Tuesday, February 23, 2021

When Executives Break

When your company is scaling rapidly due to product market fit, one of the biggest impediments (or boosters) to growth will turn out to be the composition of your executive team. If your executives are not able to scale with the company, entire functions may be thrown into disarray and your adoption or revenue may stop scaling. You will also fall into a mode as founder of constantly putting out fires or covering for your executives, when in reality executives exist to give you more bandwidth to do more as a company and as a CEO. 

In a period of raw product/market fit the company may do well even if the executive is not coming through. For example a VP Product or VP Sales may be weak even if the engineering team ships without good PMs and sales are up and to the right without a good plan or process. (Imagine how well you could do if core functions actually had their act together!)

3 Signs An Executive Is Not Scaling:
1. Sets the wrong priorities, doesn't come through on goals, doesn't have a plan, or can't take on more.
  • Sets the wrong goals. Self-explanatory.
  • Obviously bad decisions are made. Sometimes a person is clearly in over their head when they make poor choices or unforced errors that others with the same role would quickly point out. For example, if a head of finance hires a regional auditor instead of a big 4 auditor for a company that is planning to eventually go public.
  • Does not have a roadmap or plan for their area or function. Each function in a scaling organization should have a multi-year plan. This plan may be off or wrong, but once a company passes a certain scale and of revenue and people there should be a forward looking plan. What channels will the sales team use and how does that map to a team? What is the sales plan over the next N years? What is the product roadmap from the VP Product? The technical roadmap from the VP Eng? Marketing plan from VP Marketing?
    • When you hire experienced executives the first things they often do (in parallel to getting the lay of the land and talking to a ton of people) are putting together an org plan, and putting together a time-based roadmap for their function.
  • Misses commitments and is frazzled. Shows up late, is unprepared, does not plan ahead or come prepped for a meeting. Sends everything last minute for executive reviews or board meetings. Does not follow through in a timely manner or at all.
  • Makes ongoing comments about overwork. “Maybe I will get to that in my free time – haha” said semi-sarcastically to indicate overwork is a not an OK response when asked to come up with an important new product plan, sales plan, or org chart. It usually means the executive either is not delegating enough effectively, or never hired a team strong enough to help them take on more.
2. Can't attract senior talent (or does not think it is important to do so).
  • Can’t attract other senior talent. The biggest sign of a non-scaling executive is their challenge in hiring senior people to work for them. They often have difficulty articulating what each role on their team will do, how it differs from their own role, and what is needed for the function to outperform its goals. If an executive is unable to hire strong lieutenants to their team it usually means they are promoted beyond where their own experience or current abilities merit.
    • Inability to hire senior people (either because the executive does not think it is important, or can not attract senior people) is a key tell that the executive can not scale and should be replaced. If senior people were in place beneath them and aligned in the right direction, there would not be strong scaling issues in their function.
  • Do not think they need senior people on their team. When a company is ten people you do not need multiple layers of senior people. Similarly, there are functions that do not make sense to expand in many companies - for example you usually do not need a giant legal team. However, when a company is hundreds of people, senior bandwidth is needed under the executives driving core functions. If an executive's org chart & plan is largely junior people, it might mean a coming issue in team bandwidth.
  • Does not have an org plan. Great executives constantly refresh their organizational map and plan. They plan ahead on key senior hires and how their team will matrix of coordinate with counterparts in other organizations. One sign of a too junior executive or one who may not scale is if their org plan only has junior hires on it, when it is clear the business will scale rapidly and more senior bandwidth is needed. It is the CEO equivalent of hiring “2 SDRs instead of a VP sales” when you really need a VP sales. Non-scaling executives hire a number of junior people and get caught flatfooted 6 months later when real scale is needed. For example, in the context of a multi-hundred person company if you have a VP Product who plans to hire 10 ICs but no managers, or a CRO without any plans for *real* VP-level reports. 
    • Usually you can tell you have hired an experienced executives if one of the first things they discuss with you is their functions future org chart. They come in prepared and know that people who work for them matter most for company scaling.
3. Does not free up the CEO from minutiae and engagement.
  • The CEO is pulled into their function more than you should be. The whole point of hiring executives is to have people who are stronger than you take over a function, or so that you can delegate major items and expect them to be done well. If you are constantly being pulled in to help a function or to cover for an executive, it means they are in over their head.

