GrubHubMike

Opportunity vs Focus

Much has been said about the importance of staying focused in a business.  This has been one of the elements of success at GrubHub.  But I’ve always been a little bit uncomfortable with explaining this concept to colleagues.  Occasionally, someone will propose a great concept of a flanking product at our business with solid metrics and unit case analysis.  Often my response to the idea is “well, sounds good, but isn’t in our sweet spot”.  Yet it feels intellectually dishonest to dismiss a potential cash cow on a weak philosophical position.  On the other hand, we can’t evaluate every single idea, so where is the balance?

(Over)compensating with equity

I've been asked recently about how to compensate non founder employees at the beginning of a venture.  But there is a lot of confusion on whether to make everybody involved on day 1 a founder.   Most folks agree there is an upper limit on the ideal number of founders.  So taking that for granted, how do you motivate non founders with equity before you have cash? 

The usual method is to just give them a big chunk of equity  But that can get real hairy because you don't always know how to differentiate quality people vs total hacks.  So don't "give" equity to anyone.  Everyone should earn equity over time.  If you grant it all up front and then find out somebody is a lazy bum the company gets bogged down by a cap table with dead weight. 

GrubHub closes an $11 million round, and we learned something

GrubHub recently closed an $11 million funding round. Check out our official post here.   This is the third VC financing we’ve gone through, but it was the first time I’ve done the Sand Hill road show.  The process of seeking investment is incredibly valuable for a growing business.  It forces the executive team to take a step back and evaluate their business, progress and future plans.  Then you take those things and expose them to the scrutiny of very intelligent, engaged and motivated skeptics.  It's the best consulting money can't buy!  During the course of talking to some of the sharpest minds in Silicon Valley, Chicago and Boston, a number of themes came up repeatedly:  

Mobile is the future king

The growth in the late 90s and early 00s in web adoption is happening in a compressed 2-3 year time scale right now.  If you’ve got an investment pitch that doesn’t mention mobile before the 4th slide, you’ll walk away empty handed.  This goes both ways; investors that showed no interest in mobile were filtered out of the process very quickly.  

Lean Startup Economics

 Creating a startup is best done by jumping in with both feet.  Building a minimal product and finding customers early in the process is a great way to create a company from scratch.  The idea of WRITING A BUSINESS PLAN is such a daunting task that most reasonable people aren’t going to go tackle it head on.  

But there is an alternative, take it out one piece at a time.   The central piece of the business plan is the financial model.  The central piece of the financial model is the unit model:  a fancy term for the expenses and revenues associated with producing and selling a single item.  

A Practical Guide to Writing Your First Business Plan

 So you want to start a business.  You’ve heard that you should have a business plan.  You’ve got a vague idea that you should get started on that sometime.  That vague idea has been sitting in the corner getting grumpy as you’ve neglected it.  And now the idea is a mean looking little monster with big pointy teeth.  The best way to get that sucker is to take a step by step approach that breaks down this big “MAKE A BUSINESS PLAN” task into a bunch of smaller pieces.

Top 6 boneheaded misconceptions of first time entrepreneurs

 I’ve had some pretty boneheaded ideas since I started grubhub.com.  As I’ve shepherded my idea to a hobby and then to a real business I’ve had the fortune of being able to recognize some of those mistakes.  Actually, I’ve had the fortune of being surrounded by folks who can point out misconceptions and who have been upfront with me.  This process of learning from bumbling mistakes investors like to call seasoning.

I have noticed that some of these ideas have come up repeatedly.  Many of the other entrepreneurs and would-be CEOs I’ve met have struggled with these same ideas.

1. I have no competition

When I first thought about competition, I had a mental image of a rival gladiator.  Somebody out to get me. This foe will stop at nothing to steal customers that should rightly be mine.  They will woo investors with false tales of better products and superior talent.  Jerks.  

A Quick Interview

 A student sent me some interview questions for his entrepreneurship class.  I only had about 5 minutes to shoot off some answers. So, this is what popped off the top of my mind:

9 tools for growing a startup from 1 to 50 employees

 Here is a roundup of 9 tools for growing a company from 1 to 50 employees:

Tool #1: Revenue.  Apparently there are business models that are proponents of not making money right away, but I don't get them.  Cash allows an entrepreneur to hire people and resources to get things done.  At first it is all about increasing velocity on the sales -> product -> sales cycle.  Successfully executing that cycle then requires supporting activities... billing,finance,IT infrastructure, etc

The Third Office (50 employees)

 This is the eighth installment in my series on going from 1 to 50 employees.

We outgrew our 2nd office in 18 months when we went from 15 people to 50.  Two things have changed about the nature of the business during this latest evolution.  First, instead of being very scrappy with cash, we've loosened the purse strings.  Second,  vendor relationships have become much more important.

Promoting People (35 employees)

 This is the seventh installment in my series on going from 1 to 50 employees.

My view on management hierarchy underwent a 180 degree flip at around 35 employees.  For a long time I had been a big proponent of "We don't need managers and hierarchy, a flat organization works a lot better."  All well and good, but when you get above 15 people asking you for direction, you become pretty much useless to all of them. 

The Far Flung Sales Team (25 employees)

 This is the sixth installment in my series on going from 1 to 50 employees.

Most of the growth in our employee ranks came from a national sales team.  Once we got to 25 employees, 9 of them were out in different markets signing up customers.  The work experience for these valuable folks is very different from those of us in the office.  They work from home.They have minimal contact with their supervisor. Their compensation is very clear cut and based on performance.  How do you extend company culture to them?  Is that culture relevant?

The Second Office (15 employees)

 This is the fifth installment in my series on going from 1 to 50 employees.

Once we hit 15 employees, a lot of stuff that happened automatically before wasn't so automatic.  We moved into a larger office and communication started to get confused.  Seemingly simple sales and marketing messages all went through a disastrous game of phone tag.  Lots of simple things were added to help communication: cross department meetings, monthly strategy sessions, public calendar scheduling, etc.  All routine things for most businesses.  But they weren't routine for us, they were revolutionary. 

The Office (7 employees)

 Getting our first office was really exciting!  This is a continuation of my series on going from 1 to 50 employees.

