Exec Development is a Different Game

Epistemic status: I’m not 100% sure of this, and will probably take a few years to verify once I start hiring (and training) again.

One of the first things you learn when you become a manager is the importance of training. Former Intel CEO Andy Grove wrote what many consider the definitive piece on training (originally as an essay in Fortune magazine, but later reprinted as a chapter in High Output Management):

Most managers seem to feel that training employees is a job that should be left to others, perhaps to training specialists. I, on the other hand, strongly believe that the manager should do it himself.

Let me explain why, beginning with what I believe is the most basic definition of what managers are supposed to produce. In my view a manager’s output is the output of his organization—no more, no less. A manager’s own productivity thus depends on eliciting more output from his team.

A manager generally has two ways to raise the level of individual performance of his subordinates: by increasing motivation, the desire of each person to do his job well, and by increasing individual capability, which is where training comes in. It is generally accepted that motivating employees is a key task of all managers, one that can’t be delegated to someone else. Why shouldn’t the same be true for the other principal means at a manager’s disposal for increasing output?

Training is, quite simply, one of the highest-leverage activities a manager can perform. Consider for a moment the possibility of your putting on a series of four lectures for members of your department. Let’s count on three hours of preparation for each hour of course time—twelve hours of work in total. Say that you have ten students in your class. Next year they will work a total of about twenty thousand hours for your organization. If your training efforts result in a 1 percent improvement in your subordinates’ performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours.

Grove’s main point — apart from training being a high managerial leverage activity — is simply that you can’t delegate well if you don’t train. (Or as I used to joke: “show me a manager who doesn’t know how to delegate well, and I’ll show you a manager who doesn’t know how to train.”)

Over time, I began to enjoy the training process for its own sake, not simply as a method to achieve organisational goals. I learnt that I loved watching my subordinates grow. I also learnt that I enjoyed the process of coming up with training programs for my subordinates, and watching them as they hit learning goals we had set together. Training created a virtuous cycle: the more I trained, the more I could delegate, and the higher the output of my entire org.

Training Badly, but Hiring Well

As I was levelling up in my training ability, though, I began to notice that my boss wasn’t as good at training as I was. This was mostly problematic when it came to the customer support organisation — for which he was the de-facto leader (when he was not doing sales, or giving product feedback, or vetting leads, that is). “No no,” I found myself saying often, “You can’t just expect Bob to know what to do here — you didn’t give him guidance, right? You didn’t communicate your expectations, right? Of course Bob would mess up.”

But a few months into it, my boss admitted that he wasn’t good with working with people ‘who can’t teach themselves’. He said something along the lines of “I’ve worked with a lot of people over the years. I’ve learnt that I can only work with people like you and Hieu (our tech lead), who can figure things out on their own.” I tried to get him to improve his training skills, but he was too busy running the business for that to happen. And who could blame him? His approach was ‘hire capable people, and then throw them at things.’ If those people didn’t work out, we would let them go.

The problems with that approach, though, were very easy to see. The vast majority of people we hired couldn’t learn on their own. But he was looking for leaders, not necessarily individual contributors.

It took me years before I realised there were some benefits to his approach.

Hiring Well, and … Not Training At All

Two months ago, I read Frederik Neckar’s deep dive on Barry Diller. Diller, of course, is the head of IAC, and is interesting to study for all sorts of business and investing-related reasons.

From an investor’s perspective, the most curious thing about Diller is IAC’s capital allocation ability. IAC acquired, grew, and then spun out multiple subsidiaries over a two decade period — subsidiaries that include Match Group, Expedia, and Vimeo.

From an operator’s perspective, though, the most curious thing about Diller is his ability to create formidable executives, many of whom leave to become industry leaders in their own right. These leaders are commonly known in the media as ‘The Killer Dillers’ — and include such remarkable execs as Michael Eisner (Disney), Dara Khosrowshahi (Uber), Dawn Steel (Columbia Pictures), Jeffrey Katzenberg (Dreamworks, Walt Disney Studios), Joey Levin (IAC) and more.

