Keith Rabois has helped build some of the most important companies in Silicon Valley including PayPal, LinkedIn and Square. In this session from First Round Capital CEO Summit, Rabois shares what he believes the role of a COO is, how to find the best talent and convince them to join your company and why radical transparency matters. The article below is not a transcript of Rabois’ talk, but rather an interpretation. To hear his talk in full, watch the video at the bottom of the page.
During Keith Rabois’ first week at Square, Jack Dorsey asked him to deliver a speech to the company about what exactly he would be doing as the chief operating officer. Square was just 20 employees at the time, so it wasn’t clear what a COO would or could do for such a small company.
While crafting what he would say to the team, Rabois developed a simple metaphor for the role of a COO at an early-stage company: an emergency room doctor. Just like in the ER, there’s always something broken at a start-up, it’s incessantly chaotic. There can be issues that seem to be just a cold, but they can actually be fatal if you don’t address and fix them early on. Also, there can be other kinds of issues that seem to be serious, but in actuality they’re just everyday colds and they’ll clear up on their own.
The same types of situations exist on the pure business side at any startup. There are opportunities that may look really interesting and potentially compelling for the business, but they’re really just a distraction. Conversely, there are things that look like a distraction, but they could actually turn out to be really important and just might be gems. The hard part of scaling is how to figure out those things and to find the truth in all of it — that’s the job of the COO. You’re constantly fixing things. You assess a problem or opportunity, fix it, put concrete down, leave it stable, then go on to the next thing. Then, over time, if you lay a foundation and everything’s fixed, you can build on top of it.
Getting leverage as an entrepreneur is all about hiring the right people. That sounds easy, but it’s actually really, really hard.
At the very first board meeting Vinod Khosla attended he said, “Ultimately, the team you build is the company you build.”
At a startup, you can be tricked into thinking you’re building a technology company, so you focus a lot on the product. But ultimately, you’re really building a team to build the product and then the company.
It is the team you build that will dictate the outcome. This belief should lead you to focus more on the quality of the people than anything else.
If you think about people, there are two categories of high-quality people: there is the ammunition, and then there are the barrels. You can add all the ammunition you want, but if you have only five barrels in your company, you can literally do only five things simultaneously. If you add one more barrel, you can now do six things simultaneously. If you add another one, you can do seven, and so on. Finding those barrels that you can shoot through — someone who can take an idea from conception to live and it’s almost perfect — are incredibly difficult to find. This kind of person can pull people with them. They can charge up the hill. They can motivate their team, and they can edit themselves autonomously. Whenever you find a barrel, you should hire them instantly, regardless of whether you have money for them or whether you have a role for them. Just close them.
In addition to trying to hire all the barrels you can, at a startup every marginal person you hire should be relentlessly resourceful. There are people who are just better than others at getting things done, and those are the kind of people you need in large numbers early on.
If you can build a team that’s barrel-heavy and is relentlessly resourceful, your job as the leader of a company is really to just be the editor — a concept that Jack Dorsey has now made mainstream. Every time you do something, you should think, “Am I writing or am I editing?” You should be able to tell the difference immediately. It’s okay to write once in a while, but if you’re writing on a consistent basis in marketing, or in legal, or in product, or business development, or whatever the case is, there’s a fundamental problem with that team. Get into a position where you are editing all the time.
The analogy of an editor is great, because what an editor does is not the work product. Think about a reporter. The reporter writes the story. The editor may ask clarifying questions. The editor may simplify and extract things, edit things out or leave things in, or occasionally reorganize things that require follow-up. But, fundamentally, editing is the role.
At a startup, you want to hire people who share your principles. If you don’t agree on these basic building blocks, you wind up getting into infinite loop arguments that impede execution.
Once you have people who agree on these first principles, then diversity in thought and background can create a lot of value — and it’s probably worth optimizing around.
When Rabois was building PayPal, they took this mentality to the extreme. It was basically impossible to get a job unless you knew somebody currently working at PayPal. They just hired out of their own networks, which ended up working really well because they were able to tap into people who were a little eclectic, idiosyncratic and slightly different — who were the perfect fit for PayPal.
When most people think about hiring, they often say (using a baseball analogy), “I would love to hire a third baseman who bats .320, hits 40 home runs, 120 RBIs and who's won a Golden Glove.” Truthfully, there are two people out there who have done that, and everyone knows who those people are. If you think you’re going to hire them in the early stages, you’re just kidding yourself.
