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Bootstrapped Startup Update: Leveraged Management vs Individual Contributions

Starting 18 months ago, I began more detailed timetracking for MassLandlords, which is a bootstrapped startup. I started noting the difference between what Andrew Grove called “high leverage” activities and what Pratt and Whitney called “individual contributor” activities. This is the first time I’ve made a graph of the results. It’s a prime example of “what you don’t measure doesn’t get better.” It shows that I haven’t been unburying myself the way I imagined.

Leveraged management time vs individual contributor time in a bootstrapped startup. Each point is a 4-day interval. Graph shows level of effort for the MassLandlords project.

Leveraged management time vs individual contributor time in a bootstrapped startup. Each point is a ten-period moving average of a 4-day interval. Graph shows level of effort for the MassLandlords project.

The graph shows percent “level of effort” (what percent of time I spend on just these two activities) vs time. Each point is four days’ worth of time data, averaged over the last 40 days so it looks smoother. I track my time in four-day intervals because I use a piece of paper on a clipboard that I keep with me at all times, because only four days fit on a sheet, and because weekends are not very relevant anyway =(. I quickly note what I’m doing on paper. I don’t need to use any company-specific information systems like harvest, where maybe I’m not logged in or I need to switch accounts or who knows what is going wrong. (I love harvest for team-level perspectives, but paper is like harvest just for me.)

The blue portion represents time spent doing “leveraged management.” The idea is that one or two hours spent with a direct report, employee, or contractor will enable them to do eight or more hours of work on their own. In the last 18 months, MassLandlords has brought on about 50 hours of work each week (one big and several smaller hires). So I somewhat expected that I would add about ten hours of high leveraged work each week and lose a lot of unleveraged work. The red portion of the graph is “individual contributor,” or things that an employee should be hired to do.

The new hires are definitely working out, but they are exposing weaknesses in customer service, event logistics, and financial controls. All of these areas are largely my “individual contributor” responsibility. On our bootstrapped trajectory, it has been undesirable to lose touch with our customers by hiring for service, and impossible to hire adequately for logistics or controls (these positions seem to require some degree of scale because of the physical nature of the logistics work, and great degree of trust required to hand over financial controls). The increased effort for event marketing, event planning, and advertising have certainly been helpful, but they are generating more customer interactions, more events, and more transactions.

Leveraged management time vs individual contributor time in a bootstrapped startup. Each point is a 4-day interval.

Leveraged management time vs individual contributor time in a bootstrapped startup. Each point is a ten-day moving average of 4-day intervals.

The graph showing total hours gives more insight. The red “individual contributor” line has been climbing as MassLandlords has grown. Our major hire started fall 2016. During their training, the blue “leveraged management” line spiked. It has been declining as they (and other team members) gain experience and ability. The blue line should have stayed high after that major hire. Except with the weaknesses in service, logistics, and controls, the red line shows a lot has landed back on my plate. This has distracted me from focusing on scaling and the next hire.

The trick here seems to be to make sure that some portion of the blue line includes time spent scaling and focusing on the next hire. If that’s the case, then we will eventually successfully pull ourselves up by the bootstraps. On the other hand, if the blue line is being spent just to keep the existing team going, then we must be caught in limbo. Not only will no one be working on scaling, but also, because I am just one person, the red line will eventually max out, customers will go unhappy, churn will increase, and the organization will rebound downward. Understanding this graph is of the first importance. And anyone with a bootstrapped startup probably should be making their own graph, because so much of starting up is “the grind” that produces so little value compared to high-leverage activities.

Random Grumbles and Advice

Service: Knowing what I know now, I would have implemented a customer service process much sooner, maybe at the outset. It would have been possible for me to maintain contact with customers even from inside a framework like zendesk. Now we have a situation where customers are emailing the last team email address they saw, which is pretty much not working out for anyone.

Controls: I also would have prioritized a relationship with a bank that gave granular access controls. Most small business banks — and even quickbooks online, which I otherwise much admire — have laughable separation of controls. The person who enters vendors must not be the person who pays them, and this must not be the person who records the debts in the first place. Most small business systems make all of this accessible to the same user. Thereby, any dishonest schmuck can enter a fake vendor bill, enter the fake vendor billpay, and pay the fake bill to themselves or to their cousin. Sure, they will eventually get caught, but only after much stress and financial loss on our side. I think Avidia Bank will be our partial salvation but until we implement it, I can’t say for sure. QuickBooks online is still not compliant, and I don’t see a way around that yet, so we’re waiting to hire an employee who can be paid enough to come with high “trust factor.”

