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• Pages: 304

Quotes

Chapter 1: From Communist to Venture Capitalist

Roger dared me: "Go down the street, tell that kid to give you his wagon, and if he says anything, spit in his face and call him a nigger." I did not know what to say, so I just opened my mouth and started talking. "Can I ride in your wagon?" is what came out. Joel said "Sure." 18 years later, he would be the best man at my wedding.

That experience also taught me to not judge things by their surfaces. Until you make the effort to get to know someone or something, you don't know anything. There is no shortcuts to knowledge, especially knowledge gained from personal experience. Following conventional wisdom and relying on shortcuts can be worse than knowing nothing at all.

Deploying software to scale to millions of users was totally different from making it work for thousands. And it was extremely complicated. As we expanded the idea, we landed on the concept of a computing cloud. We incorporated the company and set out to raise money. It was 1999.

Chapter 2: I Will Survive

During this time I learned the most important rule of raising money privately: Look for a market of 1. You only need 1 investor to say yes, so it's best to ignore the other 30 who say "no".

We finished the 3rd quarter of 2000 with $37 million in bookings - not the $100 million that we had forecast. The dot-com implosion turned out to be fare more catastrophic than we had predicted. We'd gone from being the hottest startup in Silicon Valley to unfundable in 6 months. With 477 employees and a business that resembled a ticking time bomb, I searched for answers. Thinking about what might happen if we ran completely out of money - laying off all the employees that I'd so carefully selected and hired, losing all my investors' money, jeopardizing all the customers who trusted us with their business - made it difficult to concentrate on the possibilities.

No matter who you are, you need 2 kinds of friends in your life. The 1st kind is one you can call when something good happens, and you need someone who will be excited for you. Not a fake excitement veiling envy, but a real excitement. You need someone who will actually be more excited for you than he would be if it had happened to him. The 2nd kind of fiend is somebody you can call when things go horribly wrong - when you life is on the line and you only have 1 phone call.

For most CEOs, the night before their public offering is a highlight.

Chapter 3: This Time With Feeling

An early lesson I learned in my career was that whenever a large organization attempts to do anything, it always comes down to a single person who can delay the entire project. An engineer might get stuck waiting for a decision or a manger may think she doesn't have authority to make a critical purchase. These small, seemingly minor hesitations can cause fatal delays. IF anyone was stuck on anything for any reason, it could not last more than 24 hours.

She wrote that she was absolutely shocked that I would help a total stranger and his family and that I had saved her from total despair. I guess I did it because i knew what desperation felt like.

Of the times I think of at Loucloud and Opsware, the Darwin Project was the most fun and the most hard. I worked 7 days a week 8AM-10PM for 6 months straight. It was full on. Once a week I had a date night with my wife where I gave her my undivided attention from 6PM until midnight. And the next day, even if it was Saturday, I'd be back in the office at 8AM and stay through dinner. I would come home between 10-11PM. Every night. And it wasn't just me. It was everybody in the office. The technical things asked of us were great. We had to brainstorm how to do things and translate those things into an actual product. It was hard, but fun. I don't remember losing anyone during that time. It was like, "Hey, we gotta get this done, or we will not be here, we'll have to get another job." It was a tight-knit group of people. A lot of the really junior people really stepped up. It was a great growing experience for them to be thrown into the middle of the ocean and told, "Okay, swim." 6 months later we suddenly started winning proofs of concepts we hadn't before. Ben did a great job, he'd give us feedback, and pat people on the back when we were done."

8 years later, when I read what Ted had written, I cried. I cried because I didn't know. I thought I did, but I really didn't. I thought that I was asking too much of everybody. I thought that after barely surviving Loudcloud, nobody was ready for another do-or-die mission. I wish I knew then what I know now.

It turns out that is exactly what product strategy is all about - figuring out the right product is the innovator's job, not the customer's job. The customer only knows what she thinks she wants based on her experience with the current product. The innovator can take into account everything that's possible, but often must go against what she knows to be true. As a result, innovation requires a combination of knowledge, skills and, courage.

Chapter 4: When Things Fall Apart

Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. Ut matters not whether your chances are 9/10 or 1/1000; your task is the same.

"What's the secret to being a successful CEO?" Sadly, there is no secret, but if there is one skill that stands out, it's the ability to focus and make the best move when there are no good moves. It's the moments where you feel most like hiding or dying that you can make the biggest difference as a CEO.

1st principle of the Bushido - the way of the warrior: keep death in mind at all times. If a a warrior keeps death in mind at all times and lives as though each day might be his last. he will conduct himself properly in all his actions. Similarly, if a CEO keeps the following lessons in mind, she will maintain the proper focus when hiring, training, and building her culture.

The Struggle

Every entrepreneur starts her company with a clear vision for success. You will create an amazing environment and hire the smartest people to join you. Together you will build a beautiful product that delights customers and makes the world just a little bit better. It's going to be absolutely awesome.

Then, after working night and day to make your vision a reality, you wake up to find that things did not go as planned. Your company did not unfold like the Jack Dorsey keynote that you listened to when you started. Your product has issues that will be very hard to fix. The market isn't quite where it was supposed to be. Your employees are losing confidence and some of them have quit. Some of the ones who quit were quite smart and have the remaining ones wondering if staying makes sense. You are running low on cash and your venture capitalist tells you that it will be difficult to raise money given the impending European economic catastrophe. You lose a competitive battle. You lose a loyal customer. You lose a great employee. The walls start closing in. Where did you go wrong? Why didn't your company perform as envisioned? Are you good enough to do this? As your dreams turn into nightmares, you find yourself in the Struggle.

"Life is struggle." - Karl Marx

The Struggle is when you wonder why you started the company in the first place.

The Struggle is when people ask you why you don't quit and you don't know the answer.

The Struggle is when your employees think you are lying and you think they may be right.

The Struggle is when food loses its taste.

The Struggle is when you don't believe you should be CEO of your company. The Struggle is when you know that you are in over your head and you know that you cannot be replaced. The Struggle is when everybody thinks you are an idiot, but nobody will fire you. The Struggle is where self-doubt becomes self-hatred.

The Struggle is when you are having a conversation with someone and you can't hear a word that they are saying because all you can hear is the Struggle.

The Struggle is when you want the pain to stop. The Struggle is unhappiness.

The Struggle is when you go on vacation to feel better and you feel worse.

The Struggle is when you are surrounded by people and you are all alone. The Struggle has no mercy.

The Struggle is the land of broken promises and crushed dreams. The Struggle is a cold sweat. The Struggle is where your guts boil so much that you feel like you are going to spit blood.

The Struggle is not failure, but it causes failure. Especially if you are weak. Always if you are weak.

Most people are not strong enough.

Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through the Struggle and struggle they did, so you are not alone. But that does not mean that you will make it. You may not make it. That is why it is the Struggle.

The Struggle is where the greatness comes from.

Play long enough and you might get lucky. In the technology game, tomorrow looks nothing like today. If you survive long enough to see tomorrow, it may bring you the answer that seems so impossible today.

Don't take it personally. The predicament that you are in is probably all your fault. You hired the people. You made the decisions. But you knew the job was dangerous when you took it. Everybody makes mistakes. Every CEO makes thousands of mistakes. Evaluating yourself and giving yourself an F doesn't help.

Remember that this is what separates the women from the girls. If you want to be great, this is the challenge. If you don't want to be great, then you never should have started a company.

So to all of you in it, may you find strength and may you find peace.

CEOs Should Tell It Like It Is

As the highest-ranking person in the company, I thought that I would be best able to handle bad news. The opposite was true: Nobody took bad news harder than I did. Engineers easily brushed off things that kept me awake all night. After all, I was the founding CEO. I was the one "married" to the company. If things went horribly wrong, they could walk away, but I could not. As a consequence, the employees handled losses much better.

Even more stupidly, I thought that it was my job and my job only to worry about the company's problems. Had I been thinking more clearly, I would have realized that it didn't make sense for me to be the only one to worry about, for example, the product not being quite right-because I wasn't writing the code that would fix it.

A much better idea would have been to give the problem to the people who could not only fix it, but who would also be personally excited and motivated to do so. Another example: If we lost a big prospect, the whole organization needed to understand why, so that we could together fix the things that were broken in our products, marketing, and sales process. If I insisted on keeping the setbacks to myself, there was no way to jump-start that process.

As a company grows, communication becomes it biggest challenge. If the employees fundamentally trust the CEO, then communication will be vastly more efficient than if they don't. Telling things as they are is a critical part of building this trust. A CEO's ability to build this trust over time is often the difference between companies that execute well and companies that are chaotic.

If you run a company, you will experience overwhelming psychological pressure to be overly positive. Stand up to the pressure, face your feat, and tell it like it is.

The Right Way to Lay People Off

Once you decide that you will have to lay people off, the time elapsed between making that decision and executing that decision should be as short as possible. If word leads (which it will inevitably if you delay), then you will be faced with an addition set of issues. If the managers don't know, they will look stupid. If the managers do know, they will either have to lie to their employees, contribute to the leak, or remain silent, which will create addition agitation.

The message must be "The company failed and in order to move forward, we will have to lose some excellent people." Admitting to the failure may not seem like a big deal, but trust me, it is.

Managers must lay off their own people. Because people won't remember every day they worked for your company, but they will surely remember the day you laid them off. The reputations of your company and your managers depend on you standing tall, facing the employees who trusted you and worked hard for you. If you hired me and I busted my ass working for you, I expect you to have the courage to lay me off yourself.

Prior to executing the layoff, the CEO must address the company. The CEO must deliver the overall message that provides the proper context and air cover for the managers. If you do your job right, the managers will have a much easier time doing their jobs. The message is for the people who are staying. The people who stay will care deeply about how you treat their colleagues. Still, the company must move forward, so be careful not to apologize too much.

Be present. Be visible. Be engaging. People want to see you. THey want to see where you care. The people whom you laid off will want to know if they still have a relationship with you and the company. Talk to people. Help them carry their things to their cars. Let them know that you appreciate their efforts.

Preparing to Fire an Executive

It turns out that the actual act of firing an executive can be relatively easy compared with any other firing. Executives have experience being on the other side of the conversation and tend to be quite professional.

The wrong way to view an executive firing is an executive failure; the correct way to view an executive firing is as an interview/integration process system failure. Therefore, the first step to properly firing an executive is figuring out why you hired the wrong person for your company. You may have blown it for a variety of reasons:

• You did a poor job defining the position in the first place.
• You hired for lack of weakness rather than for strengths.
• You hired for scale too soon.
• You hired for the generic position.
• The executive had the wrong kind of ambition.
• You failed to integrate the executive.

A fairly common reason for firing an executive is that wen the company quadruples in size, the executive no longer does the job effectively at the new size.

If you build a great product and the market wants it, you will find yourself needing to grow your company extremely quickly. Make sure you hire the right kind of fast-growth executive. Also, do not hire this person if you are not ready to give them lots of budget to grow their organization expect them to do what they do. The successful fast-growth executive is so important to building successful startups that recruiters and venture capitalists often advise CEOs to bring them in before the company is ready.

You should have 3 goals with the board:

• Get their support and understanding for the difficult task that you will execute.
• Get their input and approval for the separation package
• Preserve tge reputation of the fired executive.

Finally, firing an executive turns out to be a piece of news that's handled better with individual phone calls than in dramatic fashion during a board meeting. 3 keys to getting it right:

• Be clear on the reasons.
• Use decisive language.
• Have the severance package approved and ready.

After you have informed the executive, you must quickly update the company and your staff of the change. The correct order for informing the company is (1) the executive's direct reports - because they will be most impacted; (2) the other members of your staff - because they will need to answer questions about it; and (3) the rest of the company.

Every CEO likes to say she runs a great company. It's hard to tell whether the claim is true until the company or the CEO has to do something really difficult. Firing an executive is a good test.

Lies That Losers Tell

Humans, particularly those who build things, only listen to leading indicators of good news. For example, if a CEO hears that engagement for her application increased an incremental 25% beyond the normal growth rate one month, she will be off to the races hiring more engineers to keep up with the impending tidal wave of demand. On the other hand, if engagement decreases 25%, she will be equally intense and urgent in explaining it away: "The site was slow that month, there were 4 holidays, and we made a Ul change that caused all the problems. For gosh sakes, let's not panic!"

Both leading indicators may have been wrong, or both may have been right, but our hypothetical CEO-like almost every other CEO-only took action on the positive indicator and only looked for alternative explanations on the negative leading indicator. If this advice sounds too familiar. and you find yourself wondering why your honest employees are lying to you, the answer is they are not. They are lying to themselves.

