The challenges of attracting top talent, keeping them on board, as well as successfully maintaining a rapidly growing team are all too familiar to founders and CEOs. In today’s technology-fueled world, trends come and go, but building world-class teams that are passionate, talented, and hardworking will never go out of style.
We had the pleasure of speaking with Keith Rabois, an entrepreneur, serial investor, and investment partner at Founders Fund and previously at Khosla Ventures, about the many aspects of creating a solid team to take you to that next round of funding or next million in revenue. Given the role he’s played at companies like Linkedin, PayPal, Square, OpenDoor, and Slide, we think it’s pretty safe to say that he’s the perfect person to look to for guidance on the topic.
Check out the full transcript below!
Jason Lemkin: All right, thanks, everybody. I want to introduce and thank Keith Rabois for coming and joining us. We’ve spent three days talking about a bunch of specific things, about COs, journeys, and a lot about sales and marketing, which is what we do. We’ve talked a lot and we did great with Kirsten Helvey from Cornerstone this morning about people, but I wanted to talk about teams.
Keith has an amazing background, as some of you know. First of all, I’m going to miss some, but PayPal, which is one of the most iconic teams in the world, and I want to come back to it. We bookend that with COO at Square, which is epic, and then a few other companies like LinkedIn, Yelp, and others thrown in the middle.
You’ve made a handful of good investments, too, so clearly you know how to identify good teams. Now you’ve founded a company or two that may become a decacorn.
Let me step back. I don’t want to talk through the whole PayPal mafia stuff, but I want to talk about one thing that’s interesting, and now you think about it as you work with more teams and invest in teams — up-and-comers and over-achievers.
If I think about the PayPal team, obviously, it’s iconic, it’s the greatest, but these are all up-and-comers. This is about the rawest team. This is IQ, horsepower, and tenacity, with not a grain of experience. It was a while ago, so let’s fast forward to today. Where do you come out in this continuum of experience versus natural athlete, and what’s the learning for folks here?
Keith Rabois: Generally, I’m a fan of natural athlete. I think it does matter by vertical. On the consumer side, it’s almost surely the right answer more often than not. On enterprise, there are benefits of experience, and maybe mix the team together.
A good complement might be a founder who’s very naive, very hungry, paired with somebody who’s got a lot more experience, or vice versa, so you get the benefit of both, particularly if they’re both co-founders or one is a CEO, one is a COO. There’s ways to structure the entire team that maximizes the upside.
Naïveness matters, because when you go into a vertical too often, it’s very easy to get cynical and start believing the rules. Therefore, you miss some of the best opportunities. For example, even in payments, I got somewhat cynical from my PayPal experience, pretty much avoided payments for about eight years.
Jason: You got sucked back in.
Keith: Yeah, I got sucked back in. It wasn’t a no-brainer decision to join Square. It was very hard and half of my friends, half of my PayPal friends, thought I was crazy. I won’t tell you which one was which.
Then similarly when I first met Stripe, actually, I declined to invest, which was a massive mistake. I had to fix that a couple years later and pay like a thousand X more. The benefits of experience definitely blinds you to new ways of doing things and you have to deal with suppliers, for example. When Roloff invested in YouTube, I don’t think he realized how difficult the content owners would be, and I’m not sure he would have invested had he had expertise in that space.
Jason: That’s a fair point.
Keith: I think it’s a big danger of experience too.
Jason: What’s the trade-off as you get into industries that are more regulated, or where domain expertise feels more necessary? It could be healthcare, it could be insurance, there could be other issues. Where’s the trade-off there? You come out of Y Combinator or wherever. There are just amazing companies being born in every industry.
Keith: I think we had a good formula at PayPal, which was we had about two to three people in the entire company that had any experience in financial services. The general counsel, for example, had a lot of experience. It’s a pretty useful role to have your general counsel know something about what you’re doing. But we tried to minimize it.
