October 31, 2005

Attracting, Retaining, and Motivating- What’s in it for them?

Posted in Uncategorized at 5:50 am by scottmaxwell

Note:  This posting was lost due to a drive failure at WordPress.  this is a reposting. 

 

Put this in the category of “getting it off my chest via a rant.? I got into a debate with a CEO recently, where he seems convinced that compensation is the only thing that matters. I tried several ways of explaining that compensation is not close to being enough (yes, important, but only one aspect). This posting adds nothing new on the topic, but at least I feel better getting it off my chest (and, perhaps, reminding myself of what it takes to set up the right environment).

There are several fundamental elements to setting up the emerging growth company to attract motivate and retain high caliber (?A? type) people (For what it is worth, I have never seen all of the elements in place at an emerging growth company, but I have seen one or two come close.):

  1. Once you find them you need to court them during the hiring process. The best candidates have many options and they want to understand that you really want them and are going to take the time to give them the rest of the items on this list. Ideally, they know that the CEO is going to take the time to do these things (note: this can’t just be lip service, or you are going to get them and then lose them). Some basic activities are taking them to dinner one-on-one, taking them to lunch with a group of managers, if they are moving for the role, invite them with their spouse out for dinner (better yet, over for dinner). The key is that they get to know you, you get to know them, and that you put the time into building the relationship that they (and you) will need once they start working for you.
  2. Give them a meaningful vision of what you are trying to accomplish (note: you better make progress against this vision over time, or they will be demotivated).
  3. Surround them with other “A? type people. The best people like to work with the best people, and they like to see meaningful progress!
  4. Give them meaningful work. Enough said.
  5. Set high goals with short-term deadlines. High caliber people need a high bar and need to know that you are counting on them to deliver. Short deadlines also tend to get people focused on the real work.
  6. Involve them in important conversations/planning sessions. People want to contribute and know what is going on at least a level or two above them! (note: do not overuse this theme with large, meaningless meetings.)
  7. Stretch them (without breaking them). Think of stretching a rubber band as far as you can without breaking it. This is the fastest way for top caliber people to develop…getting their goals met becomes difficult for them, which they like!
  8. Give them hard-hitting, constructive feedback. Everyone loves feedback, especially constructive feedback, and most managers shy away from giving it. Instead of hoping they will do the right thing and ignoring when they get off track, tell them what you observe and how you what you think (note: you can do this without being a micromanager by focusing on the themes rather than the details). High caliber people can and do want to do the right thing, so it is up to you to help define what that means (btw, you might be wrong, so giving them the feedback and being open to theirs is even better. It can get you aligned with you taking on their view of right quite often. It also clears the air really nicely).
  9. Reward them with compensation and other vehicles. The best people have 10x the productivity of average people. You can afford to pay them well relative to average (cash vs. option compensation is for a different posting). Also, a number of other rewards, such as being given a great new assignment, a larger territory, or a junior staff member, are highly appreciated and it gives your company even more productivity (for sales types, trophies or other things they can display also are great motivators).
  10. Advance them over time. If they already have the highest available title, you can advance them by giving them more responsibility. If they are truly top caliber, your business will benefit!
  11. Make all of them work as a team (A.K.A. play well with each other in the sandbox). To do this, you need to watch carefully and give feedback to those that are not playing well together (if you have kids, you will get the analogy). No one wants to play with the kid in the sandbox throwing sand or hitting the other kid in the back when he isn’t looking…

That is all I have. 10 elements that do not involve compensation, 1 that does. If you hire “A?s and manage them all this way, you are going to have one hell of an extreme execution engine.

I feel better now. Rant over…

Recruiting best practices- why not now?

Posted in Uncategorized at 5:47 am by scottmaxwell

Note: this posting was lost due to a WordPress drive failure. This is a re-post…

I was reading Sharon Begley’s column in Friday’s (October 28th’s) Wall Street Journal (the Science Journal column that I could not figure out how to access online), where she describes and experiment by Daniel Gilbert, professor of psychology at Harvard University, and some of his colleagues:

“…Prof. Gilbert and some colleagues told female volunteers they would be working on a task that required them to have a likeable, trustworthy partner. They would get a partner randomly, by blindly choosing one of four folders, each containing a biography of a potential teammate. Unknown to the volunteers, each folder contained the same bio, describing an unlikable, untrustworthy person.

