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Matt Mochary: The Great Ceo Within, the tactical guide to company building

Founders

There are many reasons to create a company, but only one good one: to deeply understand real customers and their problem, and then solve that problem. Solo founders have high rates of burnout. The emotional burden is just too high. Owning much of something is better than owning 100 percent of nothing. Find a partner, someone who has complementary skills to yours. And when you do find a partner, avoid one cardinal mistake: do not create a 50/50 partnership. In all of this, there is a big exception. If you have done this before, have the majority of skills (technical, social, financial) needed to start a company, and are a masochist, then by all means, begin on your own.

Founding teams should never grow beyond six until there is true product – market fit. Product – market fit (PMF) is the milestone of having created a product that customers are finding so much value in that they are willing to both buy it (after their test phase) and recommend it. Metrics that show whether PMF has been achieved include revenue, renewal rates, and Net Promoter Score. For a B2B company, it’s hard to imagine PMF at anything less than $ 1 million in annual recurring revenue. Why not grow beyond six team members before reaching PMF? Three main reasons: morale, communication and organization, and speed. Until PMF is achieved, the company must have an appropriate morale to be able to adapt to negative customer feedback and potentially pivot the company.

Once your team grows large enough to not be able to sit next to one another in one room then suddenly information sharing by osmosis disappears. Prototype code is meant only to create a prototype. It is not meant to handle many users, nor be easily understood by those who didn’t write it. The reality is that your first product should always be viewed as a prototype.

Startups don’t usually fail because they grow too late. They usually fail because they grow too early

Great companies are made up of great individual performers who work well together as a team. As CEO, you are both the architect of the culture and the central hub in the wheel of information flow that enables the team to function effectively.

Greg McKeown, who wrote a phenomenal book on productivity called Essentialism: The Disciplined Pursuit of Less, boils this down to one key concept: Schedule two hours each day (put an event in your calendar) to work on your top goal only. And do this every single workday. Period.

There is no winning scenario when you waste someone’s time. It is only critical to let the other members of the meeting know that you will be late as soon as you realize that you will be. In addition to being on time, you must also be present. Being present means that you are composed, prepared and focused on the subject matter.

Whenever you find yourself saying something for a second time (to a second audience or in a second situation), it is highly likely that you will end up saying it again and again in the future. To vastly improve the quality of the communication and reduce the amount of time that you spend communicating the information, write it down.

Using a trigger allows you to easily create a habit. Life and company building don’t have to be hard or painful. Daily gratitude helps us realize that. Just as with gratitude, giving appreciation should be as specific as possible. And when receiving appreciation, there is only one correct response: “Thank you.”

It is important to maximize your energy. You perform best when you are doing things that energize you. Keep doing energy audit each month until 75 percent or more of your time is spent doing things that give you energy.

There are four zones:

  • Zone of Incompetence
  • Zone of Competence
  • Zone of Excellence
  • Zone of Genius

Tasks in the Zone of Incompetence are the things that other people probably do better than you. Tasks in the Zone of Competence are the things that you do just fine, but others are as good as you. Tasks in the Zone of Excellence are the things that you are excellent. Tasks in the Zone of Genius are the things that you are uniquely good at in the world and that you love to do.

Founders with a deep love of programming often struggle to focus on other areas of the business. At zero to fifteen people, author wouldn’t worry about this dilemma, just stay heads down coding and building product. At fifteen to twenty people, you need to start the process of delegating your engineering responsibilities. At twenty to thirty people, most of your work is delegated.

Then it’s crucial you fill in all this free time you now have with a different focus: company building. This will only work if you embrace and learn to love company building.

Important topics to consider are liquidity, banks versus brokerage firms, and investments. It is important to create liquidity and diversify out of your company’s stock. The general rule of thumb is that you should have no more than 25 percent of your net worth in “alternative assets” (illiquid assets). Because your company’s equity is likely the majority of your net worth, your net worth is likely more than 95 percent alternative assets. It will be close to impossible to sell 75 percent of your stake in your company. Instead, know that there are two absolute numbers that are significant: $ 10 million and $ 100 million. Most people at $ 10 million of liquid net worth have the feeling of safety.

