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September 2023

How To Lose Customers & Alienate People

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Founders and CEOs are sometimes accused of being out of touch. If that’s your goal, here are seven tips on how to get there faster.

Don’t Listen, Just Talk

Talk to customers, talk to employees, talk to customers. The more you talk, the less you have to listen. Give them your vision, and heap it on with lots of diagrams and charts that explain the architecture and how powerful it will all be. You’ve thought it out and most of it is working and by golly customers are going to like it. That is, if you ever get around to shipping. Sorry, there’s no time for questions.

Shoot the Messenger

No one likes bad news, especially CEOs. So, why not just eliminate it? Next time someone raises bad news, unload on them in public. The more junior the employee, the bigger the thrashing. Tell them they’re part of the problem. You’ve got an executive offsite coming up in a few months, and it’s not for them to worry about customers or quality or whatever it is they’re complaining about. And when an employee makes a mistake, yell at them. That’s the best way to motivate people so they stop sharing bad news. Or any news.  

Obsess with the Competition

Let’s face it, the biggest idiots out there are your competitors. Sure they launch cool products, but so what? It’s all a bunch of marketing BS, right? Who cares about that? And that feature they implemented is just a copy of something you thought about years ago. Celebrate every outage they have as if it’s some grand accomplishment from your team. That way you don’t have to think too much about all the things you haven’t shipped.

Raise More Money

One way to make sure you’re out of touch is to spend more time with investors than customers. That way you can talk about strategy without having to worry about pesky issues like customer satisfaction, churn, employee engagement. And when those topics do come up, it’s just an abstraction like an NPS number or a survey score. Don’t get distracted by the people. Just think about numbers. Spreadsheets, right?

Hire Yes-Men

Yes-men don’t have to be men, but they have to be in agreement. All the time. You don’t have time for devil’s advocates. Or disagreement. Or discussion. If you need new ideas, you can always acquire another company.

Screw The Customer

Think of your customers as a captive audience. Sales missing the target? No problem, raise the prices. I mean, it’s not like they have a better option, right? If customers knew what they were doing, they wouldn’t have bought from you in the first place.

Focus on Optics

Perception is reality, amiright? So just focus on that. If you look good, maybe you don’t have to actually be good. Besides, how would it look if you changed now?

We all have our blindspots and occasional lapses of judgment. When in doubt, listen to your employees who listen to your customers.

How and When to Do Layoffs


Sometimes it’s helpful to remember that the technology industry is cyclical. There are times of tremendous growth, when investors are flush with cash, and other times when buyers cut their budgets and investors wait on the sidelines. These cycles are hard to predict, but if you’ve only seen the boom years of incredible growth and ever increasing funding multiples, it can be hard to readjust.

A lot of companies that were funded at peak valuations in recent years will face a reckoning. This is not a temporary change that you can wait out, but more of a fundamental shift to establish a new normal. Not surprisingly, many companies that expanded their hiring and their marketing spend during the growth period are now facing a cost structure that is completely out of proportion with their revenue. And no matter how much the current investors believe in the strategy or the team, few are willing to fund deepening losses, and certainly not at peak prices.

Cut Your Burn Sooner To Create More Runway

Most tech companies will need to drastically reduce their burn in. Many already have. In some cases the cuts will reduce bloat and improve efficiency. In other cases, it is a matter of survival. This is true both for large public companies and even more so for private venture-backed startups.

As soon you as start wondering if you should do a layoff, it’s probably the time. Or more objectively speaking, if you are missing your quarterly targets by more than 20% for two quarters in a row, and have not adjusted your costs, it’s time to take action. Sadly, I have seen companies miss for three or four quarters before doing anything beyond worrying. Sometimes they are hoping for a few big deals to save them, a new product launch, or, worse, they are afraid of “how it looks” to do a layoff. This is the wrong thing to worry about. Don’t worry about how things look, worry about how things are.   

Unfortunately, when you are burning money, the longer you wait to make cuts, the bigger the hole you are digging and the worse the situation will be when you finally deal with it.

