Category Archives: HR

Everything I’ve Learned About Recruiting and Interviewing

The other day a founder asked me about interviewing because a candidate had described me as “a great interviewer,” and she wanted to know why. (And for that matter, so did I.)

Emboldened by this seeming endorsement, I dashed off what turned into a lengthy email on interviewing and recruiting, a topic about which I am passionate not because I think I am good it, but because I think I am not.  I find interviewing and recruiting difficult, have made plenty of mistakes over the years, and the consequences of those mistakes are invariably painful.  The wise manager approaches recruiting as a great opportunity to strengthen the organization, but does so with some degree of humility, if not trepidation.

Thoughts on The Recruiting Process
Let’s start by sharing some things I’ve learned over the years on the recruiting process, before we dive specifically into interviewing.

  • Know what you’re looking for.  Most troubles begin here because people fail to ponder and debate what they are actually looking for, so you do the equivalent of walking into Costco without a shopping list.  For example, for a seller, do you require software applications, platform, or data & analytics experience?  What size deals?  To line of business, IT, or both?  For a CFO, do you require a accounting or finance background?  A veteran or an up-and-comer?  A CF-No or a CF-Go style?  You should know the answers to these questions; keep yourself honest by documenting them in a must-have / nice-to-have document.
  • Remember it’s a mutual sales process.  Unless you’re blessed to be at the hottest company in town, always remember that recruiting is a mutual sales process.  That means you need to be selling and filtering at the same time.  Particularly at the end of the process, interviewers should be told whether they should be primarily in “sell mode” or “filter mode.”  As it turns out, the person who said I was a “great interviewer” was a late-stage candidate who saw me in sell mode.  (And, yes, we succeeded with the hire!)  But who knows what they’d have thought of me in filter mode?
  • Follow some methodology or book.  I’m not particularly religious about which one, but I think a common framework helps to ensure completeness and improve communication during the recruiting process.   My private equity friends at ParkerGale, who do a great job of methodology selection, swear by Lou Alder so I’ll plug Hire With Your Head here.  ParkerGale has their own hiring playbook available as well.
  • Use work test samples.  While I’m not big into puzzles with prisoners and lightbulbs, I am a huge believer in having candidates do anything that approximates the work they’ll be doing if they take the job.  Have a product marketing manager give a presentation.  Ask a seller to role-play a sales call.  Have an engineer write pseudo-code to generate the Fibonacci sequence (to see if they understand recursion).  My all-time favorite was giving two FP&A directors the same three-tab spreadsheet with instructions “fix it,” “answer it,” and “model it” to test their attention to detail, problem solving, and modeling abilities.  The two were neck-and-neck on paper and in the interviews, but the exercise revealed a massive difference between them.  (We hired the one whose work stood out and were happy we did.)
  • Check references.  While I suppose the standard process of checking candidate-supplied references is still de rigeur, my favorite reference checks are backchannel and framed not in a binary hire-or-not light, but instead in the light of:  if I were to hire them, what strengths and weaknesses should I expect to see and how should I work with them to get the best results?  This framing tends to produce a better conversation.
  • Consider a try-and-buy.  One way to remove enormous risk from the recruiting process is a try-and-buy:  hire the person as a contractor or consultant, try working together for 3 to 6 months, and if both sides are happy at the end of that period, then convert the candidate to regular employment.  This works for some positions better than others — e.g., fractional CFOs and rent-a-CMOs already exist, whereas fractional CROs and CPOs (product) generally do not.  This works for some situations better than others:  it won’t work when recruiting a veteran CMO out of an existing job, but it can work nicely when considering a between-jobs, up-and-coming VP of Finance for their first CFO role.  Be open, be creative.  I’ve made some great hires this way — and avoided some train wrecks.

Thoughts on the Interview
When it comes specifically to interviewing, here’s what I’ve learned.

