Posts from Chief executive officer

What do you do when you don't want to sell your company and you don't want to go public either? We've been discussing this issue here at AVC for a long time. I think back to this post from 2008, almost five years ago now, as the kickoff of this long running conversation. This is something I care a lot about because my business model requires getting liquid but I hate the idea that my business model creates problems for the entrepreneurs we back.

Here's a great three minute discussion of this issue between Chad Dickerson, Etsy's CEO, and Sarah Lacy, from last thursday night's PandoMonthly event.

I've been having frequent private conversations about these issues with the CEOs of our portfolio companies and it's great to see some of that become public in venues like the Pando event. This is an important topic, not just for me or for AVC, but for the entire startup ecosystem.

The entire talk between Chad and Sarah is almost two hours and can be seen in its entirety here.

I was watching this Charlie Rose interview with Lena Dunham and I was struck by this line:

it’s really intense to be thrust into a managerial position before my time

I have seen this a lot in my business and its always your talent for making things that puts you in this spot. And one of the big challenges is that the "managerial position" (as Lena calls it) is often in conflict with the talent for making things that got your there in the first place.

I am not saying that folks who are talented at making things aren't talented at managing people. I have come to believe that most people can be talented at managing people if they want to be. What I am saying is the time and energy and passion for making things can be all consuming and managing people can also be all consuming. Doing both well is really hard.

When we had our USV CEO summit last fall, we kicked it off by asking each founder/CEO to open with the one thing they had learned the hard way during the year. The recurring theme was that they had to let the people they hired do the work even though they wanted to jump in and do it themselves. And as they are all going around the room telling this story over and over, I am thinking "and I want you to jump in and do the work too". Because these are the people who made the thing that got us to invest, the thing that we fell in love with, the thing we believe is big enough to build a business around.

One of my favorite stories is about an entrepreneur I visited in his office away from the office. That he had one is in and of itself is telling. He was playing his acoustic guitar and singing when I arrived and I said "wow. I didn't realize you were such a talented musician". He said, "I am an artist and the most impactful art that my generation can make is websites but I see myself first and foremost as an artist." And I thought, "well it is a shame that you can't hang a website on a wall and move on to the next one."

There are a number of ways to handle this conflict that arises between the maker in you and the manager in you.

Many artists stick to making and hire a manager to focus on their business. Artists that build websites and mobile apps can do that too. In a perfect world, the manager and the maker become partners and operate the enterprise as a duo connected at the hip. The Gotham Gal and I once watched a movie about Valentino and his partner Giancarlo Giammetti and I was struck at how well defined their two roles were in their business endeavors.

You can devote yourself totally and completely to the manager role and hire people to lead the making effort. That is what many of the founder and CEOs in our portfolio have chosen to do, at least in theory. As our CEO Summit discussion pointed out, that approach is riddled with tension and conflict because makers want to make at their core and being a hired maker working for a founder/CEO maker isn't a party. It can work but it will never work perfectly.

The third way is to keep your hands in both efforts. To be both the maker and the manager. The challenge with that approach is you have two full time jobs and I have not seen many who can do both as well as they need to be done. Some choose to hire leaders below them to lead the making and managing teams but then keep ultimate responsibility for both. That can work, but defining when you plan to step in and make the calls and when you won't is tricky.

I cannot and will not recommend one of these approaches over the other. Each founder/CEO has to figure out what will work best for him or her and then build the team around them appropriately. As always, the hires are critical. Some hired leaders can deal with a founder who drops in on the decision making process better than others.  If you are the meddling kind, you should find someone who can handle meddling well. But understand that nobody handles meddling exceptionally well. Pick your battles carefully.

What I can recommend is that you stare at the elephant in the room, name it, and deal with it. The maker/manager conflict sits at the heart of many of the development challenges that founder/CEOs deal with as they scale their companies and scale themselves. Conquering it is possibly your greatest opportunity and will lead to your biggest success.

 When I announced the MBA Mondays series on People and mentioned I would end with a number of guest posts, I got an email from my friend Scott Kurnit, founder of About.com and Keep Holdings. Scott said, "Culture that is something I have thought a ton about. I'd love to contribute a guest post."

So what follows are Scott's thoughts and experiences on building culture in an organization.

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Culture

Every company has a culture. The issue is – do you let it happen by accident or do you shape it?

– The CEO is the culture driver. It can’t be done by HR or anyone else. You either live it… or don’t bother.

– Many cultural imperatives are the same at every company. That doesn’t mean you shouldn’t write them down and socialize them, but come up with the 3 or 4 that make your company special, that make someone want to join your company… or not. Your people ARE your culture. The culture quickly takes on a life of its own.

– My favorite cultural imperatives are: Be Adaptive, Be Adoptive, Encourage Push Back, and Cherish Input, but NOT consensus. That said, these are ours – adopt what you like, but make your culture your own.

