The management tool behind Google’s success

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I  just briefly touched on OKRs in another post earlier this summer, hardly doing this key management tool the attention it deserves. The Forbes article by Christian Owens OKRs Let Larry And Sergey Build Google. Maybe The Rest Of Us Software Founders Should Use Them highlighted the importance of OKRs for startups and prompted this post.

OKRs were developed by Andy Grove, a founder and CEO of Intel, and documented in his book High Output Management. Venture capitalist John Doerr learned about OKRs when at Intel and brought the tool to Kleiner Perkins and introduced the founders of Google, Larry Page and Sergey Brin, to them to bring a management framework to Google.

OKR stands for Objectives and Key Results. An objective is clearly defined goal and one or more key results are the measures to track progress towards achieving that goal. Key results are measured quantitatively, on a percentage scale or other numeric basis. If Key Results are defined correctly there can be no arguing over whether or not the Objective has been achieved or not. The beauty of OKRs is their simplicity: I will achieve X as measured by Y.  And OKRs can be set at the personal, team, department, and company levels. They can be shared across the organization to align and focus efforts of everyone.

John Doerr explained how OKRs came to be instantiated at Google:

When Doerr put this [goals need metrics] to Page and Brin, the latter’s response was, “we don’t have any other way to manage this company, so we’ll give it a go”.  I took that as a kind of endorsement. But every quarter since then, every Googler has written down her objectives and her key results. They’ve graded them, and they’ve published them for everyone to see. And these are not used for bonuses or for promotions. They’re set aside. They’re used for a higher purpose, and that’s to get collective commitment to truly stretch goals.

As any reader of this blog, or any fellow mentor at MIT VMS knows, I’m a strong proponent of focus for startups. I’m also a strong proponent of accountability. Combining Apple’s DRIs (Directly Responsible Individual  with Intel’s OKRs should result in a highly focused, aligned, and accountable venture!

As Christian Owens concludes:

It is specificity and focus which enables all of us to stretch further than we initially think we can. Carefully choose your objective and stick with it. Rather than scatter-gunning and seeing what sticks, make sure that every single employee sticks to the following: what are you trying to achieve? How will you know if you’re getting there?

 

 

Is trust busted?

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The dictionary definition of trust is quite interesting:

  1. firm belief in the reliability, truth, ability, or strength of someone or something; acceptance of the truth of a statement without evidence or investigation.

In today’s environment of “alternative facts” and “fake news” can we have firm belief in anyone? We have people still believing that the earth is flat, others that the moon landing was faked. Currently that financier Jeffrey Epstein was either murdered or assisted in his suicide. But as The Wall Stree Journal article Trusting Jeffrey Epstein Taught a Retail Legend a Hard Lesson: Be Careful Whom You Trust by John D. Stoll, points out, trust is necessary in business.

It’s a question that brings into focus the role trust plays in American business. Long seen as nearly as essential as money for the economy, it is as powerful as it is dangerous. Trust serves as the secret sauce in every transaction, business plan and employment arrangement. But, behind every Ponzi scheme, market meltdown and corporate fraud lies a serious case of misplaced trust.

What does this article about trust have to do with founders? Plenty! Leslie Wexner became a billionaire by founding the Limited and other retail giants. Yet he was duped out of millions of dollars by Jeffrey Epstein. However, as “Roderick Kramer points out most successful business folks are risk takers. Risk requires trust, and leadership types tend to overestimate their ability to size up people or situations.” Mr. Kramer did a study about ten years ago that showed that “about 95% of M.B.A. students were routinely placing themselves in the upper half of the class when rating their ability to size up the trustworthiness, reliability and honesty of fellow classmates.”

Why do so many people get duped in startups, as the investors and employees of Theranos, the million dollar fraud did? Another expert weighs in:

Alexander Stein, a human-behavior expert and founder of Dolus Advisors, consults on white-collar misconduct and said we get duped because we “outsource trust.”

“It becomes less about who we trust and more about what we trust,” Mr. Stein said. “It’s not the person, it’s the image of the person, or the persona and the brand.”

