The Social Contract Between Employers and Employees

Having the right culture is one of those funny things where "you know it when you see it" but its very hard to define its exact components and characteristics. When the right culture is there folks are more trusting, more open to failure, and more open to admitting their mistakes. Everyone aspires to this and I don't think I've ever been at any startup where the management team didn't say "Our employees are our biggest asset." Unfortunately, I think the fact that this sort of rhetoric is so common is the reason why so many more experienced employees are often so jaded or so cynical about "culture". I'm sure we have all seen or heard of instances where folks put their hearts and souls into a project or company only to be "let go" years later for reasons outside of their own control.

What is the company's obligation in these scenarios? We all recognize that the days of "lifetime employment" at an AT&T or IBM are long gone, but yet we still insist on our employees being as passionate and loyal to our companies as they were before. It doesn't seem unreasonable that if an employee is expected to be passionate about the business and a true "missionary" rather than "mercenary" for the business (see John Doerr's description), that the business shows the same loyalty and passion for the employee. Unfortunately, the reality of business is that risks are taken and sometime those risks don't pay off. In those situations, it is the company's right (and frankly its duty to shareholders) to cut costs, reorganize, and remove parts of the company that no longer make business sense to maintain. However, even those these actions may be correct from a business perspective they are sometimes viewed as being a violation of the "implicit contract" that employees agreed to when they joined. Although, employees all verbally acknowledge the fact that joining a company has its risks, no one ever really thinks that the risk will affect them.

The net result is that remaining employees might be reluctant to invest as much emotional capital into the company and the company loses some of the "passion" of its employees.

I wonder if a way to avoid such a situation is to make that "implicit" agreement of loyalty more explicit early on in a company's development. Instead of asking for employees trust and passion early on in exchange for employment, my hypothetical best case wish would be for companies to make the following commitment to employees:

"We expect every person that comes to work for our company to give 100% of their effort, energy, and passion into their job. While we cannot guarantee employment, we can commit to spending the time and resources necessary to help every individual to improve and better themselves in their jobs and their daily lives. While we cannot promise a growth path for every employee we commit to providing the time and resources to help every individual prepare themselves for the next role in their careers through education, skill development, and experience - whether that job be with us or with someone else."

Along with this commitment every employee would have the following perks:

1. An annual education budget of $5,000(?) to spend where they wish
2. An internal job sourcing / career planning office to assist folks in finding career paths either inside the company or out (embrace employment choice not turn away from it)
3. An official mentor program for providing job/performance advice that is not tied to salary
4. A quarterly 360 degree review for every employee - conducted anonymously and quickly through an online polling mechanism so that every employee gets constant feedback as to how they are perceived at work.

I have no idea if this is realistic (or if its only applicable to the incredibly rich companies out there like Google) but my sense is that if there was something like this in place there would be a lot of potential benefit for both companies and employees. Some things that I think would happen:

1. Employees would be encouraged to use their education budget (sometimes this is offered but privately discouraged) which would provide a constant flow of new ideas and new learnings into the company,
2. Issues within the company would become more transparent to the career sourcing group (folks don't have to be sneaky about interviewing with other companies and would be more open about knowledge and skill transfer in the interim)
3. Employees that leave through the company's job sourcing program would become motivated "alumni" with a strong positive emotional attachment to the company,
4. Poor performers are mixed in with others in the job sourcing program and managed out with relatively little drama
5. Employees that stay are more committed because they are constantly making the conscious choice to stay at the company - reinforcing their commitment and passion
6. The mentorship program would reinforce the idea that mistakes are okay (as long as you learn from it)
7. Quarterly anonymous review would provide peer feedback to employees (which is often more valued than manager feedback - playing more into the "do folks respect / like me?" rather than the "my boss thinks...")

Didn't spend a whole lot of time on this one :) but thought I'd write it down if only for my own benefit so that I can choose to implement it one day (or not).

Advertising Value Chain 201: Why Google Dominates and Why Facebook and MySpace Need Applications to Monetize

So, I ran across an interesting post that covers the basics of the Advertising Industry Value Chain by Ian Thomas at Microsoft (thanks to another post by Mike Nolet). Its a good advertising 101 summary of the players involved. I thought I'd expand a bit on the Advertising Value Chain 101 bit to illustrate how I think about value chain analysis which will then (hopefully) help illustrate why Google dominates, why agencies will continue to play a part in the ad value chain, and why Facebook and MySpace absolutely need applications to monetize better.

