Paul Forster | How to Scale Your Team at Internet Speed | BoS EU 2014

Paul shares lessons from his experience as co-founder and CEO of Indeed, the world’s leading job site, from inception in 2004 to over 1000 employees today. Outlining the company’s evolution from start-up to a global organization with offices in 11 countries, Paul identifies challenges and pitfalls relevant to many early-stage technology firms. When you’re growing a company rapidly, what changes and what stays the same? Paul will talk about the principles and lessons that he learned throughout the journey to build, grow and sell Indeed.com

Slides, Video & Transcript below

Slides

Slide’s from Paul’s talk here if you are short of time.

Video

http://businessofsoftware.wistia.com/medias/cyun2706ym?embedType=async&videoFoam=true&videoWidth=640

Transcript

So I started Indeed in 2004. It’s the second job recruitment business that I started with another guy. So two co-founders of both businesses. The first one was a job board for financial professionals. We started that in ’98, sold it in 2003. That was a much smaller business. 2004 Google had just gone public that year and applying the Google model to classifieds was kind of a no-brainer but nobody had done it and we were the first to do this – apply the Google model essentially to classifieds and jobs being the biggest segment.

So Ronny and I started this business in November 2004 and grew that to a reasonable size of business, a thousand employees. Around a thousand employees now. There wasn’t a thousand when we sold it.

We sold the business in 2012, late 2012 to a HSO Japanese company called Recruit and so for those of you not familiar this is actually the UK site. There are sites in more than 50 countries, more than 100 million unique visitors a month. It’s actually the number one job site worldwide now and pretty simple to use. We aggravated jobs from all over the web. Millions of jobs from tens of thousands of different sources and made it really easy for people to apply for jobs. So if you are looking for a job, it’s a good place to start.

Mark specifically asked me to focus on my experience growing a team, growing a business, scaling which is hopefully relevant to many of you here. I’ll talk a little bit about the history of Indeed and how we grew the business but after that talk about the lessons as far as there may be lessons for technology business generically.

One of the things that struck me when I put this chart together. In fact, this is the first time I’ve put together a chart like this at least for a long time and really two things struck me about this chart. One is that is the steep growth at the end. It’s the thing that hits you when you look it and think oh gosh it’s almost doubling the number of employees for several years from 2011 up until now. And the other thing that strikes you is how slow the growth was relatively speaking at the beginning and that I think is probably one of the important lessons is too is not to grow too fast at the beginning of the business.

It may not be true for every business but I think for many businesses it is easy to grow too fast early on before you have established your model, your platform, you’re everything about the business model. So in 2005 after we have been going for a year we had six employees. One year after that we hired ten so sixteen. End of 2006. End of 2007 we had 27 employees. So pretty lean. We kept it pretty lean for a long time and it was only – it take five years, December 2009 before we got to one hundred employees and then it sort of took off from there now around 1,000 employees. I’ll come back to that.

I just want to talk about the geography. This is a map out of Pindrop which is a source out of London. I don’t know if you’ve heard of it but I thought I would give some credit because I couldn’t figure how to do this on Google maps but the one thing that is a bit unusual about Indeed is that the two of us co-founders were based in different locations. So Ronny was and still is based in Austin, Texas. I was based in Stamford, actually living in Connecticut just an hour North of New York. We had our office in Stamford. So I ran the client side of the business. Ronny ran the products and tech. So we ended up with engineering products, online operations, online marketing in Austin and then in Stamford sales, client services, finance, administration, some trade marketing was based there. So five years, it was five years later before we opened another office and that was in California and that was a sales office. We found the time zone was tricky, three hours behind.

A little difficult to build your sales team in California on the West coast when you got a sales team on the East coast. So that was the rationale. We really struggled, it took a long time to make that work and I’ll come back to this. It’s hard when you start building multiple offices it is quite hard to do that effectively and get the management right and the culture right. One year later we set up a New York office and a London office. New York.

It’s a little bit hard to understand perhaps. Why would we set up an office so close to Stamford where we were based? Only one hour down on the train. It was like from here to London, equivalent distance or equivalent commuting time and it was really talent pool. We just found we were really struggling to hire enough inside sales people in Stamford and New York is massive pool of talent so we decided to set up an office there just purely to tap into that. It is still a very big office. I think they are probably equal sizes now in terms of the size of the sales teams. And then London was the first country — the UK was the first country outside of the U.S. to go into. A model that was built off a tremendous amount of traffic, as much traffic as we could in markets outside of the U.S. before trying to sell into them.

