Top-down vs. Bottom-up Hierarchy: Or, How to Design a Self-Managed Organization

top-down-hierarchy-vs-bottom-up-designShould you run a top-down or a bottom-up organizational design?

Choosing “top-down” means giving the roles at the top of your organization significantly more control over key decisions than those lower in the hierarchy. Choosing “bottom-up” means having little to no centralized control so that those doing the work are free to organize, make decisions, and perform as they best see fit. Both camps have their own justifications.

The extremists in the top-down camp believe that an autocratic, hierarchical style of command-and-control decision-making is necessary for an organization to be successful and fulfill its purpose. In this case, strategies or plans are first conceived at the top of the organization and then cascaded down into the organization for implementation. When decisions from the bottom need to get made, they must first go to a qualified manager for approval. Deep down, the proponents of a top-down structure believe that if there isn’t an appropriate level of centralized control, the inmates will soon be running the jail and chaos will reign.

The top-down camp believes that without leadership and structure the whole enterprise will fall apart.

The extremists in the top down camp believe that without a high level of centralized control the whole enterprise will quickly fall apart.

The extremists in the bottom-up camp believe just the opposite — that most forms of hierarchy are unnecessary and inefficient (if not outright evil). Their view is that a top-down hierarchy separates authority from those actually doing the work. Therefore, at its best, a top-down approach leads to cultures of disempowerment, resentment, and bureaucracy. At worst, it gives birth to autocratic tyrants who wield unchecked power, enriching themselves and their families at others’ expense.

The extremists in the bottom-up camp believe that most forms of hierarchy lead to tyranny.

The extremists in the bottom-up camp believe that most forms of hierarchy lead to tyranny.

So who’s right?

Well, if you were to gauge the current zeitgeist in business and popular culture, you’d get a strong sense that the bottom-up camp is right camp to be in. Best-selling books and viral articles get published regularly that bemoan the old paradigm of top-down command and control as “so-last-century” while promoting an emerging new paradigm of self-managed, egalitarian organizations without bosses, titles, or anyone telling you what to do. Ahhhh. So refreshing.

But is it true? Let’s see…

Reinventing Organizations from the Bottom Up? Not Quite.

Reinventing_OrganizationsThe bottom-up camp loves to use the term “self-managed organization” to describe their ideal. A good example of the excitement surrounding the movement is the book Reinventing Organizations by Frederic Laloux. Laloux captures some of the elements of self-managed organizations and references companies like AES, Buurtzorg, FAVI, Holacracy, MorningStar, Patagonia, Semco, Steam, W.L. Gore & Associates, Whole Foods, Zappos and a few others. He makes the case that as the leading edge of global consciousness evolves, so too will new forms of organizational design that emerge to support it.

While I appreciate the ethos and intent of the bottom-up camp, there’s something that strikes me as counter-productive in it – namely, an almost cult-like aversion by its operators and proponents to anything that could be perceived as top-down hierarchy, structure, and authority.

I’m sure you’ve seen this trend already. The headlines scream “no-bosses, no-titles!” The org chart shows a series of concentric circles, a constellation of stars, or even a tree of life. The stories and anecdotes that circulate around the movement are usually about how small groups of peers self-organize — without the tyranny of managers — to create breakthrough results.

This aversion to hierarchy, structure, and authority is ironic because, if you were to peek behind the curtain of a high-performing, bottom-up, self-managed, seemingly egalitarian, set-your-own-salary-and-work-schedule, next-generation-consciousness company — what you’d find in actuality is a well-run top-down hierarchal organization!

Wait… what? Yep, that’s right. The best of the self-managed organizations are fundamentally top-down hierarchies in disguise. In order to explain why, I first need to clear up a common misconception about the top-down approach.
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How Full is Your Trust Battery?

Trust_BatteryIn a recent New York Times interview, Tobi Lutke, CEO of Shopify, used the term “trust battery” to refer to something that we’re all familiar with but we may not always articulate well: monitoring the current level of trust between people.

As you undoubtedly know, there are few things that can hinder success in an organization as much as a lack of trust. Using the metaphor of trust battery is a clever way to think about and communicate the importance of trust in your organizational culture and using it can make some hard conversations easier too.

Here’s how the trust battery works…

Every time your work with someone, the trust battery between you is either charged or discharged. When the trust battery between you is high, then the work gets done smoothly and quickly. When the trust battery is low, everything deteriorates.

When you start working with someone new, like a new hire, then the trust battery between you is charged at about 50 percent. You’re not really sure what to expect but you also give the benefit of the doubt and try to keep an open mind. Over time, if your interactions are positive, the trust battery fills up. If not, it drains.

Depending on its level of reserves, the trust battery can drain slowly or quickly. If you’ve worked with someone for a long time, have many positive shared experiences and a high degree of trust, then even if this person starts acting differently, the trust battery will drain more slowly. “Hmmmmm, Sam doesn’t seem like himself lately. He’s always been on time and now he’s late. I wonder what’s going on with him? I better check in and see if he needs anything.”

On the other hand, if it’s a relationship with low trust reserves already — like a new hire who clearly doesn’t cut it or a long-term relationship with a history of negative behaviors — then that battery drains very quickly. “Damn that Sam. He’s never delivered and he never will. He says one thing and does another. Why hasn’t he been fired yet?”

The trust battery works between groups too. For example, in your own organization, have you examined the trust level between sales and marketing? How about between customer service and engineering? Or between the CEO and the rest of the company? If you sense that the trust battery is running low between groups, I can almost guarantee that your company it not executing to potential – and it would be wise to take corrective action.

To be sure, we all have an intuitive sense for this already – it’s just how humans work. But calling it out makes it easier for everyone in your culture to understand and model. It also makes having difficult conversations easier and more constructive.

For instance, let’s say that Sam didn’t deliver on an important project. Confronting him with a statement like “Sam, you’re not trustworthy,” would only make him defensive. You would have an ever harder time restoring trust this way. With a shared company metaphor like the trust battery, you can make a more effective statement like: “Sam, my trust battery with you is really low right now. You said you’d get me this deliverable and it didn’t come through. Help me understand why because I want my trust with you to be high.” Sam’s not likely to be as reactive and it’s a much easier conversation to navigate, right?

As you teach your own organizational culture about the trust battery concept, it’s natural for a discussion around behaviors that build or destroy to trust to emerge. For me, these behaviors are self-evident. They’re really life lessons I heard from my grandmother.

Treat others with respect. Say what you mean, mean what you say. Listen twice as much as you talk. Follow through and follow up. Promise made, promise delivered. Be a master at your craft. And so on. These are all cliches for a reason — they’re behaviors that build trust and that we commonly believe to be desirable.

One thing that may need to be made clear – especially to younger staff – is that trustability is not the same as likability. I don’t have to like you in order to trust you, and vice versa. Some cultures confuse this by acting nice and friendly on the surface while avoiding harder conversations underneath. It’s these very conversations that are necessary to rebuild and reenergize mutual trust.

If you’d like some more ideas on starting the conversation on trust building with your own team, check out the Speed of Trust mini-lesson 13 Behaviors of a High Trust Leader or this list of 12 Leadership Behaviors That Build Team Trust by Ekaterina Walter at Forbes.

There’s a final reason I like the trust battery metaphor. It ties directly into the Organizational Physics Universal Success Formula that I find so effective. The formula states that when entropy (a measure of things falling apart) is high in the system, success is going to be low. Put another way, there are few things that cause entropy in your company to rise faster than mistrust among individuals and groups.

So as ever, in order to maximize the gains, keep the drains low!

Predictable Revenue: How to Structure the Customer Success Role

Predictable-Revenue-Book-Front-Cover-072911-hires

“We believe that the future standard for all executive teams will include a head of Customer Success who’s on the same level as the head of Sales, Marketing, and Demand Generation.” – Aaron Ross

If you run a software-as-a-service (SAAS) business, you might already know about the core concepts behind Aaron Ross and Margaret Tyler’s book Predictable Revenue. Aaron Ross learned his craft as the head of customer acquisition for Salesforce.com and this book seems to have become the hot new bible for scaling up the revenue side of a SAAS business.

The main theme of Predictable Revenue is that the single most important thing a SAAS business can do to scale revenues is to segment its Sales roles into distinct focus areas and also to create a new role in the organizational structure called “Customer Success” that is dedicated to making existing customers successful and driving renewals.

Lately, I’ve been getting asked frequently in my consulting practice about how to structure the Customer Success role. My sense is that there is some confusion out there about the distinction between Account Management and Customer Success. In this article, I’m going to show you how to use the principles of Organizational Physics to actually structure the Customer Success role so that your own SAAS business has the greatest probability of realizing its potential.

Role Segmentation: Always a Good Idea

Predictable Revenue argues that the major role of Sales is actually four roles that need to be segmented in the organizational structure:

  • “Inbound Lead Qualification” to qualify new leads coming into the business;
  • “Outbound Prospecting” to create and qualify new sales opportunities and then pass them to Sales or Account Executives to close;
  • “Account Executives or Sales” that close deals and carry a quota;
  • “Account Management/Customer Success” which is a role dedicated to making existing customers successful and driving renewals.

Does it make sense to segment these different sales roles? Absolutely. In fact, you should define and segment all of the major roles and most of the minor roles in your entire business — not just sales.

Segmenting by roles greatly supports scaling your business. It helps to create role clarity and accountability. It allows the right style of people to focus on the most important things for their roles. It significantly improves the hiring process. And with the right management process, it can significantly increase execution speed.

Predictable Revenue encourages the segmentation of sales roles earlier than one might think and I totally concur — but again, for all roles. Technically I would start to think through your organizational design and role segmentations in the mid- to late Nail It stage of business development. Heck, it doesn’t even cost anything to segment by roles if you don’t have the budget to hire for it. Some of your staff can wear multiple hats until you do.

So how should you actually structure the four specialized roles defined by Predictable Revenue? The first three are easy. Outbound Reps, Inbound Lead Qualifiers, and Account Executives/Sales should go under the head of Sales. This makes sense intuitively. All three of these roles are about being effective in the short term and building and managing revenue-driving relationships. They also benefit from being under a single head of Sales.

But what about the fourth role of Account Management/Customer Success? This is the role that’s creating all the buzz (and I think some confusion) — how do you actually structure that? Here is where I differ from Ross and Tyler. From my experience, Account Management and Customer Success should not be thought of as one but as two distinct roles. If you structure with this in mind, you’ll have a much easier time filling both roles and getting to scale.

Account Management & Customer Success are not the Same Role

Below are two pictures of a simple business-to-business SAAS structure. They are meant to illustrate how a scalable organizational design will keep Account Management under Sales and treat Customer Success as its own major function.

This organizational design is based on the 5 Laws of Structure in Organizational Physics and places the major functions of the business in their correct relative locations based on the competing needs of short-/long- range view, efficiency/effectiveness, and autonomy/control.

The first picture shows the ten major functions of this business in grey: Strategic Execution, Strategic Finance, Sales and Account Management, Product Management, Customer Success, Technical Operations, Software Engineering, Marketing, Strategy, and Admin. (Every structure is unique, but these are some basic major functions you would typically find in a B2B SAAS company.)

The second picture just zooms in on the Sales & Account Management, Product Management, and Customer Success roles:

How to Structure the Customer Success Role (2)

Account Management and Customer Success are NOT the same function. Keep Account Management under Sales and elevate Customer Success to its own major function.

Account Management and Customer Success are NOT the same function. Keep Account Management under Sales and elevate Customer Success to its own major function.

Before I proceed, I want to remind you that an organizational structure is not the same as an org chart. What this picture above is showing you is that this SAAS business has ten major functions. Each function has a PSIU code and a set of key performance indicators (KPIs) in blue. If you are unfamiliar with the PSIU code, it’s really helpful in designing your own organization to scale and making smarter hires. You can learn more about the PSIU framework here. It should also be clear that I am not designing for silos, but for unarguable accountability and cross-functional transparency.

Keep Account Management Under Sales & Make Customer Success its Own Major Function

OK, so why have I placed Account Management under Sales and not created a joint Account Management/Customer Success role as originally proposed by Predictable Revenue? The answer is that Account Management is a revenue-driving relationship role and Customer Success is a revenue-driving systems role. You will create more clarity, focus, and role fit and scale more easily by keeping these roles separate.

It seems to me that the authors of Predictable Revenue understand these differences intuitively. Even though they define Account Management/Customer Success as one function, note the subtle but important differences in their own definitions taken from their blog:

Account Management/Customer Success: Account Management usually implies a quota-carrying salesperson working with current customers. Customer Success implies someone without a quota (that is, unbiased) whose job is solely to help customers get more value from your product, whether through hands-on help, education and training, etc.”

If you can conceptualize Account Management and Customer Success as two distinct roles rather than one, it suddenly gets pretty easy to figure out how to structure them both.

You’ll want a single head of Sales and Account Management overseeing Inbound Lead Qualification, Outbound Prospecting and Account Executives/Sales, as well as Account Management. Specifically what I mean by Account Management is Key or Strategic Account Management focused on building relationships, being the voice of key customer needs, and driving recurring and upsell revenues from your largest and most important accounts.

If your business does not have customer tiers, then you won’t even need the Account Management role – and note that neither Key Account Management nor Customer Success are the same thing as Customer Service. Customer Service is the role that provides low-level user support at an affordable cost. Account Management and Customer Success, on the other hand, are revenue-driving roles.

In addition to the head of Sales and Account Management, you’ll also want a head of Customer Success that oversees Client Onboarding, Client Training, Client Analysis, and Client Experience Optimization. Notice that all of these sub-roles require a systems approach. They need analysis. They need to be the voice of all customers, not just the largest ones. They also need to drive revenue by ensuring that all clients are activating the product, understanding and using it, and finding insights in usage analytics that help drive overall product improvements that increase usage and renewals.

3 Breakdowns that Happen When You Combine Account Management & Customer Success

There are 3 major types of breakdown that occur when you combine Account Management and Customer Success into a single role. They are breakdowns in focus, style, and time horizon.

Breakdown in Focus
Think about it. The entire ‘Customer Success’ movement was born from Ross’ and others’ recognition of a simple fact: Companies without a function focused on engagement and renewals from existing clients fail to scale because they focus too heavily on making new sales. It’s a classic symptom of trying to Scale It before Nailing It.

On the other hand, companies that combine Customer Success and Account Management, end up with similar problems, sacrificing the product experience of the many accounts (Customer Success) for the needs of the few key accounts (Account Management). Account Management ends up overpowering Customer Success or vice versa.

Again, the Account Management role is a relationship role that needs to focus on the needs, aspirations, and renewals of key accounts. Customer Success is a systems role that needs to focus on the needs, aspirations, and renewals of all accounts. Keep them separate and put the right focus, leadership style, and KPIs in each area.

Breakdown in Styles
The PSIU style and approach of a world-class Key Account Manager requires a high drive to Unify or create rapport and connect with key accounts. While we’re looking for a high drive to Produce and win new accounts from the other sales roles, we want a more Unifying approach from Account Managers who build relationships and create empathy with important clients.

You can contrast the style of a great Account Manager with the style and approach of a world-class Customer Success leader, who should demonstrate a high drive to Stabilize and Innovate, but not to Unify. The Customer Success leader excels at designing systems, analyzing data, finding efficiencies and, generally, making the entire system work better at scale.

If you were to place an Account Manager type with a high Unifier style into the Customer Success role, then you would get a lot of great customer interactions but not a lot of scalability, design insights, or process improvements. Customer Success must design and optimize systems and processes to onboard new clients, train all clients elegantly so they understand and engage with the product, and optimize the overall client experience for all clients.

In short, always try to put the right style of people into roles where they and the business can thrive.

Breakdown in Time Horizon
In addition to a breakdown in focus and styles, there is also a different time horizon for Account Management versus Customer Success. Account Management will always be under tremendous short-range pressure to meet key account needs and drive new revenues from their portfolio of accounts. It’s about relationships – and the needs of the most pressing and important relationship should always take precedence.

Customer Success is going to be under a lot of short-range time pressure too but you want to design the organization so that Customer Success doesn’t collapse under this short-range pressure. Customer Success must keep a medium-range time orientation (e.g., the next 3 to 6 months, not the next 3 to 6 weeks). If not, then it will start acting more like an Account Manager being whip-sawed by the needs of key accounts and less like the head of Customer Success for all accounts.

If you take another look at the structure diagram above, you will see that Product Management is situated between Sales/Account Management and Customer Success. This is not arbitrarily so. Product Management mediates between the two functions. The purpose of Product Management is to translate, prioritize, and coordinate the competing needs, focus, and time frames that are occurring between Sales/Account Management and Customer Success (as well as the competing priorities coming from Strategy, Marketing, and elsewhere).

We want Account Management to put pressure on the company to fulfill on the needs of key accounts. We also want Customer Success to put a different pressure on the company for the needs of the overall product experience and for renewals. The role of Product Management is to to make the hard decisions that balance out those competing needs and move the business forward now and over time. If you’re interested, you can read more about the Product Management role here.

Summary

Predictable Revenue has started a broad and productive conversation that is still evolving.

Despite how it’s been defined by Predictable Revenue, I believe that Customer Success should not be placed in the same category as Account Management. While every structure is unique, it generally makes more sense to keep Account Management under Sales and make Customer Success into its own major function.

Additionally, I think that one of the important ideas in this book – role segmentation – should apply not only to Sales but to all the major and minor roles in your business.

Finally, the idea of having happy, recurring customers is obviously not new and it involves more than formalizing a Customer Success role. It’s always a total company effort that requires constant engagement, effort, and reinforcement from all roles in the company.

Organizational Design: Why You Should Not Have a President and COO

Photo credit: AudienceView.

Photo credit: AudienceView.

It’s a classic tale. Your company’s driven, visionary founder manages to lead your start up to takeoff and hit rapid growth mode. But then something happens, and everything starts to bog down. Those former start up struggles and early wins turn into a whole new set of challenges: running the business at scale.

