Solving How Leaders and Teams Fail Investors

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Martin Gonzalez.

Martin is the creator of Google's effective founders project, it's a global research program that literally decodes the factors that enable startup founders to succeed. He also works with Google's engineering and research leaders on or design leadership and culture challenges. He has been a guest speaker at Stanford, Wharton and INSEAD, and has advised across the Americas, Europe, Africa and Asia.

So what does this mean? Well, this means that Martin understands the literal science around building effective teams, organizations, and leaders and he's about to teach you an AI masterclass on how to do the same so you can generate returns from your companies.

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[THE GUEST]: Martin is the creator of Google's effective founders project, it's a global research program that literally decodes the factors that enable

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• 20:39 (Cont.) Solving How Leaders and Teams Fail Investors

Transcript

Ryan Miller  

My name is Ryan Miller and for the past 15 years have helped hundreds of people to raise millions of dollars for their funds, and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers, so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

My boss is a jerk, we've all been there, right? Total jerk, doesn't appreciate you or how about that proverbial Karen in middle management is just mean because she's mean. Companies, including your own, will rise or fall in line with how well the people, work and organization goes. Getting this right can be a matter of literal life or death from your company or for your investment, but the surprising truth is, this can all be prevented if you know what works. So my next guest comes straight out of Google's founder projects, and he's armed with the facts that you need to build a team that will dominate the market so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Martin Gonzalez. Martin is the creator of Google's effective founders project, it's a global research program that literally decodes the factors that enable startup founders to succeed. He also works with Google's engineering and research leaders on or design leadership and culture challenges. He has been a guest speaker at Stanford, Wharton and INSEAD, and has advised across the Americas, Europe, Africa and Asia, so what does this mean? Well, this means that Martin understands the literal science around building effective teams, organizations, and leaders and he's about to teach you an AI masterclass on how to do the same so you can generate returns from your companies. So Martin, welcome to the show, man.

Martin Gonzalez  

I am so happy to be here, thank you for having me. I've loved what you've done with the show and I'm such a fan. Thanks for inviting me.

Ryan Miller  

Oh, awesome. We've had a wonderful show and we're in 100 countries around the world and it's all because of amazing guests just like you. So thank you for being a fan and it's awesome. to have you on the show. One of the things I find fascinating about you is how well versed you are in the science, the data and the statistics of what actually works. So folks, there's very little opinion, there might be a little bit and that's okay, and I encourage it. But we're really going to get into the science of building teams and this works if you're an emerging fund manager or startup founder or even a seasoned CEO. We all have different team dynamics and as I like to say, people work is greater than paperwork. And so often, it's important that just as much if you're a paperwork nerd, like myself, who was a recovering CFO, we're all process and systems and designs and controls. Sure, great, fine, that's your job, but also, we do need to appreciate the undertones of working with people, if you build your business, you won't really want to build the people and the people build the business. That's an opinion of mine, you may disagree but I really wanted to bring Martin onto the show to really showcase to our fans around the world some of the dynamics that come into. And in fact, you have some interesting findings that you would like to share today on really the surprising things that happen in companies, or should I say the surprising reasons why a lot of businesses fail. So let's jump right into that Martin, why do startups and other companies fail?

Martin Gonzalez  

So there's this fascinating, classic study now out of Harvard, where they did a global survey of venture capitalists and asked look at the companies in your portfolio that recently failed? What are the top reasons for that? And the number one reason by far, 65% of startups that failed, failed because of the people issues and then you have things like running out of cash, poor market timing, maybe a poor fit with the fund. And those are far second, third, fourth, fifth, and it flies in the face of I guess, what is the common belief, right, which is, if you can, if you have the right product, have enough money and hit the market at the right time that you will succeed. Unfortunately, that's not what the evidence shows. And that's been replicated through the years and we see that this insight that the people issues are the number one reason for failure is unfortunately, an enduring reason why companies fail.

Ryan Miller  

Wow, and so people issues and that can be the the wrong founder or the wrong partner the wrong hire and that's usually where it starts, but sometimes it's the culture. So I wonder if you could talk a little bit about hiring people and understanding culture, what your culture is, and how you hire around that. Maybe talk about that a little bit? 

Martin Gonzalez  

Yeah, I think there's maybe two really useful studies to talk through here. So there's just one study that was done out of some French economists, they looked at companies with good cultures, and they looked at how that correlated with stock market returns. So they looked at what is the alpha that these kinds, these companies will achieve across you know, their respective markets. They controlled for things like amount of funding flow, the kind of competitiveness, like the controls for all these other factors, to really get to well, what is it real economic upside of a good culture? What they found was actually pretty nuanced and pretty interesting. Essentially, what they find is when you look across three decades of data, and you look at those spheres where we might call peacetime periods, so where economy is going really well. They find that the economic upside of these good cultures is fairly subtle, where you see this really See the spike in the alpha of these companies is during the crisis periods. So in the.com crash and the global financial crisis of 08, 09, like this is where you see a significant, you know, alpha that you can achieve when you are kind of nurturing that. Now, what this tells you is, if you're trying to build a culture in the middle of a crisis, you're way too late, you need to be building that before, during peacetime. So you can get through the, you know, the wartime periods, you know, while protecting the business. 

