Founder Mode (Part 2)

I guess most people would say that hierarchy is a necessary evil. I believe it’s more of a blessing in disguise. It is fundamentally helpful, but we often implement it in a very unfavourable way.

1. The correlation of hierarchy and being hands-on

In any case, it has a very direct correlation with the subject matter of Part 1 of this mini-series: being hands-on or being hands-off as a founder or CEO:

• - if you’re hands-off, you will mostly talk to your direct reports, adhering to and thereby underscoring and strengthening the hierarchic structure.

• - Being hands-on, on the other hand, entails that you talk to people close to operations a lot, which means you consistently skip hierarchy levels – you don’t adhere to your company's hierarchy and thereby weaken it.

This correlation becomes more relevant with the growing maturity of an organisation. Start-ups don’t have a lot of hierarchy (because the workforce is still small, hierarchy is not necessary; because the organisation is still in constant change, hierarchy cannot take hold; and because there is little leadership experience in the workforce, nobody wants a hierarchic leadership position). As companies grow, they require more structure and stability and become more hierarchic.

At the same time, Startups have a more immediate need for the founder to be hands-on. Founders are the most knowledgeable persons for pretty much all aspects of work. Their input and buy-in are constantly required because of that, but also because the more junior the workforce, the less inclined it is to take action without approval. Later, with a more experienced and autonomous workforce, the founder can be less hands-on.

In reality, hardly any company is fully grown up. Even with over 1000 people, idealo (where I served as CEO) had more mature and less mature parts. Accordingly, there will be times and places where there is more of a need or space to be hands-on and others where this is not so much the case. And really, I don’t think that there is any CEO or founder out there who is 100% hands-on or hands-off all the time. But that does not mean that you can be casual or unthinking about your way of leading. Quite the opposite, you have to be acutely aware of what you are doing.

• First of all, you have to be generally aware of which mode you are in. Being hands-on or hands-off should not be a mere reflex of yours but a conscious decision, and you should seek consistency in it. Ideally, you should be able to explain why you act in a certain way sometimes and sometimes in another. This is important because your leadership behaviour will set the tone and be an example for everybody else’s behaviour. If you allow yourself to be seen as erratic, undisciplined or unaware of others, other leaders in your organisation may take the same liberties. The more people know and understand your work principles, and the more you act by them, the better.

• Secondly, you have to be clear that if you act hands-on, you make yourself primarily responsible for the item or action that you have instigated. This means that you need to ensure that you finish (and measure) what you start. I cannot overemphasise this: if you set impulses but don’t follow up on them, people will eventually begin to wait them out. And when you realise that your impulses have not led to anything, it will make you nervous and tempt you to set even more impulses for which you will have even less time and attention. This creates a vicious circle that you need to avoid.

• Thirdly, once your organisation grows to about 50 people you need to recognize, that being hands-on carries a hidden cost (which increases as your company increases in size and depth): whenever you skip hierarchy levels, the people that you’ve skipped will need to catch up with the impulse that you have created. This activity is a waste of energy and sometimes focus. Also, they will have a hard time buying into what you’ve kicked off, and that can slow down any progress considerably. Ideally, you would point out to them what you did and give them time to close the gap. But if you are mentally in hands-on mode, this is probably the last thing you will think of.

I’ve had a strong habit of jumping into operational problems in my earlier CEO years at idealo. I simply could not watch others struggle with something I knew I could quickly resolve myself. It felt like a waste of energy and even disrespectful to them. As I became more aware of the activities that my actions triggered in the organization, I became better at judging when to jump in and when to hold back. For me, that was a good development – It gave me more time and the necessary objectivity to focus and be analytical, and it made me better at my job. But more importantly, not “helping” my team made it stronger. Because here’s what happens if you are the most senior person in a group and you have a habit of jumping in and solving things yourself: people will wait for you to do it. Next, they will stop thinking about the problem themselves because they feel that their thoughts will be obsolete in 5 minutes anyway. You’ll end up with a passive group. In turn, this will give you the feeling that you need to do everything yourself, even more than before. It’s a vicious circle. If you think now, “uh-oh, this might be me”, I encourage you to try the following: take 3 minutes before your next group meeting and resolve to lean back in the meeting. To lean back and wait and ask people what they would do about the matter at hand and listen. After the meeting, take another 3 minutes and write down your observations. Maybe it takes two or three meetings of that kind but I would be surprised if you don’t like what you see.