I think about company culture every day, but last week was especially poignant with About.com back in the news. We “pre-set” the About culture on day one and it’s one of the half dozen reasons the company is around 15 years later after six CEOs, four owners and almost no investment for the last decade.

As Fred noted in his May post kicking off the culture discussion, you can get away with an accidental culture for the first 20 or 30 hires – but then culture takes on a life of its own. I’d say that you’re better off doing what we did with About when from the outset Bill Day and I locked ourselves in a room and thought it through. What kind of people did we want to work with? What was going to make us strong all the way through to a thousand team members (yes, we banned the word employee). Were we going to trust our people or manage tightly? Were we willing to pay top dollar or save money and hire at the 50th percentile? Who was going to be most important – senior management, staff, Guides, advertisers or users – and in what order? What would our decision making process be? Would we come in early or stay late? Did we care if people were in the office or working remotely? Etc., etc.

Culture was extra important to the About model since our business needed to get big fast, but it also showed me that defining a culture sooner than later builds the best business foundation. It seems so obvious, but out of 150 start-up CEOs I’ve discussed this with I found only three who pre-determined their culture. That’s crazy!

It doesn’t matter what your culture is, but have one. The sooner everyone knows what makes the place tick, the sooner you’ll hire the right team members and then they’ll hire the right ones and then them and them and them.

While I list all 10 of the Keep Holdings culture imperatives below, I’ll pull out a few that are religion for me and likely the most controversial.

Be Adaptive: We’re working in an amazingly dynamic industry. Be prepared to change on a dime. If I hire you to do X but need you to do Y tomorrow, buck up and go with it… or don’t come in the first place. You sure get a different kind of person when they’re game to ride the waves. Don’t want to ride waves, go work at Big Slow Corp Inc. and good luck with that.

Be Adoptive: Hey, we work in the Internet – Invent like crazy, but don’t be afraid to adopt good ideas from everywhere. Don’t tread on someone’s patented business process, but if you like someone’s ideas, build on them. Yes, that’s legal – and it’s OK to admit you don’t have all the great ideas.

Pushback: Everyone should know why they’re doing something. I’ll never forget when I asked a colleague at Showtime for some quick data analysis. When I asked him the next day where it was and he told me he needed another day I realized *I* screwed up by not telling him I only wanted the info if he could do it in 10 minutes. Everyone should be encouraged to say, why, how long should I spend, what should I not do instead and are you sure it’s worth the effort? While this was about saving some time, this simple concept now makes our company more transparent and productive at every turn – whether for little tasks or big strategic issues.

Input, not consensus: This may be the biggest for me since it’s the major thing I can point to for why AOL crushed Prodigy in the pre-internet online world. I still have nightmares of 18 people sitting around a table trying to make a pricing decision. It took Prodigy over a year to adjust pricing to be more in line with – and trump AOL and it took Steve Case’s AOL one measly day to respond. One year… one day. I still get chills. Rather than have the indecision of 18 people, pick one to be the decider as the very first action. Trust me, that person feels the weight and authority when they own the decision. They’ll get a ton of input… rather than having endless discussions. Group decision-making makes people fearful of engaging with the concern that it will never end. When one person’s in charge… they want to hear it all. And fast. And get it right. And crisp. And done!

OK, here’s the whole list that drives Keep.com, TheSwizzle and AdKeeper. Feel free to Adopt as appropriate… but make sure you live it. These are not for everyone… but you should all have those that work for you.

Consumers always come first.
We operate as an “upside-down pyramid:” customers first, those who directly engage with customers second, management last.
We respect individual privacy and aim to give consumers greater control of their web experiences.
We embrace community, with users in control.

We maximize value to our partners.
We love brands, products and services!
We partner with brands to help them succeed on the web.
But user experience trumps money every time.

We operate with the highest integrity.
We are straight shooters and demand integrity in principle and practice.
We don’t tolerate politics.
We admit and confront our mistakes… and learn from them.

We are adaptive, flexible and nimble.
We race towards opportunity.  We spin on a dime.
We move at Internet speed – ahead of the crowd.
Jobs can change at any time.

We are adoptive, embracing good ideas from all sources.
We embrace diversity in perspective, viewpoint, thinking and actions.
All ideas are welcome and appreciated.

We encourage teamwork, risk-taking, creativity, and speed-to-market
Teamwork makes better products, but can slow things down.
So, we encourage single ownership, creativity, risk and speed.

We value input (& push-back), not consensus.
We value everyone’s opinions but recognize the power of crisp and quick decisions.
Decision-owners must solicit input, welcome push-back, and ultimately make the call and execute.

We are strategically focused.
Our work is market focused.
We build and evolve world-class products.
Our offerings will be powerful, relevant, scalable and low friction.

