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Hiring for Fit Gets You to IPO, but Over Time, Hiring for Potential Wins

I was DMing Wharton Professor Adam Grant before he even finished delivering the talk describing different startup hiring models and their correlation to success or failure.

“Adam, what was the research you were referring to?” I was almost afraid to look at his reply, like Indy averting his eyes when the ark is opened. This is too much for us to know! The actual research about whether culture fit hiring impacts success or not!

indiana ark

Adam pointed me to this research study, Organizational Blueprints for Success in High-Tech Start-Ups [pdf], by two Stanford professors, which tracked 200 companies. They categorized the 200 by their employment blueprint – what were the criteria they used for hiring. Screen Shot 2015-11-26 at 5.05.00 PMAttachment is what binds the employees to the organization. Selection is the primary judgment criteria for how employees are hired. Coordination/Control covers how work is managed, decisions are made.

“Commitment” is what might be commonly referred to as the culture fit model and it dramatically outperformed others with regards to whether a startup failed or not.Screen Shot 2015-11-26 at 5.02.58 PMBut since the goal of a startup isn’t to “not fail,” but rather to succeed, here’s the correlation between these org models and IPO.Screen Shot 2015-11-26 at 5.03.13 PMCommitment for the win!

BUT what happens post IPO? Of the companies that go public from each org model, what happens once they’ve “succeeded?”Screen Shot 2015-11-26 at 5.03.21 PMWhoa, Commitment starts to seriously lag and Star outperforms (Star means hiring for sheer potential of employee).

What happens? Well, Commitment starts to calcify into stability and group think – this is who we are and the way we do things. But Star continues to bring in fresh blood able to step up and create new disruptive ideas, reinvigorate old product lines and basically maintain the attractiveness of the company for best and brightest.

The paper describes how changing blueprint midstream is actually quite difficult, but I wonder if the exceptional companies are able to navigate these switches, or if they’re just outperformers who stay consistent with an HR blueprint.

Thanks to my grad school classmate Ed Batista for discussing this paper with me too!


“The Core Value of a Good Leader is Humility:” Sam Schillace, Box Engineering SVP


I first met Sam Schillace when we were both product leads at Google. It was clear that Sam was a builder – and one who combined maker chops with thoughtful management. Now as SVP of Engineering at Box, he’s had the chance to scale their engineering team and help take the cloud collaboration company public. Earlier this month, I was at an event where Sam mentioned he writes a letter to his Box engineering team every Sunday. Here’s some more detail about that practice and other ways Sam approaches leadership.

Hunter Walk: Ok, is it fair to call you the “Father of Google Docs?” I don’t think many people know you started the company (Upstartle) that built the product (Writely) that Google bought in order to launch Docs.

Sam Schillace: Well, there were a lot of people involved with that success, but it’s true that people often refer to me that way. I was one of the founders of Upstartle, had the idea and wrote the first version of Writely (I was interested in experimenting with what was then called AJAX and some new browser capabilities around text editing). At Google, I was the engineering director responsible for Docs and I created and led the teams that built the powerpoint replacement, and the drive interface (though it was just web based then, and I did have the early drive team working for me). My team also did the Google Apps/domain builds/integration. There was a team in NYC that built the spreadsheet app (they were another acquisition), and that team now runs all of GDocs today.

HW: Since Google you’ve moved on to lead Engineering at Box. How large was the team when you came over and how has it grown since? What do you look for in a “Box engineer?”

SS: We don’t talk about specific numbers of engineers (public company, yay!). The team is about 5x as big as it was when I started. It’s been a lot of fun to grow it.

We’ve learned that one of the most important things to look for is someone with a high emotional intelligence who contributes to the culture. We look for people who are flexible, passionate, and have a sense of responsibility and playfulness at the same time. We care deeply about our customers and we care deeply about being a great team of engineers that builds software that works for both enterprises and for end users. So we want someone who is a very solid engineer, who cares about customers, who wants to be in a startup environment, but who also has a strong sense of engineering quality and skill. We test for both engineering skill and the softer skills.

HW: You told me the other day that every Sunday you write a letter to the entire engineering team. When did this start and what’s the motivation behind the practice?

SS: It actually started out as a personal accountability exercise – I think it’s very easy to fool yourself as a senior leader about your effectiveness, so I was trying (in Google snippet style) to just document my goals and accomplishments each week, in a transparent and accountable way. The problem was that so much of what I do as the leader of the org has some aspect of either confidentiality (like HR or M&A) or context that’s hard to explain (perhaps the early stages of a new product or technical direction), that I wound up eliding most of it. So I shifted over into some more personal and cultural thoughts, and it just sort of took off from there. I’ve been doing it since the very first week I joined, and I’ve only missed a few – and even then I always have one of my folks write it instead.

