I was treated with suspicion last year at an industry event in San Jose when a venture partner expressed surprise that our firm was in fact expanding - despite the economic slowdown. Every other search firm seemed to be downsizing, he said. His expression changed from one of surprise to recognition after glancing at my name tag, however.
"Sterling-Hoffman…You're the guys that recruit sales executives for software companies?"
"Right."
"That explains it. We fired every VP Sales in the portfolio last month."
I did a double-take and pressed him for details; surely he was exaggerating, I thought. (We weren't doing that well!) But he stood by his story, and asked for a business card - which I happily handed over.
When I relayed the details of this conversation to my associates, none of them seem surprised. All of their clients seemed to be holding their VP Sales directly accountable for failing to make their revenue numbers. It's become almost cliché: with the CEO forced to admit to the board that the company will miss target next quarter, the immediate question is: what are you doing about it? After some preamble about the state of the market and certain 'unforeseen circumstances', out it comes…. "We might need a change in sales leadership."
Of course, there are plenty of occasions on which a 'change in sales leadership' is required simply because the current sales leader is incompetent. But incompetence alone cannot account for the sheer volume at which VP Sales candidates are being turned over. What amazes me is just how many VP Sales candidates in enterprise software are able to offer positive references from the very CEO that ordered them out of the company in the first place. During the reference validation stage of a recent search, our team encountered just such a scenario. I pushed the CEO to explain - off the record - why he was willing to provide a 'thumbs up' when he himself had terminated the candidate only 3 months earlier. This particular CEO was refreshingly blunt: "Because he got screwed for being in the wrong place at the wrong time."
So what's behind the witch hunt?
The most common story heard around Sterling-Hoffman's war room is that of the ever present disconnect between the product visionaries (aka techies) and VP Sales. The former believes that his or her team has created technology worthy of permanent placement in the Louvre, while the latter simply relays the message that "this isn't what our customers want." Of course, the truth is somewhere in between. Sales executives are often far too eager to modify their powerpoint presentations in order to coax money out of the CIO's purse. Given free reign, business intelligence tools become perfect for supply chain automation and the answer to 'Does it have X feature?' is always an enthusiastic 'yes.' Similarly, technologists are often loathe to give up the fantasy that their creation is already the next killer app. ('If only the stupid customer would use it THIS way…').
A second explanation may be that board meetings that take place after a failed quarter have a tendency to be like murder trials: the first order of business is to assign blame. It's usually not until after the task of assigning blame is complete that the really productive work of fixing the situation begins. Given that achieving revenue goals is literally written into the sales executive's job description, they become easy targets. Especially for newly hired CEO's under pressure to demonstrate to the board that some form of action is being taken to get the company back on track. In a moment of rare candor, one CEO confessed a shocking story: he had terminated his VP Sales purely to create an alibi against future missed revenue targets, which he viewed as inevitable given market conditions. The absence of (and resulting search for) a VP Sales would provide a distraction for the board and buy some time during which he hoped the market might turn around.
Whatever the cause, nobody disputes that the costs of a revolving door in sales leadership are profane. Any duration for which a company goes without having a competent executive to drive the sales process is too long (with one exception to be discussed in another article.) Further, each change of the guard at the VP Sales level is followed by inevitable turnover within the sales organization itself. When a new VP Sales is finally hired, a ramp up period of 2 - 6 months is customary; and of course, replacing the individual contributors that followed the incumbent sales leader out the door is an entirely new project that can take up to 3 months in and of itself. I could comment on the additional costs of retaining search firms to backfill the openings but out of loyalty to my own, I'll stop there.
The goal of this article, then, is to offer some insight into how software companies can increase the chances that a new executive hire will actually succeed. It is simply not enough anymore to coach a CEO or entrepreneur to 'hire the best people'. The phrase has been repeated so many times, in so many 'how-to' books and keynote speeches, that it almost sounds silly. This article is not for CEO's that seriously believe they've managed to build a team of only A+ players. This article is not for venture partners that believe their portfolios are staffed with superstars. It is a fact that the vast majority of companies currently in existence are staffed with average management teams. Why? Because by definition, only 10% of executives can rank within the top 10% of their field or function. It follows then that 90% of the CEO's and/or executives in any industry must automatically be less than exceptional. Business leaders that are open to accepting this logic should find some value in the following paragraphs, as I am convinced that executive turnover can be reduced a great deal by executing on a few basic strategies.