We only want to work with the best people, those who are prepared to work harder than the competition.
We are positive in our outlook and behavior.
We will compensate better.
We will have more fun.
We will sprint a marathon and win our races.
We will succeed together.

We exist to build long-term value for our investors.
Everyone who works here is an owner.

Chad is the CEO of Etsy and I think I'll skip the intro because this post speaks for itself.

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Recruiting & Culture

When Fred asked me to write a guest blog post, I told him initially that I was going to write about recruiting and culture. Both are topics that I've learned a lot about in nearly twenty years working in companies of all kinds and contexts: public and private, large and small, struggling and ascendant, on the east and west coasts. As I sat down to write, I realized that how you recruit people and your recruiting approach defines and continually reveals the culture of your company, and it quickly became clear to me that recruiting and culture are yin and yang. In recruiting, a successful outcome usually means a candidate saying yes to your company, and at that moment, the candidate becomes part of the company culture. Below are some of the things I've learned to do over the years when it comes to recruiting and culture.

Make recruiting a top priority at the CEO level

Former IBM CEO Lou Gerstner wrote a book about IBM's late-90s turnaround and said: "culture isn't just one aspect of the game, it is the game."" The word "recruiting" can easily be substituted for culture. In my career, I've participated in a number of searches for HR executives and staff. Without fail, the least successful ones were those where the premise was "we need someone/a team to own the culture and/or recruiting." (This is a similar corporate pitfall to looking for someone to "own innovation" but that's another post.) A great head of HR is critically important but culture and recruiting are owned by everyone if they are successful. As Gerstner noted, one of a CEO's most important responsibilities is tending to the culture. To that end, a CEO must not only drive recruiting at the executive level but at any level where it will make the difference in closing a critical candidate. On a practical day-to-day level, that means that I will drop nearly anything I am doing to help close a key candidate. Talent is that important and it's always worth my time.

Communicate the company vision broadly and directly

In his legendary recruiting pitch at Apple, Steve Jobs said to John Sculley, "Do you really want to sell sugar water, or do you want to come with me and change the world?" A strong vision can quickly set your company apart from others. In his pitch, Jobs understood the power of the appeal to something larger than simple manufacturing of goods for a particular market. As Antoine de Saint-Exupery wrote, "If you want to build a ship, don't drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea." Jobs' conversation with Sculley happened 1-on-1, but the forms of communication available today mean that you can communicate the mission and vision of your company more broadly and directly than ever, which is what I did when I blogged in May about our long-term vision for Etsy. It has never been easier to tell your own story and talk about your company directly with the people you want to reach. Talking to the media is good, too, but traditional media outlets have their own publishing schedules, editing quirks, and editorial voices, so you should always keep a direct channel open. On a purely pragmatic level, communicating directly gives candidates a deeper sense of what your company is trying to do and they come into the process knowing what your company is all about, often self-selecting to your mission. I've found that this takes the recruiting process up a level.

Challenge traditional notions of corporate transparency

A compelling vision is just the beginning of a conversation. To be successful in recruiting efforts, you have to have tangible substance to what you say. Current and potential staff demand greater transparency into your company than ever before. Typically, candidates want to know two basic things about your company: 1) how is the company doing from a business standpoint? and 2) does this company operate in a way that I can believe in? The second is arguably more important than the first, since performance metrics rise and fall, valuations go up and down, and stock prices fluctuate. Culture and values persist.

Most private companies don't disclose any financial information, but for years now, we at Etsy have been publishing key metrics from the Etsy marketplace in a monthly "weather report." Our main goal in publishing this information is to let the Etsy community know how the marketplace is doing overall, but publishing this data also helps immensely in recruiting. When you're trying to convince a candidate to move across the country or choose between you and a company that holds its numbers close to the vest, providing this kind of information can be the deciding factor.

Measuring how a company operates from a values standpoint is much more challenging than reporting financial numbers because it is inherently difficult and there are few standards. Fortunately, new models are emerging to make such measurements possible. At Etsy, we believe that as a community-based business — a business where our company's success is entirely linked to the success of our larger community — our company should hold itself to a higher standard of social responsibility and transparency. We are not alone, and an entirely new form of business — the "benefit corporation," or B Corp — is developing to address the challenge of running for-profit businesses within a values-based framework. The non-profit B Lab has created a quantitative independent third-party assessment to measure companies' success against rigorous values and responsible practices. Etsy recently took the assessment and qualified to become a Certified B Corporation ™. Any potential employee can see how we measured up by looking at our score on the B Lab web site. We passed, but as you can see, there are areas where we clearly could do better. Diversity is one area for improvement, and we're actively and transparently working to improve our score. Recently, we provided scholarships for women to attend Hacker School to address systemic issues in bringing women into software engineering by providing training. We also announced our support of Code:2040, a program to increase minority representation in software engineering. We are doing all of this in the full view of the world. Over time, our community, staff, and potential candidates will be able to see how our company practices measure up to our stated values and where we are making improvements. I believe top talent is going to increasingly expect this type of transparency and companies that provide it will have a recruiting advantage as they compete against companies that are merely selling the metaphorical "sugar water" from Jobs' recruiting pitch.