HW: Can you tell us a bit about the contents of a typical letter? Or maybe a not-so-typical one – for example, what was the letter like the week Box went public?

SS: I’ll typically talk about something I’ve noticed during the week that I can apply generally. Lots of them are about growth – I explained some things like Dunning-Kruger and how it relates to impostor syndrome, sometimes I’ll talk about design philosophy and how to think about what needs to be done first (we had a long conversation about “first things first” at one point). Sometimes they’re more practical – I did a long one on liquidation preferences and how they inflate valuations, right before Sam Altman wrote his blog piece on the same thing. I’ve written a lot about the value of humility in leadership and how that manifests, and sometimes I’ve used them to take ownership of mistakes I’ve made or challenges I see in the organization. They generally have some personal aspect to them as well, because people have asked for it and I think approachability is very important as you get more senior in an organization. So I walked through my recent winemaking season, for example, and I often talk about my kids or my cooking in a small section at the end.

For the IPO, I think the update was mostly sharing what the experience was like – I had to wear a tie for the first time ever professionally, so I joked about that, and I talked about how the NYSE treats you (very well), and what it was like to go through the process and be on the floor. I also did the obvious conversation about how it’s the starting line not the finish line. More recently I’ve written about some research on stock performance post IPO, and how our experience is fairly typical.

HW: You’ve been building companies and teams for a while now. Engineers who are taking on manager responsibilities for the first time – any advice for them?

SS: Don’t do it for power. The core value of a good leader is humility. It manifests in many ways – being confident enough in yourself to delegate to others and let them shine instead of taking the spotlight, for instance, is an example of humility. Not being afraid to admit mistakes or change course in public, giving credit to others, being able to be vulnerable and ask questions or ask for help – these are all marks of a good leader and are all manifestations of humility. Also, engineers transitioning into management always feel that they aren’t adding value once they stop directly producing code – this is normal and you have to let go of it – think of it as going from writing code with ten fingers to writing it with ten people.

Two VCs Interview Me While They Drive: A Transcript

The Ludlow Ventures guys interviewed me for their Carpool.VC series. It was super fun and full of unexpected questions, so I had a transcript made.

The video:

Jonathan: Thanks for joining us buddy. How’ve you been?

Hunter: Good. Happy, busy, everything’s going well. We were in Montana for a wedding this weekend, that was kind of cool.

Jonathan: So, Hunter, Homebrew. He’s one of two partners there. They have an incredible early stage venture fund. Can you just give us a little background in terms of how you got started, like literally a minute?

Hunter: Yeah, so Homebrew is about a two-and-a-half-year-old fund. My partner Satya and I had worked together at Google and always wanted to do so again and so when we had the opportunity to create Homebrew, it was really with the idea that we could be early stage partners of conviction, do a small number of deals each year. We’re able to lean in and help the founders increase the probability and speed for making the vision that’s in their head a reality.

Jonathan: How do you go from being a product guy at Google to starting a venture firm, and then all of a sudden overnight you have sixteen billion followers on Twitter. Everyone reads your blog, and you become an industry voice. How does that happen?

Hunter: Well, I think you’ve probably rounded up some of those numbers in terms of reach. But it started out at Second Life, the early virtual world project, and then was at Google and YouTube for about nine years. And those gave me the chance to, I think, represent some of the work that I was doing and our teams were doing publicly and so I wasn’t an unknown quantity. Then once I no longer had to worry about what I was saying, being summarized as Google executive trashes Company XYZ or a lot of those things that become controversy, I can speak in even more in a transparent, authentic voice. So the way I think about it is I write in two situations. When I think I’ve figured something out, or when I’m not sure how something is supposed to work and want feedback, and it’s the discussion that emerges from those that gets me the most excited.

Jonathan: Do you think that your online personality and your real life personality are the same?

Hunter: I try. One big moment for me I think in my life was about when I was in grad school 1998, ’99, 2000 where I sort of realized that the only way I was probably going to be happy was not to separate personal and professional. It’s for better or for worse, with one comes the other. And also I think as an introvert who lives an extrovert’s life, sometimes being able to do things from behind a keyboard as opposed to at a bar, especially now that I have a three-and-a-half-year-old, is a great way to connect with people regardless of space, time, or distance, who might share my interests.

Brett: New question. What would it take for someone to poach you away from your own firm?

