Microsoft Didn’t Stand a Chance
In 1989, WordPerfect had over 40% of the word processing market share; Microsoft Word had less than 20%. At that time, Lotus had 70% of the spreadsheet market and Microsoft 10%.
Today, Lotus 1-2-3 is a discontinued product, and WordPerfect is a niche player with less than 15% market share.
Why do Microsoft Word and Excel now dominate the desktop application market rather than WordPerfect and Lotus? You could list a myriad of strategic, market, and technical factors that played out over the years. But there’s a straightforward explanation: Microsoft hired brighter, more talented, more aggressive people than WordPerfect and Lotus.
In the Intellectual Property world, intellect wins. Simply put, who you hire is the most important decision you make.
The Most Important Decision We Make
If you don’t believe in the mantra, “who we hire is the most important decision we make”, perhaps you’re in an industry where human capital is not paramount. For example, the IQ of chicken processing line workers is much less important than their ability to show up regularly for work.
For intellectual property-focused organizations, the benefits of hiring the best people in the market are not a new concept. And while virtually every CEO talks about hiring great employees, many organizations do not appreciate the advantage of recruiting extraordinary talent.
Identifying the companies that focus on hiring great people is easy; just start listing the most successful companies in the world: Amazon, Goldman Sachs, Tesla, Cravath Swaine & Moore, Microsoft, McKinsey & Co.
Given the obvious benefits of hiring the best, why don’t all Intellectual Property-focused companies operate with this philosophy? Because finding and hiring the best people is hard work. You have to sift through lots of dirt to find diamonds. As I often tell our employees, “It’s so easy to just be average.”
If you accept that hiring is your most important decision, the next question is, “what attributes do you evaluate to make great hiring decisions?”
Over the years, my teams and I worked to identify common traits of our most valuable employees. After much thought and analysis, we identified three traits for which we could screen:
Intelligence
Sense of Urgency
Integrity
IQ Wins
In 1905, a thousand very bright physics majors working in conjunction could not develop the Theory of Special Relativity. But one genius Swiss patent office assistant examiner could and did.
You can’t win in the Intellectual Property market by amassing many people with average intelligence. IQ is not additive.
When Intellectual Property (IP) is the company’s primary asset, it’s not surprising that the company with the most intellect usually wins. A Harvard Business School article stated, “Yes, it’s nice when a leader is charismatic and confident, and a great résumé can tell you a lot about a person’s knowledge and experience. But such assets are no substitute for sheer business intelligence, and they reveal very little about the leader’s ability to get to the truth of the matter.”
It’s not just leaders and it’s not only “business intelligence”; it applies to everyone, and it’s simply Intelligence.
The importance of intelligence might seem obvious, but recruiting based on IQ often breaks down because:
people believe that you can’t measure intelligence (you can)
people feel uncomfortable with the concept of discriminating based on IQ (you shouldn’t)
people believe that other factors are more important than intelligence (they aren’t)
But IQ Isn’t Everything
Obviously, there are many brilliant people who aren’t productive or successful. That’s why our other two traits matter. The people you hire need a Sense of Urgency to get things done. A candidate’s history and behavior during the recruiting process can tell you a lot about their drive to get things done.
Finally, great employees have Integrity. The above HBS quote includes the phrase “ability to get to the truth of the matter.” While the reference is to Intelligence, also important is Integrity or, more specifically, intellectual honesty. Intellectual honesty requires resisting conformity and having the willingness to be professionally confrontational (especially hard when not dealing with peers). It demands that people drop legacy biases and refuse to conform to misguided political correctness. Embracing the importance of Integrity facilitates recognizing, admitting, and correcting failures. It also creates a culture of trust.
The Virtuous Circle
“Steve Jobs has a saying that A players hire A players; B players hire C players; and C players hire D players. It doesn’t take long to get to Z players. This trickle-down effect causes bozo explosions in companies.” –Guy Kawasaki
In the early 1990s, I heard an interview where Warren Buffett was asked, “What do you like best about being one of the richest people in the world?” Without hesitation, Buffett responded, “I don’t have to work with people I don’t want to work with.” Once I began hiring for my first start-up, I fully grasped the implications of Buffett’s response.