So 2012 we set up European headquarters in Dublin which was partly tax driven. It is very unpopular now these double Irish structures which is what we did, same as Facebook and Google and LinkedIn and everybody does the same thing but for some reason it’s only Starbucks that gets hot for it. Everybody is doing it. So we did that but Dublin turned out to be a really good place in the world to hire place, a good place to build a European team. And Toronto was another sales office there. 2013 we added — we sold the business in late 2012. So Recruit bought us, Japanese company.

We would have set up an office there anyway. We set up a sales office there. We set up one in Australia as well and a couple of other locations in Europe so Germany and the Netherlands. So you can see how we ended up with a lot of offices in different locations but it was relatively late before we got to that point. 2014 we added Seattle that was for developers. Actually this was opportunistic, we had some developers who were based in Seattle and we ended up just setting up an office there too to tap into talent, engineering talent in Seattle. Obviously, Redman, Microsoft being there and Amazon, quite an interesting pool of people.

So what are the lessons that have come generic from this experience? First of all try to build a solid foundation for your business in terms of who the co-founders are, what the board is, who your investors are. And so much of the destiny of your business gets decided very early on, how you put this puzzle together. Co-founders, there’s a lot of trade-offs involved here. If you can start business yourself and build it successfully with no other co-founders, you have a huge advantage of avoiding a lot of politics down the line, a lot of you know potentially unhappy people down the line. It is very hard to keep everybody happy in terms of co-founders. On the other hand, if you do it all on your own, you may never have a business. You don’t necessarily have the resources and obviously working as a team and bouncing ideas and working with partnership with others gives you a greater likelihood of success but the more co-founders you have the harder it is politically down the line. It is very hard to get it right. And obviously who you choose as your co-founders, who you find is absolutely critical. Having some kind of vesting schedule for co-founders makes a lot of sense. We didn’t do that, Ronny and I. We didn’t have any vesting and it worked out fine but it probably does make sense to do that so that if one of you does leave there is some ability for the remaining founders to call back the ownership one way or another. A lot of people create incredibly complicated boards early on and that’s also related to the CAP table, a structure you have, the more investors you have, potentially the more demand there is for board seats.

If you could — we actually kept ours really small, we actually had four seats of which we only filled — so we had five seats of which we only filled four. We had — we raised five million dollars in 2005 from Union Square Ventures and New York Times. And that was our series A round. That was the only round we ever did and we had on our board – we had a representative from New York Times, it was a general counsel. We had a representative from Union Square Ventures which is Brad Vernom and Ronny and I. And Ronny and I actually had a third empty seat that we had control of the board. We never had to use that so it was actually a four person board in practice which I think was helpful just keeping things really, really simple. And that’s a little bit unusual, it is unusually small but I think a lot of mistakes people make are to have too complex of board. And advisors. A lot of people focus on advisors which I think is a mistake. Generally, I think you can get advice from people informally but a lot of time and effort into getting a formal board of advisors and sort of holding that up as something that is significant to your business when you are talking to investors, I think it’s often a bit of red herring. Better to focus on your executives. Who do you have on board full time? Much better than who your advisors are. That’s not to say you can’t get good advice but you can get that informally from people without needing to appoint them as advisors. So what about hiring?

So as I mentioned before I think hiring slowly is something that’s — there’s a lot of emphasis on moving very, very fast when you are an early stage business and a tech business and you are competing against others. The danger is to hire too quickly I think and get the wrong people. The thing to hire slowly — there’s two things cash flow. If you hire fast, you are going to build up a very big overhead very fast which can sometimes be unsustainable. For most tech businesses, the payroll is by far the biggest expense bucket. So that’s one reason. The other thing is just getting the wrong people.

It’s really hard to find good people as you know and it’s even harder to find good people where there is a good fit with your company culturally and in other ways.

One of the investor representatives from Union Square Ventures once said to me in sort of an accusatory term you wouldn’t even hire your mother which I sort of took as a compliment at the time because you know I just I think it was the right thing for our business growing relatively slowly.

I think use online services to try to find people. You see Indeed, LinkedIn. Jobvite is a tracking system. You need some sort of tracking system. That’s the one Indeed happens to you. Some companies are having success using Twitter but there’s all sorts of ways you can optimize your recruitment online. I’m not going to spend a lot time talking to that. I’m happy to if anybody wants to ask questions but. At Indeed we created a white paper called the four A’s of advertising of the four A’s of recruitment tracking. And the four A’s are Assign which means have somebody in your organization who is responsible for figuring out where your candidates are coming for, somebody who takes ownership for that problem because so often this is forgotten in an organization even big organizations, in fact particularly big organization. Automate. So with online tracking systems now it’s possible to automatically track where your candidates are coming from. So you should know if somebody is applying from a job board you’ve advertised on, you should know whether that person came from that job board or came from somewhere else and that can be done automatically and there are plenty of ways of figuring that out so make sure that is done. And then obviously analyse your data. And finally adjust so you should spend money where it is working, not spend money where it is not working and it just seems really basic but most companies don’t get this right at all. So that’s one of our — automatically tracking the source of your candidates is one of the mantras that we have at Indeed that we talk to our clients about.

