TAKE CARE OF THE PEOPLE, THE PRODUCTS, AND THE PROFITS—IN THAT ORDER
“I roll with the hardest niggas, make money with the smartest niggas
I ain’t got time for you fuckin artist niggas
Better shut your trap before you become a target nigga
Y’all army brats I’m the motherfuckin sergeant nigga.”
—THE GAME, “SCREAM ON ’EM”
Once we pushed the Opsware stock price back above $1, the next problem was to rebuild the executive team. We had cloud services executives, but now we were a software company and needed software executives. In enterprise software companies, the two most important positions tend to be VP of sales and VP of engineering. Initially I’d attempted to take the VP of professional services from Loudcloud and make him the VP of sales. That didn’t work. The next head of sales would be the fourth one hired since we had founded the company three years earlier—not a great track record. More important, the next mistake I made on a sales leader would be my last. The marketplace, not to mention Wall Street investors, did not leave me with much rope.
To better prepare for the hire this time, I decided in the interim to run sales myself. I managed the team, ran the forecast calls, and was the one person responsible for the revenue number for Opsware. I’d learned the hard way that when hiring executives, one should follow Colin Powell’s instructions and hire for strength rather than lack of weakness. By running sales, I understood very clearly the strengths we needed. I made a careful list and set out to find the sales executives with the right skills and talents for Opsware.
After interviewing about two dozen candidates—none of whom had the strengths I sought—I interviewed Mark Cranney. He wasn’t what I expected; he didn’t fit the stereotype of a hard-charging sales executive. For starters, Mark was average height, whereas most sales executives tend to be rather tall. Next, he was a square guy—that is, he was as wide as he was tall. Not fat, just square. His square body seemed to fit rather uncomfortably into what must have been a custom-tailored suit—there is no way an off-the-rack business suit would fit a square guy like Mark.
And then I looked at his résumé. The first thing I noticed was that he went to a school that I’d never heard of, Southern Utah University. I asked him what kind of school it was. He replied, “It was the MIT of southern Utah.” That was the last joke he told. Mark’s seriousness was so intense that it seemed to make him uncomfortable in his own skin. He made me uncomfortable, too. Ordinarily, that vibe would rule out a candidate for me, but the strengths that I needed were so critical to the business that I was willing to overlook every weakness. One interview technique that I’d used to sort the good from the bad was to ask a series of questions about hiring, training, and managing sales reps. Typically, it would go like this:
Ben: “What do you look for in a sales rep?”
Candidate: “They need to be smart, aggressive, and competitive. They need to know how to do complex deals and navigate organizations.”
Ben: “How do you test for those things in an interview?”
Candidate: “Umm, well, I hire everybody out of my network.”
Ben: “Okay, once you get them on board, what do you expect from them?”
Candidate: “I expect them to understand and follow the sales process, I expect them to master the product, I expect them to be accurate in their forecasting. . . .”
Ben: “Tell me about the training program that you designed to achieve this.”
Candidate: “Umm.” They would then proceed to make something up as they went along.
Mark aced the profile and interview questions, and then I asked him the training question. I’ll never forget the pained look that came across his face. He looked like he wanted to get up and leave the interview right then and there. I felt like offering him an aspirin or maybe some Abilify. His reaction surprised me, because he’d done such an excellent job up to that point. I later realized that for me to ask Mark Cranney to describe the proper way to train sales reps was like a layman asking Isaac Newton to explain the laws of physics. Where to begin?
After what seemed like five minutes of silence, Mark reached into his bag and pulled out a giant training manual he had designed. He said he couldn’t possibly explain what I needed to know about training in the time we had left, but if I wanted to schedule a follow-up meeting, he would explain the nuances of training salespeople to be elite across a broad set of disciplines including process, products, and organizational selling. He explained further that even with all those things, a successful sales leader still must inspire courage in the team. He sounded like General Patton. I knew I had my guy.
Unfortunately, nobody else knew that. Every member of the executive staff (with one exception) and every member of the board of directors voted thumbs-down on Mark Cranney. When I asked Bill Campbell what he thought, he said, “I won’t lay down on the railroad tracks to stop you from hiring Cranney.” That wasn’t the ringing endorsement I was looking for. The reasons for voting “no” never referred to Mark’s lack of strength, but rather to his abundance of weakness: Mark went to Southern Utah. Mark made people feel uncomfortable. Mark did not look like a head of sales.
Still, the more time I spent with him, the more I knew he was the one. In talking with him for an hour, I’d learn more about sales than I had in six months running sales. He would even call me with details about deals my sales team was competing for—deals my own sales reps didn’t seem to know about. It was like he had his own sales FBI.
I decided to take a stand. I told my team and the board that I understood their concerns, but I still wanted to move forward with Mark and planned to proceed with reference checks.
When I asked Mark for his references, he surprised me again. He gave me a list of seventy-five references. He said he had more if I needed them. I called every reference on the list, and every one called me back within one hour. Mark ran a tight network. Maybe these references were the sales FBI. Then, just as I was getting ready to make the hire, another executive on my team called to say that a friend of hers knew Mark Cranney and wanted to give a negative reference.
I called the friend—I’ll call him Joe—and proceeded to have the most unusual reference call of my career:
Ben: “Thanks very much for reaching out.”
Joe: “My pleasure.”
Ben: “How do you know Mark Cranney?”
Joe: “Mark was an area vice president when I taught sales training at my previous employer. I want to tell you that under no circumstances should you hire Mark Cranney.”
Ben: “Wow, that’s a strong statement. Is he a criminal?”
Joe: “No, I’ve never known Mark to do anything unethical.”
Ben: “Is he bad at hiring?”
Joe: “No, he brought some of the best salespeople into the company.”
Ben: “Can he do big deals?”
Joe: “Yes, definitely. Mark did some of the largest deals we had.”
Ben: “Is he a bad manager?”
Joe: “No, he was very effective at running his team.”
Ben: “Well, then why shouldn’t I hire him?”
Joe: “He’ll be a terrible cultural fit.”
Ben: “Please explain.”
Joe: “Well, when I was teaching new-hire sales training at Parametric Technology Corporation, I brought in Mark as a guest speaker to fire up the troops. We had fifty new hires and I had them all excited about selling and enthusiastic about working for the company. Mark Cranney walks up to the podium, looks at the crowd of fresh new recruits, and says, ‘I don’t give a fuck how well trained you are. If you don’t bring me five hundred thousand dollars a quarter, I’m putting a bullet in your head.’ ”
Ben: “Thank you very much.”
The world looks one way in peacetime but very different when you must fight for your life every day. In times of peace, one has time to care about things like appropriateness, long-term cultural consequences, and people’s feelings. In times of war, killing the enemy and getting the troops safely home is all that counts. I was at war and I needed a wartime general. I needed Mark Cranney.
As a final step in making the hire, I needed to explain it to Marc Andreessen. As cofounder and chairman of the board, Marc’s opinion mattered deeply to the board and Marc was still uncomfortable with Cranney. Marc trusted me enough that he would let me make the hire whether he liked the candidate or not, but it was important to me that Marc be fully on board.