Ok, so the interim result here is that by working against or around the hierarchy of your company too often, you risk losing more speed and outcome than you have gained through your intervention in the first place. And the more structured the organisation gets, the bigger the risk and the more unfavourable the odds.

2. Can we have a hands-on organisation?

This leads us to a bigger question: if being hands-on interferes with the hierarchy, why not get rid of the hierarchy? Maybe how organisations are traditionally structured is not the best way to run things. After all, hardly anyone has a good word to say about hierarchies. And there is no small amount of consultants, management gurus and academics that forecast their demise (usually in the context of an organizational evolution towards a holacracy or “Teal Organizations” - the least hands-on forms of organisations imaginable, which is why we’ll not go into this subject more deeply here – if you want to know more I wholeheartedly recommend you read Frederic Laloux’s book “Reinventing Organizations”). So maybe we can do without the hierarchy and run a company fully hands-on.

To explore this thought, we first need to get a better grip on hierarchy. What is it? What’s it good for? Why do we dislike the sound of it?

A hierarchy is a system or order which functions in levels or layers of authority. Higher levels exert control or influence over lower levels. It is not exclusive to organizations or even to people but appears frequently in nature as well (primates live in dominance hierarchies, so do wolves, lions, elephants, ants and many other groups of animals or insects). You could argue it is a natural way of organising work or life in a group. While this is not a strong argument in favour of hierarchies in the workplace - trying to kill each other with teeth and nails is a natural way of settling disputes and certainly not the best way of handing conflict – it might be the reason why most people take comfort in hierarchies and the safety, order and predictability they provide. We’re used to and easily understand hierarchies. And because of that, they facilitate cooperation, and they have proven to be a very effective way of breaking down and working on complex problems.

But if hierarchies are so useful and emotionally gratifying, why don’t we like them better? Here’s why:

Hierarchies persuade people to be more worried about climbing the ladder than about providing value to the customer. The hierarchic structure is a source of identity and moving up in it can provide a sense of achievement and progress for oneself (through psychological rewards and tangible benefits) that is so strong that it outshines the purpose of the company. That we all have a cognitive bias that lets us be more concerned with ourselves and our immediate surroundings than with more distant occurrences or goals amplifies this effect.

This can create three sets of problems:

• - Ridgidy: people cling to the ladder structure and their place in it, defending it against necessary adaptation and change. Change starts to feel like risk and not like opportunity.

• - Politics and authoritarianism: People start to focus inwards towards their peers (instead of outwards towards the customer). Power networks appear and with them a different ruleset for success: play the system, engage in politics, build your network, don’t stand out, and block everybody that has better ideas than you. Above all: don’t be accountable for mistakes. Symbols become important: where one sits at a conference table, where one can park their car, who was seen with whom.

• - Inefficiency & lack of accountability: people cling to the information structure (because they are punished by others if they don’t), making sensible shortcuts impossible. The power imperative of not being accountable for mistakes leads to the abuse of the cc in emails and decision-making becomes a committee thing.

This is what we don’t like about hierarchies. They can be in the way of actually achieving something meaningful. And the homo hierarchicus, the political power player, is at the root of every hierarchy-horror-story ever told.

So getting back to the question we opened up above: Can we prevent this if we apply the hands-on way of working structurally? If we exchange the layers of authority with meritocracy. After all, these problems don’t exist in a pride of lions or a wolfpack. You cannot fake speed or strength.

What would that look like? Well, firstly, we take away all intermediary layers and have individual contributors, experts and operational team leads report directly to the founder. This way, achievement becomes easy to pinpoint and competency impossible to fake. Secondly, because now the founder has an overwhelming amount of direct reports, we would need to shield them from most people-oriented leadership tasks such as 1on1s, salary discussions, feedback requests etc. Because these require a lot of time we will still need “managers”, but they would not report to the founder (who already has more than enough direct reports) but to a “Chief People Officer”. The founder would have the product leadership role while the CPeopleO would have the people leadership role and report to the founder.

