You’ve decided you need to replace one of your executives. Hopefully, the executive already knows things aren’t going great and that you’ve already had several conversations about performance. Hopefully, you’ve also already had several conversations with the board and they either are pushing for, or at least generally agree with, your decision.
So the question is how to do you execute? You have two primary options:
- Terminate and start search. Arguably, the normal order of operations.
- Start search and then terminate. This is commonly known as a backdoor search, I guess because you’re sneaking out the back door to interview candidates. More formally, it’s known as a confidential search.
Yes, there are a lot of sub-cases. “Search” can mean anything from networking with replacement CXOs referred by your network up to writing a $100K+ check to Daversa, True, and the like. “Terminate” can mean anything from walking the CXO out the door with a security escort to quietly making an agreement to separate in 60 days.
As someone who’s recruited candiates, been recruited as a candidate, and even once hired via a backdoor search, let me say that I don’t like them. Why?
- They make a bad impression on candidates. Think: so, this company is shooting their CMO and that person doesn’t even know it yet? (Sure, I’d love to work for them.)
- They tie the recruiter’s hands behind their back. Think: I have this great opportunity with a high-growth data workbench company — but I can’t tell you who it is. (Call me when you can.)
- They erode trust in the company culture. The first rule of confidential search is there are no confidential searches. Eventually, you get busted; the question is when, not if. And when you do, it’s invariably a bad look for everyone involved.
- They are super top-down. Peers and employees are typically excluded from the process, so you neither build consensus around the final candidate nor let them meet their team.
- You bypass your normal quality assurance (QA) process. By involving fewer people you disregard a process that, among other things, helps vet the quality of candidates. If the candidate turns out a mishire you are going to feel awfully alone.
- If you somehow manage to pull one off, the candidate gets off to a rough start, typically never having had met with anyone on their team.
That said, the advantages of confidential searches are generally seen as:
- No vacant seat. There’s no awkward period where the CXO’s seat is empty and/or temporarily filled by one of their direct reports.
- Short transition period. You elminate the possibility of an extended period of ambiguity for the CXO’s team. Colloquially, you rip off the band-aid.
- One transition, not two. Some positions (e.g., CFO, CMO) have active fractional (or rent-a-CXO) markets. If you terminate first, hire an interim replacement, and then search for a permanent replacement, you end up putting the team through two transitions.
I’d argue that for conflict-averse CEOs, there’s one bad “advantage” as well — they get to put off an unpleasant conversation until it’s effectively irreversible. Such avoidance is unhealthy, but I nevertheless believe it’s a key reason why some CEOs do backdoor searches.
All things considered, I remain generally against backdoor searches because the cost of breaking trust is too high. Lady Gaga puts it well:
“Trust is like a mirror, you can fix it if it’s broken, but you can still see the crack in that mother f*cker’s reflection.”
So what can you do instead of a backdoor search? You have three options:
- Run the standard play, appointing an interim from the CXO’s directs or doing it yourself. (If you have the background, it’s relatively easy and sometimes it’s even better when you don’t — because it helps you learn the discipline. I’ve run sales for 18 months across two startups in this mode and I learned a ton.)
- Run with an interim. In markets where you can do this, it’s often a great solution. Turns out, interim CXOs are typically not only good at the job, but they’re also good at being interim. Another option I like: try-and-buy. Hire an interim, but slow starting your search. This de-risks the hire for both sides if you end up hiring the interim as permanent. (Beware onerous fees that interim agencies will charge you and negotiate them up front.)
- Agree to a future separation. This is risky, but a play that I think best follows the golden rule is to tell the CXO the following: “you go look for a job, and I’ll go look for a new CXO.” A lot can go wrong (e.g., undermining, hasty departure, mind changing) and you can’t really nail it all down legally (I’ve tried several times), so you can only do this option with someone you really trust. But it allows you to treat the outgoing CXO with respect and enables them to not have to ask you for a reference (as they’re still working for you). You’re basically starting a search that is “quiet” (i.e., unannounced internally), but not backdoor because the CXO knows it’s happening.
Hat tip to Lance Walter for prompting me to write on this topic.