Here's what I will be trying to show in this post:

1. For publishers - advertising captures value, but does not create it
2. For advertisers (or marketers) - advertising creates value, but does not capture it

My supposition is that knowing where you are in a value chain is critical to understanding (or in some cases discovering) your business model.

(One side note - I'll use advertisers and marketers somewhat interchangeably in this post but in my mind they are slightly different. An advertiser is anyone who buys advertising. A marketer is someone that uses advertising to create demand for a product or service.)

The Publisher Value Chain

Let's start by looking at an extremely simplified value chain for the publisher and focus on where value is created and where value is captured.

A publisher of any sort (online, radio, TV, magazines) creates value by aggregating a specific type of audience that is attractive to a set of advertisers. Each publisher's audience has an inherent maximum theoretical value based upon that specific audience's willingness to engage in commerce-enabling activities. Some portion of this theoretical value is reflected within the publisher's CPM value (for a breakdown of things that affect CPM and theoretical value - check out Andrew Chen's blog here). However, while a publisher can capture some of that value through a direct sales force, they typically need help in finding and servicing other advertisers that help them monetize their theoretical value.

Between the advertiser and the publisher there are a bunch of potential folks that assist publishers in capturing some of the value they have created by facilitating the transaction. In exchange, they keep some of the value created for themselves. Facilitators include ad-technology players like Tacoda and Revenue Science and ad networks like Ad.com. (I don't include agencies in this list for reasons I will go into later)

Finally, a marketer is willing to pay to reach some of the audience which helps transform some of the theoretical value that a publisher has accumulated into real dollars.

Some take-aways:

• Publisher Value is Set by the Audience (Not by Technology)
  

If you run "Guns N Ammo" magazine, no amount of technology is going to enable you to attract advertisers from "New Republic" magazine. Your audience is what it is - you can choose to change your audience by publishing different content but their value is fixed.

• Realization of Value Comes from Being Able to Reach the Right Advertisers.

Your theoretical value is set by your audience's maximum "Willingness to Pay" for a set of products and services. "Willingness to Pay" is a product of both your audience and the context of the audience (whether they are in interest or intent mode - Andrew Chen talks about some of this here). Realization of that value comes from being able to match your audience with the advertisers that can extract the most "Willingness to Pay".

• The Broader, More Fragmented Your Audience is the Harder it is to Reach the Right Marketer

If you run "Guns N Ammo" chances are your best advertisers are those folks that sell guns and ammunition. If you are MySpace and are working with billions of impressions per month then you have a tougher problem. You can use technology to find and isolate high value audience segments (cherry picking) but that still leaves the majority of your billions of impressions unsegmented. As nice as it is to have a billion impressions there are very few marketers in the world willing to pay top dollar for a billion broad impressions (I'm not going to get into the pageviews / unique problem as that has been covered far better than I could by Mike). Again, if the majority of your audience has a low "Willingness to Pay" then the only way you can change that is by changing your audience or the context of the audience.

The Marketer Value Chain

Mike Nolet had a post that talked about the value chain and how folks in advertising will typically put the advertiser first and show how money flows out of that spend. Although I am on the business side, I tend to start with the publisher myself. Publishers create value and a bunch of other folks help them realize that value. However, I do think that there are multiple points of value creation and value capture within any industry. In the case of advertising, I think it might be more useful to think of it as two different value chains that are connected. The Publisher Value Chain shown above, and the Marketer Value Chain shown below.

The reason why I like to separate the two value chains is that any one company can be both a publisher and a marketer and seeing those strung along together in one chain gets too confusing. It makes sense though because any good publisher still needs to build brand and awareness of its product in order to continue to aggregate the strongest most desirable audience (just think about how much money ESPN spends on building its brand). Successful marketing creates value by developing Demand for products and services above and beyond what those products and services could garner on their own.

