Lecture 14 - How to Operate (Keith Rabois)

1. KRKeith Rabois0:00

   Um, so I'm gonna talk about how to operate. So I've watched some of the prior classes, and I'm gonna assume that you've already sort of hired a bunch of relentlessly resourceful people, that you've built a product that at least some people love, that you probably raised some capital, and now you're trying to build a company. So you're-- you've been forging a product, and now you gotta forge a company. And I'd actually argue forging a company is much more difficult than forging a product. Basic reason is people are irrational. So you probably all know this, either your parents, your significant other, your brother or sister, your teacher, somebody in your life is irrational. Building a company is basically taking all the irrational people you know, putting them in one building, and then living with them twelve hours a day at least. So it's very challenging. Now, there's techniques for coping with that, and some people get good at it and some people don't, but that's what really what operating is about. So basically what you're doing when you build a company is you're building an engine. And at first you have a drawing, literally on a whiteboard, and you're architecting it, and it looks very conceptually clean and beautiful and pretty. But when you start actually translating it to practice, you actually-- it looks more like this, and you're holding it together with duct tape, and it takes a lot of heroic efforts of people to actually hold it together. That's why people work eighty, a hundred hours a week, is that heroic effort is actually necessary to keep this thing together because you don't actually yet have polished metal in place. Eventually, you wanna construct a high-performance machine, a machine that actually almost nobody really has to worry about every hour, every minute. And you know, as we- we used to joke about eBay, that if Martians took over eBay, it would take like six months for the world to notice. That's what eventually what you want to get to. Or as Warren Buffett says, you know, build a company that idiots can run because eventually they will. [audience laughing] So this is what you want. Uh, basically a performance machine that idiots can run. Now, as a leader, what is your real job? What's your role? Strictly speaking, there's only one book ever written that actually explains how to do this. It's a little old. It's written in nineteen eighty-two by Andy Grove. He's quite famous and quite successful. And his definition of what your job is, is to maximize the output of an organization, your organization that you're responsible for. So CEO is everything, and a VP would be part of the organization, and the organizations around you. So if you're a VPE, you actually are responsible for the performance of the product team too, or the marketing team, because you have influence there. So this is how you measure people, and you wanna focus on the output, not the input. Uh, the old adage about measuring, not measuring motion and confusing that with progress. You're measuring only progress. And this is gonna sound like a fancy and glamorous thing to do. Um, maybe people get excited about managing a whole large organization and being responsible for the output. But in practice, what you're gonna learn today, hopefully, is that it's more about things like ordering smoothies, teaching your receptionist how to answer the phone properly, and serving as a ten dollar an hour task rabbit for your employees. So let's talk about that. So at first, when you start a company, everything's gonna feel like a mess, and it really should. If you have too much process, too much predictability, you're probably not innovating fast enough and creatively enough. So it should feel like every day there's a new problem, and what you're doing is fundamentally triaging. So some things will look like a problem, and they're actually a cold. They're just gonna go away. So somebody's annoyed about this or that, that may be a cold and you shouldn't stress about it, and you certainly shouldn't allocate a lot of your time to it. And some things are gonna present themselves as colds, but just like in the emergency room, if they're not diagnosed properly, they actually can become fatal. So what I'm gonna try to do is help give you frameworks for thinking about which things are colds and which things are potentially fatal. So one of the most important things I learned at Square is actually a concept of editing. And this is the, I think the best metaphor I've ever seen in like fourteen years of running stuff, of how to think about your job. It's natural. It's a natural metaphor, so it's easy to take with you every day. And actually, it's easy to transmit to each of your employees so that they can figure out whether they're editing or writing. It's a natural construct. You generally know when someone asks you to do something, am I more writing or am I more editing? So an editor is, is the best metaphor for your job, and we're gonna talk about the specific things you're doing in editing. The first thing an editor does, and you've probably all had this experience in school, is you submit a paper or to a TA, a draft to your friend. The first thing an editor does is they take out a red pen or nowadays, you know, online, and they start striking things, basically eliminating things. The most important task of an editor is to simplify, simplify, simplify, and that usually means omitting things. So that's your job too, is to clarify and simplify for everybody on your team. The more you simplify, the better people will perform. People cannot understand and keep track of a complicated set of initiatives. So you've got to distill it down to one, two, or three things and use a framework that they can repeat, they can repeat without thinking about, they can repeat to their friends, they can repeat at night. Don't accept the excuse of complexity. A lot of people will tell you that, "Well, this is too challenging. This is too complicated. Well, yeah, I know other people simplify, but that's not for me. This is a complicated business." They're wrong. You can change the world in a hundred forty characters. You can build the most important companies in history in a very simple