ReEcho

Strategy

Performance Mini-Series – 1. Technology Teams

27th January 2019
By Reecho

Introduction 

We are kicking off the year with a mini-series on performance within high growth technology ventures – the importance of performance measurement and management, what this looks like in different teams, how it can inform equity incentive schemes etc. This piece is on the importance of performance management for avoiding ‘politics’ and aligning your engineering and technical product teams with the wider business goals.

The purpose of this piece is to provide some food for thought – we hope it inspires others to share ideas and take positive performance actions. The insights come from working first hand with engineering and technical product teams (usually within companies that are backed by technology focused venture capital investors), as well in-depth conversations with the managers who are leading those teams. We hope this is a good read regardless of your area of expertise. Here are some of our observations.

Background

Companies that have taken on institutional capital from technology focused venture investors tend to follow similar hiring patterns when scaling up to about 200 employees. Headcount plans tend to average towards ~ 60% technology (inc. technical product, engineering and data). The remaining ~ 40% tends to be a mix of operations (e.g. HR, legal and finance) and ‘unit economics optimisers’ (e.g. marketing and sales, broadly speaking). We are often told that, in the context of ‘unit economics optimisers’, function-specific performance management is relatively straightforward (with companies relying on well-established metrics such as CAC, LTV etc.). However, for technology and technical product it is not as straightforward. We have found it challenging to find pertinent examples of tactical performance management in the early days of funded technology ventures, especially with respect to the engineering teams (but do let us know if you have anything to share – we would love to hear from you).

As a company regularly asked to help deliver on headcount plans, we do not worry so much about finding and hiring people to fill the lines in the budget per se, but more about the genuine results the hires will yield, the sense of value they will have once onboarded and importantly their ability to collaborate effectively with diverse team members around a shared goal (a sentiment which is certainly shared by the founders, boards and CEOs of the organisations we work with, who want their people to work together to deliver great value and real results). We therefore wanted to write something on the topic of performance management, especially from the point of view of engineering and technical product teams.

Dodge politics through performance

Our working theory is that, where there exists a business function whose performance is not measured and managed pari pasu to central business goals (which are in turn derived from real values), even at a relatively early stage, it tends to become quite political. We enjoyed Ben Horowitz’s article on how to Minimize Politics in Your Company and the simple definition of politics he cites – “people advancing their careers or agendas by means other than merit and contribution” – and agree that politics can become a headache in many ways (e.g. job title focus amongst employees, conflicts between teams, cliques etc.). Even when appropriate function-specific performance frameworks are considered, these frameworks are often not implemented early enough (due to fear of becoming too ‘corporate’, amongst other reasons), and this is something we try to rectify when working with clients to extrapolate tactical performance indicators from venture decks / plans to headcount. More specifically, we often come across the following scenarios where improvements could be made.

Synergy between sales and technology teams

We see opportunity to improve the synergy between sales and technology functions – especially with respect to product development cycles, and with expediency versus scalability being a common debating point. The sales teams tend to be in favour of expediency today, whereas the technology team tends to favour scalability and incremental speed over time. Of course, this is a very broad brush generalisation to which there is nuance and a ton of exceptions, but a uniting rational language (in the form of explicit and united performance metrics) can help drive team synergy, move debates into cohesive action and minimise unnecessary escalations.

Easy financial metrics mistaken for king

Sales teams are usually working to fairly clear-cut targets (e.g. booked revenue) whereas technology teams, in many companies, are not directly (or indirectly) measured through to revenue or other financial targets (if you have heard of exceptions to this notion please do come forward – would love to hear from you!). One can argue that revenue (and EBITDA in some instances, though often not in early stage technology ventures) is often seen as a central key metric. We of course empathise with running your company with a close eye on the headline financials. However, in the absence of any ‘translation’ of revenue or other financial targets (making such metric(s) or a function thereof universally applicable to / understood by other teams outside sales/accounts – especially the technology team (we will argue the case for HR teams in another article)) – one is, often unintentionally, driving a division of interests and motivations between teams. This can stifle the cohesion and the constructive collaboration that is so critical to the overall success of the business. Interestingly, we have seen that where companies do not yet focus on money generation, engineering teams tend to be a lot more united with ‘sales’ (often working to the common goal of increased users).

Stop capping expectations, manage performance

Coming back to the HR / recruitment angle – we find that, when there is a need to bring people in quickly to hit various iterations of company and investor-agreed macro objectives, interview processes are often not designed to assess people against their ability to hit objective function-specific, as well as individual-micro, targets (that indirectly serve the business’ macro objectives). There is a disconnect. Our soul hurts when hiring managers say they need to manage enthusiastic prospective employees’ role expectations – almost capping potential before they are even through the door (salary expectations is a different matter as that requires front loaded investment by the employer). Of course, there is a lot of nuance to this topic such as the individual’s motivations and so forth but, we think technology ventures can probably minimise cases of capped scope / potential and management frustration if they first hire to specific structured function-specific goals, and then performance manage accordingly.

Start at the core and extrapolate

Instead of diving straight into detailed engineering specific KPIs such as lead, cycle time etc. (all function-specific metrics usually boil down to time, cost and yield expressed in various ways), perhaps start at the core. Most of us have heard of OKRs (Objectives and Key Results) used by Google and others, Amazon’s customer-centric model etc., which are omni-applicable and timeless. We suggest companies map out what success looks like for them irrespective of function-specific metrics and start there – i.e. start with a core index. For those in the early stages, this might be simply taking a culture deck and defining objectively what it means.

You can then extrapolate this to function-specific indexes, ensuring that these are as measurable, specific, clearly understood and timeless as possible – you can provide for clear understanding by ensuring your teams themselves are involved in translating how it works in practice for their particular function, how they intend to measure and hold themselves and others accountable. By overlaying function-specific performance indexes with your core index (always optimising for positive correlation and corrections as required), one can better measure and drive for cohesive progress. Furthermore, when you are faced with inevitable function-specific escalations, you can defer to the core index as a frame of governance and adapt the function-specific indexes if needed, again avoiding those unwanted politics.

Conclusion

Technology team performance management may not be easy to pull off. However, given this team usually makes up the largest proportion of the headcount for early stage technology ventures, we think it is worth the hassle of figuring out ‘performance for tech’. Although putting in place such performance measures / frameworks may give you a headache today, over time the benefit will be fewer politics, faster movement, greater value creation and more self-motivated employees.

We would love to hear what you think – hello@reecho.com