Logistics: This is a problem particular to MassLandlords, where we basically need to have 23 physical locations one night a month. I don’t think I have any insight to share at this time.

So that’s the latest timetracking update on our bootstrapped startup. I see now why people take capital: just go hire all the people you need.

Prioritization Grid

I drew this on a screenshare today while talking to a MassLandlords manager.

priority grid, hard high impact, easy low impact etc.

I don’t remember where I learned it*. The basic gist is that lots of people will suggest lots of things for you to do.

 

Some things are going to be hard and have a low impact on your goals. Write them down, but don’t do them.

  • These might become more relevant or less difficult in the future.
  • Writing them down, as opposed to outright rejecting them, lets you return to them in the future. It also is more politically palatable to a requester to hear that it’s in your system, albeit lower priority, than “I have deleted your request.”

Others are going to be easy, low impact. Most administration falls into this category. Hire for it if you can. If you’re not able to hire, do these items when you’re tired.

  • Anna Dietrich described these items as “zombie tasks” or “shooting zombies” because they are repetitive and won’t ever die. I like that analogy.
  • When possible, try to eliminate the source of the zombies. Automation or process changes can eliminate a lot of the low impact work we take as given.

Some things are easy and will have a high impact on your goals. Do these asap.

  • This is the most difficult thing for someone detail-oriented like me to do. I like to have a clean desk and inbox zero. Much of my best work happens because I ignore the other pressures.

The final set are things that will have a high impact but are hard. These require project plans and a longer-term commitment.

  • It’s extremely important not to let a “high impact” item linger because you haven’t created the project plan. Oftentimes the first “action” is a brainstorm or research. Get these items into your task list. David Allen’s advice is invaluable on this front. Define the next action. The journey of a thousand miles begins with a single step.

I don’t like spending lots of time bucketing items into different categories. I don’t like systems that have nine or 16 squares. This four-square framework can be useful for communicating when you will or will not work on something. Otherwise, just get back to work.

*Covey’s Original Prioritization Framework

It turns out Stephen Covey popularized this, but he didn’t have “difficulty,” he had “urgency.” This switch hides any recognition that management or project planning might be needed. I might have learned to replace “urgency” with “difficulty” at Pratt & Whitney, I don’t know. Suffice it to say I think of the grid above when I think of priority frameworks.

Thinking of “urgency” works better in the “personal productivity” space, but less well in organizations. Everything is urgent to the requester.

My Favorite Part of the Work Week is Saturday at 7:30am

Saturdays at 7:30 am (5:00 or 6:00 pm India time depending on daylight saving) I call the MassLandlords bookkeepers in India. I love it.

I actually get up at 6:30 to prepare for the call and to review our “treasury dashboard.” I love getting up early on a weekend. It feels so productive. Plus, this phone call represents two-and-a-half years of process development. We review income and expense reporting for MassLandlords and two MassLandlords partners. We use asana for linear processes, skype for the call and screen sharing, Google Drive for file transfer, and Google Docs for the dashboard itself.

MassLandlords Treasury Dashboard

 

The idea for the dashboard comes from my training in operations. You want to quickly see a visual status of the entire organization. One of these boxes updates via an API, most are manual and take 30 seconds to update, maybe five minutes for the whole week’s work. I can update them or the team in India can.

The other thing I really like about the team in India is their combination of hard working and good attitude. They have had no end of challenges, from power outages to dengue, and yet we have continually taken care of our people and our jobs. We’ve had language skills training to the point where we’re talking politics, technological innovation to automate a lot of our work, and a mindset of continuous improvement to leave us all feeling productive and headed in the right direction.

I’m lucky to work with their team leader, who is receptive to suggestions and candid with feedback. It’s a great team, almost three years in the making, and checking in on their progress is certainly my favorite part of the week.

The Worst GTD Backlog Since Tracking Began

This afternoon I’m at the worst backlog of “things to do” since GTD tracking began in late 2014. I have 333 items in my inbox, on my desk, and in my task list that all demand attention yesterday. What’s astonishing is that “days overdue” is only 8, which means none of these things really originated before the last week. That’s 300 things to do since last week.

graph of task queue and average overdue

I can take a lot of pressure, this is getting near the limit.

A big part of it is the MassLandlords meeting cycle, which holds back a lot of ideas and issues over the summer and then many of our 1,200 members start sending them in. That’s wonderful, but also difficult to manage. I’m lucky we have new part time staff in Springfield to help with some of these requests. But then again, the Springfield group’s dissolving and folding in has taken a lot of my capacity the last two weeks, contributing to the backlog.

