How to Fix a Stack Rank System: An Open Letter to the Next Microsoft CEO

With reports of a new CEO on the horizon I wanted to take some time as an x-msftie to give a foot soldier's perspective on fixing the performance review system - core to fostering great talent.

Recently, Microsoft did away with the dreaded stack rank – the system that forces all performance reviews to a curve with fixed ratios of low, adequate and high performers.  However, this may be overkill.

From my time in engineering and field teams it is clear that the biggest issue with the stack rank is each team is fitted to pretty much the same curve.  In the diagram below you can see that each team gets the same amount of rewards to play with - regardless of the team's performance as a whole.  This means that a rockstar team will have to give around the same number of reviews as a failing one. 

The reason for this is to create an organization wide standard that brings consistency to the review process across their 100k+ employees.  However, it creates perverse incentives where great performers will be paid more to contribute to weak teams than strong ones.  Great steadily revert to the mean as they compete to be mediocre +1.  Failing teams over reward the complacent best of the worst.

However, this isn’t the fault of the system – it’s just a failure of implementation.  Here’s how to get it right: 

1. Product P&L

When I was at Microsoft there were about 22 layers of management between a salesman and an engineer. The only person with true cross-functional P&L for those two individuals is the CEO (true fact).  This prevents any hard accountability from being enforced.   Products need to be re-structured into independent silos.   The organization needs to be restructured into GM-level accountabilities directly responsible for revenue.  While this will make collaboration more difficult, it does

prevent dead wood from accumulating and killing organizations.

2. Trickle-down stack.

A normal distribution can’t be assumed for all of your teams – simply put there will be good and bad performers.  So plan for it.  Each organization with P&L should be fitted to a curve (see below). 

Placement on this curve should dictate the skew of the distribution of reviews given within each team.  E.G. If you crushed it this year – everyone should be able to be rewarded.  If you failed, many more of you should get the axe.  This process will quickly filter people into superstar teams and remove deadwood quickly.

3. Intrepreneurship

As companies grow, they seem to deliberately remove incentives for employees to make revolutionary breakthroughs.   The intent is to avoid destabilizing an organization.  However, the result is always a stagnant top-heavy organization that is doomed to be overtaken by a younger rival (see disruptive innovation). In order to steadily create new products, individual employees needs to have the incentive and resources to break away from existing product teams to create their own.   When engineers only see a ~10% variation in compensation there isn't incentive to do 10x better work or be innovative.

The Next Step for Founders/Engineers: How to Get Traction

I had a great time talking with the hackers at The Next Step for Founders/Engineers: How to Get Traction (thanks Optimizely for hosting!).  As I was taking notes I was struck by how the different varied based on stage of the business.  So, here’s a breakdown of the nights top gems (IMHO) by stage of company it is relevant to:

Pre-product – you have an intuition about a product or idea you want confirm

• ID your customer – don’t waste time talking with or using feedback from people who won't buy – they are not relevant.
• Use a list – email your personal and professional contacts directly to get your initial users
• My favorite tools for managing customer conversations are Boomerang, Excel, and Contastic (of course)
• Go narrow and personal (direct emails/in person conversations) and only go broad (twitter/ads/content marketing) when you've scaled to hundreds of users.

Pre-Revenue – you have some users and are now looking for ways to find people who will pay

• Move to micro communities of under 100 people (i.e. Linkedin groups, FB, Techendo)
• Add a buy button for a couple days to see if people will click it.  This demonstrates clear willingness to pay.
• In the early stages the founder is more valuable than the product.  The product will be weak - people are betting on you to make it better.

Post-Revenue – you’re off to the races with product market fit and are looking for ways to grow

• Reference customers.  For Optimizely having the Starbucks logo was a key demonstrate of credibility. 
• Use twitter to meet and research people.  Find common interests to connect over.
• **cameo from Pete Koomen (Founder Optimizely) – force people to unsubscribe by emailing you ask them. They got invested enough to be annoyed.  Find out why.

