Thoughts on building weatherproof companies
The best founder/CEOs want to build long-lasting, strong companies. But this isn’t just a want, it’s necessary— especially today as companies stay private longer.
CEOs who expect their companies to be acquired as a “quick exit” aren’t going to have it easy. It’s especially hard for those CEOs and advisors who never had to learn how to build a full-fledged, well-governed company — with sustainable sales, marketing, HR, legal, customer support, accounting, and finance — without losing their sense of urgency. They “simply” needed to build a winning product, merge with a larger company, and then let others take care of the rest.
This is both tough and good news for today’s founders/CEOs.
The good news: You have a bigger opportunity than ever before to build a long-lasting, fundamentally important technology company.
The tough news: To do so, you must grow — personally and professionally — to a higher level than you might have experienced in your life before. Doing so means committing to building a company that can go “all the way” on its own.
Below, I share some things I learned on my own journey here. When I ran SuccessFactors, we used to say “we’re building the company like Lambeau Field” (Lambeau Field stadium in Green Bay, Wisconsin, is the home field of the NFL Green Bay Packers, who under their coach Vince Lombardi were known for their winning streak and ability to grab crucial wins even in the worst snow, because their team was built to handle tough weather conditions).
When you are building for long term — as opposed to a quick exit — it becomes obvious very quickly that you’ll have to make very different decisions, on every level from hiring and culture to how you treat sales and customers. You need to test every decision that’s obviously meant for immediate results with “will it also strengthen us in the long term?”
Successful companies are bought, not sold
Even if your company does end up getting acquired, building your company well is the best you can do for the price you get. When we negotiated selling SuccessFactors for 11X revenues (which at the time was the highest multiple on sales in a decade), if we didn’t like where the value or discussions were going, we knew we could just stop negotiations and keep on building the company. And we weren’t bluffing, which you cannot fake. Because good companies are bought … not sold.
Just as a dog can smell fear, any experienced M&A team can smell a mile off if you want to sell your company, and consequently the price goes down. If you are not selling, and you have the power to stay independent because you are well-built and can handle “bad weather”, you can hold out longer than the acquirer, and the price of your company goes up to what you know it’s worth.
So how do you build such scale, without shortcuts? To start, there are at least five areas I believe a founder must focus on:
- Learn how to learn fast
- Build a culture that will sustain the company through good times and bad
- Build a real board of directors … and use it
- Build the right meeting cadence
- Kill the monsters of the mind
1. Learn how to learn fast
The faster your company grows, the faster you are faced with not knowing what to do as CEO. And it doesn’t get any easier with time: The challenges just become bigger, and keep coming. Since many founders with the biggest ideas have little experience building large companies, here are some thoughts on what to do.
Develop a perpetual, aggressively help-seeking mindset
This isn’t just some self-help cliché. This is about waking up every day and asking yourself: “What don’t I know, and who can teach it to me?” And then finding an advisor, board member, executive, employee, coach, customer, or anyone else who has the knowledge you need. This sounds obvious and easy to do, but most founders shy away from it because it makes them feel insecure.
When you’ve been good at everything your whole life — and in fact part of the drive behind starting your own company means wanting to do things in your worldview — asking for help does not come naturally. But you must put your fears and ego aside if you hope to learn quickly. Learning as-you-go, at regular speed, will cost you and the company.
Know that you can’t run your large company the way you ran your small company
It’s not as fun as running a small 10-person company — where everyone fits into a single kitchen and knows what everyone else is working on — as it is to run a 1,000-person company.
Running a company of scale is so foreign and alienating at first, which is why it’s worth focusing on head on. And it can be fun in different ways; there are many amazing things you get to do at the 1,000-level company you could never do at the smaller level. But there are many boring yet extremely necessary elements to getting to that rewarding place. Accepting and not fighting the fact that you must embrace the systems, people, and processes required to run your large organization is one huge step. Especially because that’s one the ways of getting 1,000 people on the same page, motivating them, behaving with integrity, and getting results.
The worst thing you can do is to run a big company as if it were a small company — it might feel nice and nostalgic in your head, but in reality it turns what seems fun into something miserable for everyone in every part of the business.
Share and solicit constant, systemic, unequivocal feedback
One of the most counterintuitive things I learned from Jack Welch, my advisor and confidant when I was building my own CEO skills at SuccessFactors, was around performance management. He said HR was the most important role in the company, because unlike the CEO who was looking backwards, the strong VP of HR got to look forward! Jack’s best line was that someone getting fired should never be a surprise to you or them.
