You don’t need to hire every position with the same approach. Sure, some companies have the same hiring process for everyone, and it often involves spending 6 months on each hire and only hiring A+ people. In theory, that’s what you should do, but in practice, there are some hires that deserve more effort and some that deserve less.
How do you tell when to invest more or less? I’ll be talking about that on my webinar this month – the 3 different approaches to hiring, and when each one is appropriate.
For this column, I want to focus in on the highest-investment approach.
When does a hire deserve a heavy investment? The primary drivers are (a) the impact the position can have on the organization, and (b) the experience your company has with hiring that specific type of position. In other words, you should invest more heavily in your recruiting process when you’re hiring:
- Executive or key manager positions – because the impact of that position will be a multiple of the costs of even an elaborate hiring process
- New positions – because you don’t know what you’re looking for, and because you need to train your organization on what the new position will do
What does it mean to invest heavily in a hiring process? You should spend more time…
- Planning the position before even starting the recruiting process
- Choreographing the hiring process – who to include when
- Building a bigger candidate pool
- Interviewing candidates
- Confirming your final choice
It’s OK not to go all-out on every hire. What’s important for growing companies is having the wisdom to know when a more extensive recruiting process is needed, and having the discipline to invest the time needed when it is required.
If you do that, you’ll avoid the costs of a bad hire, which can be dramatic – around 2-3x the person’s compensation for a manager, and 5-10x the person’s compensation for an executive.
If there’s one thing in Stage 2 companies that does not take a lot of thinking, it’s identifying who your “High Potential” staff are. They come to mind immediately whenever I ask leaders who they are.
But, as much as it’s a no-brainer to get the most out of the people who offer the most, Stage 2 companies do a consistently horrible job of actively developing their High Potentials. Why? Because the Well-Oiled-and-Balanced Wheel is easy to ignore (and besides, it has a lot of weight to carry and can’t afford much “down time”.)
The first step I’d recommend in developing your High Potentials is to come up with a model that you can use to identify your High Potentials. Since it’s always obvious who they are, why would you need a model? Two reasons.
First, you need a program to develop your High Potentials, both to get the benefit of the full value that they can give you, and to keep them engaged and hopeful about their future at your company. And in order to have a program, you need to explain to people who is part of the program and who is not.
Second, you also have people who are Good Potentials. Most of them will never make the jump to High Potential – but some of them will. And to do that, they need a model of what they’re aiming for – what a High Potential is.
I have a 1-page model for talking about High Potentials. It’s a graphic that you can put in front of High Potentials to talk about why you value them so much and how you want to continue to develop them. And you can show it to Everyone Else to explain in simple terms what it takes to be (and be treated like) a High Potential.
If you want to see my model and learn some tips for using it, sign up for my upcoming August Strategy Hour webinar (even if you can’t make it you’ll get a copy), or go to the Contact Us page and reach out to me to request it.
Stage 2 companies must already have a clear and compelling value proposition if they’re successful enough to have grown out of start-up, right?
Well, yes and no. They do have enough traction in the marketplace to show that they have a value proposition that works. But it’s actually unlikely that the company has a systematic way to communicate the value proposition. And if that is the case, it will find that revenue growth is harder and harder to achieve – and in a competitive market, the company may start to lose ground to other companies who are communicating their message better.
What should a value proposition look like? When I started out in marketing, I worked with an excellent marketing agency, who explained that the “brand positioning statement” should follow a classic formula of, “For [market segment], Our Brand is the [product category] that [customer benefits] by [points of differentiation].”
So, for a clear and compelling value proposition, you need:
– A clearly defined target market segment or customer profile – is it marketing directors who work with global brands, or owners small businesses in cities, or…
– A definition of the product category – the marketing agency I worked with explained that orange juice could be defined as a breakfast drink or as a health drink, so picking the product category has a big impact on how the product itself is perceived
– A description of the customer benefits – what are the pains you alleviate (lost revenue, production downtime, etc.) and gains you enable (new revenue sources, talent retention, etc.)
– The points of differentiation – choosing from all the ways that your product works or the ways you deliver your service, what are the ways that set it apart from the competition?
Once you have your value proposition, make sure you reinforce it with everyone in your company, and you use it to focus your marketing and sales messages.
I like SWOT assessments (you know – strengths, weaknesses, opportunities, and threats) for getting people’s thinking out of the day-to-day and into a creative, strategic “space.” Unfortunately, I often see SWOT assessments that are just marginally useful.