And if you believe them, you are lying to yourself.

Lead Bullets

There comes a time in every company's life where it must fight for its life. If you find yourself running when you should be fighting, you need to ask yourself, "If our company isn't good enough to win, then do we need to exist at all?"

Nobody Cares

All the mental energy you use to elaborate your misery would be far better used trying to find the one seemingly impossible way out of your current mess. Spend zero time on what you could have done, and devote all of your time on what you might do. Because in the end, nobody cares; just run your company.

Chapter 5: Take Care of The People, The Products, and The Profits - In That Order

"We take care of the people, the products, and the profits - in that order." It's a simple saying, but it's deep. "Taking care of the people" is the most difficult of the 3 by far and if you don't do it, the other 2 won't matter. Taking care of the people means that your company is a good place to work. Most workplaces are far from good. Ad organizations grow large, important work can go unnoticed, the hardest workers can get passed over by the best politicians, and bureaucratic processes can choke out the creativity and remove all the joy.

A Good Place to Work

"In good organizations, people can focus on their work and have confidence that if their work done, good things will happen for both the company and them personally. It is a true pleasure to work in an organization such at this. Every person can wake up knowing that the work they do will be efficient, effective, and make a difference for the organization and themselves. These things make their jobs both motivating and fulfilling.

"In a poor organization, on the other hand, people spend much of their time fighting organizational boundaries, infighting, and broken processes. THey are not even clear on what their jobs are, so there is no way to know if they are getting the job done or not. In the miracle case they they work ridiculous hours and get the job done, they have no idea what it means for the company or their careers. To make it all much worse and rub salt in the wound, when they finally work up the courage to tell management how fucked-up their situation is, management denies there is a problem. then defends the status quo, then ignores the problem."

Was That Really Necessary?

Being a good company doesn't matter when things go well, but it can be the difference between life and death when things go wrong.

Things always go wrong.

Being a good company is and end in itself.

The Difference Between Life And Death

When things go well, the reasons to stay at a company are many:

• Your career path is wide open because as the company grows lots of interesting jobs naturally open up.
• Your friends and family think you are a genius for choosing to work at the "it" company before anyone else knew it was "it."
• Your resume gets stronger by working at a blue-chip company in its heyday.
• Oh, and you are getting rich.

When things go poorly, all those reasons become reasons to leave. In fact, the only thing that keeps an employee at a company when things go horribly wrong - other than needing a job - is that she likes her job.

Things Always Go Wrong

There has never been a company in the history of the world that had a monotonically increasing stock price. In bad companies, when the economics disappear, so do the employees. In technology companies, when the employees disappear, the spiral begins: The company declines in value. the best employees leave, the company declines in value, the best employee leaves. Spirals are extremely difficult to reverse.

Being a Good Company Is An End In Itself

It probably sounds like a horrible failure. But I'd met dozens of GO employees in my career, including great people. The amazing thing was that every one of those GO employees counted GO as one of the greatest work experiences of their lives. The best work experience ever despite the fact that their careers stood still, they made no money, and they were front-page failure. GO was a good place to work.

Why Startup Should Train Their People

"Most managers seem to feel that training employees is a job that should be left to others. I, on the other hand, strongly believe that the manger should do it himself."

When I was director of product management at Netscape, I was feeling frustrated by how little value most product managers added to the business. Based on Andy's guidance. I wrote a short document called "Good Product Manager/Bad Product Manager," which I used to train the team on my basic expectations. I was shocked by what happened next. The performance of my team instantly improved. Product managers whom I had most written off as hopeless became very effective. Pretty soon I was managing the highest-performing team in the company.

Why Should You Train Your People

Almost everyone who builds a technology company knows that people are the most important assets. Properly run startups place a great deal of emphasis on recruiting and the interview process in order to build their talent base. Too often the investment in people stops here. There are 4 reasons why it shouldn't:

1. Productivity: Training is, quite simply, one of the highest-leverage activities a manager can perform. Consider for a moment the possibility of your putting on a series of four lectures for members of your department. Let's count on 3 hours preparation for each hour of course time-12 hours of work in total. Say that you have 10 students in your class. Next year they will work a total of about 20,000 hours for your organization. If your training efforts result in a 1% improvement in your subordinates' performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours.
2. Performance management: When people interview managers, they often like to ask. Have you fired anyone? Or how many people have you fired? Or how would you about firing someone? These are all fine questions, but often the right question is the one that isn't asked: When you fired the person, how did you know with certainty that the employee both understood the expectations of the job and was still missing them? The best answer is that the manager clearly set expectations when she trained the employee for the job. If you don't train your people, you establish no basis for performance management. As a result, performance management in your company will be sloppy and inconsistent.
3. Product quality: As the engineers are assigned tasks, they figure out how to complete them as best they can. Often this means replicating existing facilities in the architecture, which leads to means replies in the user experience, performance problems, and general mess. And you thought training was expensive.
4. Employee retention: there were 2 primary reasons why people quit: (1) They hated their manager; generally the employees were appalled by the lack of guidance, career development, and feedback they were receiving. (2) They weren't learning anything: The company wasn't investing resources in helping employees develop new skills.

An outstanding training program can address both issues head-on.

What Should You Do First?

The best place to start is with the topic that is most relevant to your employees: the knowledge and skill that they need to do their job. I call this functional training. Functional training can be as simple as training a new employee on your expectations for them and as complex as a multiweek engineering bootcamp to bring new recruits completely up to speed of all of the historical architectural nuances of your product. The training courses should be tailored to the specific job. If you attempt the more complex-style course, be sure to enlist the best experts on the team as well as the manager. As a happy side effect, this type of effort will do more to build a powerful, positive company culture than a hundred culture-building strategic off-site meetings.

The other essential component of a company's training program is management training. Management training is the best place to start setting expectations for your management team. Do you expect them to hold regular one-on-one meetings with their employees? Do you expect them to give performance feedback? Do you expect them to train their people? Do you expect them to agree on objectives with their team? If you do, then you'd better tell them, because the management state of the art in technology companies is extremely poor. Once you've set expectations, the next set of management courses has already been defined; they are the courses that teach your managers how to do the things you expect (how to write a performance review or how to conduct a one-on-one).

Once you have management training and functional training in place, there are other opportunities as well. One of the great things about building a tech company is the amazing people that you can hire. Take your best people and encourage them to share their most developed skills. Training in such topics as negotiating, interviewing. and finance will enhance your company's competency in those areas as well as improve employee morale. Teaching can also become a badge of honor for employees who achieve an elite level of competence.

Implementing Your Training Program

Enforce functional training by withholding new employee requisitions. As Andy Grove writes, there are only 2 ways for a manager to improve the output of an employee: motivation and training. Therefore, training should be the most basic requirement for all managers in your organization. An effective way to enforce this requirement is by withholding new employee requisitions from managers until they've developed a training program for the TBH, "To Be Hired."

Enforce management training by teaching it yourself. Managing the company is the CEO's job. While you won't have time to teach all of the management courses yourself, you should teach the course on management expectations, be cause they are, after all, your expectations. Make it an honor to participate in these sessions by selecting the best managers on your team to teach the other courses. And make that mandatory, too.

Ironically, the biggest obstacle to putting a training program place is the perception that it will take too much time. Keep in mind improve productivity in your company. Therefore, being too busy to that there is no investment that you can make that will do more train is the moral equivalent of being too hungry to eat. Furthermore it's not that hard to create basic training courses.

Good Product Manager / Bad Product Manager

Good product managers know the market, the product, the product line, and the competition extremely well and operate from a strong basis of knowledge and confidence. A good product manager is the CEO of the product. Good product managers take full responsibility and measure themselves in terms of the success of the product.

They are responsible for right product/right time and all that entails. A good product manager knows the context going in (the company, our revenue funding, competition, etc.), and they take responsibility for devising and executing a winning plan (no excuses).

Bad product managers have lots of excuses. Not enough funding. the engineering manager is an idiot, Microsoft has ten times as many engineers working on it, I'm overworked, I don't get enough direction. Our CEO doesn't make these kinds of excuses and neither should the CEO of a product.

Good product managers don't get all of their time sucked up by the various organizations that must work together to deliver the right product at the right time. They don't take all the product team minutes; they don't project manage the various functions; they are not gofers for engineering. They are not part of the product team; they manage the product team. Engineering teams don't consider good product managers a "marketing resource." Good product managers are the marketing counterparts to the engineering manager.

Good product managers crisply define the target, the "what" (as opposed to the "how"), and manage the delivery of the "what." Bad product managers feel best about themselves when they figure out "how." Good product managers communicate crisply to engineer ing in writing as well as verbally. Good product managers don't give direction informally. Good product managers gather information informally.

Good product managers create collateral, FAQs, presentations, and white papers that can be leveraged by salespeople, marketing people and executives. Bad product managers complain that they spend all day answering questions for the sales force and are swamped. Good product managers anticipate the serious product flaws and build solutions. Bad product managers put out fires all day.

Good product managers take written positions on important issues (competitive silver bullets, tough architectural choices, tough product decisions, and markets to attack or yield), Bad product managers voice their opinions verbally and lament that the "powers that be" won't let it happen. Once bad product managers fail, they point out that they predicted they would fail.

Good product managers focus the team on revenue and customers. Bad product managers focus the team on how many features competitors are building. Good product managers define good products that can be executed with a strong effort. Bad product managers define good products that can't be executed or let engineering build whatever they want (that is, solve the hardest problem).

Good product managers think in terms of delivering superior value to the marketplace during product planning and achieving market share and revenue goals during the go-to-market phase. Bad product managers get very confused about the differences among livering value, matching competitive features, pricing, and ubiquity Good product managers decompose problems. Bad product manager combine all problems into one.

Good product managers think about the story they want by the press, Bad product managers think about covering every feature and being absolutely technically accurate with the press. Good product managers ask the press questions. Bad product managers answer any press question. Good product managers assume members of the press and the analyst community are really smart. Bad product managers assume that journalists and analysts are dumb because they don't understand the subtle nuances of their particular technology.

Good product managers err on the side of clarity. Bad product managers never even explain the obvious. Good product managers define their job and their success. Bad product managers constantly want to be told what to do.

Good product managers send their status reports in on time every week, because they are disciplined. Bad product managers forget to send in their status reports on time, because they don't value discipline.

Screens For Mismatch

"What will you do in your first month on the job?"

Beware of answers that overemphasize learning. This may indic that the candidate thinks there is more to learn about your organiztion than there actually is. More specifically, he may think that you organization is as complex as his current organization.

Beware of any indication that the candidate needs to be interrupt-driven rather than setting the pace personally. The interrupts never come.

Look for candidates who come in with more new initiatives the you think are possible. This is a good sign.

"How will your new job differ from your current job?"

Look for self-awareness of the differences here. If they have the experience in what you need, they will be articulate on this point.

Beware of candidates who think that too much of their experience is immediately transferable. It may pay off down the line, but likely not tomorrow.

"Why do you want to join a small company?"

Beware of equity being the primary motivation. One percent of noting is nothing. That's something that big company executives some times have a hard time understanding.

It's much better if they want to be more creative. The most important difference between big and small companies is the amount time running versus creating. A desire to do more creating is the right reason to want to join your company.

Aggressively Integrate the Candidate Once On Board

Force them to create: Give them monthly, weekly, and even daily objectives to make sure that they produce immediately. The rest of the company will be watching and this will be critical to their assimilation.

Make sure that they "get it": Content-free executives have no value in startups. Every executive must understand the product, the technology, the customers, and the market. Force your newbie to learn these things. Consider scheduling a daily meeting with your new executive. Require them to bring a comprehensive set of questions about everything they heard that day but did not completely understand. Answer those questions in depth; start with first principles. Bring them up to speed fast. If they don't have any questions, consider firing them. If in thirty days you don't feel that they are coming up to speed, definitely fire them.

Put them in the mix: Make sure that they initiate contact and interaction with their peers and other key people in the organization. Give them a list of people they need to know and learn from. Once they've done that, require a report from them on what they learned from each person.

Hiring Executives: If You've Never Done The Job, How Do You Hire Somebody Good?

Step 1: know what you want

• Hiring on look and feel
• Looking for someone out of central casting: the details and specifics matter. What is your basis for creating this model? Everybody will be looking for something different.
• Valuing lack of weakness rather than strength: the more experience you have, the more you realize that there is something seriously wrong with every employee in your company, including you. Nobody is perfect
• Bringing in domain experts
• Being clear in your own mind about your expectations for this person upon joining your company. What will this position do in the first 30 days? What do you expect their motivation to be for joining? Do you want them to build a large organization right away or hire only one or two people over the next year?