Successful marketing is a big reason for why Coca-cola is able to charge a premium for carbonated sugar water and why Starbucks is able to charge $4 for a coffee. It enables these companies to create value beyond the inherent product or service and hence, allows them to ultimately capture more value from an audience segment than the price they paid to reach the audience. Here's how I see the value chain (which is a bit different from how other folks would show it)



Within this value chain, the value is created by the marketer through the products and services themselves coupled with the marketing campaign. Those products and services have an inherent margin that represents the utmost theoretical value of that combined bundle of products, services, and marketing. Marketers try to increase that theoretical value by targeting the right audiences, increasing the perception of value (and the willingness to pay of consumers), and (of course) by delivering a product or service with real value.

In order to find the right audience and deliver the right message to audiences, marketers will hire agencies to help them create, manage, and track campaigns to reach audiences. Some agencies help marketers create value by developing the actual strategies and ad campaigns needed to drive demand. For their services, these agencies (which include large agencies, and SEMs) extract a bit of the value they help marketers create or capture.

Once the audience has been reached there are usually another set of Facilitators that help the products and services get distributed to the audience members who decide to consume the product or service.

Combining the Two Value Chains

So, if you know where and how other folks are getting paid then you
understand where the risks and gaps are in your business model.

• Marketers Create Value Through Advertising but Capture it Elsewhere
  

While Marketers help publishers realize value they only do so because they believe they can create and/or capture more value down the road. Marketing is not meant to be a "Get out of Jail Free" card for the publisher to enable them to monetize the value they have created, unless we are talking about bad marketing (let's not forget the dotcom boom and crash and all the bad marketing that went with that).

• Publishers Can Be Marketers Too

There isn't a set sequence to these two value chains. You can very easily have a publishing company like ESPN that creates tremendous brand value through marketing first and then captures it through publishing later.

• Companies Aren't Restricted To a Single Point on the Value Chain
  

You can also have a publishing company like Google create tremendous value through a search audience and then capture even more value by being a market facilitator (through Google AdSense) between long-tail publisher and advertisers.

• Creating the Most Value Doesn't Mean You Capture the Most Value

Even though publishers can create a tremendous amount of value, it doesn't necessarily mean that they are best equipped to capture that value. To continue the previous point, this is the beauty of Google's AdSense program. Google can aggregate a ton of high-value niche sites that don't have the scale themselves to attract the right advertiser. Those sites are creating a ton of value by aggregating a high-value niche, but they aren't able to capture that value because they don't have the scale or the sales force to reach the marketers with deep pockets.

Competitive Strategy

Understanding where your company falls in the value chain is a core component of understanding your competitive position relative to the other players in the industry.

Once you understand where power is created and how it is captured some of the industry dynamics become a bit easier to understand.

This value chain analysis gives you a bit of insight into the questions I mentioned in the title:

1. Why Google is so powerful: If all value is dependent upon the initial quality of the publisher then the company with largest, highest quality audience will have tremendous power.

Search is by far one of the highest quality sources of audience and Google dominates search. This gives them tremendous negotiating leverage when working with facilitators in the value chain. In fact, it gives Google so much leverage that they can move down the value chain taking over more and more of the "facilitation" role (thus capturing more of the value they create) without losing business (because the facilitators have no leverage, and marketers are willing to keep paying).

2. Why the Top Ad Agencies are so powerful: The top agencies can aggregate the largest amounts of marketing dollars because they are helping the marketers to create value through advertising. The best agencies are those that control some aspect of the marketing value creation process.

3. Why Facebook's and MySpace's investment in Applications makes sense: Both Facebook and MySpace need to inherently change there Audience profile. Investing in applications does a few things to help:

• It changes the context in which members interact the site - allowing for more intent driven applications (Where is the Facebook Shopping App?)
• It helps audience members self-identify their interest in more natural and measurable ways (Getting usage data on "I like movies" Application signifies more interest than just seeing "I like movies" in a profile)
• It changes the audience mix - new applications attract new users (that are hopefully more valuable)

My personal feeling is that Facebook is inherently more appealing to a more valuable audience segment and so has an advantage over MySpace. (Total aside: since LinkedIn supposedly has a $70 CPM, if they aren't already doing it, Facebook should sell a campaign that targets LinkedIn users on their site - I see a bunch of LinkedIn applications on Facebook already)

In any case, hope this was useful. Comments welcome!

3 Ways to Scale an Advertising Business

I thought I’d try to tackle the “how to obtain scale in advertising” from more of a product development / product strategy standpoint. This is pretty basic though, so probably more geared for folks that haven’t spent a whole lot of time in advertising.