Here are some tips on how to get more value out of your SWOTs.
If you can take a bullet and put it on someone else’s SWOT without changing it, then you’re not specific enough. One of the favorites to put under Strengths is “Our People”…which is also a good example of a bullet that is not specific enough to be useful in the planning process. What is it about your people? Their experience? Their deep knowledge? Their ability to be generalists? Once I know what’s special about your people, then I can create some possibilities about how to leverage that into a better advantage.
Work hard to look at the future. We live our lives in the day-to-day, so it’s hard to look ahead several years. And that’s why it’s an advantage to do – because most people don’t.
Put “the hard stuff” on the list. Every business has issues that it doesn’t like to talk about. The problem customer. The problem owner. The problem staffer. Without knowing the details, I can tell you that those issues consume a large amount of resources. So they need to be on your SWOT – though it will probably take some diplomatic phrasing. (For example: “Some customers are easier to work with than others,” “Owners are not always aligned on decisions,” and “Spotty follow-through.”)
Make sure you have bullets that cover the whole breadth of the areas you’re involved in. Often, leadership teams focus more on certain areas, and that bias comes through on the SWOT. But the non-focus areas are often the places where there is the most opportunity, especially for companies that are developing from the lean-and-mean start-up to a more complete and sustainable enterprise.
So, here’s the question to ask about your SWOT to see if you’re getting the value out of it: “Does it give us insight into where we should commit significant resources over the next 3 years to improve our chances of success?” If it gives you that, then you’re getting the value you should. If it doesn’t, then you should take steps to upgrade it – which I’ll cover in my next post.
I have 2 clients who are focused on “accountability” this year, and it’s proving a hard row to hoe for both of them. Why?
Well, first of all, accountability is a somewhat scary term. If someone is saying we need it, then that must mean that we are not being accountable, and that sounds like someone’s not happy with people’s performance.
Worse, if there’s not a way to gauge performance, the people are likely to take a need for accountability as a judgment on their dedication. They’ll confuse accountability with work ethic.
It’s unfortunate that accountability gets this reaction. In Stage 2 companies, accountability is more about making things that used to be managed intuitively into things that are managed objectively. It does make a judgment about how people are working, but not in the way they think – accountability focuses on working on the right things, not the level of effort.
In fact, most of the time I work on accountability, people have a clearer sense of direction and less stress in their jobs.
I can spend lots of time talking about how to make your organization more accountable, but for now, let me finish by answering the question, “How do you overcome the initial resistance to accountability?”
I recommend 3 steps. First, before you bring up accountability, praise the team’s work ethic (assuming it deserves praise…if it doesn’t, that’s a deeper problem…), so that they know that you know they are dedicated. Second, give them an example of people spending more time in an area than they should. (Serving the bottom 20% of your customer base is a fairly typical area.) Finally, ask the team, “Do you have a way of quickly seeing whether the other people on the Leadership Team are succeeding?” If you don’t, then you’re probably spending more time than you should simply understanding how you’re doing, instead of diving into the issues that will make your business better.
Congratulations, Second Stage CEO. You’ve gotten customers, survived cash flow crises, created a vibrant team. And, now, at last, created job descriptions! You put it off as long as you could, because job descriptions are so un-startup. But you’ve realized that it’s time to get clear on what people are responsible for, so that there’s more accountability, and so that it’s clear whether that new hire is getting the job done (or not).
If you’re a young Stage 2 company – say, 10-30 people – your job descriptions can focus on people’s responsibilities – what they do…their functional tasks.
But if you’ve passed 30 people, you’re going to need more from your job descriptions – rather than responsibilities, you’re going to need to focus on competencies.
What are competencies? They are the things that people are able to do – which could mean making copies or putting a design into AutoCAD, or could also mean handling angry customers or juggling multiple priorities. Sometimes competencies are the functional tasks, but frequently competencies are behaviors that go beyond the task. Competencies give a much deeper view into what a person, position, or team is capable of.
Responsibility: process assessments
Competency: recognize errors and problem-solve when one is found
Responsibility: respond to customer inquiries
Competency: empathize with customers in pressure-filled situations
You need to know the functional responsibilities of your people. And if you look at the competencies you need in a position, you’ll paint a much richer picture of who can be successful, and what training your people might need.
I work with a relatively small Stage 2 company that recently changed over 40% of its staff – and is far better because they did.