I let Marc open the conversation, because despite consistently being the smartest person in the room and possibly the world, Marc is so humble that he never believes that other people think he is smart, which makes him sensitive to being ignored. He opened the conversation by listing his issues with Cranney: doesn’t look or sound like a head of sales, went to a weak school, makes him uncomfortable. I listened very carefully and replied, “I agree with every single one of those issues. However, Mark Cranney is a sales savant. He has mastered sales to a level that far exceeds anybody that I have ever known. If he didn’t have the things wrong with him that you enumerated, he wouldn’t be willing to join a company that just traded at thirty-five cents per share; he’d be CEO of IBM.”
Marc’s reply came quickly: “Got it. Let’s hire him!”
And that’s how I took the key step in building a world-class software team out of the Loudcloud rubble. As I got to know Mark over the years, everything that I learned in the interview and the reference check proved out. He wasn’t an easy cultural fit, but he was a genius. I needed his genius and worked with him on the fit. I don’t know that every member of the team ever became totally comfortable with Mark, but in the end they all agreed that he was the best person possible for the job.
My old boss Jim Barksdale was fond of saying, “We take care of the people, the products, and the profits—in that order.” It’s a simple saying, but it’s deep. “Taking care of the people” is the most difficult of the three by far and if you don’t do it, the other two won’t matter. Taking care of the people means that your company is a good place to work. Most workplaces are far from good. As organizations grow large, important work can go unnoticed, the hardest workers can get passed over by the best politicians, and bureaucratic processes can choke out the creativity and remove all the joy.
When everything went wrong from the dot-com crash to NASDAQ threatening to delist the company, the thing that saved us were the techniques developed in this chapter. If your company is a good place to work, you too may live long enough to find your glory.
At Opsware I used to teach a management expectations course because I deeply believed in training. I made it clear that I expected every manager to meet with her people on a regular basis. I even gave instructions on how to conduct a one-on-one meeting so there could be no excuses.
Then one day, while I happily went about my job, it came to my attention that one of my managers hadn’t had a one-on-one meeting with any of his employees in more than six months. While I knew to “expect what I inspect,” I did not expect this. No one-on-one in more than six months? How was it possible for me to invest so much time thinking about management, preparing materials, and personally training my managers and then get no one-on-ones for six months? Wow, so much for CEO authority. If that’s how the managers listen to me, then why do I even bother coming to work?
I thought that leading by example would be the sure way to get the company to do what I wanted. Lord knows the company picked up all of my bad habits, so why didn’t they pick up my good habits? Had I lost the team? I recalled a conversation I’d had with my father many years ago regarding Tommy Heinsohn, the Boston Celtics basketball coach at the time. Heinsohn had been one of the most successful coaches in the world, including being named coach of the year and winning two NBA championships.
However, he had gone downhill fast and now had the worst record in the league. I asked my father what happened. He said, “The players stopped paying attention to his temper tantrums. Heinsohn used to yell at the team and they’d respond. Now they just ignore him.” Was the team now ignoring me? Had I yelled at them one time too many?
The more I thought about it, the more I realized that while I had told the team “what” to do, I had not been clear about “why” I wanted them to do it. Clearly, my authority alone was not enough to get them to do what I wanted. Given the large number of things that we were trying to accomplish, managers couldn’t get to everything and came up with their own priorities. Apparently, this manager didn’t think that meeting with his people was all that important and I hadn’t explained to him why it was so important.
So why did I force every manager through management training? Why did I demand that managers have one-on-ones with employees? After much deliberation with myself, I settled on an articulation of the core reason and I called up the offending manager’s boss—I’ll call him Steve—and told him that I needed to see him right away.
When Steve came into my office I asked him a question: “Steve, do you know why I came to work today?”
Steve: “What do you mean, Ben?”
Me: “Why did I bother waking up? Why did I bother coming in? If it was about the money, couldn’t I sell the company tomorrow and have more money than I ever wanted? I don’t want to be famous, in fact just the opposite.”
Steve: “I guess.”
Me: “Well, then why did I come to work?”
Steve: “I don’t know.”
Me: “Well, let me explain. I came to work because it’s personally very important to me that Opsware be a good company. It’s important to me that the people who spend twelve to sixteen hours a day here, which is most of their waking life, have a good life. It’s why I come to work.”
Steve: “Okay.”
Me: “Do you know the difference between a good place to work and a bad place to work?”
Steve: “Umm, I think so.”
Me: “What is the difference?”
Steve: “Umm, well . . .”
Me: “Let me break it down for you. In good organizations, people can focus on their work and have confidence that if they get their work done, good things will happen for both the company and them personally. It is a true pleasure to work in an organization such as this. Every person can wake up knowing that the work they do will be efficient, effective, and make a difference for the organization and themselves. These things make their jobs both motivating and fulfilling.
“In a poor organization, on the other hand, people spend much of their time fighting organizational boundaries, infighting, and broken processes. They are not even clear on what their jobs are, so there is no way to know if they are getting the job done or not. In the miracle case that they work ridiculous hours and get the job done, they have no idea what it means for the company or their careers. To make it all much worse and rub salt in the wound, when they finally work up the courage to tell management how fucked-up their situation is, management denies there is a problem, then defends the status quo, then ignores the problem.”
Steve: “Okay.”
Me: “Are you aware that your manager Tim has not met with any of his employees in the past six months?”
Steve: “No.”
Me: “Now that you are aware, do you realize that there is no possible way for him to even be informed as to whether or not his organization is good or bad?”
Steve: “Yes.”
Me: “In summary, you and Tim are preventing me from achieving my one and only goal. You have become a barrier blocking me from achieving my most important goal. As a result, if Tim doesn’t meet with each one of his employees in the next twenty-four hours, I will have no choice but to fire him and to fire you. Are we clear?”
Steve: “Crystal.”
WAS THAT REALLY NECESSARY?
You might argue that no matter how well managed a company is, it will fail without product/market fit. You might argue further that horribly managed companies that achieve massive product/market fit succeed just fine. And you would be right on both accounts. So was it really necessary for me to make such a dramatic speech and threaten one of my executives?
I think it was, for the following three reasons:
Being a good company doesn’t matter when things go well, but it can be the difference between life and death when things go wrong.
Things always go wrong.
Being a good company is an end in itself.
THE DIFFERENCE BETWEEN LIFE AND DEATH
When things go well, the reasons to stay at a company are many:
Your career path is wide open because as the company grows lots of interesting jobs naturally open up.
Your friends and family think you are a genius for choosing to work at the “it” company before anyone else knew it was “it.”
Your résumé gets stronger by working at a blue-chip company in its heyday.
Oh, and you are getting rich.
When things go poorly, all those reasons become reasons to leave. In fact, the only thing that keeps an employee at a company when things go horribly wrong—other than needing a job—is that she likes her job.
