Employee Promotions & The Peter Principle

Recently I made the following comment on a blog post:

I recall watching an interview with Bill Gates.  The interviewer asked him what was the biggest mistake he made when he was building Microsoft. Because I admire Bill Gates enormously, I was on the edge of my seat to hear his answer...

His answer: the biggest mistake he made was assuming that their best engineers would also make good managers.

Of course it's intuitive to promote the best tactical performers but given how often this fails I'm amazed at how companies -- big and small -- continue to use this approach.

A few days later, I came across a theory known as the "Peter Principle":

The "Peter Principle" states that in a hierarchy every employee tends to rise to his or her level of incompetence, meaning that employees tend to be promoted until they reach a position at which they cannot work competently.

It's easy to see how management allows this to happen in their organizations.  If someone performs well it's only logical that they go onto the next step in their career path.  But of course it's extremely dangerous for companies to operate with a bunch of employees that can't do their job well, much less competently.

The solution to this, I believe, it to shake up the old fashioned "career path culture" and build a culture that values the "do'er" and not the manager.  To promote this type of culture, companies should setup formal incentive systems that reward the employee without promoting them into management.  Incentives can include:

• Salary, bonus, equity increases
• Allow them to work on the coolest projects or largest accounts
• Allow them to work on exploratory or strategic projects
• Let them work side by side with senior management and/or the CEO
• Give them the best mentorship and training

Most cultures, especially in large companies, value the managers -- employees want to be "in management".  It's critical to setup values and formal systems that disrupt this type of culture to avoid mediocrity and the dangers of the Peter Principle.

Managing Email

I posted my approach to managing email in the comments of A VC the other day, thought I'd post it here as well.  I'd love to make the switch over to Gmail at some point, but right now it doesn't jibe well with my approach to emailing.

• using Outlook
• setup as many junk mail filters as possible so most email doesn't make it to my inbox in the first place
• go through my inbox every night and either delete, respond and delete or file it in a folder or leave it in the inbox to do later (often I don't get to every night but I do it at least a few times a week)
• this leaves me with an inbox full of important emails that I need to address at some point
• many of my colleagues keep thousands of emails in their inbox (important and unimportant), I don't know how people can manage it this way
• my strategy centers around good spam management and the "delete" button, I spend a lot of time deleting
• Gmail doesn't make sorting or deleting emails easy, you either have to check a small box with your mouse or use an awkward keyboard shortcut that is slow and unreliable
• in Outlook it's easy to sort emails by sender or subject line and it's easy select multiple emails to delete, and you can just hit your keyboard's "delete" button and they're gone 

Emailing is a pain but it's the best system we have, for now.  I've read that several companies have committed to phasing it out over the next few years.  That should drive some much needed innovation in the way we communicate at work.

So True

Saw this comment under Chris Dixon's post, The enterprise: buyers versus users.  His comment was in response to a commenter's theory that SAP is a mess internally. So true.

Beware of the Low Hanging Fruit

One of the most significant challenges that comes with the launch of a new initiative is knowing whether or not it truly has long term potential.  

To make this assessment even harder, when most initiatives launch there's always some low hanging fruit that can give you the perception that the initiative is working.  Smart engineers or good business people can usually prioritize the quick wins and grit their way to some success in the first few days or weeks of a launch.  But what's hard to evaluate is what will happen once all of that low hanging fruit has fallen off the tree.  A couple ways to help address this:

1. Ask each team member to create one perfect case study of success out of the initiative as fast as they can.  Rather than going out and getting 30 wins, ask them to get one win and dive into the detail.  Why did that win work?  What were the challenges in getting it there?  What might make this win different than others?  What might make it similar?   By diving into intense detail and building a case study on a winning opportunity, managers will be able to understand the strengths and challenges that they didn't know about at the beginning or can't see just by looking at results.  So often the true path to success lies in the detail.
2. Keep a simple to read and easy to update log of initiatives; include learnings (what worked/didn't) and results against your goal.  Use this log to set a benchmark for future initiatives.  Over time, this log will help you get a good feel for when the initiative has turned the corner on the low hanging fruit and is picking up steam or fizzling out.