Once their liquid net worth grows past $ 100 million, the catastrophe scenarios dry up and a sense of abundance follows. This is what you are driving for. Therefore, as soon as your company’s equity begins to have significant value, start to sell secondary shares until you have sold $ 10 – 100 million.

“Where do I put the $ 10 – 100 million?” You have three choices: Commercial bank (e.g., Citibank) Investment bank (e.g., Goldman Sachs) Brokerage (e.g., Schwab, Fidelity). US Treasuries are never held in custody. They are always held for the beneficial owner.

So, start by placing your liquid assets in a brokerage firm. Then invest all the cash into US Treasuries while you decide on your investment strategy.

The best approach is for you to simply invest in low – cost index funds ( e.g., Vanguard) according to a specific allocation ( he recommends about 30 percent US equities , 25 percent non – US equities , 15 percent real estate , and 30 percent US Treasuries ) and then rebalance as often as possible .

Leadership

One of the core challenges in leadership is how to get your team to buy into a decision. You create buy-in when you make people feel that they are part of the decision and that their input contributes to the final outcome.

The methods to making a decision are as follows:

  • Method 1: The manager makes the decision, announces it to the team, and answers questions.
  • Method 2: The manager creates (or assigns someone to create) a written straw man (a hypothetical answer designed to inspire discussion), shares it with the team, invites the team to give feedback (written and verbal), facilitates group discussion and determines the final answer.
  • Method 3: The manager invites the team to a meeting where the dilemma is discussed from scratch with no straw man. The manager and the team equally share ideas. The manager acknowledges each idea before making a final decision.

The three strategies I recommend CEOs consider during decision – making meetings are writing versus talking, the loudest voice in the room, and the RAPID method.

The extra effort and work by one person create a net savings in time and energy across the whole group.

As CEO, you will have the “loudest voice in the room.” Once people hear your perspective, some percentage will naturally alter their own views to more closely match yours. So, in order to get the full benefit of your team’s knowledge and to make sure that they get to full buy – in, be careful not to tip your hand before all others have shared theirs.

A tool developed by Bain & Company. It is called RAPID. Here are the steps to this process:

  • :
    • The issue
    • The proposed solution
  • R (Recommend): The one who first proposed the issue and solution
    • A (Agree): Those people whose input must be incorporated in the decision. This is usually the legal team, which ensures that no one is breaking the law!
    • P (Perform): Those people who will have to enact any decision and therefore should be heard.
    • I (Input): Senior people within the company whose departments and processes will be affected by the decision and therefore should be heard.
    • D (Decide): The one who will make the decision.
      • If a decision is irreversible, it should be made by the CEO.
      • If a decision is reversible, it should be made by someone other than the CEO.
  • A section on the document for each person above to write their comments.
  • The R then reaches out to all the As, Ps, and Is to solicit their input. Once their input is received, the document is ready to be reviewed by the D. The R schedules a decision meeting and invites the D, As, Is, and Ps.
    • If the issue is urgent, the R schedules this decision meeting as soon as it needs to be.
    • If the issue is not urgent, the R can use the next team meeting as the decision meeting. (This is much more efficient and should be done whenever the issue is not urgent.)
  • At the decision meeting, the D reads through the document. If the D has any questions, the D asks them. If the D’s questions can be fully answered in five minutes, the D decides. If the questions cannot be answered in five minutes, the D asks for another round of written responses on the document to answer the D’s questions. At the next team meeting, the D reviews these responses and decides.
  • Once the D decides, the D writes up the decision (or asks the R to do so) along with all the next actions (each with a DRI and due date). The D then publishes this decision to the company.

Each time there is a decision to be made, rate it as irreversible or reversible. If it’s reversible, allow one of your reports to be the D (the decision maker in the RAPID process). The decision will be made faster, your report will get the chance to exercise their decision – making muscle, and you will have the chance to gain confidence in your reports’ ability to make decisions well.

