The Great CEO Within

If you are starting a tech company, this is the one book you cannot afford to miss. It is the most practical, tactical guide to building a well-functioning business that I've come across, and was easily the best book I read in all of 2019. Straight to the point, this book epitomizes the Pareto Principle — in less than 200 pages, it gives you more than 80% of what you will learn if you ever become a successful, effective executive. Topics covered:

• Individual Habits (Getting Things Done, Top Goal, On Time and Present, Energy Audit, etc.)
• Group Habits (Decision Making, Impeccable Agreements, Transparency, Conscious Leadership, Conflict Resolution, Customer Empathy, Company Culture)
• Infrastructure (Company Folder System and Wiki, Goal-tracking System, Areas of Responsibility, No Single Point of Failure, Key Performance Indicators)
• Collaboration (Organizational Structure, Accountability, Coaching, Meetings, Feedback)
• Processes (Fundraising, Recruiting, Sales and Marketing)

What follows are my notes/highlights straight from this book. I tend to highlight only the things that I didn't know before, or want to be able to come back to later. Given this, and the size of this post (~30 min read), you can see that this book had a lot to offer to me. My top highlights/quotes/nuggets-of-wisdom from the book:

Product Market Fit

• Y Combinator has a strong belief: founding teams should never grow beyond six until there is true product-market fit. Metrics that show whether PMF has been achieved include revenue, renewal rates, and Net Promoter Score. There is no magic metric, but for a B2B company, it’s hard to imagine PMF at anything less than $1 million in annual recurring revenue.
• Schedule two hours each day (i.e., put an event in your calendar) to work on your top goal only. And do this every single workday. Period.

Personal Habits

• Appreciation is simply an outward extension of gratitude. In gratitude, you speak to yourself. In appreciation, you speak to others. The content is the same. And when receiving appreciation, there is only one correct response: “Thank you.” Do not feign humility by downplaying the act with statements like “It was nothing, anyone could have done it.” No. The person is trying to make you feel appreciated. Anything other than “thank you” will rob them of their goal.
• Energy Audit: Get two highlighters, pens, or pencils of different colors (red and green are ideal, but any will do). Print out the last week of your calendar when you were working. Go through each workday hour by hour and ask yourself, “Did that activity give me energy or drain my energy?” Highlight in green those that gave you energy, and highlight in red those that drained your energy. There are no neutrals; every hour must be marked one color or the other. Keep doing this energy audit each month until 75 percent or more of your time is spent doing things that give you energy. If you do, you will be able to achieve far more in less time because you will perform far better. You will be in your Zone of Genius.
• Personal Finance: The general rule of thumb is that you should have no more than 25 percent of your net worth in “alternative assets” (illiquid assets). Because your company’s equity is likely the majority of your net worth, your net worth is likely more than 95 percent alternative assets. It will be close to impossible to sell 75 percent of your stake in your company. Instead, know that there are two absolute numbers that are significant: $10 million and $100 million.
• Most people at $10 million of liquid net worth have the feeling of safety. They breathe a sigh of relief. They are no longer at risk. However, once they sit with that number for a while (and start to raise a family), their mind begins to play through disaster scenarios of how that net worth could disappear completely. Once their liquid net worth grows past $100 million, the catastrophe scenarios dry up and a sense of abundance follows. This is what you are driving for Therefore, as soon as your company’s equity begins to have significant value, start to sell secondary shares until you have sold $10–100 million.

