At HireBetter, we’re always looking at our processes and results to try to identify trends and figure out better ways to help our clients confidently make great hiring decisions.

One of those trends that we’ve noticed has held true over the past 6 years of business has been the SOURCE of where candidates come from and then who our clients ultimately hire.  Here are our findings:

If you have 100 Candidates* that you’re considering, our experience would suggest that:

• 82-87 will be Direct Applicants [defined as those who see your posting somewhere and send in their resume via email]
• 12-15 will come from a Headhunter or Recruiting Researcher
• 1-3 will be Referrals [defined as anyone who you learn about through your network or the network of those you trust]

*Author’s Note: the reason I’ve chosen 100 is because it makes the %’s really easy to calculate.  If you have greater or fewer than 100, look at the total % of the pipeline instead of the # of people.

For the FINAL 3 People, we’ve found that it’s very likely the make-up of that pool looks like this:

• 1 Direct Applicant
• 1 From a Headhunter
• 1 Referral

And when you make your Ultimate Hiring Decision – you’re at least TWICE as likely to hire the Referral versus the other 2 candidates.

Granted, there are some obvious reasons why Hiring Managers choose the referrals.  Things like the stigma that might be attached to an unemployed direct applicant or the costs associated with an external headhunter that might impact your Department’s P&L.  But even with those things stated, I set out to find some more answers as to just WHY a referral is so much more likely to get hired than anyone else for open positions.

To help answer this question, I turned to Thom Singer.  Thom’s a well-known Author and Speaker on Professional Networking and Personal Brands and he had this to say:

[JDavis] What’s the significance in your mind of earning that referral introduction that gets you an interview?

[TSinger] Hiring Mangaers are human beings – no matter how many pre-screening tests they can use, how much training they’ve had on the psychology of hiring.  At the end of the day people are drawn to do business with people they know, like and trust.  When someone they know, like and trust strongly encourages them to meet with someone it’s going to get preference because ultimately what a Hiring Manager is trying to do is eliminate people so that they can have a “short list”.  Being a referral from someone that the hiring manager likes and trusts, means you’re going to have a much higher likelihood of landing on the short list.  If that Hiring Manager knows somebody, likes somebody – that candidate gets to ride on the coattails of those human emotions and can benefit from their referee’s reputation.

One other thought here: I’ve said for years people will do biz with people they know, like and trust (this isn’t an original thought – it’s widely accepted).  The problem is that in the last two years, the definition of the word “know” has changed.  Because of the mass adoption of social media, we all think we “know” everyone else.  This used to be a process [getting to know someone] that took years to develop.  It’s served to make the act of “know” less important but makes LIKE and TRUST significantly more important.  Just knowing “Of” someone doesn’t necessarily lead to like and trust.  Today, referrals need to come from someone that the referee TRULY likes and trusts.

[JDavis] What are the dangers of being a referral if the person who is referring you just KNOWS you, and you’re not SURE that they LIKE and TRUST you?

[TSinger] Asking a stranger or an acquaintance to introdce you to their company is just slightly better than picking up an employee directory and calling through it.  The risks are that (a) the referral might not happen [as the candidate you may think you got referred but it didn't happen] or (b) the referee could give a “lip service” referral that indicates that they don’t really support you or won’t stand up for you.  The power of a REAL referral is that the person will stand up for you and can really make a strong case for why the hiring manager should hire that person.

If you’re a Hiring Manager and you receive a referral from someone, what should you look for in that referral to know it’s “real”

1.  How do you know this person? (look for the fact that they really KNOW the person, not just know “of” them.  Get to the bottom of the story by asking, “Do you just follow them on Twitter?” or do they actually use statements like, “I worked with them for three years and they’re a rock star“.

2.  What does their work product look like?  Do they have direct knowledge?  How do they know them related to the job that you’re referring them for?

It gets back again to that danger I referenced in the first section of “just because you follow them on twitter or you’re connected on facebook, that doesn’t amount to a hill of beans.”

Ultimately, it’s got to be MORE THAN “Ambient Awareness”.  As a Hiring Manager your goal is to be working with a stronger foundation of knowledge versus just a marketing brochure disguised as a resume.

While the tools we use to communicate over the past 2 decades have changed, how we’re wired as humans to make decisions is still the same.  How people speak about others (yourself included) and your personal brand is just as important as it has ever been.

[JDavis] Why should an interviewer or hiring manager CARE about the size of someone’s network and influence or reputation?

[TSinger] As the world has gotten more digital and electronic, the ABILITY to connect with someone and to get others to stand up and say, “I like them, I trust them” is exponentially more valuable than in previous years.  This ability has become “capital” – because people just don’t do it any more (or more importantly, do it well).  There’s also so much more noise.  When you’ve got people who stand up and say, “I REALLY KNOW John Doe – then you’ve got a winner.”  When you see that someone has real human connections that care about them, it’s more valuable because it is genuine and says people care.

But there’s more to it than just being liked!  Just because someone has a lot of visibility and people like them doesn’t mean they’re good at a job.  But it’s my opinion that if you have two people whose ability is equal but one of those people has great interpersonal skills and a strong network of who will stand up for them, the tie MUST go to that person because it says that they are much more well-rounded.

Bottom Line: It’s not just about the network.  You still have to be good.  Being good at what you do is your “admission ticket”.  Too many Professionals today subscribe to what I like to call the Kevin Costner Business Model: if you build it they will come.  What I tell people is, “If you’re the best kept secret in your industry, you lose”.  When it comes down to a hiring decision, with all things being equal, a Hiring Manager is going with the person who has the reputation.

