EP 111: Strategic hiring for startups and the dangers of getting too big too fast.

Join host James Mackey and Elemental's CEO, Pete Hunt, as they approach how businesses can effectively tap into their data, leverage AI, and manage team growth. They emphasize understanding both the technological and business aspects of data management, the transformative potential of AI, and the importance of people-centric hiring practices.

   0:33  Pete Hunt's background
   1:33  Building data pipelines and driving growth
   7:08 The dangers of getting too big too fast.
13:39 AI’s impact on the tech economy
24:09 Aligning individual and company goals
35:35 Effective hiring and evaluation of executives
38:43 Hiring strategies 
43:51 Interview techniques

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Our host James Mackey

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Transcript

James Mackey: 0:27

Hello, welcome to the Breakthrough Hiring Show. I'm your host, James Mackey, very excited for today's episode. Pete Hunt, thank you for joining us today.

Pete Hunt: 0:35

Yeah, it's great to be here.

James Mackey: 0:36

Yeah, very happy to have you, and last week on the Prep Call is just really amazing to learn a little bit about your experience and what you're working on now. Would you mind to kick us off sharing a little bit about yourself with our audience?

Pete Hunt: 0:47

Yeah, so my name is Pete. I'm the CEO at Elemental. We make DAGSTAR, which is an open source data orchestrator, which you can talk about. I started my career at Facebook as a software engineer out in California. I'm originally from the Boston area and I'm back there now. I spent a couple of years there. I was fortunate enough to be an early member of the Instagram team, which was a lot of fun, and then also was a co-founder of the Reactjs project, which is now an extremely popular open source project that lots of websites are built with Left there. To start, my first company, which was called Smite, grew that one very quickly and sold to Twitter back in 2018. Spent a couple of years working on trust and safety at Twitter, and now I am at Elemental here as a CEO. So we are. We raised our series B round of funding earlier this year just under 50 employees at this point, but actively hiring and growing. I love it.

James Mackey: 1:43

Yeah, really fascinating background, and so I'm very curious. You've been very technical throughout your career, so I want to learn more about the solution that you're building now, and like, what was the gap that you saw? And then, what are you? What are you solving for right now with your current product company?

Pete Hunt: 1:58

Have you ever heard the phrase? Software is eating the world.

James Mackey: 2:01

I have actually yeah.

Pete Hunt: 2:02

Yeah, yeah. So I mean, there are a lot of disciplines that are gradually becoming, you know, softwareized or computerized, whatever you want to call it, and one of the things that pretty much every business of meaningful scale has adopted is data best practices. Right, they are making decisions based on data, they are aggregating it from places and they are charting it and viewing dashboards. And they are making business decisions not based on a couple of conversations, but based on quantitative data, also joined with kind of qualitative strategy and creative thinking. But data is a big part of it. And if you actually look at where that data comes from, it's produced from these things called data pipelines, which is software that ingests data from source systems, does some sort of transformation like, derive some insight from it, and then produces an output data asset, which could be, you know, usually a dashboard or machine learning model or some sort of data set that's maybe used by somebody else. And you know the company and the project was started because those data pipelines were held together with duct tape and shoeing gum.

Pete Hunt: 3:07

You know, this is like if you think about the story of infrastructure, not just in the technical domain but also in the physical domain.

Pete Hunt: 3:15

You know, bridges were originally just kind of built by a guy who you know put some wood up and like it probably worked. But you know there were tons of accidents all the time, bridges falling over all the time and over time, as these things became more and more mission critical, they got hardened and there were best practices that were established that were repeated over and over again when building bridges, and so we see data as this, you know industry or practice that is leveling up its software engineering best practices and its rigor, and so the tooling that these folks had available to them at the time was not supporting those best practices. I could talk about what those are, but we're basically building, you know Dagster, which is an open source library for building data pipelines that makes you know software engineering best practices really easy to adopt. That results in like better developer quality of life, higher quality data, faster. We think that like great tools are like a silver bullet. Yeah for sure, but I love that.

James Mackey: 4:12

And are these like? Are these tools that you're building? Are these that like? Are C level executives directly interacting with the data? Like, who is the end customer?

Pete Hunt: 4:23

essentially, yeah, so I think there's a really I think everybody can relate to some version of this story where if you're an executive and you're looking at your sales funnel or you're looking at your dashboard that segments your you know, user based by some some criteria, and you might look in and you might say, hey, I'm looking at at this X axis and the last date on my X axis is like four weeks ago. Where's the last four weeks of data? Or hey, I'm adding up these, these numbers on this chart and they're not adding up. It doesn't make sense to me. What's wrong with this Data?

Pete Hunt: 4:58

And oftentimes what happens is in the meeting where you're reviewing the dashboards like you have to kind of wrap that meeting up pull in an engineering team and they go and they dig through all these data pipelines and they spelunk through all these different tools you know wherever the day is coming from and they try to figure out why the numbers aren't adding up or why the pipeline didn't run recently or whatever it is.

Pete Hunt: 5:21

And that is often a really challenging process because you have to have an engineer that understands the technology as well as the business ask. And oftentimes you know that that problem with the data was way upstream and there were maybe like three or four different teams between the CEO seeing the bad chart and the underlying kind of problem with the data. I mean this is like you know, if you ever watched the movie or know the story of Apollo 13, right, like that was this narrowly averted disaster and what happened was three years before the thing the the rocket was launched. There was like a small mistake you know made in the wiring of one of the oxygen tanks and data pipelines are similar. You know, like these mistakes can take a long time to percolate through the system and it's it can be very challenging to figure out where those things go. That's really helpful context.

James Mackey: 6:10

I appreciate you slowing down with me and helping me understand that a little bit more yeah.