  • After chit-chat, ask for a N-minute life story with an emphasis on the why, not the what (i.e., why did you major in X, take first job Y, or move to job Z, as opposed to what you did in each).  For math types, I call this the first derivative of your resume.  I like to time-bound it, typically to 5 or 10 minutes, to see if the candidate has the ability to manage time and summarize accordingly.  I like the first derivative because it provides more information:  I already (largely) know what a PMM or VP of Finance does at a software company.  I’d much prefer to hear why someone chose to work (or stop work) at company X.  Moreover, if I want to understand accomplishments or duties, I can ask that separately, not as part of the life story.
  • After hearing “tough, but fair” for the 100th time, I decided to never ask for philosophies of any type, ever again.  Instead, think about situations that are encountered on the job and ask for relevant stories:  tell me about a time your fired someone, tell me about a time you launched a product, tell me about a time you ran the planning and budgeting process.  The experts call this behavioral interviewing, and it works.
  • Drill, baby, drill.   While I first learned this technique as a way to catch liars and exaggerators (who are frequently ensnared by the details), drill-down questions make fantastic follow-ups to behavioral “tell me about a time” questions.  Example:  tell me about a time you ran a budgeting process?  Drill-downs:  what year was it, in what month did you start, what was the rough total expense budget, how did you define the process, how many budget owners were there, how many iterations did you go through, how did you agree on the sales plan, did salesops have their own model, who made the churn plan, did they properly handle multi-year deals, who was the hardest exec to get on target, what were their objections, how did you handle them, when did the board finally approve it, how many iterations did that take, what were the initial objections, what would you do differently?  I’ve literally started down this path and had people say, “uh, I didn’t actually run the process in that job, but I was part of it” — an important distinction.  Whether to catch embellishment or to better understand candidates, drill-down questions work.  It’s more effective to go ten feet deep on one situation than one foot deep across ten.
  • Consider a panel interview.  I’ve become a huge fan of properly conducted panel interviews.  But first, what a panel interview is not:  it’s not randomly throwing 2-3 interviewers into a room with a candidate with no structure or preparation.  That’s called a romp, and it’s usually a negative experience for everyone.  What I’ve seen work is the following:  after a screening process that results in three candidates who meet all must-have criteria, you appoint a lead interviewer to create 5 behavioral questions (based on expected job duties in the first 12 to 18 months), share those questions with the candidate in advance, and then run a 90-minute live interview with a panel of 3-5 members who largely listen and ask follow-up questions only.  You create a scoring rubric, have all interviewers complete it, and then conduct a live discussion to compare the candidates.  This is FIRE.  In theory any of three candidates can do the job, so you’re focused on picking the best one for the company and situation.  The panelists listen intently because they’re not worried about running the interview, the remaining time, or their next question.  All candidates are asked the same questions.  And then you debrief via a live discussion which, as much as I love technology, is far higher bandwidth than any collaboration mechanism.  And you avoid groupthink because the rubric has been completed in advance.  Fire.  I thank ParkerGale for teaching this technique to me; they have a Private Equity Funcast episode on how they approach hiring here.

Private Equity Funcast: A Board Perspective on Peopleops

I’m back for my second appearance on the ParkerGale Private Equity Funcast, this time speaking with Jimmy Holloran on topics related to Peopleops and the Chief People Officer (CPO) in a session entitled A Board Perspective on Peopleops.

Topic we cover include:

  • The role of HR and my mantra:  help managers manage
  • What help means and taking pride in a supporting role
  • Help who?  (Managers or employees)
  • Hiring and recruiting
  • Conflict aversion
  • The three golden rules of feedback
  • 9-box models
  • Giving a successful People update at board meetings
  • Scorecards and the infamous “it’s all green” story
  • How to tell if the CPO is helping (hint: ask)

The episode is available on the ParkerGale site, Apple Podcasts, and Spotify.  For those interested, my first appearance — a romp that contrasts the PE and VC worlds with my old friend Jim Milbery — is available here.

Why You Should Eliminate the Title “Implementation Consultant” from Your Startup

I’ve worked with several startups that fell into the following pattern:

  • Selling a SaaS application at a healthy price (e.g., $100K to $200K ARR)
  • With low, fixed-cost implementation packages (e.g., $25K)
  • But a product that actually takes maybe $50K to $75K to successfully deploy
  • Resulting in an unprofitable professional services business (and wrecking the market for partner services)
  • High adoption failure
  • And, depending on the initial contract duration, high customer churn [1]

For example, one company had a CAC of 4.0, churn of 25%, and services margins of negative 66% when I started working with them [2].  Ouch.

Before proceeding, let me say that if you have a low-touch, high-velocity, easy-adoption business model — and the product to go with it — then you don’t need to read this post [3].  If you don’t, and any of the above problems sound familiar, then let’s figure out what’s going on here and fix it.

The problem is the company is not charging the appropriate price for the services needed.  Perhaps this is because of a zero-sum fallacy between ARR and services.  Or perhaps they feel that customers “just won’t pay” that much for implementation services.  Or perhaps their product takes more work to deploy than the competition and they feel forced to match price on services [4].

