The Hard Thing About Hard Things, page 15
Beyond these core reasons, employees will use titles to calibrate their value and compensation against their colleagues. If an employee with a title of Junior Engineer believes that she is a far better programmer than her counterpart with the title Senior Architect, this will indicate to her that she may be underpaid and undervalued. Because titles will be used to calculate relative value, they must be managed carefully.
THE DANGERS: THE PETER PRINCIPLE AND THE LAW OF CRAPPY PEOPLE
The basics seem obvious, so why does almost every company eventually make serious mistakes regarding titles? If you have ever worked in a company, you have probably thought to yourself about some overly promoted executive: “How did he get to be a vice president? I wouldn’t let him manage a lemonade stand.”
One challenge is the Peter Principle. Coined by Dr. Laurence J. Peter and Raymond Hull in their 1969 book of that name, the Peter Principle holds that in a hierarchy, members are promoted so long as they work competently. Sooner or later they are promoted to a position at which they are no longer competent (their “level of incompetence”), and there they remain being unable to earn further promotions. As Andy Grove points out in his management classic High Output Management, 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.
Another challenge is a phenomenon that I call the Law of Crappy People. The Law of Crappy People states: For any title level in a large organization, the talent on that level will eventually converge to the crappiest person with the title.
The rationale behind the law is that the other employees in the company with lower titles will naturally benchmark themselves against the crappiest person at the next level. For example, if Jasper is the worst vice president in the company, then all of the directors will benchmark themselves against Jasper and demand promotions as soon as they reach his low level of competency.
As with the Peter Principle, the best that you can do is to mitigate the Law of Crappy People and that mitigation will be critically important to the quality of your company.
PROMOTION PROCESS
The best way to mitigate both the Peter Principle and the Law of Crappy People is with a properly constructed and highly disciplined promotion process. Ideally, the promotion process should yield a result similar to the very best karate dojos. In top dojos, in order to achieve the next level (for example, being promoted from a brown belt to a black belt), you must defeat an opponent in combat at that level. This guarantees that a new black belt is never a worse fighter than the worst current black belt.
Frustratingly, there is no exact analogue to a fistfight in business, so how can we preserve quality without actual combat?
To begin, start with an extremely crisp definition not only of the responsibilities at each level but also of the skill required to perform the duties. When describing the skills, avoid the generic characterizations such as “must be competent at managing a P&L” or “must have excellent management skills.” In fact, the best leveling tools get extremely specific and even name names: “should be a superstar recruiter—as good as Jenny Rogers.”
Next, define a formal process for all promotions. One key requirement of the process should be that promotions will be leveled across groups. If you let a manager or a single chain of command determine promotions unilaterally, then it’s possible that, for example, HR will have five vice presidents and Engineering only one. One way to level across groups is to hold a regular promotions council that reviews every significant promotion in the company. When a manager wishes to promote an employee, she will submit that employee for review with an explanation of why she believes her employee satisfies the skill criteria required for the level. The committee should then compare the employee with both the level’s skill description and the skills of the other employees at that level to determine whether to approve the promotion. In addition to ensuring fairness and level quality, this process will serve to educate your entire management team on the skills and accomplishments of the employees being submitted for promotion.
ANDREESSEN VS. ZUCKERBERG: HOW BIG SHOULD THE TITLES BE?
Should your company make Vice President the top title or should you have Chief Marketing Officers, Chief Revenue Officers, Chief People Officers, and Chief Snack Officers? There are two schools of thought regarding this, one represented by Marc Andreessen and the other by Mark Zuckerberg.
Andreessen argues that people ask for many things from a company: salary, bonus, stock options, span of control, and titles. Of those, title is by far the cheapest, so it makes sense to give the highest titles possible. The hierarchy should have Presidents, Chiefs, and Senior Executive Vice Presidents. If it makes people feel better, let them feel better. Titles cost nothing. Better yet, when competing for new employees with other companies, using Andreessen’s method you can always outbid the competition in at least one dimension.
At Facebook, by contrast, Mark Zuckerberg purposely deploys titles that are significantly lower than the industry standard. Senior Vice Presidents at other companies must take title haircuts down to Directors or Managers at Facebook. Why does he do this? First, he guarantees that every new employee gets releveled as they enter his company. In this way, he avoids accidentally giving new employees higher titles and positions than better-performing existing employees. This boosts morale and increases fairness. Second, it forces all the managers of Facebook to understand and internalize Facebook’s leveling system, which serves the company extremely well in their own promotion and compensation processes.