One of my original claims to investors was "we operate efficiently without any need for an office".  At some point having an office stopped looking like a liability and started looking like an asset.  An office makes communication easier.  Best practices get shared.  Policies are easier to keep consistent.  At 7 employees, the cost of the office is very small relative to the cost of payroll,but the benefit to each employee is very large. So go ahead and get those  swanky new digs.

The Other Founder (4 employees)

The third installment in my series on going from 1 to 50 employees. After I had things up and running and did all the hard work, the other founder waltzed in.  Actually, that isn't accurate at all, but I like to give him a hard time about it.  Back when it was just a hobby, we spent a lot of time thinking about how to run the business.  As you can see by our detailed business plan:

The nice thing about having a partner is perfect alignment of interests. Shareholders have a different risk profile.  Employees have their own personal interests in mind.  Customers only want what befits them.  A partner provides a lot of peace of mind because you can discuss any issue knowing that you have the same goals and interest in mind.  There are a lot of things coming at you as an entrepreneur. Its nice to know somebody's got your back.

Divide and Conquer.  Most early hires made my job harder. I had to do a lot more work. More sales means more product enhancements and data entry. More people is more management. Additional folks add complexity and scope.  A partner, on the other hand, actually helps decrease workload.  Tasks can be divided. Competency and expertise in specific areas can develop.  Of course, you've got to trust their competency and integrity. Which leads us to tool #3 in getting more employees:

Tool #3.Throw away the partnership documents.  Get a handshake you can trust.  I swear we spent 100 hours arguing over the minutiae of our partnership document.  This was largely based on several people I knew who had been screwed by their partners.  The lesson to be learned is *not* about getting a long contract.  In the end, you just need to pick the right partner. Because, if they want to screw you over, they'll find a way regardless of what papers have been signed.

2 is company (2 employees)

The second installment in my series on going from 1 to 50 employees.  I used this first tool of getting to revenue as fast as possible, and now I have some extra cash to hire employee number 2.  What role should I hire?

The first role should be based on increasing revenue and product value, not on decreasing work for the founder.  In fact, this trend should continue through the first 5 or 6 employees. Hire more people, generate more revenue. Rinse and repeat until the pressure for ancillary tasks becomes great enough that they can no longer legitimately be called ancillary tasks.

Our first employee was a sales representative.  But really she was more than that, she was another entrepreneurial oriented person who was ready to wear a lot of hats.  She was ready to help refine our product and sales materials.  But be aware, salespeople by definition change the product.  So much so that I've got my own pithy saying about it:

"No product ever survives unscathed first contact with a person trying to sell it"

But how did I attract good talent without a lot of cash for compansation?  Well, that brings us to our second tool in going from 1 to 50 employees:

Tool #2: Options and Environment.  Finding and motivating employee #2 can be very challenging.  Options help (though less so in the midwest).  The right person for this role will be very interested in equity.  The right option plan will provide long term incentive when cash is hard to come by.  More importantly, the startup environment will be very attractive to the right person.  Meeting in coffee shops, lots of responsibility, and flexibility in direction should inspire rather than frighten early employees. 

Its Just Me (1 employee)

The first installment in my series on going from 1 to 50 employees.  You've got to start hiring somewhere.  So, start by hiring yourself. 

Before GrubHub was a business, it was just a hobby.  I played around with a website, got some information about restaurants, put together a business plan, had an advisory board did some advertising.  All of these activities certainly look like a business, but really they are just a hobby.  A great adviser told me... This thing will never get off the ground unless you really commit to it.   He was right. The mental difference between doing something cool and running a business to pay the bills is night and day.

Once I jumped on full time I found out quick that there was a profoundly large amount of work.  By necessity I resolved to do exactly 2 things: Sell the product by day.  Improve the product by night. Sure, there were a million other things to do... SEM/SEO optimization, business licenses, scalability, etc.  But I put all that on hold and went into a relentless, sell -> improve -> sell -> improve cycle for about 6 months.

Another important step was to commit to paying myself from day 1.  This isn't going to be a hobby, I'm not going to do this for free for 2 years.  If I can't support myself within the first 2 months, I was going to quit.  Which really just focused me to do the important stuff... make some money... which leads us to the first tool in the bootstrapped businesses toolbox: revenue

Tool #1: Revenue.  Apparently there are business models that are proponents of not making money right away, but I don't get them.  Cash allows an entrepreneur to hire people and resources to get things done.  At first it is all about increasing velocity on the sales -> product -> sales cycle.  Successfully executing that cycle then requires supporting activities... billing,finance,IT infrastructure, etc

Blog Series: From 1 to 50 employees

Bootstrapping my business from 1 to 50 employees has been a wild ride.  The nature of the business has changed a lot.  As it has, I've had to stay on my toes to adapt to the new realities.  There have been shifts in the nature of my work as I've needed to raise my own game and continue to be the right person to move the business forward. 

I think the next time I do this it might be easier.  I've got a toolbox now.  A set of principles and techniques to apply as the business expands.  They will need to be adapted, for sure. But it will be easier than starting from scratch.

Overall there have been 2 trends: The changing nature of my own work, and the changing nature of leading.  When it was just me, I did 100% of all work. Now we've got 50 people. I'm not going to move the needle more than 2% by burning the midnight oil to get that last sale, or piece of software written.

I'll chat a little bit about each of the following milestones:

• Its Just Me (1 employee)
• 2 is company (2 employees)
• The Other Founder (4 employees)
• The First Office (7 employees)
• The Second Office (15 employees)
• The Far Flung Sales Team (25 employees)
• Promoting People (35 employees)
• The Third Office (50 employees)

Bonus Post:

    9 tools for growing your business from 1 to 50 employees

Creativity and Focus in the Planning Process

So, we just finished our 2010 budget. As an organization, it was an incredibly productive experience.  One of the really great things was the process we used: A period of creativity and possibilities followed by a period of focus and tough choices

Start with divergence.  What should we do next year?  Increase our breadth? Increase or depth? Launch a new product line? Improve the current product line? Focus on customer loyalty? Focus on new customers?  Fund some R&D cases?  Engage with some expert consultants on new ideas?  Expand our development group? Expand our customer service?  Move towards inside sales? Move towards outside sales?

End with convergence. After about a month of brainstorming and fleshing out ideas, we ended up with maybe 8 or 9 really great ways to grow the business.  Now the hard part began.  Discussing and refining and collecting data and sifting options and arguing and the entire team coming to agreement on the plans. Then putting funding numbers behind things and further discussing and refining and sifting options. 