So using executive search is a pretty primitive way of doing recruitment. It’s supposed to be a head hunter but so it’s a last resort. It is sometimes necessary as a company gets bigger for senior hires, it may be necessary to do that but I think early stage — when it’s an early stage you probably don’t want to be using search firms unless you really, really have to. Interviewing I think is absolutely critical how you do that. Try to get your candidates to talk to as many people as possible in your company or at least multiple people in your company as long as they meet a certain threshold. There’s a danger of wasting a lot of time talking to candidates that are really non-starters so if you can find a way of short circuiting getting rid of bad candidates from the process before you burn up a lot of time before you interview them, that’s good. Obviously phone screen them at the beginning and if someone appears to be bad after the first meeting, then have them meet everyone in the company after that. It seems obvious but it’s another trap that is easy to fall into. Behavioural interviewing works really, really well in my experience so instead of asking you know how would you do this job? What do you think of our company? You know let’s chat about what you would be doing here, focus more on what they did at their previous job and really drill down into that details of that. Not just what projects did you work on, how successful were those projects but what did you individually contribute? What was the difference you made? And then based on their answers you can really drill down and get a good sense of their — of how good this person is, how much difference did this person make to the jobs they were in. This is a really good litmus test. History is the best guide to the future. If somebody’s top jobs, they’ve four different jobs in the last five years you know the odds are they are not going to stick around long in your company so you know we used to basically not hire people who had done a lot of jobs in the past because they always prove to be the case. You make exceptions okay this is different this time; they’ve got good reasons why they made all of their moves. Generally it’s not true, generally they will move on from your company too. You know obviously try to delve into people’s character. There is not a science, there’s not a very scientific way of doing that but if you can try and figure out — persistence is an extremely important attribute for any employee, attention to detail is always something I spend a lot of time trying to figure out.
If you can get into any e-mail dialogue with a candidate as well as a face to face meeting, a phone conversation, you can figure out other things from how do they interact from e-mail, from writing. You can get a good sense whether somebody has a good attention to detail, whether their you know e-mails are full of grammatical errors or spelling mistakes and whether you want that type of thing in your organization. And then in some cases objective testing makes sense. So tech-y folk. Engineering rolls through their very specific, you may need to do objective tests actually testing for some specific skill.
Reference checking; don’t delegate it in my experience. If you are a small organization, if you are the CEO or the founder of the business do those reference checks yourself and you can find out a tremendous amount about a candidate just by talking to the references yourself. It’s the sort of thing a lot of people just delegate HR to do that but you can really find out, you can really get to the bottom of a candidate by talking to references. Google them. When you talk to them, there are certain tricks as well. So people aren’t going to tell you what somebody’s weaknesses are if you ask them that question. Okay you’ve told me all these positive things about this person, okay now tell me all of their weaknesses. Nobody answers that. They are too — in some cases they are afraid of the repercussions but it is sort of human nature. So this is the magic question, in what areas does Joe Blogs need support? And then this just opens up all of the weaknesses. It’s sort of like magic. It works every time. People start saying oh yeah this guy is great and but I think if you could help him do spreadsheets, I mean if somebody could help support with spreadsheets then you — whatever it is. This person he needs a little bit of guidance when being given instruction or whatever it is it will come out if you ask that question. We had certain hiring sweet spots that work really well for us. So for sales people, graduates who had been three to five years work experience doing sales that worked really, really well because people turned out to be have enough experience so they weren’t complete green when they came in but didn’t have so much experience that they were set in their ways. Sales people who have been doing their job for fifteen, twenty years it is very hard to in many cases to get them to do their job differently. A person straight out of college, never having experience is a lot of heavy lifting to get them to be good sales people. So we found — yeah three to five years of experience was the sweet spot for sales people.

For engineers, we had a lot of success hiring people straight out of college, bringing them in on internship programs. So the University of Texas we had engineering and development teams that we would get people in from the University of Texas for summer internships and then we ended up expanding that and getting people in from many of the top universities across the U.S. and that was a very good source of junior engineers. So try to find the sweet spots for your organization.