Thom Singer is a Professional Speaker, Consultant and the Award-Winning Author of seven books on the power of networking and business relationships.  He has trained thousands of people on the art of creating a personal and professional brand.  Thom’s Blog, Some Assembly Required, is widely considered one of the top resources on or off-line for Professionals and Job Seekers and his Networking Quotient Test was created to help assess and then provide the action steps needed to make networking a priority.  You can also follow him on Twitter.

In observing an interview on-site with a client earlier this month I recognized a disturbing trend across everyone in the organization that, upon further research, is happening in nearly every company and in every interview.  When asking someone a tough question, instead of waiting for a response, the interviewer is rescuing them.

We’ve modeled our interview process on the best practices of Topgrading® and they all start with:

1. In your most recent role, what was the situation when you accepted the position with respect to talent, resources, systems and efficiency?
2. What were your top 2 or 3 responsibilities?
3. What were your top 1 or 2 accomplishments?
4. What are the 2 mistakes that you made in the role or what would you do differently if you were starting that role again today?

What we’ve witnessed is that nearly everyone is more than willing to answer the first three questions – and when asked in this order, they feel more and more confident as you give them permission “brag” about themselves.  However, when you get to the 4th question, a significant number of candidates (whether for fear of appearing weak or not wanting to have to talk about the tough parts) will respond with, “You know, I can’t think of anything.”

Because interviews are often scheduled for 30 or 60 minutes at most companies, hiring managers and interviewers often feel like there’s a ticking clock that doesn’t allow them to stop and wait and (this is the hard part) endure the awkwardness of silence.  Yet throughout history, the top business leaders are in agreement that our greatest learning opportunities happen when we are making mistakes – not when things are going really well.

To learn more about the skill of the skill of purposely allowing candidates to struggle, I interviewed Christopher Mursau, the Vice President of Smart & Associates in Chicago, IL.

JDavis: What’s the benefit of letting someone struggle through a tough question?

CMursau: It sets the stage early on that you’re going to ask the questions that allow them to give positives but you also need to know about the negatives and you’re not going to let them off the hook.  It’s important that they understand that when you ask them a question they need to answer it honestly and if they need some time to think – that’s ok!

JDavis: How have you learned to be patient during these difficult stretches of an interview?

CMursau: It depends on where we are in an interview – if I’m talking about someone’s career when they were just coming out of college and they can’t think of a mistake that they made (in a position from 20 years ago) I’ll often use the opportunity to let it slide to get to know them a little better.  I’m also starting to “train” them about what’s coming up in future questioning – that’s why it’s called a CIDS Interview (Author’s Note: CIDS = Comprehensive, In-Depth, Structured)

There’s a difference between pushing and building rapport.  Ultimately, I want the candidate to give me their best and honest answers about their most recent positions.  If they’ve had 5 jobs in their career, I might let them off the hook on the 1st one but the next 4 jobs (leading up to the present day) I’m going to be more patient and more insistent on them answering the tough questions.  Because I’ll ask the questions in the format you mentioned above about every position, the person I’m interviewing realizes quickly that it’s going to be awkward for them and unacceptable to me when they say, “I don’t remember” twice in a row about the same difficult question.

JDavis: How much significance do you give to the questions around admitting weakness or owning up to mistakes?

CMursau: Incredibly significant – it’s possibly the earliest warning sign for me of an interview that won’t end well.  When someone is unwilling to talk about weaknesses or mistakes, it’s been my experience that they won’t respond to constructive criticism, they’ll be hard to coach and more often than not they’ll be prone to blaming others when something goes wrong.  When someone has shallow insights into their strengths and weaknesses I seldom advise a company to hire that person.

JDavis: What counsel would you give to an interviewer to help them deal with the candidate who can’t find it within themselves to share the mistakes that they made?

CMursau: Give the candidate opportunities.  Ask the question around the mistakes about 3 straight jobs (if they struggle twice in a row, try asking it in a slightly different way the 3rd time).  Employ the “pregnant pause”.  If, after the third time they can’t think of anything, it’s likely they have low self-awareness.  When this is present, I’ve found it to be a leading indicator of a lot of other red flags and the likelihood of that person being a fit for your company is very, very low.  I’d strongly encourage someone to end the interview if the candidate shows lack of awareness about 3 consecutive roles in their career.

Chris completed his undergraduate degree in psychology at The University of Wisconsin, and his MBA at St. Thomas University. He joined Smart & Associates, Inc. in 2001 and provides the full range of professional services.

David Sandler once said, “You can’t teach a kid how to ride a bike at a seminar”.

With that in mind, I personally don’t believe that you can teach someone how to be a great interviewer through a blog post.  My hope is, however, that by using a few of these simple tips in advance of your next interview, you can do a much better job than you previously have.

Here are my TOP 4 WAYS TO BE A GREAT INTERVIEWER

1.  Setting Up the Interview Properly:

Through my volunteer efforts with EO I was responsible for managing our Event Calendar for 18 months.  During that time I learned that every great event that you’ve likely ever been to had great planning at the beginning.  Some companies base their entire reputation on it (i.e. Disney).  When everything is planned properly it says a lot not only about your company but also significantly increases your chances for success:

• Does the candidate have a copy of the Job Description and our Company Website?
• Have they been called, confirmed and sent directions to our office?
• Do they know how long they will be there and what the schedule is during their time?
• If we don’t share the schedule or expectations, what does that say about us?
• Who will greet them when they arrive?
• What’s the 1^st Impression someone will have of our company?

