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Management

“Veterans” are not the first thing that comes to mind when one thinks of Silicon Valley and tech. But there’s actually a growing community of veterans in tech here, and leadership is top of mind for them. Which makes sense when you think about what the military does: It’s all about putting the right foundation, the right process, the right people in place. That’s what a hyper-growth company needs, as LinkedIn CEO Jeff Weiner observes.

I interviewed Weiner at our recent Veterans in Technology Leadership event, which connected veterans in our network to portfolio CEOs. Weiner, who has had the chance to meet with some Delta Force teams, SEALs and senior military leaders, said, “If you ask the common person on the street if a grizzled vet is going to be compassionate, they’re going to be thinking about warfare, about the aggression of war. But I think that’s a huge misconception. I’ve been wildly impressed by the caliber and the integrity and the humanity of these people. That’s what makes great leaders.”

There’s a very clear distinction between managers and leaders. “Managers essentially tell people what to do, but leaders inspire them to do it.” Here are some more highlights from our conversation…

PL: Let’s start with your leadership philosophy.

JW: Inspiration lies at the heart of leadership. There are three ways for leaders to inspire: (1) Possess a clarity of vision. (2) Hold to the courage of your conviction. (3) Have the ability to effectively communicate both of the above. If you’re not forthcoming with information, you’re going to create a problem. It’s almost an inherent conflict, because your employees are not going to feel trusted.

PL: How does trust play into how you and your colleagues work together?

JW: When people say, “Just trust me,” you’ve never met them before, it’s not going to happen. It takes a long time to build up. It can be lost in milliseconds now, literally milliseconds. I’m not saying that figuratively.

Trust is the bedrock of everything that we do, quite literally. So, if we lose the trust of our members, we’re done. We’re completely done. An old friend once taught me that trust is consistency over time. It’s a simple formula for a complex thing.

PL: What changes did you go through as LinkedIn went from a small company to a large company?

JW: The first continuum is the difference between problem solving and coaching. If there’s a day-to-day problem, if you’re just diving in and just falling back to that instinct that got you to that place to begin with, you’re never going to scale. You will never, ever scale. If you’re really doing your job as a CEO, you’re going to leave your people with the tools to be able to coach their team and so forth.

The second continuum is tactical execution on the one end, and strategic thinking and proactive thinking on the other. By the time you’re at 300 people, you’d better accept that you’re going to have competition. If you are just reacting to them, it’s too late. Trust me, the competition is thinking strategically. You’ve got to be constantly thinking about what’s next, by looking out three to five years and working your way back in terms of what’s going to be necessary to get there.

PL: What was your personal journey as a leader?

JW: I think I made a very natural mistake that a lot of us make, which is to project my own worldview onto other people. That if I thought a certain way, why didn’t they think the same way? And if I did things a certain way, why didn’t they do things the same way?

What I failed to realize back then was that just because I enjoy that part of the business, or I may have a certain facility with that part of the business, doesn’t mean others need to. And I need to take the time and understand where they’re coming from. This is my first principle of management, which is managing compassionately. And that means putting yourself in someone else’s shoes and seeing the world through their lens, their perspective.

PL: What skills do you look for in team members?

JW: The holy grail is the “five-tool” player:

1. It starts with technology vision. Because technology drives essentially everything we do, you have to understand where it’s going and how it’s going to impact society.
2. The next tool is product sensibility. You need to be able to harness that vision and meet unmet needs in the marketplace.
3. The third is business acumen. If you don’t have a sustainable business model, it’s not going to go anywhere over time.
4. The fourth is leadership and the ability to evangelize.
5. The fifth and last is the most important tool, and it’s resourcefulness. It’s just getting shit done.

If you find people with more than one of these skills and they’re superlative, do everything you can to hire them. Anything close to four skills, superstars. Five skills and they’re people that change the world.

PL: Are we as a nation doing enough to create not just jobs, but the right jobs?

JW: This is one of the most significant issues of our time. Youth-based unemployment in the country is 2X that of general unemployment (6.7 percent), so roughly 13 percent. There are approximately 73 million unemployed youth between the ages of 15 and 24 on a global basis. We have to get this right and we’re not: I think we’re still training our youth for the jobs of a prior economy that no longer exists — not the jobs that are, or will be.

So, what can we do? We can start with vocational training and identifying where the jobs are. There are 3.8 million available jobs in the country and some people would say it’s even higher than that. That number has risen every year since 2008, despite the fact we have all this unemployment.

