Official Blog

This post may be reduced to the max: Hire better than yourself.

A startup is like an extreme sports crew doing team bungy jumping in the morning, some swamp soccer for lunch and a bit of high-risk river rafting in the afternoon to get clean again.

Do it alone? No chance.

To succeed you’d better be a good team. A really good team, actually. Your survival depends on your teammates. So you better select your teammates carefully. And ideally they are better than you. Because the moment you jump, you want to be sure that your mates fixed the bungee rope well; because your teammate may mark the goal that you missed; because with your power subsiding, they may still plough the river’s rapids.

Obvious truths you chip in?

Yes, and yet I observed quite a number of organizations behaving quite differently indeed.

A startup experience is a roller-coaster ride of failure and success, of sensations and passion, a mix of persistence and perseverance. Simply, intense emotions. It’s fun, it’s tough, it’s rough, it’s highly rewarding. Who do you want to have with you on that journey?

Guy Kawasaki, a renowned entrepreneur, puts it this way:

“In the Macintosh Division, we had a saying, “A player hire A players; B players hire C players”--meaning that great people hire great people. On the other hand, mediocre people hire candidates who are not as good as they are, so they can feel superior to them. (If you start down this slippery slope, you'll soon end up with Z players; this is called The Bozo Explosion. It is followed by The Layoff.) I have come to believe that we were wrong--A players hire A+ players, not merely A players. It takes self-confidence and self-awareness, but it's the only way to build a great team.”

It’s a bit like recruiting a squad of first-rate people and get them to do serious stuff. It’s a bit like selecting and training a football team. The selection of who’s in is essential. Yet, the quality of the players is a necessary but not sufficient pre-condition. It requires hard training to get to the top league and remain there.

At a recent event we were asked how we did it. There is not a single answer. Rather a collection of bits and pieces that form our experience.

Most recruitment talks last about an hour. The interviewer and the interviewee talk about the latter’s CV and the future job. Both sides have a strong incentive to cheat. The employer tries to paint the future job as interesting, full of opportunities, full of promise, full of perspectives. The job applicant portrays his past accomplishments in a jubilant tone.

This is mumbo jumbo talk, an unaccommodating palaver. Both sides are not much better than a greasy backyard car dealer. And worse to come, quite often an offer is made without any further clarifications or any further talks to future co-workers. No wonder that this turns sour quickly.

First observation: Get recruiting right.

Recruiting is like a blind date. Before the date, i.e. the job interview, both sides often know as much about each other as two hormone driven singles on the way to their first date: A basic profile, i.e. CV, a couple of E-Mails, a brief instant messaging chat. And dating experience shows: It’s a bad idea to commit with your brain sedated by a couple of gin tonics. The chance to upgrade to the next level is minuscule.

Recruiting needs time. Lot’s of it: Several rounds of interviews are our norm, calling up references, serious discussions with all involved, and sufficient time to let the decision mature before even entering into contract negotiations. Both sides want to be sure that it is a fit. Once you are committed, though, you should act decisively and proceed swiftly to get your new employee on board.

This upfront investment may sound expensive. Yet, any dismissal and subsequent re-hiring are way more expensive.

Once your new colleague is joining the ranks, you must make sure he or she is integrated quickly and thoroughly into the team.

Second observation: Get the assimilation right.

Quite often your first day is nice: Some flowers on your table, a brief meeting with your new boss, an even briefer encounter with your bosses boss. The secretary – nowadays lovingly referred to as office manager – walks you around. Later you sit in your cubicle, a white page with your IT credentials in front of you and you don’t know what to do. You feel left out. Over there you hear an intense discussion, here somebody passing, nodding in your direction yet not stopping, your first assignment (read the company manuals) completed and no other assignments in sight. A growing feeling of frustration sets in.

A company is more than its products. It’s an essential set of values, of believes, of rules and process. How on earth can you let that pour soul alone?! Sure most companies offer newcomer training, some get-together. But that’s it. By far not enough to pass on the company essentials.