Be patient: "Slow Recruiting"

Relationships are the currency of recruiting, and while recruits sometimes appear almost out of nowhere and close quickly, the truly great candidates can take a long time. John Allspaw runs technical operations at Etsy and I think John is the best in the world at what he does. When I hired John at Etsy in 2009, the near-term recruiting process was a few months, but the actual recruiting process had been going on for a decade. Nearly ten years earlier when I was CTO at Salon.com in San Francisco and John ran the ops team there, he came to me and said he needed to move back to Boston for family reasons, so he had to leave the company. I said, "Why? You can just work from there. We'll keep the same salary and nothing will change except where you work." John went back to Boston, the family situation improved, and John came back to San Francisco a year later. He never left the company and we made a difficult situation much easier for him. Since then, we have worked together at three different companies. Our relationship has persisted through boom and bust business cycles, massive upheavals in our personal lives, and changes in our business relationship. Looking back, I started to recruit John to lead Etsy's ops team when I found a way for him not to leave Salon in 1999. I call this (with tongue slightly in cheek) "Slow Recruiting."

Recruiting too slowly for key positions can be a liability in a fast-paced industry, but the larger point is that the way you and your company treat people over longer periods of time has more impact on your recruiting efforts than anything else. Whether it's making a tough situation like John's work and turning it into a win-win, talking patiently with someone at a conference when your time is constrained, or thoughtfully answering an email from a college student seeking advice, recruiting goodwill adds up over time. If you're just entering the industry and expect to be recruiting at any point in your future, I assure you that people will remember things you said to them fifteen or more years later. Keep that in mind at all times. It could be the difference in closing a key candidate ten years from now.

Open-source your culture: generosity of spirit

Most people really want to work for successful companies with really smart people where generosity and helping are the cultural norm. There are specific ways to institutionalize sharing in your company and demonstrate that spirit to the world, particularly in engineering where recruiting is most intense. In early 2010, we launched our engineering blog and named it Code as Craft, tying the mission of engineering back to the larger culture of craftsmanship in the Etsy community. Several months later, we formally introduced the concept of "generosity of spirit" at Etsy and asked every engineer do one of the following things within the year: 1) present at a conference, 2) write a blog post for the engineering blog, or 3) contribute to open source. Since then, the team has open-sourced 40+ projects, written over 70 blog posts, and posted over 50 engineering presentations, spawning a Code as Craft speaker series in the process. The team does these things because they love sharing their work, but as recruiting activities, they are incredibly effective because the software and information we provide helps potential candidates solve real problems. Cold-calling candidates doesn't come close to the warm intro of a candidate using the software you've open-sourced and thoughtfully explained to them.

Kellan Elliott-McCrea (Etsy CTO) says: "If your culture isn't explicitly leaky, if it doesn't aspire to change the world beyond the walls of your business, if it isn't captured in the product you're building and your users' experience, then it probably isn't culture, it's just cheerleading and team spirit burning up expensive inputs of time and company outings. Culture is lived, and it's why generosity of spirit is such a key piece of our team culture" (and therefore a key part of our recruiting philosophy and approach).

Cultivate the spirit of the organization

In his 1954 classic, The Practice of Management, Peter Drucker devoted an entire chapter to what he called the "spirit of an organization," writing: "Management by objectives tells a manager what he ought to do. The proper organization of his job enables him to do it. But it is the spirit of the organization that determines whether he will do it. It is the spirit that motivates, that calls upon a man's reserves of dedication and effort, that decides whether he will give his best or do just enough to get by." At the end of the day, a candidate will look most closely at the spirit of your company and the visceral sense he/she gets from visiting your office, reading your blog posts, following what members of your team say on Twitter, and reading about you in the press. It's hard to quantify this spirit, but you know it when you've got it, and you know how painful it is when you don't. When it comes to recruiting and culture, a leader is mostly responsible for tending to the spirit of the organization, and for making whatever adjustments need to be made to keep that spirit strong and powerful. In the end, that spirit matters more than anything.

Thanks to Kellan Elliott-McCrea (Etsy CTO) and Randy Hunt (Etsy Creative Director) for their feedback on this post.

This is the final post I am writing in this MBA Mondays post on People. Next week we will start with the guest posts and I've lined up about a half a dozen of them. I am going to finish off my posts with something I know a fair bit about which is leveraging your partners to grow and develop your team.

In talking about "your partners", I will focus on your investors, because that is what I am. A VC. Most of this advice can be used to a degree with other partners, advisors, independent board members, consultants, etc.