I’m not just talking about becoming a software engineer in the valley, because training and computer science degrees, that kind of stuff may take a little longer. Of the 4 million or so jobs out there, you’ve got a lot of jobs that are in retail, that are in real estate, or construction. But the people looking for work may not even know what jobs are available, and where they are.

It’s about identifying wherever they are in the country. And making sure we have the right resources to get them the right skills, and can make themselves available for the right jobs. I’d love for us to be investing more of our collective time and energy and resources in finding the way.

PL: What role will education need to play here?

JW: I think most people have familiarized themselves with the fact that our education system is highly antiquated. Very different skills are required for the knowledge economy. Our education system needs less rote learning and more critical reasoning, creative problem solving, and collaboration. Even when we were in primary school, individuality was the model we were taught. Taking tests as an individual, doing individual work, grading me individually.

How many of you are going to be successful by working individually? There’s something a little out of whack when we have a school system where every kid is being treated as an individual.

I think compassion is the single most important thing you can teach a child, seriously. I don’t mean that in some spiritual, new-age way. I mean it, period. In a more global, interdependent, interconnected society, compassion should be taught. Just like reading, just like math.

I recently had the pleasure of interviewing eBay CEO John Donahoe before a crowd of military veterans at a16z. Below is an abridged version of our discussion, which focused on the type of leader John has become as he led the turnaround at eBay.

Peter Levine: You describe your management style as “servant leadership.” Where does that come from?

John Donahoe: It started with Tom Tierney who was a mentor of mine. He was my boss at Bain & Company, and is on the board of eBay. He’s one of those leaders that care enough to always give constructive feedback.

To give you a sense of what Tom’s like, after the last eBay board meeting he calls me and asks, “How do you think it went?” And I go, “How do you think it went?.” And he says, “You know John, that conversation around X, Y, and Z. If what you were trying to get across is that you felt fairly emotional about the issue, you’d already decided what you wanted to do, and you didn’t want to hear anybody else’s opinion, you did a good job. If on the other hand, what you were trying to demonstrate is that you are seasoned and sophisticated CEO, that you are open-minded and wanted to hear other’s opinions, that you knew you could make a decision but you were actually engaging in an authentic discussion with them, eh, not so good.”

That’s something I’ve taken away, which is, I think a good leader cares enough to give his or her best people feedback. But Tom early on captured the phrase for me – servant leadership. And that’s how I’d describe my leadership: servant leadership. In most companies it’s a classic hierarchy, the person on top is the CEO, in the military it’s the general, whomever is in charge. That’s never really worked for me. I’ve always been trained with the inverted pyramid, where the customer is on top. They’re why we’re here. They are the people who give us a sense of purpose of why we’re here.

And inside our organization, the people I talk about on top of our org chart are the people who deal with customers every day ­– they’re our customer teammates, our sales team, and our support teams. And everybody inside the company exists to help them serve the customers better. And I’m at the bottom of that pyramid, and ultimately my job is to clear channels to serve our customers as well. It’s to serve. If you want to have the absolute most talented people working for you, they can’t feel like they are working for you.

The one other person that had more impact than he realizes is General Colin Powell, talking about followership. The focus is not about me, the leader, the focus is on how do I create followership. We’ve all had leaders we want to follow and usually that leader empowers us, has our back, and treats us better than they are.

PL: Is that philosophy something that you can go to a class and learn about? Or is it experiential? And are other leadership styles acceptable as well?

JD: I think each of us has to discover what our leadership style is. You can’t copy another person’s. If I think about the leaders I respect the most, they can have different styles, but what they all are, they are authentic in understanding who they are and who they want to lead. They are transparent and consistent about that. I think that’s the job of any leader. I wouldn’t try to copy someone else’s personality. I followed Meg Whitman, I had big shoes to fill. But I couldn’t be Meg Whitman. I had to be me. The leaders that create followership, if there’s one common quality it is that they are authentic. Having good values, and then being authentic and transparent.

PL: What has been the origin of your own mistakes?

JDonahoe: I’ve made a lot of mistakes. The truth is, my biggest mistakes have been not taking enough risk. It’s not been what I’ve done, it’s been what I’ve not done. There have been times where I haven’t moved fast enough or taken enough risk. When I was running the Marketplace before becoming CEO, I was scared of taking the risk of labeling what was going on. We had stopped innovating, we weren’t delivering good experiences for our customers, and we were taking them for granted. We were living a narrative that was no longer true.

