a16z Podcast - a16z Podcast: Protecting Your Company from Itself: Why You Need HR

Episode Date: July 8, 2014

One of the ways to damage a fast-growing startup is to not have an HR person. But when is the right time to bring someone on? What qualities should you look for? How can you preserve the company culture and energy that got you where you are -- while still putting in place the processes that HR requires? Ben Horowitz and a16z’s head of technical talent Shannon Schiltz (Callahan) dive into the world of HR for startups. How does a good HR professional partner with a CEO? When you have to fire someone for the first time … and how should it go down? Musical kicker at end: If you thought you couldn’t rhyme Oculus, think again. For Ben’s debut on the a16z podcast, we included an original song provided by friend of the firm Divine (and produced by a16z’s own Chris Lyons). For more on Divine and his relationship with Ben, check out Rap Genius. http://rapgenius.com/Divine-the-4th-letter-venture-capitalist-like-ben-horowitz-lyrics

Hello, and welcome to the A16Z podcast. I am Ben Horowitz, and I am here with Shannon Calhann, and we are going to talk about human resources. Shannon, in working with startup companies, what's the biggest mistake that you see companies make with respect to HR? I would say the biggest mistake I am seeing is that they're not bringing it on soon enough. A lot of our CEOs and founders feel that once they've hired the recruiter, they've kind of covered themselves on the HR front.

That's interesting because recruiters are kind of the opposite of HR. To some degree, yes. Yes. So you and I have talked about this in the past, but recruiters from a personality standpoint, to be a world-class recruiter, you have to be kind of a world-class salesperson. And generally, world-class salespeople tend to have a fairly self-centric view of the world, like that's what makes them good. and, you know, that kind of charisma and attitude.

And HR, on the other hand, is like the opposite. It's when done well, it's a kind of very low profile, kind of thankless job, but very important job. And it's unusual that a recruiter would become like a great head of HR, yes. Yes, and I think the other mistake that it's not a mistake, but I think where they're going down the wrong path is there are tons and tons. of recruiters that want to take on HR, which means that they're either not hiring the best recruiter who wants to go out and hunt and make the kill to build an incredible technical team, or they're putting someone who has that skill set in charge of HR. So both are a disconnect. Right, but recruiters are pretty good at selling CEOs on the fact that they should be head of

HR, yes. Yes. Yeah, yeah, now that is the great irony. So when we talk about HR, like what is HR? So when I talk to our founders, I always talk to them about, you know, the true, the worth of HR is that they are an extension of the founder in their vision, in the way that they want to build the company, in how they bring people on board, and how they actually build the company successfully. They take what the CEO wants the company to be and partners with them to ensure that all of those things are happening. That's like the importance of HR. HR also is the person, it's kind of the voice of the people to the CEO as the company grows.

A CEO can't stay connected with every person in an organization. And so they're really, they should be that, you know, a confidant to the CEO, but also the person who can roll up themes and issues that need to be addressed in an organization. Right, right. And so the CEO is kind of in some ways in charge. of the company culture and the company's management and so forth, and the head of HR helps the CEO to succeed on that mission. Correct. So you spoke earlier about people don't want to bring HR in early enough, and lately we've seen some companies kind of get into a spot of trouble by not having HR early on. So talk about how HR helps kind of protect the company from

itself. Yeah. So I think the first thing to address is what you were just saying, a lot of CEOs don't want to bring HR on. And that comes from a lot of folks bring or feel that once they bring HR in, they're becoming a process, kind of policed company, that it's going to change the culture, that this person is really there to make sure. that everyone is doing what they're supposed to be doing. So that one is false. If you hire the right HR person, as I said, they're an extension of the CEO.

HR comes in to kind of, you know, I think you said this before in one of your blog posts, kind of quality assurance against management. So if you think about if a CEO is setting the tone on how communication is going to take place, how people are going to be managed, if they're a performance issue, providing feedback, kind of making sure that things,

are done in the right way. That's what HR is there for. And, you know, when you think about HR, there is the ugly, you know, C word of compliance, which as a company grows from, you know, in the state of California, once you hit 25 employees, there's a lot of rules and regulations you need to follow. So a good HR person that comes on board is making sure that there are, you know, processes put in place. There's ways in which to address issues within an organization from a legal standpoint to protect the company, the employees, and everyone who's interacting with the company. Right, right. And, you know, it's interesting. When I started working in Silicon Valley, we used to kind of have to dress differently for work than we were at home. You know,