Hunter: I think if for some reason Homebrew ceased to exist, I would probably do something that looked more similar to the Homebrew model. Early stage, leaning in with capital behind me. Than necessarily wanting to shift our model to be a larger fund, or ever finding a seat at somebody else’s table to be attractive. Such as being at large funds before and I’ve certainly had similar outreach over the years, and I think we’ve been very deliberate about wanting to create something that we think can be both successful and impactful, and then be judged by the results. So it’s great to have a nice first two-and-a-half years, and to have folks excited about what we’re doing. But ultimately, at the end of the day we’re going to raise funds based on our returns not our retweets, and so we’re really focused on building our platform and delivering for the entrepreneurs we’re able to back.

Jonathan: It’s not so clear and many people don’t speak about it. From what do GPs have to return to LPs in order for them to actually be excited?

Hunter: Sure, well I think it depends on stage and also, essentially at the early stage you’re taking one of two strategies. You’re taking a strategy in my mind that spreads a lot of investment, smaller checks and increases the probability of hitting a 3X return. Decreases the probability of underperforming, but also to some extent limits the upside because you don’t have a concentrated approach. Then there’s another model which says do a smaller number of larger investments. It gives you a greater probability of let’s say, hitting 3X or 5X net return. But also dramatically increases the probability of under-returning, of not meeting your investors results which I describe as 2X or below, for the risk time weighted capital that we have.

So we’re obviously in the latter where our strategy is to invest in eight to ten companies a year, where we’re putting up capital behind each one that in a success scenario it’s [inaudible 00:10:22] to be meaningful to the fund. That means you’re putting us in the 3 to 5X bucket, where if you’re then able to catch a few companies that really outperform, you start to get into the multiples of returns that best of class does. You can shoot for an 8X, a 10X, a 12X, a 15X, sort of these mythical returns, but I don’t think that actually equates to strategy. That equates to skillful deployment of a specific strategy, and our strategy is one that looks at concentrated investments as opposed to 50, 75, a 100 investments a year.

Brett: This one’s a little bit more out there. But if you were a street sign, what street sign would you be and why?

Hunter: Is this a version of what tree would you be?

Brett: I never heard what tree would you be.

Jonathan: You could answer that one too.

Brett: I know about one tree, so.

Jonathan: How many species of trees do you know?

Hunter: See, I like Aspen trees. I was just in Montana this past weekend and the leaves when the wind blows them, they always look like they’re laughing to me. So that’s a tree that makes me smile. How about ‘Under Construction’? We try to bring an operator’s sense of urgency to our model. Sometimes people think just raising a fund turns you into a venture capitalist. Sometimes people think that it’s such a long time cycle to investments that you make a bunch of deals, then you try to use those deals to raise more funds and you just increase your management fees, and who knows how it’s actually going to work out.

We very much want to look week over week, month over month, quarter over quarter, what are things that we can always do to better serve our customers, which sometimes people say venture’s a two-sided business. Your customers are your LPs and your founders. I think our LPs are our partners and we wouldn’t be in business without our partners. But we have a single customer, and that’s our founders. And so I don’t mind learning, iterating and sharing in public, and so I want folks to feel if they take a check from us they’re not just getting what we are today. They’re getting the upside of what we continue to become, and so I want us never to be a finished product.

Jonathan: You’ve got three people behind the curtain, you get to ask one question to the three of them and then afterwords have to marry one of them on the spot. What’s the question you ask?

Hunter: Do you think the rest of your life will be more exciting than your life up until this point? So I don’t think I could marry anybody who assumes that the best things that have happened to them are in the past. And so if I had to ask one question, that would probably be it.

Jonathan: Awesome. Well, it’s been great chatting with you. You should know Hunter, since you’re very sophisticated, that things like carpool cost a great deal of resources to get off the ground. So on average now we’re actually down this week a little bit. The cost has fallen to about 96 cents per episode. So we would be honored if you’d sponsor this 96 cent episode Homebrew.

Hunter: Yeah, let me know your Square $Cashtag and it’ll be right on it’s way. I’ll round up and I’ll pay it forward per my mentality, and save the next person a few pennies.

Jonathan: All right. This weeks episode brought to you by Hunter. No call recording, don’t turn off.

Brett: What happened?

Jonathan: You still there? Hunter, thank you so much. You’re great. Keep up the good work. Send us awesome deals please, and look forward to staying in touch.

Hunter: Awesome, thanks guys.

Jacob Jaber, CEO Philz Coffee

1 Store, 1000 Times: Five Questions with Philz Coffee CEO Jacob Jaber

Scaling retail businesses take a very special type of focus and leadership. Philz CEO Jacob Jaber shares what it’s taken for his company to grow beyond their local footprint.