Pete Hunt: 6:17

Yeah, so we basically build tools to make it easy for folks to build those pipelines and then, more importantly, identify problems with them and fix them.

James Mackey: 6:26

Good stuff. I love it. So I want to pivot and talk a little bit about growth. I think company CEOs two people, officers, operating officers, boards are thinking a little bit differently. Of course, they're thinking about sustainability, burn more emphasis on maybe not profitability, but at least break even. I think the emphasis is still like for a lot of ECs, like compounding growth, but but we're looking at a little different. This skill set that they're looking for and executives is changing, looking for people that maybe have a little bit more mature operational experience and understand Unique economics a little bit better when it comes to customer acquisition costs, lifetime value and structuring, packaging a solution in such a way that is going to be a little bit more sustainable. So we're seeing that shift. One of the things that we discussed on another call was thinking about, like your, as you said it simply put don't get big. So many problems come from scale. Tell us about that.

Pete Hunt: 7:32

Yeah, so there are so many business books dedicated to solving problems of high scale organizations. I mean, you go to Barnes and Noble, there's like entire walls of books about this. Right, okrs are a great example. This is like OKRs are kind of generally considered a best practice in most organizations. Right, and the key idea with OKRs is that Google created this culture of innovation where they decentralized decision making with these objectives and key results system, so individual organizations could be really autonomous and and you'll come up with their own solutions without having a big committee called for every little decision. Right, that actually doesn't necessarily produce great results all the time. Like, google should be the market leader in messaging. Right, they own the most popular mobile platform. They had Google talk before, like back when a well, instant messenger was the big player.

James Mackey: 8:29

You know, I mean like sure.

Pete Hunt: 8:31

Why are they not the market leader? And that's because every single one of these decentralized organizations within Google created their own messaging app. There was Aloe, there was Google Meet, there was Hangouts, which was different than the old Google Meet, there was Google Buzz, google Talk, and then there was the SMS app and Android right. So I just named six different messaging apps over the last 10 years that that company's built, and I think that is decentralized decision making at work and kind of management by objectives or OKRs or whatever you want to call it.

Pete Hunt: 9:01

And certainly, when an organization gets to a certain size, you need something like OKRs because it becomes unmanageable.

Pete Hunt: 9:08

But I think you want to get to that point as far out in the future as possible, and so I think doing more with less is not just about, you know, making your gross margin look better. To me, it is about being able to actually deliver a product and have a lot of agility, and so what I do when I kind of, you know, grow in growing teams is I just think like, hey, what is the minimum number of people that we need to do this? And how can we deploy capital in other ways to make people more efficient and more effective and especially in technology right. We've got all this cool AI stuff that's come out recently. We've got cloud computing. We've got open source. Like teams do not need to be as big now as they were five, 10 years ago, and I think we are. We have seen this contraction in team size start over the last year with the, with economic downturn and downturn in technology. I think that trend is actually going to continue.

James Mackey: 10:07

I really appreciate your perspective on this, just based on your background, experience and entrepreneurship, working for category leading companies and whatnot, which are building now For our folks tuning in when it comes to the economy and a rebound in the tech tech economy, if you will, and all the layoffs that we've seen in tech. Just a little side note here Do you see AI dampening that that the you know in terms of the hiring and people getting back to work? Is that a real concern? What do you think of all this?

Pete Hunt: 10:38

I hold two conflicting thoughts in my head about this. So the first is that, like anybody that went in and used the original chat, gpt or GPT, three demos was blown away. This is truly new and exciting and super interesting and transfer transformational technology. I do think it's overhyped, though, so I can tell you that the way that we have leveraged it within our organization, it really hasn't been hugely impactful. It is mostly replaced contract copywriters. So if we have a, if we are doing a big content marketing push, we're writing a lot of written content. There is still an expert who is driving that process and in fact, you know, oftentimes we'll have chat, gpt or something, outline the content and then we'll replace every single word by the end of the editing process. But it helps accelerate to that first rough draft.

Pete Hunt: 11:34

Right, we're not seeing AI. You know when, when these large language models came out, we were really hoping that we could, for example, you know, replace our customer success team or otherwise, you know, have many fewer customer success people and then kind of, you know, leverage AI to address those problems. You know, I think that there is going to be some use of AI and triage and kind of trying to off board people earlier in the support process, but I think generally, like customer success teams, they will still be around there. Just might be like a smaller number over time as this technology gets better. But you also have to keep in mind, too, that most people hire employees because they need accountability for the quality of the output Right, and you don't get that with with an AI powered system.

James Mackey: 12:25

I hear you and actually one of my biggest concerns that I think is on the verge of like an existential threat, is that AI would disrupt the employment market a lot faster than we're able to react to it, which could cause mass unemployment, which a lot of time. Technical innovation is obviously going to be something that stimulates growth in the economy, but if the disruption is too fast then it could actually have an opposite effect and in some ways tank large portions of the global economy. So I'm actually like when I hear you say like a little bit, it's overhyped, a little bit is part of me, is like okay, thank God, like we have time to plan.

Pete Hunt: 13:03

Yeah, yeah, well you know, Would you hire, you know, an employee that would make a catastrophic mistake and just straight up lie to your you know, to your customers or your peers? You know? 5% of the time, because that I mean that that's the current state of the cutting of J. I is it right, it's great 95% of the time, but 5% of time it just makes stuff up and it does sort of very convincing way and there's no way to predict what it's going to, to hallucinate, right and so yeah.

Pete Hunt: 13:33

I don't know what they're cooking up at open AI but or any of these other big AI labs. But you know, right now I think that most people are going to be pretty safe.

James Mackey: 13:43

Yeah, I think so, and that makes me really happy. We need time. We need time to adjust properly. You know, it's actually really interesting when it comes to producing this podcast. Some of the tools now that are available are freaking crazy. Like we're using a tool called descript, and have you heard of that one?