If you are still uncertain, maybe it’s just been one quarter of weak results, then you should at least stop additional hiring and curtail marketing programs or other spending. Whether you call it a hiring pause or a freeze, doesn’t matter. The important thing is to not make the situation worse. You may wish to distinguish between a few strategic roles that must be filled (a new VP of Sales, for example) and routine hires for future expansion. If you think there is a risk of having to do a layoff within the next two quarters, remember, every additional hire you make will mean one more person to be cut later. As painful as it is to stop hiring, it is nothing compared to the pain requiring a larger layoff. So if a role is strategic and helps you grow revenue, keep recruiting. Otherwise, be cautious and put it on hold.

Once it’s clear that spending is out of line with planned revenues, you need to sit down and plan for the reduction. For many tech companies, headcount is the biggest cost factor, so doing a layoff will be necessary to reduce your spending. Even though it’s difficult, once you emerge on the other side, you will often find there is an increased focus in the company.

Better To Cut Deep

Most companies do a lousy job of layoffs. Make sure you cut enough cost that it substantially improves your trajectory. A cut of 5% or 10% is unlikely to reshape your culture and often results in everyone attempting to do the same amount of work, but a little worse. And then six months later, you need to cut again.

Better to cut deeper, a minimum of 15% and be clear about what projects are no longer going forward. Also, make sure you understand the rationale behind the decisions in each department and that the decisions across adjacent organizations make sense. For example, if you’re pursuing a larger Enterprise strategy (as opposed to small business, or download-driven product-led growth) then you want to make sure that every department is able to support that focus and is not holding onto teams or tactics that are no longer the priority.

In general, layoffs should be done quickly, within days or weeks of discovering the need. While you don’t want to spook the employees, you will want to ensure that there is participation from executives and director level managers so that the people you want to keep are able to weigh in and shape the organization. If the executives and leaders are not part of the process, it will be likely that the decisions are sub-optimal and you’ll have a lot of last minute scrambling as you discover that some people on the list are actually essential to your operations. Or worse, you’ll find out only after the fact.

Typically, in the months after a layoff, you can expect a wave of further attrition (typically 3-4%) as nervous employees look elsewhere. If there are key employees you need to retain, make sure you are talking to them. Understand their concerns and be prepared to address them. If you’re asking people to step up to bigger roles, make sure you are rewarding them.

Focus On The Top Initiatives

Narrowing the focus of the company is the key to an effective layoff. You must look carefully at all the initiatives across the company and determine the two or three most important things to focus on. Everything else can be sacrificed. Most venture-backed startup companies have a lot of “Type A” leaders who want to do many things. There are new product initiatives, expansion into new vertical markets or geographies, new reporting or analytics systems, new branding initiatives, etc.

Doing a layoff requires making a clear distinction between the vital few initiatives that define the future of the company versus the optional programs. It’s not that these initiatives won’t be useful down the line, but if they are not critical for right now, put them on hold. They might be things you can re-start six or twelve months later if business picks up. Be careful of worrying about sunk costs on such projects. Don’t let the investments of the past fool you into continuing to invest in low priority initiatives.

You must also be clear with the management team and across the company on the few top priorities. Everyone must understand what the company is saying yes to and what it is saying no to. One of the worst feelings for employees is if they feel that there’s a reduction in staff, but the workload is going to stay constant. Instead you must be very clear about what things the company will no longer do.

Ideally, your reduction in staffing is related to specific projects or initiatives that are being cancelled, rather than spread across the board. For example, if there are certain product lines, marketing investments, or sales programs that have not yielded great results, you should cull them. At the very least, you should be able to identify the people and budgets associated with such efforts and rank them according to their net impact. In this effort, you must be ruthless in assessing the actual results, not what you hope they might achieve some time in the future.

Keep in mind the proverb: It’s hard to get the pigs to slaughter themselves. No manager or employee is likely to come forward and say that their team should be eliminated. If there are excellent people working on sub-optimal projects you may be able to re-allocate them to higher priority areas. But you can’t keep them doing unimportant work.

As you examine the organization, look for where it may have become top heavy with too many management layers. If you have managers with only 3-4 direct reports, consider combining related functions and eliminating management roles. Good managers should be able to lead groups of 8 people and slightly more for short periods of time.