THINGS ALWAYS GO WRONG
There has never been a company in the history of the world that had a monotonously increasing stock price. In bad companies, when the economics disappear, so do the employees. In technology companies, when the employees disappear, the spiral begins: The company declines in value, the best employees leave, the company declines in value, the best employees leave. Spirals are extremely difficult to reverse.
BEING A GOOD COMPANY IS AN END IN ITSELF
When I first met Bill Campbell, he was chairman of Intuit, on the board of Apple, and a mentor to many of the top CEOs in the industry. However, those things did not impress me nearly as much as his time running GO Corporation back in 1992. The company raised more money than almost any other venture-capital-backed startup in history and lost nearly all of it before selling itself for nearly nothing to AT&T in 1994.
Now that probably doesn’t sound impressive. In fact, it probably sounds like a horrible failure. But I’d met dozens of GO employees in my career, including great people like Mike Homer, Danny Shader, Frank Chen, and Stratton Sclavos. The amazing thing was that every one of those GO employees counted GO as one of the greatest work experiences of their lives. The best work experience ever despite the fact that their careers stood still, they made no money, and they were front-page failures. GO was a good place to work.
This made me realize what an amazingly effective CEO Bill was. Apparently, John Doerr thought that, too, because when Scott Cook needed a CEO for Intuit, John recommended Bill even though Bill lost a ton of John’s money at GO. And for years, everyone who ever came into contact with GO employees knew what Bill was about. He was about building good companies.
If you do nothing else, be like Bill and build a good company.
WHY STARTUPS SHOULD TRAIN THEIR PEOPLE
I learned about why startups should train their people when I worked at Netscape. People at McDonald’s get trained for their positions, but people with far more complicated jobs don’t. It makes no sense. Would you want to stand on the line of the untrained person at McDonald’s? Would you want to use the software written by the engineer who was never told how the rest of the code worked? A lot of companies think their employees are so smart that they require no training. That’s silly.
When I first became a manager, I had mixed feelings about training. Logically, training for high-tech companies made sense, but my personal experience with training programs at the companies where I had worked was underwhelming. The courses were taught by outside firms who didn’t really understand our business and were teaching things that weren’t relevant. Then I read chapter 16 of Andy Grove’s management classic, High Output Management, titled “Why Training Is the Boss’s Job,” and it changed my career. Grove wrote, “Most managers seem to feel that training employees is a job that should be left to others. I, on the other hand, strongly believe that the manager should do it himself.”
When I was director of product management at Netscape, I was feeling frustrated by how little value most product managers added to the business. Based on Andy’s guidance, I wrote a short document called “Good Product Manager/Bad Product Manager,” which I used to train the team on my basic expectations. I was shocked by what happened next. The performance of my team instantly improved. Product managers whom I had almost written off as hopeless became effective. Pretty soon I was managing the highest-performing team in the company. Based on this experience, after starting Loudcloud, I heavily invested in training. I credit that investment with much of our eventual success. And the whole thing started with a simple decision to train my people and an even simpler training document. So, I will now pay forward my debt to Andy Grove and explain why, what, and how you should do the same in your company.
WHY YOU SHOULD TRAIN YOUR PEOPLE
Almost everyone who builds a technology company knows that people are the most important asset. Properly run startups place a great deal of emphasis on recruiting and the interview process in order to build their talent base. Too often the investment in people stops there. There are four core reasons why it shouldn’t:
1. Productivity
I often see startups keep careful statistics of how many candidates they’ve screened, how many have made it to the full interview process, and how many people they’ve hired. All of these statistics are interesting, but the most important statistic is missing: How many fully productive employees have they added? By failing to measure progress toward the actual goal, they lose sight of the value of training. If they measured productivity, they might be horrified to find that all those investments in recruiting, hiring, and integration were going to waste. Even if they were made aware of low productivity among new employees, most CEOs think that they don’t have time to invest in training. Andy Grove does the math and shows that the opposite is true:
Training is, quite simply, one of the highest-leverage activities a manager can perform. Consider for a moment the possibility of your putting on a series of four lectures for members of your department. Let’s count on three hours preparation for each hour of course time—twelve hours of work in total. Say that you have ten students in your class.
Next year they will work a total of about twenty thousand hours for your organization. If your training efforts result in a 1 percent improvement in your subordinates’ performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours.
2. Performance management
When people interview managers, they often like to ask, Have you fired anyone? Or how many people have you fired? Or how would you go about firing someone? These are all fine questions, but often the right question is the one that isn’t asked: When you fired the person, how did you know with certainty that the employee both understood the expectations of the job and was still missing them? The best answer is that the manager clearly set expectations when she trained the employee for the job. If you don’t train your people, you establish no basis for performance management. As a result, performance management in your company will be sloppy and inconsistent.
3. Product quality
Often founders start companies with visions of elegant, beautiful product architectures that will solve so many of the nasty issues that they were forced to deal with in their previous jobs. Then, as their company becomes successful, they find that their beautiful product architecture has turned into a Frankenstein. How does this happen? As success drives the need to hire new engineers at a rapid rate, companies neglect to train the new engineers properly. As the engineers are assigned tasks, they figure out how to complete them as best they can. Often this means replicating existing facilities in the architecture, which leads to inconsistencies in the user experience, performance problems, and a general mess. And you thought training was expensive.
4. Employee retention
During a time of particularly high attrition at Netscape, I decided to read all of the exit interviews for the entire company to better understand why people quit high-tech companies. After putting economics aside, I found that there were two primary reasons why people quit:
They hated their manager; generally the employees were appalled by the lack of guidance, career development, and feedback they were receiving.
They weren’t learning anything: The company wasn’t investing resources in helping employees develop new skills.
An outstanding training program can address both issues head-on.
WHAT SHOULD YOU DO FIRST?
The best place to start is with the topic that is most relevant to your employees: the knowledge and skill that they need to do their job. I call this functional training. Functional training can be as simple as training a new employee on your expectations for them (see “Good Product Manager/Bad Product Manager”) and as complex as a multiweek engineering boot camp to bring new recruits completely up to speed on all of the historical architectural nuances of your product. The training courses should be tailored to the specific job. If you attempt the more complex-style course, be sure to enlist the best experts on the team as well as the manager. As a happy side effect, this type of effort will do more to build a powerful, positive company culture than a hundred culture-building strategic off-site meetings.
The other essential component of a company’s training program is management training. Management training is the best place to start setting expectations for your management team. Do you expect them to hold regular one-on-one meetings with their employees? Do you expect them to give performance feedback? Do you expect them to train their people? Do you expect them to agree on objectives with their team? If you do, then you’d better tell them, because the management state of the art in technology companies is extremely poor. Once you’ve set expectations, the next set of management courses has already been defined; they are the courses that teach your managers how to do the things you expect (how to write a performance review or how to conduct a one-on-one).