So what’s a founder to do? Well when it came to dealing with his Russian adversaries, Ronald Reagan employed  the Russian phrase trust, but verify. But if we go back to the dictionary definition, this proverb is an oxymoron: trust is the acceptance of the truth of a statement without evidence or investigation. Verification requires evidence and/or investigation!

There are two skills I try to encourage my mentees to develop that help ascertain if they can trust an individual or organization due diligence and testing.

Due Diligence

According to Wikipedia:

 Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations.

The need for due diligence is inversely proportional to a founder’s personal experience and knowledge of the person or business in question – the subject. For founders the subject can be a prospective partner, candidates for staff positions; interested investors; professional service providers, like lawyers, bankers, consultants and accountants; contractors and vendors – in other words, virtually anyone and everyone a founder might do business with. The need for due diligence is also directly proportional to the importance of the transaction or business agreement. For example, you need to perform a lot more due diligence on a prospective VP of Sales than on the contractor who cleans your office. And more due diligence is generally required for a relationship than for a transaction.

But how do you perform due diligence? Excluding having actual direct experience working with a person or business, founders must rely on their subject’s reputation. There are two types of due diligence for reputation: primary and secondary research. Like market research, primary reputation research means communicating with people who know, and preferably have worked with, the subject in question. But I’m not talking about typical job candidate references. Who in their right mind would provide a bad reference? Rather I’m referring to a blind reference – someone who knows the person or business in question but is not provided to you as a reference. Unfortunately LinkedIn has bollixed up my practice of finding blind references, as it can be very hard to find blind references on people with an excess of 500 LinkedIn connections. But the real problem with LinkedIn is there is no way to measure the strength of the link, as Google does, by measuring the strengths of links to and from the target – the PageRank. However, all is not lost. You still may be able to find former classmates, investors, fellow workers or even neighbors who know your subject, but haven’t been put forth as references.

The second way to perform due diligence is through research. If LinkedIn shows connections that you share with your target you can communicate with them directly to try to find out how much you should trust the subject, in other words, how reliable and truthful they are.  Of course, checking the candidate’s web site, blog or social media posts can also be helpful. And finally, you would be surprised what a Google search can provide, assuming you can enter a unique search phrase for your subject. Let’s hope it isn’t named John Smith or Acme Corp!

Testing

If we go back to our handy online dictionary, test is defined as a procedure intended to establish the quality, performance, or reliability of something, especially before it is taken into widespread use. For our purposes I would modify that definition to say A procedure intended to establish the quality, performance, or reliability of someone before we decide to trust them. It can be difficult to test everyone you plan enter into a business relationship with. For example, they may be very senior to you and take umbrage at being tested. Or they may have been referred by someone you do trust and testing them may cause your friend to take umbrage. In fact, the basic problem with overtly testing people is that it can cause your subject or others to take offense. Taking offense doesn’t build trust! But I have found at least two ways to test those who may be offended: traveling and playing a sport. Both activities can test a subject’s tolerance for failure, their manners or lack thereof, their competitiveness, patience, persistence, and other important character traits. Travel and playing sports, at least golf, are embedded in business and it’s the rare candidate who would take offense at being asked to play a sport with you. Setting up a trip may be somewhat more difficult, but it can be worth it for an important subject, like a key hire.

I also believe in testing prospective partners. I usually ask them to do a simple task by a fixed date, such as provide me a document relevant to my business or to connect me with someone in their organization. The task doesn’t matter, but it has to be non-trivial and something that can’t be outsourced. You would be surprised by the number of eager partners who can’t meet an agreed upon date for completion of such a task and who offer weak excuses for their inability to do so. Ideally your test should result in something of value to you in the business discussion, like a sample contract.

I highly recommend founders read the entire WSJ article and be on the lookout for other articles about trust. Trust is an important building block in any venture. Trust me on that!

 

 

 

 

 

How to save time at meetings – management by exception

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Everyone hates meetings, and for good reason. They interrupt workflow (meetings are usually called by middle managers, not individual contributors like programmers or graphic artists who need to concentrate for extended periods of time) and bore most of the people, most of the time.