Also take a hard look at staff roles, meaning those outside of the main line areas of product, engineering, sales, marketing and customer service. Staff roles, such as those in human resources, data analytics, operations, sometimes grow as the company staffs up in general. While no headcount reduction is without pain, staff roles can sometimes be reduced without harming revenue.

When you go through a layoff the idea is to cut away at functions that are “nice to have” so that you can focus on the absolute core capabilities going forward. Any project or team that is not critical to the next stage of the company should be considered for reduction.

Your goal is to re-emerge with greater focus on the two or three essential elements of your strategy. Your executive team must understand and be in sync about these priorities. In turn, you want them to pick the most essential leaders and highest performers to be part of the go-forward strategy. Any leaders who are not up to the task, anyone whose contribution is uncertain should probably be let go at the same time. 

Treat People With Respect

While there is often a cold brutality in working through the layoff list, assessing costs, and so on, remember that every employee who is being cut is a person with a career, a family and a life outside of work. Treat people as best as you can. Give them a decent severance. Let them say their goodbyes to their colleagues. If you can help introduce them to other companies or provide references that will be appreciated. A layoff is always difficult, but if you treat people with respect on the way out, they can leave with their head held high and move onto something better.

Has your company done layoffs? How was it handled? What was done well? What could have been better? Post a comment and share your observations.

How Much Data Is Too Much?

Dashboard 2 car

We live in a world that is rich in analytic software and fabulously scalable databases that let you pivot, ply and bend trend lines in fantastically interesting ways. Which is great, because it enables companies to have much more comprehensive data than ever before.

However, the multitudes of data also provide ample distraction and conflicting indicators for those who are disinclined to make decisions.

To be sure, there are a few key metrics in every department that you should focus on. These include measuring Annual Recurring Revenue (ARR), burn rate, cash runway, the cost of acquiring customers, average deal size, net expansion and churn, customer satisfaction (typically the Net Promoter Score or NPS), uptime for a cloud service and so on. Even the basics are a lot to measure.

And if keeping track of these core metrics is good, maybe tracking more metrics is even better, right? In my experience, tracking metrics are like drinking shots of espresso. A little goes a long way. Too much, and you can easily introduce jitter into the system.

The problem with measuring too many metrics, is you lose focus on what is the most important metric. For example if you’re measuring the efficiency of your customer service team do you track Net Promoter Score? Or the customer satisfaction rating of each support ticket? Or the churn across customers? Or the number of support incidents per customer? Or the time it takes to resolve each incident? Or how many touch points it takes to resolve? And should that be the average or the median? Should you categorize it by customer segment? Or by subscription plan? If you measure all of these and some are trending up and some are trending down, what does that tell you about your business? And more importantly, what should you do about it?

In short, the more metrics you measure, the more likely you are to get conflicting views about how you’re doing. And when teams have conflicting metrics, they will naturally emphasize the metrics that are improving and downplay or ignore those that are going in the wrong direction.

At the executive level, it’s better to focus on a small set of metrics. Focus on the basics, like growing ARR, reducing churn and increasing uptime and customer satisfaction. Make your product easier to use, easier to buy and get customer input when you build your product roadmap.

At the departmental level, there might be a need for further drill down to get more operational detail. For example, in Marketing, it makes sense to measure the results of specific campaigns and the resulting pipeline, marketing qualified leads (MQLs), sales accepted leads (SALs) and so on.

But be careful of creating a culture where analysis takes precedence over action. Metrics and analysis are a means to an end, not an end in itself. If the data does not drive action, what is it for?

I was on the board of a company that was in the analytics space itself. They had grown to over a hundred million an annual recurring revenue (ARR) and the CEO was an absolute wizard when it came to analyzing the performance of the company. They used their own software to analyze leads, customers, sentiment, forecast, projections, churn, you name it. But they rarely hit their quarterly sales targets. I remember one board meeting where the head of Sales presented the results. He had missed his target by 60%. But he made a point of saying that his forecast of the miss was dead accurate. This is not the kind of culture you want to create.