In the end, we have 2 or 3 really well thought out initiatives and enough resources to capitalize on.  I'm stoked about 2010. We're gonna crush it.

Budgeting... a novel experience... again

I'm amazed at how much budgeting changes from year to year in a growth company.  On the surface, everything looks the same: Financial models, margins, estimates, etc.  But in reality, it really is an organic process from year to year.  There are a couple reasons:

The business changes a lot over a year.  A year ago, we had a part time finance controller. This year we have an HR and finance departments.  A year ago, we *hoped* to be in 7 markets.  This year, we are in 7 markets and hope to be in .... an undisclosed amount more.  At the same time macroeconomic conditions and HR laws have been in flux.  

Effeciveness of capital changes.  Sure, we have some more cash to spend. We are a growth business after all.  But, $1 doesn't go as far as it did when we were a little leaner.  It takes a little more overhead to employ 2x as many people, it isn't a straight graph.  Ironically, while some things get less efficient other areas experience economies of scale.  We don't need 2 cleaning services.  A 2x increase in the size of the marketing team can handle a budget 10x as big. 

The Entrepreneur's Boss: Being The Internal Referee

In addition to being responsible to shareholders,employees,customers and the brand, the entrepreneur must be the internal referee to each of these groups.   While I have a legal/fiduciary responsibility to the shareholders, that doesn't exist in a vacuum.  In fact, a lot of effort must be applied to aligning those interests.  But every once in a while a conflict exists that must be arbitrated.

Short Term vs Long Term.  The easiest way to arbitrate conflicts is short term vs long term. Most conflicts are resolved by this simple rule:  Always act to the benefit of customers and employees in the short term and long term;  Always act to the benefit of shareholders in the long term.  In practice this means: don't sacrifice your employees and customers for short term shareholder value.  Of course, short vs long term is somewhat subjective.  In VC backed companies, it is usually defined to some degree by deal terms as well as investor portfolio timelines.  

When in doubt serve the customer.  Good employees and good shareholders see the wisdom of this.  In a global environment where the customer is treated so poorly by so many customers it makes sense they'll be on board with small sacrifices for the benefit of customers.  Simply because in the end, happy plentiful customers cover over a lot of problems, thereby obviating the need for further sacrifices!

When still in doubt serve the employee.  If the conflict is between the employee and the shareholder, it pays to benefit the employee if possible. Sure, sometimes its not possible. Sometimes budget constraints really suck.  But... in general, shareholders will agree that the best way to increase enterprise value is to get and retain great people

The Entrepreneur's Boss: The Brand

Entrepreneurs have responsibilities to a lot of groups of people.  There are also some more abstract, but still critically important areas to be cultivated in a startup organization.  Even while aligning and representing the interests of customers, employees and shareholders, an entrepreneur must maintain the quality and consistency of the brand.  Not just the consumer facing brand, but the tone for communication throughout the entire organization. 

Intentional Communication.  Read: "Shut the hell up, Mike"   At some point it became unacceptable for me to think out loud.  "Holy crap, we spent $100 on coffee this month!"  was a totally reasonable exclamation when I wasn't anybody's boss.  Now, that comment might be the only feedback our office manager gets in a week.  How demotivating!  Even in brainstorming sessions, which have been specifically designed for this kind of exercise,  I need to be careful not to make statements that curtail creativity.  My statements have the weight of organizational authority.  So I must be careful.

Consistency.  It constantly amazes me how I can make a statement 1, 10, or 100 times, and still find out that someone in the organization is relating the exact opposite concept.  Crazy!  The problem gets exponentially worse as an organization gets larger.  Ideas must be well thought out in advance, and then communicated concisely. Again. And Again. And yet again.

Responsible Transparency.  There are a sickening number of blog posts and conversations around the idea of personal vs professional transparency.  Basically, it comes down to a key principle: Be as transparent as possible without causing harm.  I think of this in terms of concentric circles.  In the most secure inner circle might be personal information and specific business strategy.  In the most open outer circle might be company culture anecdotes and business principles. 

The Entrepreneur's Boss: The Board

The entrepreneur is bound by contract to represent the interests of the shareholders as represented by the board of directors.  In most startups, where the entrepreneur is on the board, there is an additional legal and fiduciary responsibility to represent the shareholders interests.  Ain't nothing wrong with that.  When it works well, this is capitalism at its best.  Now, just to be clear, this does not mean that the shareholders are represented to the exclusion of employees and customers. In fact, if such an exclusion exists, the company is already a failure.  Usually, this means a few things:

Increasing enterprise value. Increase share price or pay out dividends.  I ain't got no MBA, but I sure as heck can't figure out what else a shareholder would actually want.  If you've started a high tech entrepreneurial VC funded business, don't try to pay out a dividend.  Good way to lose your job.  So, that pretty much leaves share price.  Now, there are lots of externalities here, but the idea is to govern towards positive trends: higher revenue, lower expenses, a few key ratios that exhibit a healthy company

Minimizing risks.  The shareholders trust management to be close enough to the business to objectively perceive and report risks.  I suppose there are lots of ways to minimize risk, but the most effective one I can identify is staying focused on a clear strategic direction.  Another key way to manage risk is to understand the absolutely essential expenses in the business and manage them to be lower than the overall revenue.  If things get tight, management shouldn't be cutting into bone. 

Aligning interests.  I've said several times in this series that representing the interests of shareholders, customers and employees should never be mutually exclusive.  This doesn't happen by accident, but by setting intentional direction for the company.  The mission of the business should clearly benefit all of these groups. 

Transparency.  Accurate reporting and auditing, accountability, and non tolerance of dishonesty.  These are absolutely critical in today's business environment.  Hire only people you trust, and then setup controls that don't depend on that trust. 

