Avoiding Complacency

This past week I sent the email below (verbatim) to my leadership team, not as a critique, but as a challenge.   I really find my own personal motivation goes in cycles and I have to fight through this issue from time to time.  The title of the email was the same as this post, “Avoiding Complacency”.

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Guys, I wanted to share a simple technique I use every week to ensure I’m staying motivated and focused on the right stuff.  To be clear, this is not a critique on our/your work ethic, commitment or anything else other than my normal “challenging” the team to stay awesome.  I recognize everyone is working hard. 

Candidly, one of the issues I personally have to wrestle with is avoiding complacency, becoming “comfortable” in my role and most important, losing a sense of urgency and paranoia that I believe is critical for any startup to succeed – the leadership team simply has to feel an almost overwhelming sense of urgency and belief that if we don’t get better fast, someone else is going to kill us.
 
One of the things I do every Sunday night before the week begins is to answer the question, in writing “In addition to all the crap already on my calendar this week, what am I personally going to do, this week, to move the needle for the company?”
 
We should all take this view and we should push our teams to take this view.  On a weekly basis, its not sufficient for us to “move our existing, albeit important, workstreams closer to completion”.  We each must actually accomplish something, each week, that is foundational to our success, that we can all see as a big step forward, that those looking in (investors, press, customers) would say – yeah, that’s big.
 
Now, is this realistically going to happen each week?  No, but it HAS to be a goal, a focus that each of us holds each other accountable to.  I want us to ask each other this question and I welcome you saying “Rob, what did you do this week to move the needle?”

The Hardest Decision That No One is Forcing You to Make, But You Should

One of the inevitable truths about startups and building a real business from scratch, is that you rarely get it right from the start.  Meaning, most assumptions made in the beginning about the business model, target market, customer profile, product features, etc will change over time as you build, learn and adjust.  And this cycle often repeats itself several times over the course of the first few years.

Although the decisions to change the product in a different direction, or to abandon sales efforts in a particular segment or to completely pivot the business model are extremely difficult, especially since the team is so invested in confirming rather than disproving hypotheses, these decisions pale in comparison to the most difficult decision – letting go of good people, employees who are top or strong performers but now have a skill mismatch.

To be clear, I’m not talking about terminating non-performers.  If you can’t do this as an entrepreneur within the first 90 days of someone’s employment, then you should try another line of work.  I’m talking about terminating, in many cases, top performers in their trade, its just that their trade is no longer a burning, urgent requirement to build your business based on how requirements are evolving.

Why so ruthless you say?  Because you won’t have room on the payroll for the skills you really need, you will get marginal contribution from top performers that are skill mismatched, and you are increasing risk that you won’t get the traction you need before you run out of money or a competitor eats your lunch.  When you have 5, 10 or 20 employees, every single person must be the best that exists and must gel culturally.  Everyone in the company should demand this level of performance and since “like attracts like”, it makes recruiting only the best that much easier.

Listen, I don’t take any satisfaction for decisions like this that impact people’s lives so deeply, in fact I don’t sleep for nights before it happens, but the consequence of inaction is too large.  The key is to handle these terminations in a dignified, empathetic way.

One last point.  As you look at your team and recognize that there are several folks that unfortunately aren’t cutting the mustard, let go of them all at once.  And when you do it, embrace the remaining team and reinforce that they are the foundation for the company going forward.  In my experience, top performers recognize when there is a lackluster contribution by others and will have more respect for a tough decision that actually breathes more life into the organization by creating cash runway and room to hire the right people.

The Fine Line Between Seizing Opportunity and Losing Focus

In the early stages of any business, proving that customers are willing to pay for your product is essential.  What makes it tough is that no one knows who you are (no brand), the product is basic (feature-less) and the business model is certainly not stable (not sure if you can make money).  This last point is one of the more difficult things to figure out as a startup – which markets do we serve, who are my customers and how much do we charge them?  You may think that you know these answers early, but in my experience you are rarely right out of the gate.  You run customer experiments, develop hypotheses, test them, then adjust.  This process can take months and really requires discipline to ensure decisions along the way are informed by market feedback.

And just when you think you’ve got the right industry, segment and customer profile nailed, you get an inbound inquiry from a “big fish” in a different market where the application of your product *might* prove valuable.  But, serving this tangential market would require significant investment of time, energy and mind share to create the delivery capability required to be successful – in product, technology and/or people.  The temptation to chase these improbable leads can be maddening, particularly when there is uncertainty about your current target market hypothesis and you have someone who is interesting in exploring a partnership with you that is unsolicited.

