Wednesday, January 10, 2018

Lesson #285: How to Recruit & Retain Rockstar Talent

Posted By: George Deeb - 1/10/2018

You have heard me preach over and over again how great teams build great businesses.  That I would rather invest in an A+ team with a B+...

You have heard me preach over and over again how great teams build great businesses.  That I would rather invest in an A+ team with a B+ idea, than a B+ team with an A+ idea.  Well now, you can learn exactly how to recruit and retain rockstar talent for your business.  My close colleague Jeff Hyman, the Chief Talent Officer at Strong Suit a Chicago-based executive recruiter than specializes in VC and PE backed companies, just published a new best selling book called Recruit Rockstars--The 10 Step Playbook to Find The Winners and Ignite Your Business.  It was like everything that was in my head on this topic, just magically found itself in print in Jeff's must read book.  Jeff was kind enough to let me share some of his wisdom with you in this Red Rocket post.


First of all, here is a good summary of the book, featuring the 10 Step Playbook for hiring rockstars.  It compares what most recruiters do, and what rockstar recruiters do.  Notice the key steps from starting with setting up an upfront scorecard for what will make a great candidate, focusing on the candidates with the right DNA, taking candidates for a test drive, paying special attention during onboarding and pruning mis-hires within the first 60 days, to name a few.

I especially liked the section that said recruiters need to entirely change their mindset in terms of how they approach recruiting.  Recruiting talent for your business should be no different than the marketing tactics you would use to attract new customers for your business.  So, put on your marketing hats and figure out how you are going to build a great "employer brand" in attracting the best talent for your business.

Here is a quick excerpt from Jeff's book on the importance of retaining your rock stars once hired, and how exactly to do that:


"After hiring a Rockstar, the real work begins—getting the most out of them. I’ve studied and tried countless leadership styles. I’m convinced that authenticity wins—be yourself. But ensure that you provide what I call the five Cs to your Rockstars. They value these more than treadmills, ping pong tables, and notoriety.


First and foremost, provide them with interesting work. Give them customer problems to solve and a variety of people to deal with. Ask them to figure out how to make things faster, cheaper, and better within the organization. Countless studies show that challenge is the most important factor to job satisfaction for Rockstars, ranking even higher than money.


Rockstars are not only interested in their current role, but in their next one. They want to understand their likely career advancement and progression. That doesn’t necessarily mean an annual promotion. It can include lateral moves to broaden skill sets or working in a different geography. You can also say, “Here are some potential options for what might come next. I can’t promise them to you today, but if you do an outstanding job in this role, in a year, here are the kinds of things we see someone like you doing.”

The average new hire will work with at least fifteen companies during their career. The average tenure at a company is two years. So, if you can keep a Rockstar aboard your “train” for longer than that, you’re doing well. Go ahead and tell them, “My hope is to make this the best job of your life. If I do that, you’ll likely stay with us for a sustained amount of time. My expectations are high, but they’re realistic. My job is to get the best from you and provide the most fulfilling
job you’ve ever had.”

There’s no need to have the career discussion more than every six months, but you need to understand their aspirations and how they evolve over time. That way, you can begin to think about their advancement and what other roles might make sense for them. Provide it before some headhunter does.

Part of career progression entails succession planning, so that when you experience a departure, you have a potential successor identified. The best companies in the world often have a successor in mind for every role; that way, if someone leaves, they have a replacement named by the end of the day. The injury-riddled occupation of football has addressed this issue with the motto, “Next man up.” Be prepared because you never know when a role will need to be refilled.

Bear in mind this will sometimes mean promoting a Rockstar who’s not quite ready for the next step—you can do so on an interim basis. This is often better than taking the chance with an outside recruit, who would come with risk and could be the reason your Rockstar departs when passed over for the role. Always search inside first; at the very least, when considering outside candidates, run all viable internal candidates in parallel through the same fair and objective process.


Most Rockstars respond well to candor, because they have an insatiable need to improve their performance. They recognize the path to promotion, to taking your job, and the CEO role perhaps one day, is to continually improve. To get better, they need and crave your feedback. So, provide it frequently. Ban the annual review; your Rockstars hate it as much as you detest cramming to write those missives over Christmas week. Instead, implement a monthly or quarterly coaching cycle. Find just two or three messages—not the laundry list given by most managers—that you want to reinforce, give specific examples, and then watch for improvement. When you catch them doing something right, reinforce it by letting them know you noticed and by recognizing them publicly if possible. Your two or three things should be tied to the skills they need for their next career move.