Same thing at Square, even if you included me, and I don’t think of myself as a payments person, I think in the first 200 people in the company, there were 3 people who had any financial services experience. You can get the benefits by having just one or two doses of experience. Then you highly leverage them. You ask them a lot of questions. All the questions start with “Why?” “Why do we need to do it this way?” “Why?” “Why?” “Why?” “Are you sure?” “Is there a way around this?”
That’s where the leaders and the founders and the executives who don’t have the experience can just be relentless about, “Are there better alternatives,” because they start from a perspective of a whiteboard, a fresh perspective. Then you can take advantage of the lessons of 20 years of experience.
Jason: Boy, I should know the name. The startup that you co-founded in addition to the 28 investments that’s doing the real estate…
Keith: It’s called the Opendoor.
Jason: Opendoor, sorry. I just wanted to get it right. How many folks in Opendoor have deep real estate industry experience?
Keith: Maybe one or two. We have about 70 employees today. The CEO has some, more like personal experience. He’s bought and traded real estate personally. He also did one or two startups more in the rental version of real estate. He’s the real estate guru. Everybody else in the company basically is not.
Jason: But you kind of need to get it right, because you’re investing a lot of money.
Keith: Yeah, this is a high-risk…
Jason: If the sales don’t happen, if you misunderstand the industry, you could have tens or hundreds of millions of dollars of exposure, right?
Keith: Yeah, this is an Elon company. You’ve got to get the satellite into orbit, because it could crash [laughs] and be really ugly.
Jason: But let’s talk more about people. You come into Square, you’re COO. What’s the Zen learning at Zen Day? COO can mean a million things at a million companies. That’s for sure.
Jason: It can be the oddest term, but when should I get a wingman and what should that wingman do and what should they own? What’s your advice? I see people today — more and more of them want a COO earlier and earlier. They want to just offload all this stuff. What are all the learnings and what should we do?
Keith: I think there are different rules, sort of, to apply and principles to apply and there’s no right answer for all companies and all founders, because partially what a COO does is become a complement to a founder and every founder has different strengths and weaknesses and different things they like to do and things they hate to do. That’s one of the reasons.
Then secondly all of the COOs have different responsibilities. If you look at the org chart at Box, which you just had on stage, versus the org chart at Facebook versus the org chart in Yelp versus the old org chart back in the day with Steve and Bill at Microsoft, they divided responsibilities very differently, so you have a lot of different choices. But the first question is when and how and why to get a COO. I don’t think you should necessarily.
When I was growing up in Silicon Valley, I had one of the wisest and most experienced people on the board with me, Pierre Lamond, and Pierre said, “Absolutely. Technology companies should never have COOs.”
That was the conventional wisdom. There are a lot of good reasons behind that conventional wisdom. You’re violating the conventional wisdom every time you hire a COO. I think some of the best reasons to do it is, if you look at your calendar on a Sunday night and you’re the CEO going into your week and more than half your calendar is already booked, you probably need another senior leader.
Now, whether that person gets a title of COO is a different question. But you need to have enough flexibility…
Keith: If you already have no time to think, no time for discretionary interaction with people, you are way over-consumed as CEO. The second thing is there’s been a rise, and I think this correlates with the rise of COOs, many, many CEOs today want to play two roles. They want to be VP of product and CEO.
Jason: They do.
Keith: Which is perfectly fine. There’s a lot of great successes — many of the best companies ever have that kind of formula…
Jason: A lot of mythology around it too.
Keith: But if you’re going to play both roles you can’t do every other role as well. If you’re CEO and VP of product, then you might want a COO pretty soon. If you’re CEO and you’re just a normal CEO and then you’ve got VPs and executives, like in a standard org chart, you may not need a COO ever.
But if you really want to be in control day to day of an operating function, or let’s say you want to be CEO and VP of marketing, or CEO and VP of sales, then you probably do need a complement sooner than normal to help, because you can’t do every role. If you want that to be a permanent position, as opposed to “I’m just temporarily playing VP of product and I’m going to recruit that,” then you might hire a COO tomorrow.
