January 4, 2006

Compensating the Team- Thoughts From Ed Sim

Posted in culture, management, recruiting at 12:49 pm by scottmaxwell

Ed Sim has some good thoughts on compensation design on his recent post. He also links to an earlier post on how hiring key A-players has a great effect on building an A-magnet for your company.

November 7, 2005

Recruiting Best Practices- Summary

Posted in culture, management, recruiting at 8:31 pm by scottmaxwell

I just completed three very long posts that describe what I believe are best practices to

  1. Determine what characteristics to recruit for if you are seeking “A” caliber employees,
  2. Manage the process of recruiting them, and
  3. Ensure that you are set up to attract, retain, and motivate them.

please send me comments if you have suggestions for improvement on any of them.

Recruiting Top Candidates- What Does “A” Caliber Mean?

Posted in culture, management, recruiting at 10:57 am by scottmaxwell

I received a question on a recent posting about what constitutes an “A” caliber person from a recruiting point of view. In my view, this is one of the toughest questions faced by management teams. I had been thinking about the issue when I read Friday’s New York Times article on Tiger Woods, “Tinkering With Success.” The basic theme of the article is that Tiger has been an excellent golfer for a very long period of time (winning eight major championships through 2002), but has spent the last 20 months changing his swing (and his coach). The results have been tremendous this year…he has won two major championships and six tournaments. Tiger is an “A” caliber person!

The problems with this observation in the context of recruiting into your company (besides the fact that it is obvious) are:

  1. It does not (by itself) help predict if other people will be “A” caliber at golf as it is describes the result rather than points out characteristics that help predict the result.
  2. Even if it did point out predictive characteristics, the predictive “algorithm” would only work for golf (i.e., While he is “A” caliber at golf, Tiger probably is not an “A” caliber engineer!).

My involvement on the issue of finding “A” caliber people over the years has led me to the following “best practice” approach:

