Performance Management: Introduction

Executive Summary

This series of posts presents 8 lessons learned from interviews with colleagues and friends across the landscape of technology companies and traditional operating companies. As the business world adjusts to a non-zero interest rate environment, and investors stop paying for growth at all costs, I wanted to learn from the smartest people I know about what has and hasn’t worked in bringing smart people together, unleashing them to build compelling businesses, and measuring progress along the way.

To read the full white paper, please reach out to me at will@wrsolutions.io.

Background

The American business landscape has emerged from the COVID-19 pandemic about as well as could have been expected. As of this writing, US Unemployment hovers under 4%, and monthly job gains continue to be robust–the US economy added 300K+ jobs in May 2023:

Source: https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm 

Though layoff rounds at big name companies like Amazon, Microsoft, Google, and many others grabbed headlines earlier in 2023, the consensus is that many companies over-hired during the pandemic as we all tried to figure out just how virtual the new-normal would be, and how much reliance consumers and enterprises would have on more shopping, more servers, and more services. As investors can no longer fund growth without a line of sight to profit, the business world has refocused on fundamentals–the sorts of things Warren Buffet would have advised all along.

TAM-Based Valuation Gives Way to Efficiency

Through 2022 Q2–the old days–VCs could be swayed by a compelling story about your TAM, the Total Addressable Market of the product you were about to sell. 

I remember hearing the sales pitch from the team at Zillow Offers in 2018, pointing out that the TAM of US single family property sales is $2T, so only getting a market share of one or two percent would still be a huge business! (Per Statista, 5.3M US real estate sales in 2018 at an average price of $385K = $2.06T.) Zillow contorted itself into a company pivot, from being a marketing site to focus on being a home buying and selling marketplace, blowing past their analytics guidelines in “Project Ketchup” in a bid to control enough market share. Even though real estate prices rose dramatically from late-2020 through 2021, Zillow managed to (dramatically) overpay for enough properties that they decided to close their Zillow Offers home marketplace business in November of 2021. They fought too hard to build a marketplace, and investors and employees paid the price.

The “year of efficiency” has touched the majority of US companies that focus on technology–only a few outliers like Apple and Uber avoided notable cuts, the latter because they cut so very deeply in the 2020 early-Pandemic downturn that they are still rebuilding and managed not to over-hire in 2022.

The Wisdom of the Individuals In The Crowd

As the business environment resets, I took the opportunity to connect with colleagues who have worked across the landscape of technology and operating businesses to contrast their experience through the 2023 market corrections, and probe their insights into what makes a “successful company.” My thesis is that operating companies and technology companies benefit when they are diligent about aligning their employees and deploying resources on the best projects. When the whole business can be fed with two pizzas, it’s relatively easy for folks who all know one another to stay aligned on important tasks and division of labor. As companies scale beyond one room, then beyond one building, it becomes increasingly hard to get full value out of incremental team members and to keep everyone aligned. For companies large and small, I wanted to investigate how the best teams bring smart, hardworking people together, align them on shared goals with unique responsibilities, and unleash them to build new product offerings that cannot be centrally planned.

“Good ideas with great execution are how you make magic”--Larry Page, Google Co-Founder

I spoke with colleagues on background about the context for alignment and goal-setting across their careers, about what has worked well, and what advice they’d have to entrepreneurs building the next great company in turbulent economic waters. 

Starting with OKRs, the Toolkit to Measure What Matters

I started with a bit of light reading: Measure What Matters by VC pioneer John Doerr, which presents 20 case studies highlighting the transformative effects of implementing Objectives & Key Results (OKRs), an idea borrowed from Doerr’s experience at Intel in the 1970’s. The very act of writing down goals at all greatly increases your likelihood of achieving those goals, but the OKR framework offers a tool for companies of almost any size to set regular Objectives (ex: “dominate the microprocessor market”) which can galvanize and inspire middle managers and individual contributors to spend time identifying the Key Results that will contribute to hitting that objective (“...as measured by: writing 10 new test cases by the end of the quarter; signing 500 new customer contracts by the end of the year”). The key results should be clear, measurable, and objectively scorable–two people shouldn’t be able to argue about whether a given key result was met; either you shipped five blog posts or you didn’t; either you placed 2,000 outbound sales calls or you didn’t; either you launched an MVP to three customers or you didn’t. 

This framework allegedly underpins the success at Google, Intuit, the Gates Foundation and other leading firms. When deployed, it involves empowering managers and individual contributors to set their OKRs in response to published Org and Team OKRs, with the target of having individual OKRs ladder up to the main objectives of each team.

OKRs sound an incredibly powerful tool, but like any impact driver or circular saw, a powerful tool is only effective when it’s properly used, with the right emphasis on safety, and measuring twice before you cut once. The right tool in the wrong hands is not a silver bullet, it’s a danger to the user and others. And I set out to learn from others about the tools, structures and practices that have worked well to align smart people, help them row together in the right direction, and feel good about the destination they reached, as well as the journey it took to get there.

I’ll post company- and industry-specific updates in the weeks ahead.

Please reach out to will@wrsolutions.io if you’d like to read the full white paper.