Posts from Senior management

MBA Mondays: Leveraging Your Partners To Grow And Develop Your Team

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.

#MBA Mondays

MBA Mondays: Optimal Headcount At Various Stages

This is the third post in the MBA Mondays series on People. The number of people you have in your company at any time is a very important part of getting the company building process right. Too many and you will slow things down, burn through too much cash, and increase management overhead for no real benefit. Too few and you will be resource constrained and unable to grow as fast as you'd like.

I will say upfront that different types of businesses will require different employee bases and that my experience is really limited to software based businesses and within that sector, mostly consumer internet projects. So if you are working outside of the software business, I am not sure how useful this post will be.

I have a strong bias on this topic and that is that less is more. Time and time again I have seen the entrepreneur who wants to hire quickly fail and I have seen the entrepreneur that is a bit slow to hire succeed. If you took the time to corrrelate success in all of the venture investments my various firms have made over the years with one variable, it might be most highly correlated with a slow hiring ramp, at least in the first few years of company building. Being resource constrained can be a very good thing when you are just getting started. It forces you to focus on what's working and get to the rest of the vision later on.

I have tackled this topic of headcount before in the post on Burn Rate. This is what I said:

Building Product Stage – I would strongly recommend keeping the monthly burn below $50k per month at this stage. Most MVPs can be built by a team of three or four engineers, a product manager, and a designer. That's about $50k/month when you add in rent and other costs. I've seen teams take that number a bit higher, like to $75k/month. But once you get into that range, you are starting to burn cash faster than you should in this stage.

Building Usage Stage – I would recommend keeping the monthly burn below $100k per month at this stage. This is the stage after release, when you are focused in iterating the product, scaling the system for more users, and marketing the product to new users. This can be done by the same team that built the product with a few more engineers, a community manager, and maybe a few more dollars for this and that.

Building The Business Stage – This is when you've determined that your product market fit has been obtained and you now want to build a business around the product or service. You start to hire a management team, a revenue focused team, and some finance people. This is the time when you are investing in the team that will help you bring in revenues and eventually profits. I would recommend keeping the burn below $250k per month at this stage.

A good rule of thumb is multiply the number of people on the team by $10k to get the monthly burn. That is not the number you pay an employee. That is the "fully burdended" cost of a person including rent and other related costs. So if you use that mutiplier, my suggested team sizes are 5, 10, and 25 respectively for the three development stages listed above.

So 5 or less while you are building product, 10 or less when you are finding product/market fit, and 25 or less while you are working on generating revenues and locking down the business model. That's a rule of thumb for software based businesses that don't require a large direct sales force or some other significant labor cost.

Of course, there are all sorts of reasons why these numbers might not work for your business. This is just a "rule of thumb". You can use it as a baseline to think about whether or not you need those extra heads. But you might convince yourself that you do. And you may be right.

But above all else, restrain yourself from hiring early on. Just because you can does not mean you should. Team dynamics are easier in a small group. They get harder in a larger group. Things don't happen as quickly in larger groups. More management overhead is needed. All of these things work against you as a startup trying to get somewhere before someone else does. So hire slowly and wisely instead of quickly. You will be happy you did.

#MBA Mondays

MBA Mondays: Culture And Fit

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.

#MBA Mondays

The Management Team - Guest Post By Jerry Colonna

This is the final post of the MBA Mondays series on The Management Team. It is my favorite MBA Mondays series so far. The guest posts in particular have been fantastic.

Back when I started this series, I outlined it and decided that I would ask Jerry Colonna to wrap it up for us. Jerry, when he was my co-founder at Flatiron, taught me the people side of the venture capital business. And now as CEO coach to a number of USV portfolio CEOs (and many others), he is teaching the people side of the startup business to some of the best entrepreneurs we work with. He is a people person through and through and management is all about people.

So with that forward, here is Jerry's guest post. It is fantastic and he even threw in a section for Grimlock 🙂

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The Crucible of Leadership

 

Work is difficulty and drama, a high-stakes game in which our identity, our self-esteem, and our ability to provide are mixed inside us in volatile, sometimes explosive ways…Work is where we can make ourselves; work is where we can break ourselves. David Whyte, Crossing The Unknown Sea: Work as a Pilgrimage of Identity.

