Looking for Leadership

About a month before I wrote this, I had a chance to spend a few days with good friends at the ocean. One of these friends is a relatively senior executive at Microsoft who worked his way up through the ranks. He currently manages a two-billion-dollar revenue segment of the company. This is big, even at Microsoft. What’s more significant is that he has no college degree, and no degree in computer science. What he does possess is tremendous leadership skills with a keen knowledge of his customers, combined with a winning personality, determination, and a willingness to do the hard work to become a success. Spend any time with him and you see that he oozes great leadership skills. Based on his promotional history at Microsoft, he was obviously a high quality hire.

One morning, while we were all at the RV park relaxing after a long drive to get there, as usual, I was up early doing my never-ending research and writing; something I love doing at that hour. When I’d look out my window, I could see him working away and making calls before his family was out of bed. He loves his work and he was eager to get some tasks off his plate before he spent time with his kids. He didn’t need to be managed, he loved his work and it showed.

As I’ve been conducting my search to find either another company to run and or acquire, I couldn’t help but notice that not one of the postings for a new CEO were designed in a way that would even consider this friend for employment. None of the Private Equity (PE) firms looking for a match between a business owner with the abilities to grow the company would even consider such a candidate, based on their usual posted criteria. This didn’t surprise me entirely.

I’m guessing that so far, over 90% of the boards and PE firms looking for a new CEO listed a requirement that the candidate have a college undergraduate degree or in a few cases, a very specific advanced degree because of the technical nature of the company. I thought about how this outstanding employee, someone Microsoft obviously valued enough to place a large revenue segment in his hands, would never get noticed in so many tactical job postings that provide no room for anyone to truly explain what they are about.

When I think back, some of the very best employees I’ve ever had working for me never had a college degree. What made them especially great was their love of the work. Even Bill Gates and Steve Jobs never graduated and I can go down the list of outstanding leaders whose resume would barely stand out in this checkbox-world of cookie-cutter employment, because it doesn’t fit inside a set of stereotypical parameters. Basically, as I see it, if the CEO search posting would reject someone like Bill Gates, or Steve Jobs, it’s not a well written post. Contrary to conventional wisdom, there were no automatic ivy league standouts either, however they do exist.

I wonder about any company that would use Automatic Resume Screeners (ARS) services for the role as CEO. That’s a bit alarming. The reality is that most CEOs come from relationships via directors, etc.

In my experience, great leaders don’t come from any particular type of school. In most cases they are born with it, and it shows up in their daily habits. They tend to think they can fix anything and I kind of agree with them. I’ve yet to see more leaders come from any one type of school over another, be it ivy league, military, or large and small higher learning institutions.

One of our senior employees and I were having lunch one day and we were thinking about all the people we hired in the prior two years; some were real standouts, and while we’d hire all of them again, there were a few that had characteristics that we wish we knew before we hired them. Most of our ennui had to do with future capabilities and limitations we discovered in these employees over time. It made us rethink our interview process to better vet new employees for future headroom. I’ve heard of a lot of hiring gimmicks and they come off as just that. Questions such as silly riddles, or questions with no real answer that are easy enough to game. Some are little more than hazing and provide no meaningful insights. Go online, learn the gimmicks on Glassdoor and pass with flying colors.

We were looking for a few very important qualities that overshadowed so many others. We wanted all of our employees to be self-reliant with a willingness to take personal responsibility for their actions. We were looking for hints that indicated strong self-motivation to improve their own lives, and we would strive to get candidates to talk about their aspirations.

Hiring terrific people is never an easy thing and you have to take the time to get to know them. One issues is that, most of the job postings headhunters post tend to be formulaic and never stand out, so they automatically reject someone who’s outside of their narrow specifications, even if they have qualities that completely overshadow some of the basic criteria. We live in a society where people are hammered to be in the center in every role. It’s not where I’ve found my best people, ever. Given my experience on both sides; both looking for what’s next, and searching for employees, it has me thinking that there has to be a better way of connecting the right candidate with the right company.

Heineken[1] recently shared a video about their screening job candidates by putting them through an obstacle course of challenges and asking questions. Having interviewed and hired a lot of people, I generally know if someone is a possible hire in the first five minutes, but if I’m thinking they may be potential candidate, I shift to a more general conversation and spend time drawing out conversation. It’s amazing how people’s behavior changes when they start to relax. My goal is to try and get them to reveal themselves rather than shoot answers they think I want.