A powerful yet underused tool to help you give candid feedback is the Socratic method. Ask a few simple questions. “How do you think the (meeting/product launch/etc.) went? What could you have done differently? What could have gone better?” Rockstars are often their own toughest critic. Often, they are aware of what could have gone better or what they could have done differently. You can say, “What can I, as your manager, do next time to make sure your performance is better?”

Rockstars appreciate a work environment where candor, or a debate-and-align structure, is valued. This structure supports productive disagreements focused on the idea, not the person. Once a decision is reached, regardless of whether the group agreed or the leader reached a decision, everyone agrees to align behind that decision.


Open your personal network—including your LinkedIn network—to your team. Introduce them to mentors outside the organization. This is especially important if yours is a small company where there just aren’t many people for them to learn from. You might know people who would be great role models for your Rockstars. Some managers won’t do this because they want to keep their Rockstar a secret, but when you introduce them to people who can broaden their knowledge, they will be grateful. And that increases loyalty.


Compensation isn’t everything, but it’s something. I’ve found that more important than the fixed base salary, however, is the variable upside. Rockstars respond well to a challenge, and they respond well to currency tied to upside performance. Lay out specifically how they earn it. Be clear with what percentage they can earn and when it will be paid out. And don’t change the rules halfway through the game.

Rockstars don’t respond well to black-box, or subjective, variable compensation. No matter how well they do, they don’t know what they’ll earn. That’s not motivating, and so you’re wasting your money and frustrating your top performers. Avoid capping your variable compensation. If they can deliver three times what you expect them to deliver, they should receive a meaningful variable compensation payout.

Perhaps my greatest frustration with regard to compensation is that so many leaders apply the “peanut butter” approach. They spread money around, approximately the same to all employees, in an effort to keep the peace. Instead, use differentiation, the concept of not treating everyone equally, to separate Rockstars from B- and C-Players. It means promotions, titles, and public recognition for great performances. It means fair compensation tied to performance. So rather than giving everyone 2 to 5 percent raises, give 20 percent raises to the ones who deserve it. And yes, that means you’ll fund it by giving no raise this year to many. And those C-Players may choose to leave because of it. And that’s okay."


So, as you can see, there is a lot of terrific wisdom in Jeff's new book.  It is a must-read if you going to build really great teams for your business, as there are a lot more how-to details in the book than are shared in summary in this post (here is the link to the book on Amazon).  Thanks, Jeff, for allowing us to share this gem with our Red Rocket blog readers.

For future posts, please follow me on Twitter at: @georgedeeb.

Friday, January 5, 2018

The Pros and Cons of Hiring a Clone of Yourself

Posted By: George Deeb - 1/05/2018

Come on, we have all thought it as entrepreneurs, at one point or another in our careers: “I just wished I could clone myself in findin...

Come on, we have all thought it as entrepreneurs, at one point or another in our careers: “I just wished I could clone myself in finding new employees for my business. Nobody works harder than I do. Nobody is as smart as I am. I don’t trust anybody to make decisions or manage teams better that I do.”  Sound familiar? But is "cloning" yourself really the right solution for your hiring goals? There are clear advantages and disadvantages to a strategy like this, so you will need to figure out if cloning yourself will help or hurt your business, based on your business’s specific needs. Read on.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb

Wednesday, January 3, 2018

Lesson #284: How To Calculate Your Total Addressable Market Size

Posted By: George Deeb - 1/03/2018

I have written many posts about the importance of determining your industry size for strategic planning or investor pitch purposes.  Bu...

I have written many posts about the importance of determining your industry size for strategic planning or investor pitch purposes.  But, determining your industry size is not always easy, and more importantly, determining your total addressable market (which I will define later), is even more important and an even more nebulous calculation.  So, here is everything you need to know to make sure you are correctly calculating your total addressable market and going after the biggest total addressable market you can (which will attract more investors for your business).


In this lesson, let's use the example that we are selling social media marketing software into small businesses.  If you go to Google to search for "marketing software industry size", you will stumble on many industry research reports written by professional research firms, that estimate the marketing software industry was approximately a $37BN market size in 2017, on a global basis.