Boards and investors often put a premium on predictability of the business. The holy grail for venture investors is to take a high growth company public and that requires a high degree of revenue predictability to gain confidence in the public markets. However, for startups, and especially those under $50 million in revenue, it is expected that there will be a high degree of volatility in the business. Typically, in the early stages of a company, the number of large revenue deals (%100k or more) is extremely lumpy. Some quarters you might get several deals and sometimes there may be none at all. That doesn’t mean the business is bad, it just means it has not yet achieved sufficient volume to be predictable. Or said differently, if you have a run rate of 10 $100k or larger deals per quarter, one or two slipping can be managed. If you only get one or two and one or both slip, that’s hard to make up.

Be careful in your quest to make the business predictable you are not over-indexing on analytics at the expense of taking action. After all, if the reporting of metrics does not result in new insights and action items, why are you collecting them?

What’s the essential data in your organization? What do you measure every week? What actions result from this data? Let me know by posting a comment below.

Hiring A VP

Lego business-3948314_1280

Hiring senior people into a company can help accelerate your growth. But done poorly it can also change your startup culture in ways that can set you back many months. And remember, no matter what your board or investors have told you about how much they like certain candidates or what to look for, at the end of the day, it is the CEO’s responsibility to build the right team. So no matter what pedigree a candidate has, no matter how highly recommended, it is always your responsibility. If you are not comfortable with a candidate, don’t hire them.

First, a word of caution when hiring senior leaders. Everyone who has put in a decade or more into their profession and risen through the ranks is going to look pretty good on paper and sound great in an interview. Your job when you interview them isn’t to trip them up, but you will need to probe to understand in some detail what they have done and what others did in the organization. Sure Sally Sales may have grown the revenues of an admired company from $10m annually to $200m over several years, but was she the driver or a passenger? What were the specific initiatives she ran that led to the growth? What were patterns she uncovered that identified more profitable customer segments? How did she evolve pricing and packaging to improve upsells? What campaigns did she develop with Marketing? How did she train her team to compete against larger, more established competitors?

Your job is to try to understand what the candidate can do for you. I have found the best way to do this is to drill into examples of the work they did and then share the hard problems you’re dealing with in your own company. You want to understand their thought process. It doesn’t mean that everything they say will be directly applicable to your business, but you want to understand how they think and what they can bring to the table.

If a candidate declines to weigh in on questions about your business because of a lack of information, gently ask them again. If they still demur, do not hire them. In a startup, you never have perfect information and executives who always want more data, more information, more time are unlikely to change their behavior once they are inside the company.

If you don’t get two or three good ideas when interviewing a senior executive, don’t expect to get any once they’ve started. Also, be careful of any execs who “have a playbook” because sometimes it means they have one style and one way to operate and if your company is a bit different, well, they’re going to keep using their same tried-and-true approach no matter what happens.

I think it’s good to share real problems that you are facing to see how candidates would approach these problems. After all, if you hire them, these and other problems will be what they need to work on. And since not every candidate will make it to the finish line, you might come away with a more diverse perspective on things.

I am always skeptical of big company executives who claim they want to work in a startup. Anyone who has spent six years or more inside a 3,000 person or larger company in unlikely to be able to operate in a startup without a massive budget, a big organization a slew of consultants, unless they joined the company when it was still small or through an acquisition. In general, large company executives operate as caretakers in existing steady-growth businesses. Which is fine if your goal is to rinse-and-repeat existing operations. But if you’re trying to innovate, get to product-market fit and launch new things, you need people who are flexible in their thinking and can get stuff done themselves.

It is unlikely that big company execs will be willing or able to roll up their sleeves in an environment that demands hands-on action, rapid decision making and focused execution. Worse still, they can bring big company process and politics that kill the momentum you need in a startup.

Finally, always check references personally. Do not delegate this to the recruiters. Ask about their impact, what projects they led, how they got along with others. And always ask the fundamental question: would you hire them again? If you get anything less than a glowing endorsement, keep looking.

Have you seen big company execs be effective in a startup? Let me know your thoughts by posting a comment below.

Build A Strong Middle Management

Managers backlit

One of the most important elements of scaling a business is you must develop a strong middle management layer. Often when a company first starts to expand, people are made managers somewhat haphazardly. Perhaps they are the least worst for the job, the most outspoken, the first hired, the tallest or some other random criteria. Sometimes people become managers without ever being told what that entails. Some figure it out. Many do not.

Yet, the middle management layer is the key to scaling a company. If you don’t have a solid front line management and second level directors, you are unlikely to build a high-performance culture, no matter how good your executive team is.

