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Demystifying the conversations we're already here at RRE and with our portfolio companies. In each episode, your hosts, Will Porteous, Raju Rishi, and Jason Black will dive deeply into topics that are shaping the future, from satellite technology to digital health, to venture investing, and much more.
Raju: The Devil Wears Prada.
Will: Yeah [laugh].
Raju: And my favorite line is, “Is there a reason my coffee isn’t here?” [laugh].
Will: [laugh].
Raju: I got to use that line. “Is there a reason my coffee isn’t here?” And the second is Office Space.
Will: Oh, well, yeah.
Raju: Yeah. That’s classic. “We find it’s always better to fire people on Friday.” Yeah [laugh]. And, “I’m going to need you to go ahead and come in tomorrow. And I’m going to need you to go ahead and come in on Sunday, too, ‘kay?” [laugh].
Will: [laugh].
Will: I’m Will Porteous.
Raju: And I’m Raju Rishi. Welcome to RRE POV, the show in which we record the conversations we’re already having among ourselves, our entrepreneurs, and industry leaders for you to listen in on.
Raju: Hello listeners, this is Raju Rishi, joined with my partner, Will Porteous. And today’s podcast session is going to be focused on retaining your talent, which is an interesting topic because what people don’t know is there’s a lot of hidden costs associated with having to swap out people, and there’s a lot of nuances in terms of how you retain the talent inside the company and set the right tone and culture for doing that. So, I’m going to just go ahead and get started, Will, and just give people, sort of, a view. So, you and I have been involved in many, many companies, and you know, turnover is an inevitability, but in certain companies, turnover is less apparent. It doesn’t happen as much as in other companies.
And a lot of it has to do with sort of setting the right tone, and a lot of nuances in terms of how the leadership and the CEO sets tone. But what I want to start with is just the hidden costs of replacing employees. People think, you know, you get to certain stages in a business’s lifespan that no one is replaceable, and that is true. But the reality is, if you set a tone that everyone is inevitably going to get replaced, or that we’re just cogs in the wheel, you will have a lot of turnover, and you don’t realize what the actual cost of that is.
So, the first point, you know, is just recruiting costs. And you and I have seen this, but here’s an interesting antidote. Let me ask you a quick question. Of your companies that are sort of mid to growth-stage oriented, do you have some number of turnover, percentage of turnover, that you wind up seeing?
Will: Yeah, I think we track this pretty rigorously in my companies that have scaled beyond the mid-stage, and you know, I think we see a normal, sort of, attrition of, you know, 5 to 8% of our employee base a year, and maybe a fraction of that is regrettable. These are high performance, demanding environments where there’s a lot of pressure in many cases, and you have people who don’t turn out to be good performers that end up not working out. So, I feel like that’s at a minimum normal. And then in periods of great stress, or particularly after periods of great stress, we often see more leavers, people for whom the contract, the emotional contract, is sort of somehow broken. They came to the company because they believed in the opportunity. They thought they would have the opportunity to do certain things and be rewarded financially in certain ways, and for whatever reason, they may no longer be able to believe that.
Raju: I love that statement: the emotional contract. I think that’s real. I think that’s a real thing.
Will: Yeah, I think it is. I believe that most people have about three to four years to pour their life force into helping build a company, and at the end of those three to four years, they kind of need to start to see the light at the end of the tunnel. They need to see the big prize coming, or they need to pull out, opt out, go and do something else, and it probably isn’t another startup.
Raju: Yeah. That’s so interesting. I agree. I think, you know, when I see companies with north of 8% or 10% turnover, we have a problem in the business. And you know what typically happens at that stage is you’re going to really struggle from a number of different perspectives. So, I’ll jump into some of these costs.
I mean, number one is, like, recruiting costs. And most companies, what they wind up doing is they’ll either get an internal or an external recruiter. Oftentimes it’s an external recruiter—if it’s executives you’re really paying—and the reality is, it takes time to fill those roles. And this is, like, a little secret, but when I see companies that are under budget in my portfolio, it is typically because they cannot fill vacant roles in time. I don’t know if you see the same thing—
Will: Yeah.
Raju: Will?
Will: I do. And I love that you brought that up because it’s a subtle hint of underperformance that most people gloss over as a positive. Like, oh, we’re under budget, but in fact, you’re actually not filling the productive resources of the company fast enough in terms of what you need done.
Raju: Yeah. And every role matters, right? Engineering means there’s certain products that aren’t going to get delivered as quickly as they could. Sales means that you have a higher—a longer ramp time to get to, you know, quota capacity so that you can get a ramp sales rep that can sell. Marketing means leads aren’t going to come in. Customer service means that single individuals are hand-holding more customers. It becomes a real issue.
The second hidden cost is training costs. And when you have turnover, you do see a short term decline in productivity of existing staff to train up new people, and you have to take that on. I think people sit there and say, “Oh, they can just do that in the margins.” I actually don’t—if you have a reasonably high turnover rate, you know the training time needs to be kind of baked in. So, I see that.