An organization that scales is an organization that learns. And creating a world-class learning organization means putting in a communication framework that allows managers and employees to give each other clear feedback (whether in person or distributed workforce) on where they’re killing it, where they need to improve, and how they need to develop. Not only do you owe it to people, it’s worth the time and effort because then the company can scale beyond simply getting along with each other. True, it’s often a pain — there are other things you’d rather be doing, plus those conversations aren’t easy — but luckily there are plenty of online web systems that have been developed to take the pain out. Those systems also yield powerful data that can be used for reshaping the org chart, succession planning, and compensation. This is some of the most interesting “big data” you can spawn as an organization; your management meetings will be significantly more informed and productive if that data is analyzed well and acted upon.
By the way: the CEO should do this feedback process with the board too.
Invest in a coach
In addition to the board and other advisors, an executive/leadership coach provides a quasi-formal yet safe place for the CEO to go to confidentially discuss challenges, confusions, or doubts. Though paid for by the company, the coach has no “formal” role and reporting relationship. The formality behind it is to reinforce regular and consistent meetings (just like board meetings), where the CEO gets another pillar to lean up against as well as an independent perspective on their own performance.
For instance, a coach will often begin by conducting a 360 review of you with anonymous participation of the board and direct reports. This typically becomes a great catalyst for personal and professional growth that can help you take things to the next level. This is why we suggest all CEOs take on a coach early. Some say it’s even a form of “work” therapy. (If you just laughed scornfully at that, then you should find one immediately — you need it more than anyone.) Of all the coaches I have introduced, not one has ever been fired and in fact are loved by their CEOs.
Hire the domain expertise that you need fast (before it’s too late)
Most technical founders don’t know as much about sales, marketing, legal, finance, human resources, and other critical company functions. And while smart enough to learn, they absolutely do not have the time to do so. Learning all those functions yourself would mean a competitor would overtake you, or you would lose the company. The time required to bring executive hires up to speed, if they have the right attitude, is far outweighed by the immediate impact they can have in leadership, structure, insights, clock-speed, experience, and ability to grow the functions that together make up — and scale — the company.
So whether you’re a technical founder or not, you must build a world-class executive team. Because this means bringing in people who know how to do what you do not, you will likely feel fear, which will be exacerbated by your co-founders and early hires sharing concerns that those new hires “aren’t a cultural fit” and so on. Especially since none of you have the intimacy with these people that you have with each other. This is partly true: Some will be a cultural fit and others won’t directly be, but either way it’s a good thing to drive diversity this way.
Part of the issue is control. Most founder CEOs want total control, because that’s how they got to where they are in the first place, and they have a super high standard for themselves and the quality of the work they want done. They are not sure that if they give control to others, it will get done to their values and standards; the thinking goes, “Then I’d rather have done it myself in the first place”. I understand that — and believe there are many great things that come from that instinct — but you cannot build a lasting company without help and without giving up some of the power. So you need to make a choice.
Don’t just promote from within: Get beyond your fear of hiring different people
Another big emotional block I dealt with in my startup was the idea that we were only true to our disruptive roots and soul as a company if we promoted from within, because the early people are the “real” people with the real “edge”. The corollary of this was “all these new people with their big resumes don’t understand our company and its culture”. Had I hired big resumes that failed spectacularly? Oh yes. But I also had early employees that destroyed value, and stayed in the role way too long. Sometimes so badly that 10x engineers left because they didn’t respect the leader.
The problem is three-fold:
First, how can you know what to hire when you haven’t ever seen what the best in class for that role actually looks like? The best way is to meet a lot of candidates, build a framework, and test it quickly.
Second, most of the big-resume people who failed simply were not integrated well enough. There’s no excuse for that, you need to take the time to let the organization absorb the new transplant. Obviously, some just don’t work and then you need to take action swiftly.
Third, don’t hire for “look and feel”. Make up your mind about what you actually need and hire that person, which is often not the person with the amazing resume from the amazing company with the amazing education. If you do find a fire-breather that gets your company and has some great experience, then ask yourself what’s holding you back beyond fear. In most cases it’s fear of change.
The idea that you need to target a certain age, certain culture, certain schools, and certain background is totally broken to me; it’s a commitment to non diversity. You need to be all-in on getting the best combination of raw brain power, work ethic, and willingness to fight for your mission — and that also includes finding and hiring for true domain expertise.