After the talk I got quite a few questions about sales.  Here’s what early stage founders need to know:

1. Use a list (keep it in Excel, Paper, Google Docs).  Just make it simple and and continually keep it up to date with you you talked to, what they said, and what the next step is.
2. For (Every sales call) {close a sale, get a feature request, or disqualify;  If (disqualified or sold) {ask for a an intro to a new prospect;}}
3. Stay in touch.  Jupiter research estimates 50% of qualified leads aren't ready to buy.  Just keep asking and a large proportion will convert (Contastic was made for this).

How to Send New Years Notes

With the New Year on our doorstep I'm thinking back to many of my important contacts that I've fallen out of touch with simply because there was never a pressing reason to reach out.

So, I'm making the time now to reconnect with these people to hear what they’re up to and share my own updates  And, just in case you haven’t gotten around to sending out Christmas Cards (or emails), here’s the process I use to send holiday update emails for the New Year.

The Template 

As with any communication the goal is to maximize your signal to noise ratio.  Make it short and relevant.  I generally like to include a greeting, one cue about a common thread we talked about last time, and an update:

Hi [name]

It's been a while since we caught up! How has [their job/project/hobby] been? I just wanted to shoot you a quick note to wish you a Happy New Year! 

Cheers!
Cy

 While this can be done with mail merge and excel, I've started to use Contastic exclusively to automate this process:

1.     See who you’ve fallen out of touch with

Contastic scans your gmail to figure out who you haven't exchanged emails with recently.  Next to each of your contacts we'll show you how any days it's been since your last contact.  A good rule of thumb is to stay in touch every 30-90 days.

2. Prepare your NYE template

In the Contastic template builder you can write an email in your own voice while inserting dynamic content that will customize the email using your contact's LinkedIn information.  The goal here is to make a personal email with the least amount of redundant effort.

3. Send!

Once you hit 'email' we'll pre-fill a template with custom content tailored to your contact and send the whole package to gmail or your mail client of choice (Outlook, Thunderbird, etc.).  You can edit and send it from there!  We bcc our mailbot (he's harmless we promise) on the messages so we can learn which content you liked best for you!

  

This is the perfect opportunity to revisit folks you’ve fallen far out of touch with (on Contastic this would be your 90+ bucket).   I’ve also had some friends combine Contastic with Boomerang to schedule their messages to go out on New Years Day.  I hope this helps you stay in touch in the new year!

How to Validate Your Product Idea

The default answer is yes.  Ask anyone about your idea - that's what most will say. Yes is free.  Yes may even earn them some brownie points.  Yes is easy.  Yes is worthless and not to be trusted.

No is expensive.  It risks insulting someone’s life’s work and ruining a relationship.  Very few will invest a No in you when they can cash in a Yes.

So, how do you figure out if your idea is a good one - and worth building?  These are the three steps we use at Contastic to make users invest with us – this is the real meaningful yes:

Emails (Attention) 

The first step to validating any venture is the landing page.  Mock it up to look exactly like it will after you product is launched.  However instead of a payment form you’ll have a signup form for people to ‘pay’ with their emails.  This is giving you permission to message them about you product.  It signals that they have a problem and your product at least looks like their solution.  Also, when you do launch, you’ll have a set of beta users ready to go. Shoot for 100 – it’s a nice round number that generally extends beyond your close circle of friends.  This is an investment of their attention.

Users (Time)

After gathering an email list of interested users create a quick and dirty prototype. This should be the bare minimum where it is useful to users.  Note that this does not at all mean easy to use, polished, or pretty.  As soon as it can add value in anyway to your users – launch it to your list.  Then, watch to see if people use it regularly.  You can learn a ton about how people are using it, and their regular engagement will be a sign that you’ve hit the mark.  They are now investing their time.

Customer (Cash)

Cash is king – and in this exercise it’s no different.  There is nothing harder than getting a customer to open up their wallet and part with some hard earned cash.  Use the existing landing page from step 1 and convert the email collection to a payment form.  Now that you’ll getting some dollars in the door – congratulations – your idea is now validated!