2.  When Your Team Plans the Fight, they Won’t Fight the Plan

Be sure that the Job Description, Competencies, and Accountabilities are distributed to all of those who are interviewing the candidate and everyone on the Interviewing Schedule has gotten the chance to review and ask questions.  Here’s the Checklist:

• Does everyone have the itinerary for the interviews?
• Have you been selective in choosing WHO will interview people?
• Where will they be interviewed in our office?
• Has everyone received a copy of the Candidate Packet (Resume, Description of the Role, Prior Interview Notes)?
• Does everyone involved know what role the candidate is interviewing for and how/why they are being asked to evaluate the candidate?

3. Have a GAME PLAN with your Interviewing Team:

• Add or delete questions based upon what previous information (resume, Comprehensive Interview Notes, preliminary interview notes) has revealed about the candidate.
• Assign areas of focus for your Interviewing Team so that questions aren’t redundant and everyone is maximizing their time away from their day to day responsibilities.
• Encourage everyone to establish their estimated time to spend on each section of questioning.
• Refresh your memory regarding the sequence and wording of questions to ensure a smoother interview.
• Remind everyone to never, ever write on a resume.

4.  Setting the Stage for an Effective Interview once you’re Face to Face:

After a couple of minutes building rapport, let the candidate know about the expected time frame and then sell the person on being open and honest. Topgrading® suggests that you state your purpose and plan in the following way:

• Review your background, interests, and goals to see if there is a good match with the position and opportunities here
• Determine some ways to assure your smooth assimilation into your new position, should you join us
• Get some ideas regarding what you and we can do to maximize your long-range fulfillment and contributions
• Tell you more about the career opportunities we have to offer and answer any questions you have
• Understand your career history, which will be thoroughly verified in reference checks we’ll ask you to arrange with your previous managers

Patrick Thean is the author of Execution Without Drama and in June 2010 I got the opportunity to hear him share some of his thoughts on creating specific scorecards for Manager Level talent and, because I get so many questions from hiring managers and business leaders about this exact topic, I felt like a blog post to share his suggestions was worthwhile.  Here they are:

KEY PERFORMANCE INDICATORS FOR MANAGERIAL SCORECARDS:

RELATIONSHIPS & PEOPLE

Employees:

• Voluntary Attrition
• Keep Smart (learning, furthering themselves)
• Employee Net Promoter Score

Customers:

• Net Promoter Score

Shareholders:

• Dry Powder
• Burn Rate
• # of Months of Cash (Runway)

PROCESS

Make/Buy:

• Quality & Bugs
• Supplier Mistakes
• Project Health Index (actual vs. plan)

Sell:

• Sales against plan/quota
• Pinkie Report (Patrick’s idea for his sales team – if this deal doesn’t close I get your pinkie)

Records (Finance):

• A/R Quality
• Cashflow
• # of days to Close & Report

The following letter was written by a fellow Entrepreneur who needed his top Technical Talent to really understand what he was getting into by asking to take on the role of CTO as the company continued to grow. I’ve taken out any personally identifiable information but I DIDN’T remove any of the CEO’s requests because I wanted each of you that read this blog on a regular basis to be able to see how well thought out this is and how he did such a good job of explaining his vision for the role, what it would take for the current employee to move into that role and what they would be responsible for. But he didn’t stop at that, he gave him options! Proactively realizing that it would be likely that the employee wouldn’t want the role of CTO after seeing what went into it, he described the four other roles that the employee should consider pursuing instead so that the employee didn’t read this and get the wrong message that maybe he wasn’t “wanted” any more.

There’s a lot that everyone, including myself, can learn from how well this CEO communicates.

A CTO’s role and responsibilities

A Chief Technical Officer is an executive-level position in a company who is focused on technological issues within an organization. It typically involves overseeing Research and Development activities, and formulating long-term visions and strategies at the officer level.

CTO’s focus on planning, budgeting, and business management. They see technology as a tool to solve business problems. In my option, the challenge we’re currently facing is that we view technology like a toy – one that we enjoy playing with but not focusing on its real purpose – to finance our team and solve business problems (with a focus on the finance). We solve problems with technology, we respect it, we enjoy working with it, can sell it, but there is a higher order ROI (Return on Investment) and applicability function that a CTO must perform. And that’s where I see us coming up short.

What it takes to be a great CTO

Admittedly, we’re both inexperienced with defining this particular role. To compound the issue, you haven’t been part of a bigger company to observe what a CTO does. You don’t know what you don’t know yet. If you’re restless and in a rut, this may surface in future challenges as well in terms of how you perceive your value. I learned long ago that technology is perishable and you have maybe 6-8 years of being a super geek before you need to reinvent yourself or face becoming obsolete. And with the extreme changes in technology, that window is getting smaller and smaller. To take the next step in your career development, I suggest changing your perspective. Perhaps try thinking the following ways:

• Think bigger. Be responsible for the transformation of capital – be it monetary, intellectual, or political – into technology to further our objectives. You must combine your strong technical background with business development skills in order to create and monitor business value from IT assets.
• Think differently. I get the impression that you’re struggling with knowing what our business is supposed to be. Simply put, it’s a machine that solves problems for money. Period. We need to accept and remember business fuels technology. Technology does not fuel the business.
• Think strategically. Start looking at things differently. Technology is nothing more than a tool that is used to solve business problems. As a corporate officer, your primary concern should be long-term strategy and “big picture” issues while still having deep technical knowledge of the relevant fields we occupy.

How do you get there?

Becoming a great CTO and technology leader is going to require you to at least double the amount of effort you’re currently putting in – and that’s no exaggeration. There’s a lot you’ll need to learn. This requires a great deal of restraint and will force you outside of your comfort zone. I realize this will not happen overnight. But, I believe in you, and if you want to take the next step in your career development, here are the things you’ll need to do.

