Category Archives: Management

Here’s Why Economic Downturns Are Good For Innovators and Bad For Everyone Else

Photo by Bethany Legg on Unsplash

All the way back in 2008, I wrote a piece about why economic downturns are good for innovators and bad for pretty much everyone else. 

As we face a recession in 2020 due to COVID-19, this is still true. The pressures of an economic slowdown actually benefit certain innovative companies that had trouble getting wide-spread adoption before the recession. 

Here’s an excerpt from my article from 2008, Recessions promote breakthrough innovations:

When the economy is booming, little pressure is put on expenses. Large organizations often penalized innovators…[and] companies are ok with spending more money on the same software, the same hardware, and the same advertising mix. 

But…economic downturns force companies to reevaluate how they spend money. Companies need to cut expenditures dramatically yet are expected to have the same level of service as when times were good. This forces firms to look for alternatives to what they are doing.

Revenue pressure forces large companies to get creative. And it’s those smaller companies that are already innovating or can pivot quickly that take advantage. This was true in the Great Recession of 2008 and will be true in the recession forming in 2020. The only difference is where the innovation is taking place. 

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How To Find A-Players In A Downturn

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I recently wrote about why hiring is harder in a recession than it is during an economic expansion. But, just because it’s hard (it is always hard) doesn’t mean you shouldn’t try. You should always be looking for A-Players to bring onto your team.

Hiring obvious A-Players is really hard because everyone else knows they are obvious and they will be extremely sought over (and very expensive). That doesn’t change in a recession. 

So, if you want to find the A-Players that are available, you can’t look for the obvious ones. You have to find the diamonds in the rough who don’t look like precious stones.

To find A-Players in a downturn, look for people that other people in Silicon Valley would discriminate against.

You want to find people that were passed over by other tech companies for reasons other than their talent and give them a chance. 

You can start with women and minorities. They are still very much discriminated against. Of course, few people in Silicon Valley will outwardly state that they want to discriminate against women and minorities.  And many companies even have active programs to reach out to them. You might not have an advantage in landing female and minority A-Players because there are a lot of other companies competing for this talent pool.

In addition to women and under-represented minorities, there are a lot of other categories of people who are actively discriminated against in Silicon Valley including:

  • Boomer generation (people born 1946-1964)
  • People that went to third-tier universities
  • Religious people (even slightly religious people)
  • People who are politically conservative
  • People with thick accents
  • People who are overweight
  • People who smoke cigarettes
  • People who are socially awkward

Let’s take a closer look at each of these categories.

Hire people over 55. 

Tech companies tend to be extremely biased against people with grey hair. This is especially true of older people who are seen as “past their prime” or recently part of a company that crashed and burned. It is extremely rare for a tech company to hire an individual contributor that is over 45.  And this trend is likely more pronounced during an economic downturn. 

There are plenty of people who, in 2008, ended up taking the Director-level job at Digg instead of at Facebook (even though they had job offers at both).  The ones who went to Digg are seen as past their prime and the ones that went to Facebook are living on their own private island and serving on the boards of directors of hot start-ups.  Just because the person made a wrong financial choice 12 years ago does not mean they cannot add immensely to your company.

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5 Reasons Why Hiring in a Recession Is Harder Than You Think

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Hiring is always hard. And if you want to hire someone that is super talented, hiring is always really, really hard. And the stakes are high because the employees are the lifeblood of the business. They are what allows the business to compete. To improve. To grow. 

Some people think that hiring and recruiting in a recession is easier than during an economic boom. But it might actually be harder. 

Here are 5 reasons why hiring in a recession is harder than you think: 

1. A-Players are harder to find because there are more C-Players looking for jobs.

While every employee is vulnerable in a downturn, companies usually let go of their C-Players to save money.   

C-Players are the least-productive employees at the company and companies generally let them go in the first round of lay-offs.

A-Players – those employees who are 5-10x more effective than the average employee – are rarely let go during a recession. They are the company’s best employees. Management should be willing to do anything to keep them around (and if a company does lay-off their A-Players, it has made a huge error and will not thrive in the recession).  

So, with a mass exodus of C-Players from employment and about the same number of A-Players available, the talent pool gets diluted. You are going to get a lot more C-Player resumes in proportion to A-Players than you would during an economic expansion. This makes it harder to identify and hire the A-Players that are available. 

The noise goes up but the quality stays the same. 

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There’s no good way to lay-off employees in a recession, but some ways are better than others.

Photo by Drew Beamer on Unsplash

A recession forces almost every business to make difficult decisions. 