Group Habits

• Why do you need sales at all? For two reasons: sales is critical to gaining trust, and customer success is critical to overcoming technical hurdles. Now this might not be a problem if your product sells for ninety-nine dollars a month. The amount of trust you need to make a sale scales with the price, and at that low price level, people are prepared to make a gamble.
• The three strategies I recommend CEOs consider during decision-making meetings are writing versus talking, the loudest voice in the room, and the RAPID method.
• Require that anyone who wants to discuss an issue write it up, along with the desired solution, ahead of time. The goal of this write-up is to be thorough enough that at the time of the decision meeting, there are few or no questions. The write-up should include both a detailed description of the issue and the proposed solution. Someone may say, “I don’t know the answer.” It doesn’t matter. They should take a guess. Even if they have only 10 percent confidence that their answer is a good one. And they should phrase the proposed solution in very bold, directive terms (e.g., “Do this…”). This may seem aggressive but creates a flag in the sand that generates a much more productive discussion and a quicker decision time, which ultimately is more important than appearing to be humble.
• I recommend that all issues and proposed solutions be presented at the weekly team meeting. Allow five minutes of discussion for each proposed solution. If, in that time, consensus is reached, great. The solution is turned into a next action with a directly responsible individual (DRI) and due date. If not, do not spend more time talking about the issue. Instead, turn to the RAPID Method (Recommend, Agree, Perform, Input, Decide).
• So in order to get the full benefit of your team’s knowledge and to make sure that they get to full buy-in, be careful not to tip your hand before all others have shared theirs. The most effective way to do this is to have people write down either their vote or their thoughts before you share your perspective. Or have everyone give a simultaneous thumbs-up or thumbs-down vote.
• Peter Reinhardt, CEO and co-founder of Segment, says, “Apparently at Amazon they require the most junior people to speak and ask questions first. This also becomes a great way to show off junior talent, give more senior folks a chance to observe and give feedback, etc.”
• If a decision is irreversible, it should be made by the CEO. If a decision is reversible, it should be made by someone other than the CEO. In his 2015 shareholder letter, Amazon’s Jeff Bezos introduced us to lightweight, distributed decision-making. He calls irreversible decisions “Type 1” decisions and reversible decisions “Type 2.” He goes on to note that “as organizations get larger, there seems to be a tendency to use the heavyweight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.”
• Impeccable Agreements: A very common cause of inefficiency in startups is sloppy agreements. People don’t show up to meetings on time, and they don’t complete the goals that they declare (or they don’t declare goals at all). The result is a spreading virus of unproductiveness and decreased morale. The antidote for this is simple: impeccable agreements. These are (a) precisely defined and (b) fully agreed to (which almost always means written) by all relevant people.
• There are only two pieces of information most companies choose not to share openly: (1) individuals’ compensation and (2) individuals’ performance reviews (particularly performance improvement plans). Public knowledge of these items often causes heated debates, relative comparisons, and even shame, all of which are big distractions.
• There is a simple fix. I only need to prove to you that I have “heard” you. And to do that, I only need to repeat back what you’ve said in summary form (by saying, “I think I heard you say…”) until you say, “That’s right!” Then you will feel heard. You will now be open to hearing what I have to say.
• Conflict Resolution: For you, as a company leader, to resolve conflict, you only need to get each person to state their deepest, darkest thoughts, and then prove that each has heard what the other has said. This can be done verbally or in writing. I prefer the written method, as it takes about a third of the time, requires almost no facilitation (i.e., it’s easy to stay on script), and the action items that come out of it are impeccable agreements.
• There are various ways to build and shape company culture, and the main ones that I tend to focus on are through values, fun, celebration, hours of operation, meals, cross-team communication, and politics minimization. One misconception CEOs sometimes have is thinking they get to choose the values. By the time you have thirty or so employees, your company has a set of values whether you like it or not. It’s now your job to codify what’s already there. While it is possible to change a value, it will take a lot of work.
• Whatever your teams’ working hours end up being, make sure there is a core period of the day when everybody is available (whether online or in the office). Set a regular meeting (a short stand-up meeting) at the beginning of this core set of hours.
• The only way to prevent politics is to never allow lobbying to be successful, and the only way to do this is to have a written policy about as many situations as possible, particularly around compensation, raises, and promotions. Apply this policy to all team members, all the time.

Infrastructure

• Task tracking (Asana and Trello) and goal tracking (Betterworks, 15Five, and Lattice).
• Whenever two people form an agreement, it should be recorded in the task-tracking system and have an owner, a comprehensive description, and a due date.
• Goal-tracking systems are much better at showing the team their progress over many weeks and months, therefore boosting morale.
• Never assign someone an action without them agreeing to it verbally or in writing. Encourage people to use a separate (and simpler) tool for tracking their individual actions that aren’t being tracked by the group. Group-tracking tools simply have more overhead per action than individualized tools and therefore should only be used sparingly.
• Create a document that lists all of the company’s functions and, for each, the directly responsible individua This is the AOR list. It serves as a routing layer for any questions and ensures that no functions fall through the cracks.
• Determine the company’s five or six most significant KPIs, then track them religiously and make them available for the entire company to easily see on a daily basis. Post the metrics on a TV screen in a central place in the office, using a tool such as Geckoboard.
• Setting vision and goals for the company, each department, and each individual on a regular basis (usually quarterly). Communicating that vision and those goals to every team member. Tracking and reporting progress toward those goals on a regular timetable (usually weekly). Eliciting feedback from all team members on what is going right and (much more important) what is not going right and needs to be changed.