There are a lot of investors who can write checks. But there are not a lot of investors who can help you build and manage a team. If you have a choice in your investors, which not everyone will have, you should select investors who can do the latter.

The best investors, the ones who have been at it for a while and have great reputations, will have a large network of people they have worked with over the years. Their network will also include people who they want to work with and who want to work with them. They can and do play matchmaker between their network and their portfolio companies. I suspect the partners at USV spend at least 25% of our time on things that would be considered "recruiter" functions. And we should probably spend more of our time on this. I don't know of a better way to positively impact the performance of our investments.

But not every portfolio company gets equal benefit out of our recruiting function. Like all things in life, the squeeky wheel gets the oil. We love all of our investments equally but some demand our time and attention and others do not. The ones who demand get. The others get too, but not as much. So rule #1 is demand that your investors help you grow and develop your team. Ask for results, expect results, get results.

Rule #2 is to be very specific about what you want and request help in frequent small asks. One of our portfolio companies that I am actively involved with sends me an email each week with up to three specific asks. No more than three. I can do three each week. What I can't do is a vague open ended request once in a while with a very large ask.

Rule #3 is to communicate actively with your investors. Make sure they know what you want and what you don't want. I know a lot of investors who spam their portfolio companies with resumes. That is not helpful. Make sure your investors know the jobs you are actively recruiting for. And let them know about the roles you are "opportunistically" recruiting for. And most importantly, make sure they know what you are not looking for and why. When you get resume spam, instead of ignoring it and deleting it, reply back with a courteous but clear message about why that was not helpful.

Rule #4 is to selectively engage your investors in the recruiting process. Use them when they can help. Use them to close an important candidate. Use them to get a second or third opinion on a particularly important hire. Don't give your investors control over your hiring decisions but engage them as trusted advisors. As the Gotham Gal likes to say "you get what you give." Give someone a role and a feeling of being involved and you will get help.

Rule #5 is to expose your investors to your team. Give them a sense of the culture of the company and the composition of the team. Give your best and brightest "air time" with your investors. Your employees will like it and so will your investors. I really enjoy being invited to speak to an all hands meeting, or to have lunch with the team, or to go play paintball with a couple portfolio companies. It allows me to help with retention, it allows me to think more clearly about who might fit with the team, it allows me to help the company in more ways, and most of all, it makes me feel good about the work that I am doing.

There is a limit to all of this. You should not let your investors become too engaged in the company. You and your team must run the company and there needs to be a very clear line between what is advice, assistance, and help and what is a shadow management function. If your investor is running your management team meeting, you know you've crosssed the line. That is a bad place to be.

But many entrepreneurs overcompensate for this by stiff arming their investors and that is a mistake too. You can't do everything yourself. Your investors can help. They operate at 30,000 feet and as a result they see a lot more of the markets that matter to you than you do. That includes the market for talent. So leverage them in the war for talent. Use them wisely. And you will see that it will pay dividends.

I don't like using terms like "fire" or "terminate." To me they have too much emotion attached to them to be appropriate when splitting with an employee. I like to say that "fred was asked to leave the company" or "fred, we need you to leave the company." That works better for me and, I think, it also works better for the person who is being asked to leave the company.

But more than how to say it, I think how you do it is paramount. Here are some simple rules along with some color commentary on each:

1) Be quick – once you've made a decision to let someone go, move quickly to do it. Don't procrastinate. Do get things buttoned up (terms of departure, departure date, how it will be communicated, etc) but once you've got things in order, have the conversation.

2) Be generous – Unless the employee has acted in extreme bad faith or done something terribly wrong, I like to be generous on the way out. I like to give some severance even if it is not required by company policy or contract. I like to vest some stock that may not be required to be vested. I like to paint the departure in as favorable light as possible. And I like to say good things about the person once they are gone. I like to be generous in financial terms and emotional terms. It makes things go easier for everyone.

3) Be clear – Do not beat around the bush. Start the conversation with the hard stuff. They will be leaving the company. Be clear about when and how. And be clear about the financial terms and other aspects of the separation. Do not mince words and do not say confusing things. Most employees in this situation will ask for reasons. Have them lined up in advance and be clear and crisp when describing the reasons. The reasons for a split do not have to be the employee's fault. They can, and often are, the company's fault. In startups, employees are almost always at will and it is the CEO's right to ask anyone to leave the company for any reason. So just be as honest as possible, be clear and crisp about the reasons, and don't turn this into a long involved discussion.

4) Get advice – There are some situations where the company has some potential legal exposure in these situations. When you are a small company, ask your lawyer about the specific situation so you know when you have one of them on your hands. When you are a larger company, your HR team should know when you have one of these situations on your hands. But make sure you are appropriately advised about a departure before sitting down and having the conversation. In the off chance you have a tricky situation, you will need to handle it differently and you will need advice on how to do that beyond what is written in this post.