Neckar writes, of Diller’s ability:

“If you hire people at senior positions, you are a failure.”

"I would say that my preferred method is not to ever hire outside your company for senior positions. It is at least 50% disappointing. I mean, because there is organ rejection. Every once in a while, for a certain position, you have to do it, but if you do it consistently, I think it’s the definition of a poorly managed company."

These are strong words from someone reliant on finding top talent. Diller clearly prefers to hire young and develop talent in-house. But how does he find great people? This was his answer to the question about “what traits indicate great talent?”

“I would say there are none, when [employees] begin. Bring people into an organization — young, inexperienced, but with energy, and edge — and drop them into water above their heads as quickly as you can. Some survive. And those who survive answer your question. Everything is idiosyncratic. There’s no rule book.”

Playboy Magazine once asked him how he found Michael Eisner and Jeffrey Katzenberg:

“Because I liked them both. Honestly, it’s all instinct. What connects. What appeals to you. You have to feel something going on between you and somebody else in the room. If you feel it, then you have to follow it. I don’t respond to people simply because they agree with me. Never. I respond to people who have something interesting to offer.”

Rather than looking for hard and fast rules, Diller looks for people who are interesting. Whatever that means. Perhaps more important is his inclination to “drop people into water as quickly as you can.” Perhaps he knows his instinct is faulty, that what is interesting, or what is on paper, needs to be tested quickly, that no amount of intuition will do the job reliably. He looks for performance under fire — and growth.

“When you drop somebody into deep water, and you see they flounder, and they really are gasping—unless that happens, development rarely happens. And then slowly they get above the waterline, and then they start to go.”

“He kept just pushing decisions down on me — he was a really fine executive in that way — he forced me to make recommendations and fight for what I believed in.” (The Keys to the Kingdom, Kim Masters)

To Diller, the way to develop and to learn, is through action:

“Put them to work! Let us assume that the task is writing, something you may be familiar with. The only way to write, say, for television or film, is to write. Hopefully you will be sending that first or twentieth draft to somebody, and if they’re any good, they’ll help you [develop] your craft. It’s process. It’s one [foot] in front of the other.”

Diller’s modus operandi has always been to find ‘interesting’ young execs with promising talent, and then to ‘drop them into deep water’. This seems totally antithetical to the notion of ‘train your subordinates’. Perhaps Diller did give his lieutenants some direction — perhaps he gave them occasional pointers on how to run their business units. But I don’t think so. Take Dara Khosrowshahi’s experience, for instance (again via Neckar):

“Dara Khosrowshahi started with our company, was at Allen and Company as a junior analyst, he came to us as a junior analyst. What we did is we made him CFO—he had no experience, he didn't know what a CFO was—of a division, and he just kept going from there.” Diller

Khosrowshahi: “I didn't know how to work with an audit committee. My accounting expertise was quite lacking but Barry has a habit of throwing people kind of into opportunities and letting them either rise or fail. But he gave me the opportunity and you know, in that job, for the first year or year and a half, I had a tough time but I learned what it took, Barry did give me the time, he allowed me to make some mistakes, some of them were painful and after that tough year, year and a half, things started turning in the right direction, and I was Expedia CEO for 13 years.”

”Each year or two or three, we threw more and more at him until we finally said to him, after he had become CFO of one of our public companies, “We’re going to spin off Expedia, and I think you’re going to go run it.” He said, “But I don’t have any operational experience.” And I said, “Yeah, that’s the good thing.” Twelve years later, he left to go run Uber after having spectacularly grown Expedia.” Diller

None of which sounds like training to me.

I read Neckar’s piece and immediately thought back to my old boss. Sure, he wasn’t very good at training subordinates, but he did have a nose for finding and hiring hungry, capable people. After all, he hired me. And then he threw me into Vietnam with very little support, and sat back to see how I did.