Such a separation of people leadership and product leadership is not unheard of. It has even been a bit of a trend in some agile organisations to separate leadership roles into technical leadership (technical guidance, prioritisation, work organisation) and human or disciplinary leadership (guiding development, evaluations, salaries).

So should we do that?

Opinion time: I am not a fan of splitting up responsibilities that come with a leadership role. I’ve had this discussion many times (mostly for team-level leadership positions), and there seem to be two main arguments in favour of a split:

(1)       If you take the people responsibilities away from operational leaders they have more time to focus on the “more important” product or operational stuff, and

(2)       Not every leader is good at people leadership and thus it makes sense to have complementary support.

I believe both arguments to be incorrect.

(1)       While it sounds logical to give product leaders more time to do what they are best at and have people leaders handle people topics, as a system, this does not work as envisioned.

Time, the productive time of a team, is a limited resource. There is never enough of it. This means that inevitably, you will need to prioritise people vs. product items … and not do some things that are per se useful. This is difficult because it requires you to compare apples (product, usually operational, short term) with pears (people, often structural, long term). Doing this well requires good understanding and judgment in both areas. Also, it requires an ability to deal with imperfect conditions and rebalance things over time because it is impossible to keep a perfect balance at all times.

This is already hard for one leader with responsibility for both leadership areas. But such a leader will experience the whole range of issues and can build the judgmental qualities to give matters the attention they deserve and learn how much leeway there is in balancing them. And they will only have one opinion and one voice towards the team.

Two leaders with responsibilities only for one leadership aspect each will mostly see their own respective area of responsibility. To come to a joint priority or balance, they will have to negotiate some sort of compromise. And they will have a strong incentive to go back on that too often, resulting in a more rigid, less adaptive outcome than in a one-leader setup.

This is a best-case scenario though. Because if the two leaders don’t manage to have a real, lasting compromise, they will both push their respective priorities onto the team. Now, the team has to work out how to deal with too many priorities. At best, this is a distraction. At worst, it weakens the teams’ spirits.

If this line of reasoning seems a bit constructed to you, it isn’t. I’ve seen this too often. You’ll end up with teams that are overly concerned with working conditions and it impacts their output and happiness. “We could do better if only this (item that is beyond the team’s control) were better.” is a sapping thought. You make external dependencies your master instead of focusing on what you can achieve with what you have now. 

(2)       But what about the second argument that not all people are good at leadership? As a statement, this is undoubtedly true. But you don’t fix this by creating a compensatory leadership role (inflating overhead, diminishing clarity of responsibility and adding to complexity). You fix this by helping the people who have potential and interest in leadership to become better leaders and by not giving leadership positions to people who don’t have these qualities.

This is without any drawbacks if there is a career path for experts in your company: The expert does not need to be a team lead to get the right salary or title. Also, they do not need to be a team lead to make an impact. Teams usually know if someone has outstanding knowledge or experience and they listen to them anyway.  

Just for the avoidance of doubt, I am a big fan of dual leadership roles. They make an organisation robust, and they can be a blessing both for the leadership role and for the people who report to it. However, most of the beneficial effects of dual leadership are based on both leaders having a similar set of responsibilities.

Additionally, and maybe most importantly, splitting up a whole organisation into a product and a people side with two independent hierarchies that only really converge at the top carries a huge risk of separation. Of us-vs-them thinking. I simply don’t see this working well in the long run.

So don’t split leadership responsibilities.

So our interim result here is that, for now, we are left with a classical organisation structure: layers of management between the founder and the first line. Hence, we have to navigate the hierarchy to make things work.

3. Living with the hierarchy

But that does not mean that we cannot improve the way we set it up and run it! Three things in particular are powerful counteragents to the negative potential that the hierarchy has: 

1.          Focus

As stated in Part 1 an organisation is most efficient if it

-               is committed to serving the customer,

-               is focused on delivering the big items,

-               has a high degree of alignment and cohesion,

-               and demands clear accountability for any activities it engages in.

Focus is the best way to avoid the inefficiencies and territoriality that hierarchy can cause. If the organization has a very small number of very clear common goals and prioritizes them, it will adopt a collaborative work mode and it will become very visible where people are focused on outcome and collaborate well and where this is not the case and adjustment is due. Focus always starts with a focused business strategy.

