As a person who started one of chennai's first product development org. in the mid 90's, let me add my two cents here:
1) Hire people for their interest in programming, their core problem solving ability and the fun they have with the process.
There are lots of such people, just learn to look beyond what everyone else does. For instance, i once hired a person who could not speak much english, and who did a BA or something like that. He, later on, turned out to be one of the stars of the organization writing a core part of a VoIP solution.
2) Invest in long-term training. By that, i mean don't hire some crappy institute to come and train your people. Here from experienced folks in other organizations to come in over the weeke-end or other timings to help your team.
I remember having to train almost every member of my team in assembly, c, win16 and later on win32 among others. Some of my team members then went on to train professors in IIT, chennai. :-)
3) Mentor your team members. Show interest in them beyond what they can deliver today. Build good relationships with them and help them, both technically and otherwise. When they see you sincerely reaching out to them, they will do the same.
4) Be patient with people. If they know zilch, be frank with them and let them know that they are currently not contributing anything to the organization. However also lay out a plan for them, along with HR, to bring them up to speed in core areas; viz problem-solving, algorithm design, data structures etc Don't allow them to waste time on fancy courses from idiotic institutes. Make your senior programmers take classes some of the time. That's also part of their job.