Fred started this series inspired by Bijan who urged folks to “invest in your team, help them become better managers.” The topic, said Fred with his flair for understatement, “is very important.” Over the weeks, different people looked at the process of building the capacity to actually lead—putting the team in place, scaling people, everyone argued may be the hardest part of building the company.

To me, the hardest part of scaling people is learning to lead your self.

The Crucible

They often come to me, their coach, because they don’t have any place else to put the feelings. They’ll sit on my couch, or pace while they talk on the phone, pausing as we grapple with issue after issue after issue. The common denominator is always people. When I first take on a client I warn that I don’t have a magic wand. Nevertheless their wish for some elixir to mend their relationships is heart-breakingly visceral.

When they start, they often think the hardest part is figuring out what to do but they’re inevitably knocked on their ass by the task of leading.  And when they make mistakes–when they fail to lead–their identity, self-esteem, and ability to provide—as David Whyte notes–sometimes explode.

We all too often break ourselves in the work of becoming a CEO, a manager, a leader.

The only answer, the only balm against the inevitable existential pain of becoming the leader we were born to be is to see the lessons implicit in the practice of becoming.

“In the course of studying how geeks and geezers became leaders,” writes Warren Bennis in the introduction to his classic, On Becoming a Leader, “…I discovered that their leadership always emerged after some rite of passage, often a stressful one. We call the experience that produces leaders a crucible…the crucible is an essential element of the process of becoming a leader…Some magic takes place in the crucible of leadership…The individual brings certain attributes into the crucible and emerges with new, improved leadership skills. Whatever is thrown at them, leaders emerge from their crucibles stronger and unbroken.”

The magic, the alchemy, occurs when what we do mixes with who we are and is cooked by the heat of what we believe.

Take as an example a client I worked with intensely over the last few weeks. She and a co-founder have been killing each other (okay, I have a flair for the overstatement…still, they have both been getting sick with a host of ailments—migraines and stomach problems). The arguments had gotten so bad that neither could stand to be in the same room with the other. Even I was exasperated. During one late night call, I asked my client to forget, for a moment, whether her co-founder was right or wrong. “I don’t care who’s right,” I said with my voice rising. “The only thing we have to focus on is what are you supposed to be learning from this.”

There was a long silence. I thought, “Okay. You’ve really pushed her too far. You and your woo-woo ‘lessons in the pain’ crap.” But then: alchemy. She opened up. “This is really shameful to admit,” she began, “but I know I’m a pain in the ass because I have to be right, all the time. I know it’s wrong but I can’t stop myself.”

And with that we had something to work with. I pressed her: Given this tendency, what do you really believe? What values do you hold? What kind of company do you want to build? And what kind of adult do you want to be?

Over the next few weeks, on guard for her need to be right, we carefully went to work changing her approach to the co-founder. For her, the crucible moment came in facing her shame, acknowledging who she really has been and as a result she got to choose how she wanted to manage and who she wanted to be.

We forge our truest identity by facing our fears, our prejudices, our passions, and the source of our aggression.

The Buddhists teach that for the steadfast warrior to emerge, we’ve got to break open our hearts to what is.

Eat Me If You Wish

“One day,” begins a story re-told by Aura Glaser in the latest issue of Tricycle Magazine, “[the Buddhist saint] Milarepa left his cave to gather firewood, and when he returned he found that his cave had been taken over by demons. There were demons everywhere! His first thought upon seeing them was, ‘I have got to get rid of them!’ He lunges toward them, chasing after them, trying forcefully to get them out of his cave. But the demons are completely unfazed. In fact, the more he chases them, the more comfortable and settled-in they seem to be. Realizing that his efforts to run them out have failed miserably, Milarepa opts for a new approach and decides to teach them the dharma.