Once you have management training and functional training in place, there are other opportunities as well. One of the great things about building a tech company is the amazing people that you can hire. Take your best people and encourage them to share their most developed skills. Training in such topics as negotiating, interviewing, and finance will enhance your company’s competency in those areas as well as improve employee morale. Teaching can also become a badge of honor for employees who achieve an elite level of competence.
IMPLEMENTING YOUR TRAINING PROGRAM
Now that we understand the value of the training and what to train on, how do we get our organization to do what we want? The first thing to recognize is that no startup has time to do optional things. Therefore, training must be mandatory. The first two types of training (functional and management) can be easily enforced as follows:
Enforce functional training by withholding new employee requisitions. As Andy Grove writes, there are only two ways for a manager to improve the output of an employee: motivation and training. Therefore, training should be the most basic requirement for all managers in your organization. An effective way to enforce this requirement is by withholding new employee requisitions from managers until they’ve developed a training program for the TBH, “To Be Hired.”
Enforce management training by teaching it yourself. Managing the company is the CEO’s job. While you won’t have time to teach all of the management courses yourself, you should teach the course on management expectations, because they are, after all, your expectations. Make it an honor to participate in these sessions by selecting the best managers on your team to teach the other courses. And make that mandatory, too.
Ironically, the biggest obstacle to putting a training program in place is the perception that it will take too much time. Keep in mind that there is no investment that you can make that will do more to improve productivity in your company. Therefore, being too busy to train is the moral equivalent of being too hungry to eat. Furthermore, it’s not that hard to create basic training courses.
When I ran the server product management group at Netscape, I became extremely frustrated that everybody on the team I inherited had a completely unique and different interpretation of their job. Finally, I had an epiphany that nobody in the industry had ever defined the product management job. What follows was my attempt to do that and bring down my blood pressure. Amazingly, people still read it today. This taught me the importance of training.
GOOD PRODUCT MANAGER/BAD PRODUCT MANAGER
Good product managers know the market, the product, the product line, and the competition extremely well and operate from a strong basis of knowledge and confidence. A good product manager is the CEO of the product. Good product managers take full responsibility and measure themselves in terms of the success of the product.
They are responsible for right product/right time and all that entails. A good product manager knows the context going in (the company, our revenue funding, competition, etc.), and they take responsibility for devising and executing a winning plan (no excuses).
Bad product managers have lots of excuses. Not enough funding, the engineering manager is an idiot, Microsoft has ten times as many engineers working on it, I’m overworked, I don’t get enough direction. Our CEO doesn’t make these kinds of excuses and neither should the CEO of a product.
Good product managers don’t get all of their time sucked up by the various organizations that must work together to deliver the right product at the right time. They don’t take all the product team minutes; they don’t project manage the various functions; they are not gofers for engineering. They are not part of the product team; they manage the product team. Engineering teams don’t consider good product managers a “marketing resource.” Good product managers are the marketing counterparts to the engineering manager.
Good product managers crisply define the target, the “what” (as opposed to the “how”), and manage the delivery of the “what.” Bad product managers feel best about themselves when they figure out “how.” Good product managers communicate crisply to engineering in writing as well as verbally. Good product managers don’t give direction informally. Good product managers gather information informally.
Good product managers create collateral, FAQs, presentations, and white papers that can be leveraged by salespeople, marketing people, and executives. Bad product managers complain that they spend all day answering questions for the sales force and are swamped. Good product managers anticipate the serious product flaws and build real solutions. Bad product managers put out fires all day.
Good product managers take written positions on important issues (competitive silver bullets, tough architectural choices, tough product decisions, and markets to attack or yield). Bad product managers voice their opinions verbally and lament that the “powers that be” won’t let it happen. Once bad product managers fail, they point out that they predicted they would fail.
Good product managers focus the team on revenue and customers. Bad product managers focus the team on how many features competitors are building. Good product managers define good products that can be executed with a strong effort. Bad product managers define good products that can’t be executed or let engineering build whatever they want (that is, solve the hardest problem).
Good product managers think in terms of delivering superior value to the marketplace during product planning and achieving market share and revenue goals during the go-to-market phase. Bad product managers get very confused about the differences among delivering value, matching competitive features, pricing, and ubiquity. Good product managers decompose problems. Bad product managers combine all problems into one.
Good product managers think about the story they want written by the press. Bad product managers think about covering every feature and being absolutely technically accurate with the press. Good product managers ask the press questions. Bad product managers answer any press question. Good product managers assume members of the press and the analyst community are really smart. Bad product managers assume that journalists and analysts are dumb because they don’t understand the subtle nuances of their particular technology.
Good product managers err on the side of clarity. Bad product managers never even explain the obvious. Good product managers define their job and their success. Bad product managers constantly want to be told what to do.
Good product managers send their status reports in on time every week, because they are disciplined. Bad product managers forget to send in their status reports on time, because they don’t value discipline.
IS IT OKAY TO HIRE PEOPLE FROM YOUR FRIEND’S COMPANY?
Every good technology company needs great people. The best companies invest time, money, and sweat equity into becoming world-class recruiting machines. But how far should you take your quest to build the world’s greatest team? Is it fair game to hire employees from your friend’s company? Will you still be friends?
First, what do I mean by “friends”? There are two relevant categories:
Important business partners
Friends
For this discussion, friends and important business partners are roughly the same.
Most CEOs would never target a friend’s company as a source of talent. As CEO, one generally doesn’t have many true friends in business, and raiding your friend’s company is a sure way to lose one. Nevertheless, almost every CEO will be faced with the decision of whether to hire an employee out of her friend’s company. How does it happen? When is it okay? When will it cost you a friend?
BUT THEY WERE ALREADY LOOKING
It always starts in the same way. Your friend Cathy has a great engineer working for her named Mitchell. Mitchell happens to be friends with one of your top engineers. Your engineer brings Mitchell in for an interview, unbeknownst to you, and he naturally sails through the process. The final step is the interview with you, the CEO. You immediately notice that Mitchell currently works at your good friend Cathy’s company. You check with your people to make sure that they did not approach Mitchell first, and they assure you that Mitchell was already looking and will go to another company if not yours. Now what?
At this point, you might be thinking, “If Mitchell is leaving, then logically my friend Cathy should want him to go to my company rather than to a competitor or a company with a CEO whom she doesn’t like.” Maybe Cathy will see it that way, but probably not.
People generally leave companies when things are not going well, so you should assume that Cathy is fighting for her company’s life. In this situation, nothing will cut her deeper than losing a great employee, because she knows that the other employees will see that as a leading indicator of the company’s demise. Even more damaging for Cathy is the fact that her employees will perceive your move as an act of betrayal—Cathy’s so-called friend is raiding her company. They will think, “Cathy is such an ineffective CEO that she cannot even keep her friends from hiring her people.” In this way, a logical issue quickly becomes an emotional one.
You don’t want to lose Cathy as a friend, so you assure her that Mitchell is the exception and that he came to you and that he will be the first and only one of her employees that joins your company. Generally, this explanation will work and Cathy will understand and appreciate the gesture. She will forgive, but rest assured, she will not forget.