The Entrepreneur's Boss: The Customer

The closest thing to a boss that an entrepreneur has isn't the shareholders or board or employees.  The buck stops with the customer.  When it comes down to it, all the gizmos and gadgets and patents and hard work won't keep the competitors at bay.  At the risk of sounding quaint and old fashioned, the only real competitive edge is getting loyal customers by providing value with integrity. In practice, here are the principles I've followed:

Drive customer loyalty, not customer imprisonment.  Tough contracts and cleverly designed dependencies don't drive long term growth (or short term for that matter).  In the end, the best way to keep a customer is to provide such an incredible value that they gladly pay a premium for it and then brag about it to their friends.  An executive should ask this question about every decision... "Does this really benefit our customers in the long term" 

"Make the resolution more memorable than the problem" One of my customers gave me that advice when we were putting together our customer service team.  You can blow somebody away with generous and awesome service. They'll become your biggest advocates.  The business case for generous service can be hard to prove.  Honestly, I don't bother. I take it as fundamentally true that the cost of treating customers well is always outweighed by the benefits

Commit to rooting out the cause  Wronged customers don't want to be bought off.  They want to be fairly compensated for their trouble.  But, what they really want is to know that the root cause will be addressed.  So do it. Then brag about it. Especially back to the originally wronged customer.  No point in being great at servicing customers if they don't know about it!

The Entrepreneur's Boss: The Employee

The entrepreneur doesn't have a boss, but they are responsible to others.  Legally, the board and management have a fiduciary responsibility to the shareholders.  But, in reality, the responsibility is wider than that, especially with regards to employees. A company where the shareholders interest and the employees interests are mutually exclusive has already failed both fiscally and morally. How does the entrepreneur serve their employees?

Ensuring stability. Startups are by their nature risky environments.  Even so, an executive has the responsibility of providing as much stability and longevity as possible.  Given the relative inexperience of most entrepreneurs, this means surrounding oneself with knowledgeable advisers.  This advice allows an entrepreneur to intentionally balance growth and risk instead of being blindsided by emergencies.

Compensating fairly.  Pay at a startup company is lower.  That is perfectly fine as it attracts a set of self selecting coworkers that are looking for more than just the biggest paycheck at all costs.  To balance out the lower short term compensation the ethical move is to share upside. Sharing upside needs to be done with integrity.  The value of equity needs to be explained clearly along with all of the inherent risks.  Sure the mechanics are complicated and the future is uncertain, but it would be the worst kind of management to use that uncertainty to cloud details in an option plan instead of ensuring the greatest chance for a positive outcome.

Challenging to growth.  Compensation in today's economy is a threshold issue.  Folks don't work 10% harder for 10% more salary.  Instead employees are looking to make a fair wage and then gain skills and experiences that help them through jobs and challenges ahead.  The greatest thing you can offer your employee is a better chance at their next great job.

Influence instead of Authority.  I came to a shocking discovery early on in this "being the boss" adventure; a discovery I've learned repeatedly since.  It is the great paradox of good management.  Once one is in a position to command action by the authority of position alone, one must try to never use that power.  Building consensus, getting buy-in, inspiring passion, aligning values... these are the ways to lead.  Every time I've found myself resorting to the final lowest common denominator of "because I said so" I've recognized the event as a failure.  Sure, it happens from time to time.  But only when I've failed in my job as a leader.

The Entrepreneur's Boss

After getting muddled in a series on the Entrepreneur's boss, I'm gonna give it another try in a more condensed version:

One of the best things about starting your own business is not having a boss.  It is also a horribly inaccurate lie.  The reality is, one gets much more freedom, but a disproportionately more amount of responsibility.   While its true I don't have a boss, I do have responsibilities to different groups of people. 

The obvious one is the shareholders of the company.  In fact, I have a fiduciary and legally binding responsibility to them.  But, there are three other groups that I am responsible to as well: employees, customers, and the public (in the form of the brand)

So who is the boss? Well, there are several:

The Customer

The Employee

The Brand

The Shareholder

The Internal Referee

Cadence

Some things can be controlled, others can't. One of the keys to effective management is to work on the causes, rather than trying to dictate effects.  "Work Harder!" is not a good instruction. "Focus on such and such" is.  That's because the productivity is tied to strategic direction and sufficient resources, not frantic activity.

The last few weeks I've noticed that I spend a lot of time trying to control the cadence of initiatives. Its happened before, sure, but its never been such a consistently frequent issue.  Its been interesting to see. 

It happens as a result of fast paced hiring.  The evolution goes like this:

1. Identify work that needs to be done.
2. Hire somebody to fit in to the company and get it done.
3. Identify more work to be done.
4. Hire additional folks to get it done.
5. Rinse and repeat

At some point, there isn't valuable work being identified.  So, the process stops for a time. But, everybody in the team gets used to this ever increasing amount of total work to be accomplished. There needs to be a conscious effort directed towards controlling the cadence of the work.  Otherwise the hiring goes on ad infinitum. 

So I say... "Whoa there big fella! Take it easy!" 

Somebody in charge

You'd think that when you hired another person, the number of unattended items would decrease. But there always seems to be something that gets handled by a committee of people "when they get to it"  This is a terrible way to get stuff done. 

Teams and groups function much better than kings and servants.   But some single person needs to take ownership of a project.  Not necessarily the big boss.  Just somebody who is responsible for seeing something from beginning to end. 

The reality is that this won't ever happen for every possible task in an organization.  That is where strategy and prioritization come in.  But, hopefully, all the truly important things will have somebody in charge.

Stand on principle; Swim on style

The last few weeks have been all sorts of interesting for me at work.  Our company has grown in size. And with that growth, we've seen a few of the things that one would expect as an organization gets larger.  Friction betwixt departments that develops from difficulties in communicating; evolving a new company culture as new personalities enter the organization; helping our new folks feel comfortable and our old salts excited about the change. 

I alluded to the fact that when one is committed to hiring really talented people, one must be willing to accept that there will be differences in opinion. Everybody will be a little bit uncomfortable.  I came across this quote yesterday:

In matters of style,swim with the current; in matters of principle, stand like a rock. -Thomas Jefferson.

So, that is great, but what is style vs principle in the context of where I work?  Actually, as I reflected on this, I was happy to be able to think about our core values as the matters of principle.  In addition to that, there are just one or two things within my specific work domain that I really adamantly stick to.

I guess the upshot of all this is that I'm realizing that most of the heated discussions in the office are more about style than principle.  Allowing these kinds of discussions and decisions to just happen instead of controlling them.  Further, exercising dominant control isn't strong leadership its acting out of a sense of being threatened.