A very common cause of inefficiency in startups is sloppy agreements. The antidote for this is simple: impeccable agreements. These are: precisely defined and fully agreed to (which almost always means written) by all relevant people. The agreement is now precisely defined, with specific actions, DRIs (directly responsible individuals) and due dates. There must be consequences for breaking agreements. If the person continues to fail at these, there is only one consequence that makes sense: they can no longer be part of the company.

Share all relevant information with your team, both positive and negative. There are only two pieces of information most companies choose not to share openly: individuals’ compensation and individuals’ performance reviews (particularly performance improvement plans). However, some companies choose radical transparency, sharing both of these types of information with success.

Conscious leadership is a system developed by the Conscious Leadership Group as a way of directing your team while being more interested in learning than being right. Jim Dethmer, Diana Chapman and Kaley Warner Klemp explain this concept thoroughly in their book The 15 Commitments of Conscious Leadership.

If you are above it, you are leading consciously, and if you are below it, you are not. Above the line, one is open, curious and committed to learning. Below the line, one is closed, defensive and committed to being right.

Conscious leaders and teams take full responsibility — radical responsibility — instead of placing blame. Great leaders learn to access all three centers of intelligence: the head, the heart and the gut. Conscious leaders know that feelings are natural and expressing them is healthy. They know that emotion is energy in motion; feelings are simply physical sensations. Speaking candidly increases the probability that leaders and teams can collectively see reality more clearly. Rather than withholding, conscious leaders practice revealing. Conscious listening takes courage: we must listen for the content (head center), the emotions (heart center), and base desire (gut center) being expressed by the other person. Integrity is the practice of keeping agreements, taking responsibility, revealing authentic feelings and expressing unarguable truths. It is essential to thriving leaders and organizations.

Committing to appreciation, along with avoiding entitlement. Appreciation is comprised of two parts: sensitive awareness and an increase in value. Entitlement arises when rewards and benefits become an expectation instead of a preference.

Interpersonal conflict arises often. And almost always it is due to people:

  • not fully sharing their feelings and thoughts and
  • not feeling heard.

When people feel distrust or dislike for each other, it is usually because they don’t feel heard. For you, as a company leader, to resolve conflict, you only need to get each person to state their deepest, darkest thoughts, and then prove that each has heard what the other has said. This can be done verbally or in writing. Verbal agreements are not impeccable.

After identifying all customer pain points, for each, rate the amount of pain that the customer feels and the degree of difficulty for you to solve it. Then work first on the issues with the highest customer pain that are the easiest for you to solve.

Company culture

There are various ways to build and shape company culture, and the main ones that I tend to focus on are through values, fun, celebration, hours of operation, meals, cross – team communication and politics minimization. Once you have agreed on your values, use them to guide your hiring and firing. Bring in people who want to live by these principles, and let go of people who don’t. Otherwise, your values will have no meaning. When creating company culture, do not underestimate the value of fun. Most companies are so focused on improving that they forget to celebrate.

Remember, the key metric is output, not hours. The key is to inspire and motivate your team so that long, hardworking hours are not an imposition but a choice. As your company grows, you’ll find that communication between members of disparate teams slows to a halt.

The only way to prevent politics is to never allow lobbying to be successful, and the only way to do this is to have a written policy about as many situations as possible, particularly around compensation, raises and promotions. Apply this policy to all team members, all the time.

It is difficult to create objective criteria for compensation, raises and promotions, but there are models. The most successful method author knows of is called grade level planning (GLP) — at least, that’s what Tesla calls it (another common term is “Levels and Ladders”). It calls for a very detailed definition of every position in the company and every seniority level, along with specific compensation metrics for each position and level. This is then shared throughout the company. Most companies end up doing GLP at 150 or more employees, but that is often too late for effectiveness.

Infrastructure

Without a solid infrastructure, your brilliant and talented team members won’t be able to function to their full potential.

The key components to a solid company infrastructure are a company folder system and wiki, goal – tracking tools, areas of responsibility, no single point of failure and key performance indicators.