Step 2: Run A Process That Figures Out The Right Match

Write down the strengths you want and the weaknesses that you are willing to tolerate:

• Will the executive be world-class at running the function?
• Is the executive outstanding operationally?

• Will the executive make a major contribution to the strategic direction of the company? This is the "are they smart enough?" criterion.
• Will the executive be an effective member of the team? Effective is the keyword. It's possible for an executive to be well liked and totally ineffective with respect to the other members of the team. It's also possible for executive to be highly effective and profoundly influential while being totally despised. THe latter is far better.

Develop questions that test your criteria: By writing down questions that test for what you want, you will get to a level of specificity that will be extremely difficult to achieve otherwise.

Assemble the interview team: Assign questions to interviewers based on their talents. Specifically, make sure that the interviewer who asks the questions deeply understands what a good answer will sound like.

Backdoor and front-door references: For the final candidates, it's critically important that CEO conduct the reference checks herself. The references need to be checked against the same hiring criteria that you tested for during the interview process. Backdoor reference checks (checks from people who know the candidate, but were not referred by the candidate) can be an extremely useful way to get an unbiased view. However do not discount the front-door references. While they clearly have committed to giving a positive reference (or they wouldn't be on the list), you are not looking for positive or negative with them. You are looking for fit with your criteria. Often, the front-door references will know the candidate best and will be quite helpful in this respect.

**Step 3: Make A Lonely Decision

Despite many people being involved the process, the ultimate decision should be made solo. Only the CEO has comprehensive knowledge of the criteria, the rationale for the criteria, all the feedback from interviewers and references and the relative importance of the various stakeholders. Consensus decisions about executives almost always sway the process away from strength and toward lack of weakness. It's a lonely job, but somebody has to do it.

When Employees Misinterpret Managers

It is easy to see that there are many ways for leaders to be misinterpreted. To get things right, you must recognize that anything you measure automatically creates a set of employee behaviors. Once you determine the result you want, you need to test the description of the result against the employee behaviors that the description will likely create. Otherwise, the side-effect behaviors may be worse than the situation you were trying to fix it.

Management Debt

Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Like technical debt, the trade-off sometimes makes sense, but often does not. More important, if you incur the management debt without accounting for it, then you will eventually go management bankrupt. 3 of the most popular types:

• Putting 2 in the box.
• Overcompensating a key employee, because she gets another job offer.
• No performance management or employee feedback process.

Putting 2 in the box

What do you do when you have two outstanding employees who logically both fit in the same place on the organizational chart? Perhaps you have a world-class architect who is running engineering, Perhaps does not have the experience to scale the organization to the next level. You also have an outstanding operational person who is not great technically. You want to keep both in the company, but you only have one position. So you get the bright idea to put "two in the box" and take on a little management debt. The short-term benefits are clear: you keep both employees, you don't have to develop either because they will theoretically help each other develop, and you instantly dose the skill set gap. Unfortunately, you will pay for those benefits with interest and at a very high rate.

For starters, by doing this you will make every engineer's job more difficult. If an engineer needs a decision made, which boss should she go to? If that boss decides, will the other boss be able to override it? If it's a complex decision that requires a meeting, does she have to schedule both heads of engineering for the meeting? Who sets the direction for the organization? Will the direction actually get set if doing so requires a series of meetings?

In addition, you have removed all accountability. If schedules slip, who is accountable? If engineering throughput becomes uncompetitive, who is responsible? If the operational head is responsible for the schedule slip and the technical head is responsible for throughput, what happens if the operational head thrashes the engineers to make the schedule and kills throughput? How would you know that she did that? The really expensive part about both of these things is that they tend to get worse over time. In the very short term you might mitigate their effects with extra meetings or by attempting to carve up the job in a clear way. However, as things get busy, those once-clear lines will fade and the organization will degenerate. Eventually, you'll either make a lump-sum payment by making the hard decision and putting one in the box or your engineering organization will suck forever.

Overcompensating A Key Employee Because She Gets Another Job Offer

An excellent engineer decides to leave the company because she gets a better offer. For various reasons, you were under-compensating her, but the offer from the other company pays more than any engineer in your company and the engineer in question is not your best engineer. Still, she is working on a critical project and you cannot afford to lose her. So you match the offer. You save the project, but you pile on the debt.

Here's how the payment will come due. You probably think that your counteroffer was confidential because you'd sworn her to secrecy. Let me explain why it was not. She has friends in the company. When she got the offer from the other company, she consulted with her friends. One of her best friends advised her to take the offer. When she decided to stay, she had to explain to him why she disregarded his advice or else lose personal credibility. So she told him and swore him to secrecy. He agreed to honor the secret but was incensed that she had to threaten to quit in order to get a proper raise. Furthermore, he was furious that you overcompensated her. So he told the story to a few of his friends, but kept her name confidential to preserve the secret. And now everyone in engineering knows that the best way to get a raise is to generate an offer from another company and then threaten to quit. It's going to take a while to pay off that debt.

No Performance Management Or Employee Feedback Process

Your company now employs 25 people and you know that you should formalize the performance management process, but you don't want to pay the price. You worry that doing so will make it feel like a "big company." Moreover, you do not want your employees be offended by the feedback, because you can't afford to lose anymore the right now. And people are happy, so why rock the boat? Why not take on a little management debt? The first noticeable payments will be due when somebody performs below expectations:

-CEO: "He was good when we hired him; what happened?" Manager: "He's not doing the things that we need him to do."

-CEO: "Did we clearly tell him that?"

-Manager: "Maybe not clearly..."

However, the larger payment will be a silent tax. Companies execute well when everybody is on the same page and everybody is constantly improving. In a vacuum of feedback, there is almost no chance that your company will perform optimally across either dimension. Directions with no corrections will seem fuzzy and obtuse. People rarely improve weakness they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.

In The End

Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organizational issues. If faced with giving everyone the same bonus to make things easy or with sharply rewarding performance and ruffling many feathers, they'll ruffle the feathers. If given the choice of cutting a popular project today, because it's not in the long-term plans or you're keeping it around for morale purposes and to appear consistent, they'll cut it today. Why? Because they've paid the price of management debt, and they would rather not do that again.

Management Quality Assurance

The best way to approach management quality assurance is through the lens of the employee life cycle. From hire to retire, how good is your company? Is your management team world-class in all phases. How do you know?

Recruiting and Hiring:

• Do you sharply understand the skills and talents required to succeed in every open position?
• Are your interviewers well prepared?
• Do your managers and employees do an effective job of sell. ing your company to prospective employees?
• Do interviewers arrive on time?
• Do managers and recruiters follow up with candidates in a timely fashion?
• Do you compete effectively for talent against the best companies?

Compensation:

• Do your benefits make sense for your company demographics?
• How do your salary and stock option packages compare with the companies that you compete with for talent?
• ow well do your performance rankings correspond to your compensation practices?
• Training and Integration
• When you hire an employee, how long does it take them to become productive from the perspective of the employee. her peers, and her manager?
• Shortly after joining, how well does an employee understand what's expected of her?

Performance Management:

• Do your managers give consistent, clear feedback to their employees?
• What is the quality of your company's written performance reviews?
• Did all of your employees receive their reviews on time?
• Do you effectively manage out poor performers?

Motivation:

• Are your employees excited to come to work?
• Do your employees believe in the mission of the company?
• Do they enjoy coming to work every day?
• Do you have any employees who are actively disengaged?
• Do your employees clearly understand what's expected of them?
• Do employees stay a long time or do they quit faster than normal?
• Why do employees quit?

Requirements to be great at running HR

• World-class process design skills: Much like the head of quality assurance, the head of HR must be a masterful process designer. One key to accurately measuring critical management processes is excellent process design and control.
• A true diplomat: Nobody likes a tattletale and there is no way for an HR organization to be effective if the management team doesn't implicitly trust it. Managers must believe that HR is there to help them improve rather than police them. Great HR leaders genuinely want to help the managers and couldn't care less about getting credit for identifying problems. They will work directly with the managers to get quality up and only escalate to the CEO when necessary. If an HR leader hoards knowledge, makes power plays, or plays politics, he will be useless.
• Industry knowledge: Compensation, benefits, best recruiting practices, etc. are all fast-moving targets. The head of HR must be deeply networked in the industry and stay abreast of all the latest developments.
• Intellectual heft to be the CEO's trusted adviser: None of the other skills matter if the CEO does not fully back the head of HR in holding the managers to a high quality standard. In order for this to happen, the CEO must trust the HR leader's thinking and judgment.
• Understanding things unspoken: When management quality starts to break down in a company, nobody says anything about it, but super-perceptive people can tell that the company is slipping. You need one of those.

Chapter 6: Concerning The Going Concern

Sometimes an organization doesn't need a solution; it just needs clarity. Once I made it clear that cursing was okay - so long as it wasn't used to intimidate or harass - nobody had a problem with it anymore. At least as far as I knew. Bottom line, the results of the policy was good: a comfortable work environment, low attrition, and no complaining. Sometimes the right policy is the one that the CEO can follow.

As a company grows, it will change. No matter how well you set your culture, keep your spirit, or slow-roll your growth, your company wont be the same when it's 1000 people as it was when it was 10 people. But that doesn't mean that it can't be a good company when it reaches 1,000, 10,000 or even 100,000 employees. It will just be different. Making it good at scale means admitting that it must be different and embracing the changes that you'll need to make to keep things from falling apart. This chapter explains some of the changes that you will need to make.

How To Minimize Politics In Your Company

Political behavior almost always starts with the CEO. Now you may he thinking, "I hate politics, I'm not political, but my organization is very political. I clearly didn't cause this." Sadly, you needn't be political to create extreme political behavior in your organization. In fact, it's often the least political CEOs who run the most ferociously political organizations. Apolitical CEOs frequently and accidentally encourage intense political behavior.

What do I mean by politics? I mean people advancing their careers or agendas by means other than merit and contribution. There may be other types of politics, but politics of this form seem to be the ones that really bother people.

How It Happens

A CEO creates politics by encouraging and sometimes incentivizing political behavior often unintentionally. As a very simple example, let's consider executive compensation. When you are CEO, senior employees will come to you from time to time and ask for an increase in compensation. They may suggest that you are paying them far less than their current market value. They may even have a competitive offer in hand. Faced with this confrontation, if the request is reasonable, you might investigate the situation. You might even give the employee a raise. This may sound innocent, but you have just created a strong incentive for political behavior.

Specifically, you will be rewarding behavior that has nothing to do with advancing your business. The employee will earn a raise by asking for one rather than as a result of your rewarding them for outstanding performance. Why is this bad? Let me count the ways:

1. The other ambitious members of your staff will immediately get the point and agitate for raises as well. Word always gets out. Note that neither this campaign nor the prior one need be correlated with actual performance. You will now spend time dealing with the political issues rather than actual performance issues. Importantly, if you have a competent board, you will not be able to give them all out-of-cycle raises, so your company executive raises will occur on a first-come, first-served basis.
2. The less aggressive (but perhaps more competent) members of your team will be denied off-cycle raises simply by being apolitical.
3. The object lesson for your staff and the company will be that the squeaky wheel gets the grease, and that the most politically astute employees get the raises. Get ready for a whole lot of squeaky wheels.

Now let's move on to a more complicated example. Your CFO comes to you and says that he wants to continue developing as a manager. He says that he would like to eventually become a COO and would like to know what skills he must demonstrate in order to earn that position in your company. Being a positive leader, you would like to encourage him to pursue his dream. You tell him that you think that he'd be a fine COO someday and that he should work to develop a few more skills. In addition, you tell him that he'll work to be a strong enough leader, such that other executives in the company will want to work for him. A week later, one of your other executives comes to you in a panic. She says that the CFO just asked her if she'd work for him. She says that he said you are grooming him to be the COO and that's his final step. Did that just happen? Welcome to the big time.

How To Minimize Politics

Minimizing politics often feels totally unnatural. It's counter to excellent management practices such as being open-minded and encouraging employee development.

The difference between managing executives and managing more junior employees can be thought of as the difference between being in a fight with someone with no training and being in a ring with a professional boxer. If you are in a fight with a regular person, then you can do natural things and they won't get you into much trouble. For example, if you want to take a step backward, you can pick your front foot up first. If you do this against a professional boxer, you will get your block knocked off. Professional boxers train for years to take advantage of small errors in technique. Lifting your front foot first to take a step backward will take you slightly off balance for a split second and that's all your opponent will need.