To be sure, this is not where the validation ends, the Customer Development Process leverages a similarly progressive framework to validate all areas of your business form acquisition to retention.  If you have any other tips and tricks for validating your product ideas let me know in the comments below.

3 Lessons We Can All Learn From Being the New Kid in School

When Kevin and I came together to build PeopleNotes we were driven by a need that had been brewing since our childhoods.  We both moved around a lot - 16 schools between the two of us - and we were always the new kids in school.  This taught us to work hard for, and subsequently treasure our personal relationships.

As our professional careers developed we’ve seen how others can struggle to learn those same skills as they move in to a new city or career.  This inspired us to build what we learned as new kids into an app that would help everyone make friends and build better relationships:

#1 End missed connections

How many times have you had an amazing conversation at a professional event or conference and then forgotten to get some contact information to stay in touch?  I can’t imagine how much better my life would be if I always managed to follow up.  The biggest reason we included the people search features for PeopleNotes was to make sure that you could look up anyone you talked to on the spot without fumbling with business cards or a clumsy CRM system.   Our goal was to make a mobile tool that made entering a new contact as easy as searching Google.

#2 Make people feel cared for

Even with the best intentions we all forget important details about our contacts all the time.   That's a surefire way to torpedo a relationship. Conversely, there is nothing that makes another feel as cared for as remembering the little details - like a recent vacation or favorite food.  We built the QuickNotes feature of PeopleNotes to help anyone jot down the important details of every conversation to make sure they don’t forget anything about their important relationships ever again.

Review information and news before a meeting.  Take notes during and after.

#3 Empower people to choose their relationships

So many relationships rely on serendipity – who you work with, live near, or share friends with - to maintain their social network.  However, relying on fate to choose your relationships often can leave out some amazing connections.   We created the ReConnect function in PeopleNotes to allow you to pick and choose who you want to be reminded to stay in touch with.  This forces you to deliberately make the choice of who your most important contacts are, and helps you remember to keep in touch.

We spent the last five months building PeopleNotes to become the app that helps everyone put these three lessons into practice and build better relationships.  

Salesforce in a Nuthsell from Dreamforce 2013

Having just spent the day at Dreamforce I was struck by the incredible breadth of the offerings at Salesforce.  And, for the life of me I couldn’t find a single document to help me keep them straight.  So, with some help form @halesalesforce (thanks Will!) I’ve built out this quick and dirty diagram for those of you still at Dreamforce to navigate all of the new offerings:

The major theme of the company this year is integration.  In the past Salesforce has focused on storage in the Cloud.  Now they have the data, and need to integrate it into a cohesive system.  Every customer I talked to underlined this as the primary pain and the vast majority of partners at the Dreamforce expo were focused on this.  So, it seems this is the era of integration.

This begs to question – what’s next?  My money is on intelligence.  Once we have all of an organization’s data in one place – we can now (finally!) analyze it.  Sales needs to become smarter by harnessing machine learning, statistic, and NLP to translate the tribal knowledge of top salespeople to an entire organization.   Imagine a world where every sales rep can follow best practices powered by data. I’m looking forward to seeing some smart sales solutions at Dreamforce 2014!

The Case for Being Pig Headed

One of my dad's favorite analogies comes from breakfast.  In the classic plate of bacon and eggs the chicken is involved, but the pig is committed.

When applied to entrepreneurship I think about the interplay between investors and entrepreneurs.  Investors have money at stake - usually in the single digit percentages of their net equity.  Entrepreneurs on the other hand are betting it all - all of their time, all of their energy, and often all of their money.

So, I've always been surprised that entrepreneurs evaluate the viability of their company by the input they receive from investors.  The chickens, often with comparatively little at stake, evaluate opportunities and give advice from the perspective of the involved...not the committed.

Entrepreneurs should instead focus on themselves - the committed. Are you all in?  Does every piece of evidence point to this venture being worth the next 1-2 years of your life?  Are customers willing to bet the farm on you?

Be brave.  Be pig-headed.  And stop listening to those chickens.