A well – run company documents every aspect of its operations so that its team members can quickly step into a new role when needed. These written processes then become your company’s onboarding curriculum. Each new hire reads all the processes they will be asked to do.

Task – tracking systems are excellent at transforming issues to next actions and tracking progress from meeting to meeting. They’re a key part of forming impeccable agreements between people.

“Tragedy of the commons.” When several people share responsibility for an action or process, often that action doesn’t get done well or at all. Apple pioneered Areas of Responsibility (AORs) in Silicon Valley, but now most successful tech companies use this method. This infrastructure ensures no task falls through the cracks because people thought it was another person’s responsibility. A single point of failure is a function that one person performs when no one else has full knowledge of how that function works. A well – run company has no single point of failure.

You can only manage what you can measure. Determine the company’s five or six most significant KPIs, then track them religiously and make them available for the entire company to easily see on a daily basis.

Management

One of the most dangerous transitions that a company makes is going from fewer than ten team members to more than twenty in a short time. During this time, communication and productivity usually break down. Hire a COO who was a manager at a large, well – managed company (over two hundred employees) to implement and run this system for you Hire an ex – CEO to come in as a one-day-a-week CEO to implement this system. This person should be able to do so in eight to twelve weeks. Have this person then watch you run the system for two weeks to ensure that you are doing it correctly. Then run it yourself going forward. Even against remarkable talent, the system inevitably wins.

Once you have achieved product – market fit, that is the right time to blitzscale and win the race to market share. You’re going to need to diversify your skills and grow your team. To do this, you will need to create massive awareness (marketing), walk many customers through the sales process (sales), hold those customers’ hands as they set up and use your product or service (customer success), harden your infrastructure to withstand many users at once (DevOps), get rid of technical debt and add all the features promised in your roadmap (engineering), update the product roadmap to meet the most urgent needs of your customers (product), and all the nontechnical operations (people [recruiting , training , and HR], finance, legal, office). All of this requires hiring talented and experienced people to fulfill those functions. First raise the money needed to hire this team, and then begin hiring.

When it comes to background, the best chiefs of staff that I have seen are highly organized, are excellent communicators (both written and oral) and have broad strategic business knowledge. By seeing what decisions, you make, based on what information you receive, your COS will soon be able to think like you and can truly be an extension of you (and magic will happen). Being a COS in this capacity is the single best training for becoming a CEO (or head of any department) that exists.

In Silicon Valley, major tech companies such as Google and LinkedIn built up functions called business operations.

In a technology company, the product manager is arguably the most important position in the company. A product manager is someone who both has the social skills to sit with customers and is (or can learn to be) technical enough to know what can and cannot be done technically. Product must have the final authority in the discussion around feature prioritization. If either engineering or sales and marketing has the authority, the decision will get skewed. Ideally, therefore, product is its own department and reports directly to the CEO. If, for some strange reason, product cannot report directly to the CEO, then better to have it report to sales and marketing.

A good engineer is often not a good engineering manager. There are three functions within engineering: architect, project manager and individual contributor. Project management is the essential skill of the engineering manager. In order to manage an engineering team effectively, a good tracking tool must be used (just as in sales tracking). The industry standard is JIRA by Atlassian.

The operations department reports to the CEO and has four sub departments: people (recruiting, training and HR), finance, legal and office. There are two ways to outsource the HR process: Use an online broker like Rippling to manage the documentation and purchase benefits (medical, dental, disability and life insurance). Use a professional employer organization (PEO) like Sequoia One or TriNet. If you use a PEO, members of your team become employees of the PEO. I recommend using a PEO from the beginning until the company reaches 100–150 people in size. Discover what your team members truly value (medical insurance, meals, retirement plan, gym membership, commuting allowance, etc.) and then give them those benefits.

Any good CFO can also do the accounting work. I recommend hiring an outsourced CFO firm rather than an outsourced accounting firm.

Reorgs, like terminations, are always disruptive and cause people angst. I recommend three months as a bare minimum between organizational changes, but six months is better.

