Labcast: Startup CEOs — Who Should You Hire First?

Happy holidays everyone! In our latest podcast, Oren Michels, co-founder and CEO of Mashery, stops by the Labs to chat with OpenView Founder Scott Maxwell. Mashery is an API management provider with offices in San Francisco and New York, and in this episode, Scott asks Oren about his experience of starting the company from scratch and the team-building lessons he learned along the way.

Labcast 57: Building Great Companies and Teams with Oren Michels

For more insights from Oren and the rest of the Mashery team, visit the Mashery Blog page and follow them on Twitter @Mashery.

Podcast Transcript

Brendan Cournoyer: Hello again everyone and welcome to this episode of Labcast. I’m Brendan Cournoyer. Today we’re joined by OpenView Ventures founder Scott Maxwell and Oren Michels, CEO of Mashery, a leading API management provider. In today’s episode Scott asks Oren about some of his best and most proven strategies for building great companies. Here’s Scott and Oren.

Scott Maxwell: Hey Oren, thanks for coming in.

Oren Michels: Good to be here Scott.

Scott: So I was thinking that maybe we would spend a little time today talking about your experiences and philosophies and thoughts associated with company building, does that sound all right?

Oren: That sounds great. I love building companies.

Scott: So take me back to the beginning of either your current company, Mashery, or any company, and how you think about assembling the founding team and how do you get started?

Oren: A couple of things. First of all, any founding team, in my experience, needs to have three distinct roles, which should be three distinct people involved. You have a commercial person who decides how you’re going to sell what you’re doing, you have a technical person who decides how you’re going to build it and you have a product person who decides what you’re going to build. These roles are by necessity in conflict with each other. If one is out of balance bad things happen and you can sort of look at companies and see what happens there.

Starting with that, what you don’t want to do is start with three product people, but starting with that concept, so if you have a group of people who trust each other and love to work together and can fulfill those roles, and fulfill those roles also without really getting in each others way in the sense that the technical person really shouldn’t also be moonlighting trying to make the product person’s decisions and vice versa. You really need to have people focus on what’s important, because if you had time for everybody to go do everything you wouldn’t need more than one person.

So you start with that founding team. Usually the CEO is the commercial person, but not always, often it’s the product person. As the founding CEO you really only have one privilege and that’s you get to decide who you hire next. My experience has been on day one you start the company and you have the entire pie. On day two when you bring in your first co-founder you cut that pie in half and you decide which stuff you hate doing or that you suck at and you give that away.

In my case, it’s a lot of HR stuff and my co-founder Kirsten Spoljaric has been someone I’ve worked with for many years on that and that’s pretty obvious, I don’t want to do anything which she’s not involved in. You go from there. You begin dividing yourself in half and we got a great technical co-founder in Clay Lovelace and then very quickly hired our first outside non-founder, but fairly early, executive who was someone on the product side, because that was the area we needed the expertise in. So you move along that way and then you start building the team and under about 10-15 people I would tend to hire great, really smart capable people. I would have a job description in mind. They might not be absolutely perfect for that, but they’re smart and they will work hard and they believe and they want to get it done. You sort of hire great people and fill in the roles more than you hire the person whose resume matches that role. That works until about 10-15 people and then you sort of have to move in the opposite direction. You really have to hire people to do the roles you need and you’re sort of turning into a more professionally organized company that way.

Scott: And how do you decide when you get to the 15-20 person point what roles you need most? Is it kind of what keeps you up in the middle of the night?

Oren: Yeah, partly, it’s who’s burning out. It’s where are your single points of failure, particular we’re in an enterprise software game essentially. We have a lot of big customers and even by then we started having a bunch of big customers and there things that if X person was asleep or on an airplane or whatever that the world would screech to a halt until that person was available, those are places you really want to start making sure you have some depth in. You also look of course at the things that aren’t getting done, that get more and more annoying because they’re not getting done, but you yourself can’t do or don’t want to do and you hire in those areas. It’s really what’s going to advance the company. For me at that stage it’s pretty tactical. It’s whackable, it’s getting things done that need to get done and then more staff helps out.

Scott: What do think about, once you get to the point where you start hiring more specialized people, do you hire senior level and let them fill in their teams, hire mid-level?

Oren: Yeah, it’s my preference to bring in people who are strong. They’re executives, but also will do the stuff until such a time as they then start with their pie and begin dividing it in half, so you get someone who’s a great executive and they decide which parts of their world they want to split off and have different people do and what they think they’re good at and what they think they’re not and they’re running their organization at that point and hopefully they’re better at it than I am.

If I’m going to bring in for instance, a VP of product and I’ve already hired all the product managers that would presume that I think I’m better at running product than whoever I’m hiring for the VP and then there’s really little point in hiring that person.

Scott: Right. Right. We run into a lot of companies that have formed that don’t have product broken out from engineering.

Oren: Yeah, that’s a problem.

Scott: I expect there’s a lot of people who will listen to this discussion and have that situation.

Oren: Roll their eyes. Yeah.

Scott: I’m sure you run into it as well because you advised a lot of companies.

