Management vs Leadership in a Picture

What is the real difference between being a manager and a leader? And which one do you aspire to be more of yourself? While you and I have probably never met, I’m willing to bet you a lottery ticket that you already have a pretty good definition of what a leader versus a manager is. At a minimum, you might respond, “I know it when I see it,” right? And most of us have an intuitive sense of what good and bad leaders and managers are like.

One of the reasons for this is that, over the past 100 years or so, there has been a lot of ink spent describing leaders and managers and the differences between them. These terms have infused our culture to the point where we can have a good laugh at the caricatures of mis-management…

…and mis-leadership…

That said, even though most of us feel like we “know it when we see it,” there are still a lot of misconceptions surrounding the purpose of management and leadership. For example, being a leader is universally viewed as something positive and even idolized today. Being a manager — even a good manager — is often seen as negative or unnecessary to the “important” work getting done.

Peter Drucker, the godfather of management consulting, did his part to promote this idea. You might recall his claims that “So much of what we call management consists in making it difficult for people to work” and “Only three things happen naturally in an organization: friction, confusion, and underperformance. Everything else requires leadership.” Is it any wonder that most of us aspire to be leaders and not managers?

I want to set the record straight and bring some balance back to the collective view of management and leadership. Management and leadership are not two distinct things but two sides of the same coin. One is not superior to the other. They are both necessary and complementary elements to building a successful and thriving organization.

A New Definition of Management and Leadership

Perhaps the most famous definition on the differences between management and leadership is, once again, Peter Drucker’s observation from the 1960s that “Management is doing things right; leadership is doing the right things.”

Is Drucker correct? Partly. Like a lot of definitions, it points to an aspect of the truth. “Doing things right” here refers to being efficient. “Doing the right things” refers to being effective. So we could paraphrase Drucker and say, “Management is being efficient and leadership is being effective.”

Twenty-five years later, another great management thinker, Dr. Ichak Adizes, expanded Drucker’s definition by declaring that, “Management is to make things effective and efficient in the short run and the long run.” What Adizes was recognizing is that every system must maintain its integration with a changing environment. This requires the very difficult task of being both efficient (doing things right) and effective (doing the right things) now and over time.

Notice that Adizes only spoke to management and not leadership. Was he ignoring the concept of leadership altogether? No, he was simply recognizing that the current concept of leadership was just another fad in a progression of fads. Basically, if a system is to be effective and efficient over time then it must be “managed,” whatever terms are used to describe it.

Aside: The first management theories used the term “administration,” hence an MBA is a Masters in Business Administration. When administration didn’t seem to have all of the answers, the new fad became “management” until it was recognized that management didn’t have all the answers either. So the next new popular term became “leadership.” But when “leadership” was seen to have holes too, the hot new concept became “executive leadership” with traditional leadership, management, and administration delegated down into the organization. Now we have servant leadership, progressive leadership, the executive-as-coach, etc. This naming trend will continue, but of course changing the names doesn’t solve the underlying challenge. The problem/opportunity of management and leadership, or whatever you want to call them, is making the system efficient and effective in the short run and the long run.

Being both effective and efficient in the right balance against a changing environment is very challenging and reveals that no single individual can do it alone. There is no super manager or super leader. In order to be successful, you need a complementary team where each member can play to their respective strengths in an environment of mutual trust and respect.

Carrying this line of thought forward, I think there is still a more nuanced definition on the differences and complementary nature of management and leadership. One that builds on the observations of both Drucker and Adizes and helps to put these terms into their proper context. It is this: “Management is making a system effective and efficient in the short run. Leadership is making it effective and efficient in the long run.”

Why do I define management and leadership like this? It can be helpful to see the underlying concepts in a picture. Granted, this picture gives you a lot to take in at first glance. But once I walk you through the core concepts (and their implications), you’ll gain a new perspective and clarity on what management and leadership really are.
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It’s Not a Problem to Solve. It’s a Polarity to Manage.

I saw this image circulating around social media last week and I had to roll my eyes:

It’s not because I don’t believe in the values of “new management” thinking. Quite the contrary. It’s that making the shift from “old management” thinking to “new management” thinking is not a problem to solve. It’s a polarity to manage.

A problem is something to be dealt with or overcome. A polarity, on the other hand, is something to be managed on a continuum. Basically, anytime you are dealing with things that seem at odds with each other or paradoxical, you’re dealing with a polarity and not a problem.