Pete Hunt: 14:03

Yeah, yeah, it summarizes the increased transcripts, right.

James Mackey: 14:08

It's so much more than that. So, basically, you upload the raw video and it'll automatically generate the transcript and the captions, of course, but then there's a feature where it automatically takes out all of the filler words.

Pete Hunt: 14:22

Oh, that's great.

James Mackey: 14:22

Right, like usually, like literally between 200 to 400 ums and stuff like that Boom gone. Then it also has this like Grammarly ish feature that highlights part of like the transcripts that they think are probably wrong. So like, for instance, half the time when I say town acquisition, ai thinks I'm saying town acquisition. I don't know why, but like across different systems, transcription systems, it always happens. So you can even, like you know in bulk, just like you could in words, say, every time it says town acquisition, change the town acquisition. And what's really cool is when you edit the transcript, so like, let's say, you want to take out a sentence, you cut, you edit the video and audio by editing the transcript. So if you take out a sentence and the transcript, it automatically deletes it from the video and audio. So you're doing the transcription.

Pete Hunt: 15:11

That's great.

James Mackey: 15:12

Captions audio and video.

Pete Hunt: 15:14

That's what I mean. It's it's like incredibly transformative technology, but I think it's only working well in domains where there is a human at the controls. Who's a? Camera for the output Right.

James Mackey: 15:24

Yeah, you still need from a quality standpoint, you still need somebody working on it. It just means that you can find, like those high leverage areas and like it's still hard work. The work is just shifting and the work is shifting into higher leverage areas and the reality is like every business is going to be optimizing it. So it might give you an edge at first, but every company is going to move in this direction. So it's not that our jobs are getting easier. They're hopefully just we're spending time where we should like. In the case of the show on distribution, right Right, exactly Producing this great content. We got to get it out to the world and so like we have the opportunity to to do more of that. So it's just an interesting use case. I think you'd also mentioned, on our previous call, sales development as an area that you know we think might be considerably disrupted at this point in time.

Pete Hunt: 16:08

Yeah, yeah, I think that that would be one where where there's a higher likelihood.

James Mackey: 16:12

You know it's in. This is another use case you might find interesting is there are tools. One of the people on our board said that he's thinking about advising a company that's thinking about building. They're building a tool, basically, where AI can do phone screens for first round interviews and at first, like I, there's a lot of people in recruiting that are like, oh, you know, human touch this, and that I'm like, well, yeah, but you also have a bias, like you know, obviously Right Right.

James Mackey: 16:37

Yeah, but. But the reality is like, yeah, sure, a human touch, like I don't disagree with that. But there's also, like I feel like in some cases I'd rather go to a career's page and just knock out a screening call on my own time and get the questions answered that I have around cop ranges and benefits and all of that stuff. Like let me just get it done, and that way I don't have to schedule an interview, go back and forth with a recruiter, wait on all these stuff. Like I can just go get my screening call done on my own time and then I can engage with a person down funnel if it seems to be a good fit. So, right, right, I think like in some cases, like give candidates the option, you know, schedule a screening with an interview or with a recruiter, or feel free to just do it via this link Talk to our language model Like we can just get it done so you don't have to like take time off from work.

Pete Hunt: 17:31

Yeah.

James Mackey: 17:32

And then we can just get it done to interview. So I think that that's like a really interesting application that I think we're going to see it like in that, in that area too, because, honestly, man like recruiting is sales.

Pete Hunt: 17:42

Totally.

James Mackey: 17:43

You know what I mean. So I think there's going to be disruption there too. Yeah, absolutely what it was Okay. So that was like a big rabbit hole. But getting getting back to staying small, I'm kind of curious to get your thoughts on. Well, first off, I think VCs must love you because you're thinking about, like, how to preserve cash and invest it properly. So I'm sure that that's the case. But you know, I would love, like, as you're scaling your own company, how do you go about making those judgment calls Right? How do you know when you really need to fill a role? What is the criteria that you have to open a role and actually build out the team, versus saying, like, really, really lean and try not to hire.

Pete Hunt: 18:28

It's a great question. There's certainly an art and science and experience factor here. I can tell you my heuristics for it. It doesn't work 100% of the time, but I think generally it is. So there are certain roles that are easier to predict and they're a little more linear, right. So a sales team is a great example. We can do the math on the conversion from MQL to SAL to close deal and then we can say, okay, how many reps do we need? And we can work backwards from there and figure out okay, for our company goal, what is our hiring plan, what is the ramp for each individual rep, when do we bring them on? So those roles are pretty scientifically. There's a playbook for it at this point. So you can hire ahead of plan a little bit and be fine.

Pete Hunt: 19:17

But generally, I think for the roles where you have a little more uncertainty, I like for there to be somebody feeling the pain for a little while just to prove out that, yes, this is actually worth bringing on somebody. And then we figure out who their manager is going to be. And their manager should be excited to hire somebody into this role and you should be able to say, hey, what are they going to do in their first 90 days and how are we going to measure impact? And if they can come up with a 30, 60, 90-day plan with quantifiable impact, that's a pretty big indicator that this role is worth filling and it is worth the big price that we pay, not in cash, but in focus and management and cultural alignment and stuff like that, by bringing on a new person. You'd be so surprised I mean, maybe you wouldn't but a lot of big companies, there's a lot of people that get hired and they show up and there's nothing for them to do.

Pete Hunt: 20:13

And it's because of the big corporate machine and how they plan headcount and all that stuff.

