This is a power packed 46 minute video that we enjoyed watching. The presenter is Keith Rabois who was part of the celebrated team which built PayPal over 20 years ago (Peter Thiel and Elon Musk were part of the same team with Thiel being the boss). The subject of the presentation is how to forge a company AFTER you have hired a good team and raised enough capital.
Keith kicks off by saying that your goal as the manager is to build a high-performance organisation and whilst you have got a lovely blueprint in your mind, you know it will be tough to get there. The first few months will – and should – feel like a mess says Keith. Keith then lays down some principles to help people like us in Marcellus (who are trying to build a high-performance organisation in the chaos of Covid-stricken India):
- You need to measure each of your managers by their output plus the output of other parts of the firm where the said manager has influence eg. the head of products should also be measured in terms of sales of the product. Keith advises against using inputs as a measure of the measure’s effectiveness. (Keith recommends that everyone should read Andy Grove’s ‘High Output Management’ to understand this issue better.)
- Your job – at least for the initial part of the existence of the firm – is to run the place like a hospital triage i.e. when issues come in through the door, you have to figure out whether it is common cold or a life threatening condition and then you have to prioritise resources accordingly. The challenge you will face that often looks like a common cold at first glance could be life threatening and vice versa.
- You need to work like a newspaper editor i.e. your job is to simplify, clarify things for your team so that each team member has a repeatable job which they can repeat to themselves (or to their friends) with their eyes closed. You need to edit out complexity in every part of your business. Simplify everything. To this end, ask lots of clarificatory questions to your staff eg. Should we try this or that? Where is our competitive advantage? You then need to allocate resources (or people) basis what your clarificatory questioning is telling you. Over time your goal should be to have less editing to do – because that means your staff are internalising your clarificatory questioning and people are getting greater clarity on what their day job is. The firm will increasingly function with “one voice”.
- You should NOT be doing most of the work i.e. you have to delegate everything even though you are responsible for everything. How can you delegate without abdicating responsibility? You need to assess how “mature” someone is doing a given task – the more mature they are, the more rope you will give them and vice versa (with newbies you will be monitoring consistently). This means that you as a CEO cannot have just ONE management style – your management style is dictated by the maturity of the person you are managing and by the quantum of chips which are in play (i.e. if it is a high stakes decision, you have to be more involved).
- You have to learn to edit the team so that your probability for success is maximised. Keith says that it is WRONG to believe that if you hire lots of people, you will get a lot done (in fact the opposite happens). The reason for this is that most small companies have finite delivery capacity; hence hiring lots of people who are producers doesn’t help because the width of the pipe is the binding constraint. So the CEO’s focus has to be on hiring people who can add more delivery pipes fast (and then and only then hiring producers). Keith says that people who can build more delivery pipes for you are scarce and hence you need to look after them. So how do you find such people? Keith says that you look for people in your firm who can do simple things right and then keep giving them incrementally harder things to do until they break. That breakpoint is the max capacity at which that person will run. The pipe builders are the ones that don’t break. Another way to identify pipe builders are people whose help everyone in the firm seeks out.
- You need to spend a lot of time focusing your staff’s attention. Peter Thiel taught Keith that every employee can do exactly ONE THING. Don’t let people do lots of things especially as the company gets bigger – ensure that people solve one problem at a time and try to make sure that these are really tough problems.
- You need to have metrics to measure performance and transparency around the measurement of the same. This is absolutely essential for ensuring high quality decision making especially as a company gains scale. Keith says that you should build a dashboard i.e. the key metrics you as the CEO will track on an ongoing basis. Basis the dashboard, the whole firm should know ‘what does business success mean for us?’ If the dashboard is useful, intuitive and simple, pretty much the whole firm will refer to it every day. Similarly, you should review the Board decks with the whole firm (so that all employees know what is going on).
- You need to measure output metrics, not inputs and not activity. One important dimension of this you need to be careful about is “effects vs counter-effects” eg. number of hires vs quality of hires, number of clients signed-up vs client satisfaction. Keith recommends that you measure both effect and counter-effect so that you are able to optimise the trade-off.
The video is fun, informative and gives superb return on time invested. Hence we have desisted from giving you the remaining takeaways from the video.
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