    Examples of this for a VP Eng: You (the CEO) often need to deal with individual engineering team squabbles or recruitment alignment. Or you need to jump in on a technical issue or adjudicate a specific design.

    Examples of this for a VP Sales: You are needed to handle all the specific dealpoints on a negotiation. You are building the deck before the presentation to the customer. You need to be on many customer calls that could be handled by a senior sales leader.

    Examples of this for a VP Finance: As CEO you build financial models for the company because you do not trust the team to do it right, or the data they give you is often off or confusing. You need to do your own data pulls to get answers. Etc.

    There are lots of other examples. If you find yourself pulled into certain details or aspects of your executives roles that they should know how to run, the person is clearly in over their head.
  • Other people keep needing to help exec more than usual. Startups are a team effort. However, sometimes you see an executive who needs too much help from others – they are not able to hire without someone pushing them to do it, or they need to keep pulling on the CEO or other leaders for every key sale or product decision. It is better to have an executive who is team focused on coordinates with others, but sometimes they can not do their role without help which means they are not scaling.
Ways to address the situation
There are a few actions you can take for an executive who is not scaling. If it is a new hire you often realize it is a bad fit and let them go or need to layer. It is better to start from scratch in many cases than to try to fix a broken situation or clear mismatch. Sometimes for long-term employees founders will try coaching/mentoring or other help. However, at some point your loyalty to your many other tens or hundreds or thousands of employees (and customers, and shareholders, you’re your own family that is financially depending on you) should outweigh your loyalty to that one individual and you may need to layer, replace, or move the executive.

Options tend to be:

1. Try to rescue the situation. No matter what the course you take, you should have a series of up-front conversations with the executive on the issues you are noting and potential solutions. The most common issues are a mix of: 
a. Not understanding team building or how to attract and retain senior hires for their own functional team.
b. Not understanding the role of an executive or how to manage a larger organization.
c. A lack of understanding of their function and its various components and roles (What is BD versus sales? What does customer success do?). If an executive has fundamental gaps in their understanding of their function they should not be in charge of that function (unless they are “gap filling” due to a lack of anyone else to do it)
d. A lack of strategic thinking. 

Ways to help the executive that is breaking include a management coach, as well as mentors who understand the function and can train the executive. Sometimes an executive can hire someone more experienced under them and learn from their report. For example, Bill Gates was known as hiring strong COOs who worked for him at Microsoft who would teach him the next level of scale. Since it is easier to learn the role from someone who has done it before, the executive needs to either hire strong functional leaders beneath them or get layered from above as a mechanism for on-the-job training.

The above (a)-(d) list can take a year or years for a new executive to learn. If your company is growing slowly you may have the time for the person to learn. If growing rapidly, you do not have time to rescue the situation (if rescuable) and usually the best course is to do one of the options below.

2. Layer the person.
If the person was previously good in a smaller role but then promoted above their current capabilities, and your company is hyperscaling, you may want to bring in someone above them from whom they can learn and be mentored. This can set them up to take on a larger role again in the future when they are better equipped and trained to do so.

Depending on the situation, the title the person received may be an issue. For example VPs are often hard to later over but it is possible. However, an SVP engineering is tougher to layer, as is a COO, CRO, CHRO or President. You should think twice before handing out large titles to people before you are 100% certain they will thrive in the role and the scale that is coming. Putting someone above them either creates even more title inflation, or a demotion in the eyes of one’s peers.

In general, people get upset about getting layered if they feel it was unexpected, if they do not think they can learn from the new person above them, or if they feel they deserve the role and the layering is occurring unfairly. 

If the layered executive realizes they can learn a lot from the new functional head and that they will be set up well for future opportunities and growth, the layering works out. If not, they may need to eventually leave the company. Either way, you need to be OK with that person leaving if they are unhappy with the layering and understand that as CEO you need to optimize for an entire organization over a single individual. 