“If chasing them out won’t work, then maybe hearing the teachings will change their minds and get them to go. So he takes his seat and begins… After a while he looks around and realizes all the demons are still there…At this point Milarepa lets out a deep breath of surrender, knowing now that these demons will not be manipulated into leaving and that maybe he has something to learn from them. He looks deeply into the eyes of each demon and bows, saying, ‘It looks like we’re going to be here together. I open myself to whatever you have to teach me.’

“In that moment all the demons but one disappear. One huge and especially fierce demon, with flaring nostrils and dripping fangs, is still there. So Milarepa lets go even further. Stepping over to the largest demon, he offers himself completely, holding nothing back. ‘Eat me if you wish.’ He places his head in the demon’s mouth, and at that moment the largest demon bows low and dissolves into space.”

Surrendering to the demons that torment your organization does not mean abdicating your responsibilities to manage. You are still responsible for dealing with the reality of what is. In some cases, the demon is the wrong vision for the company. In others, it might be that you’ve hired the wrong people. In still others, it might be your own failings—like an inability to admit that you’re wrong.

But in all cases, allowing your self to be eaten by the demon that remains—acknowledging the ways you contribute to the problem without descending into pointless self-flagellation–adds to the heat beneath the crucible. Without heat, there is no alchemy.

On Becoming Your Self

When I was a young Padawan, I remember lamenting to my therapist about my own fears as a manager. After a series of infuriating questions, she got me to admit that I was trapped by my own beliefs about success. I finally admitted I would never be satisfied until I was as successful as Bill Gates.

Being myself was never good enough and, as a result, being comfortable in my own leadership was impossible.

“If you bring forth what is in you, what you bring forth will save you. If you do not bring forth what is in you, what you do not bring forth will destroy you.”  Jesus, Gospel of Thomas

It was only later, after allowing myself to bring forth what is in me, that I emerged not only as a leader but a Jedi master.

Joel Spolsky, in his guest post for this series, tackled what I hear all too often in my workshops. He takes the Steve Jobs Question head on.

He writes:

“And yes, you’re right, Steve Jobs…was a dictatorial, autocratic asshole who ruled by fiat and fear.” But, importantly, he points out “you are not Steve Jobs.” Just like I am not Bill Gates.

Indeed, I think what Jesus taught was a simple truth: the only choice that doesn’t destroy you is to be the leader you were born to be. The alchemy of becoming your self is the ultimate act of leadership.

Listen close enough and you’ll hear echoes of this from every conceivable source.

Phil Sugar, tells us who he is and what he believes in the simple statement that, “My biggest legacy is the network of people I’ve hired and what they’ve gone on to do.”

Matt Blumberg, having gone through his own crucible challenged conventional wisdom (and the advice of Fred), choosing instead to invest in his team. “We consistently work at improving our management skills,” he notes adding that, “We learn from the successes and failures of others whenever possible.”

JLM writes:

“Develop a philosophy of management. Write it down. Try it out on some folks whose wisdom you admire. Put it to work…” and, my favorite, “Live it.”

I read in all these thoughts a steady, consistent wisdom: the wisdom of knowing yourself, your own beliefs, and living them.

Enduring the alchemical crucible requires developing the capacity to reflect, to turn the pain of the everyday life as a leader into lessons. Every wisdom tradition I’ve ever encountered—from Fred’s blog to the words of sages—ultimately demands the same thing: we must go inward.

That’s often the biggest obstacle to becoming your self. The frenzied, frenetic, do-it-now, answer-the-email-now-or-the-company-will-die-even-though-it’s-3 a.m. attitude is precisely the wrong process of becoming your self.

Joseph Campbell, writing in The Power of Myth, says,  “You must have a room, or a certain hour or so a day, where you don't know what was in the newspapers that morning…a place where you can simply experience and bring forth what you are and what you might be.”

Call that room, at that hour, the crucible of leadership.

#MBA Mondays

The Management Team - Guest Post From Phil Sugar

Continuing our MBA Mondays series on The Managemet Team, we are deep into the guest post phase. This guest post comes from AVC regular Phil Sugar. I've never met Phil, but his comments here at AVC tell me that he's a very experienced entrepreneurial manager. And so I reached out to him to ask for a guest post. And he responded with this post below. There are so mant great lines in here, I'm tempted to reblog a bunch of them.