He did this with Hieu as well, albeit in the domain of software engineering. And Hieu grew to become our technical lead. In the years since I left, my old boss hired others to lead sales and product and (thank god) customer support — replacing himself in many of those cases. Many of them weren’t entirely senior; he threw them into the role and watched how they did. The last time we met for dinner, he took great pleasure in telling me about the quality of these new crop of leaders. The company has more than doubled in revenues since the time I left. By all accounts, it is doing well.

I contrast his approach with my experiences. Yes, I successfully replaced myself with three managers, but I nurtured those people into the roles over a fairly long period. Did I find leaders with the same calibre that he did? I'm not entirely certain; I suspect he hired better people. And so — perhaps I could have thrown my people into the deep end instead? Perhaps I could have searched harder, and earlier, for higher potential people? It’s difficult to say. But I now believe that I should have learnt a thing or two from my old boss — especially around having high expectations and forcing potential leaders to grow into the roles that we needed them to fill.

Exec Development is a Different Game

My main takeaway is that perhaps exec development is simply a different game. (It’s a bit much to call me or Hieu execs, but I mean ‘leaders who you throw at problems’ — you know the type; every startup has a few of them). I continue to believe that you should train individual contributors — and by this I mean do things like set up growth plans and work out systematic training programs to match their career goals and so on. But if you want leaders, perhaps it’s simply more productive to throw high potential people into the deep end of the pool.

If this is the right observation, it isn’t a novel one. There’s a chapter titled ‘Why Startups Should Train Their People’ in Ben Horowitz’s The Hard Thing About Hard Things. It makes essentially the same argument that Grove makes, and draws from many of the ideas in Grove’s book. But there’s also a chapter titled ‘The Scale Anticipation Fallacy’.

Horowitz writes:

“The other day I was talking to a couple of friends of mine, one a VC and the other a CEO. During the meeting, we discussed one of the executives at the CEO’s company. The executive in question performs exceptionally but lacks experience managing at larger scale. My friend the VC innocently advised the CEO to carefully consider whether the executive would scale to meet the company’s needs in the future. I responded swiftly, aggressively, and loudly, saying, “That’s a horrible idea and makes no sense at all.” Both of my friends were startled at my outburst. Normally I am disciplined enough to refrain from letting my feelings pass straight through my mouth without stopping at my brain for review. Why the outburst? Here is my answer.

As CEO, you must constantly evaluate all the members of your team. However, evaluating people against the future needs of the company based on a theoretical view of how they will perform is counterproductive, for the following reasons:

Managing at scale is a learned skill rather than a natural ability—Nobody comes out of the womb knowing how to manage a thousand people. Everybody learns at some point.

It’s nearly impossible to make the judgment in advance— How do you tell in advance if an executive can scale? Was it obvious that Bill Gates would learn how to scale when he was a Harvard drop out? How do you go about making that decision?

(…)

It's no way to live your life or run an organization — Deciding (with woefully incomplete data) that someone who works their butt off, does a terrific job, and loyally contributes to your mission won't be with you three years from now takes you to a dark place. It's a place of information hiding, dishonesty, and stilted communication. It's a place where prejudice substitutes for judgment. It's a place where judgment replaces teaching. It's a place where teamwork becomes internal warfare. Don't go there.

So, if you don't prejudge people's ability to scale, how do you make the judgment? You should evaluate your team at least once a quarter on all dimensions. Two keys can help you avoid the scale anticipation trap:

Don't separate scale from the rest of the evaluation — The relevant question isn't whether an executive can scale; it's whether the executive can do the job at the current scale. You should evaluate holistically and this will prevent you from separating out scale, which often leads to a prediction of future performance.

Make the judgment on a relative rather than an absolute scale — Asking yourself whether or not an executive is great can be extremely difficult to answer. A better question is: For this company at this exact point in time, does there exist an executive who I can hire who will be better? If my biggest competitor hires that person, how will that impact our ability to win?

None of Horowitz's suggestions are about training, not really. The chapter is about ability to scale. But the implicit assumption is that not every exec would be able to scale with the company, and sometimes there’s no amount of training that would fix that. Sometimes, you just have to throw them off the deep end to see.

Originally published 14 July 2021, last updated 20 July 2021.