James Mackey: 20:18

Through my company, securevision, we do contract embedded recruiting RPO basically, companies borrow recruiters from us right, and we've done it for over 200 companies in the last decade and we see that a lot. I think the main thing that really stood out is defining impact, and I think a lot of jobs are open, based on tasks that need to be completed versus on deliverables, or without a clear understanding of how is hiring for this role going to cascade kind of upward toward us achieving the North Star metrics that the CEO and board have in place? Right, you should be able, for every position hired, there should be a direct causal relationship between what outcomes they're creating and the company achieving North Star metrics. And I think, to take this a step further, it's like beyond hiring, like literally any project or initiative if you can't clearly show that causal relationship between what you're working on and how it's helping the company achieve that North Star metric, don't do it, don't make the investment in the tool, don't work on the project, don't hire the person Right, that should be the culture.

Pete Hunt: 21:32

And that's why you don't get big. Because that work of establishing that individual's output and how it connects to the top line goal gets way harder to do the bigger an organization gets. And that's why you get these large companies where CEO goes talks to some random employee. They'll have no idea why they're possibly doing that work. It makes no sense. It's not aligned in any way to what the company's trying to accomplish. So establishing that those relationships is challenging and I think it gets exponentially harder as the number of employees goes up.

James Mackey: 22:05

I mean, I think this is also correlated with cash efficiency, right, Like I think it's. We look at payroll as probably the biggest expense and we probably look at our tech stack maybe as like second biggest, would you say.

Pete Hunt: 22:17

Yeah, you know. They say there's for every employee that your average company now buys one SaaS product per employee at this point Crazy.

James Mackey: 22:26

That sounds like too many. Yeah, it's a problem we have a problem Software is eating the world right.

Pete Hunt: 22:32

Yep, yep and business models are too.

James Mackey: 22:35

Yeah, man, it's funny Like the software eating the world thing. It's funny Like it's. What's crazy to think about is, I think, like the younger generation coming up, like people who are kids now, like if we say to them something like the tech industry when they're an adult, they're going to be like what are you talking about?

Pete Hunt: 22:50

That's the concept of like right, that's just the world.

James Mackey: 22:53

Like the concept of, like the tech industry is just going to completely fade away. Right, like because the industry is going to be tech. Yep, I agree, it's wild. Well, you know, I think like one of the things that I was really interested to talk with you about is at the companies you've worked for, like where you're at now, you've made it a priority to get FaceTime with every single hire. I'm sure that's pretty difficult, like when you're going through fundraising. You're trying to stay close to customers, speak with them. You're meeting with your leadership team. You got a lot going on. So I would love to understand your philosophy behind why, as CEO, you ensure, like you're meeting with every candidate and, more holistically, like it sounds like that's pretty much a culture you're trying to build around hiring too. Like if you're doing it, you're showing the rest of the organization that like, hey, this is one of the most important things we're doing, right.

Pete Hunt: 23:48

Well, yeah, I mean, there's a lot to dig into there. So, first of all, I interview every candidate. Right now I do a one hour long top grading interview. It's a lot of work but I do do it. I plan on doing that up to around employee number 100. I think after that it's going to become increasingly difficult to do, but I plan to expand that to like a pretty small cabal of people that are all very trusted and can kind of, you know, screen for a lot of the traits that we're looking for.

Pete Hunt: 24:19

One thing that I do think is very important, and again it goes back to that alignment of, like what the individual is doing and connecting it to the goals of the company. A lot of times companies get into trouble when the incentives for career development for the individual do not match what is best for the company, and so you find individuals doing stuff that they either are doing stuff that is like wasteful or is actively harmful to the mission, or they are unhappy because they are stuck in like a dead end job, and so I think it's really important for CEO, senior leadership, senior ICs to do like shit work, basically, and so some of our best engineers we are fortunate to have, like many senior staff and principal level engineers from places like Facebook and Google at our company and, like those guys are on the support rotation, they are like on call for the systems. They sometimes do the annoying compliance work or filling out. You know we try not to have too many like TPS reports but like in the event that some regulator or something needs something like that, they do that work and I think in a different context they would be too senior for that and the earlier career folks would have to do it and I really like a culture of you know everybody picks up the mop and washes the floor from time to time, including me and, like you know, doing a bunch of interviews over and over again for every single role at every single level.

Pete Hunt: 25:56

In my opinion it's just a lot of work and I think it models the behavior that listen, like everybody here, ceo on down, they do some degree of non scalable, you know, not necessarily great for your career, but it's like what we need and this is the company type of company that will recognize that and reward that. So I think, in addition to kind of like the you know, making sure that you're hiring great people and that you are understanding who's joining your company and what motivates them. You're also modeling the behavior. I think that's important, and that's not even to say that, like you know, some people get hired. They don't think that recruiting is part of their job description, but, like it turns out, especially at startups that are growing quickly like ours, recruiting is a key part of the job and in some cases it's like half your job, depending on what your role is.

James Mackey: 26:42

Yeah, for sure. I think that that's a lot of times underestimated in terms of the skill set that needs to be hired for amongst leaders, really really diving into how much of their role at a previous company was actually recruiting Right yeah, are you building team or managing a team? That's a lot different. You know it's very different. And so you have to understand, like, do they do so effectively? Do they know how to bring in great people? Because it's, you know, like getting hiring a nine out of 10 versus a seven out of 10 has a compounding effect on the organization, just like top line revenue growth, which has a compounding effect. And so you know there's I've even seen some content on LinkedIn which I think is total BS, but they're like, oh, you know, you don't focus on hiring a players. It's really just not pal possible. Like to do so consistently. You need to build systems and process where B players can thrive.

James Mackey: 27:39

I'm all for the idea of, like shortening the gap between A and B players through process and optimization.

James Mackey: 27:46

I get it, but it's really important to get the best people, particularly at an earlier stage, the people that are going to make you a lot better.

