I was reading “Failure as an event” post on Seth Godin’s blog. After self-deprecating himself talking about 20+ large entrepreneurial failures he was part of, Seth shared some of the lessons he has learned. The biggest one that caught my eye was: “Being the dumbest partner in a room of smart people is exactly where you want to be.” This sounded very much like a personal belief I have for myself. In any environment I choose to surround myself with extremely bright people. This is key to my personal growth. If I find myself in the opposite conditions, I simply choose to go somewhere else.

Another point I want to make is that much has been written on the topics of leadership, picking business partners, building winning teams, and successful formulas for startups. Walk into any bookstore and you will see rows upon rows of books on those topics. So why do so many founders and executives of emerging companies are still committing the sins all for the sake of their egos? Why do they surround themselves with these lemmings?  Lemmingus Look it up, if you are not familiar with the behavior of the animal.

Since it is not uncommon for a young, gullible, and overly optimistic person to become a leader of a startup, let me point out the two types of these lemmings we all should be aware of:
1. Lemmings of the first type are just there to nod and place their managers and executives on the pedestal. From time to time they will nip at some small details, but they will never dare to question the foundation of ideas. The effect this has on the organization, that is still forming, is that if the foundation has cracks, the business has a higher likelihood of toppling.
2. Second type of those lemmings are the gullible, young, inexperienced, but definitely bravado-laden types. They are fresh out of the school, they have zero comprehension of how things work in the real world, they are so pumped to go move mountains… but they have no real idea where to start and they see these guys/gals with Cxx titles, so they assume those people must be geniuses. Those leaders must be towers of knowledge and experience. How else would they have gotten those huge titles? Overly strong reliance on the position in the hierarchy as a predictor of higher level of knowledge is just flawed.

As leaders/managers/executives, we need to watch our brainstorming and staff meetings. If the ratio of nodding heads, praises, and other ego-boosting actions is more than half (or worse – 100%), time to sit down and really get serious about our choices. Are we more interested in being agreed with and put on the pedestal, or do we want to succeed and create that wealth for ourself, our investors, and our teams?

The key rule to remember is that we, as leaders of our companies, need to be surrounded with the kind of people who make us feel we have a lot to learn. If you think you are the smartest person in the room… you chose the wrong people. And never, I repeat NEVER, forget to always ask your team to question you, “devils advocate” is always a must. There are many methods available for facilitation of that kind of analysis, you just need to pick one and stop enjoying the status quo.

For me personally, building an appropriate compensation package is a very hot subject, because I believe operations executives have tremendous impact potential by harnessing the power of well motivated and managed teams. Companies that take care of their employees rarely have challenges finding talent for their “constellations of stars” (see my article “Stars vs. Constellations – 3 Steps to Building Solid High-performing Teams”).

There are many “carrots” we use to incentivize our employees, but equity is one of the ultimate aces in our pockets. Run a quick search through sites like answers.onstartups.com, Quora, or others, and you’ll notice the equity question is a popular one. Nothing creates a heated conversation like bringing up equity! I have seen many companies fall flat on their faces when they attempt to put together proper equity compensation, even when they have the best intentions. I know I have made some mistakes too.

So where do we fall flat during equity compensation planning and how we can iterate for version 2.0?  First, we should stop hiding behind the “industry standards” copout excuse. Anyone who has put together options/grants plans knows that it’s easier to locate the Holy Grail than to find these “standards” by region, industry, functional area, and role.  Why?

• Sub-100 employee companies, which encompass most of our startups and emerging companies, represent 5.7MM US businesses and employ 40MM people. Imagine the reporting burden and centralized effort that would be needed to collect all the information from these companies.
• Even if you scaled the data collection down and arrived at a somewhat acceptable sample size for the data to be credible, I highly doubt most reports would bother with the full compensation structure details. How many of you have put all the requested data into Harvard and other surveys just to get access to the data? Many of us may put in the bare minimum just so we can get access. Garbage in = garbage out.
• Maybe you can get some semi-decent equity compensation data if you are backed by VCs with an extensive portfolio of companies in your industry, but I doubt they would share that with the rest of the world.

