Paraphrases and genuine quotes completely jumbled together. Chaos.
Why it’s hard to bring big company executives into little companies
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 responsible for quality control), know how to create processes from scratch, and be extremely creative about initiating new directions and tasks.
Two key steps to avoiding disaster:
- Screen for devastating mismatches in the interview process.
- Take integration as seriously as interviewing.
Screening questions (executive)
- What will you do in your first month on the job?
- Beware of answers that over-emphasize learning. This may indicate that the candidate thinks there is more to learn about your organization than there actually is.
- How will your new job differ from your current job? (test self-awareness)
- Why do you want to join a small company? (Beware answer: equity. Green light: creativity)
Integration (executive)
- Force them to create.
- Make sure they “get it.” Bring them up to speed fast. If in 30 days you don’t feel they are coming up to speed, definitely fire them.
- Put them in the mix. Give them a list of people they need to know and learn from.
Hiring executives: If you’ve never done the job, how do you hire somebody good?
Key difference between functional manager and general manager: general manager must hire and manage people who are far more competent at their jobs than you would be at their jobs.
The very best way to know what you want is to act in the role.
You are looking for the right executive for your company today, not a generic executive.
Backdoor reference checks 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, you are not looking for positive or negative with them. You are looking for fit with your criteria.
Despite many people being involved in the process, the ultimate [executive hire] decision should be made solo. […] Consensus decisions about executives almost always sway the process away from strength and toward lack of weakness.
metrics are incentives
No performance management or employee feed-back process
Your company now employs 25 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 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: [example dialog]. 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 weaknesses they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.
Requirements to be great at running HR
- World-class process design skills
- A true diplomat
- Industry knowledge (deeply networked in the industry and abreast of compensation and recruiting practices)
- Intellectual heft to be the CEO’s trusted adviser (CEO must trust HR leader’s 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.)
In addition, you tell him that he’ll need to be a strong enough leader, such that other executives in the company want to work for him.
Techniques to minimize politics
- Hire people with the right kind of ambition (sublimated into mission and company success)
- Build strict processes for potentially political issues and do not deviate. Examples: (A) performance eval and comp (B) org design and (C) territory/promotions
CEO should have had an airtight performance and comp policy and simply told the executive that his compensation would be evaluated with everyone else’s.
You should evaluate your organizational design on a regular basis and gather the information that you need to decide without tipping people off to what you plan to do.
Be careful with “he said, she said”
Two distinct types of complaints: (1) executive behavior (2) competency
For the first type, get the complaining and targeted executive together in the same room and have them explain themselves. If the second type, either you either already know or it’s a big shock. If you already know, you let it get too far and now the org is turning on them. You will almost certainly need to fire. If the news is actually a shock, then you must immediately stop the conversation and make clear to the complaining executive that you in no way agree with their assessment. You do not want to cripple the other executive before you reevaluate his performance.
As CEO, you must consider the systemic incentives that result from your words and actions. While it may feel good in the moment to be open, responsive, and action oriented, be careful not to encourage all the wrong things.
Nothing motivates a great employee more than a mission that’s so important that it supersedes everyone’s personal ambition.
Positive example of executive hire
When the conversation turned to Opsware, Mark had already interviewed sales reps at our number one competitor’s company and knew what deals they were in. He relentlessly questioned me on how we were going to win the deals that they were in and how we planned to get into the deals that we weren’t in. He wanted to know the strengths and weaknesses of everyone else on the team. He wanted to know the game plan for winning. The topics of his potential compensation and career advancement didn’t come up until the very end of the process. And then he only wanted assurances that the compensation was performance- and not politically based. It was clear that Mark was all about the team and its success. During Mark’s tenure, sales increased more than tenfold, and our market cap increased twentyfold.
Peter Principle
The Peter Principle is unavoidable because there is no way to know a priori at what level in the hierarchy a manager will be incompetent.
Titles
You might think that so much time spent on promotions and titles places too much importance and focus on silly formalisms. The opposite is true. Without a well thought out, disciplined process for title and promotions, your employees will become obsessed with the resulting inequities. If you structure things properly, nobody other than you will spend much time thinking about titles other than Employee of the Month.
Hiring
Hiring someone who has already done what you are trying to do can radically speed up your time to success. But CEO, beware: Hiring senior people into a startup is kind of like an athlete taking performance-enhancing drugs. If all goes well, you will achieve incredible new heights. If all goes wrong, you will start degenerating from the inside out.
One good test for determining whether to go with outside experience versus internal promotion is to figure out whether you value inside knowledge or outside knowledge more for the position. […] This is when the head of engineering gets promoted from within, she often succeeds. When the head of sales gets promoted from within, she almost always fails.
One-on-Ones
The key to a good one-on-one meeting is the understanding that it is the employee’s meeting rather than the manager’s meeting.
