The Hard Thing About Hard Things, page 12
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.
MANAGEMENT DEBT
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.
