About Lex Sisney

Lex Sisney is an expert at creating breakthroughs in individuals and organizations. He's grown from co-founder and CEO of the world's largest affiliate marketing company to follow his passion as CEO Coach to the world's next generation of expansion-stage companies.

If You Give a Man a Hat, Take Away His Incentives

Balancing multiple competing accountabilities is hard to do.

Balancing multiple competing accountabilities is hard to do.

… Take away his incentives…wait…whaaaaaat did I just say? Let me explain.

One of the key concepts of Organizational Physics is that growing your business from the Nail It to the Scale It stage usually requires a change in organizational structure.

Changing structures, roles, accountabilities, and reporting relationships is a big undertaking. It’s a pre-requisite to scaling up but it can be hard to get it right. It also takes time and energy to integrate the new design.

When a growth company doesn’t yet have the resources to hire out its full team for the new structure, it’s a common practice to assign multiple roles or “hats” to existing leaders.

The idea is this. Until the company can afford to find and hire a dedicated replacement, a few leadership team members are assigned accountability to execute across multiple functions at the same time. Once a replacement can be made, the hat is taken off and given to the new dedicated replacement.

Some common examples of hat wearing that I see in companies in the Nail It stage include:

  • The head of Sales wears the hat of head of Marketing. Once a head of Marketing is hired, the head of Sales can return to focusing 100% on sales.
  • The CEO wears the hat of head of Strategic Alliances. When the business warrants a dedicated Strategic Alliance role, the company makes that hire.
  • The head of Admin wears the hat of head of Recruiting and People Development. When the company has the resources, it creates two distinct roles: one for liability prevention and one for recruiting and cultural development.
  • The head of Software Engineering wears the hat of head of IT/Tech Ops. Once the company has the resources to hire a dedicated head of IT/Tech Ops, the head of Software Engineering can go back to focusing fully on driving external software development.

There are other examples. Obviously, hat wearing isn’t ideal. In all of these instances the organization is violating a principle of structure. This is because they’re combining effectiveness roles with efficiency ones, long-range roles with short-range ones, or roles that need more decentralized autonomy with those that need more centralized control.

In other words, while hat wearing can be useful and necessary, you should always view it as a temporary measure. It sacrifices some focus and energy in the people wearing the hats (and the company as a whole) in exchange for short-term cash flow savings and buying time to find the right new hire or promotion. Basically, only deploy hats when cash or time is too tight.

That said, if you are deploying multiple hats, you should keep in mind a simple concept that will increase organizational effectiveness during a time of transition. It will also help your hat wearers to be successful in their multiple accountabilities. This concept applies only to those in jobs that have performance-based incentives.

The concept is this: Convert any performance-based incentives for those wearing multiple hats to base compensation, including any incentive compensation they would have likely earned if they had performed just their major role.

Here’s an example. Let’s say that you are the CEO of a fast-growing company with $15M in revenue and Joe is your head of Sales who runs the entire sales team. You have enough cash flow to make some smart business investments but not enough to hire or invest willy-nilly.

The rapid business growth is putting a strain on the culture and hiring. To compensate, you decide to create a new role called head of Culture and People Development with accountabilities for cultural events, recruiting and on-boarding, and cross-functional staff development.

You can’t justify hiring a full-time person for this position right now so instead, you ask Joe to continue to lead the Sales function and take on the newly formed Culture and People Development function. You justify this decision because it’s intended to be for one year only and Joe is your best cultural leader. Joe’s base salary as head of Sales is $150K. He earned $100K in sales commissions last year and is projected to earn the same this year.

Since Joe is now temporarily wearing two hats, what I’m proposing is that you should temporarily convert his existing sales commission plan and pay him base compensation of $250K (what he would earn if he hit his full sales targets this year), for as long as he’s wearing both hats.

Does the idea of taking away your head of Sales incentive plan make you feel queazy? It should. But if you are committed to driving your business to its scalable potential – and if Joe really is your best choice to wear the hat for Culture and People Development – then that’s exactly what you should do.

Why? Because if you give Joe both roles but keep the old incentive plan in place, despite his best early intentions to do well at both, he will likely do worse. The role with the explicit incentives (in this case, Sales) will always dominate his energy and attention, even if it causes harm to the development of the business. At the same time, even though he’ll give Sales most of his efforts due to the incentives, he’ll likely do worse at both roles because of the increased demands placed on him.

However, if you were to pay him a healthy flat wage and trust his intrinsic motivation to lead and oversee both roles – Sales and Culture and People Development, then he has a chance to do well at both roles in the interim. You’ll notice that without incentives, he’ll start to act less like a hammer and more like a lever. He’ll do better at developing the bench in both departments. He’ll see the big picture and make decisions that are best for the business in the short and long run.

Why is this the case? Wearing multiple hats — leading multiple, competing priorities — is hard to do. Short-range priorities like Sales will naturally overpower longer-range needs like Culture. Sales requires a hunter style; Culture a harvester one. Navigating these inherent conflicts puts a tremendous burden on the leader and on the company.

If the organization is going to achieve escape velocity, then Joe needs to be able to reconcile these conflicts, adapt his own style, develop the next generation of leaders, and execute well on both roles at the same time. Performance incentives don’t help in a scenario like this. They hinder.

For instance, if you were a professional soccer coach and your best athlete was a striker, you’d be hard-pressed to ask him to play defense too. You might justify it, however, if you were getting a lot of goals scored against you and you didn’t have other capable players. Now imagine that you ask the striker to make that change but also keep his existing goal bonus in place. How much defense are you going to get? Not much, and it will probably be erratic. But if you were to take away his goal-scoring bonus and just pay him as if he hit his quota anyway, then you’d get a more balanced player and true team leader.

Assigning hats in business is the same. Over time, it’s hard on the player and it’s hard on the team. You need to rely on the intrinsic motivations of the people wearing the hats and create an environment where they can do what’s right for the business’ sustained performance. Performance incentives hinder this by causing the leader to sacrifice one function for the other because the one with the explicit incentives will always win out.

Frequently Asked Questions (FAQ):

This concept of rolling performance incentives into healthy base compensation for hat wearers is simple but it usually raises some questions. Below are answers to some of the most common questions to help you think this through:

1. Why have any performance incentives at all?
Good question. There’s lots of evidence that — especially for creative, team-based collaborations — performance incentives cause more harm than good. Your business and culture may not need or have any performance incentives. If that’s the case, there are no incentives to take away or convert. Without incentives in one area, it’s much easier to move people in and out of hats.

2. Don’t I actually have to pay the hat wearer more to run multiple accountabilities?
No. I would argue that if you ask someone to wear a temporary hat and they reply with “pay me more money,” you’re not asking the right person. You’re dealing with box #3 Mercenaries/Specialists and they should be left alone to focus on their singular task.

3. Shouldn’t I create new performance incentives for all of the multiple hats instead?
No. You’re creating more complexity that’s harder to manage and harder to change when it’s time to take the hat off. Keep it simple. If you are committed to performance incentives, then keep them at the macro-level, like profit sharing or stock options, but don’t try to micro-manage incentive-based performance.

4. It seems really stupid to ask the head of Sales to also take on Culture and People Development. Do you recommend this?
No, I don’t recommend this. I was just sharing an example (one I have seen before). Again, hat wearing is not ideal but you have to play the cards in your hand.

5. Why have role accountabilities and hats at all? Why not just create a self-managed organization where people can shift in and out of roles across departments at their own volition/discretion?
Good luck with that. Every high-performing organization has defined roles on a team. Those roles may be self-defined but they are defined. The principle is the same. If you want fluidity of roles and accountabilities, individual performance incentives will only harm.

6. It seems really hard to get someone who’s wearing a hat to actually take it off. How is this done?
It can indeed be hard to get someone to take off a hat, especially if it feels like a loss of status. It isn’t. You can mitigate any resistance by helping the person being asked to take off a hat to see the bigger picture and what is best for the next stage of business growth. At the same time, try to get them to acknowledge what they are exceptional at and enjoy doing. By taking off the hat, you are freeing them up to have more time and energy to do what they are most exceptional at and creates the most value for the business – i.e., their main role.

7. It is too risky to take away all performance-based incentives. What are other options?
If the thought of taking away performance incentives from a particular role or individual feels too risky to you, I would trust that and not make the change. Either don’t invest in the new role at this stage or find someone else to wear the hat – someone who gives you confidence that the can execute without extra incentives.

Rethinking Product Management: How to Get from Start-up to Scale-up

I earn my living as a scaling coach to expansion-stage companies. One of the advantages of my position is that I get a deep, inside look into different industries and businesses. While no two situations are exactly alike, I have seen a consistent yet under-reported issue out there that keeps 9 out of 10 companies from getting out of start-up mode to the next level.

What is it? It’s a breakdown in Product Management.

Assuming that you already have a sound strategy and execution framework in place, if you can get your Product Management function right, you’ll solve a lot of problems inherent in scaling your business. You will also have a much easier time increasing revenue growth, execution speed, agility, and profits. If you don’t get Product Management right, scaling to your potential will be much harder or even impossible.

Before proceeding, I need to call out that the problems and solutions described in this article are only applicable to a company in the late Nail It to early Scale It lifecycle stage of business development:

The Organizational Physics Strategy Map. You'll likely need to redesign Product Management in order to make the leap from Nail It to Scale It.

The Organizational Physics Strategy Map. To scale successfully, you’ll need to rethink and redesign Product Management between the late Nail It and early Scale It stages of business development.

In the early start-up stages of a business, Product Management doesn’t need to be a well-defined function. It’s just something that is organically “managed” by a product-savvy entrepreneur. At this stage, there’s a drive to find product-market fit and not much else matters.

But once product-market fit is established and the company is ready to scale up by adding new product lines, customer types, or markets between the late Nail It and early Scale It stages, that’s when Product Management should be rethought and redesigned. This article will help you do just that.

Is There a Breakdown in Your Product Management Function?

It’s pretty easy to spot a breakdown in the Product Management function in your business. Assuming that your business has already aligned around a clear growth strategy and execution framework, some symptoms of a Product Management breakdown will show up when there is one or more of these conditions:

  • Poor coordination between sales, engineering, manufacturing, and marketing
  • Haphazard quality in new product releases
  • A struggle to translate customer needs into a delightful customer experience
  • Growing revenues but little or no profits
  • Finger-pointing and blame between departments
  • Perpetually late product development
  • A strong technical product but poor product marketing or vice vera
  • A lack of organizational clarity on the short- to mid-range product roadmap
  • A visionary entrepreneur who is stuck managing product details

Now, you’re probably thinking that I’m attributing a lot of internal corporate issues to a breakdown in just one function. And I am. That’s because at its core, Product Management is a translation, prioritization, and coordination function. And when it breaks down, this has a big impact across the entire organization. Let’s see why…

Product Management: It’s Not What You Think

The term “Product Management” can mean many different things to different people. For example, does your own definition include product marketing? Product development? Product pricing and positioning? Feature prioritization? Product strategy? Brand management? Resource allocation? More?

If you’re trying to improve something, you must first start with a clear definition of what it is you’re working on. There are actually five primary product management-related functions that every business performs but are distinct functions that should be treated as such. These five functions are Product Strategy/Vision, Product Design, Product Development, Product Marketing, and Product Management. While the titles may be different in your own business, the core functions will be familiar to you.

Terms and Definitions: Throughout this article, I use a shorthand code called “PSIU” to refer to the four forces and styles present in any organization: Producing, Stabilizing, Innovating and Unifying. You can learn more about PSIU here and take the World’s Fastest Personality Test to get a basic sense of it before proceeding.

Product Strategy/Vision (psIu)

Elon Musk would make the dictionary definition of the Product Strategy/Visionary role.

Elon Musk would make the dictionary definition of the Product Strategy or Product Visionary role.

Product Strategy/Vision is the function that finds the breakthrough product opportunities in the marketplace: “Hmmm, what potentials exist out there that we can bring together in new and innovative ways and that allows us to fulfill on our purpose?” The Product Strategy leader asks this question all the time and has the answers (sometimes the right answers, sometimes the wrong ones, but opinionated answers nonetheless).

A head of Product Strategy is usually either really enthusiastic or really frustrated. Why? Because they live in the future with a vision for how the world should be. When their vision is tracking well and showing visible, measurable results, they are really excited, fun to be around, and charismatic. But when things aren’t tracking to their expectations, others’ don’t “get it” like they do, or they’re not in a position to effect the change they want to see, then they can come across as extremely frustrated or irritable.

The style of a head of Product Strategy is very Innovative or future-oriented and focused on possibility (psIu). “What if we tried this?” Or, “Why not do it this way instead?” A classic example of a Product Strategy/Visionary style is Elon Musk. Notice how Musk continually underestimates the true delivery time frame for all of his ventures – SpaceX, Tesla, SolarCity, etc.? That’s because the high Innovator style tends to live in the future and sees things for how they could/should be and naturally underestimates the nitty-gritty details.

In your own business, Product Strategy probably isn’t its own distinct title. Instead it’s a “hat” worn by the visionary entrepreneur, CEO, or CTO. There’s no wrong answer. It should go to the person most suited to holding, articulating and selling the vision and strategy. As you go through this next section, I’d like you to keep in mind the different skills and style needed to be a great Product Strategist/Visionary compared to the skills and style required for the other aspects of managing products.

Product Design (pSIu)

Jack Dorsey, CEO of both Twitter and Square, made his mark as a Product Designer.

Product Design is the function that can translate the Product Strategy/Vision into an amazing customer experience. Product Design will often speak in the language of “user experience.” They’re usually asking themselves and others, “What is the purpose of this product? What is the feeling we want to create? What is the optimal design for the best user experience?” Technically, they are well-versed in key elements of the user interface and how the product can or should interact with back-end technical systems and processes.

The style of a head of Product Design is usually a mix of Innovator and Stabilizer or pSIU. This means that they excel at seeing and articulating the product vision or strategy and how it should actually show up in end-user hands. They’ll use language like “elegant, beautifully, functional, appropriate,” and also have an intense level of attention to detail when it comes to the product experience.

An example of a Product Design style is Jack Dorsey, who is co-founder and now CEO of both Twitter and Square. The media tends to define Jack as the “next Steve Jobs.” But what I want you to notice is that Dorsey’s style is more in the detail and design of the user experience rather than the classic Product Visionary style of an Elon Musk or Steve Jobs. You can see this very clearly in Apple’s history. Apple would not have been Apple without a Jonny Ives — who is a Product Designer style — to complement the Product Vision of Steve Jobs.

Depending on your business type, Product Design likely has a title of Designer (Software) or Prototype Design (Manufacturing). The titles will be different but the function the same — to translate Product Strategy into an elegantly functional user experience. The better the Product Designer holds the Product Vision, understands the back-end technology or manufacturing process, and tunes her empathy to what the end-user desires, the better she will perform in that role.

Product Development — PsIu

Mark Zuckerberg

Mark Zuckerberg is a classic example of a Product Development type. Note that even as CEO of Facebook, he still maintains his product development focus.

Product Development is the function that transforms product designs into actual working products or, in the case of a manufacturing company, actual working prototypes for manufacturing to produce at scale. The Product Developer is constantly thinking about how to translate the concept and requirements of a product design into something that actually works and getting it produced or launched — fast!

The PSIU code for a Product Development function is a high drive to Produce or get stuff out the door and a high drive to Innovate or to be creative and disrupt the status quo. Mark Zuckerberg, CEO of Facebook, is one example of a Product Development entrepreneur. Notice that he holds the product vision (Innovator) and also gets his hands dirty writing code and getting products shipped (Producer) or a PsIu style that is common to many product savvy entrepreneurs. Even after Facebook became a $1B+ business, Zuckerberg still preferred to spend most of his time head down coding on the product while others took care of the business and coordination stuff.

Depending on the type of business you’re in, Product Development may be called Software Engineering (Software), Prototype Engineering (Manufacturing). Whatever it’s called, it is valued for its ability and capacity to produce high-quality and innovative products quickly.

Product Marketing — PSIu

peggy caption

The fictional Peggy Olson from AMC TV’s Mad Men is a classic example of a Product Marketer.

Product Marketing is the function that defines how the product “shows up” in the marketplace. A great Product Marketer is adept at using their intuition and data to artfully answer questions like, “What makes this product unique? Who is the core customer? What are those customers’ conscious and unconscious unmet needs? What is the pricing model? Through whom should we distribute? What campaigns will be effective?” And then driving forward the execution of the campaigns that bring that brand to life.

In PSIU code, the Product Marketing function needs a high drive to Produce results or get the volume of day-to-day work accomplished; a high drive to Stabilize or ensure that the brand is accurately presented to the world; and a high drive to Innovate or be creative (PSIu). One popular example of a classic Product Marketer is Peggy Olson from AMC’s hit TV show Mad Men. When watching the show, pay attention to the fact that Peggy works long and hard (Producing) into the night responding to client projects. She is also able to analyze and intuit the larger product strategy for breakthrough positioning (Innovating) and manage the details of the pitch with attention to detail, stability, and support (Stabilizing) to her boss Don Draper, who is a classic Creative Director type or a big Innovator.

In your own business, the Product Marketing function might be called just Marketing or Brand Management – even as it helps to manage a wide range of functions such as product positioning, pricing, promotion, competitive analysis, PR and creative, and drives marketing execution and more.

Product Management — pSiU

caption here

Sundar Pichai is a classic Product Manager type who was recently promoted to CEO of all of Google.

And this brings us to Product Management, the focus of this article. At its core, Product Management (“PM”) is a translation, prioritization, and coordination function. Meaning, its role is to translate “upstream” product requirements from a variety of sources including clients, sales, strategy, marketing, and R&D. It prioritizes those requirements to best meet short-range client and business needs. And it coordinates “downstream” releases so that current customers, prospects, and staff are aware of (and ideally excited by), trained on, and engaged with the evolving features and products.

This includes prioritizing Product Development and Design resources by product, coordinating with Product Marketing activities, and ensuring that the short- to mid-range product development roadmap ties into the overall Product Strategy and is clearly communicated. An outstanding PM keeps the customer needs forefront in their decisions while coordinating and allocating resources to delight those customers and achieving business objectives.