I'm a little uncomfortable

I'm a little uncomfortable, and I'm loving it.I like it when people present ideas that I'm uncomfortable with.  If I were always hearing things that I agreed with completely, that would be a very dangerous sign.  My ideas aren't always the best. In fact, I try to assume that on the best of days I'm batting about 80%.  Some would claim that I've been below that on occasion... If I weren't being presented with uncomfortable ideas, I would look to these potential causes:

1. Being surrounded by homogenous opinions.  This happens when a person is around peers exactly like themselves. They develop policies and opinions in a vacuum of critical thinking and diverse thought. Yikes.

2. Making decisions unilaterally.  My decisions are law. All will love me and despair!

3. Communication has broken down.  Generally, this has happened to me when I get to busy to just sit and listen. I've tried to battle this by dropping down my scheduled work to accomplish the goal of availability. 

Show me the data

I was speaking to a member of our team last week. He had a really great point about how we should be doing something that I totally agreed with. So, I told him to go back to the drawing board and convince me. What!

As an organization grows, there are more people involved. Even at the senior level.  Only a few months ago we had 3 senior management members, 3 more board members, and 4 board observers.  Since our series B investment, we have another 5 people involved in these decisions.  Each additional person exponentially increases the risk of your argument being derailed by speculation or opinion.  So use data. I've been trying to present my cases with more clear and concise data that backs up my intuition.  This becomes more and more important as people join the company.

As we've adopted this data focused decision making approach, I've noticed a subtle and disturbing trend:  opinions being presented as empirical evidence.  The statement "The users would feel very good about this feature"  is a long way from "We tested 10 users and they all felt very good about this feature".   Speculation about user behavior is not the same thing as actual data about user behavior!   I recommend usertesting.com to test integration features before they go live.  I've also started investigating userfly.com for live site video sampling

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The slowdown...

As the startup I'm involved with has grown from 2 to 20 to 40 people, I've noticed that decisions take more time than they once did.  This has been a positive change.   There are a few legitimate reasons that we've become more deliberate:

1. We have more data available than we used to.  It used to be that a lot of our decision were based on intuition and speculation.  This worked pretty well because the people involved were experts in most of the decisions we were making.  This doesn't work too well anymore.  For example, how can a person know if moving a button 10 pixels will increase revenue on a website?  You might be able to guess, but the only way to know is to do an A/B test.  It used to be this kind of stuff didn't matter as much. Which leads me to the next point:

2. Decisions have bigger impacts than they once did.  A 5% increase or decrease in conversion rate has a much bigger absolute revenue number associated with it.  So, while we can still be bold about choices, we need to examine the impacts more carefully. There are more mid course corrections and final tweaks. This means that a decision is takes longer to become  "final".

3. More cooks in the kitchen.  We've hired a lot of talented people. So, we naturally have more ideas to sift through. More opinions to evaluate. More priorities to juggle.

4. More users for our product.  A human acts one way. A group of humans acts in a totally different way.  Making changes to our product offering can have very negative impacts even if the change itself is judged as better.  So, we take more time to evaluate our customers reactions *before* changing everything.

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i.c. stars

I had the pleasure of going to the offices of i.c. stars yesterday to address a group of about 20 up-and- coming professionals about entrepreneurship. The Chicago based organization aims to develop adults with a high school diploma or GED into community leaders.  Participants learn a wealth of information about technology skills, personal development and leadership.

I was thoroughly impressed.   If I have one pet peeve of community based non profit organizations is that they lack professionalism. Or worse, that they confuse stuffiness and formal dress codes for professionalism.  Not so at i.c. stars. . As I was introduced to each member of the current cycle, I saw a sense of pride in each others accomplishments and satisfaction of a shared journey towards a common goal.  Here is a group of people with a palpable hunger for learning and self improvement.

The Q&A session blew me away.  They asked more insightful questions than any group I've ever spoken to.  Here are 3 of them (and my answers):

How do you pick the ideas worth working on from the huge set of possibilites?

The essence of strategy is choosing what not to do.  The natural inclination is to try to do every good idea.  Instead, pick a single idea and follow it through to fruition. 

How do you prioritize with so much going on?

Do less. Keep your to-do list to 2 things for any given time frame.  Don't focus daily to-dos. Try to keep it at the weekly level at a minimum.  You'll have different to-dos for different time frames.  What 2 things do I need to get done this week. What 2 things do I need to get done this month.  What 2 things do I need to get done this year, this 10 years, this life. 

I feel very nervous about the new technology I'm learning. Will I ever feel confident? 

I got a masters in Computer Science from MIT and worked for 3 years as a programming consultant during school.  Yet, I felt like a total impostor for the first 4 years of work.  Conscious incompetence is the ideal mode of operation.  That is the best union of learning and execution.  If you are comfortable, you aren't challenging yourself.

A great talk by Carly Fiorina

I've been going through the talks on Stanford's Entrepreneurship website.  They host a series of talks by technology industry leaders.  Lots of different topics.  Usually followed by some great Q&A.  In particular, I really enjoyed former HP CEO Carly Fiorina's talk: Leadership and Capability.  Its a gem. Here are some of the notes I jotted down while listening.

• One must distinguish the truly important from the merely interesting
• A leader's job is to see possibilities and to help people seize possibilities
• Some early leader's in Carly's life recognized talent in her: "They saw potential in me and it made me see potential in myself."
• Everybody is afraid of something. Most people are afraid of something new. Thus you must give them some vision to strive towards
• No company can rely on its history.
• If values matter, then you need to coach,develop and measure based on those values.

There is also a really solid Q&A at the end. It starts out with a disgruntled former employee who uses the question time to attack the speaker.  She handles the situation smoothly and firmly.  A great example of handling conflict. 

Great Reading

I've read the Seven Habits of Highly Effective People a couple of times over the last few months.  I gotta say. Wow. What an incredible book.  I was skeptical at first.  Primarily because the book has been so extensively read, reviewed and discussed. Further because it is a little bit dated.  But then I realized that shouldn't matter.  Neither the source nor date of an ideas origin has any impact on its truth.  So, instead of sheepishly admitting I read this book, let me say it more clearly.  This book is amazing. 

The thing about really great books on management or marketing, or self improvement is that they are both profound and mundane at the same time.  They usually don't have a whole lot of new information.  The ideas are things that I've seen before. You could usually sum up the whole thing in a single sentence.  And yet, these resources are incredibly valuable to revisit again and again.  The key to real change is constant pressure over time. So, any resource like this is by its nature going to be somewhat repetitive but incredibly useful. 