Jacob Jaber, CEO Philz Coffee

Hunter Walk: When we spoke in January of last year, you said Philz was in the “people serving” business and you had 14 Philz locations. You’re still serving people with love (and great coffee) but have opened quite a few new stores since then. Update us on how many and what expansion plans are for 2016?

Jacob Jaber: It’s been a productive and exciting year.

This year, we will be opening 10 stores bringing us to a total of 30 stores in both NorCal and SoCal. Early next year we hope to do another dozen or so stores, a few of them being our first few stores on the east coast. We will be starting in a few lovely communities in Washington DC which is a great milestone for us. Our goal is 1 store 1000 times. More important than the actual message is the spirit of it. What it means is that we have large ambitions to grow and change the way the world drinks and thinks about coffee.

On the other hand, we care deeply about our people and quality is a priority for us not only to preserve what makes us special and different but also continue improving ourselves in every way possible. In other words we want to get better and bigger. This is something the team and I are very committed to. I’m confident we will execute because we care deeply and possess the necessary core competencies.

HW: How have you needed to change/evolve as a leader given this growth? Were there any practices that just didn’t scale?

JJ: I used to work as a Barista with my dad (Phil) behind the counter. Now we have approximately 1000 team members. The most challenging transition for me has been switching from a “do” mindset to a “Cultural and Organizational Effectiveness” mindset. What that means is these days I spend more time thinking more about how decisions are made compared to just thinking about the actual decisions we’re making.

Fortunately, I LOVE learning and can usually adapt pretty quickly. Additionally, we have a phenomenal team that’s passionate, diverse and extremely impressive on many dimensions. We have a culture of embracing a learners mind-set so we are efficient at getting to the right solutions without hurting each others feelings – that helps. I will never forget where I came from and will always be involved in the most important details because it’s the details that make us who we are however it is my goal to make myself irrelevant at the same time. It all comes back to handing over the handmade cup of coffee for each customer in a way Grandma used to serve you food at her house. It’s a challenging and exciting time for me personally and professionally.

HW: I know you’re also very interested in Philz locations not just making money, but making an impact in their local neighborhoods. What sort of community outreach occurs when you open a store?

JJ: Fundamentally our concept is beneficial to communities. We offer a great comfortable space that welcomes everyone, we brighten peoples days with a personalized coffee and service experience that really uplifts them in a positive way. We offer free wi-fi, strive to put community tables in all of our stores to encourage serendipitous moments between strangers. People have met at Philz and are now married. People have built their companies in our stores. It’s really inspiring to hear these stories. Life happens at Philz.

In addition, at an organizational level we have a wonderful Sourcing Commitment program that gives back to wonderful organizations supporting a healthy lifestyle for farmers. At a store level we leave a lot to our store leaders and they support the community in a way they feel is best. That autonomy results in wonderful things happening in a way that’s most meaningful to that local community.

HW: Lots of capital – both venture and private equity – have moved into the coffee retail space in recent years. How have you approached capitalization? Why do you think the industry in general has started to take on investment?

JJ: People are looking for something special. Millennials in particular crave quality, convenience, sustainability and authenticity. This translates into a big opportunity for the right coffee player. Possessing these traits that I mention while being accessible gives the opportunity to serve the masses. There are no large coffee companies that do this really well. We believe we have a lot of this criteria but are striving to get better so we are excited about the future. I think investors realize this trend along with the larger folks who are trying to be as agile and progressive as possible to keep up. At the end of the day, I think the success of one doesn’t necessarily mean the failure of another.

HW: Presciently, in our 2014 discussion you asked for startups to help make parking your car easier. Since that time we’ve seen Luxe, Zirx and others launch. Have you invested in any of these companies or tried them out yet? Are they delivering what you envisioned?

JJ: It’s funny, I actually Uber to places I know have challenging parking situations. Of course I bring along my Philz with me :)

Don’t Start a Company Without a Hiring Plan

The other day I tweeted some OH advice from a soon-to-be second time founder

Someone asked me if I agreed with this advice – should you really not start a company unless you have the first five hires ready to go? Isn’t that a pretty high bar to getting started?

If you were going to ask me to make an absolutist statement I’d perhaps amend the above to read “Don’t start a company without a hiring plan.” A hiring plan means you are thinking about what the first 5, 10, even 20 roles will be and starting to plug in names ahead of hiring them. Could be people you worked with before who you know will want to work with you again. Could be relationships you’re actively cultivating or names of people you want to reach out to over the coming months as you scale. Might even be a list of companies that you would be good to try and hire from. The more “real” the hiring plan – actual people ready to work with you – the better, but what you need is that plan.