How to Get Scale

This is (perhaps) obvious, but I think there are three basic ways to get scale:

1. Build it
2. Buy it
3. Borrow it

Although not mutually exclusive, companies need to choose one of the three to focus on in terms of competitive differentiation. Each direction requires a slightly different mix of products and has a slightly different customer base.

Build – Focus on attracting your own audience. (e.g. build a media business like CNN, WSJ)
Buy – Aggregate or acquire audience by buying on the market either directly or through rev share (e.g. Ad Networks)
Borrow – Aggregate audience by “borrowing” or trading for traffic with sites that already have audience through building features or providing technology. (e.g. Build Facebook Apps, or provide search technology to Yahoo and AOL a la Google and Overture)

The "correct" answer on how you should attack the scale problem will depend on a host of factors including the evolution of the advertising ecosystem in your industry (i.e. dynamics are different if you are in mobile vs. internet vs. tv), your competitive advantage, and the relative strength of the other players in the space (in typical 5 forces fashion). Your decision should impact how your product development team prioritizes its product queue.

Building your own audience is probably the riskiest route but potentially gives you the most option value. Owning an audience lets you expand into “Buy” or “Borrow”, but the reverse is not as easy. If this is your focus, you should be heavily weighted towards consumer-centric features and products.

Buying audience requires a large existing market and a pre-existing network of buyers and sellers (doesn’t quite exist on mobile yet for example). It also requires a larger budget, but if your analytics are good enough the risk isn’t actually that bad (there are a surprising number of ways to arbitrage ads). If this is your focus you should be heavily weighted towards metrics, analytics, and integration with multiple parties in order to find and exploit market inefficiencies quickly.

Borrowing audience requires some technology advantage or asset on your part to exchange with the large players that have audience (like the carriers). Working with large players also requires longer sales cycles so you may be looking at a deeper and longer “J-curve” than for other routes. If this is your focus, you should be heavily weighted towards building technologies that integrate easily with the top players.

Again, these three paths aren’t mutually exclusive, but if you look at your development resources and they are split evenly between all three, you are most likely unfocused and spread too thin. In addition, the investment criteria and early success metrics tend to be different depending on which way you attack the scale problem. My preference is to choose one direction and try to knock it out of the park, although its certainly possible to do two (like Google). In those cases, though, their “Borrowing” technology is usually an easy offshoot of their consumer “Build” site.

A big part of your decision will be around the type of audience you want to try and aggregate. As Andrew Chen has noted, CPM values will vary a lot based on who is using your site, where they are located, and whether or not it’s a niche focus. The minimum scale you need in terms of pageviews is inversely-related to your CPM, so for modeling purposes spend the time to get a realistic CPM value for your audience. Once you have a realistic CPM, you can figure out the minimum scale you need with some simple math:

Just take your monthly target burn rate (let's say $1M) divide it by your expected CPM and multiply by 1,000

So let's assume your burn is $1M
Let's assume you figure out your CPM is going to be around $5

$1,000,000 / $5 CPM * 1,000 = 200 M Impressions / Month

Then your minimum scale for becoming an "ad-supported" business is around 200M impressions per month.

There are a couple of things to think about when you calculate your minimum scale and start thinking about your likely advertisers:

1. The more unstable your source of impressions the more unlikely you are going to get the big budgets. Advertisers (whether they are direct response or not) still need to plan their spend, which means if they allocate $30k to you they want to make sure you use it at the ROI they expect.
2. The smaller the average budget the more automation you will need (and your development costs might go up increasing your burn, and consequently raising your minimum scale number)
3. There is generally such a thing as a minimum budget for advertisers. For most companies spending less than $5k / month on your site may not be worth their time - unless you happen to be aggregating a very unique audience.
   