The Volunteers were unfazed. Reading the randomly chosen bio, they interpreted even negatives as positives. ’she doesn’t like people’ made them think of her as ‘exceptionally discerning.’ And when they read different bios, they concluded their partner was hands-down superior. ‘Their brains found the most rewarding view of their circumstances,’ says Prof. Gilbert.

The experimenter then told the volunteer that although she thought she was choosing a folder at random, in fact the experimenter had given her a subliminal message so she would pick the best possible partner. The volunteers later said they believed this lie, agreeing that the subliminal message had led them to the best folder. Having thought themselves into believing they had chosen the best teammate, they needed an explanation for their good fortune and experienced what Prof. Gilbert calls the illusion of external agency.?

While the article was about what makes people believe in God (an external agency), it struck me that this is exactly the trap that we all find ourselves in during the recruiting process if we are not careful (Just so that I am clear, everyone gets caught in this trap more often than they avoid the trap unless there is a disciplined process that they follow.)

Do you find the most rewarding view of your circumstances when you have a job candidate that you like? (For example, find a candidate that you think will work in the open position, don’t “waste your time? on other candidates, and get more convinced of the candidate’s fitness over time?)

Do you have an illusion of external agency? (For example, do you believe that you are fortunate to have “unique abilities in hiring?, “a much higher than average IQ?, “luck?, “God on your side?, or some other agency?)

In my experience, everyone, including me, has these tendencies. I have also found that these tendencies lead to hiring “B? caliber employees and thinking of them as “A? caliber employees, which has the obvious business results (I have not met many people who disagree that an “A? is better than a “B? most (all?) of the time, so I leave this argument alone for now). Since expansion stage companies are all about scale up and scale out, this issue is particularly important.

Three Key Process Elements

So how do we fix this inherent humane weakness? I have found that there are three key elements to constructing the “best practice? process that have never failed to identify the best “A? caliber candidates:

  1. Start by talking to as large a group of qualified candidates as is reasonably possible. I believe in staying highly networked, and this leads to knowing a great group of people, but when it comes to a serious search for a senior position, I am a big fan of using executive recruiters (the serious ones who do serious work in talking to the right candidates) to help expand the base of candidates. For mid-level and junior employees, I am a believer in hiring internal recruiters (not cheap, but more than pay for themselves as the company is scaling up staff…the key is that the pace of hiring needs to justify the role).
  2. Have three levels of “screens? to narrow the candidates. I have found that it is exceedingly difficult for an interviewer to pick the best candidate from a large number of candidates. Somehow the brain goes numb after seeing a lot of candidates and, no matter how well the interviewer takes notes, it just isn’t possible to identify the absolutely best candidate. What does work, however, is being able to choose the better candidates from all the interviews and pass those candidates onto the next “level? of screens by a different set of interviewers. Three levels of screens will allow someone (a recruiter?) to start with a large number of candidates and do the first screen, a second set of interviews with a second group, and a “final? set of interviews (a deep evaluation) by a third group, each time passing the best candidates through the screen. (Each screen should have more in-depth interviews with more “qualified? interviewers in order to perfect this process).
  3. (Most important) Have the right group of qualified people evaluated the final 3-4 candidates. The key here is getting the right group of interviewers together. In my experience, most managers are capable of determining the best candidates for only one, possibly two, functions. The best developers can tell you who the best developers are, the best architects can tell you who the best architects are, and the best inside sales managers can tell you who the best inside sales managers are. However, asking a developer to choose the best inside sales manager doesn’t work. (In my global investing experience, cross-cultural/cross-language evaluation is equally difficult. For example, asking someone from Europe to evaluate Americans generally leads to worse results than Americans evaluating Americans and visa versa). This is true because most managers have seen a lot of candidates over time for a particular position (and in a particular culture/language), see the results of their hires, train the neural network, and know the questions to ask and the things to look for that separate out the “A? caliber candidates (i.e., they have the right historical “database? from which to examine candidates against). The key to choosing the best candidate is putting together the most qualified group of interviewers for the position you are hiring for. (As a side note, I have found that experienced Venture Capitalists are actually quite good at contributing to the process at this stage for many positions, as they have built up their database of experience in many of the most important positions, they ask a lot of good questions, AND they tend to push for the inclusion of the right evaluators…in a lot of ways, good VCs are professional interviewers).