sometimes they'd make us put on suits and stuff. But one of the benefits of that is everybody kind of understood that they were at work. And I think, you know, one of the things that that we see is that sometimes as companies grow, it's confusing, you know, it can be confusing like what behaviors at home are not okay at work. And what are some of the things that you see and how can HR help with that? So I think, you know, there's a couple of questions that come through a lot from our CEOs. Just one of them would be, you know, policy around dress code. And how do you, And to your point, people, especially when you think about some of the, you know, technical companies that have a little bit of a hacker mentality, like they're, it's, it's, it's a really

cool place to work. How do we make sure that it's still a place to do business? And so kind of setting the tone at the top as a company grows, we've had some of our companies that have started, you know, inside a house. How do you, you know, one of the issues that comes up there is, you know, I had a conversation with one of our CEOs who said, well, we really want to make sure that we're hiring females, but we're finding that a lot of them don't want to come and work at the house and live at the house. Well, it's, you know, congratulations, you're growing. You're becoming a big company or a bigger company, and you have to, you know, if you want to attract the talent, you have to start to evolve into a company that is comfortable for everyone that works there.

And so that's kind of changing the tone at the top and evolving the culture, figuring out what was what was important when you were all working in a house? And how do you maintain that when you move into office space? Right. You know, that's a really interesting point that you bring up that oftentimes if you have a super pronounced culture and you all live in a house together and kind of have a unique style that that can undermine your diversity efforts and can, and you can create an environment that doesn't feel inclusive to somebody who either didn't live in the house and isn't part of that group. So how does a kind of good head of HR help you evolve from a kind of tightly cohesive but homogenous team into a kind of broader, more diverse team? So I think it goes back to

how you, it still goes back to the type of talent you're attracting and kind of, you know, broadening what you're looking at when you bring people on board as well as your onboarding process. So once again, it's looking at everyone talks about culture, and it's looking at what was so incredibly awesome about when we were all living in the same place. And it's typically communication, it's having meals together. It's making sure that, you know, anything the founders are thinking is being passed on to the person that's sitting, you know, on the couch next to them. How do we, how do we move that over? And a great HR person will actually be able to dive in and figure out what are those four nuggets that are really critical to the culture and transfer that into an onboarding?

How do we onboard people? How do we get everyone understanding the vision that I, as the founder, have? How do we make sure that everyone is connected? And how do we do all of that while we transition into a bigger company? No, that's great. And, you know, one of the things that I think nobody ever believes that their company is not inclusive. Like, I've never spoken to a founder. It's, oh, no, you know, we're exclusive.

We don't let anybody in who's a woman. Like, that never actually gets said. And nobody ever thinks that. But then when you talk to women, you hear that all the time, that, oh, that's not a good place to work for women and so forth. And, you know, it turns out to be the little things. It turns out to be the way conversations flow. It turns out to be the kinds of jokes that are made or the kind of chat rooms that are available. inside the company. So can you talk about, you know, some of those little things that might make

somebody feel uncomfortable who wasn't kind of from the original core group? Yeah. So I think it's, you know, I don't even think that you, I think it doesn't matter, you know, male, female. I think it really, one of the things, and I think we went through this at Opswear and LoudCloud, there was a very tight group of people that when you first start a company, it's blood, sweat, and tears. go into that and you build this very solid, solid bond. And so I think it's, it is, there's everything that you touched on, it's kind of knowing all the history of the company and referencing the history of the company constantly when you're making go-forward decisions and not, you know, we see, I work with our CEOs to think about

let people bring new ideas to the table. Hear everyone's ideas, make people feel included. You know, include new people as you go. and do things on the weekends because you've been doing stuff together 24 by 7, include more people into those functions. As a CEO, make yourself more available. The people that you've been working with for the last two years feel very comfortable coming and speaking to you.

Go out and hang out in the break room and talk to people. It's being active in including people. And yes, as you bring on different people from different backgrounds, be conscious of what used to be okay to say might not be as okay to say now. How about on things like everybody talks about, oh, you know, the key in Silicon Valley is having the best people and we're all about the best people and everybody is going for the best people and thinks they have the best people and all these things. But how does HR help a company really both kind of build a company of the best people

possible and then know that they're doing that and not getting themselves on it. Right. So I think this goes back to having the right process. And I think that's one of the things many of our CEOs are like, we don't want to put too much process in place. But unless you define a process and understand what the best looks like, it's very hard to continue to hire against that bar. So really understanding and defining what different people's roles are in an interview process and making sure that you are diving into skill sets and cultural fit and all of those different things during the process. And then holding people accountable to actually evaluate the people they've just spoken to.