Collaboration

• Once you have achieved product-market fit, that is the right time to blitzscale and win the race to market share. You’re going to need to diversify your skills and grow your team. To do this, you will need to create massive awareness (marketing), walk many customers through the sales process (sales), hold those customers’ hands as they set up and use your product or service (customer success), harden your infrastructure to withstand many users at once (DevOps), get rid of technical debt and add all the features promised in your roadmap (engineering), update the product roadmap to meet the most urgent needs of your customers (product), and all the nontechnical operations (people [recruiting, training, and HR], finance, legal, office). All of this requires hiring talented and experienced people to fulfill those functions.
• The **leadership team** typically consists of the following people: CEO Head of product Head of engineering Head of sales Head of marketing Head of customer success Head of operations (people [recruiting, training, and HR], finance, legal, and office)
• If you find that you are simply not completing the goals you set for yourself each week, or that you do so but some or many of the tasks are energy-draining, then it is time to hire a Chief Of Staff. When it comes to background, the best chiefs of staff that I have seen are highly organized, are excellent communicators (both written and oral), and have broad strategic business knowledge. A background that almost always ensures these skills is four to eight years at a top management consulting firm (e.g., Bain, BCG, or McKinsey). I am partial to Bain, as I find ex-Bain consultants also have excellent financial modeling skills (akin to those they would have learned had they worked as an associate at an investment bank).
• In Silicon Valley, major tech companies such as Google and LinkedIn built up functions called **business operations**. The functions were staffed mainly by top-tier consultants from Bain, McKinsey, and BCG. I first encountered BizOps at Coinbase, where Emilie Choi scaled the group out as the company was going through hypergrowth. The team was viewed as mini-CEOs who could provide the following support:
  • Parachute into any problem area, dig in, and fix it.
  • Generally help build and drive processes that help the company scale, including running quarterly business reviews, setting OKRs and KPIs .
  • When a manager is not succeeding, join that manager’s team and take over the project and people management duties while keeping the former manager as the architect (i.e., the subject matter expert who determines the roadmap: “These are the things that we need to get done, and this is how to do them”) and managing the team to ensure the roadmap is completed.
  • Effectively run any meeting and train managers how to do so.
  • Act as chief of staff to the CEO.
• Board observers are supposed to observe only during a board meeting and not talk unless asked a direct question by a board member. Enforce this behavior.
• After the board presentation, where there are hopefully few to no questions, give the board members homework. Give each one a very specific assignment. Don’t worry, none of them will actually do the homework. They also are then not likely to give you unsolicited advice. This is the true goal of the homework.
• If, for some strange reason, product cannot report directly to the CEO, then better to have it report to sales and marketing. It is critical that the voice of the customer remain strong within the company. This voice almost always gets lost if product reports to engineering.
• There are three functions within engineering: architect, project manager, and individual contributor. Project management is the essential skill of the engineering manager.
• There are two ways to outsource the HR process: Use an online broker like Rippling to manage the documentation and purchase benefits (medical, dental, disability, and life insurance). Use a professional employer organization (PEO) like Sequoia One or TriNet. If you use a PEO, members of your team become employees of the PEO.
• Of course, the cost of the benefit should be taken out of the overall compensation number. Thus, startup cash plus equity plus benefits should equal market compensation (which also should include benefits).
• One easy solution is to call everyone “head of X.” That way, when it’s finally time to hire senior VPs, they can slot easily into the organization without “demoting” anyone.
• A second key is to batch organizational changes. The organization will need time to heal. Even if you recognize needed organizational changes six weeks later, batch them. I recommend three months as a bare minimum between organizational changes, but six months is better.
• Meetings
  • For an organization to work well, three things must occur at every level of the organization and be apparent at every meeting: Accountability, Coaching, Transparency.
  • The schedule that works best for a five-day workweek is as follows: One day of internal meetings One day of external meetings (e.g., interviewing candidates) Three days of no meetings