James Mackey: 27:53

So, yeah, I totally agree with that I think, like you know, hiring an experience, recruiting experience, is a big part of a big part of being successful, and I think it just comes down to getting back to the concept of like a people first culture and, like the conversations that I've had with some CEOs, and some people get it I feel like you get it but I feel like others don't wear like when they hear like people first, their head goes to, okay, that's just about a bunch of fancy perk and like perks and like mental health days and like that's what a people first culture is. But it's really not it's. It's it's the understanding that people are at the core of business success and that like, literally, it's the core of your business. Go to market isn't the core of your business. Product isn't even customer feedback, because you need great people to run all of those motions Right, and so it's. It's like that is how fundamental and important it is, from the founder to every single hire thereafter. So I just think it's it's the best companies understand that.

Pete Hunt: 28:55

Yeah, people don't talk about that nearly enough. You know they. You always hear about the importance of customer feedback, right, but so many times that customer feedback is not collected in a way that gets at the truth, or it falls on very happy ears and you learn the wrong things from that customer feedback, right, and so the people on the other end of that customer feedback are just as important, if not more important, than the feedback that's actually coming in. Right, yeah, yeah, and I just I hear it from CEOs.

James Mackey: 29:24

They're like oh, the number one thing is is the customer? And like I get the sentiment, I get what they're getting at. I just think that there's a we have to go a layer deeper and remember what is the initial calls right, what is the initial thing that causes the rest of the other things that we need to accomplish. And it's when you think about it logically and you really take time about it, it's really almost impossible to argue against right, because you and you start to like what really gets me excited about talking about people is like coming to the realization not only that people are at the core, but like literally in history of the world, nothing great has ever been built without recruiting and empowering an incredible team. Like that is fundamental to progress. As for society, like yeah, and so it's like that's the power when you have that mindset shift and you figure out how to optimize different people aspects of your business.

James Mackey: 30:18

Like the easiest example that I like to share is like optimizing onboarding. Like I think a lot of people are like I'm not going to be able to do that and a lot of people leaders and town acquisition leaders they get this wrong. Like they go to executives and they're like we want to provide a better employee experience, like people will be happier if we provide better onboarding, they'll be more engaged, and like that's not an executive level conversation, you're not going to get buy-in from a CEO or a board member. Typically right If you just go with that argument. But if you go in there and say like, look, if we optimize onboarding for a sales rep, we can decrease the ramp time from six months to three months, that we can increase the quota, which means that they will close more ARR, which means that it'll have a compounding effect on our top line growth and evaluation of the business, right, holy shit, let's jump on this.

Pete Hunt: 31:06

Well, onboarding is super important and it does compound, like you say. Yeah, absolutely.

James Mackey: 31:11

And that's like. That's like that's what a people first culture is. It's not like mental health. I'm not saying that's not part of it, I'm just saying it's like it's aligning people initiatives with again driving actual North Star metrics, right. So some of the benefits and stuff like I'm not saying this is not important, I'm just saying it's like if you're like a venture capitalist, like tuning into this right, like this stuff's important.

Pete Hunt: 31:40

Well, we're a DevTools company. Our users are data engineers and ML engineers and, like I, previously worked on this very successful open source project called React, and those are tools that are aimed at making people's lives better within the organization, and so one of the things that companies like Facebook got really right was their entire teams, called like EngEfficiency or Dev Velocity or whatever, and their job was to make the engineering onboarding easy and to make it faster for people to ship to production, and these are things that if you just kind of looked at business strategy, you might not really find the right list of projects to do. But, like by talking to your people and saying, hey, like what gets in your way every day, like what paper cuts can we remove from your day to day life in terms of process or tools or whatever it is, and then like actively have, like having somebody internally who's accountable for making those folks more efficient.

Pete Hunt: 32:37

Yeah, it can like really transform an engineering org. I mean, that's one of the reasons why I love working on DevTools like DAGSTAR, but like also just it can apply to all sorts of different domains.

James Mackey: 32:48

Oh no, it's like it's there's nothing more exciting, and sometimes more frustrating, than as a CEO, like uncovering a massively inefficient area in your business that, like was totally unknown, like where you're, just because you're constantly looking for gains, and and then like where I've started to look, it's like okay, when we hear we don't have time, right, or something like that, then it's like, okay, how do we like I try to remind myself, and sometimes I like it's hard to constantly do this, but it's when I look at anything related to, like, sales, customer success, marketing, what we do with the show, everything else.

James Mackey: 33:22

It's like okay, we don't have time to accomplish some of the key things, like what is eating up the time, right, and then it's not only about, like, optimizing the things that are important. It's optimizing the things that aren't quite as important is actually even more important, right, because you have more time to do the thing. So it's like looking in both places, but yeah, it's a, it's it's you can find a lot of leverage. There's always feel like there's always area, particularly when you're growing, because things are constantly changing, right, always easy. Like there's always areas to improve. It's like just about trying to uncover them.

Pete Hunt: 33:53

It feels like sometimes yeah, you know, my, my hot take too is that if you have an org of 50 people or less, there's no, and you're like a manager or a product leader or something. There's no reason why you can't have a ranked list of all the price, a single rank list of all the priorities for all those people, at the start of the quarter. Sure, going out three months or so. It's work. You got to go in and talk to everybody and do the difficult prioritization exercise and round up all the stakeholders. But I think that's part of the job and by making those, those tradeoffs very, very explicit and making them public can really help align the organization and get to get to productivity faster.

James Mackey: 34:34

I couldn't agree more. I wanted to get your thoughts just changing a little bit. Getting back to talk a little bit more about VC business strategy and related to hiring, I think some of the advice that we hear is go out, hire individual contributors first and then an executive after. I mean, of course this isn't like a hard and fast rule that we hear from VCs, but I think often it's like trying to outline some kind of process, see some kind of repeatable success before you go out and hire an executive which is going to be essentially potentially like overhead or whatnot. So I'm curious to get your thoughts on that, if you've heard that advice from VCs and if it's something that you agree with.