Take the first line in the viral image above as an example. Are employees your biggest risk or your biggest asset? The answer is both! Hire the wrong employee or lose control of your HR compliance function and it won’t be too long before you’re served a very expensive and frivolous lawsuit. On the other hand, if you treat your employees like they’re not your greatest asset — like they can’t be trusted to use their common sense or act in the best interest of the company — then you’re going to engender a lot of resentment and apathy.

This meme, which is generating thousands of likes and shares, portrays New Management Thinking as the solution to the problem of Old Management Thinking. It’s actually not the solution. There is no problem to solve – just a polarity to manage.

Don’t treat polarities as problems to be solved or pay the price. Why? Because when a team treats a polarity to manage as a problem to snuff out — chanting all the while “Down with hierarchy!” “Down with meetings!” “Out with the old and in with the new!” — one polarity will be emphasized too much and the organization will experience even bigger problems.

A team like this wastes an inordinate amount of time and energy on the wrong things, leading to a lot of activity and little effectiveness. Their misguided efforts also make it harder for the good and necessary aspects of the opposite polarity to exist within the organization. The end result is an organization that is less resilient and adaptable to change.

As a leader, being able to discern the difference between a problem and a polarity will help you to build a culture that makes the right decisions about the right things. This is true even if, from an uneducated eye, those efforts can sometimes appear to be in support of “old” ways of thinking. But they are not old ways of thinking! You are just boosting up an aspect of a polarity that is needed in your organization at this period in time. Later on, you may boost up “new” ways of thinking, depending again on what’s really needed. Let’s see how to do that…

Polarity Mangement

There’s a book I like that does a good job of recognizing the difference between a polarity and a problem and how to leverage the best aspects of both sides of a polarity. The book is appropriately titled Polarity Management, by Barry Johnson.

In a picture, polarity management works like this. Draw a 2X2 matrix and put the poles or the extremes of the two polarities on the horizontal axis as Pole A and Pole B. Write “Positives” at the top of the vertical axis and “Negatives” at the bottom. Then identify in the top quadrants the positives of each pole and in the bottom note the negatives that come from an overemphasis of either pole. Finally, draw some butterfly wings that meet in the center of the quadrants with arrows in the left wing going counter-clockwise and arrows in the right wing going clockwise, to show the flow between polarities.

Going back to the meme that started this article, a polarity map of “old management thinking” vs. “new management thinking” would look something like this:

What does this map tell you? As a leader, your goal is to manage the polarity. This means leveraging the best of old management thinking and new management thinking while avoiding the extremes of both. If you find that the organization has emphasized one polarity too far, then you know you need to bring it back the other way by driving the organization towards the top of the other polarity.

In this example, if you found that your organization was too chaotic, free-wheeling, or producing too many errors (the negatives of new management thinking), then you know you need to add a bit more clarity, accountability, leadership, and performance management to bring it back the other way (the positives of old management thinking).

On the other hand, if you noticed that your organization was too bureaucratic, political, or stagnant (the negatives of old management thinking), then you’d need to break some glass and shift the organization’s polarity up the other side to have more transparency, autonomy, and trust (the positives of new management thinking).

The goal of polarity management is to be astute enough as a leader to get the positive sides (above the red horizontal line) of both polarities while avoiding the negative sides (below the red line) of each one. Put another way, you’re seeking to balance the organization so that it’s on the top half of the red horizontal line and doesn’t fall off into an abyss on either side.

OK, that makes a lot of sense in theory. However, sometimes it can be challenging to break a situation down into just two polarities. Life and work are messy and complicated. What is the polarity you are really dealing with? It can be hard to tell.

The good news is that if you like the principles behind Polarity Management but seek an easier “map” that tells you what you are really dealing with, you will find my Organizational Physics model very useful. The model can make recognizing and managing polarities in your organization much easier. Here’s what you need to know…

Organizational Physics and Polarity Management

When I set out to create Organizational Physics, one of my primary goals was to identify the underlying patterns that drive all organizational behavior and show how to improve performance. You can think of Organizational Physics as an ultimate meta-framework. It explains all other management theories (at least the good ones) and puts the different camps in their respective context. So naturally, Organizational Physics is rich with polarities.

Some of the main polarities within Organizational Physics include the dynamic tension between the need to be well integrated with the surrounding environment while managing things falling apart (Universal Success Formula). There’s also the polarity between organizational development and stability (Lifecycle Strategy). And there’s the polarity between making good decisions and implementing them fast (The Physics of Fast Execution).

However, one of the best parts of Organizational Physics is that once you understand the framework, it makes managing your organization much easier and even allows you to anticipate what happens next in its development. In this regard, understanding the Four Forces of Management – Producing, Stabilizing, Innovating, and Unifying — within Organizational Physics is not only useful, it’s the ultimate polarity management framework.