5) Communicate – Once the employee has been told about their departure, you should immediately communicate it to those who will be affected in the company. For executives and co-founders, that means the entire company. So figure out how you are going to have that conversation immediately after you have the conversation with the departing employee. Be consistent with your messaging. Don't tell a departing employee one thing and the team another. People talk. And they will quickly figure out that you are spinning, bullshitting, or something worse if you give different messages.

When an employee is asked to leave the company there are two constituencies you need to think about. The first is the departing employee. The second are the remaining employees. How you deal with the departing employee will be noticed by the remaining employees. Even if the departing employee was not liked, a bad cultural fit, or worse incompetent, the remaining employees will have some empathy for them on the way out and if you handle it well, that will send an important message to the team. I find that a lot of inexperienced managers miss this nuance and it hurts them. They think they need to "look strong" to the team. They do. But they also need to look fair and humane. This is a big opportunity to do that.

I will finish with a few words aimed at the boss' own psyche and then suggest some further reading on this topic.

Asking someone to leave the company is never easy. I don't know anyone who enjoys doing it. But it comes with the territory. You don't have to learn to like it, but you have to learn to do it well. The thing that helps me and, I believe, helps everyone in this situation is knowing that you are doing the right thing for the company, the remaining team, and all the stakeholders in the business including customers, partners, investors, etc. When you put it in those terms, doing this unpopular chore becomes a bit easier.

If you'd like to read more on this topic, I think Ben Horowitz has written well on this subject a few times. I found these links below from Ben's writings and would encourage you to go and read them.

Preparing To Fire An Executive

Demoting A Loyal Friend

Lies That Losers Tell

Hiring is a process and should be treated as such. It is serious business.

The first step is building a hiring roadmap which should lay out the hiring plan over time by job type. This should be built into your operating plan and budget. You want to be very strategic about how you invest your scarce resources into hiring and think carefully about when you need to add resources.

Once you have done that, you want to have a system for opening up these positions for hire. This should not be done lightly because each position will require a fair bit of work by a bunch of people to hire for. Don't open up your hiring process lightly.

The first step in opening up a position for hiring is to define the position you are looking for. Most companies call this a job specification (or spec). The spec should outline the role that is being filled and the characteristics of the person who will be successful in the job. Here is a job spec for a brand strategist job in Twitter's office in NYC. If you click on that link, you will see that it starts with a high level description of the role within the context of the larger Twitter organization. Then it gets into what it will take to be successful in the role. Then it lays out specific responsibilities and finishes with the background and experience that Twitter is looking for in the candidate.

The manager who is directly responsible for the person being hired should draft the job spec and it should be signed off on by the CEO and whomever is in charge of HR (which could be the CEO in a small company). Once this job spec is published on your jobs page, this position is officially open for hire and the process begins.

Your company should have a jobs page. Even if you are a five person startup, you should have one. It should articulate what it is like to work at your company and list any open jobs. It should be linked to at the bottom of your webpage, right next to the link to your about page. This is important. Don't put it off. Here is Etsy's "careers page". It's a good example of what you want to do on your jobs page.

There are web-based solutions to get your open positions onto your jobs page, track the candidates through the hiring process, and provide workflow for your hiring team. In the industry vernacular, these systems are called Applicant Tracking Systems (ATS). Many of our portfolio companies use Jobvite, but there are plenty of other options out there as well. You do not need to build this stuff yourself.

Once the position is open, you want to crank up the sourcing process. We talked about where to find strong talent two weeks ago. Do not take the "put the job opening up and let the applicants come" approach. That will not get you the best people. You must go out and find the talent you want to hire. You can use your existing team, that is where the best leads always come from. You can use your network. You can use recruiters, both contingency and retained, and you can use services like LinkedIn and Indeed. You want to cast a wide net and work hard to source the best candidates you can. This is a time intensive process. Many companies will hire an in-house recruiter to help with this process, particularly when recruiting engineers, designers, and product talent. I've seen companies as small as ten employees bring on in-house recruiters. I am a big fan of making that investment because it pays dividends in terms of better talent.

Once the candidates start coming in, you will need to vet them to determine who gets an interview and who does not. Someone inside the company must lead this process. If there are HR resources, this vetting process starts with them. But the manager who is hiring for this position must be directly engaged in this vetting process. A HR professional can identify the candidates who don't come close to meeting the requirements of the job and filter them out. But the hiring manager should go through the applications of everyone who is close to being a viable candidate. He or she knows best what the job entails and can make the kind of "gut calls" that often lead to the best candidates.