It’s going to be different in every organization but once you find it, you can sort of replicate that and follow that pattern. How do you make employees happy? So obviously money helps. Try to pay market and it’s you can define market by the conversations you have with candidates. You ask candidates what they were paying in their previous job or the job before that and you can figure it out. You can build up a patent pretty fast. I think as company becomes bigger it becomes more important to find other references. So it becomes more important to use compensation consultants or third party data sets but as a smaller organization you can find out most of this information by the conversations you have and one of the traps I think that companies can fall into is to pay more competitively to new people than to their existing employees. So you have somebody who has been with you two, three years and you brought them in on a relatively low salary because they were junior at the time but now they are sort of star people and your whole organization is evolving around them but in order to get somebody else in you’ve got to pay the market salary, you’ve got to pay them a higher salary and you often find this mismatch where you are effectively underpaying your existing employees and that’s is a really, really easy trap to fall into and I think it’s important to try to avoid that to make sure you are existing employees don’t get dissatisfied and move on because they are being discriminated against compared to the new people you are bringing in. So try to set quantitative goals for employees where you can. Easier said than done.

Obviously it is easier for sales people and those that have easily measurable metrics that they are working it. It’s difficult in finance; it is more difficult in engineering. It is easier in sales and client facing businesses it is generally easier but if you can set those quantitative goals. It’s going to make it much easier to compensate people in a fair way. Try to force a performance curve. I don’t know if many of you are familiar with Garris and Keeler. It’s a fictional town where all of the children are above average so companies are just the same. All of their employees — you run a department, you are the manager, everybody in your team — everybody has bell curves, everybody in your team is above average. It causes non-sense so you have try to force this a bit and as a company gets bigger that becomes more and more challenging to do but if you can try to force that. So if you get managers to rank their employees. It’s not necessarily 10-40-40-10. It could be 20-30-30-20. Or could be any commutation you want but you’ve got to somehow find out who your good people and who your not so good people. Then the bottom 10% of people, you’ve got to find a way of managing them out, getting them out of your team or getting them out of your organization or finding a way to improve their performance. Getting them on a performance plan of some sort or getting them a warning letter. There has to be some kind of action plan for that bottom ten percent otherwise you will end up becoming kind of a stagnant organization. And likewise the top people you’ve got to find a way to promote them. Linking pay to performance it seems obvious but it’s remarkable how few organizations do this really well. I’m not saying we did but we tried to.

There’s always a tendency to pay people according to not how they perform but how they were paid before. So you pay them the same bonus they had last quarter or previous. So this inertia is really, really strong in organizations and trying to find objective metrics and compensating people in according with their performance is a huge challenge and part of that is obvious performance reviews. The — nobody likes performance reviews. People don’t like being reviewed and managers don’t like giving reviews so people try to avoid this but you have to try to have some kind of discipline about that. I think smaller organizations it is easier to do it more regularly. We try to do it quarterly.

I think that gets harder as your organization gets bigger so twice a year, every six months is not a bad way of doing it but having something that is based on metrics, having a written review so having something is writing better than oral but having oral review is better than no review at all. But you’ve got to do reviews and then try to link reviews to changes in compensation, bonuses, and promotions. This is again is a pretty common mistake. Somebody will be given a promotion or a pay raise without actually having any feedback in a formal review setting. So these things need to be connected. Try to promote from within. It is demoralizing if every good job is taken by somebody from the outside. Obviously it is a balance to strike. You have to strike a balance. Not every position internally can be filled by an internal candidate. Sometimes you are going to have to go outside but as far as you can promote somebody from within it has huge benefits for moral and giving people a sense of there is a career track within your organization to progress rather than the only way to progress is to go get a job in another organization. Stock options are a mine field for early stage tech companies. Too many companies make the mistake of awarding too many options too people early on and it turns out to be the wrong people and the later employees can feel dissatisfied because they feel like they’ve got a raw deal compared with the — or the people who came in early and have a lot of options just because they were early employees. You can always give more options. So try to be conservative as possible in awarding options early. And just to add on a lot of people talk about the percentage of the company.

Well we are going to add somebody we got to give them a half percent of the company or some other percent and it is really dangerous. Sometimes you have to do that I think if you are really an absolute start up and it’s your first employee, first one or two employees. You may have to think in those terms. You’ve got to get away from that as quickly as possible. Particularly, once you get beyond series A. You start needing to have metrics other than percentages of the company; it will just get way too expensive so one way to do it. This is an example. You can do it based on someone’s salary. You can say well you want to hire somebody senior; they are on 200 thousand pounds per year. We are going to give them .25 times their salary as a stock option grant or maybe it’s 0.3 or 0.5 or maybe it is 0.1 depending on the individual. So in the case of 0.25 times, it would be 50 thousand in stock options and that’s how you present it to them. If 50 million is the latest evaluation of the business, then it actually works out to be 0.1% of the company which doesn’t sound like very much so you don’t want to be focusing on the percentages of the company because people are going to feel like oh it’s just a negligible amount but if you are company is worth a lot it can be a lot of money and it can be really, really dangerous.

