The More Success You Have, The More You Can (and Should) Hire Appropriately-Rated People

Talent markets tend to be efficient. In a given industry, great people are in high demand and command high salaries commensurate with their value, and bad people are in low demand and receive low salaries.

Of course, there are plenty of inefficiencies. We all know amazing people overlooked by employers for whatever reason. I’ve written about some of the “tells” of underrated people — for example, people who are especially bad at self-promotion, physically unattractive, socially awkward, etc. Auren Hoffman has a great list too of traits that signal underratedness.

Early in one’s entrepreneurial career — as you start companies, recruit people, corral support for your various projects — your only talent strategy option involves “talent arbitrage”: finding underrated people. You don’t have much money or status, so you bargain shop to find deals: people who provide outsize value for their cost.

I believe an important evolution to go through as a talent manager is to recognize when it makes sense to not default to prioritizing underrated people. When you have money and status, you can actually pay what it takes to get people who are “appropriately rated” on the open talent market.

Two reasons why you seek appropriately rated people:

1. Lower variance. Talent markets generally rate people accurately. High priced people are more reliably of the quality you expect. “Underrated” people can work out spectacularly from an ROI perspective but in my experience they can backfire more often, too.

2. Speed. The more successful you are, the higher your opportunity cost of time. So speed of process becomes relevant. It’s usually faster to partner with or hire people who are appropriately priced vs. scouring the earth for the hidden gem. This is especially the case if you’re hiring within a team and need to convince others of a given candidate’s abilities. Underrated people are by definition not obvious, which includes not obvious to your teammates whose buy-in you seek.

The recruiting strategies of startups vs. big companies illustrate this point. When a startup is looking for an ML engineer, and can only afford to pay the person scraps, they might find the college dropout who’s mostly self-taught but wicked smart and, of course, cheap, because Google doesn’t know he exists. When Google is looking for an ML engineer, they might make offers to all the PhDs coming out of Stanford’s CS department. The Google approach is more expensive, but more likely a reliable (not perfect!) filter for high talent, and certainly a lot faster. This is an imperfect example because what a company like Google needs in terms of talent make-up differs from what a start-up needs (e.g. hustle). But the overall point holds nonetheless, I think.

Now, the amount of success necessary to switch from “hire underrated people” to “hire appropriately rated people” can vary based on industry, functional area, etc. To take an extreme: If you’re a tech startup recruiting software engineers, even if you’ve raised a Series C and have breakout success — you might still need to employ a talent arbitrage strategy and hunt for underrated gems, because you’re still competing against enormous Google salaries.

Admittedly, this overall idea may not be earth shatteringly novel: it’s consistent with how humans generally approach consumption as their wealth increases. But it has special importance when you’re on a team or building an organization. The normal “life” pattern is that the broke college kid shops when things are on sale and the rich middle aged adult ignores discounts and shops when convenient. Some billionaires never kick their frugality habit in their personal lives. It can be irrational at times, even amusing, but it’s a personal decision. However, when talent managers fail to kick their “underrated” talent strategy even as their company or team obtains greater and greater power, it can be detrimental to the success of their overall organization. They’re missing out on reliably high quality people and they’re likely moving too slowly.

Bottom Line: “Talent arbitrage” of targeting underrated people is a necessary strategy in the early days as a talent manager. As you get more and more successful though, it makes sense to relax into the wisdom of the market, and cultivate a habit of hiring appropriately rated people.

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A somewhat related, somewhat unrelated idea: I remember in my youth thinking I’d never spend more than X dollars on a piece of clothing or a meal or whatever. I simply could not understand why someone would spend $120 on a pair of jeans or $300 on a dinner. Now that I’ve had some outrageously expensive meals and few other expensive goods or experiences, I can see the appeal. I’m not just talking about the signaling benefits of conspicuous consumption. I’m talking about genuine appreciation for a product or service or experience that’s absolutely world class in quality.