The perspective that you only need people who are “good enough” for the company’s various roles results in mediocracy. Smart, productive people detest working with the “loads.” And once this unvirtuous feedback loop is institutionalized, it’s hard to break the cycle.
In contrast, hiring great people creates a virtuous feedback loop that builds great companies. More to the point, smart, productive people like working with other smart, productive people.
Countless times, people said that they accepted our offer not because our compensation was the best or because they were in love with our products. Instead, they joined because they wanted to work with the intelligent, creative, high-energy people they met while interviewing.
Vision - Why it matters
In early 1995, I traveled from Connecticut to Silicon Valley to meet with prospects, clients, and partners. Bristol Technology, the software tools company that I’d co-founded, was rapidly growing and wildly profitable. I had another reason for making the trip. Although we were a private, self-funded company, I wanted to add an external board director who could provide an outside perspective.
Pure Software, a fast-growing fellow software tools company, and Bristol were customers of each other. Pure was founded a year before us, and we copied many of their marketing programs (we were always stalking other companies for good sales and marketing ideas).
Reed Hastings, Pure’s founder and CEO, was preparing for an IPO (years later, he founded Netflix). Reed asked if I would consider merging with Pure prior to their IPO. I responded that I preferred to continue our own trajectory (in hindsight, perhaps not one of my best business decisions), but I would like to have him on my board. Reed replied that Pure’s pending IPO didn’t leave him with the bandwidth, but he recommended I consider his VP of Engineering, Aki Fujimura.
Aki served as a valuable board member for over ten years. But perhaps the best thing he ever did was recommend that we all read Beyond Entrepreneurship by James Collins. This book provided a great framework for setting company vision, and it helped us solidify ideas we’d been formulating.
As defined by Collins, Vision = Core Values + Purpose + Mission
Core Values are the ether that permeates an organization – its decisions, its policies, its actions – throughout all phases of its evolution. At Bristol Technology, our core values were:
Show respect for fellow Bristolites
Create a superior working environment
Spend company money like it’s your own (i.e., don’t waste money)
Attack and dominate the competition
We didn’t define these core values to reflect whom we’d like to be. Instead, we recognized that they were always a part of the company. For good or bad, they were part of our DNA.
Purpose is the fundamental reason for an organization’s existence. A crucial aspect of Purpose is that it’s always worked towards but never fully achieved (like pursuing a guiding star). A favorite example of Purpose is from Schlage Lock Company - “To make the world more secure.”
Mission is a clear and compelling overall goal that is the focal point of effort. Unlike Purpose, the Mission has a clear finish line and specific timeframe (usually 12-24 months); once completed, a new mission is set. Collins says that missions fall into four groups:
Targeting (“we want to be the largest company in our space within three years”)
Common Enemy (Pepsi’s mission to beat Coke)
Role Model (“we want to be the Google for the AI market”)
Internal Transformation (GE once stated that its mission was to become more like a small company)
At Bristol, our Missions often centered around Common Enemy (not surprising when we had a Core Value of “attack and dominate the competition”).
Having a clearly defined Vision enables us to quickly make strategically aligned decisions, versus reverting to directionless tactics, as many companies do. It conveys that we understand who we are and enables prospective employees to determine their fit with our culture.
Articulating a Vision is essential to attracting top talent. Candidates will instinctively understand when Vision is not present, and they’ll move on to a better opportunity.
Building The Talent Machine
The primary asset of an IP-focused company is people. Sure, clients pay for your IP, but without human talent, there is no IP. Besides, innovation is a fleeting asset; today’s cutting-edge IP is in tomorrow’s innovation graveyard.
Recruiting Never Stops
Companies often have periods of not hiring; however, recruiting should never stop. Recruiting only when you have open positions will result in “settling” for the best candidate immediately available. Your Talent Machine must run 24/7.
The Talent Mines
When notorious bank robber Willie Sutton was asked why he robs banks, he replied, “Because that’s where the money is.” When it comes to finding human talent, Sutton’s Law applies to elite colleges and universities.
Top Echelon of Colleges and Universities
The top Talent mines are the upper echelon of universities. “Sense of Urgency” and “Integrity” are more evenly dispersed across the population, whereas high IQ is concentrated in a small number of colleges and universities.