• Read every day. You must set aside time every day to read blogs, newsletters, books and magazines. This is non-negotiable. Put the time on your calendar, shut off your phone, IM, email, etc and read.
• Better communicate your vision. Be more proactive in what you want the team to accomplish, what our product should do, and what you hope it can achieve. You’re the driving force with building our product suite, and it needs to show! This needs to be done on a daily basis. You must reinforce your views every day.
• Know the competition. You should be able to rattle off a list of our competitors without hesitation. You should be able to tell me exactly what they’re doing, who they’re targeting, what kinds of features and benefits they have, and how we’re different and better than them.
• Know the players in the space we occupy. You should be obsessed with our marketplace. You should be able to list off every major company out there we could possibly do business with. You need to know how their technology works and how we can work with it.
• Know the latest technology trends. You must be up to date on the latest platform decisions whether it’s .NET or PHP. You need to have a view on whether Ruby on Rails is worth the hassle.  What I’m getting at is technology is changing very fast. You don’t want to be left with an obsolete skill set in case .NET falls out of favor and/or something better comes along. The only way to prevent this is to know what’s happening now and what’s coming down the road later.
• Forge relationships with the players in the space we occupy. You need to get out there. You need to become comfortable in the role of wearing the company’s public face when it comes to all things technology. This will require you to start proactively talking to people and introducing yourself to them. Start attending trade shows and conferences, contribute to discussions on online forums, find people on LinkedIn and introduce yourself. Consider even taking a public speaking class through your local Toastmasters club.
• Meet other CTO’s. Start rubbing elbows with people like you at other companies.
• Properly manage and mentor the team. This means you must make time every day to meet with your team to discuss issues and roadblocks, discuss technology trends, and get to know them better. In addition to, I suggest meeting every other day to or two times a week to do code review as well.
• Travel to our office at least once a month. I’m not convinced what we are doing can be done remotely. Being successful will take a herculean effort. As such I’d like you to plan on spending most of your time here each time working face-to-face with the guys.
• Find a mentor. I highly suggest a mentor. That’s the only way you can be sure that the CTO role is right for you. You’ve got to talk to someone who actually does it. I certainly haven’t been a CTO but I have worked alongside them. It’s a demanding job and not right for everybody.
• Take ownership and be more accountable. You know what’s required to get the job done, not me. You have to enforce deadlines and dates. This is what successful companies demand. We can’t be any different otherwise we’ll always miss our deadlines and dates.

Do you still want to be CTO?

As you see, it takes a ridiculously large amount of work and discipline to be a CTO. I’ve never faced this issue before and it isn’t easy.  But being in it now and seeing how much is required of a CTO, I don’t want to presume that this is something you want to be. I’d like you to reflect on my suggestions above and work with me to define what role you want to play in the company.

Other roles for you to consider

I want to help you find out what you love doing while being careful at the same time not to pushing you into something that you’re not, or not ready for. If you decide the CTO hat is not for you, I want you to consider the following alternatives:

1. The Lead Architect – Every great technology startup needs one of these – this is not unique to our company.  If we don’t have somebody inside our organization that is setting the technology direction then I’m convinced we’ll never head for greatness.  Either our core is innately technical or it’s not.  It’s what makes Google, Google and Facebook, well, Facebook.

I believe that every great technology startup has the technology visionary inside the company. This needs to be you! You not only need to own all the technology but you need to dictate what it is we’re building and why – every day.

Trying to work without this person is like wanting to build a world class sky scraper but not having a great lead architect and civil engineer.  They provide the vision for our infrastructure. The problem that many inexperienced startup CEO’s like me make is confusing these people for the people who lead the technology team.  Most often they are not.  The deepest thinkers on technology architecture are seldom good team leaders.  They often aren’t great at planning development work.  The best technologists often aren’t amazing people managers. Sometimes they are introverts.

2. VP Engineering – First and foremost, a VP of Engineering is a people manager.  They have the respect of their team because they’re technical by training.  But they’re that rare breed that also understands the human element.  They know how to motivate their people.  They know how to get people to hit deadlines. They know when it’s OK to push hard for the team to hit a deadline even if it means yet another all-nighter or weekend.  And they know when to tell me (the CEO) to shove it because the team has reached maximum stress / effort.  A great VP of Engineering manages me (the CEO) as well as the team below him.

In my view it is important to distinguish the difference between the CTO and the VP Engineering.  The VP of Engineering is the person who still has great technical chops but prefers not to be a developer.

The VP Engineering aspires to manage teams.  They feel comfortable with C# but are also whizzes in Excel.  They are sticklers about managing unit tests, system tests and regression tests. In fact, they’re passionate about automating testing overall.  They know how to estimate work units, how to manage the agile development process and how to get the most out of their teams. VP’s of Engineering are essential to making sure the trains run on time.  The VP of Engineering is also our company’s primary interface to our future head of product management and often the VP of Engineering is somebody I would bring with me to meet clients and to win big deals.

3. Program Manager – This title almost sounds like a consultant’s job.  It is not somebody that we need just yet.  However, it is one of the more critical roles as we scale our company.  As we head into the phase where we get real customers paying real money for a period of time we’ll have a whole new set of issues. Examples include:

• Every time you release new features you need to update our technical documentation
• Updating our marketing documents including our website
• Somebody needs to be sure that customer service is alerted to the new features and are trained in how to handle these functions with customers
• New features need to be rolled into PR strategies and competitor analyses
• New features need to be documented so the rest of us know the latest and greatest about how to differentiate from the competition.