Sometimes the attributes that makes a product, service, or experience world-class are subtle. The marker of a luxury hotel is usually not a flashy lobby; instead, it might show up in how the cleaning staff cleans and organizes your toiletries during housekeeping, and in a hundred other ways like that.

Is there a similarity here with “high end” talent? Do really expensive talent sometimes possess characteristics that are harder to appreciate from afar, but once you’ve worked with “the best” you realize just why these sorts of people are paid so much? In the same way that high end food and drink tend to stand out in subtle ways, the traits of high end talent may also be more subtle than something as blunt as years of experience. I’m thinking of traits like poise, emotional stability, genuine humility, a hard-to-describe “it” factor that causes other people to want to follow him/her, etc…

(Thanks to Auren Hoffman for reading a draft of this post.)

Leap When You’re Almost Ready

“Jump out of the plane on my count, at 5. Ready?” the sky diver instructor says to you, a nervous first-time customer, crouched in a tiny Cessna plane flying 10,000 feet above the air. You are pulsing with adrenaline. Wide eye fear.

“Ok,” you say, unconvincingly. “Ready.”

The instructor kicks open the door to the plane. Air rushes through the open door and the aircraft rattles a bit in the sky. Fear turns to panic, as every fiber of your body — everything evolution has taught you — says to not jump out of an open aircraft.

“1, 2, 3…”

Then, on the count of 4, the instructor jumps the gun. You think you have one more precious second to change your mind. But he’s already pushed you out the airplane. And away you go.  This way, there’s no time for you to change your mind at the last minute.

Although I’ve never sky dived, I’m told this is not an uncommon technique to use with first-timers who sometimes experience last minute panic cop-outs.

And it reminded me of a great insight from an acquaintance, delivered on summer day a couple years ago in Berlin.

I asked him if he felt ready to have kids when his wife gave birth. He replied, “I wasn’t ready. But we were almost ready to have kids. Almost ready. You’ll never feel fully ready.”

This is a truth in so many things, isn’t it?

Don’t start a company when you feel ready to, because you’ll never feel ready. Start a company when you feel almost ready.

Don’t marry your boyfriend or girlfriend when you feel ready, because you’ll never quite be sure. Marry him when you feel almost ready — when you’re almost sure he’s the one.

Don’t take the job that you feel fully prepared for. Stretch yourself. Push yourself. Take the job you feel almost ready for.

“Almost ready” is similar to The 80% Rule persuasion hack. Ronald Reagan argued that you don’t need someone to agree with you 100% for them to be “with you” — you just need them to be with you on 80% of the issues. That’s usually enough for them to pledge their support.

The 80% Rule applied to yourself would mean you don’t need to be 100% sure of a decision for it to be the right decision. You need to be 80% sure — or, almost ready.

Otherwise, if you’re lucky, a coach or mentor will be around to interrupt your deliberating and doubt and procrastination — and push you out the airplane before you realize what’s happening!

How Much Does Passion Matter When Founding vs. Joining Something?

When you’re starting a company you have to be passionate about the problem you’re solving. That’s a truism of entrepreneurship. You’ve got no customers, no employees, no activity: You better hope that the vision you hold in your heart is one that keeps you excited through all the days (and years?) of little progress.

When you’re joining a company as an employee, by contrast, passion for the problem the company is solving is less important — assuming the company already has some traction, which is a fair assumption given the company has the cash to hire you. Why? Because anything at scale is interesting. You can take the most boring, back office piece of enterprise software and if you tell me, “Millions of people use this every day” or “50 companies are paying millions a year to use this” etc. then I’ll become interested. Heck, if you pitched me on joining a trash pickup business like 1-800 Got Junk and you said they’ve got 200 different locations and are doing tens of millions a year in revenue — I’m potentially interested. Ideally, the business mission also aligns with something you’re personally passionate about, but it’s not necessary.

