Objectives and key results: For executing your CEO’s priorities

The best way to achieve excellence in execution is a ongoing debate. But the discussion is becoming more and more relevant as every industry is on the verge of being disrupted by new age companies, digital solutions and fourth industrial revolution of AI and robotics. In this article, we will discuss OKR, one such tool to achieve excellence in execution.

The major challenge for any CEO is to manage short-term objectives based on long term plans. As organizations grow, the speed of execution decreases. And at a same time duplication and inefficiencies around planning and resource allocation increases.

“As Andy Grove, Intel’s former CEO said, “I have seen far too many people who upon recognizing today’s gap try very hard to determine what decision has to be made to close it. But today’s gap represents a failure of planning sometime in the past.”

Objectives and Key Results (OKR) is a management tool that brings in the discipline to achieve excellence in execution aligned with organization and CEO’s priorities. OKR is a goal setting framework originally created by Intel and later adopted by Google in the way back in 1999 when it had had not even celebrated its first birthday. OKR has supported Google’s growth from 40 employees (when it first started using OKR) to more than 60,000 today, proving that it can be used by small organizations as well as large corporations. Today, both technology and non-technology companies are moving fast to leverage OKRs to enable a high-performance work culture.

What is OKR?

OKR_Image_1_recyie

Here are a few examples of what could be objectives:

1)  Reduce the variable cost in production by 2.5 %.
2)  Increase revenue from product X by 10%.
3)  Become a more effective sales machine.
4)  Move to the new office by December end to provide a happy environment to employees.
5)  Solidify brand and position as market leader.

And following are some example of ‘Key Results’ with respect to above-stated objectives. There can be more than one key result(s) that can define how one will achieve one’s objectives.

1)  Hire a consultant to review and improve the six-sigma process.
2)  Ensure at least 75% of the sales team members achieve their quota.
3)  Hire three sales managers by end of June.
4)  Identify an office that facilitates company and employee growth for 250+ employees.
5)  Hire a new branding agency by end of Q1.

Benefits of OKR

OKR improves alignment with organizational priorities and helps business leaders identify what is important to be achieved and how to achieve it. It brings in accountability and ownership among employees and helps in achieving operational excellence.

Implementing OKR

OKR_Image_2_mmpsjm

Once you are convinced that OKR can help you get to the next level of business growth, the question that you should be answering is, ‘What is the best approach to implement OKR in my company?’

One of the biggest challenges in implementing OKR is not having a clear approach to implementation. You can’t adopt what worked for Google or Intel or Twitter or Sears. Your organization is unique and your challenges are different from another. You need to understand that OKR is not a methodology, there is no step-by-step guide that you can follow. Instead, OKR has a set of practices that you should understand and customize according to what works for you and your company.

Usually, OKRs are set on a quarterly basis and progress is measured weekly or monthly. But again, it depends on your business priorities and you can set them at a calendar that works for you.

You can start implementing OKR in incremental steps, one role or one business unit at a time.And research shows that it makes more sense to start the implementation at the top of the organization. Start creating objectives (what needs to be achieved) on a monthly basis. Don’t create individual objectives at the start of the implementation. Once that is done, start creating Key Results (how you will achieve the objective) involving team members from same or different business units. This will also help in breaking organizational silos and enhance business communication.

You probably will fail at first attempt, don’t stop there. It takes 2 to 3 quarters to understand how you should structure the objectives for your organization and how it can help you achieve your organizational priorities. The effort spent is worth as it gives the organization and leadership visibility on where the organization is going on their priorities, every week. Teams and individuals will adopt this because it’s linked to their day to day work, and help them see the big picture of their work.

At the end, please remember that OKR is not a tool to measure employee performance. It’s a management tool to align execution with organizational priorities and track the progress of execution for those priorities. As Intel’s Andy Grove, wrote, ‘It is not a legal document upon which to base a performance review, but should be just one input used to determine how well an individual or a team is doing.’

From 1855 to 2017, leaders still face same issue: performance accountability

1855 was an interesting year. This was the year when for the first time someone thought seriously about how to bring execution closer to organizational priorities, measuring employee progress on those priorities and enhance overall employees effectiveness. If you talk to any of the CEO’s or business leaders, they will be stating the same kind of challenges. The credit for seeding the initial idea of enhancing people effectiveness goes to Daniel McCallum, a railroad engineer at the New York & Erie Railroad Company.

Daniel Craig McCallum was a Scottish-born American engineer known as one of the early pioneers of management.

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Daniel McCallum. Image credit: Wikipedia

He set down a set of general principles of management and is credited for having developed the first modern organizational chart. The of the major problems faced by then large railroad companies like “New York & Erie Railroad” was the rising cost of operations compare to smaller companies. He wrote a letter to highlight this issue to his higher-ups and CEOs. And he presumed that the root cause of this problem was people performance issues and inefficient internal organization.

McCallum’s letter outlined five key challenges posed as questions. Read them carefully, and you will realize that they still hold true even today.

  • How do you get a group of people to work together to common business priorities & goals?
  • How do you give people the right amount of responsibility?
  • How do you make sure the job gets done?
  • How do you know how things are going?
  • How do you do all this with respect for others?
Lithographic_Drawing_of_McCullam_s_Patent_Timber_Bridge_akfkvc
Lithographic drawing of McCullam’s Patent Timber Bridge, 1852. Image credit: Wikipedia

Because of his constant focus on enhancing execution excellence, McCallum retired as General Manager controlling over 5000 people.

Take a pause now and think about the questions McCallum has highlighted 161 years back. These questions were asked more than a century ago before Peter Ducker started helping organizations understand management science. The astonishing bit? Even after 161 years and three industrial revolutions later, McCallum’s questions are still valid and relevant for today’s corporate world. The need of the hour is to answer these questions for your organization and find up an appropriate solution to avoid losing the market share to small companies and start-up’s, or the repercussions could be huge.

While you process the story of Mr. McCallum, here’s another interesting story, this time about Andy Grove, known as the ‘guy who taught Silicon Valley how to do Business’. Grove was Intel’s former CEO and mentored business superstars, the likes of Steve Jobs and Larry Ellison. He was among the first business leaders to implement the MBO (Management By Objectives) model – a management model popularized by inimitable Peter Drucker.