That’s not to say there aren’t smart, even brilliant, students at other colleges. Clearly, there are talented individuals spread across a spectrum of higher learning. However, the top colleges and universities have a vastly higher density of talent. That higher talent density makes recruiting at those institutions far more efficient. How many schools fall into that upper category? That’s debatable, but I’d argue less than 150 in the U.S.
Successful, high-growth companies need both entry-level and experienced talent to ensure success. However, it is entry-level talent that builds the foundation for long-term success.
Why can’t you build the foundation by hiring only people with experience? Most companies (all successful companies) make an effort to retain their top talent. They pay high performers well, recognize their achievements, and promote them to higher positions. Pulling those top performers away from their company is exceedingly difficult and expensive.
H1B is Gold
Within universities, a rich vein of talent is foreign grad students. Employers willing to invest the added effort and costs of pursuing H1B students are rewarded with some of the world’s best talent. It’s an advantage that has greatly benefitted U.S. employers over the past three decades.
HR’s Role
Traditionally, the Human Resource Department has two distinct responsibilities: (1) managing employee benefits (payroll, insurance, etc.) and (2) recruiting. Functionally, this is the equivalent of putting accounting and sales in the same department. Recruiting is Sales. The cadence, skills, and approach are much closer to what your salespeople are doing.
One of the biggest mistakes you can make is viewing recruiting as an HR function. If you accept the mantra “who we hire is the most important decision we make”, then that decision shouldn’t be relegated to the HR department. A great HR team facilitates your recruiting process; it should not drive it. Hiring managers and executives are responsible for driving recruitment and should be held accountable for carrying out this most critical activity.
Always Be Selling
Before further discussing the recruiting process, a word of caution on screening and recruiting is important. Most people think the interview process is only to determine who warrants a job offer. However, at some point, the great candidates are identified, and the relationship will flip from “Why should I hire you?” to “How can I convince you to work here?” You will move from acting like the Buyer to being the Seller.
Make sure your employees recognize the interview process serves two purposes: (1) screening for talent and (2) convincing that talent to join your company. If your employees behave like cocky Buyers throughout the process, it can create resentment and sour the candidate’s recruiting experience. At some point, you will have to morph into the Seller.
The best answer to this dilemma is always be selling. Stress that each process step should be respectful, empathetic, and sensitive to how your organization is coming across to potential candidates. Everyone should assume that within hours, days, or weeks, they will be trying to convince these candidates to become colleagues. Obviously, you won’t make an offer to everyone you interview, but in the end, you can make that decision and convey that you’re not extending an offer.
The Screens
Mining diamonds is hard work. So is recruiting.
Recruiting is labor intensive and sifting through mounds of resumes quickly becomes monotonous. I’d like to say, “here’s our secret to making it fun, exciting, and easy,” but I don’t have a magic formula. However, you can make the process vastly more efficient and productive.
One of the most important tasks is creating your screens. Without a systematic approach, your organization will quickly bog down in a morass of candidates. In turn, hiring managers will feel overwhelmed and make poor decisions just to complete their hiring tasks.
My teams implemented an effective set of five screens that greatly enhanced our recruiting process. Those screens are:
College - For those out of college for less than a year, we focus on the selectivity of the college, their major, and grades (we require a copy of their college transcript). For those out of college for more than two years, we focus on experience, college, major, and, to a lesser extent, grades. We leveraged university selectivity to improve our recruiting results. The balancing act is to not miss the gems from less selective colleges while recognizing that the elite schools have a higher density of superstars.
Email Questions - We email initial questions to the candidates. These primarily center around functional questions such as, “When can you do a phone interview? When are you available to start? Do you require visa sponsorship?” We are interested in the answers to the questions, but it also allows us to screen out people who don’t promptly respond to the questions.
Phone Interview – A 30-minute phone interview helps to quickly eliminate people with poor communication skills and a few technical questions weed out people who lack the basic skills we seek; thus avoiding an expensive on-site interview. At this point, we want candidates who begin driving the process versus being reactive. (Sense of Urgency)
On-site interview – We, with rare exceptions, always require an onsite interview, even when that entails the expense of flying the person in for an overnight visit. There’s no substitute for in-person, onsite interviews.