  • First, your hire and close rate for candidates who are interviewed in person should be very high (approximately 75 percent); otherwise, you are losing incredible amounts of time by doing all-day in-person interviews with many candidates whom you don’t want to hire or who don’t want to work for you.
  • When creating the schedule for the day of internal meetings, I recommend the following order: One-on-one meetings, Leadership team meeting, CEO open office hour, All-hands meeting, Company-wide social event
  • Meeting Leads: Each meeting needs to have a designated meeting lead, who is sometimes, but not always, the group’s manager. This person is responsible for making the meeting run well. Therefore, their tasks are as follows:
    • Publishing the agenda, hoped-for outcome, and attendee list of the meeting to all participants.
    • Ensuring that all meeting participants submit their updates and issues in writing in advance and show up on time.
    • Ruthlessly sticking to the timeline during the meeting and, whenever something off-topic comes up, noting it but scheduling the discussion for another time.
• If you manage managers, then that book should be the best one: Andy Grove’s High Output Management. This book is the gold standard for how to effectively manage a team. But it is not short. If you manage individual contributors who are unlikely to read a long book, then instead ask the team to read The One Minute Manager by Kenneth Blanchard and Spencer Johnson.
• It is important to time-box all agenda items so that the meetings don’t run on and so that all issues get addressed. This is done by putting a number before each agenda item. Five minutes is indicated as [5]. At the end of the allotted time, move on. If there are still decisions to be made, create a RAPID.
• To understand the scale of these meetings, I posit that the leadership team should be, and remain at, about eight people (six to ten is fine). The VPs meeting, by contrast, should grow as the company scales. At a company of one thousand employees, the VPs meeting often has fifteen attendees. At Microsoft, this same meeting is over 150 attendees, or so I’ve been told.
• What industry do you dominate? Who is your customer? (This should be a real live human being, not a corporate entity.) What pain are you solving for the customer? What is unique about your solution that causes the customer to choose you over the competition? What asset (human or physical) do you control that makes it difficult for any competitor to copy your solution? In other words, what is your moat?
• There are many ways to define your company’s values. A simple one is to complete the following sentence: “The rest of you in the company can make all of the decisions from now on, as long as you…” This is appropriate when the company is small and values are entirely aspirational.
• Warning: A common mistake is to create department OKRs without creating company-level OKRs. This leads to siloed fiefdoms that neither work together nor trust each other.
• The objective (O) answers the question, “Where do we want to go?” This objective should tell a compelling story, akin to the tagline of a Hollywood movie.
• Create a system to track OKRs. Either use a third-party tool (Perdoo, Lattice) or create a traffic-lighted (green, yellow, red) spreadsheet. The system should show, week by week, which OKRs are on track (green), slightly off track (yellow), and far off track (red).
• Feedback: The three As: Ask for it. Appreciate it. Act on it.
• When giving feedback, it is critical to use a two-way communication method (in person is best, video call is okay, audio call is least good).
• Therefore, do not use a one-way communication method (email, text, or voicemail) to give feedback, unless it is 100 percent positive. There is one exception to this rule: if you already know the person to be open, curious, and desirous of critical feedback.
• Here is a template for providing good feedback, adapted from the book Nonviolent Communication by Marshall B. Rosenberg.
  • Ask for permission. Give the receiver a little heads-up of what’s coming. It can be enough to say, “I have something to communicate to you. Is now a good time?”
  • State the trigger behavior or event (fact). Try to be factual (“When you are late to meetings…”) as opposed to interpretative (“When you disrespect me…”).
  • State how that trigger behavior makes you feel in terms of anger, sadness, and fear (feeling). This is perhaps the hardest part for many founders to do. Talking about your feelings might not be something you are used to, so it might be challenging at first. However, doing so is crucial for the other person to truly understand where you are coming from and to take your feedback to heart.
  • State the thoughts, opinions, and judgments (story) you have around this situation.
  • Make a request of what you would like to see. Try to frame it as positive action (“Do x”) rather than a negative (“Don’t do y”).
  • Ask if the person accepts the feedback and the request. If yes, hold them accountable to doing it.

Fundraising

• These processes—fundraising, recruiting, and sales—are all identical. They differ only in the contents of the exchange.
• When you want to be introduced to an investor, first find three to five people in your network who know that person. Then ask those three to five people each to send an email to the target investor, letting the target investor know how great they think you are and highly recommending meeting you. After receiving several such emails, the investor will proactively reach out to you.
• But how do you get a meeting in the first place without the explicit purpose of talking about your company? You can use the triangulation method, described above, but if you don’t have enough mutual acquaintances, you can simply ask for it. Be explicit about your intent to build a relationship. Say something like “I only want to work with investors with whom I have a good relationship. So let’s start with a coffee to get to know each other personally.”
• To summarize, the four keys are as follows: Ask them about their lives. Prove that you heard them by saying, “I think I heard you say…” Prove that you remember by saying at the next meeting, “The last time we talked you said…” Let them know what you appreciate about them.
• Through countless interviews with master storytellers, Tyler determined the ultimate structure for telling one’s story in a humble way:
  • Credit: “It could not have happened without [name the others involved].”
  • Hard work: “We had to put in so much to make it happen, for example, [describe the hard work].”
  • Vulnerability: “It was most difficult for me when…”
  • Duty: “We were driven by our dream to [noble motive].”
  • Gratitude: “I am so proud and thankful that…”
• Here are some examples of inflection points:
  • Hiring a capable engineering team
  • Signing up your first three paying customers
  • Exceeding $1 million in annual recurring revenue (ARR), which demonstrates product-market fit
  • Hiring a capable sales team
  • Exceeding $5 million in ARR, which demonstrates the effectiveness of your sales team
  • Hiring senior managers for all departments
• The best time to raise money is just after you’ve hit an inflection point. This is because your company has just increased in value but will not increase further until it hits the next milestone, which could be months away.
• You should do a priced equity round only if the total money raised will exceed $2 million, and preferably exceeds $5 million.
• Institutional investors prefer to invest in priced equity rounds. But family offices, and even strategic investors who are not accustomed to leading priced rounds, are often very willing to participate in SAFEs, even as the company matures, as long as they have confidence that there will be another priced equity round.
• Lawyers: If you let them bill however they want to, the end result could easily be over $100,000 for a Series A investment. If you manage them aggressively, however, you can get that bill down to $15,000 or less. This is important because the company is often required to pay for both their own counsel and that of the investor if the bill exceeds a certain amount (usually $25,000).
• Investors must pay for legal bills out of their management fee income. This income would otherwise go into their individual pockets, so investors do not like to pay for legal fees (even their own). They would much prefer to give the company more money (which comes out of the fund’s investment capital) and have the company pay for the investors’ lawyers. Make this accommodation for investors. Require only that the investor support you in enforcing rules of behavior on their lawyers. And those rules are as follows:
• Process for engaging with lawyers: Once the basic terms of investment are agreed on (in a term sheet), then a four- to eight-hour meeting (or call) is scheduled. (This meeting may last only two to three hours, but it is very important that enough time be blocked off to allow it to run longer if necessary.) The following attendees are required: Decision maker from the company Decision maker from the lead investor Lawyer for the company Lawyer for the lead investor If any of these four people cannot make the meeting (or call), then the meeting is rescheduled. The lawyer for one side prepares the first draft of the investment documents. The lawyer for the other side responds with written comments before the meeting or call. There is no other contact between the lawyers. At the meeting, everyone reviews the documents from beginning to end, paragraph by paragraph, and addresses all the written comments. Lawyers are not allowed to speak except to advise their client on the meaning of the paragraph being reviewed. The negotiation is between decision makers at the company (such as the CEO) and the lead investor directly. The decision makers go through every point until they have reached agreement on all of them. As each point is agreed on, the lawyers then in real time agree on the wording that best reflects the business agreement that was just made. The lawyer who wrote the base document then writes up the final language. The other lawyer confirms that this language is exactly what they had agreed on during the meeting. The documents are then final.
• FF Shares:
  • Ask your lawyers to set up “FF shares with ten times or twenty times voting rights” prior to investors being on the cap table (SAFEs are fine).
  • In addition, FF shares allow founders to get liquidity at each priced round without raising the fair market valuation of the options granted to other team members. This allows founders to continue to pay themselves low salaries (excellent optics within the company) but still get enough liquidity to not worry about committing themselves to the company for the long term. Again, these should be created prior to having equity investors.

Recruiting

• The key is efficiency. And to be efficient, you must spend as little time as possible with the candidates you don’t hire (quick evaluation) and as much time as possible with the candidates you want to and do hire (building a relationship and onboarding/training). Remember that each minute you spend with a candidate you don’t hire is a minute that you aren’t spending with the candidate you want to hire.
• Read Who by Geoff Smart and Randy Street.
• The scorecard is a document created by the hiring manager that describes exactly what they want a person to accomplish in a specific role. The scorecard includes a mission, outcomes, and competencies that define the job.
• Use this process for sourcing such referrals: Create a list of the ten most talented people you know. Commit to speaking to at least one of them each week for the next ten weeks, asking them, “Who are the three most talented people you know?” Continue to build your list and continue to talk with at least one person per week. Document everything in your company’s applicant tracking system (ATS).
• To be a great interviewer, you must get out of the habit of passively witnessing how somebody acts during interviews. Instead, use the interviews to collect facts and data about how the candidate has performed in the past.
• Four main types of interview: Screening interview, Topgrading interview, Focused interview and Reference interview
• Screening Interview
  • Schedule the call for fifteen minutes, then extend it to thirty minutes during the call only if the candidate appears to be excellent.
  • “What are your career goals?” If the candidate’s goals sound like an echo of your company’s website or they don’t have any, screen them out.
  • “What are you really good at professionally?” Push the candidate to give you eight to twelve positives, with examples, so that you can build a complete picture of their capabilities. You are listening for strengths that match the scorecard.
  • “What are you not good at or not interested in doing professionally?” Push the candidate for real weaknesses, five to eight of them. If they don’t respond thoroughly, call them out on it. If they still don’t, then say, “If you advance to the next step in our process, we will ask for your help in setting up reference calls with your bosses, peers, and subordinates. What do you think they will say are some things that you are not good at or not interested in?”
  • “Who were your last three bosses, and how will they each rate your performance on a 0–10 scale when we talk to them?” Press for details of why each person would give them such a rating. We are looking for consistent 8s to 10s. A 6 is actually a 2. But ask why it’s a 6.
  • Throughout the interview, get curious. Ask follow-up questions that start with “What,” “How,” and “Tell me more.” “What do you mean?” “What is an example of that?” “How did you do that?” “How did that feel?”
  • At the end of the phone interview, let the candidate know that you would like to immediately schedule the next interview (which is either the second phone interview or the on-site interviews).
• Topgrading Interview
  • The goal of the topgrading interview is to understand the candidate’s story and patterns. These stories and patterns are predictive of the candidate’s future performance. Start from the beginning and move forward chronologically.
  • The hiring manager should conduct the topgrading interview, along with a colleague who wants to learn the method by observing.
  • “Thank you for visiting us today. We are going to do a chronological interview and walk through each job you’ve had. For each job, I am going to ask you five core questions: What were you hired to do? What accomplishments are you most proud of? What were some low points during that job? Who were the people you worked with? Why did you leave that job? At the end of the interview, we will discuss your career goals and aspirations, and you can ask me questions about us. Eighty percent of the process will take place in this room, but if we mutually decide to move forward, we will conduct reference calls to complete the process. Finally, while this sounds lengthy, it will go remarkably fast. It is my job to guide the pace of the discussion. Sometimes I will ask you to go into more depth; other times I will ask that we move on to the next topic. I’ll try to make sure that we leave plenty of time to cover your most recent and therefore most relevant jobs. Any questions before we begin?”
  • “Why did you leave that job?” Was the candidate promoted, recruited, or fired? Get very curious about why.
  • The proper way to interrupt someone is to be positive and use reflective listening: For example, you say, “Wow! It sounds like that pig farm next to the corporate office smelled horrible!” The candidate says, “Yes.” Then you immediately say, “You were telling me earlier about launching that email campaign. I’d love to hear what that was like. How well did it go?”
  • Use the three Ps (performance, plan, and peers) to clarify how valuable an accomplishment was in context.
  • “How did your performance compare to the previous year’s performance?” “How did your performance compare to the plan?” “How did your performance compare to that of your peers?”
  • Determine push versus pull: Push: “It was mutual.” “It was time for me to leave.” Pull: “My biggest client hired me.” “My old boss recruited me to a bigger job.”
  • Stop at the stop signs. If you see or hear inconsistencies, the candidate may be telling an untruth. If this happens, get curious and dig deeper. Think of yourself as a biographer (positive), not an investigative journalist (negative).
• Focused Interview
  • “The purpose of this interview is to talk about [the outcome and competency to be reviewed].” “What are your biggest accomplishments in this area during your career?” “What are your insights into your biggest mistakes and lessons learned in this area?”
  • Only choose candidates whose skill (what they can do) and will (what they want to do) match the scorecard. This is their skill-will profile. For each item on the scorecard, rate the candidate’s skill-will. Only rate people an A in whom you have a greater than 90 percent confidence that they can and will meet all outcomes and competencies.
  • Here are some red flags to watch out for during the interview process that signal problems: Candidate does not mention past failures. Candidate exaggerates answers. Candidate takes credit for the work of others. Candidate speaks poorly of past bosses. Candidate cannot explain job moves. Candidate’s family doesn’t want them to take this job. For managerial hires, candidate has never had to hire or fire anybody. Candidate is more interested in compensation and title than in the job itself and the company. Candidate tries too hard to look like an expert. Candidate is not curious about us or others. (Candidate is self-absorbed.)
• Reference Interview
  • Pick the right references—bosses, peers, and subordinates (sometimes two to three levels down). Do not use the reference list that the candidate gave you. Ask the candidate to contact the references you choose and set up the calls. The hiring manager conducts at least two (but preferably four) reference interviews, and other team members do at least one (but preferably three) for a total of at least three (but preferably seven).
  • Here’s a sample script: “In what context did you work with the person?” “What were the person’s biggest strengths?” Get curious by using the “What? How? Tell me more” framework. “What were the person’s biggest areas for improvement back then?” It is very important to say back then. This liberates people to talk about real weaknesses, assuming that the candidate has improved them by now. (In reality, past performance is an indicator of future performance.) “How would you rate their overall performance in that job on a scale of 0–10? What about their performance causes you to give that rating?” “The person mentioned that they struggled with ____ in that job. Can you please tell me more about that?”
  • “When asking for weaknesses or areas of improvements during interviews and reference calls, people answer more freely if you say, ‘People shouldn’t do the majority of things and should focus on areas where they can use their strengths. Understanding weaknesses demonstrates self-awareness.’”
• Selling the candidate
  • Fit. Share the company roadmap, department roadmap, and their individual roadmap. Show how where they want to go is a match for where the company is going.
  • Family. Ask, “What can we do to make this change as easy as possible for your family?” Ask about their family. Get to know their names, ages, and so on. Ask what concerns and needs their family members have and meet those needs. Ideally, meet their family in person (or, at a minimum, speak to their spouse on the phone), discover their needs directly, and meet those needs.
  • Freedom. “At Company X, we collaboratively set company, department, and individual OKRs at the beginning of each quarter. Your individual OKRs mean that I will not micromanage you. In our regular one-on-one meetings, I will simply ask you to update me on your progress toward your OKRs and offer you support whenever you run into obstacles. I encourage you to talk to my team to see what I am like to work with.”
  • Be persistent. Too many candidates are lost because they feel abandoned once they are given an offer or arrive at the company.
• Announce the process to the company. Train all hiring managers and interviewers. Implement the schedule and process. Enter the process and questions in the ATS. Put “Source one great candidate” on everyone’s quarterly scorecard (i.e., OKRs).
• No illegal questions. Do not ask anything related to marital status, intention to have children, pregnancy, date or place of birth, medical condition, race or ethnicity, sexual orientation, or physical or mental handicaps.
• Do this by using the same techniques mentioned earlier. Ask the candidate about themselves, reflect back what they say, and remember what they said the next time you meet with them. If you have already used this method during your initial fundraising, you will know how effective it is.
• This process can take as little as two weeks from first contact to accepted offer. If your offer process becomes that fast, your acceptance rate from top candidates will start to resemble that of Benchmark and Sequoia.
• It is up to the startup to match the market compensation level, not in cash as the larger companies do, but rather in a much lesser amount of cash (no less than the amount needed to live comfortably), plus equity to bridge the difference.
• The amount of equity is calculated by taking the difference between market and cash ($300,000 – $120,000 = $180,000) and multiplying it by four years ($180,000 × 4 = $720,000). This amount is then divided by a factor somewhere between 1 and 2, which represents a very conservative estimate of the increase in value of the equity over four years. A factor of 1 represents no expected increase in value. A factor of 2 represents a two-times expected increase in value. If a factor of 1.5 were used (which is the most common factor used), the final amount would be $720,000 ÷ 1.5 = $480,000. So grant this amount in options, however much equity it purchases at the company’s current valuation. The options vest over four years.
• The hope is that the new team member believes so fully in the company (and the power of the asymmetric bet) that they choose one of the two higher equity offers. This equity is thus an investment that the team member is making in the company. And with a huge advantage: the investment is made with pretax dollars, which doubles its purchasing power.
• It is far better to get the candidate to pre-agree in full detail before you make the offer. Then the relationship begins with a resoundingly positive “Yes! Thank you! I’m so excited!”
• Firing
  • Inevitably some team members will not perform even with excellent onboarding, roadmap creation, feedback, and so on. When that happens, the chance that they will perform again in the future is very low, and the other team members will know, even more deeply than you do, that this person is not performing.
  • If, at any of these stages, the team member does not hit a milestone and you do not fire them, then you have completely invalidated the value of the written document, because you have established a provable pattern that the written document was not meaningful.
  • Again, know that there is a very low chance that the person will perform. If your team is very small (fewer than ten people), I recommend simply letting the person go without the PIP. The cost of demotivating the team is far greater than that of the lawsuit.
  • Because you value transparency, make an announcement to the company about the person’s departure, or allow the person to do it themselves. When you make the announcement, praise the person’s contributions to the company, and take ownership yourself for the fact that you weren’t able to match their skills to the company’s needs. Do not blame or criticize the person. Instead, take responsibility for the situation.