I don’t know if anybody is familiar with the problem Zinga had, they were one of the companies that awarded way too many options to the wrong people early on and then Mark Zinga tried to take options away from people and he got into the front page of all of the major media. Everybody threw up their arms and screamed that I don’t know how it transpired, whether it went ahead or not but it generated a huge amount of bad publicity for the company and he was trying to sort of rectify this problem of getting options to the wrong people. Much better to not get that wrong in the first place. The typical vesting schedule four years or the one year cliff. So how do you let people go? So fire quickly. It is the opposite of hiring. You hire slowly and fire quickly and what I mean by that isn’t you bring them, you are fired, that’s it. Okay. I don’t mean that. It’s human nature, this inertia, this hope you really want people to work out and you keep asking yourself is this the right person for the job? And if you have to keep asking yourself that question it is fairly certain that it isn’t the right person for the job and it’s human nature to sort of hang onto people and not to move them on so if you could sort of bear that in mind and try to move people on faster rather than slower.

Obviously you’ve got to follow a rather reasonable procedure whether it’s given them a written warning or trying to figure out whether they can move in the company to where they could be productive if they are not productive where they are. You need to have some sort of process especially as the company gets bigger and you get — you are going to be subject to whatever the regulatory environment is for firing people. I’m not sure what it is in Europe but even in the U.S. people think of it as a hire and fire business environment in the States but actually it is quite easy to come on stock in terms of not following the right firing process of given warning letters and making sure somebody has warning before they are fired but generally that is not a problem.
You know if somebody is not working out, it is very easy to give them a letter and put them on a plan but you have to sort of mediate, you’ve got to make the tough calls. It’s very easy to sweep problems under the carpet but I think to have a successful business you have to bite the bullet and let people go.

How do you generate a good corporate culture? I think it’s — this is very intangible. It’s hard to put your finger on it exactly, every company is different so there is no real rights or wrongs about this but one thing I think is trying to find a purpose for your company that is beyond just the numbers. I think you need revenue targets, you need product targets, you need quantitative targets to shoot for but it’s necessary but not sufficient enough for a successful company. I think you need some — ideally you need some purpose beyond that. With job search it was nice we were helping people find jobs. We had an obvious purpose there that had some meaning in society beyond being profitable and making money. And people really identify with that and people really got behind that and it really helped employees be satisfied with their job. They were doing something meaningful. So if you can find that with your company, whatever it is, that really helps.

I think the more offices you have, the harder it is to establish an effective corporate culture and effectively it is hard to establish a uniform one. As I mentioned we had two offices from the beginning, so we had kind of a — two different cultures and it did coincide with more of the client facing one in Stamford and in Austin more of a product, engineering team. So they had slight differences but managing was two locations was manageable, was doable. Once you start getting more than that it gets much harder than that I think. So try not to have more locations than you absolutely need to.

I think every time you set up a new location you have to ask yourself is this really necessary?

Do I really need another location or can this be done from where we are today? Obviously if you have open plan offices it is easier to communicate. If you have a — if you create an open and collaborative environment it is going to be much more effective as a technology company than more traditional environments and everything was open plan in our business that worked really well and I think we had a fairly open culture in terms of communication.

We had developed our own Twitter like, Yama like internal communication tool. It end up becoming really, really successful for communicating internally. So I just wanted to finish up by showing a couple of Indeed videos. This was interestingly Indeed decided to use the UK as the test bed for its brand marketing campaign so TV, tube, London Underground ads so I thought it might be fun just to show a couple of those ads if this works. Oh this was — I took this the day before yesterday in King’s Cross so that was — that’s a billboard in the tube that is being used. [Indeed commercial playing] – “Search over sixteen million jobs in every industry and put your chance to work using the world’s number one job site, Indeed, how the world works.” Then I think there is another one. [Indeed commercial playing] “How do commercials work? You need a team working together, doing all kinds of jobs, you see these people they aren’t actors. They are real professions using their real skills and we hired them all from the world’s number one job site. Indeed, how the world works.” I’m not sure if that’s it. [Indeed commercial playing] “Most TV ads are made by commercial production companies but at Indeed the world’s number one job site we had another idea. With access to top talent in every industry, what if we used the job seekers on Indeed to make our ad? First, we listed job postings around the world. In the first week, we got over 2,200 responses.

