Why talent is the ultimate competitive advantage

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Most founders I mentor are very early stage and unfortunately they tend to fixate on their idea to the neglect of building a team to execute it. Perhaps this shouldn’t be a surprise, as my mentees all come from MIT, a school of engineering. But it does surprise me how little thought is given to organizational design, recruiting plans, compensation and everything else that goes into building a world class team. Of course, ideas are important as are markets. But execution is what wins and it is the very rare founder who can execute solo – mainly an inventor who licenses their invention to another entity that brings it to market.

Diane Bryant, who spent 30 years at Intel then went to Google for a short time is now on the advisory board of a company called OWNZONES. She was interviewed in an article in Forbes.

Her three responsibilities as an advisor at OWNZONES are:

… I’ll be applying my three decade plus global and Silicon Valley technology experience to recruiting of top-tier talent, connecting OWNZONES to instrumental industry partners, and advising on their investments to further simplify the digital video supply chain.

Note that number one in her list is recruiting top-tier talent. And this Q and A with article author Johan Moreno explains why:

JM: When growing and scaling a business, what is one thing you have realized that money cannot buy? 

DB: Talent.  The best talent is not motivated by money, but rather by the opportunity to drive personal impact, work with others they admire and can learn from, and achieve team success.

The first limiter of every start-up I’ve advised is talent. The ideas are plentiful, the funding is available, the market is ripe.  Talent is the scarcity.  The best leaders attract the best talent. A leader’s job is to be a strong and compelling communicator of the vision and path to success, and then create meaningful and fulfilling opportunities for the employee to contribute and develop.

The caliber of talent that OWNZONES CEO Dan Goman has amassed is truly impressive and a key factor in my decision to join.  The technical domain expertise is deep and expansive, spanning cloud architecture, cloud-native application development, artificial intelligence, and video processing. Coupled with the technology expertise is an extensive knowledge of the media and entertainment industry and its market leaders. The foundation for business success is talent, and there’s no stronger a foundation than at OWNZONES.

If you take nothing more from this post than the bolded first sentence you will have absorbed a valuable lesson from a high tech industry veteran. To the best of my knowledge, Apple did not pay above market salaries during either of Steve Jobs’ reigns. In fact, they may have paid slightly below market rates. But what they offered was, in Jobs’ immortal words, the opportunity to “put a dent in the universe.” Apple was a mission-driven company and that mission, to make computing accessible to everyone by simplifying the user experience, was attractive to the the best talent in the world. And as the best talent want to work with the best talent (not just leaders, as Diane Bryant says, but as peers as well.) One of Steve Job’s many talents was the ability to spot talent and as a world-class sales person, to recruit world class talent. Burrell Smith, one of the key hardware engineers on the original Mac, was pulled out of the service  division by Jobs.

Google is another example of a company where recruiting world class talent was so important that one of the two founders interviewed virtually every new hire for years to ensure that only the best, brightest and most driven were hired.

Finally, as I explain to my mentees in search of capital, investors tend to rank the team as the number one criterion in making an investment. Not the idea. Ideas are cheap. World class teams are expensive and rare. A world class team will reject a poor idea and pivot to a better one, as Slack pivoted from games to corporate collaboration and communications tools.

There’s additional wisdom in Diane Bryant’s interview, but I like to focus on one main point in my posts and the main point from her interview is hire the best. Don’t settle. Give as much attention to building your team as to building your product.

How do you recruit technical talent?

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I found a great answer to this question embedded in a Forbes article entitled How To Create An App Without Programming Knowledge. And the answer to the recruiting question in my title actually came from Quora, which seems to have an agreement with Forbes, enabling Forbes to re-use answers posted to Quora. If you are a founder and you are not using Quora you are missing out!

Greg Poulin, Founder and CEO of Goodley, has five tips for founders on recruiting engineers in the current hyper-competitive marketplace. As usual I’ll annotate his post based on my experience hiring software engineers.

