Picking People

One of the most challenging aspects of running any business is hiring the right people.  In my 20+ year career, I've probably made every mistake in the book.  In the process, I've managed to develop some hiring guidelines that have, at least for me, eliminated the worst of the errors and improved the likelihood of finding the right person for the job.  But even so, there remains a strong element of subjectivity.

Now the first step of any hiring process is to have a good job description so that you know whom you're looking for and what you want them to do for you.  But assuming that you have this, here's what I look for when I hire, what I call the 3A's.

• Attitude - First and foremost, I look for the right attitude.  Right attitude means someone who actually wants the job that I have, is willing to learn the way it's done in your company, is willing to do the dirty work as well as the glamorous stuff that every job entails, and thinks TEAM not just about themselves.  I also look for people who enjoy what they do and aren't in it just for the money.  I still remember one interview for a manufacturing engineer during the height of the dot-com boom.  This one guy walks in the door, leans back in his chair and the first words out of his mouth after hello are "so what's the stock option plan look like?"  Needless to say, he didn't get the job.
• Accomplishment - Next I look for demonstrated proof of the skills listed on the resume as well as proof that the person has been successful applying them.  This is where reference and background checks are important.  M.S. degree in nuclear physics from M.I.T.?  Easy enough to check.  An innovator in graphic design?  A little harder, but let me see the portfolio.  Strong project management skills?  A lot harder but possible to probe by asking specifics.  For example, how do they track projects?  What are the pros/cons of using a waterfall vs. Agile methodology for project management?  How do you handle team members who are chronically late?
• Aptitude - Thirdly, I try to ascertain fit.  This is the soft, squishy personality stuff.  Not only do you want someone who is going to work well within your culture, you also want someone who's natural bent plays to the requirements of the job.  Some key fit parameters:
• Process vs. "product" orientation - see my blog post on this one
• Communication style:  written vs. graphical vs. verbal
• Communication style:  concrete vs. abstract/conceptual
• Detail orientation vs. big picture
• Extrovert vs. introvert
• Collaborative vs. individual problem solving
• Work style:  multi-tasking vs. serial tasking
• Integrated vs. discrete orientation toward work/life balance

(I've run into some absurd situations caused by poor fit.  I still recall one ridiculous meeting between sales and accounting at one company I was at over expense report reimbursements.  On the one hand you've got a bunch of product oriented, verbal, concrete thinking, extroverts continually ducking out of the meeting to take phone calls trying to convince a group of process oriented, "put it in writing", conceptual detail people who had allotted exactly 30 minutes to this meeting that they should be able to be reimbursed just by turning over a stack of credit card receipts....you get the picture.)

Finally, there is one thing I look at beyond the 3A's:  Character. Is this a person that will tell me truth? How certain am I that they won't lie, cheat, or steal?  Does this person have the courage of their convictions?  Do they have the ability to admit to mistakes?  In short, can I trust this person to do the right thing by me?  For me, this is where intuition comes in.  If the answer is no, I don't care how stellar they are on the 3A's, don't hire.  Keep searching.

Wall Street vs. Main Street Negotiations

I was recently asked by an entrepreneur what my advice would be on how to handle a contract negotiation between his company and a large, Wall Street financial services firm.  He was a bit concerned by the rather one sided terms being proposed by in the initial draft of the contract.  He was also getting annoyed that every time he tried to push back, he inevitably found himself arguing with their lawyers instead of the principals themselves.  And for the past week, they had stopped returning his emails and phone calls altogether.  Needless to say, the entrepreneur was concerned that his push back had soured the deal.

I told him to take a deep breath and relax, while I acquainted him with the realities of a Wall Street Negotiation.

At the risk of grossly stereotyping, it has been my experience that there are two fundamental negotiating styles.  One I call Wall Street Negotiations, the other I call Main Street Negotiations.  Now I'm a Main Street kind of guy so in the descriptions that follow, my biases should be pretty easy to observe.