For an organization to work well, three things must occur at every level of the organization and be apparent at every meeting: Accountability, coaching and transparency. Accountability is declaring a destination (vision, OKRs, KPIs); the action steps to get there (actions); and whether those actions steps were taken (and eventually the destination achieved). Coaching is declaring the current health of the entity (individual, team, department, company), both the good and the not good; and with the not good, what the issue is in detail and a proposed solution. Transparency is declaring (to a person’s manager, peers and reports) feedback to people on what they are doing, using the following framework.

Each manager should plan to devote a full day each week to internal meetings.

Each meeting needs to have a designated meeting lead, who is sometimes, but not always, the group’s manager. Without an effective meeting lead, meetings quickly become inefficient and people come to resent them.

On your company’s day for internal meetings, schedule one-on-one meetings before the team meeting. I do recommend moving to a culture of radical transparency. Doing so will allow you to merge all one-on-one meetings into the team meeting. This can save you four to six hours on your day of internal meetings. But radical transparency first requires explicit buy-in from every team member and training in how to do it effectively.

At the leadership team meeting, the CEO and key decision makers discuss issues that came up during the leader one-on-ones or the department one-on-ones. The leadership team meeting should be attended by your brain trust.

The CEO open office hour can be scheduled anytime in the day.

On a cadence that varies between once a week and once a month, it is important to have a company-wide all-hands meeting where the results of the most recent leadership team meeting are shared.

Here’s the overview of what should be addressed at every quarterly off – site meeting:

  • The past
  • The future
  • Bonding

To create the ten-year company vision, imagine it is ten years from now. You are the dominant company in the industry. Ask yourself:

  • What industry do you dominate?
  • Who is your customer?
  • What pain are you solving for the customer?
  • What is unique about your solution that causes the customer to choose you over the competition?
  • What asset (human or physical) do you control that makes it difficult for any competitor to copy your solution?

For your quarterly goals or OKRs, the target is three and three: three objectives with three key results for each objective.

The objective answers the question: “Where do we want to go?”

Key results answer the question: “How do we know that we’re getting there?”

If you are to receive real, honest feedback and improve, you should:

  • Ask for it.
  • Appreciate it.
  • Act on it.

When giving feedback, it is critical to use a two – way communication method (in person is best, video call is okay, audio call is least good). do not use a one – way communication method (email, text, or voicemail) to give feedback, unless it is 100 percent positive.

Fundraising and recruiting

These processes: fundraising, recruiting and sales are all identical. They differ only in the contents of the exchange. In fundraising, you are selling the company’s equity and debt as a high – quality investment, and the investor is compensating you with capital. In recruiting, you are selling the company as a high – quality employment opportunity, and the new employee is giving you their time and effort as payment. In sales, you are selling your product as a high – quality solution, and the customer is giving you money as payment.

There are two ways to raise money: the traditional method and the relationship method. The traditional method is when you pitch an investment firm with your story, most often with a slide deck that describes the customer problem and your solution, market size, unit economics, financial projections, competition, team members, traction, go-to-market strategy, and so on. The relationship method is when you build a trusting, friendly relationship with an investor before ever discussing what your company does.

Tyler Weitzman, CEO of Black SMS, likes to research social situations. As an undergraduate at Stanford, he researched a method for conveying one’s achievements (or bragging, if you prefer) while remaining humble and relatable. The ultimate structure for telling one’s story in a humble way:

  • Credit
  • Hard
  • Vulnerability
  • Duty
  • Gratitude

Simple Agreements for Future Equity (SAFEs) versus Priced Equity A SAFE and its cousin the convertible note are investments that are used when it is impractical to create a priced equity round. You should do a priced equity round only if the total money raised will exceed $ 2 million and preferably exceeds $ 5 million.

SAFEs usually convert at a discount to the next priced equity round and can also have a valuation cap. Investors have a huge informational advantage over you. They sign these term sheets all the time. Pass your term sheets (scrubbed if necessary) by other founders and investors you trust for feedback.