The other thing that’s happening is I’ve implemented a really great expediting system, which is a sure sign of flow failure if ever there was one. Expediting certain tasks ahead of older ones in the queue signals my lack of bandwidth. It keeps the fires from raging but it builds up pressure on the overdue items and creates stress. The right way to schedule is to create excess capacity or flex capacity so that things like phone calls don’t send us off on a tangent that we didn’t have time for.

Clearly we need more staff at MassLandlords. I’m working on it. But as I’ve learned over the summer, it can be worse to put the wrong person in the job than to have no one at all. The wrong person can cause more harm than good.

My average pace has been 57 hrs/wk. I had a nice relaxing summer, where the average went down to only 37 hrs/wk. In the big scheme of things, I still exercise, and eat right, and sleep adequately. And I’ve put in harder hours in the past. But boy, I really could use another Friday right about now.

One thing I carry every workday

It has been over nine months since the last update. I have been busy. I may write an update soon. In the meantime, it occurs to me to share this strange fact: every workday, everywhere I go, I carry the final pages of Andrew Grove’s High Output Management. Lame but true.

High Output Management is a soft skills book written by an engineer-at-heart. Grove was CEO of Intel during their rise to prominence. Possibly he’s the reason you know the name Intel.

At the end of the book, he lists out homework. “You have trusted me enough to buy my book and read it. Now let me say a final thing: if you do at least 100 points worth of what you find here, you’ll be a distinctly better manager for it.”

I’ve been chipping away at his assignments since May 2012. So far I’ve earned 70 points. Every time I do an assignment, I write the date. I aspire to do one every two months. I guess the average assignment is worth ten points. So I’m doing less than two each year. Not brilliant. Here’s what I’ve done:

  • 8-21-14 What are my outputs? 0 points (I made this one up)
  • 2-25-15 Identify half a dozen new indicators for your group’s output. They should measure both quantity and quality of the output. 10 points
  • 6-20-16 Install these new indicators as a routine in your work area, and establish their regular review in your staff meetings. 20 points.
  • 10-11-15 and 12-17-15: Look at your calendar for the last week. Classify your activities as low/medium/high leverage. Generate a plan of action to do more of the high-leverage category. (What activities will you reduce?) 10 points each time
  • 5-10-12 Forecast the demand on your time for the next week. What portion of your time is likely to be spent in meetings? Which of these are process-oriented meetings? Mission-oriented meetings? If the latter are over 25 percent of your total time, what should you do to reduce them? 10 points
  • 8-13-12 List the various forms of task-relevant feedback your subordinates receive. How well can they gauge their progress through them? 10 points
  • 8-11-15 GTD reread, review, and revamp 0 points (I made this one up)

Most of this work has been done for MassLandlords. The 2012 bullets were Terrafugia.

The December 17, 2015 assignment still is not done. This is the reason why I’ve been so busy. I am trying to get all of my time into high leverage activities. I can’t be mowing the lawn. Problem solved. I can’t be coding the website. Problem solved. I can’t be answering phone calls from customers. Problem soon to be solved.

Overall, this assignment has shown me that I am the biggest problem with MassLandlords. I’m the long pole in the tent, holding everything up. I’m supporting but I’m also delaying by being integral to every process.

The work to unload has been painful. Since last winter, I terminated two employees that didn’t work out. I also lost a cofounder on a side project. I missed (or am missing) two huge opportunities that I just don’t have time for. Every setback is another sharp turn downward on the startup roller coaster.

This is why I carry Andrew Grove around with me everywhere I go. I’m not yet where I need to be. But I will learn from him and others, and I will get there.

Andrew Grove's High Output Management One More Thing

Picture taken in the orange glow of the MBTA Commuter Rail lighting.

Busier than a one-legged man at a butt-kicking contest

Yes, I guess I am, but I don’t feel that way.  Below are some fun statistics from my personal task list, and one big surprise at the end.

(For those of you that don’t know, I follow David Allen’s Getting Things Done to stay in control and Making it All Work to keep perspective.  The gist of the first book is simply that you should write down everything that occurs to you and keep this all in one place.  That way you never panic that you’re forgetting something.  The gist of the second book is that you should keep a separate, shorter list of bigger things that matter.

I also follow Andrew Grove’s  High Output Management, which is what inspired me to start taking data on this stuff.)

This first graph shows task completion since I started tracking data last winter:

task_list_completion

My collection habit means I go through phases, like May to early June, where I add much more to my list than I can remove.  If the blue line stays above the red line indefinitely, my task list will expand forever, and that’s bad.  So I want that red line up high.  Overall, the red line makes it looks like I only do five things a day.  I guess most of what I do is so spontaneous and isn’t on the list.