Don’t fake it

This was never hard for me as I never had enough technical expertise to even fake having technical expertise! But if you are tempted to fake it, don’t! Engineers will suss you out quickly and you’ll lose them. Rather show respect for their profession, describe their value to your venture, and explain how your culture supports engineers. As in all recruiting you have to sell you company as a great place to work. And it better be, or you’ll be in the startup graveyard faster than you can post an ad on Facebook.

Create an engineering-led culture

The best way to do this is my experience is to have a partner as CTO or VP of Engineering. Barring that make an experienced and respected engineering manager part of your executive team ASAP. It is possible, but very difficult, to manage engineers if you are not one. While domain expertise was only ranked number seven in Google’s survey of needed engineering management skills it still made the top ten. I’d advise anyone trying to hire engineers to study Google’s survey and follow their guidance carefully. But keep one thing in mind: the important difference between your venture and Google is that you can offer a tremendous opportunity for an engineer to have impact. No matter how good you are, Google has about 20,000 engineers – it’s very hard to make much of an impact on customers there.

Remember, talent attracts more talent

This is probably Greg’s most important tip. I was taught early on that A players hire A players, but B players (who are afraid to be shown up by A players) hire C players, and C players – well you can guess. As Greg says, People want to work beside people who are smart, driven, and hardworking. Hire A-players.

Be mission-driven

I taught my managers that no matter how much they paid their staff the amount was soon forgotten – simply taken for granted – until and unless a promotion was in the wind. But what should never be forgotten nor taken for granted is the mission of your venture. It has to be compelling – and memorable! I used to tell my team that we should be able to wake up anyone at 3 am and ask them the mission of our venture and get a correct answer in 20 seconds or less before they went back to sleep. When we sold my first company to Thomson their mission statement was so long I couldn’t memorize it to save my life, but it was good at putting me to sleep!

Don’t be a nightmare:

This should go without saying. Just because a genius like Steve Jobs could act like an asshole sometimes that is not an excuse for you. Here’s another great quote from Greg: Creating a positive company culture that rewards great work, treats people with respect, and works to improve people’s lives will be a place people want to work. 

Create a separate career path for engineering talent

And here’s my organizational design tip on engineers. Many, if not a vast majority, of engineers hate managers! Why? Because about all they see managers do is create meetings and meetings interfere with getting their work done. Engineers like to build stuff. And they like to build stuff that lots of people use and are delighted with. So set up an individual contributor promotion path for engineers, so they can gain the status and compensation of a manager without having to become a manager. Because you know what happens when you turn an engineer into a manager? You lose a great engineer and gain a lousy manager!

And if you want to retain those engineers you worked so hard to recruit, do your best to minimize interruptions in an engineer’s day! (Interruptions from product managers and others are one reason engineers prefer to work at night or better yet, from home.)

Elon Musk’s words of wisdom on alignment

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Dharmesh Shaw is a founder of HubSpot and he relates what he considers a life-changing encounter with Elon Musk in an article in Inc. by Jessica Stillman.

Shaw managed to ask Musk a question at a small dinner they were both attending. He asked Musk’s advice on growing and scaling a business. Here’s Musk’s answer:

 Every person in your company is a vector. Your progress is determined by the sum of all vectors.

As you may recall from high school algebra, a vector is a measurement with that captures two variables: magnitude and direction.  For example, measuring a car in motion, one variable is speed and the other is direction.

So everyone in a company is a vector with both magnitude of impact (how much they achieve, like lines of code they write or sales they close) and a direction of that impact (what feature they are working on or what vertical they are selling into).

The problem is most leaders focus on only one of the two elements of a vector: magnitude and tend to ignore direction. So if you have some people on your team running hard in the wrong direction when you sum the vectors of everyone on the team those running hard in the wrong direction cancel out out those going in the right direction.

So how do you ensure that your entire company is aligned? According to Shah:

  1. Align people with the organization’s goals.

  2. Align individual teams (product, marketing, sales, service, etc.) with the organization’s goals.

  3. Align the organization’s goals with the needs of the customer.

However, I’d start with point zero, alignment amongst the founders, without that points one through three can not be attained.