Similarly, if you manage a junior employee and they ask you about their career development, you can say what comes naturally and generally get away with it. As we save above, things change when you deal with highly ambitious, seasoned professionals. On order to keep from getting knocked out by corporate politics, you need to refine your technique.

The Technique

1. Hire people with the right kind of ambition: The right kind of ambition is ambition for the company's success with the executive's own success only coming as a by-product of the company's victory. The wrong kind of ambition is ambition of the executive's personal success regardless of the company's outcome.
2. Build strict processes of potentially political issues and do not deviate:

• Performance evaluation and compensation: By conducting well-structured, pay and stock increases are as fair as possible. This is especially important for executive compensation, since doing so will also serve to minimize politics. In the example above, the CEO should have had an airtight performance and compensation policy and simply tote had executive that his compensation would be evaluated with everyone else's. Ideally, the executive compensation process should involve the board of directors. This will help ensure good governance and make exceptions even more difficult.

• Organizational design and territory: If you manage ambitious people, from time to time they will want to expand their scope of responsibility. In the example above, the CFO wanted to become the COO. In other situations, the head of marketing might want to run sales and marketing or the head of engineering may want to run engineering and product management. When someone raises an issue like this with you, you must be very careful about what you say, because everything that you say can be turned into political cannon fodder. Generally, it's best to say nothing at all. At most, you might ask "why?" but if you do so be sure not to react to the reasons. If you indicate what you are thinking, that information will leak, rumors will spread, and you plant the seeds for all kinds of unproductive discussions. You should evaluate your organizational design on a regular basis and gather the information that you need to decide without tipping people off to what you plan to do. Once you decide, you should immediately execute the reorg: Don't leave time for leaks and lobbying.

• Promotions: Every time your company gives someone a promotion, everyone else at that person's organizational level evaluates the promotion and judges whether merit or political favors yielded it. If the latter, then the other employees generally react in one of three ways:

1. They sulk and feel undervalued.
2. They outwardly disagree, campaign against the person, and undermine them in their new position.
3. They attempt to copy the political behavior that generated the unwarranted promotion.

Clearly, you don't want any of these behaviors in your company. Therefore, you must have a formal, visible, defensible promotion process that governs every employee promotion. First, it will give the organization confidence that the company at least attempted to base the promotion on merit. Second, the process will produce the information necessary for your team to explain the promotion decisions you made.

Be careful with "he said, she said": Once your organization grows to a significant size, members of your team will from time to time complain about each other. Sometimes this criticism will be extremely aggressive. Be careful about how you listen and the message that it sends. Simply by hearing them out without defending the employee in question, you will send the message that you agree. If people in the company think that you agree that one of your executives is less than stellar, that information will spread quickly and without qualification, As a result, people will stop listening to the executive in question and the executive will soon become ineffective. There are two distinct types of complaints that you will receive:

1. Complaints about an executive's behavior
2. Complaints about an executive's competency or performance

Generally, the best way to handle the first type of complaint is to get the complaining executive and the targeted executive in the room together and have them explain themselves. Usually, simply having this meeting will resolve the conflict and correct the behavior and improve the relationship (if it was actually broken). Do not attempt to address behavioral issues without both executives in the room. Doing so will invite manipulation and politics.

Complaints of the second type are both more rare and more complex. If one of your executives summons the courage to complain about the competency of one of their peers, then there is a good chance that either the complainer or the targeted executive has a major problem. If you receive this type of complaint, you will generally have one of two reactions: they will be telling you something that you already know, or they'll be telling you shocking news.

If they are telling you something that you already know, then the big news is that you have let the situation go too far. Whatever your reasons for attempting to rehabilitate the wayward executive, you have taken too long and now your organization has turned on them. You must resolve the situation quickly. Almost always, this means firing the executive. While I've seen executives improve their performance and skill sets, I've never seen one lose the support of the organization and then regain it.

On the other hand, if the complaint is new news, then you must immediately stop the conversation and make clear to the complaining executive that you in no way agree with their assessment. You do not want to cripple the other executive before you reevaluate his performance. You do not want the complaint to become a self-fulfilling prophecy. Once you've shut down the conversation, you must quickly reassess the employee in question. If you find he is doing an excellent job, you must figure out the complaining executive's motivations and resolve them. Do not let an accusation of this magnitude fester. If you find the employee is doing a poor job, there will be time to go back and get the complaining employee's input, but you should be on a track to remove the poor performer at point.

As CEO, you must consider the systemic incentives that result from your words and actions. While it may feel good in the moment to be open, responsive, and action oriented, be careful not to encourage all the wrong things.

The Right Kind Of Ambition

At a macro level, a company will be most successful if the senior managers optimize for the company's success (think of this as a global optimization) as opposed to their own personal success (local optimization). No matter how well the CEO designs the personal incentive programs, they will never be perfect. In addition, career incentives like promotions and territory ownership fall outside the scope of bonus plans and other a priori management tools. In an equity-based compensation structure, optimizing for the company's success should yield better results for individuals as well.

It is particularly important that managers have the right kind of ambition, because anything else will be exceptionally demotivating for their employees, As an employee, why would I want to work long hours to advance the career of my manager? If the manager cares more about his career than the company, then that's what I'd be doing. Nothing motivates a great employee more than a mission that's so important that it supersedes everyone's personal ambition. As a result, managers with the right kind of ambition tend to be radically more valuable than those with the wrong kind. For a complete explanation of the dangers of managers with the wrong kind of ambition, I strongly recommend Dr Seuss's management masterpiece Yertle the Turtle.

Screening For The Right Kind Of Ambition

At a macro level, everybody views the world through her own personal prism. When interviewing candidates, it's helpful to watch for small distinctions that indicate whether they view the world through the "me" prism or the "team" prism.

People who view the world through the "me" prism might describe a prior company's failure in an interview as follows: "My last job was my e-commerce play. I felt that it was important to round out my résumé." Note the use of my to personalize the company in a way that it's unlikely that anyone else at the company would agree with. In fact, the other employees in the company might even be offended by this usage. People with the right kind of ambition would not likely use the word "play" to describe their effort to work as a team to build something substantial. Finally, people who use the "me" prism find it natural and obvious to speak in terms of "building out my résumé" while people who use the "team" prism find such phrases to be some what uncomfortable and awkward, because they clearly indicate an individual goal that is separate from the team goal.

On the other hand, people who view the world purely through the team prism will very seldom use the words I or me even when answering questions about their accomplishments. Even in an interview, they will deflect credit to others on their previous team. They will tend to be far more interested in how your company will They than in how they will be compensated or what their career path will he. When asked about a previously failed company, they will generally feel such great responsibility that they will describe in detail their own misjudgments and bad decisions.

Final Thoughts

While it may work to have individual employees who optimize for their own careers, counting on senior mangers to do all the right things for all the wrong reasons is a dangerous idea.

Titles And Promotions

Why Do Titles Matter?

1. Employees want them: While you may want to work at your company forever, at least some of your employees need to plan for life after your company.
2. Eventually, people need to know who is who: As companies grow, everybody won't know everybody else. Importantly employees won't know what each person does and whom they should work with to get their jobs done. Job titles provide an excellent shorthand for describing roles in the company. In addition, customers and business partners can also make use of this shorthand to figure out how to best work with your company.

Beyond these core reasons, employees will use titles to calibre their value and compensation against their colleagues. If an employee with a title of Junior Engineer believes that she is a far better program mer than her counterpart with the title Senior Architect, this will indicate to her that she may be underpaid and undervalued. Because titles will be used to calculate relative value, they must be managed carefully.

The Dangers: The Peter Principle And The Law Of Crappy People

The basics seem obvious, so why does almost every company eventually make serious mistakes regarding titles? If you have ever worked in a company, you have probably thought to yourself about some overly promoted executive: "How did he get to be a vice president? I wouldn't let him manage a lemonade stand."

The rationale behind the law is that the other employees in the company with lower titles will naturally benchmark themselves against the crappiest person at the next level.

Promotion Process

Ideally, the promotion process should yield a result similar to the very best karate dojos. In top dojos, in order to achieve the next level (for example, being promoted from a brown belt to a black belt), you must defeat an opponent in combat at that level. This guarantees that a new black belt is never a worse fighter than the worst current black belt. Frustratingly, there is no exact analogue to a fistfight in business, so how can we preserve quality without actual combat?

• To begin, start with an extremely crisp definition not only of the responsibilities at each level but also of the skill required to perform the duties.
• Next, define a formal process for all promotions. One key requirements of the process should be that promotions will be leveled across groups.

Final Thought

You might think that so much time spent on promotions and titles places too much importance and focus on silly formalisms. The opposite is true. Without a well thought out, disciplined process for titles and promotions, your employees will become obsessed with the resulting inequities. If you structure things properly, nobody other than you will spend much time thinking about titles other than Employee of the Month.

When Smart People Are Bad Employees

In business, intelligence is always a critical element in any employee, because what we do is difficult and complex and the competitors are filled with extremely smart people. However, intelligence is not the only important quality. Being effective in a company also means working hard, being reliable, and being an excellent member of the team.

When I was a CEO, this was one of the most difficult lessons for me to learn. I felt that it was my job to create an environment where brilliant people of all backgrounds, personality types, and work styles would thrive. And I was right. That was my job. Companies where people with diverse backgrounds and work styles can succeed have significant advantages in recruiting and retaining top talent over those that don't. Still, you can take it too far. And I did.

Example 1: The Heretic

Any sizable company produces some number of strategies, projects, processes, promotions, and other activities that don't make sense. No large organization achieves perfection. As a result, a company needs lots of smart, super-engaged employees who can identify its particular weaknesses and help it improve them.

However, sometimes a really smart employee develops an agenda other than improving the company. Rather than identifying weaknesses so that he can fix them, he looks for faults to build his case, Specifically, he builds his case that the company is hopeless and run by a bunch of morons. The smarter the employee, the more destructive this type of behavior can be. Simply put, it takes person to be maximally destructive, because otherwise nobody else will listen to him. Why would a smart person try to destroy the company that he works for? There are actually many reasons. Here are a few:

1. She is disempowered. She feels that she cannot access the people in charge and, as a result, complaining is her only vehicle to get the truth out.
2. She is fundamentally a rebel. She will not be happy unless she is rebelling; this can be a deep personality trait. Sometimes these people actually make better CEOs than employees.
3. She is immature and naive. She cannot comprehend that the people running the company do not know every minute detail of the operation and therefore they are complicit in everything that's broken.

Often, it's very difficult to turn these kinds of cases around. Once an employee takes a public stance, the social pressure for him to be consistent is enormous. If he tells fifty of his closest friends that the CEO is the stupidest person on the planet, then reversing that position will cost him a great amount of credibility the next time he complains. Most people are not willing to take the hit to their credibility.

Example 2: The Flake

Some brilliant people can be totally unreliable. At Opsware, we once hired an unequivocal genius Arthur (not his real name) was engineer in an area of the product where a typical new hire would take three months to become fully productive. Arthur got fully up to speed in two days. On his third day, we gave him a project that was scheduled to take one month. Arthur completed the project in three days with nearly flawless quality. More specifically, he completed the project in seventy-two hours. Seventy-two nonstop hours: No stops, no sleep, no nothing but coding. In his first quarter on the job, he was the best employee that we had and we immediately promoted him.

Then Arthur changed. He would miss days of work without calling in. Then he would miss weeks of work. When he finally showed up, he apologized profusely, but the behavior didn't stop. His work product also degraded. He became sloppy and unfocused. I could not understand how such a stellar employee could go so haywire. His manager wanted to fire him, because the team could no longer count on Arthur for anything. I resisted. I knew that the genius was still in him and I wanted us to find it. We never did. It turned out that Arthur was bipolar and had two significant drug problems: (1) He did not like taking his bipolar medication and (2) he was addicted to cocaine. Ultimately, we had to fire Arthur, but even now, it pains me to think about what might have been.

One need not be bipolar to be a flake, but flaky behavior often has a seriously problematic root cause. Causes range from self-destructive streaks to drug habits to moonlighting for other employers. A company is a team effort and, no matter how high an employee's potential, you cannot get value from him unless he does his work in a manner in which he can be relied upon.