We interviewed all kinds of candidates and built a team. We flew everyone to a studio in central Europe from all over the globe. We found a way to use everyone’s talent, collaborate, and get the job done. We had industrial designers, lighting experts, and interior decorators helped with the set. Fashion designers, make-up artists, and hair stylists made everyone look sharp. We hired security experts to keep an eye on things, multi-media professionals for graphic design, caterers for deliciousness, and a choreographer to make it all look smooth and instead of actors we used Indeed to hire retailers, transportation experts, engineers, financial advisors, IT specialists, and medical professionals. The resulting commercial was made by a team of diverse talent, the kind of talent employers find every day on Indeed and if we could pull this off by hiring from Indeed just ask yourself what can your company achieve with the right hires in place. Indeed, how the world works.” So I didn’t sign off on that by-line. They changed it. It used to say, one search for jobs and then since I sold the business I stepped down as CEO and then became senior advisor and then all sorts of decisions got made that I never would have approved including changing the by-line from one search for jobs to how the world works.

I think how the world works is very ambitious but a little less clear on what the service is.

So that’s one of those debates you have when you get to a certain scale, how do you brand yourself? But that’s a whole different story. I think we’ve got a few minutes to I don’t know open up to Q & A. Happy to answer questions on anything from scaling a business or Indeed or any other topic. [clapping]

Q&A

Audience: Thank you I really enjoyed your talk. Loads of questions but the first one coming to mind is about talking to references which is something that you touched on and I too have found that really valuable but I’m never sure of the right point to do it because it seems like the point where you get most insight is almost before the process is concluded but to speak to the most relevant people on those kinds of things, you might not want to show the hands to those people until you know the offer is on the table. So you know how have you handled that?

Paul: Yeah I think that is the hardest candidates where that is the biggest problem is the junior ones where they only had one job and they have only done the job for two years. The only relevant person to talk to is their immediate boss today and it’s really hard to get around that. I think you then just have to — you can find peers to speak to but I think it’s really hard. Someone is more senior it is easier because they can go to the top of their job, you can dig around, there’s more people to talk to but I think for junior people it’s harder but normally I think you can find peers or other people but I don’t know if there is any easy answer or you just wait and you do that as a step after they’ve pretty much resigned but then it’s a lot harder if you change your mind. So I don’t know other people might have a better answer than me too.

Audience: You are the second speaker to recommend hiring against senior sales people because they are too dogmatic, they are too set in their ways. Is there any future for senior sales people after five years or is that it? If you are not team lead, pack up and go home.

Paul: So I think that if the senior sales person has sold exactly the same thing as you are selling in the same way then that’s sort of a slam dunk. They can just pick up. It’s as if you are asking them to do something different then it’s a problem. And normally, in our experience, it’s a new business and trying to do things in a different way for most companies it was hard to find people — if you were in the Valley it was easier, they’ve got more companies out and more people who have worked in different environments like yours but maybe in Cambridge it is better than doing it in some other town in England but — and also it depends if it is management experience than you definitely need experience for that. If you are bringing somebody in to manage a team, you don’t want some junior person that has never managed anybody. We had a lot of success hiring within, I mean promoting from within so somebody who had been a very strong sales person but also had management capabilities or potential putting them in charge of a small team and then growing them that way was often better than parachuting people in even at the management level. So yeah I think that it’s hard if — I think you’ve got to get people in — if you’ve got to get people in with a lot of experience they need to come from very similar organizations. Maybe that’s the conclusion I have.

Audience: Presumably that’s not just sales but across other functions too?

Paul: Yeah. I think that’s true. Yeah. I think the more senior the person, the more similar the organization needs to be that you are bringing them, in my experience.

Audience: I actually had a very different experience. I hired a very senior sales guy that wasn’t at all from my sector if you will and he had been selling hardware and so on but it turned out absolutely fine. I think it really depends on the person you are hiring and if you are in kind of a medium size, small company you need to really focus on A are they talented? If they are in their forties but feel like they are in their twenties, you want to hire that person because you know they are full of energy and they are excited about selling something new. So I actually think their personality, their attitude meets with their experience can be extremely helpful. It was for our organization.