In PSIU code, the PM function needs a high drive to Stabilize and a high drive to Unify, or pSiU for short. For instance, a classic PM style who is now in the public limelight is Sundar Pichai who was recently promoted to be the CEO of all of Google when it made the recent shift to its new Alphabet structure. By most accounts, Sundar is highly respected for his ability to translate the emerging products vision, manage the gap between technical product details and user experience, and coordinate across other Google functions (Stabilizer) and also to empathize and communicate with a wide range of different and often competing interests within Google to keep things moving forward (Unifier).

Aside: Note that Sundar has a very different style compared to the more famous Google co-founders, Larry Page and Sergey Brin, who both have a high Producing and Innovating style or PsIu common to entrepreneurial founders. Sundar’s pSiU style complemented Sergey and Larry’s PsIu style very well as he was able to help translate the strategy and competing product priorities into compelling Google products while navigating the political minefields and different personalities within Google. It will be interesting to see how he fares in the Google CEO role. I think he’ll do well at managing and improving on the core products Google already has while the big “moon-shot” innovations are hoped to emerge and be commercialized from elsewhere in the Alphabet portfolio. But that’s a subject for a different article.

In your own business, the PM function may not yet exist at all, or it may be called something different. If yours is a service or contract business, then perhaps it’s called Project Management or Program Management. Regardless of the title, the purpose of this role is to translate requirements, set short-run priorities, and coordinate releases.

In the rest of this article I’ll show why the PM function may be missing or has been set up incorrectly in a business that is attempting to scale and how to do it right. It is a very critical, high-leverage function that, when executed correctly, greatly facilitates the leap past start-up into scale-up and beyond.

Now, you may quibble with how I’ve defined and described the many facets of Product Strategy, Product Design, Product Development, Product Marketing, and Product Management, and the examples of styles found in each. It’s not an exact science and you’ll find variations in different companies and situations, along with changes in style as people evolve. But no matter how you slice it, we should all be able to agree that there’s a lot happening under the label “Product Management” that should be conceptualized as distinct and separate functions.

Put another way, if you’re waiting for some mythical combination of Elon Musk, Jack Dorsey, Mark Zuckerberg, Peggy Olson, and Sundar Pichai to materialize in your company as a single product visionary/designer/developer/marketer/manager, put the crack pipe down and come back to reality. These are different functions that must be thought of and managed differently.

So yes, you want to improve your company’s ability to define, prioritize, build, release, and promote its products – but how do you know where the breakdowns are really happening and how do you catalyze a breakthrough? Now that we have our definitions, we can start to understand what to do…

The 5 Things Every Business Can Do for Product Management Breakthroughs

product-management-5-factorsThere are five basic product management tactics that every business can implement to help it scale up more easily and profitably. These five tactics are applicable to most industries and scale up situations. I’ve helped to deploy them and seen them create significant breakthroughs in revenue growth, profits, and execution speed in multiple different industries, including high tech, clean energy, healthcare, finance, services, and manufacturing.

  1. Make the PM Role a separate function in the organizational structure
  2. Delegate profit & loss accountability to it
  3. Decentralize it so that it’s close to the customer
  4. Place the right style of leaders to manage it
  5. Equip it with sound processes, metrics, and tools

You’ll notice that all five of these tactics relate just to the PM function and not to Product Strategy, Design, Development, or Marketing. Why?

In most businesses struggling to scale, there’s not usually a big gap in Product Strategy, Design, Development, or Marketing. Put another way, it’s pretty easy and aligned for the current head of Marketing to manage or hire for Product Marketing; for the head of Engineering to manage or hire more Product Development or Design resources; and for the founding entrepreneur or head of the company to manage overall Product Strategy.

It’s true that sometimes early-stage start-up employees aren’t capable of scaling to the next level but, more often, it’s because they’re overwhelmed, taking on too much of the PM role in addition to their other roles (like when the head of Product Development or Product Marketing is also the head of Product Management). When these leaders can focus on what they’re best at, they have the time, energy, focus, and skills to thrive at the next level.

However, there usually is a breakdown in how the PM role is managed in a company between the Nail It and Scale It stages. Typically, the PM role is not treated as its own major function; it does not have P&L accountability; it is too centralized; it doesn’t have the right style or dedicated leadership; or it lacks sound processes, metrics, and tools.

And if it should turn out that your current head of Product Strategy, Design, Development, or Marketing still can’t cut it after relinquishing PM duties, well, congratulations. These roles are much easier to fill once you have set up these other five elements and have clarity on the real accountabilities of their respective roles. So the early focus should be on improving the PM function as it has been defined. Now let’s dive deeper and see how to do that.

Breakthrough #1: Make the PM Role a Separate Function in the Organizational Structure

Breakthrough #1 is to treat the PM role as its own major and separate function in the organizational structure. For instance, here’s a picture of a structure for a manufacturing company. I’ve designed it using the 5 Laws of Structure but intentionally left out the PM role to make a point. Note that the major business functions are in grey and each has a blue section with basic Key Performance Indicators (KPIs) to help explain its accountabilities.

The wrong approach to scaling your business. If the Product Management (PM) role is not its own major function, a business will struggle to make the leap from start up to scale up.

The wrong approach to scaling your business. If the Product Management (PM) role is not its own major function, a business will struggle to make the leap from start up to scale up.

While Product Design and Development (under Prototype Engineering), Product Marketing (under Marketing), and Product Strategy (under Strategy) are in their correct relative locations in this structure, the PM role is missing. What do you anticipate the problems would be in a company structured like this? As the company attempts to scale, there will likely be…

  • A real struggle to translate new prototypes into manufacturing efficiently
  • Increasing conflict between Manufacturing and Prototype Engineering departments, with each side claiming that the other “just doesn’t get it”
  • Poor communication and coordination with Product Marketing, which feels increasingly left out of the picture and unsure of what’s coming out of Manufacturing and when
  • Lack of confidence across the culture that the product will do what it’s supposed to do
  • A frustrated Product Strategy function because it feels that the long-range product needs aren’t being taken into consideration in product development, which is perpetually under the gun to meet short-range needs

Have you seen some of these problems before? I bet you have. When most companies run into them, they attempt to solve them by calling out for “more product management.” However, they make the mistake of assigning product management within an existing function, usually Product Development, Product Marketing, or Product Strategy. But none of these locations in the structure are ideal and, in fact, can cause a lot of harm when attempting to scale up.

The Mistake of Co-joining PM with Product Development or Design

managing_and_doingFor example, what do you think happens in a business when the PM role and Product Development or Design roles are co-joined as the same function? That’s right, there’s a breakdown on one side or the other. If you have a technically strong head of Product Development or Design who also oversees the PM function, then you’ll likely have a fairly strong technical product that ends up being miscommunicated and that few are trained on. You will also have poor communication and coordination with marketing, sales, and operations on releases. Product Development seems confident in its own product and projections but everyone else isn’t.

On the other hand, if you have a strong PM who is also head of Product Development or Design, then you’ll likely have a really thorough product plan that is well-communicated but perpetually late on shipments. I.e, there is a lot of product planning being done but a lack of actual live, high-quality, working products shipped to customers on time. It should be clear that Product Development and Design roles and the PM role are different functions that require different accountabilities, skills, and leadership styles.

The Mistake of Co-joining the PM with Product Marketing or Strategy

run_with_the_wolvesIf you co-join Product Marketing or Product Strategy with the PM role then the long-range functions of Product Marketing and Strategy won’t be as effective because they’ll be under constant short-range pressure to manage the current product pipeline efficiently. Product Marketing and Strategy must maintain that long-range focus to be effective while the PM role must have a short-range focus and deliver results efficiently. Don’t mix them.

Critically, if the PM role is buried under an existing function, it also won’t be able to coordinate cross-functionally very well because it’s not truly its own independent role in the structure. Let’s say that the PM role was buried under Marketing. If so, how do you think Sales Operations, Customer Service, and Manufacturing would view the PM role? That’s right, as a biased (if not useless) marketing function not pertinent to the operational demands of today. It would be given lip-service or ignored. Everyone would be frustrated with this arrangement, especially the PM who wouldn’t seem to be executing on their charter.

Example of the PM as a Separate Function in the Organizational Structure
Again, you can get away with burying the PM role in another function when the business is in start-up mode with fewer problems. But as you make the leap to scale-up mode and add more product lines, customer types, or markets, the PM role must become its own major function in the organizational structure like this:

When scaling up, the PM role should become its own major function in the organizational structure.

When scaling up, the PM role should become its own major function in the organizational structure.

With this approach, the PM role (called the ‘PM Office’ in the image above) now has its own dedicated home in the organizational structure so that it can perform its function and fulfill its accountabilities. It translates upstream requirements from clients, sales, marketing, and strategy into clear, short-range priorities. It helps to communicate and guide the transition from prototype to manufacturing. It coordinates between sales, prototype engineering, manufacturing, and marketing so that downstream product releases are well-prepared and communicated, adopted, and impactful. And critically, Product Development, Design, Marketing, and Strategy are freed up to focus on what they do best.

Breakthrough #2: Delegate Profit & Loss Accountability to It

delegationIt’s not enough to just make the PM role a dedicated major function in the business. It should also have accountability for quarterly and annual Profit and Loss (P&L) targets for all the products and/or business units it manages. Notice in the structure above that the PM role is black in color? The term “in the black” means to be profitable and it is the PM role that should manage short-range profitability.

Why? One of the biggest challenges of leading a company into scale-up and beyond is freeing the founder/CEO from trying to do or manage too many things herself. What worked in a start up can become a bottleneck to growth and no longer work at scale. As a company gets into scale mode, the founder and CEO (as well as other members of the leadership team) need to start taking off the multiple hats they’ve been wearing so they can focus on fulfilling the individual roles they are best suited for.

It’s a common scenario. Imagine a fast-growing start up where the visionary founder plays the role of head of company and also wears that hats of head of Marketing, head of Product Strategy, head of Product Management, and head of Team and Culture. Obviously, this isn’t going to scale up and this founder will quickly find themselves overwhelmed, unable to delegate effectively, and a bottleneck to growth.

When there’s budget and availability, this founder must find talented replacements for each of these hats so they can focus on being the head of Company and wear just one or two additional hats (such as the head of Product Strategy or the head of Team and Culture). That’s plenty to take on at scale.

But if quarterly P&L accountability is not delegated to the PM role, then the founder will never fully take off the old hats. Instead, they’ll be continually sucked into making product prioritization decisions that are really in the realm and accountability of the PM role who needs the authority to do his job.

Accountability Should Be Matched with Authority

Product_Management_PM_without_authorityFew things are more ineffective and dispiriting than having accountability for something without the authority to see it through. And the PM role has a lot to see through. For instance, can you get a sense for how much conflict the PM role must continually manage? It’s a lot. Sales has its needs. Operations has its needs. So do Strategy, Marketing, Customer Service, Finance, and others. How is all of this conflict supposed to be managed without the authority to set short-range priorities?

By delegating P&L to the PM role, you are putting real teeth into its authority and allowing it to fulfill its purpose. It’s much more realistic for this role to make prioritization decisions based on the constraints of quarterly profit targets (whatever they may be), rather than just the strong opinion of Sales, Marketing, or Operations.

Again, the PM role is essential but it isn’t easy. If the team can sniff out that this position really doesn’t have the authority to make prioritization decisions, the PM role will be bypassed and the ensuing conflicts will end up right back at the feet of the founder/CEO. This is NOT how you get to scale.

And if you’re thinking of delegating P&L decisions to the head of Finance instead, you’re preventing the PM from being responsive to customer needs and fulfilling on their charter. The head of Finance needs to support the PM role with clear budgets, analysis, and advice but the actual authority to make decisions within those budgets needs to reside with the PM.

How Does the PM Manage P&L In Practice?

PM_Profit_and_Loss_ManagementSo how does the PM actually manage P&L in practice? Basically, in the budget process, the head of Company and head of Finance collaborate with the head of Sales to set annual and quarterly revenue targets and with the other functional heads to set expense budgets.

The head of Company and head of Finance then also collaborate with the head of the PM function to set profit margin targets, the pricing matrix, and discount percentages allowed for each product. The target profit margin could be anything, even 0% as in “We’re not interested in profits right now; just step on the gas and drive revenue.”

By listening to and collaborating with all the other major business functions, the PM decides on the resource allocations to be put toward the various products and features. For instance, in a software company, the PM would decide what percentage of development resources to put on different products or features in a given quarter. Note that the PM is NOT dictating which individual developers to put on different tasks. That’s the role of Product Development. Rather, the PM is deciding what percentage of total product development resources to invest this period – as in 30% to Product A, 20% to Product B, and 50% to Refactoring, etc.

As mentioned, having accountability for P&L also allows the PM to be effective in their role. When conflicts arise (and they will), then the quarterly P&L target is the ultimate arbitrator. For example, let’s say that Sales really wants a feature in the next release but it would mean bumping out some other critical features in the roadmap in order to deliver it. The PM can look at all the trade-offs and say, “Listen, this isn’t personal. Here is our profit target for this quarter and next. Based on what I’m hearing from Sales, Operations, Marketing, Strategy, and Customer Service, these are the features I’m going with and why…”

Will fierce conflicts in prioritization still arise? You bet they will. And will the PM be able to resolve all of them without help and influence from the head of Company or head of Division? Probably not. But the spirit here is really critical. If the PM can’t resolve prioritization conflicts with their peers, then that key decision will need to roll up to the next level in the organization. But at the same time, the goal of the head of Company/Division is to push accountability for short-range prioritization decisions down to the PM.

In a scenario where the PM can’t resolve prioritization conflicts by himself or herself and the decision does end up rolling to the CEO, then a good CEO won’t just step in and decide. Instead, they’ll respond with, “Hey Sales and PM, if you can’t work this out together, then I will make the call – but I warn you up front, neither one of you is going to like my decision. Penelope, as head of Product Management, you have your profit targets. Sam, as head of Sales, you have your revenue targets. I’m sure you guys can find the common ground and figure out what’s best for the overall business without me having to decide. The choice is yours…”

Breakthrough #3: Decentralize It So That It’s Close to the Customer

Is your PM function too centralized?

Is your PM function too centralized?

In a company that already has a well-defined PM role, a complaint you may be hearing around the water cooler is that the PM Office just doesn’t get it; that they’re too far removed to understand everyone’s needs and too heavy-handed with their decisions. If that’s the case, this is likely occurring because the PM role is too centralized — there’s too much riding on one person or centralized team and they can’t process through the volume of work or they are too far removed from the unique needs of a customer segment to make sound decisions.

For instance, let’s say that you are a US-based manufacturing business and have manufacturing sites in Chicago, Tokyo, and Frankfurt. Well, if you were to centralize the PM function in Chicago, then you can imagine the discord, complaints, and manufacturing breakdowns happening in Tokyo and Frankfurt, can’t you? Each site has its own sales team, manufacturing team, expertise, language, and culture. The solution is to decentralize the PM role out to each site.

If so, then decentralize the PM function into teams that are close to the customers/regions they serve.

If so, then decentralize the PM function into teams that are close to the customers/regions they serve.

Put another way, to decentralize means that if you have multiple products, factories, or semi-autonomous sites, then a PM function should be assigned to each of them. That is, you’re not trying to create a bottleneck where every decision must flow to one central person or team to make PM decisions. Instead, you’re pushing accountability down into the organization so that those closest to the customer can conduct their own product management.

Using the above example of a manufacturing company with three sites, you’d work to develop a separate PM Office at each site. And each site may have multiple product managers, depending on the company size and complexity of its products and services.

Decentralizing product management has several benefits:

  1. You’re forming semi-autonomous teams that have revenue and profit accountability.
  2. The product decisions are closest to the customers they serve.
  3. There are no centralized bottlenecks.

When you hear this suggestion, you may be thinking that having separate PM offices and/or product managers seems to require a lot of new hires or a lot of overhead. Actually, no. An approach like this is a “costless structure,” meaning that you don’t have to make any new hires to make a decentralized product management structure work. If there’s not enough scale or budget to warrant a dedicated PM at each site, then you would simply have someone wear a part-time PM hat until you can afford to hire or until you need it as a dedicated position (i.e., the difference between a start-up and a scale-up).

Breakthrough #4: Place the Right Style of Leaders to Manage It

The style, vision and values, and capabilities of the people who play a PM role in your organization also have a lot to do with its overall success. Many struggling growth organizations make the mistake of attempting to fill their PM roles with a high Producer or a high Innovator style. And if you didn’t fully appreciate the true purpose of the PM role, then it’s easy to understand why these decisions get made.

When a High Producer is a PM

gotta-nail.gifThe mistake of choosing a high Producer style to be the PM usually happens because founder/CEO is frustrated by the lack of production happening in the product development domain and erroneously believes they can solve it by putting a high Producing force in the PM role. “We need a kick-ass go-getter who will drive the teams to get things done and won’t take no for an answer. Find me a Marine!”

Clearly, every organization needs a really strong Producing force. It needs it in Sales. It needs it in Product Development. It needs it in Manufacturing and other key areas of the business. But asking the PM role to provide that high Producing force is like asking the guy who quickly changes tires in a NASCAR pit crew to take that same approach and manage the entire racing operation. One needs to produce lighting fast on incremental tasks and the other needs to think, orchestrate, prioritize, and coordinate across an entire team, race, and season.

It’s not only the rest of the organization that will feel frustrated by a high Producer style in the PM role; the PM himself will also feel great frustration. Why? Because their daily work will feel like pushing a string. A high Producer style has a lot of energy and drive to step in and get things done but, in this new role, they can’t step in and actually get things done themselves. They need to listen, ask smart questions, empathize, coordinate, think things through, understand the details, communicate, influence, etc. All of these activities are a huge energy drain to a big Producer style but can be an energy gain to a Stabilizer/Unifier style.

When a High Innovator is a PM

PM_as_mad_scientistAnother common misstep occurs when the company believes that its products aren’t creative or innovative enough and so it looks for a high Innovator style to play the PM role thinking that that will lead to more creative ideas. While it might create some new energy and excitement in the short run, it will come at a huge cost of poor coordination, communication, and prioritization and will slow down overall execution speed soon after.