My approach to these tangential inbounds?  Only pursue them if there is –

  1. A direct application for your product or technology with minimal customization or feature development,
  2. At least two interested (willing to pay) customers in the same market – which means you may have to do some outreach to uncover the second, and
  3. Enough resources in the company to continue proving or disproving the target market hypothesis without undue distraction.

I doubt there are many big inbound opportunities that meet all three of these criteria.  That said, I don’t want to confuse chasing a tangential market (Losing Focus) with pivoting your business as a result of experimentation and testing in your target market (Seizing Opportunity).  The latter is a process that unfolds over time as you iterate with customers and prospects while the former is a “leap” and significant investment of time and resources to address a perceived or real need in a market you don’t currently service and probably know very little about.

What makes this decision process a “fine line”?  As a startup, there is likely a high degree of uncertainty that you can be successful in your TARGET market, so ANY opportunity that presents itself can be deceivingly attractive.  Don’t be fooled, persist and perservere until and if your target market customers and prospects disprove your hypotheses, thus requiring a data-driven decision to seek alternative paths.

Just make sure you keep the phone number for the “big fish”.

Toss Your Org Chart

Org charts suck in a startup.  While they provide clarity around who makes decisions, they also communicate hierarchy and “I’m more important than you” during a time when most of us are wearing many hats and need to be accountable for deliverables across functions.  And if you have less than 40-50 employees, reporting relationships and “who does what” is pretty obvious to everyone on the team, so my negativity towards org charts are really for companies at or below this threshold.

At an early stage, reporting relationships are far less important than defining the handful (most definitely 5 or less) key objectives or focus areas for the company in 90-180 day increments.  Meaning, the only thing the majority of folks should be focused on is what will drive success over the next 3-6 months.  I’ve written in a previous post about the need to focus much longer term and determine strategy in order to determine what those key near-term objectives should be, but let’s assume you know them and need to get everyone focused on what to do, who’s accountable for what objective and which employees work on which objectives.  I’m a big advocate of creating a “one sheet” that lists on one side key activities and who’s responsible and metrics on the other side.

However, one of our founders came up with an awesome visualization that completely replaces the need for an org chart and provides instant clarity on 1) the key focus areas for the company, 2) who’s ultimately accountable for each area (the lead), 3) who the team members are that will work on each focus area and 4) team members that may have more than one focus area (to ensure their time is allocated properly).  This is our visual for BlackLocus with the names and key deliverables scrubbed a bit.  Everyone in the company is assigned to one of these 4 key focus areas. It’s no coincidence, however, that Jesus is accountable for Revenue!

I absolutely love this approach.  Could our priorities and who is leading and working on each priority be any clearer?  Those of you who know nothing about our company know instantly what our near term focus areas are.  Great work Rodrigo!

Don’t Go It Alone, Get Out of Your Bubble

Since I’ve moved to Austin and joined BlackLocus roughly 6 weeks ago, I’ve probably had 30+ meetings with individuals outside the company.  Why?  Because without exception I learn something from every one of these meetings that will help me be a better leader and reduce risk of failure during this critical phase of the company’s development when there are foundational decisions we are making every day.  You may be thinking, “Geez Taylor, why don’t you just put your head down and get to work instead of networking your way out of business”.  There’s clearly a balance here and I’m not suggesting that you should network for networking’s sake, but rather identify folks that have specific and relevant experience dealing with the issues most pressing right now in your business.  And by the way, it need not be successful experience, there is a ton to be learned from other people’s mistakes.  Wouldn’t you rather learn from someone else’s setback than your own?  Whether its the need to raise money, or perhaps figure out a go-to-market strategy, or even how to tackle a tough engineering problem, there are likely people in your extended network that are ahead of where you are today and have navigated, either successfully or unsuccessfully, the urgent problem you have to solve.  In either case, that perspective is valuable as input into your decision.

Now there is a consequence to seeking multiple points of view and getting so much data as input.  Ultimately you have to formulate a point of view, have conviction and make the tough decision.  And doing so with so much external data can be more difficult and confusing particularly if there are a lot of disparate viewpoints on the same issue or problem.  But that’s what leadership is!  Putting your ego aside, realizing you aren’t the master of everything, seeking external viewpoints and data, then distilling it all and having the courage to make a decision and execute against it.

