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Building a Great Team & Executing Well – Startup Class Lecture 2 Notes

These are my notes for Lecture 2 of Sam Altman’s Startup class. The course, organized by Sam Altman, the President of YCombinator, has the express goal of teaching “everything we know about how to start a startup, for free, from some of the world experts.” You can also see my notes for the intro and Lecture 1.

OK. So whereas Lecture 1 focused on the five key attributes of a great startup and zeroed in on what makes for a good startup idea, Lecture 2 is focused on how to build a great team. The second half of the lecture then shifts away from one’s team and instead talks about your responsibilities as a Founder in terms of what you need to execute well on in order to succeed.

The team part of the lecture follows the following outline:

  1. CoFounders: Why they’re important, what to look for, and how to find them
  2. Why to NOT Hire: Burn rate, speed of execution, delicacy of the beginning
  3. Recruiting the best talent: What it takes to get the best
  4. Talent Retention: or, Don’t F*ck it Up
  5. Firing Fast:: or, Don’t let others F*ck it Up

CoFounders

The first step in most startups is to find a cofounder. And yes you usually need one. It is far, far easier to succeed with a cofounder than without one as it gives you more skill-sets to draw from and more support in the early days. In fact, Paul Graham views cofounders as so important that he stresses that one of the single greatest causes of startup failure is having just a single founder.

As your first partners, cofounders are your most important people/asset. Paul Graham makes the analogy that they are the startup equivalent of location in real estate- everything else can be changed except for them. Yet despite their importance, Altman believes that many would be entrepreneurs still rush this decision (especially students). Just like not waiting for a great idea, not waiting for a great cofounder is an easy way to plant the seeds of your failure.  So be patient and think through this decision with the gravitas it deserves. The key takeaway here is that in the ideal situation you have known your cofounder(s) for years.

What to Look for in a CoFounder

YC’s moniker, is that your cofounder(s) should be relentlessly resourceful. You want them tough, smart, calm under pressure and generally unflappable. Basically, you want someone a little like James Bond.

James Bond as Startup Founder

A corrollary to this is that you shouldn’t concentrate only on intelligence. Being smart is a baseline trait you want, but what you really need is staying power, flexibility, and a real sense of camaraderie (Paul Graham’s list of attributes here).

You also have to think of a cofounder relative to what you bring to the table. That seems obvious, but I think it gets ignored a lot more than it should. If you are not technical you want a technical cofounder. If you aren’t a sales person you want someone who can sell. The list could go on and on about how to build complimentary strengths.

A nice byproduct of structuring your team this way is that it helps balance inevitable tensions too: by having different key strengths it’s easier to split up responsibilities among the founders and keep from stepping one one another’s toes. Each cofounder can then be king or queen in their respective domains and your overall politics have a nice natural check placed on them (for a great take on being King or being rich see the classic HBS paper on ‘The Entrepreneurs Dilemma‘).

Over at saastr.com (a highly recommended blog), Jason Lemkin refines this idea to talk about how building an all-star team is  less about complimentary strengths and more about covering one another’s weaknesses

Other random notes from the Cofounder section:

  • YC has found empirically that 2-4 cofounders tends to work best
  • Having at least 1 technical cofounder is vital in a software startup
  • Don’t have remote cofounders. It slows the feedback loop and never seems to work well.

Hiring

Try not to. Being big sucks. It can slow you down. It will escalate your burn rate.

But hiring and having a big team is perceived as sexy. It’s a big vanity metric and people will judge you based on it. Maybe you feel like you should be scaling immediately. Instead be proud of how much you can do with just a few people, delay hiring until you must.

Hiring slow is also a good idea in the initial stage (pre-traction) because the cost of a bad hire early on is huge. In fact, one bad hire here (in the first 3-5 hires) can sink you.

That’s why “Airbnb spent five months interviewing their first employee.” It’s also why in their first year, they only hired two people (note: Having to sell cereal to stay alive may also have had something to do with this).