Andy Grove, with his team (1978). . Image credit: Wikipedia
Andy Grove, with his team (1978). . Image credit: Wikipedia

At Intel, Grove and team later gave birth to OKR (Objectives and Key Results), which according to Grove had two important components.

  • What do I want to achieve? (The Objective)
  • How will I pace myself to see if I am getting there to achieve that? (a set of Key Results)

OKR which over the years has been adopted by leading organizations across the world such as Google, Uber, Sears Holdings, Vox Media, Zynga, etc, helps in creating a culture of high performance that is focused on results. The core concept in OKR is to align the organization with the CEO’s priorities. OKR is very different from traditional goal setting frameworks which lately are showing signs of aging. Adopting OKRs enables organization, teams, and individuals to:

Work together for common business priorities & goals.
Helps in ensuring that the job gets done and done well
Enables you see in real time the progress people make while achieving their targets.
The bottom line is, every thoughtful business leader, be it McCallum or Ducker or Grove are able to re-invent the processes to enable better performance in their people. They were able to identify new ways to make people accountable for their own performance. Organizations that don’t focus on building or re-inventing themselves to leverage people power will always lose the battle to their competitors.

Originally published at: People Matters , India’s leading HR focused media company

Blitzscaling 09: Session Notes[Reid Hoffman and Allen Blue on Why and How They Scaled LinkedIn]

This is my seventh blog on the notes and my interpretations on the Blitzscaling sessions. In the fall of 2015, Reid Hoffman began taking session called Technology-Enabled Blitzscaling at Stanford University.Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. And its also about why organization culture is important for Blitzscaling Because when you’re growing an organization very fast, you have to make people accountable to each other on a horizontal or peer-to-peer basis, and not just vertically and top-down through the hierarchy.

Session 2 notes can be found here. Session 3 notes can be found here. Session 4 notes can be found here.Session 5 notes can be found here.Session 6 I haven’t covered. Session 7 notes can be found here. Session 8 notes can be found here

In session 9, Reid Hoffman and Allen Blue shared the insights on how they scaled Linkedin.Here are the session notes and my interpretations on the insights shared.

  1. The key thing about establishing an organization culture or creating a distinctive one to identify what kind of people will not fit into your culture.
  2. Most elite organization are able to establish this very early. For example:- Google was able to identify that folks from top degree colleges with highest CGPA will fit in the collegial culture which Larry and Sergey want to create. Now want works for Google will not work for your organization. You have to identify what kind of culture you want to create.
  3. Part of establishing a unique culture is to answer questions on
    1. How you will communicate internally and externally
    2. how you will develop your leaders
    3. how you do decision making in the company
  4. The entire Blitzscaling sessions are divided into 3 parts addressing 3 stages of start-up called as Family, then Tribe and the village
    1. Family: – It’s about identifying a non-obvious market opportunity where you have a unique insight or strength or approach to capture market share. And then building your initial team to build the initial offering to address that market.
    2. Tribe: – Execute and iteratively improve a plan which gets you to achieve a market share.
    3.  Village: – In this stage, you are now able to identify, plan and execute the core business that you will be able to scale up and take it globally. 
  5. The goal of the core business is to
    1. Create continued growth
    2. Generate growing revenue
    3. build competitive advantage
    4. Grow strategic assets for later opportunities.
  6. From time to time in company lifecycle, founder’s need to communicate the same language which people can follow while they are doing their day to day jobs.
  7. When your organization is growing from 15 to 50 to 500, as founder’s you will not be the part of each and every conversation in your company. But as founders, you have to make sure that those conversations are aligned with big picture/directions and priorities you have decided.
  8. Communicate about your (a) mission (b) vision (c) competitive advantage (d) strategic objectives (e) business model (f) operating priorities with your companies on the continues basis. But especially when you are moving from family to tribe to village
  9. All the above communications should be simple, clear & easily repeatable. If you will be able to crack this, you will be able to create an effective organization.
  10.  At the family stage and somewhat at initial stages of tribe stage, you hire generalist. But as you grow to become a full-fledged tribe or village, you have to hire specialist.
  11. A good generalist is someone who can come and pick up skills & things without founders doing many interventions.
  12. Specialist have good analytical skills and problem-solving skills with respect to specific area of business
  13. Tips on hiring and managing talent
    1. Fire fast low performers
    2. When hiring look for the long term probability of the guy who will be able to evolve as company goes from family to tribe to village.
    3. “Given a chance, will you hire a person again? ” – Answer this question if you have difficulty in firing your low performer or even co-founder.If answer is no, fire ASAP.  But always make sure to remain humble & human while you are parting away.
  14. Following is the screenshot of Linkedin product plan. During the family stage, you have to get just one thing right. But when you are moving to tribe and village stage, you have to get many things right at the same time. To achieve this, you need an altogether a different approach for the execution and people who will execute that plan.
  15. Look at the below metrics. It shows the kind of analytics and number crunching successful companies do to move fast. CEO’s and senior folks of the company see these numbers on daily basis
  16. When you move to village stage, as a founder you have to answer few fundamental questions about:
    1. Are you the right CEO for this stage?
    2. What is the core mission, culture, and values to enable rapid distribution scaling?
    3. How to fire the right HR guy that can support the hyper growth?
    4. Who are those key executives required to support execution in critical areas?
    5. How to develop tobust reporting to allow you and your senior team to learn about where execution is going and how that can support in creating future plans?
  17. Embed communicating about your core values & culture in your hiring & onboarding processes. Or you will end up being a culture less company
  18. Here are the Linkedin culture & value details. When your sales head links those values and organization culture, that’s where it will give you the competitive advantage.
  19. As a founder, put down points why people should join your company. And make this communication visible internally & externally. At qilo, we have taken an alternative approuc, where in all JD’s we put in “Why you should not join us”. Here are the points from latest JDWhy you should NOT join us
    • If you don’t put in efforts in identifying and/or pursuing your passions in life
    • If you cannot put in extended working works to achieve WOW results for the customers.
    • You don’t believe in taking ownership and accountability of assigned work.
    • If you are NOT a good self- learner.
    • You don’t know how to crack jokes 🙂
  20. Getting your technical, HR and operational process in place is essential to make the large team work together properly. And keep optimizing these processes to improve efficiency.