How to do it differently? Do all of the above plus much more: Do assign someone from the team as mentor and make him accountable for a successful assimilation program, do regular meetings with all involved, create follow-up course, go to an off-site meeting, etc. etc. Basically invest time.

I call it the bow wave recruitment process: We willingly invest upfront seemingly unreasonable amounts of time for hiring and assimilation. The alternative: jigsaw recruitment. You save a few hours and bucks upfront, but you pay dearly later: People quitting, re-hiring, and so on.

Figure 1 - Bow wave versus jigsaw recruitment strategy

In concluding, it’s like forming and sustaining a wining football team: The player selection is essential; the continuous training is as essential. You have a bunch of stars (Get rid of those that just think they are stars). Now get them to play well: The coach recognizes the specific talents of each team member, and should be able to tease out the very best of each of them and in combination between them. The main question is: How to contribute to a compact, dependable, focused and hungry team? How can we get the very best out of each other? How can we surpass ourselves and do that bungee jump, master these dangerous river rapids, and score that unscorable goal.

Next in the series how to build a scalable startup: Rule #1.

The Netzwoche, a Swiss ICT trade journal, portrays our startup. The article outlines our goals, provides a brief sketch of our planned service and business model. Nice read (jpg, 800kb)

(Photo credits go to Chregu - Thanks!)

This is a first in a series on how to build a scalable startup.

In this series we outline some aspects of how we did scale our previous company from zero revenue to a figure well above CHF 41 million p.a. with a highly positive net result(1) within four years, what we learned from it and on what we pay particular attention for our next startup Nektoon.

What is a scalable startup? Expressed in monetary terms: the revenue curve grows more rapidly than the cost curve. To put it simply: As of hitting intersection A in below figure your startup turns a profit and starts to pay back incurred startup costs.

Figure 1 - Startup Costs & Revenues

That’s at least the expected pattern after an initial setup and investment phase. However, this is a bit simplistic, I’m afraid.

At the heart of every company, especially startups, are its people. They are the essence of any company. And people don’t scale. In the morning between the hours 9am to 10am you can do one thing and be present in one spot, do one sales pitch, head one meeting, etc. That is one of the list, not two, not three, but only one item at a time. So a scalable startup is to some extent a myth.

Yet if you can’t scale your startup you aren’t likely ever to earn a decent salary or cash in big time on your shares. How to circumvent this contradiction?

Organizations - A lump of butter

Before going to some minutiae about scaling let’s start with the question "What are organizations?” The subject produced an entertaining and varied body of literature. We do not discuss this here in full but just state the obvious: many if not most of the big international organizations are perceived by the rank and file and actually most customers as dinosaurs. Sure some are gentler than others, some nimbler than others, but fossils still.

The average manager passes his or her days working their E-Mail client or on the move their Blackberries, producing E-Mails with cc lists next to which any decent VIP guest list at an average club pales. Mostly they attach large Powerpoint presentations, lengthy Word memos and garbled Excels. Now with the exception of some printed contracts emanating from Word I never saw a proper business earning a mainstay in the marketplace on just that: MS-Office output (2).

First observation: Real work is mostly something else than MS-Office output.

Yet corporate offices thrive on that stuff. The problem is just: this doesn’t scale. Sure the cc list scales, but this has no notable impact on the bottom line.

Second observation: Large organizations exist.

“[Aren’t firms like] islands of conscious power in the ocean of unconscious co-operation like lumps of butter coagulating in a pail of butter-milk?” (Robertson 1928, 85)

The body of literature on the reasons of existence of the firm is as wide as this ocean of milk. Two of the more influential books on the subject were written by Ronald Coase – The Nature of the Firm (1937), and Peter Drucker – The Concept of the Corporation (1946).

Coase was the first to note that there are transaction costs involved in using markets to exchange goods and services. The cost of obtaining goods or services may add substantially to the price of the good or service. Previous economic theory held that in efficient markets it is always cheaper to contract out than to hire. Coase suggested that firms will arise when they can produce cheaper internally.