Paul: I think it also depends on whether you have more of an outsides sales approach or more of an insides sale. I think if you are hiring somebody to pound the phones and sort of work really hard and hit the numbers in a very repetitive way with a pretty simple sales process then the younger people do better with that in my experience. If you want somebody to be more consultative and be out face to face, maybe you want a more mature person for that. So I think it does depend on the type of sales process you have and what you are selling. If it’s more of a large ticket sale, you are going to need more of a mature person than a small ticket sale. Longer sale cycle you need more of a mature person than a short term person than a short cycle. So it depends on the products or service.

Audience: Hi, did you enjoy the early days, the first five years where you didn’t know where things were going more or less than the last few years?

Paul: I think I’ve enjoyed them in different ways. I think as a company gets bigger — I think the moment it gets frustrating when it gets bigger is that you spend more and more of your time on sort of the managing the bureaucracy as it were. I mean you get to the hundreds of people, thousand people and then you are dealing with HR issues, admin, and legal issues and you get to be — it’s harder to be close to clients, it’s hard to be close to the product, it’s hard to make changes. Anything you want to change takes a lot longer. So I would say it’s probably more fun in the early days. I mean it kind of depends on the financial pressures that you have too. You get different kinds of frustrations I think as you get successful then you don’t have the same financial worries, you have more power, more recognition, more stages but you have this you know HR problems, bureaucracy, and then you get politics creeping into the organization which is really can be quite depressing so you have those sorts of problems. Early stage I think you have the fun and it’s you can change things fast; you have a lot more control. It’s very dynamic. It’s exciting. You can make a big impact then for many, for most people you have this huge financial worry you know how you are going to pay the bills you know or keep your wife happy or husband happy or whatever it is.

Audience: So how do you keep yourself sane during those early days? Because it sounds pretty scary to me. What do you do that makes it work for you?

Paul: Yeah I don’t know how to answer that for one. I think you know keeping focused. I don’t know maybe I should let others answer that. You’ve got to have a tolerant family I think. No, I don’t know. I think maybe good you know co-founders. I mean Ronny and I you know we started two businesses together, worked together for fourteen years, and we had a solid platform in terms of co-founder I worked with. Yeah I don’t know if I have a silver bullet for that one.

Audience: Just an observation, rather than a question. In your session, your presentation you said open offices are really good for collaboration. I have to say as a software engineer and technical co-founder when I hear that phrase I just think we apologize for the inconvenience because if you want to kill developer productivity put them in an open plan office. They will hate you and they will leave. Make the spaces flexible, let people change them around. Make them at home at work. Research has done some great writing on this subject but please don’t fall a line that open offices are the best because they are not.

Paul: Yeah, no I think that is a good point. A lot of engineers are resistant to that kind of office organization and I guess our engineering team it wasn’t completely open plan. It was more of a pod type structure. I’m thinking more for the client facing teams as more productive for client facing teams to be completely open plan. Sorry?

Audience: Just a personal observation one company I consulted with a few years ago they had failure of an open plan environment where they had quite high walls almost like pig pens but not quite and that sort of worked. Sort of retro, not very nice but built desk and then they ripped the whole lot out. They put engineering in next to sales and they turned into an internet cafe where they had a ton space and a little monitor and everybody looked at each other across their screen and the productivity dived. You know you got to be really careful with open plans and getting layouts right. The best way to do that is to listen to people and let them move it around on the fly. Don’t care who sits where as long as it works. Give the people the power.

Paul: Good point.

Audience: You mentioned in 2005 taking an investment was the primary driver behind…

Paul: Say that again? What was the primary driver behind the investment?

Audience: Correct. To pay the bills. I mean we didn’t have revenue so Ronny and I seed funded it ourselves out of our pockets and then we had a payroll. I mean it was small as you saw with the numbers with six people or something but they still had to be paid salaries and we had other expenses and so that really was the motivation. So we raised five million dollars and that took us to profitability in 2007 but we ended up spending of the five million I think we spent three, maybe four, and three on just paying for operating losses.

Audience: How much equity did you both leave in this?

Paul: I’m not sure if that’s public. It might be. Around 30%. Yeah.

Audience: I just got a follow-up question to that point because I was going to ask something similar which is in the very early days when you were boot strapping how did you balance the desire to find the best people you could and then how much you could afford to pay? So if you didn’t have a really nice cash runway and your counting every penny what choices did you make between going out there and doing a massive recruitment knowing that you would find people that you might not be able to afford? My second question is about the side of your board. What about did you have an opinion about the optimal size of the senior management team and did that change when you went from fifteen people to you know five hundred? Did the size of the leadership team change?

Paul: So what was the first question?

Audience: The balance between finding talent and being able to pay for it.