It was only when it got so bad that I spoke up and spoke the truth and took on the risk. It was hard, it hurt, and everyone hated me. By the time I became CEO it became clear to me that I was going to be presiding over this ­– I’m going to catch a falling knife. I was named on a Wednesday. On Monday, we had a seller meeting in Washington, DC where we announced the biggest set of changes in eBay’s history, and I labeled it as a turnaround, a word that everyone hated. We stood up told the truth, it felt so good. And we finally labeled what everyone knew what was true. It felt good for 24 hours, and then all hell broke loose.

PL: What are the cultural and character ingredients about building a great and enduring business?

JD: The first thing is picking the right company. I was at Bain for 20 years. I loved it. And when Meg first called me to join eBay, it was the hottest company on earth at that stage. I said, Meg that’s not me. I’m not a Valley guy in that way. It doesn’t light my fire. There’s nothing wrong with it, it just doesn’t light my fire. And she said, “I want you to meet eBay’s founder, Pierre Omidyar.” I’ll never forget ­– it was a rainy day in November 2004 at this place where eBay was having a leadership meeting. I was curious. I had never met one of the most famous Internet entrepreneurs. I went in thinking I would meet somebody like Steve Jobs ­­– some larger-than-life personality, maybe a little and brash and arrogant. And I could not have been more surprised. Pierre is soft spoken, and one of the most humble, centered humans I’ve ever met. And I sit down and we’re talking and I say, “Pierre, how do you measure success for eBay?” And he didn’t say a thing about growth rate or revenue or stock price or reputation in the short term. He said, “John, what I care about is I want eBay to positively impact hundreds of millions of people’s lives all over the world and I want to do it over decades, I don’t just want it to be a flash-in-the-pan. If we have lasting impact and we’re going to help the world be a better place, we’ve got to last.” And I was like, you had me at ‘hello.’ I literally walked into that interview thinking I wasn’t going to leave Bain for eBay, and I walked out saying, “I want to follow this guy.”

PL: How should the rest of us think about picking the right company? Does “hot” matter?

JD: What I would suggest is, don’t listen to what everyone else says. Don’t join something because everyone else is. You need to ask yourself, can you personally relate to the purpose of the company that you’re joining? It’s interesting, because Silicon Valley has produced 98-percent of the greatest technology, innovation, startup companies, and entrepreneurs in the last 50 years. There’s no place that’s even close. But during that period of time – 50 years – Silicon Valley has produced five scale-enduring companies. And I’m defining scale as above $20 billion market cap, and I’m defining enduring as having been successful for a 20 year period or longer: HP, Intel, Apple, Oracle and Cisco. That’s it. Google’s not 20, eBay’s not 20, none of the Internet companies are. And the ethos around here is short-term, the hot. And you know when it stops being hot, I’m going to jump to the next one.

What it takes to commit to build a great, enduring company is a different mindset. What is true about Silicon Valley is that innovation is the lifeblood. Innovation drives competitive advantage, but what I think is not talked about is the timeless principles of management. To build a great enduring company you have to marry innovation with the timeless principles of management. How do you scale, how do you build a team, how you go global, how do you develop and retain people? A lot of what we’re trying to do at eBay is marry those timeless principles of management with the ability to innovate. The question is how do we try to do both? We’re right in the middle of that experiment.

I recently had the privilege of hosting Dick Costolo (@dickc), CEO of Twitter, at Andreessen Horowitz for a fireside chat. The event was the second in a series hosted by my firm aimed at strengthening the network of military veterans in Silicon Valley and expanding this network’s connection to the greater tech ecosystem. (As much as I’d love to claim that we precipitated the filing of Twitter’s S-1, this event and the S-1 occurring on the same day was purely coincidental.)

What is not a coincidence is how Dick’s leadership style and personality have transformed Twitter into one of the most successful technology companies of our time.  We had the opportunity to spend an hour together and here’s what I learned about leadership, culture and veterans at Twitter:

How has Twitter’s culture changed over your tenure as CEO?

Dick joked that when he came on board someone could have “thrown a hand grenade into the company at 5:30pm and only hit the cleaning people.” He started holding people accountable and rewarding projects where hard work was visible. He’d go into the office at 10pm, got to know the people who were around and then prioritized their projects. People quickly got the message.