The third I’ll just point out is the impact of company culture. When your colleague leaves, the nearest neighbors are always going to ask themselves why. And you create this sort of… if it’s somebody that’s like, you know, toxic to the company, that’s a no-brainer. Like, everybody’s just relieved that they’re gone. And, Will, I know you and I both have had companies where, like, the person needs to go and when they’re gone, everybody’s sort of, you know, kind of happy.
But then when people go because they make a choice to leave, or they’re underperforming, you know, the nearest neighbors are going to ask themselves, like, what’s going on here? Should I be looking? And it may be a temporary blip and maybe the culture is strong enough, but they do ask themselves. And the question they ask themselves after, why did this person leave, is, do I have to take on more work?
Will: Yes [laugh]. You’re absolutely right. The people left behind are asking themselves, what do I not know that the person who left knows and how is my world going to change through this?
Raju: Yeah. This is why I’m never, ever, ever going to let you leave RRE, Will. Like, ever, ever, ever.
Will: Well, we’re kind of tied at the hip. We do a lot of things together. You know, years ago, I had the privilege of talking a lot with Bill Campbell, the former chairman and CEO of Intuit, about building culture and human capital and high performing companies, and he talked about having to do a layoff at Intuit, and one of the hardest things he said he ever had to do. And the reason it was so hard is the business was underperforming, they were headed into tax season, and he knew he had to cut a bunch of people, and he was really worried about retaining people after the fact.
And the thing that he did that has always stayed with me is that he was very open with his employees about the fact that there was a layoff coming. He took the risk and he said, “Business is underperforming. You all know that. There are going to be some of us who aren’t going to be able to stay with the company, and I want to celebrate the contributions of those people.” And he went out of his way to celebrate the contributions of the people who were going to be leaving the business, and he did that to send a message to the people that he wanted to retain about the values of the organization, about placing a high value on people, even if the business couldn’t afford to keep them.
And he talked about how the employees who were staying supported and carried the belongings of the employees who were leaving out to their cars. And they had kind of a—they almost made it ceremonial in an effort to kind of recognize those who were gone.
Raju: That’s amazing.
Will: That’s a pretty—like, it takes a leader like Bill to have pulled that off, but it’s a powerful message about making sure that you communicate that you value employees in moments of real stress in the business where you have to let people go.
Raju: Yeah. That is a heck of a story. I’ve never heard that, and I’m glad I heard it. So, the last piece, the last hidden cost is your outflow of knowledge, right? I mean, there are some employees that leave and they’ve got sort of this tidbit of knowledge about a particular customer, but, you know, a process or a workflow, and you’re probably not going to unearth that in day one. You’re probably not even going to train for it. And then, you know, three months down the line, you discover, hey, there’s this latent piece of things.
So, let me just recap. So, folks know, right, you have high turnover, or you have turnover in your company, it is not simply finding somebody else to fill the role. The hidden costs, or the costs are, you got to pay to recruit; you’re going to pay to train; you’re going to have an impact to company culture because the people are going to—unless it’s like an obvious person to delete from the company, the nearest neighbors are going to ask themselves why this happened; there’s going to be a fear of increased workload for your existing employees; and you may have an outflow of knowledge here that you don’t know, that you may discover down the road, which you know can be, you know, challenging.
So, the core of this podcast is to talk about the techniques to keep your people [laugh], and so you don’t really kind of have this problem. And one of them is to give people recognition, which I just did to Will Porteous on this podcast.
Will: [laugh]. And I feel so motivated as a result.
Raju: I know. He deserves it. He deserves it.
Will: I think I’ll work all weekend.
Raju: Okay [laugh].
Will: [laugh].
Raju: Well, you—like, we all do that anyway, Will, so—[laugh]. Okay, so let’s start with compensation. That’s the obvious go-to metric. How do I keep my people? Well, I pay them well. And you know, there’s three forms of compensation inside startups. We all know that, right? There’s base salary, there’s bonus, and there’s equity. And what I want to spend time here, Will, talking about is your and I’s, maybe, different philosophies on these kinds of things. So, you know, I’ll just shoot out there, from a salary perspective, you’re recruiting people at early stages of a company that you can’t afford, right, because—
Will: [laugh]. Yeah, right.
Raju: —you know—
Will: It’s an operational principle in this conversation.
Raju: Yeah, exactly.
Will: The people you want you cannot afford [laugh].
Raju: Yeah. And that’s, it’s absolutely true. A hundred percent true. You know, they’re taking pay cuts to come to your company. But you know, if you’re successful, you’re going to raise additional rounds. So, you know, what are your thoughts and what are your recommendations, Will, to your portfolio companies as they raise additional rounds of finance and they go from a seed to a Series A to a B to a C. What’s your, sort of, recommendation on salary?