You can learn more from watching Dharmesh Shaw’s 46 minute talk: Aligning Vectors, What Elon Musk Taught me about growth, embedded in the Inc. article.

Why cofounding a startup is like marriage!

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There’s at least one metric by which cofounding is more like a marriage than a marriage – the amount of time you spend with your business founder will usually dwarf the amount of time you spend with your wife or husband, unless that significant other is also your business partner. According to an article in Inc., by year four of a startup, 45% of founders have split up. The divorce rate in marriages runs about 50%.

Here’s some guidance on building a partnership:

  1. Date before you marry – one of the major mistakes I see with early stage companies is that the founder with the idea is in too much of a hurry to find a
    co-founder and as a result they act opportunistically, not strategically.  By acting strategically I mean doing a very serious self-audit, preferably with a mentor or advisor, so you truly understand your strengths and weaknesses. Once you have done that, you will know what key attribute your partner must have: complementarity. That is their strengths complement your weaknesses and vice versa. In my case, sales is my weakness – I’m a strict introvert and have social anxiety to boot. But I’m great at recruiting talent and helping them be successful. So as a Mr. Inside I was always looking for a Ms. or Mr. Outside and vice versa. Don’t act opportunistically, which means partnering up with someone because they are available (just got their MBA) and have a seemingly valuable credential (have their MBA). This happens a lot at universities with both strong engineering and strong business schools. So as I’ve written elsewhere, go for some test drives with your prospective partner. Traveling together is a great way to see how your partner-to-be handles the frustrations and hassles of today’s air travel. Creating the venture’s presentation together is another good way to test compatibility.
  2. Make sure you are aligned – alignment doesn’t just cover business goals (like go public or be acquired in 5 to 7 years) but personal goals as well (build a company that will last for decades, not just years). Alignment starts with shared values. You need to have tough and deep conversations about values and goals. If you find out you are fundamentally out of alignment either personally or with respect to business goals, then it’s time for a graceful parting. Poor alignment is a leading cause of death in startups – that covers partner alignment, customer alignment, staff alignment and even vendor alignment. Without all going in the same direction even heroic efforts won’t result in success.
  3. Deal with the equity issue early on – Dividing equity is the number one on the tough issues for founders. And it covers not just valuation and equity division between the company and investors but how the founders allocate equity amongst themselves, members of the team, and very importantly, super start contributors. Equity a zero sum game. As a VC once said to me, There’s 100% of equity – they don’t make any more, so be very careful how you allocate it. This can be a difficult and painful discussion but you need to have it early on, resolve any differences, and be extra careful that there are not lingering resentments.
  4. Leave your ego at the door – founders must have large egos to undertake the ventures that everyone thinks are crazy and to withstand months or even years of rejection. But once you step inside you startup’s offices you must leave your ego at the door. Your company is not an extension of your ego – it’s a team game like football, not an individual sport like swimming. Managing strong egos must be a strength of at least one of the founders.
  5. It’s all about trust – we all know how important trust is, but how do you garner it? You have to earn it, it can not be bestowed by your position or relationship to the founders. Trust is built by actions, not just words. So the sooner you build trust with your partners the better. Trust is one reason that a Y-Combinator study showed that founders who had known each other for a long time and/or had worked together tended to found more successful ventures. Trust is also necessary for team building, not only must your partner trust you and vice versa, but the organization must trust in the vision and mission of the founders.
  6. Agree on how to resolve differences –  I had a co-founder who had a simple rule he used in business and in his marriage: whomever was most invested in the decision got their way and in the event of a tie, a coin was flipped. Practicing this resolution mode will make for a strong and fast acting partnership. Obviously there are other ways to resolve differences, but make sure you have a way before you get underway with a partner. Disagreement between partners on important decisions is why studies have shown that sole founder ventures are more successful than ventures with two or more founders.
  7. Communication is vital – communicate with your founder early and often. I’ve found that a majority of problems in startups stem from either poor or lack of communication. Better to over-communicate than under-communicate.  You can always dial it back a bit.
  8. Compromise doesn’t always work – while it may be tempting to compromise when differences occur that may not be the best path – you may end up compromising the venture’s core values. Better to outline the pros and cons of each conflicting decision and go with the highest ratio of pros to cons. Compromise can just water down a decision so it’s worth less than either of the two conflicting paths.