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Best Friends, Buddies, and Co-Workers

Since there is no way I am going to be more insightful than Matt or JLM about management process, I am going to go through three early stages of company growth and describe some of the management challenges I’ve faced at each.  As Fred pointed out in his original post, a company’s management evolves.  This is purely environmental, it’s going to happen and you are much better off knowing what to expect. 


At a very early stage: a couple of gals in a garage, nothing gets done unless somebody goes out and does something.  No customers are going to call, no partners are going to want to meet, no bankers, lawyers are going to reach out.  Everything is outward.  Nothing happens unless you do something and frankly anybody calling in to you is probably suspect but that’s another post.  You know exactly what each person is doing because there are so few of you.

As the company becomes a leader in its market with a hundred or so employees, everything is incoming.  Everybody wants a piece of your time, everybody is calling.  You have departments with managers that are larger than your original company.  Managing is critical because of the leverage; the difference between a dozen well managed people in a department achieving goals and a dozen people going in different directions is huge, people specialize in very distinct areas.

It is a gut wrenching challenge to go from one to another.  Once you decide to make the leap from one stage to the next, going back is excruciatingly painful if not fatal.  You can’t hope to meander from one stage to the next because it is a chasm.  It doesn’t mean you have to go to the next stage, many companies are better off not leaping, they are a “lifestyle business” serving a small market, but you better know, not hope the market is big enough to go to the next stage.  Once you scramble these eggs it’s tough to go back, the producers will burn out and the management layer will try to hang on for dear life when you’re caught in the middle.

I’ll start with three management philosophies that stay constant for me.  Understand that once a company gets past 100 or so employees, my skills don’t apply I’m the guy leaving so the company can scale.

I am in charge of recruiting.  I will have somebody managing the process as we grow; departments do the interviewing, but bottom line, if my people are better than your people I win.  College football is a great analogy.  Look at the top coaches.  They always win because they have the best talent.  In college the players pick the team, in the pro’s the teams pick the players.  You bet Nick Saban goes on recruiting trips.  Don’t for a second be lulled into the notion that you are picking employees.  They are picking you and you better be the one they want to pick.  You better have an on-boarding process and it better be good.  My biggest legacy is the network of people I’ve hired and what they’ve gone on to do.

I go on as many sales calls and customer visits as I can.  I’ve been told that once I hire a Head of Sales, I should stay out of the process.  I totally disagree.  I am not going to be the one managing the process, but I want to hear what the market is saying directly.  A salesperson can’t be objectively assess the market, they are too close, their livelihood depends on the sale, same for the VP.  They have to be optimistic, they have to try and make the fit whether it’s pushing the company to do something or pushing the customer to accept something.  The best information you are getting from them on your market is second-hand hearsay.  I’ve sat on boards and watched as projections get trashed as sales get pushed from one quarter to the next and the CEO sits by helplessly, not knowing why as they weren’t on the calls.  I am not going to be that guy.

The top producer makes more than the manager.  If the only way people think they can make the most money is to manage you lose your best producers in sales and development, and they generally don’t make good managers, they are just too good at doing.  This is the only way you can keep the producers happy, it’s the same in pro-football: great players make more than the coaches.  The very important corollary is that everybody knows everybody’s salary no matter how hard you try, so you can’t fake it.

Best Friends:  When you are a handful of people trying to make something out of nothing there are no management challenges.  Everybody knows what everybody is doing and everybody does anything.  The real challenge is do you have a team with the right skill-set to complement each other and just get the job done and is the market there?  Nothing less than total blind commitment works at this stage.  If you achieve your goal, get traction and the market smiles on you remember these people.  They are the team that you came on the field of battle with against great odds and succeeded.  You don’t leave the field without them.  You help position and grow them.