Dick describes himself as a hands-on manager and expects the same from his team. He instituted a leadership class for all new managers, which covers topics like how to give transparent feedback (hint: don’t sugarcoat it) and how to deliver difficult news to your team, like your project getting axed (hint: don’t throw leadership under the bus). Of course, he also practices what he preaches, holding weekly 1:1 meetings with direct reports and remaining accessible to employees, regardless of rank.

Open communication is a nice objective, but how does Twitter do this given its size and scope?  

Dick admits open communication is difficult to maintain because of two opposing pressures: the first is the desire to limit communication to reduce the risk of leaks; the second is simply that everyone can’t know everything. Dick leans toward over-communicating and trusts management to synthesize relevant information, rather than publishing a transcript of every meeting. As the company continues to grow, synthesizing is increasingly important.

On leadership and veterans

Dick’s passion for good leadership is an anomaly in the tech industry. And I don’t think it’s a coincidence that Military Veterans are under-represented in a sector notorious for shunning authority.

Dick certainly made a strong statement traveling from Twitter’s HQ in San Francisco to our office in Menlo Park, in the middle of rush hour, to participate in our event for local veterans on the same day that Twitter filed its S-1. He clearly understands and appreciates the value that military talent can bring to the table (case in point: Russ Laraway, a rising star at Twitter, oversees their SMB unit and is a former Marine).

As for hiring vets, I couldn’t agree more with Dick when he said there are lots of roles in the technology industry for which the job requirements are a load of hogwash. For example, I can’t understand why engineering skills are part of the criteria for project management roles. Good communication skills and adherence to strict deadlines are not strengths for many engineers. But I can think of more than a few vets who would really shine with this responsibility.

On behalf of everyone at Andreessen Horowitz, I want to thank Dick and our veteran community for making this event the absolute highlight of my week!

I recently had the privilege of hosting a fireside chat with Lieutenant General John Vines, who is regarded as one of the most influential U.S. military leaders of the past twenty years. You can see the talk here:

At the time, he was the only military general to lead combat operations in both Iraq and Afghanistan in the post 9-11 era, overseeing an organization of more than 160,000 troops.

For a man of his stature, he’s refreshingly humble. He jokes that he was the only guy to cause Defense Secretary Donald Rumsfeld to lose his voice from screaming at him in two separate wars. The General is one of those people with whom you want to hang out after spending only a few minutes with him. No wonder he is such an extraordinary leader.

During our conversation there were many leadership lessons from his experience that are highly relevant to entrepreneurs and CEOs. Here are a few of my favorites:

1. Leadership is different from management.

“In the end those who follow you willingly do it because they trust you and are inspired by you. They are counting on you to have their backs and to be right.” Great leaders rely on relationships and intuition. In a challenging situation, a good leader knows what their reports will do and what the outcome will be.

Vines underscored that management and leadership, while related, have very different characteristics. Management is the science that undergirds leadership. Leadership is the art. “Where leaders earn their pay is applying their judgment, skill and wisdom to all the data. Because if we were purely a data driven organization, then we could plug it all into some algorithm and it could tell us what the answer is.”

It follows then that not all great managers become great leaders. This concept has always resonated with me and I have seen this first-hand. A great leader gets the team to follow her into battle and does it with purpose and conviction. Great leaders also understand how to instinctively use resources to the best possible outcome.

2. Leadership awareness

“It is almost impossible to really see yourself as an organization and as an individual.”

Vines relayed the story of a complex combat operation that required the deployment of several infantry units. Vines ordered a large quantity of heavy equipment to support the mission, which his reporting system indicated was available. Problem was, it had already been provided to another unit and Iraqi counterparts.

Instead, Vines devised something he dubbed a “Delta Report”, which reconciled for a 30-day period all the things that were supposed to be available but weren’t; the equipment that was supposed to be repaired but was still in the shop; the gear that had arrived that no one even knew about.

In his words: “That 30-day Delta came out to be $11 billion of end-items, things like tanks and trucks, that we had been ordering from the States because we thought we needed them, but they were already there. We couldn’t see ourselves.”

Vines admitted his team spent a lot of time understanding their threat (you might call it the competition), but couldn’t see his operations in real-time. As a result, he made some large, painful changes, but ultimately made sure the right processes were in place for he and his team to see themselves in real-time.