I’ll be speaking next month in Barcelona on the first day of SaaStr Europa, held at the International Convention Center on June 7th and 8th. My presentation is scheduled at 11:25AM on June 7th and entitled The Top 5 Scale-Up Mistakes and How to Avoid Them. While I usually speak at SaaStr, this is my first SaaStr Europa, and I’ll be making the trip over in my capacity as an EIR at Balderton Capital.
For those concerned about Covid, know that SaaStr Europa, like its Silicon Valley namesake, is a primarily outdoor and open air conference. I spoke at SaaStr Annual in Silicon Valley last September and between the required entry testing and the outdoor venue felt about as safe as one could in these times. Earlier this year, the folks at SaaStr moved the Europa venue from London to Barcelona to enable this primarily outdoor format.
After historically focusing a lot of my SaaStr content on the start-up phase (e.g., PMF, MVP), this year I thought I’d move to scale-up, and specifically the things that can go wrong as you scale a company from $10M to $100M in ARR. Even if your company is still below $10M, I think you’ll enjoy the presentation because it will provide you with a preview of what lies ahead and hopefully help you avoid common mistakes as you enter the scale-up stage. (If nothing else, the rants on repeatability and technical debt will be worth the price of admission!)
Without excessively scooping myself, here’s a taste of what we’ll talk about in the presentation:
- Premature go-to-market acceleration. Stepping on the gas too hard, too early and wasting millions of dollars because you thought (and/or wanted to believe) you had a repeatable sales model when you didn’t. This is, by far, the top scale-up mistake. Making it costs not only time and money, but takes a heavy toll on morale and culture.
- Putting, or more often, keeping, people in the wrong roles. Everybody knows that the people who helped you build the company from $0 to $10M aren’t necessarily the best people to lead it from $10 to $100M, but what do you do about that? How do you combine loyalists and veterans going forward? What do you do with loyalists who are past their sell-by date in their current role?
- Losing focus. At one startup I ran, I felt like the board thought their job was to distract me — and they were pretty good at it. What do you do when the board, like an overbearing parent, is burying you in ideas and directive feedback? And that’s not mention all the other distraction factors from the market, customers, and the organization itself. How does one stay focused? And on what?
- Messing up international (USA) expansion. This is a European conference so I’ll focus on the mistakes that I see European companies make as they expand into the USA. Combining my Business Objects experience with my Nuxeo and Scoro board experience with both Balderton and non-Balderton advising, I’m getting pretty deep on this subject, so I’m writing a series on it for the Balderton Build blog. This material will echo that content.
- Accumulating debilitating technical debt. “I wear the chain I forged in life,” said Jacob Marley in A Christmas Carol and so it is with your product. Every shortcut, every mistake, every bad design decision, every redundant piece of code, every poor architectural choice, every hack accumulates to the point where, if ignored, it can paralyze your product development. Pick your metaphor — Marley’s chains, barnacles on a ship, a house of cards, or Fibber McGee’s closet — but ignore this at your peril. It takes 10-12 years to get to an IPO and that’s just about the right amount of time to paralyze yourself with technical debt. What can you do to avoid having a product crisis as you approach your biggest milestone?
For those in attendance, we will have an Ask Me Anything (AMA) session after the presentation. I’ll post my slides and the official SaaStr video after the conference.
This should be fun. I hope to see you there!
Posted in Board, Go To Market, Leadership, Management, Marketing, People, process, SaaS, SaaStr, Sales, Scale, Scaling, Startups
Tagged scale-up, technical debt
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.
Is your leadership team world-class? Are some of your executives holding your company back? Could you grow faster if you replaced your head of sales?
Does your board think you have the right leadership team? Heck, does your leadership team think you have the right leadership team? Do your rank-and-file employees?
When you stick with a VP who helped build the company but who seems to be past their sell-by date, are you demonstrating loyalty as a strength or conflict-aversion as a weakness?
These are some of the questions that keep founder/CEOs up at night. While founders who’ve spent time at larger companies have some experience with SVPs and CXOs at different scale, for many founders this is entirely greenfield territory. Think: I’ve built this great $10M ARR company but I have never run (or been a C-level executive at) a $50M ARR company, ergo I really have no idea what the proverbial “next-level” team looks like.