I'm skipping over a few things, but at the very least at the end of this exercise you have a better idea of what "scale" actually means relative to your idea, your company, and your industry. [As a total aside, I believe that most folks understand that advertising needs scale, but most don't really grasp the magnitude. It’s sort of like the fact that there are more stars in the universe than individual grains of sand on the earth (some math on this here) or the fact that life on earth has been evolving for potentially 3-4 billion years. One can hear the number, but the entire concept of a “billion” anything is a hard one to get one’s head around. It’s a similar thing when someone says, “Google served 5.9 billion queries in February”. The scale is so massive its almost incomprehensible and meaningless - especially if you are just a small startup trying to make $1, let alone $1,000,000,000. Jeremy Liew covers some of the math here and Mike Speiser correctly points out "The legions of entrepreneurs out there should appreciate just how MASSIVE you need to come in order to build a big advertising-based business.”]

One thing to watch out for: when you are doing your modeling don’t make the mistake of thinking that your ad technology can change the inherent value of the audience. I have yet to see any ad technology alchemy that can make online lead (broad social networking) into online gold (search) (although there is technology that lets you find the gold among the lead). So, if you have assumptions in your model that say "the social networking avg. CPM is $0.30, but my average will be $0.60 because of technology" - well, I would be wary of that. (More to come on this topic later)

A lot of how you decide to split your resources depends upon where you think your competitive advantage will lay. For example, if your company DNA is that of math PhDs then I would seriously think about focusing more on building fancy ad targeting and analytics and taking a "Buy" strategy. However, if your company DNA is of folks from consumer products then it would probably be a mistake to invest a lot of resources in building your own ad serving / ad targeting technology and better for you just to double down on building audience. Again, this seems obvious, but I think really smart people sometimes have a tendency to make simple things more complex than they really are. It's sometimes surprisingly hard to keep things simple.

Once you have picked the audience you are trying to aggregate and have an idea of the advertiser base that would buy that audience a lot of the tactical questions start becoming more obvious. Your target audience becomes more clear, your product prioritization becomes more clear, and most importantly your value proposition becomes more clear (both to your audience and to your advertisers). You know exactly who you have to reach (either customers, publishers, or partners) and therefore you can figure out what they need. As you develop your product to meet those needs, you’ll be well on your way to achieving scale.

Why is Maintaining Focus So Hard?

Saw this quote over at VentureHacks

“The main thing is to keep the main thing the main thing.” – Jim Barksdale

This is so true! In the startup world, a lack of focus can kill a company without the management team ever realizing they are dying (like the oft-mentioned Boiling Frog metaphor). In some ways its odd because with the limited resources at the hands of a startup, one would think that startups would be preternaturally disposed to constantly think about trade-offs and focus. However, there are a couple of factors that influence why start-ups might actually be more susceptible to self-destructive lack of focus:

1. Most Startups are About Big Vision

VentureHacks talks a bit about the "high-concept pitch'" in order to get folks to summarize a company's vision succinctly. The reason for this, of course, is that a startup needs to entice and excite potential investors, employees, and partners and the way to do that is to sell them on the vision first (which means they need to understand the vision - hence the high-concept pitch). This is neither good nor bad - its just a reality of raising money.

Sometimes though, a Vision can be so large that the necessary sequencing to obtain the fix becomes very cloudy for the startup. In order to hedge their bets, the startup invests in several different initiatives to test traction. As long as the tests are spectacular failures or spectacular successes there isn't a problem in focus. The problem arises when you test several tactical approaches and the results are all...okay. Its very hard for a management team to cut projects that are delivering decent results and might have the hidden potential to be the "next big thing". Instead, the company continues investing in all the "successful" experiments hoping for the big proof point that will make their decision easy for them.

2. Customers are Demanding!

Clayton Christensen covered the risks of being too focused on your best customers in Innovator's Dilemma. While his examples typically covered larger organizations, I think its something that startups need to think about as well, especially if a company gets early traction with a few large customers early in the game (if you are a consumer site the demands are a little less deafening). Building features for your costumers is a good thing, but its important to realize that many times those features comes with an opportunity cost of other features, core infrastructure or platform development that may actually be more important.

3. Sometimes The Main Thing isn't The Main Thing

Flickr's evolution from a game to a photo-sharing site has been well-documented. Caterina and Stewart deserve a lot of credit for being able to recognize when their "Main Thing" was no longer their Main Thing. This is a very, very hard thing to do and requires a certain level of self-awareness that just isn't that common. There are two traps startups that I think folks can fall into: 1) sticking to the Main Thing despite evidence to the contrary (or interpreting all evidence to be positive), or 2) thinking that everything is potentially the next Main Thing (not willing to write-off experiments).