Many entrepreneurs will just stop there, and say they are serving a $37BN industry.  But, are you really?  First of all, you are not selling globally today, you are most likely only selling in the U.S.  And, with the U.S. around 30% of the global market, your market size just cut to $11BN.  And, you are only serving social media software, not other types of marketing software.  So, estimating that social media only makes up 20% of all marketing software, that means your market has just cut down to a $2BN market.

But, it doesn't stop there.  Perhaps half of the social media marketing software business is for managing free social communications, and the other half is focusing on managing paid social media advertising campaigns.  Let's say, you only do the latter, so now your industry size is down to $1BN.  But, remember, we only serve small businesses, not large enterprise-scale corporations.  With small businesses comprising 50% of the U.S. economy, now you are down to a more realistic $500MM total addressable market size.

Furthermore, assuming there will be plenty of big competitors going after this exact same space, it is unlikely that you will ever drive in excess of $100MM in revenue, with a hefty 20% market share in this space.  So, don't show your revenues ever getting larger than that . . .  unless you broaden your product offering or expand your target client base or take your business global.


There are a few different ways to calculate total addressable market size.  The above example was a TOP DOWN look, starting with the overall industry size and paring it back to the market you are actually serving.

A second way to calculate it would be BOTTOM UP.  That would start with actual data from what you are actually selling today, and grossing it up for your potential future selling efforts.  Let's use this same example as above, and take a bottoms up look.

Let's say you have been in business for a year and already have $1MM in revenues at a selling price of $25,000 per customer (serving 40 customers today).  Let's say there are 16MM small businesses in the U.S., but only half of those are B2C marketing driven companies (taking us down to 8MM B2C small businesses).  But, only 10% of them would ever be able to afford a software like this, since the average small business only does $5MM in revenues.  So, there are 800,000 potential customers over time.  Of which, you would not be able to get more than 20% market share, so 160,000 potential clients of yours.  So, that suggests a total addressable market of $20BN (or $4BN to you with a 20% market share), as your current $25,000 selling price.

A third way to calculate total addressable market would be the value-created model.  That says your solution is going to help your customers drive additional revenues, or save future costs, and they will share a portion of that with your business.  So, let's say there is $30BN in social media advertising spent every single year in the U.S., half of that by small businesses, or $15BN.  Let's say your software can save them 10% on their marketing expense, with better efficiency from your tool.  So, $1.5BN in value created.  And, let's say you sell them on giving 10% of those savings to you, creating a $150MM market opportunity for you and your competitors (and a $30MM revenue opportunity for you, assuming you get a 20% market share).


We tried to calculate the total addressable market in three different ways, and got three completely different answers.  Top down suggested $500MM, bottom up suggested $20BN, and value-created suggested $150MM.  We obviously were too aggressive with our bottom up thinking.  It is not rational for us to serve a $20BN market in bottom up analysis, when the overall marketing software industry in top down is only $11BN.

So, I would go back to the drawing board on bottoms-up, or ignore it altogether.  On the second try, I would cap it based on how many sales people I can afford to hire in the next five years.  So, if we have 20 sales people in year five, each doing $1MM in sales each, that suggests your business is $20MM in size and serving at least a $100MM market.  If not more, as you will most likely not have a 20% market share as early as your fifth year.  Maybe you only have 5% market share by then, and the market is really $400MM in size.

That leaves us with two reasonable numbers with the top down and value-created analyses.  But, two thoughts here.  First, I would always lean towards the lower number, to be conservative, or the $150MM value-created number in this case.  And, second, I would also lean to a bottoms-up or value-created number, over a top down number, as those are more real based on known data points for your business, as opposed to pie-in-the-sky estimates from the industry research created by an analyst you don't know is any good, or not.


So, hopefully, you know have a better understanding on how to calculate total addressable market for your business.  Stop embarrassing yourself with inflated numbers trying to impress investors.  They will be more impressed with your more scientific, data-driven approach to a more conservative and realistic number.  So, put that number in your investor presentations.

But, in all cases, venture investors are trying to build $1BN companies, so if you can't reasonable build them $100MM revenue company that can be sold at a 10x revenue exit multiple, you might need to either expand your product offering to attract more revenues, or know that your business will most likely not attract venture investor attention.  So, in this case, the value-created model only gets us to $30MM in revenues.  That will not be enough.  Back to the drawing board, if venture investors are what you are looking for.

For future posts, please follow me on Twitter at: @georgedeeb.

Red Rocket is a featured contributor on entrepreneurship for many trusted business sites:

Copyright 2011- Red Rocket Partners, LLC