At about this time in an organization’s lifecycle, conversations in the board room and around the water cooler start to focus on the founder. See if you’ve said or heard any of these before:

  • Our founder has great energy and ideas (along with some really dumb ideas) but we still can’t seem to get our act together.
  • It’s no secret our founder isn’t an Operations person.
  • We need to either replace our founder or support her with someone experienced who can run day-to-day operations and keep the trains on time.
  • What we need is a President/COO. Then the founder/CEO can be Mr. Outside and the President/COO can be Mr. Inside.

Does any of that sound familiar? I bet it does. On the surface, having a President/COO can make a lot of sense. Every organization needs stability, structure, and experience if it is going to scale up. The approach is certainly popular. “President and COO” titles are so common—throw a stapler in the air at your local office park and you’re bound to hit one on the head.

But hiring a President/COO to solve the “founder” problem typically brings just a new set of problems, setbacks, and even disasters. In many cases I’ve seen, the new President/COO was a sure bet on paper but failed replicate past successes in a new environment.

In another common scenario, you’ll find that soon after joining, the new President/COO will get into conflict with the founder/CEO about who really runs the business. When this happens, the culture quickly erodes into “old guard” vs. “new guard” and execution speed bogs down across the board from all the in-fighting and politics.

There’s also a little appreciated but equally severe problem that happens when the founder leaves the business too soon, now that “the professionals are in charge” or because “it’s just not that much fun around here anymore,” and the company fails to capitalize on its true potential over time.

While hiring and integrating capable senior leaders into the organization is needed and necessary to scale your business (I’ll show you how to do this here), the popular approach of having a President/COO to oversee business execution usually turns out to be a fix that is much worse than the original problem.

I’ve coached over 50 founder-led, high-growth companies to increasing revenues and profits without a traditional President/COO and without consolidating business functions under a few key leaders like a President, COO, and/or CFO. I can say with confidence that there is a better way to build great leadership to help an organization scale, without the drawbacks of the popular approaches.

The answer lies in understanding the Leadership Team model. With a strong functional Leadership Team, you avoid the typical problems of the President and COO approach in favor of a distributed, transparent Leadership Team process. Done well, it’s the difference between a monarchy embroiled in power and succession battles and a functional representative democracy. I’ve seen it work over and over again. And it all starts with how you think about what’s really needed to scale your business.

Start With Your Strategy and Structure

Aristotle once said, “If you’re going to debate me, first define your terms.” Many of the issues surrounding the President/COO role start with a lack of clarity about what that title really means.

Think about it. When an individual has the title of “President” or “COO” or “President and COO” what does that really mean anyway? Are they in charge of operations? Sales? Engineering? Product Management? Tech Ops? Administration? Marketing? All internal functions? Some internal functions? The titles and role responsibilities might mean one thing in one company and something totally different in another.

To help answer that question, you need to know your business strategy and have an organizational design that supports that strategy. Below is a simple organizational design that supports an expansion-stage strategy for a Software as a Service (SAAS) company with one business unit. (Note that every structure is unique. Consider this structure an example for discussion, not a direct representation of your business.)

Organizational Design- Why You Should Not have a President and COO Basic Organizational Structure

I’ve designed this sample structure using the 5 Laws of Organizational Structure. (If you’re unfamiliar with these laws, you may want to understand them before proceeding.)

Remember that the goal of a well-designed organizational structure is to call out the major business functions; place them in their correct relative location in the structure by balancing the need for autonomy and control, effectiveness and efficiency, short-range and long-range needs; and ultimately clarify who is accountable for each function.

Note that there may be 1 or 1,000+ employees in a given function. That’s fine. But who’s ultimately accountable for the performance of that domain? That’s what we need to get to in the structure. Clarifying accountabilities in the structure does not mean you need to rush out and hire someone to fill each role immediately. Depending on the lifecycle stage and budget of your company, one person could play a role and wear multiple hats across different functions in the structure.

Notice too that I’m not using titles in the structure but functional descriptions for each role? For instance, rather than the title of CEO at the top of the structure, I’m calling out the function this role performs as “Strategic Execution,” or the role accountable for defining the strategy and tying it to execution. Similarly, I’m not using a title like “VP of Sales,” but just a simple functional description of “Sales” meaning the role accountable for driving revenues from new and existing clients.

The reason why you shouldn’t use titles in your structure is that titles create confusion where you need clarity. They protect or project egos, create role confusion, and obfuscate the real and necessary discussion about what functions are needed to scale the business and the style you need in each role.

If you ever find yourself discussing what titles you need versus what functions your business must perform, read Organizational Design: The Difference Between an Organizational Structure and an Org Chart to get out of that trap.

Now that we have a basic structural map to work with, we can reframe the discussion with great clarity around what it would really mean to have a President/COO, the implications of different moves, and ultimately how to be smart about the decision.

So back to the issue at hand… when someone in your company says, “We need a President/COO,” you should immediately ask, “OK, and what functions will that individual be accountable for? Head of Sales? Head of Operations? Head of Sales and Operations? Overseeing all other business functions? To replace the founder/CEO as head of Strategic Execution? What functions do you think we need to fill and why?”

If you can answer that question for your own business, then you’ve won 50% of the battle and it puts you significantly further ahead of most companies that are just blindly looking for a title. The other 50% is avoiding the two most common mistakes made when attempting to hire/promote the equivalent of a President/COO in your business:

  • Mistake #1: Turning the founder/CEO into the Queen of England
  • Mistake #2: Consolidating Core Functions Under a President, COO, and/or CFO

Here’s what both mistakes mean and why it can be so costly to organizational performance…

Mistake #1: Turning the founder/CEO into the Queen of England

Organizational Design- Why You Should Not Have a President and COO- Queen of England (2)

The mistake of turning the founder/CEO into “The Queen of England” occurs when the founder/CEO attempts to have one individual manage all internal activities so that he or she can be “freed” to focus on external activities like fundraising, market evangelizing, or playing golf. The founder/CEO maintains the CEO title in name only, but gives up trying to manage the business.

I call this particular move the Queen of England because the founder/CEO, even if they’re not originally intending this, ends up with all title and no power. What you’ll usually see happen in this case (there’s one exception — the Chief of Staff — that I’ll explain below) is that the founder/CEO and the new President/COO soon get into a toxic conflict over who actually controls what.

Once this internal battle ignites, the culture quickly segments into the “old guard” and the “new guard.” Execution speed slows down from all the infighting and internal politics. Navigating this situation sucks everyone’s time and energy. When this classic battle unfolds, either the founder/CEO stays (if they still have control) or the President/COO gets fired and the company is right back where it started — but now even further behind in its development.

Even if this battle for control isn’t overt, with the Queen of England structure in play, you’ll often find that the founder/CEO has disengaged from the business and made a quiet surrender.

This early exit happens because the founder/CEO is burned out from all the heavy lifting they’ve had to do to get the business this far and they crave a break. They typically feel dissatisfied because the business no longer seems capable of executing on their endless thought-stream of breakthrough ideas (the company is overwhelmed just trying to manage existing operations). Alternatively, the founder/CEO just doesn’t know what to do in this new “professional” setting and feels like a fish out of water. Things have gotten tiresome, overwhelming, or plain boring, so they crave a new setting, ideally with some money in the bank.

It is rarely a good thing when the innovative founder, who seems to have a sixth sense for what the industry really desires, disengages from the business too soon. And don’t fall for the popular myth that a talented founder is unnecessary to scale a great business.

Just look at every transcendent brand — those multi-generational businesses that disrupt and dominate entire industries. Each one had one or more founders who did not run a Queen of England structure (many tried it before reverting to the Leadership Team model that I’ll explain below). Nor did they get kicked out by VCs or put out to pasture by the Board into a Chairman or VP of Strategy role. Instead, these legendary founders got carried out on a stretcher after a lifetime of business building doing only what they could do.

You may be thinking, “Well shit, how many Steve Jobs, Jeff Bezos, or John Mackeys are there in the world? Those guys are born geniuses. Our founder is very far from their capabilities so who really cares if he disengages? In fact, we’d all like a break from his mood swings and barrage of crazy ideas. Truth be told, our founder is a pain in the arse.”

The fact is that genius founders aren’t born; they are made. We’re all shaped by the environments we inhabit. A large factor in what makes Jeff Bezos Jeff Bezos is that he sits at the head of Amazon every day. You’ll find the same thing is true with most great founders: They were born with raw capabilities, and that latent potential quickly became actualized in the crucible of leading a world-changing company.

In all but rare exceptions — such as when the founder is truly an immature idiot or a crook — don’t try to put them out to pasture. You can’t buy or duplicate what a talented founder as the head of Strategic Execution can bring to the table in terms of vision, heart, commitment, and innovation.

Instead, design the business around their individual genius — what they are uniquely capable of doing and energized by — while also designing the business to scale and coaching him or her to be an effective head of Strategic Execution.

By the way, the Queen of England structure isn’t just a stupid move for your mid-sized growth business. Of the world’s top 10 companies by market cap — Apple, Exxon, Microsoft, Google, Berkshire Hathaway, Johnson & Johnson, Wells Fargo, Walmart, GE, and Proctor & Gamble — can you guess how many have adopted a centralized structure where all reports roll to a President/COO who in turn reports to a CEO? Zero. (Note: you will see some of these organizations using the title “President and CEO” to indicate that one person is head of Strategic Execution for the business or for an entire business unit but they don’t have one direct report; they have a team of direct reports).

Finally, if the founder/CEO is really committed to stepping out of the day-to-day business, then he or she should call it like it is, give up the CEO title, and just sit on the board of directors. Problem solved.

Mistake #2: Consolidating Core Functions Under a President, COO, and/or CFO

Organizational Design- Why You Should Not Have a President and COO- Bad Consolidation

Some companies intuitively grasp that the Queen of England structure is flawed but they still make the mistake of attempting to consolidate different core business functions under a President, COO, and/or CFO. The basic idea is to limit the number of direct reports that founder/CEO has to manage and to bring needed expertise to what may seem like — on the surface — similar business functions.

For instance, in the example structure above, this business has consolidated the external functions of Sales and Marketing under a President; the internal functions of Product Management, Operations, and Software (SW) Engineering under a COO; and Strategy and Admin under a CFO. You’ll see this or some variation of this consolidated structure in many different businesses (most of them not breaking through).

On the surface, consolidating like this might seem to make sense. But once you know what to look for, you’ll spot a lot of problems in this approach. Problems that will cause the business to miss new innovation opportunities, have more hierarchy than what’s needed, consolidate too much power in one person, and/or fail to scale to its potential. Here are some of the most glaring problems with consolidating:

  • Marketing Should Not Be Consolidated with or under a Sales Function (President or Chief Revenue Officer)
    Marketing is a long-range function. Sales is a short-range function. Unless you design against it, the short-range will always overpower the long-range. In this case, if you were to consolidate Sales and Marketing together under a President or Chief Revenue Officer, then Marketing would soon turn into a sales support function and lose its long-range effectiveness, which is needed to build and defend the brand architecture and positioning, craft a compelling brand narrative, and adapt the brand early to changing market conditions. In short, to do real marketing.

    This is true even if you have what appears to be one rock-star President in charge of Sales and Marketing now. Either that leader truly excels at Sales or they excel at Marketing, but usually not both and definitely not both at the same time. Put another way, if you have one leader wearing both the head of Sales hat and the head of Marketing hat, then one or both of those functions are going to perform at a less than optimal level.

    You may be asking, “Wait, doesn’t Marketing need to support Sales?” Absolutely. Every function has a client. But Marketing has many clients in addition to Sales, including Strategy, Product Management, Operations, and Strategic Execution. It must maintain its long-range orientation while simultaneously supporting short-range needs. Don’t consolidate Marketing with Sales or it will fail your brand over time.

    This is different than having a President or even a President and CEO in charge of total performance of a distinct business unit. Even in this case, however, you’d still want to centralize the overall brand architecture under corporate Marketing and then delegate Marketing Execution to that business unit, but still within a sound structure where Marketing Execution is distinct from Sales.

    You may also be thinking, “Geez, we can’t afford to go out and hire a new head of Sales or a new head of Marketing. Does this guy Lex think we’re made of money?”

    My answer to that is you have to play the cards in your hand. But calling out Sales and Marketing as distinct functions and placing them in their correct relative locations in the structure is incredibly valuable — even if you’re going to have one leader wear both hats for now. Doing so allows you to spot where potential improvement areas lie, find quick wins, and to judge the current leader by their primary role and expertise. Ultimately, it also allows you to find the right new candidate when you can afford to do so.

  • Product Management Should Not Be Consolidated with or under an Operations Function (COO)
    Product Management is a translation function. That is, it is designed to translate between the need to support the effectiveness of outbound activities and the need for efficiency in internal ones. If you consolidate Product Management under Operations, it will become very efficient but less effective. It will cease being as responsive to the needs of Sales, Marketing, and Strategy.

    For a different reason, it’s also a mistake to consolidate Product Management under the President in charge of Sales. Sales should be held accountable for revenue but Product Management should be held accountable for the profit of the products that Sales sells. One function, Sales, needs to be very effective at driving revenue. The other, Product Management, needs to be very efficient at coordinating upstream and downstream requirements and product releases and allocating production resources to be profitable.

    In addition, if you did roll Product Management under the President in charge of revenue, then your profit margin will quickly deteriorate under pressure to hit revenue targets. The founder/CEO as head of Strategic Execution will end up needlessly caught in the mix of negotiating sales contracts or pricing models. Product Management needs to balance short-range profit targets with long-range product development needs, not fall prey to the singular pressure of Sales or Operations.

  • Software Engineering Should Not Be Consolidated with or under Operations (COO)
    Software Engineering needs to maintain its effectiveness and adaptability and will lose it if it’s consolidated under Operations. Software Engineering (otherwise called Product Development or Manufacturing in a non-software company) must be innovative and responsive to changing product requirements, right? Well, if you put it under the COO, who by design needs to make operations controllable, repeatable, and efficient, it will lose its flexibility and adaptability to change.

    For a similar reason, you would not consolidate Technical Operations (IT, Tools and Systems Integration, Data Analytics and Reporting Platform, etc.) under Software Engineering or vice versa. If you do, what you’ll find is that your internal technical operations will always play second fiddle to external customer requirements. You’ll lose out on your ability to operate efficiently at scale.

  • Admin and Strategy Should Not Be Consolidated Together, Nor Should They Be with or under Strategic Finance (CFO)

    The CFO or head of Strategic Finance is a long-range effectiveness function. It must deploy surplus cash for a sound return, provide strategic-level insight to all other business functions and the board, and ensure that the organization is compliant with regulations and there is a sound global governance process in place.

    Many companies consolidate their Administrative functions like controller, HR administration, and corporate legal coordination under the CFO. However, these administrative functions are all about short-range efficiency. A great CFO is not a great Administrator and vice versa. If you ask one leader to oversee both functions, the organization will have either poor strategic finance or poor administration (not to mention the structural risk of having one function both collect the cash and pay the bills).

    Finally, it’s a mistake to have the CFO as head of Strategic Finance also oversee corporate Strategy. While both functions are about long-range effectiveness, you want your Strategic Finance function to act as a check and balance against spending too much money or doing really dumb things. If you were to consolidate Strategic Finance and Strategy, then you’d lose that check and balance or you’d miss out on really bold strategic moves. You want constructive tension between these roles, not consolidation.

    There is another reason not to consolidate Strategy under the CFO. Strategy (priorities, incubating new initiatives, recruiting, culture, etc.) needs to be directly involved with the Strategic Execution function at the top. Strategic Execution is the head of the company and the biggest mistake this role can make is to misread the changing market environment. Strategy needs to directly support Strategic Execution and incubate the next generation of innovations. For this reason, the head of Strategic Execution can and should delegate accountability for all business functions except Strategy.

There are a lot of other poor consolidation choices that a business can make. The main thing I want you to take away is that how something is designed is how it behaves. Your business has many different functions. The design must make sense for the strategy and it must balance autonomy and control, short range and long range, effectiveness and efficiency. Rather than attempting to consolidate conflicting functions for “ease of management,” treat them as distinct functions that warrant their own space, focus, and accountabilities in the organizational hierarchy.

If placing a Queen of England or consolidating the wrong functions together causes problems for sustained business performance, as we have seen, then what is the right way to get the benefits of having the equivalent of a President and COO?

There are two smart and straightforward moves to make:

  1. Smart Move #1: Hire/Promote Strong Functional Heads to Be On the Leadership Team
  2. Smart Move #2: Optionally Add a Chief of Staff

Smart Move #1: Hire/Promote Strong Functional Heads to Be On the Leadership Team

Organizational Design- Why You Should Not Have a President and COO Basic Organizational Structure with Leadership Team

The structure above is both simple and smart. Rather than trying to turn the head of Strategic Execution into the Queen or England or to consolidate different major functions under a few individuals, hire or promote a team of leaders who each “own” one of the major functions. Together with the head of Strategic Execution (the founder/CEO), these leaders make up the Leadership Team.

This approach should make sense intuitively. In order to scale a business, you don’t just need one or two leaders; you need a team. Even if you can’t yet afford to have a senior team of 5 to 10 people, this is still a superior approach to scaling your business. Why? If you were to seek out a potential President or COO, they would still need a strong team of leaders under them.

Second, even if you have a small team that must wear multiple hats until the business is big enough to afford dedicated roles, as I mentioned earlier, it is still better to call out that your head of Sales is temporarily wearing the hat as head of Marketing (or your head of Software Engineering must help out in the short run as head of Operations), rather than giving your head of Sales the title of “President” in charge of Sales and Marketing – and dealing with all the trouble of undoing that consolidation later.

In a nutshell, this approach of having a Leadership Team requires that you first define your growth strategy and culture, then design the organizational structure based on the major business functions (not people or titles), and then find leaders who are a strong match for those functions, independently of job title.