Will: Well, I think you are, [sigh] you’re hitting on one of the hardest things to do, which is to get people to focus not on the cash that’s going to be in their pocket, but on the narrative value of the future of the company and the future of their equity. And as a recruiting CEO, you need to do that without making specific promises about what that equity is going to be worth. And I think a lot hinges on talking about the future business value, talking about the magnitude of the impact that they can have there versus anything else that they might do. Because the bridge, I think, in these conversations is, well, I’m willing to accept less cash now because I believe I’m going to make a lot of money in the future, and I’m going to do that because I’m going to do important work. I’m going to be a part of a company that’s going to change the world. I’m not just taking a job, I’m signing up for a mission to build something alongside people.
And so, for the CEO, kind of, a lot of that recruiting hinges on making a few people feel like they’re going to be valued, like there’s a role for them, like they’re going to have a lot of visibility and information about the total picture of the performance of the business, and that they’re going to be at the table in terms of making a meaningful contribution.
Raju: And I’m just going to switch gears a little bit. I agree with all of that, Will. The question I’m sort of posing to you is, do you feel, in your companies, as the company grows, that people’s salaries should grow, or should they remain sort of stable? And I’m talking salaries, not bonuses or equity—
Will: Yeah.
Raju: At this point. We’ll get to those points. But like, do you feel the salaries are going to increase and should increase?
Will: Yeah, I think they are going to increase, and they’re going to increase for early team members who grow in their roles. Ultimately, salaries are going to market-normalize over the life of a company, and part of that is because you’re going to recruit in people into senior roles at later stages of the business who have significant experience. It’s too late for them to get a meaningful equity reward, but the moment those people enter your leadership team, or even the rank-and-file of your employees, there’s going to be a big disparity in comp, and you’re going to end up having to migrate your legacy employees to normalize that. Because, guess what? Frankly, there aren’t many secrets about compensation.
Like, people will know. If you start recruiting in more senior engineers who are going to be making two to three times what your existing senior engineers are making, your existing senior engineers are going to know. And they may own a meaningful amount of equity because they were there early, but they’re going to resent that disparity, and it will create a lot of friction, and really undermine your culture. So, you have to build these bridges.
Raju: Yeah, I agree. And you know, my philosophy is entirely the same as yours. My recommendation to founders and CEOs when we talk through this is you should have a ratio in mind. Like, maybe when you first start out and you’re doing your seed and your Series A, you’re paying 50 to 60% of what a larger company would pay for that role, a more established company would pay for that role. And then as you get, like, your Series B and your Series C and your Series D done, you start targeting a smaller discount.
And so, you basically go from, let’s say, 50% to 60 to 75 to 80. And when—but you should always have a discount, in my mind, from a public company because the equity is worth far more, and you want that motivation [unintelligible 00:16:07]. So, I encourage people, every time they raise a round of financing to think about, hey, listen, I’ve got this money. I got to spend a little bit on my people that are already here. It’s not just hiring new people. And so, that is something that people forget all the time.
Will: Raju, that’s a great point [laugh].
Raju: Yeah. Yeah, yeah, yeah. So, like, I get these business plans, and we’re like, okay, we’re just going to hire three more people and [just move in 00:16:31] a new burn rate. And I’m like, “No, no, let’s think about this a little bit,” right? Because you’ve got 50 people here already, or 20 people here already; you’re going to probably need to adjust their salaries a little bit as a result of this.
It can be during a performance review. You don’t need to do it at the moment that you get the cash in the bank, but during the performance reviews, you need to think about, hey, for this role, we want people to be a 25% discount from the normal value that would be paid by, like, Facebook or Meta or whatever. So anyway, I agree with your points. Let’s talk about bonuses. What’s your thought on bonuses [dog barking] to employees—sorry about that. That’s my dog. My dog has an opinion. But you go first. You go first [laugh].
Will: Your dog wants a bonus this afternoon.
Raju: Yeah, exactly. He wants a bone [laugh].
Will: [laugh]. So, it’s funny, as you asked the question, I’m thinking about all the times that I have sat with management teams and made a decision to defer bonuses. And I think that bonuses can help align a team around a set of short term goals to annual goals, and having a bonus culture becomes super important in a world in which not everyone has a huge amount of equity. People need to make more money. And it sends a message that, through their performance and the company’s success, they can make more money, and that’s fundamental to the compensation equation.
So, I think bonuses are important, and they’re important across the organization. So, I like to see a bonus culture that embraces engineering, that embraces marketing and sales, across the company. I think the challenges that I often run into with bonuses is that people aren’t so willing to sign up for a formula or after the fact to be held to account on performance against a formula. People start seeing that money as, and they start planning around what they’re going to do with their bonus, and in some cases, they start spending their bonus. And you and I have all been a part of companies where we’ve recruited employees who needed a draw against [laugh] their future bonus or commissions, something is usually a real yellow flag, if not a red flag.