Yes, you do need innovative products. But there are already probably a ton of new breakthrough product ideas residing across your organization, including from within Sales, Marketing, Customer Service, Strategy, and R&D. Ideas that keep getting suggested but don’t get implemented. It’s not a lack of creative ideas that is holding back your product. It’s a lack of assessing those innovative ideas, prioritizing them, resourcing them, and launching them.

There is another big drawback to having a highly innovative PM in a founder-led company. A talented and visionary founder is worth his or her weight in gold. They simply have an intuitive knack for understanding where the market is going, where the opportunities lie, what customers truly desire, and how to delight them. Frankly, there is no product development process that can come close to duplicating this innate sense.

But when two strong Innovating styles are forced together, this usually turns into a pissing contest over who really owns the vision. Meaning that, if there’s a high Innovating force in the PM role and a high Innovating force in the founder/CEO role, then the conflict over who owns the vision and sets the priorities will get severe. Soon, the PM will be forced out or the fonder/CEO will quit in frustration.

You want your PM to have enough Innovating force to get and appreciate breakthrough ideas coming from elsewhere in the organization. He or she especially needs to be able to translate the innovative ideas coming from the founder/CEO but also needs the strength and credibility to remain neutral and push back on their dumb ideas. They should be able to steward the product vision but not have a need to control the product vision.

The Desired Attributes of a Great PM

There are other capabilities and attributes to look for in a strong PM besides the natural ability to Stabilize and Unify. Some of the qualities I’ve seen that work best include:

  • They are in the #1 Team Leader quadrant, meaning they not only have the skills and pSiU style; they also share the desired vision and values and aren’t mercenary.
  • They have a deep technical understanding of the product. This allows them to be credible with Engineering, Marketing, Sales, Strategy, and R&D. They understand the details but without getting lost in the details.
  • They command and grant mutual trust and mutual respect. A successful Product Manager doesn’t have to say a lot to get a lot done. They emanate a sense of respect for themselves and they give and receive respect with others.
  • They don’t make things personal. There’s no politics, innuendo, or personal toxicity following them around like the cloud from Linus’ blanket.
  • They keep the mission forefront in their decisions. They make decisions based on what’s right for the company, not what’s seen as best for an individual or department.
  • They add energy to the group. They make the work fun, stay positive, and are generally additive to a group or situation. They reduce entropy; they don’t create more entropy.

In short, I want you to recognize that the PM role isn’t a junior role. It’s a key senior role on your leadership team. So put resources and investment into finding and filling it with the right leader, with the right structure and accountabilities, and then support it with the right processes, metrics, and tools.

Breakthrough #5: Equip It With Sound Processes, Metrics, and Tools

PM_with_wrong_tools_for_jobThere’s a booming industry of software-as-a-service (SAAS) companies that would like you to believe that if you just subscribe to their leading communication/groupware/collaboration/execution platform then your business will somehow be magically transformed. Good luck with that.

Purchasing or deploying a new tool or platform without first making the PM role a core and distinct organizational function, assigning quarterly and annual P&L accountability to it, and staffing it with the right people, would be the equivalent of applying a fresh coat of paint to a badly designed house. Sure, it might look fresh for a month or two but the house is still falling apart and it’s still hard to live in it.

Instead, put most of your energy and attention into rethinking and redesigning the PM function (as well as your overall strategy and execution framework) and then you can help to equip the PM with the right processes and tools to be effective. More specifically, strive to keep the processes and tools simple. You don’t scale through complexity; you scale through simplicity.

Regarding process, the PM function’s major process to manage is to define and communicate the short-range product roadmap/prioritization. The best practice I’ve seen here is for the PM to host an open product roadmap meeting once or twice a month. This means that whoever wants to influence the product roadmap can show up to that meeting and make their case. If someone doesn’t want to influence the product roadmap, then they don’t need to show up to that meeting. And if they miss that meeting, then they shouldn’t be allowed to jump in and sway those short-range prioritization decisions on the next release cycle.

The benefit of this approach is that it allows for frequent enough influence into product prioritization decisions but also enough autonomy for the Product Development team to produce actual products/features. Product prioritization decisions shouldn’t be left to the daily or weekly whim. They need some stability and focus. It also allows the PM to have some sanity because they’re not being whipped this way and that way every day trying to accommodate an ever-changing array of feature requests.

This suggested timing is just a guideline. If you are in a setting that requires more frequent adjustments to priorities, then you may have to have that prioritization meeting every week. If not, have it every quarter. Use your best judgement.

The PM must also make communicating the short-range product roadmap cycle a regular priority. This can be done however makes the most sense for your company, including via meeting, email, groupware, or even a dedicated product roadmap tool like ProductPlan provides (shout out to my fellow local Santa Barbarian Jim Semick!)

For metrics, also keep it simple. You don’t have to invest in a million-dollar ERP system just to figure out the exact profit margin to-the-penny of your various products. Start where you are. Guesstimates are good enough to begin. The spirit is for accountability on prioritization decisions to reside with the PM role and for it to have enough teeth behind its decisions to follow through and execute quickly.

As the business develops, the PM can gain additional leverage and insight by tracking key performance indicators (KPIs) like:

  • Profit margin by product
  • Development time and cost by product (i.e. resource allocation)
  • Customer satisfaction by product
  • Sales by product

The bottom line when it comes to processes, metrics, and tools is that a strong PM will likely already know what processes and tools they want to deploy and what metrics they need to track. If they try to go overboard, encourage him or her to keep it simple. Focus on having a regular and open product prioritization meeting as well as the regular communication of the short-range product roadmap and to pay attention to the metrics that really matter. That’s it.

One more thing: I would encourage Product Marketing to maintain its own product release calendar so that it can coordinate and execute on training, PR, education, campaigns, and all other aspects of product marketing. And that Product Development maintains its own development or sprint calendar too. Like an air traffic controller, the PM role needs to make sure the planes are doing what they’re supposed to be doing and that traffic is well coordinated, but they don’t actually fly the planes.

Also make sure to keep the product prioritization meetings SEPARATE from your regular cross-functional leadership team meetings. The product prioritization meetings are about working in the business. The cross-functional leadership team meetings are about working on the business. If you co-join these into one meeting, then you’ll spend almost all of your time deciding product prioritization and you won’t have the time energy, and focus to work on developing the rest of the business. Keep them separate.

Now that we’ve defined the terms of product management, talked through the basic scaling tactics, and answered the most pressing questions, let me share a case study with you that should help to bring it all together. This case study is based on one of my coaching client companies and I’ve changed the names to protect any proprietary information.

Case Study

Three years ago, Acme Co. was struggling to break through from Nail It to Scale It. This eight-year-old company had about $6M in annual sales but its growth had been stagnant for the past several years and it was losing money. Its main product offering was providing benefits administration services to large employers. If you can picture 10,000 employees at Honda logging into a web portal to track and update their benefits, then you have an idea of their basic business model. Acme had invested heavily in its technology platform so that it could provide personalized information and benefits education to thousands of employees at scale.

The CEO of Acme, Max Payne, is a very smart, driven visionary. He didn’t set out to be in the large employer benefits administration business but found himself there because, after several early pivots, that’s where the market demand was, albeit with increasing competition and deteriorating margins.

For the past several years, Max was anticipating that the adoption of the Health Care Affordability Act by the US Government would unleash huge market demand from large employers and insurers to track quality of care (He was right). His vision was to transform Acme into a Quality of Care and Benefits provider – one with higher margins and faster growth potential, and a lot more exciting to manage than a low-growth, low-margin, pure benefits administrator. The challenge was that the company seemed to keep tripping over its own two feet during execution.

From his own assessment at the time, Acme seemed to be struggling most with:

  • A compelling and exciting vision but poor execution
  • Difficulty in managing the competing needs between the existing benefits business and the new quality of care initiative
  • Too many dropped balls between signing on and onboarding new clients
  • Inefficient manual processes that never seemed to get fixed
  • Everyone not on the same page in understanding priorities and resource allocation
  • Product development taking too long on the next-generation portal
  • Max spent too much time managing internally vs. being external, meeting with new clients and partners to sell the vision, win early accounts, and build momentum for the new model, which he was very well suited to do
  • A lack of capital, time, and energy to do everything at once.

At the time, Acme had an organizational structure that functioned something like this:

  • Product Management didn’t really exist. It was “sort of managed” by the head of Software Engineering, head of Marketing, scrum master, and Max. A common problem was that new features for the next-generation portal would get built but were usually a surprise to everyone outside of product development and weren’t communicated well to clients or to support staff.
  • Product Marketing was weak. It was managed by the head of sales who also oversaw marketing. The company knew this wasn’t ideal but didn’t have the budget yet to have a full-time head of marketing.
  • Product Strategy was very strong. Max had and maintained a very clear vision of what the product could do and was very skilled at communicating that vision to the entire ecosystem.
  • Product Design and Development was heroic. What do I mean by heroic? They were perpetually understaffed but had a small, committed, and talented software engineering team who kept building really great technical products.
  • Other major functions like Sales, Customer Support, Channel Management, Tech Ops, Finance, Accounting, and Admin did exist and were being managed well, but with the usual challenges of a growing business.

Our solution (after putting in place a sound strategy and execution framework using the Strategic Execution Coaching Program) was to break out Product Management as its own major function as a PM Office that would manage both external products and internal projects like this:

New approach Product Management in Structure - Rethinking Product Management (1)

After adopting this new structure at first, the company didn’t have a dedicated leader to head up its newly formed PM Office. Instead, a temporary hat was worn by the head of Tech Ops who did his best to manage the PM Office in the short run while the head of Software Engineering owned Product Development and Design, the head of Sales continued to wear the hat of head of Marketing and oversaw Product Marketing, and Max continued to wear the hat of Product Strategy, which he continues to wear to this day.

Over the next three to four months the company hired a dedicated person to be the full-time PM as well as a dedicated head of Marketing. Note how much easier it is to hire into a clear structure with well-defined roles. Even if your business doesn’t have a budget to make new hires, you should still create the right structure and assign temporary hats to current staff and then hire into those roles as you can afford to do so.

In this new structure, the accountabilities of the PM Office were to translate requirements from sales, strategy, marketing, and operations; prioritize the short to mid-range Product Development roadmap and resource allocation; and coordinate with Product Marketing on new product and new feature releases so that both internal staff and external customers and prospects are aware, educated, and trained to get the most of those features and benefits.

So what were the results of this new structure? Breaking the PM Office out as its own major function in the business has some profound benefits. In this case:

  • The company has grown from $6M to $30M in sales in just two years (i.e. their timing was right thanks to Max’s high Innovating style and it is actually executing on its strategy thanks to the new PM role).
  • Its net operating margin has improved from approximately 12% to over 50%.
  • Max spends significantly less time managing the business and almost no time managing the product pipeline (other than contributing his desired priorities from Product Strategy).
  • The business is an emerging leader in the new exciting growth field.
  • The company just completed a new financing round at a significantly higher valuation.
  • Intra-departmental communication and coordination has improved tremendously.
  • The distinct accountabilities between Product Management, Strategy, Design, Development and Marketing are clear and managed by different leaders who are each a strong fit for their roles.

Now, just as I was attributing a lot of internal corporate breakdowns to one role — Product Management — I’m also now attributing a lot of internal breakthroughs, including increasing sales, improving product margins, better communication and coordination to that same role. Is this all really due to breaking out the PM Office as its own major function? Yes and no.

Yes, because Product Management was conspicuous by its absence. That is, if the organization is in scale-up mode and it is a complicated task to manage multiple product lines, customers, markets, or conflicting priorities, then the absence of Product Management will cause the business to bog down in its execution.

No, because Product Management does not operate in isolation. Every successful business must also have the basic foundation in place to scale. This includes a strong cultural system, a clear strategy, good cross-functional decision-making processes, great communication, a sound organizational structure, talented people who fit the culture, and effective targets and KPIs. In this case, Max did a great job of making sure that all the foundational pieces were alive within Acme and then by adding Product Management as its own major function into the mix, it could really scale up quickly.

Summary

Having coached over 50 multimillion-dollar companies from the Nail It to the Scale It stage, I’ve seen firsthand how Product Management can make or break your efforts to scale. In this critical stage transition, redesigning Product Management is essential.

Product Management is a distinct function from Product Strategy, Product Design, Product Development, and Product Marketing. If your business is making the leap from start-up to scale-up, then in order to be successful, you should make the PM role its own major function, delegate P&L accountability to it, staff it with the right leaders and team, and equip it with sound processes, metrics, and tools. Avoid Product Management bottlenecks by decentralizing the PM function to the teams closest to the customer. Finally, having a strong PM function does not mean you can skip the other elements of running a sound business – culture, strategy, structure, process, people, etc. The PM role is a catalyst that helps to bring all of those other aspects together for quick execution but it can’t itself overcome a misaligned structure or environment.

I hope you find this article helpful and that it gives you some things to think about as you work to create breakthroughs in your own organization.

How to Hire Like the NFL’s Best Teams

NFLShield The NFL is the most popular professional sports league in the United States. In fact, it’s bigger than the next three largest professional sports leagues combined. But when it comes to the field of talent management, what makes the NFL such an interesting case study for businesses of all types and sizes is not its popularity but its parity.

Each season, all 32 NFL teams begin with the same basic chance to be competitive. All teams have a roughly equal amount of money to spend and the same numbers of players to a roster, and the worst teams from last season get higher draft picks and an easier schedule this season. If a team gets “harmed” during free agency, the league will assign it compensatory draft picks to help it stay even.

Parity in the NFL has worked. On any given Sunday, one team can beat another. However, a few teams — despite parity — have been able to win consistently over time. In fact, over the past 13 NFL seasons from 1999 to 2012, just 6 teams out of 32 have achieved a 60% or better winning percentage: the Patriots, Colts, Steelers, Packers, Ravens, and Eagles, with only one team achieving a 70% winning percentage: the Patriots.

Clearly, if everything else is held nearly equal, then these winning teams have cultivated an edge in how they go about managing their business and developing their front office and on-field staff. Is there something you can learn from these consistent winners? And if there is something you can take away, can you actually apply it in growing your own business — a business that probably has just a fraction of the money and assessment resources that an NFL team can throw at the hiring problem? And can you teach it to your own team?

These are smart questions to ask. Even if you don’t follow the NFL or understand the rules of the game, anyone can appreciate the dedication it takes to thrive over time in a highly competitive setting. True, the NFL has its problems and its detractors. It’s violent beyond belief. It’s hypocritical when it comes to player safety. Its locker rooms and rosters are filled with some great men and some giant a@*!#$. That said, the NFL absolutely provides some critical insights for how to think about and approach the hiring process for every business, not just a professional sports team.

While you may not have considered the similarities between your business and an NFL team before, there are many. First, you too are faced with intense competition for great talent. Second, you can’t just throw money at the problem. You have finite time, energy, and resources to make great hires and avoid bad ones. Third, when an athlete is drafted and signed to a professional contract, they’re effectively being hired to do a job just as you hire an employee or independent contractor to do a job. So while your “draft picks” don’t get interviewed on ESPN, the fundamentals of getting the right talent at the right price are the same. Fourth, and most important, you’re not just looking to hire individual talent; you’re looking to build a winning team.

How Should You Solve the Hiring Puzzle?

Seattle Seahawks coach Pete Carroll and GM John Schneider  working together in the Seahawks "war room." Source Q13fox.com.

Seattle Seahawks coach Pete Carroll and GM John Schneider working to solve the hiring puzzle in the Seahawks “war room.” Source Q13fox.com.

Just as the NFL pours millions of dollars into how it assesses and hires potential draft picks, businesses of all types and sizes do the same when it comes to hiring. In fact, according to a recent IDC report, businesses actually spend over $85B each year trying to make the hiring process more efficient and effective. They invest in recruiting services, comparative profiling, psychometric tests, research, training, and other ways to try to get an edge in hiring and make it a little less painful.

Despite these massive investments, hiring is still a messy, expensive, convoluted process. For instance, in a recent Career Builder Survey of over 6,000 hiring managers from the world’s ten largest economies, more than half report making a bad hire that caused significant harm to revenues, productivity, client relations, or morale costing more than $50,000 per bad hire.

If you’ve been in the business world for more than a year, then you don’t need these stats to tell you how painful it is to make a bad hire and how challenging it is to get the hiring process right. If you can solve the hiring puzzle, then you can transform your business. If you can’t, and you make a string of bad hires, then you’re soon going to be out of business.

So what can you learn from the NFL winningest teams that hasn’t yet been captured by one of these tools, services, or recruiting firms? Why do businesses pour so many resources into it and still come up short? And can the hiring process ever be truly improved or will it always be an expensive crapshoot?

If you were to ask today’s HR experts on how to improve the hiring process, they’ll tell you that answer lies in having more technology and more data. For instance, there’s a fast-growing startup where I live in Santa Barbara, California, that helps companies scan a candidate’s Facebook page so they can know what that person is really like at home and avoid hiring some whacko. It’s all perfectly legal and EEOC compliant.

There’s yet another company nearby that will do a personality profile on your top performers and then compare them to new job applicants. Supposedly, this approach will weed out the riff raff to help find candidates who mirror the thought patterns and behavior of your existing “A Players.” It’s too bad that this company’s clients haven’t yet understood that high performers actually work best in teams when they are surrounded by complementary, not similar styles of colleagues.

Or perhaps you’ll hear that poor hiring is actually a supply side problem that occurs from a lack of adequately trained candidates coming out of colleges, universities, and trade schools. The solution therefore lies in how we prepare young people to enter the workforce and older people to transition their skills. If you believe this, then I know a few politicians who’d love to speak with you. Bring your checkbook.

The fact is that technology and training can play a part in improving the hiring process. But most NFL teams have near-equal technical capabilities and near-equal training regimes. Sure, every few seasons one team might develop an innovative technical or training edge, but that edge is quickly wiped out when other teams copy it. (The NFL is notorious as a copy-cat league. If something seems to be working, teams will quickly adopt it for their own use).

