Keith
Rabois has helped build some of the most important companies in Silicon
Valley including PayPal, LinkedIn and Square. In this session from First Round Capital CEO Summit 2013,
Rabois shares what he believes the role of a COO is, how to find the
best talent and convince them to join your company and why radical
transparency matters. The article below is not a transcript of Rabois’
talk, but rather an interpretation. To hear his talk in full, watch the
video at the bottom of the page.
The job of a chief operating officer
During Keith Rabois’
first week at Square, Jack Dorsey asked him to deliver a speech to the
company about what exactly he would be doing as the chief operating
officer. Square was just 20 employees at the time, so it wasn’t clear
what a COO would or could do for such a small company.
While crafting what
he would say to the team, Rabois developed a simple metaphor for the
role of a COO at an early-stage company: an emergency room doctor. Just
like in the ER, there’s always something broken at a start-up, it’s
incessantly chaotic. There can be issues that seem to be just a cold,
but they can actually be fatal if you don’t address and fix them early
on. Also, there can be other kinds of issues that seem to be serious,
but in actuality they’re just everyday colds and they’ll clear up on
their own.
The same types of
situations exist on the pure business side at any startup. There are
opportunities that may look really interesting and potentially
compelling for the business, but they’re really just a distraction.
Conversely, there are things that look like a distraction, but they
could actually turn out to be really important and just might be gems.
The hard part of scaling is how to figure out those things and to find
the truth in all of it — that’s the job of the COO. You’re constantly
fixing things. You assess a problem or opportunity, fix it, put
concrete down, leave it stable, then go on to the next thing. Then,
over time, if you lay a foundation and everything’s fixed, you can build
on top of it.
Hiring the best — barrels and ammunition
Getting leverage as
an entrepreneur is all about hiring the right people. That sounds easy,
but it’s actually really, really hard.
At the very first board meeting Vinod Khosla attended he said, “Ultimately, the team you build is the company you build.”
At a startup you can often be tricked into thinking you’re building a technology company and so you focus a lot on the product, but ultimately what you’re really building is a team to build the product and then the company.
It is the team
you build that will dictate the outcome. This belief should lead you
to focus more on the quality of the people than anything else.
If you think about
people, there are two categories of high-quality people: there is the
ammunition, and then there are the barrels. You can add all the
ammunition you want, but if you have only five barrels in your company,
you can literally do only five things simultaneously. If you add one
more barrel, you can now do six things simultaneously. If you add
another one, you can do seven, and so on. Finding those barrels that
you can shoot through — someone who can take an idea from conception to
live and it’s almost perfect — are incredibly difficult to find. This
kind of person can pull people with them. They can charge up the
hill. They can motivate their team, and they can edit themselves
autonomously. Whenever you find a barrel, you should hire them
instantly, regardless of whether you have money for them or whether you
have a role for them. Just close them.
In addition to trying
to hire all the barrels you can, at a start-up every marginal person you
hire should be relentlessly resourceful. There are people who are just
better than others at getting things done, and those are the kind of
people you need in large numbers early on.
If you can build a
team that’s barrel-heavy and is relentlessly resourceful, your job as
the leader of a company is really to just be the editor — a concept that
Jack Dorsey has now made mainstream. Every time you do something, you
should think, “Am I writing or am I editing?” You should be able to
tell the difference immediately. It’s okay to write once in a while,
but if you’re writing on a consistent basis in marketing, or in legal,
or in product, or business development, or whatever the case is, there’s
a fundamental problem with that team. Get into a position where you
are editing all the time.
The analogy of an
editor is great, because what an editor does is not the work
product. Think about a reporter. The reporter writes the story. The
editor may ask clarifying questions. The editor may simplify and
extract things, edit things out or leave things in, or occasionally
reorganize things that require follow-up. But, fundamentally, editing
is the role.
Diversity in hiring: Good or bad?
Ideally at a start-up you want to hire people who share first principles; for example, do they believe in closed ecosystems (i.e. Apple) vs. open (i.e. Google), or vertical integration vs. horizontal integration. If you don’t agree on these basic building blocks, you wind up getting into infinite loop arguments that impede execution.
Once you have
people who agree on these first principles, then diversity in thought
and background can create a lot of value – and it’s probably worth
optimizing around.
When Rabois was
building PayPal, they took this mentality to the extreme. It was
basically impossible to get a job unless you knew somebody currently
working at PayPal. They just hired out of their own networks, which
ended up working really well because they were able to tap into people
who were a little eclectic, idiosyncratic and slightly different – who
were the perfect fit for PayPal.
How to win talent
When most people think
about hiring, they often say (using a baseball analogy), “I would love
to hire a third baseman who bats 320, hits 40 home runs, 120 RBIs and
won a gold glove.” Truthfully, there are two people out there who have
done that, and everyone knows who those people are. If you think you’re
going to hire them in the early stages, you’re just kidding yourself.
