I met a seasoned executive recently. He made a bold claim. “Management is an art, and one that is overwhelmingly undervalued in Silicon Valley.” I wondered, are we investing enough in our managers?
Talent is the largest investment of an early stage company. 80%+ of startup operating expense flows to compensation. Retaining these employees is good business. Especially in such an expensive and competitive talent market.
Research shows employees leave their jobs because of poor leadership and poor management. All managers in a company influence employee retention – from the C-level to the line manager. This is why investing in each creates a competitive advantage.
Suppose the average manager has a span of control of seven. Seven people’s compensation might total an annual budget of $1.5M to $3M. That’s a quite an investment for an early stage company. A manager influences a significant fraction of an early stage startup’s employee base. 7 of 30 is 23%. 7 of 50 is 14%.
Managers have broad influence within an organization. The more senior the manager, the more people they influence, the greater the benefit or damage they can do. And that extends all the way to the highest level: the CEO.
Management quality is public today, available in tools like Glassdoor. These reviews accelerate or retard recruiting efforts. A great management culture provides a competitive edge when hiring talent.
There are several ways of measuring the effectiveness of a manager. 360° performance reviews of managers every six months for every year. Employee satisfaction ratings performed on a monthly basis. Skip level meetings where the managers of the managers meet with direct reports. And of course analyzing attrition both regretted and non-regretted attrition by manager. These are important metrics.
How should startup invest in improving its management? Management coaches are an excellent way to do this. I was skeptical at first, but I can’t overstate the impact of my coach at Google. Second, mentorship: surround leaders with experienced advisors who can guide. Education is important. One of the startups I work with has an MBA club. They meet monthly, read management books and discuss the best ways to deploy the strategies in the startup. Most of all, the startup must value the practice of management.
This post was first published on Tomasz Tunguz.
Tomasz Tunguz is a venture capitalist at Redpoint and writes about startups, fund raising, SaaS companies, and best practices for founders.