You’ve got to define what talent looks like for your company in a way that you can actually execute against and make happen. For Rabois, this means you often hire people who are a little less proven and take a chance on them. If you think someone could one day bat .320 (maybe in a few years) but just hasn’t had the chance yet, hire that person because once they do bat .320 you probably won’t be able to.
At Square, Rabois did this via a large intern class. The company's last intern class was about 17, and the top four interns were probably on par with the top 10 to 20% of Square’s full-time employees. Those were a group of incredible players who just haven’t had the chance to bat .320, but most likely will in the near future.
The one obvious challenge with this approach is that you need to become really good at identifying undiscovered talent. However, there are a few leading indicators which Rabois has found to work incredibly well:
The candidate can relay incredibly complex ideas in simple terms.
The candidate can see things you don’t see. Even within topics you’re fluent in, they’re able to convince you of new points of view or make you realize you’re missing something.
They’re relentlessly resourceful. There should be things in their history, whether it’s on or off the résumé, which conveys that they’re able to make things happen, against all odds. If there is a wall in their way, they’ll go over it, under it or become friends with it. They just make things happen and leave you wowed. Any time you have that “Wow!” kind of feeling you need to just hire the person.
They’re often contrarian. Peter Thiel now has popularized a way of figuring this out. He asks, “Explain something that you believe, that everybody else believes is wrong.”
At PayPal, Thiel had a philosophy about managers — essentially, he didn’t believe in them. He didn’t place any value on people who were traditional managers. His real belief structure was that whoever is best at a particular discipline should run that discipline. So, whoever is the best product person should run product, whoever is best in engineering should run engineering, whoever is the best businessperson should run the business, etc.
What this means is that you actually have a merit-acquired culture. You don’t frustrate junior people because they know that the person leading them is better at their job than they are. That said, there are a number of situations where this methodology can break down. The actual skill of management can be challenging and isn’t intuitive for everyone — so you might wind up with an incredible engineer from a technical standpoint who struggles with managing people.
In a broader sense, you can often figure out if your team is functioning well depending on where they are relative to where they’re supposed to be. This might seem obvious, but if you have a team that’s six months to one year behind where they’re supposed to be, you have a huge problem. If they’re just in time, and they’re exactly where they’re supposed to be, then you’re doing okay. But if your team is six to 12 months ahead of where they’re supposed to be, you know you have a team that’s running on all cylinders — and you should be constantly searching for that kind of execution.
Simply ask yourself, “Is the team behind, just in time, or ahead?”
In the early days of Square, transparency across the organization was taken for granted. It just seemed obvious to both Dorsey and Rabois that is how you build a high-functioning company — you make it incredibly transparent. Ultimately, if you want people to make smart decisions, they need context and all available information. And certainly if you want people to make the same decisions that you would make, but in a more scalable way, you have to give them the same information you have. Complete information also helps reduce the politics in an organization. One of the key drivers of politics in an organization is information asymmetry.
At Square, everyone has access to all available information. Dashboards are distributed throughout the organization. All of the conference rooms are designed with glass, so there are no secret meetings. In addition, every Friday there is a full company meeting for an hour, and the most recent board deck is reviewed slide by slide. The only things removed are salary and option information, but Rabois has often wondered if it would be a more effective company if that information were to be shared too.
When Square raised capital in the past, they talked to the company in advance of the fundraising process to share the terms they wanted, who they were talking to, and if they got a term sheet (even if it wasn’t signed).
Even during the negotiation of the highly secretive Starbucks partnership, the hundreds of Square employees were kept in the loop throughout the entire process. CEO Howard Schultz came for an all-day meeting with the leadership team at Square on a Friday and, that evening, long before the partnership was signed and announced, Dorsey came on stage with a big Starbucks logo in the background and shared that they were working on structuring a partnership.
This kind of transparency builds a true ownership mentality and instills trust across the organization. Ownership at companies is now almost a cliché, but if you really believe in it then you need to live it and share everything possible with as many members of your team as you can.
Most opponents to true transparency argue that you can’t trust everyone in the organization with highly sensitive information. In Square’s early days, Dorsey shared with the team his desire to create radical transparency and told them this would be a privilege, and that they would be able to do it only as long as everyone respects confidentiality. He continually has everyone make the commitment to each other and all of their families as he believes that their future livelihoods depend on it. So, if anyone does anything stupid, they’re actually threatening their friends, their family and everything they’ve worked for.