I’ve always believed that self-awareness and company awareness are key attributes to being a great leader. I’ve seen all too many examples of companies and CEOs who are breathing their own exhaust. Leaders need self-awareness in order to have a complete and accurate picture of themselves and their company.

3. Identifying catastrophic risk helps to prepare for the unknown, but you can’t see all the “Black Swans” that lie in wait.

Vines relayed an example of a massive air operation he was preparing that required the use of hundreds of helicopters in Afghanistan. “It was massive, the number of planes used in the operation would have made it one of the largest air forces in the world. And that was just helicopters.”

At the moment of execution of the military mission, the key guy on the ground responsible for checking the purity of the helicopter became ill. There was nobody who could fulfill his job. Mission aborted.

“We spent hundreds, even thousands of hours assessing risk, but what we didn’t understand is that there were points of failure in this enterprise that we hadn’t even considered. We certainly hadn’t looked around corners.”

This story was particularly interesting to me in that, even with all the planning, something caused the mission to go sideways. I’ve seen this in companies. They plan and plan, yet something always comes up forcing a real-time change. In my experience, planning is a great tool but leaders always need to be prepared for solving the unknown as issues arise. You can never plan for all contingencies all the time.

4. The higher up the organization, the more time leaders should be spending with people in the organization as opposed to doing “tasks”.

As his organization got larger, Vines could no longer spend time with every person. However, he spent most of his time away from headquarters talking with his lieutenants, making sure everyone developed a “shared consciousness”, a shared vision.

“I believe leadership should be eyes on, hands off.” So Vines deployed wide-scale use of video conferencing to discuss high-level thinking and strategy with the troops. “Once an organization understands the objectives, a mid-level person can figure out the strategy.” Once they knew the thinking and the strategy behind what they were about to do ”the orders almost follow themselves.”

As an entrepreneur, your natural instinct as your company grows may be to spend more time doing tasks you are good at. If you are an engineer by training, this may mean spending time with the engineering group. My advice as your company grows is to spend time with all groups and help to create a deep bench of executives who each do a better job than you in their given areas. Spend lots of time with them; spend lots of time with your employees. The organization will see you as a great leader as opposed to a micro-manager.

Veteran talent

My time with General Vines gave me a much deeper appreciation for the similarities between military leadership and leadership in companies. Over 120 folks working in high-tech attended our fireside chat from the Bay Area. The vast majority were veterans.

One of my other takeaways: Veterans can bring really important leadership qualities to your organization. These folks are truly amazing.

As Vines put it, “Sometimes the scale is different. Sometimes the cost is different in blood and treasure. But there are more similarities than differences in business and warfare.

“Every person that we asked to go forth to do something at extreme risk—at risk of their life—we owed it to them to do everything we could to create conditions that would allow them to do that, and come back alive and intact to their families.

“If you could look in the mirror and say, ‘I have done everything humanly possible to create an environment of mitigated risk,’ I think you can live with yourself. If something goes wrong because you are lazy, or because you didn’t devote the proper rigor to it, then you have to live with those consequences too.”

The views expressed by LTG (ret.) Vines in this article are his own and do not represent the views of the U.S. Military or Government. “Warlord 6” was LTG Vines’ call sign in Iraq.

You’ve been CEO of SpiderNet for the past two years and have embraced a very trusting culture among your team.  For the most part, you and your team discuss future vision and the team goes off and executes against that vision.  You’ve never needed to really manage objectives or goals, simply because the team has generally delivered on the stated direction.

However, as the company has gotten larger, you’ve noticed that some organizations are not delivering on tasks that you believe need to get done.  You’ve chatted with members of your executive team and they believe that they are making great progress.  They point to all the things they’ve accomplished over the past three months.  When you look at the accomplishments, you wonder how they decided to prioritize certain items.  In your opinion, many of the items they have accomplished have little to do with the ultimate success of the company or vision.

You are now concerned that many in the organization seem to think they are doing great things, despite your frustration with the output.  Everyone claims to be working hard and you don’t disagree with that.  Given how you have managed in the past, how do you change to ensure everyone is on the same page?  Do you leave things as they are and try to be clearer?  Do you create objectives for people to follow?  If you do the latter, don’t you risk turning SpiderNet into a bureaucratic mess?

What now?

Peter Drucker, the famous management consultant, is noted for saying, “You can’t manage what you can’t measure.”  While I very often despise all management consulting advice and quotes, this is one that I happen to agree with.  I have lived through and seen the sloppy execution mistakes made when a company does not have a framework of measureable objectives to guide their path.  Furthermore, it is very possible to balance the flexibility and creativity of an entrepreneurial environment with a lightweight, highly-effective process for managing with key objectives.