Questions for drawing out key issues
- If we could improve in any way, how would we do it?
- What’s the number one problem with our organization? Why?
- What’s not fun about working here?
- Who is really killing it here? Whom do you admire?
- If you were me, what changes would you make?
- What didn’t you like about the product?
- What is the biggest opportunity that we’re missing out on?
- What are we not doing that we should be doing?
- Are you happy working here?
Programming your Culture
Designing a way of working that will:
- Distinguish you from competitors
- Ensure that critical operating values persist
- Help you identify employees who for with your mission
“That’s related to the truth but not actually true.”
Ideally, a cultural design point will be trivial to implement but have far-reaching behavioral consequences. Key to this kind of mechanism is shock value.
Scaling
“When you scale an organization, you will also need to give ground grudgingly. Specialization, organizational structure, and process all complicate things and implementing them will feel like you are moving away from common knowledge and quality communication. It is very much like the offensive lineman taking a step backwards. You will lose ground, but you will prevent your company from descending into chaos. At the point when adding people into the company feels more like more work than the work that you can off-load to the new employees, the defensive lineman has run around you and you probably need to start giving ground drudgingly. […] As the company grows, it becomes increasingly difficult to add new engineers, because the learning curve starts to get super-steep. Getting a new engineer up to speed starts to become more difficult than doing the work yourself. At this point, you need to specialize.”
Org Design
Your goal is to choose the least of all evils. Think of the organizational design as the communications architecture for your company. If you want people to communicate, the best way to accomplish that is to make them report to the same manager.
- Figure out what needs to be communicated. Start by listing the most important knowledge and who needs to have it.
- Figure out what needs to be decided. Consider the types of decisions that must get made on a frequent basis.
- Prioritize the most important communication and decision paths.
- Decide who’s going to run each group. Notice this is the fourth step, not the first. You want to optimize the organization for the people – for the people doing the work – not for the managers. Most large mistakes in organizational design come from putting the individual ambitions of the people at the top of the organization ahead of the communication paths fro the people at the bottom of the organization. Making this step four will upset your managers, but they will get over it.
- Identify the paths that you did not optimize.
- Build a plan for mitigating the issues identified in step five.
Process
The purpose of process is communication.
A process is a formal, well-structured communication vehicle.
If you are looking for the first process to implement in your company, consider the interview process.
Will people scale?
As CEO, you must constantly evaluate all the members of your team. However, evaluating people against the future needs of the company based on a theoretical view of how they will perform is counterproductive, for the following reasons:
- Managing at scale is a learned skill rather than a natural ability.
- It’s nearly impossible to make the judgment in advance.
- The act of judging people in advance will retard their development.
- Hiring scalable execs too early is a bad mistake. If you judge your team in advance and have a high sense of urgency, you will bring in executives who can manage at scale in advance of needing them. Unfortunately, you will probably ignore their ability to do the job for the next 12 months, which is the only relevant measure. As a result, you will swap out good executives for worse ones.
- You still have to make the judgment at the actual point in time when you hit the higher level of scale.
- It’s no way to live your life or run an organization. Deciding (with woefully incomplete data) that someone who works their butt off, does a terrific job, and loyally contributes to your mission won’t be with you three years from now takes you to a dark place. It’s a place of information hiding, dishonesty, and stilted communication. It’s a place where prejudice substitutes for judgment. It’s a place where judgment replaces teaching. It’s a place were teamwork becomes internal warfare. Don’t go there.
Mental Toughness and Attributes
The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown.
As a VC, I have had the freedom to say what I want and what I really think without worrying what everybody else thinks. As a CEO, there is no such luxury. As CEO, I had to worry about what everybody else thought. In particular, I could not show weakness in public. It would not have been fair to the employees, the executives, or the public company shareholders. Unrelenting confidence was necessary.
The only thing that prepares you to run a company is running a company.
Recently, a large company offered to buy one of our portfolio companies. The deal was lucrative and compelling given the portfolio company’s progress to date and revenue level. The founder CEO (I’ll call him Hamlet — not his real name) thought that selling did not make sense due to the giant market opportunity that he was pursuing, but he still wanted to make sure that he made the best possible choice for investors and employees. Hamlet wanted to reject the offer, but only marginally. To complicate matters, most of the management team and the board thought the opposite. It did not help that the board and the management team were far more experienced than Hamlet. As a result, Hamlet spent many sleepless nights worrying about whether he was right. He realized that it was impossible to know. This did not help him sleep. In the end, Hamlet made the best and most courageous decision he could and did not sell the company. I believe that will prove to be the defining moment of his career. Interestingly, as soon as Hamlet made the decision, the entire board and executive team immediately embraced the choice. Why? If they wanted to sell the company enough to advise the CEO to give up his dream, how could they reverse so quickly? It turns out that the most important data point driving their earlier preference for selling the company was Hamlet’s initial ambivalence [indecision] — the team supported the decision they thought the CEO wanted. Hamlet did not realize this and interpreted their desire to sell to be the result of a thorough analysis. Luckily for everybody involved, he had the courage to make the right decision.