1) Take the 'Jeet Kune Do' approach to Executive Search.
Jeet Kune Do is a martial arts system that was originally created by Bruce Lee, based on the premise that each battle is unique and therefore calls for a customized approach. In other words, the 'correct' fighting strategy is a variable - not a constant. This principle is also embedded within Geoff Moore's high tech strategy classic, "Inside the Tornado", which states repeatedly that the correct strategy during one phase of the technology adoption life cycle is the wrong strategy during the next.
The corellation for venture investors seeking to hire a CEO, or for a CEO seeking to hire a new executive, should be obvious: the skills or temperament required to win at one stage of corporate development are completely different than the skills / temperament required to win at another. Further, the vast majority of executives do not morph accordingly; they have neither the patience nor the inclination to remake themselves every time their employer's business model changes. Most executives prefer instead to join another company where the business needs more closely reflect their existing skillset. There is nothing wrong with this sort of mercenary approach. It provides our industry with optimized specialists. Executives come preconfigured, in a sense, for dealing with very specific types of business problems. I spoke with Tom Kippola, Managing Partner at the Chasm Group, recently and he summarized the point as follows: "An executive who enjoyed tremendous success in the tornado does not necessarily possess the skills required to succeed in a pre-chasm scenario." This is why software companies that use personal income history to measure the success of a VP Sales candidate often make terrible hiring mistakes. Is a VP Sales candidate that achieved W2's over $800k per year with Oracle in the late 90's likely to be a star in an early stage emerging technology venture? Not likely.
The key is to identify the competencies required to succeed given market conditions and then evaluate executives accordingly. For example, if your company is competing on customer intimacy, I would suggest placing domain expertise (regarding the technology, vertical, or both) at the top of the list. If, however, operational efficiency is the name of the game, domain expertise becomes less important. (For further elaboration on optimizing operational models, see "The Discipline of Market Leaders" by Michael Treacy and Fred Wiersema.)
All this begs the question: what should a CEO do if he/she is not yet certain of the appropriate operating model? I wish the answer were as simple as 'Don't Hire', but every company needs to start somewhere. If you are unclear as to the operating model, then you are by definition unclear as to the required competencies. Any hiring decision made under these circumstances is nothing more than a crapshoot. Assuming you manage to convince an executive to take the gamble, just be truthful about the fact that it is in fact an experiment - and be prepared to offer a reference if things don't work out.
2) Think M&A: Hiring is like Acquiring.
Most experts agree that success in M&A has more to do with integration strategy (post-transaction) than with valuation on the front end. Similarly, whether a new executive succeeds or not will depend in part on the process used to integrate the new recruit into the existing team. Most investors and CEO's focus the majority of their time on analyzing any given candidate's skillset - and seem to lose interest after the offer has been signed. This is perhaps the single biggest mistake that search committees make. Why? Because every company has it's own unique culture. Many executives have spoken to me about feeling as if they had to learn an entirely new language just to fit in. The key to successful integration lies in helping the new executive learn your company's unique language as quickly as possible.
The best way to do this is for the CEO to proactively create opportunities for the new executive to learn about and bond with the other members of the management team. Over the first six weeks, we suggest that a new executive spends six hours with each member of the current management team. If there are six executive team members, this means that 36 hours of the new addition's first six weeks will be dedicated to the integration effort. (If you're thinking that this will be tough to sell to your management team, you're right.) So for those readers already starting to cringe, you may wish to skip the rest of this section.