Then there are those of us in pre-B round companies on our proverbial high horses and self-erected pedestals (yes, founders, I am looking at you).  Don’t forget that founders would be alone in coffee shops for years and years without a team of talent that chooses to invest in their vision. Our first 15-20 employees are not just employees; they are “junior co-founders”. Companies that have not changed the business model and/or have not hit some really bad times are as rare as jackpots. Yet we plan out equity compensation as if our businesses will only go in one possible trajectory – the “hockey stick”. Early employees are jumping on the grenades for us – stop being cheap bastards and take care of them! Their “risk premium” is always higher than most of us are willing to admit.

So now that we got the elephants out of the room, let’s get down to business!

Equity compensation framework 2.0

I highly stress the iterative nature of this framework. As a founder you may start with something really simple to just get you started. That is fine, but you need to build out the plan and related details stage by stage, step by step. We shall crawl, then walk, then run.

Let’s start with where there is no need to re-invent the wheel:

1. Everyone vests and everyone has a year cliff! Yes, that includes founders. Four year vesting with a one year cliff and then monthly vesting – simple, clean, fair. It usually takes four years for a company to build a repeatable and scalable model. Any employee who does not stick around for at least a year does not really deserve to share in the bounty.
2. Equity should only be available until the company becomes profitable. The only caveat is that the company should be profitable for a full year. After the company is self-sustainable and profitable, we should switch to profit sharing.

Step 1.

Decide how much of the company should be owned by employees. Here is the 2.0 part: the total of the company owned by the employees should not be diluted. If you think this will be too extreme for your investors, and you don’t have enough brass balls/ovaries to show your investors the value of your team, then at least create predefined percentage points for each round of funding. And yes, investors put money to work for you (you know, insert the usual spiel here to appease them), but your employees are putting in their time, often take a ridiculously low “startup salary” for the impact they bring to the company, and are likely are sacrificing in many areas of their lives for you company. Grow a pair and stand up for your team! With every new funding round they are investing too, hence they should get additional options/grants.

Step 2.

Create two options/grants pools: Employee Impact and Company Milestones. Why am I separating the two? Because one is purely tied to the stage of the business (which can regress) and the risk premium of someone joining at that stage. The other is more of a bonus/celebratory reward.

Step 2(a).

For the Employee Impact pool, create employee bands based on when they joined and at what level they contribute.

Base bands:

1. Junior co-founders – proof of concept to first paying customer stage
2. Early team – first paying customer to repeatable business model (or product/market fit) found stage
3. Execution team – repeatable business model to first year of profitability

Sub-bands:

1. Non-founder C-level executives
2. VPs and directors
3. Managers and senior individual contributors
4. Junior individual contributors

Step 2(b)

For the Company Milestones pool, you will need to define your most important goals. Some that I find extremely crucial are:

• Reached X paying customers (you should do several levels of this)
• Major profit margin increase (e.g. 10% margin is not 40% margin)
• Major sales number increase (e.g. $1MM in sales)
• Round of funding “top-ups”

Here is a quick illustration of what the plan might look like in a chart.

(Planned) Step 2(c)

For the 2.1 iteration I am working on adding a third pool called “Market Discount/Salary Concessions”. I believe we need an easier way to grant options to those willing to help the company conserve cash by taking bigger salary concessions. This should really be a formula that is built into our compensation plan spreadsheets.

Hopefully this post will set you on a more structured path when setting up the total compensation plans. My next post will address the cash compensation portion.

If you have time, I highly recommend viewing this full video on Maslow’s Hierarchy of needs I often mention in this blog when analyzing the motivations of our employees.

Enjoy!

It all starts with recruiting. Many successes and disasters start with recruiting. Recruiting is the most important job for any real leader in the company. If you have to outsource your recruiting – you are a lazy fool! Get your butt out of the office, meet people, help people, connect people, and tell them about the problems you are solving.  Networking will help you have a full funnel of talent no “superstar” recruiter is capable of finding! Only when you have 50+ employees do you need an internal recruiter to help move the talent systematically through the funnel, but remember, the top of the funnel is still all you, baby!

The second step is all about the right placement of the stars in your constellation. No matter what bullshit motivational book you may have read, people do not change. Yes, people do evolve, and yes, those not capable of evolution should never become a part of your team, but for Pete’s sake, do not confuse skill evolution with personality change. Attempts to change who a person is don’t work in dating (ever heard of the term “project boyfriend”?) or in the workplace. Hire people for what they are capable of and stop jamming square pegs into round holes. Nobody will give you medals for turning a finance geek into a mediocre user experience practitioner.