 

Keep watching this blog for more notes and awesome articles. I personally feel this session has given me a very good level of understanding what I should be focusing on as one of the co-founders of qilo. Hope you have enjoyed this article too.

Blitzscaling 08: Session Notes[Eric Schmidt on Structuring Teams and Scaling Google]

This is my sixth blog on the notes and my interpretations on the Blitzscaling sessions. In the fall of 2015, Reid Hoffman began taking session called Technology-Enabled Blitzscaling at Stanford University.Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. And its also about why organization culture is important for Blitzscaling Because when you’re growing an organization very fast, you have to make people accountable to each other on a horizontal or peer-to-peer basis, and not just vertically and top-down through the hierarchy.

Session 2 notes can be found here. Session 3 notes can be found here. Session 4 notes can be found here.Session 5 notes can be found here.Session 6 I haven’t covered. Session 7 notes can be found here

Who doesn’t know Eric Schmidt. He is the one who has contributed A LOT in making what Google is today. In session 8, he shared his insights on how to structure the teams and scaling Google.Here are the session notes and my interpretations on the insights shared.

  1. As a young manager, observe and do everything to learn various aspects.
  2.  The first 10 years of your career is too crucial & that’s where you learn all the s**t. Thus it’s important that you focus on getting right kind of learning.
  3. To make a better decision, keep asking yourself “What should be happening in your career/start-up in next 5 years”. I know this advice might sound like a theory to you or you probably have heard from yogis to practice living in the moment. But that doesn’t mean you should not try to foresee or plan where you what to go and how probably you can reach out there.
  4. Making faster decision is one single trait that CEO’s should focus on developing.
  5. How to handle issues and situations between founders and outsiders(probably older than founders) who are part of the company: – Outsiders should understand that it’s not his company. This means to avoid being the face of the company or getting media coverage. That’s what Eric did when he was leading Google and Larry Page, Sergey Brin. He focused on running the company & making it profitable leaving Larry & Sergey to be the face of it.
  6. The way you build great products is by building a small team, work really hard, push the team & get the product out which just barely work. Example:- Original iPod just barely worked initially. From there, Apple improved it before it was taken to mass market. As a founder, you have ti have a judgment when your product & start-up is ready to scale.  At qilo , we faced the same challenge. Where I want to speed up the scaling, Vipul(another co-founder) slowed the things down to make sure that product actually solves a problem, before we scale out and hire sales guys.
  7. Great products are built from self-use. As a founder, you know your product really works or not. And if you don’t know, get the data from your initial set of customers and analyize it. Making sure your product works before you take VC money and start expanding in all directions.
  8. Tips on hiring
    1. Hire experience over intelligence
    2. Hire best guys to get job done. Take your time to hire the right guys. And if things are not working with new hires even after doing multiple interventions, fire them fast.
    3. Sell your dream to prospective candidates. Hire those to whom it make sense. If you have to convince the guy, he/she is not the right hire.
    4. Hire ordinary people who have done extraordinary things.
    5. Hire people who can work better in teams. Give a person an exception to be an individual contributor if she is an exceptional talent.
  9. Next generation of successful programmers will be those who can write programs os that software themselves can learn how to solve a problem. This is also called as machine learning 🙂
  10. At finance side, hire CFO’s who have gone bankrupt because they have seen what should not be done to become bankrupt
  11. In every successful company, you got to have someone
    1. Who has very good product sense
    2. Has emotional intelligence for all the stakeholders
    3. Move fast
  12. All successful start-ups do one thing right:  Hire right people
  13. Strong values and beliefs take company to the next level of growth
  14. If you got a large team of programmers and s/w engineers to work on your product, then probably your s/w architecture is not right
  15. Advice to entrepreneurs who want to build a great company
    1. Have an incredible founding team & right founders to address right kind of problem
    2. You need to have some luck
    3. Passion, lots of hard work and hiring awesome people

Moving from performance management to enablement (Part 2)

In the two-part series of “Moving from performance measurement to enablement”, part 1 highlighted the problems we have with current performance management process. In part-2, will be discussing on how you can get organization ready to move from performance management to performance enablement. As stated in part 1, the annual ritual of performance management is dead, future belongs to performance enablement.  Companies who will not leverage this change will potentially lose an opportunity to increase their revenue by up to 9% and reduce cost by up to 7%(Source:: Mckinsey).

The outcome of enabling performance are clear. Done right, it can lead to employee far more engagement at work and with their work and will be more effective as their careers progress. Now let’s look at how you can enable the performance.

Re-focus on the Core: Organization Culture

Organization culture is not about dogs at work or yoga (Ben Horowitz). Organization culture is about “how works get done when manager’s or leadership is not there”. To understand your culture, start with analyzing or doing diagnosis with your people about what kind of culture or subcultures have been created in your teams in all these years.  And then put down on paper what kind of culture is required or expected. Once this is done, then only you can define and communicate expected behaviors from your people while they are doing their daily jobs. This may sound like a theory to you, but believe me, it’s a science. The only difference is, the secret of this science and how to implement it was till date was available with a handful of companies.

Enabling Business Heads and Managers to be Better Coaches

There are two aspects which can enable managers and BU head’s to be better coaches:

  • The way communicate is handled
  • The way conversations are handled on giving feedback

The way communicate is handled

Your business heads and managers are continuously focused on getting transactions done. They occasionally communicate with their team members about what they are feeling and what challenges they are facing. The medium of communication is right now: ‘Town Halls’ and ‘Corporate Emails’, which are not effective. Managers and business heads need to be more colloquial with their communication so that people in their team feel more connected to them. The art of chasing numbers are easy, but the art of communication is difficult. You need to enable them to think creatively to communicate well.

The way conversations are handled on giving feedback

How many times your manager give feedback to their team members. Either it’s annual during the performance management process or when deliverables/targets turn red. You have to put in a discipline throughout the company to enable these conversations to happen more frequently (at least quarterly).  And remember, this entire exercise should be employee and manager centric otherwise, they will again fail at adoption end.