Here goes: 50% of the integration time your new executive spends with the other managers must be focused on personal bonding. For example, one of our clients created a '20 questions' orientation session that required each executive to share their life story with the new hire, and vice versa. It is particularly easy for left-brained executives to dismiss this exercise as too 'touchy-feely', but consider: One common characteristic of quality relationships is the extent to which both parties are comfortable being blunt with each other about their thoughts and feelings. This lack of pretense emerges because once two people have connected personally, their insecurities tend to be marginalized as neither feels the need to maintain a facade. The best CEO's will readily admit that direct, blunt communication (one former client referred to it as 'straight talk') is a critical part of organizational success. It follows then that the best way to foster a 'straight talk' environment is to ensure that the relationships between members of your executive team are at least stronger than the relationships that each individual manager may have with his/her direct reports. (See Pat Lencioni's 'The Five Dysfunctions of a Team' for simple yet brilliant elaboration on this concept).
3) Get Granular about Defining Expectations.
Expectation setting is a necessary and critical phase in any relationship. Too often, however, CEO's (and entrepreneurs in particular) rush through this phase or skip it altogether because they want the early stages of the relationship to be smooth and pleasant. This is why the opening weeks or months of a new executive's tenure are often referred to as the 'honeymoon period'. During a VP Sales search we conducted earlier this year, I encouraged the CEO and top seeded candidate to engage in a discussion regarding mutual expectations. The conversation went something like this:
CEO: "Well, the first thing I want is good communication. It's the most important thing…I want to know what's happening every day…"
Candidate: "Every day? Really?…" (hesitating)
At this point, sensing that the candidate had become uncomfortable, the CEO backed off from his 'extreme' position of wanting daily updates and closed by saying, 'I think you know what I mean - I just want to be kept in the loop, and things will be fine.'
Actually, things would not have been fine. I interrupted the conversation immediately and forced both parties to explore the issue of communication further. As it turned out, the candidate was particularly sensitive to 'micro-management' and had once changed jobs (years ago) because his boss was a 'control freak'. Further, interviews with other members of the CEO's management team (conducted by Sterling-Hoffman during the discovery phase of the search project) identified clearly that the CEO was very much a hands-on manager who enjoyed being involved with his team day to day. None of this would have come to light, however, had I not insisted that both parties define expectations to the n'th degree.
What is important to note is that the CEO mentioned above had an initial reaction (to back off) that was quite natural. Consciously or subconsciously, his goal was to diffuse a possibly tense situation before it began. The mistake, however, is in assuming that tension is always a bad thing. Consider: the exchange described above occurred during a formal job interview - typically a low pressure, genteel affair. Day to day business operations, on the other hand, are anything but. If the CEO and a potential VP Sales are unable to engage in productive conflict during the interview process, how can they possibly hope to deal with conflict situations that are sure to emerge in the course of growing an enterprise?
Getting granular about defining expectations also means going much further than simply communicating the expected results. It is not enough to tell your VP Sales that the company's targets are $10m per quarter, and then walk away and hope the job gets done. I am well aware that management bibles advocate communicating the expectations and then leaving people alone to figure out the 'how to' component. However, to do so (in my view) is like handing your four year old child an encyclopedia and telling the infant that you 'expect' it to be completed in 3 months. But wait, some will protest. Shouldn't a seasoned executive already know 'how to read'? If I hire the right person, shouldn't they be able to hit the ground running? The answer is yes, with regards to functional tasks. But NO, when it comes to organizational dynamics.
Idiosyncracies matter. That is why a CEO needs to discuss not just what the actual objectives are, but also the strategies & expectations for how those objectives are best pursued. If 'communication' is important, drill down on what 'communication' means to each party. What amount of detail does the CEO require about each executive's weekly activities? Is the VP Sales required to provide reports on the facial expressions and dietary preferences of each influencer in each prospect account? Or is a simple pipeline report with probability rating enough? The devil, as they say, is in the details. Shed light on as many individual and team idiosyncracies as possible, and the chances of a new hire succeeding will go up dramatically.
4) Test for Self-Awareness & Emotional Maturity.
Self-awareness is the trump card; it is what allows a new relationship to remain strong under pressure, over extended periods of time. A candidate that is self-aware is able to regulate his/her own emotions, confront mistakes, and make productive use of external feedback. This means less wondering about where the new team member's head is at during conflict situations, and less worrying about whether they can take it when you tell them what you want changed.