And if you were to ask the common fan why some teams perform consistently better than the rest, they’d tell you it’s because those teams have a great coach and a great quarterback. “Why have the Patriots won 70%? Easy. They have Belichick and Brady. ‘Nough said.”

Is that true? There’s some truth to it. Would the 2013 Broncos be who they are without Peyton Manning? Nope. Special players like Manning are hard to find and if you get one, you can build a dynasty around them while they last.

But it’s just as true that stars are developed, not born. We’re all shaped by the systems we inhabit and the NFL is rife with stars who were once rejects on their former teams but were fortunate enough to sign on with another team where their style, values, and talents were a better match – and that’s how they became stars (see Wes Welker or James Harrison).

It’s also true that great players get hurt (just like when a top performer at your company quits unexpectedly or no longer performs like they used to) and when this happens, the teams that don’t consistently win at a high level tend to implode. Those that do win consistently, however, tend to keep on winning, even without those former stars. New players enter the scene but the victories keep piling up.

Finally, two objections I often hear from executives when I tell them that the NFL can teach them about hiring is this: “That’s not applicable to us,” one struggling startup founder told me recently. “The NFL can try out players before hiring them. I wish we could do that. If we could try out staff members before hiring them, we’d do a better job too.” I’ve also heard, “The NFL has tons of standardized data to work with and a common hiring pool to compare players through the draft. If we had that level of standardized data, we’d be world-class at hiring too.”

It’s irksome to me that I hear these objections because executives like these just aren’t getting it. Yes, the NFL can try players out and then decide to keep them or cut them. So what? Your business can do the same. In fact, you should always try to structure your new hire arrangements so that you can date before getting married. It’s called a trial period and it’s easy to do and perfectly appropriate.

And yes, the NFL has lots of standardized data to work with. Team management knows the height, weight, 40-yard dash time, Wonderlic score (an “intelligence” test), and playing history of every prospective and future player.

While most of corporate America and Silicon Valley startups are driving hard to get more and more standardized and relevant information through big data, social gaming, and assessments on potential recruits, again, so what? The consistently winning teams use the same data set and have the same opportunities in the draft (or to recruit outside the draft using free agency) as every other team. Yet they consistently outperform their peers. How?

What the Best NFL Teams Do Differently

Parity in the NFL. Every team beat the team to the clockwise direction. Yet some teams consistently outperform. Why? Source: Business Insider.

Parity in the NFL. Every team beat the team to the clockwise direction. Yet some teams consistently outperform. Why? Source: Business Insider.

Clearly, there’s something beyond technology, data, training, individual talent, and luck that the winningest NFL teams do differently than the rest over time. So what is it?

The answer is both simple and profound: Consistently great teams don’t scout and hire for talent. They scout and hire for talent that is a supreme fit for their system. They always think about building a team with a strong collective identity at a fair price instead of just collecting individual talent at any price.

In addition, great teams tend to develop through the draft rather than relying heavily on expensive free agents. They also have a system for recognizing when to unload an existing player to another team and they manage their payroll (their biggest expense) in such a way so that the organization is healthy in the short and long run.

You too need to hire and develop top-notch managers and players. You too are under intense pressure and competition. And unlike the Yankees or Manchester United, you can’t just throw money at the problem. You’ve got to play “moneyball” instead and find the right mix of skills for your system and at a good value to market rates. You need to build a team, not a collection of mercenaries.

Put another way, the hiring process can be improved in your business by modeling what the NFL’s best teams do – but this doesn’t come from new technology, more training, or getting lucky. It starts with rethinking how you think about the hiring process itself. Unless you and your team have the right paradigm to think about hiring in the first place, then no matter what tools, resources, and processes you deploy, your hiring process is still going to be flawed. Until you think differently, you can’t act differently.

Belichick’s Epiphany

New England Patriots head coach and defacto GM Bill Belichick with quarterback Tom Brady.

New England Patriots head coach and defacto GM Bill Belichick with quarterback Tom Brady.

Today, you may know Bill Belichick as the head coach and de facto GM of the New England Patriots and one of the most successful coaches of all time. But 25 years ago, he got his first head coaching start with the lowly Cleveland Browns.

According to the book War Room: The Legacy of Bill Belichick and the Art of Building the Perfect Team, when Belichick took the helm at Cleveland, he was already crystal clear on the type of team he wanted to build — a big, strong, fast team that was capable of playing in any weather, in loud and hostile Rust Belt stadiums, and was smart enough to adjust their schemes each week to take away the biggest strengths of their opponents.

But during his first days on the job he quickly noticed that the Browns’ pro and college scouts, coaches, and administrative staff were not thinking about the hiring process in a smart and unified way. Because they weren’t thinking about it in the right way, they weren’t going about it in the right way, and they certainly wouldn’t be able to create a sustained competitive edge until they changed their thinking:

“[The Browns staff] were not speaking the same language when it came to personnel. There was one grading scale for evaluating the pros and an entirely different one for analyzing collegians. Even worse, in his opinion, there was no organizational identity. After all the scouting, who were the Browns trying to be?

It seemed to him that there wasn’t a good systematic answer to the question, so that became one of his missions: Build one player-evaluation system, for pro and college players alike, that always provided an instant snapshot of who a player was and whether he was capable of helping the Cleveland Browns. When the system was perfected, the coach imagined, everyone in the organization would be able to glance at a couple of numbers and letters on a scouting report and know exactly what type of player was being discussed.”

Belichick was never able to complete such a system for the Browns. A few years after taking the job in Cleveland, the team was moved to Baltimore and Belichick was fired. But the vision was set and years later, when Belichick became the head coach of the New England Patriots, he was able to put such a talent evaluation system in place and, with a few notable exceptions (no Aaron Hernandez jokes here, please), the results have been outstanding.

What Belichick recognized when he started with the Cleveland Browns is that hiring and development of both front office and on-field staff was critical to the organization’s success, but the organization lacked the framework to transform it into a competitive edge to wield against the competition.

It took Belichick years to refine his talent evaluation system. Once he got it going and cascaded it throughout the Patriot scouting teams and front office, however, it transformed a haphazard process into one that is much more accurate, scalable, and powerful.

I’m not saying the Patriots and other top performing teams have been perfect in their drafting and team development (they haven’t) but that the way they think about hiring and the approach they use gives them a slight edge over the other teams. And in a highly competitive setting, a slight edge makes a significant difference.

To drive this point home, I’d like you to reflect for a moment about how exactly you think about the hiring process in your business today. Are you searching for a particular personality? A salary range? Past experience? Education or credentials? A personal referral? Commitment to a vision? Job skills? Upside potential? Cultural fit? Avoiding a future liability? All of the above? And if you are clear on the above, how do you go about determining it? What tradeoffs are you willing to accept and why? Finally, how do you — and your team — actually know it when you see it in a way that everyone can agree on?

Chances are that you don’t have a unified answer to these questions nor a systematic way to find answers. And if you should happen to have an answer personally, does the rest of your company’s hiring team know the answer too? Probably not. In order to create a unified and systematic approach to hiring, one that guides you and your team to find the right candidates and avoid the wrong ones, you need a framework to follow.

The New Hire Draft Board: The Ultimate Talent Management Framework

Every season the NFL has a draft for new players. There’s a lot of organizational focus and media attention on the draft. It gets NFL fans in a tizzy of excitement too. “Who will our team draft this year?” “Will they botch it up again?” “Is there hope for the Browns finally?”

Before and during the draft, each team creates its own version of a draft board. The draft board helps team management to think about where they believe the relative value of a prospective player is compared to the “market demand” and the team’s needs.

If you’ve ever heard an NFL GM tell the media, “we worked our draft board perfectly this year,” what he’s really saying is that he believes the team got the players it wanted for the price they wanted to pay.

Even though your organization doesn’t hire employees all at once during a certain time of year like the draft or recruit employees in a hierarchy of rounds, but rather by pressing organizational need, you still need your own version of a “draft board” that allows you to think clearly and accurately about who to hire and why (and who not to hire and why) and where the value of a particular candidate lies.

If you had such a system, then you could place any prospective new hire on the draft board and see if they’re a fit or not, what the trade offs are for each candidate, and how candidates compare to existing staff and even glean insights into how to best recruit, manage, and develop them. In a word, the draft board brings clarity.

The right draft board will not only apply to prospective new hires but also to existing staff. That is, if you were to place an existing staff member on the draft board, it would tell you if they need a raise, if they’re suitable for a new position or are ready to be promoted into a leadership position, or if it’s time to let them go and find someone new.

Below is just such a draft board. It’s based on the team leadership framework created by legendary San Francisco 49ers football coach and GM Bill Walsh who was the architect of the 49ers football dynasty in the 1980s. There’s a richness of detail here, but for now just scan it quickly to get a sense for what a blank new hire draft board looks like:

The New Hire Draft Board. The ultimate framework for making smart hiring decisions.

The New Hire Draft Board. The simple framework for making smart hiring decisions.

Like most great things in life, this draft board is both simple and powerful. It groups all of an organization’s current staff and/or potential job candidates into one of four quadrants:

  • The Team Leaders in quadrant 1 demonstrate high skills and fit for this position or role, they have shared vision and values, and they demand fair compensation (defined as at or below market rates for your industry and corporate lifecycle stage) for this position. That is, they could get more money elsewhere but they choose to take less because they intrinsically value being part of the team and opportunity in a role that is well suited to their strengths and interests.
    Team Leaders define “the way” of your organization much like Peyton Manning or Tom Brady are team leaders who define the way of their respective teams. “Hey rookie, see how Peyton Manning studies film every morning at 6am? That’s the kind of player we want around here. Prepare like he does and you’ll do just fine.”

    Think of your Team Leaders as stars, starters, or captains. You want to reward and retain them for as long as possible. Give them ownership opportunities, career paths, autonomy, and support them as role models for the rest of the company.

  • The Team Players in quadrant 2 don’t have the same technical skills, fit, or experience as a Team Leader but they share the same desired vision and values and don’t cost an arm and a leg relative to market price.
    Team Players are valuable to your success and you definitely want them around. It’s very hard to find people who share the same vision and values and embody “the way” of your organization. If they have the raw talent, it’s much easier to develop their technical capabilities over time to become Team Leaders or if not, to remain as valuable role players. It may also be that, as they develop their capabilities and acumen, a role in the organization opens up that is a very strong fit for their style.

    Think of your Team Players as your role players or bench. You need to coach them to develop their technical proficiency and groom them into the right role while still celebrating them as key contributors to the team’s success.

  • The Specialists in quadrant 3 have high technical skills and are a strong style fit for the job, but they don’t share the same vision and values and/or may be very expensive compared to market rates.
    Specialists are viewed as highly capable experts that don’t fit into the desired organizational culture. While specialists can get the job done, great organizations rely on them sparingly and never place them in core leadership positions because the specialist doesn’t share the desired vision and values. Much like having a primadonna wide receiver like “Ocho Cinco” in an NFL locker room can shift the focus from the collective “we” of the team to the “me” of the individual ego, a specialist in a leadership position who doesn’t embody the desired vision and values can quickly turn a once winning organizational culture into one that is toxic and self-defeating.

    Think of Specialists like mercenaries or free agents who get paid well to perform a specific function well. If you do choose to use them to fill in some talent gaps, keep them on the periphery of the organizational core and pay them cash on the barrelhead for a job well done.

    The biggest mistake you can make when hiring a specialist is to delude yourself into thinking that you can mold them into a Team Leader with the proper incentives and motivation. Don’t do it! They are who they are, and no amount of incentives is going to change that fact unless they themselves want to change.

    Even with a strong individual commitment to change, personal character development can take a long time and can easily be tripped up. Therefore, if you do hire a Specialist, avoid putting them in a leadership position but allow them to express their high level of skills and acumen outside of the organizational leadership core.

  • The Waivers in quadrant 4 do not have the skills and fit and do not buy into the desired vision and values. Or, they simply demand way too much compensation beyond market rates for a company of your size and industry.
    Waivers are who you’re trying to avoid hiring in the first place. The easiest time to make a waiver is before they even get hired! So if in the interviewing process you notice the signals of a quadrant 4, it’s straightforward: DO NOT HIRE.

    The next hardest waiver to make is an employee who sneaked through the hiring process and turned out to be a poor fit that now sucks everyone’s time and energy. They don’t perform at a high level and they don’t embody the desired cultural traits. So why do you have them around? Now that you’ve recognized the mistake, fix it. Fire ‘em or trade ‘em to the competition. Fast.

    By far, the hardest waivers to make are those former Team Leaders and Team Players who just no longer have the high level of technical skills or fit within the evolving organization, or who are just demanding too much compensation relative to market rates for a company of your size and industry.

    While it’s hard to say goodbye to these once valued team members, it’s even harder to be burdened with excessive overhead and a diminishing skill set. (Just ask the Raiders who have been mired in trying to work themselves out of expensive and underperforming contracts for the past five years).

That’s the four main quadrants of the draft board: #1 Team Leaders, #2 Team Players, #3 Specialists, and #4 Waivers. You should notice immediately that this framework provides a strong foundation for how to think about who’s on your team now and who you want on your team in the future. It tells you that:

  • You need a strong core of #1 Team Leaders who are extremely talented at what they do, are a great fit for your system, share the desired vision and values, and will work at a fair price relative to market rates.
  • You need a deep bench of #2 Team Players who aren’t yet as talented as the starters (or there’s not the same level of job fit) but buy into the desired organizational culture at also do so at fair market price.
  • For the most part, you want to avoid using #3 Specialists who, if placed in a leadership position, can quickly turn the organizational culture toxic or tip the payroll balance by demanding exorbitant fees to be part of the core team.
  • You must avoid hiring and retaining #4 Waivers who don’t have the skills, aren’t a fit, don’t buy into the vision and values, or make it too expensive in time, energy, and/or money to keep them around.

As you can see, the draft board framework provides a very strong foundation for how to think about the type of players you want on your team. It’s pretty straightforward to master the basic concept and it’s simple for everyone involved in the hiring process to understand.

The PSIU Code: A Common Language for Hiring Success

The draft board framework also sets the stage to create a powerful common language within your company. A common language, or code, promotes rapid communication and instant understanding. Having such a code is incredibly important to not only the hiring process but also to overall communication and organizational performance.

The winningest teams in the NFL understand this. Each one uses their own proprietary written code or shorthand to define players’ skills and fit within their system. The Patriots, for instance, use an intricate upper- and lower-case letter and numbered grading system that compares a potential draft pick or free agent against existing players on the Patriot’s roster.

Patriot scouts are required to rank a player using this internal code to describe not only physical characteristics, but also how those players play the game and fit within the Patriots’ system. (Is this player aggressive? Smart? Instinctual? Observant? Tough? Passionate? Studious? etc.).

Using a code to identify and communicate the kind of player the team needs for any particular position is brilliant. Because once you know the language, this allows a near-instantaneous understanding of an existing player or potential draft picks. It also forces the entire organization to get on the same page when it comes to knowing what an ideal player represents – e.g., What does a starting Patriot linebacker look like and how should they go about their job? The code tells it.

Your business needs a similar code – and the draft board framework provides it. The code needs to be able to answer this question: “What are the desired characteristics for this role and is there a match with this employee or job candidate?” The code must be simple, fast to use, and easily understandable by everyone involved in the hiring process.

Here is an example of the start of an active draft board with a simple code. This draft board is for a new Head of Operations role for an expansion-stage healthcare technology company. It includes the new shorthand code that you will soon master.

The target represents the ideal candidate for a given position.

The target represents the ideal candidate for a given position. An effective recruiting and interviewing process will allow you to quickly and accurately place candidates in their correct locations on the draft board. The best candidate will be the one closest to the target.

Learning a new language takes a bit of practice but already you should have an initial grasp of the type of candidate this company wants just by glancing at the draft board target. What can we tell?

The company is seeking a #1 Team Leader who demonstrates high job skills and high style fit for the role, who shares the desired vision and values, and who demands fair compensation compared to market. In addition, we can tell that the right candidate is a Producer/Stabilizer style (PSiu) in their approach — meaning that he or she will thrive when working to accomplish the daily/weekly work and to bring order or efficiency out of chaos.

PSIU stands for the Producing, Stabilizing, Innovating, and Unifying forces (think “PS. I love U” to remember them) and is a form of management shorthand that tells you what kind of style, strengths, and approach you require from any given position. As I explain in my book Organizational Physics: The Science of Growing a Business, these four forces show up in individual management styles as a result of how we learn to drive and respond to change and to focus on the parts or the whole of the system we’re in.

“OK,” I can almost hear you saying. Seems simple enough. But how do I determine where each candidate is on the draft board?” Well, that’s the purpose of your recruitment and interviewing process! That is, a good recruitment and interview process will quickly and cost-effectively identify where a candidate is on the draft board. A poor recruitment and interview process won’t provide that level of insight or it will take too long and cost too much to find the answers.

Before you start diving into how you’ll build a new recruiting and interviewing process to support the draft board framework, I’d like you to pause and reflect for a moment. Remember earlier when I asked you how exactly you think about the hiring process in your business today?

”Are you searching for a particular personality? A salary range? Past experience? Education or credentials? A personal referral? Commitment to a vision? Job skills? Upside potential? Cultural fit? Avoiding a future liability? All of the above? And if you are clear on the above, how do you go about determining it? What tradeoffs are you willing to accept and why? Finally, how do you — and your team — actually know it when you see it in a way that everyone can agree on?”

Well, guess what? Now that you are starting to get an initial feel for the draft board framework, can you see that you’re already well on your way to answering those questions now and forever? No matter how you slice it, from now on when you think about the hiring process, you’ll know what to think about:

Are you in search of a “#1 Team Leader” and will you only accept a “#1 Team Leader” because this is a critical leadership position and you must have captain who walks the talk and demonstrates a high level of skill and fit?

Or will you accept a “#3 Specialist” for this position because it is outside the company core and you just need a high level of technical skill and role fit to get the job done?

Perhaps you are in the market for a “#2 Team Player” but you’ll expand the scope to a “#1 Team Leader” if you stumble across the right candidate? Or is this purely a “#2 Team Player” hire because that’s all that’s really required for this role?