to describe concept. You can market products in less than, eh, about fifty characters. There's no reason why you can't build your company the same way. So force yourself to simplify every initiative, every product, every marketing, every- everything you do, and, and basically take out that red and start eliminating stuff. Second thing is what editors do is they ask you clarifying questions. So when you present a paper to somebody, what do they usually do? They, they find some ambiguity somewhere, and they say, "Well, do you really mean this? Do you mean that? Do you have an example of this?" That's what your job is. So you're in a meeting, and people are gonna look to you, and the real thing you do is you actually ask a lot of questions. And they can be simple, basic questions like, "Should we try this seven days a week, um, or six days?" They can be fundamental questions like, "Where's our competitive advantage here?" We try to do this actually as investors too. Um, some investors will ask you, uh, a billion questions about a billion things, and they'll have you do diligence forever. We try to narrow down to what are the one, two, or three, four things that actually matter for this company and only focus on those things. So it allows us to be more decisive, and we can make decisions rapidly. It allows us not to distract you from your day job, which is actually building a company. And yet, I think we still get to the higher fidel- highest fidelity answer because we don't have all these extra extraneous pieces of details and data. Now, it's hard. It's something you have to practice. But when you're good, good at it, every step you eliminate, Andy Grove estimated that you can improve performance by thirty to fifty percent.The next thing you do is allocate resources. So the editing construct, this is what editors do all the time. They take editors from the Mideast and covering the Mideast, and they move them to Silicon Valley because Silicon Valley is now, now more interesting, or they move them to a sports section because they want to compete on the basis of sports with other journals and other publications. So that can be top-down, where I take a bunch of allocate resources and people and say, "We're now going over here. We're going to compete on this basis." And then next month, next quarter, next year, I'm like, "Well, that Middle East coverage is getting boring and bland. We don't want to do that anymore. Let's go chase after something else." Or it can be bottom-up. Just like journalists mostly come up with their own stories, the people who work with you generally should be coming up with their own initiatives. So a reporter will generally, who covers Google, come up with the interesting stories that they're hearing in the ether and propose one or two to their editor for approval. But it's not like the editor is saying, "Go cover Google, and this is the angle I want." Once in a while they do that, but that's not the day, the day, the meat and potatoes of what a journalist does every day. Your goal over time is to actually use less red ink every day. So one way of measuring how well you're doing and communicating to your colleagues about what's important and what's not, what, why some things are important, some things are not, is how much red ink you're pulling out every day. And it's okay if you have a bad day and the red ink's all over the place, but it's not okay if the red ink next month is more than it was last month, the next quarter is more than this. So measure yourself of how much red ink you're creating. The other thing that's very important that actually isn't as intuitive to a lot of people is the job of an editor is to ensure a consistent voice. So if any of you read The Economist, you can tell that there's one consistent voice. You can pick up any article, any post in The Economist, and it feels like it was written by the same person. Ideally, your company should feel like on your website, on your PR release, on your packaging if it's a physical product, anywhere, on your recruiting pages, it should feel like it was written by one person. That's extremely difficult to do. And at first you're gonna be tempted to do that yourself, which is okay for a founder to do that him or herself initially. Over time, you do not want to be doing all of the consistent voice editing by yourself. You want to train people so they can recognize the differences in voice. So if you see this website page, it looks very different than the recruiting page, you start asking questions, why is that? Is the reporting messed up? Is one of the leaders over here not really understanding the voice of the company? So you gotta, you have to fix that over time, but you want to start with the objective of everything should feel exactly the same. It's quite, quite difficult in practice. Almost every company has at least one piece of the organization that isn't exactly on the same voice. At Apple, which is noto- you know, under, even under Steve's regime, which was notorious for getting this right, if you ask someone who worked at Apple, talk, ask them about the internal tools about recruiting. Do they really feel like Apple products? All of them will tell you no. So you're never a hundred percent, but you definitely want to get as close to that as you can. The next complicated topic is delegating. So just like the other thing I like about the metaphor of editing is writers do most of the work in the world. Editors are not actually writing most of the content in any publication. So that's actually true of your company. You are not gonna do most of the work. You shouldn't be doing most of the work. And the way you get out of doing most of the work is you actually delegate. Now, the problem with delegating is that actually you're responsible for everything. So as CEO, founder, there is no excuse. There's no like, "That's that department over there," or, "This person over there screwed up." You're always responsible for every single thing, especially when things go wrong. So how do you both delegate but not abdicate? It's a pretty tricky challenge, and both are sins. Like, if you over-delegate or y- and you abdicate, or you micromanage, those are both sins. So I'm gonna give you a couple techniques for solving this. First, and