You’ve got to define what talent looks like for your company in a way
that you can actually execute against and make it happen. For Rabois
this means you often hire people who are a little less proven and take a
chance on them. If you think someone could one day bat a 320 (maybe in
a few years) but just hasn’t had the chance yet, hire that person
because once they do bat 320 you probably won’t be able to.
At Square, Rabois did
this via a large intern class. Their last intern class was about 17,
and the top four interns were probably on par with the top 10-20 percent
of Square’s full-time employees. Those were a group of incredible
players who just haven’t had the chance to bat 320, but most likely will
in the near future.
The one obvious
challenge with this approach is that you need to become really good at
identifying undiscovered talent. However, there are a few leading
indicators which Keith has found to work incredibly well:
- The candidate can relay incredibly complex ideas in simple terms.
- The candidate can see things you don’t see. Even within topics you’re fluent in, they’re able to convince you of new points of view or make you realize you’re missing something.
- They’re relentlessly resourceful. There should be things in their history, whether it’s on or off the résumé, which conveys that they’re able to make things happen, against all odds. If there is a wall in their way, they’ll go over it, under it or become friends with it. They just make things happen and leave you wowed. Any time you have that “Wow!” kind of feeling you need to just hire the person.
- They’re often contrarian. Peter Thiel now has a popularized way of figuring this out. He asks, “Explain something that you believe, that everybody else believes is wrong.”
Who should lead the team?
At PayPal Peter Thiel
had a philosophy about managers: essentially he didn’t believe in
them. He didn’t place any value on people who were traditional
managers. His real belief structure was that whoever is best at a
particular discipline should run that discipline. So, whoever is the
best product person should run product, whoever is best in engineering
should run engineering, whoever is the best businessperson should run
the business, etc. What this means is that you actually have a
merit-acquired culture. You don’t frustrate junior people because they
know that the person leading them is better at their job than they
are. That said, there are a number of situations where this methodology
can break down. The actual skill of management can be challenging and
isn’t intuitive for everyone – so you might wind up with an incredible
engineer from a technical standpoint who struggles with managing people.
How to evaluate your team’s performance
In a broader sense,
you can often figure out if your team is functioning well depending on
where they are relative to where they’re supposed to be. This might
seem obvious, but if you have a team that’s 6 months to 1 year behind
where they’re supposed to be, you have a huge problem. If they’re just
in time, and they’re exactly where they’re supposed to be, then you’re
doing okay. But if your team is 6 to 12 months ahead of where they’re
supposed to be, you know you have a team that’s running on all
cylinders—and you should be constantly searching for this kind of
execution. Simply ask yourself, “Is the team behind, just in time, or
ahead?”
Why real transparency matters
In the early days of
Square, transparency across the organization was taken for granted. It
just seemed obvious to both Dorsey and Rabois that is how you build a
well-functioning company—you make it incredibly
transparent. Ultimately, if you want people to make smart decisions,
they need context and all available information. And certainly if you
want people to make the same decisions that you would make, but in a
more scalable way, you have to give them the same information you
have. Complete information also helps reduce the politics in an
organization, as one of the key drivers of politics in an organization
is information asymmetry.
At Square everyone has
access to all available information. Dashboards are distributed
throughout the organization. All of the conference rooms are designed
with glass, so there are no secret meetings. In addition, every Friday
there is a full company meeting for an hour, and the most recent board
deck is reviewed slide by slide. The only things removed are salary and
option information, but Rabois has often wondered if it would be a more
effective company if that information were to be shared too.
When Square raised
capital in the past, they talked to the company in advance of the
fundraising process to share the terms they wanted, who they were
talking to, and if they got a term sheet (even if it wasn’t
signed). Even during the negotiation of the highly secretive Starbucks
partnership, the hundreds of Square employees were kept in the loop
throughout the entire process. Howard Schultz came for an all-day
meeting with the leadership team at Square on a Friday and, that
evening, long before the partnership was signed and announced, Dorsey
came on stage with a big Starbucks logo in the background and shared
that they were working on structuring a partnership. This kind of
transparency builds a true ownership mentality and instills trust across
the organization. Ownership at companies is now almost a cliché, but
if you really believe in it then you need to live it and share
everything possible with as many members of your team as you can.
Most opponents to true
transparency argue that you can’t trust everyone in the organization
with highly sensitive information. In Square’s early days, Dorsey
shared with the team his desire to create radical transparency and told
them this would be a privilege, and that they would be able to do it
only as long as everyone respects confidentiality. He continually has
everyone make the commitment to each other and all of their families as
he believes that their future livelihoods depend on it. So, if anyone
does anything stupid, they’re actually threatening their friends, their
family and everything they’ve worked for.
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