And what is the style of candidate who will naturally thrive in this role based on the job requirements and the complementary skills and gaps in the team? Do you need a high Producer/Innovator who thrives at winning and coming up with creative solutions to complex problems? Or would it be a Stabilizer/Unifier style who brings order out of chaos while keeping the team and clients on the same page? Or a different style altogether?

There are still a lot of details to answer and those answers will come soon enough. But what’s really important (and valuable) is having a framework to ask the right questions in the first place! And that’s exactly what the draft board framework gives you: A new way to think about hiring, along with the right questions to ask.

Now that you have a snapshot of the draft board framework, the next step is to understand how to put it into action. Once you know the how, then you can tackle the when to hire and who to hire. But right now, don’t rush past small victories. Take a moment to savor them. You now have a seriously powerful framework for how to think about the hiring process.

This post is an excerpt from How to Think About Hiring: Play Smarter to Win the Talent Game.

Africa Rising: An Amazing Story of Sustainable Business Doing Social Good

The image of a dark Africa is going to change radically in the coming years.

The image of a dark Africa is going to change radically in the coming years.

If you’re a person who likes to hear about momentous progress happening in the world, then you’re going to like the story that about I’m to share. However, if you’re an entrepreneur who appreciates ingenious solutions to complicated problems, then you’re going to absolutely love it.

It’s the story of one of the most innovative business models I’ve seen in some time. It’s also a story of confluence – an almost magical combination of technology, market timing, and business strategy that leads to greater social good.

The centerpiece of the story is M-KOPA, a fast-growing startup based in Nairobi, Kenya. M-KOPA has a compelling vision: to bring solar panel lighting and electricity to the African continent. M-KOPA doesn’t build solar panels. It provides consumer financing for them. And even though it went into service just a year and a half ago, it already has over 35,000 customers and is growing rapidly.

M-KOPA has created an ingenious solution to bring solar panel financing to Africa.

M-KOPA has created an ingenious solution to bring solar panel financing to Africa.

You probably know already that much of sub-Saharan Africa still uses kerosene-based lighting. Kerosene is not only antiquated, it’s also dangerous and unhealthy. If Kenya alone switched from kerosene to solar electricity, it would not only provide superior lighting and energy, according to Luminanet.org, it would also save the average Kenyan household $105 USD per year, eliminate 2.3 million tons of carbon dioxide from the atmosphere (equivalent to about 500,000 mid-sized cars), and save millions of children and families from exposure to toxic fumes (62% of all child poisonings in Kenya come from kerosene).

But wait a minute… haven’t you heard this story before? Haven’t you heard the big dreams and opportunities that Africa presents for both energy and economic transformation? And haven’t most of those dreams been shattered like a wooden boat thrown against the rocks of Cape Hope?

I know. I get it. I can almost hear you saying, “Wait a minute, what makes M-KOPA different from the dozens of other companies that have traveled this route before? Why are they growing so quickly? Are they some kind of pyramid scheme? And how can they provide financing to consumers who don’t have a credit score, a credit card, or collateral to take out a loan? Sounds like a fine African fairy tale.”

This is where confluence comes in. In 2007, Kenya adopted a mobile phone payments system called M-Pesa. M-Pesa has grown astoundingly quickly since the moment it was launched and, according to Wikipedia, by 2011 it had more than 17 million subscribers. Today, M-PESA is effectively at or near universal market penetration. Put another way, while we in the US suffer from shitty cell reception (“Can you hear me now?”) and legacy bank transfer systems, almost everyone in Kenya has a mobile phone with constant reception and the ability to do instant cash transfers!

On the back of this universal payment network M-KOPA, was conceived: a company designed from the ground up to do mobile phone payment transfers for solar financing. Without M-Pesa, M-KOPA could never exist. So one of the things that’s different this time around in Africa is timing. And as my granddad used to say, timing is everything.

“But wait a minute,” you’re probably thinking, “just because someone can pay for financing via mobile phone doesn’t mean they actually will pay. How does M-KOPA check for credit scores? Deal with non-payments and defaults? Collateralize their loans? What, do they have a fleet of bicycle-based repo men? Doesn’t sound very efficient to me…” The answer is No, No, and No. And this is what makes the M-KOPA business model so ingenious and scalable.

Here’s how it works: M-KOPA charges an up-front deposit of about $30 USD. This fee is high enough so that consumers value their investment but low enough that most Kenyan households can save up for a few months to afford it.

M-KOPA then finances the balance of the panels to their customers at a very affordable fee of $.50 (USD) per day. The program is designed to pay off the panels in one year, after which the customer owns the system outright.

That’s pretty basic. Now here’s the secret sauce: M-KOPA installs a secured SIM card on the solar panels themselves. In the event that a consumer doesn’t pay the 50-cent per day fee, then voila’, those solar panels get shut off through the mobile network! Once a customer shores up their balance, the panels are turned back on via the mobile network. No need for credit scores, credit checks, a fleet of repo men, or bank references (which don’t exist).

Isn’t that brilliant? M-KOPA’s loan repayment rates are astoundingly high. Once consumers shift from kerosene to solar electricity and lighting, they definitely don’t want to go back. Not only is it a sustainable business model, it’s the kind of approach that will allow Africa to quickly adopt clean, green, energy and all the benefits that entails.

As Chad Larson, co-founder and finance director of M-KOPA and an Oxford graduate put it to me, “Our loan repayment rates at M-KOPA are on par with those of loans to the highest credit score borrowers in the West. But what is more meaningful is that there’s huge demand for this kind of power in Africa, and it’s now possible for us to meet that need in a sustainable way.”

I love this story. I admire the combination of clean energy and social good combined with a sustainable business model. I tip my hat to the team at M-KOPA and wish everyone involved a brighter future.

If you’re interested in the new emergence of Africa, here are some interesting TED Talks I’ve seen recently that describe Africa at a tipping point towards a more prosperous future:

“I’m concerned about your ability to conform.”

Office_Space_Bill_Lumbergh_Gary_Cole When I was 26, I had a job interview that I’ll never forget. It was for an entry-level sales position with a fast-growing telecom company in Minneapolis, Minnesota.

At the time, I 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 that you just shut down your startup. Sorry it didn’t work out, man. But hey, if you need a job to pay the bills, they’re 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 for the interview, 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.

600full I arrived at their offices and approached the receptionist’s 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 here 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 psycho-babble test before even speaking with somebody? And is this the kind of place I want to work for? WTF. Oh well, I guess I do need the money so I better just play along.”

So 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?”

“Ahh, 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 actual interview. And 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. Johson 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.”

TOM SMYKOWSKI Lidia 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 waiting, he finally looked up from his reading, made eye contact, and with pursed lips told me, “I’m concerned about your ability to conform.”

“Excuse me?” I asked trying to mentally process what he 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 was all 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.”

Conformity vs Community

pesticides1 I share this story because the push towards conformity is relentless. If you’re not careful, it will insidiously work its way into your culture and eat it away from the inside.

Just think about this interview I had. 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.

It’s no coincidence that this company went public a few years after my interview and went bankrupt a few years after that. Why? The market no longer demanded their products and they couldn’t adapt because they had conformed to the past.

Wise leaders build their businesses on a different principle. Rather than allowing for conformity, they design for community.

  • Conformity gives the illusion of control but, in the end, its focus on “monocultures” makes the system brittle, stagnant, and tired.
  • Community takes more time and courage to build but its focus on diversity ultimately makes things alive, vibrant, and adaptive over time.

The tricky thing to manage when designing for community is that community requires some conformity!

How to Design Your Culture for Community, Not Conformity

foodforest1 Imagine a community where no one speaks the same language or shares the same ideals, where there’s not a clear structure or decision-making process, and where the systems don’t interoperate (all of these things require some level of conformity). What do you get? Anarchy. Inefficiency. Exhaustion. Failure.

So how do you balance that? Or, how and where do you require some conformity but keep its relentless advance in check so that individual diversity can flourish, adapt, and up-level the entire system over time?

The answer is that every situation is unique but the underlying patterns remain the same. The secret to spotting those patterns and managing them more astutely is to understand the four forces of Organizational Physics: Producing, Stabilizing, Innovating, Unifying (PSIU). If you’re new to the concept of the four forces and how they show up in every system, read Part II in my book Organizational Physics – The Science of Growing a Business.

Take a look at the PSIU matrix below because it reveals the secret to balancing community vs. conformity:

The behavior of every complex adaptive system can be understood through a drive to shape and respond to the environment.

The behavior of every complex adaptive system can be understood through a drive to shape and respond to the environment.

On the left side are the Stabilizing and Unifying forces. The Stabilizing force creates Conformity. It makes things efficient, repeatable, and scalable. The Unifying force allows for Community. It makes things harmonious, congruent, and working well together as a complete whole.

On the right side are the Producing and Innovating forces. The Producing force is about getting things done and producing results for clients. The Innovating force is about adapting to changing conditions.

In order to be successful over time, the left side (Stabilizing and Unifying) of your organization must always be harnessed to support the right side (Producing and Innovating). I say “harnessed” because, like horses run amok, if left to their own devices, the Stabilizing and Unifying forces will creep, control, and condemn the rest of the system to failure.

For instance, if the Stabilizing force is out of whack, there will be too much bureaucracy, rules, standards, and efficiency in the system. The organization shows up like a shit factory. It produces the wrong thing very efficiently.

But the Unifying force can get out of whack too. If it is out of balance, the culture becomes all-consumed by politics, infighting, and the “drama in here” versus the “needs out there.” In this case, the organization shows up like a bad soap opera or a community at war with itself.

To repeat: the secret to designing a business that leverages diversity to become strong and vibrant over time is this: the left side must support the right side! If the Stabilizing and Unifying forces are NOT supporting the Producing and Innovating forces, then they are cancerous and must be ripped out/changed/healed/improved. That’s your job as a manager.

Why must the left side always be in support of the right side of the matrix? Because the purpose of the business is to produce results for its clients, now and over time. If you’re focused on meeting the changing needs of the external market, then everything else is open for reinvention.

  • Is a process slowing us down in our ability to meet customer needs? Replace it.
  • Is our culture too focused on what’s going on in here? Get out of the office and go meet with customers.
  • Are we too staid in how we’ve always done things and the market is changing rapidly? Better get busy on blowing things up.
  • Is our recruiting process bringing in the right candidates to meet client needs now and over time? No? Better go change that process.
  • Etc., etc…

So as a leader, how do you know what to do and when to create community and not fall prey to simple-minded conformance? You need to create a framework for success. Equipping you with such a framework is outside of the scope of this article because it would require a book

But a short answer is this:

  1. You need to define and defend the Vision and Values of the community. And yes, Vision and Values must be defended, just like the Constitution of the United States must be defended. If you don’t defend it, you’ll soon lose it.
  2. You must put in place a sound structure of accountability and have key metrics in place to track performance.
  3. You must enforce a sound team-based decision making process that allows for diversity of perspectives in the decision and ensures rapid implementation post-decision.
  4. You must create space for others who buy into the desired vision and values to have a place in the organization where they can express their individual genius in service to something larger than themselves (i.e., the clients).

Once you have these elements in place, that’s enough “conformance” to create a vibrant community. Your task as a manager is to now help keep the community focused on what’s happening out there in the world: being in service and producing results for clients and adapting to changing conditions over time. That’s sacred. Everything else in the community is open for reinvention.

Walk Across the Valley

Have you ever wanted something only to rue the day you actually got it?

Recently, I had a simple but profound lesson that really taught me the value of “be careful what you wish for.” I’m really lucky to live in a beautiful place. Take a look. Here’s the view from our deck:

Before you make a decision, walk across the valley and see what the view's really like from that new angle.

Before you make a decision, walk across the valley and see what the view’s really like from that new angle.

It’s an awesome view right? Well, when my family and I first moved here, I certainly noticed that it was a beautiful view. Almost immediately, though, my internal monkey mind started telling a story that that the view from across the valley must be even grander.

“Wow,” I thought, “the view from here is pretty spectacular but the view from that beautiful house across the valley must really be great!” I even felt inferior in some sense, as if we had ended up on the “wrong” side of the valley. The truly good stuff was clearly over there.

Well, I’m an idiot. One day my wife and I took a hike across the way. When we got to the other side and looked back, what do you think we saw? A really mediocre view compared to our side of the valley. The mountain ranges and textures that made our own view so spectacular were missing on the other side. Duh!

I realized in that moment that I had spent much of my life assuming things were always better on the other side. From afar, they looked more beautiful or interesting or desirable “over there.” I often focused blindly on simply getting “there” even if “here” was actually better.

I know I’m not alone in this error. Many highly driven people make the mistake of focusing on getting something new, even if it doesn’t make any sense to do so.

For instance, I have a friend who built up a successful company over the past decade. He worked hard, lived a nice lifestyle, and seemed to authentically enjoy the industry, clients, and his employees. Basically, he had a really good thing going and he knew it.

But my friend’s vision had always been to sell his company. The story he told himself was that if he’d work hard to build up his business, then one day he could find a strategic acquirer, sell it, and do something new. He didn’t give too much thought to what he would do after the sale. He was exclusively focused on making the exit happen. He told himself that he’d figure out what to do once he had the time, money, and freedom to really think about it.

You can probably guess what happened. He actually did sell the company, but it turned out to be a disaster. He signed a three-year workout clause with the acquiring company. They made promises to keep the existing staff and give his business complete autonomy within their portfolio. That lasted for about 60 days before the new owner decided to change strategic directions. They made a call to shut down his business (now theirs), fire the staff, and sell off the assets.

Today, my friend has a little bit of money in the bank but he’s miserable. He’s cut off from the work he enjoyed, the team he built and thrived with, and the clients he used to serve. More than that, he’s really, really pissed off at how things went down. He feels cheated by the acquirer and blames himself for wrecking a really good thing.

I can contrast this story with another friend of mine who’s also successful entrepreneur. This friend had made his fortune in the commodities business and moved to Santa Barbara to “retire” at 40. He quickly got bored and decided that he wanted to get into the restaurant business. A dream that he always wanted to pursue.

But this friend did something really, really smart. He found a restaurant for sale that seemed like it might be a great purchase. But he didn’t go to the owner and make an offer. Instead, he dressed down and went to the owner and got a job as a busboy! I asked my friend why, being independently wealthy and with a world of options at his fingertips, he would waste his time being a busboy?

My friend responded, “Because I want to try on the restaurant business before I commit to it.” He worked at the restaurant for about a month. He learned the ins and outs of that business by doing the work, getting a firsthand account of the operation, and befriending the owner to get more inside information.

Ultimately, he decided that the restaurant business wasn’t his game. The margins were too thin and the hours too long. But isn’t that perfect? He only risked his ego and some time to suss out what his new reality would be like after the potential decision was made. The value he got of NOT buying a restaurant is priceless. Otherwise, he would have gotten stuck owning an asset he didn’t really want to own. His kind of methodical thinking and willingness to “try on” the future before making a commitment is certainly one of the reasons this friend is so successful.

I’ve tried to take this lesson to heart by slowing down my own decision-making process long enough to really investigate (or even intuit) what life would be like after I make a certain decision. In essence, I try to walk across the valley and see what life over there is really like before wishing I had it any different. How about you? Are you wishing you had it different when what you’ve got right now is perfect? How can you tell if you’re too focused on just getting it done versus making the right decision?

Finding Your Genius Zone

While few people are intellectual geniuses, each of us has an area of outstanding ability that allows us to perform at a high level and adds to our overall energy and satisfaction. This zone of activity is what I call your Genius Zone. What is your own Genius Zone? You can identify it using a simple formula:

YourGeniusZone

  • Your Talents are those activities that you are naturally exceptional at and that add to your energy, joy, and satisfaction.
  • Your Purpose is the why of your life that brings meaning and focus to your endeavors.
  • Your Genius is a fusion of both those things: talents with purpose.

When you’re operating from within your Genius Zone, you experience high energy gains. You tend to feel deep engagement, high personal satisfaction, and elevated productivity. You also produce outstanding work. When you’re operating outside of your Genius Zone, you experience the exact opposite.

Leading from your Genius Zone means that you design your activities in such a way so that you spend most of your time and energy engaged in those that add to your energy, joy, and satisfaction and at the same time, create the most enterprise value for your business.

If you’re struggling right now to grow your business, manage your team, find the right strategy, and to do it all quickly, then this concept might seem pretty far fetched. You don’t have enough time and energy to do all the crap you DON’T want to do, so how can you find the time and energy to do the stuff you WANT to do?

I hear you. But the fact is that you want breakthrough levels of performance in your life or work then leading from your Genius Zone is not a luxury but a necessity. For instance, 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.

Many people erroneously believe that these world-changing entrepreneurs were just born special. Not true. We’re all shaped by the environments we inhabit. What’s truly special about these entrepreneurs is that they designed their time, relationships, and management structures so that they could spend most of their time and energy working form their respective strengths and passions.

Complete the Interactive Exercise

The first step in leading from your Genius Zone is to know what you are really at genius at! If you’re constantly running from one mini-crisis to another in your work, then it may take a bit of introspection to get a sense of what activities actually represent your Genius Zone and how to shift them. If you’d like to explore this further, you can do it easily by completing this free interactive exercise: Finding Your Genius Zone. Enjoy :-).

It should be intuitive that if you’re going to work from your Genius Zone then you’ll need to surround yourself with others who are a genius where you are not. In addition, you’ll need the right structure, approach, framework, and guidance to stay on top of your game. One of the best ways to learn how to do this is to mirror others who are already expressing a high-level of genius. One of my favorite examples is Phil Jackson.

Phil_Jackson_3_croppedAs you know already, Phil is a living basketball and coaching legend. Here’s a snapshot of his career from Wikipedia:

  • Head coach of the Chicago Bulls from 1989 until 1998, during which Chicago won six NBA titles.
  • His next team, the Los Angeles Lakers, won five NBA titles from 2000 until 2010.
  • He also won two championships as a player and holds the NBA record for the most combined championships (13) as a player and a head coach.
  • He also has the highest winning percentage of any NBA coach (.704).

When someone has won at every level like Phil, he probably has something valuable to teach. Here are the top 4 things that I took away from his book that are applicable to how you think about growing your business…

#1 Have a System

Source: Canishoopus.com

Source: Canishoopus.com

Phil is famous for being a disciple and a champion of the Triangle Offense (Phil learned the triangle from Tex Winter, who was a long-time assistant to Phil and who, in turn, learned the system from Hall of Fame coach Sam Barry).

The goal of the Triangle is to create a base structure on the floor (guess what? it looks like a triangle!) so that good spacing between the players is maintained and allows them to make adjustments on the fly, based on what the defense is doing. When the triangle offense is working well, it’s simultaneously hard to stop and a beautiful thing to watch:

Your business needs a system and philosophy you believe in too. There are many systems you can choose from but any good management architecture will at a minimum have these characteristics:

  1. It creates a common lens so the team sees the same thing on the floor. That makes sense, right? If the team isn’t seeing the same thing, they can’t act in concert. Like the proverbial five blind men and the elephant, if marketing sees one thing, sales another, and engineering something else entirely, then you’re going to drop a lot of passes.
  2. It creates a common language so that players instantly understand one another. When one player says, “Run X175B,” what in the heck does that mean? Similarly, if the CEO says, “We need to hire a VP of Sales,” what in the heck does that mean? Is it a VP of Sales type who can build a sales system and manage a team? Is it a VP of Sales type who can open new markets? Trust me, the title may be the same but the style of player is radically different. You need a language in your business that promotes instant understanding of what’s happening and what’s needed.
  3. It creates a common sequence so that the team knows what to do in a given situation. In the Triangle offense, if the defense takes a certain position, the offense knows what sequence of steps to take next. It becomes a fluid dance built on strong fundamentals. In your business, the sequence needs to be clear based on where you are, what is the right next set of priorities to solve, and in what sequence they need to be handled.
  4. It creates the right balance between the competing needs for flexibility and control. One of the coaching gems I got from the book is this: “Give players the freedom to find their destiny within the team structure” (293). I love this passage because it’s exactly what I strive for in my coaching practice. Design the system to scale and then allow tremendous autonomy for individuals to find their groove within that structure.

When you’re implementing your system, be prepared for some resistance. Much of 11 Rings is about how a leader can instill buy-in into a system, even when dealing with monstrous egos (like Michael Jordan and Kobe Bryant), that ultimately allows the players to flourish as a team.

#2 Lead to the Next Stage of Development. Then Lead Again.

Obviously, you can’t just show up at work tomorrow and declare, “I’m a genius! This is what I’m doing from now on! Suck it!!” Disaster. Instead, you need to meet the environment where it’s at now, and then lead it to the next stage of development. All the while you’re letting go of activities that the tribe is better at than you while embracing those activities that you’re a genius at.

This would be an impossible task unless you also had a universal framework that reveals the underlying patterns at work at each stage of development. Phil’s favorite approach to understand the stages of team development is a book called Tribal Leadership. It’s a good framework to understand how the language of the tribe reflects its current stage of evolution.

I would say that in addition to understanding the current values-state of your tribe, you also need a framework that reveals the stages of development in all aspects of your business including the products, markets, and execution lifecycle stages of your business. I’ve spent the past decade developing such a framework that I distill in my book Organizational Physics: The Science of Growing a Business. Check it out if its of interest to you.

Transitioning to your Genius Zone can seem overwhelming and complex. And if you’re trying to do too much too soon or are overlooking a glaring hole in the organization, it is. But if you have the right framework, then what once seemed complex is now much simpler and even a lot of fun. If you get it right, then it’s not only the path to greater satisfaction, it’s the path to building a transcendent business too.

#3 Time Your Rhythm to the Stage of the Season

A favorite insight I took away from 11 Rings is that early in the season Phil would coach really hard in practice but be mostly laissez-faire during the games. His goal was to get the team to rely on and trust their teammates on the floor rather than looking to the sidelines for help. They had to learn to work their way out of their own problems on the court. The goal was to sacrifice some possible early season wins in order to build greater resiliency and self-reliance for the championship season down the road. Good advice for every leader.

In business we have it much tougher. We’re under constant pressure to go-go-go. One quarter blends into the next and one year into the next. It’s easy to lose sight of the stage of the season, confuse activity for effectiveness, and waste our time and energy on the wrong things at the wrong stage. Over time, this leads to burnout and disengagement.

A great practice for every business leader is to think and structure the business calendar like a sports season. When do you get off site to reflect and renew and plan for the long range? When and how do you roll out a quarterly game plan? When do you assess the structure key hires? When do you celebrate success and when do you learn from failure? When and where do you take more control and when do you allow for more autonomy?

The key point is that there is a rhythm and pace to business just like there is a rhythm to nature. It can’t be go-go-go all the time. You must consciously design the right rhythm into your business practices or you’ll end up winning the preseason but failing to win a championship.

#4 Be Yourself

In addition to the Triangle Offense, Phil is also known for taking a holistic approach to coaching that is influenced by Eastern philosophy, earning him the nickname “Zen Master.” In the book, Phil talks about how it was challenging early in his career to feel like he could really be himself with other players and coaches. Would they accept a tofu-eating, meditating, philosophizing hippie? But once he embraced his uniqueness fully out in the world, he developed a powerful coaching style that was impossible for other coaches to emulate.

The same is true for you. In my coaching practice, one of the first tasks I always undertake is to identify your Genius Zone. What is it that you are uniquely gifted to do that adds to your energy and joy? How can those genius-like qualities come forward more in your life and work? Once we’re clear on your genius, then we design everything in the business — the strategy, structure, team, and management rhythm — to support your being in that zone as much as possible. Then a funny thing happens. When you do what you’re a genius at — and if things are designed correctly — then the company scales too.

It’s not so crazy. Just look at Phil Jackson. His genius is understanding the subtle nuances of behavior and teaching others how to be relaxed and unified as a team in high-pressure situations. The Triangle Offense supported his genius. So did the assistant coaches who were strong in areas where he was weaker. Phil looked for and coached players to buy into his system while simultaneously expressing their own individual genius on and off the court. When it all comes together, it’s quite a ride.

If you’re in search of a system that allows you to manage your business more like a champion and scale in a sustainable way, then this summer I highly recommend you also read my book Organizational Physics: The Science of Growing a Business. It brings together all four of these aspects – #1 Have a System. #2. Lead to the Next Lifecycle Stage. Then Lead Again. #3. Time Your Rhythm to the Stage of the Season. #4 Be Yourself — into a singular meta-level framework that tells you exactly what to do next and makes the complex simple.

Back to Tutorials.

How to Use Yammer to Improve Employee Productivity

the-social-enterprise

“Men more frequently require to be reminded than informed.”
― Samuel Johnson

If you don’t know about Yammer yet, you should. Simply, it’s an “enterprise social network” for businesses. Microsoft purchased it in 2012 for $1.2B in cash. The goal of Yammer (and similar tools like Salesforce’s Work.com) is to help employees collaborate, stay connected, and improve company-wide communication.

Yammer’s approach is to leverage the same type of social media experience that employees are using in their personal lives — like Facebook and Twitter — to be more productive in their jobs. According to Yammer, companies who use the service reduce email use by 40%.

I think this trend of “enterprise socialization” is here to stay. As with a lot of trends, though, there’s the hype and then there’s the reality. I’ve had the chance to sit in on a few companies’ Yammer channels over the past year and here’s what I discovered:

  • The ratio of noise to signal seems (unscientifically) worse than the classic 80/20 rule. That is, for every really useful piece of actionable information, there’s a hell of a lot more useless noise/fluff/chatter filling up the airwaves. Some might argue that that’s the real benefit of these tools — they sort of capture an organization’s collective stream of consciousness. I would argue that it’s more indicative of people not being focused on or caring about what’s most important.
  • Employees seem to really like and use the tools. There’s value in that for sure. The risk is that, just as email killed the face-to-face meeting and enterprise socialization is killing email, you end up with a lot of data but little cohesiveness and actionable insight. Often, the fastest route to creating a breakthrough is to communicate less frequently but have a regular (weekly or bi-weekly) process where team leaders can meet face to face to really dive into and solve the issues at hand.
  • These tools don’t cut down on information fatigue. It can take just as long to get through a Yammer channel as it does to wade through your email inbox. So my sense is that the medium may have shifted but the feeling of information overload for most employees probably hasn’t. I overheard a woman in Accounts Receivable say, “I’ve got to start participating in Yammer or people will think I’m not working.” As Homer Simpson would say, “D’OH!”

There’s a simple practice you can implement immediately in your company that harnesses the best of what social enterprise has to offer and helps mitigate the bad. Here’s how it works:

At the start of each day, no later than, say, 9 a.m., have everyone log on to a set Yammer channel and state what their #1 priority is for the day, as well as any obstacles they need help in overcoming.

“Sam – My #1 priority is fixing the XYZ bug. Need help in getting the client to call me back.”

“Jane – My #1 priority is getting ABC Co. to sign the contract. No blockers. Let’s rumble.”

“Luke – My #1 priority is to make 3 outbound sales calls and follow up on the Rodriguez contract. If anyone has a sales lead, please send it my way.”

The benefit of this approach is that it begins to focus the organizational culture on achieving the most important things each day. It can have the additional advantage of improving visibility, teamwork, and accountability.

As a leader, you can scan the channel and get a sense of whether your staff is focused on the right things and better understand the pattern of obstacles presenting themselves, as well as who may be sandbagging, playing hero, or needing some coaching.

It’s a very simple process that takes little overhead to manage for the staff or for management. If done correctly, it begins to focus the conversations towards accomplishing short-term, daily wins. Those daily wins build up over time and pretty soon the train is roaring down the tracks.

Of course, this presupposes that your organization already has a strong and healthy foundation on which it can deploy a social enterprise tool. One with an aligned culture, structure, processes, strategy, and team. If not, then using Yammer, or any other social enterprise tool, is like trying to cover up body odor with cheap perfume. No matter how much you use, you’re still going to stink.

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How to Navigate a Crisis in 3 Courageous Steps

This article is for leaders who seek an edge in navigating a personal or organizational crisis.

dogstuckinhammock

You’re either on top of events or events are on top of you.
– Pat Riley

A good warrior must always assess his present position, evaluate his losses and assets, and move forward.
– Tim O’Shea

Shit happens.

When you’re in a crisis, there are three things you can do to get out of it. These three things will not only create distance from the current crisis; they’ll make you stronger and more resilient, as well as help you avoid a similar crisis in the future.

These three steps aren’t easy. They take great courage. But they work for just about any type of crisis: financial hardship, poor health or disease, a deteriorating relationship, or a business failure.

Follow these three steps whenever you’re feeling stuck, afraid, or trapped by circumstances and you’ll break through to greater freedom, perspective, and new opportunities – usually much faster than you could have imagined. The three steps are:

  1. Stick to your strengths and core values
  2. Do what you’ve been resisting doing
  3. Trust and follow one expert or method until the crisis has passed

HG Wells said, “The crisis of today is the joke of tomorrow.” Putting these three elements into practice will transform your crisis of today into something you can laugh at in the near future.

Stick to Your Strengths and Core Values

If you’re in a crisis, chances are that you stopped playing to your strengths or stopped living by the real values in your heart some time ago. Is this true for you? If so, then this crisis is your wake-up call.

Now is the time to get back into your strengths and double-down on your core values. Say “no” to everything that’s not in your wheel house. Say “yes” to everything that is. Play to your strengths. Stick to your core values. They’re non-negotiable.

The risk here is that, in the fear and uncertainty of the crisis, rather than doubling down on what you do singularly well and sticking to your core values, you freak out and do something drastic or foolish that isn’t in alignment at all.

If you do, an ordinary crisis can quickly turn into a catastrophe. For example, about a decade ago, Martha Stewart was at the top of her fame and power. Her strengths were media and communications and the core values she expressed were beauty, elegance, and fine entertainment. Then Martha got off track. She got caught up in an insider trading scandal. Then she lied about it, got busted for it, and was sent to prison – only to watch her empire crumble.

While we all get off track from our core mission and make mistakes, when we get a wake up call (like from the Feds), it’s like a smack across the face to get back to basics and return to our strengths and core values. If we don’t, if we panic and go in the opposite direction, this usually leads to calamity.

So don’t panic. Calm down. Take a look at the facts. Identify your core values and don’t compromise them. Identify your true strengths and begin to play from there. When you do, even the scariest situation will begin to resolve itself into clarity of purpose.

Key Question to Ask Yourself: What are your strengths and core values?

Do What You’ve Been Resisting Doing

I have an unprovable theory that we create crisis in our life because we’ve been resisting doing what we know we’re supposed to be doing in our heart. “Fate leads him who follows it and drags him who resists,” said Plutarch.

There’s something liberating about a really good crisis. It forces you to cut away those things that are no longer serving you and probably haven’t been serving you for a while. What should you cut out? It could be anything — an old mindset, a self-limiting behavior, a toxic relationship, an underperforming business unit, a job you hate. You name it.

When you cut out the old, you give space for the new to emerge. This takes real courage. For instance, at 45 years old, Mary Jones was diagnosed with terminal cancer and she was given only a few months to live by her doctors. A true crisis.

Mary’s life dream was to work with orphans in Southeast Asia but she had never found the time or money to take a sabbatical from her job as a corporate controller. Having a prognosis of just a few months to live sent Mary into action. She quit her job, sold her house, and dedicated her remaining days to helping kids while her health allowed her.

Basically, Mary cut out everything except what was truly important to her — what she knew in her heart she should have been doing all along. You won’t be surprised to learn that Mary’s cancer “miraculously” went into remission and ten years later, she has a clean bill of health. Why? In my opinion, the crisis showed up because Mary’s career choices were fighting against her true desires. The crisis went away when she owned up to what she was resisting doing and took action to actually do it.

To be clear, I’m not saying you need to leave your CEO job and go work with orphans. I’m saying that, when in crisis, you need to take action on whatever it is that you’ve been resisting so that the new thing can emerge.

Key Question to Ask Yourself: What have you been resisting doing?

Trust and Follow One Expert or Method Until the Crisis Has Passed

There’s a time to explore options, teachers, and methods. A crisis is not the time. If you need help in navigating a particular crisis, then choose and commit to only one expert or method that you trust. Cut out any other sources of advice or guidance until you’re re-integrated on the other side of the crisis and you have the energy and capability to explore new options once again.

In a recent Ted Talk, Baba Shiv explains that having too many options, or too much conflicting advice, actually makes it less likely that you’ll achieve success.

Here’s an example. About a decade ago, I had a coaching client and he was making great initial progress. He seemed on the verge of creating a breakthrough in his life and business.

Then unbeknownst to me, he started seeing an energy healer/psychic to help him with a health condition. This “psychic” said something to him that made him question our entire approach and method together.

While we did talk it through afterward, all the momentum we had built up in this early critical phase was gone and we never got it back. We soon ended our coaching collaboration. The sad thing is that he was never able to recover and, although we remained friends, he’s still stuck in that same issue today.

I recognize that blindly trusting the wrong method or guru can also be a recipe for disaster. But the solution during a crisis isn’t to dabble. The solution is to go “all in” with the method you believe in and stick it out for a reasonable time frame. If a reasonable time has passed, and if you’re still not getting the results you’re seeking, then change to a new expert or approach. But don’t trade horses mid-race.

Key Question to Ask Yourself: Who is the one person you trust to help you across to the other side?

Summary

In his book, The Winner Within, Pat Riley writes: “Renewal always begins with destruction. The key is guiding the pain of destruction in the direction of renewal. Otherwise, the pain is useless and self-defeating.” I couldn’t agree more.

A crisis is a form of destruction of the old to make way for the new. You channel the pain of the crisis by playing to your strengths, sticking to your core values, owning up to what you’ve been resisting doing, and trusting in a worthy mentor or guide to help you get across the hard parts. If you do those things, then a crisis becomes truly liberating.

What do you think? How have you successfully navigated a crisis before?

How to Be a Genius

Last week, I was invited to speak to a group of college students at the Next Generation Summit at UCSB. I knew that most of them were probably under extreme pressure from their parents, peers, and society to go forth and “get a fricking job,” so I thought it would be fun (and helpful) to tell them the exact opposite: “Don’t get a job. Get in your Genius Zone!”

My core message is that everyone is a genius at something. If you don’t know what that is, and if you want a life with greater success, meaning, and happiness, then your mission is to go forth and find that “thing.” Once you’ve found it, then you must sacrifice to design everything in your life around it.

When someone hears this message for the first time, the typical reaction is, “OK, but what am I a genius at?” I answer this question in the talk with a simple formula: Talents + Purpose = Genius and then I give several examples of college students living this formula right now who are showing up as geniuses within their niche and making a positive impact on the world.

I, too, benefitted from giving this talk. My personal key takeaway is that there are committed and talented people in every generation. While the media often portrays “Millenials” as a spoiled, over-parented, unaware, and texting- and Ritalin-addicted bunch, I found this group to be incredibly insightful, passionate, engaged, and sincerely committed – not just to having a job, but to making a real difference. It was inspiring and reaffirming that humans are indeed very cool beings.

How about you? What do you think of the talk?

What’s the Common Ingredient for Team Success in Surgery, Banking, Software, Airlines, and Basketball?

This article is for leaders who are seeking an edge in maximizing the talents and performance of their teams.
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Adam Grant, author of Give and Take: A Revolutionary Approach to Success (a must read book!), recently published a great LinkedIn article called “What’s the Common Ingredient for Team Success in Surgery, Banking, Software, Airlines, and Basketball?” I want to share it with you, along with my comments, because it’s a great illustration that success has more to do with the surrounding environment (i.e., vision and values, structure, process, and team) than with individual talent.

To get important work done, most leaders organize people into teams. They believe that when people collaborate toward a common goal, great things can happen. Yet in reality, the whole is often much less than the sum of the parts.

Many teams fail because they lack the requisite experience. If you want to perform a successful cardiac surgery, you need to bring in surgeons who have mastered the techniques. If your aim is to make good stock recommendations to investors, it would be wise to hire analysts with a long track record of star performance. If your goal is to produce high-quality software, land an airplane safely, or win basketball games, you’d be smart to rely on people who have done it before. As Jim Collins put it, we need to get the right people on the bus. But what if work experience is overrated?

How many times have you interviewed in the past year looking for “past experience” as one of the primary drivers of job fit? This is a fallacy, which I’ve written about before in “What Warren Buffet Can Teach You About Hiring”, that needs to end. Yesterday. And here’s where this gets interesting:

In a brilliant study, researchers Robert Huckman and Gary Pisano tracked more than 200 cardiac surgeons at 43 hospitals. After analyzing more than 38,000 procedures, it turned out that the surgeons didn’t get better with practice. Their patient mortality rates were no better after 100 surgeries than after the first few.

A closer look at the data revealed a fascinating pattern. The surgeons did get better as they gained more experience at a particular hospital. Each procedure performed at one hospital decreased patient mortality rates by an average of 1%. But the benefits of experience didn’t carry over to other hospitals.

The technologies weren’t any different from one hospital to another; the people were. When the surgeons left their teams behind, it was as if they were starting over from scratch without any of the benefits of practice. Practice wasn’t an individual act; it was a team process. As the surgeons worked with a core team of nurses and anesthesiologists at one hospital, they developed effective routines that leveraged the unique talents of each member.

There’s a growing movement within the professional recruiting market to assess the skills and attributes of the top-performing “stars” in a company and seek to find new candidates just like them. Like Communism, this approach sounds great on paper but fails in reality. Why? Because great teams are born out of complements, not similars. Success occurs within complementary teams, in a unified setting, and with efficient processes, clear metrics, a sound structure, and great support. This is a delicate mix. If you keep hiring “all stars” on paper, you run the great risk of destroying the equilibrium. Just look at the 2013 Lakers. A bunch of future Hall of Famers who don’t mesh well as a team.

In teams, it appears that shared experience matters more than individual experience. The best groups aren’t necessarily the ones with the most stars, but rather the teams that have collaborated in the past. In a study of more than 1,000 security analysts led by Boris Groysberg, when star analysts moved to a new firm, it took them an average of at least five years to recover their star status—unless they moved with their teams. The star analysts who moved alone had 5% odds of receiving the highest ranking from investors, whereas those who transferred with their teams enjoyed a 10% chance of earning the top spot.

Huckman and his colleagues found similar patterns in a study of more than 100 software development projects. The highest quality and on-time delivery rates were achieved not by the teams whose members had the most individual experience, but by the teams whose members had the most shared experience working together. Another study of product development teams showed that it typically took two to four years for members to gain sufficient experience working together to achieve their potential.

Shared experience in teams is so important that Richard Hackman, one of the world’s foremost experts on teams, went so far as to include it in the very definition of team effectiveness. In Leading Teams, he argues that, in addition to assessing the quality and quantity of output, we should expand our measures of team effectiveness to include viability—whether the team retains its capability to work together in the future.

The benefits of shared experience are visible outside knowledge work. Hackman referenced a NASA study showing that fatigued crews with experience flying together made significantly fewer errors than rested crews who had never flown together. He also pointed to an NTSB analysis of airline accidents revealing that 44% occurred on a crew’s first flight together and 73% on a crew’s first day. And an investigation of all NBA basketball games played from 1980 to 1994 showed that as teams gained more experience, they won more games. This was true even after accounting for player talent and age.

If you think about it, teamwork is blending individuals’ talents and strengths into a force that is greater than the sum of its parts. There’s real chemistry and alchemy here. It takes time and seasoning for a good team to become great. Time is necessary for team members to get to know one another and anticipate each other’s thinking and moves. But I think the real value comes when the team “grows up together.” Once the team has developed a sense of a shared journey, sacrifice, and group learning from successfully moving through trials together, then its true potential can be unlocked.

There are alternative explanations for some of these findings. Many airline crews only do one flight or day together, meaning that there are more chances for accidents to occur on first flights and first days. Basketball executives and coaches work harder to keep successful teams together—and players are more motivated to stay with winning teams. Consistent with this idea, when NBA teams win more games in year 1, they’re more likely to stay together in year 2. But the opposite also holds: NBA teams with more shared experience in year 1 win more games in year 2.

Interestingly, in the NBA and R&D, the gains from shared experience declined over time. The value of the first few years together was much greater than additional years accumulated. As teams stayed together longer, they had less to learn and faced a greater risk of becoming too rigid and predictable in their routines. At that point, rotating a member—or a coach—might be a critical step. But most teams never made it there. The vast majority of teams weren’t together long enough to benefit from shared experience.

Today, too many teams are temporary: people collaborate on a single project and never work together again. Teams need the opportunity to learn about each other’s capabilities and develop productive routines. So once we get the right people on the bus, let’s make sure they spend some time driving together.

From the perspective of Organizational Physics, there’s something absolutely critical to highlight here: the importance of lifecycle theory. Great leaders understand an organization’s lifecycle stage and treat it accordingly. If you let your team stay together too long, it’s going to get tired and stale. It will lose its humph and innovative power. Conversely, if you break the team up too soon, it will never have a chance to learn from its mistakes and form into something great. The key here is to recognize what lifecycle stage each team is at, as well as the stage of the surrounding business unit in which the team operates. You don’t treat a 30-year-old like a 3-year-old and vice versa.

If you’d like to learn some signals to watch for when a team should be broken up or kept together, or if you have any other questions or comments, please include them in the comments area below.

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A Scathing Portrait of the Innovator Leadership Style at AMD

When a Big Innovator is CEO, this leads to an up-and-down ride.Ars Technica published a great article this week “The rise and fall of AMD: How an underdog stuck it to Intel.”

The article follows the rise and fall of AMD over the years in its attempt to wrest a market leadership position from Intel (a war it was never able to win) and gives many anecdotes about the leadership style of the company founder and CEO Jerry Sanders. I want to share this article because it’s a good read and because it captures the essence of how a company behaves when a Big Innovator is at the helm.

As you might know if you’re familiar with my work, the Innovator style is one of four management styles that we all possess to some degree. You can read more about these styles (Producer, Stabilizer, Innovator, and Unifier) in Part II of my book Organizational Physics: The Science of Growing a Business.

Our best Innovator qualities are our ability to anticipate change and to be imaginative, charismatic, and inventive. Without the Innovator force, we would have no ability to adapt to changes in our environment and we would quickly become irrelevant or extinct.

When the Innovator force is really high, we call it a “Big Innovator” or “Big I.” The Big I shows up in some predictable and telling ways, and this description of Sanders is a perfect example:

On June 10, 2000, Advanced Micro Devices (AMD) wanted to party—and party big. The company’s CEO, Jerry Sanders, arranged to rent out the entire San Jose Arena (now called the HP Pavilion) and then paid big bucks to bring in Faith Hill and Tim McGraw, the husband-and-wife country music superstars.

Employees “could bring anybody, your wife, your kids, your friends—it was big doings. There were celebrations, gifts and awards,” recalled Fran Barton, who served as AMD’s chief financial officer from 1998 to 2001. The boss even got in on the fun. “[Sanders] was on a high wire, he did a unicycle ride. It was totally Hollywood. He could really put on a show when he wanted to put on a show.”

And why not celebrate in style? AMD’s successful Athlon chips—Ars named the Athlon its “CPU of the Year” in 1999—had finally put the screws to archrival Intel, and in 2000 the company earned nearly $1 billion in profits.

By 2005, years of solid chip design and technological execution had the company walking with a swagger, as seen in marketing stunts which challenged Intel’s then-current server processors to a “dual-core duel.” Nowhere was this attitude more apparent than AMD’s 2005 lawsuit against Intel for anti-competitive business practices.

When a Big Innovator feels momentum, there is no greater joy to them than rallying people to their cause and celebrating the realization of their vision. They’ll put on a great show, go over the top, and try to get everyone else to feel inspired and “believe” in them and their vision.

But don’t confuse the Big Innovator’s charisma and charm on stage with his or her everyday style. Unlike Big Unifiers, Big Innovators have no real need to connect with others other than to sell their vision and create a legion of followers. They may seem charming, gregarious, or compassionate on stage, but it’s really about selling the vision, not bonding for bonding’s sake.

Now let’s read more about what happened with the business:

Doubters didn’t think the good times could last. “I rode through a few such cycles and can recall the zenith of decadent exuberance and breathtaking spectacle in 2000 when AMD’s then showman CEO, Jerry Sanders, clad in tight leather pants, shirt cracked open to the waist, descended to the stage of the HP Pavilion in a cherry-picker and announced that AMD’s stock would soar to over $100 per share and that another [chip fabrication plant] would be built in Austin,” recalled Bill Bushnell, a rank-and-file veteran software engineer at AMD, in an e-mail to Ars. “Neither occurred.”

AMD has been on a notable drop for nearly a decade now. To put it mildly, 2012 was a rough year: AMD lost over $1 billion, effectively wiping out its $471 million profit in 2010 and its $491 million profit in 2011—its two most profitable years in the last decade. Over the last 15 years, AMD has sustained a net loss of nearly $7 billion, and the company has been downgraded by credit rating agencies, burned by lower demand for PCs (and hence, for its products), and even called “un-investable” by one Wall Street analyst.

Last month, the company even sold (and then leased back) its corporate headquarters in Austin, Texas for $164 million as a way to make some quick cash. After years of technical stumbles, Intel now runs circles around AMD in desktop, laptop, and server CPUs, while newcomers like Qualcomm, Samsung, and Nvidia have used their low-power ARM chips to shut AMD out of the burgeoning smartphone and tablet markets. And critics charge that the company still has fundamental structural problems that go beyond technical missteps.

“There’s no control on spending—even now, one of the problems is if you take a look at the salary structure,” said Atiq Raza, the company’s former president, chief technical officer, and chief operating officer, in a conversation with Ars. “[AMD is] a sinking ship, fundamentally. I really am sorry for [current CEO Rory Read]. He’s a well-intentioned person but the ship has a huge hole in it. That $164 million is going to go in no time.”

Raza calls the company’s decline “one of the great fumbled opportunities of our time.” How did AMD go from the most successful period in its history to one of its bleakest—and does the company have a fighting chance going forward?

Big Innovators are big dreamers and hence can be powerful catalyzers to create and launch new opportunities by the sheer force of their will, intellect, and vision. But there’s a saying that big dreams need wings and landing gear, and that’s where Sander’s Big Innovator style ultimately cost the company big time. It’s the classic hero’s tragedy, full of genius and dangerous hubris:

When Jerry Sanders was 18, he was beaten in a street fight by people who left him unconscious in a trash can. “They fractured my skull, broke my nose—that’s why you’re photographing from the left,” Sanders told Daniel Marrow of Computerworld (PDF) in 2000. “So my nose is not more crooked than normal, ribs—I mean just a disaster. And they left me to die. They literally left me to die.”

But after three days in a coma, Sanders rallied.

“I once said ‘I can die, but I can’t fail’,” he told the San Francisco Chronicle for a profile. “What I meant was, I was always going to give it my all. I couldn’t fail, because failure wasn’t an option. I would die before I’d fail.”

Sanders went to work for Motorola and Fairchild Semiconductor, but he didn’t work long for others. He opened AMD for business on May 1, 1969—when he was just 33 years old. He quickly cemented a reputation for being defiant and flashy, and he kept a poster in his office which read, “Yea, though I walk through the valley of the shadow of death, I shall fear no evil—for I am the meanest son of a bitch in the valley.”

“He’s a mix between Don Quixote and Indiana Jones,” former CFO Barton said, “a swashbuckling idealist, not afraid to tilt at windmills and dream the impossible dream. His whole career, his impossible dream was to battle Intel. And he battled very hard for decades.”

Innovators make life interesting. The media loves to portray them as swashbuckling heroes who overcame great odds. See Steve Jobs, Larry Ellison, and Richard Branson. Get behind the press releases and fawning magazine articles and you’ll find that Big Innovators are often acerbic, defiant, and short-tempered. They change their minds frequently and often burn things and people down with as much fervor as they once built them up:

… Microsoft CEO Bill Gates showed an interest in NexGen and had a 45-minute meeting with Raza (soon to be AMD’s new COO) that stretched into a four-hour dinner. Gates suggested that Raza speak to Sanders since AMD owned a chip fab but needed a better product to build in it. Raza said he would like to talk with Sanders but said he didn’t know how to reach the AMD CEO, much less get him to pay attention.

“The first time I was introduced to Jerry Sanders, he didn’t even pause long enough to hear my name—he kept calling me Raja,” Raza told Ars. “He did that nonstop for 45 minutes telling me how AMD is going to crush me. I stayed there with a smile on my face, but how do I communicate with such a person? Bill said, ‘Jerry should not be underestimated—he has three qualities: he’s smart, he’s extremely egotistical, and he’s completely random.'”

Bill Gates totally nailed the definition of a Big Innovator. Tons of ideas. Very intelligent. Usually driven by fear/ego. Often Big Innovators are more interested in validating and defending their existing vision than in learning something new that might counter that vision. This is true until their vision isn’t executing as fast as they’d like. Then they look for a new one, which becomes the “vision of the day.”

Sanders’ management style was idiosyncratic, and it created both loyalty and friction. Patrick Moorhead, AMD’s vice president of marketing from 2000 to 2010, still remembers the day he interviewed for the AMD job with Sanders. “I parked my 1990 Toyota Camry next to his Bentley convertible,” Moorhead told Ars. “We talked about making a difference and shaking up the industry and quite frankly I just fell right into that. I absolutely loved that pitch.”

We were running quarter after quarter on the ragged edge and had been for decades. It was a real culture change of ups and downs. But Raza quickly grew unhappy with his boss’ approach to work. Since 1979, Sanders had kept his Beverly Hills office, commuting up to Silicon Valley each week and returning to Southern California Friday through Monday.

“If [Sanders] was constantly engaged, that would be acceptable,” Raza said. “He was not engaged. He would be upset if I called him too late in the evening or too early in the morning. I’m a 24/7 kind of guy.”

Here’s the thing: Big Innovators are outstanding at selling a vision and they need to work on their own schedule, whenever the mood strikes them. This is why two Big Innovators in a company usually clash… it’s a conflict of who holds the vision and who sets the direction.

The other big issue came in around finances:

As The New York Times reported in 1989, AMD’s corporate culture had also lost the thrifty habits it had at its founding. “Mr. Sanders’s increasingly lavish style also became contagious,” wrote the paper. “Salesmen who did not wear Rolex watches were likely to find their less-expensive time pieces thrown away by high-level executives who wanted the company to have a certain image. It was an atmosphere, former employees say, that encouraged loose spending throughout the company—a far cry from the early days at Advanced Micro, when Mr. Sanders once rejected a request for an electric pencil sharpener because it was too costly.”

Raza also became concerned about the spending, which he came to see as extension of Sanders’ personal lifestyle. Shortly after AMD bought NexGen, Raza visited Sanders at his expensive Los Angeles home.

“I said, ‘It’s a beautiful house,'” Raza said. “He said, ‘I got in a competition with Madonna. We had a fight and I outbid Madonna.’ I said, ‘OK…’ And he said, ‘I understand what you’re thinking. I spend more than I make. I always have spent more than I make.'” Raza said that the comment hit him like a punch in the gut. “And I said, ‘I hope you don’t do it at AMD,’ but he did,” he added. (Sanders did not respond to our request for comment.)

Notice that money is just a tool to support the vision — classic Big Innovator behavior.

Financial problems mounted. As AMD stretched out the life of the K6 line, former CFO Barton recalled how the company flitted from one near-disaster to another every few weeks.

“We would have Monday morning operating meetings and someone would say, ‘We have a glitch. The yields have dropped precipitously and we don’t have anything to sell next week,’” Barton said. “The financial ramifications of that are awful. We have nothing to sell! We’re doomed! Then everybody would get their assignments and somewhere in the next day or two there would be an e-mail or phone call saying, ‘We fixed it. And it’s even better, sales will be higher.’”

Each time this happened, Barton said, Sanders firmly delegated assignments to each department. On numerous occasions, Raza himself only got a few hours’ sleep to isolate the repeated problems and get things back on track. On the financial side, Barton and his team had to make a decision about disclosing each problem to investors or to the Securities and Exchange Commission (SEC).

“We were running quarter after quarter on the ragged edge and had been for decades,” he added. “It was a real culture change of ups and downs. “For the rest of my career nothing bothered me [as much] anymore.”

Because the Big Innovator hasn’t allowed or learned how to integrate planning, efficiences, and controls, there’s constant management-by-crisis. It can be exciting in short bursts but creates fatigue over the long term.

However, just weeks after the K7 debuted on June 23, 1999, Raza (the COO) left AMD amid rumors that he had a major falling-out with Sanders. Analysts were left scratching their heads.

“It’s certainly going to reduce confidence in the company’s ability to compete,” Linley Gwennap, chief analyst at Cahners MicroDesign Resources, told the Los Angeles Times in 1999. “Atiq was the one guy in upper management that really understood the technology behind the K6 and K7.”

As Raza tells the story today, his boss insisted on building a fab in Dresden, Germany, over Raza’s objections. (That fab, which still operates today as part of AMD spin-off GlobalFoundries, was completed in the spring of 2000.)

“The trouble in the entire economic model was that AMD did not have enough capital to be able to fund fabs the way they were funding fabs,” Raza said. “The point at which I had my final conflict was that [Sanders] started the process of building a new fab with borrowed money prematurely. We didn’t need a fab for at least another year. If we had done it a year later, we would have accumulated enough profits to afford the fab in Germany. He laid the foundation for a fundamentally inefficient capital structure that AMD never recovered from. I told him: don’t do it. I put the [purchase orders] on hold. He didn’t tell me and accelerated the entire process.”

Both Raza and Barton recalled, independently of one another, one of Sanders’ mantras: “Real men have fabs.” Raza called this comment “simultaneously a sexist remark and the most stupid thing you can say,” and he saw the fab decision as one of Sanders’ “significant acts of irresponsibility.” After he quit, Raza never spoke to Sanders again.