this actually comes from High Output Management and Andy Grove, is what's known as task-relevant maturity. It's kind of a fancy phrase for basically, has this person ever done this before? It's really simple. Like, how mature is this person in doing something? And the more they've done the exact same task before, the more sort of rope you're gonna give them. And the less, and the more they're trying something new, the more you're going to actually instruct them and consistently, constantly, regularly monitor. So that's kind of a basic concept, but it's worth keeping in the back of your brain. The interesting implication, and this is pretty radical, is that any executive, any CEO should not have one management style. Your management style actually needs to be dictated by your employee. So with one particular person, you may be very much a micromanager because they're quite low on this scale. And with another person, you may be delegating a lot because they're actually quite mature on this scale. So it's actually a good thing if you do reference checks on somebody, and half the people you call say they're a micromanager, and the other half say they actually give me a lot of responsibility. That's actually not a, that's a, that's a feature, not a bug. I didn't understand that at first at all. Like, I used to be befuddled when people would do reference checks on me and come back with this, like, complicated, uh, mosaic. And, uh, basically finally figured out that, uh, maybe I was actually doing my job correctly. So then, of course, taught other people that this is the way to do it. Um, [laughs] a more nuanced answer though, um, that I've sort of came up with is h- how do, how do you make decisions and delegating versus doing it yourself. You don't want to do it yourself too often. So what I've basically borrowed from Peter, this is my first two-by-two, uh, matrix ever in my life, um, but he taught me something at least, um, is you basically sort your s- your own level of conviction about a decision on a, a grid. You know, extremely high, extremely low. There's times when you know something's a mistake, and there's times where you wouldn't do it that way, but you have no real idea what the, wheth- whether it's the right or wrong answer. And then there's a consequence dimension. There are things that if you make the wrong decision are actually catastrophic to your company, and you will fail. There are things that are pretty low impact that really, at the end of the day, aren't going to make a big difference, at least initially. So what I basically believe is that where there's low consequences and you have very, a low confidence in your own opinion, you should absolutely delegate, and delegate completely. Let people make mistakes and learn. On the other side, obviously, where the consequences are extremely dramatic and you have extremely high conviction that you're right, you actually can't let your junior colleague, like, make a mistake. You're ultimately responsible for that mistake, and if it's really important, you just can't allow that to happen. Now, the best way to do that is to actually explain your thinking, the why. Um, it's easy to shortcut when you get busy explaining whys of the world, but it's very important to try. Um, when I was at LinkedIn, um, [laughs] I had a colleague, uh, who's quite, quite talented, um, but occasionally would get annoyed if, if I didn't exactly agree with his, uh, opinion on something.And so I'd spent a lot of time trying to persuade him, uh, why I was making a decision a certain way. And his wild card, the card he would ultimately call out if I didn't quite persuade him, was he's like, "Okay, you're the boss." And that meant to me, like, I was burning a lot of social capital. Every time he said that, I knew I was, like, really creating a thin line, and that ultimately that was gonna backfire if I did that too often. So you wanna track the times that you're doing that. An example of this at Square is one of my favorite people in the world, and my second hire, first marketing hire, had this program he wanted to run called Inner Square, which basically allowed people, uh, to give out, uh... Square merchants to give out 10 other Squares to their, uh, col- Imagine a food truck outside, put, like, 10 Squares on the counter, and people could just grab them. And Kyle had this great idea this would be an awesome marketing program. Squares would s- spread Squares to other people. Um, and, you know, to some extent, the b- it was on brand, so it didn't have catastrophic consequences. Each of these 10 Squares didn't cost that much money, so financially we could afford to do it. But at that time, my 10 years of experience said there's just no way this is gonna work at a meaningful enough, um, scale to move our metrics enough, and I actually would prefer we don't, not do this. But Kyle was so excited about this that I decided to just let him do it. Um, he learned that actually when you measure this thing, it's not massive. It doesn't create, like, massive value for the company. It did require a fair amount of operational complexity to ship all these Squares to people and figure out how to get them Squares, et cetera. But it allowed him to be excited about his job and to learn how to filter future ideas, so it was totally worth letting him make the quote, unquote "mistake." The next and most, uh, possibly most important thing you do is actually edit the team. So these are the people that you work with, and nobody's gonna have a perfect team, and you're certainly not gonna start that way. So what I'm gonna try to do is maximize the probability for success in editing the team. So, um, I like this idea of barrels and ammunition. So most companies, once they get into hiring mode, as Sam pointed out, you should defer that for a while. But once you do, they just hire a lot of people, and they're like expe- and you expect that as you add people, your throughput, your horsepower, your, uh, velocity of shipping things is gonna increase. It turns out it doesn't work that way. Usually, when you hire more engineers, you actually don't get that much more done. You actually sometimes get less done. You hire more designers, you definitely don't get more done. You get less done per day.