In practice, its easy to see how these three factors can play a role in a company spreading resources too thinly over too long a period of time. Here's a couple of things I think can be done to offset these factors:

1. Stay Objective and Metrics-Focused
2. Implement a clean, transparent Product Development Cycle

I don't think there is necessarily one perfect product development process but I do think good product development cycles have a few things in common. First, there is an overall objective to maximize against with metrics that make sense. Second, there is a prioritized product backlog or feature list that is being updated often to reflect the most recent thoughts on ideal product evolution. Three, schedules and tasks are open to scrutiny so that slips are visible earlier rather than later. In general, a good Product Development Cycle makes the opportunity cost of product decisions as transparent and as calculable as possible.

It's important to break the metrics and objectives into bite-sized chunks though. This is one reason I really like the Scrum process in two-weeks cycles for most projects. A two-week sprint forces developers to be very crisp in terms of commitments while providing the business with opportunities to measure progress against objectives and metrics in a short-enough timeframe that decisions can be made quickly.

3. Be Brutally Honest When Making Tradeoffs...and Make Them!

No decision is ever a slam dunk in the startup world. Every idea and every product innovation has the opportunity to make a difference. A management team's job is to make tradeoffs between things which are by definition unknown. The best thing they can do is recognize where data is imperfect, recognize the risks, and make a decision. The penalty of not making a tradeoff decision often outweighs the impact of a wrong decision. (Another benefit of a transparent Product Development Cycle with clear metrics is that it makes it easier to fail fast and lessen the cost of bad decisions)

Hiring Great People - Do Your Homework

I'm often surprised to see how little time some people and some companies spend on actually preparing for their interviews and hiring decisions. A lot of time there seems to be a gap between the rhetoric of "hire the best" and the actual willingness to invest in some structure and thought in the hiring process. The one place where I saw hiring done really well was at Epinions. At Epinions, each interviewer was designated with a specific area of focus (generally either intelligence, background, or culture fit) and would spend the entire interview process honing down on that one aspect of the interviewee's background. The result was that each interview was very targeted and efficient, the interview process was challenging but fair, and the people we hired were motivated, smart, and great at execution. (having a tough interview process can predispose new hires to think more positively about your company - topic for a different post - but read Influence for the case study)

My version of what I saw work at Epinions involves a little more alliteration, but in general falls into a similar vein. Its all about making the interview process as efficient and streamlined as possible while identifying and bringing in high quality talent. The trick, however, is adapting your filters to fit the roles. It is simply not possible to fill your company with Rock Stars that score 10 every single time across Aptitude, Attitude, and Ability and for many roles its usually overkill. Spend some time thinking about what your real requirements are and what aspects of the candidates you are not willing to compromise on (for example, you are not going to compromise on attitude for a customer-facing role).

Here's how it works for me:

Everyone has a mix of Aptitude, Attitude, and Ability and every position has a different mix of requirements around Aptitude, Attitude, and Ability. A greeter at a restaurant needs to have great Attitude, and a natural Aptitude for being a “people-person”, with limited technical Ability requirements.

Definition:

Aptitude: Aptitude is natural ability - back in the Epinions days it was just "Intelligence", in practice it should depend on the job. In sports it’s the natural ability to run faster, jump higher, or be taller. In modeling it is your natural looks. In the workforce, its your ability to process information. Aptitude cannot be taught – you either have it or you don’t.

Attitude: This could also be called "Culture Fit". In a nutshell, is the individual pleasant to work with? A person doesn’t have to be agreeable all the time, but they do need to approach work with some drive and eagerness. Not everyone has this, but folks that maintain a positive attitude attract a lot of goodwill and are often able to get difficult tasks done more quickly simply based on strength of personality.

Ability: Skills and Experience. Ability is learned skills and the application of those skills. In sports it might be the follow-through of your jumpshot or your footwork in tennis. These are the skills a person has acquired over time either through experience or education. In the workplace, these might manifest themselves in the ability to apply different strategic models to a problem, or produce an Excel worksheet that is functional and easy to modify.

For each position that I am looking to hire I'll jot down my thoughts on what I need from each of these areas. Different roles will need these qualities to varying degrees.