2. Build a culture that will sustain the company through good times and bad
A company’s culture comes from the CEO. It cannot be delegated, but it also cannot be ignored.
Culture is the most important thing you do as CEO. If it’s not what you truly believe and want your company to be, your employees will never adopt it. If you do not define how your company does business, how its people behave, how you treat each other and your customers, it will be defined for you. The problem with that approach is that a “crowdsourced”, unmanaged culture has a way of drifting to the lowest common denominator.
You need to defend culture as rigorously as you defend your marketshare and the product experience. As AirBNB CEO and co-founder Brian Chesky describes here, a “fucked up” culture doesn’t have to be inevitable when you get to a certain size. You don’t just have to defend it… you can build it. Especially if you define — and operationalize — culture as Chesky does: “a shared way of doing something with passion”.
Deciding on meaningful and easy-to-relate to values — especially “NO assholes”
It seems so cheezy to write values down. It’s not. It’s an exercise that requires clarity and discipline. The funniest challenge I get when pushing for writing down values and putting them up on the wall is the comment “no one read the values in my last company, they sucked and it was such a joke”.
Well hell, then don’t write down values people don’t care about and don’t remember. If you can’t remember or recite those values yourself, then you need to go back to work. If the values you wrote feel too corporate-ese and not connected, that’s your fault, go back to work on them again, and write them in plain language. You can have some fun with the values, but they must resonate, and it’s serious business.
At SuccessFactors our first value was “Respect for the Individual, No Assholes”. But as we grew bigger, some of our customers were the largest companies in the world, and they felt insulted by this language. So out of respect to those customers’ voices we changed “assholes” to “jerks” (as described in this case story by Stanford professor Bob Sutton).
The values are not just essential for the organization and every new hire, many times in tough situations I would look to our values — distilled here by one of our VPs of HR — for guidance. They withstood the test of time.
Although the culture must come from you, here are a few examples I found useful in building Success Factors…
Kaizen or continual improvement
How can you fix what’s wrong if you don’t know what’s wrong? So make hearing and sharing bad news — something which seems painful at first — a wonderful and rewarded thing. Every company has something wrong and every time someone shares that something broken, the company gets just a little bit better. Borrowing from the continual improvement concept most famously used by Toyota, we called this process a “kaizen!”
It becomes stunningly disarming to give this perpetual pursuit of perfection a name: No matter how hard our colleagues had worked, or how well we had done, we always were able to say “what’s the kaizen moment here?” so no one would have their feelings hurt when we sought a better way. It allowed us to be excited about being better always, and at every single moment in the company do more for customers and stand out in the marketplace.
To this day, I believe that cultural value is one of the reasons SuccessFactors outperformed its competitors and most tech stocks as a public company.
Gratitude and respect
A company that is truly grateful to the people in all of the constituencies it works with — investors, customers, partners, each other — will almost always be a great company and a great place to work. Honestly, with the things people achieve in disruptive tech companies, it shouldn’t be hard to find real things to thank people for. Teach your company to value and respect the people that you work with.
Along these lines, it’s clearly important to respect customers too. Everyone knows intellectually that if their customers don’t succeed, their business will fail. But have they really put that into practice as part of their culture? There’s a lot of literature out there about putting your employees first (the way Southwest Airlines did), as a way to take care of your customers. But which comes first? I think it’s an irrelevant debate. The key is that customer and employees are at the heart of everything, and without treating both with accountability and care, you can forget about building a great, lasting company.
Humanity and humility — build trust by daring to show you’re human
My biggest learning in business is around daring to be human. Basically, how powerful it is to revealing your personal vulnerabilities, work on them openly, and connect with your colleagues in a real way. This article shares my stories and views here well.
What I would add is this: Always remember that the purpose of your company is to serve others, not your ego. If you need some conviction on this point, it’s like a friend of mine (who was a world champion in taekwondo) said, “I can promise you that no matter how good and successful you are, there’s always someone who can come kick your ass”.
While the business leaders I admire today are confident in their personal convictions and do things that defy the norms — and I condone that individuality and freedom — most of them have a humility about their success and the role they play in the greater world.
3. Build a real board of directors … and use it
Most entrepreneurs by definition want to do things in new ways, and so it’s easy to think of your board as a necessary bureaucratic evil. In reality, your board is your last line of defense between you and self-delusion, bankruptcy, and perhaps even jail. The bigger you get, the more likely that a weak board will let you cross those lines. So, build a real board of directors. Here are some ways to do that.