Now, I can almost hear some of you thinking, “Wait a minute, there’s no way that our founder/CEO can manage a team of 5 to 10 direct reports. If we don’t consolidate some of these functions, it will be just too much for our founder to handle.” If so, I call bullshit.

The truth is that, with a basic cultural system in place, an effective team-based decision-making process, information transparency with clear metrics, and a sound talent management process, it’s not hard to manage that many direct reports. In fact, almost any founder can quickly learn to manage a team of 5 to 10 direct reports very effectively in about 1/2 day per week.

Here’s another way to think about managing direct reports in this or any structure. The Strategic Execution role (whatever the title may be: CEO, President and CEO, GM, Owner, etc.) needs to be strong at deciding what to do and why. His or her direct reports — the leadership team running the other major functions — needs to be capable of determining the how and when to execute on the plan.

So don’t add unnecessary layers at the top of your business. In order to execute swiftly, the Strategic Execution role needs a direct representative from every major function at the table. With the right strategic execution framework, it’s straightforward for the head of your business to manage a handful of talented direct reports who are also a strong match for their roles.

Smart Move #2: Optionally Have a Chief of Staff

Organizational Design- Why You Should Not Have a President and COO Basic Organizational Structure with Leadership Team and Chief of Staff

If you still feel that the founder/CEO can’t manage that many direct reports, or if the business is just big and complicated, then a modified version is to add a Chief of Staff on the Leadership Team of functional heads. The sole purpose of the Chief of Staff is to support the head of Strategic Execution (founder/CEO).

Adding a Chief of Staff allows you to maintain the strong Leadership Team structure while also providing Strategic Execution with more administrative/obstacle-removing/project management expertise. You might think of how the Chief of Staff supports the Strategic Execution position of the President of the United States.

Unlike the Queen of England, it’s clear in this structure that the Chief of Staff is there to support, not interfere or compete with, the head of Strategic Execution. There’s just one ultimate boss and no role confusion about who is really in charge. “The buck stops here,” as Harry Truman was fond of saying.

There are other benefits of this approach too. The head of Strategic Execution still maintains direct connection with the Leadership Team of functional heads who execute on the strategy. The approach doesn’t consolidate too much power and control under one individual and it supports sound organizational design principles by balancing the conflicting needs of autonomy and control, effectiveness and efficiency, long range and short range. It also allows the head of Strategic Execution to train up the next new head of a strategic business unit as Jeff Bezos has done successfully at Amazon…

Take a Peek Inside Amazon

Jeff_Bezos_The_Everything_Store The Leadership Team with a Chief of Staff is the basic approach that Jeff Bezos has put in place, after some significant missteps, for the organizational structure at Amazon. According to the fantastic inside history of Amazon by Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon, in the early 2000s when Amazon was struggling to get its operational house in order, Bezos and the Amazon Board aggressively pursued and hired an experienced President/COO named Joe Galli, a former Black & Decker executive. Their vision was that Galli would “bring some adult supervision” and complement the erratic and visionary Bezos by giving focus and stability to Amazon’s execution.

In short, Bezos put in place a classic Queen of England structure whereby all Amazon executives reported to Galli. You can guess what happened. At first Bezos took some time off to be with his newborn son. But via email and irregular meetings, Bezos and Galli soon engaged in a classic battle over who really ran Amazon. The executive team culture turned toxic, business execution speed bogged down, and there was an exodus of key leaders and staff.

13 months later, Galli was forced out by Bezos, who still owned a majority stake. From there Bezos shifted towards a leadership team model with key executives owning different business functions as well as new innovation opportunities in Strategy. A few years after that, Bezos also put in place a Chief of Staff role that would be occupied by key up-and-coming leaders with great potential who would shadow him nearly every day for 18 months.

During the shadow period, the Chief of Staff (now formerly called the Technical Advisor) helps Bezos coordinate and execute on Amazon’s multi-pronged strategy. This close collaboration allows the pair to build chemistry and trust. It also allows the Chief of Staff to be inoculated in the Bezos mindset and philosophy and build up leadership skills and cross-functional visibility. The internal parlance for the Chief of Staff and other key leaders who’ve worked closed with Bezos is “Jeff Bots,” meaning they’ve bought into the culture, vision, and methodology at Amazon to such an extent that they are like little Bezos multiplied across the culture.

Once the Chief of Staff’s 18 month tour is over, the goal is to have him or her head up a new key strategic initiative at Amazon. One example of this is Andy Jassy, who went from Chief of Staff (and other roles at Amazon) to ultimately heading up the early version of Amazon Web Services (AWS), Amazon’s hugely transformative and market-dominant cloud services architecture.

Summary

Looking to hire or promote a President/COO – or multi-person equivalents – is rife with problems. Whatever you choose to do, you must avoid both the Queen of England strategy and short-sighted consolidation of different business functions. A better bet is to hire or promote highly competent, dedicated leaders for each business function and to align the strategy, culture, structure, and team-based decision making processes so that the head of Strategic Execution can drive the business forward (possibly backed by a Chief of Staff). If you take this basic approach, you’ll save yourself a lot of time and energy, avoid missed market opportunities, and give yourself the greatest probability of success.

Organizational Design: The Difference Between Organizational Structure and an Org Chart

“What’s the difference between an organizational structure and an organizational chart? Do you need one or the other—or both—to manage your business?” I get asked different versions of this question a lot. The distinctions are subtle but important. Knowing the answers—and approaching your organizational design the right way—is mission-critical to scaling your business.

The short answer is this. In most cases, if you’re entering a new stage for your business—scaling beyond start-up mode or embarking on a new growth strategy—you’ll need a new organizational design. And when it comes to organizational design, you really only need two things:

  1. A well-designed organizational structure
  2. A “role-centric” human resource management system (HRMS) that mirrors the structure

That’s it. You do not need a classic org chart—that constantly-changing and almost instantly-out-of-date diagram that shows names, job titles, and lines of reporting responsibilities. The org chart tends to quickly become obsolete and leads to a counterproductive focus on who’s where in the organizational pecking order…

You don't want this.

You don’t need this. Photo credit Pathfinder.

Trying to maintain a classic org chart—or, heaven-forbid, to redesign your business based on one—causes much more harm than good. So drop the classic org chart and instead embrace the principles of effective organizational structure combined with a role-centric HRMS. Here’s what you need to know…

Are You Attempting to Redesign Your Business from an Org Chart?

It should be intuitive that, in order to manage and scale your business, you need a sound organizational design. As I’ve written in “The 5 Classic Mistakes in Organizational Structure: Or, How to Design Your Organization the Right Way,” everything has a design to it. If your business design sucks, then your execution will too.

Changing an organizational structure can be very challenging because there’s a lot of inertia tied up in the status quo. Individual perceptions of job status, internal politics, titles, compensation, and desired career paths can make changing your structure seem complicated, if not daunting. Many companies set themselves up for failure by attempting to redesign the organization from an existing org chart. When this happens, it sounds something like this…

“OK, so what if we have Sally and Mike report to Jeff, Jeff report to Ron and Ron and Helen will split reporting responsibilities? That could work. Wait.. what… Helen is leaving now? Damn. OK, how about if instead Peter takes over for Ron and Ron can head up the new product line? No, that won’t work because Ron’s ego is as big as the Grand Canyon and he’ll feel like he’s taking a step backward. Shit. This is complicated. I guess we’ll just stick with the status quo, even though we all know it’s not working well at all.”

If you ever find yourself in a conversation like this one, it’s a sure sign that you’re not thinking deeply enough about your business. You’re stuck in the past when you should actually be leaning into the future. You’ll end up making cosmetic, surface-level changes—or no changes at all—when what’s really required is deep thinking—that is, thinking deep into the structure of your organization to execute on an evolving strategy for an evolving market.

Having personally restructured over 50 companies and seen them transform into lean, mean, growing machines, I want you to know that while it is challenging, restructuring is absolutely necessary if the organization is transitioning into a new lifecycle stage and/or changing its strategy. But redesigning a business doesn’t start with the org chart. It starts with creating the new organizational structure.

The Key Differences Between an Organizational Structure and an Org Chart

An organizational structure and an org chart can often appear similar on the surface, but there are some profound distinctions:

  • Organizational structure is designed around the functions a business performs (e.g., sales, marketing, finance, engineering, etc.).
  • An org chart is built around people and titles.
  • Organizational structure defines the purpose, accountabilities, and key performance indicators (KPIs) for each business function and role.
  • An org chart shows each person’s job title and may include HR stuff like job requirements.
  • Once correctly defined, a structure changes infrequently—for example, when there’s a change in strategy like a new product initiative or a move up to a new stage in the execution lifecycle.
  • An org chart needs to be updated frequently as people come and go. It’s out of date almost the minute it’s created.
Type Focus Documentation Change Frequency
Organizational Structure Function-centric Purpose, accountabilities, KPIs Infrequent, changes with strategy
Org Chart People-centric Titles, job descriptions, HR stuff Frequent, changes with people

To repeat, you don’t need an org chart to scale your business, but you do need a well-designed organizational structure. And sure, there are key elements of a classic org chart that you’ll want to maintain in a role-centric HRMS to make the job of managing staff, budgets, and HR stuff easier. But I’ll share more on the HRMS in a bit.

How to Redesign Your Business With a New Organizational Structure

Good organizational design has some minimum requirements. Before you even start the design, you first take any consideration for people and titles off the table. You start with a blank slate and think through the functions the business must perform to succeed in its chosen growth strategy now and over time. What are those functions for your business?

In addition to supporting the chosen strategy, a good structure should (1) clarify the purpose and accountabilities of each organizational function; (2) place each major and minor function in its correct location relative to other functions by balancing effectiveness and efficiency, short range and long range, autonomy and control; (3) clarify the key performance indicators (KPIs) of each role; and (4) identify which people are accountable for performing different functional roles.

In a picture, a sound organizational design will look something like this below. And careful: it might look like an org chart at first but there are some major differences:

A sample structure using sound design principles.

A sample structure using sound design principles.

Note that every structure is unique. This structure above is a simple representation of a $15M Inc. 5000 Fastest Growing Company that I helped to redesign as part of my strategic execution coaching program.

Prior to this organizational redesign, the company had stalled out in its growth trajectory and the culture was deteriorating. The team was suffering from role confusion, unclear accountabilities, a lack of real strategic priorities, and stalled execution. Revenues and profits were flat for several years prior. Two years after the redesign, revenues were up 40% and net profits up 30%, the culture was restored, and the organization is now much easier (not to mention more a lot more fun) to manage. Much of this has to do with getting the structure right.

In the structure above, each large grey box represents the major functions of the business. The smaller beige boxes represent the primary sub-functions within those domains. The blue boxes under each major function capture some of the high-level KPIs for that functional area. Calling out the KPIs in the structure helps to bring clarity and focus to the structural discussion and ultimate adoption of new roles by the individuals involved.

Notice that I’m not using titles like “CEO” or “VP of Sales” in the structure. Instead I’m using functional descriptions like “Strategic Execution” or “Sales.” This is because job titles shift the focus to individual egos rather than the role requirements of each function. If the conversation shifts towards appeasing egos, that’s a sure sign that you’re designing the organization around people—rather than functions—and you’re setting yourself up for trouble.

Only after the design is set up correctly for the chosen strategy—again, independently of the individuals involved—should you assign accountability for each function. Note that, depending on the lifecycle stage of the business, one person might be accountable for their primary role in addition to wearing other temporary “hats.”

It doesn’t matter how many staff a given organizational function has, whether 1 or 1000+. What matters at this conceptual stage of the design is that a single person, whether as a dedicated role or wearing a temporary hat, is held accountable for the success of that area of the business. In short, you’re answering, “Who is ultimately responsible for the success or failure of this particular function?”

Also, notice that each function in the structure has a PSIU code. This shorthand code allows the company to have a shared definition of some key management requirements for each role, as well as the type of leader who is best suited to own it. It helps tremendously with hiring and creating role alignment and satisfaction among the staff. (If you’re not familiar with PSIU, I recommend that you read “The Four Styles of Management.”)

While there is an art form in facilitating a process to help the team opt into their new roles in the structure, the first step is always to create teamwide recognition and commitment to the right strategy and structural design before addressing who is will be taking on which roles and hats. If you don’t take this necessary step, the restructuring discussions will quickly devolve into a turf battle among individual egos at the expense of what’s best for the business.

Finally, one might look at the sample structure above and think “silos”. Actually, any pre-existing silos in the business disappear with the adoption of an effective team-based decision making process that creates transparency and cohesion, therefore bringing the new organizational structure to life.

In other words, creating unarguable accountability for the key organizational functions must also be matched with an information-sharing and decision-making process that creates radical transparency and rapid execution across the organization. You can read more about tying strategy, structure, and execution together in Parts III and IV of my book Organizational Physics: The Science of Growing a Business.

A Word About Hierarchy in Organizational Structure

One more thing before we move on. You may be thinking, “Wait, do we really need a hierarchy in our organizational design? That seems sort of old-fashioned. Doesn’t the new school of thinking propose a flat or hierarchy-less organizational design?” Let me address this short and sweet. Yes, your organizational design will have a hierarchy. No matter how flat, circular, or egalitarian you may want it to appear.

For instance, a poster child for “hierarchy-less” management is a methodology called Holacracy, which I’ve written about before in “An Inside Look at Holacracy”.

When you peel back the headlines of the “no boss, no title, no hierarchy” movement, what you’ll find is that these approaches absolutely have a hierarchy. There’s nothing inherently unnatural or wrong with hierarchies. They exist everywhere in both natural and man-made systems. To wit, if I was to gather together the fiercest proponents of hierarchy-less management structures, they would soon form into a new hierarchy of total believers over semi-believers.

Every effective organizational design, no matter its shape, is an attempt to clarify accountability and move the organization forward in its chosen direction with little lost time and energy in its momentum. Hierarchy is not about control; it’s about distributing accountability throughout the organization. The broader the spread of accountability, the higher “up” that role is in the hierarchy. So you can try to design an organization without hierarchy. You can also try to time travel. Let me know how it goes.

The Role-Centric HRMS

Now that you have a basic appreciation for organizational structure, it should be clear that there’s also a need for managing the people within that structure. Rather than trying to translate the structure into a classic org chart with names, titles and lines of reporting, keep the HR stuff in your human resources management system (HRMS). Keeping the HR stuff in the HRMS, while also having the HRMS mirror the design of the structure itself, allows you to have the best of both worlds.

Unlike a traditional HRMS that is title-centric, you’ll want to modify your HRMS so that it is role-centric. For instance, below is a picture of a role centric HRMS:

RoleCentricHRMS

This HRMS creates an organizational tree that calls out the major and minor roles of the company as reflected in the structure. It shows who is playing each role and their number of direct and total reports. If one person was temporarily playing multiple roles (i.e., hats) due to budget or other reasons, their profile would show up in each of those roles. As the structure changes, people are reassigned and roles are added and deleted, as appropriate.

When you click on the name of the role, this links to the Role Entry as shown below. Any number of staff who are currently playing that role would show up in the Role Entry. Notice that the Role Entry includes the purpose, accountabilities, and top KPIs for that role.

ExampleRoleEntry

Finally, the HRMS also maintains and updates all of the employee-/HR-specific information you need to keep, such as name, hire date, payroll information, contact info, etc.:

ExampleEmployeeEntry

Having a role-centric HRMS based on the design of the structure gives you the best of both worlds. It not only allows you to manage the HR aspects of your firm, but also encourages employees to shift out of the “jobs and titles” mindset into thinking about roles, accountabilities, and KPIs. As your organization grows and develops, having this role-centric mindset creates flexibility to move people into roles where they are needed in that moment, without being so caught up in job titles and the status quo. Think “play the role to support the organization’s purpose” vs. “have a job title that describes my worth and status in the organization.”

