A Key Insight from Former Stitch Fix President
I had the chance to listen to Mike Smith, Cofounder and General Partner at Footwork, share his experience as an startup operator and new venture capital fund manager. Mike was one of the first five hires at Stitch Fix and helped that company scale to over $2 billion in annual revenue and have a successful IPO in 2017, when he was President and COO. He and his partner also raised a $175 million debut venture capital fund. And he was part of the team that helped build out Walmart.com. Mike has a wealth of experience and, obviously, has been part of some successful outcomes.
Mike shared a ton of great insights. One that he emphasized as important to his success was this: He’ll take less talent and more team. Mike believes that large outcomes are the result of a team effort. He wants to work with people who are good team members and willing to work hard, rather than genius individual contributors who create difficult team environments.
I enjoyed hearing Mike talk about his experiences and share this insight. I can’t wait to see what he builds at Footwork.
Maker’s Schedule vs. Manager’s Schedule
Y Combinator released a video entitled “How Future Billionaires Get Sh*t Done.” It’s a good one for founders. One of the things it touches on is time management. They reference a popular blog post Paul Graham wrote years ago titled “Maker’s Schedule, Manager’s Schedule.”
I like Paul’s characterization of a maker schedule versus a manager schedule. When you’re trying to do something hard, big blocks of uninterrupted time are critical. Any interruption, such as a meeting, can make the entire day unproductive. Half-day blocks make sense for people on a maker schedule. On the other hand, when you’re managing people, you meet a lot and work in thirty-minute or one-hour windows, stopping and starting often throughout the day.
When you’re an early-stage founder, you’ll have to do both. As a founder, switching between mental modes too often, I struggled before I eventually learned to use lunch as a natural separator. I was on a maker’s schedule before lunch and a manager’s schedule after.
Founders should consider the maker-versus-manager concept for themselves and their team. Getting people to understand it and adopt the right schedules can have a big impact on the company’s productivity!
Is Retaining Junior Talent Corporate America’s Latest Challenge?
I caught up with an old colleague recently. He’s in corporate America at one of the large accounting firms. I asked how things are going, and he said they’re having a hard time retaining junior team members. A few things he shared with me:
- Home – Many team members moved home during the pandemic. Most were single and wanted to be near family during a time when they couldn’t have their normal social life in Atlanta. They’ve enjoyed being around family more often, and instead of returning to Atlanta they found jobs in their hometowns and quit.
- Balance – Work–life balance is top of mind for junior employees. They want to do more than work crazy hours. They want a meaningful and fulfilling life and are willing to walk away from demanding jobs that make balance impossible.
- Interaction – Junior team members haven’t had as much time to establish meaningful relationships, and they want more in-person interaction than experienced team members do. This has made it easier for them to cut ties and pursue other opportunities.
The Great Resignation is a phenomenon that lots of companies are experiencing and trying to deal with. My former colleague’s experiences, while anecdotal, shed light on the question of what part of the workforce may be affected most. I’m curious to see if this trend continues and how employers will adjust to retain and attract junior talent.
Alignment: A Great Management Tool
An entrepreneurial friend told me about some early challenges at his company. The team wasn’t being efficient or consistent about completing work. This created at least two problems. First, the longer it took to complete the work, the less satisfied the customers were (and the less likely they were to refer other people to the company). Second, the longer each job took, the more it cost because employees were paid by the hour. After months of talking to his team, he found the solution.
He changed the compensation structure. He began compensating his team for completed jobs. The fewer jobs they completed, the less money they made. The more jobs they completed, the more they made. My friend noticed an immediate impact. His team’s productivity went through the roof. Over time, his team made more money and his business saw increased revenue and profit. Customer satisfaction increased too.
Keeping a team aligned is difficult. Everyone moving in different directions or moving at different speeds is stressful for the founders and could even sink the business. If everyone is moving in sync and in the same direction, the employees can have more autonomy and the business can reach new heights.
Compensate Fairly to Enhance Your Prospects for Success
I love talking to founders about their plan to assemble a team, especially the compensation part. It can be a leading indicator of what’s to come. I regularly speak with early founders who have a big vision for their companies but haven’t thought through team compensation.
Building something great takes a great team. Great team members want to be compensated for the value they bring, and rightfully so. Great people have options—if one company won’t pay them what they’re worth, someone else will. There are two ways to compensate people: cash and equity. If cash is readily available, then paying market salaries will make it possible for a founder to assemble a great team. If cash isn’t abundant, then a combination of cash and equity is typical. It allows the founder to hire more people with limited cash and lets employees have an ownership stake in the company. They get some cash now and benefit from the upside potential of the company if it does well.
If you’re looking to do great things, you need great people. If you don’t compensate people fairly, your chances of attracting a great talent plummet along with your likelihood of achieving your big vision.
Equity Compensation for Top Talent
One of the pivotal decisions I made at CCAW was to hire other high-level thinkers in critical areas. We hired people to lead operations, technology, and product. CCAW was bootstrapped, so we didn’t have tons of cash available to attract the caliber of talent we needed. After much thought and many discussions, I decided to offer some of them equity compensation in the form of stock options. If we achieved certain milestones, their equity compensation would vest and they would have the opportunity to own part of CCAW. This was a good way to align all our interests. We worked toward the same goals.
Equity compensation is a very powerful tool. It can help you land high-caliber talent you otherwise couldn’t afford. When I chose to offer it, I created an employee equity pool. This meant that a certain percentage of CCAW ownership was available for the company to use to compensate employees. Before that, I was the 100% owner of the company. After creating the equity pool, I owned less of the company. I was OK with that.