Many startups have never faced these challenges because they haven’t hit scale.  Trust me, as we grow these issues become the key to winning large customers and keeping them happy.

4. Lead Developer – This person is the most senior of all developers on staff. They are typically the go-to person on projects they are assigned. Their entire function in the company is to product top-tier code while acting as a mentor to other developers that are more junior.

The lead developer typically reports to a CTO or VP of Engineering and is a key part of their team.

Closing thoughts

In summary I hope this didn’t scare you away. On the contrary I’m here to help you.   You’re an incredibly gifted and talented individual that does so many things right. At the same time, however, you have a lot to learn and achieve. We both do. I hope this letter identifies what steps we need to grow this company and helps you to reach your full potential.

I had the good fortune of hearing Cameron Herold today while I am in Boston for EO’s Entrepreneurial Masters’ Program.  His topic was “Leadership at 100 MPH” and a lot of the focus was on hiring with predictability and not making mistakes that really could really hurt your company.

For 2010 we’re proud to sponsor Cameron because we agree with what he teaches to Entrepreneurs and Business Leaders around the world.  While I’ve heard him speak a number of times I always get a few new things each time I hear him.  Here’s some quick thoughts from today that hopefully you can benefit from:

1. Culture’s hard to build and easy to destroy.  One of the fastest ways to destroy it is to not fire people who clearly can’t do the job they’re in.  Not only that, you’re doing that “problem” employee a disservice by asking them to live on pins and needles while you’re “too chicken” to let them go.
2. When you’re hiring someone new onto a team, don’t ever let your team’s “average performance” drop.  More pointedly: if you’ve got 6 people on your marketing team and you’re about to hire a 7th, make sure that the person you’re hiring is at least more qualified and better than 3 or more of the existing team members to keep raising the bar.
3. Ensure that you’re very clear on what your needs are when hiring and then make sure you can “smell the right person from a mile away”.  Cameron used the example of going duck hunting with his grandfather as a child.  Early in the morning, as the sun was coming up, small V’s of ducks would appear on the horizon and even as they were just specs a mile away Cameron’s grandfather would be able to tell whether or not they were the right ducks for them.  “Nope, put your gun down” he’d say.  When pressed to explain why he would clearly describe wingspan, formation of the flock and altitude.  The business application isn’t a hard jump to make: it’s easy to get excited when you’re in the thrill of the hunt but you have to be very clear about what you’re hunting.
4. Staying with the aforementioned parable, when Cameron was out duck hunting they’d always bring decoys to go by their blind.  To an amateur, a decoy is a decoy.  However, to the experienced sportsman, the use of decoys will make or break your time on the water.  Choose the right decoys with the proper placement and you’ll have plenty of opportunities but choose the wrong one and you won’t attract a single target to shoot at.  Business application: if you walk outside your office and look at the front door and you’re not impressed with the look, what’s an A-Player going to think?  If your reception area is unattractive and your office sounds like a funeral home, how’s that 28 year-old superstar going to feel when they show up to learn more about your company culture?  The morale of the story: if you’re not using the right bait, you’re going to end up eating really nasty fish or not eating at all.
5. Are all of your Hiring Managers fully aware of the background that you’re looking for in team members 2 years from now?  If you’re hiring for the people that your company needs TODAY, and with the scorecards of the performance targets they need to hit this month, you’re likely not attracting the A-Players who will move your company forward.  Instead, they’ll be the people who will keep your company stable.  Are your Hiring Managers guardians of your culture?  Are they clearly aware of your company goals?
6. Tread carefully during negotiations with top performers and try to avoid including profit sharing as part of their compensation plans.  When you’re growing like crazy, profit-sharing can be a great bonus for people for their work but if your key players rely on profit-sharing bonuses to pay their bills and maintain their lifestyle they’ll bail as soon as the company hits any rough spots – and that’s when you’re going to need them the most.  Build compensation packages that key team members feel is fair for the work that they’re doing and then have any profit-sharing programs be the cherry on top.

And lastly, Cameron shared the matrix of Jack Welch at GE used when evaluating his teams.  Nicknamed “Neutron Jack” for his often rash and emotionally-devoid decisions, he was also widely regarded as one of their very best evaluators and developers of talent.  In fact, Jack was the first CEO to implement executive-level Topgrading.  This simple 4square was his way of slotting and categorizing talent that he already had on his team.  I found it both really easy to understand/remember while also profound.

Here’s the image:

The Definitions:

• F = FIRE THEM.  NOW.
• C = COACH THEM – THERE’S STILL A CHANCE.
• H = HANDCUFF THEM.  MAKE SURE THEY”RE LOCKED UP FOR THE NEXT 5 YEARS.

If you’ve read this blog for any length of time you’ll know that the impact of incentive-based compensation on recruiting and retention is something that I’m both passionate and opinionated about.  I’ve often referenced Dave Kurlan as being one of the top thinkers of our time with regards to sales-based compensation.  But only a small portion of the typical company’s workforce is their sales team.

People in Sr. Leadership and Human Resources are likely familiar with the studies that have come out about how, on a list of the Top 10 reasons why people take or stay in a role, money typically ranks 9th or 10th.  Thanks to Henry Sauer (the Dean of Rackspace University), a friend who I’ve recently had the privilege of getting to know better, I received the book DRiVE.  He sent it to me because it had a profound impact on him and the way that Rackspace is working to retain their culture of “Fanatical Support” as they continue to grow.

I began reading this book as I was on a plane last week headed up to visit with a client in the Boston area and recognized quickly that this was going to be a page-turner but its information was not going to be easy to digest (and even harder to implement).  On the same flight I read a new report that Dave Kurlan just released about the tenure of salespeople and how tough it is to retain them.