You will want to interview a decent number of folks for every position. There are no hard rules for this, but the more people you meet, the better job you will do with the hire. Of course you can't meet everyone. Many companies like a 15 minute phone call (the phone screen) as the first filter into the interview process. A skype video call is also a good way to do this.  At USV we have experimented with a video application (using a service called Take The Interview), with good results. The phone or video screen is an efficient way to identify the small group (a half dozen to a dozen) that you will want to do a face to face interview with.

Once you get to face to face interviews, you will want to figure out how to get as many folks in the company to meet the candidates as possible. Our portfolio company Return Path has each candidate meet with four to eight employees during their interview process. That is a lot but Return Path makes a huge investment in team, culture, and their employees and they feel it is worth it. It may be worth it for your company as well.

Many employees don't know how to interview and you should teach them the basics as well as educate them on what you are looking to learn from their interview. Some training on interviewing as well as a quick feedback form for each employee to fill out will provide consistency and clarity from the employee interview process.

Most CEOs I know interview every hire their company makes until they get to be more than 100 employees (or more). Even if you have a head of HR and a top notch recruiting team, the responsibility for hiring is yours and yours only. A bad hire is your fault. A good hire is your success. So do not abdicate your responsibility to make the final call on each hire until your company is developed enough and strong enough to start making these hires themselves. This is how you build a great team, a great culture, and a great company.

Once the successful candidate is identified, you will want to do some checking on the person. I am a fan of making reference calls on everyone. They are not that hard to do and you will learn more from them than any other source of background checking. LinkedIn is particularly good for this. If you connect to the candidate on LinkedIn, you can quickly figure out who you know that knows them. Call those people and do your homework. It is also pretty wasy to do a simple background check for criminal or civil information. We don't do that at USV but I know a lot of companies that do it as a matter of good corporate practice.

When you are ready to make the hire, you must prepare an offer letter. The offer letter will outline the compensation you are offering and any other salient terms of the employement offer. Have your lawyer help you draft the first one you send out and use it as a template for all future hires. Offer letter are written agreements between you and the employee and treat them as such. Sign the employment offer and have the employee sign it to acknowledge that they are accepting it.

That's the hiring process. Done right, it involves a huge investment in each and every position. So many startups cut corners on it because they simply don't have the time or the resources to do it right. I would encourage everyone to take a step back and think about the costs of not doing it right and commit themselves and their companies to doing it right. You will see the benefits in time. And they are large.

Kicking off our series on People, I am going to talk about the importance of culture and fit in the hiring process. What I have to say on this topic is mostly aimed at companies that are going from five employees to five hundred employees, but I do believe it is applicable to companies of all sizes.

I want to start with something I wrote in another MBA Mondays post, on the management team:

Companies are not people. But they are comprised of people. And the people side of the business is harder and way more complicated than building a product is. You have to start with culture, values, and a committment to creating a fantastic workplace. You can't fake these things. They have to come from the top. They are not bullshit. They are everything. There will be things that happen in the course of building a business that will challenge the belief in the leadership and the future of the company. If everyone is a mercenary and there is no shared culture and values, the team will blow apart. But if there is a meaningful culture that the entire team buys into, the team will stick together, double down, and get through those challenging situations.

So this is what you want to create in your hiring process. Some entrepreneurs and CEOs buy into "hire the best talent available" mantra. That can work if everything goes swimmingly well. But as I said, it often does not, and then that approach is fraught with problems. The other approach is hire for culture and fit. That is the approach I advocate.

Hiring for culture and fit does not and should not mean "hire a bunch of white guys in their late 20s and early 30s." Diversity should be a core value of the team building process. There are many reasons for this but most importantly you want a diversity of thought, experience, mindset, and angle of attack.

Don't hire a token woman. Hire as many women as you can. Don't hire a token person from another country. Hire from all around the world (and become an expert in our bullshit immigration system). Don't hire a token "gray haired" type. Hire up and down the age and experience spectrum.

But most importantly, hire people who will enjoy working together, who fit well together, who will make each other better. This is what hiring for cultural fit means. You start with the founding team and build on top of that. If your engineering team is serious and likes to work until midnight every day, you want to consider that when hiring new engineers. A new engineering team member who wants to go out drinking after work every night is not going to be a good fit on that team.

You also don't want to create silos in your organization. I see companies where the engineers sit on one side of the office and the sales people sit on the other side of the office. And it is like two different companies. That can create issues and cultural divides. It is tempting to set things up like this because sales teams are loud and animated and engineering teams tend to be quiet and serious. But try to connect these different parts of the organizations in as many ways as you can. Make sure everyone is on the same team and enjoys working together.

So when hiring, you must start with what you already have. Take measure of the vibe of the company, the work habits of the company, the strengths and weaknesses of the current team. It's like a jigsaw puzzle that is only half built. You are looking for the next piece that will fit nicely into what is already there.