Here’s a way to go about doing this:

One of my first pieces of advice to any entrepreneur (including many that come in for funding) is to articulate what they’d like the company to accomplish in the next 12 to 18 months, based on their strategic vision.  This may be what a company wants to accomplish with a given funding round or what they want to accomplish over a given period of time.  Pick a timeframe that is far enough out (two years max) and write down five measureable objectives that you believe will define success.  Make the objectives measureable as opposed to qualitative.  It is not as easy as you think.  In fact, try it right now and make sure that the goal can be measured.

The important aspect of being able to measure the goal (i.e., have 50 paying customers) is that you will absolutely know whether you have achieved the objective.  I have very often seen companies create a set of non-measurable goals (i.e., maximize adoption with paying customers) that are pretty useless.  At the end of the time period, you and your team will often forget what you were trying to accomplish and what exactly the goal meant.  This results in everyone thinking that the goal was mostly met.

Once you develop a small set of 12- to 18-month company objectives, share those with your team.  Ask your functional leads (sales, marketing, engineering, G&A) to come up with their five goals, based on the higher level objectives that you’ve outlined for the company.  You now have the start of a framework.

From there, you can start to manage on a quarterly basis, using the same framework.  Start with the 12- to 18-month goals and back those down to what needs to be done in the next quarter.  I often think about this process like climbing a mountain on an expedition: You have the grand objective to get to the summit, but have many daily objectives along the way (e.g., get to the next campsite, etc).

For quarterly objectives, I would use the same process as the longer-term thinking.  As CEO, you should come up with the three to five items you need the company to accomplish in the next quarter.  Ask your team to come up with their own three to five items.  You now have a baseline from which to manage.  Each week at your staff meeting, you can get a status update on where folks are relative to their quarterly goals.  This becomes your status report and everyone knows where things stand.  If something changes along the way and a quarterly goal is no longer important, the team can change it.  However, changes only get made by proactive discussion and not by arbitrary omission.

At the end of each quarter, set aside time to do a complete goal review with your team and clearly specify the goals met and the ones missed.  You will get a clear view of why something was not done and what needs to be done about it.  At that meeting, you can create the next set of objectives for the following quarter.

If you really want to be transparent, I would recommend sharing all goals and all results with the entire company.  This gets everyone on the same page and creates a framework in everyone’s mind as to where the company is going and how each individual can help to achieve a given goal.

This process can be used all the way down into the organization and can be used upward for the board.  Keeps things incredibly simple.  One set of objectives and one set of status.

SpiderNet

I would encourage SpiderNet to adopt a simple framework for managing to key objectives.  As the company gets larger, there is the tendency for tasks to become less clear in employees’ minds.  Keep the key objectives front and center and have everyone work towards these goals.  Celebrate success when goals are met and take action when they are not.

In last week’s decision, the management at SpiderNet decided to pursue a freemium model, where the company would give away a free product and then upsell a $99 added value feature set.  As part of this go-to-market model, SpiderNet must now decide on how to allocate and budget for sales resources.

In order to promote and sell the added-value features, the company decides to use an inside sales model for generating revenue.  This approach has worked well for other companies delivering a freemium product and avoids the costs of a direct/outside sales approach.  The inside sales team at SpiderNet will be responsible for following up on leads, generating demand for the for-fee upsell, and ultimately closing business.

As CEO of SpiderNet, you must now decide on the operational plans for growing this inside sales capability.  Right now the company has no salespeople, but with the product coming out this next quarter, you feel it is the right time to start bringing on sales talent to generate revenue.

While everyone agrees that hiring sales is important, the internal debate centers on how many and when.  Most people in the company, including engineering, wants to hire as many sales people as can realistically be hired, such that the company can quickly capitalize on the opportunity and grow quickly right out of the gate.  This group also wants to make sure that the sales force can cover all opportunities and be well trained ahead of the demand.  A few people suggest waiting until the freemium model is proven and suggest hiring just a few sales people initially.

You expect the demand for your freemium product to be huge, that the upsell will be in high demand, and that you’ll need capacity from the sales organization to field in-bound requests.  Hiring too few sales people might cause SpiderNet to miss out on a golden opportunity.   Given this, do you rapidly ramp up sales capacity or hire less aggressively?