Say I’m trying to hire an analyst, I’ll think about what my ideal candidate might look like:

Aptitude: High-curiousity quotient. Has a natural desire to dig into things and figure things out. This is the no compromise area for me and where I would focus the majority of my time. An Analyst will usually be younger and I need to be certain that they can learn quickly.

Attitude: Positive, can-do attitude. I don't need someone perky for this role, just someone who has that competitive streak where I know they won't settle for being second-best.

Ability: Needs basic excel skills and good problem solving skills. Math and/or statistical training. This would be least important in my mind. Smart folks can be trained to learn how to use analytical tools, folks that know how to use tools can't be trained to be smart.

This is all just common sense but in a number of cases I've been surprised to find that I am the only person that breaks down hiring in this manner. Spending the time in advance to think through the position lets me be that much more prepared to look for the right qualities in candidates. I can apply some structure around the interview process as well as what to look for in resumes.

On the Aptitude side, I’ll be looking for prior historic examples of deep curiousity – books read, discovery channel shows watched, experiments conducted, patents filed, etc… Similarly, on the Ability side I can focus on typical resume items around the skills the candidates have learned over the years. Having invested the time to think about specific proof points gives me a more efficient filter for resumes and interviews. With these notes and my "Gut", I have gotten much better at identifying good people.

One last thing is as a hiring manager I think its important to spend some time to think about a potential career path for people as well. The one thing about hiring great people, is that great people expect to be rewarded for their work, so making sure that a sensible career path exist for people is key. This means that when you create the initial Aptitude, Attitude, and Ability list for a position, you may want to do the same thing for the position’s next logical step up. This is because as subordinates move higher and higher in the food chain sometimes the mix of skills they need to succeed can change radically (sometimes referred to as the “Peter Principle”). Essentially, the combination of Aptitude, Attitude, and Ability that might make someone a good analyst, might also make them a terrible Managing Director. It makes sense to spend the time to make sure your filters are tuned for both the current position and the near-term career path so that when you hire your good person they remain for some time.

Calibrate Your Interview "Gut"

One of the reasons I went to business school is that after working at a few startups I realized that those so-called "soft skills" around choosing people, managing people, and building a positive culture were really as important as people said. (You'll find this a common theme in that generally I don't believe much of what people tell me unless I can prove it for myself - not a particularly scaleable way of learning but it has proven to me over the years that a lot of the people who consider themselves experts know less than you think) At business school I tried to focus a bit more on learning some framework or ways to think about organizational behavior. What I learned, unfortunately, is that it is very, very hard to put a formula around cultural success. Not surprisingly, I also saw clear evidence that those companies that successfully figured out how to build a culture unlocked tremendous positive energy and created that virtuous loop of "good people bringing in better people". Building a positive culture is hard because so many unmeasurable factor contribute to the culture including the way the company messages internally, externally, how the CEO and leadership team conducts day-to-day business, etc... One key component though is always around hiring good people.

One thing each of us can do in terms of hiring good people is to spend the time to take in depth notes on your interviews and calibrate your interview "Gut". Now, I'm not talking about the specifics of how to conduct an interview, there are plenty of books around that talk about how to do interviews in a way that gets you what you want. I'm talking about that sixth sense that folks get when they conduct an interview that tells them "Yea" or "Nay" on the candidate. By all accounts, the interview process is one of the most imperfect hiring tools but its one that we all need to learn how to leverage. Here's the short take on how to calibrate your "Gut".

1. Take detailed notes on the interview
These notes should not only involve the standard notes around what the candidate is saying, but should also contain notes on your own impressions. Don't expect to remember how you felt about a candidate two months down the road after you have worked with them for two months.

2. Track and review notes on those individuals that are hired
After someone has joined the company for some time and you have formed an opinion as to whether or not they are good or bad, go back and check your notes.

3. Keep score
Keep an aggregate account of how many folks you have interviewed and where they ended up relative to your initial impressions.

4. Adapt
After doing this for three or four times (depending on your hiring you may only get three or four chances) you will have an anecdotal feel for how good you are doing as a interviewer and what type of person/personality/background you seem to have a natural affinity towards. Sometimes those natural affinities are useful, but sometimes they are not. Get self-aware about your interview tendencies and adapt

All of this stuff is, of course, common sense. But, that's not an excuse not to do it :)