Some Additional Thoughts:

  • The process that I outline gets more complex as you work through the candidate’s view of the process. Most “A? caliber people believe that it is obvious they are the best, and want to be “courted,? so you need to be careful not to construct a process that is perceived as mechanical or “low touch?. I have also ignored the role and responsibilities, the company culture, compensation, and other factors that make the company more or less attractive to the “A? caliber people you are trying to recruit (Perhaps another posting sometime).
  • There is an additional side benefit from following this process. That is, it is very difficult up front to put together a description of the ideal candidate that appropriately weights all of the factors that make up “ideal.? The process outlined above allows for adjustments to the hiring criteria as “the land of the possible? is compared to “the theoretically possible? as the best candidates move through the process.

Begin Now!

I give this advice all the time. Some management teams get it right away and adopt it (or have already discovered this process) and some management teams need to fall into the traps of “most rewarding view? and “external agency? a few times before they “get it.?

I have never seen a great emerging growth company that does not eventually adopt steps substantially similar to the steps I outline above (including Microsoft and Google). So my question to you is “why not now??

End Note: My apologies to Daniel Gilbert and his colleagues if I have taken their experiments and results out of context. I believe that their experiments are applicable to hiring practices, but I have not done the primary research to find their experiments, findings, and conclusions.

Attracting, Retaining, and Motivating- What’s in it for them?

Posted in culture, management, recruiting at 1:33 am by scottmaxwell

Put this in the category of “getting it off my chest via a rant.” I got into a debate with a CEO recently, where he seems convinced that compensation is the only thing that matters. I tried several ways of explaining that compensation is not close to being enough (yes, important, but only one aspect). This posting adds nothing new on the topic, but at least I feel better getting it off my chest (and, perhaps, reminding myself of what it takes to set up the right environment).

There are several fundamental elements to setting up the emerging growth company to attract motivate and retain high caliber (“A” type) people (For what it is worth, I have never seen all of the elements in place at an emerging growth company, but I have seen one or two come close.):

  1. Once you find them you need to court them during the hiring process. The best candidates have many options and they want to understand that you really want them and are going to take the time to give them the rest of the items on this list. Ideally, they know that the CEO is going to take the time to do these things (note: this can’t just be lip service, or you are going to get them and then lose them). Some basic activities are taking them to dinner one-on-one, taking them to lunch with a group of managers, if they are moving for the role, invite them with their spouse out for dinner (better yet, over for dinner). The key is that they get to know you, you get to know them, and that you put the time into building the relationship that they (and you) will need once they start working for you.
  2. Give them a meaningful vision of what you are trying to accomplish (note: you better make progress against this vision over time, or they will be demotivated).
  3. Surround them with other “A” type people. The best people like to work with the best people, and they like to see meaningful progress!
  4. Give them meaningful work. Enough said.
  5. Set high goals with short-term deadlines. High caliber people need a high bar and need to know that you are counting on them to deliver. Short deadlines also tend to get people focused on the real work.
  6. Involve them in important conversations/planning sessions. People want to contribute and know what is going on at least a level or two above them! (note: do not overuse this theme with large, meaningless meetings.)
  7. Stretch them (without breaking them). Think of stretching a rubber band as far as you can without breaking it. This is the fastest way for top caliber people to develop…getting their goals met becomes difficult for them, which they like!
  8. Give them hard-hitting, constructive feedback. Everyone loves feedback, especially constructive feedback, and most managers shy away from giving it. Instead of hoping they will do the right thing and ignoring when they get off track, tell them what you observe and how you what you think (note: you can do this without being a micromanager by focusing on the themes rather than the details). High caliber people can and do want to do the right thing, so it is up to you to help define what that means (btw, you might be wrong, so giving them the feedback and being open to theirs is even better. It can get you aligned with you taking on their view of right quite often. It also clears the air really nicely).
  9. Reward them with compensation and other vehicles. The best people have 10x the productivity of average people. You can afford to pay them well relative to average (cash vs. option compensation is for a different posting). Also, a number of other rewards, such as being given a great new assignment, a larger territory, or a junior staff member, are highly appreciated and it gives your company even more productivity (for sales types, trophies or other things they can display also are great motivators).
  10. Advance them over time. If they already have the highest available title, you can advance them by giving them more responsibility. If they are truly top caliber, your business will benefit!
  11. Make all of them work as a team (A.K.A. play well with each other in the sandbox). To do this, you need to watch carefully and give feedback to those that are not playing well together (if you have kids, you will get the analogy). No one wants to play with the kid in the sandbox throwing sand or hitting the other kid in the back when he isn’t looking…

That is all I have. 10 elements that do not involve compensation, 1 that does.  If you hire “A”s and manage them all this way, you are going to have one hell of an extreme execution engine.