Jason: I don’t want to spend too much time on the COO, but I see folks trying to go earlier and earlier there. I know it’s situational, but what should I look for? Should I look for a mentor? Should I look for someone with five or eight years more of experience? You can use your experience at Square or any of your companies, but how much additional experience should I be bringing onto the team?
Keith: It does depend upon your skill set. Every market is different. What makes you successful in a Tesla market is very different than what would make you successful in a standard enterprise software versus a consumer photo-sharing app. You have to have the right DNA in your company, on your team, for the market you’re attacking.
Then whatever the founder and the founding team has, you subtract that. Then what distills is what you need. The title is kind of a way of recruiting someone almost like a founder that you can’t easily get into your company. I think it’s a good opportunity to recruit somebody who fills that big gap, whatever that gap is from your current team in the market you’re attacking.
The title is just one form of compensation in some ways. There’s equity cash in title. If you can find someone who’s highly motivated, who has the perfect complement and some experience in a critical gap, then absolutely I might give them a title of COO or president or whatever it takes to get them on board. But then you have to divide responsibilities so that the team’s performance is maximized, which may mean that this COO doesn’t touch product ever. This COO may want to be involved in products. He or she may have skills in product.
This COO may have half the org reporting to them and some COOs may have 20 percent. Some COOs may have a hundred percent of the org and just report to the COO, which is a little bit more like Box. You have a lot of flexibility in designing a formula that works, but it’s designing for your company and your team and your skills.
Different COOs also don’t want to do certain things. Everybody wakes up in the morning and says, “I’m looking forward to doing X, and I really hate doing Y.”
Jason: For sure.
Keith: Usually the stuff I really hate doing, Y, is a good thing to take off the CEO’s plate and allow them to spend more of their time doing what they like and what they think they’re great at. If a CEO hates doing employment reviews, get a COO who’s excellent at employment reviews and loves to do it. Doesn’t hate to do it, loves to do it.
Famously at Apple, in maybe the last 10 years but at least for a sustained period of time, Steve Jobs didn’t do anybody’s reviews. The CFO actually did them. Peter Oppenheimer actually did all the reviews, because Steve just didn’t like doing it for obvious reasons. He probably felt like he was giving feedback in every meeting.
It’s again, designed around, how do you get the most leverage out of your most valuable people. It’s the same principle as you scale your organization. Every leader in the organization, you want to get the highest possible leverage at what they’re awesome at and remove the things that they’re not great at and give it to somebody who’s awesome at that. It’s the same thing applied to yourself.
Jason: How’d you figure it out at Square? Let’s step back. The growth at Square was just epic. You’ve been at some good companies, but that’s the fastest-growing of all, isn’t it?
Keith: I think so. I used to have a chart in our financing decks that would compare Square to most companies.
Jason: But it’s even the fastest-growing.
Keith: It’s pretty fast.
Jason: Of a pretty good cohort, right?
Keith: Other than Priceline. Priceline grew really fast back in the ’90s. Groupon had its moments. I don’t like to do the comparison to Groupon so much, [laughs] but Priceline is not…
Jason: It had its moments. It had a good run. It had a good run. It had a good run.
Keith: Absolutely. It definitely did.
We actually did something different. We generally did most meetings together, like a product meeting or a strategy meeting or a finance meeting. But I’d say 70 percent of all reviews, both of us would do at the same time. Which is not standard, although…
Jason: A little bit two in the box, two in the hole model .
Keith: Yeah. Other companies. It allowed a little bit of getting feedback stereo-surround to the team, which is probably good. It also ensured there was no disconnect. We would actually debate publicly in front of other people if we had different opinions. That was totally fine, and again, different cultures have different views on that. At PayPal, for example, we were very open. People would debate very violently and aggressively by email and in person.