How does one evaluate emotional maturity? The question requires far more than a paragraph for appropriate elaboration (the topic has served as the foundation for entire books). In general, try to look for candidates that have long inventories of their flaws and shortcomings. The more self-critical the candidate, the less you'll have to worry about how the person will react when you deliver negative feedback in the future. The ideal candidate should expect more of him/herself than anyone else expects (which is why I prefer hiring first borns - but that's another story.) You might also try administering psychometric testing; the Myers Briggs tool, for example, is favored by a number of well respected business minds, including Pat Lencioni (Founder of the Table Group) and Dave Beirne (General Partner at Benchmark Capital.)
The irony here is that only CEO's who already possess a high degree of emotional maturity are able to evaluate it in others. Overall, the best advice I can offer is to obtain the assistance of someone who is knowledgeable in the field. If you are planning to retain a search firm for the position, make sure question the lead consultant's domain expertise with regards to the topic of emotional maturity and how to test for it in candidates. If you are conducting the search independently, consult with a business psychologist to obtain some basic guidelines. Expertise in this area is not easy to find - but it is certainly available to those that bother to look.
5) Hire slow.
Many executive search projects I've been asked to turn around seemed to have been driven originally by a sense of desperation; as if every minute the position went unfilled was taking the company closer to it's death. Of course, a sense of urgency is important - and was particularly so in the bubble years. However, the cost of hiring the wrong executive can be far worse. Our instructions to every member of a search committee is that they are required to arrive at a 'yes' or 'no' decision after the interview. If they cannot decide, we count that as a 'no'. In fact, if a member of the search committee says they want 'more information', I often secretly count that as a 'no' as well. This often drags the process out, but the effort is well worth it. The problem is that boards often seem to harbor a collective fear of discarding too many candidates, as if the opportunity becomes less desirable with each candidate they reject. Entrepreneurs in particular seem to derive a tremendous sense of gratification from trying to close a candidate; asking them to postpone making an offer after presenting the company story is like asking an avid hunter to load a rifle, take aim at a target, and NOT squeeze the trigger. The challenge of course is to at once overcome the tendency to hire for the sake of hiring, yet keep in mind the fact that there is no such thing as a perfect candidate. Quite paradoxical, I realize, but such is life. The point is that the first step in reducing executive turnover is to do whatever is in your power to make the right decision in the first place.
Conclusion
Far too often, CEO's blame themselves for having failed to hire an 'A' player. In my view, this attitude is quite flawed. The challenge is not to hire all 'A' players, but to build an organization out of the best possible talent that is realistically available to you within the timeline your company must execute in given the window of market opportunity.
Given that the available talent pool is always in flux, a CEO must find ways to win even if his/her individual executives are average performers. Since there are no perfect brides, the real question when evaluating a VP Sales (or any other executive) is: does this candidate have enough of what we require such that it would be possible and cost effective for us to bridge the gap? The goal of this article was to recommend strategies for 1) Structuring the hiring process so as to minimize the gap between what the company needs and what the candidate has to offer, and 2) To better equip CEO's with strategies to help bridge this gap when it does make itself known (as it inevitably will.)
After all my talk of executing with mediocre performers, readers are no doubt wondering whether I would ever approve of terminating an executive that seems to be failing. Put it this way: if you are already thinking about terminating one of your executives, it is probably too late to implement any of the measures I've described above. It's like physical exercise: by the time you're at the end of a life without it, it's probably too late to hit the gym and start reaping the rewards. Further, the other side of the 'hire slow' principle is: 'Fire Fast'. I am absolutely in favor of terminating underperforming executives and moving on (particularly if it means you'll be retaining our firm to do the replacement search.) But by and large, I would suggest to CEO's that a great deal of time and energy can be saved if sufficient energy is invested towards helping a new executive hire become successful after the honeymoon period is over. As a final thought, I would urge readers to consider a point brought to light in the book by Pat Lencioni that I referenced earlier: A CEO's best chance of winning with a group of average individual executives is to build an ABOVE AVERAGE team.
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive-search firm that specializes in conducting CEO, VP Sales, and VP Marketing searches for enterprise software companies. He can be reached via email: amehta@sterlinghoffman.net