Implement a Dynamic Goal Setting Framework

The business world is dynamic where targets are changing continuously. But the goals to be achieved remain static throughout the year. And they largely don’t get connected to the day to day work of the employee. An ideal goal setting framework gets connected with the daily, weekly, monthly & quarterly deliverables. It should be simple enough to change and track. It should have the ability to define the performance metrics for every role in the company. OKR is one such goal setting framework which acts more like a management tool.

Enable More Transparency

Transparency can be enhanced at two level: – team level and company level.

Transparency at team level

There are 3 types of team members. One who think he is a Hercules, one who know he is Hercules and the one who needs to know whether he can become Hercules or not. Within the team, if you can show this data (or gamify it) and enable calling a “SPADE a SPADE”, it will not only help you in achieve excellence in execution, your real heroes might be able to help those who need help. What is the different between a non-performer employee of corporate and start-up? In start-up, the shelf life of non-performers is maximum 2 month, in the corporate its 12 months or more. By enhancing transparency, you will be able to identify non-performers in lesser time and can start working with them faster.

Transparency at organization level

An employee always keeps guessing how my work is affecting overall organization progress. And few of them want an exposure to more opportunities availability to enhance their career growth. A simple way to achieve this is by implementing team goals and making all goals transparent at the company level. Employees who want to grow will be able to figure out their path for growth. You just need to show them path.

To conclude, as an HR leader, being an early adopter of initiating the journey of performance enablement,   you will be stand to gain significant advantages and help you to contribute towards business growth in a tangle manner. Newly empowered employees of the digital age are constantly looking for the value proposition from their employers. Companies, new and old alike, and their HR leaders cannot afford to sit on the sidelines.

Summary

  1. Focus on how you can determine your sub-culture(s) and fix them.
  2. Enable your managers to be better coaches with continues feedback.
  3. Implement a more dynamic goal setting framework with goals making sense to employees.
  4. Enable transparency in teams with data to identify non-performers by implementing shared goals.

Blitzscaling 07: Session Notes[Mariam Naficy on The Dot Com Days and Knowing When To Blitzscale]

This is my fifth blog on the notes and my interpretations on the Blitzscaling sessions. In the fall of 2015, Reid Hoffman began taking session called Technology-Enabled Blitzscaling at Stanford University.Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. And its also about why organization culture is important for Blitzscaling Because when you’re growing an organization very fast, you have to make people accountable to each other on a horizontal or peer-to-peer basis, and not just vertically and top-down through the hierarchy.

Session 2 notes can be found here. Session 3 notes can be found here. Session 4 notes can be found here.Session 5 notes can be found here.

Mariam Naficy is an American entrepreneur who is founder and CEO of Minted, an online design marketplace. In 1998, Naficy co-founded Eve.com, the first major online retailer of cosmetics. In session 07, she shares her journey and challenges while building marketplaces/ecommerce start-up.

  1. Always think long term when taking decisions from building product to hiring to raising money
  2. Get mindshare of the customer as soon as possible when you are into defining a new category
  3. It will always take more money & more time than what you think as founder to achieve all those things from launching MVP, to getting your first customer, to raising money
  4. Marketplaces are about people on both sides of the platform. Leverage the power of community to get competitive power for your marketplace start-up.And to leverage community power, more than focusing on money, focus on giving value or personal growth.
  5. Taking point 4 forward, the Internet and digital tools have and will keep enabling creative talent to earn more money & praises. Giving a platform to these creative people to earn money and build their reputation is how your marketplace will become successful.
  6. When your start-up is growing and you need people to handle operations at the larger level, your first preference should be people who joined you initially. They are the one’s who understand your core business in much better way than outside hire.
  7. You need capital to survive and grow your start-up, because you are bound to make mistakes. So focus on making money and not just raising money.
  8. To make employees more accountable and more skilled, make peer feedback work in your growing start-up.
  9. When your start-up is small, you will focus on getting the product right, getting numbers and customers. But as you become more growth-hungry and scaling up, you need not know everything that’s going on in your company. Don’t micromanage or get into every detail. Instead, delegate and focus on building ownership and accountability for your teams.
  10. To achieve focus on execution and on building ownership and accountability, get data/metrics on the table and review them every week. Here the key is to decide what kind of metrics is applicable for your business. For example:- At qilo, on technology end, we focus on (a) time taken to deliver new functionality or defect (b) Number of defects detected in delivered functionality in production. At sales end, we focus on (a) number of outbound prospects to reach every month(b) no of conversation going on with prospect & demo’s given (c) revenue numbers
  11. Keep reviewing your metrics till you get them right. Invest in technology that gives you dashboards about those metrics. Otherwise, it will impact the decision making and performance of your team’s.
  12.  To create a marketplace, make sure that you have much more diversity in your product line.
  13.  Advice for women entrepreneurs
    1. Start as early as possible as life will start putting trade off’s to you very soon.
    2. Get male mentor’s as much as female mentor’s
    3. Focus on earning revenue and VC’s will have no reasons to chase you as they also want to make money from you
  14. Reaching out to VC’s, best way is to reach out through reference by someone they already trust.
  15. In a marketplace, focus on supply and demand side at the same time. Focusing on supply side will more revenue and value from your platform and focusing on demand side will help you get customers.

Moving from performance measurement to enablement (Part 1)

If an organization is spending 2 million hours of effort on measuring performance, an annual activity that’s doesn’t make sense to anyone, we have strong reason to relook at the cost and effort spent on this activity. The countless number of hours spent on filling self-reviews, manager review forms, meeting, arranging and collating performance data is certainly not justified.