Bottom Line: When you’re founding a company (or joining a super early stage company), passion for the problem the company is solving is critical. When joining ventures that already have velocity, other factors — like the quality of your co-workers and the culture of work that’s been established — matter more, because anything at scale becomes interesting.

How One of Twitter’s Largest Shareholders Launched His Career

With Twitter’s IPO, the press is publishing glowing profiles of the company’s executives and early investors. The praise is well deserved. But it can be easy to forget, amidst the write-ups of all the wealth that’s been generated, that the bright minds behind Twitter were not born geniuses or born successful. They had to hustle to get where they are.

After all, co-founder Ev Williams was born a Nebraska farm boy. Co-founder Biz Stone was raised on food stamps. Co-founder Jack Dorsey battled a childhood speech impediment and grew up in middle class St. Louis.

Or consider my friend Chris Sacca. Today he is one of Twitter’s biggest shareholders and has served as a longtime advisor to the company. He’s an active angel investor. Previously he worked as head of special projects at Google.

But not so long ago, Chris was an out-of-work attorney in desperate need of income to help him pay off his student loans from law school.

Chris began sneaking in through the back door of networking and tech industry events, utilizing his Spanish-language skills to smooth-talk the workers in the kitchen to let him in. Once he was at the event, he realized that handing his new acquaintances a business card that listed only his name — and no employer — wasn’t impressing anyone.

So he hatched a clever plan to boost his credibility at the events he attended: create a consulting firm and employ himself there. He made new business cards, hired a developer to build a website, and enlisted his fiancée to draw a corporate logo. Then he returned to the same networking events with new business cards that read, “Chris Sacca, Principal, Salinger Group.” Suddenly, the people he met were interested in talking more. Through these connections he eventually landed an executive job at a wireless company, and his career took flight.

Sneaking in the back door of networking events toting business cards with a made-up company name to seem marginally more impressive so people will talk to you? Yup. Every great entrepreneur — or investor — displays extraordinary hustle and resourcefulness and ingenuity. One of my favorite examples in Silicon Valley is Pandora founder Tim Westergren, who pitched the company to over 300 VC’s before receiving any funding. We profile him in The Start-Up of You.

Hustle is hard to deconstruct; it’s not something you “learn” like you would accounting or public speaking. It’s more a state-of-mind that develops — or doesn’t develop. I’ve found the best way to develop a readiness and enthusiasm to hustle is to read stories of people like Sacca and Westergren and be inspired by all the little things they did to get to where they are. Especially when they’re in the headlines and it all seems preordained. It wasn’t. And that’s inspiring.

LinkedIn’s Series B Pitch Deck to Greylock

Reid recently published the pitch deck he used to raise money for LinkedIn in 2004, when it didn’t have a dime in revenue, from Greylock Partners. Alongside the original slides, he includes historical context and relevant pitch advice for entrepreneurs. It’s a treasure trove of information. Mandatory reading for anyone raising money from VCs, or anyone looking for context on the amazing company Reid co-founded. In a separate post, he also summarizes more briefly his top overall lessons on pitching VCs.

Special thanks to Ian Alas on our team who spent several months working on this. It will go down as a piece of Silicon Valley history.

San Francisco’s New Entrepreneurial Culture

My old friend Nathan Heller has a new piece in the New Yorker about how youthful go-getter entrepreneurs, and the companies they’re founding, are remaking the culture of San Francisco. I am quoted in the piece. It’s impressionistic — it gives you a feel of the place — more than it advances a single overriding thesis. This sentence caught my attention:

[San Francisco contains a] rising metropolitan generation that is creative, thoughtful, culturally charismatic, swollen with youthful generosity and dreams—and fundamentally invested in the sovereignty of private enterprise.

 Worth a read.