This second graph shows the quality of my tasks.  One of the things David Allen goes on about is making sure that your tasks have a context.  So I want that green line down near zero.  Most folks would also want that purple line down near zero, too, because that would mean they could retire (nothing left to do).  But for me, always thinking about what could be better, I’m okay with letting it pile up until I get some help.

task_list_quality

You can see the effect of tracking metrics in these first two graphs.  When I first started back in December, I saw literally hundreds of task list items that had no context and appeared undone.  I reviewed these all until they had moved to wherever they belonged. Some of them were given contexts and/or set status = “complete.”  Others were set status = “maybe someday,” which means I still might get to them.  For instance, some day, maybe, I want to dedicate a statue in a park.  Doesn’t need to be on next week’s “to do” list.

This final graph speaks to my ability to follow-up.  David Allen defines a “tickler” as a reminder to do something.  As of yesterday, there were about ten ticklers overdue.  The red line indicates that I’m waiting for something and I haven’t set a tickler date.  That’s not helpful, so I want that down near zero.

task_list_follow_up

So what’s the big surprise?  Since I started tracking data in December, I’ve completed 937 tasks and 23 major projects.  That’s about one project a week.  Here’s a sampling:

  • Win my first freelance consulting job.
  • Prove that some physics we were testing in one program works.
  • Rent out one apartment.  And then another.
  • Help Team #1 launch a consumer product (Hands Free Groceries).
  • Write a business plan for XYZ (didn’t start).
  • Help Team #2 launch a tech startup (ArtistBomb).
  • Help Team #3 rewrite the bylaws for a non-profit (had some help on this one).

And I’m not breaking a sweat.  Thank you, David Allen and Andrew Grove.

The Greatest Stock Option Plan You’ll Probably Never See

If you’re running a company — a real one or a startup — you’ll want to remember the story of Fred Futile, CEO of Stagnant, Inc.

The compensation committee of Stagnant, Inc. saw fit to award Fred stock options equal to 1% of the shares then outstanding.  This was intended to give Fred an owner-like interest in the business and incentivize him to increase the value of the company.  Stagnant was at the time earning $1 billion each year on $10 billion of equity.  There were 100 million shares outstanding, so earnings per share were $10.  The company traded at a price to earnings of 10, so the option price was set at fair market value, $100 per share.  Here’s a table summarizing the vital statistics:

futile_options_v1

Now Fred did an ingenious thing.  Rather than work hard to change Stagnant into something more than the marginally billion-dollar business that it was, he used the year’s earnings to repurchase shares.  Look what happened:

futile_options_2

The one billion dollars of earnings bought ten million shares at $100/share.  Assume the company traded constantly at a P/E of 10 and you can see the trick: just by withholding money from shareholders, Fred was able to put his options in the money and make himself $11 million.  He didn’t have to improve the business at all.  And if that doesn’t surprise you, look at this:  if in Year 2, instead of holding constant, earnings had actually declined by 5% due to Fred’s negligent management, Fred would still have been in the money on his options:

futile_options_3

Fred was gaming the system then, to be sure, so let’s look at what would have happened if he had tried to reinvest the earnings into some seemingly worthwhile project that earned 5%.  We’ll add one row at the bottom for “return on equity”.  We started with $10 billion in equity, and then Fred will reinvest $1 billion at 5%.

futile_options_4

Do you see how the return on equity decreased?  Fred’s seemingly worthwhile project gave his investors a worse return on investment than if he had done nothing at all.  And oh, Fred is still making millions on his option plan.

The lesson here is that Fred’s option plan is flawed.  It’s okay to want to incentivize Fred with options, because as CEO he does have an impact on the overall success of the business.  But his options should have a cost of capital or time factor.  This way, it’s clear to Fred that if he can’t use company earnings to match the current return on equity, he should pay the money out to shareholders. Take a look at this new and improved option plan where Fred’s strike price increases at 11% each year:

futile_options_5

Now if he tries his repurchase scheme, he doesn’t get rewarded (at least, not as much; I left off some pennies and he’s still technically in the money here).

The same is true (even more true) if he tries his unsuccessful project:

futile_options_6

Option plans with hurdle rates should be used for every CEO or other executive that insists on option plans.  This much better aligns his or her incentives with those of the investors, and comes as close as you can get to having them just buy in to a large amount of stock, which would be best of all.

The inspiration for this article, including Fred Futile and Stagnant, Inc., is owed to Warren Buffett and his annual Letter to Shareholders, 2005 (click here to read and search for “Futile”).

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