The third step is to minimize “toxicity” and take advantage of learning from your inevitable failures. An agile and derivative methodology excels at this. Divide and conquer, but don’t forget to learn. Incremental improvement and fast learning methodologies are fantastic for every functional area of the business (yes, even for boring bookkeeping). When properly practiced, they will keep you from squandering resources on dead-end projects, prevent you from making large stumbles, and lead to addictive progress.

In my next article, I will address one of the hardest execution problems in building bright constellations – compensation structure. We need a lot more innovation in this area because profit shares, commissions, and good ‘ol bonuses just don’t cut it.  Until then, I look forward to discussing the subject of this article as usual, in person, via Twitter, or e-mail.

Since I usually recruit talent for my teams, I often hear from acquaintances how they know someone “just so perfect, so well-rounded, so capable, so lacking of faults” that would be perfect for our startup world. These fantasy referrals often come from 1.) those who either worked for many big companies and are now “expats” from that world or 2.) from startuper/SMBers in denial about what it takes to survive in our world. So, let me share with you the core things I have learned during 14 years in startups – these well-rounded individuals with no faults, even if they existed, would not last a month in our companies. Why?

• We are gluttons for failure. Building companies is ridiculously hard and only scientists have to deal with more disappointments. We have to handle more failures in one year than most big company types do in a decade.
• Sane month, week, heck… how about just one day? What is that? There is a reason most people question our sanity. And yes, a good number of us “old” folks (read: not the usual stereotypical early 20-something many mistakenly think dominate our business demographic) still manage to figure out how to stay social, end up in a happy relationship with an understanding partner, and !GASP! have kids, but it’s tough.
• True talent is a zero sum game. When you get a lot in one place, you end up missing a lot somewhere else. Rarely can someone really do it all. Loud and endlessly bragging marketing people do not surprise me. There is no room for shyness in marketing. Your top sales people will be the biggest PITAs because the best ones have huge support overhead, constantly break your processes, cause havoc in post-sales, and hell would freeze over before they swore off discounting. Techies… I will spare them, since so many have fragile egos.

I will go so far to say that if one is just too normal, too perfect, too sane, too well-rounded, too much of an “A-player” in our world, that person is likely absolutely incompetent yet highly skilled in the game of company politics and the art of corporate brown-nosing. I am often wrong, like anyone, but I am yet to see an exception.

As some of you may recall, I am Director of Operations at a company in Cambridge, MA called Pixability. There are nine of us now and we are planning to hire three more before the year ends. We are growing rapidly and it is important to us not to turn into a dysfunctional “family”. This is the most crucial time in the growth of our company, because the culture we set now will make or break us. If culture building wasn’t hard enough of a task, we also have to be work hard at retaining our early employees, because those folks will be the evangelizers of it all to the new employees.

So how do we keep everyone running on all 12 cylinders, energized, and always feeling their importance to the team is not just BS preached to them?

There are three key areas we think help:

1. Constant momentum

• Our company culture is such that you are expected to learn and develop every day. Sometimes learning comes from mistakes and we embrace that. No one gets punished for making a mistake – we just build systems to prevent them in the future.
• We go out of our way to make sure no one sets himself or herself up for failure. If a project is considered too big, we make sure it is broken up into manageable pieces, so we can see the progress and any setbacks are minimal. We use the Agile Scrum methodology to ensure this.
• To prevent burnout, we make sure people take days off. We are even working on experimenting with a 2+2 vacation policy: you get 2 weeks of vacation, but if you take your 2 weeks continuously instead of breaking up the days, you’ll get 2 more weeks you can use later that year (and break up, as needed).

2. Making everyone’s voice and work really count

• First and foremost – no primadonnas, superstars, rockstars, or ninjas. Everyone works to raise the bar of the entire team.
• Everyone is visible in our organization through short daily morning “huddles” and bi-weekly “sprints”. No matter how junior you are, we want to hear how you want to improve the company.

3. Addressing concerns immediately

• We strive to resolve every considerable concern, disagreement or conflict immediately. We don’t let things “simmer”.
• Our CEO is extremely busy and runs on a 24X7 schedule, but she will always pick up a call or text message from an employee if there are issues.