Knowledge & Networks Enabling More Youth Entrepreneurship

Silicon Valley-style entrepreneurship, practiced around the world, is hot. There are several reasons why starting a tech startup is easier and cheaper and therefore as popular as ever today: the vanishingly low costs of laptops, storage, video conferencing and other technology tools; talent marketplaces like Odesk and Linkedin; cloud computing infrastructure like Amazon Web Services; distribution platforms like Facebook and Twitter for spreading consumer internet apps; a more structured and accessible angel financing market (facilitated by AngelList and others); and so on.

The entrepreneurship boom is particular pronounced among youth. High school and college kids, when surveyed, are clocking in at record highs in terms of expressed interest in entrepreneurship, and as far as media reports and VC whisperings go, it’s no longer unusual to hear about a teen who’s starting a company or setting up some sort of organization or leading an entrepreneurial cause. Youth benefit from all the aforementioned forces that enable more entrepreneurship generally — especially the tech advances that have made everything cheaper.

knowledge

But there’s one category of change that, to me, is as important an enabler of entrepreneurship as any other: in the past few years, the body of knowledge about how to start a company, how to code and work with technology, and how to thrive as a businessperson in general has gotten extremely well organized and of course is freely accessible to all.

Back when I got interested in tech entrepreneurship in the year 2000 (I was 12 years old), I harbored a boatload of raw interest but knew next to nothing about technology and business, and didn’t have relationships with any tech/business entrepreneurs, either. There were no entrepreneurship bloggers. Information on the web was scattered and of uneven quality. I remember posting questions about market segmentation on the low-tech forums of IdeaCafe.com and being confused by the answers I got back.

So from day one, I hustled relentlessly to chip away at my ignorance by doing things that seem positively old school by today’s standards.

I went to the San Francisco Public Library and loaned out books on marketing.

I looked up local event listings in Silicon Valley, tracked down the bios and email addresses of the speakers, and, rather than physically attend each public event, the day after the event was scheduled to have happened I emailed the speaker and requested a copy of their PowerPoint deck. The speakers assumed I had attended, and were happy to send me their decks, on everything from pricing strategy to customer service to internet trends.

I lobbied my 7th grade history/economics teacher, who had a collection of Harvard Business Reviews stacked up on his reading shelf, to allow me to copy a few articles in the school’s Xerox machine. I ended up copying thousands of pages of HBR articles into a custom binder that I kept for myself. I had to stop when a school administrator caught me using the copy machine and insisted, kind of incredibly, that I should buy the re-print rights to articles I wanted for myself instead of photocopying them.

I cold called the business school dean at Golden Gate University and asked if I could audit their business classes, and they agreed. I sat in several classes on management and marketing for free.

I went to Goodwill and bought cassette tapes of Tony Robbins’ original classic Personal Power — my first introduction to the self-help genre. (I have agency in the world!)

I attended a “tech camp” at the University of San Francisco to learn Basic (but switched to HTML and CSS). It was okay. There were no good online classes for on-going instruction; I had to teach myself basic HTML by viewing the source code on web sites, copying the code into BBEdit, and then deleting and editing lines of code line-by-line until I figured out what each command did.

I met with volunteer SCORE counselors at the local SBA office and they taught me about income statements, balance sheets, and cash flow statements.

And I reached out to businesspeople in the community to begin building a professional network. The very first person in my network was my neighbor Mike, to whom my first book is co-dedicated. He was the first node, and he introduced me to a few people, and it grew from there.

Today, on each of these fronts, one has a much easier go of it. For example, sites like VentureHacks and Ask the VC and Mark Suster’s blog and Quora threads explain every aspect of the startup process. LinkedIn is now a directory of most people in white collar industries, and there are many groups there and on Facebook for young entrepreneurs to meet each other and connect. On the tech side, CodeAcademy and several others teach basic tech skills in a structured manner on the web.

It’s not only that there’s more information easily available today, but there’s refined curation. While I learned a bunch hustling about in my teens, I also wasted untold cycles of time. I read bad books; I met people who, in hindsight, weren’t worth the time; I read irrelevant articles while overlooking relevant ones; etc. By contrast, today there are various “best of” lists and other crisp navigational guides to finding very best content related to your business challenge.