Buddies: This is when you have up to twenty people.  People say you can only manage eight, but I think if you’ve hired great people that can stretch to twenty.  You are going to have department leads but they aren’t really managers as much as they are the leading producer or a manager that is back in the role of producing.  In this stage the biggest challenge is getting the right mix.  You need people that are willing to work their tail off to get to the next level and you need people that are used to working at the next level that are willing to go outbound because they believe in the vision.  I.e. roll up their sleeves and code, carry a bag etc.   A big challenge is some of those senior people don’t fit into your current salary structure because of their work history.  The lesson I’ve learned over and over is to either pay the salary and move other people up or not pay the salary.  Paying the salary and not moving people up means:  “I put in huge sacrifices and now you bring in some guy from outside and pay him what?”  

You are going to have to start tracking commitments because there is going to be interplay between small departments.  Don’t run the company with email, setup a process.  Set the stage where the only people that can make commitments are those that are delivering.  Sales can’t be committing for development, development has to take sales input.  Orchestrate between the departments.  Don’t let one area dominate over the others.  That’s tempting to do especially in the area where you are strong.  

Keep administration as simple and lean as possible, try and think how do I make things simple and cheap? Not we need to act big and big is complicated and expensive.  Remember your biggest strength is your agility, don’t lose it.  You can make the wrong decision three times and get it right on the fourth faster than BigCo can make a decision.  Keep meetings short and tight, there should be minimal meetings of internal employees only, nothing happens inside your office.   If you are like me you need to find a good operations person, one that manages all of the details.

Co-Workers: Now you’ve decided to make the mad dash from 20 to 100 employees.  The reason it’s a mad dash is because you will have to put in all the overhead of formal departments and management but you won’t have the revenue and people to offset the cost.  

People are going to try to build fiefdoms.  Keep it lean, keep it flat.  Always make sure that you have one less person in each department than people think you need.  Keep politics out of it.  Make sure people realize that if they complain about somebody without going directly to them first, they most likely might be the person in trouble.  

There are going to be resentments if people get passed by, hopefully they’ll be few; there are going to be issues where the first employees feel like it’s not the place it once was because what was a company where you could go grab a beer with friends at a table, has grown past the stage where buddies can just show up to a bar, and has graduated to the point where you need to plan events for employees.  

Hopefully the vast majority of those that were with you at the early stages can look back and say: “Look what we’ve built and how I’ve grown!!”

#MBA Mondays

The Management Team - Guest Post From JLM

Next up on our guest posts on the subject of The Management Team is AVC community regular JLM. For those that don't know, JLM runs a public company and before that built and sold a large real estate operation. He's also written one of the best guest posts ever on AVC. With that intro, here's what JLM has to say on the topic. I love the way he ends the post.

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Congratulations, you have built a prototype.  Got it to work.  Debugged it.  Even sold a few copies.  Have some real customers.  Now you are ready to scale up and make some real money.

 

You have crossed that Rubicon from having an idea to having a product and customers.  Now you have to build an organization, a real company, to manage the entire process.  Or your fledging little company has to evolve from crawl to walk to run.

 

You may look yourself in the mirror and say — “Well, I know a lot about my product, even its market and competitors but what the heck do I really know about building a company?”  Can I do this?

 

The simple and truthful answer is “Yes, you can!”  If you don’t think so, here are some tips to take you from the garage to the executive suite.

 

Bad news — your generation did not invent sex.  It does not have to invent the crafting of companies either.  Someone else has also done this before.

 

Create a clever and insightful graphical representation of the business model which will become your company.

  1. Identify who the customers are and why they will pay money for your product.  This is the revenue side of the model.

  2. Identify the elements which must be incorporated into your product to create it.  This is the expense side of the model.

  3. Identify all the management functions which are necessary to transform the ingredients into the product and to educate the customers and to make the sale and to manage the money.

  4. Identify the competitive forces that are lurking in the darkness wanting to destroy you — the ones that are real and the imaginary ones.

Make a drawing of all of this on a single very large piece of paper and then marvel at what you have done.  Do it about ten times until you have perfected it.  It keeps getting better each time.

 

This is the company you will have to create.  The one that can operate this business model.  The one which can deliver your product to the marketplace and make a buck in the process.

 

Make an organization chart which shows each of the functions that are necessary to operate the business model.

  1. Make it a functional chart and don’t worry that it turns out very close to what every company ever created looks like.  That is good.  Remember, you did not invent sex.