Or, simply put, how do you know if you have the right people around executive staff table? To determine the answer, do these 5 things:
- Evaluate performance. An obvious sign that someone is in over their head is a lack of performance, missing targets (e.g., new ARR), OKRs, or hiring goals — either in terms of number or quality (particularly when staffing their own leadership team). Someone who’s not performing is definitionally already in over their head today; we don’t need to wonder about tomorrow.
- Get 360 degree feedback. From your team’s leadership coach (if you have one), from the e-staff peer group, from a formal 360 degree feedback program, from employee satisfaction surveys (e.g., CultureAmp), and from the board. This informs you with a holistic view of how the executive is seen within the organization.
- Do calibration meetings. Always be calibrating — always seek out next-level or next-next-level executives and have a coffee with them. The only way I know to develop your own sense of “seniority” is to meet lots of senior people. Use your board and your network to get access. Ask questions about current issues you’re facing and the road ahead. You’ll build your network, have people you can rely on for future advice, and — who knows — maybe one day you’ll come back and hire some of them. The next time one of your board members says, “your CXO isn’t world-class,” ask them for three introductions to people who are.
- Listen to your gut. Do you look forward to meeting with them? Do they bring or take energy? Are meetings more productive when they come or when don’t? Do they suck the air out of the room? Are they Eeyore or Pooh? If you consistently don’t look forward to meeting with one of your direct reports, it’s an important tell of a major problem. The e-staff is helping you build your company; you should be excited to meet with each and every one of them, every time. If you’re not, you need to ask yourself why.
- Ask. Sit down and ask the executive how they’re doing, how they feel about the organization and the road ahead, if they’re still having fun and enjoying their job, and if they feel like they are up to (and up for) the challenges ahead. Sometimes, they’ll share their concerns and you can build a program to support them. Sometimes, they won’t be candid, effectively denying themselves help or redeployment. Sometimes, as once happened to me, they’ll say they’ve been thinking about going into real estate with their brother. You won’t find out if you don’t ask.
The most important part of this process is realizing that you have options and using them. Unless you want to create an up-or-out culture of disposable people, you need to consider all your options for an executive who has run out of runway:
- Redeployment. Moving them to a different, senior post (e.g., taking your old VP of Marketing and having them go to London to help open Europe).
- Layering up. Restructuring so as to add an additional layer above the executive. People generally don’t like this but will try and/or tolerate it if they understand why you’re making the change and believe that they can potentially learn something. (Unvested in-the-money options don’t hurt, either.)
- Benching. Given them an important job but one below their capabilities until such time as you find something you really need them to do. Think: you’re still on the team but not playing this period while I figure out what to do with you. Too few executives do this because it’s nominally expensive, but the cost of not doing it is a loss of talent and organizational knowledge.
- Leave of absence. In some cases, rather than carry the player on the bench, both the company and the executive could benefit from a leave of absence for a few months where, in a good scenario, the executive returns into a needed role, refreshed and ready for a new challenge.
The more fluid and flexible your culture — e.g., defining jobs more as tours of duty while building the company than as functional empire building — the more options you will have. But it all starts with answering the question: do I have the right executives around the table?
Do the 5 actions above to figure it out.
In my new capacity as an EIR at Balderton Capital, I recently gave a presentation to a leadership meeting at a high-growth, Balderton-backed startup offering my perspectives on growth and the challenges that come with it.
I discussed these five challenges:
- Next-levelitis, an obsessive focus on scaling everything to the next level. (Which is great if not overdone.)
- Absorbing new leaders, (aka, “FBI guys”) and the challenges that come when hiring the wrong next-level people and they blow themselves up at the start.
- Conflation of regional culture and opinion, a common problem in international expansion. (What’s a bona fide regional difference vs. a difference of opinion masked as one?)
- Missing an opportunity that you want (aka, getting “passed over” for a promotion) and what to do about it.
- Getting things wrong to get other things right. Startups are 100% about getting what matters right. Which begs the question, what matters?
The slide deck is below.
By the way, you have to watch the referenced Die Hard videos; they do a superb job of portraying what it feels like in these situations:
“I’m Dwayne Robinson … and I’m in charge here.”
“Not any more.”