Expand the board early
It’s very comfortable to keep your startup small. Typical boards consist simply of venture capitalists and the founders. This is a bad idea. Going back to my earlier point about learning fast, one of the best ways to learn fast is to put people who you can learn from on your board. I recently hosted a panel with three very different CEOs in very different industries, all of them with recent $1B + sales of their companies, and each of them had added non-VC directors in their first, second, and third years of building the business. I highly recommend it. Some VCs don’t like it, but you have to expand the board early, and carefully.
Your criteria should be people who really care about the company and want to help the CEO and company, yet are 100% independent as well. Aim for 1–2 outside directors early in a company’s life, before it reaches $10M, and then 3–4 outside directors when you’re above $10M in sales. In my own case, my criteria for getting outside directors was that I did not know them personally or from prior business. Some later became friends, but none were when they started on the board.
Besides expanding the CEO’s horizons and challenging everyone else (the “insiders”) on the board, these “outside” directors can show the company new strategic angles. Many companies wait until the company is ready to go public and end up rushing it then because it is required to have outside directors on several committees. At SuccessFactors, the board made us a lot more professional, and helped us put a lot of the necessary structure and controls in place. But more than that, they helped raise the bar, contributed very different views that were helpful, and provided input that inspired some of the most important things we did.
Have discipline around board meetings
It’s a red flag for me when a CEO asks if the board can move the date of the board meeting until results are better.
I don’t recommend anyone ever cancel the board meeting for any reason, except personal emergencies. In any size company, the board meetings always become a forcing function for the CEO and management to take a much-needed snapshot of the business and get real as to the status of the company. It’s not just a test though — the board can help you think about and help figure out the biggest challenges you have, confidentially.
Have real board meetings by having real data
The metrics and data for board meetings begins with the financials: revenue, growth, gross margins, profits, etc. The data must be presented honestly with year-over-year comparisons and performance against plan. One of the biggest mistakes CEOs can make is constantly changing this data as the business changes — which is fine — but doing so without showing continuity over time — which isn’t fine — including why those changes happened. This is the only way a board can help keep things “real”.
The data will also be 20X more productive if sent out at least three days before the board meeting. That’s always a challenge because the business changes down to the last minute, but the value of having the board members have these materials in advance far outweighs the last minute changes.
Finally, beyond the financial data, you should discuss culture development and voluntary and involuntary churn of people, by function, gender, geography, etc. The longer the period you use as benchmarks and trendlines, the more insights everyone can give on what’s happening to the business.
This becomes extra important when you add multiple business lines and multiple geographies. SuccessFactors’ products were used in over 120 countries, and looking at how sales developed over time comparatively gave us great insights in how attractive the markets were.
Give the board more than just your filter and version of things
You should make sure that each major function presents a deep-dive of their area to the board at least once a year.
Not only is it important for the board to see and “feel” the quality of the team you spend most of your time with, but they can help evaluate and share where they see strengths, weaknesses, and opportunities. True, they will never know a fraction of what you will, but they can give you good insights you were too occupied or too close to observe.
Closed board sessions with and without the CEO
When I first experienced two different closed sessions — one without the management team, and one without the CEO — I was a bit shocked at how helpful and revealing they were. In the former, it’s a much safer environment for the board to ask you about your team, and for you to ask them how the board meeting went. The latter, meanwhile, gives the board confidence in you, the ability to talk freely without worrying about hurting anyone’s feelings, and a chance to speak up without worrying about the CEO’s interpretation.
All of this helps ensure a board dynamic that is open, honest, and deals with the real issues of the business.
4. Build the right meeting cadence
Meetings suck. I’m the first one to say that while big companies are in meetings your competition is out in the field kicking your ass. Plenty has been written about killing meeting culture. Much of that is useful — there’s no need for unnecessary meetings — but I’m here to tell you that you should embrace them too. Especially regular meetings with key stakeholders who will help your company scale, all the way from the board to the customers.
1:1s with board members
Guess what: you can meet your board members outside of board meetings! But I don’t believe in meeting them beforehand to “presell”, “warn”, or “get them on the same page” (except for some particularly sensitive topics that could derail the board meeting). So why have a board meeting if you’ve already had it?
If you have found the right board members, you will want to update them on the business and let them challenge you. This will not only make you sharper and able to call out your own bullshit, it will help you course-correct faster if you’re heading down a tricky or sticky path.
Management meetings can feel frustrating when all you want to do is just be out there building or selling the product and otherwise helping the company get ahead.