In general, high growth companies should set expectations around the “Accordion approach" to responsibilities in a startup – peoples responsibilities may grow, then shrink, then grow, then shrink, as the org scales and that is OK. In the long run there will be great opportunities for lots of people to do meaningful work and to have an exceptional career if they put ego aside and stick to it.

3. Replace them.
If someone is not scaling and resistant to a new lead coming in, you will need to replace them with someone able to handle the role. This is the most common, and likely, solution in most cases.

4. Move them.
Sometimes someone might be good for another role at the company. If so they may be happy and thrive in another function. The key thing to avoid is moving someone into “a less important spot” simply to try to keep them / keep them happy when they are not a good fit for the “important” role. Sometimes you see senior employees shuffle from job to job every 6 months because no one is willing to make the tough call that they have been promoted beyond their current abilities and should probably be layered or leave for somewhere that is a better fit.

5. Let them go. 
Occasionally an executive will “act out” when overwhelmed with a role or scared of being replaced or layered. In some cases you may need to let the executive go, and have someone pinch hit for the role until you find the right long term leader. Occasionally you will find taking over the role temporarily yourself (or having another executive temporarily fill it) is better then keeping in place someone who can not scale.

Loyalty: Don’t Let Individual Loyalty Overcome Overall Loyalty
Non-scaling executives come from two places: (a) great junior people you keep promoting from within and (b) external hires. Often it is harder for a CEO to recognize the poorly scaling internal person given common history. Founders want to be loyal to people who took a risk on a company early by promoting them. While this is admirable, you should not let your loyalty to an individual override your loyalty to your company, your (Tens? Hundreds? Thousands? of other) employees, your customers, and your other shareholders. While many CEOs are reasonably good at dealing with external hires who are not scaling, internal hires have a strong emotional component due to an ongoing relationship or personal loyalty.

Don't put loyalty to a person over loyalty to your company and the other hundreds of employees on board, or to yourself and your family (given your own financial stake). You need to make the right decision for the company no matter how tough it is given the personal relationship or friendship over the years. If you have an open communicative relationship you should discuss the issues constructively and frankly and figure out the best way to fill the gaps. Remember, the early employee/executive has a lot riding on the company as well – both in terms of career, friendships, and financially via large early equity grants. Hopefully they will try to put the company first as well.

Setting Precedents
Keep in mind that like with anything you do as a CEO, people are watching your decisions. If you give special treatment to someone others will notice. Your credibility as a leader may be impacted if you specifically favor one person over another, even if both should be replaced.

If You Are The Executive Breaking
If you are the executive who is constantly underwater, you should put ego and role aside and consider what is best for both the company and yourself. The company is now being hurt by your inability to scale. The key way to remedy this is to hire more senior people than yourself under you, and give them proper alignment and delegation so that all of them, you, and the company succeed. If you are unable to do this, you should talk with the CEO and help find someone stronger to report to. The good news is you are both a major equity holder in the company, as well as now have the chance to help hire someone you can learn from.

From a personal selfish perspective, it is better for you to be proactive and set yourself up to continue to grow in the organization versus be fired. Alternatively, you may be able to fake it through this role, but if you get hired into a new organization in the same role that CEO may not have the personal ties and loyalty and you may quickly be let go.

Thank to Adam Bain, Ali Rowghani, Gokul Rajaram for comments on this post.

NOTES
[1] One person who read this post suggested listening to this song while reading this post. Lyrics here

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Tuesday, February 2, 2021

Hiring Executives & Bad Advice

When your company hits strong product market fit, your company will be sucked into a vortex of customer demand and experience a Cambrian explosion of internal org complexity simultaneously. Things will initially seem to just truck along as usual, and then suddenly everything at the company will break at once. Most. but not all, of this breakage is avoidable, but most first-time (at scaling) founders screw it up[0]. The key to avoiding a melt-down is to hire key executives or functional leaders early.

