Hiring Executives

Hiring executives is always a big step forward (and in the short run can be a step backwards, financially) for owners in the SMB space. Whether you are a startup founder or an owner of a 100-year-old family business, hiring at the executive level is quite possibly the most important, and potentially difficult, puzzle piece to growing your business. As we noted last week, it involves getting the right people in the right seats rowing in the right direction.

This week we would like to highlight Elad Gil's recent piece focusing on when to hire executives at startups in the midst of "product-market-fit" growth (i.e. 20-40% per month). Companies with different growth trajectories require executives with different skillsets, but the broader principles of hiring execs apply almost universally across the spectrum from startups to operating companies.

To use a bit of Thiel-ian language, startups require creators by nature with the ability to take a company from "0 to 1". Operating companies require strategic executives that understand how to scale an organization from "1 to n". Holding companies require capital allocators (with experience as operators) to scale a portfolio of businesses from "n to nn." Again, different executives are required for each scenario, but hiring principles remain roughly the same:

- Hire before its necessary.
- Hire repeat performers.
- Hire for character and culture fit first.
- Hire to delegate and elevate.

As an operator in the SMB space, if growth is your ultimate goal, then building an executive team is the only way forward. When considering hiring an executive team, here are a few thoughts you might consider:

1. Take into consideration your rate of growth. 15% top line growth per year may seem like growth you can handle with your current staff, but in 5 years, your company will have almost doubled in size. You will need to hire more people in operations and finance which will require more management time. Can your current schedule handle this? If not, it may be time to think about hiring at the executive level in preparation for each doubling in size.

2. Take into consideration the style of business you are operating. Are you operating a lifestyle business but want to transition into a more growth-oriented approach? This will require a step back financially to take two or more steps forward. You can optimize your business for cash flow or for growth, but often there are tradeoffs between the two.

3. Take into consideration where your business is weakest. Are these weak areas hindering growth? Are there workstreams that could be done more efficiently by an executive or team that could free your time up to work on areas where your strengths lie? It may be time to bite the bullet and hire where your business is weakest.

4. Hire top down, not bottom up. If growing your business means building a team around a specific business function, don't hire more junior roles when you could hire a single executive to build a team around a business function. Hiring junior roles will require more management time from you that could be put to better use on other strategic initiatives.

5. Hire repeat performers at the executive level and develop first-timers internally for promotion. The experienced executives can train the internal talent and groom them for the next level so you don't have to.

If you are interested in a more in depth conversation on our hiring process for various executive level functions at Permanent Equity, we are hosting a live Zoom Q&A on hiring at Permanent Equity on February 25th at 11 AM CT. We hope you will consider joining us!

Expectations: entering due diligence (Permanent Equity)
+ "Signing a letter of intent and kicking off due diligence is a big step and requires trust. Although nothing is consummated, you’re getting business-engaged and promising to be exclusive. But let’s be honest, due diligence is not designed for fun. It’s full of tough conversations, thorough reviews of financial, legal, and historical documents you may have long since forgotten, and negotiation around who’s responsible for what. With that said, it’s kind of like eating your veggies -- make the best of it and be healthier because of it."

How to build an invention machine — 6 lessons that powered Amazon’s success (First Round Review)
+ ""Just think of a business as a process. It can be a complicated process, but essentially, it spits up outputs like revenue and profit, numbers of customers, and growth rates. To be a good operator, you can't just focus on those output metrics — you need to identify the controllable input metrics. A lot of people say that Amazon doesn't really care about profit or growth. I think that the data say otherwise, but what is true is that the main focus is on those input metrics," says Bryar."

Retail, rent and things that don't scale (Benedict Evans)
+ "Part of the promise of the internet is that you can take things that only worked in big cities and scale them everywhere. In the off-line world, you could never take that unique store in London or Milan and scale it nationally or globally - you couldn’t get the staff, and there wasn’t the density of the right kind of customer (and that’s setting aside the problem that scaling it might make people less interested anyway). But as the saying goes, ‘the internet is the densest city on earth’, so theoretically, any kind of ‘unscalable’ market should be able to find a place on the internet. Everyone can find their tribe."