Why is that? At a fundamental level, the middle managers outnumber the executives. They also have more direct impact on the work of their teams. So the span of influence of the middle managers is greater than that of the executives. You can come up with all the great ideas and strategies at the executive level, but without buy-in and leadership from front line managers, very little will get done.

So it is critical that you develop the performance of the middle managers. Their influence and abilities will determine whether your company will scale to great heights or whether you will be a company with brilliant strategy and lousy execution.

The guiding principal should be to push as much decision making as you can further down into the organization, close to where the action is. The idea is that those closest to the problem usually have the best context on how to solve the problem. You want to empower front line managers to make the decisions on what work gets done, how to prioritize and when to make exceptions.

But, wait a second — how can you trust these inexperienced managers to make decisions?

It helps if you have a meaningful set of values and principals that guide your operations. These can’t platitudes. They must be guidelines that will actually help people.

As an example, at Gatsby one of our values was to prioritize the customer. But we didn’t just talk about it, we lived it. We would go the extra mile to help customers out when they were going live into production with our product. Sometimes that meant 5am calls with our engineers and managers working side by side with customers. It won the customer’s trust and support. It also demonstrated inside the company, that we were serious when it came to providing great service. And if a customer was unhappy with the service, for whatever reason, we would let them out of their contract. And it wasn’t me making these decisions. It was the front-line managers.

It isn't easy to be customer focused. But over time, we turned it into a competitive advantage. We often won customers from competitors because they felt screwed-over or trapped into contracts that left them angry. Everyone in the company understood the competitive value of helping our customers. They saw that the managers and executives focused on customers, so they did, too. We gave examples in our regular town hall meetings. Values like customer focus were part of our annual review process. When someone was promoted, we showed how they helped customers. This encouraged employees to take initiative themselves, without having to ask for permission.

At Zendesk, I remember one time Mikkel the CEO asked me “Why do I have a line outside my door every morning?” It was because he was letting people escalate decisions to him. With every decision Mikkel made, he was reinforcing the behavior, instead of encouraging people to make decision themselves.

I never like it when people bring me decisions that they should handle themselves. It makes me anxious because they likely have more context than I do. And often, by the time the decision gets to me it’s become quite a thorny customer situation or a struggle between two different departments. If I can, I will ask questions to elicit more information, discuss the tradeoffs and encourage the manager to make the decision based on our values.

Scott, our director of Finance at Zendesk came to me one time and asked me to implement a discount approval schedule, along the lines of sales reps could approve up to a 10% discount, managers 20%, directors 30% and perhaps the VP up to 40%. Anything beyond that would require my approval.

I said no.

Scott was stunned. “What do you mean?” he stammered.

I told him we didn’t need a discount schedule. I trusted the sales VPs and their managers to implement whatever discounts they felt were necessary.

“So you’re saying if Matt wants to discount the product to 90% you are ok with that?”  (Matt ran our European operations and was one of our most trusted executives.)

“Yes,” I said. “Matt is an experienced guy. He’s not going to discount something if he doesn’t need to. He’s also not likely to do anything radical without discussing it with me. He runs his region and he knows his customers and the market in Europe better than we do. So if he needs to provide a discount, he’s the best person to make that decision.”

Scott walked off infuriated. He was used to a command-and-control model where headquarters made the rules and slapped people down when they got out of line. I understood where Scott was coming from. After all, that was the model at every large software company, including Salesforce where Scott had worked previously.

But the role of an executive is not in approving things. The goal is to add value. The best way to do that is to create a resilient, high-performance culture. One of the ways to do that is to empower your front line managers and executives and teach them to make good decisions. If people want my input, I provide it. But I don’t hire people so that I can second-guess them. I want managers to grow in confidence so that they are making good decisions, developing action plans and communicating.

In my experience pushing decision making close to the action is the best way to operate. Most people will think things through when it’s their call. I want to cultivate an organization so that when the stuff hits the fan, managers don’t panic and instead they muster their problem solving and communications skills to tackle the problem. And they can’t do that if they’ve never been given the responsibility and trust to make decisions.

How does your organization make decisions? What decisions come your way that could be handled by someone closer to the issue?