Her memory of Mitchell will be important, because Mitchell will be just the first step in the demise of your relationship. Since Mitchell is a stellar hire, Cathy’s other strong employees will likely call Mitchell to understand why he left and where he is going. He will explain his reasoning and his reasons will be compelling. And suddenly they will want to follow Mitchell’s path and join your company, too. By the time you become aware of the situation, promises will have been made to prospective employees who approached Mitchell and offers may be out.
In each case, your employees will assure you that they were approached by Cathy’s employees and not vice versa. They will point out that the candidates have offers from other companies as well, so they will definitely leave and you might as well benefit from their restlessness. Cathy’s managers will almost certainly tell a different story. They will plead with her to get her friend to stop raiding their stable of employees or else they will never be able to meet their commitments. This will embarrass and enrage Cathy. In the end, social pressure will trump all your brilliant countervailing logic.
Here’s an easy way to think about the dynamic. If your husband left you, would you want your best friend to date him? He’s going to date somebody, so wouldn’t you want your friend to have him? It seems logical, but this situation is far from logical and you just lost one friend.
SO WHAT SHOULD YOU DO?
First, keep in mind that the employees are either extremely good or you probably won’t want them in your company anyway. So, you will either be recruiting top-notch employees from your friend’s company or you will be adding mediocre people. Do not assume the people you are taking will not be missed.
A good rule of thumb is my Reflexive Principle of Employee Raiding, which states, “If you would be shocked and horrified if Company X hired several of your employees, then you should not hire any of theirs.” The number of such companies should be small and may very well be zero.
In order to avoid these sticky situations, many companies employ written or unwritten policies that name companies where it is not okay to hire without CEO (or senior executive) approval. With such a policy in place, you will be able to give your friend one last chance to save their employee or to object prior to you hiring them.
With that in mind, the best way to deal with these situations is openly and transparently. Once you become aware of the conflict between hiring the superstar employee and double-crossing your valued friend, you should get the issue onto the table by informing the employee that you have an important business relationship with his existing company and you will have to complete a reference check with the CEO prior to extending the offer. Let him know that if he does not want that to happen, then you will stop the process now and keep the process to date confidential. By speaking with your friend before making the hire, you will be able to better judge the relationship impact of hiring her employee. In addition, you may avoid making a bad hire, as often candidates who do well in interviews turn out to be bad employees.
CLOSING THOUGHTS
In the classic movie The Good, the Bad and the Ugly, Clint Eastwood “The Good” and Eli Wallach “The Ugly” are partners in crime. Wallach, a known criminal, has a bounty on his head and the two of them run a scam to collect the reward money. Eastwood turns Wallach in and collects the reward. Then Wallach is sentenced to death by hanging. As Wallach sits on a horse, hands tied behind his back and about to be hanged with a rope around his neck, Eastwood shoots the rope from a distance and frees Wallach and they split the reward money. This scheme works brilliantly, until one day Eastwood frees Wallach but informs Wallach: “I don’t think you’ll ever be worth more than three thousand dollars.” Wallach retorts, “What do you mean?” Eastwood informs him, “I mean, our partnership is untied. Oh no, not you. You remain tied. I’ll keep the money, and you can have the rope.” What follows is one of the great revenge pursuits in motion picture history.
So, when you tell your CEO friend that you don’t think she’ll ever be worth more than this employee, don’t expect to stay friends.
WHY IT’S HARD TO BRING BIG COMPANY EXECS INTO LITTLE COMPANIES
So you’ve achieved product market fit and you are ready to start building the company. The board encourages you to bring in some “been there, done that” executives who will provide the right financial, sales, and marketing expertise to help you transition from a world-class product to a world-class business. You see a few candidates that you like, but the venture capitalist on the board says, “You are undershooting. This is going to be a huge company. We can attract better talent.” So you aim high and bring in a super-accomplished head of sales. This guy has run huge organizations with thousands of employees. He has stellar references and even looks the part. Your VC loves him, because he has an awesome résumé.
SIX MONTHS LATER . . .
Fast-forward six months and everyone in the company is wondering why the sales (or marketing or finance or product) guy who has produced nothing got such a monster stock option package. Meanwhile, the people doing all the work have much fewer options. Even worse than not getting your money’s worth, now the company is in trouble, because you’ve been missing the numbers as your super-expensive executive sits on his butt. What the frak just happened?
The most important thing to understand is that the job of a big company executive is very different from the job of a small company executive. When I was managing thousands of people at Hewlett-Packard after the sale of Opsware, there was an incredible number of incoming demands on my time. Everyone wanted a piece of me. Little companies wanted to partner with me or sell themselves to me, people in my organization needed approvals, other business units needed my help, customers wanted my attention, and so forth. As a result, I spent most of my time optimizing and tuning the existing business. Most of the work that I did was “incoming.” In fact, most skilled big company executives will tell you that if you have more than three new initiatives in a quarter, you are trying to do too much. As a result, big company executives tend to be interrupt-driven.
In contrast, when you are a startup executive, nothing happens unless you make it happen. In the early days of a company, you have to take eight to ten new initiatives a day or the company will stand still. There is no inertia that’s putting the company in motion. Without massive input from you, the company will stay at rest.
SO WHAT HAPPENS?
Once you hire one of these big company executives, there are two dangerous mismatches that you will face:
1. Rhythm mismatch Your executive has been conditioned to wait for the emails to come in, wait for the phone to ring, and wait for the meetings to get scheduled. In your company, he will be waiting a long time. If your new executive waits (as per his training), your other employees will become suspicious. You’ll hear things like “What does that guy do all day long?” and “Why did he get so many options?”
2. Skill set mismatch Running a large organization requires very different skills than creating and building an organization. When you run a large organization, you tend to become very good at tasks such as complex decision-making, prioritization, organizational design, process improvement, and organizational communication. When you are building an organization, there is no organization to design, there are no processes to improve, and communicating with the organization is simple. On the other hand, you have to be very adept at running a high-quality hiring process, have terrific domain expertise (you are personally responsible for quality control), know how to create process from scratch, and be extremely creative about initiating new directions and tasks.
HOW CAN YOU STOP THINGS FROM GOING HORRIBLY WRONG?
There are two key steps to avoiding disaster:
1. Screen for devastating mismatches in the interview process.
2. Take integration as seriously as interviewing.
SCREEN FOR MISMATCHES
How do you tell if the rhythm mismatch or the skill set mismatch will be too much to overcome? Here are some interview questions that I found very helpful:
What will you do in your first month on the job?
Beware of answers that overemphasize learning. This may indicate that the candidate thinks there is more to learn about your organization than there actually is. More specifically, he may think that your organization is as complex as his current organization.
Beware of any indication that the candidate needs to be interrupt-driven rather than setting the pace personally. The interrupts will never come.
Look for candidates who come in with more new initiatives than you think are possible. This is a good sign.
How will your new job differ from your current job?
Look for self-awareness of the differences here. If they have the experience in what you need, they will be articulate on this point.