Old People

Why hire a senior person? The short answer is time. As a technology startup, from the day you start until your last breath, you will be in a furious race against time. No technology startup has a long shelf life. Even the best ideas become terrible ideas after a certain age. How would Facebook go if Zuckerberg started it last week? At Netscape, we went public when we were fifteen months old. Had we started 6 months later, we would have been late to a market with 37 other browser companies. Even if nobody beats you to the punch, no matter how beautiful your dream most employees will lose faith after the first 5 or 6 years of not achieving it. Hiring someone who has already done what you are trying to do can radically speed up your time to success.

But CEO, beware: Hiring senior people into a startup is kind of like an athlete taking performance-enhancing drugs. If all goes def you will achieve incredible new heights. If all goes wrong, you will start degenerating from the inside out.

For example, as a technical founder, you probably do not have terrific knowledge of how to build a worldwide sales channel, how to create an invincible brand, or how to identify and negotiate ecosystem- altering business development deals. Acquiring a world-class senior person can dramatically accelerate your company's ability to succeed in these areas.

One good test for determining whether to go with outside experience versus internal promotion is to figure out whether you value inside knowledge or outside knowledge more for the position. For example, for engineering managers the comprehensive knowledge of the code base and engineering team is usually more important and difficult to acquire than knowledge of how to run scalable engineering organizations. As a result, you might very well value the knowledge of your own organization more than that of the outside world.

In hiring someone to sell your product to large enterprises, the opposite is true. Knowing how your target customers think and operate, knowing their cultural tendencies, understanding how to recruit and measure the right people in the right regions of the world to maximize your sales - these things turn out to be far more valuable than knowing your own company's product and culture. This is why when the head of engineering gets promoted from within, she often succeeds, when the head of sales gets promoted from within, she almost alway fails. Asking yourself, "Do I value internal or external knowledge more for this position?" will help you determine whether to go for experience or youth.

Once They Arrive

Senior people pose several important challenges:

• They come with their own culture. They will bring the habits, the communication style, and values from the company they grew up in. It's very unlikely these will match your environment exactly.
• They will know how to work the system. Because senior people come from larger environments, they usually develop the skills to navigate and be effective in those environments. These skills may seem political and unusual in your environment.
• You don't know the job as well as they do. In fact, you are hiring them precisely because you don't know how to do the job. So how do you hold them accountable for doing a good job?

First, you should demand cultural compliance. It's fine that people come from other company cultures. It's true that some of those cultures will have properties that are superior to your own. But this is your company, your culture, and your way of doing business. Do not be intimidated by experience on this issue; stick to your guns and stick to your culture. If you want to expand your culture to incorporate some of the new thinking, that's fine, but do so explicitly-do not drift. Next, watch for politically motivated tactics and do not tolerate them.

Perhaps most important, set a high and clear standard for performance. If you want to have a world-class company, you must make sure that the people on your staff - be they young or old - are world-class. It is not nearly enough that someone on your staff can do the job better than you can, because you are incompetent at the job-that's why you hired them in the first place.

Be careful not to set a low bar because you have not done the work to know what good is. Anybody can get reporters to write nice things about a sweet, cuddly baby of a company. Only world-class PR people can deal with gangly, pimple-ridden, teenage companies. World-class PR people can turn around negative stories. World-class PR people can turn chicken shit into chicken salad. Turning chicken shit into chicken salad requires long-term, trusted relationships, deep know-how, and the confidence to make use of both appropriately. PR kids don't have any of the 3.

One excellent way to develop a high standard is to interview people who you see doing a great job in their field. Find out what their standard is and add it to your own. Once you determine a high yet achievable performance bar, hold your executive to that high standard even if you have no idea how they might achieve it. It's not your joh to figure out how to create an incredible brand, tilt the playing fo by cutting a thought possible that's what you are paying them to do. That's why you hired them.

Finally, you'll need your new executive to be more than just a goal achiever. She will need to be well rounded and part of the team. Bill Campbell breaks performance down into four distinct areas:

1. Results against objectives: Once you've set a high standard, it will be straightforward to measure your executive against that standard.
2. Management: Even if an executive does a superb job achieving her goals, that doesn't mean she is building a strong and loyal team. It's important to understand how well she is managing, even if she is hitting her goals.
3. Innovation: It's quite possible for an executive to hit her goal for the quarter by ignoring the future. For example, a great way for an engineering manager to hit her goals for features and dates is by building a horrible architecture, which won't even support the next release. This is why you must look beyond the black-box results and into the sausage factory to see how things get made.
4. Working with peers: This may not be intuitive at first, but executives must be effective at communicating, supporting, and getting what they need from the other people on your staff. Evaluate them along this dimension.

Aw, Man, You Sold Your Soul

Hiring the first senior people into your company may feel like selling your soul, and if you are not careful, you may well end up selling the soul of your company. But if you want to make something from noth ing, you have to take risks and you have to win your race against time. This means acquiring the very best talent, knowledge, and experience even if it requires dealing with some serious age diversity.

One-On-One

Generally, people who think one-on-one meetings are a bad idea have been victims of poorly designed ones. The key to a good one-on-one meeting is the understanding that it is the employee's meeting rather than the manager's meeting. This is the free-form meeting for all the pressing issues, brilliant ideas, and chronic frustration that do not fit neatly into status reports, email, and other less personal and intimate mechanisms.

If you like structured agendas, then the employee should set the agenda. A good practice is to have the employee send you the agenda in advance. This will give her a chance to cancel the meeting if nothing is pressing. It also makes clear that it is her meeting and will take as much or as little time as she needs. During the meeting, since it's the employee's meeting, the manager should do 10% of the talking and 90% of the listening. Note that this is the opposite of most one-one-ones.

Some questions that I've found to be very effective in one-on-ones:

• If we could improve in any way, how would we do it?
• What's the number 1 problem with our organization? Why?
• What's not fun about working here?
• Who is really kicking ass in the company? Whom do you admire?
• If you were me, what changes would you make?
• What don't you like about the product?
• What's the biggest opportunity that we're missing out on?
• WHat are we not doing that we should be doing?
• Are you happy working here?

Programming Your Culture

1. It matters to the extent that it can help you achieve the above goals.
2. As your company grows, culture can help you preserve your key values, make your company a better place to work, and help it perform better in the future.
3. Perhaps most important, after you and your people go through the inhuman amount of work that it will take to build a successful company, it will be an epic tragedy if your company culture is such that even you don't want to work there.

Creating A Company Culture

• Distinguish you from competitors.
• Ensure that critical operating values persist such as delighting customers or making beautiful products.
• Help you identify employees who fit with your mission.

Yes, yoga may make your company may make your company a better place to work for people who like yoga. Nonetheless, it's not culture. It will not establish a core value that drives the business and helps promote it in perpetuity. It is not specific with respect to what your business aims to achieve. Yoga is a perk. Perks are good, but they are not culture.

Taking The Mystery Out Of Scaling A Company

Organizational Design

1. Figure out what needs to be communicated. Start by listing the most important knowledge and who needs to have it. For example, knowledge of the product architecture must be understood by engineering, QA, product management, marketing, and sales.
2. Figure out what needs to be decided. Consider the types of decisions that must get made on a frequent basis: feature selection, architectural decisions, how to resolve support issues. How can you design the organization to put the maximum number of decisions under the domain of a designated manager?
3. Prioritize the most important communication and decision paths. Is it more important for product managers to understand the product architecture or the market? Is it more important for engineers to understand the customer or the architecture? Keep in mind that these priorities will be based on today's situation. If the situation changes, then you can reorganize.
4. Decide who's going to run each group. Notice that this is the fourth step, not the first. You want to optimize the organization for the people for the people doing the work - not for the managers. Most large mistakes in organizational design come from putting the individual ambitions of the people at the top of the organization ahead of the communication paths for the people at the bottom of the organization. Making this step four will upset your managers, but they will get over it.
5. Identify the paths that you did not optimize. As important as picking the communication paths that you will optimize is identifying the ones that you will not. Just because you deprioritized them doesn't mean they are unimportant. If you ignore them entirely, they will surely come back to bite you.
6. Build a plan for mitigating the issues identified in step five. Once you've identified the likely issues, you will know the processes you will need to build to patch the impending cross-organizational challenges.

Process

The purpose of process is communication. If there are 5 people in your company, you don't need process, because you can just talk to each other. You can hand off tasks with a perfect understanding of what's expected, you pass important information from one person to another, and you can maintain high-quality transactions with ne bureaucratic overhead. With 4,000 people, communication becomes more difficult. Ad hoc, point-to-point communication no longer works. You need something more robust - a communication bus or, to use the conventional term for human communication buses, a process.

1. Focus on the output first. What should be the process produce? In the case of the interview process, an outstanding employee. If that's the goal what's the process to get there?
2. Figure out how you'll know if you getting what ou want at each step? Are you getting enough candidates? Are you getting the right candidates? Will your interview process find the right person for the job? Once you select the person will they accept the job? Once they accept the job, will they become productive? Once they become productive, will they stay with your company? How will you measure each step?
3. Engineer accountability into the system. Which organization and which individual is responsible for each step? What can you do to increase the visibility of their performance?

Final Thought

The process of scaling a company is not unlike the process of scaling a product. Different sizes of company impose different requirements on the company's architecture. If you address those requirement too early, your company will seem heavy and sluggish. If you address those requirements too late, your company may melt down under the pressure. Be mindful of your company's true growth rate as you add architectural components. It's good to anticipate growth, but it's bad to overanticipate growth.

The Scale Anticipation Fallacy

As CEO, you must constantly evaluate all the members of your team. However, evaluating people against the future needs of the company based on a theoretical view of how they will perform is counter-productive, for the following reasons:

• Managing at scale is a learned skill rather than a natural ability. Nobody comes out of the womb knowing how to manage a thousand people. Everybody learns at some point.
• It's nearly impossible to make the judgment in advance. How do you tell in advance if an executive can scale? Was it obvious that Bill Gates would learn how to scale when he was a Harvard dropout? How do you go about making that decision?
• The act of judging people in advance will retard their development. If you make a judgment that someone is incapable of doing something such as running a larger organization, will it make sense to teach them those skills or even point out the anticipated deficiencies? Probably not. You've already decided they can't do it.
• Hiring scalable execs too early is a bad mistake. There is no such thing as a great executive. There is only a great executive for a specific company at a specific point in time. Mark Zuckerberg is a phenomenal CEO for Facebook. He would not be a good CEO for Oracle. Similarly, Larry Ellison does a terrific job at Oracle but he would not be the right person to manage Facebook. If you judge your team in advance and have a high sense of urgency, you will bring in executives who can manage at high scale in advance of needing them. Unfortunately, you will probably ignore their ability to do the job for the next twelve months, which is the only relevant measure. As a result, you will swap out good executives for worse ones.
• You still have to make the judgment at the actual point in time when you hit the higher level of scale. Even if you avoid the trap of hiring a scalable executive too early or retarding the new executive's development, you still haven't actually bought yourself anything by making the prejudgment. Regardless of what you decided at point in time A, you still have to evaluate the situation with far better data at point in time B.
• It's no way to live your life or run an organization. Deciding (with woefully incomplete data) that someone who works their butt off, does a terrific job, and loyally contributes to your mission won't be with you three years from now takes you to a dark place. It's a place of information hiding, dishonesty, and stilted communication. It's a place where prejudice substitutes for judgment. It's a place where judgment replaces teaching. It's a place where teamwork becomes internal warfare. Don't go there. So, if you don't prejudge people's ability to scale, how do you make the judgment? You should evaluate your team at least once a quarter on all dimensions. Two keys can help you avoid the scale anticipation trap:
• Don't separate scale from the rest of the evaluation. The relevant question isn't whether an executive can scale; it's whether the executive can do the job at the current scale. You should evaluate holistically and this will prevent you from separating out scale, which often leads to an unwise prediction of future performance.
• Make the judgment on a relative rather than an absolute scale. Asking yourself whether an executive is great can be extremely difficult to answer. A better question: For this company at this exact point in time, does there exist an executive who I can hire who will be better? If my biggest competitor hires that person, how will that impact our ability to win?

Predicting whether an executive can scale corrupts your ability to manage, is unfair, and doesn't work.

Chapter 7: How To Lead Even When You Don't Know Where You Are Going

The Most Difficult Ceo Skills

By far the most difficult skill I learned as CEO was the ability to manage my own psychology. Organizational design, process design, metrics, hiring, and firing were relatively straight forward skills to master compared with keeping my mind in check.

If I'm Doing A Good Job, Why Do I Feel So Bad?