Early Stage Priority Confusion

During the early stages in a stressful, lonely place I call StartupLand, it can be overwhelming determining where to focus scarce resources, both people and money.  There’s endless product issues to address – customer features, performance, reliability, scalability – and if you have a Minimum Viable Product and a bit of luck there are existing customers to support and retain.  Add to the mix the need to both acquire more customers and add other strategic partners to complement your product.  Don’t forget recruiting, if you are funded and enjoy the ability to grow your team, sourcing and interviewing talent can literally take up 30-50% of everyone on the team in the early days.  Oh, and your Board and investors will require some care and feeding through reporting and monthly or quarterly meetings.  That’s a lot to juggle if you have a small team (5-15) trying to tackle each of these priorities.

So how and where do you focus scarce resources?

By being ruthless about both prioritizing and sequencing those priorities where maximum traction can be proven in the shortest period of time.  And by traction I mean proving that customers will buy your product at a price that has a path to sustainability.  In my experience, it means allocating resources in 2 primary areas in the early days:

  1. Harden the Minimum Viable Product.  Specifically, ensure the product 1) has only the most basic feature set, defined as the minimum set a customer is willing to pay for, and 2) is minimally performant, reliable and scalable meaning just sufficient in all 3 categories to retain customers and enable a six-month window of customer growth.  Probably the single biggest pitfall to avoid is allocating resources to make your product more feature rich than it has to be simply because you think your customer must have those features, all at the expense of making a more basic product work flawlessly.  Your customers probably don’t need those features yet and if you have any paying customers, then you’ve proven they don’t.
  2. Get and maintain momentum in sales/customer acquisition.  If one customer is willing to pay for your product as it exists today, then find another one willing to pay.  Then another.  There is nothing that defines traction more effectively than increasing customers and revenue.  You can be unprofitable and raise money with customer traction.  You can offset costs and hire more people with customer traction.  The world of possibilities to tweak, market and scale your business open up with customer traction.

At the end of the day, these are the only things that truly matter for an early stage startup.  Build the most basic product that you can sell, and then sell it.  And if you can sell it, then don’t build custom features, in fact don’t build any features beyond the product you can already sell until you have more resources on board.  Don’t harden the product for performance, reliability and scalability that you’ll need two years from now, harden it enough to get through the next six months of sales.

Sure, there’s lots to do from this point, but until #1 & 2 are achieved, nothing else matters, so don’t be tantalized to spend the cycles working on other high value, but optional workstreams.  Be ruthless.

Why Are You Here?

It’s a question that should be expressly discussed and understood by leadership team members in a startup, particularly amongst the founders.  It was the first agenda item at my first leadership meeting at BlackLocus and it ended up setting the tone for the rest of the day.  From that 15 minute discussion, I feel like I know my team members more deeply and can now focus on helping them achieve their aspirations.

Why is this question so important for me to understand in an early stage company?  Because I’m getting ready to go to battle with this handful of individuals and I must understand the level of motivation, commitment, passion and what drives someone to participate in the inherent ambiguous, stressful and all-consuming experience that a startup demands.

I’ve participated in a handful of these discussions in the past and they go one of two ways.  The abysmally useless way is when you go around the room and everyone says something to the effect of “I just want to build a great company” or “I love startups”.  The refreshingly transparent way is when you create a safe environment for full disclosure of both ego and monetary goals.  It’s perfectly OK to say, “I want to make a shitload of money by building a valuable company”.  In fact, that’s exactly what I said when it was my turn.  Its about creating a culture of transparency, honesty and mutual respect from the get-go.

A week later, I still remember precisely what each of my colleagues want to achieve from this experience.   One of the most honest and interesting aspirations I’ve ever heard came out of this session.  One person wanted to build a successful enough legacy to be invited to give a University commencement speech.  Not only is that honest, but its so cool and inspiring that I want to help them achieve it.

Love What You Do

In the words of Steve Jobs a great quote sent to me yesterday by my new partner Rodrigo:

“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work.  And the only way to do great work is to love what you do.  If you haven’t found it yet, keep looking.  Don’t settle.  As with all matters of the heart, you’ll know when you find it.  And, like any great relationship, it just gets better as the years roll on.”

The world, not just the tech world, lost a true visionary and inspiring leader yesterday.  Just think about the past 10 years and the positive impact Apple’s products have had on most of our lives – Mac, iPod, iPhone, and iPad.  How many of you found out about Job’s passing on one of his devices?  I did.