  1. Focus your attention on only one or two positions at a time. This is extremely important, as the effort required to do the job right is considerable. If you do get it right, you will significantly improve your company (I continue to be amazed at how the addition of one key person to an emerging growth company has had such a significant effect on the companies that I am involved in). Given that you want to get the “biggest bang for the buck,” I would suggest that the possible focal points are:
    • a position that is currently a significant hole in the team,
    • senior level positions (C-level/VP level), or
    • a function that you intend to hire a large number of people into over the next year or two (probably a specific sales or service function if you are at the expansion stage).
  2. Determine what “A” caliber OUTPUT “looks” like. Some thoughts:
    • Output has an “efficiency” angle and an “effectiveness” angle. Efficiency is all about pure input/output productivity (how many sales calls per week does a salesperson make, how many lines of code does a developer make), while effectiveness is all about quality (how many sales per sales call does a salesperson make, how many errors per line of code does a developer make. I know, the examples that I give are really simple and not the only measure of output for the functions mentioned, but hopefully they serve to get the point across. Also, don’t confuse these simplistic examples with Taylorism. The intent is to get you thinking on the topic, not pulling out a stopwatch!)
    • It is relatively easy (at least conceptually) in an individual sport like golf to determine “A” level output. From an efficiency point of view, you can look at the number of tournaments/top tournaments that a player enters for a given season. From an effectiveness point of view, you can look at tournament wins or wins against top competitors as a couple of high-level metrics. You could also disaggregate the measures of the game into some components like length and accuracy of drive, pitch accuracy, putting accuracy, ability to recover from tough situations. You could also disaggregate each of these components further. For example, for the drive swing, you could look at club speed at impact, body speed, arm speed, form etc.). I have not read (or looked for) a book on disaggregating golf, a great read on the use of statistics in baseball is “MoneyBall: The Art of Winning an Unfair Game” by Michael Lewis.
    • When you move to a team sport, like basketball, the issue of determining “A” level output gets more complex for a few reasons. First, basketball involves specialist roles (e.g., Point Guard, Center, Forward), and you need to make sure that you have defined the “A” level output for each of the roles separately. Second, each basketball program has a somewhat different strategy (fast-break running game, outside shooting game, inside shooting game, pressure defense, etc.), and you need to make sure that you have defined the “A” level output in the context of this strategy (or planned new strategy!). Third, teamwork matters. The capabilities and style of the other players already on the team will help determine what “A” level output of the player/position in question. If the new player does not “fit in” with the rest of the team, the output of the entire team could suffer.
    • When you move the issue to an emerging growth business, determining “A” level output gets even more complex. You not only have the same role/position specification, strategy, and teamwork issues as the team sport example, but also have additional burdens of constantly changing need to move from generalists to specialists as the organization grows, as well as very dynamic changes in markets, competition, and regulatory issues as markets and companies evolve (think about changing the rules of basketball and adding new players on the other team WHILE the game is in progress). Finally, you do not have the benefit of transparency, where you can gather up all of the output data from all of the other companies that have similar functions…you only have your own data to work with!
    • So how do you determine the right “A” level output for a given position, given the dynamic nature of the business? This is part art, part science, but to the extent that you have people already in the position/role, you need to “tease out” the output from the best relative to the rest (assuming that you have one or more people performing at the “A” level). You should also reach out to your network and advisors to get as much information and as many viewpoints as you can from them, especially if this is a new position (if you have a good VC, this is easier, as you will generally have access to other companies in the VC’s portfolio as well as the experience of the VC. Also, really good professional recruiters can be helpful in all stages of the process, including this stage.). Take all of the data and ideas that you can, and distill it down to what output that you think constitutes the “A” for the role/position in question (and what is the priority for the output that you are looking for…conceptually similar to a “hierarchy of needs” for the position in question). This is important, as you may decide at some point to “back off” your original criteria (for now). If you do, you will want to know what you “must have” vs. what is “nice to have” for your current stage of development.
  3. Determine what “defining characteristics” help to predict that an individual will have the “A” caliber output. Some thoughts:
    • Try to make sure that the characteristics are “causal” in nature. This is the toughest step, in my view, as you need to separate correlation (things that move in similar ways) from causality (things moving that cause other things to move). An example of this (from my college statistics course) is that someone once figured out that as the number of Bishops in England went up, the number of fires in England went up. Cause for alarm if the Bishops CAUSED the fires! But it is only correlation (the two things moved in similar ways). The cause of both the Bishops increasing and the Fires increasing was that the population of England was increasing (the population increase led to an increasing need for Bishops and increasing accidental fires). More relevant to golf, (from Tiger Wood’s fun facts), the fact that Tiger wears red on the last day of a tournament is less causal in nature (at least in my view) than the fact that he first started swinging a golf club at 11 months (note: neither are probably the best criteria to use for predicting golf success, but the latter is probably more predictive!)
    • You need to determine the time scale for the predictive characteristics. For example, do you need someone to “hit the ground running” (in which case, you need characteristics that predict the person’s output today) or are you hiring less experienced people that you want to grow over time (in which case, you need characteristics that predict that a person will develop into having the “A” caliber output over time). For example, getting a “plug and play” salesperson to sell advertising may suggest characteristics such as “currently selling advertising to the same advertisers for the same type of media,” “sells a lot,” and “works well with others.” Getting a less experienced person right out of college for the same type of role might be characteristics such as “leadership,” “aggressive,” “outgoing/extroverted,” “team oriented,” and “passionate for this job.”
    • Make the characteristics comprehensive. You need to make sure that you encompass the role.
    • Keep it as simple as possible. No need to get overly complex here. Boil the characteristics down to the minimum necessary. (This point is not in conflict with the prior point.)
    • Turn the characteristics into useful screening criteria. For example, you can measure “sells a lot” by the salespersons W2 (that is, what (s)he got paid last year) and the written compensation plan for the position, “works well with others” through personal reference checks, the college graduate’s “leadership” through extra curricular activity leadership in college, etc. The key is that you can get the facts that help determine if the person has the characteristics that you want. (Btw, you need to do real work here when you are doing diligence!)
    • Once you start interviewing, revisit and refine these criteria. I find that the process of interviewing helps to both identify the “land of the possible” and is also quite useful at improving your thinking on ingoing criteria.
    • Note1: You can make these activities more comprehensive, and possibly more accurate, with activities like psychological and behavioral testing, but I have not seen it “up close and personal.” My sense is that it is probably better suited for large scale hiring efforts that can not put the time into a deep understanding of the candidates and may be better suited for finding “minimum competency” rather than “maximum competency” of hiring “A”s as I discuss here; therefore, I believe the activity is better suited for the large companies.
    • Note2: I have used an organizational psychologist to help with the defining characteristics and interviewing periodically. His high emotional IQ and different angle on the issues has been quite helpful.
    • Note3: When companies have the luxury of lots of data and resources to analyze the data, this approach can (an has) been taken to the extreme through regression modeling. I have not, however, been in a position with any of my emerging growth companies where we have done (or even considered) this. It is really more of a large company activity.
  4. Build diversity into your criteria…there are lots of ways to define the “A”. When you have the opportunity to hire multiple people into a function (like with a growing development group, sales group, or services group), make it as diverse as possible (education, experience, geographical location of childhood, gender, culture, language, socio-economic, life experiences, race, etc.) while still maintaining the bar of hiring “A” caliber people. It makes great business sense (doing this has a side effect of being politically correct, but it is the business result that I am interested in here). There are three major business reasons for creating diversity in your functional unit:
    • You will want to have a broad enough sample of different input characteristics so that over time you can tune the characteristics that make an “A” caliber person in the function. Since there are a lot of factors other than “population” that determine the “number of fires” in England, there are most likely a number of more idiosyncratic factors that define your optimal job candidates for a particular position.
    • Diversity will help you over time as your business and its needs change (think about Charles Darwin’s ideas!).
    • Diverse people also have diverse interests and motivations. With diversity, you essentially are allowing the business to run along its efficient frontier, which essentially means that it allows you to maximize your overall output (through increased “intelligence” and “network” of your company) while it averages out the hills and valleys in individual motivation and performance.

That is it in a nutshell. This process should help you determine what constitutes an “A” caliber person for a given role in your company. One last thought on setting the “A” criteria. Tom Watson says, “Tiger has raised the bar to a level that only he can jump.” There is not another Tiger Woods, so if you set the bar at that level, you will not be successful. Set a bar that is realistic for your situation and gets you the top candidates that you can find. The key is to “raise the bar to a level that only a few can jump!”

Also, once you have the criteria for the ideal candidate, make sure that you are doing the work necessary to turn the paper candidate into the productive employee, including:

  • Put a Process in place that “screens” for the right characteristics. See my post on “Recruiting Best Practices” for some thoughts on the screening process.
  • Set up the “environment” so that the individual can thrive. (See my post on “attracting, motivating and retaining” for some thoughts on setting up the right environment.) If you do this right, you will get all your staff, not just the “A” caliber staff, working above their natural level.

This process works well, and it should work well for you.

October 31, 2005

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.