With hiring, just as with building any repeatable process, you need to make sure you have the basic framework in place first or you will just compound your errors (see more in this excellent post). That’s why when you enter recruiting mode you should be damn sure you know what you want and you know what you’re trying to build. To look at Airbnb again, that’s why before they hired a single person, “they wrote down a list of the culture values that they wanted any Airbnb employee to have (see also the next point).”

You want Talent and you want Believers

The first point is that you need to hire people that believe as much as you do. Why? Because it’s a grind, because these hires shape your culture. Because they have to think like owners not employees. Do not compromise on this or you threaten your culture. And culture is everything.

Second, “mediocre engineers do not build great companies.” Always ask “will I bet the future of this company on this single hire?” Staying firm on this single question means you’re setting a a “tough bar” that will serve you well and allow you to avoid a lot of pitfalls. Again, this is especially applicable in the early stage. Later, when you’re scaling, speed is important too so you will need to develop a sense of balance.

In their new book, “How Google Works,” Google Executive Chairman and ex-CEO Eric Schmidt and former SVP of Products Jonathan Rosenberg have another perspective on why setting this bar is important. To them, ‘A’ talent is attracted to ‘A’ talent, whereas ‘B-talent’ will come on and attract ‘C’ and ‘D’ talent. If you hire a B, pretty soon you will have more B-Ds than A talent. That’s a slippery slope in a new corporate world where “smart creatives” (can) determine market winners.

How to hire and Source Candidates

When you are in hiring mode it should be your number one priority. That’s because it’s hard to recruit talent. These people have other options. You have to convince talent that “your mission is the most important of anything that they’re looking at.” Sometimes that song and dance can take a year or more.

On the flipside, when you are in hiring mode you need to execute quickly. After all, it’s unbelievably important to your company. That’s why Sam believes that if you’re in hiring now it should take about 25% of your time (and for post-scale startups why it may be worth hiring internal recruiters).

Sourcing candidates is hard. By far your best source (and an often untapped one) for qualified candidates is your existing network. Make sure you tap into your employees, your board, your friends, and anyone and everyone you know in order to get their list of A talent.

Further, if you operate in a highly competitive market facing a talent crunch (like the Valley) then don’t be afraid to look beyond your geographic range to find the best. It doesn’t make much sense to limit yourself to the best locally available talent when it’s a global marketplace.

Figuring out if this is the right candidate

Aptitude matters. Enthusiasm matters. For certain hires experience is probably very important, especially if they will run large parts of your organization. But experience is expensive, and hiring someone that is already set in a certain way of thinking can be costly as they try to integrate into your way of doing things. Finding the perfect candidate with the perfect set of experience is often not possible either. So do you sacrifice on experience to get everything else?

Fit and culture are also highly relevant. The timeless airport test endures-can you stand these people if your flight is delayed? Are they smart? Can you have an interesting conversation?.

Altman asks himself three questions to figure out if this is the right person. If he answers yes to these then it usually works out. The questions are:

  • Are they smart?
  • Do they get things done?
  • Do I want to spend a lot of time around them?

Mark Zuckerberg has two slightly different frameworks that hires have to satisfy:

  • He has to be comfortable hanging with them socially
  • He needs to feel that he’d be comfortable reporting to them if the roles were reversed

(Note that being comfortable hanging with your hires socially does not mean you need to be friends with all of them).

Another thing to prioritize at the onset is good communication. You’re working in close quarters and will face a lot of stress and balancing prioties. The key to navigate all of this is communication.

When it comes to the process or mechanics of hiring Altman has a few pieces of advice as well.

First, if you can, work with the hire for a period of time, i.e. you could hire them as an independent contractor. This mitigates the risk of being a bad interviewer or coming across a very polished interviewer. Working side by side you can uncover strengths, weaknesses, and working style much more genuinely.  Second, you must really dig into their past projects (rather than asking brainteasers). Finally, don’t forget to call their references. When you do call, you have to dig hard to really get honest feedback.

Retention

Once you hire you still have to retain employees. To do that they need to feel happy and valued. That means that as a founder you have to let your team take credit for all the good stuff that happens while you take responsibility for the bad stuff.

