After college, Jon Stross found his way to San Francisco and began working inside of startups, which led him through acquisitions and an IPO. He started Greenhouse to help businesses better hone their process for finding the most crucial asset they have: their employees.
Elliott Adams: You’ve done everything from baby websites to enterprise sales software; how did you land on tackling recruiting with Greenhouse?
Jon Stross: That's a good question. I've never been one who’s about the whole domain thing. It has to be the thing that I know everything about. I mean, I don't know squat about pregnancy or babies. I have a baby, but I still don't know anything.
As we were figuring out our ideas and brainstorming, we interviewed tons of companies and people in pursuit of a different business. What we saw over and over again is when asked what their biggest challenge was, every leader would say recruiting people and talent. “It's the biggest barrier in my business. I can't get the people I need.”
In response, I would ask them what they were doing to solve that. And they'd say, “Oh, we're doing this and we're doing that.” Well, that's not going to work. And so we both sort of realized that my co-founder Dan (Chait) and I had each had this experience in building teams, even though we weren't recruiters.
EA: You’d done that when you were expanding Baby Center after it was acquired by Johnson and Johnson?
JS: I had to create this whole system. How do I hire editors and salespeople in twenty countries? I mean, I don't know anybody in Kuala Lumpur.
I made a whole system to find them, interview them, hire them, onboard them, and manage them. Dan's partner had built a huge engineering firm, and they were hiring programmers in New York, London and Sydney. And so, we both built these recruiting machines and we realized it's not rocket science. There's no secret. It's hard, but once you do it, it's this huge weapon, and you know you can quickly and consistently bring on the very best people. Most companies don't have it, that was the business idea right there.
I also knew we started from that problem statement of more and more companies realizing that people and recruiting are strategic advantages, not an administrative function to be managed for cost. Once a company realizes that, what tools do they need to help them achieve their goals? We eventually realized that we had to build what’s called an applicant tracking system, but we didn't start from there. We didn’t start from this place of applicant tracking systems being terrible and “I'm going to make a better one,” which is where all the rest of them started from. But there have been hundreds of these things, and they typically start from a recruiter starting a business and saying, “I hate my ATS. I'm going to build a better one.” And so, they would build something that's kind of incremental or is a reaction to their old ATS.
EA: How did you approach it?
JS: We started with the problem statement of: "I don’t really know what an ATS is." I don't know what it does. I don't know why people hate it, but I know that most companies are terrible at recruiting, so by definition, it's not solving the problem I'm going to solve.
EA: I’m trying to imagine what happened before you had this epiphany. What was the conversation that led to this?
JS: We kind of knew we were going to do a business product. We weren't going with a consumer idea. We were brainstorming different ideas and going in and talking to people with the question of, “What are the biggest problems?” You hear this every time. We were going down the path with a couple different ideas, and eventually, we decided those ideas were not good. We weren’t passionate about them. They weren’t coming together.
We kind of stepped back and said, “What do we keep hearing about?” Yes, everybody struggles with talent. One of the biggest disconnects in business is how much people say talent is important and how bad they are at it. And so, why don't we help people be good at recruiting? And that's kind of opened up this very rich vein that we've found ourselves in.
EA: So, you went in without trying to solve the applicant tracking issue. You just went in and were kind of broadly hearing what their issues were and then trying to find a thread through that, is that right?
JS: Yes. We were very naïve about the applicant tracking system market. We knew it existed, and we knew everybody hated their ATS, but we didn't know why. I don't think I've ever used one. We figured that the way we define the problem—where the problem exists is that everybody's so bad at recruiting. The problem we're solving is not solved. Whatever the tracking systems are doing, they're not solving that, and that kind of led us down the path of creating a very different product. Eventually, we did have to go build all the ATS stuff that every other ATS had.
But it helped us build a very different opinion in the product, which allowed us to have a very different positioning, and that was very helpful right out of the gate.
EA: Once you found the problem, how did you make a decision as to how you could do this better?
JS: Most of it was in my co-founder Dan's head. He had built this recruiting operation at his previous company, and so he pulled it apart, found some commonalities, and figured out what was what. Then we read books and blog posts and did all this research to find out what good recruiting looks like. It's not that mysterious. You can talk to the folks at Google, and they will tell you they tried all the algorithms and none of that stuff worked. It's like a basic structured interview. There are basic factors that you should follow. Read any of the books. They all say the same thing.