During break-out growth the following things start to happen:

  • "The More More Moment": the pace of everything at the company accelerates. More customers, more support, more interest, more partnership offers - more more more more.
  • Complexity goes up dramatically. You need to manage an ever expanding org with many new functions, geographies, products etc.
  • You need to hire, retain, and communicate with more multiples of people. Going from 5 to 15 people feels like roughly the same company. Going from 15 to 30 means a new layer of management but still doesn't feel like *that* big of a shift. However going from 15 to 100 means three or 4 more new organizational layers. How you communicate, recruit (internal recruiter now needed as well as paid executive search) and retain people shifts.
  • Bottle-necks & breaks emerge everywhere. Things will start breaking all at once - your backend servers will melt down, your managers' capabilities will hit their limits, your customer NPS will drop, your ability to be in every meeting stops. 
It Starts Slow, And Then Accelerates
The early days post-PMF may feel like no big deal. Growing from 5 to 10 or 15 people seems like much of the same. However, you need to remember everything about your business is compounding. Growing 20% a month is a 9X in a year. Small numbers growing linearly for a while continue to be small. Small numbers compounding into suddenly large numbers can create sudden melt downs. High growth companies are less like boiling a frog, and more like standing on top of a volcano that suddenly erupts[2]. You go from juggling 1 ball to 2 balls (not too bad) to 4 balls (starting to get tough) to 8 balls to 16 balls (blargh!).....

Hiring Executives Early Is the Key To Avoiding A Meltdown
Hiring bona-fide executives well in advance before things break is the difference between a sudden ongoing meltdown at your company versus not. Many founders wait to hire executives "when we have enough scale to support them", instead of viewing the executives as crucial to supporting future scale. The thought process is inappropriately inverted. Executives exist to help you scale and run the company, not the other way around. 

 

Remember - it will take 2-3 weeks to chose a search firm[1]. Then 2-3 months to find a close a promising candidate. And then 1-3 months for them to really scale. So from the time you kick off a search for an executive it may take 4-6 months for that hire to be productive. Once you have product-market fit, you need to build out an executive team immediately. It feels like you can wait, but it is the organizational equivalent of technical debt - you will pay for it later.

Scaling Is All About Creating Bandwidth

The reason you need executives early is you need people who can:

  • Hire and recruit for their function. Wouldn't it be nice if someone else could work with recruiting to develop your pipeline, follow up on candidates, and close them? As a founder you are probably hiring for every function simultaneously. You will need to eventually focus on hiring the company leadership and delegate a meaningful subset of recruiting for roles to those executives. Of course you will still be involved with hiring and closing people. But a lot of the heavy lifting can be done in combination with others.
  • Plan ahead. Wouldn't it be nice if someone came to you proactively with a plan for their function? For everything they will be building? For avoiding meltdowns in customer support, backend engineers, or other areas? ICs usually do not do this. However, this is a key part of a leadership or executive role.
  • Provide additional executive bandwidth to pitch in. Good executives can sometimes create general purpose bandwidth for your company. For example, when Amac was General Counsel in the early days of Twitter (<100 people) he covered at different times more than just Legal. For example - M&A, Customer Support, Trust and Safety, and other functions. Extra "do-er" bandwidth at the executive level is often needed until you hire capable leadership for each area.
  • Manage people. Eventually there will be lots of people to manage. Even at 30 people you will need a handful of managers. The more junior they are, the more you will need to be involved with every conflict and every decision. Better to delegate this to an executive early so you can spend your time thinking ahead on your product, customers, company, and market.

Second Time (Scaling) Founders And Hiring Executives

As a first time founder I would always shake my head in dismay when I would see a successful second time founder's early team. At 15 people they would have 3-4 VPs! "Why do they need all that overhead??" I would think in flustered founder outrage[4]. That changed after I sold my first startup to Twitter and I helped Twitter scale from 90 to 1500 people in 2.5 years. I realized the power of strong functional leaders while going through hypergrowth. For my next startup, Color, we hired a COO in the first dozen people and both I, and one of my cofounders Othman Laraki had been VPs at Twitter before.

Second time founders who have been through a scaling experience recognize the enormous advantages to having people on board who have run and built a function before. While you want to hire for slope, you also want to hire for experience once you hit product-market fit.

Bad Pre-PMF Advice For Post-PMF Companies

Traditionally, pre-PMF companies were given very bad post-PMF advice. For example "go ramp your sales team" in the absence of product-market-fit can cause a company to burn all its money and die.