What Now?

Every company that is about to release a new product is always optimistic about the future of the product.  The expectation is that the product will offer great value and, in turn, create an amazing following of users and revenue.   However, it often takes time and iteration to get the formula correct and the tendency for most companies is to over-hire sales capacity before the product-to-sales fit has been fully worked out.   The consequence of over-hiring in sales without knowing whether the company can repeatedly sell the product can be severe.  Therefore, a prudent balance must be established between capitalizing on the opportunity and hiring the appropriate number and type of sales people at the outset of a product’s market entry.

The Sales Learning Curve
The Sales Learning Curve is a concept that my good friend, mentor, and co-lecturer at Stanford, Mark Leslie, developed as a methodology for adding sales capacity following the launch of a new product.  The premise is that, in the same way a company must take the time to develop a product, a company must also take the time to develop sales knowledge and capability.   All too often, what a company thinks will work in terms of customer segmentation, sales model, and salesperson type does not end up being the optimal outcome.  Companies must learn how to sell and bring products to market in order to avoid expensive and costly mistakes based on assumption rather than quantitative evidence.

The Sales Learning Curve has three phases:

  1. Initiation.  The initiation phase begins when the product hits the market.  In this phase, few customers will typically be willing to purchase the product, so having a large sales organization with large quotas is dysfunctional.  Instead, put in place a small sales team that is focused on understanding how a customer intends to use the product.  When the small sales team generates 1x the loaded cost of an individual sales person (base+commission+expenses), the company is ready to move to the next phase.
  2. Transition. In the transition phase, the sales organization should be focused on developing a repeatable sales model, refining market positioning, and adding sales capacity, provided that each new sales person can safely generate at least 1x their loaded cost.  It is in this phase that the company moves from “renaissance” salespeople to a “coin-operated” sales organization.  A company will move out of the transition phase when each sales person is generating 2x their loaded cost.
  3. Execution.  In this phase the product has proven traction and management can predictably hire salespeople as quickly as financial constraints allow.  Specifically, there is a well-understood sales training program, the company understands exactly how much revenue each new sales person can generate and when, and the sales growth becomes a systematic process of territory allocation and expansion.  From a modeling standpoint, the sales productivity and expense should move to “industry standard” allocations, typically measured as a percentage of gross revenue.

SpiderNet

In the SpiderNet example, choosing to hire a large number of salespeople up front would assume that the company is in the execution phase of the Sales Learning Curve methodology.  However, in reality, the company has never sold a dime’s worth of product and has little quantitative evidence that their inside sales approach will even work. SpiderNet is really in the initiation phase and should hire a few renaissance sales reps who can help the company learn the proper sales cadence.  This way, SpiderNet can iterate its sales approach and avoid potentially costly mistakes as the model evolves.

The complete SLC paper can be found here.

Last month, as CEO of SpiderNet, you were faced with the issue of firing your VP of Engineering, who initially seemed like a rock star but proved to lack motivation, didn’t gain his team’s respect, and was ultimately ineffective.  You talked with your board and everyone unanimously agreed that you should terminate the VP immediately and ask your co-founder to manage the Engineering team in the interim.  It was also agreed that the company would search for a new VP of Engineering after the new year.

It is now the new year, the old VP is gone and you are faced with the rather undesirable task of hiring a new VP.  Upon reflection, you realize that the SpiderNet hiring process failed.  Clearly, the issues surrounding the VP you just fired had to do with laziness and you realize now that the SpiderNet process (or lack thereof) did not exist to properly vet out a prospective job candidate.

Before you move on to hiring again, you take an inventory of the current process in an effort to better understand how to correct things in the future.  Here’s what you find:

  1. You identified the requirements of the position and developed a comprehensive job specification.  You feel pretty good about the list, which you developed on your own.  Given that this position reported to you, you did not see the need to ask for other input.
  2. You hired a search firm and saw a number of good candidates, so you felt that the candidate pool was adequate but not exceptional.
  3. The interview meetings were always with you, your co-founder and then one or two other people from the executive team.  Everyone exchanged emails on the candidate after their meetings.
  4. The search firm did the bulk of the reference checks, which significantly helped your schedule and time.

Most hiring mistakes occur when the interview process does not effectively assess candidate fit, motivation, and expectation.  You don’t want to make the mistake again and you need to figure out what to do next.  What mistakes do you think you made and how can you better go about interviewing future candidates?  You are very nervous about screwing up again.

