Sometimes I’ll be speaking with a group of early-stage entrepreneurs and the conversation goes something like this:
“So what are your roles?”
“I’m the CEO.” Check.
“I’m the CTO.” Okay.
“I’m the COO.” Hmmm.
“What’s your first hire going to be?
“We have a friend who’s going to join when we get money. He’s going to be VP engineering.”
There are a couple of things wrong here, but let’s focus on the excessive titling.
Titles feel like cheap currency early on. They don’t cost money, or at least they don’t seem to. They make people happy, at least in the short term. And they’re relatively benign, until they aren’t. So, if you’re trying to pull that engineer friend away from Google, and you don’t have much money, and your equity grant is generous but doesn’t pay the rent yet, what do you do? You make her a VP, right?
Firstly, your chiefs may seem like chiefs when you’re getting started, but they might not seem that way for long. Founders have a lot of equity and the founder title, so the smart ones will feel just fine demoting themselves to ‘founding engineer’ or ‘founder’ if their job outgrows them. Non-founder-employees will take a title demotion as kick in the gut. “Great, I left my giant salary to come work 90 hours a week for peanuts and equity value that I’m creating, and you’re demoting me?” The irony is that this employee might be doing great at the level his title should have been, pre-inflation, but even if you give him a raise or more equity, it still feels like an insult.
Some companies “solve” for this with title inflation. “Okay Fred, you’re going to remain the VP, Marketing but we’re bringing in a CMO. Jane is SVP of product and Paul is VP product. Laura is now the Chief Strategy Officer.” As you can see, this quickly becomes ridiculous. It can create a tremendous divide in the rank and file of the company if there appears to be a high ratio of managers to doers, even if some of those managers are actually doers with manager titles. The inflation also trickles down as more employees compare themselves to their peers and want to become managers, managers want to become directors, directors want to become VPs, and so on. (A deep hierarchy is usually bad for tech startups, but that’s a slightly different conversation.)
At some point, people, even with inflated titles, start looking at salary comps and think to themselves, “wait, I’m a VP. VPs at Facebook make x, at Apple they make y, and I only make z.” Even if that person has a great salary for what they really do for the company, they may feel underpaid relative to their business card. Later on, if you have to bring in a genuine VP (who you’ll have to call EVP) and you need to pay that person market to get her, your entire comp-structure will either get a) completely incoherent; and/or b) as inflated as your titles.
Sadly, I‘ve learned some of this the hard way in my own companies. Each time it started because we really wanted to land an early employee and felt like a good title was an easy thing to throw at the problem. Lately, I’ve heard this issue come up for several of my portfolio companies. So what is one to do?
When Tony Hsieh began at Zappos, he decided that no one in the company could have a title above Director. This left him headroom to bring in more senior people much later. Others have gone completely title-less. This is ideal and it starts with the founders. Appoint someone as CEO—the one necessary title in my opinion—assign roles and call everyone engineer, marketing, etc. People should definitely know what they are responsible for, but avoid titles with implied rank at all costs. If you can pull off a title-less culture — and some great companies have — you’re golden. Going title-less also helps if you’re hiring away from a company that’s had inflation. It’s much harder to say, “I know you were a VP but here you’re going to be a Director” than it is to say, “We don’t do titles. Welcome aboard.”
One argument you’ll hear, usually from salespeople and other outside-facing employees, is that a title helps them command respect with clients and partners: “so-and-so wants to know she’s dealing with the VP.” Most people interacting with your company will see through a title (or lack thereof) and figure out whether they are dealing with the right decision-maker. Even if there is some truth to this argument, giving some employees titles and not others can create (or exacerbate) a rift between engineering/operating and client-facing staff. I prefer a senior but slightly vague title like Executive (Creative Artists Agency does this) or Partner (Andreessen Horowitz does this).
Often you’ll have an employee or potential employee who is hell-bent on a certain title. It’s a hard conversation, but like many things, an honest discussion of the reasons your company avoids titles may do the trick. If you absolutely cannot hold the line, ask yourself these questions: Does this person really have the responsibilities that match the title he wants? Can this person grow to be working at the level the title will require in 3–4 years? What will be the implications for other employees if I grant this person the title he is asking for? Depending on the answers to these questions, the last question might be: can we live without this person?”
In short, do whatever you can to keep title inflation at bay. Titles are for organization, not compensation. Once your company has divisions, departments and a cast of thousands you may reach for titles as a way to improve efficiency. Until then, focus on building a cohesive team of human beings, and reward them by making sure they’re part of something great. After all, it’s better to be part of the team of a mega-unicorn than the ex-EVP of diddly-squat.