During my corporate career, my team and I always expected two outcomes from performance review (mid-year and annual):

  1. Feedback from my manager on how I have done
  2. What will be the increment in my salary

While both the reasons are strong enough to hold my team’s and my interest in performance reviews, it was always disengaging. You have to follow up endlessly with people is a strong enough proof that people are not looking forward to this. A study by Willis Tower Waston says that only 20% of employers believes that merit pay is effective in driving higher levels of individual performance in their organizations.  Here are the top 5 reasons of dis-engagement with performance review process:-

  1. Performance review process is not employee centric: The process and system are designed to get top 10, average 70 and bottom 20 percentile of people to facilitate C&B (Compensation & Benefit). In achieving that activity, organization and HR’s have lost focus on employees and managers (now day’s it’s also called as design thinking). As an employee, if I know that outcome of this activity is money, my projections about my performance will always be high. And the manager will be more focused on justifying the hike(and/or rating) rather than giving feedback on how a team member can improve the performance in future.
  2. Measurement on KRA/KPI/questioners which doesn’t make sense: KRA’s are static in nature; today’s business world is way too dynamic. Team’s priorities and targets keep changing on day to day, month to month and quarter to quarter basis. And team members are not able to correlate their day to day work with assigned KRA’s and KPI’s. And even if they are able to correlate, who much progress they have done to achieve that KPI cannot be measured quantitatively and qualitatively. Don’t believe me, ask your employees. At the end, the current process leaves the judgment of how well I have performed on the KRA/KPI to individual and then on the manager.
  3. Lack of clear communication on expectations and what should be done to grow: – When was the last time your organization has clearly communicated to your employee on competencies they need to excel in the current role. And which competencies they need to acquire to grow to next level. Team members often come up with an assumption that they are ready for next role, without realizing whether they are even ready for that or not. And managers don’t have enough wisdom and data to tell the team member that why they are not getting promote to the next level.
  4. Recency bias in evaluation: – How many times you have observed that when performance reviews and appraisals are approaching, team members suddenly become more proactive, disciplined, showcase best of their behaviors and start delivering things on time beyond expectations. I still remember one such incident: One of my team members who was sitting in different office location started sharing the status update on time without follow-ups, was calling me on regular basis to tell me how lucky she is being in this project and in this team. As a manager, you will tend to take the decision based on recent events and perceptions.
  5. No transparency: – Organizations lacks transparency in the entire performance review process with too much dependency on manager’s decision. While manager’s role cannot be denied in the process, it’s the employee peer’s who know how the team member has performed throughout the year and whether the team member was a good team player or not. Further to this, though increment has always been dependent on the how a company has performed and on macroeconomic conditions, managers give feedback to justifying the bell curve rating or to justify the rating communicated to her from the top down.

The way you measure performance defines the core culture of your organization and it will define how your people will perform in the future. In part 2 of this post, I will share how you can take the journey of moving your organization from performance measurement process to performance enablement process.

Blitzscaling 05: Session Notes[John Lilly on Leveraging Community to Scale Mozilla]

This is my fourth blog on the notes and my interpretations on the Blitzscaling sessions. In the fall of 2015, Reid Hoffman began taking session called Technology-Enabled Blitzscaling at Stanford University.Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. And its also about why organization culture is important for Blitzscaling Because when you’re growing an organization very fast, you have to make people accountable to each other on a horizontal or peer-to-peer basis, and not just vertically and top-down through the hierarchy.

Session 2 notes can be found here. Session 3 notes can be found here. Session 4 notes can be found here.

Here are notes on session 5:-

  1. Following are the points shared & highlighted in the previous sessions by Reid Hoffman, Sam Altman and Ann Miura :-
    1. Faster decision making
    2. Avoid being solopenures
    3. If you are asking about product/market fit, you haven’t got it.
  2. While session 2,3 and 4 were focused on sharing learnings & best practices on how to validate the idea, how to build team and what should be the priorities when you are starting up, session 5 onwards it’s about how you can start creating team for execution & start executing.
  3. If you have to pick between product and growth, pick product
  4. If you are building something where you already have market leader, you have to play asymmetrically.For example:- When Mozilla team thought of building browser, IE had 95% market share. Mozilla team cannot compete directly with Microsoft, so they have to compete asymmetrically by leveraging open source community to build the browser and spread the word about it.
  5. Hiring right talent is critical for your start-up success. Hire the best who believe in your story & passion and can put in those extended hours and year’s to make your idea a success.Avoid those guys who come’s up and say company ABC is giving me $X and if you can give me $X=Y, I will work for you.
  6. Fire non-performers ASAP.You will make those mistakes in hiring, but correcting those mistakes is in your hand.
  7. Setting goals/OKR’s will help you realize what kind of goals will be correct and working for teams and individuals and what kind of goals you should have in future.
  8. To get better in goal setting, review them regularly(at least quarterly) and talk about the progress every week. Build transparency in the team about who is executing what and focus on lead indicators rather than lag indicators
  9. Once your product has proved that it is solving a problem for which customer is willing to pay or user can’t live without, get to know which services and products lead’s to the usage of your product. Google came with their own browser because they realized that it’s the browser that connects users with their product(search), so it’s crucial to control that part also.
  10. Even if you got an awesome product, nothing scales on its own.
  11. Network effect(where people refer your product to others) will only happen if they see a TRUE VALUE in your product. Linkedin was able to leverage the network effect because people saw value in networking with other professionals, thus they invited others on the Linkedin platform.  Firefox browser gave the value of better security, Chrome gave better speed, that’s why users referred those products to other users.
  12. Avoid building a nice to have product and focus on building must have product. Because for nice to have products, your users and customers will NOT contribute in your growth. And you will be spending hell lot of money in acquiring users & customers.
  13. Once you have found the product/market fit, to accelerate the growth:
    1. Improve product/market fit for the customers for which your product is still nice to have.
    2. Take advantage of users/customers for which your product is must have.
  14. To get B2B growth:
    1. Grow in your decision makers.
    2. Focus on your beta customers. Successful beta customers will become your lead generators
    3. Build awareness by:
      1. Trade marketing in Gartner and Forrester
      2. Pitch reports, insights and case studies to your audience.

How Long Can Your Startup Survive Without a Full-Time CFO?

The value of a CFO for a young company is a hotly contested topic. Many argue that they are unnecessary add-ons and that a small, savvy, well-trained financial team can satisfy the business’s needs. On the other hand, CFO’s bring a deeper and more strategic financial perspective that can help companies prepare for the future and optimize their current operations.