Beware of candidates who think that too much of their experience is immediately transferable. It may pay off down the line, but likely not tomorrow.
Why do you want to join a small company?
Beware of equity being the primary motivation. One percent of nothing is nothing. That’s something that big company executives sometimes have a hard time understanding.
It’s much better if they want to be more creative. The most important difference between big and small companies is the amount of time running versus creating. A desire to do more creating is the right reason to want to join your company.
AGGRESSIVELY INTEGRATE THE CANDIDATE ONCE ON BOARD
Perhaps the most critical step is integration. You should plan to spend a huge amount of time integrating any new executive. Here are some things to keep in mind:
Force them to create. Give them monthly, weekly, and even daily objectives to make sure that they produce immediately. The rest of the company will be watching and this will be critical to their assimilation.
Make sure that they “get it.” Content-free executives have no value in startups. Every executive must understand the product, the technology, the customers, and the market. Force your newbie to learn these things. Consider scheduling a daily meeting with your new executive. Require them to bring a comprehensive set of questions about everything they heard that day but did not completely understand. Answer those questions in depth; start with first principles. Bring them up to speed fast. If they don’t have any questions, consider firing them. If in thirty days you don’t feel that they are coming up to speed, definitely fire them.
Put them in the mix. Make sure that they initiate contact and interaction with their peers and other key people in the organization. Give them a list of people they need to know and learn from. Once they’ve done that, require a report from them on what they learned from each person.
FINAL THOUGHTS
Nothing will accelerate your company’s development like hiring someone who has experience building a very similar company at larger scale. However, doing so can be fraught with peril. Make sure to pay attention to the important leading indicators of success and failure.
HIRING EXECUTIVES: IF YOU’VE NEVER DONE THE JOB, HOW DO YOU HIRE SOMEBODY GOOD?
The biggest difference between being a great functional manager and being a great general manager—and particularly a great CEO—is that as a general manager, you must hire and manage people who are far more competent at their jobs than you would be at their jobs. In fact, often you will have to hire and manage people to do jobs that you have never done. How many CEOs have been head of HR, engineering, sales, marketing, finance, and legal? Probably none.
So, with no experience, how do you hire someone good?
STEP 1: KNOW WHAT YOU WANT
Step 1 is definitely the most important step in the process and also the one that gets skipped most often. As the great self-help coach Tony Robbins says, “If you don’t know what you want, the chances that you’ll get it are extremely low.” If you have never done the job, how do you know what to want?
First, you must realize how ignorant you are and resist the temptation to educate yourself simply by interviewing candidates. While the interview process can be highly educational, using that as the sole information source is dangerous. Doing so will make you susceptible to the following traps:
Hiring on look and feel It may seem silly to think that anyone would hire an executive based on the way they look and sound in an interview, but in my experience, look and feel are the top criteria for most executive searches. When you combine a CEO who doesn’t know what she wants and a board of directors that hasn’t thought much about the hire, what do you think the criteria will be?
Looking for someone out of central casting If I had followed this path, I would never have hired Mark Cranney and you probably would not be reading this now. This wrongheaded approach is the moral equivalent of looking for the Platonic ideal for a head of sales. You imagine what the perfect sales executive might be like, and then you attempt to match real-world candidates to your model. This is a bad idea for several reasons. First, you are not hiring an abstract executive to work at an arbitrary company. You must hire the right person for your company at this particular point in time. The head of sales at Oracle in 2010 would likely have failed in 1989. The VP of engineering at Apple might be exactly the wrong choice for Foursquare. The details and the specifics matter. Second, your imaginary model is almost certainly wrong. What is your basis for creating this model? Finally, it will be incredibly difficult to educate an interview team on such an abstract set of criteria. As a result, everybody will be looking for something different.
Valuing lack of weakness rather than strength The more experience you have, the more you realize that there is something seriously wrong with every employee in your company (including you). Nobody is perfect.
The very best way to know what you want is to act in the role. Not just in title, but in real action. In my career, I’ve been acting VP of HR, CFO, and VP of sales. Often CEOs resist acting in functional roles, because they worry that they lack the appropriate knowledge. This worry is precisely why you should act—to get the appropriate knowledge. Indeed, acting is really the only way to get all the knowledge that you need to make the hire, because you are looking for the right executive for your company today, not a generic executive.
In addition to acting in the role, it helps greatly to bring in domain experts. If you know a great head of sales, interview them first and learn what they think made them great. Figure out which of those strengths most directly match the needs of your company. If possible, include the domain expert in the interview process. However, be aware that the domain expert only has part of the knowledge necessary to make the hire. Specifically, she has very little knowledge of your company, how it works, and what its needs are. Therefore, you cannot defer the decision to the domain expert.
Finally, be clear in your own mind about your expectations for this person upon joining your company. What will this person do in the first thirty days? What do you expect their motivation to be for joining? Do you want them to build a large organization right away or hire only one or two people over the next year?
STEP 2. RUN A PROCESS THAT FIGURES OUT THE RIGHT MATCH
In order to find the right executive, you must now take the knowledge that you have gathered and translate it into a process that yields the right candidate. Here is the process that I like to use.
Write down the strengths you want and the weaknesses that you are willing to tolerate.
In order to ensure completeness, I find it useful to include criteria from the following subdivisions when hiring executives:
Will the executive be world-class at running the function?
Is the executive outstanding operationally?
Will the executive make a major contribution to the strategic direction of the company? This is the “are they smart enough?” criterion.
Will the executive be an effective member of the team? Effective is the key word. It’s possible for an executive to be well liked and totally ineffective with respect to the other members of the team. It’s also possible for an executive to be highly effective and profoundly influential while being totally despised. The latter is far better.
These functions do not carry equal weight for all positions. Make sure that you balance them appropriately. Generally, operational excellence is far more important for a VP of engineering or a VP of sales than for a VP of marketing or a CFO.
Develop questions that test for the criteria (see the appendix).
This effort is important even if you never ask the candidate any of the pre-prepared questions. By writing down questions that test for what you want, you will get to a level of specificity that will be extremely difficult to achieve otherwise. (See the appendix for an example of questions that I wrote for running the enterprise sales function and operational excellence.) Assemble an appropriate interview team and conduct the interviews.
Assemble the interview team.
In assembling the team, you should keep two questions in mind:
1. Who will best help you figure out whether the candidate meets the criteria? These may be internal or external people. They can be board members, other executives, or just experts.
2. Who do you need to support the decision once the executive is on board? This group is just as important as the first. No matter how great an executive is, they will have trouble succeeding if the people around them sabotage everything they do. The best way to avoid that is to understand any potential issues before the person is hired.
Clearly, some people will be in both groups one and two. The opinions of both groups will be very important: Group one will help you determine the best candidate and group two will help you gauge how easily each candidate will integrate into your company. Generally, it’s best to have group two interview finalist candidates only.
Next, assign questions to interviewers based on their talents. Specifically, make sure that the interviewer who asks the questions deeply understands what a good answer will sound like.