If you build a culture with transparency and where it’s OK to disagree with your boss, I think that’s a very healthy structure. Then there would be some things that I wouldn’t be as interested in or have any competence in, like I might not join an engineering review. I can’t add a lot of value. Occasionally, there might be some big tradeoff decision that I’d want to be aware of, of how the decision was being made and what the pluses and minuses were. Once a year or so, I might join an engineering review.
Similarly, a risk and fraud review, which is in my DNA and less interesting to Jack unless it wasn’t going well, he would barely ever attend.
Jason: It’s interesting. When you have that two-in-the-box kind of scenario and Josh Stein this morning, he just helped me open, because it’s day three. He brought up a downside to that scenario, which is sometimes employees don’t know exactly who they work for…
Keith: That’s true.
Jason: …and having two bosses can be very stressful, especially for very motivated employees.
Keith: No, I agree with that.
Jason: Did you have that issue, did it not matter, did you just roll with it, or what’s the learning?
Keith: It did occasionally pop up. I think generally accountability and clarity in an org chart is really valuable. That said, there are trade-offs. You sacrifice a little bit of that for more both minds tackling a problem simultaneously. So I could hear, for example, what Jack was saying in terms of feedback and that might affect my opinion or vice versa. It’s a more thoughtful, iterative process of giving people feedback.
That said, definitely you suffer some clarity and you have to hire I think at some point executives who are comfortable if you’re going to go with this model. Which is, some executives are used to saying, “This is my kingdom and fiefdom. As long as I deliver my metrics and my goals, don’t ask me a lot of questions.”
Those executives get furious if you’re doing these kind of reviews. They totally don’t understand it. There’s some people who have grown up and “Oh, everybody works together, we’re on one team. It’s collaborative. That’s great. I like when people ask me questions about what I’m doing. It makes me happy.” I think you have to hire somewhat in the vein of the organization you’re building, or make it clear in the interview process at a minimum that this is how the organization runs and you’re opting into this.
We have some executives who are quite, quite talented, actually, who would thrive in many places and have thrived in many places who didn’t work all that well because they were used to having more ownership of their box, and as long as they delivered, they expected that. We just didn’t use that approach.
Jason: That’s interesting. I want to talk about a related topic that I’m confident you’re passionate about, and I know it’s abstract, but you work with a lot of startups. You’ve worked with some of the best. This is Silicon Valley and everyone wants to hire the best people. I know it’s high level, but when do I let the bar down? I haven’t made the hire. You’re on my board.
Keith: …all the time.
Jason: I haven’t made the VP Eng hire, and it’s breaking, because I have 20 engineers and my CTO, who I love to death, has only managed two people in his life and it’s been a quarter. That’s OK. Now it’s two quarters. Boy, Keith, you’re tough. Everyone’s at the PayPal standard or better. I know it’s abstract, but what do I do?
Keith: What do you do?
Jason: What do I do?
Keith: This is a real problem. Obviously, as the market has been hot in technology and as capital has been available and cheap, more and more people start companies, so there’s a diffusion of talent. It’s very difficult to create a critical density of talent.
One of the reasons why we were able to do that at PayPal is between 2000 and 2002, there were no other jobs available, so we had a 90-some odd jobs…
Jason: No jobs.
Keith: You could go to eBay maybe. You could go to Google if you had a PhD, maybe. You could go to Netflix if you were willing to go down to Los Gatos, which most people won’t.
Jason: Wherever that is.
Keith: Yeah, [laughs] wherever the hell that is. Might as well go to Florida. What we did at PayPal was in some ways easy. We just had to select wisely, because everybody we gave a job offer accepted. There was like 95 percent conversion rate on offers, which nobody has for the last three years.