The crux of the predicament is that whilst CFOs add significantly greater value than a more “junior” financial team, they are expensive resources.

For a business to successfully navigate this dilemma, it first requires understanding which roles, needs, and paths the business is likely to encounter. Eventually, most successful businesses will outgrow their initial accounting staff and need greater depth in the ranks as the number of dimensions in the financial function increase. If they understand what their eventual needs will be in advance, there are many ways that businesses can hedge their risks and get what they need, when they need it, without financially overcommitting.

The real question might not be how long can you survive, but how soon will you start benefitting from the contributions of an experienced financial leader. In my 15+ years of experience as a finance director and financial consultant, I have found that the best way to judge whether or not a company needs to hire a CFO is by assessing where they stand on “the hierarchy of needs,” which I explain below. The following analysis will help businesses identify where they are in the hierarchy and be a guide to hiring options that best address their current needs and how to move to the next level.

The Hierarchy of Needs

Much like Maslow’s Hierarchy of Needs, a business has a hierarchy of financial management needs. These are displayed in the chart below.

The more basic the needs, the more basic the skills needed to perform them. As the needs progress so do the skills, as well as the insight required to satisfy those needs. The basic needs are clerical and can be met with technical training, but the more advanced needs add a strategic component that is best met by someone with extensive business experience. Different businesses’ needs grow at different rates based on industry, market opportunity, ambitions, and resources. One need cannot be met if a preceding need is left unmet.

Level 1: Transacting

The most basic need of a business is the ability to conduct transactions. By conduct transactions I mean buying and selling goods and services and entering into contracts.

Basic transactions require basic record keeping – what I refer to as checkbook accounting. This can be done by anyone in the business and requires no accounting or financial knowledge. It usually involves a business only recording transactions in the checkbook and then using the change in the opening and ending balance(s) to judge its success and financial health.

The advantages of checkbook accounting are clear. It’s cheap, and it requires little effort. It can be done quickly, and it doesn’t require a specialized resource to do so. Businesses that are just getting started are therefore likely to resort to this type of activity, which makes sense. Nevertheless, even with only basic transactions, many businesses find themselves in serious trouble because they have conducted such transactions without graduating from using checkbook accounting to using “real” accounting.

A fledgling business may find that it can get by operating this way for a short period of time, but it is not sustainable and will not work for any business that intends to survive, much less thrive.

Level 2: Record Keeping

Real accounting is built around the need to record transactions correctly and can be performed by either a bookkeeper or, as the transaction complexity increases, an accountant. An owner can certainly fill this need as time and skill allow, but should be aware of the opportunity cost of doing so.

The role of a bookkeeper is to record activity from transaction sources, such as bank balances and inventory. Usually, a bookkeeper requires management and is overseen by an external accountant or the business owner. Using an outsourced bookkeeping service gives the business better flexibility but requires more detailed communications and review.

While both a bookkeeper and an accountant are focused on recording historical transactions and activity with varying degrees of accuracy and compliance, an accountant differs from a bookkeeper in that they are trained to higher professional standards. This training and education gives them the skills to better guarantee that the completeness and timing of financial activity has been properly recorded. Accounts prepared by an accountant should be prepared in compliance with GAAP and should meet the more stringent reporting requirements of a company that will one day seek external financing.

I recently worked with a client who not only had very good, GAAP compliant record keeping for an early stage business but also surprised me by having a complete catalog of all of their contractual obligations. While there weren’t many, their founder was a former CFO and knew that when the time came, lenders and investors would require full disclosure of all contractual obligations. By recording their contractual transactions from the start they are in much better shape for an eventual capital raise.

For businesses that want greater oversight without significantly greater costs, it often makes sense to use an external resource to periodically review the bookkeeper’s work, especially if, unlike my client, the leadership doesn’t have accounting experience. This can be bundled with tax preparation work or by a retained fractional CFO.

Fortunately for cost-conscious firms, the ability to capture transactions has changed significantly in the past decade. No longer is it a manual data entry world. Much of this has now been replaced by software applications and other IT resources. This of course has implications on a business’s cost structure (the point being that software replacing labor helps to save costs).

Generally speaking, businesses that are at this level in the Hierarchy of Needs can get away with not having a CFO. After all, the principal requirement is just a correct recording of the transaction(s) that the business is performing. Since this task is still fairly basic and can be done either with in-house trained labor, or by hiring part-time external labor, it will likely not require the services of a more expensive, dedicated CFO.

The Illusion of Fintech

As financial and operational data is drawn from many sources into hosted accounting systems, the focus has shifted from manual data entry to ensuring and assessing the quality of the data and how it is captured.

However, when not properly implemented, these software applications can mislead businesses into believing that just because the data is in the system, it is correct, when in fact it isn’t.

In many ways the adoption of Fintech has become the new Checkbook Accounting for some businesses – the accounting data being the shoebox of receipts, in the system but not adding value.

As a result of this, the accounting systems and the operational interfaces need to be set up by someone with a strong understanding of the accounting principles. Quickbooks, one of the most popular accounting software solutions around, says so itself: “As your business — and revenue — grow, managing your financials may become a task you don’t have the time or knowledge to manage. Specifically, when it comes to avoiding legal and compliance issues, accountants can be worth their weight in gold.”

This is a time where it would make sense to a company to pull in an external financial consultant to ensure that the applications are integrated properly and that there are policies setup to ensure that the usage of the applications supports the financial reporting function.

Another company that I recently consulted with needed to fix a faulty inventory tracking software implementation. The company had experienced significant growth in its first four years of operation but had failed to properly set up sales tax schedules and taxable items. This resulted in incorrectly reporting a rapidly increasing amount sales tax over a period of years.

I worked with the business to fix the implementation, and file the corrected returns. Unfortunately, for many months, the cost of the penalties and interest exceeded the actual sales tax due. While fixing the implementation, other opportunities for improvement were identified and implemented. The client is now able to better report real-time profitability by product line through their accounting system. It has also used this to make adjustments to its product mix at a significant savings to the business.