Investors must pay for legal bills out of their management fee income. This income would otherwise go into their individual pockets, so investors do not like to pay for legal fees (even their own). They would much prefer to give the company more money (which comes out of the fund’s investment capital) and have the company pay for the investors’ lawyers. Make this accommodation for investors. Require only that the investor support you in enforcing rules of behavior on their lawyers.

You will need to do a valuation of your common stock to determine the correct exercise price of any options that you issue.

When fundraising for a priced equity round, know that investors will want to see enough unissued options (option pool) remaining that there will be a 10 – 20 percent unallocated option pool after the equity investment.

When recruiting, the goal is to find great people and attract them to your company. The key is efficiency. And to be efficient, you must spend as little time as possible with the candidates you don’t hire (quick evaluation) and as much time as possible with the candidates you want to and do hire (building a relationship and onboarding/training). Your hire and close rate for candidates who are interviewed in person should be very high (approximately 75 percent).

The Who methodology involves creating a scorecard and specific processes for sourcing, selecting and selling candidates to join your company.

The scorecard is a document created by the hiring manager that describes exactly what they want a person to accomplish in a specific role. The scorecard includes a mission, outcomes and competencies that define the job. The mission describes the business problem and its solution. The outcomes are what the person must get done. There should be three to eight outcomes (target is five) ranked by order of importance. The competencies are the traits or habits that are required to succeed in the role and fit in at the company.

There are three sources for finding candidates:

  • Referrals from your network
  • Recruiters
  • Researchers

The selection process is when you conduct structured interviews that rate candidates against the scorecard you’ve created. There are four types of interviews:

  • Screening
  • Topgrading
  • Focused
  • Reference

The goal of screening interview is to eliminate people who are inappropriate for the position ASAP. The goal of the topgrading interview is to understand the candidate’s story and patterns. The focused interview provides a chance to involve other team members and get more specific information about the candidate. The reference interviews are where you learn the truth about the candidate.

Getting a candidate is one thing, onboarding is also important. Speed is important when trying to recruit. Compensation is another important subject. Check market reference and amount that the new team member would need to live comfortably. In startup environment offering cash for candidate to live comfortably can be upgraded with equity. Equity would be a difference between market compensation and cash. It should be calculated for four years and amount divided by 1.5 or 2. When offering check first if candidate would accept conditions and then make an offer.

If things will not go in the right direction than you need to do firing well.

Sales and marketing

Sales is responsible for closing, marketing for lead development and identification of customers that need the product and communicating to them. To make a sale effectively, you need to do the following three things: build trust, identify the customer’s specific pain and sell results not features.

Many founders end up overselling, which leads to an inability to fully deliver. Overselling is a form of laziness. You should take time to build trust. You should hire a sales team only when you have initial version of product market fit and when you figure out what are you selling and whom you are selling to.

Aaron Ross from Salesforce wrote about sales in his book that the main obstacle for growth is not lack of salespeople but lack of leads.

You have people who generate leads, people who do the closing and people who do customer nurturing. We talk about qualifiers – outbound and inbound; closers and farmers. Qualifiers are usually compensated with base plus bonus for each lead they generate. Closers have base and commission. And farmers have base and flat bonus based on retention rate or base and commission based on account growth.

Some of the common mistakes made when hiring salespeople are:

  • Overlooking integrity and culture fit
  • Not investing in training
  • Hiring only senior account executives with track record
  • Hiring a solo contributor rather than a manager

Leads are another story. There are three kinds of leads: seeds (generated from word of mount), nets (generated from your marketing) and spears (direct outbound outreach by outbound reps). Generally, startups get their first customers from seeds. Qualified lead is one that feels the pain point that your product is solving, has desire to solve that pain point and has the power to purchase your product.

The greatest risk of a startup is not that they moved too slowly in dominating the entire marketplace, but rather that they spread their scarce resources too thing and ended up securing few or no customers at all.  Study the marketplace. Segment it into different customer types. Determine which segment is the least satisfied with their current solution and for whom your solution is the best fit. Concentrate all your sales and engineering efforts toward this segment.

When you think about development of your company and potential IPO, have in mind that publicly traded shares do give a company financial flexibility. But they remove operational flexibility.

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