However, what Peter taught me, the first day, actually…The first week I worked at PayPal, we went out for a jog around the Stanford campus. He explained to me his hiring philosophy, which has stuck with me for 16 years, which is you cannot go after proven people when you’re a startup. You just can’t do it, because everybody’s going. Once someone is obviously proven, like if you look at my profile, let’s say, everybody in the world can assess it roughly equally. It doesn’t mean it’s good. But they all come to the same conclusion, because there’s a lot of data points and a lot of reference checks.
There’s no unique asset for a startup in evaluating me. They’re going to lose more often than not in competing with someone who has more money, more traction, more sex appeal somewhere. I think you have to go after people that are less proven and you have to get really good at evaluating those kind of people. That’s a special skill. That’s what Peter basically taught me is you just have to get focused on learning how to evaluate people with less data on their resume.
Because once they have enough data on their resume, Facebook is going to steal them, or Google is going to bribe them, or someone else will. The only way to do that is just practice. You’ve got to figure out how to assess people and give them the opportunity to succeed. That requires mentoring and a culture and there’s a different order structure around having a lot of those people.
For example, everybody says they want the classic VPE. Every board meeting…
Jason: Everyone. I’ll give you my VP Eng.
Keith: Here’s the specs. I actually hate specs in some ways, even though everybody requires you to drop them. Because they always say, “I want 10 years of experience, proven ability to do this [trails off mumbling] …” It’s like in baseball saying, “I want a third-baseman who bats 300, hits 40 home runs, 100 RBIs, and wins the Gold Glove.” There are exactly two of those. There are literally are two in the world. Writing a spec that says you want one and two in the world isn’t constructive.
I’d rather have somebody who has upside potential and you’re taking a bet. For example, VPE, let’s be specific. There are two kinds of things that you want in a VPE. One is, let’s say, proven ability to manage and one is a lot of technical ability. There’s managing, technical ability, recruiting. A little bit strategy, strategic thinking — at least being competent in understanding it. I would take a bet that they don’t have one of those things.
If they had A-plus experience in one, they’re cutting-edge technologists and you know they have a network of people that really respect them so they’re probably going to recruit well, but they haven’t proven they can manage a team of 50 people. They’ve only managed a team of seven, I might take that bet.
Conversely, someone who’s managed a team of 100 and isn’t a world-class technologist, but the rest of the team is, including, let’s say, me as the founder. Let’s say I was a world-class technologist, I might live with a VPE who’s not, but a proven extraordinary manger.
Again, it’s a complement, but you’re going to have to take a bet somewhere and take some risks. Then how do you complement that risk, or how do you measure the person’s progress against that risk?
You can’t get central casting. No one can hire a central casting, a central casting, unless you hit massive escape velocity. If you’re the one Uber, one Facebook, one company or two companies a year, you can attract people that are central casting, central casting, central casting, but if you’re not that, you have to pick and choose.
Jason: I think most founders that are driven and first time, they’re pretty good at assessing whether someone is better than them. They can do that intuitive part and, with a little bit of help, like you got from Peter Thiel, they can get really good at it, with a little bit of coaching.
They’re not as great, if they’ve never been a manager, of assessing the management skills of these people. The natural athlete that’s done a few things has great advice, maybe up to 50 employees, 60.
Then, if you’ve never been a manager, the best way to get from 50 to 200 is managers. Not managers of managers, of managers. What’s your advice? Is it get better mentors, get a good board? How do you help make sure the founder doesn’t screw that one up?
Keith: One thing a good investor, good board member, can do is help assess an interview. It can be early in the funnel or later in the funnel. That’s definitely one thing to look for in investors is when you’re adding to your team, can they help you recruit, source, close, and evaluate.
Second thing is, I think, one thing I learned from, actually Brian Chesky had a great idea about this, is go meet the five best people at something. If you’re going to hire a CFO, for example, almost no new founder has met a CFO.
Jason: You’ve always got to at least interview five. You have to interview five.
Keith: Not even interview. Go have coffee with the five best people who are CFOs.
Jason: Go have coffee with them. Have coffee. That’s better than an interview.