Superstar cities are in trouble (Derek Thompson)
+ "As a general rule of human civilization, we’ve lived where we work. More than 90 percent of Americans drive to work, and their average commute is about 27 minutes. This tether between home and office is the basis of urban economics. But remote work weakens it; in many cases, it severs the link entirely, replacing spatial proximity with cloud-based connectivity. What knock-on changes will this new industrial revolution bring? The best argument against the remote-work experiment having a durable impact on our lives beyond the pandemic is an appeal to human inertia: For decades, the internet was a thing and remote work wasn’t, and after the pandemic, it’ll just feel like 2019 again. But the impediment to widespread remote work in 2019 and before wasn’t technological. It was social."

Why branch banking is dying in America (Visual Capitalist)
+ "In the last decade, 27,943 bank branches have closed in the U.S. The increasing prominence of mobile and digital banking is leading to lighter demand for in-person banking services."

Small business optimism wanes in January (Horan Capital Advisors)
+ "Today's Small Business Optimism Report by the National Federation of Independent Business (NFIB) shows continued deterioration in business owners optimism in January. The Index fell .9 points to 95.0 versus December's reading and taking it below the 47-year average of 98. The quarter over quarter absolute change is a minus 9 points and is the largest change since the -13.4 and -10.1 point change in April and May of 2020."

On the nature of long-term holds (AJ Wasserstein)
+ "To teach inquisitive students how to build a business while considering holding periods and exits, we often play a simple game of questions. We start by asking where the student is from. This game works in most U.S. locations. We then ask who the wealthiest people in that community are. Everyone can answer the “where are you from?” question correctly, and we hear a wide range of perfectly livable and wonderful tier 1, tier 2, and tier 3 cities. Most students pause at the second question, thinking for a few minutes before responding. When they respond, a clear theme emerges: the wealthy people they recall are all owners of businesses."

The shocking meltdown of Ample Hills — Brooklyn’s hottest ice cream company (Marker)
+ "What happened to the ice cream company the New York Times dubbed “Brooklyn’s Most Beloved”? The bankruptcy filings tell a straightforward story: “In practical terms, Ample Hills built out a factory in order to increase volume and lower costs, but the opposite happened, and the losses have mounted.” But Smith acknowledges to Marker that while the factory was “probably the financial decision that ultimately led to the bankruptcy, in a way it’s too simple a hook to hang your hat on.” Interviews with Smith and Cuscuna, along with more than a dozen employees, from scoopers to executives, reveal the perils of what can happen when a hot startup puts growth ahead of business fundamentals.As Smith tells Marker, having Disney behind them fueled much of the co-founders’ overconfidence, encouraging them to think they could become the next Ben & Jerry’s. Disney’s interest also helped the company attract investors, he says, which created “a runaway train of raising and raising and growth and growth.”"

Hiring executives and bad advice (Elad Gil)
+ "During break-out growth the following things start to happen:

• "The More More Moment": the pace of everything at the company accelerates. More customers, more support, more interest, more partnership offers - more more more more.

• Complexity goes up dramatically. You need to manage an ever expanding org with many new functions, geographies, products etc.

• You need to hire, retain, and communicate with more multiples of people. Going from 5 to 15 people feels like roughly the same company. Going from 15 to 30 means a new layer of management but still doesn't feel like *that* big of a shift. However going from 15 to 100 means three or 4 more new organizational layers. How you communicate, recruit (internal recruiter now needed as well as paid executive search) and retain people shifts.

• Bottle-necks & breaks emerge everywhere. Things will start breaking all at once - your backend servers will melt down, your managers' capabilities will hit their limits, your customer NPS will drop, your ability to be in every meeting stops."

The man who invented the Zamboni (The Hustle)
+ "As the great sage Charlie Brown once said: “There are 3 things in life that people like to stare at: a flowing stream, a crackling fire, and a Zamboni clearing the ice.” Watching one of these machines glide across a skating rink, restoring carved-up ice to glassy perfection, is efficiency in motion. A job that once required 1.5 hours of manual labor can be done by a Zamboni in just a few minutes. Technically, these contraptions are called ice resurfacers. But the company that originally invented them in 1950 — Frank J. Zamboni & Co., Inc. — has become so dominant in the niche market that even competing ice resurfacers are sometimes incorrectly called “Zambonis.”"

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