So that’s very much what you get when you have a Big Innovator at the helm of a company. It’s exciting. It’s erratic. There will be periods of great booms followed by periods of great busts. It’s all or nothing. It’s ultimately very frustrating for everyone involved because there’s a feeling of “what could have been.”

To be clear, all entrepreneurs have a high drive to Produce and Innovate. The great entrepreneurs — the Andrew Groves (who Sanders was never able to beat), the Jeff Bezos, the Jim Sinegals of the world — find ways to complement their strengths and create focused, sustainable enterprises that meet changing customers’ needs over time. That’s the key to greatness.

You can apply the lessons of this article in a number of ways:

1) Many VCs make the mistake of ousting the founder because he or she appears immature or uncontrollable. But unless the founder truly can’t evolve, this is a critical mistake. It’s no coincidence that the world’s greatest organizations have a founder who thrives in the CEO role and has to be taken out on a stretcher. It’s not because these were extra-special founders. It’s because these founders were able to harness their Innovating force to make it constructive and not destructive. Put another way, they were able to complement their strengths with co-founders, leaders, processes, and systems that allowed them to be Innovators and respond artfully to market dynamics without succumbing to being Big Innovators who can’t get out of their own way.

2) When you’re being “sold” by a Big Innovator, recognize that it’s going to be 99% enthusiasm, 1% reality, and absolutely no appreciation for the details involved. It’s no coincidence that AMD customer service was atrocious. Customers to a Big Innovator are not the lifeblood of the organization but are just a minor inconvenience, a pesky detail to be managed in order to realize the vision.

3) It takes a team to be successful. Big Innovators are so charismatic that they can seem to steal the limelight from everyone else. But if you look deeper into organizations that are truly market leaders, you’ll see that the charismatic founder who gets all the press and media accolades is complemented by a co-founder or partner who brings stability and unification to the system: i.e., Mr. Outside and Mr. Inside. As with any marriage, one without the other is a failure. Both together can succeed.


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The Lean Startup Goes Mainstream: Here’s What You Need to Know

Entrepreneurial guru Steve Blank (awesome systems thinker) has an article coming out on the cover of Harvard Business Review this month: “Why the Lean Startup Changes Everything.”

I really appreciate the framework of the Lean Startup approach and I’m a big fan of the movement. One thing I notice that’s missing from it is a discussion on the lifecycle stages of the customers that the lean startup should be targeting/getting feedback from. Here’s what I mean:

The Product Lifecycle goes like this: Pilot it, Nail it, Scale it, Milk it, Kill it.

The Market Lifecycle of customer types goes like this: Innovators, Early Adopters, Early Majority, Late Majority/Laggards.

In order to navigate from the temporary organization of a startup, find the business model, and scale it, the disruptive entrepreneur should seek to align this sequence of steps together. I.e., Pilot it for Innovator Customers. Nail it for Early Adopters. Scale it for the Early Majority, and Milk it for the Late Majority/Laggards like this:

Align the product and market lifecycles with the execution lifecycle (not shown).

Align the product and market lifecycles with the execution lifecycle (not shown).


Put another way, you DON’T want to be Piloting a project for a Late Majority/Laggard clients or misaligning the other stages. Why not? Because those Late Majority/Laggard clients are old and stable. They are outstanding at telling the entrepreneur what the market needs now (or 5 years ago) but tend to be incapable of identifying where it’s going to be 5 years from now. To find that out, you have to go to the fringe — those Innovator and Early Adopter Clients that aren’t currently served by the status quo. That’s where the true disruption lies.

Late Majority/Laggard clients also have a vested interest in maintaing the status quo. So even if the entrepreneur has a visionary champion within that Late Majority/Laggard client, he or she is going to be blocked by the surrounding inertia within that large, stable organization. The Late Majority/Laggard client is also subjected to broad market forces and quarterly financial targets that may require it to shift directions. So even promises of “yes, build this for us at this price and we’ll roll it out to our distribution network” aren’t worth the email they were written on when market forces change.

A great example of this principle in action is Square, a great disruptive force in the mobile payments space. Notice that Square DID NOT go to Visa, Mastercard, and Paypal to find the initial product market fit. They went to taco truck vendors, independent artists, and others SOHO’s who were NOT served by the status quo. If CEO Jack Dorsey did go to Visa or Pay Pal to practice the Lean Startup methodology and find the product market fit, he would have gotten great product specs to support the current payments model — but not to disrupt it. I’ve written about this in detail here.

The Real Purpose of the Lean Startup Methodology

Those of you who have read my Part III of my book Organizational Physics — The Science of Growing a Business already know that what the Lean Startup or customer-driven development approaches are really trying to do is to help the entrepreneur and the start-up business unit go as far as possible from the start of quadrant 1 (Pilot it for Innovators) to the top of quadrant 2 (Nail it for Early Adopters) by interviewing, researching, and selling customers in advance before the product development process begins.

The purpose of the Lean Startup / Customer Driven Development methodologies is to take you as accurately and quickly/cost effectively as possible from the Pilot It stage through the Nail It stage of business development.

The purpose of the Lean Startup / Customer Driven Development methodologies is to take you as accurately and quickly/cost effectively as possible from the Pilot It stage through the Nail It stage of business development.

In other words, customer-driven development tries to limit the cost, risk, and time investment of making poor product or market decisions between the Pilot It and Nail It stages. They are looking for a good product/market fit before the development process begins. If they can discover what the thought leaders really value and what the early adopters’ true spending priorities are before development begins, this lowers the risk and increases the probability of meeting those needs. Development can become more focused and demand is established before any real money is spent on development.

Agile software development is a product development method that aligns very closely with a customer-driven philosophy. Agile, or iterative, development is a process of taking real-time data from actual use of the product and quickly iterating changes using short release cycles to develop a better product that meets the needs of target customers. Fundamentally, agile is a product development method that attempts to better manage changing requirements; avoid long release cycles; and produce live, working, tested software that has real business value. In an early-stage startup, using an agile approach can help a company quickly and cost-effectively navigate the Pilot It to Nail It stages by eliminating the guesswork, long product release cycles, and overhead involved in trying to do a big product design up front. In larger companies with existing products in scale mode, using agile is an attempt to better meet user requirements, based on data and customer feedback, and to turn that knowledge more quickly into new product features and extensions.

Having built several successful high-tech products and run agile development teams, I can say that I am a big fan and believer in both approaches. They go hand in hand. Their real but unstated goal is to help a company navigate up the path to prosperity more quickly and cost-effectively. These approaches can help verify that your thinking is sound, that demand is there and you’ve uncovered a proven market opportunity. Additionally, having evidence that your entrepreneurial vision is baked in the cold, hard light of reality can make all the difference in raising the capital you need. These are sound methods and they fit perfectly well into the strategy lifecycle scheme.

The truth is that there are many other methods that can also help you quickly navigate the path to prosperity. Customer-driven can work. So can vision-driven. For example, I don’t believe Steve Jobs had ever done a day of interviewing customers in his entire life. Instead, he had that rare ability to envision something entirely new, intuitively understand the needs of his target customers even before they did, and bring his vision to the world in surprising and beautiful ways. No external customer-driven development of the iPad would have worked because customers would have had no frame of reference for it. Walt Disney was the same way. He had a powerful vision and followed his own instincts about what families really valued that wasn’t being provided by other amusement parks at the time. He created magical experiences that no one was expecting. The point is that there are many ways to develop a product but the fundamentals of strategy should always the same: You must go the long way around the path and create the product/market fit in the right sequence.

I hope this helps with your thinking as you contemplate how the Lean Startup meme will play out in your own organization.

A Beautiful Portrait of a Unifier Leader

Pacific Lutheran football coach Frosty Westering in his office in Tacoma, Wash. in 2001. (AP Images)

Pacific Lutheran football coach Frosty Westering in his office in Tacoma, Wash. in 2001. (AP Images)

I came across a phenomenal obituary written for Frosty Westering by Chuck Culpepper at Sports on Earth today.

Frosty was the football coach for the Division III Pacific Lutheran football team and he was remarkable. He coached for over 32 seasons without a losing record in any. He never mentioned playoffs or titles to his players but won four national championships and four runner-up finishes on two levels. He died on Friday at age 85 surrounded by a loving family.

Tears welled up in my eyes and my throat got caught when I read it. I want to share this story about Frosty for that reason alone. But I also want to share it because it’s a wonderful portrait of a strong Unifier leadership style in action.

The Unifier style is one of four management style dimensions that we all possess to one degree or another. You can read more about these styles: Producer, Stabilizer, Innovator, and Unifier in Part II of my book Organizational Physics: The Science of Growing a Business.

Our best Unifier qualities are our ability to create rapport, understand and motivate others, build cohesive teams, and create sound organizational cultures based on caring, empathy, and loyalty. Without the Unifier force, we would have no ability to respond to change efficiently because the organization couldn’t act as a whole.

Let’s see how the Unifier force shows up in coach Frosty’s leadership style so that you can learn to recognize it, develop it, and manage it in your own life and work:

His players implored him to belly-flop into a California hotel pool, and he complied – at age 75. He once took a running plunge into the mud during a soppy game in Oregon. He adored when players pulled pranks on him, insisted players use his first name – Frosty! – and corrected them if they used “Coach.”

He sometimes halted practice to have players spend five minutes gazing beyond the giant evergreens to Mount Rainier. He sometimes halted practice to have players go to other sporting fields and cheer on, say, the soccer team. He always halted two-a-day practices in August and instructed players to go help freshmen move into dormitories.

He believed deeply in singing. His players sang before games, after games. Sometimes they sang to the mock direction of the coach’s cane. Always they learned to sing without embarrassment, for it had become uncool to refrain from the refrains. For his 300th win in September 2003, an offensive lineman led the team in James Taylor’s “Steamroller.” During warmups for the NCAA Division III national championship game in December 1999, right there on the field in Virginia, his players sang “The Twelve Days of Christmas,” then proceeded to win 42-13.

Can you imagine warming up on the other side, then losing 42-13 to that?

During three of the best days of my career — those in his company, in Tacoma, Wash., in 2003 — he requested that I join his players for supper in their dining hall. Three of them drove me, in a pickup truck, back to my car. Along the way, they sang “Leaving on a Jet Plane.”

“Why singing?” I asked the coach.

“When you sing,” he said, “your consciousness is raised.”

The Unifier style loves to laugh, have a great time, create “story” moments, and keep the group structure flat and inclusive. I love the focus on singing as a form of culture reinforcement. It’s brilliant.

And lest you think this guy some Left Coast flake, let me hurl at you this biographical detail: former drill instructor, United States Marine Corps.

What this tells me is that Frosty was indoctrinated in a Producer/Stabilizer style in the Marine Corps. Most likely, he found this lacking in the development of full human potential and therefore embodied a leadership style that transcended that. I have no doubt that Frosty could turn on the Producer/Stabilizer hard-ass if he needed to but that he found an alternative way to coach a football team and develop young leaders.

An airline pilot wrote to the university president. He wrote because the Pacific Lutheran presence on his airplane had taken a routine day and whipped it up into memorable. He wrote because Westering insisted his players respect other people’s work. He wrote because that respect included rapt attention to the flight attendants, which in turn included a phenomenal sound that came when the players clicked their seat belts in unison.

He wrote because at the destination gate, the college football players had held back and lined up on two sides in a “go” tunnel so they could give high-fives to disembarking crew.

A janitor wrote to the university president. He wrote because when he came upon Pacific Lutheran’s visiting locker room one postgame in Portland, he found the chairs lined up in impeccable order. He wrote because he found the floors and lockers completely free of the normal detritus. He found the place just about spotless.

He wrote because, when he arrived in the room, he found a note on the whiteboard suggesting he go home and join his wife by the Christmas tree.

Wow. The focus on empathizing and respecting others is a true Unifier trait. I love how Frosty’s consistency in message and tone unlocked the creativity of the team in how that gets expressed. Can you imagine what a positively memorable experience the flight attendants and the janitor had? Amazing.

A man in a wheelchair came to the “Afterglow,” a Westering postgame concoction where a few hundred players, coaches and fans would gather in the bleachers. They might discuss the game. Players might thank the fans for support. Fans might thank the players for inspiration. Everyone would sing “Happy Birthday” to anyone with a birthday nigh. The “Afterglow” would happen after wins, but — oh yes — the “Afterglow” would happen also after losses, because in Westering’s mind, losing meant you had just completed the privilege of playing.

On a weekday after the “Afterglow,” Westering happened upon the man in the wheelchair and invited him to practice. Soon after that, he made the man an assistant coach, and so John Nelson, a quadriplegic Singaporean-American born with a debilitating condition and spinal-cord problems, came to head up the freshmen players. And they, in turn, had to take on responsibilities for his care: dressing him, helping him eat, helping him go to the bathroom. Do you suppose that taught them anything?

By 2003, Nelson had lost count of the times he had appeared as a groomsman in the weddings of former players, reckoning the number beyond 10. He told of a road trip stop at Disneyland when the players determined he should take a ride, so one player hugged him all the way through. During those three days I spent with the team in 2003 Nelson said to me, “There’s a reason for this, a reason for the guys coming out to this program, to see somebody who’s different. Hopefully, it inspires them. If someone in public needs help, I’m sure they will be comfortable with helping them.”

Doctors thought Nelson would have trouble making 30. By 2003, he had made 38. By his death in 2009, he had made 44. At his memorial service, Frosty placed a jersey on his wheelchair.

Notice the Unifier’s focus and pride on being part of the team vs. the focus on winning at all costs? Notice too that the Unifier extends the definition of “team” out to all the stakeholders?

Westering had such stern rules. His players had to help up opponents during games on the premise that the privilege of playing could not occur without opponents. Troublemakers didn’t have to run sprints; no, they were denied the “honor” of running. He knew fear could motivate but thought love could motivate for longer, so players badly in need of upbraiding – of putdowns – would receive what Frosty called “put-ups,” and he mandated six put-ups per day.

One put-up, “Attaway” – a configuration of “That a way” – became a staple. He had players use it prolifically, including toward hotel clerks, short-order cooks, fast-food clerks, custodial staffs, flight crews. They used it one day at practice after Frosty had some women’s volleyball players address the team about their recent and difficult victory over Puget Sound.

The reason Frosty’s Unifier style can be effective is that he backs it up with the Stabilizing force. Rules, norms, and expectations are set, clear, and reinforced. If Frosty didn’t have these elements in place, he’d be all talk, and without resulting in corresponding action in the team. Instead of being a highly successful football coach, he’d be out of a job.

In a football world chockablock with practices planned to the minute if not the second, Frosty’s practices carried a decided imprecision. His son and coaching successor Scott said that, to his knowledge, his father had never written a practice plan. One day he had me address the team, impromptu. Sometimes he’d serve popsicles, with root beer one flavor during my visit. Wet days might enable frolicsome sliding contests. Meetings never started on time, and Frosty’s penchant for hazy punctuality proved so entrenched that Donna, his wife and the mother of their five children, found an “ish” clock with the suffix “ish” beside each number and placed it on their kitchen wall.

Said Donna, one day on the phone, “In fact, it’s five after 2-ish right now.”

Classic Unifier again. No real plan. Go with the flow. Time is flexible. But keep it fun. Mix it up.

Players never wore full gear until game days, then would suit up on Saturdays, sing (of course), maybe even listen to some music professor Frosty had invited to play drums for them on an upside-down bowl and plastic pitcher. Then the whistle would blow, the kickoff would go up, and players would tell of this astonishing transformation into hard, hard hitting — replete with helping up the people they’d hit.

Then again, one day in September 2003 the quarterback came to the sideline on fourth-and-12 and said, “Let’s go for it,” whereupon Frosty said, “You’re kidding,” whereupon a small gaggle of players agreed with the quarterback, whereupon Frosty said, “Let’s do it, then,” whereupon Pacific Lutheran converted the first.

Football players by nature thrive on physical challenges and hard hits. That cultural trait is there. Frosty knew that and didn’t have to coach it much. Unifiers also don’t mind when others make decisions, as long as it doesn’t threaten the harmony of the group.

Seasons would begin with a three-day getaway in which players bonded, played games but not football, apologized for any insufficient effort the prior season and sang, sang, sang, the freshmen standing on chairs and singing their high school fight songs unless they could not remember them, in which case they got stuck with “Twinkle, Twinkle Little Star.” Seasons would end the way almost all seasons everywhere end, with a loss, but with a way almost no seasons end, with an “Afterglow.” Or they ended with a win and an “Afterglow.”

Notice that the harmony of the group and respect for the individual transcends all else. That’s a Unifier.

And when players’ careers ended, the graduates sprinkled over much of the Northwest, some in coaching. One helped run a car dealership where they took time to behold Mount Rainier and they declined an applicant after a job interview in which the applicant told of being a No. 1 salesman, because they thought he had missed the point of it all.

Their former coach always bought used cars, so he drove me to the dining hall in his 1993 blue Oldsmobile. When he left one day for a speaking engagement, he offered me the use of his small office, which surely meant he wasn’t cheating. And when I returned to New York, a dear friend who does not follow college football but who read my story said something simple, but said it with an inflection that made it ring in my head for good.

“He’s a great man,” my friend said. A great man died on Friday. A great man also lived from 1927 until Friday, and while he lived, oh boy, was he alive.

I couldn’t agree more. You can apply the lessons of this article in a number of ways.

1) Learn to spot and identify Unifier characteristics. Even if these characteristics aren’t really your style, you still want to have strong Unifiers on your teams. Unifiers help bring the group together, resolve conflicts, and lighten things up. Who are the Unifiers in your culture and how can you place them into positions where they thrive?

2) Winning is a byproduct of many things, not least of which is the feeling of transcendence that results from being a part of something larger than yourself. Coach Frosty really demonstrated this powerfully. How can you create the experience of transcendence in your own culture?

3) It’s not the destination but the journey. Don’t you love how Frosty frequently took time out from the daily grind to look at the beauty of the mountains, to visit other teams and cheer them on, and to bask in the Afterglow? How can you show enough confidence in your own team and progress to do the same?

I never met Frosty but I sure wish I had the chance to play for him. I’m confident that the lessons would have served me really well in my life and work.

Blessings to the Westering family during this transition.