This under-pricing usually triggers a number of other problems:

  • In order to work within the self-created, low-cost implementation services model, the company “hires cheap” when it comes to implementation consultants, preferring junior staff and/or staff in offshore locations.
  • The company’s “implementation consultants” are overloaded, working on too many projects in parallel, and are largely focused more on “getting onto the next one” than getting customers successfully implemented.
  • Once a certain number of hours are clocked on any given project, the consultants go from “in a hurry” to “in a big hurry” to finish up and move on.
  • Customers are left high-and-dry with failed or partial implementations that, if left unfinished, will likely lead to churn.
  • Customer success, whose job is to prevent churn, is left holding the bag and is pulled away from its primary mission of adoption, renewal, and expansion into the implementation-completion business, potentially changing its hiring profile from more sales-oriented to more product-oriented and/or complementing CSMs with customer success architects (CSAs) or technical account managers (TAMs) to try and fill the implementation void.

I sometimes consider fixing this corporate chiropractor work, because one maladjustment results in the whole organization being twisted out of shape [5].  The good news is that, as with chiropractors, one adjustment can pop the whole system back into alignment.

Now, before we move onto fixing this, there’s one more problem we haven’t discussed yet — and give yourself ten pats on the back if you figured out before I got here:

Who ever said the customer defined success as getting the software implemented?

Oh shit.  We were so tied up trying to deliver a $25K services package that costs $40K to deliver that we forgot about the customer.  What customer equates implementation with success?  None.  Zero.  Nobody.

“Hey, it’s all set up now, you can login, gotta go!” is not the credo of a success-oriented consultant.

But what do we call our consultants again?  Implementation consultants.

What do implementation consultants think they do?  Well, implementations.

When an implementation consultant reads their own business card, what does it tell them they their job is?  Implementations.

Are implementations what customers want?  No.

So why do we have implementation consultants again?  I have no idea.

What do customers what?  Overall they want success, but what’s a good proxy?  How about attaining their first business objective?  If you sell:

  • A recruiting app, running your first recruiting campaign
  • A financial planning app, it’s making your first plan
  • A demandgen marketing app, it’s running your first demandgen campaign
  • A customer service app, it’s your first day running the call center
  • A deflection app, it’s deflecting your first cases
  • A sales enablement app, it’s training your first reps
  • An IT support app, it’s handing your first tickets

So, what’s the fix here?  While not all of this will be possible or recommended in all situations, here’s the long list:

  • Re-frame services as in the success business, not the implementation business
  • Eliminate the job title implementation consultant in favor of consultant
  • Get services to make plans that end not with implementation, but with the achievement of an agreed-to first business objective.
  • Increase your services pricing, if needed, so they can both deliver success and break even.
  • Hire more experienced consultants who can better make customers successful and don’t be afraid to charge more for them.  (They’re worth it.)
  • Agree to an ARR price before negotiating the services price; refuse to trade one off against the other.
  • Involve your services team in the sale well before the contract is signed so they propose the right prix fixe package (e.g., small, medium, large) or create an appropriately-sized bespoke statement of work.
  • Modify your product so it is not at a competitive disadvantage on required implementation work.

# # #

Notes
[1] With one-year contracts, a failed implementation that takes 6-9 months to fail typically results in churn, whereas with three-year contracts, you will often get another swing at the problem.

[2] These horrific unit economics result in an LTV/CAC of 1.0 and make the company totally uninvestable.  The CAC would be even higher if hard-ass investor added the services losses back into the CAC on the theory they were subsidizing sales.

[3] Product-led growth business models are great, but when companies that are not designed for them try to emulate pieces of the business model, they can get into trouble.  Implementation is an area that quickly goes awry when companies not built for PLG attempt bottom-up, try-and-buy, viral go-to market strategies.

[4] In which case, an obvious solution is to reduce the deployment workload requirements of the product.

[5] Put differently, the sales bone is connected to the services bone, and the services bone is connected to the customer success bone.

The Role of Professional Services in a SaaS Business

I love to create reductionist mission statements for various departments in a company.  These are designed to be ultra-compact and potentially provocative.  My two favorite examples thus far:

I like to make them based on real-life situations, e.g., when someone running a department seems confused about the real purpose of their team.

For example, some police-oriented HR departments seem to think their mission is protect employees from management.  Think: “Freeze, you can’t send an email like that; put your hands in the air and step away from the keyboard!”

I think otherwise. If the HR team conceptualizes itself as “helping managers manage,” it will be more positively focused, help deliver better results, and be a better business partner — all while protecting employees from bad managers (after all, mistreating employees is bad management).