Open Interface had a terrific process for new engineers of getting them to solve a hypothetical problem with other existing employees. An engineer that didn’t work out was very costly to the company. Our lengthily process gave the engineers a chance to see what they would be like to work with on a daily basis. We still had few engineers who didn’t work out, but it wasn’t very often. It also helped that our CTO had very good instincts when it came to job candidates.

Compounding the problem is that some people interview extremely well while others don’t. We wanted to find a better way to screen candidates, and the only solution that’s ever worked is just spending the time, tedious as it can be at times. The lesson we learned is that we were not spending enough time with final candidates. When we did increase our time, we did notice that our opinions changed slightly and we ultimately found better hires.

Having been involved in so many different types of companies, I’m surprised by another question that doesn’t indicate much by itself, but can only be truly relevant in a specific context. The question is about either revenues or EBITDA as a measurement of company management experience. I fail to see the relevance in the question as any indicator of true performance.

As an example, I once owned a yacht brokerage in the 80s, bought with no money, because I didn’t have any, by simply assuming the debts. It was my first business. We could do four transactions in a year and do over a million in revenue. It took only two people to do that. I knew someone who did that much revenue working alone at his tiny brokerage across the street. His business had no chance of growth because of his thinking as a one-man show, but I digress.

I was doing a recent analysis of the competitive landscape for a company I was evaluating and the reason for the wide range in revenue per employee, that was ultimately almost 3X from low to high. EBITDA was equally as varied. Yet, both companies produced very similar top line numbers.

Meanwhile, unlike some low margin fulfillment houses, an embedded systems software company, outside of initial software development expense, has virtually no cost of goods sold. A three million-dollar EBITDA could be a very small company compared to some light industries. Once the software is developed for embedded systems, there are no additional costs if the software is deployed on ten thousand devices or ten billion. There is no measurable difference in company workload.

You also have to keep in mind that EBITDA is often a heavily manipulated number and can easily be “adjusted” to look better or worse than it is. I’ve seen it manipulated both directions depending on who needs the value where and for what reason. Now, this isn’t to say there isn’t any way to measure a true company size to compare apples for apples in the context of management. There is.

When I look at a company I can't translate one employee's experience over another without knowing a lot more.  As an example, I prefer to weigh true size based on multiple factors, such as headcount relative to layers of management, number of revenue transactions, full-time head count, square footage of total space, inventory levels, SKUs, revenues, margins, etc., all to get a true sense of the size relative to other companies I’ve seen. Then there are the direct reports and overall org chart that also gives some indication of true size.  All of this is necessary for true comparisons.

Compounding all this, are the different stages in a company, especially when you have to transition from early stage to multiple layers when no single employee can touch all sides of the company directly. This is often a very challenging inflection point for company founders who have a strong tendency to micromanage everything. It’s usually the point where they fail and a new CEO must come in to fix something that shouldn’t have been broken in the first place. This also has a huge impact on the skill level of the employees relative to position.

When I was Trustee of a large company, I told one of the founders, after I noticed so many employees who had been with the company thirty years or more, that I admired his employees’ loyalty. He shot back, “Son, you’re confusing loyalty with un-employability.”  Ouch!  I could write pages about that founder. Still, the point stuck.

Most of the companies I’ve run have all full time employees. My second company had over fifty part-time people, mostly of college age. Full time is way easier to manage than part time. Age of employees is another factor that indicates management fortitude and is often overlooked. How these two are managed are vastly different.

I recently evaluated a company in the Bay area that had a very young hip workforce that was in trouble with a failing revenue model. There wasn’t anyone in the mid-size company over thirty-five and their low Glassdoor rating indicated a lot of drama. No surprise there. Their workforce was so young that none of them had much experience running a team, setting priorities with realistic objectives because they didn't have the experience, and the chaos was obvious. Compounding things, their customer retention was terrible and they seemed to not notice their true condition. Yet, in today’s world of computer scoring resumes, none of those challenges would show up outside of their education and role, and thus you end up like this company where there are a lot of recent ivy league grads but no real leadership through experience to get the company’s priorities and objectives straight.  They will be gone in a year.

Having now experienced this process from the other side, I believe there is a huge opportunity for some agency to capitalize on this gap, create something fresh, and build an outstanding reputation for finding great leaders, and thus help build outstanding companies.

[1] https://www.youtube.com/watch?v=Aq6y3RO12UQ