Keith: Because then you can do a little pattern recognition, “OK, well, what’s in common? Why does everybody think these are the five best? What do I see in talking to them?” At least then when you’re interviewing people, you can kind of evaluate them against some benchmark.
You can find mentors to help you. For example, when I was earlier in my career I had no clue how to hire a VPE, really clueless.
Jason: You hadn’t done it, and you went ahead, right?
Keith: It’s also I didn’t even know the right questions to ask, so I borrowed and begged. I had my friend Max interview some for me. Literally two candidates that I was seriously thinking about, I was like, “Can you meet them and give me feedback?” because I didn’t know how to do it.
I took advantage of my network and at least got some directional guidance. That was really helpful. You have to use your network. You might have angel investors on your cap table who have extraordinary ability in a particular vertical.
Ask them to go meet this person and give you feedback. Use your angels. Most people don’t, actually.
Jason: They don’t. I love that. My hack, your hack is much better, is for any position you haven’t hired before, interview so many people until you don’t learn anything.
You’ve met so many people that are at least Bs or As, there’s no new answer, and then you’ll start to figure out what the bar is. I still believe that’s true, but meeting as many people for coffee outside of that, then you’ve got this magic combination of at least you know what the bar is.
Keith: There’s one thing you can do is I think you can get good pretty early in your career at reference checking because it does span different verticals. In your core area, you get good at reference checking.
Let’s say you’re a great product person. You learn how to do that for PMs and directors of product. Similar kind of questions that you’d ask in engineering reference checks and similar in marketing.
Once you get good at the process of reference checking, you’re really being good at it. If you are good at it, that can help. It certainly can help you avoid mistakes and occasionally help you find a gem. It’s more downside than upside, but it can definitely help.
Jason: It’s a good hack. Let’s talk about something…We briefly Tweeted about this. To me, you’ve always worked in hyper-growth companies. To me, I’m in a new world. I built two startups that grew at a decent pace and had decent exits. Now the companies I work with, my jaw just drops.
I think the faster the company goes, the more the playbook changes. Not only can you take your time, but the way you hire do. If I’m lucky enough to hit a million in revenue, growing 20 percent a month instead of 10, how should I rethink sequencing my hiring?
Keith: I actually think these companies are the most fun. They’re super chaotic and stressful.
Jason: Super chaotic. The faster they grow, the more chaotic it is, right?
Keith: They’re like nothing else in the world. It’s such a learning experience. I remember when we going through this with Square. I said to some of my colleagues, I was like, “You don’t know how lucky you are.”
LinkedIn is a great company. LinkedIn grew linearly always. I was like, “You might never do this again in 20 years, get to go through this kind of rocket ride.” It’s very chaotic because you have to change all the rules very fast.
A rough, rough metric is the numerator and denominator on your hiring. Your denominator is the number of current employees and, let’s say, your numerator is the number of new employees you’re going to add in a month or a quarter.
As that percentage gets high it actually means that the inbound people, the incoming people, are probably going to impart more in the organization than you can stamp on them.
Jason: It’s true.
Keith: You have to be really good at cultural assimilation, and have very strong principles and onboarding to try to preserve the parts of your culture that are unique and you really want to preserve, because otherwise the people are going to bring with them, because they’re a bigger mass.
Let’s say you’re adding two people a month and you have 100 people, the new people aren’t going to change the company.
Keith: But imagine you have 100 people and you’re going to add 50 in a quarter, which actually does happen in hyper-growth companies, that culture is changing, for better or for worse.
If you’re not directional about it, it’s definitely going to be worse. It’s not going to be the brew you want. Every culture of a successful company is a custom brew, so make sure that you’re guiding the parts, and keeping the parts, and preserving the parts.
The other thing is it’s a great opportunity to hire talented people, though, because it’s a non-zero-sum environment. There are always new challenges, opportunities, and problems, and you can’t hire fast enough to fix them so you have to grab people who are talented who’ve never done X before.
