How To Run An Offsite

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If you’ve worked in a growing startup company for more than a few years you’ve likely noticed when the executive team schedules an offsite meeting and wondered what happens there. Sadly, there’s often a lot of bonding and not enough actual work. So let me suggest a framework for how to lead an effective offsite meeting.

First of all, you must be clear: what is the purpose of the meeting? If you think it’s for team building then I will forgive you if you’ve never seen a great offsite. Yes, team building can happen. But if that’s the main purpose, you are setting a low bar. In my experience the purpose of an executive offsite meeting should be one of three things:

1. To consider and plan for a change of strategy

2. To develop a set of priorities in advance of the annual planning cycle

3. To work on the company’s hardest unsolved problems in a creative forum

In some cases, perhaps it is a combination of these items. If you cannot determine a priori the purpose of the meeting, it will likely be a waste of time and money. You can do all the trust exercises you want, but if the executive team is not working on the business, it’s unlikely there will be any lasting impact. After you’ve left Austin, Napa or Tahoe you will still have the same problems you had before.

Developing The Next Generation of Leaders

Once you are clear on the purpose, it is much easier to then identify the key people and topics you want to cover. Maybe you’re wondering: if it’s the executive offsite isn’t it just for the executives? Yes, that is one approach. But I have found that if you expand the group slightly, to include the next-level up-and-coming leaders, you can have far more impact.

In fact, I would consider another purpose to the executive offsite can be:

4. Develop the next-level of managerial talent

Bringing in a broader range of participants can be especially helpful when tackling the myriad of “hard unsolved problems.” The goal is to fully integrate everyone into solving complex problems that often span beyond a single department. Everyone has a seat at the table. Every is expected to contribute. This is not a spectator sport.

You may want to brainstorm the topics in advance to ensure focus. Once the topics are determined, I have found it works well to assign each topic to a pair of people. Ideally, colleagues who might not otherwise be working together. Perhaps a VP paired with a Director in a different department. They should prepare enough material to kick-off a discussion with the entire group, then break down into smaller groups to come up with ideas.

Work on the Hard Problems

At MySQL, we often had a nagging problem of how to improve product differentiation. MySQL was an open source database and people loved it. But it was not always clear why and when someone should pay us. We talked about the problem all the time, but we weren’t making much progress. So I proposed that at our next executive offsite we do three things.

1. We make differentiation the major topic of discussion

2. We invite half a dozen up-and-coming leaders in the company to join us at the meeting

3. We pair up leaders to lead a workshop on the problem

I organized the session and reviewed the materials in advance. I was not asking the leaders to solve the problem (which was unlikely) but rather, to frame the topic and then lead a workshop whereby we split into groups to brainstorm ideas.

Bertrand and Edwin, two Director level managers led the effort. It was brilliant. They brought a fresh perspective to the problem. Bertrand provided an excellent example of a commoditized product that could be differentiated (bottled water!) that reframed the problem in a creative way. It caused everyone in the room to think differently. And it was inspired people to became unstuck from earlier views. That resulted in much more creative idea generation than we had seen previously.

While I won’t say that the problem was completely solved in the course of two days, it did pave the way for us to develop further enterprise differentiation. Instead of just asking ourselves “Why can’t we follow the Red Hat path?” or “Why don’t we close source some features?” we got much more creative, coming up with a subscription model that solved more problems of our Enterprise customers, delivered more value, and provided differentiation.  Ultimately, the subscription model became the growth vector for the company and led to a billion dollar sale to Oracle. 

One of the key things I’ve observed from offsite meetings is it’s important to get a cross-section of people across different disciplines and backgrounds to tackle hard problems. If you just ask the product team to solve all the product issues, they will eventually run out of ideas and get stuck. But sometimes, when you bring in someone from a different field, whether it’s Finance, HR or Sales into the brainstorming you will get unexpected questions, examples, and suggestions that might never have come up otherwise.

Follow-Up for Required

Offsite meetings can be a great a way to generate creative ideas and momentum. I remember one executive complained later that while we generated a lot of ideas, where was the follow up? Ultimately, it is up to the functional leaders, the head of Sales, the head of Marketing, the head of Engineering and so on, to determine (with input from the CEO, of course) which ideas and initiatives should move forward. In my experience this results in the best ideas getting the resources they need. To do otherwise is to circumvent the line authority of department leaders.

This is one reason that it can be helpful to hold an executive offsite meeting before you undertake the annual planning process. It drives creativity and focus before operating plans are finalized.


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

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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?

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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

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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.