Raju: Yeah, crazy.
Will: Yeah. So, you know where I’m going with this, which is, it’s hard in the early days of a company when you’re struggling to forecast accurately. So, I think bonus cultures have to be tuned to the relative maturity of the business. But I think they’re important.
Raju: I do too. I think obviously for people that in the roles of revenue retention or revenue, sort of, aggregation—sales people and customer support people—I think you can do bonuses because there’s a financial motivation there that’s accrued toward cash coming into the company. My opinion has generally been, until you get to cash-flow positive, you’re basically spending money that the company doesn’t have, and so my druthers is, except for sales and support and customer service people, you don’t do bonuses, and that eventually you do bonuses when you get to cash flow neutral. In some cases, you have to accelerate that a little because there are industries where people are paid that across the board. But you know, it should be a discount from you’re not at a public company, you’re not at a company that’s got, you know, infinite amounts of cash flow coming in. These are startups and they’re designed around an equity exit, and so that’s where the compensation sits in.
So, let’s move to equity, and we’re going to limit our time on equity a bit because we’ve got a lot of other topics to cover. But my question to you is, like, you know, we all know equity is a massive selling point, and that’s the big marker that people are going to realize. How and when do you refresh, when people are at their four year mark?
Will: Yeah, this is hard. I think that the thing that makes refreshes challenging with existing employees is that the magnitude of the refresh is always pretty modest compared to what early employees have, and so it becomes a symbolic thing in terms of the long-term retention. I like to see annual refreshes that are small, that keep moving things out, the so-called boxcar model, that moves out of a meaningful amount of invested value because you don’t ever really want to find yourself with your best employees 95% vested. You want them always to have something out there in the future a year or more that’s meaningful value. But it’s hard.
Raju: Yep. And I’m the same model, I believe in the boxcar or some more structure. And the way to think about it for our listeners is, say somebody is going to be vested in a year. They’re going to start thinking about, like, if I don’t get a new grant and all my comp is equity-driven, should I look for a new job and start vesting another chunk someplace else, right? And so, you don’t want them to think that way, especially your top performers.
And so, what you do is you say, hey, if I had to rehire somebody in that role, how much equity would I give them? Now, you don’t give them the same slug here because they’ve got prior, and you know there’s an incentive to stay because they don’t have to cash out or buy that equity. But maybe give them 25, to 30, 40—30% of that, and another four year vest, and tell them they’re going to get it before they’re vested. Because when they’re vested, they might have already started looking [laugh]. So, you know, this is a really interesting sort of model.
I don’t think you need to do it across the board, but you’re, you know, top performer, you’re 50% and above, like, that’s pretty sizable. Some companies do it across the board, unilaterally; that’s acceptable too, but like, this is just a thought process. So anyway, let’s move to the next topic of retention, which is culture and a sense of purpose. That I think, is just as meaningful of a retention tool in many, many companies because you really want a set of people around you that are driving—that think of this as a mission-driven company, not just to make a lot of money, but also for a secondary or tertiary purpose that carries that as well. And so, that means things like setting core values and a mission statement. Any companies in your portfolio that have done a great mission statement or a great set of core values that you can sort of touch on, Will? And I just want to keep us moving because I know we’re on a fuse.
Will: You know, I push all of my teams to be declarative about their core values within the first 20 employees of the company because it helps orient people around what should happen and how they’re spending their time, and it becomes a really good reference point as you bring aboard new people, and it becomes a reference point in the interview process for employees, and it’s a way for a founding CEO to create some leverage in terms of this cultural scaling of the business without being in the room for interviews and that sort of thing.
Raju: Yeah.
Will: One of the most powerful examples I have, though, of the mission-driven teams is the work that I’ve done in defense tech, particularly in the geospatial companies. And you know, there are these pockets of the entrepreneurial community where you can tap into energy that is so mission-driven, that people will just hang on because they believe, through thick and thin, that what they’re building is important. And when you take people with a military background or an intelligence background who are used to serving a national security mission, and you translate, and you bring them into a high-performance company setting, where it may be volatile at times, the company may go through lean times and have to do layoffs, their kind of resilience is incredible. Because when you have the mission at the core of what you’re doing, be it building a new satellite capability to support a mission, or building something new that’s going to change the face of financial services or media or something like that, when mission is central and people believe in that mission, it helps carry the company through challenging times.
Raju: I love that. And I agree, and some companies have a natural mission, and that makes it easy. Other companies don’t have a natural mission. And what I find is the mission is bonding with your team and really basically saying, “Hey, we’re in this together.” And you know, if you don’t do X, then person Y needs to pick that up. And so, you feel this sense of responsibility for your teammates.