I should say I’m aware that the “paucity” of free knowledge and resources available in year 2000 that I’m describing (when I began my quest of self-education) far exceeded what existed in years prior. So I had a huge advantage getting started, from a knowledge-perpsective, than prior generations. Even as we’re now all lapsed by the current teen cohort, as they whiz by us at faster and faster speeds…

Bottom Line: Democratized, free entrepreneurship-related knowledge and networks is the game changer for facilitating ever more youth entrepreneurship. It’s a great thing for the world. It’s a great thing for the young, ambitious, and inexperienced. Even if it makes me a little jealous of today’s teens!

Founders Hiring “Professional” CEOs to Run Their Company

Reid Hoffman’s new essay If, Why, and How Founders Should Hire a “Professional” CEO is worth reading for any entrepreneur or any executive thinking about joining a high growth startup. It’s a very personal topic for Reid, and an important one for everyone in the industry to think about. The concluding paragraphs:

20 years ago, venture capitalists were in a hurry to bring in professional CEOs.  Today, many of the same VC firms are busy touting their support for long-term Founder-CEOs.  Both approaches can work, which means that as an entrepreneur, you should focus less on what’s fashionable, and more on what’s right for you.  This is a highly personal decision, and the right answer depends on you and your team—including your co-founders and your VCs.  You might be a Steve Jobs, or you might be a Pierre Omidyar.  As an investor, I’m willing to back you, even if you’re not sure which one you are yet.  In every investment we make, we hope that the Founder-CEO will be able to lead the company to success, but if not, and if you realize as I did that you want to bring in a professional CEO, we’ll work with you to find someone who is a true partner.

So as it turns out, Ben Horowitz was right.  You always do want a Founder-CEO.  But that person doesn’t always have to be the Founding CEO.  Being there at the start isn’t the only path to being a founder.  “Founder” is a state of mind, not a job description, and if done right, even CEOs who join after day 1 can become Founders.

Steve Jobs Brainstorming at NeXT

Fascinating 20 min video of Steve Jobs leading a brainstorming session (among other things) at NeXT in the late 80's. At his death he was leader of one of the world's largest corporations; but in this video he talks as a founder of a fledgling start-up dealing with office supplies and payrolls. He implores his employees to regain the "start-up hustle." Good stuff.

Good Marketing is Good. Bad Marketing is Bad.

Fred Wilson blogged about marketing:

I believe that marketing is what you do when your product or service sucks or when you make so much profit on every marginal customer that it would be crazy to not spend a bit of that profit acquiring more of them (coke, zynga, bud, viagra).

Brad Feld piled on with a post titled: Why a Start-Up Shouldn't Have a Marketing Budget. Brad says when he hears the word "marketing" he vomits in his mouth a little.

But, Brad's not anti marketing. He's anti bad marketing. He actually says every one of his start-ups spends money on marketing. It's just that the marketing efforts are "wired into the DNA" of the product and company.

And Fred, after dismissing the importance of "marketing," endorses a bunch of activities from his portfolio company that could easily be called marketing.

The word "marketing" encompasses a bunch of good activities and a bunch of bad activities; a bunch of useful philosophies and un-useful philosophies. The question is which specific marketing activities and philosophies are productive and useful and which are a waste of time and money.

And that depends on the specific company, product, industry. We can all agree throwing $10k to a social media consultant to "promote" a product on The Twitter is a waste. But usually it's more complicated. For example, Fred noted he was referring only to consumer internet companies and not enterprise SaaS companies. That's a crucial distinction. Another example: manning a booth at an expensive trade show like CES may be a good marketing expense for Orbotix, but not a good marketing expense for other companies.

Marketing is neither good nor bad, neither a waste nor a necessity. It's both; it depends. This sounds obvious, and maybe it is, but it seems worth keeping in mind when reading broad-brush posts like the one Fred wrote this morning.