Here's the best stuff I've been going through lately:

The Seven Habits of Highly Effective People - Stephen Covey
Summary: Understand your end goal, prioritize according to that, play nice with others, rinse and repeat.

The Tipping Point - Malcom Gladwell
Summary: Quality, not quantity determines dissemination of information

Leadership and Choice lecture by Carly Fiorina (former CEO of HP)
Summary: Distill useful information. Catalyze change by providing vision. Do the right thing.
Find it here: http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1679

The One Minute Manager - Blanchard & Johnson
Summary: Set clear expectations. Let people shine or fail. Praise or Reprimand. Rinse and Repeat.

Conscious Incompetence vs Complacency

I had a discussion last week with a coworker about complacency.  We were discussing the importance of continual professional improvement.  Being complacent is very bad. If I'm not improving, I'm being left behind. But, its also a perception issue.  Whether its my employees, my board of directors, or our customers, the perception of complacency can be cancerous. 

Shameless self promotion isn't the answer to this, so what is?  Perception management gets a little too close to the dark side for my taste.  Further, one can't get wrapped up in a litany of self improvement techniques. Neither is it useful to be paralyzed with introspection.   

I suspect the key is getting to a place of conscious incompetence.   That is, identifying those areas which need improvement and taking a measured and consistent approach to addressing them.  Combining this with transparency is good enough for addressing perceptions.  At least... I think it is.  We'll see.

Playing Nice at Work

I think one of the keys to being effective at work is being a pleasant person.  Primarily its about not being self focused.  "Seek first to understand before being understood"  Probably the most important point from the very good book: Seven Habits of Highly Effective People.  It is nearly impossible to set goals and share execution strategy with folks if you are bickering about the strength of the coffee. 

I'm pretty sure that one can't just be a nice person by decision.  Sure, that is part of it. But, I think the real key for this the last couple weeks has been a very satisfying side effect of better time management.  I've been pretty good at decluttering my schedule lately.  Its had some really fantastic results.  A coworker of mine shared the sentiment with me last week: This has probably been the most productive week we've ever had at this company. 

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One In a Million Crazy

I'm a big fan of giving good customer service. If a company is going to do it, they need to do it right.  That said, there are some serious crazies out there.  Let me be perfectly clear, I'm not talking about individuals who have mental illness. My heart goes out to them, and as a community we need to provide support.   Also, I'm not referring to customers who have had a bad experience and are angry and irritated by a failure.

Now, if in a given night lets say a company handles 5,000 orders.  You would have 5 people who have had a one in a thousand difficult to work through situation.  Those 5 people. Not crazy. In fact, this is where customer service really shines. working through these one in thousand bad circumstances. Great opportunity. Embrace it.  Even a one in ten thousand bad situation.  Try to give the benefit of the doubt.  Its sort of the tipping point between going as far as possible to rectify a situation and tossing your hands up and saying: "nothing to be done, that sucks". 

One in one hundred thousand. Now this is crazy.  The odds are against you now. If you find yourself in a situation where somebody could help 99,999 people, but not you, its probably because you are crazy.  Now, if its a one in a million kind of experience. That means that there are at most 349 other people in the country with a chance of being crazier than you. No need for hyperbole here.  Once a company passes one million transactions. There is exactly one that fits this distinction. 

If you are worried this may be you. Let me illustrate some warning signals:

1. If you engage in sexually explicit conversations with customer service, the problem may be on your end.

2. If you threaten to call your friend in the states attorney's office. Your understanding of the American legal process and definition of the word friend may be called into question.

3. If you claim to have deep understanding of the inner workings of the company you are talking to, you might need to challenge some assumptions.

4. If you call a customer service agent a liar, you may have a misunderstanding of the point of all this.

5. If your goal of a phone call is to make somebody cry, you may need to think more about your moral value system.

6. If the person on the other end of the phone can put you on mute and you don't notice, its not really a helpful conversation.

7. If you are *always* angrier after talking to any company's customer service, you may have problems with rage. 

Why have core values for a company?

One of my coworkers mentioned to me about a year ago that it was really hard to make decisions of a moral nature in a company because each person in the company has a different value system.  The problem is compounded because pretty much everybody unconsciously assumes that everyone else around them is working from the same system.  Expectations and reality are way different. 

But does it matter?  I talked to CEO's, employees, friends, family about this. I got a huge range of answers as to why it matters. Here's a sample:

• You want to make sure that when an employee is making a decision in the middle of the night, and nobody is around to discuss it with, they have a good framework.
• Doing the right thing is important so that it comes back around to you.
• You need to act according to values because if you don't your customers might find out.

Wrong!  These are TERRIBLE reasons for defining core values.  The problem we are trying to solve is what do we all think constitutes "right".  Not why we do the right thing. Its a process of disambiguation.  Here is correct answer for why we do the right thing.

    Our company does the right thing because it is the right thing to do. 

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April Goal: Minesweeper at work

One universally held truth is "I'm too busy."  I've been thinking a lot about this quite a bit over the last months.  It's a trend that is heightened with GrubHub.com's recent series B funding.  A natural outcome of funding is to think about the possibilities we have to put those resources to work.  This is entirely appropriate.  Its also entirely appropriate to be very selective about the things that we actually move forward on. Its a tension that should exist in the mind of any executive (presidents creating national budgets are not exempt from this )

One of my goals at work is for us to work smarter, not harder (washing machines work hard, but they don't create disruptive technologies).  In direct opposition to this edict is the fact that I hate being inactive at work.  If I have a single spare moment, I'll code up some new prototype or proof of concept. Or, I'll fix the next bug in the priority queue. In engineering principles, this is called having a tightly constrained system.  Works well under known stress, but fails catastrophically outside those parameters.

So, while I probably won't actually play a lot of minesweeper, I do think I'm going to try to have more intentional breaks throughout the day.  The goal will be simply to take my hands off the keyboard, keep my mouth shut and think about stuff.

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Bootstrapped revenue models are good for first time entrepreneurs

The traditional approach to attracting venture interest is to present a high impact and  game changing concept. At the same time, one needs to convince potential investors about the competency and drive of the management team.  It's extremely hard to accomplish the latter as a first time entrepreneur.  The best way to do it is by presenting a fait accompli: wow your investors with an existing, bootstrapped business.