  2. Identify the functions which are “essential” and those which are “nice to have”.

  3. Now identify what you can afford and what you can stretch to afford and those which are simply out of reach for the time being.

You have now identified your immediate, short term and long term organizational imperatives.

Take the business model and the organization chart and color code it to identify your own personal strengths and weaknesses.  If you have a co-founder, put his up there also.  Now you have identified those elements of leadership and management that you can provide and those you will have to hire from the outside.  Be tough on yourselves; don’t undertake a task you hate just for the ego enrichment of it all.

 

Be prepared to hire people who are fabulous in their fields.  Hire a Chief Financial Officer you cannot possibly afford and tell him he is the “financial conscience of the company”.  Meet with him weekly and never miss a meeting.

 

Now take the business model and the color coded organization chart and create a schedule of how you will build the organization.  Which functions will be added first and why?  The business model will tell you what and the color coded organization chart will tell you who and the schedule will tell you when.

 

That is really all there is to it but you will want to consider the following considerations:

  1. It will not be perfect out of the chute.  You will do some stuff that does not work.  Just re-engage and do it over.  It’s going to be OK.  Really punish yourself — just kidding.  Learn to laugh at yourself.

  2. Understand that everything in life is iterative.  You do something.  Get better at it.  Get better at it some more and one day you laugh to remember how naïve you were when you started.  Ever learn to ski or snowboard?

  3. Do the formulaic and fundamental stuff and get it done but only do what you really believe.

Vision, Mission & Values

  1. Vision — big dreams and little dreams all cost the same, so go with the big ones so that if you only accomplish fifty percent, it will still make your Momma proud.

  2. Mission — simple, direct and jettison every extra word.  The mission of the Infantry — “Find ‘em. Fix ‘em.  Kill ‘em.”

  3. Values — sweat this one because you will have to live this one.  If you are going to take risks and run with the bulls, this is where you let everyone know.  Don’t be afraid to say that “frugal” is a value.  I like frugal.

Every new employee hears the values part of the company from you and only you.  Wear a suit and a crisp white shirt and a tie and tie shoes.  Do it in the first five minutes of their employment.  They will never forget that.  Don’t discuss them, tell them.  Difference between a tattoo and magic marker.

  1. Job descriptions — don’t hold out for a Pulitzer but put some thought into it.

  2. Copy the absolute best exemplars you can find out there.  They are out there.  Be a copy cat.  Read Drucker.

  3. Make all your decisions about equity upfront and don’t be afraid to say that you have to “earn” it.  Understand that equity is an element of compensation and sometimes it is not even in the top three.  

A good comp plan includes: 

  1.     Salary;
  2.     Benefits;
  3.     Short term incentives (measurable performance based bonus);
  4.     Long term incentives (equity); and,
  5.     Something special (work from Colorado two weeks per year).
    1. Develop a philosophy of management.  Write it down.  Try it out on some folks whose wisdom you admire.  Put it to work.  Live it.

    2. Get a mentor, a rabbi, a gray haired eminence who is willing to work with you.  Golfers get swing coaches but great swing coaches work on the golfer’s head as much as his back swing.  Get a professional coach.

    3. Do not be surprised that everyone in the company does not share your passion.  That is the curse of being an entrepreneur — you see and care about things other people don’t even know exist.  I would rather be a Captain of a rowboat than the second in command on the QE II.

    4. Do not make changes, conduct experiments.  Nobody can resist an experiment.  Experiments that work well have a thousand fathers and mothers.  It becomes their idea.

    5. Brainstorm at least once a month.  Honest to God, uninterrupted brainstorming.  There are no bad ideas.

    6. Learn to critique yourself.  Learn to talk yourself down off the ledge.  Be thoughtful.  Take the lowest echelon of the company to lunch once a month.  And then talk to them.  Listen to them.  Make one change they came up with and you will become a legend.

    7. In any organization, you rarely receive power.  You take power.  You wield power.  The most powerful people will things to be done they don’t order them to be done.  That is real power.

    Ooops, I see the hook.  So I must go.  Good luck.  Remember — you can do it.