Nevertheless, the project served as a great example of the potential problems related to Fintech. Even an adequately connected IT-based financial system will require a regular review of the data and account reconciliations. These activities require not only a good understanding of accounting but also an ability to assimilate operational data into the financial records.

Level 3: Trusted Reporting

With transactions being properly accounted for, a business can start reporting on the activity of the business. The key difference here being that the reports start to take the shape of business lines (e.g. the sales department’s revenue and costs) or specific business tasks (e.g. customer service), as opposed to simply just reporting the transactions of the business (e.g. revenue).

Again, FinTech has made it so that comprehensive reporting is more affordable and robust than ever before. Business schools have been evolving in recent years to ensure graduates have a strong understanding of Fintech and its myriad applications. Dedicated courses have even been popping up.

That being said, it is important to know how the reports are going to be used prior to putting in place a reporting system. Although accuracy is always a requirement, reporting for internal purposes doesn’t need the same approach and level of review as reporting used for external purposes. Depending on how the activity was captured, the reports can be presented in a number of ways but always with the caveat: “Garbage in = Garbage out.”

The main purpose is to communicate transactional information in the appropriate level for the audience in question. If this can be accomplished by the bookkeeper and/or accountant, their job is done. If not, the business will need to have someone who can properly convert the accounting information into meaningful communications.

A common problem I see with earlier stage businesses is that they use disparate systems as sources for their reporting, and as a result, they are never really sure if they have captured the data properly in their reports.

Not having a single source of data leads to either capturing less than 100 percent of what was intended, or in some cases, duplication and more than 100 percent of activity gets reported. Successful reporting needs to be thorough, accurate, and complete, especially as these early stage businesses are preparing to raise Series A funding.

It is usually at this stage in the Hierarchy of Needs that a CFO starts to become more relevant. After all, taking the records of transactions and slicing and dicing them to start to satisfy and guide the business’s day-to-day involves deeper knowledge and judgement. Nevertheless, one common option here is to seek part-time help from an external CFO. In my experience, this is usually when I get involved with the business. It is also where I find I can start adding the most value.

Financial Reports, Ends or Means?

Every business owner who has been handed a stack of financial reports by their accountant will tell you that financial reports on their own are frustrating and of little value. In most instances, they actually create greater ambiguity for the owner, and make their job more difficult.

Reports on their own are not the end goal. They are supposed to be a means with which to understand business activity. For example, it’s not enough to know that the ending cash position for the period changed by a certain amount if you can’t identify which activities drove the change.

Earlier on in my career, I worked with a client who didn’t understand that being a seasonal business caused sizeable fluctuations in the working capital needs as accounts receivables and inventory positions grew during peak periods. Their bookkeeper provided them with cash balance reports but with no explanation. I worked with them to identify metrics, such as inventory turnover and days sales outstanding that they could track to give a better reflection of how the business was doing and to also help forecast future cash positions.

As mentioned, reports created for external use serve a different purpose than management reports, which are created for internal use. If they were created for internal use, they are the means by which the business learns about its activities and uncovers opportunities that can be acted upon.

A business is more likely to thrive when reports are generated by a person who is skilled at analyzing and interpreting the financial data contained in the reports. This person can identify when standard reports need more details and can create ad hoc analyses when it makes sense. Knowing when to take this next step and how to go about it only comes with experience.

In particular, businesses experiencing rapid change cannot afford to skip interpreting the information contained in the financial reports. In fact, they should be strongly relying on these (and on things such as dashboards of KPIs) to help them navigate their way. But creating meaningful dashboards is not as simple as it sounds. It requires understanding what factors drive the business and what signals they send off. Some KPIs may be purely financial whereas others might be a mixture of operational and financial data. An experienced finance leader will know how to pull together this critical information or direct others in doing so.

Level 4: Financial Planning

With an accurate record of historical activity and analysis of the factors that influenced successes and shortcomings, a business can use the information gathered to develop financial forecasts. As the cliché goes, “You can’t know where you are going until you know where you have been.”

The process of creating a forecast is nothing like the steps for recording accounting activities and requires a different set of tools and skills.

Companies with rapidly changing business models benefit the most from regular forecasting and again, should not be skipping this step. The faster the business is changing, the greater the risk associated with not planning, and the greater the need for frequent updates on progress toward the plan.

A forecast ideally would be a rolling forecast and should always be projecting 12 months out at any given time. This is especially true for seasonal businesses. The forecast should include three financial statements: profit and loss, capital expenditures, and cash flows. Leadership can then work with the rest of the business to ensure that the business has sufficient resources to meet its goal-based needs. The finance team seeks to scale business resources to meet the plan with no more and no less than what is needed, so that opportunities and/or resources are not wasted.

Companies that are at this level of the Hierarchy of Needs will almost certainly require a CFO. As mentioned above, a part-time CFO may be enough, but there would need to be a close working relationship and collaboration with management in order to achieve meaningful, and hopefully accurate, financial forecasts.

Level 5: Strategic Partnering

Businesses that aspire to continually grow and improve will seek the most from their financial management team. The ultimate deliverable of the financial management team is strategic partnering, where the financial function partners with other areas of the business and is an integral part of the strategic planning process. This can only be achieved once the business understands where it has been and where it is heading.

Strategic vision includes long-term pricing decisions, scenario analysis, international expansion, acquisition decisions, as well as many other higher level decisions. Strategic partnering results in the assimilation of new frontiers into the long-term financial goals of the business.

A seasoned finance leader who can partner with the business to create a financially viable strategy is a must at this level.

Choose Lean Finance

In today’s business environment, lean organizations are proving that with the right financial discipline, companies can achieve significant results with far fewer resources than what was once possible.

As noted by Christian Gheorghe, the CEO of Tidemark, “Even a mid-level finance pro can move an organization’s planning, budgeting and forecasting processes beyond Excel spreadsheets so managers have the data and analytics needed to understand those ‘what-if’ scenarios and utilize predictive analytics and forecasting.”

By increasing the yield from labor and financial resources, high growth businesses are more agile and better able to respond to changing business conditions. While FinTech does have limitations, it is becoming a tremendous enabler. It for instance gives the business the ability to embrace remote working which allows for it to retain higher quality talent at a lower cost of compensation. Software that manages accounting and finance better supports the use of outsourced shared service centers.