The key is to make sure that your existing revenue represents the opporunity from the unit model perspective.  I was repeatedly advised to build a business plans from the bottom up with the unit model clearly defined and then extrapolated.  The reasoning works well from an analytical perspective. It works even better when presented as empirical data as opposed to speculation. 

The next step is figuring out the growth paths for the business; then picking one as the winner. You gotta bet on your horse to win, don't spread your recommendations around a selection of possibilities.  In the end, being strategic is about choosing what NOT TO DO and keeping focus.  If you don't believe me, try modeling out multiple possible growth paths in a single excel spreadsheet. If you can't do it analytically, think how much harder it will be trying to do it in real life!

Even very agile companies look very brittle in the short term.

 Even very agile companies look very brittle in the short term. At GrubHub.com We have a weekly product update cycle. We keep very aggressive deadlines, try to keep meetings short and generally don't screw around.  Sometimes we take a step back and say "Damn! we get a lot done" 

So why is it that we look at the stuff we want to get done and despair that some of the important projects are always just over the horizon?  We do a pretty good job of keeping things lean.  So what gives?  Well, its a matter of scope.  When you are looking at implementation on too short a time scale, expectations grow out of whack.  So I'm coming up with a new rule:

My implementation calendar is on a weekly basis.
My evaluation calendar is on a monthly basis.

Hopefully this will keep my strategery from experiencing the phenomenon known as thrashing in Computer Science.  I'll let you know how it works out.

A strategic business changes exactly 1 user behavior

Changing consumer behavior is utterly difficult. It can also be very rewarding.  Some of the biggest winners of the last 10 years of web businesses are the ones that get consumers to adopt a new way of doing a single thing and stick with it.  Amazon, Google, Opentable, Ebay.  Each of these companies have changed exactly one aspect of a consumer's behavior and made it part of their background process.

It's all about easy adoption.  The thing that we want to change about a consumer's behavior at GrubHub is that they think of us first.  Not the yellowpages. Not their menu drawer.  Not their mental list of favorites.  Once somebody does that, everything else is an option. Want to order by phone?  Ok.  Like a restaurant that doesn't pay us? Go ahead, order from them!  Like using coupons? We got em.

The opposite of this is a company without focus. One that tries to change everything about the way a consumer interacts with the world.  Facebook is a good example.  They want to be social network, messaging platform, address book, microblogging platform and company branding engine. They are the exception that proves the rule. I'm not saying it doesn't work, just that its a longshot. Facebook got it right.  Friendster, iVillage, myspace, and Yahoo didn't.  I'd rather just go to Vegas. Lot less trouble. Same odds.

Leadership Style: Da Coach

One of the guys I works with has a brain that works completely around sports.  If I were to give him a non sports analogy, his head would explode.  Works for him though; so who am I to judge.  Well, I guess technically, I'm the Big Boss.  So thats who I am to judge, Biatch!   The most important aspect of this style is the desire and commitment to your peoples.  You urgently want them to improve themselves personally and professionally.  There's always a next level to reach for.

The key to a well oiled coaching machine is in the recruiting.  It all starts from the first interview.  This attitude says: Its OK if we don't get the perfect skill set. I'd rather have a great person who works hard that can learn the skills rather than an experienced employee who is less than totally motivated.  One hires with the intention of bringing people up to the next level or "raising the boats" as I heard Chuck say earlier today.

There's a gotcha here.  You gotta be careful about getting the wrong kind of person reporting to a coach.  Overqualified or Undermotivated individuals are poison for the team spirit and sense of opportunity that a coach fosters.  The only way to make this work is a hire slow/fire fast mentality.  You can't rush into getting the wrong person, and you can't keep the wrong person around a second longer than necessary.

Hard work is the unspeakable defensible position

My co-founder at GrubHub and I have engaged about 30 venture capitalist firms over the last 2 years.  As a result of that process we've learned quite a bit about things you absolutely never say. These are trigger words that get you mentally thrown out the door before the meeting is physically over. Here's a short list:

-These numbers are conservative
-We don't have any competition
-This budget has some padding in it
-The founders were looking to get some liquidation this round
-It's an execution play (if you are a first time investee)

There's probably a bunch others. But the one question we've always had a really hard time answering is:

What is your defensible position?

The problem is this:  Can a larger funded entity with this exact same idea execute this better than you and take the market.  Unfortunately the natural answer to this question is yes.  There are a few things that can prevent this: patents, trade secrets, private data.

So, what is defensible?  Hard work.  That is, if you are willing to (or better yet already have) put the focused energy into building something that is inherently difficult to build odds are that nobody else is going to bother.  Or at least very few people are going to bother.

One example of this would be building a model with network effects.  The classic example is fax machines. Everytime somebody else buys a fax machine it makes my fax machine more valuable.  This was especially true when only 500 people had fax machines.  Now every office needs some device that works on the fax machines' protocol even though we have better technology to do the same thing.  Another example is data collection. Look at some of the big data aggregators like InfoUSA.  They supply sales and content data to some huge percentage of businesses.  Its just too darn hard to go out and collect all that data manually.

Now obviously, you need to have something in place to protect the results of your hard work being easily copied from you.  But, that is really just a matter of more hard work ;)

Photo Credit Dawn Nakashima

Leadership Style: Execution Expert

Turns out it is pretty important to get stuff done.  I found out something as we went from 1 employee to 30 employees.  Getting things done yourself is a very different skill than helping others get things done.  Sure, there are some similarities.  Being detail oriented and having good time management skills are certainly critical.  But there is something more to it than that with a group of people

You need to be able to provide a definition. There is a wide spectrum of needs among different employees.  Some folks with a lot of drive and initiative simply  need to be given a framework within the larger company goals.  Other folks are less experienced and so need more detail.  The important thing here is to avoid micromanagement.  The only thing I've found that works is to avoid comments on How and focus on What  To that end, the Socratic method works pretty well.

The second pillar in managing execution is measurement and feedback. An ongoing process works well. Personally, I'm a big fan of defining metrics in a collaborative manner.  As a team, you and your employee try to determine what metrics measure success within the larger strategic framework. After that exercise its the employee's responsibility to give regular updates.  This provides transparency and clarifies responsibility.

One of my regrets at GrubHub.com has been not having this figured out earlier.  Its probably been my biggest growth area.  One of my personal goals is to continue to improve this until I get to be the kind of execution expert described here

Leadership Rule no. 3: Respect

We had a bit of conflict around the office last week.  I've spent a lot of time thinking about the root cause.  Sure, there are all sorts of conflict resolution techniques. Forget that crap!  I want to know why?