I feel better now. Rant over…

October 30, 2005

Recruiting best practices- why not now?

Posted in management, recruiting at 6:15 pm by scottmaxwell

I was reading Sharon Begley’s column in Friday’s (October 28th’s) Wall Street Journal (the Science Journal column that I could not figure out how to access online), where she describes and experiment by Daniel Gilbert, professor of psychology at Harvard University, and some of his colleagues:

“…Prof. Gilbert and some colleagues told female volunteers they would be working on a task that required them to have a likeable, trustworthy partner. They would get a partner randomly, by blindly choosing one of four folders, each containing a biography of a potential teammate. Unknown to the volunteers, each folder contained the same bio, describing an unlikable, untrustworthy person.

The Volunteers were unfazed. Reading the randomly chosen bio, they interpreted even negatives as positives. ‘she doesn’t like people’ made them think of her as ‘exceptionally discerning.’ And when they read different bios, they concluded their partner was hands-down superior. ‘Their brains found the most rewarding view of their circumstances,’ says Prof. Gilbert.

The experimenter then told the volunteer that although she thought she was choosing a folder at random, in fact the experimenter had given her a subliminal message so she would pick the best possible partner. The volunteers later said they believed this lie, agreeing that the subliminal message had led them to the best folder. Having thought themselves into believing they had chosen the best teammate, they needed an explanation for their good fortune and experienced what Prof. Gilbert calls the illusion of external agency.”

While the article was about what makes people believe in God (an external agency), it struck me that this is exactly the trap that we all find ourselves in during the recruiting process if we are not careful (Just so that I am clear, everyone gets caught in this trap more often than they avoid the trap unless there is a disciplined process that they follow.)

Do you find the most rewarding view of your circumstances when you have a job candidate that you like? (For example, find a candidate that you think will work in the open position, don’t “waste your time” on other candidates, and get more convinced of the candidate’s fitness over time?)

Do you have an illusion of external agency? (For example, do you believe that you are fortunate to have “unique abilities in hiring”, “a much higher than average IQ”, “luck”, “God on your side”, or some other agency?)

In my experience, everyone, including me, has these tendencies. I have also found that these tendencies lead to hiring “B” caliber employees and thinking of them as “A” caliber employees, which has the obvious business results (I have not met many people who disagree that an “A” is better than a “B” most (all?) of the time, so I leave this argument alone for now). Since expansion stage companies are all about scale up and scale out, this issue is particularly important.

Three Key Process Elements

So how do we fix this inherent humane weakness? I have found that there are three key elements to constructing the “best practice” process that have never failed to identify the best “A” caliber candidates:

  1. Start by talking to as large a group of qualified candidates as is reasonably possible. I believe in staying highly networked, and this leads to knowing a great group of people, but when it comes to a serious search for a senior position, I am a big fan of using executive recruiters (the serious ones who do serious work in talking to the right candidates) to help expand the base of candidates. For mid-level and junior employees, I am a believer in hiring internal recruiters (not cheap, but more than pay for themselves as the company is scaling up staff…the key is that the pace of hiring needs to justify the role).
  2. Have three levels of “screens” to narrow the candidates. I have found that it is exceedingly difficult for an interviewer to pick the best candidate from a large number of candidates. Somehow the brain goes numb after seeing a lot of candidates and, no matter how well the interviewer takes notes, it just isn’t possible to identify the absolutely best candidate. What does work, however, is being able to choose the better candidates from all the interviews and pass those candidates onto the next “level” of screens by a different set of interviewers. Three levels of screens will allow someone (a recruiter?) to start with a large number of candidates and do the first screen, a second set of interviews with a second group, and a “final” set of interviews (a deep evaluation) by a third group, each time passing the best candidates through the screen. (Each screen should have more in-depth interviews with more “qualified” interviewers in order to perfect this process).
  3. (Most important) Have the right group of qualified people evaluated the final 3-4 candidates. The key here is getting the right group of interviewers together. In my experience, most managers are capable of determining the best candidates for only one, possibly two, functions. The best developers can tell you who the best developers are, the best architects can tell you who the best architects are, and the best inside sales managers can tell you who the best inside sales managers are. However, asking a developer to choose the best inside sales manager doesn’t work. (In my global investing experience, cross-cultural/cross-language evaluation is equally difficult. For example, asking someone from Europe to evaluate Americans generally leads to worse results than Americans evaluating Americans and visa versa). This is true because most managers have seen a lot of candidates over time for a particular position (and in a particular culture/language), see the results of their hires, train the neural network, and know the questions to ask and the things to look for that separate out the “A” caliber candidates (i.e., they have the right historical “database” from which to examine candidates against). The key to choosing the best candidate is putting together the most qualified group of interviewers for the position you are hiring for. (As a side note, I have found that experienced Venture Capitalists are actually quite good at contributing to the process at this stage for many positions, as they have built up their database of experience in many of the most important positions, they ask a lot of good questions, AND they tend to push for the inclusion of the right evaluators…in a lot of ways, good VCs are professional interviewers).

Some Additional Thoughts:

  • The process that I outline gets more complex as you work through the candidate’s view of the process. Most “A” caliber people believe that it is obvious they are the best, and want to be “courted,” so you need to be careful not to construct a process that is perceived as mechanical or “low touch”. I have also ignored the role and responsibilities, the company culture, compensation, and other factors that make the company more or less attractive to the “A” caliber people you are trying to recruit (Perhaps another posting sometime).
  • There is an additional side benefit from following this process. That is, it is very difficult up front to put together a description of the ideal candidate that appropriately weights all of the factors that make up “ideal.” The process outlined above allows for adjustments to the hiring criteria as “the land of the possible” is compared to “the theoretically possible” as the best candidates move through the process.

Begin Now!

I give this advice all the time. Some management teams get it right away and adopt it (or have already discovered this process) and some management teams need to fall into the traps of “most rewarding view” and “external agency” a few times before they “get it.”

I have never seen a great emerging growth company that does not eventually adopt steps substantially similar to the steps I outline above (including Microsoft and Google). So my question to you is “why not now?”

End Note: My apologies to Daniel Gilbert and his colleagues if I have taken their experiments and results out of context. I believe that their experiments are applicable to hiring practices, but I have not done the primary research to find their experiments, findings, and conclusions.

October 28, 2005

Funnel Economics- an Introduction

Posted in management, marketing, Sales at 3:24 pm by scottmaxwell

Even with all my ranting in board meetings about the topic, I continue to be amazed by the lack of focus on the economic aspects of the sales and marketing funnel (A.K.A. Funnel Economics).

Funnel Economics is essentially how much money do you spend on the funnel (in the form of sales and marketing expenses) vs. how much money (in the form of Gross Profit) drops out of the funnel? In this sense, Sales and Marketing is a money machine (remember that magic trick where you put a dollar in, turned the handle, and you got $10 out?) when done right (and a money sink when done poorly). Somewhat more complex issues include:

  1. What are each of the components of the funnel and how do they contribute to the economic results?
  2. How have your Funnel Economics changed over time?
  3. What are the marginal Funnel Economics?
  4. And, most important, How can you maximize the Funnel Economics? (this is actually the most important question, but you need the answers to the other issues to accurately address this one.)

My argument for putting more energy against understanding and improving the Funnel Economics is that it is the most important (and complex) factor in determining the growth, profitability, and, indirectly, ultimate valuation of an emerging growth technology company (yes, the product, pricing and services are really important too, but they factor into the funnel economics…more on this below. And, yes, many companies get acquired for their technology, before they get a chance to scale up their funnels, but this is the Expansion Stage view).

When to focus on Funnel Economics

In the early stages of a company’s life, the processes should be creative in nature and informal (this also involves very few high quality highly passionate people trying a huge number of things before settling in on “what works?…probably where a lot of the “magic? takes place). Forget about funnel economics at this stage, as you should be making something and getting some people to use it! Most important at this stage is moving down the sales learning curve as far as possible (although you will need some simple form of Funnel Economs to understand how far down the curve you are.)