He also wants titles to be meaningful and reflect who has influence in the organization. As a company grows quickly, it’s important to provide organizational clarity wherever possible and that gets more difficult if there are fifty VPs and ten Chiefs.
Next, he finds that businesspeople often carry inflated titles versus their engineering counterparts. While he recognizes that big titles help them out externally with getting meetings, he still wants to have an organization where the product people and engineers form the cultural core, so he strives to keep this in check as well.
Does Facebook ever miss out on a new hire due to its low titles? Yes, definitely. But one might argue that they miss out on precisely the employees they don’t want. In fact, both the hiring and onboarding processes at Facebook have been carefully designed to encourage the right kind of employees to select themselves in and the wrong ones to select themselves out.
So which method is better, Andreessen’s or Zuckerberg’s? The answer is that it depends. Facebook has so many advantages in recruiting employees that being disciplined about absolute title levels does not significantly impair its ability to attract the very best talent. Your company might not have these advantages, so lofty titles may be a good tactic. In either scenario, you should still run a highly disciplined internal leveling and promotion process.
FINAL THOUGHT
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 titles 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.
WHEN SMART PEOPLE ARE BAD EMPLOYEES
In business, intelligence is always a critical element in any employee, because what we do is difficult and complex and the competitors are filled with extremely smart people. However, intelligence is not the only important quality. Being effective in a company also means working hard, being reliable, and being an excellent member of the team.
When I was a CEO, this was one of the most difficult lessons for me to learn. I felt that it was my job to create an environment where brilliant people of all backgrounds, personality types, and work styles would thrive. And I was right. That was my job. Companies where people with diverse backgrounds and work styles can succeed have significant advantages in recruiting and retaining top talent over those that don’t. Still, you can take it too far. And I did.
Here are three examples of the smartest people in the company being the worst employees.
EXAMPLE 1: THE HERETIC
Any sizable company produces some number of strategies, projects, processes, promotions, and other activities that don’t make sense. No large organization achieves perfection. As a result, a company needs lots of smart, super-engaged employees who can identify its particular weaknesses and help it improve them.
However, sometimes a really smart employee develops an agenda other than improving the company. Rather than identifying weaknesses so that he can fix them, he looks for faults to build his case. Specifically, he builds his case that the company is hopeless and run by a bunch of morons. The smarter the employee, the more destructive this type of behavior can be. Simply put, it takes a really smart person to be maximally destructive, because otherwise nobody else will listen to him.
Why would a smart person try to destroy the company that he works for? There are actually many reasons. Here are a few:
1. She is disempowered. She feels that she cannot access the people in charge and, as a result, complaining is her only vehicle to get the truth out.
2. She is fundamentally a rebel. She will not be happy unless she is rebelling; this can be a deep personality trait. Sometimes these people actually make better CEOs than employees.
3. She is immature and naive. She cannot comprehend that the people running the company do not know every minute detail of the operation and therefore they are complicit in everything that’s broken.
Often, it’s very difficult to turn these kinds of cases around. Once an employee takes a public stance, the social pressure for him to be consistent is enormous. If he tells fifty of his closest friends that the CEO is the stupidest person on the planet, then reversing that position will cost him a great amount of credibility the next time he complains. Most people are not willing to take the hit to their credibility.
EXAMPLE 2: THE FLAKE
Some brilliant people can be totally unreliable. At Opsware, we once hired an unequivocal genius—Arthur (not his real name) was an engineer in an area of the product where a typical new hire would take three months to become fully productive. Arthur got fully up to speed in two days. On his third day, we gave him a project that was scheduled to take one month. Arthur completed the project in three days with nearly flawless quality. More specifically, he completed the project in seventy-two hours. Seventy-two nonstop hours: No stops, no sleep, no nothing but coding. In his first quarter on the job, he was the best employee that we had and we immediately promoted him.
Then Arthur changed. He would miss days of work without calling in. Then he would miss weeks of work. When he finally showed up, he apologized profusely, but the behavior didn’t stop. His work product also degraded. He became sloppy and unfocused. I could not understand how such a stellar employee could go so haywire. His manager wanted to fire him, because the team could no longer count on Arthur for anything. I resisted. I knew that the genius was still in him and I wanted us to find it. We never did. It turned out that Arthur was bipolar and had two significant drug problems: (1) He did not like taking his bipolar medication and (2) he was addicted to cocaine. Ultimately, we had to fire Arthur, but even now, it pains me to think about what might have been.
One need not be bipolar to be a flake, but flaky behavior often has a seriously problematic root cause. Causes range from self-destructive streaks to drug habits to moonlighting for other employers. A company is a team effort and, no matter how high an employee’s potential, you cannot get value from him unless he does his work in a manner in which he can be relied upon.