    #MBA Mondays

    The Management Team - Guest Post From Matt Blumberg

    Now that I've completed three posts on The Management Team over the last three MBA Mondays, it's time for four or five guest posts on this topic. The first one is from Matt Blumberg, CEO of our portfolio company Return Path. I've been on Matt's board for over a decade and I've watched him develop into one of the finest managers I've had the pleasure to work with. Here are Matt's thoughts on this topic.

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    When Return Path reached 100 employees a few years back, I had a dinner with my Board one night at which they basically told me, “Management teams never scale intact as you grow the business.  Someone always breaks.”  I’m sure they were right based on their own experience; I, of course, took this as a challenge.  And ever since then, my senior management team and I have become obsessed with scaling ourselves as managers.  So far, so good.  We are over 300 employees now and rapidly headed to 400 in the coming year, and the core senior management team is still in place and doing well.  Below are five reasons why that’s the case.

    1.       We appreciate the criticality of excellent management and recognize that it is a completely different skill set from everything else we have learned in our careers.  This is like Step 1 in a typical “12-step program.”  First, admit you have a problem.  If you put together (a) management is important, (b) management is a different skill set, and (c) you might not be great at it, with the standard (d) you are an overachiever who likes to excel in everything, then you are setting the stage for yourself to learn and work hard at improving at management as a practice, which is the next item on the list.

    2.       We consistently work at improving our management skills.  We have a strong culture of 360 feedback, development plans, coaching, and post mortems on major incidents, both as individuals and as a senior team.  Most of us have engaged on and off over the years with an executive coach, for the most part Marc Maltz from Triad Consulting.  In fact, the team holds each other accountable for individual performance against our development plans at our quarterly offsites.  But learning on the inside is only part of the process.  

    3.       We learn from the successes and failures of others whenever possible.  My team regularly engages as individuals in rigorous external benchmarking to understand how peers at other companies – preferably ones either like us or larger – operate.  We methodically pick benchmarking candidates.  We ask for their time and get on their calendars.  We share knowledge and best practices back with them.  We pay this forward to smaller companies when they ask us for help.  And we incorporate the relevant learnings back into our own day to day work.

    4.       We build the strongest possible second-level management bench we can to make sure we have a broad base of leadership and management in the company that complements our own skills.  A while back I wrote about the Peter Principle, Applied to Management that it’s quite easy to accumulate mediocre managers over the years because you feel like you have to promote your top performers into roles that are viewed as higher profile, are probably higher comp – and for which they may be completely unprepared and unsuited.  Angela Baldonero, my SVP People, and I have done a lot here to ensure that we are preparing people for management and leadership roles, and pushing them as much as we push ourselves.  We have developed and executed comprehensive Management Training and Leadership Development programs in conjunction with Mark Frein at Refinery Leadership Partners.  Make no mistake about it – this is a huge investment of time and money.  But it’s well worth it.  Training someone who knows your business well and knows his job well how to be a great manager is worth 100x the expense of the training relative to having an employee blow up and needing to replace them from the outside.

    5.       We are hawkish about hiring in from the outside.  Sometimes you have to bolster your team, or your second-level team.  Expanding companies require more executives and managers, even if everyone on the team is scaling well.  But there are significant perils with hiring in from the outside, which I’ve written about twice with the same metaphor (sometimes I forget what I have posted in the past) – Like an Organ Transplant and Rejected by the Body.  You get the idea.  Your culture is important.  Your people are important.  New managers at any level instantly become stewards of both.  If they are failing as managers, then they need to leave.  Now.

    I’m sure there are other things we do to scale ourselves as a management team – and more than that, I’m sure there are many things we could and should be doing but aren’t.  But so far, these things have been the mainstays of happily (they would agree) proving our Board wrong and remaining intact as a team as the business grows.

    #MBA Mondays

    The Management Team - While Building The Business

    This is the third and final post on the subject of the management team. The final phase of company development I am going to cover is "building the business." Building the business largely means building the management team. They are one and the same.