I wanted to share some snippets of both the book’s most compelling findings in its first 100 pages as well as interesting things from Dave’s white paper.

From Dave & The Objective Management Group:

My most recent study and analysis has shed light on some of the characteristics that determine longevity, or to use a more familiar concept, turnover prevention. Turnover, whether voluntary or involuntary, occurs when one party, either the employer or employee, is unhappy with the other. More often than not, the turnover is voluntary, and the employee resigns when income, culture, degree of difficulty or management practices are not to the salesperson’s liking. Involuntary turnover occurs less often because most sales managers are too patient, accept mediocrity, and avoid confrontation, especially a potentially uncomfortable termination.

We live in an era where employees no longer remain with a company for most of their lives. It is not unusual for a younger employee to work for several companies before they turn 30. Today, turnover is inevitable and when you consider the unique dynamic of the odds of a salesperson succeeding, the risk of expensive turnover increases dramatically.

He goes on to talk about the 5 Factors that he’s identified that are the leading indicators in predicting longevity and success for a salesperson:

Figure It Out Factor (FIOF): In the case of retention, those who achieve overnight success tend to look for the next challenge more quickly than those who are slow and steady. Showing these talented salespeople a career path with growth opportunities, more responsibility, and promotions can offset the risk of losing “A” players too quickly.

Sales Quotient (SQ) [Author's note: the proprietary score assigned to a candidate based on the OMG pre-hire assessment test]

Supervision: Sales Managers must be able to effectively coach, mentor, motivate, challenge and develop these salespeople to increase their levels of success and earnings.

Experience: Salespeople with experience – at least 5 years – are much more likely to be retained for 5 years than salespeople with less experience.

Compensation: Salespeople who are compensated mostly by commission are twice more likely to be retained than salespeople who are compensated mostly by salary.

When you consider that salespeople are often classified as “wired to sell”, incentivized to chase deals/revenue and are often have the opportunity to earn uncapped income when they are successful dangled before them, it’s easy to think that it is because they are motivated by money.  However, after reading DRiVE, I don’t believe that it is necessarily the money that is motivating them.

Here are some examples of why (taken directly from Daniel Pink’s book DRiVE):

*Author’s note: Mr. Pink references “Motivation 2.0” throughout the book.  Motivation 2.0 is defined as follows: 50,000 years ago we were trying to survive as a species.  Our motivations were obtaining food, running away from saber-toothed tigers and copulating – an early operating system called Motivation 1.0.  As humans formed complex societies that required cooperation to get things done, M.1.0 was inadequate because it was based purely on biological drive.  We developed a second drive: to see reward and avoid punishment more broadly.  Motivation 2.0 was based on the theory that the way to improve performance, increase productivity and encourage excellence was to reward the good behavior and punish bad.

The trouble is that Motivation 2.0 assumes we’re the same robotic wealth-maximizers I was taught we were a couple of decades ago.  Indeed, the very premise of extrinsic incentives is that we’ll always respond rationally to them.  But even most economists don’t believe that any more.  Sometimes these motivators work.  Often they don’t.  And many times, they inflict collateral damage.  In short, the new way economists think about what we do is hard to reconcile with Motivation 2.0.  What’s more, if people do things for lunk-headed, backward-looking reasons, why wouldn’t we also do things for significance-seeking, self-actualizing reasons?  If we’re predictably irrational – and we clearly are – why couldn’t we also be predictably transcendant?

Bruno Frey, an economist at the University of Zurich, has argued that we need to move beyond the idea of Homo Oeconomicus (Economic man – the fictional wealth-maximizing robot).  He suggests that the new model is Homo Oeconomicus Maturus (Mature Economic Man).  He says that this figure, “is more ‘mature’ in the sense that he is endowed with a more refined motivational structure.”  He goes on to write, “Intrinsic motivation is of great importance for all economic activities.  It is inconceivable that people are merely motivated solely or even mainly by external incentives.”

Consider, the revelations that he revealed above were within the first 30 pages of the book.  Fortunately, he’s got another 185 pages beyond this that continue to drive home his point.  I’ll be blogging more in the future about many of his theories and also attempting to integrate them into the HireBetter Team’s culture and performance-centric environment.  For now, if you’re not ready to go out and buy the book, I’ll share with you one other area of thought that, for me, was when I began to realize he was really on to something and that nearly all employees, even salespeople, are being motivated to perform and produce for reasons that aren’t monetarily driven.  Rather, monetary reward becomes the proverbial “cherry on top” that is the result of the intrinsic motivational factors that pushed the employee to perform.

“An object in motion will stay in motion, and an object at rest will stay at rest, unless acted on by an outside force.”

Newton’s first law of motion is elegant and simple – which is one of the reasons why it is powerful.  Everyone can understand it.  Motivation 2.0 is similar because at its heart are two elegant and simple ideas:

Rewarding an activity will get you more of it.  Punishing an activity will get you less of it.

Newtonian physics runs into problems at the subatomic level.  Down there – in the land of hadrons, quarks and Schrodinger’s cat – things get freaky.  The cool rationality of Isaac Newton gives way to the bizarre unpredictability of Lewis Carroll.  Motivation 2.0 is similar in this regard, too.  When rewards and punishments encounter our third drive, something akin to quantum mechanics seems to take over and strange things begin to happen.

Of course, the starting point for any discussion of motivation in the workplace is a simple fact of life: People have to earn a living.  Salary, contract payments, some benefits, a few perks are what I call “baseline rewards”.  If someone’s baseline rewards aren’t adequate or equitable, her focus will be on the unfairness of her situation and the anxiety of her circumstance.  You’ll get neither the predictability of extrinsic motivation nor the weirdness of intrinsic motivation.  You’ll get very little motivation at all.