Whether it’s cutting back on discretionary expenses, finding a smaller office space to work out of, or (worse case) letting go of freelancers and employees, companies must do whatever they can to survive. 

SafeGraph is in a fortunate position entering this recession (we are still hiring and were profitable in 2019). So we will not have to go through the grueling pain of letting our colleagues go (but I have been there before in past companies). However, many of the 100+ of the companies I am an investor in had to do layoffs in the last month and I wrote this piece for them.  

There is no good way to lay-off employees during an economic downturn. But some ways are better than others. 

Here are some rules and tips for those companies falling on hard times during a recession…

Never, ever, lay off your A-Players.

This may seem obvious (why would any company ask its best people to leave?), but countless companies tell their highest performing people to go. This is really, really bad.  

If a company lays off just a few A-Players, first, it loses all of their contributions. Great employees are great because they bring a lot more value than average employees. 

But there are second-order consequences too. The remaining high performers will become fearful for their job when they see A-Players let go and will start looking for work. And once your high performers are looking for jobs, they are not going to be focused on helping the company. 

A company that is experiencing hard times and distress needs all its amazing people focused on making the company better. Never lay off your A-players.

And even if your A-Players are in an area of the company that you need to lay-off (like maybe you need to cut your restaurant marketing team), keep the A-Player and move them to another team to make a contribution. 

Photo by Marten Bjork on Unsplash
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Here’s How Your Start-Up Can Not Only Survive the Recession But Actually Come Out Stronger

Photo by Becca on Unsplash

It is April of 2020 and we’re entering a significant recession.  As they say, winter is here. 🥶

While each downturn is different, there are common ideas and practices that have been proven to work from one recession to the next. 

Here are some of my thoughts from a geezer that has scars from the crashes of 2000 and 2008.  Some of these are obvious and some are non-obvious but hopefully, they will help you manage your business successfully and grow while others merely try to survive. 

Get the CFO on your side.

The CFO has much more power in downturns than you think — do everything you can to get her on your side.  If you are selling to a company, see if you can sell to the CFO. 💸

If your product can save the company money, they are going to be much more interested in using your services. In a recession, finding cost savings becomes very attractive. If the CFO is your advocate based on the numbers, you are going to have a much easier time selling.  🤑

Photo by Amy Hirschi on Unsplash

For example, open-source solutions (starting with LINUX) really took off following the dot-com crash. This is because companies realized that they could replace super-expensive SUN boxes with cheaper (yet still powerful) LINUX units. Many for-profit companies benefited from this trend.

If you are a SaaS company, prioritize customers that are doing what you are doing in-house.  Often you can find companies that are paying over $1 million dollars a year to do what your software does for $60k.  And yes, your software might only do 80% of what their in-house solution does… but is that extra 20% really worth $900k+/year? Probably not. 

This is also true in the B2C world — in downturns consumers look to save money. Groupon was the breakout company of 2009 because they rallied around saving groups of people money. Sometimes capital constraints can spur innovation. 

If you can find a way to save your clients’ money and get CFOs on your side, you can grow your business during a recession. 

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Why Specific Positive Feedback is So Important.

Not all feedback is created equally.

There are two kinds of good feedback: constructive feedback & specific positive feedback. 

“Constructive feedback” occurs when you give someone feedback on how to improve on the work they’ve done. 

For example, if you’re taking a golf lesson and your instructor suggests you shift your weight a little to the left to improve your form, this is constructive feedback. 

It’s specific, targeted, timely, and helps millions of people every day. It helps to get rid of non-productive habits in favor of productive ones.

Constructive feedback (for good reason) has been the practice of choice for many great managers, coaches, parents, friends, and leaders.

Photo by Jon Tyson on Unsplash

“Specific positive feedback” occurs when you explain to someone what they did well. 

Most people think this type of feedback is a pat on the back and a “great job.” But it’s more than that. It’s dissecting the WHY and HOW behind someone’s good work. 

Giving specific positive feedback is hard because you generally have to spend a lot of time with them or see many variations of their work to catch what they did well. 

For example, you might have to watch someone take 100 golf swings before they shift their weight correctly and you can point out what a great swing they had and why (even if it was by accident). 

Photo by Court Cook on Unsplash
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The New Status Game for Companies: Fewer Employees

Bezos believes that you should be able to feed your team with just two pizzas

Crazy thought experiment: Imagine a new type of company that decided to only do what it was really good at and essentially outsourced everything else.

Because revenues of private companies tend to be secret, most venture-backed companies have historically bragged about how many employees they have.  A CEO will say: “we went from 100 to 200 employees last year” as if fast employee growth is always a good thing.