Low hanging fruit is a good thing.  It can help build momentum and excitement around a new initiative and is often a great way to pick up insights that help a team move faster or prioritize more effectively.  But it can be a trap that leads to over-investment.  The simple steps above have helped me avoid that trap in the past.

Crisis Management Framework

Here's a very simple framework I use when dealing with a crisis at work.  The framework has worked well for me in the past.  Sometimes simply having a framework for dealing with an unexpected event can inspire confidence and help you get your clients and team focused on solutions.

1. What happened?
2. How did it happen?
3. What are we doing to fix?
4. How are we going to prevent it from happening again?  (include both short term solutions and long term solutions)

Missing Projections

Here's an interesting framework to use when considering why a group or company misses projections.  I'm sure it's not perfect, but it's interesting to think about it this way.

When you've missed goal by:

50% - Blame the strategy (it's way off)

20% - Blame the manager (you have an execution problem)

5% - Blame the team (they're either not paying attention or they're not accountable)

5 Ways to Grow Your Business

Here are 5 rules that I try to follow each day to help me stay focused on growth:

1. Train yourself to never blame your team, your boss, your product, your customers, your competitors or the market; this kind of perspective forces you to innovate.
2. If you're answering emails and returning phone calls all day you're not initiating.  Don't be satisfied for one second with an empty inbox.  Set aside time to initiate and create, on your own, every single day.
3. Always be a few steps ahead of your customers; satisfy them with the product they've bought, but spend most of your time leading them towards Version X.
4. The balance of getting results today but also building for the future is one of the biggest challenges you'll face.  Get comfortable with it, this never gets easy.
5. Separate what you do each day into two buckets: business as usual (BAU) and incremental growth (i.e. growth that comes from incremental work that you haven't done yet).  Focus 80% of your time on the latter.

Talk to Everyone

Over the last several weeks I've been lucky enough to talk with at least a dozen founders of web startups.  It's fun to hear their passion, ask them challenging questions and talk about where they see their products and companies going.  The thing that they all have in common is that they love to talk to about their businesses.  This is a key component of success in business.  Talk to everyone.  It reminds me of an experience I had earlier in my career. Several years ago when I was working with a biotechnology startup we we were looking for a commercial application for a diagnostic device that we were developing.  One of the promising applications was to measure levels of e. coli in meat.  We believed that we held a market advantage in two areas:

1. We could measure these organisms more accurately; specifically, we could reduce the number of false negatives (i.e. if the meat was tainted with e. coli, we were more likely to catch it)
2. Our tests were significantly quicker; they didn't require incubation, we could do a test in four hours versus the standard 10 hours

We flew out to Kansas to meet with a potential customer, a large meat processor.  We took a tour of their plant, talked to them about our product and everything seemed to be going great.  They were interested in the device, it seemed we had identified a pain point that we could address.

But that night, after a few drinks and a lot of steak, we began to hear a much different story.  It turned out that the beef companies were actually not interested in reducing the number of false negatives -- because it would increase the number of positive tests.  And when there are positive tests, they have to shut down the plant, send people home and clean the entire line.  This is extremely costly to them and they didn't want any more line stoppages than they already had.  This seemed counter-intuitive to us.  If the company let meat with e. coli out their doors and someone got sick, they'd be in big trouble.  Surely they were interested in more accurate testing, right?

Not exactly.  It came down to the law of small numbers.  From our contact's perspective, the odds that the e. coli in the meat would survive the ride to the distribution plant and then the ride to the supermarket and then the ride to a customer's home and then the 5 or 10 minutes on the customer's 500 degree grill was extremely unlikely.  Frankly, it wasn't a problem worth really worrying about.

Further, the time advantage we were excited about wasn't all that valuable either.  We learned that the plant works in 8 hour shifts, and as long as the meat was tested and ready for the next shift, 10 hours was fine with them.  Our time advantage was a 'nice to have' not a 'must have'.  And in order to truly win in this business, our product needed to be a 'must have'.  In short, by talking to the right guy, we found that we didn't have a market for our product.

The insight we gained from our trip to Kansas wasn't easy to get.  We had to fly out there and talk to a real insider, off the record, to determine that we didn't have an advantage.  And that's really the moral of this story...when you're working on a startup, talk to everyone that you possibly can.  Insiders, outsiders, friends, family, users, anyone that will listen.