EXAMPLE 3: THE JERK
This particular smart-bad-employee type can occur anywhere in the organization but is most destructive at the executive level. Most executives can be pricks, dicks, a-holes, or a variety of other profane nouns at times. Being dramatically impolite can be used to improve clarity or emphasize an important lesson. That’s not the behavior that I am talking about.
When used consistently, asinine behavior can be crippling. As a company grows, its biggest challenge always becomes communication. Keeping a huge number of people on the same page executing the same goals is never easy. If a member of your staff is a raging jerk, it may be impossible. Some people are so belligerent in their communication style that people just stop talking when they are in the room. If every time anyone brings up an issue with the marketing organization, the VP of marketing jumps down their throats, then guess what topic will never come up? This behavior can become so bad that nobody brings up any topic when the jerk is in the room. As a result, communication across the executive staff breaks down and the entire company slowly degenerates. Note that this only happens if the jerk in question is unquestionably brilliant. Otherwise, nobody will care when she attacks them. The bite only has impact if it comes from a big dog. If one of your big dogs destroys communication on your staff, you need to send her to the pound.
WHEN DO YOU HOLD THE BUS?
The great football coach John Madden was once asked whether he would tolerate a player like Terrell Owens on his team. Owens was both one of the most talented players in the game and one of the biggest jerks. Madden answered, “If you hold the bus for everyone on the team, then you’ll be so late you’ll miss the game, so you can’t do that. The bus must leave on time. However, sometimes you’ll have a player that’s so good that you hold the bus for him, but only him.”
Phil Jackson, the coach who has won the most NBA championships, was once asked about his famously flaky superstar Dennis Rodman, “Since Dennis Rodman is allowed to miss practice, does this mean other star players like Michael Jordan and Scottie Pippen can miss practice, too?” Jackson replied, “Of course not. There is only room for one Dennis Rodman on this team. In fact, you really can only have a very few Dennis Rodmans in society as a whole; otherwise, we would degenerate into anarchy.”
You may find yourself with an employee who fits one of the above descriptions but nonetheless makes a massive positive contribution to the company. You may decide that you will personally mitigate the employee’s negative attributes and keep her from polluting the overall company culture. That’s fine, but remember: You can only hold the bus for her.
OLD PEOPLE
Your startup is going well and as your business expands you hear the dreaded words from someone on your board: “You need to hire some senior people. Some real ‘been there, done that’ executives to help you get the company to the next level.” Really? Is now the time? If so, where do I begin? And once I get them, what do I do with them? And how will I know if they are doing a good job?
The first question you might ask is “Why do I need senior people at all? Won’t they just ruin the culture with their fancy clothes, political ambitions, and need to go home to see their families?” To some extent, the answer to all of those may be “yes,” which is why this question must be taken quite seriously. However, bringing in the right kind of experience at the right time can mean the difference between bankruptcy and glory.
Let’s go back to the first part of the question. Why hire a senior person? The short answer is time. As a technology startup, from the day you start until your last breath, you will be in a furious race against time. No technology startup has a long shelf life. Even the best ideas become terrible ideas after a certain age. How would Facebook go if Zuckerberg started it last week? At Netscape, we went public when we were fifteen months old. Had we started six months later, we would have been late to a market with thirty-seven other browser companies. Even if nobody beats you to the punch, no matter how beautiful your dream most employees will lose faith after the first five or six years of not achieving it. 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.
In order to make all go well, if you are considering hiring a senior person do not chase an abstract rationale like “adult supervision” or “becoming a real company.” A weak definition of what you are looking for will lead to a bad outcome. The proper reason to hire a senior person is to acquire knowledge and experience in a specific area.
For example, as a technical founder, you probably do not have terrific knowledge of how to build a worldwide sales channel, how to create an invincible brand, or how to identify and negotiate ecosystem-altering business development deals. Acquiring a world-class senior person can dramatically accelerate your company’s ability to succeed in these areas.
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. For example, for engineering managers the comprehensive knowledge of the code base and engineering team is usually more important and difficult to acquire than knowledge of how to run scalable engineering organizations. As a result, you might very well value the knowledge of your own organization more than that of the outside world.
In hiring someone to sell your product to large enterprises, the opposite is true. Knowing how your target customers think and operate, knowing their cultural tendencies, understanding how to recruit and measure the right people in the right regions of the world to maximize your sales—these things turn out to be far more valuable than knowing your own company’s product and culture. This is why 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. Asking yourself, “Do I value internal or external knowledge more for this position?” will help you determine whether to go for experience or youth.