Founders who want to build big companies will likely need to compensate talent with equity (unless they have substantial cash with which to offer market-rate salaries). Founders who are considering the equity route should research how much equity compensation is appropriate for the stage of the company and the experience level of each candidate. Offer too little equity, and the candidate might reject your offer. Offer too much, and you may not have enough equity left to offer other critical hires.
Company equity is complicated, but it’s something founders should consider understanding sooner rather than later.
The Office Won’t Be the Same
I’ve been having conversations with friends who’ve returned to the office. I was curious to understand what they’re experiencing and how they feel about it. One friend summed up what I’ve been hearing: “There’s no way I can go back to doing five days, but one or two feels good.” Going back to pre-pandemic office life isn’t resonating with friends, but neither is no in-person interaction. Face time for certain situations and just to stay connected in general has value.
I know the return-to-the-office situation is fluid, but I’m interested in seeing how this plays out. My gut tells me that decisions made during this period are likely to shape how we work for the foreseeable future. We’re in a period of change that will have a lasting impact.
Measure What Matters and Share Those Metrics Team-wide
As CCAW scaled, I began noticing issues. We were growing so much and had so many things going on that it was hard for the team to keep up. And we weren’t measuring their workload. Generic questions like “How are things going?” weren’t cutting it. Then one day a complaint reached my desk, which meant it was already out of control. Digging in, I realized we’d taken on too much growth. We were stretching the team too thin. We’d hit an inflection point.
We reworked our processes and added to our team to ease the strain. We identified the three or so top metrics for each team. We systematized the metrics so they auto updated daily and added them to dashboards accessible to everyone. And we took it one step further and had our system email the dashboards to the entire team every morning.
This all made a big difference. Other leaders and I were able to recognize, based on data, when we were approaching inflection points. We made sure to stay ahead of them and not stretch our team again. Other interesting things also happened. Metrics improved across the board in every area. Our team was more self sufficient and required much less management. Our daily standups got shorter and everybody was crystal clear on what they needed to do. The dashboards were giving everyone clarity.
Those metrics and dashboards did wonders for us. They helped align everyone with what mattered most to the business. It was one thing to communicate orally and another for everything to be reinforced regularly with metrics.
Understanding what matters, measuring it, and sharing those metrics will help a company of any size. Even if it’s just a team of two!
Deciding What to Do with Challenging Team Members
Today I listened to an entrepreneur discuss how to manage a challenging team member. This founder is seasoned and has a great grasp on his business. But even with years of experience, human resource issues still consume lots of his time and energy. A few thoughts on this topic:
- CEO multiplier – By the time a human resource situation gets to the CEO’s desk, it’s usually many times worse than what’s being communicated. It’s probably been a concern longer than people are acknowledging.
- Culture – Is the person a culture fit? Rank them against your core values to find out. If the person isn’t a good fit but your core values don’t indicate that, it may be time to rethink your core values. Getting core values right and incorporating them into the hiring process is preventive maintenance.
- Time and energy – If one person consumes a ton of leadership or management time and energy, that’s a red flag. Every time I racked my brain about what to do with a particular team member, they ended up leaving despite my best efforts.
- Custom roles – It’s usually not a good idea to create a custom role to placate someone. It’s a temporary Band-Aid and a horrible example for the rest of the team.
- Coaching – Listening to a team member describe what they think they need can be a productive conversation. Sometimes it highlights diverging expectations or a mismatch between the professional development the person needs and what the company can offer. But other times it suggests simple changes that can get the relationship back on track.
All companies, regardless of size, contend with human resource problems. It’s an inevitable part of managing people. How you handle these situations is important—it speaks volumes about the company to both outsiders and your own people.
Lessons Learned from Outsourcing
I was asked about my experience using offshore talent today. The use case we discussed was specific, but I think the things I shared could be helpful to others considering something similar:
- Nearshore vs. offshore – I have experience nearshoring in Nicaragua and offshoring in a few countries, including the Philippines and Poland. Both worked well. Nearshore talent may better understand American culture and usually the time zone difference is insignificant. Some of our team members in Nicaragua had lived in the United States for extended periods. For these reasons, nearshoring is good for customer-facing roles like customer service.
- Execution – Outsourcing works only if you have processes and systems already in place. What you do and how you do it need to be well defined. If every operational situation is a one-off exception or figured out on the fly, your operations aren’t consistent and your processes are minimal. This might work for in-office hires who can learn on the job. But it will be extremely difficult, if not impossible, to train resources in another country how to execute up to your standards. Without processes and systems, you’re setting the team up for failure.
- Education – Talented people are available for nearshore and offshore work. I worked with some intelligent men and women who had advanced degrees. They can usually do whatever you want if you help them succeed with proper training. If you want more-qualified or more highly educated people, just ask. Usually, firms can accommodate this kind of request if you’re willing to compensate these individuals appropriately based on their qualifications.
- Consistency – Most nearshore and offshore workers and firms value consistency. If you can provide steady work, it will go a long way toward earning loyalty. If you plan to dial people up and down constantly, expect turnover and inconsistent execution.
- Hiring – I initially let outsourcing firms do the team selection, but that didn’t go well. We got some people who weren’t well suited to their roles, and turnover was a problem. I eventually let the firms offer up candidates whom we would interview. The caliber of talent the firms offered went up. (I assume they had a better understanding of our standards.) I suggest sticking with your usual hiring process (with modifications) when you outsource. Misfires are time-consuming and costly with outsourcing, just like they are when you hire locally. Take the time to interview candidates and say no to bad fits.
I hope some of you find these points—which I learned through trial and error—useful. Tons of firms can assist with outsourcing and lots of information is available online. Outsourcing isn’t a silver bullet, but it can be helpful in scaling functions that have defined processes