So many times I talk to, you know, heads of recruiting or CEOs and they say we get together and we do thumbs up, thumbs down. Everyone should always have mixed opinions on everyone that they hire. It's finding the best person and not everyone. and there's going to be give and take, but you want to make sure that that bar is, like, very, very high. And when you step away from a solid process, your bar starts to slip.

The second piece is measuring people's productivity. And that starts with the second process that I feel is so crucial to companies, and we're seeing more and more of our companies embrace this, is having the onboarding plan designed and ready to implement before you even make the hire. So it doesn't matter who you hire. The onboarding plan is the still same onboarding plan and being able to set objectives on day one and measure someone against those very solid objectives in 30 days and 60 days and 90 days and addressing a problem if they're not the best.

And so it is, it's the thing that everyone's always afraid of is HR comes in and puts process in place, but a great HR professional will help define how someone is successful in an organization and help them get there and then measure people on it. Right. And you've talked about that a bunch that, you know, HR can help measure what's going on with employees and whether you're getting the right ones and whether they're getting productive and I assume whether they're happy. How does HR kind of partner with the CEO and the management team to get to really good human metrics? I think, well, you have to each company, I think, is a little bit different. You have to determine what does a successful employee look like and how do we want to measure? them. You know, what is the output that we, you know, want to see from people? Are they a cultural fit? Are they working well with others? You know, there's some people that just aren't going to work well with others so why, you know, you might not, it's not something that should be deciding

if somebody is a great employee or not. But I think it's really about sitting down as a management team and determining what does the perfect employee look like in this organization. And then what do we put in place to measure that? And those can be, you know, it comes from setting clear objectives as an organization and then measuring people against those objectives that are set. Right. Right. That's really interesting. And, you know, one of the things that I hear a lot from CEOs who don't want to hire HR is that kind of HR is that kind of HR is synonymous with politics and rumors and gossip and all the things that you would hope. H.R. would help you prevent. And so there are a lot of people have come from organizations where

HR is sort of the problem with respect to that stuff as opposed to the solution. And so how do you avoid that? And why does that happen and how do you avoid it? So I, you know, first I will say I think that that is a reputation that HR professionals have brought on themselves in the past. And it comes from knowledge is power and HR folks a lot of times use that knowledge to kind of manipulate an organization. I think it's the same thing as hiring great engineers or product managers or designers. It goes back to knowing what you're looking for and hiring against that and referencing people and really understanding what they bring to the table. There are a lot of really crappy HR people in the valley and there's some great ones too. And it's a matter of like finding the great

ones that they want to partner to build something important. They don't want to just police an organization and use their knowledge to get things done in the organization. Right. And how do you go about figuring that out when you look at kind of a candidate for HR and you think about, okay, is this person really focused on improving the management quality of the company or, you know, becoming a world-class and having the best people who have the best employee life cycle versus, okay, I'm going to find out who likes who, what the complaints are, and then I'm going to use that to move myself up the organization. How do you kind of distinguish those two?

Yes, so when, you know, I interview a lot of the HR folks that go into our portfolio companies, and the thing that I really focus on is past experiences and what they've actually done in past experiences. So there's a lot of HR professionals that have not necessarily grow in a company. They've been at a company once it's large. And I think good HR people have really good domain expertise in certain areas, and they know how to get a job done. And so I focus on HR professionals who have actually rolled their sleeves up and really done something in the past, not just necessarily come from like a business partner standpoint. I think, you know, business partners and large organizations tend to, they don't fit well in growing an organization from the ground up.

So I kind of look at the background. I also really dive into with references. I think it's really, to me, references are critical for an HR hire and understanding not just executives that they supported, but talking to people and the organizations they supported to understand how they utilized their HR person. So I think more importantly, when you're hiring an HR person, it's understanding what they're really good at, understanding where they would need to hire to complement their skills, and then doing the references, not just with executives, but with people who use them to, you know, solve problems within an organization.