Generally, someone doesn't become a CEO unless she has a high sense of purpose and cares deeply about the work she does. In addition, a CEO must be accomplished enough or smart enough that people will want to work for her. Along the way, many things go wrong and all of them could have and should have been avoided.

The first problem is that everybody learns to be a CEO by being a CEO. No training as a manager, general manager, or in any other job actually prepares you to run a company. The only thing that prepares you to run a company is running a company. This means that you will face a broad set of things that you don't know how to do that require skills you don't have. Nevertheless, everybody will expect you to know how to do them, because, well, you are the CEO.

Even if you know what you are doing, things go wrong. Things go wrong because building a multifaceted human organization to compete and win in a dynamic, highly competitive market turns out to be really hard.

If you manage a team of 10 people, it's quite possible to do so with very few mistakes or bad behaviors. If you manage an organization of 1,000 people, it is quite impossible. At a certain size, your company will do things that are so bad that you never imagined that you'd be associated with that kind of incompetence.

Nobody To Blame

If someone was promoted for all the wrong reasons. that was my fault. If we missed he quarterly earnings target, that was m fault. If a great engineer quit,, that was my fault. If the sales team made unreasonable demand on the product organization, that was my fault. If the product had too many bugs, that was my fault.

Too Much Broken Stuff

Ideally, the CEO will be urgent yet no insane. She will move aggressively and decisively without feeling emotionally culpable. If she can separate the importance of the issues from how she feels about them, she will avoid demonizing her employees or herself.

It's A Lonely Job

In your darkest moments as CEO, discussing fundamental questions about the viability of your company with your employees can have obvious negative consequences. On the other hand, talk to your board and outside advisers can be fruitless. The knowledge gap between you and them is so vast that you cannot actually bring them fully up to speed in a manner that's useful in making the decision. You are all alone.

My friend Jason Rosenthal took over as CEO of Ning in 2010. As soon as he became CEO, he faced a cash crisis and had to choose among three difficult choices: (1) radically reduce the size of the com parry. (2) sell the company, or (3) raise money in a highly dilutive

1. Lay off a large set of talented employees whom he worked very hard to recruit and, as a result, likely severely damage the morale of the remaining people,
2. Sell out all of the employees whom he had been working side by side with for the past several years (Jason was promoted into the position) by selling the company without giving them a chance to perform or fulfill their mission.
3. Drastically reduce the ownership position of the employees and make their hard work economically meaningless.

Choices like these cause migraine headaches. Tip to aspiring entrepreneurs: If you don't like choosing between horrible and cataclysm don't become CEO.

Jason sought advice from some of the best minds in the industry but ultimately he was completely alone in the final decision. Nobody had the answer and whatever the answer, Jason was the one who had to live with the consequences. So far his decision to reduce staff by letting go of primarily the most recent hires has paid off. Revenue at Ning is soaring and team morale is high. If it had gone worse (or ultimately goes bad), it would be all Jason's fault and it would be to Jason to find a new answer. Whenever I see Jason, I like to say "Welcome to the show," Jason eventually sold Ning to Glam and we on to become CEO of Lytro,

At times like this, it's important to understand that nearly every companies goes through life-threatening moments. My partner at Andreessen Horowitz, Scott Weiss, relayed that it's so common that there is an acronym for it, WFIO, which stands for "We're Fucked It's Over" (it's pronounced "whiff-ee-yo"). As he describes it, every company goes through at least two and up to five of these episodes.

Techniques To Calm Your Nerves

The problem with psychology is that everybody's is different. With that as a caveat, over the years I developed a few techniques for dealing with myself. I hope you find them useful, too.

• Make some friends. Although it's nearly impossible to get high-quality advice on the tough decisions that you make, it is extremely useful from a psychological perspective to talk to people who have been through similarly challenging decisions.
• Get it out of your head and onto paper. When I had to explain to my board that, since we were a public company, I thought that it would be best if we sold all of our customers and all of our revenue and changed business, it was messing with my mind. In order to finalize that decision, I wrote down a detailed explanation of my logic. The process of writing that document separated me from my own psychology and enabled me to make the decision swiftly.
• Focus on the road, not the wall. When someone learns to drive a race car, one of the first lessons taught is that when you are going around a curve at 200 mph, do not focus on the wall; focus on the road. If you focus on the wall, you will drive right into it. If you focus on the road, you will follow the road. Running a company is like that. There are always a thousand things that can go wrong and sink the ship. If you focus too much on them, you will drive yourself nuts and likely crash your company. Focus on where you are going rather than on what you hope to avoid.

Don't Punk Out And Don't Quit

As CEO, there will be many times when you feel like quitting. I have seen CEOs try to cope with the stress by drinking heavily, checking out, and even quitting. In each case, the CEO has a marvelous rationalization about why it was okay for him to punk out or quit, but none of them will ever be great CEOS.

Great CEOs face the pain. They deal with the sleepless nights, the cold sweats, and what my friend the great Alfred Chuang (legendary cofounder and CEO of BEA Systems) calls "the torture." Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEOs point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers. They all say, "I didn't quit."

The Fine Line Between Fear And Courage

When my partners and I meet with entrepreneurs, the two key characteristics that we look for are brilliance and courage. In my experience as CEO, I found that the most important decisions tested my courage far more than my intelligence.

The right decision is often obvious, but the pressure to make the wrong decision can be overwhelming. It starts with small things.

When founders come in to pitch our firm - one as the CEO and the other as president - the conversation often goes like this:

"Who is running the company?"

"We are," they both say.

"Who makes the final decision?"

"We do."

"How long do you expect to run that way?" "Forever."

"So you've decided to make it more difficult for every employee to get work done so that you don't have to decide who is in charge, that right?"

That usually results in silence. Intellectually, it should be clear that it is easier for employees to go to one decision maker than two. It's not really very complicated at all. Unfortunately, the clear and present social pressure often overwhelms the long-term benefits of organizing the company properly. Because the founders do not have the courage to decide who is in charge, every employee suffers the inconvenience of double approval.

More important, decisions only get scarier as a company grows When we decided to take Loudcloud public with only $2 million in revenue, it was not a hard choice intellectually the alternative was to go bankrupt. It was nonetheless terrifying to do something that most employees, everyone in the press, and many investors thought was nuts.

When Making The Right Choice Requires Intelligence And Courage

Sometimes the decision itself is rather complicated, which makes the courage challenge even more difficult. CEOs possess a different set of data, knowledge, and perspective than anybody else in the company. Frequently, some of the employees and board members are more experienced and more intelligent than the CEO, The only reason the CEO can make a better decision is her superior knowledge.

To make matters worse, when a CEO faces a particularly difficult decision, she may have only a another - say 54% kill a slight preference for one choice over product line, 46% keep the really smart people on the board and on her staff take the other it. If really smart people on the board and on her staff take the other side, her courage will be severely tested. How can she kill the product when she is not even sure if she is making the right decision and everyone is against her? If she's wrong, she will have been wrong in the face of advice from her top advisers. If she is right, will anybody even know?

On the surface, it appears that if the decision is a close call, it's much safer to go with the crowd. In reality, if you fall into this trap, the crowd will influence your thinking and make a 70-30 decision seem like a 51-49 decision. This is why courage is critical.

Courage, Like Character, Can Be Developed

In life, everybody faces choices between doing what's popular, easy, and wrong versus doing what's lonely, difficult, and right. These decisions intensify when you run a company, because the consequences get magnified a thousandfold. As in life, the excuses for CEOs making thr wrong choice are always plentiful.

Every time you make the hard, correct decision you become a bit more courageous and everytime you make the easy, wrong decision you become a bit more cowardly. If you are CEO, these choices will lead to a courageous or cowardly company.

Last Thought

Over the past 10 years, technological advances have dramatically lowered the financial bar for starting a new company, but the courage bar for building a great company remains as high as it has ever been.

Ones And Twos

I will focus the discussion on 2 core skills for running an organization: First, knowing what to do. Second, getting the company to do what you know. While being a great CEO requires both skills, most CEOs tend to be more comfortable with one or the other. I call managers who are happier setting the direction of the company Ones and those who more enjoy making the company perform at the highest level Twos.

What Ones Like And Don't Like

Ones like spending most of their time gathering information from a broad variety of sources, from employees to customers to competitors. Ones love making decisions. Although they prefer to have comprehensive information when they make a decision, they comfortably make decisions with very little information when necessary. Ones have great strategic minds and enjoy nothing more than a good game of eight-dimensional chess against their best competitors.

Ones sometimes get bored with many of the important execution details required to run a company, such as process design, goal setting, structured accountability, training, and performance management

Most founding CEOs tend to be Ones. When founding CEOs fail, a significant reason is that they never invested the time to be competent enough in the Two tasks to direct those activities effectively. The resulting companies become too chaotic to reach their full potential and the CEO ends up being replaced.

What Twos Like And Don't Like

Twos, on the other hand, thoroughly enjoy the process of making the company run well. They insist upon super-clear goals and strongly prefer not to change goals or direction unless absolutely necessary.

Twos like to participate in strategic discussions but often have difficulty with the strategic thinking process itself. Where a One might be perfectly comfortable spending one day a week reading, studying, and thinking, doing so would make a Two very nervous, because it would not feel like work to them. A Two would get antsy at the thought of all the processes that might be improved, people who might be held accountable to achieving the standard, or sales calls that could be made while he was wasting time just thinking about strategy.

Big decisions worry Twos much more than they worry Ones. Circumstances often force both Ones and Twos to make critical decisions with insufficient data, but Ones generally feel fine about doing that and do not get overly anxious about the consequences. Twos, by contrast, can become highly agitated about such things and sometimes overcomplicate the decision-making process in order to provide a false feeling of thoroughness about the choice.

CEOs who are Twos, despite their love of action, can sometimes bring decision making in a company to a halt.

You Need Both Characteristics To Be A Good CEO

While people tend to be Ones or Twos, with discipline and hard work natural Twos can be competent at One tasks and Ones can be competent at Two tasks. If a CEO ignores the dimension of management she doesn't like, she generally fails. Ones end up in chaos and Twos fail to pivot when necessary.

Functional Ones

Often Two executives act as Ones for their functions, but Twos as members of the executive team. For example, the head of sales might easily make all the decisions that are local to the sales organization but prefer to take direction with respect to the overall company plans. This is the best kind of multilayer leadership possible, because directions are clear and decisions are made rapidly with precision.

How Organizations Tend To Be Constructed

The primary purpose of the organizational hierarchy in a company is decision-making efficiency. It follows that most CEOs tend to be Ones. If the person at the top of the decision-making hierarchy doesn't like making extremely complex decisions, the company's processes will be slow and unwieldy.

If you're a One, it can be counterproductive to have another One on your staff, because she will want to set her own direction rather than follow yours. This kind of strategic contention can confuse the organization and send employees in opposing directions. As a result, many great One CEOs employ primarily Twos and Functional Ones on their staff.

The Big Conclusion

The big conclusion will be a big disappointment for those looking for an answer. The answer is there is no easy answer. CEO transition is hard. If you bring people in from the outside, you lower your chances for success. If you promote from within, you must deal with the One-Two phenomenon. Ideally, you'll promote a One and the rest of the executive team will be glad you did. Too bad things are rarely ideal.

Follow The Leader

So what makes people want to follow a leader? We look for 3 key traits:

1. The ability to articulate the vision: There is no question that some people are much better storytellers than others. However it is also true that anybody can greatly improve in this area through focus and hard work. All CEOs should work on the vision component of leadership.
2. The right kind of ambition: Truly great leaders create an environment where the employees feel that the CEO cares more about the employees than she cares about herself. In this kind of environment, an amazing thing happens: A huge number of employees believe it's their company and behave accordingly. As the company grows large, these employees become quality control of the the entire organization. They set the work standard that all future employees must live up to.
3. The ability to achieve the vision: The final leg of our competence stool is competence, pure and simple. This attribute can absolutely be learned; perhaps this is why Andy Grove's tolerance for incompetence was legendarily low. Indeed, the enemy of competence is sometimes confidence. A CEO should never be so confident that she stops improving her skills.

In the end, some attributes of leadership can be improved more than others, but every CEO should work on all 3. Furthermore, each attribute enhances all three. If people trust you, they will listen to your vision even if it is less articulate. If you are super-competent, they will trust you and listen to you. If you can paint a brilliant vision, people will be patient with you as you learn the CEO skills and give you more leeway with respect to their interests.