Its not disagreement. We have disagreements all the time. Passionate disagreements about things only very professional people would care about.  We disagree sharply and vehemently about 5 pixel placement of images on the website.  The kind of arguments that exhaust all involved. At that point, the only thing to do is put on another pot of coffee and play a set of rockband.

Conflict is worse than this.  These are the kind of discussions where there is a lot of time spent on who said what, and when they said it, and how they were wrong.  The conversation focuses on the problem, not the solution.  There is anger and frustration and little forward progress. 

That bit about the lack of forward progress really tipped me off.  We've gone through an exercise where we were trying to develop a better attitude towards our customers. We weren't making much progress. It came down to respect.  First, assume that everyone in the room is working towards the same goal and that each person is acting rationally and trying to find a solution. 

Actually, this pretty much did it.  We finally sat down in a room and every 10 minutes I would restate the assertion:  We're all trying to find a solution. We are all capable of finding a solution.  It took a few iterations, but the realization came to all of us that not accepting this premise about every other person in the room represents a deeply disrespectful attitude. 

And now we make cookies and sing care bears songs all day long.

Leadership Style: Socratic Teacher

What is your quest?  What is your favorite color? 

A leadership style I've been in close contact with lately is the socratic method.  Generally, the Socratic method is associated with academic instruction.  Lots of law schools use it.  Basically it is the technique of attempting to teach through asking questions.  Now, there are two ways to do this:

Ask a question of somebody so that they can begin to discover an answer that you already have in mind.  In this case, you have planned out a flow of logic and reasoning that you are prompting the answerer to reach the same conclusion you already have.  With a well thought out chain of deductive reasoning and an awareness of the answerer's mood and engagement this is an excellent way to teach a concept.  Of course, done poorly, you'll just seem like an insufferable know it all!

Another approach is asking questions with an open mind as to the deductive conclusion.  This isn't as good a teaching tool, but has other uses.  The first benefit is that I can verify my deductive path.  That is, I can challenge assumptions not just about my conclusion but of my reasoning as well.  The second benefit is that it presupposes a professional respect between the participants in the conversation. 

Both approaches have a place. Sometimes, you know something, and you know you know it, and you need to get somebody else to know it too!  Hopefully more frequently, you think you know something and you can use the second method to challenge your knowledge. This latter method has more potential for personal growth.

If you're going to use this method, put a lot of thought towards giving Respect liberally

Leadership Rule no. 2: Avoid Strategic Scope Creep

People are helpful. Very helpful. They have all kinds of ideas about your business.  You know the business I'm talking about? The one that you've slaved over for years and poured countless hours thinking about and meditating on.  The one that can sometimes be blamed for damaging your personal relationships.  Yes, that business.  Odds are, every day you'll meet somebody and within 10 minutes of them hearing about your model, they'll have an idea about how you could be doing it better.

But its not just strangers and cab drivers that have ideas about new and exciting things you could do.  Employees, bosses, board members, advisors, pundits, and circus clowns.  Pretty much everybody will tell you what that next killer feature is.  You'll even tell yourself that!  Very exciting.  Lets do it!

Fortunately, the technology leader has a secret advantage: developers are uppity.  Uppity developers are the fortuitous crutch of technology strategy.  It has to do with resource scheduling. Something most managers understand well.  So, managers will prioritize and schedule lets say 6 projects in a given year.  About 2 projects and 5 months in, everybody will realize that the 6 projects won't get done that year. Developers will get very frustrated that their managers don't understand that project timing is an output, and not an input.   In the end, 2 or 3 of the projects get scrapped. 

Now, this is really fortunate.  The projects that get scrapped are ultimately scrapped because a more accurate assessment of the cost of the project has been forced down everybody's throat.  Unfortunately, if a project isn't bound by technology resources, no such correction occurs.  Which brings us to this premise:

Great strategy is about choosing what *not* to do.

What is forced on us from a technolgy standpoint should be embraced with open arms:
-Project timelines are an output, not an input
-The actual cost of a project is always higher than initial estimates
-Lower priority projects are better *dead* than *delayed*
-Quality  "if time permits" is the same as "no quality at all"

Leadership Style: Opportunity Creator

In our offices, we often have a very healthy back and forth between the desire to innovate and the importance of execution.  Innovation is critical not just in new businesses, but in every stage of a businesses lifecycle. 

Opportunity Creators Find Subtle Ways To Innovate

Some people can get folks excited with novelty. Others use the promise of massive returns for little investment. That isn't what I'm talking about here.   *Really big* ideas germinate on a timescale measured by years.  Opportunities are found in the timescale of days and weeks.  A really good opportunity creator measures success by incremental gains that have compounding effects over time. 

Opportunity Creators Enable Team Members to Adapt to New Ideas

The people who bring about the best change are catalysts more than they are visionaries.  The best leaders in innovation stretch people to take a good idea and make it better. They help a team use accomplish a goal with less resources than they had been doing in the past.  For the most part, talented people are able to improve their own product.  A great opportunity creator can make one of these talented folks question their own assumptions and challenge their own standards. 

Strategic scope creep is the downside of an opportunity creator run amok.  More on that in an upcoming post...

Leadership Rule no. 1: Humility

The King is dead, Long live the King! 

In today's technology careers, bosses are their own worst nightmare.  Every talented person I work with is empowered.  Bosses turn empowerment into entitlement.   Each little king rules his own cubicle domain. Master of all he surveys!  Rather than being the boss, the effective leader levels the playing field.  But, by refusing to be the king, he does away with the little kingdoms.  The difference between the bombastic tyrant and the energetic leader is that the leader has some humility.

Be Quick to Apologize.
In almost any conflict, I can find a justification for my actions.  With some introspection, its easy to find some self deception in that justification.  If you've wronged one of your employees, apologize. Sincerely.  Being a leader has very little to do with being smugly "right" about a conflict.   

Practice Non Entitlement
You are not entitled to respect. You don't deserve a better parking space. Your desk should not be nicer. Your chair should not be more Aeron-ish.  Your designs are not sublime.  Your ideas are not faultless.  You don't get the last chocolate munchkin.  Your salary doesn't make you correct.