It’s not only a structure win. It’s also a clear win for your culture.

~~~~~
To learn more about organizational design, see “The 5 Classic Mistakes in Organizational Structure: Or, How to Design Your Organization the Right Way”

How to Build Your Buyer Persona: 10 Questions Marketing Should Ask Sales

Sales vs. Marketing

Sales vs. Marketing. Who’s the Ape?

Does your head of sales think your head of marketing is an imbecile — that they just don’t “get it” and aren’t doing the right things to drive qualified leads for the sales team? Or perhaps your head of marketing looks down his nose at those “apes” in the sales department who constantly demand more results but don’t understand the strategic aspects of real marketing, not to mention the time and money it costs. Sheeezh.

You may not be surprised to hear that this tension between sales and marketing is common. The truth is that, by nature, their functions will always be in tension or conflict. One is short-range-focused, with a drive to close qualified leads NOW. The other should be long-range oriented, developing the brand and product offering to meet evolving customer needs in the future – not just this quarter’s targets. That conflict is never going to go away. And the point I’m going to make in this article is that it can be harnessed.

There is an easy way to address the conflict between sales and marketing and make it constructive for both growing sales and building the brand. It does, however, take awareness and discipline to do it well. The solution is to refocus and get alignment between sales and marketing on the most important question every business must answer: Who is your primary customer? You might think this is obvious, yet a surprising number of B2B marketing companies overlook this step. Or don’t do it adequately.

Who is Your Buyer Persona?

A “buyer persona” is a semi-fictional representation of your ideal customer — the real buyers who influence or make decisions about the products, services or solutions you market. The buyer persona sits at the nexus between sales and marketing. Defining or redefining the buyer persona is a high-leverage activity that takes the strengths and insights of both marketing and sales. It allows them to come together, focus on what’s most important, drop what isn’t, and then get busy driving sales and building the brand.

Why is this? Well, if you can get alignment between sales and marketing on who the primary customer is, then everything else is tactics. The tactics refer to the best approach to reaching this primary customer, and this is open for trial, error, and team learning. The tactics may change, the shared goal remains the same.

If you don’t have clarity and alignment on who the primary customer is, however, there will be rampant disagreement across the board. The sales and marketing teams will fight about the little things because there’s no alignment on the big thing. And even if your current marketing tactics are working relatively well, they won’t be seen as successful because there’s still no true alignment on the real goal: continuing to reach the primary customer while evolving the product to meet their changing needs.

The primary purpose of defining your buyer persona is to “tune” group empathy towards the needs, wants, and aspirations of the customer. If the persona doesn’t help to tune group empathy, then it’s not fulfilling its purpose. It’s just a useless exercise. This isn’t just true for marketing and sales. It’s true for every function in the business. Who do we serve? What is their primary unmet need? How can we delight our customers? A good persona will take an abstract concept and make it easy for everyone to relate to and create a deeper sense of meaning and purpose throughout the entire organization.

If Marketing Has Questions, Sales Has Answers

Top-performing salespeople understand their customers’ conscious and unconscious unmet needs as well as their spending priorities, decision-making processes, and aspirations. Too often average-performing marketing departments will discount sales leaders’ firsthand knowledge of their customers. They erroneously think, “Awww, that’s just sales. What do they know anyway?” Big mistake. A top-performing marketer, on the other hand, takes a different approach. They recognize that top sales people are already spending a lot of time interacting with the same customers that marketing is trying to reach. Duh!

When developing a buyer persona or type, marketing can help sales to clarify who is the primary customer (the one with ultimate authority) as well as the key influencers and gatekeepers in the buying process and how to reach them. Each of these can be a different buyer persona and requires a different approach and collateral than the others. The balancing act in this collaboration is that marketing must meet both the short-term needs of sales and the long-range development needs of the rest of the business.

The specific perspectives that sales can bring to the discussion on the buyer persona are the stated and unstated or unconscious reasons customers buy. The conscious reasons are good to know but the unconscious reasons are priceless. That’s what a good sales team is intimately familiar with.

For instance, let’s say that your business is selling a b2b marketing platform. If you were to ask a customer, “Why did you buy from us?” you might hear the conscious reasons such as “We have a goal to increase leads by 25% and conversion by 10% this year and your customer testimonials were the deciding factor. We liked this widget feature. Your customer support is outstanding…” And so on.

OK, that’s easy enough. But what about the unconscious needs of this buyer – what were those? Was it job security? Confidence? To be part of the in-club? To be able to justify their decision to their peers? To be seen as an innovator? These unconscious or unstated needs are the real reason sales happen.

A great sales person will intuit what a buyer’s unmet needs are and sell to those. A great marketer will incorporate solutions to the unconscious unmet needs in their marketing message and collateral.
Additionally, sales can bring to the table a deep understanding of the buying cycle, customer spending priorities, the competitor’s offerings, your unique differentiator, the customers’ requests and frustrations, and firsthand anecdotes from the trenches.

The 10 Questions Marketing Should Ask Sales

There are 10 basic questions that every great marketer should ask the sales team:

1) Who is the primary customer type?

2) What can you tell me about this primary customer? (e.g., position, age range, educational background, management style, industry experience, information sources, trade shows attended, etc.)

3) What are the customer’s unmet conscious needs? (i.e., what do they say they want?)

4) What are the customer’s unmet unconscious needs? (i.e. what do they really want?)

5) Who are the key influencers within and outside the customer’s organization that impact the buying decision?

6) What is the customer’s typical buying process and how long does it take?

7) What do we do differently or better than anyone else from our customer’s perspective? What do our customers say makes us unique?

8) What do our top competitors do differently or better than us? What makes them unique?

9) What are some of your best stories about when different customers were thrilled with our product or service?

10) What are the top 3 deliverables I can provide you to make your job easier, more fun, or more successful?

Why are these 10 questions important? Because they help a marketer tune his or her own empathy to the needs of the customer and the needs of the sales team. Great marketers understand that it’s not just about “marketing.” It’s really about meeting the needs of those you serve – in this case the end customer and the sales team.

The 3 Things Sales Can Do To Get More Out of Marketing

Harmony between sales and marketing is not just a one-way street. There are three simple things a sales leader can do to help ensure that marketing is supporting your team:

1) Share your customer knowledge. Make sure that marketing has the answers to the top ten questions and do it proactively. You don’t have to wait for marketing to interview you. Take initiative and start the dialogue with marketing. To be effective in sales, you need information transparency with marketing and vice-versa.

2) Bring Data. Great marketers love data, so the more and better data you have to support your reasoning, the more persuasive you will be. Where do you get the data? Industry publications, customer surveys, web site analytics. The data is there. The challenge is turning it into actionable insights. You can help this process by keeping the primary customer’s needs in the forefront of the discussions.

3) Advocate for your customer. Jeff Bezos leaves an empty seat in the Amazon conference room. This empty seat represents the Amazon customer. “Remember,” Jeff is known to say to the management team, “this is why we exist. To meet the needs of this customer.” How can you create a similar awareness and reverence for delighting customers in your own company?

Now, chances are that when sales and marketing attempt to answer questions about who the primary buyer really is, one or more people will say, “I wish we had the data to answer that question. We just don’t (have it, have access to it, know how to make sense of it, etc.)” Don’t fall into this trap! There will never be enough good, clean, accurate data. That’s not an excuse to not make your best effort at defining and creating alignment around the primary buyer persona.

In a well run sales force automation (SFA) system, for example, there’s a ton of available valuable data: Job title of the primary buyer, job title of the initial inquirer, job titles of key influencers, length of time from inquiry to purchase, how they heard about you, customer satisfaction scores, top feature requests, and recorded anecdotes from sales. Similarly, there’s a wealth of data in a well-run website and social media analytics platform.

So by all means, use the data if you’ve got it. Use it to improve your understanding of the primary buyer persona. But don’t use the lack of good data as an excuse to put off the exercise of defining the buyer persona in the first place. Start with what you’ve got. Build on it from there.

The Art is the Discipline

It’s pretty straightforward for sales and marketing to schedule a meeting or two to define the buyer persona. The real breakthroughs occur when you build in the organizational discipline to consistently define and redefine personas, and therefore find ways to improve the effectiveness of both sales and marketing. It’s the classic dynamic between working on the business versus in the business. Crafting the structures, processes, and discipline to step out of the daily work pressures to think strategically about the work itself is what separates the great companies from the average.

A simple best practice is to set a quarterly or bi-annual meeting with marketing and sales and other stakeholders to review the current primary buyer persona, take a fresh look at the top 10 questions, and make adjustments based on new data and new anecdotes from the field.

If everyone in your organization is clear on who you serve and the group empathy is tuned into the needs and aspirations of your customers, sales and marketing can cease viewing each other with suspicion and collaborate to solve your customer’s core business problem. The process always starts with and circles back to the buyer persona.

The Culture System: Or, How to Integrate Values in Your Company

theculturesystem

Key Takeaways:

  • You don’t build a great culture through intention alone. You build it through a culture system.
  • You can’t dictate culture. But you can design for it. A strong culture system is designed around four key elements: Values, Rituals, Stories, and Consequences.
  • To build a better organizational culture, use the culture system framework to focus your energies on improving the weakest element, then improve the next and so on.

When Intention Isn’t Enough

It’s 9am on Monday morning at ACME Widget Corp. The management team is gathered in the 1st floor conference room waiting for CEO Jack Ryan to arrive. A rumor is buzzing around that Jack has spent the past weekend at Culture Summit 2.0, some sort of “interactive experience” where business leaders learn from culture gurus how to build a thriving organization.

A few minutes after 9, Jack, calm and present as always, enters the conference room and gives his hellos. As he is taking his seat, Sally in Marketing says, “Jack, there’s a rumor going around that you attended a corporate culture workshop this weekend? How was it? We’re all curious to know…”

Jack doesn’t answer right away and instead takes time to visually connect and smile at everyone around the table. Finally he speaks. “This was one of the most transformative weekends of my life. It really reinforced for me the importance of values-based leadership and I’ve got a lot of new ideas to try. But the main thing is this: going forward my #1 commitment is to ensure that we truly become a values-based organization. That’s what I’m most committed to and excited about as a result of this weekend.”

Now imagine you’re in that circle and you hear Jack say this. How do you respond? I imagine that outwardly you might nod your head and even give a verbal “right on!” But inwardly? Might you have some skepticism that any CEO might succeed at this — despite a personal commitment to personal growth and values-based leadership?

“C’mon,” you might think to yourself, “What about Marie in accounting? Wasn’t she just a nightmare who ate away at the company culture for 6 years? What’s going to be different this time? We’re swamped and who has time to really focus on and enforce values? There’s no question I’d like to be part of a great culture; the hard part is actually making it happen.”

At the same time, try to imagine being Jack. Can you empathize with his desire to truly lead by values? To build a transcendent organization that makes a positive impact on the world, kicks ass in the marketplace, and has the culture you’ve always wanted to build — one you’re truly proud of?

Intuitively we all understand that building a truly values-based organization can be a life-changing experience for everyone involved. It creates tremendous organizational resilience, inspires the best in its people and customers, and builds a sustained advantage that’s hard for competitors to duplicate. So there’s no question that Jack is sincere in his desire to build such a culture. But how is that done?

If you read most popular books on building a values-based culture, the focus is usually on what personal characteristics are required in a values-based leader and how to develop them. For instance, in his best-selling book From Values to Action, Kellogg School of Management professor Harry M. Jansen Kraemer Jr. codifies the 4 principles of values-based leadership: self reflection (know yourself to lead yourself and others), balance (ability to see situations from multiple perspectives and differing viewpoints), self-confidence (accepting yourself as you are and playing to your strengths), humility (valuing each person you encounter and treating everyone respectfully).

That’s all well and good. You can’t have a values-based organization without a values-driven leader. After all, if the head is rotten, it affects the whole body. But clearly that’s not enough. Let’s give Jack the credit he deserves and say that he is highly self-aware, compassionate, and has great integrity. If you were to compare his personality to all of the stated requirements, it would be positive check marks all across the board.

So if Jack is an aspiring conscious leader with awareness, compassion, and integrity, then what is the cause of subtle doubt on the team? Well, as you have certainly experienced firsthand in your own career, building a values-based culture is really fricking hard. It takes tremendous effort and energy to get it right and one small or unconscious misstep by an organizational leader can quickly undo years of positive work. It’s a lot like playing Tetris – mistakes pile up and accomplishments disappear.

If the leader’s intention and values alone aren’t enough to build a better culture, what is? When it comes to building a reinforcing a values-based culture, you need a simple system that defines, reinforces, and defends the desired organizational values. Put another way, while your own intention and personal values are important, what’s just as important is the cultural system you develop.

The Four Elements of an Effective Culture

Culture can be systematized. In fact, every successful and durable culture is built on four basic elements: Values, Rituals, Stories, and Consequences. Once you’re familiar with this basic cultural framework, you can train your focus on each element to build a thriving culture in your organization:

thesystemofvalues

  • Values are the qualities of expression that the culture considers most important.
  • Rituals are the formal and informal procedures and celebrations that the culture adheres to.
  • Stories are the formal and informal lore that describe the culture’s values in action.
  • Consequences are what happen to members of the culture when they violate the values.

You can see these four elements at work in every strong culture, whether it’s a family, a tribe, a community, a Fortune 100 firm, or a national identity. Take the U.S. Armed Forces, for example. Now, whether you’re a pacifist or a war-hawk, you will probably agree that the U.S. Armed Forces have a very strong culture, right? That’s because they rely on the four elements of a successful culture:

  • They have a clearly defined set of values: duty, honor, respect for authority, sacrifice, courage under fire, etc.
  • Those values get expressed in rituals. The salutes, ranks, badges, and ribbons are all forms of ritual. So are the elaborate ceremonies for career advancement; the historical celebrations for Memorial Day, D-Day, and the 4th of July; and the solemn bereavement and 21-gun salute for those lost in battle.
  • Stories of values in action are spread and reinforced during those rituals (like when the General shares a story about a famous battle or a particular soldier’s heroics); through the armed forces media; in history books and historical re-enactments; and the informal mess-hall chatter of great exploits and total clusterfucks that happen out in the field.
  • The consequences of not adhering to values are clear and reinforced. If you’re in the armed forces and you don’t adhere to the values, then you’ll get a dishonorable discharge, a sentence to Leavenworth prison, or even get a Code Red (you’ll know what this is if you’ve ever seen the movie A Few Good Men.

The U.S. Armed Forces have an intense culture, don’t they? They have to! If the Armed Forces didn’t invest considerable time, energy, and resources in building and reinforcing their culture, they could not be effective. As they say in the most gung-ho units — “HOOAH!” And of course if the U.S. Armed Forces lost their culture, or if their culture was no longer in synch with the values of the broader environment in which it operates, it would cease to be effective.

Even if your organization isn’t dealing with life and death, or war and peace, the elements of building a strong and resilient culture are the same. As a leader, you need to be clear and committed to a set of core values that are reflective of the best your organization can be; you need a series of rituals, small and large, the reinforce the expression of those values; the values must “travel well” through effective formal and informal storytelling; and you must enforce the consequences on yourself and others for failing to live by those values. By breaking the elements of a strong culture down, you’ll better know where to focus your energy and attention so you can help to build a thriving culture.

Values

Values are running the show in your organization; you just don’t know it. You can tap into the organization’s existing values by observing a meeting like a fly on the wall. What is considered of higher importance than anything else? Does this company value profits over people? Efficiency over service? Self-glorification over the needs of the group?

Because values guide decision making and behavior, it goes without saying that, in order to build a thriving culture, the culture needs to be clear on what its core values are and those values must be supportive of the organization’s purpose. If your organization isn’t clear on its values, or its current values no longer support the organization’s purpose, then you’ll need to guide the organization through a values definition process.

Just as with any good decision-making and implementation process, you’ll want to gather in a critical mass of leaders from all levels of the organization to help clarify and build commitment to the right set of core values. You’ll know you have the right set of core values when you and the team can answer an emphatic “Yes!” to each question below:

  1. Do these core values support our larger organizational purpose?1
  2. Do these core values reflect our culture when it’s operating at its very best?
  3. Will these core values attract the “right” people and repel the “wrong” people?
  4. Can we clearly identify when someone is not living up to these core values?
  5. Would we fire someone for not expressing these core values?

When you can answer “Yes!” to each question above, write down each core value using complete sentences, each one starting with a verb. For example: “Build open and honest relationships through communication.” “Empathize with customers by walking in their shoes.” “Pursue excellence by getting it right the first time.” “Work smart by being disciplined in your thoughts and actions.” “Play hard by having fun together.”

When the values are defined it’s time to bring them alive…

Key Question: Do we have the right set of organizational core values to support our purpose now?

Rituals

It’s not enough for core values to be known and understood in your culture. They must be experienced. What do I mean? Well, try to recall all of the knowledge you gained back in college. You can’t do it, right? Now think back to all the memorable experiences you had in college. The parties, the crushes, the dates, the trips, the project teams… Those are easier to recall. That’s the difference between knowledge and experience.

Rituals create experiences and it’s memorable experiences that really impact your culture. Rituals run the gamut from small to big and you’ll want to choose those that best activate your desired organizational culture. Here are some examples of small, effective rituals I’ve seen over the years. I’m not sharing them to create an exhaustive list, only to highlight that there’s a lot of room for creativity in the rituals you do embrace…

Quarterly Celebrations. It’s easy to celebrate when times are good. But what about when times are bad? Great cultures schedule their celebrations in advance and follow through no matter what happened that quarter. What did we learn as a culture? What heroic efforts were made? Celebrate the journey, not just the destination.

Steam Whistle. I once ran a sales team where after every sale, the rep would stroll over to the wall and blow a super-loud steam whistle. It would rattle windows and shake doors. The bankers on the floor above us absolutely hated us but that made it all the more fun. That whistle became known as the sound of success.

Pistachio Nuts. Back when Hewlett-Packard was a great company, it was known for… pistachio nuts. Yep. If someone did something special, like solve a complex bug in software or win a big contract, they’d soon find a silver bag of pistachios on their desk with an anonymous note telling them what a great job they did. I’ve read that if you worked at HP, you soon coveted receiving a bag. When you did, it meant more than gold. That’s a ritual.

Coffee Walk. Last week I spoke at an all-company meeting for GumGum, a fast growing advertising network in Santa Monica. During my interactions with the team, I learned that GumGum has a daily ritual “coffee walk” where the entire company goes for coffee at 3:30pm. They stroll the block, take time out to gaze at the Pacific ocean, have some laughs, and even enjoy some trivia. A fun little ritual.