When I started with them, they had several employees who had been great during the start-up. They handled the relatively focused and simple work that needed to get done, and they were flexible.
But then the company started to leave the start-up stage – client work came more regularly, there was less experimentation…and there was more work! The work got harder and more complicated, and it needed to be done on schedule.
After almost a year of struggling as a company, the leaders realized that many of their struggles were tied to not getting the productivity out of the team that they needed. The employees were still good people and good workers – but the company had different needs, and these people were no longer a fit. And, because these employees weren’t in jobs that fit for them, they were starting to create a negative culture.
This wasn’t an easy decision. Some of the workers were friends. Some had helped build the company. And, truthfully, the decision took probably twice as long as it needed to because of the loyalty the leaders felt to these staff.
But when it became clear that the business needed new team members, the leaders made the decision, and gave the old staff generous severances.
Then they found the right people for the environment, taking their time and thinking about what they needed.
The results are dramatic. The team is happy. The finances are strong. The work is interesting and fun. It really is a different company – because it’s a different team.
In Stage 2, the team is what is most important, not the quality of the work. I know it’s not easy to make personnel decisions, but there are huge dividends for Second Stage companies that take an active approach to Talent Management.
As usual, the TV show Mad Men is a hot-bed of intrigue again this season – and it’s especially fun to watch the workplace as a management consultant. There are a few lessons that Mad Men can teach Second Stage leaders about Talent Management.
The focus needs to be on people, not work. As Second Stage companies grow, they need to spend less time focusing on how the work gets done, and more time focusing on who is on the team and how they work together. The firm’s partners are still focused on their work, not on managing their team, and I expect that we’ll start to see the team dysfunction increase as the season goes on. (If it does, it would be natural for the firm to break apart at some point – team dynamics usually overtake good work.)
Culture needs to be managed. Sterling Cooper Draper Pryce, like every company, has a culture – the question is whether it’s consciously acknowledged and managed. And the key to culture is defining just a few principles that drive the culture. In this year’s premier, Megan calls out one of SCDP’s principles: cynicism. There’s no inherently good or bad principles – they just have to work for the company. My guess is that the other principles for SDCP would be creativity, individualism, and fun. It’s hard to have principles that don’t fit the executive team.
Manage your high potentials. Pete Campbell is a huge asset to the firm, but because there’s no one helping him manage his development and career path, he’s a problem. High potentials are great – in many ways the heart of Stage 2 companies. But they come with a cost – you need to make explicit, valuable investments in them.
I suspect SDCP could use a better strategic planning process, too, but that’s a topic for another post…
I’m working with a $2MM firm right now to build in a performance-based aspect to their compensation program.
Usually, I would follow a process of compensation strategy (guiding principles for how we make comp decisions) > compensation framework (the components that go into comp decisions) > performance framework (the specific definitions of performance). (If you want a full description of the process, you can get it from my book, The Stage 2 Owner’s Manual.)
But with a small firm, we’ll be able to skip the comp framework step. That’s the step where “What does it take for you to stay in the game?” changes to “What is the right amount to pay you?” It looks at things like market pay rates, and what the role of the person is.
If you’re a small Second Stage Company, the most important things to address when you upgrade your compensation program is why you pay people what you do – the overarching principles that are at play, and the specific performance drivers you look at. When you get bigger, or when compensation starts causing you problems, you can fine-tune your pay program based on some more sophisticated thinking about what makes up employee compensation. But that’s a short-cut that, in most cases, is fine to take when you’re smaller.
Stage 2 management focuses on getting approximate answers, not precise ones – and then using judgment to realize when an answer can be more approximate, and when it needs to be more precise.
Have you ever thought about the impact of over-paying, or under-paying, the staff in your Second Stage company?
If you are over-paying, then you are taking resources away from other parts of the business that would give you a higher ROI. Over time, you’ll under-invest in the areas of the business that make your company stronger, and the result is a company that is paying its employees relatively well while weakening the business.
If you are under-paying, the opposite is true. You are “mining” your employees for the value they create, and if they don’t feel rewarded, you will be faced with a triple-whammy – you’ll lose someone who was providing more value to the company than you realized, you’ll have turn-over costs, and you’ll have to spend more than you expected to replace that person.
Compensation is about aligning the rewards that employees get with the value that they create for the business. As your business gets more complex in Stage 2, that alignment gets harder, and more important.
You’ll never pay someone exactly the right amount, but making sure you’re close is important for you, your business, and your employees.