So instead of having “update” meetings, make them about topics that are critical to the company’s survival or focused on fixing the bad news from kaizen sessions. You will also find that your leaders can never get enough of hearing your latest musings and perspectives on the company’s trajectory and issues. They feel connected and will disseminate the message effectively to their team members.
At SuccessFactors, we would start management meetings by reviewing our core aggregate target metrics, by exception. Then, I made the meetings mostly about customer success, renewals, and net promoter scores because to me, those provided the most concrete lens from which everything else emanated: product issues, market disruption, sales challenges, morale, and more.
1:1s with direct reports and skip level management: Two ears, one mouth!
More than anything, this one seems bureaucratic and time consuming, because “I meet them all the time anyway and discuss important things”. But it’s not about you — it’s as much, if not more, about them. The saying “people are born with two ears and one mouth” comes to mind here because the best managers I know spend most of the time with their direct reports in 1:1s asking them what they think and listening to their issues, instead of talking at them.
On another note, telling your direct reports that you want to spend time with their leaders alone is a very powerful insight on your ability to run the business well. In an open, honest culture, your executives should be proud to have you talk directly with their team. And if they have done a great job building their function, their direct reports will often talk about them effusively and supportively.
Regular interactions with customers
A culture is as much about its customers as it is about its employees. And in the decade+ since I incorporated and led SuccessFactors, the most powerful and surprising data came from meeting face-to-face with customers.
Even if you’re on top in the Gartner Quadrant (as we were for ability to execute and product strength), your customers will give you insights as fresh as cutting a hole in the ice and jumping in. But only if you ask them honest questions to genuinely hear and learn from them. I never got tired of hearing those insights, which made us stronger. And having built the culture to deal with it openly, the rest of the company eagerly awaited honest feedback of where we needed to grow from anyone returning from the customers. We saw it as the gift that it is.
5. Kill the monsters of the mind, while preserving your spirit
If you are lucky enough to have identified an idea to massively disrupt a market, you got here by believing what no one else believed, and by taking chances no one else dared. So why stop? Because it can cost you and your company. I would never want to kill off that will-to-power or the strength of an entrepreneur’s own convictions. But here are some things to look out for so your mind is not your own worst enemy and so both you and your company can realize your full potential.
Don’t lie to yourself
It’s easy to construct a beautiful narrative about how great the company is, because you know the company better than anyone. But just because you know the company the best doesn’t mean that you aren’t lying to yourself. A significant sign to watch out for is when you saw something work for a while, but there’s now lots of evidence that it’s broken.
Since no alternate paths have been found yet, and any paths you think of seem daunting, “the monsters of the mind” often make people hold off on immediately cutting their losses and forging a new path. This can happen in any part of the company, from product to sales.
To keep yourself honest, use your metrics, KPIs, projections, and results to conduct frequent reality checks. If a founder often changes what he or she wants to measure, it’s typically because they haven’t figured out what the real problem is. There are exceptions, however: It could be that the business really has changed and the old KPIs are irrelevant. But that doesn’t happen too often for a successful company, and most key metrics like new late-stage pipeline generation, customer adoption, median deal size, true win-loss, net new sales growth, and so on never get too old to track historically and against plan. Data is one of the best tells.
Remember, the winner’s mindset is a catch-22
Here’s the thing: The very “will to power” qualities that make successful entrepreneurs — being obstinate, willing to defy the norms, believing the impossible, doing what no one could imagine being done, and trusting your vision over what already works for all of the incumbent “experts” — is what got you to success in the beginning. It’s how you got your company shot out of the cannon; got it its first media coverage; and got attention from press, venture capitalists, and hot recruits.
So I would never say you should stop trusting your instincts. In fact, just when most CEOs wonder about their instincts as they’re scaling is when they should trust them. But… you cannot build a Lambeau Field-weatherproof company if you don’t also learn to constantly gather challenges to your thinking, learn to listen and hear them, and then test those learnings out.
The companies that you respect the most on the outside have gotten there by constantly ripping up their own ideas and stress-testing them for relevance — whether it’s Apple or Amazon, Disney or Pixar, Google or Facebook. It took building a lot of infrastructure and process while also carefully preserving the entrepreneurial spirit and mission behind the company in the first place.
If there’s only one thing people reading this post should take away, it’s that the very mindset that drives success can backfire if you don’t do this hard work. There are no shortcuts.
(Image via Reddit, and eMercedesBenz)