Collaborative technology has made it easier for businesses to hold off on hiring full-time finance resources while still having access to a worldwide pool of highly talented individuals. Businesses can now engage fractional CFO’s and advisory boards and get around to hiring a full-time CFO later, while still meeting their needs for more sophisticated financial leadership.

That being said, as concrete milestones approach, a seasoned finance leader, who can create a financially viable strategy, is a must. This is especially true when a business is trying to rapidly grow through a series of external financing rounds. While advisors, VCs, and consultants can get a company through early stage investments, waiting too long can result in the CFO not having sufficient time to learn the business before pre-IPO activity begins.

Finding the right CFO, who is willing to join the venture, can take some time. Paul Holland of Foundation Capital said that “It’s not uncommon, for it to take several months to execute on a high-quality CFO hire. The ideal time frame in which to make that hire is 12 to 18 months before the IPO.”

Another challenge for companies without a CFO in this environment is to keep track of regulation. As an example, ASC 606, when it goes into effect, will require businesses with external investors to report revenue differently from how they may have traditionally done.

In conclusion, whilst hiring a CFO need not be a top priority at the earlier stages of a company’s lifecycle, if the business continues to grow and its ambitions also increase, a CFO is required to effectively manage the business’s growing needs.

Five Questions to Ask When Building a Finance Function

Here are some key questions that a business should consider when staffing their accounting and finance function:

  • Will you be seeking outside investment? If so it is important to put the proper accounting process and policies in place as early as possible.
  • Is your business rapidly changing? A historically focused transactional mindset will be limited in its ability to help identify opportunities and threats. Additionally, as the business changes, the accounting processes too may need to change.
  • How much financial management skill do you have and how much time can you afford to spend on this? Even if you are proficient with accounting and finance, every hour you spend on the finances is at least an hour you can’t spend doing what you do best.
  • How much financial buffer can you afford to keep ready in case of surprises? With less visibility and planning, surprises are more frequent and larger. You will need a larger cash reserve.
  • How complex are your operations? Like machines and most everything else, the more complex your operations and finance the more skill and experience your business will need to adequately record, report, and plan.

 

Originally posted at :- https://www.toptal.com/finance/cfos/cfo

Blitzscaling 04: Session Notes[Ann Miura-Ko on Thunder Lizard Theory and Achieving Product Market Fit]

This is my third blog on the notes and my interpretations on the Blitzscaling session. In the fall of 2015, Reid Hoffman began taking session called Technology-Enabled Blitzscaling at Stanford University.Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. And its also about why organization culture is important for blitzscaling. Because when you’re growing an organization very fast, you have to make people accountable to each other on a horizontal or peer-to-peer basis, and not just vertically and top-down through the hierarchy.

  1. In session 04, Ann Miura talks about Thunderlizards companies who are able to scale massively & avoid competitions to dominate the market.
  2. A start-up is able to become a thunderlizard if they can attain following powers. Details about all these powers are given below:-
    • Category Power:- means changing rules of the market and game
    • Company Power:- means creating high-performance culture
    • Product Power:- means achieving product/market fit
    • Proprietary power:- means attaining IP’s or access to scare resources
  3. Propriety Power :  – Your start-up will achieve proprietary power by
    • Obtaining Intellectual Property, example pharam companies discover drug and get IP for that
    • Access to scare supply, example DE BEERS
    • Creating on high switching cost, example Oracle DB
    •  Network effect, example Linkedin
    • Authentic teams, example qilo 🙂
  4. Every great start-up has one fundamental assumption which if turns out true they become really big. Veeva Systems(a cloud computing company focused on pharmaceutical and life sciences) had the assumption that they will be able to scale up well if they build their system on top of force.com. What’s your basic assumption?
  5. Product Power :- You will achieve product power if you have:-
    • Achieved the product market fit. If you are asking about product market fit, than probably you have not found that.A great article on this is here
    • Define a new market category, example SalesForce for cloud base CRM
  6. It’s sometimes seen that some entrepreneurs have proprietary power, but they fail to convert that into product power and concept just end up being a college project.
  7. Company Power : – You will achieve company power if  you have:-
    • Discovered scalable business model
    • Understood and able to create an organization culture that is unique to you.
    • Lowered your company debt and technical debt by defining proper
      • Processes for people operations/HR
      • Tech & operations processes
      • Compensation and Benefits processes
      • Career development path for your employees
      • Communication channels within the organization. Here is a great article to understand company and technical debt
  8. Most of the successful founders are able to think about how to attain company power early in their start-up stage. As an example, Google was able to attain company power very early when they have a small team.
  9.  Founder(s) who become successful CEO understands company power. And those who don’t understand this are replaced by VC’s or have to get a CEO from outside(off course if start-ups survives)
  10.  You achieve Category Power by:-
    1. Defining new space by changing rules of the market and game, example AWS, Netflix, Apple
    2. Change the buying criteria of customers
  11. Catgeory power is achieved by looking externally whereas company power is achieved by looking internally
  12. Speed of decision making matters alot
  13. Founders who are on the path of creating a  thunderlizard company knows clearly why they are the best founding team for the idea they are executing.
  14. Even if you have created a technology solution, the biggest challenge is to find market for that solution. So if you have raised the seed capital or bootstrapping, always remain capital efficient so that you can survive longer.
  15. For marketplace start-up, most important is supply side of the platform and how much loyal will supply side remain with the marketplace. Demand side will not come back if supply side is not there.
  16. For solofounders, journey of start-up will be very tough as it become very lonely
  17. Steve Blank process of customer discovery is both a science and art. Most founders get the science, but fail to get the art.
  18. Start-up with multiple founders should leverage their diversity. VC’s want to see the balance of Yin/Yang in founding team.
  19. Founders should agree to largers vision where they want to go to avoid break-ups down the line
  20. In initial years, avoid recruiting agencies to hire people. Best talent is found internally
  21. Pivoting doesn’t mean changing your product button color, it’s about throwing what you are doing for something else. For example:- Slack was a gaming company pivoted towards enterprise collaboration software .