Peacetime CEO/Wartime CEO

Bill Campbell always used to say to me, "Ben, you're the best CEO that I work with." This always seemed crazy to me, because he was working with Steve Jobs, Jeff Bezos, and Eric Schmidt at the time while my company was going straight into the wall. One day I called him on it and said, "Bill, why would you say that? Do results not count?" He said, "There are lots of good peacetime CEOs and lots of good wartime CEOs, but almost no CEOs that can function in both peacetime and in wartime. You're a peacetime/wartime CEO."

By my calculation, I was a peacetime CEO for 3 days and wartime CEO for 8 years. I still have a hard time shaking the wartime flashbacks. I'm not the only one who has experienced this. Dennis Crowley, the founder of Foursquare, told me that he thinks about this tension - between wartime and peacetime - every day. The same goes for a lot of tech companies.

For instance, when Eric Schmidt stepped down as CEO of Google and founder Larry Page took over, much of the news coverage focused on Page's ability to be the "face of Google" since Page is far more shy and introverted than the gregarious and articulate Schmidt. While an interesting issue, this analysis misses the main point. Schmidt was much more than Google's front man; as Google's peacetime chief executive, he led the greatest technology business expansion in the last ten years. Larry Page, in contrast, seems to have determined that Google is moving into war and he clearly intends to be a wartime CEO. This has been a profound change for Google and the entire high-tech industry.

Definitions And Examples

Peacetime in business means those times when a company has a large advantage over the competition in its core market, and its market is growing. In times of peace, the company can focus on expanding the market and reinforcing the company's strengths.

In wartime, a company is fending off an imminent existential threat. Such a threat can come from a wide range of sources, including competition, dramatic macroeconomic change, market change. supply chain change, and so forth. The great wartime CEO Andy Grove marvelously describes the forces that can take a company from peacetime to wartime in his book Only the Paranoid Survive.

A classic peacetime mission is Google's effort to make the Internet faster. Google's position in the search market is so dominant that they determined that anything that makes the Internet faster accrues to their benefit since it enables users to do more searches. As the clear market leader, they focus more on expanding the market than dealing with their search competitors. In contrast, a classic wartime mission was Andy Grove's drive to get out of the memory business in the mid 1980s due to an irrepressible threat from the Japanese semiconductor companies. In this mission, the competitive threat - which could have bankrupted the company was so great that Intel had to exit its core business, which employed 80% of its staff.

My greatest management discovery through the transition was that peacetime and wartime require radically different management styles. Interestingly, most management books describe peacetime CEO techniques and very few describe wartime. For example, a basic principle in most management books is that you should never embarrass an employee in a public setting. On the other hand, in a room filled with people, Andy Grove once said to an employee who entered the meeting late, "All I have in this world is time, and you are wasting my time." Why such different approaches to management?

In peacetime, leaders must maximize and broaden the current opportunity. As a result, peacetime leaders employ techniques to encourage broad-based creativity and contribution across a diverse set of possible objectives. In wartime, by contrast, the company typically has a single bullet in the chamber and must, at all costs, hit the target. The company's survival in wartime depends upon strict adherence and alignment to the mission.

When Steve Jobs returned to Apple, the company was weeks away from bankruptcy - a classic wartime scenario. He needed everyone to move with precision and follow his exact plan; there was no room for individual creativity outside the core mission. In stark contrast, as Google achieved dominance in the search market, Google's management fostered peacetime innovation by enabling and even requiring every employee to spend 20% of their time on their own new projects.

Peacetime and wartime management techniques can both be highly effective when employed in the right situations, but they are very different. The peacetime CEO does not resemble the wartime CEO.

Peacetime CEO/Wartime CEO

Can A CEO Be Both?

I believe that the answer is yes, but it's hard. Mastering both war time and peacetime skill sets means understanding the many rules of management and knowing when to follow them and when to violate them.

Be aware that management books tend to be written by management consultants who study successful companies during their times of peace. As a result, the resulting books describe the methods of peacetime CEOs. In fact, other than the books written by Andy Grove, I don't know of any management books that teach you how to manage in wartime like Steve Jobs or Andy Grove.

Back To The Beginning

It turned out that a little wartime was just what the doctor ordered for Google. Page's precise and exacting leadership has led to brilliant execution in integrating identity across Google's broad product line, from the rise of Android to brilliant new products like Google Glass. Sometimes you need to go to war.

Making Yourself A Ceo

In athletics, some things, like becoming a sprinter, can be learned relatively quickly because they start with a natural motion and refine it. Others, like boxing, take much longer to master because they require lots of unnatural motions and lots of specific technique. For example, as I mentioned earlier, when going backward in boxing it's critically important to pick up your back foot first, because if you get hit while walking backward the natural way-picking up your front foot first-it often leads to getting knocked cold. Learning to make this unnatural motion feel natural takes a great deal of practice. If you do what feels most natural as a CEO, you may also get knocked cold.

Being CEO requires lots of unnatural motion. From an evolutionary standpoint, it is natural to do things that make people like you. It enhances your chances for survival. Yet to be a good CEO, in order to be liked in the long run, you must do many things that will upset people in the short run. Unnatural things.

Evaluating people's performances and constantly giving feedback is precisely what a CEO must do. If she doesn't, the more complex motions such as writing reviews, taking away territory, handling politics, setting compensation, and firing people will be either impossible or handled rather poorly.

Giving feedback turns out to be the unnatural atomic building block atop which the unnatural skill set of management gets built. But how does one master the unnatural?

The Shit Sandwich

The technique is marvelously described in the classic management text "The One Minute Manager". The basic idea is that people open up to feedback far more if you start by complimenting them (slice of bread number one), then you give them the difficult message (the shit), then wrap up by reminding them how much you value their strengths (slice of bread number two). The shit sandwich also has the positive side effect of focusing the feedback on the behavior rather than the person, because you establish up front that you really value the a key concept in giving feedback.

The shit sandwich can work well with junior employees but has the following challenges:

• It tends to be overly formal. Because you have to preplan and script the sandwich to make it come out correctly, the process can feel formal and judgmental to the employee.
• After you do it a couple of times, it will lack authenticity. The employee will think, "Oh boy, she's complimenting me again. I know what's coming next, the shit."
• More senior executives will recognize the shit sandwich immediately and it will have an instant negative effect.

Early in my career, I attempted to deliver a carefully crafted shit sandwich to a senior employee and she looked at me like I was a little kid and said, "Spare me the compliment, Ben, and just tell me what I did wrong." At that point, I thought that I was definitely not born to be a CEO.

The Keys

• Be authentic. It's extremely important that you believe in the feedback that you give and not say anything to manipulate the recipient's feelings. You can't fake the funk.
• Come from the right place. It's important that you give people feedback because you want them to succeed and not because you want them to fail. If you really want someone to succeed, then make her feel it. Make her feel you. If she feels you and you are in her corner, then she will listen to you.
• Don't get personal. If you decide to fire somebody, fire her. Don't prepare her to get fired. Prepare her to succeed. If she doesn't take the feedback, that's a different conversation.
• Don't clown people in front of their peers. While it's okay to give certain kinds of feedback in a group setting, you should strive never to embarrass someone in front of their peers. If you do so, then your feedback will have little impact other than to cause the employee to be horribly ashamed and to hate your guts.
• &&Feedback is not one-size-fits-all.&& Everybody is different. Some employees are extremely sensitive to feedback while others have particularly thick skin and often thick skulls. Stylistically, your tone should match the employee's personality, not your mood.
• Be direct, but not mean. Don't be obtuse. If you think somebody's presentation sucks, don't say, "It's really good, but could use one more pass to tighten up the conclusion." While it may seem harsh, it's much better to say, "I couldn't follow it and I didn't understand your point and here are the reasons why." Watered-down feedback can be worse than no feedback at all because it's deceptive and confusing to the recipient. But don't beat them up or attempt to show your superiority. Doing so will defeat your purpose because when done properly, feedback is a dialogue, not a monologue.

Feedback Is A Dialogue, Not A Monologue

You may be the CEO and you may be telling somebody about something that you don't like or disagree with, but that doesn't mean you're right. Your employee should know more about her function than you. She should have more data than you. You may be wrong.

As a result, your goal should be for your feedback to open up rather than close down discussion. Encourage people to challenge your judgment and argue the point to conclusion. Culturally, you want high standards thoroughly discussed. You want to apply tremendous pressure to get the highest-quality thinking yet be open enough to find out when you are wrong.

High-Frequency Feedback

Once you've mastered the keys, you should practice what you've mastered all the time. As CEO, you should have an opinion on absolutely everything. You should have an opinion on every forecast, every product plan, every presentation, and even every comment. Let people know what you think. If you like someone's comment, give her the feedback. If you disagree, give her the feedback. Say what you think. Express yourself. This will have two critically important positive effects:

• Feedback won't be personal in your company. If the CEO constantly gives feedback, then everyone she interacts with will just get used to it. Nobody will think, "Gee, what did she really mean by that comment? Does she not like me?" Everybody will naturally focus on the issues, not an implicit random performance evaluation.
• People will become comfortable discussing bad news. If people get comfortable talking about what each other are doing wrong, then it will be very easy to talk about what the company is doing wrong. High-quality company cultures get their cue from data networking routing protocols: Bad news travels fast and good news travels slowly. Low-quality company cultures take on the personality of the Wicked Witch of the West in The Wiz: "Don't nobody bring me no bad news."

Making The Ceo

Being CEO also requires a broad set of more advanced skills, but the key to reaching the advanced level and feeling like you were born to be CEO is mastering the unnatural.

If you are a founder CEO and you feel awkward or incompetent when doing some of these things and believe there is no way that you'll be able to do it when your company is one hundred or one thousand people, welcome to the club. That's exactly how I felt. So did every CEO I've ever met. This is the process. This is how you get made.

How To Evaluate CEOs

1. Does The Ceo Know What To Do?

The strategy and the story

The CEO must set the context within which every employee operates. The context gives meaning to the specific work that people do. aligns interests, enables decision making, and provides motivation. Well-structured goals and objectives contribute to the context, but they do not provide the whole story. More to the point, they are not the story. The story of the company goes beyond quarterly or annual goals and gets to the hard-core question of why. Why should I join this company? Why should I be excited to work here? Why should I buy its product? Why should I invest in the company? Why is the world better off as a result of this company's existence?

When a company clearly articulates its story, the context for everyone-employees, partners, customers, investors, and the press - becomes clear. When a company fails to tell its story, you hear phrases like

• These reporters don't get it.
• Who is responsible for the strategy in this company?
• We have great technology, but need marketing help.

The CEO doesn't have to be the creator of the vision. Nor does she have to be the creator of the story. But she must be the keeper of the vision and the story. As such, the CEO ensures that the company store is clear and compelling.

Decision making

Some employees make products, some make sales; the CEO makes decisions. Therefore, a CEO can most accurately be measured by the speed and quality of those decisions. Great decisions come from CEOs who display an elite mixture of intelligence, logic, and courage.

As already noted, courage is particularly important, because every decision that a CEO makes is based on incomplete information. At the time of any given decision, the CEO will generally have less than 10% of the information typically present in the post hoc Harvard Business School case study. As a result, the CEO must have the courage to bet the company on a direction even though she does not know if the direction is right. The most difficult decisions (and often the most important) are difficult precisely because they will be deeply unpopular with the CEO's most important constituencies (employees, investors, and customers).

As CEO, there is never enough time to gather all information needed to make a decision. You must make hundreds of decisions big and small in the course of a typical week. You cannot simply stop all other activities to gather comprehensive data and do exhaustive analysis to make that single decision. Knowing this, you must continuously and systematically gather knowledge in the company's day-to-day activities so that you will have as much information as possible when the decision point arrives.

In order to prepare to make any decision, you must systematically acquire the knowledge of everything that might impact any decision that you might make. Questions such as:

• What are the competitors likely to do?
• What's possible technically and in what time frame?
• What are the true capabilities of the organization and how can you maximize them?
• How much financial risk does this imply?
• What will the issues be, given your current product architecture?
• Will the employees be energized or despondent about this promotion?

Great CEOs build exceptional strategies for gathering the required information continuously. They embed their quest for intelligence into all of their daily actions from staff meetings to customer meetings to one-on-ones. Winning strategies are built on comprehensive knowledge gathered in every interaction the CEO has with an employee, a customer, a partner, or an investor.

2. Can The Ceo Get The Company To Do What She Knows?

Is the CEO building a world-class team?

The CEO is responsible for the executive team plus the fundamental interview and hiring processes for all employees. She must make sure the company sources the best candidates and the screening processes yield the candidates with the right combination of talent and skills. Ensuring the quality of the team is a core part of running the company. Great CEOs constantly assess whether they are building the best team.