As you conduct the interviews, be sure to discuss each interview with the interviewer. Use this time to drive to a common understanding of the criteria, so that you will get the best information possible.
Backdoor and front-door references.
For the final candidates, it’s critically important that the CEO conduct the reference checks herself. The references need to be checked against the same hiring criteria that you tested for during the interview process. Backdoor reference checks (checks from people who know the candidate, but were not referred by the candidate) can be an extremely useful way to get an unbiased view. However, do not discount the front-door references. While they clearly have committed to giving a positive reference (or they wouldn’t be on the list), you are not looking for positive or negative with them. You are looking for fit with your criteria. Often, the front-door references will know the candidate best and will be quite helpful in this respect.
STEP 3: MAKE A LONELY DECISION
Despite many people being involved in the process, the ultimate decision should be made solo. Only the CEO has comprehensive knowledge of the criteria, the rationale for the criteria, all of the feedback from interviewers and references, and the relative importance of the various stakeholders. Consensus decisions about executives almost always sway the process away from strength and toward lack of weakness. It’s a lonely job, but somebody has to do it.
WHEN EMPLOYEES MISINTERPRET MANAGERS
Early on at Loudcloud, many people would do crazy things backed up by “Ben said.” Often I didn’t say any of it, but I definitely didn’t say it in the way they used it. The management principles I share here are connected to many of those experiences.
When I ran Opsware, we had the nonlinear quarter problem also known affectionately as the hockey stick. The hockey stick refers to the shape of the revenue graph over the course of a quarter. Our hockey stick was so bad that one quarter, we booked 90 percent of our new bookings on the last day of the quarter. Sales patterns like this make it difficult to plan the business and are particularly harrowing when you are, as we were, a public company.
Naturally, I was determined to straighten out the hockey stick and bring some sanity to the business. I designed an incentive for salespeople to close deals in the first two months of the quarter by issuing bonuses for deals in those months. As a result, the next quarter became slightly more linear, and slightly smaller than anticipated—deals just moved from the third month to the first two of the following quarter.
When I ran a large engineering group at Netscape, I measured one of our engineering products on schedule, quality, and features. The team shipped a product with all the required features, on time and with very few bugs. Unfortunately, the product was mediocre, because none of the features were that great.
When I was at HP, we ran all the businesses by the numbers with extremely strict revenue and margin targets. Some divisions made their numbers, but did so by underfunding R&D. They dramatically weakened their long-term competitive position and set themselves up for future disaster.
In all three cases, managers got what we asked for, but not what we wanted. How did this happen? Let’s take a look.
FLATTENING OUT THE HOCKEY STICK: THE WRONG GOAL
In retrospect, I should never have asked the team to flatten the quarters. If that is what I wanted, I had to be willing to—at least temporarily—accept smaller quarters. We had a fixed number of salespeople who were maximizing the size of each quarter. In order to deliver linear quarters, they had to modify their behavior and adjust their priorities. Unfortunately, I liked the old priority of maximizing revenue better.
Given the situation, I was actually pretty lucky. Sun Tzu, in his classic work The Art of War, warns that giving the team a task that it cannot possibly perform is called crippling the army. In my case, I did not cripple the team, but I screwed up my priorities. The right thing to do would have been to make the hard decision up front, about what was more important, maximizing each quarter or increasing predictability. The instruction only made sense if the answer was the second one.
FOCUSING TOO MUCH ON THE NUMBERS
In the second example, I managed the team to a set of numbers that did not fully capture what I wanted. I wanted a great product that customers would love with high quality and on time—in that order.
Unfortunately, the metrics that I set did not capture those priorities. At a basic level, metrics are incentives. By measuring quality, features, and schedule and discussing them at every staff meeting, my people focused intensely on those metrics to the exclusion of other goals. The metrics did not describe the real goals and I distracted the team as a result.
Interestingly, I see this same problem play out in many consumer Internet startups. I often see teams that maniacally focus on their metrics around customer acquisition and retention. This usually works well for customer acquisition, but not so well for retention. Why?
For many products, metrics often describe the customer acquisition goal in enough detail to provide sufficient management guidance. In contrast, the metrics for customer retention do not provide enough color to be a complete management tool. As a result, many young companies overemphasize retention metrics and do not spend enough time going deep enough on the actual user experience. This generally results in a frantic numbers chase that does not end in a great product. It’s important to supplement a great product vision with a strong discipline around the metrics, but if you substitute metrics for product vision, you will not get what you want.
MANAGING STRICTLY BY NUMBERS IS LIKE PAINTING BY NUMBERS
Some things that you want to encourage will be quantifiable, and some will not. If you report on the quantitative goals and ignore the qualitative ones, you won’t get the qualitative goals, which may be the most important ones. Management purely by numbers is sort of like painting by numbers—it’s strictly for amateurs.
At HP, the company wanted high earnings now and in the future. By focusing entirely on the numbers, HP got them now by sacrificing the future.
Note that there were many numbers as well as more qualitative goals that would have helped:
Was our competitive win rate increasing or declining?
Was customer satisfaction rising or falling?
What did our own engineers think of the products?
By managing the organization as though it were a black box, some divisions at HP optimized the present at the expense of their downstream competitiveness. The company rewarded managers for achieving short-term objectives in a manner that was bad for the company. It would have been better to take into account the white box. The white box goes beyond the numbers and gets into how the organization produced the numbers. It penalizes managers who sacrifice the future for the short term and rewards those who invest in the future even if that investment cannot be easily measured.
CLOSING THOUGHT
It is easy to see that there are many ways for leaders to be misinterpreted. To get things right, you must recognize that anything you measure automatically creates a set of employee behaviors. Once you determine the result you want, you need to test the description of the result against the employee behaviors that the description will likely create. Otherwise, the side-effect behaviors may be worse than the situation you were trying to fix.
Thanks to Ward Cunningham, the computer programmer who designed the first wiki, the metaphor “technical debt” is now a well-understood concept. While you may be able to borrow time by writing quick and dirty code, you will eventually have to pay it back—with interest. Often this trade-off makes sense, but you will run into serious trouble if you fail to keep the trade-off in the front of your mind. There also exists a less understood parallel concept, which I will call management debt.
Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Like technical debt, the trade-off sometimes makes sense, but often does not. More important, if you incur the management debt without accounting for it, then you will eventually go management bankrupt.
Like technical debt, management debt comes in too many different forms to elaborate entirely, but a few salient examples will help explain the concept. Here are three of the more popular types among startups:
1. Putting two in the box
2. Overcompensating a key employee, because she gets another job offer
3. No performance management or employee feedback process
PUTTING TWO IN THE BOX
What do you do when you have two outstanding employees who logically both fit in the same place on the organizational chart? Perhaps you have a world-class architect who is running engineering, but she does not have the experience to scale the organization to the next level. You also have an outstanding operational person who is not great technically. You want to keep both in the company, but you only have one position. So you get the bright idea to put “two in the box” and take on a little management debt. The short-term benefits are clear: you keep both employees, you don’t have to develop either because they will theoretically help each other develop, and you instantly close the skill set gap. Unfortunately, you will pay for those benefits with interest and at a very high rate.