You'll be amazed at how much you learn from bouncing ideas off of other people.  So often, businesspeople get burnt because they just don't know what they don't know.  Talking to everyone prevents you from getting burnt.

Business Review Agenda

Some colleagues have been asking me about the best format for a business review.  I thought I’d post my recommended agenda here:

1. Where Are We Now
   • High level overview of business
   • Metrics we track – Leading & Lagging
   • Actuals
   • What’s working/what’s not working
2. Where We Want To Be
   • Goals by week, month, quarter
   • Current gap to goal
3. How We’re Going To Get There
   • Initiatives
   • Pipelines
4. Why you should believe we can get there
   • Success Story (Case Study)
   • Proof Points
   • Qualitative Progress/Testimonials

The thinking here is that the person you’re presenting to wants to understand how you look at the business, how you’re doing, how you’re doing against goal, what your plan is to close the gap and, finally, some proof as to why they should believe in you.  Obviously, any smart manager will poke holes in each section and look for your weaknesses.  But generally speaking if you have a plan you believe in and can do each of these things well the meeting should go pretty smoothly.

Insulting Steve Jobs

I'm on a Steve Jobs kick lately; last week I wrote about how someday there may be statues of him all over the country. I came across this great video of him responding to an insult from someone in the audience at the 1997 Apple Developer Conference, just after he was renamed CEO.  If you listen closely, you'll notice that in his response he does far more than respond to the heckler.  He  lays out Apple's philosophy on product development that would fundamentally drive their outrageous success for the next 15 years.

Start with the consumer.  The consumer must drive the technology.  It's five minutes long but definitely worth watching.

[youtube http://www.youtube.com/watch?v=FF-tKLISfPE]

Statues of Steve Jobs

One of my management professors in business school once told my class that someday we'll see statues of Steve Jobs all over the United States.  

It was his view that Jobs literally saved the U.S. and its economy by recognizing the commercial potential of PARC's mouse-driven graphical user interface (GUI) back in the early eighties.  The invention of GUI led to the personal computer and put the U.S. in a position of power in the software and computing industry.  At a time when it seemed America was rapidly losing in every major industry (automobiles, electronics, manufacturing, etc.), winning in software and computing may be the reason the U.S. continues to be a global economic powerhouse (by most measures the list of the top software and technology companies is still dominated by American companies).

Regardless of whether he deserves the statues might be debatable, but his outrageous success as a businessman is not. The Economist had an article covering his resignation as CEO of Apple this week.  In it, they included a timeline of his career.  I pulled out a few examples and added some of my own to illustrate what an absolute business legend Jobs has been.  Amazing.

1976 - Co-founds Apple, launches first personal computer

1980 - Apple goes public

1984 - Launches Macintosh

1985 - Ousted as CEO after boardroom coup

1985 - Founds Pixar

1997 - Renamed Apple CEO

1998 - Launches iMac

1999 - Launches iBook

2001 - Opens first Apple Store

2001 - Launches iPod

2003 - Launches iTunes

2006 - Pixar sold to Disney for $7.4 billion

2007 - Launches iPhone

2010 - Launches iPad

2011 - Apple surpasses Exxon Mobil as most valuable company in the world

For more on Jobs, check out Jim Keenan's recent post that includes some of his favorite quotes on business. Some great stuff in there.

Disruption, Illustrated

I came across a two very neat examples of disruption over the past few weeks. The first is from Digital Music News and graphically depicts music distribution by medium since 1981, it's fascinating to watch cassettes and CDs grow exponentially and then disappear just as quickly.  Depending on your browser you may need to slide your mouse over the image to turn it on.

The second is from Chris Dixon's blog and illustrates recent disruption in the video game market.  Below are images of the instructions to play Angry Birds versus the most recent version of John Madden Football, arguably the most successful video game for the last ten years.

Over time the incumbent often builds complexity into its product to satisfy customers, to give them more.  But at the same time that complexity can leave new customers behind.  This creates the opportunity for a new entrant like Angry Birds to swoop in and provide a far more easy to use product for the majority of consumers.  At last check Angry Birds had sold more than 200 million downloads.

Angry Birds

Madden NFL 12