The principle behind the four forces of management – Producing, Stabilizing, Innovating, and Unifying — is that every complex adaptive system, from an individual to the world’s largest company, must at a minimum do four basic things. It must shape its environment and respond to change and it must manage its entire system, including the parts or tasks that make it up. In a picture, this means that at a fundamental level every system is managing these two basic sets of polarities between shape/respond and whole/parts:

  • The Producing Force is what gives an organization its drive to produce results for clients.
  • The Stabilizing Force is what brings order and repeatability to the organization.
  • The Innovating Force is what gives an organization its drive to find creative solutions and new ways of doing things.
  • The Unifying Force is what brings cohesion and unity to the organization.

The picture below shows how each force or polarity has a different time horizon, approach, pace, and orientation. If this image doesn’t make much sense to you yet, you can learn more about each force and what it does in Part II of Organizational Physics or play around with the World’s Fastest Personality test and see how these forces show up in individual personality styles.

*** Please note that this image above has NOTHING to do with the four quadrant approach from the book Polarity Management. That is, that book shows how to break a polarity down into two dimensions. I’m going to show that most polarities can be understood across four dimensions total. This means that there is no horizontal red line above which you are trying to manage. Put another way, I am NOT saying that the Stabilizing and Producing forces are the positives and the Unifying and Innovating are the negatives. Quite the contrary, what this new vision means is that you are seeking to get the best of all polarities for the lifecycle stage of your system.***

Because, at any given point in time, every system must manage these polarities with finite energy, when one pole is really strong, another will be weak. In other words, the system will exhibit some tell-tale, predictable behaviors. Here’s how you can use that knowledge to your advantage…

Polarity Management Made Simpler

Once you understand that every organization is managing these four polarities — Producing, Stabilizing, Innovating, and Unifying — it’s much easier to place any set of polarities in their proper context and have a deeper sense of what to do next to improve organizational performance. Put another way, once you understand this framework, you have four dimensions to engage in polarity management vs. just two. Here’s what your new map looks like:

What this map shows is that a healthy, high-performing organization will have the right mix of forces for its lifecycle stage, as shown in the dark and light green circles. But push one polarity too far or at the wrong time to the red ring of the target and your organization will start to exhibit some negative, counterproductive behaviors. It’s a lot like driving a car. You’re trying to keep the engine humming by having the right mix of fuel and performance without taking one polarity too far (into the red) or you’ll burn out the engine.

What’s cool and useful about the above map is that you can use it to scan your organization and get a quick sense if one or more forces are too far out of whack. Then based on this awareness you can give the system more of the missing force, which will bring the organization back more towards the center of the target. Most situations you’ll come across in both work and life will fit somewhere on the above map!

For instance, if you were to notice that part of your organization can’t see the forest for the trees or is close to burnout from the constant short-range time pressure, you will see that the Producing force is out of balance in the upper right quadrant.

What should you do? Well, it would depend, of course, but using this map you would know you need to back off the Producing force and focus your efforts in one of the other areas first. You could add some more Stabilizing force to the system (through a better process or tools that reduce the workload); you could boost up the Innovating force (clarifying the strategy and big picture with the team); or you could focus on increasing the Unifying force (connecting and processing together as a team to reflect, renew, and recommit). Or some combination of these.

Going back to the first scenario that started this article, let’s say that an employee says to you, “We need more New Management thinking vs. Old Management thinking.” With this new map you can quickly ascertain that they are likely saying that the organization needs to develop its Unifying and Innovating forces (the bottom half of the map) over its Stabilizing and Producing Forces (the top half of the map). But you also know by now that this is not a problem to solve – it’s a polarity to manage without taking things too far in one direction.

Or, if your board member argues that the company needs to improve its sales process because it’s not scalable, you know that they are oriented towards the Stabilizing quadrant. While you might boost up the Stabilizing force with more focus on process and systems, you wouldn’t let it go too far out of whack so that the process takes over and the sales team loses its Producing force because it’s trapped in a bureaucracy.

One more example — your spouse tells you that you are working too much. What does this mean? He or she wants you to Unify more with the family. Is this a problem to solve? Nope. You get it. It’s a polarity to manage! So because your marriage and family are important to you, this coming weekend you’ll back off of your Producing force, put down your phone, and invest some quality time Unifying with the family. Everything is a trade-off and the basic idea is to not let one force get too out of balance for too long or you’ll suffer the (predictable) consequences. Instead, strive to manage the polarities and avoid the extremes.