And I think great companies create that kind of culture where it’s not like—it’s just we’re in this together, and you know, we’re going to get over the goal line together, and that sort of camaraderie is really important. And so, I think, you know, the way to do that for companies that don’t have that broader, that obvious mission, you know, like, we’re going to solve healthcare, we’re going to solve, you know, defense, or whatever it is, is to create that team alignment. And so, you need to get some good social activities on the platform. You need to have celebrations, you know, and create opportunities for people to bond at that level, so that they have that chemistry.
And you have to seek feedback where it’s not working, right? That is an important loop in this process, and I think people fail to do that. They think they set culture, and it kind of goes. I think the company’s culture evolves, and you got to seek feedback from your employees to figure out how that’s going. So anyway, I’m going to move on to the next topic, Will, just because we’re going to run out of time.
What about, sort of, like, the opportunities for growth? How’s your feeling on that for, you know, sort of like, hey, I’ve been here three years. You know, I’ve gone and done everything at this level. Like, that is a reason people, like, leave. So, what are your thoughts on that?
Will: This is the problem of career development in startups, and it’s a classic problem because as the organization grows, there’s a tendency to bring in people from outside with experience in a function and to place them instead of promoting internally and giving people stretch goals for them to grow career-wise. And I think a lot of early employees end up feeling stifled because of this. The best companies that I’ve seen are really thoughtful on this, and thoughtful on helping employees, sort of, step into the that next career role, level up, be it, you know, from manager to director, director to VP, in part because they invest in the training and development of those people.
And some of that is, very often, it’s about soft skills. It’s about managing up. It’s about managing down, for the first time. It’s about learning better how to communicate. And very few startups make enough time or allocate enough resource to this, and yet, if you do it, you’re going to do a much better job of retaining your key performers for a long time. And as we talked about earlier, losing those people, losing their institutional knowledge can be devastating. So, I’m a big proponent of the fact that you’ve got to invest in this.
Raju: I agree. I’ll just offer just an additional tip here is that one of the things you got to ask yourself when you have a new hire that is at a level, is there somebody in the organization that can do this role? They might not be perfect for it, but giving people an opportunity to grow in an organization sends a message and sets a tone that there is opportunity for me to stay here. And if every single time you have an opportunity for a senior hire, you bring in somebody from the outside, what you tell the organization is that there is no opportunity for advancement here.
Will: Yeah.
Raju: And that is a strong message to tell your team, and you will see people leave. This is an inevitability. So, I think there are certain roles where, look, you absolutely need to bring in somebody from the outside, right? Like, there is no question about it. And you explain that to the organization. We wanted to do this from the inside, but we need these skill sets and this level of experience. That’s the level of transparency that is vital. But in certain roles, hey, there’s an ability to train somebody, there’s an ability to, like, keep somebody, and they’ve demonstrated the ability to manage or demonstrated the ability to do XYZ. So anyway, that’s my feeling, and I think you and I are aligned on it.
Another point here is just recognition. You know, recognizing your people is an incredibly important and valuable tool that goes far beyond what people think, right? Go to an all-hands meeting, and every single time you should pick three people in the organization that have done something heroic and point them out. I had a really cool tool that one of my companies used, which was they gave a cash bucket to every employee, and that cash bucket—for the year—and it was a spend it or lose it kind of thing, but they had to give it to another employee. And when they gave it, they had to send something through Slack that said, “I am giving money to Will Porteous.” And believe me, Will, I would give you a lot of money.
Will: [laugh].
Raju: It’s like, I need this, and it’s here, right? Like, I’m giving, “Will, like, you know, $50”—and they wouldn’t need to declare the amount, right? So, you had, like, everybody had a pocket of, like, I think it was like 500 bucks. So, it wasn’t a lot of money, but, you know, it’s just enough that, look, if somebody sends you 100 bucks and you can, you know, take your friend out for drinks, or, you know, you can go get a nice dinner, or something like that with it, it means something, but the recognition means even more. So, that peer recognition is even more vital in this particular case than that, you know, sort of administrative management recognition that comes in. So anyway.
Will: You’re completely right. And it cements people in their role in the company, and the company is a place that they feel like they belong and they’re respected and honored. I mean, it goes miles in terms of retention.
Raju: So, tips and tricks. Let’s move to the tips and tricks side of this. I have a bunch, I’m sure you have a few, and then I’ve got a couple of Gatling gun questions that we’ll end with. But you know, I know you’re short on time today. But I’ll start with one—tips and tricks—and that is the best way to retain talent is get the hiring process right.
You know, if you hire the wrong people, you will have turnover. That means hire for culture fit, hire people that have stayed in jobs longer. Look at their resume and if they’ve job hopped, you know, every year for the last three years, ask them why. You know, they might be the perfect candidate. But I think getting that hiring process right is super, super important. And I don’t know if you have thoughts on that or an additional tip, but I can go down my list if you prefer.
