Issue #172: For the week ended January 31, 2023
The hierarchy trap
Fueling speculation of coming layoffs, Mark Zuckerberg said the following at a recent Meta all-hands meeting:
“I don’t think you want a management structure that’s just managers managing managers, managing managers, managing managers, managing the people who are doing the work.”
I’m no fan of layoffs, but I can’t say I disagree with the sentiment, either. Hierarchy is an important tool for providing structure and alignment, but it can easily grow like a weed if not managed.
We all know this. Many of us probably went into startups to escape the sort of Kafkaesque bureaucracy that Zuck describes. And yet, while no startup endeavors to build layers and layers of hierarchy, I’ve yet to be a part of one that has been able to forestall its inevitable spread. So why does this happen?
I can think of three reasons.
First, scope creep. Here’s an example of what I mean. You hire a fantastic senior individual contributor to run marketing. She mainly manages paid campaigns across search and social, because those are the channels that you know matter for the business right now. One day you start thinking about experimenting with content marketing as well (you will need to diversify your channels at some point, right?). That senior IC is adaptable, so she’s able to get a rough experiment up and running. It only takes her about 10% of her time to manage the project. Amazing!
Fast forward two months and the results are inconclusive. But you have some momentum, and you know it takes a long time to see the results of any investment in content, so when she asks to hire somebody to run it full time, you acquiesce. Because it’s not a full time job yet, she comes up with a few more (largely experimental) projects to ensure the role has a large enough scope to attract the type of high quality candidates you want. The senior IC is now a manager, which gives her less time to do her original job (running paid campaigns), so she asks if she can hire somebody to backfill her.
Now you have a brand new management layer and a full blown marketing team working on a bunch of low-priority projects…and it all started with a little bit of scope creep.
Second, not designing career paths for individual contributors. I can tell you right now that some of your top performing individual contributors have no interest in becoming managers. They’ll hold their nose and do it. But if there were a senior IC career path available to them, they’d jump on it.
I don’t get why this hasn’t become more common. Once a startup reaches 150 to 200 employees, leadership undoubtedly has a laundry list of strategic cross-functional projects that are going nowhere. Senior ICs, especially early employees who know the business inside and out, are the perfect people to take on this work, rather than toiling away in middle management.
There are many challenges with pulling this off. But the most obvious challenge is that this sort of work is not rewarded, which leads us to our third reason…
Third, setting performance criteria that incentivizes kingdom building, not business impact. Once the team gets to a certain size, you need to start adding levels. That’s inevitable. But the way you do it can make all the difference. It’s all too easy to set performance criteria for higher levels based on simple heuristics, like team size. I’ve even seen performance criteria that explicitly require exactly what Zuck denounces above, e.g. that employees can only be made directors if managers report to them. All this does is incentivize employees to build bigger teams. Instead, try to find criteria that reflect efficiency and actual impact on core business KPIs.
More generally, there are lots of reasons, both obvious and subtle, why management is seen as the only way to get ahead. So do whatever you can to reverse that way of thinking. Celebrate the impact of individuals and small teams. Involve senior ICs in strategic decision-making (rather than just people managers or team leads). Promote them.
It’s a cruel irony that the hierarchy trap turns your most effective employees (senior ICs) into your most ineffective (middle management). As somebody who has been there before, all I can say is…do whatever you can to fight it.
Feb 8 / Lessons Learned From Investing Early in Over a Dozen SaaS Unicorns Including Salesforce, SuccessFactors, Box, Gusto, SalesLoft, ServiceMax, Veeva, Bill.com, Doximity, Yammer and Zoom Among Others
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Mar 8 / The Evolution of Collibra’s Product Positioning & How They Created a Category
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FROM THE BLOG
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EUROPE & ISRAEL FUNDING NEWS
France/Quantum. PASQAL raised $108M for its programmable quantum simulators and quantum computers made of 2D and 3D atomic arrays.
Germany/SW Development. AtomicJar closed $25M for its open-source library that finally makes integration testing easy.
Germany/Financial. HAWK:AI raised $17M for its Software for anti-money laundering for the financial industry
France/Energy Systems. Renaissance Fusion raised $16.4M for its nuclear fusion technology, aiming to build out a stellarator reactor.
Sweden/Productivity. Supernormal raised $10M for its AI platform that creates intelligent meeting notes.
UK/Fashion. Emperia raised $10M for its VR platform for fashion businesses.
2023 predictions. Scott Galloway has shared his annual predictions for the year ahead. One trend from 2022 which he deems likely to continue with compelling rationale is layoffs. “Layoffs are bad for company morale and worse for those who get fired, but they’re often good for business. The average tech worker cost their employer at least $100,000 in salary plus benefits and dilution in 2022. Call it $150,000. Fewer humans means substantially more profit per share. Google and Meta, with 30% operating margins, can either fire 25,000 people each or increase their top-line revenue by $12.5 billion and register the same operating income. They, and hundreds of other tech firms, will choose a version of the former.”
This week in ChatGPT news. It’s been another big week for ChatGPT. Hunter Walk released a great short blog post on if OpenAI is living up to their “open” brand promise and if their name is a core value or simply a marketing spin. Andrew Camel and Kyle Poyar from Openview opined on if there’s still a future for content marketers. School districts are already banning its use, and ChatGPT has already passed law school exams. Paul Buccheit, the creator of Gmail, has also predicted that the AI tool could destroy Google within two years — unless Google is able to solve its AI conundrum.
HOW TO STARTUP
Done is better than perfect. When searching for a co-founder for his startup, Aaron Dinin did what many founders do and tried to find the most talented person. However, in doing so he picked a perfectionist as a co-founder… a decision which ultimately led to the destruction of his startup. This is a trap founders can easily fall into — focusing on quality over speed, to the detriment of the company. While perfectionists have their place, running an early stage startup is best suited for others. Aaron details why; “the startup world operates differently than most industries. Rather than prioritizing perfection, startups value volume. The reason they value volume is because startups inherently don’t know what constitutes perfection. Our markets are too immature, our customer bases are too new, and our knowledge of what we need to produce isn’t fully developed. Because of this, startup founders can’t be perfectionists. How could we? We don’t know the perfect things to produce.”
Product-led sales. Amplitude’s CPO, Justin Bauer, shares his view of the impact of product-led growth on sales teams in this great piece. “With product-led sales, we’re going to see a change in the role of the salesperson. You’re definitely going to see salespeople shift from land-focused account execs to more expansion-focused account managers. And I think they’re going to have much more of a focus on the customer experience; their job will be identifying areas for upsells.”
HOW TO VENTURE
Operational empathy. Operator VCs versus career VCs has long been a debated topic. There is some research that VCs with successful exits under their belt slightly outperform career VCs, while VCs without successful exits tend to underperform career VCs. Why is that? According to Michael Tefula from CIRCA5000, “I’ve come to the conclusion that VCs don’t always need strong operational chops to do well by their portfolio companies. Instead, what they always need is strong operational empathy…”
Groundcover’s CEO, Shahar Azulay, spoke on Heavybit’s podcast about monitoring Kubernetes applications, improving the UI experience of observability tools, and utilizing APMs.
Forter was one of the over 130 Israeli participating in the one-hour warning strike in protest of the government’s judicial reform.
Snyk raised $25M from ServiceNow.