When Homebrew thinks about funding decisions, the ability for founders to pull together their team – especially if it requires specialized skill sets – is a question we often push on. The advantage of having a group of people you can pull into a growing company as needed is huge. It was one of the least discussed and most important components of YouTube’s success.

Here’s a post about what VCs are looking for when they ask about your hiring plan.

Talent: “The artistic side is always looking for new acts. The business side wants to make sure they aren’t irreplaceable.”

The rules of science dictate that a mirror shows exactly what is in front of it but that doesn’t necessary mean all observers will describe the reflection consistently. We see what we want to see and it was interesting to notice various interpretations of today’s Lefsetz Letter on Grantland. Specifically, what to do with the .01% most talented people (coddle them, don’t coddle them; put them in companies, don’t put them in companies; teams matter more in my industry).

Lefsetz – who comes from record industry and world of media – believes one-of-a-kind, singular talent isn’t just important, it’s the only thing that matters.

“Talent is never going to be manageable. If you want the trains to run on time, go work for the railroad. Talent is as insecure as it is boastful. You embrace talent, you give it wings. This is how Jimmy Iovine succeeded at Interscope, it’s how Mo Ostin and Joe Smith succeeded at Warner, you want to be a magnet for talent, not an adversary. Only cut bait if you’re losing money and you see no way to make it back in the future. As for difficult personalities, it goes with the territory. And when it comes to art, talent is sui generis. There’s only one Paul McCartney and one Max Martin. You can hire someone controllable, you just won’t get the results.”

That’s the star system at work – the ability to take someone who is special and provide a talented support team to help but also to coddle when necessary, because you are dependent on that person.

There are other creative endeavors though which have taken a different approach, specifically believing they can’t build a business around unique talent. Namely, Cirque du Soleil. One of my favorite People Ops articles covered their hiring process (WSJ 2007). They scout the world to hire amazing talent, the type of wonderful performers you would spend hundreds of dollars on a ticket to see. But they can’t hire anyone who isn’t replaceable because they’re building entire shows around these performers. Shows which need to endure and tour.

“But a problem arises when talent is truly unique and either difficult or impossible to replace. If, for example, one enters the words “giant” and “opera” into the database, only one name pops up: Victorino Antonio Lujan, a 39-year-old Argentinian who stands just shy of seven feet and weighs about 400 pounds.”

And in a sentence which would probably make Lefsetz jump out of his seat and shout:

“Working with such singular talent forces Cirque to walk a tightrope. The artistic side is always looking for new acts. The business side wants to make sure they aren’t irreplaceable.”


Starting a Company Is Hard But….

As a seed stage investor to young companies (and someone who has previously worked at a brand new startup), I know it’s hard. Really hard. The type of hard where you joke that if founders could properly calculate the odds of succeeding, no one would ever start a company!

Two recent blog posts have stuck in my head which focus on the exception focus, skill and luck you need to build a startup. The first was Jason Calacanis’ “You Don’t Have What it Takes,” which, as the title suggests, is a plea to the 99% of founders who Jason doesn’t think have what it takes to start a company. And there’s nothing wrong with making that choice. As Jason writes:

“You see, what I’ve learned after 25 years of doing this startup thing is that 99% of people simply don’t have what it takes to lead a startup — and thank God. Leading a startup is a brutal pursuit. Most days are a death march in which you work horrific hours under massive duress waiting for your chance … to join the 80% of startups that die off.”

The second was a reminder from an entrepreneur named Paul Smith that just because you raised funding, you can’t take it easy. In fact, you need to work harder. Also provocatively titled “Your Well-Funded Startup Is Already Dead,” Paul observes:

“This isn’t about working until you burn out. No investor wants to see a team implode. But as a founder, you must understand that your startup is your priority for the next five years. That means you won’t see your friends and family as often. It means relationships will suffer from time to time.”

Paul and Jason are speaking 100% truth and they both note that there’s no shame in not founding a company or needing to take a vacation to recharge. BUT…. these posts have been gnawing at me a bit and I can’t exactly put my finger on it. Starting a company – deciding to absorb that risk – should attract a self-selecting group of founders but I also suspect stressing nothing but the long odds, the sacrifices, creates a barrier to entry for entrepreneurs who don’t have role models or a support system around them.

I’d be really interested to understand how posts like these are understood by a white, male Stanford grad versus an equally qualified founder from a more underrepresented segment. How do we help potential entrepreneurs understand the long road ahead of them while letting them know there’s a support system to help them? Frankly, for the industry and for innovation, it’s better that 1% too many people start companies than 1% too few because you never know, you just never know. And maybe that first time doesn’t work but the second time does….