For starters, by doing this you will make every engineer’s job more difficult. If an engineer needs a decision made, which boss should she go to? If that boss decides, will the other boss be able to override it? If it’s a complex decision that requires a meeting, does she have to schedule both heads of engineering for the meeting? Who sets the direction for the organization? Will the direction actually get set if doing so requires a series of meetings?
In addition, you have removed all accountability. If schedules slip, who is accountable? If engineering throughput becomes uncompetitive, who is responsible? If the operational head is responsible for the schedule slip and the technical head is responsible for throughput, what happens if the operational head thrashes the engineers to make the schedule and kills throughput? How would you know that she did that? The really expensive part about both of these things is that they tend to get worse over time. In the very short term you might mitigate their effects with extra meetings or by attempting to carve up the job in a clear way. However, as things get busy, those once-clear lines will fade and the organization will degenerate. Eventually, you’ll either make a lump-sum payment by making the hard decision and putting one in the box or your engineering organization will suck forever.
OVERCOMPENSATING A KEY EMPLOYEE BECAUSE SHE GETS ANOTHER JOB OFFER
An excellent engineer decides to leave the company because she gets a better offer. For various reasons, you were undercompensating her, but the offer from the other company pays more than any engineer in your company and the engineer in question is not your best engineer. Still, she is working on a critical project and you cannot afford to lose her. So you match the offer. You save the project, but you pile on the debt.
Here’s how the payment will come due. You probably think that your counteroffer was confidential because you’d sworn her to secrecy. Let me explain why it was not. She has friends in the company. When she got the offer from the other company, she consulted with her friends. One of her best friends advised her to take the offer. When she decided to stay, she had to explain to him why she disregarded his advice or else lose personal credibility. So she told him and swore him to secrecy. He agreed to honor the secret but was incensed that she had to threaten to quit in order to get a proper raise. Furthermore, he was furious that you overcompensated her. So he told the story to a few of his friends, but kept her name confidential to preserve the secret. And now everyone in engineering knows that the best way to get a raise is to generate an offer from another company and then threaten to quit. It’s going to take a while to pay off that debt.
NO PERFORMANCE MANAGEMENT OR EMPLOYEE FEEDBACK PROCESS
Your company now employs twenty-five people and you know that you should formalize the performance management process, but you don’t want to pay the price. You worry that doing so will make it feel like a “big company.” Moreover, you do not want your employees to be offended by the feedback, because you can’t afford to lose anyone right now. And people are happy, so why rock the boat? Why not take on a little management debt?
The first noticeable payments will be due when somebody performs below expectations:
CEO: “He was good when we hired him; what happened?”
Manager: “He’s not doing the things that we need him to do.”
CEO: “Did we clearly tell him that?”
Manager: “Maybe not clearly . . .”
However, the larger payment will be a silent tax. Companies execute well when everybody is on the same page and everybody is constantly improving. In a vacuum of feedback, there is almost no chance that your company will perform optimally across either dimension. Directions with no corrections will seem fuzzy and obtuse. People rarely improve weakness they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.
IN THE END
Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organizational issues. If faced with giving everyone the same bonus to make things easy or with sharply rewarding performance and ruffling many feathers, they’ll ruffle the feathers. If given the choice of cutting a popular project today, because it’s not in the long-term plans or you’re keeping it around for morale purposes and to appear consistent, they’ll cut it today. Why? Because they’ve paid the price of management debt, and they would rather not do that again.
Everyone in the technology industry seems to agree that people are paramount, yet nobody seems to be on the same page with what the people organization—human resources—should look like.
The problem is that when it comes to HR, most CEOs don’t really know what they want. In theory, they want a well-managed company with a great culture. Instinctively they know that an HR organization probably can’t deliver that. As a result, CEOs usually punt on the issue and implement something that’s suboptimal, if not worthless.
Ironically one of the first things you learn when you run an engineering organization is that a good quality assurance organization cannot build a high-quality product, but it can tell you when the development team builds a low quality product. Similarly, a high quality human resources organization cannot make you a well-managed company with a great culture, but it can tell you when you and your managers are not getting the job done.
THE EMPLOYEE LIFE CYCLE
The best way to approach management quality assurance is through the lens of the employee life cycle. From hire to retire, how good is your company? Is your management team world-class in all phases? How do you know?
A great HR organization will support, measure, and help improve your management team. Some of the questions they will help you answer:
Recruiting and Hiring
Do you sharply understand the skills and talents required to succeed in every open position?
Are your interviewers well prepared?
Do your managers and employees do an effective job of selling your company to prospective employees?
Do interviewers arrive on time?
Do managers and recruiters follow up with candidates in a timely fashion?
Do you compete effectively for talent against the best companies?
Compensation
Do your benefits make sense for your company demographics?
How do your salary and stock option packages compare with the companies that you compete with for talent?
How well do your performance rankings correspond to your compensation practices?
Training and Integration
When you hire an employee, how long does it take them to become productive from the perspective of the employee, her peers, and her manager?
Shortly after joining, how well does an employee understand what’s expected of her?
Performance Management
Do your managers give consistent, clear feedback to their employees?
What is the quality of your company’s written performance reviews?
Did all of your employees receive their reviews on time?
Do you effectively manage out poor performers?
Motivation
Are your employees excited to come to work?
Do your employees believe in the mission of the company?
Do they enjoy coming to work every day?
Do you have any employees who are actively disengaged?
Do your employees clearly understand what’s expected of them?
Do employees stay a long time or do they quit faster than normal?
Why do employees quit?
REQUIREMENTS TO BE GREAT AT RUNNING HR
What kind of person should you look for to comprehensively and continuously understand the quality of your management team? Here are some key requirements:
World-class process design skills Much like the head of quality assurance, the head of HR must be a masterful process designer. One key to accurately measuring critical management processes is excellent process design and control.
A true diplomat Nobody likes a tattletale and there is no way for an HR organization to be effective if the management team doesn’t implicitly trust it. Managers must believe that HR is there to help them improve rather than police them. Great HR leaders genuinely want to help the managers and couldn’t care less about getting credit for identifying problems. They will work directly with the managers to get quality up and only escalate to the CEO when necessary. If an HR leader hoards knowledge, makes power plays, or plays politics, he will be useless.
Industry knowledge Compensation, benefits, best recruiting practices, etc. are all fast-moving targets. The head of HR must be deeply networked in the industry and stay abreast of all the latest developments.
Intellectual heft to be the CEO’s trusted adviser None of the other skills matter if the CEO does not fully back the head of HR in holding the managers to a high quality standard. In order for this to happen, the CEO must trust the HR leader’s thinking and judgment.
Understanding things unspoken When management quality starts to break down in a company, nobody says anything about it, but super-perceptive people can tell that the company is slipping. You need one of those.