Another big part of what keeps your employees motivated as they grind for weeks and years is that they feel valued while also being given a sense of ownership. Dan Pink, in his book Drive, talks about the three things that motivate people to do great work. He refers to them as autonomy, mastery, and purpose (see his TED talk or this super entertaining youtube video for more). In practice that means continually challenging employees and giving them new areas of responsibility. Let them run. That’s probably why they’re at a startup in the first place.

As good as the culture, environment, challenge, and intrinsic rewards are, however, compensation matters too. So don’t be stingy with equity for employees. These are the people who will be next to you building the value of the company. They have to stay four years to vest their equity anyway, and if that happens they will have grown the value of the business way more than their equity “cost.” It also makes your hires feel and act more like owners of the business which is a powerful incentive. Altman’s flipside to this is that you want to be as stingy as possible with equity for investors since for the most part they write a check and then disappear.

Firing

When it’s obvious that it’s not working with a hire, fire fast. This usually relates to three areas of underperformance:

  • They can’t do their job
  • They create office politics
  • They are always negative

People with these traits can be very toxic to your good producers and team. They can and will drag you down. Yet firing is hard. It’s a big decision with big ramifications for that person (and your company). It forces you to admit you probably made a mistake earlier. Many startups hold on too long hoping against hope that an employee will change. Usually they don’t. In an environment where momentum is everything, this can be a deadly sin of omission.

“You dont get to make their decisions but you do get to pick the decision makers.”

At this point the lecture shifts away from external hires and more towards what you, as a Founder and/or CEO, have to focus on in order for the company to be successful.

Execution

The hardest thing to do is execute well. Your idea can be great but in the end, it is all about execution. As one VC put it, “ideas are just a multiplier of execution.” He even ascribed a rough dollar calculation to compare the value of idea vs. execution.

The best way (perhaps the only way) to ensure your team executes at a high level is to execute at a high level yourself. As Altman puts it, this isn’t the most fun of being a Founder, but it’s probably the most important. In fact of the five CEO jobs he lists (see below), execution is the one that most people do not commonly ascribe to a CEO.

Startup CEO needs to Execute

 

So how you execute well?

Stay Focused

Lesson one is to stay extremely focused. Narrow is a good thing. In practice this means saying no a lot.

Second, you and your team need to set clear goals. As a CEO you need to communicate those goals, and you need to repeat them way more often than you think you is necessary. Again, this goes back to the notion that communication leads to optimal outcomes. The clearer the targets are the easier it is to knock them down. That also means you need to know when you are achieving the target and when you are falling short. In other words, measure everything. Stay accountable to metrics.

Work Hard

You also have to realize that a startup is incredibly time consuming and requires a lot of work. That means you have to be ready to outwork your competitors. Staying hungry by being small and being willing to outwork your competitors is probably your one key advantage as a startup. In fact, the saastr.com blog has a great post on how startup success can be predicated on staying focused on a small, narrow target and working hard over a long period of time that combines these last two points pretty well.

If that’s discouraging then you must always realize that a tiny bit of extra work applied in the right place can lead to tremendous results. You have to be really intense and maintain a relentless operating rhythm to cement speed as a competitive advantage. This has to come from you and your cofounders.

“Move Fast and Break Things”

This famous Facebook mantra indicates that it is often better to do something, anything, than to stagnate. So be decisive and have a bias towards action. This is a differentiator between good to great teams. Altman for one believes that mediocre founders have grand plans but never quite get there whereas “the best founders may focus on lots of small things, but every time you talk to [them]  they’ve gotten something new done.” At YC that single fact alone appears to be the best predictor of success.

Decisiveness is also an indicator of momentum. Growth is the lifeblood of a startup, so don’t stop. Don’t ever stop. Maintain your momentum. Get shit done.

If you do maintain all your energy internally–on yourself and your team–you have a far better chance of success than if you worry about external factors. As Henry Ford said:

competitor to be feared

 

 

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