Lastly, it is the make up of the team that helps in retention. The more your company looks like the United Nations (we have employees from 5 countries on our small team), the more people will stick around. Diversity creates a true family feeling and fosters an environment of real intellectual growth. Pixability is not the first company I am in where we practice this philosophy. I know it works.

Photo credit: Jack Lyons

• If you open GlassDoor.com or any other employer review site, you will notice a common theme in the positive reviews – people like to have fun with their co-workers outside of the office. What would I suggest? If your budget is tight, get a Flip cam (the latest generation Android, Blackberry, or iPhone would also work well) and start documenting the fun.  Then edit it yourself, or if you want a professional touch, the company I head operations for (Pixability) can take care of that detail for you.
• People love to work for a great manager. Grab a Flip or smartphone and have your inspiring managers talk about their leadership style, what they love about their team, and why someone should consider working for them. Yes, I will spare you any additional shameless self-promotion.
• Every company has some really cool employees with very interesting backgrounds, stories about how they joined the company, etc. A well-told story can move a great candidate to pick up the phone and reach out. Companies like Communispace, Zappos, etc. do this regularly and well.
• Never stop at just producing one or two videos for recruiting. Try to continuously add content, keep things fresh, and look for new ways to peak the interest of the great talent available out there.

At Pixability, we have done this with our “swivel chair” video. It was really fun to make – from my CEO getting several sweaty out-of-shape half-naked guys in her shot to myself getting kicked out of Harvard Yard for shooting a video (apparently they don’t like that). See the result below.

In conclusion, the use of great videos on your company recruiting section is not the only tool to help your team find more exceptional members, but it is a very effective one that is much cheaper than blowing tens of thousands on third party recruiters (which is what even lean startups mistakenly do sometimes).

So that all said, today I want to focus on some of the missteps many of us take in managing our most precious resource – people. I want to point out three major ones I have seen lately in the entrepreneurial community:

1. Fishing problem. Almost daily I hear the question “do you know any good <insert profession>? We’re having a hard time finding anyone.” And every time I follow it up with: “So how have you been recruiting?”  I am always hoping to hear something unique, but sadly, I usually get the same answer. The vast majority of us are “fishing” for the same “fish” in the same overcrowded spots. For me, it is a déjà-vu of ’99, ’03, and ’05. Apparently we have learned nothing. Not only can we not find the people we need, but when we do, the compensation demands are often out of whack. Looking for people who fit the same “template” needs to stop! Searching for the talent in the same places everyone else does is simply lazy.
2. Hiring only “A players”. Paul English (CTO of Kayak.com) might be a great self-promoter and plenty of folks buy into his “hire only A-players” philosophy, but he and the folks like him seem to omit a major detail – millions of dollars in their “war chest”. Not everyone can blow $60K plus in headhunter fees to poach an individual from another company. If we are all only looking for “A players” (add “ninjas”, “gurus”, and “rock stars” to the played out lingo), we are missing out on a lot of talent. Why? Because especially in resource strapped startups, we MUST do talent arbitrage. Forget finding those perfect matches- we need to focus on looking for those “hungry”, yearning to prove their worth, excited to grow, and itching to learn.
3. Working for the sake of working. In startups we love to brag about how many hours we work – it is like a badge of honor. I say we need to stop this wasteful madness! If we do some facts-based analysis, we will see only 40 of those 80+ hours in the office are actually productive while the others are self-defeating. Some of the more progressive companies are discovering they can have more progress with their people working sane hours effectively, rather than allowing (or even pushing for) unhealthy overworking of talent. Energy drink infused work hours are very costly to the progress of the company. We should focus on making sure our people are working ONLY on stuff that moves our companies forward and obsess about how to make it easier for our teams to get stuff done, not about how long they are working. Smart will beat long any day.

To summarize: diversify your recruiting efforts, look for individuals rather than just clones, and focus on work productivity, not hours worked.

About the author:

Apolinaras “Apollo” Sinkevicius is a business operations leader with 12-year track record of helping companies manage growth, build diverse teams, harness technology, and get a lot more profitable. He is usually brought in to build new or improve older business processes, provide structure to a rapidly growing business, and create higher level of predictability for the executive team.To learn more about Apolinaras “Apollo” Sinkevicius please visit his site TheOperationsGuy.com

Then my friend uttered something that I commonly hear – “are you saying you should engage in discrimination against the majority?” My answer that is: if that is what you call “discrimination”, then hell yes!