Right, right. And there's a whole another kind of part of HR which kind of gets taken for granted, but ends up being fairly important, and it's the part of employees care about a lot, which are things like benefits, payroll, 401K, health insurance, vacation time, all these kinds of issues, and which go also hand in hand with compliance. When you look at HR people and their skill sets and that, you know, stock option plans and all these kinds of things, what do you look for from a knowledge set in a philosophy standpoint to see if somebody really understands how to do a great job on the thing that everybody cares about, but nobody will ever say thank you for.

Right. So ironically, I think there's many, many HR people in the Valley don't have a lot of knowledge in that area. And so I do love diving into what people have done in those areas before. And I do think it's okay. An HR professional needs to understand. understand and be able to articulate a total compensation package that is given to employees and understand the importance of it, which are all the other things that you just reference that a lot of folks don't talk about. But, you know, I think it's, they need to know how to leverage external sources if they don't have great knowledge in it, but they also need to, HR professionals need to have an overall network that they can go to to really stay on top of what's going on in

the market, what is competitive, what's important to the employees, what are the trade-offs, what do we need to be implementing when? And it's not something that can completely be outsourced and forgotten about. And there are some, you know, HR professionals that just don't think about that side of the world. And they need to. Right. Right. Yeah. Employees care. They do care. Vacation is very important. Yes. Yes. The actual human resources care about it, even if the human resource professional does not. That's really interesting. So let's talk about kind of the you know the hardest you know some of the hardest parts of a company which are you know firings layoffs and lawsuits from employees and and at least you know and they tend to go together

in that if you if you do fire someone or if you do lay somebody off at least in uh in many states particularly in California your likelihood of getting sued is actually pretty high and so how does kind of HR help both the CEO on the kind of psychological part of that as well as the legal part of, you know, what happens when you have to make reductions or make performance decisions? Yeah. So I think they're, you know, two completely different situations. And I would say it is for founder CEOs, it's probably the first termination is one of the hardest things that they go through. I would say it doesn't matter if it's a reduction in force or if they're having to terminate someone who's a performance issue or for other reasons. It is, you talk about,

you know, the psyche. It totally, it's a hard thing to do. They feel, you know, when you're building a company, you feel like you're always hiring the best and you feel like once you start working with people that everyone's your friend and no one would ever do anything bad. So it's really hard when they're making their first termination. You know, it's about, I always remind our CEOs that it's about respecting an individual, whether you're bringing them on board or if you're terminating them, if it's, you know, performance-based or if it's in a layoff. It's all about respect because they are still an ambassador to your company when they leave. So if it, let's go with the first one. If it's a performance-based termination, you know, the first thing that an HR

professional would help someone who's doing this is to understand what feedback has been given, how is the feedback received, how did you continue to address performance? If you do that, you get to a termination, you know, 90% of the time the employee is not surprised. I always start a conversation with a CEO asking, is the employee going to be surprised? And when the answer is yes, it means that there's been no feedback. And this kind of goes back to culture. Most people do want their culture to be, you know, ongoing feedback as provided to folks. If you think about layoffs, it's also about very much, it's very much about respecting the individuals and making sure that as people are leaving the company, they are, you know,

treated with the utmost respect. I mean, you've referenced it. You laid me off once. Yeah, that was a mistake. But it had to do with, you know, understanding the contributions that people have brought to the table and making sure that they're valued on their way out. But I think, you know, the second piece from a legal standpoint, another thing CEOs hate to hear is getting an employee handbook in place. That is like the number one thing that will protect every company from any type of

termination and any type of lawsuit. And it doesn't have to change your culture. Right. Yeah. So, Shannon, thank you so much for this excellent discussion. You have been listening to the A16Z podcast. I am Ben Horowitz. Thank you very much. All right, A16Z podcast listeners, a little bit of background on what's coming next. We have a new friend of the firm, Divine,

who is a musician and an avid reader of Ben's blog and Ben's book, The Hard Thing About Hard Things. In all that reading, Divine was inspired to write a song, Venture Capitalist, which Ben caught wind of and loved. Up next is another original Divine. piece, which he wrote exclusively for this podcast. It was produced and mastered by our own Chris Lyons. So check it out. Let us know what you think. And most of all, enjoy. Bitcoin slurs. Software eats the world. It's just the internet of things. What's the next biggest thing in this tech industry? Get your entrepreneur on. You start on the startup? Better get your smarts up. Ben Horwich.

This rally in Silicon Valley. Which VC firm that got the best burns throughout Norman Cali? Entries and Horowitz. Podcast, do all of this. If you want the best hunch when you're trying to tech crunch, 816Z.