But this is changing: there is a new status game brewing between companies concerning who has the fewest number of employees, centered around who is engineering greater amounts output with less staff. Indeed, the freedom to iterate quickly is status. More resources along with lower headcount means that they can dominate new markets. This is because they are tripling down on their strengths.

In the future, those who achieve the greatest results with the least number of employees will be admired above all others; the key statistic to look at is the go-forward net revenues per employee because it best encompasses the company’s leverage. What matters is each employee’s productivity and how the business itself can scale?  

This statistic doesn’t just ring true for the technology space, rather any business should be aiming to maximize that metric. By doing so, every employee feels and acts like Warren Buffet; they’re investing their capital (time and skill) into the company. Every good CEO should be spending time trying to increase their employees’ productivity, which is the strongest form of leverage the company retains.

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Exit Transparency (on SafeGraph blog)

Over at SafeGraph, I write about why “Exit Transparency” is so important for companies and employees.

Since publishing yesterday, I got a ton of inbound from other CEOs and founders talking about what they do and also asking about how we do things at SafeGraph. We still have a ways to go at SafeGraph to be great at Exit Transparency (it is very aspirational) but we have made a lot of strides to be better at it.

Exit Transparency is about starting employment with the end in mind. When the employee eventually leaves the company (as all employees eventually do), what do they want to achieve and how to they want to grow.

More at: https://www.safegraph.com/blog/why-exit-transparency-can-make-companies-stronger

Why hard work is so important (and still under-rated)

Photo by Jordan Whitfield on Unsplash

To be one of the best in the world at something, you have to work hard. 

While this seems obvious, there are many people who don’t believe it’s true. Many people believe you can become great just working 9 to 5.  It’s not clear where this controversy comes from.

It could be a result of the fact that we can’t all agree on how many hours of work really constitute “hard.” Malcolm Gladwell theorizes that it takes 10,000 hours of deliberate practice to become a master at something.  But it is not just the hours … it is the obsession that matters.  

You cannot be great at something unless you are obsessed with it.  You need to be thinking about it all the time.  That obsession may consume you and it might not be healthy for you … but that is the difference between the great and the merely good.

Hard work is a prerequisite to changing the world. 

People who changed the world were workaholics. Look at Martin Luther King Jr., or Mahatma Gandhi, or Alexander Hamilton. They all put in many hours more than a standard 40-hour week. 

The difference though is that their work is an extension of who and what they are. 

They worked hard because it did not feel like work.  At least not always.

Actually getting 40 hours of work done in a week is rare.

There are very few people who can do world-changing work in a 40-hour week. I’ve never seen one. 

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M&A is a Power Law

Warren Buffet once famously stated that compound interest is the eighth wonder of the world. Power laws rule much around us, but more so in the technology and business worlds. One fantastic deal, such as Facebook buying Instagram, can shift the bedrock of business everywhere. Despite the common belief that 80% of company acquisitions are failures, the remaining 20% can shape a new path for in that company – the expected value is still enormous and is definitely a worthwhile path if executed properly.

Many people mistake averages for value. Venture capital is exactly the opposite of this: missing the seed round of AirBNB if you had the chance to invest means you would be financially worse off than had you invested in 50 Theranoses. The difference is that in the first case you would make 1000x your investment or at worst 0, so the opportunity cost is immense. 

Power Laws also exist in company acquisitions.  

The Power Law of Company Acquisitions is why companies continue to make acquisitions. In the few cases it does work, like Google’s purchase of YouTube, the gains can continue to reap dividends decades later. Fundamentally, most of the best acquisitions are contrarian in nature; otherwise, they would have been bought by another company already. And sometimes, like the YouTube acquisition, there are only a few companies that could have acquired it successfully – the key is to stay within your circle of competence. 

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deeper article on why the famous Peter Thiel interview question is such a good one

Over at the SafeGraph blog, I write about why the Peter Thiel interview question (“what is a heretical view you have”) is so predictive. Take a look.

It reveals that most people hold conventional opinions and call them “heretical.” Almost everyone cannot come up with an answer that most people they know do not agree with.

What makes for a good answer?

One that sparks a unique view of the world and shows the candidate doesn’t think like their peers. This signals that the candidate:

1) thinks differently

2) is open-minded

3) is brave enough to discuss an unpopular opinion

Re-Tweetstorm on Thiel interview question

I plan on writing a lot more about why the Thiel interview question (what is an important truth that most people think is crazy) and why it is so brilliant. In the meantime, here is a tweetstorm with my quick thoughts: