I'm going to talk about how to operate. I have watched some of the prior classes and I am going to assume you have hired a bunch of relentlessly resourceful people, you have built a product that at least some people love, hopefully raised some capital, and now you are trying to build a company. You have been forging a product and now you are forging a company. And I would actually argue, forging a company is a lot harder than forging a product. Basic reason is people are irrational. We all know this. Either your parents, your significant other, your brother or sister, your teacher, somebody in your life is irrational. Building a company is basically like taking all the irrational people you know putting them in one building, and then living with them twelve hours a day at least. It's very challenging. Now there are some techniques for coping with that some people get good at it, some people don't. But that's really what operating is all about.
So basically what you are doing when building a company is building an engine. At first you have a drawing on a white board and you are architecting it, and it looks especially clean, beautiful, and pretty. But when you actually start translating it to practice it actually starts looking more like this and you're holding it together with duct tape. It takes a lot of effort from people to hold it together, that's why people work 80-100 hours a week. It's that heroic effort to keep this thing together because you don't actually, yet, have polished metal in place. Eventually you want to construct a very high performance machine. A machine that almost nobody really has to worry about every hour, every minute. And as we used to joke about at eBay, that if the Martians took over eBay it would take 6 months for the world to notice. That's eventually what you want to get to.
As Warren Buffett says, build a company that idiots could run because eventually they will. So this is what you want. Basically a performance machine that idiots can run. Now as a leader, what is your real job, what's your role? Strictly speaking there is only one book ever written that actually explains how to do this. It's rather old, written in 1982 by Andy Grove, it's quite famous, and successful. And his definition of what your job is, is to maximize the output of the organization. Your organization that you are responsible for, so the CEO’s (responsible for) everything and VP would be a part of the organization, and the organizations around you. So if you are a VPE, you are actually responsible for the performance of the product team and the marketing team because you have influence there. So this is how you measure people, and you want to focus on the output and not the input. The old adage about measuring motion and confusing progress. You are measuring only progress. And this is going to sound like a fancy and glamorous thing to do. Maybe people get excited about managing a whole large organization and being “responsible” for the output. But in practice, what you are going to hopefully learn today is that it's more about things like ordering smoothies, teaching your receptionist how to answer your phone properly, and serving as a $10 an hour TaskRabbit for your employees. So let's talk about that.
So at first, when you start a company everything is going to feel like a mess. And it really should. If you have too much process, too much predictability, you are probably not innovating fast enough and creatively enough. So it should feel like everyday there is a new problem and what you are doing is fundamentally triaging. So some things will look like a problem, and they are actually colds, they are just going to go away. So somebody is annoyed about this or that, that is a cold, you shouldn't stress about it and you certainly should not allocate all your time to it. And some things are going to present themselves as colds, but just like in the emergency room if they are not diagnosed properly they can actually become fatal. What I am going to try to do is give you frameworks for thinking about when things are colds and when things are potentially fatal.
So one of the most important things I learned at Square is the concept of editing. And this is the best metaphor I have ever seen in 14 years of running stuff, of how to think about your job. It's a natural metaphor, so it's easy to take with you everyday and it's easy to transmit to each of your employees so they can figure out if they are editing or writing. It's a natural construct, you generally know when somebody asks you to do something, am I writing or am I editing? So an editor is the best metaphor for your job. And we are going to talk about the specific things you are doing in editing.
The first thing an editor does and you have all probably had this experience in school, is you submit a paper, to a TA, a draft to your friend, and the first thing that editor does is they take out a red pen, or nowadays you go online, and they start striking things. Basically eliminating things, the biggest task of an editor is to simplify, simplify, simplify and that usually means omitting things. So that's your job too, is to clarify and simplify for everybody on your team. The more you simplify, the better people will perform. People can not understand and keep track of a long complicated set of initiatives. So you have to distill it down to one, two, or three things and use a framework they can repeat, they can repeat without thinking about, they can repeat to their friends, they can repeat at night. Don't accept the excuse of complexity. A lot of people will tell you, this is too challenging, this is too complicated, yeah well I know other people simplify but that's not for me, this is a complicated business. They’re wrong. You can change the world in 140 characters. You can build the most important companies in history with a very simple to describe concept. You can market products in less than 50 characters. There is no reason why you can't build your company the same way. So force yourself to simply every initiative, every product, every marketing, everything you do. Basically take out that red and start eliminating stuff.
Second thing editors do, is they ask you clarifying questions. When you present a paper to someone, what do they usually do? They find some ambiguity somewhere and ask, do you really mean this? Did you really mean that? Give me an example of this? That's what your job is. So you are in a meeting, people are going to look to you. And the real thing you do, is you ask a lot of questions. And they can be simple basic questions like should we try this seven days a week? Or six days? They can be fundamental questions like, where’s our competitive advantage here? We try to do this as investors too. Some investors will ask you a billion questions about a billion things and they will have you do diligence forever. We try to narrow down to, what are the one two three four things that matter most to this company? And only focus on those things. So it allows us to be more decisive and we can make decisions rapidly. It allows us not to distract you from your day job which is actually building a company. And yet still I think we get to the highest fidelity question because we don't have all these extra extraneous details and data. Now it's hard, it's something you have to practice. But when you get good at it, every step you eliminate, Andy Grove estimated you can improve performance by 30-50%.
Now the next thing you do is you allocate resources. So the editor construct, this is what editors do all the time. They take editors from the Mideast, covering the Mideast and they move them to Silicon Valley, because Silicon Valley is more interesting. Or they move them to the sports section because they want to compete on the basis of sports journals and other publications. So that can be top down, where I take a whole bunch of resources and people and say, we are now going over here. We are going to compete on this basis. Then next month, next quarter, next year well that Middle East coverage is getting boring, we don't want to do that anymore. Let's go chase after something else. Or it can be bottom up, just like journalists mostly come up with their own stories.
The people who work with you, generally, should be coming up with their own initiatives. So a reporter, generally, who covers Google will come up with the interesting stories that they are hearing in ether and propose one or two to their editor for approval. But it's not the editor saying, go cover Google and this is the angle I want. Once in a while they do that, but its not the meat and potatoes of what a journalist does every day. Your goal over time is to use less red ink every day. So one way of measuring how well you are doing at communicating or talking to your colleagues about what's important and what's not, about why some things are important and why some things are not. It's how much red ink you are pulling out in a day, it's okay if you are having a bad day and the red ink is all over the place. But it's not okay if the red ink next month is more than it was last month, and next quarter more than this, so measure yourself by how much red ink you’re creating.
The other thing that is very important that actually isn't as intuitive to a lot of people, is the job of an editor is to ensure consistent voice. So if any of you read The Economist, you can tell that there is one consistent voice. You can pick up any article, any post in The Economist and it feels like it was written by the same person. Ideally, your company should feel, on your website, on PR releases, on your packaging if it's a physical product, anywhere on your recruiting pages it should feel like it was written by one person. That's extremely difficult to do. And at first you are going to be tempted to do that yourself, which is okay for a founder to do that him or herself initially. Over time you do not want to be doing all of the consistent voice editing by yourself. You want to train people so they can recognize differences in voice.
See this website page, it looks very different than this recruiting page. You start asking questions, why is that? Is the reporting messed up? Is one of the leaders over here not really understanding the voice of the company? You have to fix that over time, but you want to start with the objective that everything should feel the same. It's quite difficult to practice, almost every company has one piece of the organization that isn't on the same voice. At Apple, which is notorious, even under Steve's regime, which is notorious for getting this right, if you asked someone who worked at Apple, asked them about the internal tools about recruiting, do they really feel like Apple products? All of them will tell you no. So you are never 100%. But you definitely want to get as close to that as you can.
Next complicated topic is delegating. So just like the other metaphor on editing is writers do most of the work in the world, editors are not writing most of the content in any publication. So that is true of your company, you shouldn't be doing most of the work. And the way you get out of most of the work, is you delegate. Now the problem with delegating is that you are actually responsible for everything. The CEO, founder, there is no excuse. There is no, there is that department over there, this person over there screwed up. You are always responsible for every single thing, especially when things go wrong. So how do you both delegate but not abdicate? It's a pretty tricky challenge, both are sins. You over delegate and you abdicate, or you micromanage, those are both sins. So I'm going to give you a couple techniques for solving this.
First, and this actually came from High Output Management and Andy Grove, is called task relevant maturity. It's a fancy phrase for, has this person ever done this before? It's really simple, how mature is this person in doing something? And the more they have done the exact same task before, the more rope you are going to give them. And the more they are trying something new, the more you are going to instruct them and constantly monitor. This is a basic concept but it's worth keeping in the back of your brain. The interesting implication, and this is pretty radical, is that any executive, any CEO, should not have one management style. Your management style should be dictated by your employee. So with one particular person, you may be very much a micromanager because they are quite low on this scale. And with another person,, you may be delegating a lot because they are quite mature on this scale.
So it's actually a good thing if you do reference checks on somebody and half the people you call say they are a micromanager and the other half say they actually give me a lot of responsibility. That's a feature not a bug. I didn't understand that at first at all. I used to be befuddled when people would do reference checks on me and come back with this complicated mosaic. Then I finally figured out that maybe I was doing my job correctly. So then I taught others that this is the way to do it.
A more nuanced answer that I came up with, is how to make decisions. Delegating vs doing it yourself. You don't want to do it yourself too often. So I basically borrowed from Peter, this is my first two by two matrix ever in my life, but he taught me something at least. You basically sort your own level of conviction about a decision on a grate, extremely high or extremely low. There's times when you know something is a mistake and there's times when you wouldn't really do it that way but you have no idea whether it's the right or wrong answer. And then there is a consequence dimension. There are things that if you make the wrong decision are very catastrophic to your company and you will fail. There are things that are pretty low impact. At the end of the day they aren't really going to make a big difference, at least initially.
So what I basically believe is where there is low consequence and you have very low confidence in your own opinion, you should absolutely delegate. And delegate completely, let people make mistakes and learn. On the other side, obviously where the consequences are dramatic and you have extremely high conviction that you are right, you actually can't let your junior colleague make a mistake. You're ultimately responsible for that mistake and it's really important. You just can't allow that to happen. Now the best way to do that is to actually explain your thinking why. It's easy to shortcut when you get busy explaining ways in the world but it's very important to try.