Even if Jobs has not been iconic for you personally, I highly recommend taking 15 minutes to view his Stanford commencement speech from 2005 imbedded below.  One of the best, most direct “experience life” speeches, not just about enjoying your work but truly enjoying life – and poignant given his passing.

Where’s Your Operating Plan?

Every business needs a 12-month operating plan, even startups at the earliest stages.  The only major difference between a startup Operating Plan (OpPlan) and a mature OpPlan is that the startup OpPlan will inevitably be wrong.  Then why do it?  Because it represents a stake in the ground, your living metrics, targets and milestones so that when targets are either missed or exceeded, it forces an internal review of “why” and then “how” to make adjustments to keep the business performance on track.  I’m going to focus here on the importance of OpPlans for early stage businesses.

First, what is an OpPlan for an early stage or emerging business?  Probably the most common mistake I see is equating the OpPlan to the 3-5 year financial projections spreadsheet that every startup creates to raise money.  While these projections are incredibly useful and contain many of the assumptions that go into the OpPlan, the OpPlan requires an extraction of key assumptions in written form that is easily communicated to everyone in the organization and certain external stakeholders (investors, Board).  Specifically, the 12-month OpPlan contains the following – think of it as an outline for a powerpoint presentation to share with employees:

  1. Statement of Vision, Mission and Strategy.  At the highest level, these should be really clear and posted on a few walls in the office.  How can you know what to do today if you don’t know where you are going and why?
  2. Core 12-month Objectives.  This should be 5 or fewer major objectives for the business that, if achieved, will define success over the next 12 months, at least based on what you know now.  They ought to be completely consistent with point #1 above.  These are not activities or tasks but rather major objectives (ie, “Achieve 5% market share in our category”).  They don’t describe the “how”, just the “what” and since there’s only 5, key stakeholders (Board, investors) should view the achievement of these objectives as a highly successful month/quarter/year.
  3. Key Initiatives and Priorities.  For the current quarter and in order to meet the Objectives, what are the key Priorities and Initiatives that the team will focus on?  We are now breaking down the Objectives in #2 into a manageable set of Initiatives, answering the “how”.  This list becomes the ultimate arbiter when resource conflicts arise (and they will).  Completion of these Initiatives should absolutely result in performance against the Key Metrics (discussed below).  These corporate Key Initiatives then drive more detailed plans within each functional area – Sales and Product priorities drive the product roadmap, which in turn helps to prioritize the Technology, Analytics, Support and Marketing/PR initiatives.
  4. Key Metrics, Target Values and Accountability.  For each Objective in #2, what must be measured (Metric) and what are the Target Values for each Metric that ensure the Objectives are met?  And who is responsible for achieving each Target Value?  Important to track Metrics monthly, understand why there are variances and, most important, take decisive action to address under-performance.  Examples of corporate metrics might be # customers, average revenue per customer, visitor conversion to sale %, hire 10 people, etc.  Ultimately, each functional area (sales, tech, marketing, support) will have their own set of Metrics and Targets that roll up into achieving the overall corporate Targets.
  5. Financial Projections / Budget.  To include Revenue and Expense targets and assumptions.  There are really two methods for determining Revenue projections – “Top Down” and “Bottoms Up” – and I think its important to have a view into both because they often tell different stories.  Top Down approaches begin with understanding the potential market size, assuming some penetration or market share to determine Revenue growth.  Bottoms Up, on the other hand, starts with understanding the sales cycle, product development complexity and available capital to determine a more “reasonable” picture of Revenue scale.   Another way to think about it – Top Down shows “what’s possible” in a world of few constraints and Bottoms Up is more in line with “what’s achievable” being more realistic about resource constraints.  But having a view into both allows for some analysis to answer the question “What additional resources would it require (money, people, technology) to scale the business faster?”

Finally, I highly recommend creating a “One Sheet OpPlan”, a 2-sided but one page document that has Key Initiatives and Priorities for the current period (quarterly) on the front and Key Metrics and Target Values on the back.  This document gets distributed to ALL employees so everyone is fully informed and aligned on what drives success and, more importantly, how individual efforts tie directly or indirectly to certain Objectives that drive that success.

This important process and document really forms the basis for instilling a Performance Based Culture within the organization by tying individual performance and compensation to company Objectives.