The problem is that many companies have regularly scheduled status meetings. For example, every Monday morning all functional group leaders gets together and they go around the table reporting on their groups activities for the past week and perhaps if the meeting is well run, their plans for the coming week.

There is really no excuse for typical “what I did on my summer vacation” style update meetings. With today’s corporate communications tools like Slack, this kind of information can be communicated on a need to know basis to groups or individuals, who can then take it in on their schedule – asynchronously. This is like Netflix vs. traditional appointment style TV viewing. The latter is dead, and for good reason. People need to own their schedules; cutting down on meetings or length of meetings is one way to do that.

I’m not in favor of eliminating all meetings; I believe there is a way to drastically cut down on the time they take up and the boredom they inflict. It’s called management by exception. In its simplest form management by exception is the practice of communicating and discussing only issues where actual operational results deviate significantly from the  projected results. These results typically relate to schedule, budget, and performance. Budget vs. actual is standard practice in accounting. Any financial difference is called a variance.  For example, if last month’s sales were projected to be $100,000 and were actually only $85,000 the variance would be $15,000. A variance must be a difference that makes a difference. A 15% variance in revenue can make a big difference in a startup where cash is king. A .05% difference isn’t a difference worth discussing.

So how does management by exception and variances relate to status check meetings? Attendees at these meetings should only report on significant variances. If there were none, they have nothing to say. Conversely, significant variances should trigger a discussion that includes what caused the variance, its impact, and any necessary remediation. This may happen in real time or at a separate meeting around this issue.

Management by exception gives staff the responsibility to make decisions on their work. Only if variances or differences from plan surface that require informing the next level of management – or perhaps peers across the organization – does the staffer need to interrupt their work.

Management by exception has another benefit: focus. By only reporting and perhaps discussing only significant variances and their causes the team is focused on one thing: improvement of any negative variances.

Management by exception can apply just as well to email. The most common complaint about email is that so many people get cc’d on email chains unnecessarily. If email is focused on variances and on a need to know basis your firm should be able to cut down cc’d emails.

But management by exception is not free. There is a cost to be paid. That cost is developing a plan and quantified goals. For without a plan and goals you cannot have a projected results. And without projected results there can be no variances between the actual results and the projected results.

As noted in Wikipedia:

Management by exception can bring forward business errors and oversights, ineffective strategies that need to be improved, changes in competition and business opportunities. Management by exception is intended to reduce the managerial load and enable managers to spend their time more effectively in areas where it will have the most impact.

The main advantage of management by exception is that problematic issues are identified rapidly and managers are able to use their time and energy more wisely for important issues rather than for less important ones that could provoke delays in their daily operations.Additionally, managers need to work less on statistics and the frequency of making decisions becomes less, which saves time. As managers take fewer decisions, employees have more responsibility, which increases their motivation.

One other point. Not all variances are negative. A sales team might exceed its projected revenue per quarter or its quota. But if the positive variance is significant that positive variance might need to be examined. Perhaps the sales projection was lowballed, or a competitor dropped out of the market. And if no variances are being reported over an extended period, the team or individual may be stagnating. Anyone striving to improve will occasionally stumble, resulting in a negative variance. As the saying goes, If you never fail, you’re not trying hard enough.

Time is an incredibly important asset in startup ventures. Management by exception can both increase time available and improve motivation and performance. Give it a try!

 

Gaining leverage: outsourcing & delegating

Leverage

A key issue for any founder is putting together the resources to develop, market, sell, and support their product. The number one resource, and the number one expense, is staff: engineers, product managers, marketeers, sales people, and support or service technicians. Not only do founders need to pay staff salaries, but also benefits, which can run 20% to 30% or more of salaries.

While any startup needs full time staff, whether working in the company’s office or remotely, a founder has to figure out what type of staff they need and how to recruit them. Recruiting can be another expense, whether Facebook ads or paying contingency or retained search recruiters.