2. SPSpeaker14:58

   [laughs]

3. KRKeith Rabois14:59

   Uh, we can talk about why. Um, but, uh, so the reason why is that most people, most great people even, are actually ammunition. But what you need in your company are barrels, and you can only shoot through the number of unique barrels you have. So that's how the velocity of your company improves is by adding barrels, and then you stock them with ammunition, and then you can do a lot. So if you go from a one-barrel company, which is mostly how you start, to a two-barrel company, suddenly you get twice as many things done per day, per week, per quarter. Uh, if you go to three barrels, great. If you go to four barrels, awesome. Barrels are incredibly difficult to find. But when you have them, like, give them lots of equity, promote them, take them to dinner every week because it, it, they're virtually, um, like, uh, irreplaceable, 'cause they're also very culturally specific. So a barrel at one company may not be a barrel at another company because one of the ways, the definition of a barrel is they can take an idea from conception all the way through shipping and bring people with them, and that's a very culturally specific opportunity, uh, specific skill set rather. So, um, two questions probably are occurring to you is, how do you figure out who's a barrel and who's not? One is you start actually with a very small set of responsibilities. It can be fairly trivial. It can be something like, I want to reward the engineers that are in my office at nine o'clock at night every night with a nice cold, fresh smoothie. This is actually a real example. I was frustrated. Um, our engineers were working really hard at Square and, you know, maybe twenty percent to thirty percent would stay very late into the evening. And I wanted to sort... We already had served them dinner, but I wanted to give them something cool to reward them. You could think about alcohol, but that's a little complicated. So smoothies were probably a little bit better than the pizza, which drains you of energy. Uh, but nobody could get smoothies in my office to show up at nine o'clock sharp that were cold, that tasted good, and delivered in the right place so that engineers would find them. You'd think this is simple, but in fact, it, like, took months to get this right. So we had an int- we had an intern start, and I think on his second day I was explaining this problem and he, he said, "Well, I'll do it." And I was, like, looking at him like, there's no way. [laughs] I've seen my office manager fail, my assistant fail, all who are actually pretty good. Um, this just isn't gonna happen. And then lo and behold, that night they show up on time, cold, delivered to the right place, and my first instinct was, great, not, not, nothing about the smoothies, but okay, now I can actually give him something more important and consequential and complicated to do. And that's what you actually want to do with every single employee every single day, is expand the scope of their responsibilities until it breaks. And it will break. Everybody. Like, I couldn't run the world. Like, everybody has, like, some level of complexity that they can handle, and what you wanna do is keep expanding it until you see where it breaks, and that's the role that they should stay in, that level of sophistication. But some people will surprise you. There will be people who you don't expect, without, with different backgrounds, without a lot of experience, that just can handle enormously complicated tasks. And so keep testing that and pushing the envelope. The other signal to look for is once you've hired someone is, with an open office, just watch who goes up to other people's desks, particularly people that they don't report to. If people start going to your desk, someone, individual employee's desk, and they don't report to them, it's a sign that they believe that that person can help them. So if you see that consistently, those are your barrels. Just promote them, give them more opportunity as fast as you can. The other question everybody asks about people is, when do you hire somebody above somebody, and when do you sort of mentor somebody, or when do you need to replace somebody? And the way to, the way to think about this is every company has its own growth rate, and every individual has their own growth rate. So some companies that are very successful, let's say LinkedIn. LinkedIn was always a very linear company. It never went like this. So for example, I joined LinkedIn 18 months after we launched, and we had only one point five million users, which in a social product is a very small number. And when I joined, I was the twenty-seventh employee. When I left two and a half years lat-later, we only had 57 employees. In contrast, when I joined Square, I was the twentieth employee-Two and a half years later, we had, like, 250, 300 employees. So each company has its own velocity on this curve, and if the company's going like this, you can only keep people in the roles that their own personal learning curve is going like this. On the other hand, if the company's growing like this, anybody whose learning curve is faster than that, you can keep giving them the same role to do. So always track, like, the individual slope of an employee and the company's growth rate. Now that you have your barrels identified, so you're gonna pick out the people that can really take an idea that you have in the back of your head, uh, scope it out, run with it, make it happen, ship it, and it's perfect, um, where do you aim these barrels? So I'm gonna argue that you really need to spend a lot of time focusing people. Uh, this is something I've learned from Peter Thiel, actually. He used to insist at PayPal that every single person could only do exactly one thing, and we all rebelled. Every single person in the company rebelled to this idea because it's so unnatural. It's so different than every other company where people want to do multiple things, and especially as you get more senior, you wanna-- definitely wanna do multiple things and you're, you're like, you feel it's, like, insulting to be asked to do just one thing. And Peter would enforce this pretty strictly. He'd basically say, "I will not talk to you about anything else except this one thing I've assigned to you. I don't wanna hear about how great you're doing over here." Like, just shut up, and Peter would run away. Um, and then, um, focus until you conquer this one problem. And the insight behind this is that most people will solve problems that they understand how to solve. Roughly speaking, they will solve B+ problems instead of A+ problems. A+ problems are high-impact problems for your company, but they're difficult. You don't wake up in the morning with a solution, so you tend to procrastinate them. So imagine you wake up in the morning and you create a list of things to do today. There's usually the A+ one on the top of the list, but you never get around to it, and so you solve the second and third, and, uh, over an entire company of hundreds of people, that just cascades. So you have a company that's always solving B+ things, which does mean you grow and does mean you add value, but you never really create that breakthrough idea 'cause no one is spending 100% of their time banging their head against the wall every day until they solve it. So I highly recommend some version of that. You can be less stringent. You could be like, you can get three things to work on. But there, it-- I would still track at least the concept of what would happen if you only gave everybody one thing to prioritize. Now, because you can't make decisions, you don't want to be making all these decisions yourself. You have to create tools that enable people to make decisions at the same level, ideally, of fidelity that you would make them yourself. So how do you create scale and leverage? First thing I'd recommend is building a dashboard. This is an old Square dashboard. It actually looks pretty presentable even today. Um, the, the construct of a dashboard, first of all, should be drafted by the founder. You need to basically simplify the value proposition in the company's metrics for success on a whiteboard. You can have other people build the dashboard, I don't actually care about that, but you need to draw it out. Like, what does business success look f- look to us, and what are the key inputs to those? And then have someone create something that is very intuitive for every single person in the company, including customer support, to use. And then the key metric of whether you've succeeded is what fraction of your employees use that dashboard every day. If it's actually useful, it should be close to 100%. It's not gonna be probably 100%, but you wanna measure that. Just like you have quality scores for all your other KPIs with users, the dashboard needs to be as intuitive as it is-- as your product is for users. Other things... Uh, wait, hold on. Uh, yeah, let's go back one second. Another concept is transparency, and people will, uh, often... That's weird.