This jigsaw puzzle analogy is why it is hard and a bit dangerous to hire up super fast. You can fit one new puzzle piece into an existing puzzle fairly easily. But if the puzzle is a moving target because so many pieces are coming in at once, it gets a lot harder. And it is likely you will make a bunch of bad hires who don't fit well into the organization. And when they leave the company, it will be your fault, not theirs.

It helps a lot to have a one pager that outlines the core values of the company. I just saw our portfolio company Twilio's version of that. They call it "Our 9 Things." I wish I could publish it here but I don't have permission from Jeff and so I will resist the urge. It has things like "think at scale" and "be frugal" on it. You get the idea I hope. This "guiding light" is a framework for the culture and values of the organization and each new hire should be assessed against the framework to make sure the fit is good.

You, as the founder and CEO, can drive this for a bit. Maybe up to the first twenty or thirty hires. But you are going to need help as the company grows because this is hard, really hard. So getting a person hired onto the team who is totally focused on the team and team building is critical. And make sure they are a good cultural fit when you make that hire. Because they are going to be the torch carrier for your culture along with you. It will be among the most important hire you will make in you startup. More on that to come as this series develops.

This is the first of a series of MBA Mondays posts on the topic of The Board Of Directors. I want to dig into the role and responsibilities of the Board as a way to kickoff this series. But first a few disclaimers. I am not a lawyer and I am not giving out legal advice on this topic. I am a practicioner and am telling you the way I see it and what I've learned over the years. I think both are important perspectives. You will have to look elsewhere for the legal view on this topic.

The Board of Directors is the governing body for a company. All major decisions will need to be ratified by the Board. You will need the Board's approval to sell your company. You will need the Board's approval to hire or fire a CEO. You will need the Board's approval to do a major acquisition. You will need the Board's approval to do a major financing, including an IPO. On all matters of major strategic importance, the Board will need to be engaged, involved, and supportive.

However, the Board should not run a company. That is the role of the CEO and his/her senior management team. The Board's job is to make sure the right team is at the helm, not to be at the helm themselves. Boards that meddle, that get too involved, that undermine the management team are hurting the company, not helping the company.

Boards work for the company. The company is their responsibility. They must always act in the best interests of the company and its major stakeholders; the employees, the customers, the shareholders, the debtholders, and everyone else that is relying on the company to deliver on its promises.

Some would say that the company works for the Board. But I think that is wrong. The company works for the market (and I am using the word market in all of its meanings) and the Board and the management team work for the company. Every director must put the interests of the company first and their interests second. This is called fiduciary responsibility.

About ten years ago, I was in a Board meeting when management told the Board that they had uncovered significant accounting issues in a recently acquired company. This was a public company Board. And these accounting issues had flowed through to several quarterly financial statements that had been reported to the public. Every Board member who was also a material shareholder (me included) knew that the minute this information was disclosed, our shareholdings would plummet in value. But there was no question what we had to do. We had to hire a law firm to investigate the accounting issues. We had to immediately disclose the findings to the public. And we had to terminate all the employees who had an involvement in this matter.

Things like fiduciary responsibility seem very theoretical until you find yourself in a moment like this. Then they become crystal clear. Directors often must act against their own self interests. They must do the right thing for the company, its shareholders, and its stakeholders. There is no wiggle room on this rule. For directors, it is the golden rule.

The hard thing about being a director is that many times, the right answer is not clear. Should we accept this extremely generous offer and sell the company? Should we ask the CEO to leave the company? Should we go public or wait a few more years? There are no formulas that you can run to tell you the answers to these questions. There is no "right answer." Only time will tell if the right decision was made. And even then, there will be debate.

Debate is what good Boards do. They put the key issues on the table and discuss them. Good directors are deeply engaged in the important issues and they are upfront and open about their opinions on them. They are respectful of the other Directors and listen carefully to opposing opinions. Boards should try to reach a consensus and then act on it. Board should not procrastinate on the big decisions. Boards need a leader to drive them. That leader is commonly called the Chairman. I plan to write an entire post on the subject of the Board Chair as part of this series.

There are many CEOs who want to manage their Board. That is a mistake in my opinion. A great Board manages itself and treats the CEO as a peer and gives the CEO's opinion great weight. But a great Board is not a rubber stamp. A great Board pushes the CEO and the company to make the most of the opportunities in front of the company. It makes sure that the CEO and the management team are pushed out of their comfort zone from time to time. It asks the hard questions that must be asked.

Boards are fluid. They should evolve. Members should come and go occasionally. There should not be too much churn but some churn is good. Board members should not coast. Board members should not treat their seat as a right (even if it is). Boards should always be looking for new blood.

I will end with a somewhat controversial statement in light of the way some of the most successful tech companies are run. Boards should not be controlled by the founder, the CEO, or the largest shareholder. For a Board to do its job, it must represent all stakeholders' interests, not just one stakeholder's interest.

Next week I will talk about how a Board is selected, elected, and how it evolves over time.