Pete Hunt: 35:15

Yeah, yeah. So when I I've definitely heard it and I think the way that it was communicated to me was you have to learn the role before you can hire the manager for the role. So like CEO goes and hires a product marketer I see, manages that person for a while and then only then do they develop the knowledge and understanding and ability to like, know what great looks like and hire like a leader. That sounds great in theory but it has simply just not worked for me in practice. I've always found that designing hiring processes for ICs where you have no internal talent that can hire for that role, it's very painful.

Pete Hunt: 35:55

A lot of ICs they're not used to owning like a company level goal or like an output goal. They do the inputs. The inputs don't lead to the output and they don't see a problem with that because a lot of times you're sourcing from a bigger company where they're pretty disconnected from the outputs. So I've seen it fail where some folks hire executives that are too senior for their stage of company. But barring that, I'm a big believer in like hire. If you're going to start to build out a new function, find the right leader for that function. First, get that right and then start to unlock headcount for them over time and let them start to grow their organization. I think if you go the other way it can just lead to a lot of problems. You can kind of again hire the wrong people, or you can kind of get a warped point of view as to what success looks like or how to measure it. It can just cause a lot of problems.

James Mackey: 36:54

I totally, actually, I do agree, and I think another point I would just like to suggest too is that when you do hire, particularly for sales reps, it's ideal to hire two or three from the start, because you don't exactly know what good looks like. So if you have one person, you don't know if they're doing great, okay or bad. You hire three, you can stack rate come a little bit more effectively and get a sense for if how they're performing in relation to each other and relative to each other, and that makes it a lot easier to then set quotas and set standards for future hires. So just something to call out there. That's a you want to learn more about that.

James Mackey: 37:34

I used to have a podcast that actually failed, but it's still online. It's called Scale by Design. It was catered for the VC community, but for any VC who's tuning in, you guys don't like to play outside of your own circles too much, so we weren't able to build as much of an audience there, so we discontinued it, but it's one of the episodes is named Scott Lease. He's a big sales influencer on LinkedIn and that kind of stuff, so he provided some pretty good insight there. But yeah, I think starting with a leader makes sense.

James Mackey: 38:02

So I guess there's kind of two follow up items I want to discuss diving into that, the first being what do you look for when you hire an executive? And then, after we get into that part and I'll ask this again, you don't have to remember, but I want to get into, like, how you're evaluating their performance from the start and, if you like, how do you know if they're actually working out? Because, given all the experience that you have, like I'm sure you've made great executive hires and I'm sure you've had misses too, if you're a human being, regardless of how effective you are, like for miss. So I would just love so again, I'll ask that again, so you don't remember that. But that's kind of the two part I want to do now. So part one again like when you're evaluating executives, what do you look for? How do you select the right person?

Pete Hunt: 38:49

Got it. So that's a great question. So I do a couple of things. So, first of all, one of the advantages to, like you know, being an adult is you can ask for the answers to the test now. And so I go around and try to find another CEO that's been in my shoes, or I go through my investor network. I try to find smart people that'll talk to me and I say, hey, I'm hiring for a role I've never hired for. Like what are what are the common things people screw up when they're interviewing for this role? Like there are things that are obvious. You don't want to spend any time in that conversation talking about the obvious stuff. You want to talk about the things that are, like, unintuitive or counterintuitive. And so I try to get that counterintuitive list from somebody that is an expert.

Pete Hunt: 39:33

Then I put everyone through. I put every executive through, or actually every employee through, a top grading interview. For those that are familiar with what that is, you can Google the word top grading, you'll find it. But we basically get the work history and we try to assess strengths and weaknesses and why they made the career decisions that they made, and you can generally see a trend of high performers like I took this job because my manager from my last job recruited me over, because I was, because he liked working with me or whatever that's a pretty good sign that somebody is successful in their role. If somebody is always changing jobs I moved cities and I just needed to find another thing Once that's totally understandable. But if that's every career move, that doesn't give a signal that you're a high performer. So we put people through that interview.

Pete Hunt: 40:25

I also ask all execs to do an executable presentation to a subset of our management team. These folks might be called upon to present to customers. They present internally all the time. They might present to the board. They have to be really dialed on their presentation skills. It's just there's a certain leadership component. You could be the smartest analytical person in the world, but if you can't inspire others to come along on the journey, it's not going to work out in that role, and so presentation very, very important. Besides that, we have a kind of core people management-ish interview and then we have a couple of functional kind of role specific interviews, depending on what we're hiring for. Again, I consult with experts and I actually try to hire experts to come in on those sessions if we don't have any talent in house to go grow that function, so that's really what I do look for. Read hire, which I think was a question right Like how do we assess that?

James Mackey: 41:27

Yeah, no, that's exactly so. You crush it. That was exactly what I was looking for. Getting back to one thing when you're talking about people's career progression and how like jumping around jobs, or was there kind of a strategic move, a manager hire or men? I think this was from the book called who. It's a recruiting book called who Check it out Last names of the authors Smart and Street, but they talk about the concept of pull versus push. Are people being pulled into new organizations, or are they being pushed out of the current one?

Pete Hunt: 42:02

Interesting yeah.

James Mackey: 42:03

That's kind of an easy thing to remember, right? So it's like example of pulled is like okay, I generated XYZ growth or XYZ outcome was for my employer. I had somebody leave, go to this new company. They were building this really exciting thing. He convinced me, or she convinced me, to come over there. After considering it for six months, I decided to take the lead. That's what you want.

Pete Hunt: 42:26

That's a great example of what we're talking about. Yeah, all right no-transcript. And top grading is a great way to get that information out of folks. You'd be surprised at some of the things that people say in interviews. It's wild. At every job they're always the smartest one in the room and no one could understand them and that's why they got fired.