Deciding on a partner is one of if not the, top decisions you will make as a founder. Be careful and deliberative. This is an area where speed kills. And if you can’t find a founder who is a good match there are many successful companies with solo founders.

Pros and cons of keeping your day job

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During my few years as a sound reinforcement engineer I worked with lots of local acts, as they would open for the established headliners like Aerosmith or ZZ Top. (One of those opening acts was Jay Leno, believe it or not!) These musicians virtually all had day jobs, as playing music didn’t pay the bills. But the goal was to quit your day job and live off playing live and your record royalties. Aside from Jay Leno, Billy Squier was another local (Jay was from Andover MA, Billy from Wellesley) who made it big.

So what does this have to do with startups? Well first of all, bands are all startups and they are all teams, though Billy and Andy Paley dominated the band the Sidewinders, who I worked with several times. The conventional wisdom is that founders need to quit their days jobs. Well let’s look at the pros and cons of doing just that.

Paul Graham, co-founder of Y-Combinator, maintains you can only have one job, your startup venture.  “The number one thing not to do is other things,” Graham has advised entrepreneurs. “Don’t go to graduate school, and don’t start other projects. Distraction is fatal to startups.”  So one pro is the ability to focus 100% on your venture.

There’s no doubt investors will have issues putting money into a company that’s run by a part time founder. After all, if the founder isn’t all in, why should the investor be?

And how are you going to recruit for your team? Will everyone have a day job? That’s a tough company to manage!

But the Inc. article Richard Branson: You Don’t Have to Quit Your Job to Start a Business. I Didn’t, sub-titled Can’t go all in on your dream? That’s probably a good thing, according to the Virgin founder (and science) makes several good arguments for working two jobs, your day job to pay the bills and your night job, your startup that runs on sweat equity.

“Some of the world’s most successful companies began as side projects, with their founders working evenings or weekends to turn their ideas into realities. Virgin is a prime example of this — all of our Virgin businesses started while we were working on something else,” Branson reports. “Virgin Records was originally a side project as part of Student magazine,” while Virgin Atlantic started “as a side project while we were running Virgin Records.”

Keeping your day job gives you some breathing room and removes the anxiety of giving up what is probably your only source of income. You can get the details from the post on Branson’s blog: Embrace the side hustle.

But aside from Branson’s advice there’s actually been a study done comparing those who have a side hustle with all-in entrepreneurs that found that those started as a side hustle were actually 33% more likely to survive!  A full 20 percent of CEOs on Inc. magazine’s 500 fastest-growing private companies list indicated that they continued to work a paying job long after founding their organization.

Frankly I’ve subscribed to the “go big or go home” conventional wisdom with my many startups and as a mentor. I’ve believed that focus, along with perseverance, were the key ingredients to survival for a startup. But based on this and related articles I’m going to have to rethink going along with the conventional wisdom.

As Branson points out, “if you have an idea for a business that is keeping you up at night, it would be such a shame to waste it.”

The biggest success I can think of where a founder kept his day job was Apple. Steve Jobs quit his job at Atari but it took him months of his high pressure salesmanship to get Steve Wozniak to quit his day job at Hewlett-Packard.

So perhaps you shouldn’t be afraid  to be a founder who isn’t all in. My advice would be to set some triggers or milestones that would cause any founder to quit their day job. Typical triggers would be getting a first paying customer, getting some funding from friends and family, or forging a valuable partner for sales or distribution.