Not only should we avoid hiring clones of our current employees, but we should shy away from building an environment and employee benefits based on the “hot” formula that is only appealing to the majority. Hiring “blindly” and on qualifications alone is no longer good enough! Bringing great skills and knowledge onboard is no longer good enough! Every new person you add should bring in a healthy dose of a unique perspective, experience, culture, personal story, etc. The truth is – people like to hire others who are like them. So you must make an effort to hire outside of your “comfort zone”.

If you are still convinced that a monotonous team is just fine, here are a couple of questions to chew on:

• How will a crew of 20-something single white and Asian males with computer science degrees (usually from the same school) know how to create, market, and sell a product to a market that is NOTHING like them?
• How are you supposed to create an environment of innovation and creativity, when everyone on your team is the same? How do you stop the 100% guaranteed groupthink?
• What do you think a member of a different demographic group will do when they get your job offer, if they see an environment of mostly diversity-indifferent employees? How will that affect your efforts to make your team better?’

Still think this diversity “thing” is bogus?

“But all the candidates we get are from the same demographic group!”. This is a result of your “recruiting funnel” failure. If you can’t fill the top of the funnel with a diverse group of candidates, then your entire system will be broken. So how do you fix this?

1. Don’t be shy about finding very diverse companies that are doing well and copying their environment and benefits. Use this as a base and then utilize members of the diverse team you are building to help you further improve things.
2. Referrals are a good source of talent, but to make the top of your funnel attract the most diverse candidates, you have to use creativity. The more creative you get, the better the results. (Example I use a lot: you can find great future developers in music colleges and user experience designers in psychology programs).

“But I have a problem retaining people who are not [insert description of the majority demographic]”. This means you did not work hard enough or have not been open-minded enough about what motivates people different than you. Since this is a big topic, I will write more about this soon.

Until then, I would like to find out what were some of the more unusual places or strategies you used to find great talent. Post a comment, send me an e-mail, or hit me up on Twitter.

About the author:
Apolinaras “Apollo” Sinkevicius is a business operations leader with 12-year track record of helping companies manage growth, build diverse teams, harness technology, and get a lot more profitable. He is usually brought in to build new or improve older business processes, provide structure to a rapidly growing business, and create higher level of predictability for the executive team.To learn more about Apolinaras “Apollo” Sinkevicius please visit his site TheOperationsGuy.com

Photo credit: Chaotic Good01 on Flickr

Introduction by

This will challenge most moderate to large companies involved in software development traditional views.  For the purpose of this discussion I will assume the technical team is involved in developing a web-based application. From the results you can pick and chose how you want to arrange your team.

Principles first

Before we do the people selection there are some key principles to establish:

1. Strong talent in a small team can be far more effective that average talent in a larger one.
   Well directed and motivated expert teams execute effectively. They tend to need more tender loving care because they can be precious about their output, but this is a small price to pay for the results that can be delivered. You will expect to pay that expert talent more, but you can offset that by recruiting fewer people.
2. Try to operate like the team is a small start-up
   The by-product of creating this environment is that the team feel  they can operate outside of the “red tape” that besets many larger organizations and start to get creative and innovative. Typical examples are removing all the “lock downs” that most corporate organizations enforce on company provided hardware. This doesn’t mean that it’s a free-for-all – the environments should be well thought through and consistent.  Also allow the team to work on a flexi-time basis.
3. Have a strong leadership team that is transparent
   If the team know their leadership have their support and trust them then they are less likely to want to fail and will go beyond the cause to get things done and done right. A leadership team that shows they have direction and can speak to the team about it, can be open an honest about how things stand will have the respect and therefore the backing of the team – this loyalty is an extremely valuable commodity.
4. Cultivate the environment where everyone matters
   Empowering the team and ensuring that everyone feels more than comfortable to give an opinion to anyone in the group at any level. This creates an environment where people get passionate about their work and team.
5. Shield the team from corporate noise
   Avoid team members getting caught up in meetings etc. that take away their time from doing the work they love. This is a value add that they will respect you for.
6. Communicate!
   Create effective communication strategies – canvass the team about what sort of information would be useful. Have at least one team meeting a week and consider having a “beer Friday” once a month – take the team outside of the work environment and let them talk. It’s amazing what you’ll find out!