Build Your Own Desk. Amazon is famous (infamous?) for having its office workers build their own desk using a door and saw horses. It’s a ritual that reminds new hires of Amazon’s roots and creates a shared sense of experience. I can just imagine the savvy old veterans watching the newbie put his or her desk together and having a good-natured laugh about it.

Parking Lot Sessions. Where I live in Santa Barbara, there’s a cool shoe company called Seavees that celebrates its California roots by having a monthly get-together in its parking lot. Called “Parking Lot Sessions,” Seavees invites a cool band, provides a BBQ and drinks, and revels in the vibes. That’s a ritual.

Appreciation Fridays. Every Friday at my kid’s school, the children gather together and share appreciations for one another and the teachers. “I appreciate Reid for helping me solve a math problem.” “I’m thankful to Alexa for telling me that she liked my new shoes.” It’s precious sweet but you can see the same positive cultural impact in a gathering of adults at work: “I want to thank Linda for helping me to get my article published this week. It was awesome and she went above and beyond.” A powerful ritual.

The bottom line is this: A ritual can be just about anything that creates a shared memorable experience and that supports the essence of the core values. Rituals don’t have to take a lot of time or cost a lot of money. If your core values feel more like words and less like a shared experience, it’s a sure sign that you should put your focus on creating more or better rituals, small and large, in your organization.

Key Question: What are the rituals we have in place now in our organization and what new rituals should we develop?

Stories

The more the culture is shared, the stronger it becomes. The best way to share a culture is through stories of core values in action. Stories, positive or negative, are incredibly powerful. Human beings are storytelling creatures. We’re attracted to stories, we remember them, and they define the world in which we live.

Max De Pree, the founder of Hermann Miller Chairs wrote in his book Leadership is An Art that “The #1 job of a leader is to define reality.” That’s true. What was left unsaid is that reality is subjective. For instance, do you feel that the U.S. Armed Forces, to continue with the example, are a belligerent bully corrupted by corporate greed and nefarious politics, or an honorable institution driven by self-sacrifice, honor, and courage? The answer depends on the stories being told within and without the organization, and which ones you believe.

Here’s the thing to keep in mind. If negative stories run unchecked – gossip, rumors, tirades – they eat away at the culture from the inside out. Pretty soon all anyone can think and speak about is how bad things are, how the leaders are hypocrites, who’s sleeping with who, and how the business is soon going under.

As a leader, in order to define and craft a new reality, you need to create an environment where it’s safe and encouraged to share positive stories of core values in action. If you can create this positive storytelling environment, then pretty soon all anyone can think and speak about is how good things are, how the leaders strive to walk the talk, who’s helping who, and how the business is going to survive and thrive, no matter what.

Rituals and stories go hand in hand together. One of my favorite practices is to create a ritual where company meetings end with each person sharing a story of when they saw a core value being expressed in the past week. For example: “To close this meeting I’d like each of you to share a story of when you saw a colleague express a core value in the past week. I’ll start: Last week I saw Susan go above and beyond to help our client Frank. She truly expressed the value of ‘above-and-beyond customer service’ and it was awesome to witness. Molly, what did you see last week?”

The first time you ask this question, you might get some blank stares: “Ah, what are our values again?” Remind them. The second time you ask the question, people will be more prepared. By the third time you ask that question, people will be paying attention for when they see a core value being expressed throughout the week. The stories reinforce what it means to express a core value. Pretty soon, those stories of values in action begin to travel around the organization. We get more of whatever we focus our attention on.

You can contrast this with a company that has core values that remain dead on the wall, meaning, they are aspirational statements that have no life to them. They’re viewed by the culture as vague, abstract statements that stand for hypocrisy rather than reality. It is stories of values in action that bring those values alive in the organization. The more you share them, the more believable and powerful they get.

One aspect of storytelling to keep in mind is the use of photos and video to capture, share, and archive the culture in action. For instance, at the recent GumGum all-hands meeting, they paid to have a professional photographer shoot the 3-day event. Then the photos were placed on Dropbox and sent to all participants. Simple? Yes. Smart. Very. It’s cultural storytelling in action. Remember, the more you share it, the more powerful it becomes.

Key Question: How and when can we share more stories of core values in action in our culture?

Consequences

Values without consequences aren’t values at all. They’re idle wishes. Consequences are both really simple and really hard. The bottom line is this: If someone in your culture isn’t living by the core values, they must go. Values are non-negotiable. The minute you accept behavior that isn’t in alignment with the core values is the minute that your culture starts to get flushed down the toilet.

A common theme I see in average cultures is that they tolerate behavior that’s not in alignment with their stated core values. “Sure, George can be a real asshole, but he’s the only one who knows our marketing engine/technology platform/key client/etc. We simply can’t afford to fire him right now. After we make it through this quarter/product release/fund raising period/etc., we’ll try to find a replacement.”

I call bullshit.

A core principle of Organizational Physics is to eliminate entropy from the system. Nothing is more entropic to a thriving culture than when someone in a leadership position isn’t living by the core values. And one of the highest-leverage decisions you can make as a leader is to fire someone who doesn’t match values.

For instance, I have a CEO friend who is an awesome guy. He’s kind, smart, and thoughtful. He truly wants the best for his people and strives to build a great corporate culture. However, precisely because he’s so caring and generous, he often bends over backward to try to help someone who is a poor cultural match fit in. Several months ago he was dealing with one senior team member who was causing a lot of turmoil for him personally and for the company. This employee was very me-focused, caused constant fights between departments, and generally cost everyone much more energy than the employee actually contributed back.

Finally, my friend reached a breaking point, owned up to the cultural mismatch, and fired this senior leader. At the time, it felt like a very hard thing to do. It wasn’t clear how the company would cover the gap created by the absence, how and when they would find a replacement, and what kind of impact it would place on the CEO’s personal workload, which was already severe. I spoke with my friend a month or so after the termination. What do you think he said? “I should have fired that person months ago. I can’t believe the positive impact it’s had on our culture. Everyone is in a good mood, there’s low BS, and we’re kicking ass on all the projects we were struggling with before. Hire slowly. Fire quickly. Lesson learned.”

A key attribute of great organizational leaders is that they tolerate no bullshit when it comes to defending values. There’s a reason that, when the President of the United States is sworn in, he must state that he will “protect and defend” the Constitution of the United States. The Constitution is a values document. It’s easy to aspire to values. It’s hard, but necessary, to protect and defend them. That’s the real work of leadership. Otherwise all is lost. When it comes to building your own organization, hire by values and fire by values. You already know this to be true. So what’s holding you back?

Key Question: Are you tolerating behavior that isn’t in alignment with the core values? If so, what are you going to do about it?

Summary

Building a winning culture requires more than just intention. It requires a systematic approach to transformation. The Culture System allows you to identify where you need to focus your energy and attention to build a thriving values-based culture. Right now do you need to focus on values definition? Rituals? Stories? Consequences? Break it down so you can build it up.

Got some good rituals or stories of values in action? I’d love to hear them. Please share in the comments.


1.Note that there will come a time in your organization’s life when it’s necessary to evolve the organization’s values to better reflect its evolving purpose. That is, while core values remain relatively constant over the years, they don’t remain absolutely constant over decades. Winning organizations and cultures evolve their values over time in interplay with the surrounding and changing environment.

The best evolutionary values model I’ve studied in depth is Spiral Dynamics, taught by Don Beck. Spiral Dynamics is not widely known in the mainstream but it is the underlying framework for very popular values-based theories including Integral Theory, Tribal Leadership, Conscious Business, and many other next-generation values frameworks. If you get the chance, take a workshop with Don Beck. It will forever change how you think about values in individuals and groups.

How NOT to Interview

how not to interviewSometimes the best way to understand what NOT to do in an interview is to go through a bad one yourself. I’ve definitely had this experience. It occurred when I was interviewing for an entry-level sales position with a fast-growing telecom company in Minneapolis, Minnesota. At the time, I was 26 years old, had just shut down my first startup, had burned through all my savings, and was in desperate need of a job.

A friend of mine told me about the firm one night over beers: “Hey Lex, I know you just shut down your startup. Sorry it didn’t work out, man. If you need a job to pay the bills, they’re always hiring where I work. It’s not the best job in the world but the money can be good if you work hard at it.”

The notion of hard work and good money sounded like a pretty good opportunity. I needed something I could throw myself into until I found my footing again. So I called the company the next day, told them I was referred by one of their existing reps, and set an appointment for an interview. To prepare, I practiced my spiel about why I’d be a good fit for their organization, polished up my resume, put on a suit, and went in with a mix of hope, anxiety, and chutzpah.

how not to interviewI arrived at their offices and approached the front desk. The receptionist, middle-aged and blurry-eyed, looked me up and down skeptically and, with a hint of exasperation at having to deal with me, said, “May I help you?”

“Ah yes, I’m here for an interview for a sales position. My name is Lex Sisney.”

She glanced down at her calendar and shook her head: “There’s no interview today. You first need to take the written test.” She reached into her file drawer and handed me a 50-question fill-in-the-oval-and-make-damn-sure-you-stay-in-the-circle scantron test. “If you pass the written test, then you’ll be invited back in for an actual interview.”

I thought to myself, “Really? Why didn’t they tell me this on the phone? I’ve got to take some psychobabble test before even speaking with someone? And is this the kind of place I want to work for? WTF. Well, I guess I need the money so I better play along.” Out loud I said, “OK, let’s take the test.”

“See the clock over there on the wall?” she said. “You have 30 minutes to complete the test. Have a seat under the clock and the time will begin. Do you have a #2 pencil?”

“Uh, no, I’ll need a pencil please. Do you have one?” She rolled her eyes and reluctantly handed one over like it was her last meal. I took the pencil, turned on my heel, and walked back to my assigned seat under the clock.

The test asked me questions about what I’d do in hypothetical situations like the following:

You see a co-worker take a company coffee mug from the storage closet and put it in his briefcase. You should:

a) report the theft to HR

b) ask him what he’s doing

c) take a mug for yourself

d) tell him to put the mug back

I snickered under my breath but played along anyway. I finished quickly and turned it in with 15 minutes to spare.

The receptionist scanned it over with a raised eyebrow to make sure I stayed within the circles and didn’t miss any questions. “OK,” she said, “someone will call you if there’s a possible fit,” and I left. (Note: Psychometric tests like this one have transitioned from #2 pencil to the web, but they can still be just as asinine.)

About a week later, the company called me in for the interview. I was told that this time, I’d actually get the chance to speak with the hiring manager.

I arrived early and re-greeted the receptionist. She seemed in a somewhat better mood this time: “Have a seat Mr. Sisney and Mr. Johnson will see you when he’s ready.”

After waiting for 20 minutes past the scheduled time (is this a doctor’s office?), a new voice spoke from the receptionist area. “Mr. Sisney? I’m Lidia, Mr. Johnson’s assistant. He’s ready to see you now.”

how not to interviewLidia led me back through the cubicles and telemarketers to a large windowed office. There, at a small, round conference table sat “the Man.” As I was ushered into the office, he didn’t actually look up or greet me but sat leafing through some papers, extended a limp-fish handshake, pointed to a chair across the table, and sternly said, “Have a seat.”

After what seemed like five minutes of just sitting there, he finally looked up from his reading, made eye contact for the first time, and with pursed lips told me, “I’m concerned about your ability to conform.”

“Excuse me?” I asked trying to mentally process what he had just said. He placed one of the pages he was reading on the table and with two fingers slowly twisted it towards me so I could read it.

“You see this chart? This fourth column is conformance. Your scores in these other three areas are very high but you have the lowest conformance score of anyone I’ve ever seen.”

I said, “Hey, that’s pretty cool. Can I have a copy of that?”

“No,” he frowned. “But tell me, why should I believe that you can conform to our way of doing things here?”

I tried to dance and weave and sell him on the idea that non-conformity really meant “creativity” but I didn’t think he really bought it. The interview lasted about 10 minutes total and I left thinking it had all been a big waste of time.

Surprisingly, they called me a few weeks later and offered me the job.

“No, thanks,” I said. “It seems like you’re looking for drones for your empire. That’s not really me.”

So what did this company do wrong in the hiring process? Alas, let me count the ways…

First, they were focused on the wrong things. It’s clear that this company was suffering from high turnover in the sales team so they tried to fix the problem by weeding out risky candidates (like me) using a psychometric profile test early in the hiring process.

In effect they were saying, “Turnover is costing us a lot of money. We must control for it by only hiring reps who can conform to our process.” Did it work for them? No! They still had high turnover in their sales team; those they did attract were of the lowest common denominator; and their entire recruiting process became a bureaucratic numbers game.

You don’t want to strive for conformity in your employees or in the candidates you select in the hiring process. Conformity is like monocultures. Easy to plant and hard to maintain—in addition to making the system brittle, stagnant, and tired over time.

What you do want in your organization is diversity—a diversity of styles and perspectives built around a common vision and values. Diversity is harder to design for than conformity but it ultimately makes things alive, vibrant, and adaptive over time. The right hiring process won’t reinforce conformity. It will support the selection of a diversity of styles and approaches that complement the surrounding team and environment.

Second, they treated people like discardable cogs. Every interview is a significant sunk cost. If you’re going to have one, you better make the most of it. Treat everyone you interview with dignity and respect, and use the interview as an opportunity to win hearts and minds. You never know—that lowly job candidate may one day be very important to your organization’s success.

In the personal story I just told you, soon after I turned down the company’s job offer, I started another company that went on to be hugely successful. Early in our growth stage, I needed a telecom partner to build and manage a complex phone system. In fact, I ended up spending several million dollars on our phone system over the coming years.

Which vendor do you think I didn’t call? Why would I call them? I got a chance to peek behind the curtain of their organization and I didn’t like what I saw. The process was haphazard and the people were rude. I wanted nothing to do with them—not even as a vendor.

It would have been a different story if this company had actually taken the time to treat me and other candidates like real people, not cogs in a machine to be used or discarded. People forget what you tell them but they always remember how you made them feel. In this era of social media transparency, that’s especially critical to remember. Treat everyone, especially potential job candidates, as a potential future customer.

Third, they lacked a strong foundation. Didn’t you get a sense of how crappy this entire organizational culture really was? Even the most amazing hiring process in the world won’t cover up a pile of shit. Your organization must have a strong foundation in place. It must have the right growth strategy as well as the structure, vision and values, processes, and team to support that strategy and adapt to changing conditions.

There’s a saying that how you do anything is how you do everything. It’s no surprise that this company went public a few years after my interview and then went bankrupt a few years after that. Why? They initially grew on market demand for their existing products but when the market demand shifted, they couldn’t adapt. They had conformed to the past and lacked a strong foundation to adapt to the future. Building a strong organizational foundation is outside of the scope of this work but if you’re interested in the principles, I encourage you to check out my book Organizational Physics: The Science of Growing a Business.

Fourth, they treated the interview like a competition, not a collaboration. A job interview shouldn’t be viewed as a competition where the winner tries to guess what the company really requires and the loser gets sent home. Instead, it should be viewed as a collaboration between a qualified candidate and the company to see if there’s a mutual fit.

Think about it. As the candidate, I want to know if this job is a natural fit for my skills, vision, values, style, ambitions, and desired compensation. If not, I don’t want to work here any more than you want me to. The company wants to know the same information about me.

The purpose of interviewing, therefore, is to allow both sides to determine if there’s a mutual fit. The “collaboration, not competition” mindset is a heck of a lot more fun for both the hiring manager and the candidates. Of course it requires having a really solid framework and hiring process in place that allows that to happen. Otherwise, you put yourself at risk of being “gamed” by candidates who just want a paycheck, rather than a mission.

HIRING_LexSisneyIf you’re interested in learning the steps to a breakthrough interview process, then you may want to check out my newest book, How to Think About Hiring: Play Smarter To Win the Talent Game, from which this article is an excerpt. But in any case, do these four things as you approach the interviewing process and you’ll set the stage for better results:

1. Seek diversity, not conformity.

2. Treat everyone with respect.

3. Hire from a strong foundation.

4. Make it a collaboration, not a competition.

When Co-founders Fight — And What To Do About It

why cofounders fight
Being business partners is a lot like being married. When the relationship is thriving, it’s awesome. But when it isn’t, it really sucks. In fact, few things can destroy organizational momentum like two co-founders in a bad relationship. I have a friend in a successful business partnership who puts it like this, “I have two wives. One at home and one at work. I’ve got to invest time and energy to make sure that both stay happy, otherwise, it all goes to s#*&t!”

Not all partner conflict is bad. You actually want constructive conflict in your partnership. Constructive conflict means that you and your partner share the same vision and values; there’s give-and-take; you fiercely debate potential decisions but without attacking each other’s character; there’s a sense of mutual trust and respect; and your individual strengths and styles complement each other. You are both better because of the other.

Destructive conflict, on the other hand, is like a toxic marriage. It eats away at the system from the inside and doesn’t work for anybody. Just as divorcing adults impacts their kids, two co-founders in a toxic relationship impact everyone else in the organization.

If you’re navigating a bad business partnership, or you just want to make sure that your current great partnership remains so, then it can be eye-opening to understand that any destructive partnership conflict falls into just three types. Once you know what type of conflict you’re dealing with, then you can know how to address it.

As you read about each category of destructive conflict below, see if you can recognize where your partnership is experiencing the most strain today. That will tell you where to focus your energy and attention to help the partnership be great again, if that’s possible, or to walk away if it isn’t.

Category 1: Conflict of Vision and Values

I’m just going to come right out and say it. If you are having a true conflict of vision and values between you and your business partner, you only have one option: get a divorce. In this case a “divorce” means that one partner needs to effectively buy the other out or, if not, to shut the business down and go your separate ways.

Why? Because nothing is more destructive to organizational momentum and potential than a conflict of vision and values. Vision is the destination or ultimate outcome you want the business to reach. Values are expressed in the behavior you deem desirable and acceptable during the journey. If the co-founders no longer want to end up in the same location or don’t abide by the same core values, how can they possibly work effectively together? They simply can’t.

As an example, imagine a married couple in counseling. One partner desires to live in Manhattan and spend their days shopping on 5th Avenue while sleeping around with other people. The other wants to live off the grid in an organic commune and work the land in meditation and celibacy. Is there anything that a marriage counselor can do to help the couple? No! They have different life visions and values. No amount of counseling or therapy is going to change that fact. It’s time to split the marriage and allow each person the freedom and autonomy to follow their own path.

