ve worked with “the best” you realize just why these sorts of people are paid so much? In the same way that high end food and drink tend to stand out in subtle ways, the traits of high end talent may also be more subtle than something as blunt as years of experience. I’m thinking of traits like poise, emotional stability, genuine humility, a hard-to-describe “it” factor that causes other people to want to follow him/her, etc…

(Thanks to Auren Hoffman for reading a draft of this post.)

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