4. SPSpeaker22:26

   We'll fix it.

5. KRKeith Rabois22:26

   Okay. Transparency people talk a lot about. Um, it's kind of a, a goal that everybody ascribes to. But when push comes to shove, very few people actually adhere to it. So let me, let me walk through a little bit of transparency and different stages of transparency. Metrics are the first step, so everybody in your company absolutely should have access to every single thing that's going on. Other things that I like to do are take your board decks, and as you get more formal, the board decks will get more complicated, and actually review every single slide with every single employee after the board meeting. You can strip out the compensation information if you really want to, but every other slide, you should go through with the entire employee base and explain it. And if you can remember some of the feedback you got from your board, that's really cool to pass on. Another thing we did at Square, as your company scales, everybody's not gonna get invited to every meeting, but they're gonna wanna go to every meeting. The way you scale that is you create notes for every meeting, and you send it to the entire company. So we created a notes at alias. For every single meeting involving more than two people, someone would write notes and send it to the entire company. So people felt like, as the company added employees, they could continue to monitor and track what was interesting, what was going on, and they never felt excluded, hopefully. The other thing is, like, even, like, details around conference rooms. Every conference room at Square has glass walls. Because as soon as you have regular walls, people wonder what's going on. It's amazing, like, if they can see who's actually in the meeting and who's meeting with who when, they don't start-- they don't worry nearly as much as what's going on behind those closed doors. Stripe, you may have seen a blog post by, I think Patrick wrote it, um, about email transparency, about actually allowing everybody to have access to email. That's pretty far out there, but it's actually got interesting, you know, certain merits to it. I would all call the tactics that you read about and hear about as sort of minimal viable transparency. I actually think you could push the envelope a lot more. Steve Jobs tried this at NeXT. He actually tried transparent compensation. I actually think, although NeXT didn't do extremely well, it wasn't the re-- the real reason wasn't because of the experiment around compensation transparency, and that there's a lot of merit to that. And, you know, the critique of, like, compensation transparency is often, "Well, we want people to be teammates and work together and collaborate." And if you look in the sports world, though, where people are actually teammates and they do have to collaborate, all of their compensation is completely public. In fact, each of us can look up anybody's compensation in the sports world and get it exactly accurate, and somehow it seems to work. So I'm not totally bought into the idea that you need to keep transport-- uh, compensation non-transparent. Then finally, metricsSo you want to measure things. Um, you want to measure outputs, not inputs. And again, you should dictate this yourself. You should draft the dashboard to tie this all together. One important concept are what are known as pairing metrics or pairing indicators, which is if you measure one thing and only one thing, the company tends to optimize to that, and often at the expense of something else that's important. A classic example in payments and financial services is around risk. It's really easy to give the risk team the objective and say, "We want to lower our fraud rate." It sounds great until they start treating every single user in this audience as a suspect user because they want to lower their fraud rate. So they require each of you to call them up on the phone and give them more supplemental information and fax in things. And you have the lowest fraud rate in the world, you also have the worst, you know, sort of customer satisfaction score. So what you want to measure at the same time as your fraud rate is your false positive rate. That forces the team to actually innovate. Similarly, you can give recruiters metrics around hiring. And guess what? You'll have a lot of people coming through interviews, but if you're not tracking the quality of hires, you may be very unhappy with the quality of people you're interviewing or the people you're giving offers to. So you always want to create the opposite as an indication and measure both, and the people who are responsible for that team need to be measured on both. Finally, around metrics, um, one insight I've had over my career is what you, you kinda wanna look for the anomalies. You don't actually wanna look for the expected behavior. So the-- a famous example was at PayPal, none of the top ten markets that the company was planning to go after included eBay. But one day, someone noticed that fifty-four power sellers had actually w- handwritten into their eBay listings, "Please pay me with PayPal," and brought this to the attention of the, the executive team at the time. The first reaction of the executive team was, "What the hell is going on? Let's kick them out of the system. That's not our focus." Fortunately, I, I think David Sacks came back the next day and said, "I think we found our market. Let's actually build tools for these power sellers. Instead of forcing them to write into their listing, 'Pay me with PayPal,' why don't we have an HTML button that they can just insert?" Well, that started to work, and then he said, "Well, actually, why don't we make them insert it-- Why, why should we make them insert it all the time? Why don't we just auto magically insert it for them, so they can insert it once and then every single listing they, they have forever, it'll just auto magically appear there?" So that became the success for PayPal. Similarly, at, I was at LinkedIn, and I saw this stat that made no sense to me. The UI of the site was a little bit different back then, but twenty-five percent of all clicks, maybe thirty percent of all clicks from the homepage, were people going to their own profile, and that made no sense whatsoever. I mean, like, the set- it was the settings. Like, you had to literally go to the right c- margin, find a link, and it was twenty-five to thirty percent of every single click at scale. I mean, so this is, like, statistically valid stuff, and it made no sense whatsoever. Never, never have seen, like, a UI p-perform that way. And I, I, I kinda went around for weeks trying to figure this out, and then someone very smart, uh, actually it was Max Levchin, said something to me, and I was like-- He's like, "It's vanity." And I'm like, "Aha. People are looking at themselves in the mirror." That's a pretty good answer. So, 'cause they weren't editing their profile. Nobody has, like, something to edit every day in their profile, but they actually were just looking at themselves in the mirror every day 'cause it made them feel good. And then you could actually test that hypothesis and say, "Well, if I have more content, do I look at myself in the mirror more often?" Turns out you did. If you had more endorsements, did you look at yourself in the mirror more often? Turns out you did. So we actually figured out, like, what was actually underneath the utilitarian product that the product team thought they were building was actually a lot of emotional vanity. They didn't exactly translate it to the best possible feature like the PayPal example, which you couldn't easily put a button that said, "Be more vain today," you know, on the homepage. That would probably not work perfectly, so it never really, like, took off the way the PayPal example did. But it really clarified what the user-- what users of the product really wanted, and we wouldn't have found that without looking for anomalous data. The final topic I wanna talk about is details. Um, and there's, uh, in my assigned reading, there's a great book I really like by Bill Walsh, um, called The Score Takes Care of Itself, and the basic point, um, of the book is that if you get all the details right, you don't worry about how to build a billion-dollar business, how to have a hundred million dollars of revenue, how to have a billion users. That's a by-product of getting all the details of what you do every day to be excellent. So the example he talks about in the book that really resonated with me was he took over the forty-niners in 1979. They were the worst team in football. I believe they were two and fourteen the year before, which is really bad for those of you who don't know football. In the next ten years, he managed to transform the team into the NFL's best, won three Super Bowls. And what's the first thing he did to start going from a terrible team to the best team ever in many ways? He actually taught the receptionists how to answer the phone properly. He wrote a three-page memo about how to actually answer the phone. Now, that may sound absurd, but th- his point was, if the organization as a whole does everything exactly the right way, then receivers, for example, will start running their routes at seven and a half yards, not seven yards, not eight yards, and that actually will matter. And if everybody on the team executes exactly up to the same standard of performance, you will have a c- uh, organization that is performing at the highest possible level, and then with enough random variation, the highest possible performance team will do the high- the best. So the way you translate this to a company are to a lot of details that may not matter. They may not seem that they matter superficially. Most people would agree about that details matter when it, when it, uh, faces the user. But where the real debate is on things that don't face the user. So Steve Jobs famously in the Mac insisted upon an immaculate circuit design board. You can read about this in various books. The Mac, for those of you who don't remember the Mac, probably everybody here, but some of you may have seen it, actually couldn't be opened. So the circuit board design couldn't be seen by any single person in the world. It-- There was no way to open the Mac except the people who worked at Apple, and Steve insisted that it be absolutely perfect and beautiful. That's the kind of detail obsession that this sort of philosophy of building a company requires. Examples that may be more practical for you instead of circuit boards are things like, what food do you serve people?It actually matters more than you might guess. When people don't like the food you serve them, what do they do? They go gossip. They go complain to their friends. They go walk over to someone's desk, and all of a sudden at lunch, what they're complaining about is it- they're mostly spending time gossiping and complaining instead of brainstorming. So you don't have the serendipitous like idea matching another serendipitous idea that creates a spark. Instead, they're all wandering and willowing around. So the best thing you can do is actually give people the food they want or food that's good for them, that makes them more productive. So it may seem a lot like this glorious job you thought you have is actually more like running around being a task rabbit for people, but it's to cl- to take the things off their plate that are a distraction so that they can be high-performance machines. And if you take enough things away from people that distract them and give them the tools to be successful, all of a sudden your organization produces a lot more. Similarly, another example that's often got wrong is office space. So one natural instinct is when you need an office, you just have an office manager or someone on your team go out and find offices, and they'll go on tours with agents, and they'll come back with photos and ideas. You need to do that yourself. The office environment that people live in and work in every day dictates your culture and how people make decisions. It dictates how hard people work. There's almost no important more decision other than what company you're gonna be than what's the office environment you're actually in, and most people don't do that. And then the final thing, and then I'll take some questions, is around effort. Ultimately, I don't believe that you can build a company without a lot of effort and that you need to lead by example. So Bill Walsh, the first chapter of his book is get- gets asked this question of how do you know whether you're doing your job? And this is the answer he gives coaches that a- used to ask him that question. So if this is what you feel like every day, you're probably on the right track, and if that doesn't sound appetizing, you probably shouldn't start a company, truthfully. All right. With that, I'm done with the prepared part. Um, let me see if anybody has questions that I can try to be helpful with. Any questions? Yes.

6. SPSpeaker32:40

   So you talked about making compensation transparent. How would you do that, especially when people, um, equate themselves to the value, you know, of how much their salary is?

7. KRKeith Rabois32:51

   Um, I would, I would do it in probably bands. You could do it either just everybody in the company gets paid the same, or you could have like all discipline, all engineers, or you could do it by experience, like extreme ex- the way Steve did it actually at Next was there was a high band and a low band, and you either had a lot of experience or low experience, and that was it. So low band back then, you know, now would probably be like eighty-five thousand dollars. Kind of everybody just flatly gets paid eighty-five thousand. If you're super experienced, everybody gets paid like a hundred thirty thousand, and that's just it. Like, it's sort of the Next translated for inflation.

8. SPSpeaker33:21

   Um, like besides food, what's the, like top three details that most people care about?

9. KRKeith Rabois33:27

   You'd be amazed. [laughs] Well, yeah. So the question was, besides food, what other kind of details do people care about? Um, the laptops they use. I mean, this is now the default that everybody has, but five years ago, it was a benefit to give people high-quality machines as opposed to optimizing our costs and having Dell machines and ugly monitors, just as an example. So if you think about all these people that are relentlessly resourceful and incredibly talented in a massively competitive, uh, ecosystem competing for talent, you wanna give the people the best possible tools to do the best possible job. And so ri- rigorously thinking through, "How do I make people more successful? What things do they not need to be working on that are distracting, and what things can I actually give them that make them more valuable per day?" And then just break that down every day and solve that stuff yourself.

10. SPSpeaker34:13

    So when you're in a startup environment, how do you optimize for those things? 'Cause, you know, resources are scarce and-

11. KRKeith Rabois34:19

    It's a good, it's a good question. I actually think that you should start-- First of all, you must have your own office. I don't believe ever in shared office spaces. Peter talks a little bit about this, that every startup, every good startup is a cult, and it's really hard to create a cult if you're sharing space with people because a cult means that you think you're better than everybody else in the world, and you have a special way of doing things that's different than everybody else in the world. And if you're sharing physical space with people, it's very hard to inculcate that. So I, I would start there. But it is a prioritization question that when we have-- Every, every company has scarce resources. It's just a question of magnitude, like how many zeros, uh, are you paying attention to? You know, probably not ten dollars expenditures, but a hundred dollars, then a thousand dollars, then ten thousand, then a million, then ten million starts being your rounding error. So what I would do is figure out like what's most important in a high-quality office that creates a good vibe, that allows you to recruit people, 'cause recruits are very savvy about this. They walk into your office, and they can tell a lot about the culture instantly. I sometimes just t- I walk in a company office, and I can tell often whether I'm gonna invest as soon as I walk in. Like, I can absolutely s- rule things out that I just don't wanna invest in as soon as I walk in. And there's times walking into offices like, "Wow, this is really impressive." You can tell how people work together, how hard they're working, how distracted they are. Uh, Roelof Botha at Sequoia made a point to me about YouTube. Um, so when I invested in YouTube at the very, very beginning, um, it wasn't obviously gonna be successful, and then Ro- Roelof, uh, led the Series A investment for Sequoia and YouTube, and we were at a board meeting together and he said, "You know, I think YouTube's really gonna work." And I said, "Why?" And he said, "Well, every time I go to one of my portfolio companies, half the office is watching YouTube at lunch." [laughs] And I was like-

12. SPSpeaker35:50

    [laughs]

13. KRKeith Rabois35:50

    ... pretty good sign. Um, so like you pick up on these little things, and you can predict a lot.

14. SPSpeaker35:55

    Thank you.

15. SPSpeaker35:56

    Me?

16. KRKeith Rabois35:56

    Yeah.

17. SPSpeaker35:57

    Uh, what do you think is the best way to gain street cred for a new manager?

18. KRKeith Rabois36:01

    Oh, boy. Um [laughs]

19. SPSpeaker36:03

    Can you repeat it?

20. KRKeith Rabois36:03

    Yeah. So the question is, how's the best way to gra- gain street cred for a new manager? Almost all good managers in Silicon Valley are promoted because of their individual performance. Um, in cultures that are meritocratic, you know, the percentage is even higher. So we tried at PayPal to only promote people that were basically kicking ass at their discipline. So Peter didn't believe in, uh, general managers. Um, in fact, I remember going for a jog around campus with him my first week at PayPal, and he was asking me, you know, how are things going? The usual kind of CEO questions. And then we got in this debate about whether the company needed any managers, and he's like, "Nope, no managers. We're only gonna promote people." So the VP of engineering is gonna be the single best engineer.The VP of design is gonna be the single best designer. The VP of product is gonna be the single best product person, and they're gonna learn to manage later. And the advantage of that is you don't have... You don't demoralize people, 'cause everybody knows that their boss actually is better at their job than they are, and they can learn stuff. And you can learn a little bit of the management techniques later, as opposed to promoting people who are just good people managers that don't actually have the discipline and skill, and that does demoralize people. So I think just being excellent at something, and then getting excellent at getting a bunch of people to do something is the next task. But people, people... Y- you just have to learn. Some things you have to learn by doing. You can't learn to play the guitar by reading a book. You've actually gotta try to manage a bit, and you won't do it well. I have another sort of set of tactics and classes on what you actually do when you transition from a manager, a individual contributor to manager, and it's hard. One of the first things people don't get right is their time allocation. And so, actually, I would recommend doing what I call a calendar audit, audit, and tracking for a month what do you spend your time on and how much is managing and editing, how much is writing, et cetera, and then optimize that over time. You can get a mentor, um, find somebody who's been a manager before, um, that will work with you. Not your boss, 'cause your boss has a, a set of complicated a- uh, objectives, including how much are we shipping. Um, a mentor can just focus on you and making you more successful.

21. SPSpeaker38:02

    Could you give some more examples of things you can do to ensure consistent voice of the company, especially when the company is growing?

22. KRKeith Rabois38:09

    Yeah. Um, so I would look at every piece of copy in every department. So like another area that almost never is, uh, done... So look at your recruiting website. Almost never done to the same quality as your conversion funnel. I'd look at customer support, another classic area that isn't up to the same quality. And treat customer support like a product, uh, so that you actually have an engineering team and a design team over time that actually focuses on making that world-class. Um, usually where you have different executives at a scaled company, most executives were trained differently at different companies and they bring some of that with them. So you've gotta cross-train that. So if you've hired a VP of engineering from Google, it's very different than a design leader who came from Apple. They don't actually learn how to do anything the same way. Um, so you're gonna have to stitch that together somehow. Either one or the other is gonna have to learn in the other style, or you're gonna have to create your own style and really teach that to your executives. So it, it shows up all the time, but all you do need, all you need to do is just pick up the company's products and look for things that have a different voice. And you can see it, visual voice, word choice, uh, all, all over the map. Sam.

23. SPSpeaker39:11

    Could you talk a little about the tactics of how you manage people? Like how often do you meet with them? How often do you give them goals? How often do you talk over email?

24. KRKeith Rabois39:18

    So the canonical advice, and this now sounds obvious, but actually was pretty radical in 1982 when Andy Grove wrote his book, is you should have a one-on-one roughly every two weeks. Some people say every week, and, uh, I don't think you wanna go longer than two weeks. One week can be ideal, actually, in many companies. The reason why, in fact, there's an old, another adage, which is you should only have five to seven direct reports. That actually derives from the concept of a one-on-one every week, um, so that the direct reports, so that you can fit enou- enough one-on-ones in your calendar and still get other things done. So I think one-on-ones per week are a good idea. The agenda should be crafted by the employee who reports to the manager, not the manager. The one-on-one is mostly for the benefit of the employee, so they should walk in with, "Here's the three or four things I wanna talk about." Ideally, they circulate that. It can be even bullet points in advance by email. I- but in advance, so you have time to chew on it and you're not on the fly, uh, winging your responses. But that's probably the best structure. Now, if someone's really good and really talented and has been doing something for a long time with a lot of internal credibility, you might push out the one every week and relax that to one every two weeks, possibly once a month. I don't know that I would go beyond once a month ever.

25. SPSpeaker40:26

    Uh, when is it acceptable to compromise and hire someone who's, uh, ammunition rather than a barrel?

26. KRKeith Rabois40:31

    Yeah, so the question is, when, when do you compromise and hire more ammunition instead of a barrel? Truthfully, you're gonna hire more ammunitions by, by definition than you are barrels. So there's a ratio between the two. The question is the ratio. So at some point, the ratio is gonna get out of whack. So if you're the only barrel in the company and you have 50 engineers, you might as well only have 10 engineers 'cause you're not gonna get any more done. So you're just wasting resources. You're gonna frustrate engineers 'cause everybody's gonna need your approval, your sign-off, your editing. It's just gonna stack and frustrate people. So it's really, you know, different disciplines. Engineering, like I actually think like roughly 1 to 10 to 20 is probably about the right range. Um, like you don't, you don't need, y- you don't need more engineers until you have more barrels. Um, designer is a little different, but it, it does... I- it's always gonna be hiring more ammunitions. And they, a good leader or a good, uh, barrel will kind of have a feel for that. So one way to, uh, one way to correct for this. Natural tendency is to increase the, your headcount on your team, like sort of an empire-building tendency. Like, "Oh, so I manage 20 people, and Sam only manages 10, and you manage three, so I'm more important than Sam, and you're more important than you." One way to do that is you put an X here of the number of people that... The, the output, sorry. Specify how, how many things they've done successfully, and then divide by the number of people on their team. And tell them that this is gonna be their grade in their performance review. Shockingly, this Y doesn't start increasing on that team. Um, it's amazing how this works. And be really explicit about it.

27. SPSpeaker41:56

    So as a venture capitalist, uh, how often do you intervene with your port- portfolio company, and, uh, what's your philosophy on that?

28. KRKeith Rabois42:03

    So how often do I meet with them?

29. SPSpeaker42:04

    Yeah. How you intervene-

30. KRKeith Rabois42:05

    So the question is, as a venture capitalist, how often do I interact with my companies, meet with them? Um, generally, when we invest, and we do, do some seed investments where we allO- uh, invest less money, but when we invest a fair amount of money and lead a round, like a Series A or Series B round, uh, we join the board, and roughly I meet with the founder CEO every two weeks. That's the default. Now, there can be, obviously, there's inflection moments and things go right, go well or wrong, and that, you know, that's on an ad hoc basis. Um, these days, actually, surprisingly, I do a lot by text message. I even have one CEO who Snapchats me all the time. Um, [laughs] like, which I'd actually rather him not, but [laughs] the, the, so the world, the world has changed a lot. Um, but I try in-person meetings every two weeks.

Episode duration: 46:38