Detractors may say that this is all too much structure and process for a startup where you are simply trying to get the product right and achieve some customer traction.  I would agree that putting too much effort into planning when you are a team of 2 or 3 is probably not the highest and best use of time.  However, while the need for this level of thought into the business may vary, certainly by the time you are taking external capital into the business its important that everyone is aligned on where the business is going and what defines success in the near term, even if success is defined by “get 2 paying customers”.  Even an objective this simple requires sales, a product, technology reliability and scale, support, design, analytics, etc. such that each department has a list a mile long of things they can’t get accomplished due to resource constraints.  A well constructed OpPlan helps to coordinate priorities across departments and keeps everyone’s eyes on the prize.

Are You Working in a Performance Based Culture?

Or in a culture that rewards based on popularity or some other subjective measures?

I’ve had several vastly different experiences in organizations that preached “we are building a Performance Based Culture (PBC)” and generally I don’t think there’s any confusion or lack of understanding about what it is.  The problem, and where I’ve seen it break down, is a poor execution by 1) not putting in place the key ingredients to enable employees to truly understand how their actions will be measured and rewarded and 2) inconsistent and subjective evaluations by leadership.  This last point is the cultural kiss of death for having employees believe that true performance will be rewarded.  Just because you are told you work in a PBC by a C-level executive doesn’t mean you do.  So for startups, why is an explicit transition and focus on building a real PBC important?

Most successful startups go through a few phases of growth that inevitably leads to varying degrees of erosion of the talent level as the team grows, particularly if the team grows quickly and can’t hire staff fast enough.  At the early stages, the right way to hire is to be ruthless about hiring only the best – test everyone extensively in specific skills, intellect, skills flexibility and cultural fit.  Individual performance metrics are less important as everyone is hunkered down to build the product and achieve product/market fit.  And, everyone on the team in the early days has to be a star, their work is too important and is seen and experienced daily by everyone else.  An explicit focus on PBC is not necessary, it simply already exists.  However, over time the organization passes through two important phases that require changes in leadership both of the business and of people.

  1. Rapid scale in employees.  For hyper-growth companies at roughly 20-25 employees (and urgently going to 50 or more), it becomes impossible for the “entire team” to interview every candidate and hiring velocity becomes a gating factor to progress.  Thus compromises tend to be made, B & C level talent sneaks in and because the company is growing so fast, its requires a heroic effort to instill a culture of “firing fast” for mediocre performance.  The result, you end up with some “hangers-on” employees that are not horrible at what they do, but they certainly are not leaders and innovators that will propel the company forward.
  2. Different skills required to scale the business – particularly on the leadership team.  In the best run organizations, this is the time that a more disciplined approach to managing the business takes hold – putting processes in place, tracking and reporting on metrics that drive success, and explicitly preaching and building a Performance Based Culture (PBC) for evaluating and rewarding employees.
So what’s the big deal, seems easy enough right?  I think much of it IS easy – determining organizational goals, defining the desired behaviors, creating individual goals – takes work but not an overwhelming challenge.  The hard part is constantly communicating and coaching employees, supporting their achievement of individual goals, eliminating fear and making reward, hiring and firing decisions that are absolutely consistent with the preaching and the promise, decisions must be objective.  Leadership can’t on the one hand preach rewards and advancement based on objective performance and then exhibit subjective, special treatment or “inner circle” mentality based on a popularity contest.  Everyone will see it, eyes will roll and faith in any sort of real PBC will be lost.
Bottom line, if you are a leader in a startup that is growing rapidly and in need of a more explicit focus on performance management, here’s an oversimplified formula that’s worked for me:
  1. Be clear about what drives success for the business, then create a handful of metrics, measure them, share them, post them – make sure everyone has clarity if we do x, then we achieve y.
  2. With success metrics clear, ensure everyone has actionable individual goals that tie directly to the organizational metrics.  This can be tricky for non-executives.  Every individual goal should roll up into the organizational metrics, directly or indirectly (Some goals should reinforce desired behaviors, not just quantified metrics).
  3. Provide frequent feedback, encourage dialogue and make course corrections.  This should be an ongoing topic of discussion every week as part of a broader check in with direct reports, especially in the early days of implementation.
  4. Be timely.  Don’t let half the quarter expire before individual goals are in place.  It shows a lack of commitment.  How can evaluations be objective if goals are undefined for half the period?
  5. And most important, lead by example, evaluate your staff objectively.  No inner circles, no boys/girls club, no rewarding big talkers, no overly subjective evaluations.  Even with the best intentions this can go awry simply because you may not have a full view of your employee’s performance if they work closely with others.  Important to actively seek out performance feedback from those with the best understanding of performance.  Put in the effort to get it right, you may be fooled by a lack of information on someone’s performance, but everyone else in the organization won’t be.
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