The output of this capability is the quality of the team. It's important to note that team quality is tightly tied to the specific needs of the company in the challenges it faces at the point in time it faces them. As a result, it's quite possible that the executive team changes several times, but the team is high quality the entire way and there is no attrition problem.

Is it easy for employees to contribute to the mission?

In well-run organizations, people can focus on their work (as opposed to politics and bureaucratic procedures) and have confidence that if they get their work done, good things will happen both for the company and for them personally. By contrast, in a poorly run organization, people spend much of their time fighting organizational boundaries and broken processes.

While it may be quite easy to describe, building a well-run organization requires a high level of skill. The skills required range from organizational design to performance management. They involve the incentive structure and the communication architecture that drive and enable every individual employee. When a CEO "fails to scale," it's usually along this dimension. In practice, very few CEOs get an A on this particular test.

3. Did The Ceo Achieve The Desired Results Against An Appropriate Set Of Objectives?

When measuring results against objectives, start by making sure the objectives are correct. CEOs who excel at board management can "succeed" by setting objectives artificially low. Great CEOs who fail to pay attention to board management can "fail" by setting objectives 100 high. Early in a company's development, objectives can be particularly misleading since nobody really knows the true size of the opportunity. Therefore, the first task in accurately measuring results is setting objectives correctly.

Once we've taken all of this into account, we see that the results against objectives or "black box" results are a lagging indicator. And as they say in the mutual fund prospectuses, "past performance is no guarantee of future results." The white-box CEO evaluation criteria - "Does the CEO know what to do?" and "Can the CEO get the company to do it?"-will do a much better job of predicting the future.

Chapter 8: First Rule Of Entrepreneurship: There Are No Rules

Solving The Accountability Vs Creativity Paradox

A software engineer identifies a weakness in your current product architecture that will significantly impairs its ability to scale down the road. She figures out that she'll have to slop the product schedule 3 months to fix it. Every agrees that 3 months is an acceptable slip to correct the problem. The schedule actually slips 9 months, but she was right about the problem. Do you reward her for her creativity and courage or hold her accountable for the slip?

Accountability For Results

This is where things get complicated. If someone fails to deliver the result she promised, as in the opening story, must you hold her accountable? Should you hold her accountable? The answer is that it depends. It depends upon:

• Seniority of the employee You should expect experienced people to be able to forecast their results more accurately than junior people.

• Degree of difficulty Some things are just plain hard. Making your sales number when your product is inferior to the competition and a recession hits mid-quarter is hard. Building a platform that automatically and efficiently takes serial pro- grams and parallelizes them, so that they can scale out, is hard. It's hard to make a good prediction and hard to meet that prediction. When deciding the consequence of missing a result, you must take into account the degree of difficulty.

• Amount of stupid risk While you don't want to punish people for taking good risks, not all risks are good. While there is no reward without risk, there is certainly risk with little or no chance of corresponding reward. Drinking a bottle of Jack Daniel's then getting behind the wheel of a car is plenty risky, but there's not much reward if you succeed. If someone missed a result, did she take obviously stupid risks that she just neglected to consider, or were they excellent risks that just did not pan out?

So looking back at the opening problem, here are some things to consider:

1. How senior is she? If she's your chief architect, you'll need her to get better at scoping her work or she's going to trash the organization. If she is more junior, this should be more a teaching moment than a scolding moment.

2. How hard was it? If it was a miracle that you ever made that piece of crap scale, then you shouldn't yell at her. In fact, you should thank her. If it was a relatively trivial project that just took too long, then you need to address that.

3. Was the original risk the right one to take? Would the prod- uct really have run out of scale in the short-to-medium term? If the answer is yes, then whether it took three months or nine months, it was the right risk to take and if faced with the same situation again, you probably should not change any of your actions. You shouldn't be wringing your hands about that.

Final Point

In technology business, you rarely know everything up front. The difference between being mediocre and magical is often the difference between letting people take creative risk and holding them too tightly accountable. Accountability is important, but it's not the only thing that's important.

The Freaky Friday Management Technique

2 excellent teams in the company, Customer Support and Sales Engineering, went to war with each other. The sales engineers escalated a series of blistering complaints arguing that the Customer Support team did not respond with urgency, refused to fix issues in the product, and generally inhibited sales and customer satisfaction. Meanwhile, the Customer Support group claimed that the sales engineers submitted bugs without qualification, did not listen to valid suggested fixes, and were alarmists who assigned every issue the top priority. Beyond the actual complaints, the teams genuinely did not like each other. To make matters worse, these groups had to work together constantly in order for the company to function. Both teams boasted superb personnel and outstanding managers, so there was nobody to fire or demote.

The very next day I informed the head of Sales Engineering and the head of Customer Support that they would be switching jobs. I explained that, like Jodie Foster and Barbara Harris, they would keep their minds, but get new bodies. Permanently. Their initial reactions were not unlike the remake where Lindsay Lohan and Jamie Lee Curtis both scream in horror.

However, after just one week walking in the other's moccasins. both executives quickly diagnosed the core issues causing the conflict. They then swiftly acted to implement a simple set of processes that cleared up the combat and got the teams working harmoniously. From that day to the day we sold the company, the Sales Engineering and Customer Support organizations worked better together than any other major groups in the company - all thanks to Freaky Friday, perhaps the most insightful management training film ever made.

Staying Great

As CEO, you know that you cannot build a world-class company unless you maintain a world-class team. But how do you know if an executive is world-class? Beyond that, if she was world-class when you hired her, will she stay world-class? If she doesn't, will she become world-class again?

These are complex questions and are made more complex by the courting process, Every CEO sets out to hire the very best person in the world and then recruits aggressively to get him. If he says yes, she inevitably thinks she's hit the jackpot. If I had a tattoo for every time I heard a CEO claim that she'd just hired "the best VP in the industry," I'd be Lil Wayne.

So we begin with a strong bias that whoever we hired must be world-class even before performing one day of work. To make matters worse, executives who start off world-class often deteriorate over time. If you are a sports fan, you know that world-class athletes don't stay world-class for long. While executives don't age nearly as fast as athletes do, companies, markets, and technologies change 1000 times faster than the game of football. As a result, the executive who is spectacular in this year's hundred- person startup may be washed-up in next year's version when the company employs 400 people and has $100 million in revenue.

The Standard

The first thing to understand is that just because somebody interviewed well and reference-checked great, that does not mean she will perform superbly in your company. There are two kinds of cultures in this world: cultures where what you do matters and cultures where all that matters is who you are. You can be the former or you can suck.

You must hold your people to a high standard, but what is that standard? I discussed this in the section "Old People." In addition, keep the following in mind:

You did not know everything when you hired her. While it feels awkward, it is perfectly reasonable to change and raise your standards as you learn more about what's needed and what's competitive in your industry.

You must get leverage. Early on, it's natural to spend a great deal of time integrating and orienting an executive. However, if you find yourself as busy as you were with that function before you hired or promoted the executive, then she is below standard.

As CEO, you can do very little employee development. One of the most depressing lessons of my career when I became CEO was that I could not develop the people who reported to me. The demands of the job made it such that the people who reported to me had to be 99 percent ready to perform. Unlike when I ran a function or was a general manager, there was no time to develop raw talent. That can and must be done elsewhere in the company, but not at the executive level. If someone needs lots of training, she is below standard.

On Expectations And Loyalty

If you have a great and loyal executive, how do you communicate all this? How do you tell her that despite the massive effort and great job she is doing today, you might fire her next year if she doesn't keep up with the changes in the business?

When I used to review executives, I would tell them, "You are doing a great job at your current job, but the plan says that we will have twice as many employees next year as we have right now. There- fore, you will have a new and very different job and I will have to reevaluate you on the basis of that job. If it makes you feel better, that rule goes for everyone on the team, including me."

In providing this kind of direction, it's important to point out to the executive that when the company doubles in size, she has a new job. This means that doing things that made her successful in her old job will not necessarily translate to success in the new job. In fact, the number-one way that executives fail is by continuing to do their old job rather than moving on to their new job.

But, what about being loyal to the team that got you here? If your current executive team helped you grow your company tenfold, how can you dismiss them when they fall behind in running the behe- moth they created? The answer is that your loyalty must go to your employees the people who report to your executives. Your engineers, marketing people, salespeople, and finance and HR people who are doing the work. You owe them a world-class management team. That's the priority.

Should You Sell Your Company?

1. Talent and/or technology, when a company is acquired purely for its technology and/or its people. These kinds of deals typically range between $5 million and $50 million.

2. Product, when a company is acquired for its product, but not its business. The acquirer plans to sell the product roughly as it is, but will do so primarily with its own sales and marketing capability. These kinds of deals typically range between $25 million and $250 million.

3. Business, when a company is acquired for its actual business (revenue and earnings). The acquirer values the entire operation (product, sales, and marketing), not just the people, technology, or products. These deals are typically valued (at least in part) by their financial metrics and can be extremely large (such as Microsoft's $30 billion-plus offer for Yahoo).

My take on the subject is most applicable to business acquisitions, with some relevance to product acquisitions, and will be fairly useless if you are selling people and/or technology.

The Logical

When analyzing whether you should sell your company, a good basic rule of thumb is if (a) you are very early on in a very large market and (b) you have a good chance of being number one in that market, then you should remain stand-alone. The reason is that nobody will be able to afford to pay what you are worth, because nobody can give you that much forward credit.

For an easy-to-understand example, consider Google. When they were very early, they reportedly received multiple acquisition offers for more than $1 billion. These were considered very rich offers at the time and they amounted to a gigantic multiple. However, given the size of the ultimate market, it did not make sense for Google to sell. In fact, it didn't make sense for Google to sell to any suitor at any price that the buyer could have paid. Why? Because the market that Google was pursuing was actually bigger than the markets that all of the potential buyers owned and Google had built a nearly invincible product lead that enabled them to be number one.

So, the judgment that you have to make is (a) is this market really much bigger (more than an order of magnitude) than has been exploited to date? and (b) are we going to be number one? If the answer to either (a) or (b) is no, then you should consider selling. If the answers to both are yes, then selling would mean selling yourself and your employees short.

Unfortunately, these questions are not as simple to answer as I've made them out to be. In order to get the answer right, you also have to answer the question "What is the market, really, and who are the competitors going to be?" Was Google in the search market or the portal market? In retrospect, they were in the search market, but most people thought they were in the portal market at the time. Yahoo was a tough competitor in the portal market, but not so much in the search market. If Google had really been in the portal market, then selling might have been a good idea.

The Emotional

How can you ever sell your company after you've personally recruited every employee and sold them on your spectacular vision of a thriving, stand-alone business? How can you ever sell out your dream? How can you walk away from total financial independence for yourself and every member of your close and distant family? Aren't you in business to make money? How much money does one person need?

How can you reconcile Dr. Stay-the-Course and Mr. Sell-the- Thing? Clearly they are irreconcilable, but the key is to mute them both. A few keys on muting the emotions:

• Get paid (a salary). Most venture capitalists like entrepreneurs that are "all in," meaning the entrepreneur has everything invested in the company and will have very little to show for her efforts if it does not succeed. As part of this, they prefer the founding CEO to have a very low salary. In general, this is a good idea, because the temptation to walk away when things go poorly is intense and total financial commitment helps him to keep his other commitments. However, once the company starts to become a company rather than an idea it makes sense to pay the CEO at market. More specifically, once the company has a business (as defined above) and becomes an attractive acquisition target, it makes sense to pay the CEO, so that the decision to keep or sell the company isn't a direct response to the CEO's personal financial situation, as in "I don't think that we should sell the company, but I live in an 850 square-foot apartment with my husband and two kids and it's that or divorce."

• Be clear with the company. One question that every startup CEO gets from her employees is "Are you selling the company?" This is an incredibly difficult question. If she says nothing, the employee will likely interpret this to mean the company is for sale. If she says "at the right price," the employee will wonder what that price is and may even ask. If the company ever reaches that price, the employee will assume the company will be sold. If she dodges the question with the standard "the company is not for sale," the employee may feel betrayed if the company is ever sold. More important, the CEO may feel like she is betraying the employee and that feeling will influence her decision making process. One way to avoid these traps is to describe the analysis in the prior section: If the company achieves product-market fit in a very large market and has an excellent chance to be number one, then the company will likely remain independent. If not, it will likely be sold. This is one good way to describe the interests of the investors in a way that's not at odds with the interests of the employees, and it is true.