James Mackey: 42:46

So there's actually and I have some good ways, like when I was a recruiter for several years and I got a write-out at it, so I was push-pull was a big part of it and then also reference checks, and I think this also might have come from the book who I can't remember. It'd be hilarious. I'm just getting credit to the wrong people, but anyways, I think it's from this book. Who and they were talking about reference check process and I think, like a lot of people, have just kind of had subpar experiences, reference checks not actually having a good or a reasonable or relevant correlation to outcomes produced, unless it's like a back channel type of thing. But what I found really fascinating is actually front-loading the reference check conversation to a screening interview. So we've actually taught our recruiters to ask reference-related questions and actually we get more value than this than actually doing reference checks at the end.

James Mackey: 43:41

So the way that it goes is you tell it, let the candidate know like, hey, look, just so you know, at the end of this process we are going to check references from previous direct managers. So I wanted to ask you at your prior company, would you be able to get a reference from the previous direct manager yes, interesting. Okay. Then you follow up like, all right, what's their name, write it down and you say, okay, so when I speak with Sally, say that you know previous manager's name is Sally. When I speak with Sally, how is she going to rate your performance one out of 10? They're going to tell you the truth because you're like, well, shit, he's going to speak with Sally, so you know you're looking for an eight out of 10 or higher. People are actually pretty accurate.

James Mackey: 44:21

If they give you a six or seven, you'll just be like, okay, why do you think that is? And they'll be like, well, you know this, I had this going on in my life, this and the other, you know whatever. And then you have to distill if that, if you feel like that's, you know, reasonable or not, but typically you're looking for eight out of 10. And then you follow up by giving them an opportunity to brag. What is Sally going to say? You do best.

Pete Hunt: 44:39

Yeah.

James Mackey: 44:40

They get to brag a little bit, dive into that. Well, how did you do that? How did you build that? How did you solve that Right? Really, try to understand. There's substance behind it. The next question this is where you get the goal, the good stuff you say what is Sally going to say was an area for improvement. You always structured as was, because you want to give people the opportunity to say you know they grew from it Right, and often people do right.

Pete Hunt: 45:02

So this, this is my interview that I do.

James Mackey: 45:05

You do this, do you ask these exact questions?

Pete Hunt: 45:07

Yeah, If you go look at top grading right, it'll say, you know, at this role, what was this? What was the strength? What was the weakness? What would your manager or sorry, what would your manager say is the strength? What would your manager say is an area of improvement? What was the highlight? What was the low light? You know it's one of the big four questions that we ask about every role.

James Mackey: 45:24

I love it and I love front loading it to a screening call. I've heard some shit when I say like area for improvement, like well, everything was good, but like this one time I got into like physical fight. You're just like. You're like okay, but you know it's stuff like that. And then other things, like you know, people will just drop out of the process at that point, so you'll have a higher fall off rate, but it's actually a positive indicator.

Pete Hunt: 45:47

It's good yeah.

James Mackey: 45:48

Right. So like that's the thing it's, like you people just think highest conversion rates, like down funnel and like show that your top of funnel is highly relevant, and I think that is true to an extent, but it also it shouldn't be too high, because then are you really filtering out on the right criteria? And there are some cases just for those tuning in, like if, like, a company has a policy against giving references, we're not holding that against people, right, if you had an area for improvement that they could show growth from, that's, honestly, self-awareness, which is a very good trait for somebody to have.

Pete Hunt: 46:23

It's not, oh yeah. And there are plenty of terrible bosses too, right, oh yeah.

James Mackey: 46:27

It's hot.

Pete Hunt: 46:29

You know what I like about that set of questions, when applied to the work history interview, is like if your boss is terrible at every place you worked like it starts to be a low likelihood that the boss was the problem.

James Mackey: 46:43

Right, it's like every single person you've worked for is just too stupid.

Pete Hunt: 46:47

Right.

James Mackey: 46:48

That's like well, you know, at a minimum, you're really bad at picking jobs at a minimum. At a minimum, be better at that.

Pete Hunt: 46:55

Right, right, yeah. The other one, too, is when the area of improvement is like oh, it just worked too hard.

James Mackey: 47:01

Oh yeah.

Pete Hunt: 47:02

I just care too much. It's like, okay, how about a second area for improvement?

James Mackey: 47:07

Right, right. I think, like self-awareness and like owning other areas for improvement is so important. It's really important for leaders to do that with their team too is like having the self-awareness to know what you're great at and know what you're not, so you can either improve it or you make sure you're not the one doing it. Yeah.

Pete Hunt: 47:25

Right.

James Mackey: 47:26

I mean, you know, just know what you're good at, and just you don't have to be good at everything. Yeah, nobody's good at everything anyway, Exactly, exactly. Yeah, I'm good at like a couple of things. Yeah, you know, count them one hand, there's a few things right.

Pete Hunt: 47:41

Yeah, I would like to nail my interview if we can't come away with articulating something you're not good at. Yeah, because then we just say, okay, you just kind of like, didn't authentically like. If you can't like authentically reflect on your strengths and weaknesses in this context, like you're not going to be able to, we're not going to be able to have a truthful conversation while you're working here, right, yeah, oh, my God, the sales, our sales funnel, fell off a cliff. Like, are you even going to be able to surface that problem to us?

James Mackey: 48:12

That is a really good analogy, you're right, like if somebody isn't comfortable bringing challenges. It's like that employee that says you ask hey, how's it going? You're like everything's great.