Like you have a marketing problem, by the time I can interview, close, and get someone started to do marketing, it’s weeks to months. That’s if I’m really good.
Jason: The whole job spec has changed by the time you close the hire.
Keith: I’ve got to go run after someone in the company, who may be an intern even, [laughs] and say, “We have this marketing problem. Please go fix this.” That person might turn out to be amazing at it, and that might be the person’s trajectory for 10 years, and then that’d be their career.
Those kind of opportunities are awesome for young, talented people. I would go hire a lot of those people because you can throw them at problems left and right and they’re not going to find that…
Once a company gets a little bit more static or has a little bit more linear growth, everything has silos to it and boxes. “This person is responsible,” “This person is accountable to…” You don’t get those opportunities like early in your career.
Jason: Another related question is ideally, even if you have natural athletes, you want people that can scale. You need to hire someone that can not only do the job today, but at least can do the job, ideally, 18 months from now. That’s a lot better than 12.
When you’re in this hyper-growth environment, sometimes a problem I see, you go out, you spend three months to hire the VP of sales, and it’s too late.
Keith: It’s already too late.
Jason: You hired the right guy at two. You turn around, it’s 10, and you make that hire. I’m like, [laughs] “Linda’s great, but it’s too late for Linda.” How far out should I look and skate to the puck in hockey, or whatever our metaphor is?
Keith: It depends a little bit on how much visibility and confidence you have about the growth continuing because it does vary. Not every company that’s growing like this today really is going to grow like that in 6 months or 12 months. Some are.
Jason: Fair enough.
Keith: It depends on what the data points look like, and what that slope looks like, and how much it’s likely to continue, because what’s fueling that, how scalable is that, how sustainable is it?
If it’s really sustainable, you have two choices. One is you hire someone and you have to be honest with them in the recruiting process that, “You may have the opportunity to have this job forever, but reality is that if we continue this growth for two more years, I’m not sure I’m going to be able to give you this job.”
It happens a lot with CFO candidates. You hire a VP of finance. They want to be CFO. They may have time to learn to be a CFO.
But let’s say you’re one of these explosive companies that’s one of a kind, they may not have the time to learn to be a CFO. You may have to have that honest conversation upfront. It’s better to have that conversation upfront.
Jason: I think a lot of us struggle with that. We were talking with Kirsten Helvey from Cornerstone this morning. “Do you want to tell them, ‘You may not make it in a year? You may be topped, or it may be 10’?”
It’s tricky. It’s definitely tricky. I’d rather have at least some part of that conversation upfront and say, “It’s your opportunity to prove me wrong,” because the people will prove you wrong. A certain segment will. Then, also, what you’re looking for, if you’re really want them to prove you wrong.
You can usually tell where there’s some upside. It doesn’t mean they’re going to be able to prove the upside, but there’s two hires, let’s say. This is one of the hardest things to teach your team.
Usually you have two choices. One’s a pretty safe bet, competent, clearly proven, will do the job fine. The other one, a little bit riskier, but with more upside of being potentially awesome.
In a high-growth company, I might err much, much more to this because you’re going to need some of those to continue to propel. I’d rather take more risk here.
It’s like product features. You can do linear, iterative product features, but you’ve got to take some value proposition enhancing 10X feature shots. In a high growth company I take a lot of bets on 10X people.
Jason: I think so. The challenge is sometimes when you have other advisors or, board members, or investors that, having your experience, they’re going to totally go the other way.
They want the safest hire in the world that’s comfortable today. That beta, that odd risk, it’s controversial.
Keith: To me it’s a ratio question. It’s almost never 100 percent or 0 percent. I don’t think you want 0 percent not proven before, or do you want 100 percent internal promotions. It’s a ratio.
I think in a really healthy, amazing company with lots of mentoring and learning you might be able to get to about 70 percent internal promotions.
I remember actually having a Square board meeting when I wanted 70. I had a whole plan about how we were going to do this [and then it’s] like, “You’re growing too fast. If you do 50/50, it’d be amazing.”