Oren: I hired a VP of product fairly early on and I told him I don’t actually know what a product manager does. I really had not been in an organization with well run product before and while running Mashery I’ve learned what a great product manager, product management team, product function is. Ultimately, the product person is deciding what gets built and in what order and what the priorities are and how it’s going to look. When that is run purely as a technical exercise you often run into a situation where either the technical co-founder is trying to solve a problem they’ve had in a way they like it done, which may or may not be what the market is, because many technical co-founders have pretty strong opinions, or they optimize for improving things, making things more elegant, not getting something ready to launch, which as the commercial guy it’s infuriating, it’s very frustrating to believe you’re ready to sell something and your technical guy is sitting there futzing with details that don’t matter.

Someone has to prioritize, someone has to own that. It’s a very hard thing for the technical people to give up because many times a technical person and a commercial person together will start a company to solve a problem that they had, which is actually what happened at Mashery. I had an API management problem and I couldn’t find a way to solve it so I started a company. My technical co-founder was the engineer who had that problem at our previous company. We learned pretty quickly that we are not the only target market out there and if we limit that to ourselves we’re not going to have a very successful company, so we brought people in who had broader experience in selling these kind of markets.

Scott: You have a pretty unique situation with Kirsten as co-founder and what she brings to the table now as you grow and a lot of CEOs, you’ve got companies that get larger and larger and starting to get consumed with more management activity than outside activity or internal kind of trying to solve meaningful problems. Can you just talk to that?

Oren: First of all, it is interesting the situation I have with Kirsten because she compliments strengths and weaknesses that I have. I remember when we started Mashery and we had a couple who looked at investing and they thought it was a little unusual. What do you have an HR person for when you have fewer than 8 people in your company? I would say, I find that having her on the team makes it a better place for everyone and allows me to recruit and build a better team. Some would say well isn’t that the CEOs job? I would say, well the CEOs job is to do what they’re good at and delegate what they’re not and you can pretend that you should be good at that, but when you have someone who’s better at it than you, then the CEO can go do things that the CEO is good at. So I would probably be stronger on the financial side and the legal side, things like that, because I’m not spending my time doing that.

As the company grows it becomes a lot about culture and a lot about fit and when you’re hiring people or you’re retaining people, a great person in that function anticipates things so you don’t end up blindsided by people who are suddenly unhappy about something or not being compensated or whatever it is, because someone who’s really good in that position has anticipated it, has already come to me and said hey, we have to reassess this comp or we have to give this person some time off or we have to bring in some assistance in this area because although they’re never going to tell you that they’re underwater, they’re underwater and they’re going to burn out if we’re not careful. Understanding that and managing ahead of it is what a great HR person does.

Scott: Right. Would you recommend an HR person to emerging growth companies or do you think your situation is more . . .

Oren: Oh, absolutely. Not only would I recommend it I would say that people too often look at HR as, there are a few functions that they’ll separate out, well we don’t really need benefits management so we’ll use [Trident 10:27] or someone like that. Fine when you’re tiny, but it doesn’t scale well. We’ll use outside recruiters. Actually, someone has to manage the outside recruiters. Outside recruiters don’t hire for culture. They’re an extension of what your great HR person does. We have a terrific outside contract recruiter we use and she’s been terrific and found a lot of great people and in some ways is able to recruit positions and has been that we were having trouble with before she was working with us, but that doesn’t mean that she understands the culture the way that a founding HR person does. I think that once you’re past, maybe we were early in that Kirsten is an actual co-founder, but once you’ve got double-digit number of employees and especially if you’re trying to hire, you hire a whole lot better when you have someone who’s focused on that.

Scott: Right. That’s good feedback. What about the finance function, which is another one.

Oren: You play to your strength and you see what the issues are. We have over a hundred customers. Most of us customers pay us annually in advance or in some cases the older customers are paying us quarterly. We have payroll that’s largely handled by Kirsten, it’s automated. I sign checks once a month, maybe twice. Finance is not that much of a function for us. We’ve done it with an outside person, we have an internal full-time accountant doing controller and paperwork stuff, but when it comes to the CFO issues, historically we’ve done it with a great person who came in one day a month and closed and did stuff. I was doing financial projections, I was doing modeling, I was raising the money and I was doing the reporting because I knew how to do that. Again, you look at your strengths and I would prefer to put those dollars in places where I didn’t have the time or the strength to do it.

Now we’re bigger. We have bigger and more sophisticated investors, bigger and more sophisticated customers. We actually have big customers who want to make sure that we are managing that way. We’re going to start doing auditing of financial statements. Now our outside CPA is about a 20% commitment now, she’s in at least once a week. We now have two people, a full time and a part time in the accounting department. That’s about what we need, but it depends on the company. Companies that have large volumes of financial transactions, companies that have significant regulatory issues, companies that have a lot of cross border stuff, it’s going to be very different. It’s kind of like net ops. If everything is in the Cloud and you never have service to rack you might need a sys admin for a while. If you’ve got a bunch of hardware in a cage you’re going to need a sys admin, so it really depends on the company.

Scott: Right. So match up.

Oren: I think our case we had a more simple version of it just by virtue of the fact that we had fewer customers with higher dollar amounts purchased.

Scott: Great. So looking forward three, four, five years, how many people do you think you’ll have?

Oren: Well we’re about 70-some odd now and that’s about double of where we were last year. I would say three-four years out, hundreds but probably not thousands.

Scott: It sounds good to me. Well thanks for coming in. It was great talking to you.

Oren: Thanks for having me. Likewise.

Scott: I really appreciate your ideas.

Oren: Any time. Thanks for everything.

Scott: Talk to you later.