The same is true in your business. What’s your vision? Does it align with your partners? Do you want to grow big but he or she wants to stay small? Do you both have the same set of core values? Do you authentically trust and respect one another? If you can’t agree on where you want to end up, or how you’re going to behave on the journey, then it doesn’t make any sense to try to travel together. But if you do, then all other conflicts are negotiable.

Thankfully, the remaining two types of conflict aren’t nearly as destructive and severe as a conflict of vision and values. In fact, they can be harnessed to form more constructive partnerships and to create a better, stronger, and more dynamic relationships.

Category #2: Conflict of Interests

A conflict of interests means that what’s good for one partner is not seen as necessarily good for the other. For instance, perhaps you feel your position is worth more in salary and equity than your partner’s but you know that broaching the subject will create hard feelings. It’s good for you, not so good for your partner. Or maybe you feel like your partner can no longer carry his or her own weight — in other words, the needs of the business have outgrown their capabilities. Continuing to work together seems good for them but not so good for you. How do you navigate a conflict like this?

In Michael Eisner’s thoughtful book about partnerships, Working Together: Why Great Partnerships Succeed, he tells a story about how to navigate a conflict of interest. It requires shared vision and values and a willingness for both partners to give and take.

Eisner begins the book with a story of how he met Frank Wells, a former Warner Brothers executive and free-spirited thrill-seeker, who once checked out of Hollywood for a few years to climb the tallest peaks in six different continents.

At the time, both Eisner and Wells were being courted by Disney to be Co-CEOs – a classic conflict of interest if ever there was one. But rather than duking it out in a battle of wills and egos, Wells realized that Eisner was the better Chairman and CEO for Disney and he, in turn, could thrive in the President and COO role, supporting Eisner, filling in the blanks, and helping the team reach its potential.

Their partnership thrived for a decade before Wells died in a tragic helicopter crash and, by that time, they had transformed Disney into a multimedia empire. This only happened because Frank Wells was able to put his own ego aside, trusting that if he supported Eisner to flourish in the CEO role, it would come back to him in spades. Eisner describes other instances of give and take from both partners in the book and wrote, “We learned that one plus one adds up to a lot more than two.”

Of course in order to put your own interests temporarily aside in the interests of your partner, you need to have absolute trust in your partner. If there isn’t mutual trust, then there’s no way to navigate a conflict of interests. So a key question is this, “do you trust your partner and does he or she trust you?” If so, and if you share the same vision and values, then you can find creative ways to navigate a conflict of interests. If not, and if trust can’t be restored, it’s a clear indicator that it’s time to get a business divorce.

Category #3: Conflict of Styles

The last major category of partner conflict is a conflict of styles. This conflict occurs when the style of one partner rubs the other the wrong way. Think of it like this — in order to have a good relationship, it’s not enough to trust your partner, you also have to like and respect your partner and they also have to like and respect you.

For instance, if one partner is highly creative and all over the map with their ideas but the other is very focused and methodical, can each one appreciate and respect the gifts of the other? If so, then that’s the sign of a strong partnership. If not, if there’s condemnation and scorn between the partners on their respective styles, then that’s a sign of a bad partnership.

There’s no one right style. A highly effective partnership requires complementary styles, where one partner is naturally stronger where the other is weaker. For example, I once had a partnership with a person who was a lot like me. At first I really enjoyed it. We moved at the same pace, saw things the same way, could do the same things very well, etc. But after a time, the similarities between us became more of a curse than a blessing. We’d fight for control of the vision; we both lacked attention to detail and process; we’d each struggle to do the things we weren’t very good at but that the business needed to get done. It became a real grind and the partnership failed.

After that experience, I began to really appreciate talented people who had a different style than mine – styles that complemented my strengths and interest versus replicating them. In my book Organizational Physics I make the recognition and appreciation of different styles really easy through a simple pattern language called PSIU. If you’d like to better understand your partner’s style, its strengths and stressors, gifts and blind spots, and how to manage your relationship better, you may want to start with the World’s Fastest Personality test here.

The Three A’s: Or, How to Energize Any Partnership

What I find most interesting about the three sources of destructive conflict is that a conflict of interest and styles (assuming there’s alignment of vision and values) ultimately leads to better, more creative decisions. Basically, you don’t want a partner who agrees with you on everything and lets your ego run rampant while you fall prey to your own blind spots. You want a partner who challenges you, who is strong where you are weak, and who helps you to see the complete picture. Then, when you join minds together to solve problems, you come up with better solutions.

In my coaching practice, I’ve found that there are three things every partnership can do to re-energize itself. These three things are simple to do but take concerted energy and effort to practice. However, if you put them into play, you’ll find that your partnership will improve, often dramatically.

Acceptance

People are who they are. The #1 thing you can do to improve your partnership (really, your relationship with anyone) is to accept the person for who they are. That is, quit wishing for them to be different. Nothing is going to change who they are unless and until they want to change themselves.

Is your partner a selfish, myopic, primadonna? Well, congratulations! If you are committed to be in that partnership then you get to practice patience, sacrifice, and compassion. Accept it. You’ll save yourself a lot of time and energy when compared to wishing things were different.

One thing I’ve noticed time and again in my own life and relationships is that if I stop wanting someone to be different than they are and I give them the respect and autonomy to be themselves, they magically seem to change into a new person. If I’m subtly or overtly holding an energy pattern of “You suck. You should be different than you are,” then they seem to exacerbate those negative behaviors that are driving me crazy in the first place.

Acceptance is a subtle, challenging thing. It’s also the surest route to happiness in your life and work and to thriving relationships. Accept others for who and how they are, not how you feel they should be.

Appreciation

Appreciation is the twin of acceptance. What you accept “as is” is what you can appreciate. What do you sincerely appreciate about your partner? Don’t underestimate the power of sincere expressions of gratitude and appreciation for yourself and others. We all want to feel accepted and acknowledged, and that we’re adding value to the lives of others. Take some time right now to think of the things you really appreciate about your partner and go and tell him or her.

I have a friend who is really in despair right now. For the past several months he’s been volunteering for a non-profit with a dwindling following. At first he was really excited to help them because their cause really resonated with his passion for social justice and his creativity. He was so enthralled with their potential that he volunteered all his free time for weeks rebuilding their brand architecture, web site, and social media presence, all at no cost. I saw his work and results and they are awesome.

I just got off the phone with him and I’m sad to say that, rather than being elated about a job well done, he feels devastated about what seems like a huge let-down. Why? Not one member of their board reached out to say, “Thank you. I appreciate how awesome this looks, the effort that must have gone into it, and what a great job you did.” No wonder that non-profit is struggling!

This little anecdote made me realize how many working relationships and partnerships must be on the rocks because no one took the time to sincerely appreciate someone. Man, what wasted potential and opportunity – and all for want of a little acknowledgement and appreciation! Appreciation is a currency that you must spend for it to do any good. Go and spend some now.

Accountability

The last “A” that can turn a struggling partnership around is accountability. Often there’s partnership conflict because both partners are “in each other’s business,” and not in a good way. When it’s unclear who’s accountable for what business functions and decisions, this leads to confusion and wasted time and effort.

A thriving partnership is a combination of radical transparency and unarguable accountability. Radical transparency means that there are no secrets. There’s a free flow of information across business functions. Unarguable accountability means that one role is authorized to say “yes” and “no” to a decision in each business function.

For instance, if your strength is in marketing and sales and your partner’s strength is in technology and product, then you both need to understand what’s happening in all areas. But when it comes time to make a decision in sales or marketing, you take it. And when it comes to a decision in technology or product, your partner takes it. Do you and your partner (and others) influence those decisions? Absolutely. But the success or failure of the implementation falls to the person with accountability in that function.

In a growing organization, roles change all the time. In my coaching practice with expansion-stage companies around the world, what transforms a once-thriving partnership that has been struggling is the creation of a new structure with unarguable role accountability.

Prior to the new structure, both partners are struggling with questions like, “What is my accountability and what is my partner’s? When do I involve others in a decision and when do I just take action and get it done? How should the performance of different functions be measured? And generally, how do we get out of this cycle of second-guessing one another?”

Once the new structure is created and the partners have mutually accepted their own roles and accountabilities in that structure, all those nagging questions go away. There’s radical transparency fused with unarguable accountability where both partners, and the surrounding team, play to their respective strengths and passions. As my daughter’s preschool class used to say, “good boundaries make good buddies.”

Summary

In summary, constructive conflict is highly desirable. After all, “if both of us agree, one of us is useless.” Highly effective partnerships invest in developing and maintaining the partnership. If not, that formerly constructive conflict will turn destructive. You can avoid a turn for the worse in your partnerships by remembering these three things:

  • The most destructive type of conflict occurs when there is no longer shared vision and values. If that’s the case, you can only divorce.
  • The next, more manageable type of conflict is a conflict of interest. You can successfully navigate a conflict of interest by tapping into the bigger shared vision and values, and with give-and-take and mutual trust between parties.
  • The last, and generally the easiest type of conflict to navigate, is a conflict of styles. You can shift this conflict by practicing acceptance and appreciation and by creating unarguable role clarity, where each partner plays to his or her respective strengths and passions in their area of expertise.

Thanks for reading. I hope you find this to be a helpful way to think about your partnerships and how to improve them.

Want to Dent the Future? You Should Probably Get a Coach

My friend and client Russell Benaroya, CEO at Everymove.com spoke this weekend at the second annual Dent the Future conference in Sun Valley.

Russell’s topic was “Entrepreneurs Need Coaches” and I thought he had some great insights that every entrepreneur can benefit from. If you click the link you can read his full commentary on the right hand side of the slides. I’ve also captured some of my favorite highlights from his talk below.


Created with Haiku Deck, the free presentation app

“We are all capable of being champions, in making the impact we want to make. Why not us? Practice! Practice! Practice! But how do you “practice” being an entrepreneur. The plane is in the air. For me, I need ground control, someone that can see the big picture when I’m just focused on the next waypoint. For me, it’s been about surrounding myself with the best coaches I can find.

The only lens that we see of the performers is the result of their practice. The problem is that there is not much of an opportunity to see that lens into ourselves and have it reflected back so that we can learn, grow, and make smarter decisions.

The road of entrepreneurship is just lonely. I did not fully appreciate that I was going to lose so many friends, that I would test my marriage and that I would question my sanity. What saved me? The acknowledgement that I am not alone, that what I am dealing with is a well worn path, that the path is the greatest gift, both the ups and downs. How I stayed on the road? By building a team of coaches that are there for me at the aid stations.

One of my greatest gifts has been actually having a 1:1 coach, someone who is committed to helping me navigate the tumultuous waters of entrepreneurship. My coach is guy named Lex Sisney. He has taught me a lot about myself, my skills, my blind spots, and my gifts. I am cheap and I have always dismissed the expense of a coach. It was a big mistake. I know that I have to keep investing in myself and I can’t do it alone, especially when everyone around me expects me to “have it together.” Lex has passed on a number of great learnings, but here are my top 6…

#1: Control the Belief Bubbles Lots of forces try to undermine your confidence as an entrepreneur. It takes great fortitude to withstand the naysayers, the “no’s”. It’s easy as a start-up to be the scapegoat if something doesn’t go well. We can either choose to take on those projected beliefs or resist them and grab hold of perceptions that advance our cause. This is not about rose colored glasses but it is about conviction.

#2: Success = Energy / Entropy Everything for me comes down to a core principal that an organizations is a system, one that has and needs to acquire energy to survive and one that needs to eliminate or mitigate entropy, that which is destroying a structure over time. In a finite system, maximize energy. To grow the system, get more. Entropy comes from many place — your family life, personnel issues, conflicting strategies. For me, it was such a simple model. I know when I have entropy — I feel it in my gut. Own it. Understand it. Take action.

#3: Find Your Genius Zone My genius zone is at the vector of happiness and productivity — how I am, how I want to be, and how others want me to be — If perfectly aligned, I’m in my zone. It is that place where I have a unique ability to perform at a high level and I get energy — I need to spend 80% of my time in my zone. For me, that’s doing deals — I love the art of the deal, the thrill of the hunt, the close and the satisfaction.

#4: Nail It B4 U Scale It A mantra I hear all the time from my coach and a huge challenge for entrepreneurs. Nail it is getting referencable validation that you’ve built a product that a customer is willing to pay for because you have solved a problem. Only then should you scale. Too many companies scale prematurely, haven’t validated the product and then lose control.

#5: Be Aware of the Force: PSIU Be aware of the leadership forces required in your organization at different times. 4 Forces at work are Producer (What), Stabilizer (How), Unifier (Who), and Innovator (Why Not?). Early stage is High innovator. Scaling/growth requires a stabilizer. Weighting your organization too heavily in one area will lead to sub-optimal results.

#6: The Early Customer Be very careful about the early customers you work with. These early customers become your launchpad or your demise. They need to be ready to take a leap with you. If they are not, but you sold them well, they are going to create too much entropy. You need a customer that wants to collaborate with you, not dictate your product for their unique circumstance. Being very aware of where interests align and diverge is critical.”

Great job, Russell. I love working with super-solid, passionate, and smart leaders like you. The best way to learn anything is to teach it. Not only are you helping others by reflecting and sharing your insights, you’re deepening your own awareness and capabilities too. Onward. Upward.

The Magic Spot in Product Development

What’s more important… following the “Four Steps” or experiencing the genuine epiphany?

It’s the epiphany, right? Right!

I bring this up because I continue to run across product development teams that are so enamored with following a sound lean startup process that they have lost sight of the ultimate objective: building something magical.

Where’s the magic? The magic happens at the nexus between what’s possible, what you’re capable of, and what the client is willing to pay for:

ProductDevelopmentMagic
When you get so consumed by following the right process that you lose sight of the real goal — finding the magic in the middle — you can make yourself look like a bad dog…

wetdream
Don’t purse the wet dream trying to build something that you’re incapable of delivering. It’s a fantasy that will ultimately leave you feeling alone and ashamed.

yawn
Don’t make your clients yawn, only building what they ask for but missing what they’d really love once they experience it.

slowclap
Don’t build for the slow clap, a product that only you are excited by.

Your real objective is always to find the epiphany that reveals the magic in the middle…

puppies
DO build something magical. You know, like puppies. Puppies bring delight. Plus they’re capable of growing through their own lifecycle stages and one day… giving birth to something new and magical themselves.

So the next time you’re in the heat of a product development process, don’t be a bad dog. Keep your eyes on the prize and find the magic in the middle.

An Inside Look at Holacracy

Zappos-3-MashableThe headlines rolled across my feed like the credits on a blockbuster movie. Something big seemed to be happening but I wasn’t quite sure what to make of it. It seemed that Zappos—the popular business management poster child for happy employees and customers—just announced it was adopting some new-fangled “boss-less,” “hierarchy-less,” “structure-less” management system called Holacracy.

“Hola-what?” I said to myself as I started clicking links. Aimee Groth at Quartz wrote: “Zappos is going holacratic: no job titles, no managers, no hierarchy,” while the Washington Post headlined with, “Zappos Says Goodbye To Bosses,” and the Canadian Broadcast Company led with “Holacracy management style eliminates all bosses, titles.”

I’ve been around long enough to know that what the media was reporting would be far removed from the truth. I also had the inkling that the level of publicity that Zappos generates made it likely that Holacracy would become the next buzzword in management in 2014. Paul Herbert captured it well: “A new word crept into HR’s vernacular last week: holacracy. Better get used to seeing it.”

Each year I attend two personal/professional development workshops for my own education and growth. After trying to make sense of Holacracy through their website materials and recorded webinars, in the spirit of exploration I decided to dive deeper and make Holacracy one of my annual workshops. I signed up for their 1/2-day Taster Workshop followed by a 5-day Practitioner Certification Training in Las Vegas hosted by Holacracy founder Brian Robertson.

A few weeks later I hopped in my car to make the trek from my home in Santa Barbara across the desert to Vegas. The seminar turned out to be located just down the block from the Gold and Silver Pawn Shop of History Channel fame. As I drove by their shop at 1pm on a Friday, there was a line of people down the entire block. “Note to self,” I murmured while rubber necking the crowd, “this is what a reality TV can do for your small business.”

I parked and found my way to the seminar, located on the third floor of a secured building. I buzzed the intercom, walked up three flights of stairs, and entered the room where I’d spend the next week. I noted there were about 25+/- people gathered around circular conference tables and a standard lecture area at the front. I found a spot, put down my stuff and, with a mixture of curiosity and anticipation, made small talk with my fellow attendees, a surprising number of whom were French nationals, while waiting for the seminar to start.

Little did I know then what a struggle that entire week — and even several weeks after digesting my experience — would be for me. What did I struggle with? First, I found it really hard to try to unlearn what I’ve spent decades mastering and greet Holacracy with a Zen-like beginner’s mind. What could they teach me, really? Is the founder just using different terminology or is there a real difference in philosophy? And how do I maintain an anchor point in the real world and not get swept down a rabbit’s hole of theory?

The other struggle was that Holacracy is not an easy practice to learn. In fact, the nuances are such a challenge to master that a handful of the participants in my course were on their third or fourth attempt at the same training. At one-week long and $4K a pop, that’s quite an investment. As one of my fellow participants poignantly put it, “Holacracy is like a religion for dedicated monks to practice,” adding, “I wonder what the layman’s version will turn out to be?” I think this is an excellent question that time will reveal.

I’ve been home for several weeks now and I’ve had sufficient time to reflect on my total experience. In retrospect, there are several things I really admire about Holacracy. There are also key elements that, if I was an entrepreneur or CEO considering deploying Holacracy in my organization, I would supplement around the standard Holacracy script. While you don’t need Holacracy to create sustainable business transformation, I believe that these adaptations are necessary to get the most out of your investment and increase your probability of success should you choose to deploy it as a management framework.

What Is Holacracy, Exactly?

Before I explain what Holacracy is, let me first clear up some of the more blatant misconceptions in the media. Holacracy does indeed have de facto bosses or managers, albeit ones with circumscribed power. These roles are called “lead links” and they set the priorities and control resources in an organization. Holacracy also does have an explicitly defined hierarchical structure. It’s not one big kumbaya free-for-all. And when it comes to titles, well, Holacracy can either support or not support the use of titles. The key point here (with which I agree wholeheartedly) is that individual roles in an organization can and should shift over time and, as a result, job titles more often cause harm than good.

In my book Organizational Physics, I explain that all business and management theory — past, present, and future — can be reduced to some key driving principles. That is, while supposedly “new” theories and strategies come and go depending on the cultural zeitgeist, they’re all trying to provide solutions to the same core underlying problems. In some sense, these countless methods can be boiled down to a handful of approaches