Wall Street Negotiation
This type of negotiating style is based on the premise that one has a fiduciary duty to get the most out of any deal for one's shareholders.  Leaving money on the table is bad and indeed might even get one sued.  Every term is crucial and advantage can be found by having the best specialists (i.e. lawyers and accountants) on the team.  The assumption is that the other guy is thinking exactly the same way, there is an understanding by both parties that the negotiation is just business (not personal), and no matter how contentious the negotiating process, once the deal is inked, bygones will be bygones and we'll all be able to work together going forward.

Wall Street Negotiators, as a rule like, to put out the first contract draft, heavily biased in their favor to establish the base position.  This puts the other party in the position of having to pull the contract back towards center.  Wall Street Negotiators will make lavish use of teams of high powered attorneys and accountants to (a) insure they have the best experts able to scrape every penny off the table and (b) to "cover their a--" in the event someone unhappy with the final outcome decides to sue.

To many Wall Street Negotiators, the negotiation is a challenging and stimulating game and where the money is made.  One uses feints, posturing, and signaling to drive towards the most favorable position.  Need to make the other party sweat?  Delay returning those calls for a few days.  Or make sure you have people to play "good cop/bad cop".  Need to buy time?  Have the lawyers make a mountain out of a molehill on some minor term.  One can always cave in later if doing so is to one's advantage or one needs to change the tenor of the negotiations.  Brinksmanship can be good and remember to feign indifference because the perverse thing about negotiations is that often the person able to extract the most concessions is often the person who is perceived to care the least about whether the deal goes through or not.

Main Street Negotiation

Almost at the other end of the spectrum, this style is based on the premise that a good deal must be "win/win" and if a deal is fundamentally sound, there will be plenty of money on the table so focus on the dollars and don't sweat the pennies.  Main Street Negotiators are more interested in executing on the deal;  the negotiation is just something to be gotten through so one can get on with the business.

Therefore, to save time and legal fees, the first draft of the contract will tend to be start somewhere in the middle, the rationale being that that's where everyone will end up in the end anyways.  Also, the fewer contestable points, the smoother the negotiation is likely to go and subsequently the better the feelings during the negotiation process.  The tenor of the relationship is important because once the deal is done, one has to work with the opposing party to execute. Also, for many Main Streeters, especially entrepreneurs, business is not "just business", it's their life and there is quite a bit of personal involved.

For Main Street Negotiators, deals are not an everyday event and the money is perceived to made not by the deal but by the operational execution afterwards.  They don't perceive the process as a game;  they just want to get to the end so they can get onto the real work.

Clash of Expectations
Now when a Wall Street firm negotiates with another Wall Street firm or a Main Street firm with another Main Street firm, there generally isn't an issue.  Both parties are working off the same expectations and things usually work quite well.  The issue comes when a Main Street firm finds itself negotiating with a Wall Street firm.  With completely different negotiating styles and expectations, things can turn sour quickly, usually for the Main Street firm which is not used to the more rough and tumble style of Wall Street.

So who tends to practice Wall Street Negotiations?  Investment banks.  Private equity firms.  Venture capitalist firms.

The latter is what makes cynics of entrepreneurs.  Used to a win/win atmosphere, if they haven't been in a Wall Street Negotiation before, they can sometimes feel bullied and at a disadvantage during a term sheet negotiation.

So what can you do if you find yourself in a Wall Street Negotiation?

• First off, realize that you ARE engaged in a Wall Street Negotiation - That means expect the first draft contract to be skewed.  Expect that you will have to fight to bring it to the center.  Don't concede minor points too quickly; you might need them as bargaining chips later. 
• Get your own attorney and CPA - This will tend to mitigate the gamesmanship and give you someone on your team who talks the lingo of the other sides attorney and CPA.
• You deal with the principals;  let the lawyers deal with the lawyers, CPAs with CPAs - You should drive the business terms.  Let your lawyer negotiate the legal terms.  Let the CPAs fight out the financial model assumptions.  Use the professionals to put some emotional distance between you and the negotiation and keep you out of the minutia and focused on the key points.
• Don't let the emotions drive you - Don't vilify the other party.  They are not the spawn of Satan.  They're just doing their job which is to extract the most favorable terms for their firm.
• Don't be afraid of pauses and silences - Don't read the worst into failure to return email or phone calls.  Don't feel like you have to fill every silence with words.  For some reasons, Americans hate silence;  I've seen several deals with Japanese firms where the Japanese won concessions just because the American negotiator couldn't shut up.
• Try to establish a personal connection with the other party - Go to dinner, meet for drinks, play golf.  The more you can bring relationship into the picture, the more you can shift it towards a win/win direction.
• Know your walk away points ahead of time - Make sure you know up front under what conditions you would walk away from the deal.  This also helps keep the emotions down and also makes you appear less eager, strengthening your position.