James Mackey: 48:19

Yeah, it's too late to fix it right, right, so like there's this huge problem and I think it like cuts both ways too right, totally. I think sometimes companies like they mess up not sharing enough challenges with the employees or, excuse me, with candidates or employees actually. But the reality is like it's a, when you share challenges that, as a candidate or as a leader that you're going through, it builds trust and, like as a as a hiring manager, you want to work with candidates that are excited about solving for those challenges. Mm-hmm, you don't want to try to sugarcoat it or not mention it or just I mean, it's good to focus on the positive stuff to get people excited, but sometimes people are more excited about the problems. Yeah, you know it's. It's like that. Some people want to be the hero, great, coming and solve this, please like.

Pete Hunt: 49:12

Well, you know it leads to really interesting work. If Not everything is a well-loiled machine, as most startups are right, like, and that that's when we're recruiting people From like. If we're recruiting somebody out of a startup like they already know the deal, yeah, we're creating somebody out of like a Google, for example, they I do that, that interview and like I need them to say that they hate their job. You know what I mean. Or at least, like you want them to say something along the lines of like you know, I feel like I've run out of places to grow or I'm bored or I'm not learning anymore or I hate my job.

Pete Hunt: 49:50

But like, because the pitch For for us right, like we're small start. So we go to the person at Google we say, hey, you want to work harder and make less money? Like, that's our pitch for to a Googler, right, but it actually the second part of that pitch is like you are gonna have the most Rewarding and exciting couple of years of your career by coming over here, because you can just take any of these problems, go solve them and, by the way, there is huge upside potential. Certainly there's a lot like and and there's a certain amount of excitement that comes with that. Right, like.

James Mackey: 50:22

You know it's funny is like I would actually love that to be the title line of an email that sent to a candidate Like you want to work harder and make less money. I would be very like curious to see like the open and response rate. If you just lead with that, I think it would actually be pretty like pretty high, because people be like what, what is this?

Pete Hunt: 50:41

Yeah, I mean I think that when you actually Just just to defend startups here for a second, when you actually look at the expected value and how these outcomes generally go for, like you know, silicon Valley tech startups like the, the delta in comp is not as big as as everyone, or the risk factors are not as big as everyone says.

James Mackey: 51:00

No, but still like the cash comp that you will get in the first year, relative to the cash comp you'll get after you sell your Google stock, that best the first year, it was like yeah and I think too, it's like particularly now when we're seeing layoffs like Google and all these big tech companies Like people are a little bit shook where it's they feel they felt insulated in the past working for one of these orgs and Mm-hmm. Now I feel like something that confidence is shook, a little bit like speaking with ex-googlers that were let go basically with no notice and Like by email or like locked out of systems like that. That stuff has been happening. I don't know if that was exactly how it was done, but I heard some pretty rough stories from people coming from these big companies in the past year that just kind of got cut. So I think it's. You know, people are starting to feel like maybe bigger isn't necessarily safer.

Pete Hunt: 51:46

Yeah.

Pete Hunt: 51:47

So, yeah, I think it depends on a lot of factors, but I will say, like one of the advantages of don't get big is like we like literally can't afford to do layoffs Because we wouldn't have enough people to like run the critical operations business right. So we didn't do layoffs. I'm not just saying that cuz like we're awesome, because obviously I'm gonna say we're awesome, but like it's more more about like by running a lean organization, just so many different things, so many things get way easier and there's problems that we don't deal with.

James Mackey: 52:18

Yeah, I hear you and we just had such a fun time talking. I you're coming up on time here. I still wanted to ask you how do you quickly identify if an executive isn't working out? I Don't know if there's like a high level Like, because sometimes it's, if you wait too long it can cause so much damage. I mean, how do you figure it out early?

Pete Hunt: 52:38

You have a 30, 60, 90 day plan. We check in, we do around a peer feedback at the 90-day mark. If an executive is unwilling to own a, a top-line Quantifiable metric, it's not gonna work out. We usually establish that before they sign on. But like you'd be surprised, you know we've had leaders in the past that come in and they just like they don't want to be accountable to anything measurable and you're like that's not how it works here. Okay, you got to be accountable at least something. And then also we talked to their direct reports and and try to figure out, you know, are they do they? Are they excited to come into work? Are they they motivated to work under this person?

Pete Hunt: 53:22

Where I found we get a delayed negative signal is Often the executive doesn't start hiring during that first 90-day period. We open up headcount like a little bit later and sometimes these execs don't know how to hire. They're like you, they're they come from a big company, they have a whole like recruiting team that just does everything and like they don't know how to do anything Except for their tiny little sliver of the process. So that's a common failure mode I found. But uh, but you know we try to assess as much as we can, as early in the process as possible. And you know, if they make it the first 90 days, they'll generally make it for a couple years.

James Mackey: 53:57

Yeah, I mean it's, it's the whole. Be very critical with hiring. Try to get the right people on board, get your hit rate as high as you can and I think at an early stage to, to the extent you could hire executives that you can back channel. That Somebody in your network knows I think is is probably ideal. Obviously that's not, it's harder to do at scale, but I think that that that does go a long way. But yeah, I mean just like the the risk of Getting the wrong person and particularly if they're at the top of the org chart and a lot of people report into them, it just can be so Catastrophic. That's why I like to talk about this stuff as much as I can to get people's insight.

Pete Hunt: 54:35

Yeah, Well, if you got a firearm, you got to fire them and fire the person quickly. Yeah, yeah.

James Mackey: 54:42

Try to try to avoid the wrong hire, but when you do make it own it, take care of it. Trust your instincts, trust the data and your instincts too. I think you have to look at both. If something feels off, probably off. But anyways, pete, thank you so much for joining me today. This was a great episode. I loved it. I hope you did as well.

Pete Hunt: 55:01

Yeah, this was fun. Thanks, James.

James Mackey: 55:02

Of course, for everybody tuning in. Thank you for joining us and we'll talk to you next time. Take care.