Will: So, I have thoughts that back that up. I think there’s a question for guys like us as board members as to how to help in this equation. And one of the things I think is critical is, is as a board member, you should always understand who the five or ten most important people in the company are outside of top management, and where having a personal relationship with those people can make an enormous difference. Having them feel connected to a board member—
Raju: That’s awesome—
Will: —close to a to the conversation. And there have been times when as a board member, I’ve been able to intervene in retaining those people because I could kind of help lift them up and make them feel appreciated and see what was on the other side of whatever challenging period the company was going through.
Raju: Yeah, there’s probably a whole podcast on this, Will, which is how to use your board properly, and I agree. Like, I tell my founders, use your board as the bad guy sometimes, and use your board to help you keep your best people by creating a relationship. But we should think about that as a podcast.
Okay, second tip: the single biggest contributor to low morale in a company is lack of communication. You need to be transparent. You need to communicate to your people. You should do it regularly. When people don’t know what’s going on and they’re nervous and they’re scared, like, are we going to get the next round of financing? Is this big customer coming in? What the heck happened with the outage? You know, and you’re sitting there, like, too busy because you’re trying to solve these problems, morale disintegrates. So, that is my second tip. Like, communicate, communicate, communicate.
My third tip is you have reset opportunities in your lifespan. There is moments when you increase headcount and you are planning to increase headcount, and that usually happens when you have a new round of financing, or you have, like, a new product launch where you’re bringing in people, and it is an opportunity to go and determine whether you have the right culture and the right people fit in the business.
Will: I think you’re totally right.
Raju: Okay, so additional tips and tricks that I’ve noticed, and I’d love for you to chime in on, Will, you know, we talked about communications being the single biggest contributor to low morale, but there are interesting reset opportunities within businesses, and I think that people just don’t understand that as much. I think that this is a moment where you get a new round of financing in the business, or you have a new product launch, and you’re going to hire people associated with that product. You’re kind of growing your business in, you know, sort of orthogonal manners. You get a new product line, you’re getting into a new country, or you get a new round of financing. And it’s at that moment where you can evaluate your organization, and say, what’s the culture going to be as I add on another 20%, 30%, or 100% growth in the business? And do I have the right foundation in place right now? And should I be having a conversation with the team that’s in place?
So, let’s say you’re at a seed stage now. You got Series A financing. You got ten people in the company and two of them just aren’t great cultural fits. Now, is a moment to say, “Hey, we’re going to be hiring ten more people. We’re going to double the size of this organization, and we got to maintain a culture where everyone feels like, if they see something broken, they don’t ignore it because it’s not their job.” Or, you know, “If somebody needs to work a little extra, that we’re going to lend a hand because that person’s job is a little bit crazy today.”
You know, if we’re building furniture in the office because we need more desks that we bought from Ikea, that everybody feels like they got to participate in that. If that’s the culture of your company, you have an opportunity to reset it, and to really kind of, maybe, I don’t know about carve out bad apples because you should carve them out if they’re bad apples anyway, but if they’re just sort of like, hey, you know, the apples just not fully formed, or something like that, give them a nudge and say, this is kind of what we’re expecting from you because you’re going to be training two more people or five more people.
Will: Raju, I love this idea, and it’s so perceptive of you to call this out. I have a company right now that has a big remote team. It’s a high performing company, but people feel a little bit disconnected. And they’re actually not just hiring a bunch of more people, but they’re actually buying another company, and they’re merging with an organization that’s actually a services organization, that’s going to really help turbo charge a lot of their customer implementations. But that services organization has a great culture, and part of what we’re trying to do is graft that performance culture onto the old company—
Raju: I love this.
Will: —to create kind of a shot in the arm for those legacy employees who are a little disconnected, may not feel like they’re as much part of the mission. Things like what you’re describing—and financings create the potential for these kind of moments—can be really good course corrections culturally.
Raju: Absolutely. I love that one. I didn’t even think about, like, sort of an acquisition. And the, you know, often you worry that your culture is going to get diluted when you acquire, but in this case, what you’re saying is you want to, you know, you want to retain the culture of the company you’re buying.
Will: Totally right.
Raju: Yeah. That’s super interesting.
Will: Yeah. And we’re spending a lot of time with the management team talking about how they don’t end up with two cultures inside the future organization, and how they build the right bridges and create almost like a buddy system among old employees and new employees. And some of it’s probably going to feel a little juvenile, but it’s all towards this end of, kind of, one team, one mission, one culture.
Raju: You and I are a buddy system.
Will: [laugh].
Raju: We’ve been a buddy system for a long time, ever since I joined, we’ve been a buddy system.
Will: [laugh]. Dude, our shoelaces are tied together.
Raju: I know. I think Munich next week: buddy system. London: buddy system, you know? So okay, I think that’s mostly keeping me from harm’s way. Like, your job is to, like, make sure I don’t go off the deep end.
Will: I hardly do. I hardly—we look after each other.
Raju: Okay. The next tip, I mean, we talked about getting the hiring process right, you know, we talked about communications, we talked about reset opportunities. We mentioned this one earlier, so I won’t really spend too much on it, but promoting from within first, or at least giving people an opportunity, like, looking at them, and say they might qualify, they’re 20% off, so can I train them to do the job? But if you’re, like, you know 30% or more off in terms of capability, and you’ve got to hire from external sources, being very communicative of why we’re bringing in somebody to do this. So, that’s a tip.
My fifth tip is leveraging data. You know, we’re in the world of AI, baby, and so [laugh]—
Will: Yeah [laugh].
Raju: Like, data is king. If you mine data properly, you will know when people are going to leave or are thinking about leaving.
Will: Yes, yes.
Raju: There’s lots of systems in there. Like, you see people downloading contact lists for everybody in the company. You’ll see, you know, less engagement on Slack. You’ll see less calls being made. You know, to customers, you’ll see—
Will: Updating their LinkedIn profile [laugh].
Raju: Well, that’s, like, so [killer 00:39:06]. Like, whoa, that person’s working someplace else? Like, that’s, yeah, that’s kind of… it’s a little too late when they’ve done that. But when they start doing things, when they start doing things, which is like, hey, you know, I can’t do this all at once. I’m thinking about leaving. Let me get the contact list for everybody in the employee database, and [unintelligible 00:39:26] for a long time. There’s little things like that which I think businesses should pay attention to.
Now, the signs should be more obvious, and if you have a good leader or a manager of that individual, you can kind of tell when people are sort of thinking about, you know, moving on. And if you have good employees, and their real reluctance is they’re not getting paid enough, or, you know, their stock options are vesting, they should tell you. But in some cases, they don’t, and people—you know, it’s not a perfect world. But you should be looking at these, you know, little, tiny signs. And there’s, you know, a handful of them.
Will: Yeah.
Raju: So, the last tip and trick is one that, unfortunately, a bunch of companies have, which is a toxic culture, or a semi-toxic culture. It’s micromanagement-oriented because the leaders in certain roles don’t have enough experience to understand when they need to micromanage versus when they need to coach, versus when they need to let people loose, versus when they need to, like, just motivate people. Unethical behavior, blame culture, or like, the one that happens, I think, most often, is gossip and a little bit of backstabbing. And I think if you see it, and you know, there’s always a handful of people in an organization that you can go to find out if this is going on. They’re keepers in the organization. They don’t want to leave the organization, but they know what’s kind of happening at all levels.
And you know, if you talk to those individuals and they say, “Hey, it’s great, but like, we got a couple people that are just, like, they don’t think engineering is doing their job, and they’re constantly, like, quipping these guys don’t work late, or that sales team just doesn’t really get it, or that person doesn’t get it.” If you allow it to exist with some regularity—if it happens once or twice, it is a big deal, but it’s not a killer deal—but if you allow it to happen, what you ultimately do is you have a set of people in the organization that it’s killing them. It’s really hurting them inside. They don’t want to be associated with a company that does this. They feel like they’re getting—you know, this happens to them every once in a while, and this isn’t the right place for them, and they wind up moving on.
And so, you know how they say, like, if one person writes something to you, there’s probably ten others that are thinking it. You know, as a consumer company or whatever—
Will: Completely.
Raju: —if this is happening, there’s probably a bunch of people that aren’t telling you how much pain this is causing them. So, anyway. I’m sure you’ve seen this in companies. I’ve seen it in companies.
Will: Well, I’ve seen it in companies, and at times I’ve had to intervene with leadership that doesn’t want to deal with the problem. And it’s exactly what you just said a second ago. If one person is saying something, there are ten more. And I find, when you say to a CEO, “Your organization is waiting for you to fix this. They’re waiting for you to deal with this person. They’re waiting for you to let these underperformers go, or confront this person who’s bullying other people or creating a toxic environment.”
And when you remind them that there’s an audience, [laugh] and the audience is all the people that they really value who are doing great work in the company every day, and that those people are expecting them, that they have a responsibility to deliver for those people, it often spurs them to action on these issues.
Raju: Yeah. The hard thing here is sometimes you’ve got real top performers that are the core of this. And I will tell you like it is, in my opinion, nobody is that vital to the business that performs, like, this negative, toxic culture, that you know generates it inside of a business that shouldn’t be removed.
Will: Completely agree.
Raju: Because you either have a conversation with them and fix it, or they’re going to create a real catastrophe in your business long-term. And they could be people that are vital in certain roles, but you got to address the issue. So, okay.
Will: Totally.
Raju: Anyway, last section, this is a Gatling gun session. I’ll have, like, just two or three simple ones.
Will: [laugh]. Okay.
Raju: The first one is, just give me a company that you have, that you’ve worked with, or that you work with now, that has a great company culture. And I have one. I’ll go first, you know, I’ll just say—
Will: Sure, go ahead.
Raju: Mine is Tive. There’s, you know, Krenar. He has built the company from the ground floor. And one of the things he and I always chat about is the culture that’s been created, this, you know, sort of like, transparency level, the fact that you know, he says, “Look, I never expect people to do anything that I wouldn’t be prepared to do myself,” which is the number of hours. You know he listens well.
He is a great communicator. They have very overt, you know, meetings about the good and the bad that’s happening within the business. And he has through, you know, multiple rounds of financing, maintained a culture in a company which, you know, tries to get away from itself because you have good times and bad times. And so, I would just say—but a lot of that is driven from, you know, just heroic efforts from the leader. Any companies that you want to point to.
Will: Well, there’s definitely a few in my portfolio. The one that I want to talk about is BlackSky, the satellite imaging company. The leadership team at BlackSky has been in place a long time, and part of it is what I was describing earlier. They’re a very mission-driven group of people. They recognize that the capabilities that they are building are supporting vital national security missions around the world.
And in thinking about the design of our systems, in thinking about how they talk about the capabilities, in thinking about what they do operationally every day, they know that they’re being held to the ultimate high standard in terms of performance and delivery. And it starts with our CEO, Brian O’Toole, who has a long record of delivering incredible technical accomplishments for this typical US government customer or foreign government customer throughout his career. And that culture has kept the company together through some hard times, frankly, when they didn’t know where the next financing round was coming, where they had to go through significant layoffs. And the core engineering leadership and business leadership kind of had a very clear vision for where they were going to go and what they were going to build, and they’ve stayed true to delivering on that over and over again.
And it helps, candidly, it helps that there aren’t many places in the world where they could also work on these things [laugh]. There aren’t many other companies in this sector. But even more importantly, we’re one of the very few with the culture that’s so aligned with our customers. And there are other companies in the sector that are not as strongly culturally aligned with our customers, and the customers don’t trust them. And so, this ends up being a big deal in terms of winning business with the government.
Raju: I love that. That’s a great story. Okay, so [unintelligible 00:46:54] what’s your favorite movie that exemplifies toxic company culture?
Will: Easy. WeCrashed [laugh].
Raju: Okay.
Will: The story of WeWork. It’s basically every HR disaster that happened through the course of that company. It’s the complete insensitivity to female employees. It’s, you know, the kind of, Adam Newman’s, kind of, billionaire culture with no consideration for any kind of financial quality reporting and that sort of thing.
Raju: I love that.
Will: It’s a great picture of the worst excesses of the venture-fueled innovation economy, and one we should all, like, look at with a certain amount of horror.
Raju: I’ve got two. I’ve got two. One is—
Will: I knew you’d have two.
Raju: —[laugh] The Devil Wears Prada.
Will: Yeah [laugh].
Raju: And my favorite line is, “Is there a reason my coffee isn’t here?” [laugh].
Will: [laugh].
Raju: I got to use that line. “Is there a reason my coffee isn’t here?” And the second is Office Space.
Will: Oh, well, yeah.
Raju: Yeah. That’s classic. “We find it’s always better to fire people on Friday.” Yeah [laugh]. And, “I’m going to need you to go ahead and come in tomorrow. And I’m going to need you to go ahead and come in on Sunday, too, ‘kay?” [laugh].
Will: [laugh]. Oh, man.
Raju: Oh, I love that. All right. And then the flip side: the best culture-slash-team movies? Or movie?
Will: Hoo, boy, that’s hard. I want to hear your answers first.
Raju: Okay. I’m going to give you two, and they’re both sports analogies here—or sports movies here. One is, Remember the Titans—
Will: Okay.
Raju: Which, oh my God, it’s like, I can watch that movie every day. And the second is Major League with Charlie Sheen, and you have Jobu.
Will: That’s nice.
Raju: Yeah.
Will: That’s nice.
Raju: Yeah. “Very bad to steal Jobu’s rum. Very bad.” That’s a guy with a snake in the locker. You know, a fantastic movie. Anyway, I don’t know, if you don’t have one, you don’t have one, but if you have one, have one.
Will: I don’t think I really have a good one. I mean, I think there are—we draw a lot of our examples for great teams and great cultures from sports, and I think that that’s incredibly valid, and there are a lot of good reference points there. So.
Raju: Well, that’s it. So, I’ll let you wrap this up for us this time, Will.
Will: RRE POV listeners, thank you so much for being with us. We love talking about this stuff. We love sharing it with you. We want to hear from you, so don’t hesitate to reach out to either of us, will@rre.com or raju@rre.com, and thank you for your loyalty and for tuning in with us yet again. Take care.
Thank you for listening to RRE POV. You can keep up with the latest on the podcast at @RRE on X or rre.com, and on Apple Podcasts, Spotify, Google Podcasts, or wherever fine podcasts are distributed. We’ll see you next time.