Vacation: A Management Tool

I'm finally back after a two month blogger's holiday. Three weeks of that was spent teaching high school students marketing and entrepreneurship. The last three weeks was spent on a family vacation overseas in Korea with no voicemail and limited email. During the last three weeks, I was pleased to find that other than a few minor issues, the office didn't fall apart and our staff did a great job of keeping clients supported in my absence.

Chalk up another win for Vacation as Management Tool.

I'm not talking about the mental health benefits of vacation downtime, which are well documented. Rather I'm referring to a practice I started years ago whereby I deliberately absented myself from my job for two to three weeks in order to test how well I had done the following:

• Trained my staff
• Created processes and systems
• Delegated routine operational issues

Two to three weeks seems to be about the right time for any weaknesses in the above to show up but without letting them blow into full fledged crises.  These become targets for improvement.

As a corporate executive, I would use the vacation test to evaluate how well the managers working for me were doing.  While the first criteria was departmental performance, in my book, one of the key jobs of a manager/supervisor is how well they train their people to work without them.  Weak managers tended to be too involved in the day-to-day which deprived their people of development opportunities and left the organization vulnerable to a single point of failure (themselves).  It also limited their advancement opportunities by making it difficult to move them to new positions.  Also, I've found that if you let it, work will expand to fill all available hours;  weak managers tended to be so busy with tasks that could and should have been delegated that they never had the time needed to think about new opportunities or how things could be improved.

Now lest my startup readers think that delegation does not apply to them (after all delegation assumes that there is someone to whom work can be delegated), I would counter with this question:

"How are you expecting to scale?"

Of course the answer is you hire or you contract out.  Either way, you only scale by bringing in people...

• ...to do specialist tasks for which your team lacks the skills
• ...to do tasks that someone else can do more expertly and/or efficiently
• ...to unburden "bottleneck" specialists of tasks that can be done by others (usually cheaper)

When you hire you usually need to develop processes and procedures to enable them to execute and/or train them.  Then you need to delegate the job to them and figure out how to monitor the results.  This is called management* and it is harder to do than it looks.  In a startup, their never seems to be enough time to train;  it's often easier to just do the task than explain and train.  And setting up processes?  Not only is flowcharting out and documenting all the little steps time consuming, it can be BORING, especially to many entrepreneurs who enjoy the excitement of deal making and creation.  And the darn processes are constantly changing!

Nevertheless if you plan to scale, training, process development, infrastructure development, and delegation are necessary.

I run into this issue with entrepreneurs all the time.  Many startups begin with the entrepreneur and a couple of technical guys to do the development.  Initially, when cash is lacking, the entrepreneur/CEO (Chief Everything Officer) is forced to handle everything else from fundraising to key partner negotiations to bookkeeping.  But as money starts to trickle in, while some entrepreneurs can readily relinquish things they are not good at and are necessary but not generating value (e.g. bookkeeping), others have a tough time letting go.  We often have to remind the latter that the value of their enterprise is not going to depend on how detailed their bookkeeping entries are.  Rather it will depend on how well they've demonstrated product/market fit, landed paying customers, and established strategic partnerships.  Any time spent on the former rather than the latter is not time well spent.

The nice thing about Vacation as Management Tool is that if forces one to figure out how to make sure that things don't fall apart in your absence.  You actually have to do the training, establish the process, and delegate the work.  And as an added bonus, the time spent away will hopefully leave you refreshed, renewing your capacity for creative thought and new insights about your business.


*  I sometimes get the smug question from an entrepreneur "why would we ever need managers?"  My answer: "You don't provided all your people communicate with each other perfectly, they self-coordinate tasks seemlessly, all play together well, and they all know the mission and understand the implications of that mission for their own tasks."  In my 20+ years of managing people, I'm still looking for those people.