The Importance of back channel reference checks

As an early stage VC, I spend a fair amount of time helping entrepreneurs build their management teams.  I have written about what we look for (read the A-Player Domino Effect), the hiring process, and other facets of recruiting talent in previous posts.  One area which I cannot overemphasize is the need for companies to do back channel references on candidates.  We were recently doing a VP of Sales search for a portfolio company and in the intial call with the CEO and myself, we found the VP of Sales to be talented and engaging.  A subsequent face-to-face meeting with the CEO and myself separately over the next week further bolstered our interest in the executive.  After a few more meetings with various members of the mangement team, we decided to begin the standard referencing process where we collected the candidate’ s list of published references and called to get a better understanding of the individual’s strengths and weaknesses.  Of course, the references all came back glowing.  If they did not, I would be a little concerned.  This is where most companies end the due diligence process and begin negotiating a contract. 

However, I cannot overemphasize the importance of getting back channel references (references that were not given by the individual on the official list) to get a real view of the candidate.  You need to look deep into your network and your VC’s network to reach out to investors, executives, peers, and direct reports who worked with the candidate in prior companies to get a complete picture and balanced profile of the recruit.  A wrong hiring decision for an early stage company can be a killer!  All too often startup companies want to run fast and furious and hire that killer executive candidate ASAP without doing the extra work required to determine the right fit. In this particular case, through the back channel references we were able to find a number of inconsistencies about a candidate’s effectiveness at a prior startup, his reasons for leaving, and his overall management skills.  While the references were balanced and fair, they were far from glowing.  In fact, most of the back channel references were consistently mediocre which for me was a vote of no confidence.  Sure, you should always expect to get a couple bad references if you do enough of them on someone, but if you see a consistent pattern of concerns or "areas that need to be managed" emerge from those references, it is time to move to the next candidate.  In fact, let me extend this message and state that doing back channel references should be standard business practice.  Why learn in 3 months that a particular executive, VC firm, or business partner was not a right fit, if you can piece together that information beforehand?  Just a little more work in the diligence process can save you lots of frustration in the long run.