Reference checks – I’ve had people say, “Reference checks are useless; no one ever provides a bad reference.” That is simply not true. Numerous times, a provided reference has said, “I cannot provide this person a positive reference.” Admittedly, negative references are usually much more nuanced. When asked where they would rank the candidate against peers, many people will say “average.” Probing a bit can yield more information about the candidate’s Intelligence, Sense of Urgency, and Integrity. The best reference is along the lines, “I would hire this person in a second. You’ll be lucky if you can get them.”
On-site Interview
The onsite interview provides the interviewing team an opportunity to evaluate the candidate, and, equally important, it provides the candidate an opportunity to experience the office culture. Today, many companies have a much higher percentage of remote employees (presenting different challenges). Unfortunately, video conference interviewing can never replicate the value of in-person interviewing.
Over time, we developed the following guidelines and structure around the onsite interview:
Show excitement about your work, your colleagues, the company, and about the candidates being there! No one wants to envision themselves as a cog in the machine (at least no one we want to hire).
Whenever possible, have multiple candidates onsite on the same day. We find this is more productive in scheduling and coordinating, it allows the candidates to appreciate the quality of people we recruit, and it allows us to have an immediate head-to-head comparison. That said, there were times we’d have three candidates and make offers to all three.
Have a clear schedule in place. First, this demonstrates to the candidates that you take the process seriously. Second, understanding the schedule helps candidates relax and enjoy the day. Third, our schedule ensures that everyone understands the purpose of each interview session. Conversely, having a series of interviews in which each person repeats the same questions is boring and portrays the company as aimless and lazy.
Our onsite schedule is based on five sessions, each with a specific purpose:
Opening – someone from either HR or (preferably) an executive will welcome the person (or people), provide an overview of the company, review the schedule with them, and answer initial questions. (Note, for candidates who were in town the night before an interview, we have someone take them to dinner.)
Technical Interview is a role-specific interview that covers the basic knowledge we expect from the candidate. If for a software developer, it entails programming-related questions. An accountant can expect accounting and finance questions. In the case of programming skills, we don’t focus on technologically specific questions (e.g., how good is your knowledge of C++), but more broadly on computer science foundation since the specific programming language we use will evolve over time. We prefer to have two people conduct Technical Interviews.
Problem Solving is an IQ test. We have a series of questions, such as, “If you were naked in the middle of a frictionless table, how would you get off?” We are interested in a person’s problem-solving approach, including did they ask clarification questions. And most importantly, did they enjoy the challenge or did they easily give up? We consider Problem Solving as the most valuable session. We prefer to have two people conduct Problem Solving Interviews.
Demo Session is a technology showcase to help the candidates better understand what we do, allow them to ask questions, and (hopefully) create excitement about the work ahead.
General Closing Session is an opportunity to gauge the person’s interest and excitement about the company and to continue selling the benefits of working there. It’s also the chance to ascertain the decision drivers for the candidate. I often ask, “If you have three offers to pick between next week, what are the three most important considerations for you in making a decision?” Understanding those factors raised our ability to close the sale.
Very Important: At the end of the onsite interview, we require that all interviewers provide candidate feedback via a Google form; that feedback flows to the hiring manager. Cardinal Rule: No one is allowed to discuss the candidate before providing their feedback. You don’t want groupthink, and you don’t want a few strong personalities distorting the process.
Throughout the screening process, I search for proactive candidates (it’s a good indication of their Sense of Urgency). I greatly favor candidates helping to drive the process and being responsive to communication. If they are passive in getting a job offer, they are likely passive in performing their job.
The Most Expensive People are the Cheapest
“Andrew Carnegie shrewdly noted that the most expensive labor is the only kind worth hiring because its high productivity, in a free market, is the cause of its high price.” –The Vital Few by Jonathan Hughes
I once discussed an incredibly valuable engineer with our CTO and stated that the engineer likely generated over $1 million in annual value. However, we only had to pay him a premium over what anyone else in the market would pay him (it was a huge premium), which was still only a fraction of his value to the company.
For many companies, controlling employee costs is paramount. But employee costs are only one side of the equation; just as important is employee output.
In accounting speak, all employees fall on a spectrum of expense and asset. Positions that require little skill and with a large pool of potential employees have more of an expense characteristic. Reducing what you pay for these employees results in higher profits.