If you’re already familiar with the principles of Organizational Physics, you can easily understand this explanation: Holacracy is an attempt to increase system integration and decrease system entropy by aligning Structure and Process (the bottom left and right sides of the Execution Diamond shown at the bottom of the map below) by applying a very high Stabilizing force (the S in PSIU):

Everything you need to know about management is captured in the Organizational Physics map. Holacracy is an attempt to address the bottom of the Execution Diamond (structure and process).

Everything you need to know about management is captured in the Organizational Physics map. Holacracy is an attempt to address the bottom of the Execution Diamond (M): Structure and Process.

If you’re not yet familiar with Organizational Physics, this definition probably won’t help you much, but the rest of this article will. And though of course I’m partial, I firmly believe that if you read my book Organizational Physics: The Science of Growing a Business, you’ll find it much easier to put the barrage of “new” trends in perspective.

In any case, in order to understand Holacracy it’s helpful to realize that you’re already living and working in a system that uses many of the core Holacratic principles. It’s the United States of America. Wait… what??? Yep, this cutting-edge management theory is actually built on some of the core principles of our government:

  • The U.S. government has a constitution, and so does Holacracy. (In fact, one of the first tasks of a CEO when adopting Holacracy is to cede his or her authority to a Holacratic-based constitution).
  • The U.S. government has a set of explicit laws or rules that attempt to govern individual and collective behavior, as well as a detailed process to change an existing “law” or create a new one, and so does Holacracy – very detailed.
  • The U.S. government relies on a nested hierarchical structure of governing bodies (i.e., The Office of the President, Congress, the Supreme Court, the Military, States, Counties, Cities, City services, etc.) that act mostly autonomously within their own spheres. And so does Holacracy.
  • We, the people, elect representatives to perform defined roles in our local, state, and federal governments. The members of a Holacracy-based organization also elect individuals to perform defined roles at different hierarchical levels or “circles” of the organization.

Holacracy’s approach to managing an organization is also very similar in ambition to the founding vision of the U.S government. The founding fathers tried to create a structure, processes, and checks and balances so that the government wouldn’t meddle in the affairs of law-abiding citizens but would instead allow people the autonomy to pursue their individual and collective interests.

For example, when you got up this morning, did you call President Obama and ask him for permission to buy groceries? Or did you call the mayor of your town and ask for the right to binge-watch House of Cards? Nope. You just did what was in your own interest, while staying within the system of rules and processes that have been adopted by your local, state, and federal government.

So Holacracy asks this question: If you don’t need a ruler to govern your financial and social life, then wouldn’t it be superior to design a business around a set of rules so there’s no need for rulers? What if an organization acted more like a modern city and less like a top-down feudal monarchy? As Holacracy founder Brian Robertson puts it, “Order doesn’t require rulers. And if you give one individual monarch-like authority, then it’s only a matter of time before they make a royal screw up.”

It may seem counterintuitive to compare the core operating principles of a supposed next-generation management theory to the operating principles of the U.S government. After all, doesn’t the U.S. government of recent decades seem to be more incompetent, and sometimes even nefarious, than innovative?

Look at it this way. We can all agree that the design of the U.S. government has the potential to create a competent and wise system of governance as well as a happy, well-educated, prosperous, and productive population of citizens. But a lot depends on its lifecycle stage (the U.S. is aging), its sense of shared vision and values (it’s fragmented), its resources (it’s broke), and most importantly the quality and caliber of the leaders who perform roles in the system over time (The U.S. now has an entire party of leaders like this guy). So we know that things can and do go wrong despite our best design intentions.

The same is true for Holacracy. It has the potential to be transformative but a lot depends on the organizational lifecycle stage of the business, the embodiment of shared vision and values, the organization’s resources and capabilities, and the quality and caliber of the people who inhabit the roles in the organization. In theory, Holacracy is a compelling and very thorough framework for managing structure and process in an organization. In practice, a lot can go wrong, just as with any framework.

To sum this all up, Holacracy is an attempt to bring a rigid but evolving set of rules, structure, and processes to how an organization is managed so that individuals have more clarity and autonomy to do their work (what Holacracy calls “energizing their roles”) in pursuit of the organizational purpose, without undue meddling from those above or below them in the organizational hierarchy.

How Does Holacracy Work?

To accomplish its purpose, Holacracy focuses on five key elements, what it calls the Holacracy Operating System:

  1. The Holacracy Constitution
  2. Holacracy works by first having the CEO cede all legal authority to a new organizational Constitution. Holacracy provides a blueprint for the Constitution that the organization can modify for its particular needs and situation. This is where I warn you that you should not try to understand Holacracy by reading the Constitution. That would be like trying to learn a very complicated board game by reading the rule book. Instead, Holacracy encourages you to attend their trainings to learn how to “play the game” and then refer to the rule book when you have questions.

  3. Organizational Structure
  4. The organizational structure in Holacracy is constantly evolving. It’s created and reinforced through a series of special meetings called the Governance Process. The key organizing element of a Holacracy structure is a circle that is made up of one or more organizational roles. The highest-level circle is the General Company Circle (GCC), which consists of all of the main roles or functions being performed in the company. For instance, an initial GCC might consist of roles from Sales, Operations, Finance, Accounting, Engineering, Marketing, and Product Management, as well as the former CEO role. From the GCC, sub-circles are created for each role. For example, Sales is part of the GCC but also has its own Sales Circle.

  5. Governance Meeting Process
  6. Governance is where the organizational structure is created and evolved. Here the intent is to distribute authority and create organizational clarity about which roles are accountable for what. Holacracy doesn’t dictate what the structure should look like. It only stipulates how a role should be defined in the structure and how the members of a circle can adapt or change the roles within that circle to better serve the organization’s purpose. Most of the practitioner training is spent learning to navigate the nuances of the Governance meeting process. It starts out easy enough but the more you scratch the surface, the deeper it goes. If Holacracy was a board game, this is the stage when the players would get out the rule book (in this case the Constitution) and start interpreting and debating the rules. (This reminds me of Bismarck’s comment, “If you like laws and sausages, you should never watch either one being made”).

  7. Operations Meeting Process
  8. Operations is how the day-to-day work of an organization is managed. In Holacracy, the focus of Operations meetings is to synchronize information flow and quickly triage what it calls “tensions.” A tension is a perceived gap between what is and what could be. Any member of the circle can bring a tension to the table and have it addressed. What’s peculiar to the Holacracy approach is that the circle doesn’t try to find the best way solve an issue, nor does it attempt to do so holistically by gathering data on all the issues related to that tension. It simply tries to resolve that one particular tension, in isolation, for that one role in the circle. This is done through a series of rigid steps that the circle must follow before it can reach a decision. In other words, it follows a process focusing on micro-level issue after micro-level issue, until, theoretically, all issues are resolved…ad infinitum.

  9. Glass Frog Software
  10. Glass Frog is like a corporate wiki designed specifically for Holacracy. Glass Frog contains the organization’s constitution, a description of all roles, and the output of all governance and operations meetings. A Holacracy purist would argue that Glass Frog is not part of its core operating system and that a company could deploy Holacracy without it. I disagree. There is an overwhelming level of detail within Holacracy. There’s no way to track and manage it without a good system in place to do so, especially in a distributed environment.

Now that you’ve gotten the basics, the main question you should be asking is, “So what?” Or, “What is the real problem that Holacracy is trying to solve?” It’s the question I’m most commonly asked about Holacracy, and probably the best one of all. So let’s address it.

What is the Real Problem Holacracy is Trying to Solve?

In Holacracy webinars and trainings, the first thing participants learn is what’s wrong with the traditional, top-down org chart. Brian Robertson will put up this image below and ask the class, “What are some of the challenges created by the traditional, top-down organizational hierarchy?”

real-org-chart-530px

The class or group will offer up answers like, “painful meetings,” “difficulty to change,” “overwhelm,” “unclear objectives,” “misalignment,” “lack of engagement,” “rigidity,” “politics,” “analysis paralysis,” “bureaucracy,” “fear,” “communication issues,” and so on. All common issues that people are faced with in poorly-run organizations.

Once the top-down hierarchy is defined as the core problem of most organizations today, the Holacracy trainer will propose that rather than “bugs,” these failings are actually “features” of top-down organizational design. That is, no matter how much restructuring, leadership training, agile development methodologies, or other tactics we deploy, they are ultimately doomed to fail because of the inherent problems of the surrounding structure.

Holacracy claims to design out these “features” by changing the concept of organizational structure from one that is autocratic and top-down to one that is decentralized, organic, and bottom-up. Ultimately, the vision of Holacracy is to allow the emergent, creative properties of the individuals playing roles within an organization to self-organize and flourish, much like human cells are organized into organs, which in turn are organized into bodies and minds, which in turn go forth into the world to express their purpose as humans.

If all this sounds very theoretical and far-fetched to you, especially in the midst of the chaos and battle of growing your own business, I understand. Still, several aspects of the Holacratic approach are impressive…

What I Admire About Holacracy

There are several things that I admire about Holacracy. There is a clear sense of “we’re changing the world” that emanates from Holacracy insiders. Brian Robertson is a very smart, charismatic, and articulate founder, even though he discounts his own role in the formation, evolution, and operation of Holacracy and attributes these to Holacracy itself. (On this last point, I strongly disagree. All founders are mission-critical to the success and growth of their organizations into and through Scale It mode).

When I boil it all down, here are three of my favorite things about Holacracy:

A Relentless Focus on Roles vs. People
Holacracy does an outstanding job of distinguishing and reinforcing the difference between roles and people, which is a core principle of any good structure. In fact, Holacracy does NOT manage people. It governs roles. Every role has a clearly defined purpose and accountabilities that are maintained and defined in its GlassFrog software.

Naturally, one person could play any number of different roles in the organization. Companies that deploy Holacracy are constantly checking and updating GlassFrog to see what a role’s purpose is and what it is accountable for. If there seems to be a breakdown in how a circle is being run, that circle can call a Governance meeting and change or add a new role, thus changing the structure of the organization on the fly.

Separation of Working In vs. On the Business
Holacracy does a phenomenal job of distinguishing between tactical/triage issues that are handled in Operations meetings and structural/role issues that are handled in separate Governance meetings. This is also a core principle of any good management process. It’s crucial to strike a balance between the demands of today and the needs of tomorrow, and a sound process will enforce a regular rhythm of long-range development and short-range execution. Holacracy accomplishes this by not allowing a circle to discuss Operational issues in Governance meetings and vice versa. The result is that there’s a clear and regular focus between working in the business and working on the business. Awesome.

An Operating System vs. Apps
Holacracy envisions itself like the Apple iOS platform. Apple builds and maintains the iOS platform while millions of independent developers build individual apps that run on that platform. Holacracy clearly distinguishes itself as the core operating system for Structure and Process ONLY. It does not try to tackle “app development” in the areas of strategy, people or cultural development, hiring, finance management, marketing, budgeting, sales tactics, etc. Instead, it encourages others to develop apps that are designed to run on the Holacratic platform.

Note that this separation of “OS” and “Apps” has caused some confusion in the marketplace. For instance, a guru like Steve Denning will look for a relentless focus on delighting customers within the OS and he won’t like it unless it has that, or until he understands the purpose of Holacracy is to be applicable to any organizational purpose.

On the other hand, I’ll look for a relentless focus on lifecycle management in the OS, believing that the operating system must manage differently at different lifecycle stages. To me, that’s not an App; it’s part of the OS. A culture guru like Robbe Richman, who was also at my training, will look for alignment of vision and values and organizational buy-in in the OS itself and not consider that an App either, etc. So there will be differences of opinion on where the OS should start and end. However, I appreciate the discipline Holacracy has embraced by clearly sticking to what it defines as the OS: structure and process.

Should You Deploy Holacracy?

When it comes to making a decision whether to deploy Holacracy in your organization, the real question you should be asking is this: “Where is my business in its lifecycle development and what is the management operating system I need for its next stage of evolution?” The solution you choose will depend a lot on your personal philosophies as well as the cost to integrate, maintain, and evolve the new system.

I indicated earlier that Holacracy is not an easy solution to deploy. There were parts of the training I really enjoyed but much of it I found exhausting, unnatural, and frustrating to practice. I am not alone. I’m told by Holacracy insiders that the norm is for a new circle to experience serious levels frustration, condemnation, and aggravation when deploying Holacracy. Then, almost by magic, around the three-month mark something shifts: Holacracy begins to feels natural to circle members and starts to work as designed.

Personally, I like systems that feel natural and intuitive, so I spent much of the training trying to think through how to adopt the “good” parts of Holacracy and design out the “bad” parts. My conclusion? A half deployment will backfire. Each element of Holacracy feeds into and supports the rest. It needs to be a full commitment from the Constitution on down. It’s all entwined and you can’t make up a “light” version and expect the organization to respond differently than it already is. So if you’re going to deploy it, prepare for months of push-back, resistance, and aggravation before you find the breakthroughs you’re seeking.

Upon reflection, I think this difficulty in deploying Holacracy may be one of its strengths. Its full commitment “forces” the organization, from the CEO on down, to adopt and practice decentralized management and self-organization. That is, while you could likely get equivalent organizational benefits by running a Management By Objectives (MBO) system or Objectives and Key Results (OKRs) or the latest flavor of MBO, what you wouldn’t get from these systems is the constant reinforcement of the new social structures that Holacracy is designed to create.

Naturally, you’ll want to test out Holacracy in the senior level GCC circle before going company-wide. If you get this far, stick with it. I’m confident that, with a full commitment, Holacracy can help your organization rise to the next level, just as any good approach would when backed by a full commitment. The adaptions that I’m suggesting below still work within a full Holacracy deployment – meaning, that you are still deploying the complete Holacracy implementation for process and structure, without sacrificing some important principles in leadership, long-range planning, and organizational design. I believe that these adaptations will allow you to get the most out of a Holacracy implementation.

Adaptation #1: Don’t Abdicate the Master Structural Design
My experience growing businesses and coaching dozens of other successful growth businesses is that structure is about 85% of the game. That is, get your structural design right and you can create massive organizational transformation. Get it wrong and you don’t have a chance.

Holacracy allows for an organizational structure to be designed from the bottom up. Not only does this “organic” approach take a long time and is prone to egregious errors; it also allows for chaos where you need order and order where you need chaos.

For example, every city planner and architect knows that there are principles to good structural design. If you were to allow individuals to design whatever style of home or building they wanted, wherever they wanted it, it wouldn’t take long until you had fracking wells next to schools and a shanty towns next to city hall. There’s a great example of a leader, the Mayor of Oklahoma City Mick Cornett, who understands this and took charge of a poor city experience with haphazard future direction and redesigned it for prosperity, health, and success. Well-designed organizational structures, just like well-designed cities, are a boon to everyone who inhabits them.

I think that Holacracy adopted its bottom-up approach to structure because it confuses what are really problems with poor strategy, misaligned vision and values, ass-backwards decision-making processes, and poor leadership with problems with structure.

If you go back to the Holacracy critique of the top-down hierarchical “structure” (in which they really mean to say “org chart”), you’ll see that very few items actually relate to structure and none of them to structure alone: painful meetings (accountabilities and process), difficulty to change (accountabilities and process), overwhelm (process and strategy), unclear objectives (process and strategy), misalignment (strategy, vision and values, structure and process), lack of engagement (process and people), rigidity (strategy, structure, and process), politics (process and people), analysis paralysis (process), bureaucracy (process), fear (strategy, process, people), and communication issues (process).

A sound management system will address all of the issues raised by Holacracy and leverage, rather than discard, the principles of sound organizational design. Think about it. The purpose behind a top-down organizational design is not to command and control or to dictate, as its harshest critics would claim. It’s to clarify accountabilities, thus decentralizing authority, and allocate resources. It’s about getting the right style of people in the right roles with the right metrics and providing them the autonomy to flourish. It’s also about allowing new business units to innovate because of — not in spite of — a sound overall design.

So even if you do choose to implement Holacracy, I’d make damn sure that you have the right initial structure in place and that, as the leader, you keep an eye on it to make sure it’s not going katty-whampus and headed off a cliff. You need a structure that supports the strategy and current lifecycle stage, and clearly identifies the metrics, key performance indicators, and style of leader most suitable for each role. This is in addition to the purpose and accountabilities of each role that Holacracy will definitely help you to define.

One way to conceptualize this is for you, the entrepreneur or CEO (GCC Lead Link in Holacracy terms) to maintain control of the overall strategy as well as the master structure to support the execution of that strategy. You could accomplish this as an accountability within the GCC or even create a separate Strategy and Structure circle with those specific accountabilities. This approach would allow for self-organizing circles but within the master design. It’s kind of like being a master planner for a community garden. You lay out the plots (the functions) in the optimal way to take advantage of the terrain and climate and invite the community members to plant whatever they want, while still being accountable to produce results. JUST DON’T LET GO OF THE MASTER DESIGN OR YOU’LL SOON HAVE A PLOT OF CRAP INSTEAD OF A VIBRANT ECOSYSTEM.

If you’d like to understand the basics of designing a structure from the Organizational Physics perspective, read The 5 Classic Mistakes in Organizational Structure: Or, How to Design Your Organization the Right Way.

Adaptation #2: Don’t Confuse the Tensions for the Cause
Holacracy Governance and Operations meetings have a relentless focus on solving tensions held by any role in the circle. So if you were the VP of Sales and had a tension with how Marketing was allocating its resource dollars to lead generation, you could bring that tension to the circle and have it processed.

In order to process the tension, the Holacracy trained facilitator would guide the circle through a series of prescribed steps to resolve the issue in such a way that your tension is satisfied (hopefully) but without harming the autonomy of any other role in the circle. How rigid are these steps? Very. There’s no discussion allowed of issues that might be related. There is only a focus on processing one tension at a time for the role that brought it to the circle. There is a set of rules about who speaks when and what is allowed or not allowed as a valid objection to any proposal. It’s a lot like practicing law in a courtroom.

Processing tensions is important. There’s always a gap between what is and what could be. However, the way the decision-making process is structured in Holacracy actually reverses what’s required for rapid execution. As I describe in Organizational Physics, organizational mass (resistance to change) is a real thing. In order to execute fast, you need a process that slows down enough up front (in the decision-making phase) to gather a diversity of opinions and sufficient data so that you make a good decision with full commitment. Then you can go fast on implementation. Holacracy reverses this model. It focuses on rapid decision making at the cost of rapid implementation. Exactly the opposite of what, in my opinion, a well-run decision making process should do.