Paul: Yeah, I think the people we had to say no to because of having compensation expectations that were not in line with what we could afford. I think we ended up — the whole culture of the company and pretty young and we got a lot of young people in who were not you know very well compensated and gave them equity, a lot of equity and people — we tended to find people who had a lot of focus on the cash compensation were not really the right people anyway because they didn’t really believe in the business. They didn’t really believe in the value of the equity. So particularly for product and development people are tremendously focused on — good ones are tremendously focused on the equity piece and you can afford that. Well depending on their expectations.

Audience: So can I ask a follow-up? So in those situations if you give and you talk about stock options the minute that you do that than obviously you are creating expectation that there is going to be a cash pay off later on. So sort of a jump today or jump tomorrow kind of question. What happens if your company like 37 Signals, mail chimp or companies that said they are not going to go down the route of yeah some mass IPO we are sending out?

Paul: I don’t know what they’ve done — do you know what they’ve done with options?

Audience: I think one of them which I think may be Thirty Seven Signals. They don’t hand out stock options because they are not selling. So they have said explicitly the message is there is no cash hand-out at the end of it.

Paul: I think you can find other ways to replicate it or you know have some kind of bonus synthetic plan. We did that with Indeed right off the selling because it came right off the subsidiary of recruit so there were no options for that. So we actually created a plan that tried to mimic that to extent based on targets. I think it was 50% based on revenue and 50% based on profit and we actually had units that we created and the value of those units depended on performance of those metrics and then we gave those units to people we wanted to give them to. So you can do that kind of thing.

One of the problems I think is that people don’t believe in the options. Even people who believe in the business don’t believe in how big it could be so options are often undervalued particularly where there are no cultures of options like I think it is harder here than in the U.S. So your other question I think was about the bonus thing. Yeah, I think it evolved into many more departments than we had at the beginning. So for example, we had no client services team at the beginning because we had no clients. We had a sales team and eventually we found — hold on this is classic our sales people are spending way too much time surfacing existing clients. How do we fix that? We want them to be selling not doing clients so you create a different team to do that so then we created it and then we need somehow to head up that team so I think it does evolve naturally. To some extent, you end up with more departments and more senior leaders over time as the company evolves. That is just one example of a role evolved that didn’t exist in the beginning. General counsel again you are not going to have a general counsel when you are a start-up but at some point you are going to need one so we ended up with a general counsel after I don’t know five years or six years or something. I can’t remember exactly when.

Audience: Have you been giving bonuses to software engineers? I think we heard one speaker say earlier that’s not a good idea actually.

Paul: Not a good idea to give bonuses?

Audience: To software engineers.

Paul: To stock options or what?

Audience: Well maybe have more team based type options but not individualized.

Paul: Well I guess that’s the rational for stock options but you can also have bonuses that are based on team performance. I think we had a combination of team bonuses and stock options. Both — but I think you need some type of performance based pay, don’t you? I don’t know. You can do it without. I don’t know. We didn’t. I think that would be hard to do without any performance related pay but.

Audience: I’m curious how much did you sell the company for? And second question how much did an early technical employee got for their options as a result of that sale?

Paul: So we didn’t disclose this actually. There was a lot of speculation that a billion was the figure about in the media but we never disclosed it. If you dig around in stuff in public documents, you can see how the New York Times figured it out. The New York Times is a public company so they had to publish the gain they made on their investments so you could probably figure some things out but we didn’t disclose that publicly. In terms of employees, we made a lot of millionaires. Quite a long list.

Audience: So was it around the billion?

Paul: [laughing]

Audience: So as you grow the company I’m guessing I know from my own experience the company sort of shutters as it goes through certain number of employees. Let’s say eight suddenly changes. Before it is painful and agony at seven and then when it gets to ten it is fine. Can you describe some of those milestones and what were the indicative signals that okay now we need middle management for example?

Paul: Yeah I think — you know I can’t remember all of those thresholds but your right I think there are thresholds. I think you can only manage a certain number of people. So in sales for example once you manage more than eight or ten people it’s just too many people you’ve got to create another team so yeah I think there are these thresholds. I think one threshold as a CEO founder — as a founder is just whether you can really know people. I think once you get beyond fifty employees it becomes quite hard to know everybody. You can work at it. You have to make a decision. Do you want to make that a part of your role to know everybody by name you know where they live, what is kind of important in their lives outside of the company or not? It’s hard because you can’t maximize everything. You can’t do that as well as maximizing other parts of your job. So you have to sort of decide how much work do you want to put in being sort of a, you know, — good people manager. I didn’t. I probably wasn’t as good as I should have been. After people got to fifty employees, there were just people I didn’t know really well. I think that’s the threshold but there are many others in terms of how you structure the organization but no that’s a good question.