The Hard Thing About Hard Things, page 13
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.
MANAGEMENT QUALITY ASSURANCE
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.
— CHAPTER 6 —
CONCERNING THE GOING CONCERN
“This ain’t for no fuck niggas
If you a real nigga then fuck with me.”
—TRINIDAD JAMES, “ALL GOLD EVERYTHING”
One day in a staff meeting in the Loudcloud/Opsware days, someone brought up an issue that had been bothering him for some time. “This place is entirely too profane. It’s making many of the employees uncomfortable.” Others chimed in: “It makes the environment unprofessional. We need to put a stop to it.” Although the complaints were abstract, they were clearly directed at me since I was the biggest abuser of profanity in the company and perhaps in the industry. In those days, I directed the team with such urgency that it was rare for me to say more than a few sentences without an expletive injected somewhere.
Part of it was intentional. I only had so much time with each employee and it was critically important that I be crystal clear in those moments. Nothing makes things clear like a few choice curse words. “That is not the priority” is radically weaker than “That is not the fucking priority.” When the CEO drops the F-bomb, it gets repeated. And that’s good if you want your message to spread throughout the company. (On the other hand, it’s extremely bad if you don’t want your employees talking like a bunch of gangsta rappers.) But part of it was also unintentional. At this point, I could barely control myself. This was not an easy company to run, and I’d developed CEO Tourette’s syndrome—the profanity was involuntary.
Since the complaints seemed broad and deep, I had to take them seriously. I thought hard about it that night and considered the following.
In the technology business, some employees would be comfortable with profanity while others would not.
If we outlawed profanity, then some employees who used it would not come to work for us or quit once they got there because we would seem old-fashioned and prudish.
If we kept profanity, some people might leave.
My judgment was biased, because I was the main offender.
After much consideration, I realized that the best technology companies of the day, Intel and Microsoft, were known to be highly profane places, so we’d be off culture with them and the rest of the modern industry if we stopped profanity. Obviously, that didn’t mean that we had to encourage it, but prohibiting it seemed both unrealistic and counterproductive. Attracting the very best engineers meant recruiting from highly profane environments. The choice was between optimizing for top talent or clean culture. Easy decision.
I decided to keep the cursing, but I also needed to make a statement. People had complained and had run this issue all the way up the organization, and they deserved an explanation. Explaining things would be tricky, because profanity did not work in all contexts. We certainly could not tolerate profanity used to intimidate or sexually harass employees, so I needed to make the distinction clear. Approving profanity only in certain contexts was a tricky message to craft.
That night I watched a disturbing movie from the late 1970s called Short Eyes, which told the graphic story of a child molester who went to prison and confronted the one clear prison ethic: Child molesters must die. One of the characters in the movie was a young man referred to by the other inmates as “Cupcakes.”
Hard to believe, but watching that movie, I found my solution.
The next day, I gave the following speech at the all-company meeting:
“It has come to my attention that many people are uncomfortable with the amount of profanity that we use. Being the number-one abuser, these complaints have caused me to reflect on my own behavior as well as the company as a whole. As I see it, we have two choices: (a) we can ban profanity or (b) we can accept profanity. Anything in between is very unlikely to work. ‘Minimal profanity’ cannot be enforced. I’ve said before that we cannot win unless we attract the very best people in the world. In the technology industry, almost everybody comes from a culture that allows profanity. Therefore, banning profanity will likely limit our talent pool more than accepting profanity. As a result, we will allow profanity. However, this does not mean that you can use profanity to intimidate, sexually harass people, or do other bad things. In this way, profanity is no different from other language. For example, consider the word ‘cupcakes.’ It’s fine for me to say to Shannon, ‘Those cupcakes you baked look delicious.’ But it is not okay for me to say to Anthony, ‘Hey, Cupcakes, you look mighty fine in them jeans.’ ”
And that was all I said about that.
After that day, I never heard another complaint about profanity and I don’t think we lost anybody because of the policy. Sometimes an organization doesn’t need a solution; it just needs clarity. Once I made it clear that cursing was okay—so long as it wasn’t used to intimidate or harass—nobody had a problem with it anymore. At least as far as I knew. Bottom line, the results of the policy were good: a comfortable work environment, low attrition, and no complaining. Sometimes the right policy is the one that the CEO can follow.
As a company grows, it will change. No matter how well you set your culture, keep your spirit, or slow-roll your growth, your company won’t be the same when it’s one thousand people as it was when it was ten people. But that doesn’t mean that it can’t be a good company when it reaches 1,000, 10,000, or even 100,000 employees. It will just be different. Making it good at scale means admitting that it must be different and embracing the changes that you’ll need to make to keep things from falling apart. This chapter explains some of the changes that you will need to make.
HOW TO MINIMIZE POLITICS IN YOUR COMPANY
In all my years in business, I have yet to hear someone say, “I love corporate politics.” On the other hand, I meet plenty of people who complain bitterly about corporate politics—sometimes even in the companies they run. So, if nobody loves politics, why all the politics?
Political behavior almost always starts with the CEO. Now you may be thinking, “I hate politics, I’m not political, but my organization is very political. I clearly didn’t cause this.” Sadly, you needn’t be political to create extreme political behavior in your organization. In fact, it’s often the least political CEOs who run the most ferociously political organizations. Apolitical CEOs frequently—and accidentally—encourage intense political behavior.
What do I mean by politics? I mean people advancing their careers or agendas by means other than merit and contribution. There may be other types of politics, but politics of this form seem to be the ones that really bother people.
HOW IT HAPPENS
A CEO creates politics by encouraging and sometimes incentivizing political behavior—often unintentionally. As a very simple example, let’s consider executive compensation. When you are CEO, senior employees will come to you from time to time and ask for an increase in compensation. They may suggest that you are paying them far less than their current market value. They may even have a competitive offer in hand. Faced with this confrontation, if the request is reasonable, you might investigate the situation. You might even give the employee a raise. This may sound innocent, but you have just created a strong incentive for political behavior.