But once we’re past that threshold, carrots and sticks can achieve precisely the opposite of their intended aims.  Mechanisms designed to increase motivation can dampen it.  Tactics aimed at boosting creativity can reduce it.  Programs to promote good deeds can make them disappear.  Meanwhile, instead of restraining negative behavior, rewards and punishments can often set it loose and give rise to cheating, addiction and dangerously myopic thinking.

I’ll admit it, I’m a bit of a geek when it comes to evaluating talent and Topgrading is about the best way that I’ve ever seen to do it.  It’s objective, gives you a structure to follow and makes it easy to judge prospective employees without a lot of emotion.

To keep up with the latest and greatest tips for Topgrading better, I’ve subscribed to Brad’s newsletter.  You can sign up here.

His most recent newsletter was fantastic – it was titled “The 5 Best Ways to Judge People”.  The most significant parts of that newsletter can be seen below.  Enjoy!

When people are just learning Topgrading, it’s easiest to use the A, B, and C categories, to show the dramatic differences.  Topgrading professionals are able accurately put people in the right categories.  In doing this they actually have three slightly different categories – A Player, A Potential, and Non-A.  We define A player as someone in the top 10% of talent for the pay, in your location, in the industry, and reporting to you.

Following are 5 of the best ways I know of to judge people in a fair, objective, legally defensible way:

1.  How A, B, and C players differ on key competencies. The following chart is a bit simplistic because not all A players are that great on all competencies and not all C players are that bad on all the competencies. Indeed, in real life C players usually are A players on some competencies.

2. Look for patterns of success. The “magic” of Topgrading comes from understanding, bottom line, how successful a person was in job 1, job 2, job 3, etc., with the greatest weight given to the most recent jobs.

Last year I interviewed a smooth talking executive who had clearly been a superstar in the industry, but the guy had not worked hard for years.  He had peaked years ago, was on a decline and frankly the pattern showed he was “over the hill,” someone who had lost his energy, drive, resourcefulness, and passion.

3.  Recruit a replacement. This really is the best way to see if your employee is truly among the top 10% of talent available.

After you have argued with your employee, complained about unsatisfactory performance, and heard 1,000 excuses, the simplest way to see if there are better people is to actively recruit them.  This can be done secretly, but go through all the Topgrading hiring steps including talking with former bosses.

Over the years I’ve heard it hundreds of times: “It became very easy to replace my employee after going through the Topgrading hiring steps, because I became absolutely certain my excuse-making employee was a C player, and I had three A players very willing to join me at exactly the same salary as my C player.”

4.  Never stop building your recruitment networks. As a Topgrader, you know the best way to recruit is by staying in touch with 40 A players you’ve worked with and also stay in touch with 20 “connectors,” people who know a lot of A players.

But in addition to using your networks to recruit, staying in touch helps you figure out if your team consists of A, B, or C players. As you chat from time to time with A players you’ve worked with in the past you hear about their accomplishments, what they pay people, the standards they set … and when you share your frustrations with a certain employee, your network will give you feedback that your expectations are too high or too low.

5.  Assess employees using Topgrading methods. You might already know that my first consulting engagement with General Electric was to improve their success promoting people.  They improved from 25% to well over 90% success, and the internal assessment methods are almost identical to Topgrading hiring methods.  Two trained interviewers conduct the tandem Topgrading interview and instead of talking with outside references (for hiring) they talk with bosses, peers, and subordinates in the company.

I’ve been sitting on this blog post for a while thinking that its efficacy would get better and better as the economy and job market failed to recover at the pace that the economists thought (hoped) it would.  It looks like my hunch was right.

Nine months ago, the Wall Street Journal published an article called “Only the Employed Need Apply“.  The premise of the article was that many employers were only interested in talking to people who were already employed – even if the candidate who had applied had lost their job even after performing at a high level.

Bobby Fitzgerald, a partner in five restaurants in three states, says these days he gets two dozen or more unsolicited résumés each day at one of his Phoenix restaurants, the White Chocolate Grill. But Mr. Fitzgerald says his top candidates, for jobs ranging from servers to management, usually are people who are employed elsewhere. He currently has 50 openings across his five restaurants and has told recruiters to bring in only people who are working.

When you consider that in March 2010 our unemployment rate is still on the precipice of 10% and the average time that someone is unemployed is still over 1/2 of a year, it would appear that Business Leaders like Bobby Fitzgerald aren’t alone.

At Hire Better, we’ve seen a significant up-tick in the number of clients who want us to assist them in hiring salespeople.  For those salespeople who we see as applicants, the statistics are NOT in their favor if they’re applying for a role in which Hire Better is involved.  Here’s what we’ve found:

In a typical hiring cycle, assuming that we have 100 people to consider for a role:

• 82-85 will be Direct Applicants
• 12-15 will be People who are “headhunted” or from our Network
• 1-3 will be Referrals from internal employees at the client company

When we get down to the Top Three Finalists, they’ll look like this:

• 1 Direct Applicant
• 1 “headhunted” Candidate
• 1 Referral

And when the finalist is hired: The chance of the Direct Applicant goes DOWN exponentially as the salary and responsibility goes UP.