Over the past year, I’ve developed one of these pithy mission statements for professional services, also known as consulting, the (typically billable) experts employed by a software company who work with customers on implementations after the sale:

Professional services exists to maximize ARR while not losing money.

Maximizing ARR surprises some people.  Why say that in the context of professional services?  Sales brings in new ARR.  Customer Success (or Customers for Life) is reponsible for the maintenance and expansion of existing ARR.  Where does professional services fit in?  Shouldn’t they exist to drive successful implementations or to achieve services revenue targets?  Yes, but that’s actually secondary to the primary mission.

The point of a SaaS business is to maxmize enterprise value and that value is a function of ARR.  If you could maximize ARR without a professional services team then you wouldn’t have one at all (and some SaaS firms don’t).  But if you’re going to have a professional services team, then they — like everybody else — should be there to maximize ARR.  How does professional services help maximize ARR?  They:

  • Help drive new ARR by supporting sales — for example, working with sales to draft a statement of work and by building confidence that the company can solve the customer’s problem.  If you remember that customers buy “holes, not bits” you’ll know that a SaaS subscription, by itself, doesn’t solve any business problem.  The importance of the consultants who do the solution mapping is paramount.
  • Help preserve/expand existing ARR by supporting the Customer Success (aka, the Customers for Life) team, either by repairing blown implementations or by doing new or expanded implementations at existing customers.  This could entail anything from a “save” to a simple expansion, but either way, professional services is there maximizing ARR.
  • Help do both by enabling the partner ecosystem.  Professional services is key to enabling partners who can both provide quality implementation services for customers and who can extend the vendor’s reach through go-to-market partnering.

Or, as our SVP of Services at Host Analytics says, “our role is to make happy customers.”

I prefer to say “maximize ARR without losing money” but we’re very much on the same page.  Let’s finish with the “not losing money” part.  In my opinion,

  • A typical on-premises software vendor drove 25% to 30% gross margins on professional services.  Those were the days of one big one-shot license fees and huge multi-million dollar implementations.  In those days, customers weren’t necessarily too happy but the services team had a strong “make money” aspect to its mission.
  • A typical SaaS vendors have negative 20% to negative 10% gross margins on services (and sometimes a lot more negative than that).  That’s because some vendors subsidize their ARR with free or heavily discounted services because ARR recurs whereas services revenue does not.

I believe that professional services has real value (e.g., our team at Host Analytics is amazing) and that if you’re driving 0% to 5% gross margins with such a team that you are already supporting the ARR pool with discounted services (you could be running 25% to 30% margins).  Whether you make 0% or 10% doesn’t much matter — because it won’t to someone valuing your company — but I think it’s a mistake to shoot for the 30% margins of yore as well as a mistake to tolerate -50% margins and completely de-value your services.

You Can Never Fire Someone Too Early

The first time I heard the VC adage “you can never fire someone too early,” it rubbed me the wrong way.  It sounded harsh and unfeeling.  It seemed flippant. It felt trite.  It seemed, frankly, like one of those things people say in the press box, but never on the playing field.

But slowly, as with most VC adages, I found the truth in it.  Once you dismiss the initial tendency to rebuff it for its harshness, and try to really understand what it means, it’s hard to disagree with.

So what does it mean?

  • As an executive, by the time you find out there’s a problem, there has already been considerable damage done and you need to fix it right away to prevent more damage.
  • As an executive there will always be a time lag between when coworkers know there is a problem and you learn there is one.  Respect for hierarchy and politesse are just two things that delay signal transmission.  Rationalization, conflict avoidance, and denial are three others.
  • As the hiring manager you will tend to rationalize away problems because you hired the person.  Firing them would show a concrete mistake on your part and put you in the position of having to make a re-hire.  Deep down, you are rooting for individual-X to succeed and that biases your perspective and delays your decision.
  • You want a team of stars and superstars.  If you are even considering terminating someone it means, definitionally, they are not a star or superstar.  Ergo, you should not want them on your team.  This is a tough one to internalize, but it’s true.  Harsh as it may sound, the mere act of questioning whether you should terminate someone means that you probably should.
  • People who have known about the problem longer than you have are waiting and watching.  How long will you tolerate the behavior?   What does that mean about standards of competence you set?  How many subordinates will respond to recruiter calls while you figure this out?  And because your learning of the problem is definitionally phase-lagged, people may have been waiting quite a while.  You may have lost some already.
  • Empirically, when you ask seasoned managers about this topic, virtually everyone says that they never fired someone too early, but have often done so too late.  “Hire slow, fire fast” as the other hiring adage goes.