Choosing the right people

Depending on how your organization is composed, this design will differ but the component parts are still valid. The groups listed here are not exhaustive. Other equally valuable groups include Technical Authors, Support and Deployment.

Architecture – They should be able to speak to emerging or established (recommended) platforms and methodologies at various levels of the application. Databases are well covered with Oracle, Microsoft or Neteeza as the main players and Apache for webservers so expertise in the middle-tier is important, e.g. Service Orientated Architecture (SOA),  javascript frameworks (thinking jQuery, MooTools, Tibco GI).

Development – it’s a good idea split the development team into support and enhancements. That way you can have more junior or offshore resources in the support space and put your key resources into the new development area. As the junior resources mature they have a career path opportunity into the enhancement team.

When selecting your development team look, consider the importance of:

• User Interface capabilities – understanding the intimacies of CSS & Javascript and how browsers interpret them
• Database optimization – On oft overlooked skill is the ability to craft good SQL; whilst this can be achieved through the DBA, having someone on the development team skilled in this area is a positive.

Business Analysts – Being able to understand the 50,000ft view and bring it to the 50ft view is really important. BA’s are more than glorified note-takers (as I’ve heard them called) – they’re key people to interface between business and technical groups. Ideal characteristics include the ability to drive and direct both business and technical groups through positive interpretation, being decisive, accessible and flexible to changing needs. This list isn’t exhaustive but it gives you an idea where your BA skill sets need to be. A great BA is worth 3 average ones.

Quality Assurance – This is another area where outsourcing is possible, however it is essential  that there are full time employees also on the team to drive and direct. The team should be able to offload a great deal of the core testing through automation – without this you lose the ability for the QA team to be flexible to changing landscapes and the cost of ongoing testing is increased.

Location

If you’re looking for agile/xp development then the team has to be located in the same office to be effective. Teams trying to be agile in multiple locations face many challenges and tend to fall back to the waterfall method, which is ideal in these situations.

Conclusion

There is much to cover about the perfect technical team. Technical ability is extremely important, but no more so than personality of the individual. A good work atmosphere is incredibly addictive and will nurture a creative and industrious environment. Getting highly skilled and motivated people will pay dividends way beyond the balance sheet.

About the author:
Paul Morgan has been lucky enough to be involved in many aspects of IT from training, support, develop and architecture and is now a program manager for a global corporation (Nielsen Corporation) across their internet and intranet presences. Prior to his IT career he spent 11 years in financial services in client service and sales roles giving him a unique perspective entering the IT realm of understand and move between the business and technical arenas.Originally from Oxford, UK, Paul now lives in Chicago with his family and enjoys his car, music and photography. His blog is at one7.wordpress.com.

In many of the companies I have served and become familiar with, the responsibilities of the operations team are extremely broad. The head of operations (be it COO, VP, or Director of Operations) is usually responsible for coordinating and managing the execution of the vision and the road map developed with the CEO and the board. What does that entail? Although it slightly differs from organization to organization, most heads of operations will oversee everything from talent management (HR) to finance (unless there is a CFO), forecasting, infrastructure, IT systems (where we hire technology operations people), customer service, product development, and even sales. As operations professionals, we pride ourselves on our ability to conduct this “orchestra” and keep everyone happy, working efficiently, and supplied with all the tools and resources they need to do the jobs. Our unspoken responsibility is also to protect the organization, locate and remove rogue employees and suppliers, and reduce risks as much as possible.

For example, if I was in technology operations, my success would be in the hands of the software development and/or IT team. In business operations, my success is in the hands of EVERYONE in the company. Technology operations folks are very important part of my team, but they are only a small part of it. My team is the entire company. That is why 1. I am so protective about the best and brightest in the organization 2. I will rip out every “bad apple” before they can spread their “noxious rot” (and make sure we don’t screw up hiring someone like that again).

Hope this help in understanding the differences between the two professions.

P.S. There are also trading operations, manufacturing, and couple of other industry-specific operations, but somehow nobody ever confuses those.

Photo credit: Leo Reynolds