Why doesn't everyone just do that? We thought, “Oh, that's the problem to solve.” So, we went through a whole process, then, of doing a startup as lean as we could. We built the first product prototype, literally, in paper. We sat down with people, with all these note cards and flashcards, and built the experience in our heads out.
We had people that we talked to that in ten minutes, you'd see the lightbulb go on, and they’d say, “You could do it that way? I think I'm going to change how I recruit because of the last ten minutes.”
JS: Actually, anybody who thinks about it a lot will come to the same conclusion. You should write down the criteria that you're looking for in the person, per each interview, and then you should figure out which of the criteria you’re testing for.
As you’re preparing to look at job applicants, you should prepare an interview beforehand that tests for those criteria. If it's a behavior or personality trait, ask behavioral interview questions. If it's a skill, ask them to demonstrate the skill. If it's a qualification, ask them to prove that they have that qualification, and then verify it again later. You can structure out a process where suddenly, every recruiter knows their role. Every recruiter prepares what it is they're looking for and how they're supposed to find it, and for every interview they do, every candidate they meet, they do the same interview. It takes all this pressure off the interviewer, and it actually provides a much fairer way to interview.
After we built a paper version, and we saw the light bulb go on, we went to General Assembly, and we said, “Can we teach a course called How to Make Hiring a Strength of Your Company?”
Just to see if anybody would show up, right? So, they posted it, and the next week, thirty people showed up.
EA: That must have felt encouraging, right?
JS: We were amazed. We thought we'd better come up with something to say, and so Dan got up there and basically did a song and dance for three hours. People thought it was amazing. And two years later, some of those same people have said they bought our product, which is so cool.
That class at General Assembly was basically where we did informal user testing of what stuff works and what doesn't, and we saw who was interested. People showed up from small companies, big companies, recruiters, hiring managers, all different places, and we taught it a couple of times until we felt like we had kind of milked that dry.
We figured out that we had something there. At which point, we said, “Let's start the company.” But all that was before we had a company or a name. Once we decided to start the company, we went through the whole song and dance of raising money, hiring people, and building a product.
Even with all that planning that we did, all that customer development, research, and making sure we really thought this early version of the product was the right thing, we pretty quickly—shockingly quickly—had a product that frickin' Pinterest bought. They said to us, “You guys don't even have a website.” We were like, “Yeah, we didn't build a website yet. We're still building our website, which is kind of crazy.” And eventually, they said to us, “We're going to dump the industry leader for you guys.” Like, holy shit!
JS: Our early ramp was shockingly fast and easy. It just happened. We had all this scale, and people loved it. We raised all this money, even though early fundraising was hell. But once we got through that, we were living on inbound leads. Since we didn't have a website, people would have to approach us in order to see the product they’d heard about. We didn’t even have salespeople.
EA: That’s a great story of really nailing the customer need.
JS: What we found is that you’ve got to figure out your unique setting. Who the hell needs another applicant tracking system? But you need to figure out that unique thing that makes somebody want it. From there, once you have product-market fit and you want to go scale, figure out how to scale marketing, sales and product, and customer stuff and everything.
There's sort of a playbook by price point, whether you charge $1,000 a year versus $10,000 versus $100,000 versus $1,000,000. There's no right or wrong answer, but whatever price point you're at, there's a playbook. Some VCs completely get that, and they know exactly what to look for. They know who has it and who doesn’t, and which things are going well and which things aren't. A lot of VCs don't have that, so we were pitching to a lot of folks who were not SaaS investors, just general investors.
Social Capital and dedicated SaaS investors like Benchmark and Thrive, they asked such good questions and they understood the dynamics of the business so well. The metrics that they asked for were really different than generic VCs. When they talked to me, I could see why they were asking for the things they were asking for, and there were a bunch of things that were good about our business that we didn't even realize because we didn't know the benchmarks, you know?
EA: Do you recall any of the things they asked for that you were surprised by, but then saw their relevance later?
JS: I think there was one . . . probably Series B or C. They were looking at what the average contract length of the renewal was. They said that when people sign up for twelve months and then come back to renew for thirty-six months, that's a really good sign, and they noted that people do that with us all the time. At the time, we just thought it was cool. But now, a couple of years into it, we can see that it's really great when people do that.
At the beginning, when you're doing renewals and you're on this huge growth curve, the amount of renewals you're doing at any time is tiny because it's basically a function of where you were a year ago. And it’s clear, in any month, you're way bigger than you were a year ago. And so renewals seem so small, but a couple of years into it, you realize you are set to renew $20 million. That's a giant business.