More recently, this has flipped and post-PMF companies are increasingly getting advice that only really applies before-PMF. Some awful advice is given to scaling companies by people who have never scaled anything. If one of your angels grew their startup to 11 people and sold it to Google, that does not mean they understand anything about running a post-product market fit company, scaling a sales team, or building a real organization. 

Common bad advice includes:

  • "Hire two junior people instead of a VP". 
    • This crops up most commonly for sales. "Go hire 2 SDRs and learn how sales works" is good advice in the absence of PMF. If you have product-market fit, you are often better served in hiring a leader. This person does not need to be your "forever VP" and could be an up-and-coming director or VP. However, they should understand sales processes, compensation, and hiring well. 
    • If your sales process is working and you are closing large accounts, you should accelerate that by bringing someone to run the function and set up basic processes. Just as engineering teams benefit from early process excellence, so do sales organizations.
    • Pre- and post- product market fit companies are the difference between an egg and a chicken. While you can scramble an egg, you would be loathe to scramble a chicken[3].
  • "You must do (or run) every function yourself before you hire someone to run it". 
    • This is some of my least favorite bad generic startup advice. While I agree you should try to *understand* most functions and (more importantly) how to hire a leader for a given area, actually running or doing every job is a poor use of time and probably slows or hurts the company. This reminds me of COVID vaccine roll outs - a series of convoluted rule that slows things down and hurts the overall goals of getting shots in arms. The same is true here - keep it simple and go hire an executive. You really do *not* need to build and scale customer success (CS) on your own first before hiring a head of CS.
    • When I co-founded Color we had the following functions quite early: product, design, engineering, sales, BD, marketing (growth, content, enterprise, brand), genetic counseling, clinical lab science, lab R&D, lab automation, genetic variant classification, medical affairs, finance, accounting, HR, recruiting etc. Running all these things myself, or trying to do them myself, would have been an incredible waste of time. Instead, I tried to learn how to spot excellence in each role so I could hire someone else who could lead the area(s) for me. For example, our early COO ran facilities, HR, recruiting, sales, BD, legal, and other areas. That allowed me to be involved in those areas only to the degree necessary.
    • If done right, the person you hire to run an area may teach you more about the area than your weeks of bumbling through it. Or, maybe there are some aspects that are not crucial for you to learn. I never learned how to provide a patient with a genetic counseling session while at Color, and that is probably OK.
    • There are some areas of the company you will always be quite hands on for - for example product and sales. Hiring someone to run a function does not mean you will not be involved.
    • Equivalently silly advice would be "in order to learn how to drive a car, you should first learn how to injection mold the steering wheel".
  • "Don't scale too fast! Don't get too much overhead". This is again great advice if your company is not working or is pre-PMF. Post-PMF you want to build out an executive function early so your company can win the market fast, enter new areas, and generally win. You need executives to scale, not scale to hire executives.

With PMF, You Are Instantly A Two Product Company
Post-product market-fit companies have two products: (1) what you sell to companies and (2) your company. Just as you have a roadmap for your product, you should have a roadmap for your org structure and company. Planning ahead on hiring, and in particular to hiring leaders, is equivalent to making sure your backend can deal with future traffic spikes. If you do not do the planning, and hiring, you are likely to hit a major bump and meltdown in the reasonably near term.

NOTES

[0] "First time scaling" is different from "first time founders". You may have successfully sold a prior 15 person startup to Google, been a manager at Google and then started company #2. The early part of startup 2 will likely be much easier (fundraising, hiring the first employees etc). However if you have never been part of growing a company from tens to hundreds or thousands of people as a founder or executive, you may need to learn high growth lessons first hand just like any first time founder.

[1] Executive search firms are terrible for individual contributors but great for executives. Your investors or other break-out company founders can suggest good recruiting firms for you. In general search firms will have better networks for VP/CxO level roles and understand the process you need to run to hire them.

[2] This post is riddled with terrible analogies, for which I apologize.

[3] This sadly reminds me of the Ross Perot "chicken in a bathtub" quote.

[4] I am, of course, exaggerating my reaction.

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