 

When building teams diversity is the key

 

cupA typical mistake hiring managers make when building a team is to aim for the best person for each and every position, but anyone who follows sports knows that it’s not the most talented team, say the Kansas City Chiefs, that wins. It’s the New England Patriots.

Back when the Patriots played the heavily favored Los Angeles Rams in the Super Bowl in 2001 I knew the Pats would win before the coin flip. How? Because Bill Belichick flouted NFL tradition, by not introducing his offensive team. No he didn’t introduce his defense or even his special teams. The entire 53 man team ran out onto the field! That said it all. As Lao Tse said, “Battles are won before they start.” Belichick’s “team-first” philosophy beat the “Greatest Show on Turf” because he didn’t hire for the most talent, he hired for intelligence, for grit, for willingness to play any position, and most importantly, for the ability to put the team first.

So what does this have to do with your startup? Read the Fast Company article by Scott E; Page Want to hire the best team? Don’t hire the “best” people, sub-titled Hiring high performers doesn’t always lead to great results. The article is based on the book by Scott E. Page, The Diversity Bonus: How Great Teams Pay Off in the Knowledge Economy.

Yet the fallacy of meritocracy persists. Corporations, nonprofits, governments, universities, and even preschools test, score, and hire the “best.” This all but guarantees not creating the best team. Ranking people by common criteria produces homogeneity. And when biases creep in, it results in people who look like those making the decisions. That’s not likely to lead to breakthroughs. As Astro Teller, CEO of X, the “moonshot factory” at Alphabet, Google’s parent company, has said: “Having people who have different mental perspectives is what’s important. If you want to explore things you haven’t explored, having people who look just like you and think just like you is not the best way.” We must see the forest.

The complexity of modern problems  often precludes any one person from fully understanding them. Factors contributing to rising obesity levels, for example, include transportation systems and infrastructure, media, convenience foods, changing social norms, human biology, and psychological factors.

So how do you hire for the best team if it’s not the process of hiring a bunch of the best specialists? You need to act like Bill Belichick – hire for team fit, after you have made sure the candidate checks off the necessary expertise and experience boxes. The best way to insure that I’ve found is to involve not only the team but staff whose function is orthogonal to the team – they have no vested interest in filling a position, as the team leader and team members may have. So I might ask the CFO to interview a candidate for a graphic artist position or a programmer to join the interviewing process for a marketer or sales person. Back to our friend Alan Kay’s statement, Perspective is worth 80 IQ points.

Another technique is to dive into the candidate’s background, below the shiny surface of recent jobs and academic accomplishments. Do they play sports? Is it an individual sport like golf or swimming or a team sport like basketball or baseball? If their entire sporting life consists of individual sports experience they may not work well in teams. What are their interests beyond work and family? Do they display curiosity? A wealth of interests or a narrow slice?

Many ideas come from group sessions where each person builds on the previous statements of others. There are no “mistakes” or “wrong answers”, rather every attempt at solving the problem can be thought of a stepping stone to reaching the solution. How does your job candidate function in groups?

Attempting to “hire the best’ inevitably leads to ranking. In the field of neuroscience upwards of 50,000 papers were published last year. How could you possibly rank the authors of all those papers? “Optimal hiring depends on context. Optimal teams will be diverse.”

Let’s be clear that hiring for diversity should not be confused with treating women and minorities equally – that’s table stakes. The winning teams will meet or exceed that type of standard by digging deep into candidate’s lives, not just their resumes.

Original study favoring solo founders over teams

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One of my MIT mentees pointed to me that The MIT Sloan Review ran a much more in depth article on the study by MIT professors Jason Greenberg and Ethan Molnick that showed that solo founders are 2.6 times as likely “to own an ongoing, for-profit venture” than teams of three or more co-founders.

So for those of you interested in more about this subject than I had posted previously based on a Wall Street Journal article, you can read their entire recent working paper.

But founding teams please don’t split up over this research! It’s only one study and your team could well be very successful. But for those of you thinking about doing a startup you might want to reconsider the received wisdom that you need a partner or partners to be successful.