Sales

• Many founders end up overselling, which leads to an inability to fully deliver. We do not recommend taking this route. Not only because it is ethically wrong—the customer trusts you to be honest about what you can and cannot do, and you are intentionally breaching that trust—but also because it has several quantifiable consequences for your business:
• Overselling is a form of laziness. Instead, take the time to build trust. Then your customer will buy from you even though your product does not yet solve every one of their challenges. They trust that you will soon build in those features.
• Aaron Ross’s most important insight is this: Most executives think that the way to grow revenue is by adding salespeople. However, most often the main obstacle to growth is not growing the team but generating more leads. Only once you can predict your lead generation can you achieve predictable revenue. Only once you achieve predictable revenue can you achieve true scale.
• Generating leads and closing deals are distinct functions that must be split. Generating leads is a game of breadth: it requires emailing and talking to a lot of different leads to filter out the nonqualified ones as fast as possible. Closing deals is a game of depth: it requires building deep relationships and understanding with the qualified leads in order to close the deal.
• Your customer success or account managers are the people who will tend to your existing customers, ensure their success, and grow the business coming from those customers. It’s important to keep a good balance between generating new customers and tending to existing customers because it is very easy to get too focused on the former at the expense of the latter.
• Here is the ideal structure of a sales team:
  • Qualifiers (a.k.a. sales development reps): These people are focused on generating qualified leads and handing these off to the closers. Qualifiers are usually compensated with a base plus a bonus for each qualified lead they generate. Generally they are split into two groups:
    • Outbound reps: These are focused on proactively reaching out to leads and qualifying them. The most common channels used are email outreach and LinkedIn mining.
    • Inbound reps: These are focused on qualifying inbound leads that reach out to you by signing up to your site, signing up to your newsletter, or calling you directly.
  • Closers (a.k.a. account executives, or AEs): These people are focused on closing the qualified leads generated for them by the qualifiers. Closers are compensated with a base plus a commission.
  • Farmers (a.k.a. customer success): These people are focused on tending to existing customers, ensuring that these customers renew, and getting these customers to increase their spending. Farmers are compensated with a base plus a flat quarterly bonus based on retention rate or with a base plus a commission based on account growth.
• This means that you first want to hire a qualifier and a farmer while you act as the closer, and only once this system is running smoothly do you want to invest in an AE.
• Hire salespeople with integrity, culture fit, and mission alignment. They exist, it’s just a matter of looking for them.
• The best sales teams put their new recruits through an intensive training program, which includes working with the product, customer success, and sales development teams.
• Contrary to popular belief, the best closers are most often not the best managers. When hiring a VP of sales, don’t fall into the trap of hiring the best solo performer. Rather, the best way is to hire a sales manager with a proven track record of management.
• Specifically there are three kinds of leads:
  • Seeds: Seeds are generated from word of mouth, usually from customer referrals or prior relationships.
  • Nets: Nets are generated from your marketing, such as events, SEO, white papers, and ad campaigns. They are called nets because you are going for quantity over quality. Your inbound reps will then qualify the leads.
  • Spears: Spears are generated from direct outbound outreach by your outbound reps, usually through email outreach or LinkedIn mining. They are called spears because they are hypertargeted and you are going for quality over quantity. Cons: They require having full-time outbound reps and may not be profitable if your average annual deal size is under $10,000. If you are scaling up your spears strategy, I recommend that you use an outsourced third party to identify lead emails for you based on your target customer profile. Your outbound reps can then use a platform like Reply.io to send drip email campaigns and generate leads more effectively.
• The main focus of your qualifiers (outbound and inbound reps) is to qualify leads and pass those off to the AEs to close. The best practice here is to create a qualification checklist that your qualifiers will be responsible for checking off. Often this is done by scheduling a call with the prospect and going through the checklist.
• It is imperative that the AE be the one who decides if a lead is actually qualified. Generally the AE is the one who marks the lead as qualified in the CRM, not the qualifier.
• Here are some of the main KPIs I recommend that you track:
  • Average deal size: Average dollar amount per customer
  • New revenue per month: Total new revenue closed in a given month; can be split between what channel it came from and whether it came from an existing customer or a new customer
  • Average sales cycle length: Average time it takes from when a lead is qualified to when it is closed Number of SQLs per month:
  • Number of qualified leads passed off to AEs per month
  • Cost per lead: Average cost per qualified lead passed off to AEs
  • Customer acquisition cost: The total cost of acquiring a new customer, including marketing costs and salaries
  • Customer churn rate: Percentage of customers who don’t renew in any given month
  • Revenue churn rate: Percentage of revenue that doesn’t renew in any given month
• Remember to create countermetrics as well. CRM platforms can help you streamline your sales process and KPI tracking. Salesforce is the leader in the space, and I recommend using that platform once you have over ten full-time salespeople. Until then, I recommend that you pick a lighter-weight CRM to save time on the setup. I recommend SalesforceIQ.

Marketing

• Marketing can be defined as understanding the problems of customers (strategic marketing) and what solutions are offered in the marketplace (competitive analysis), creating a solution that more effectively solves the customer problem (product management), and letting customers know that your solution exists (tactical marketing).
• The essential goal of strategic marketing and competitive analysis is choosing your target beachhead. The essential goal of product management is achieving product-market fit. And the essential goal of tactical marketing is growing sales.
• The greatest risk of a startup is not that they moved too slowly in dominating the entire marketplace, but rather that they spread their scarce resources too thin and ended up securing few or no customers at all.
• Study the marketplace. Segment it into different customer types. Determine which segment is the least satisfied with their current solution and for whom your solution is the best fit. Concentrate all your sales and engineering efforts toward this segment. Land a few of these customers. Continue to focus on this segment until you dominate it. Only then expand to other customer segments (or add other products).

This is #52 in a series of book reviews published on this site.