The majority of founders will need outside investment to ramp up staffing if they plan to be a growth company, not a sole proprietorship or boutique company. But as I was told my one of my VC investors “You need to stretch the dollar!” And what I would tell my hiring managers, “You are not spending money on staff, you are investing it. Think carefully about the return on that investment.”

So what’s founder to do with a fixed amount of capital and growing demands for staff, equipment, marketing spend, and other expenses? As Jason Aten points out in his article about Amazon in Inc., growth is hard.

Here’s what I mean. When you’re a small startup, outsourcing enables fast growth, since it allows you to focus your limited bandwidth of time and energy on the things that matter most to your business. Or, as author Paul Sloane says, “only do what only you can do.”  At this stage, it’s almost always cheaper to pay someone else to do the rest.

Outsourcing means contracting for human resources, not hiring employees. Contractors may be paid a fixed hourly fee or may be paid on a per project basis. But in neither case are they paid fringe benefits and often use their own equipment and office space. Hiring contractors is a skill not that dissimilar from hiring and employees: you need to know clearly what type of work you are outsourcing, perform your due diligence on the individual contractors or firm, and negotiate a contract that protects your firm. While there’s a lot more to this subject,  the thing I’ll say here is to make sure your contract includes the fact that any work product is owned by your firm and that you can terminate the contract for cause immediately or with thirty days notice. By outsourcing tasks that your staff may not have the skills to perform, such as social media marketing, you gain several advantages. For one, you can spin up quickly. It’s almost always the case that you can hire contractors more quickly than full time staff. For two, you can save money, as full time staff are expensive! My rule on outsourcing was that we should focus on our core competencies and outsource everything else. At Course Technology, Inc. which published textbook/software packages for higher education, our core competencies were product development, production, marketing, and sales. But we lacked the capacity for textbook printing, disk duplication (yep that’s how software used to be distributed, on floppy disks!), packaging, warehousing, and shipping. We outsourced the last three of these tasks to NACSCORP (the National Association of College Stores Corp.) who were experienced experts in performing these tasks for the college market. They ended up being so impressed with our venture that they became one of our early strategic investors!

But there is more to stretching the dollar and managing your venture efficiently (doing things right) and effectively (doing the right things). There’s a dangerous tendency amongst founders to want to “do it all.” Many operate on the old saying, “If you want something done right, do it yourself.” Well first of all this is just wrong, as no founder possesses all necessary skills in a startup at a world class level, and even if they did, this doesn’t scale. No matter how talented a founder is, they just have 24 hours a day, just like everyone else. The second way to gain leverage is through delegation. The definition of delegate is interesting: entrust (a task or responsibility) to another person, typically but not always, one who is less senior.  Note that the verb entrust contains the word trust. Trust is the key to delegation. When you delegate a task or responsibility to another member of your team you have to trust that they will perform up to the venture’s standards. Delegation is a key skill in management as it determines a manager’s reach, which is how many staff he or she can effectively manage. By increasing your reach you can maintain a much flatter organization with fewer middle managers. A flat organization cut costs and reduces communication overhead. My rule of thumb was not unlike Paul Sloane’s: I only did what I could do, including recruiting managers and staff and managing product development and production. Any other tasks such as providing managing our vendors, I delegated. Delegation is tough for first time managers as typically they fear that what they delegated what will not get done right, on time, on budget or even all three. So start small, by delegating a single task with a short time frame. Develop ways to check in on progress, preferably by using an online tool. Then expand to other, more complex, individual tasks. Once you are comfortable delegating individual tasks, for example as a marketing director, delegating the writing of the company’s press releases, you can then move onwards to delegating an entire are of responsibility, such as marketing communications.

Fast growing startups, will by their nature, always be strapped for resources. There is always more work to be done than hands available. But by harnessing the twin powers of outsourcing and delegation a founder can gain terrific leverage which provides mechanical advantage, where the output far exceeds the input. In other words, what gets accomplished for the venture is far more than the effort you expend to either outsource or delegate a task or area  of responsibility.

And if you really want to grow fast, once you have mastered outsourcing and delegation, teach it to your managers!