2.          Authenticity

I strongly believe in a leadership style that is rooted in correct and respectful interpersonal behaviour. Not in an artificial way - you should simply not behave in any other way at work than you would behave in a trusted private environment. Anything that deviates from that requires people to disguise themselves, to act in a different way than they naturally would, and that leads to poor communication, erosion of trust and weak adhesion. An authentic leadership style almost automatically lets people have eye-level conversations across different hierarchic levels. This takes any authoritarian edge out of the hierarchy.

3.          Kick the Cart

Finally, to make sure that hierarchy does not lead to rigidity and defensiveness, it’s good to give it a little shakedown once in a while and to demonstrate that it is achievement that matters in the end.

One way of doing this are Wild Ducks. This was an idea of IBM founder Thomas Watson Sr. that became a living principle at IBM for over 50 years. Will Ducks were a selected few innovators who were given funding and flexibility to pursue new ideas. They were allowed to take risks, work on passion projects, pull resources from other teams and generally did not have to follow standard rules and procedures. They reported directly to the CEO and were not otherwise managed. Wild Ducks introduce a purposeful element of chaos that rattles the structure. And they demonstrated that achievement ultimately is more important than structure.

Another example of a break in the structure is Apple’s Top 100 retreat. Once a year, Steve Jobs would gather around 100 of Apple's top executives, managers, and key employees for an offsite. These gatherings were highly secretive and participants were often hand-selected by Jobs without regard to their hierarchic level or position. The main purpose of these getaways was to inform and prime participants for the company's vision, future product plans, and strategic direction. But they also created lines of communication outside of the hierarchy. And. like wild ducks, they demonstrated that achievement mattered more than rank.

It’s worth noting, that both the Wild Ducks and the Top 100 retreats were very measured interventions. At IBM there was approximately 1 Wild Duck per 10.000 employees (0,01%). Apple’s Top 100 represented 0,2% of the workforce and they met only once a year. Also, both groups had very limited powers: Wild Ducks had some authority to get the resources they needed, but only for their own projects – not on a larger scale. Apple’s Top 100 participants did not receive any special powers and the group did not form a decision-making body.

Watson and Jobs did not break the structure. And I assume they did not intend to break it. But they complemented it in a measured but visible way. 

Summarising, here’s my advice:

(1) If your organisation needs to grow well beyond 100 people, embrace hierarchy. It’s easy to underestimate its importance. It will never be exciting, and it might seem more often in the way of achieving your goals than contributing to them. Still, it does serve an important purpose: it supports the whole organisation. It gives it clarity and order, allowing the people in it to trust their surroundings and focus their energy on serving the customer. Again, this becomes more important as your organisation grows and matures.

(2) As a rule of thumb, be as hands-off as possible and as hands-on as necessary. Be aware of the cost of your decision, and always make sure that what you start gets finished.

(3) Work hard to limit the negative potential of hierarchy: preserve focus, alignment, accountability and commitment to serving the customer as your organisation grows. Lead with authenticity and require others to do the same. And every once in a while, gently tap the structure and remind everybody that it is only a tool for seeking achievement and not an end in itself.  

And to relate back to the Founder Mode essay by Paul Graham that got me into writing about this topic in the first place: the Founder Mode that Graham describes is not the best way of running a company. Your time is a limited resource. Everything else can be acquired. You don’t scale. And as much as I believe in focus and as much as focus benefits from limited time, no larger business successfully runs only on a couple of big decisions. Big decisions matter. But a business also needs relationships. Always within the organisation and always with customers. A lot of times, also with suppliers. Sometimes with other stakeholders. There are a lot of decisions to be made to run these relationships well, and you will not have the capacity to take them all yourself. You will need people who are capable and who are empowered to take them. You will need to hire good people and let them do their job. But - and this is where I disagree with Graham the most - this does not mean that you should become detached from the front line. Quite the opposite. Doing Manager Mode well will require you to be in touch with operations and to seek deep alignment with the people who report to you, including about operational matters. It requires you to make sure that others can carry out the responsibilities they have taken over from you as well as you would.

Be hands-on in the relationships with your reports and (mostly) hands-off in their areas of responsibility.