However, for IP-focused companies, those where the company’s value is primarily human capital, people are the wealth generators. If you are hiring the right people, the value of their output should dwarf their costs. Reducing what you pay for these IP-generating employees can result in lower profits.
In terms of expense, intelligent employees with a high sense of urgency also have a cost advantage because they require less oversight and micro-management, thus reducing the necessary management overhead.
Closing the Sale
As mentioned above, recruiting is Sales. Successful recruiting requires the same approach as successful product sales: a clear value proposition, an understanding of your target market, a strategy for reaching your target market, and a well-understood sales method.
Time Kills All Deals! Keep the process moving and make decisions quickly. Remember, the top candidates are inevitably being recruited by other people. Have confidence in your process and once you identify a great candidate, get an offer to them as quickly as possible.
Differentiate your offer and convey that you view the candidate as a talented individual and not just another position to fill. For example, we call candidates and tell them that we are extending an offer (often within 24 hours of the interview) and let them know they’ll receive a hard copy via FedEx.
Our offer includes not only the signed offer letter and other paperwork but it is also inside a company leather folder (often with a company tee shirt). Having a candidate fly in, spend the night, and then consume a day of interviewing could cost thousands of dollars. Why not spend an extra $100 to differentiate the offer?
Finally, as with any good salesperson, we don’t throw the offer over the wall, sit back, and passively wait for a response. We remain in contact with the candidate, answering any questions, addressing their decision drivers, and conveying our genuine desire to have them join our team.
You got them, now to keep Them
You’ve gone through all this work to attract the best of the best, now the trick is to keep them. If you have honestly conveyed the company’s core values, you have a good start since the fit should be good. I prioritize the long-term welfare of the individual above the “company.” That includes congratulating them if they land a great opportunity elsewhere. Short-term, losing a key contributor at a critical time can be painful. But over time, the benefit of focusing on what is best for the individual greatly benefits the company.
That Elusive Fourth Trait
“Out of every one hundred men, ten shouldn’t even be there, eighty are just targets, nine are the real fighters, and we are lucky to have them, for they make the battle. Ah, but the one, one is a warrior, and he will bring the others back.”
We covered using Intelligence, Sense of Urgency, and Integrity as the traits we’re evaluating during the interview process to find the real fighters. Another trait we observed in those rare employees that we considered superstars was Entrepreneurship. This was a small group of our talented population who could see and exploit new opportunities.
We could never figure out how to evaluate entrepreneurship in an interview process, especially for new grads. However, we learned that you could observe it over time, and we always look for those rare few.
When the “Keepers” leave
Smart, ambitious people are always looking for new challenges and opportunities. Especially for people without a lot of experience, the grass on the other side can look bright green (and sometimes it really is greener).
When your great employees leave, as hard as it may be, stay positive and let them know the door is open for a return. They might not return, but they could join you years later in your next endeavor. Be a talent collector by maintaining a positive relationship and a long-term view, even when it’s painful in the short term.
Remember, how you treat departing people conveys to everyone else how much you care about them as individuals versus only being concerned about them as employees.
But Mistakes Do Happen
No matter how good your recruiting process is, you will occasionally select people that you eventually regret hiring. My experience is that of the three traits, the one we misread most often is Sense of Urgency. Once you’ve attempted to address any issues and realize that it’s not going to work out, move quickly to correct the mistake.
No one likes firing people. By the time you’ve decided to fire someone, the rest of the company (especially that person’s peers) have likely reached the same conclusion. As long as you make the right decision and treat the person with respect, their colleagues will concur. Correcting a bad fit is good for both the company and the person.
This brings up a cardinal rule – never demote someone. As mentioned above, no one likes firing people. Some people try to avoid unpleasantness by demoting the person. In all my years of business, I’ve never met a motivated, demoted person. (I don’t count people who have voluntarily moved into a lower-level role.)
Wrap-up
Building an organization of highly talented people is ongoing hard work. But the commercial benefits more than justify the effort. On a personal level, the joy of being part of a talented team with a shared Vision is divine.
Build your Talent Machine, create the virtuous loop, and significantly increase the chances of achieving that Vision.