What now?

I have often considered the ability to hire great people as being analogous to a batting average in baseball.  A player who hits .300 is near the top of their game.  While I have certainly done much better than 30% success rate in my hiring overall, I’m not sure that I’ve topped 30% for truly exceptional hires.  Hiring phenomenal employees, like hitting in baseball, is difficult.  I must admit that only recently did I come to realize that there is a set of steps that a company can follow that significantly increase the hit rate.

With respect to the SpiderNet situation, there were several mistakes made with the current process.  First, there was no input from either the board or the other executives on the job specifications.  It is particularly important to gain agreement on the position and have the interviewing team help develop the requirements.  Second, there wasn’t a defined interview team and the results of the interviews felt a bit ad hoc.  Having a defined interview team should be part of the process.  Finally, the CEO left reference checking to the search firm, which was a huge error in judgment and probably the biggest mistake of the entire process.

I took the liberty of asking Jeff Stump, our partner responsible for Executive Talent at Andreessen Horowitz, and he outlined the following steps that should be taken when hiring an executive:

  1. Develop the candidate profile and expected qualifications
  2. Lay out the compensation framework
  3. Craft a set of questions to be used in the interview process
  4. Identify your interview and recruiting methodology
  5. Perform reference checks

Let’s look at each of these in more detail.

Candidate Profile and Qualifications.  There should be a universal understanding of what the profile is and why the company is looking for this new hire.  What is the charter of this hire over the next six months to one year?  What does the company/hiring manager expect this person to deliver during this timeframe and what does success look like for this hire one year out?

The focus in this phase should be on developing a set of non-negotiable attributes as input to the interview process.  Make sure to include input from anyone who is going to have a say in the interview process including the Board and the management team.  There does not need to be universal alignment, but this process will help identify any differences of opinion that can be addressed up front.  This first step will drive consistency in the interview process and candidates will take notice.

Compensation and Reporting Framework.  Determine the title, reporting structure and the compensation of the position.  Not doing this upfront can often lead to misalignment late in the recruiting process.

Interview Questions.  Once the profile and qualifications have been identified and agreed upon, develop a set of questions that are going to be used in the interview process.  These can also be used by the search firm to screen candidates.  Questions should be crafted to gauge motivation, fit and expectation.

During this phase, the hiring manager also should identify the interviewing team and start the selection of a search firm.  In most cases, the company’s internal network will not be sufficient to identify the absolute best candidate and a search firm is recommended.  There are exceptions to this, but in most cases, thinking that the company has enough contacts often results in a substantial delay.

Interview and Recruiting Methodology.  High-level items to consider:

  • Decide on the appropriate team members to be involved in the search process;
  • Determine who is running point on the management team.  Tasks may include interview coordination, candidate follow-up, feedback collection, reference coordination, compensation/negotiation, etc.
  • Who from the board of directors will be involved, if at all?
  • Define the sequence of interviews and meetings.  Who needs to meet when and what is the strategy/objective during a first round vs. a second round of interviews?  I also recommend spending a great deal of the first meeting on determining “fit.”  Can you work with this person?  Nothing else matters if you can’t check this box.
  • Have the team interview for different attributes to create a better experience for the candidate and to avoid overlapping questions in the interview process.
  • Define the feedback loop: What info gets captured, recorded and how/when is it shared?

Reference Checking.  One of the most important—and overlooked—parts of the recruiting process is reference checking.  When you make an offer to a candidate, you should feel as if you really know the person, warts and all.  Reference checking is the best way to really understand what a candidate is like to work with.

Often your search firm will offer to do reference checks.  While it is fine for them to do some investigation, do not leave all of it to them.  You need to do a large part of the reference checking yourself.  Compare notes with the search firm but handing it off to someone else is a huge mistake.

In general, you should do between 10 to 15 reference checks and they should have a 360-degree approach (i.e., 1/3 bosses, 1/3 peers, 1/3 subordinates).  At least one-third of these queries should be backchannel references.

Finally, when you have settled on the final two candidates, you should have the finalists come in to present a 100-day plan with your executive team at your staff meeting.  This will give you a very good sense of how the person responds to an assignment and the nature of their work.

Hiring takes planning and time and the process is often ad hoc or simply non-existent.  Don’t make hiring a batting average.  Take the time, develop a clear process, and you will see much better results in your overall hit rate.