    Many founders are naturally talented at building product and building the user base. But building the company comes harder to them. I once discussed this with Roelof Botha and he made a fantastic suggestion. Founders should think of the business as yet another product they are building. It is the ultimate product they are building because from the company can come any number of additional products and any number of additional initiatives. The company, if built correctly, will be more important than any single product it can create. Think about Steve Jobs and all the amazing products he created. But Apple is the most important thing he created. So building the business requires a deep commitment from the founder. At the appropriate point, they must turn their attention to it and make it their top priority.

    Let's quickly review the three stages so founders will know when they must turn their attention to building the company. The first stage is building the product. That is before product/market fit has been obtained. The second stage is building the user base. That is the period where you, either through organic growth or sales and marketing, build the user base to a level where you are certain you can build a long term sustainable business. Once you've built the user base to the point you know you can build a business, you enter the building the company stage.

    As I said before building a company means building a management team. You start with a senior management team. You will need leaders for every part of the business. You will need a leader for your engineering team, you will need a leader for your product team, you will need a leader for your customer support/community team. You will need leaders for finance, marketing, sales, and business development. And to help you build and manage all of these people, you will need a experienced and talent HR leader.

    Many founder/CEOs don't look for a partner to help them build the company. I think that is a mistake. The HR leader can be this person. But you need to recruit someone senior and experienced enough and make them an integral part of the senior team if you really want a partner to help build the company. I have also seen founder/CEOs recruit a strong number two, a President or COO, to help them with the company building piece. That can work too if the President or COO is a strong manager and team builder.

    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.

    Building a company is the most interesting work I know of. It is what every entrepreneur should set out to do. A company is a self sustaining entity that expresses the hopes, dreams, vision, values, and culture of the founder and leaders. It is an amazing thing and I have been blessed to watch a number of incredible companies be created.

    Some startups won't reach this stage. That is the way it is. But for those that do reach this stage, I challenge all of you to step up to the work of company building with a passion and commitment for it. It will not be easy. It will be among the hardest things you will do. But the rewards are so great. Atoms and bits can be assembled to create fantastic things. But it is the things you build with people that are the most fulfilling of all.

    #MBA Mondays

    Scaling The Management Team

    My friend Bijan wrote a great post last week about the challenges a startup faces in scaling its team and building a management layer. His post inspired me to start a new series here on MBA Mondays about scaling a management team. Here's what I have in mind:

    First, I will post about what I've seen work in the three phases of a startup that I used in my burn rate posts; Building Product Stage, Building Usage Stage, and Building The Business Stage. Those will be my posts for the next three weeks.

    Then I will invite a few founders & CEOs to do guest posts on this topic. I have a few members of this community in mind as well as a few founder/CEOs that I have worked with over the years. I expect there will be four to five guest posts on this topic.

    I have not done a lot of guest posts on MBA Mondays to date. But I am not a manager and don't consider myself an expert on this topic. So we'll get some experts in here to make sure we get this right. It's a very important topic.

    #MBA Mondays

    360 Reviews

    I'm a fan of 360 reviews for companies of all shapes and sizes. I was talking to the CEO of one of our portfolio companies yesterday about his company and he said "we have about 50 employees. is it time to do 360s?" I told him that he was well past the point where he should start them. He asked for some suggestions for web software to use. I gave him a couple suggestions, but I'd love to get more suggestions in the comments.

    My partner Albert wrote a post last week about assessing CEO performance and I left a comment suggesting that a regular 360 review process is the best way to do that. In the case of the CEO, the review should be shared, and ideally presented, with at least a subset of the board in person.

    For senior management team members, the CEO should be with the senior manager when the results of the review are presented. That gives the CEO the opportunity to discuss the findings and provide guidance, coaching, development goals, and more.

    And the senior managers should do the same with the members of their team.

    I've seen compaies use management coaches to run these processes and I think that is a great idea if you have a mangement coach you like to work with. A strong HR team can also do this for most companies.

    I think companies as small as 10 employees can benefit from 360 reviews and I strongly recommend them to our portfolio companies. When I see a CEO or a management team resist the idea of 360 reviews, it can be a red flag to me. I like to think that everyone can and should get feedback on their performance, be open to it, and that they will certainly benefit from it.



    #MBA Mondays