CEO transition is hard. If you bring people in from outside, you lower your chances for success. If you promote from within, you must deal with the One-Two phenomenon. Ideally you’ll promote a One and the rest of the executive team will be glad you did. Too bad things are rarely ideal.
So what makes people want to follow a leader? We look for three key traits:
- The ability to articulate the vision [Steve Jobs]
- The right kind of ambition / aligning interests / caring [Bill Campbell]
- The ability to achieve the vision [Andy Grove]
Andy Grove: “All I have in this world is my time, and you are wasting my time.”
Peacetime CEO / Wartime CEO
Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win.
Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO care about a speck of dust on a gnat’s ass if it interferes with the prime directive.
Peacetime CEO builds scalable, high volume recruiting machines. Wartime CEO does that, but also builds HR organizations that can execute layoffs.
Peacetime CEO spends time defining culture. Wartime CEO lets the war define the culture.
Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes you gotta roll a hard six.
Peacetime CEO knows what to do with a big advantage. Wartime CEO is paranoid.
Peacetime CEO strivies not to use profanity. Wartime CEO sometimes uses profanity purposefully.
Peacetime CEO thinks of the competition as other ships in a big ocean that may never engage. Wartime CEO thinks the competition is sneaking into her house and trying to kidnap her children.
Peacetime CEO aims to expand the market. Wartime CEO aims to win the market.
Peacetime CEO strives to tolerate deviations from the plan when coupled with effort and creativity. Wartime CEO is completely intolerant.
Peacetime CEO does not raise her voice. Wartime CEO rarely speaks in a normal tone.
Peacetime CEO works to minimize conflict. Wartime CEO heightens the contradictions.
Peacetime CEO strives to broad-based buy-in. Wartime CEO neither indulges consensus building nor tolerates disagreements.
Peacetime CEO sets big, hairy audacious goals. Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand.
Peacetime CEO trains her employees to ensure satisfaction and career development. Wartime CEO trains her employees so they don’t get their asses shot off in battle.
Peacetime CEO has rules like “we’re going to exit all businesses where we’re not number one or two.” Wartime CEO often has no businesses that are number one or two and therefore does not have the luxury of following that rule.
Even the most basic CEO building blocks will feel unnatural at first. If you buddy tells you a funny story, it would feel quite weird to evaluate her performance. It would be totally unnatural to say, “Gee, I thought that story really sucked. It had potential, but you were underwhelming on the buildup and then you totally flubbed the punch line. I suggest that you go back, rework it, and present it to me again tomorrow.”
Doing so would be quite bizarre, but evaluating people’s performances and constantly giving feedback is precisely what CEO must do. If she doesn’t, the more complex motions such as writing reviews, taking away territory, handling politics, setting compensation, and firing people will be either impossible or handled rather poorly.
Giving feedback turns out to be the unnatural atomic building block upon which the unnatural skill set of management gets build.
As CEO, you should have an opinion on absolutely everything.
Does the CEO know what to do?
Two facets:
- Strategy: In good companies, the story and the strategy are the same thing. As a result, the proper output of all the strategic work is the story.
- Decision making: At the detailed level, the output of knowing what to do is the speed and quality of the CEO’s decisions.
A company without a story is usually a company without a strategy.
Great decisions come from CEOs who display an elite mixture of intelligence, logic, and courage.
Accountability vs. Creativity Paradox Solution
- Accountability for effort (yes)
- Accountability for promises (yes on inputs/process)
- Accountability for results (depends)
- How experienced is the person?
- How hard was the task?
- Was the original risk good to take?
There are two kinds of cultures in this world: cultures where what you do matters and cultures where all that matters is who you are. You can be the former or you can suck.
Holding people to a high standard (con’t)
- You did not know everything when you hired her. While it feels awkward, it is perfectly reasonable to change and raise your standards as you learn more about what’s needed and what’s competitive in your industry.
- You get leverage. If you find yourself as busy as you were with that function before you hired or promoted the executive, then she is below standard.
- As CEO, you can do very little employee development. […] The demands of the job made is such that the people who reported to me had to be 99 percent ready to perform.
What about loyalty?
The answer is that your loyalty must go to your employees — the people who report to your executives. […] You owe them a world-class management team. That’s the priority.
End
Embrace your weirdness, your background, your instinct. If the keys are not in there, they do not exist. I can relate to what they’re going through, but I cannot tell them what to do. I can only help them find it in themselves.