Coase was already aware of the decreasing returns to the entrepreneur function. It took management guru Peter F. Drucker to table the first thorough study into the nature of corporations. In his seminal book Concept of the Corporation he studied mighty General Motors. They were very pleased with his book until they discovered to their dismay his suggestion to decentralise the company in order to even become more successful (Something they took only a bit more than 60 years to digest and finally start doing).

So, firms are indeed like a block of butter.

Next in the series how to build a scalable startup: Focus on people

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Robertson 1928 Robertson D.H., The Control of Industry, revised edition, London: Nisbet, 1928, as cited in Malmgren H.B., “Information, Expectations, and the Theory of the Firm”, Quarterly Journal of Economics, LXXV, 1961, pp. 399-421.

(1) local.ch is part of the joint-venture between stock traded Swisscom and PubliGroupe and does not disclose any detailed financial information. Nektoon is privately held.

(2) The notable exception being consulting companies that perfected the art of delivering nothing for something; see the delightful book Consulting Demons.

A lot of people labor their day away without much thought at what they do. They don’t take a particular interest in what they do, nor are they particularly proud on what they do. They exchange time for money.

What a waste of time, talent and work.

Example: on many Swiss trains there is a Minibar service. A little trolley serving coffee, tea, croissants in the morning, sandwiches later in the day. A steward accompanies the trolley. And these folks often look like a sheepdog on the sixth day of rain. Not a faint smile; not a hello when passing; conversation is reduced to basics: customer “Coffee”, the reply after serving “3.80 please”. Not an experience to repeat (even though the coffee served got remarkably better – and a lot more expensive).

There is the odd man out: a steward often doing the Lucerne Zurich line. He comes singing and praising the day and any of his customers. He wishes everyone a nice day whether you buy something or not, and if you buy a coffee the croissant is just a smile away. A superb steward with satisfaction in what he’s doing and pride in his work.

Why this difference between him and the rest of the stewards?

In the days when international rail travel still counted for something, the company was called SSG – Schweizerische Speisewagengesellschaft. Starting in the 90ties a series of mergers, acquisitions and rebranding followed. There was a co-operation with the railway restaurant owners, a rebranding as Passagio Rail together with a take-over by Autogrill, an Italian company, a merger with the Swiss part of Mitropa, a rebranding as Elvetino, recently it was folded back into the federal railways, and I probably miss an act or two of this saga.

Over a countless number of management changes the company has probably been reduced to a set of Excel sheets without spirit. People up in management simply pressed and press the lemon ever more based on tour reports and other filtered information. I am a regular train passenger. In the past years I never saw a manager accompanying a steward to get street (better: train) smart.

The consequences: shrinking turnover, increasing personal turnover, shrinking results, increasing management stress, evaporating company spirit, and at the end a devalued and run down company with a notable exception or two. No wonder that the company has been reshuffled about every three to four years.

It needs not to be that way.

A vocation can be more than just a work (V). Active interest in what you do and pride on what you do will change everything. Run the equation. Set interest or appeal in your work (I) and pride (P) each to zero and you have just work. Invest in both and the same amount of work will produce far superior results. No matter how you measure interest and pride, any value above zero will do the trick.

You say, tedious work like running a Minibar up and down a train can neither be interesting nor particularly satisfactory? Wrong. As student I earned my living doing exactly this: running Minibars up and down trains. At the time we had some superiors who knew how to instill a certain sense of mission in us stewards. We took a keen interest in what we did and were proud working for the railway. From time to time a superior accompanied us, improving our steward skills and praising us on our achievements. Success was celebrated and it was a fun atmosphere. Even on the fully packed Sunday evening Zurich to Geneva Intercity train Müller III and myself had much excitement working the aisles. On arriving at midnight in Geneva, we regularly booked record revenues. Something that counts, if you’re just paid by commission.

It boils down to a simple management ground rule: focus on people, not on numbers.

A more academic but exciting view on the same subject was Barry Schwartz’s talk at this year’s TED conference: let people do the right thing - focus on virtue, character and practical wisdom instead of rules, bureaucracy and incentives. 

As customary on a day like today we joined the fun (and were joined in the fun) with a little 1st of April joke:

Read the full story over on Flickr.