As a company finds its footing and is ready to scale up its sales and marketing resources (the Expansion Stage), measuring and managing the funnel economics are a extremely important activity (you are about to amplify them, possibly significantly, so you had better be able to predict the results accurately).

It’s all about Sales and Marketing Management

Many Factors Extenal to Sales and Marketing Influence Funnel Economics…

Market and product factors are highly important in determining the order of magnitude of funnel economics. For example, a high growth market with an extreme pain point where the company has the best solution, a natural ability to have a network effect and the ability create a viral effect would probably have pretty rich funnel economics (add any Web 2.0 concepts that I am missing, as the web 2.0 crowd has done a great job of clustering important concepts and giving them a tag that generally represents many good principals).

…But Sales and Marketing management AND the company CEO can have a tremendous effect!

From a sales and marketing management perspective, however, most of the market and product factors are fixed, at least in the near term. The key is to understand how the sales and marketing activities influence the ultimate economics of the company (are you getting $1 for each dollar dropped in or $10?)…especially important are maintaining and improving them as the company grows!

I have seen many companies make significant progress understanding and managing their Funnel Economics (and many technology companies building products to help them with various aspects of the analysis). I have also seen many companies punt on these issues or not keep careful track of their development which has resulted in a lot of wasted capital!

Hopefully, all companies will adopt this approach and do it well…until then I will keep ranting…

October 25, 2005

Who is the right CEO?

Posted in CEO, management at 8:20 pm by scottmaxwell

One of the first questions that I get asked by companies that I am talking to is “who is the right CEO for the company?” I always get confused by this question (I am not sure why, given the frequency of the question), as there is almost always a CEO in place, and the CEO has generally been in place for two or more years by the time I invest. My view (which I recognize is different than many VCs) is that a CEO that has brought the company to the point I am willing to invest is the best CEO going forward. Many of them have not had the job before, but all of them have the passion, domain expertise, and customer and product knowledge, which I do not believe, can be replicated by hiring a new CEO. I also find that the CEOs that I invest in are likeable people, which seems to be aligned with the skills necessary to be a good CEO. My approach is to try to understand the CEO as much as possible by working with them over time. After a while, a profile emerges with strong spikes in certain areas and valleys in other areas. Once the profile is clear, and as the company grows, new senior positions open up that can then be filled by people who have spikes where the CEO has valleys. For example, if the CEO is not process oriented, we might find a senior CFO or COO that will augment the skill. If the CEO is more sales oriented, we might find a CTO that can balance out the senior skill set. Every so often, a CEO asks us to help find a replacement, sometimes before we invest, sometimes well after we invest. In all cases, my inclination is to try to carve out the role that the CEO wants (still probably the highest value person in the organization) and to launch a search that augments their skills (same basic approach, different title). This approach has worked many times over extremely successfully…

I have a product and some customers, Now What?

Posted in introduction at 7:15 pm by scottmaxwell

I finally got around to setting up my blog. Why? Partially because I give a tremendous amount of advice to emerging growth technology companies that I want to share with a broader audience, but mostly because I have a lot of unanswered questions about the best approaches for building technology companies.

I was finally convinced by my friend Ed Sim that if I posted my thoughts and comments on particular topics then I could expect to receive additional comments and perspectives that I would find useful. both Ed and Brad Feld were encouraging and gave me the basic steps to get started.

My world is different than many VCs, in that I focus on expansion stage companies in the software and internet markets. I define expansion stage as companies that have build a product, gotten some customers, and are now in a position to scale.

The issues faced by technology companies at this stage of development are very different that early stage companies. The major issues are around distribution strategy and execution, but as companies scale they tend to need more formal development approaches and have many other process, organization, skill, and staffing gaps as well. Every CEO is also looking for more leads, customer introductions, and ongoing advice in every category, personal and professional.

The overarching question from most CEOs (not in these words) is “I have a product and some customers, Now What?” (truth be told, I wish most of them said this. In actuality, most have a belief in the “right” direction for the company, but either need assistance getting there or need some help stepping back to 100,000 feet periodically).