Jason: That’s an interesting ratio.
Keith: 50/50 is good, because then it actually is legitimate, plausible. “If you do your job well, and you really demonstrate a high rate of learning, half of you are going to get promoted.”
Jason: That rate at Square, you’re promoting people every six months. I could be wrong but…
Keith: The jobs can get still interesting. That’s part of the art, too, is if you’re growing this fast, even if you don’t promote somebody, the job they used to do is going to be very different and more challenging than it was last month. It’s not like, “Keep doing what you’re doing.”
If you’re growing at 10 percent a month, realistically, if you don’t get promoted, you are doing what you did last week. But if you’re growing 20 percent, 30 percent a month, that job’s changing every six months, and so just holding on is actually a challenge. [laughs]
You want people to be challenged. At the end of the day, people stay in jobs that are a challenge. People grow in jobs that are a challenge.
It’s good for them emotionally. It’s good for them professionally. The faster you’re growing as a company, the more challenges there are, by definition.
Jason: Last question. This time blew by, but I want to do one line of, “What is good stuff?” A mistake I see again and again, let’s talk about that, because last one, the comfortable candidate. Forget the ratio.
When a founder is struggling, it’s been four months to make the hire, five months. We’ve been there. I have the comfortable candidate, checks the boxes, but I know don’t have the beta. I don’t have the craziness. What should I do?
Keith: I think it depends on the function, how critical is the function, because there’s a difference between having an incomplete team and a mediocre team. It’s fine to have, to some extent, often, an incomplete team. Most companies that we fund, especially if you’re a series A investor, are by definition incomplete teams. Even series B is usually an incomplete team. That’s better than a mediocre team. I’d rather hold that position open.
Every company competes on one dimension. If it’s the dimension you’re competing on, it’s really hard to keep that open.
Jason: It’s very stressful.
Keith: It’s extremely stressful on everybody. It depends on how many things are breaking. In some ways, it’s like how many things are breaking and what are the signs of things breaking? What signals are people quitting?
Your highest value people are quitting and frustrated because they don’t have any manager. They need a manager. They need feedback. You’ve got to fix that right away, because it’s corrosive.
Are you losing market share because your sales and marketing just aren’t good enough?
Jason: Yeah, that’s a real issue.
Keith: Did I take a D-plus person just to stabilize?
Jason: Get it in now, yeah.
Keith: I don’t know if there’s a right answer, but I think, partially, when you’re interviewing also investors, this is the kind of conversation…
What you ideally want is a board that’s mostly aligned. It’s good to have different views on a board, but structurally, from a first principle’s perspective, you want board members giving you generally, directionally similar feedback.
Jason: That would be nice.
Keith: You’re going to have an active conversation and dialogue, and extract real feedback, “OK, can we take a chance in waiting six more months? Or are we going to break so many things that our ship is actually going to start sinking?”
I’d rather pull the trigger now to prevent that and then we’ll build on top of that later. But it depends on the function and how acute…in finance sometimes you can defer it, because mostly finance is a 10 percent feature. If you do a hundred million dollars of revenue, I expect a VP of finance to have $10 million of value.
But if you’re doing a million of revenue, do you really need a VP of finance while they’re going to have $100,000 of value. You’re going to pay them a lot more than that. So, just defer the finance problem until you get your perfect finance candidate.
If you’re doing a billion of revenue, you need a finance candidate. Because it’s a hundred million dollars, even if they’re only 10 percent. You don’t want to waste a hundred million dollars.
Jason: I wish we had more time. But, Keith, this is great. Are we supposed to sit? Let’s see. Are we supposed to still sit or get up?
Keith: We’re supposed to get up.
Jason: Are we supposed to get up? OK, get up. Thank you, Keith. This was epic. I really appreciate it.
Keith: Thank you. Pleasure.
Jason: Thanks, man.