One thing to keep in mind as you navigate the polarity map above is that if one force or pole is too far out of balance, you don’t add more energy and effort to improving that pole! Instead, you give energy and effort to its complementary pole. For instance, if your culture had turned toxic and there was a lot of infighting (an imbalance in the Unifying force), you would NOT take the team into a feel-good kumbaya team-building session. This is just adding more fuel to an over-hot Unifying force.

Instead, you would look to boost up one of the other three complementary forces depending on the needs of the organization. To boost up the Stabilizing force, you might bring more process or regimen to how the team interacts. To boost the Producing force, you might identify a big market challenge to get the team to focus more on external client needs and creating new client wins instead of internal politics. Alternatively, you might work with the team to align around a new vision and strategy — something that transcends petty politics — which would boost up the Innovating force.

In summary, if your company starts to treat a polarity as a problem to snuff out, it’s going to have a host of even bigger problems. Instead, try to recognize the general Producing, Stabilizing, Innovating, or Unifying quadrants that the organization’s current behavior is coming from. If it’s getting too far out of balance in one area, back off that area while boosting up another force. This will help to bring the organization back towards balance. Extremes will happen naturally, so your job as a leader is managing them to leverage the best that healthy polarities have to offer.

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

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

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

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

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

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

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

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

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

So who’s right?

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

But is it true? Let’s see…

Reinventing Organizations from the Bottom Up? Not Quite.

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

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

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

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

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

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

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

Here’s how the trust battery works…

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Predictable Revenue: How to Structure the Customer Success Role

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

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

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

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

Role Segmentation: Always a Good Idea

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

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

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

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

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

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

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

Account Management & Customer Success are not the Same Role

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

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

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

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

How to Structure the Customer Success Role (2)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary

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

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

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

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

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

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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.

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

Photo credit: AudienceView.

Photo credit: AudienceView.

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

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

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

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

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

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

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

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

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

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

Start With Your Strategy and Structure

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There are two smart and straightforward moves to make:

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

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

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

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

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

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

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

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

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

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

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

Smart Move #2: Optionally Have a Chief of Staff

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

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

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

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

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

Take a Peek Inside Amazon

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

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

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

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

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

Summary

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

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

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

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

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

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

You don't want this.

You don’t need this. Photo credit Pathfinder.

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

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

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

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

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

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

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

The Key Differences Between an Organizational Structure and an Org Chart

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

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

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

How to Redesign Your Business With a New Organizational Structure

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

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

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

A sample structure using sound design principles.

A sample structure using sound design principles.

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

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

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

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

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

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

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

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

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

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

A Word About Hierarchy in Organizational Structure

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

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

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

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

The Role-Centric HRMS

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

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

RoleCentricHRMS

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

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

ExampleRoleEntry

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

ExampleEmployeeEntry

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

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

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

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

Sales vs. Marketing

Sales vs. Marketing. Who’s the Ape?

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

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

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

Who is Your Buyer Persona?

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

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

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

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

If Marketing Has Questions, Sales Has Answers

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

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

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

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

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

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

The 10 Questions Marketing Should Ask Sales

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

1) Who is the primary customer type?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Art is the Discipline

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

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

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

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

theculturesystem

Key Takeaways:

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

When Intention Isn’t Enough

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

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

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

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

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

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

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

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

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

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

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

The Four Elements of an Effective Culture

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

thesystemofvalues

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

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

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

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

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

Values

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

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

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

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

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

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

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

Rituals

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

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

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

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

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

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

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

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

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

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

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

Stories

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

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

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

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

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

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

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

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

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

Consequences

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

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

I call bullshit.

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

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

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

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

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

Summary

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

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


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

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

How NOT to Interview

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

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

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

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

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

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

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

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

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

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

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

a) report the theft to HR

b) ask him what he’s doing

c) take a mug for yourself

d) tell him to put the mug back

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Seek diversity, not conformity.

2. Treat everyone with respect.

3. Hire from a strong foundation.

4. Make it a collaboration, not a competition.

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

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

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

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

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

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

Category 1: Conflict of Vision and Values

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

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

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

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

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

Category #2: Conflict of Interests

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

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

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

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

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

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

Category #3: Conflict of Styles

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

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

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

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

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

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

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

Acceptance

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

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

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

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

Appreciation

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

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

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

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

Accountability

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

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

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

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

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

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

Summary

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

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

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

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

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

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


Created with Haiku Deck, the free presentation app

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

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

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

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

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

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

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

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

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

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

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

The Magic Spot in Product Development

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

It’s the epiphany, right? Right!

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

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

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

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

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

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

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

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

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