To clarify, I’m not condoning pushing off making decisions. I’m also not condoning a poor decision-making process that allows for a free-for-all. The structure and process of meetings is critical to good management. But the right structure and process will support making sound, well-thought decisions that afterward get implemented quickly rather than rushed, half-baked decisions that fail on implementation. (If you’d like to learn more about the basics of a good-decision making process, read The Most Important Process in Your Business: Or, How to Make Good Decisions and Implement Them Fast.

In many later-stage, bureaucratic-heavy institutions like large businesses, governments, schools, and non-profits, I think that Holacracy could be a productive change. In these settings, there’s already a bias towards not making a decision, following the political winds, and covering your ass in the face of a stolid bureaucracy.

In short, these settings already have a high-Stabilizing force at work within them. Holacracy will match the Stabilizing force within these institutions well and, if executed correctly, it will shift the culture towards decision making, accountability, and action — any action. Because the risk of making a bad decision is low in these settings, versus the risk of not making a decision at all, it could be a helpful management practice to adopt.

However, in most expansion-stage companies (the area where I specialize), there’s actually a bias in the other direction. Here, companies usually confuse making rapid decisions with making rapid progress. Rather than speeding through to a one-off decision, they need to cultivate the muscle to find the underlying cause of every challenge. In short, they need to slow down in order to go fast. So be mindful of this if you adopt Holacracy. You’ll need to supplement it with long-range strategic development practices so that once or twice a year you pattern up all the tensions, identify their underlying causation, and put in place efforts to solve them at the root level.

Adaptation #3: You Can Renounce Your Authority But Don’t Cede Your Leadership
If you’re going to truly adopt Holacracy then you, as the CEO, will be asked to sign over your authority to a Holacratic-based Constitution, much as the President of the United States takes an oath to defend the U.S. Constitution.

Is this ceremony? Yes. Is it necessary? If you’re going to make a full commitment, then yes. But even if you do choose to sign over authority, make sure that you’re not also forgoing your own authentic leadership.

Let me put it this way. According to Holacracy, if the CEO just cedes authority to the Constitution up front, then the Holacractic system will take over and the organization will transform. It’s not a requirement for an organization to have great leadership, it’s only a requirement that they adopt Holacracy. Then, by virtue of its “exquisite design,” the organization will begin to transform.

This principle reminds me of Communism, which reads well in theory but utterly fails in implementation. The fact is that bad leaders make bad systems. A poor leader will attempt to execute on the wrong strategy, will allow misaligned vision and values, will disregard the principles of structure and process, or will place the wrong style of people in the right roles. If this is the case, then that business is going to fail anyway and Holacracy, or any other management system, is not going to prevent disaster.

On the other hand, a great leader builds sustainable systems. He or she will take what they’ve got and make any system work well, Holacratic or not. If you look at the most successful businesses in history, the ones that assume almost transcendent, iconic status — IBM, Apple, Ford, Disney, Walmart, Standard Oil, HP, Intel, Coca-Cola, Microsoft, Google, Amazon, Virgin, etc. — you’ll see that while each founder had his own unique approach and management methodology, each also designed their business to be symbiotic with his or her own innate genius.

These visionary founding leaders did what only they could do in the early stages of their business growth and beyond. They consciously designed their businesses around their own innate ability to innovate and made conscious design choices to offset their weaknesses. They influenced the most important things without getting bogged down in the details. They delegated, but with visibility and control. They surrounded themselves with complementary teams and structures. They ensured that good decisions got made and implemented quickly time and again, not by micro-managing details but through systems thinking. These same principles hold true for you.

Can you use Holacracy to create this kind of sustainable business growth over time? Absolutely. Do you need Holacracy to do so? Absolutely not. If you look again to the Organizational Physics map, you’ll see that there are many methods to manage your business, and they all come back to the basics. Set the right innovation strategy. Define the vision and defend the right values. Craft and realign the structure to support the evolving strategy. Use this structure to clearly distribute authority and accountability. Follow a sound decision-making process. Design for self-organizing teams with the freedom and autonomy to execute and backed with clear metrics. Get the right people in the right roles. Work on the long range and execute on the short range. Know the forces at play. You know — do the basics right.

Time will tell the fate of Holacracy in the changing winds of the marketplace. However that goes, I want to give kudos to the entire Holacracy team for their commitment to a big vision and for pushing the envelope. They’ve clearly chosen to do what they feel is right versus what is easy or expedient. As anthropologist Margaret Mead said, “Never doubt that a small group of thoughtful, committed people can change the world; indeed, it’s the only thing that ever has.” I look forward to learning more as Holacracy continues to develop.

Opportunity and Capability

It's not survival of the fittest. Success goes to the best adapted.


Every potential business strategy has the same ultimate aim. This is true whether you are trying to sell your business, go IPO, enter a new market, raise venture capital, hire top-notch talent, fend off competitors, manage increasing regulations, win an industry award, or create the next hot startup. It doesn’t matter what the strategy is — the goal is always the same. This goal is also independent of time or context. It’s just as true in recessionary times as it is in boom times. It was true one million years ago and it will be true one million years from now. So what is this goal of strategy?

The ultimate goal of any strategy is to acquire new energy from the surrounding environment now and in the future.

The evidence for this comes from the most fundamental tenant of evolution: adaptation. Before we continue, let me clear something up about evolution. When most people think of evolution they think of Darwin. And when people think of Darwin, they usually recall the term “survival of the fittest.” However, Darwin himself never used that term. Well, that’s mostly true … Darwin only used the term late in his life to refute the notion that success goes to those most fit. Instead, what Darwin made clear is that survival (and prosperity for that matter) goes to those most adapted to their environment. If there’s good adaption or integration with the environment, then the species will flourish. But if the environment changes and the species can’t adapt, it will fail. That’s why you’re reading this – and not some brontosaurus.

Why is adaptation with the environment so important? Because that’s where new energy comes from. Without new energy, a system will perish. For example, if a man is stranded on a desert island, unless he can find new sources of energy like food and water, he’s quickly going to die. Just like a business with no new sales will quickly die.

In Organizational Physics, “energy” is simply a measure of available or stored power. In a business this includes all forms of available or stored power including money, resources, and market clout. Basically, a good definition of energy is anything useful and desirable that can be made productive. In fact, begin to think of your business as an energy conversion system. For example:

Money is really just a form of stored energy. It’s used to make the exchange of products and services (other forms of stored energy) more efficient. But money is just a tool. If one business wanted to trade its pigs for some cows in barter, both the pigs and cows would be similar energy sources too.

Resources include power sources that the organization has available to itself, including the stored energy potential of the people, materials, natural resources, know-how, and capital equipment involved. Obviously, every organization needs resources to be successful.

Clout is the influence and good will that the organization has built up over time. Every business needs clout. Great companies nurture and defend the clout of their brand because they know that if they lose it — for example, if consumers lose trust in the brand — then they’ve lost a critical asset or energy source.

Evolution shows us that if the environment has no more energy to give (if the resources are tapped out) and if the species can’t adapt, it will fail. Or, if the species can no longer extract available energy from the environment and if it can’t adapt, it will fail too. This will happen if its capabilities are no longer suited to the environment or the competition is too great relative to the size of the opportunity (this is where survival of the fittest comes in).

The same principle holds true in business strategy. If your company is operating within a growing market opportunity where there’s a lot of customer demand (i.e. there are a lot of potential new energy sources in the form of money, resources, and clout) and if it can efficiently meet that demand, then it will be successful. But if the market needs change, then the company must adapt to meet those needs or it will cease to exist too. The secret to business strategy, therefore, is to use your capabilities to find and maintain integration with growing market opportunities so that your business can get plenty of new energy (money, resources, and clout) now and in the future.

To drive the point home that a successful business is one that efficiently extracts energy from its environment, take a look the top three U.S. companies by market capitalization on October 7, 2011: Exxon (XOM), Apple (APPL), and Microsoft (MSFT). Notice what they all have in common. Each, in its own way, has successfully created its own “ecosystem” to extract more available energy from the environment than its competitors.

Exxon for example, owns or controls every aspect of petroleum production. It owns the wells, the pipes, the refineries, the trucks, the ships, the mineral rights, and the retail distribution. It’s capable of extracting more dollars, resources, and clout out of the petroleum industry than any other competitor. You may hate Exxon as a company but there’s no denying that they are extremely effective and efficient at what they do and their market cap reflects that. Of course if the environment changes — if all the oil and gas runs out, if new green fuels become practical alternatives, or if the the planetary environment changes radically enough from carbon emissions, Exxon will need to adapt or perish. And it must start adapting before it’s too late.

Apple is the same way. Notice how with iTunes, iCloud, iPhone, iPad, MacBooks, and its App Store, as its online and retail distribution channels, it easily extracts new energy from its ecosystem. Once you have an iPhone, you’re now “locked into” the ecosystem and conveniently buy apps from the App Store. If you reflect back on just a few years ago, Apple was out of cash and low on hope while Microsoft was the world’s dominant company. Of course Microsoft built its empire in the 1980s around an ecosystem of desktop computers and the software that runs them. And notice, too, how Microsoft ate Apple’s lunch for many decades but now Apple’s returning the favor. What happend? The environment changed! Apple has become better adapted to today’s environment of elegant design and mobile devices while Microsoft has not been able to adapt.

What About Survival of the Fittest?

This question comes up often enough that I want to address it now. Survival of the fittest is certainly important. It is a measure of how fit an organization’s capabilities are in extracting available energy from opportunities in the environment. For example, imagine two leaders. One is an aboriginal chief in Australia. The other is an executive at Lehman Brothers. Who is the most fit? It depends on the environment. If the banker is stranded in the outback, there’s lots of opportunity to survive and flourish but he just doesn’t have the capability to execute. The aboriginal chief, on the other hand, can enjoy a good life if left in the wild because he’s more fit for that environment. Back in New York, if the environment changes, for example if there’s a financial collapse, the banker’s skills will no longer useful and he or she will need to adapt to new conditions. Adaptation to the environment is supreme and fitness or capability is always secondary.

Not All Capabilities and Opportunities are Created Equal

To get new energy from the environment, a business must use its capabilities to find and integrate with opportunities in the environment. For example, a dentist’s office has capabilities in teeth cleaning and repair, front office administration, marketing, etc. In the surrounding environment are opportunities — people who have cavities or who want a whiter smile and healthy gums. If the dentist office can use its capabilities to attract customers to its practice and produce positive and desired results for them, then those clients will give energy (money) in return. If the dentist is really good, if he or she is able to produce positive and desired results consistently, then it will be easier to get those clients to return and send their friends (more sources of energy). The same holds true for Apple, Microsoft, and Exxon, as well as for a cheetah on the plains of Africa. Success is about aligning capabilities with opportunities.

However, it should be readily apparent that not all opportunities and capabilities are equally valuable. Opportunities exist on a spectrum of growing to shrinking, while capabilities exist on a spectrum of unique to generic.

opportunitycapability

Best: Unique Capabilities with Growing Opportunities
The best strategy is to align unique capabilities with a growing market opportunity, now and in the future (upper right quadrant). If the organization can do this, it will have a very high probability of being successful. Why is this? Well, a growing opportunity means there’s a lot of market demand and new energy sources available. At the same time, the organization has developed unique capabilities where there are few real or perceived practical alternatives.

Let’s go back to Apple for a moment. As I mentioned before, there’s a growing market need for people to be mobile, connect with others, and have access to media and information at their fingertips. There’s a big need and thus a big opportunity. And Apple has developed capabilities in vision, execution, product design, integrated hardware and software, global supply chain management, marketing and branding, and so on. Because Apple’s capabilities are aligned with the current market opportunity (and because there are few practical alternatives to what Apple provides and how well they do it), Apple is incredibly successful right now.

Tolerable: Unique Capabilities with a Shrinking Market Opportunities
A less successful strategy is to align unique capabilities with a shrinking market opportunity (upper left quadrant). If you own a market or operate a real or effective monopoly, you can still be successful for as long as the market demand holds. The movie rental chain Blockbuster is a good example. They had unique capabilities in movie aggregation and distribution. Even though people were renting fewer and fewer movies, they were able to hang on and be successful for a time. However, environments can change very quickly, as we saw with the shift from rental tapes and dvds to online delivery. Even though Blockbuster had a near monopoly in video rental stores, they went bankrupt because the demand shrank so rapidly. Netflix has been better adapted to the new world of online delivery. But notice too how they’ve been getting a lot of negative publicity lately for their attempts to serve a dwindling market opportunity (people who still want hard disks in the mail) versus a growing market opportunity (people who want to watch what they want instantly online). Netflix knows, just as Blockbuster knew, that they have to make the leap to serve this new, growing market segment or they’ll perish. I’ll explain how you can make this shift later in this series.

Tolerable: Generic Capabilities with Growing Market Opportunities
Another less effective strategy that the first I mentioned is to serve a growing market opportunity with generic capabilities (lower right quadrant). Just like the last strategy, you can make this one work for a time one but it’s not nearly as fun and lucrative as having unique capabilities in a growing market. For example, imagine a family doctor who runs his or her own practice. Health care is a growing market. The doctor has capabilities to diagnose and treat disease. He or she may even be an incredibly talented practitioner with an empathetic bedside manner and a sincere desire to see his or her patients get well. So what? The doctor still struggles to earn a living and pay the bills. Why? Because the market (including customers, vendors, and the insurance industry) views the doctor as just one of thousands of practical alternatives to choose from.

It’s important to point out that it doesn’t matter how unique you think your capabilities are. It’s how the market perceives your capabilities that matters. If there are a lot of perceived practical alternatives, it’s harder to be successful. That’s why in crowded industries the most successful practitioners are those who specialize in one particular discipline. The best brain surgeon for meningioma or the best realtor for high-end homes in 90210. Businesses that successfully differentiate themselves create the perception of unique capabilities and have an easier time of it. That’s why advertising was created. Companies use advertising to try to differentiate themselves from other practical alternatives in the marketplace. To call out what makes them unique and why the market should care. That’s why in a crowded marketplace, the more narrow your focus is, the broader your appeal. And that’s why the saying “perception creates reality” is so poignant. Because it does.

Terrible: Generic Capabilities with Shrinking Market Opportunities
The least successful strategy by far is to be in a shrinking marketplace with generic capabilities (lower left quadrant). If this is you, then you are suffering and you will continue to suffer. There is an ever-decreasing amount of available energy in the marketplace. There’s a free-for-all in competition who fight for the scraps. It’s truly a dog-eat-dog world. Adapt or perish. For example, I knew lots of real estate agents in Santa Barbara during the boom. The environment changed during the bust. Most of them wisely left the industry and attempted to transition their capabilities (sales, networks, contract negotiations, etc.) into other growing industries where there’s greater opportunity. Others who have stuck with it have done so by focusing on a niche: “I’m the foreclosed property specialist” or “I have over 25 years’ experience successfully selling Montecito estates. I’ve been here through booms and busts and I’m you’re agent!”

The Challenge and Opportunity

To recap, the goal of any business strategy is to get new energy from the surrounding environment, now and in the future. The obvious challenge to maintaining integration between unique capabilities and growing market opportunities is the fact that the organization, its products and services, as well as the market conditions are constantly changing. As Darwin made clear, adapting to change can be a life or death struggle. It’s hard to anticipate change, to understand its ramifications, and to adapt in the right timeline and sequence. It’s challenging to acquire enough resources in capabilities, time, energy, and money to adapt successfully. It’s difficult to prioritize between the immediate needs of today and investing in the future.

Don’t underestimate the difficulty of adapting. It is a big challenge indeed. In spite of this, it’s possible and it happens all the time. The name of the game in strategy is keeping your organization tightly integrated with growing opportunities, now and in the future. If you can convert that available energy profitably and make it productive, then you’ll be very successful.

There is a key insight that makes adapting to change and executing the right strategy more attainable. It’s this: all systems evolve in a particular pattern called a lifecycle. By learning to recognize the lifecycle stages of your organization, its products, and the market (as well as the different sets of milestones, challenges, and metrics of each), you can correctly adapt your strategy, in the right time and sequence, and improve your probability of success. We will discuss how to do this in the coming sections.

Back to Tutorials.

Managing Conflict in Your Organization

We all have conflicts with the people we work with. Some conflicts are constructive. They can lead to better decision making and faster implementation. Other conflicts are destructive. They cause entropy to rise and prevent work from getting done.

According to organizational development expert Dr. Ichak Adizes, while there are both an art and a science to managing and harnessing conflict, the fact is that every conflict is an expression of one (or a combination) of only three fundamental types1. They are:

  1. Conflict of Competing Interests
  2. Conflict of Behavioral Styles
  3. Conflict of Vision and Values

The next time you’re involved in a conflict, ask yourself, “Is this a conflict of interests, styles, or vision and values?” If you can begin to discern the underlying type of conflict you’re dealing with, this will improve your effectiveness in interpersonal relationships as well as your capabilities as a manager and leader.

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Give Winning Presentations Everytime


You have a big presentation coming up. Perhaps you’re raising money for your new start-up or you’re competing to win a lucrative new contract. In any case, there’s a lot riding on the presentation. You want to make sure you’re at your best and that your message meets the needs and expectations of your audience.

I’ve given many presentations over the years. I’ve done presentations to raise over $50M in venture capital, to close new sales contracts, and even to teach meditation to kids. I think the hardest part of any presentation is the opening. If you can get that right, then the rest of your talk flows easily. But if you get the opening wrong, you’ll never fully recover. Here’s a simple technique that I’ve found very powerful to start your presentations off on the right foot and to tailor your message to any audience, be they VC sharks or indifferent kids. ☺

To start, you’ll need a partner or a coach. Get together in person or on the phone and brainstorm a list of ten to twenty questions that you think the audience wants answered in your presentation. Put yourself in their shoes. How do they view the world? What problems do they have? What situations and challenges are they currently facing? And, of course, what do they want to get out of your presentation?

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