For a Sales role, the prospects of a Direct Applicant are even WORSE.  The same statistics will apply to the Candidate pool as before but I have to expand the pool to 5 people when you look for Finalists:

• 1 is a Direct Applicant
• 3 are “headhunted”
• 1 is a Referral

And when this is the case, the Referral has more than a 50% chance of getting hired and the Direct Applicant has less than a 10% chance.  In the case of sales candidates – I believe these stats are just about right.  And they’re justifiable!  If you’re considering hiring an unemployed salesperson or sales manager, you should be asking yourself “Why would a good salesperson be unemployed?”

Dave Kurlan, who I haven’t mentioned in quite awhile, recently shared his findings on how long it takes to get an ROI on a salesperson.  His bold mathematical formula looks like this:

If you have a 12 month sales cycle and an 8 month learning curve, it will take nearly 2 years to get your new salesperson producing consistently.  In that 2 years, maybe you’ll pay out close to $150,000 in subsidies.

Using your average margin, how much revenue must be gemerated to offset that subsidy?

How much revenue must be generated to produce a satisfactory ROI?

How long must the salesperson stick around in order to produce that ROI?

To bring it all back together, if a prospective sales candidate (who, for the sake of this blog post is unemployed) has found him/herself in a new sales role every 2-3 years, what are the odds that anyone who is hiring them is going to experience a positive ROI?

When we look at candidates through this lens we find it’s a lot easier to not find ourselves getting “sold” during an interview by someone who has all kinds of great excuses for why “things just didn’t work out” at that last job they were in…

I’ve just returned from the EO President’s Meeting in Dallas, TX and one of the biggest topics that they were discussing was the significance of delivering value to members.  The major reason why value is so important: retention of members.  Like most organizations and companies, acquiring a new member (or customer) is very expensive and time-consuming.  It seems obvious that, once you’ve acquired them, retaining members should be a heavy area of focus for any leadership team.  As the discussion continued it began to shift to the age of our members and the risks/rewards of eliminating the ceiling that is currently placed on new members.

I found myself sitting in this large conference room with 100+ other business leaders reflecting on the amount of preparation and time that had gone into evaluating this topic.  The most amazing thought I had was that the collective revenues of these 100+ businesses represents the GDP of a fairly significant nation and this was the most important thing on their minds.

When EO was started just over 20 years ago, it was created for Entrepreneurs who were under the age of 40.  When I joined EO 5 years ago it was called the Young Entrepreneurs’ Organization (YEO).  At the time, the average age of a member was about 37.  Today, the age limit of 40 has been eliminated and the average age of a member is now 41.  To put it in a more simple perspective: every year that I’ve been part of this organization, the average age has gone up by 1 year.  This is quite indicative of our entire population as well as a major challenge for businesses around the US.

Something we’ve been looking at a lot here at Hire Better is directly related to this particular topic.  The area of focus for us: as businesses continue to grow and mature, they’re worried about the retention of their employees as well as the age of their teams. Jason Dorsey, widely known by the business word as the GenY Guy, has some incredible data points that he’s been publicizing to business leaders around the world.  Here are a few:

• For the first time ever we have FOUR generations working together in the same workplace (GenY, GenX, Baby Boomers and “the Mature” Generation)
• The average life expectancy of a Baby Boomer is about 78 while the “retirement age” is still 65
• GenY’ers are the first generation in history that will likely need to WORK for 65 years (that’s retirement at 87-90 years old)

On top of these points, here are a couple of other really scary ones (if you’re a business leader)

• While Baby Boomers are finally comfortable with email and are actively learning about Facebook, GenY’ers aren’t using those mediums much any more because they’re cumbersome and/or they’re no longer “cool” now that their parents are part of the community
• GenY’ers believe that long term tenure in a role is 13 months.  Baby Boomers want to give them employee reviews once a year.
• GenY’ers aren’t really motivated by money as a “carrot” the way most previous generations have been.  Why?  Because their parents (those same Boomers) have given them a credit card to pay for things like gas, groceries, vacations, etc.

Driving retention, loyalty and performance from the GenY population is becoming a real challenge for businesses around the US.  This is a generation that is affordable and hard-working as well as passionate about their work but they can’t be relied on to work diligently from 8 AM to 6 PM every day.  They aren’t interested in sitting in meetings to talk about the next meeting.  And they’re no longer even “tech savvy” (Jason calls them “tech dependent” because they don’t have any idea how their smart phone works – they just know they can’t live without it).

What in the world are you supposed to do as a business when you wake up and realize that the future of your organization depends on leveraging this new population of workers that you can’t relate to?  Here are a couple of quick suggestions:

• Accept that while Work/Life Balance is something that Baby Boomers dream about and GenX’ers talk about, GenY lives it.  You won’t be able to keep them around if you expect them to sacrifice their friendships and social time.  Create a workplace that inspires them and encourages hard work in short spurts and then downtime to go “be a kid”.
• Let them work in teams as often as possible.  This is a generation that was raised playing soccer, baseball and other team sports starting at age 3.  They were on tournament teams starting at age 8.  When then went to these tournaments, even if they finished in 8th place they all got trophies.  If you’re asking them to work solo and independently without praise, they’re not going to stay engaged.
• Start with the outcome and then work backwards to to talk about the steps.  This is counter-intuitive to the way most people are used to teaching and also to how our educational system has educated every generation for the last 5 generations.  By starting with the big picture and driving universal awareness of the challenges, GenY will embrace the challenge and buy-in to the goals instead of zoning out at step 4 of a 200 step process.
• Give employee reviews all the time – 10 minute check-ins every week or two are significantly more powerful than an annual review.  Let this new generation know what they are doing right, give them praise, offer corrective actions and make minor adjustments all the time instead of hoping they’ll be around for their 1st annual review.

Jason Dorsey just released a new book and you owe it to yourself to buy it and read it.  You can also read a lot more about him on his website.