Ryan Miller  

So a good culture, it sounds like that in itself as an asset and the value of that asset really starts to come forward during challenging times. Would you agree? 

Martin Gonzalez  

That's right. That's right. There's another a really fascinating study that was done out of Stanford, now a few years ago, where they tried to understand okay, so Okay, so let's, let's agree that culture is a good thing and there is economic upside, but which culture which kind of culture actually works best? And so they did this study, it's a longitudinal study of for nearly 300 companies. They followed them for about eight years, and they tried to understand, do they organize in different ways? Are there you know, are there ways in which they may be operate differently or think of hiring differently, they found these what they call other researchers from Stanford called, these five organizational blueprints, and you know, not to bore your audience, but basically, it's things like, you know, do they hire for this kind of extreme amount of potential talent, and, you know, we can't, you know, we can't afford experience, but we can afford, like, the top 1% of every graduating class that's hire that. Or, you know, our people here because they feel like this is a family as opposed to this is like a, you know, a professional sports league, this feels more like a family. And so I find my community here, and so I'm, I hire for people who fit within that community, they look at things like do we, you know, are the leaders or the founders kind of more autocratic, more, where they basically are the genius with 1000 helpers kind of model where, you know, you have the person at the top, who's basically generating all the decisions and ideas, how much bureaucracy they put in how much trust they put in, there's kind of this cadence. So anyway, there's just a plethora of ways they organize and they they found that there were really five key things. 

Martin Gonzalez  

Now, maybe for the sake of our discussion, there were really two models that really stood out as probably worth our conversation here, right. So there was a model where you lean so much more on, do we have extremely brilliant people who can work on extremely hard missions and maybe for a short time, we can call that like a performance culture. And then you have these companies that really optimized for fit, they want people who, you know, who get the ideas, who get the culture. And so as you bring people in, and you know, some colleges that way, they would do this as they would do hiring by committee where, you know, you have the candidate come in and you know, spend, you know, a dinner with the group before you then decide to hire them. And you want to see how well they drive and fit with the culture and they prioritize fit. Now, what they find from that study is pretty fascinating that you could actually see fairly different financial outcomes from these two kinds of ways of organizing. What they find is that these performance based organizations where the goals are pretty difficult, they find that the likelihood of them failing, closing shop going bankrupt, is pretty high. It's part and parcel of this high risk, high reward where you're really looking at, you know, really difficult missions, and they're bound to, you know, many of their bonds fail. But if they do succeed, and they go public, the chance of them actually returning a really great market return is significantly higher than all the four other models that they studied. 

Martin Gonzalez  

On the other hand, when you look at these fit based cultures, because fit was all about, you know, are you able to like, do you basically operate on the same assumptions, do you do you get each other, can you finish each other's sentences, almost. Somehow, this becomes a really a great execution machine, where you have a single idea, single vision, and they can really go far and they find in this study that fit based cultures, actually, has the lowest rate of failure, and the highest rate of going public. But when they go public, here's the downside, when they go public, they're then unable to really reach the same kind of market returns that these performance based cultures. And it's at a point where you're diversifying the business, you're entering new markets, you want to tap new talent pools, you need broader networks and this model, unfortunately, doesn't work as well at that stage. So I think it's just fascinating that there are many ways that you can think about how to organize and there, you could optimize for different things. 

Ryan Miller  

Wow. So as the saying goes, begin with the end in mind, this is certainly one of those and building your culture is no different. So if let me just synthesize what you, what I think I just heard was, if you have a fear based culture, meaning we're a family and people belong, and you're this, this leader who cares and you're all into meditation, as I am. You may be tempted to build a culture that says, hey, when we're starting a company or a fund, or whatever it is, they'll start a company, you could build and hire people that get the culture, right. Basically, I see myself in you, therefore you must be good. And so you get these people that are a fit, and I'm doing air quotes for those who are listening to the audio program, the fit and those tend to help, last the longest pre IPO. But post IPO they tend not to create as much value. So if market domination is part of your thing or Making Billions, you can still make billions. But if market domination and you want to lead your market, you want to be number one, right? You want to be Coke, not Pepsi, you want to be the head horse and the head honcho you want to do that fit may not be the right culture to build. And so the flip side and you keep me honest here, Martin, flip side is you hire for performance, you're like, look, I don't care if we get along. I mean, obviously you do, I'm being ridiculous. But we're saying the most important thing is not whether we see eye to eye, or you're like me, or  I'm like you, the most important thing is, you're really good at your job, whether it's HR, or engineering, or whatever it might be, I just want to hire the best people. And so then at IPO, so that's a little risky in the beginning, because you could have people issues, just people have different perspectives, leads to conflict. But in the long run, it can, if you pull it off, it can lead to, as I like to call it market domination. All right, it makes you sound cool. 

Martin Gonzalez  

You know what's interesting about these, so the study calls them start or the performance based cultures. What's interesting in these environments, the way you attract these really brilliant people is you give them stock grants, you give them some kind of stock units. The double edged sword of that is if the company does really well, then a lot of people will tend to want to cash out and leave or won't need to work. And when the company doesn't do well, then they also will give up because it's not interesting to keep on going. So, so this, this performance based culture tends to have higher employee turnover. But again, you cross that bridge to going public like you, you know, the rewards are there for you.

Ryan Miller  

Perfect. So then my question my conclusion or thought or add on question to that is, why not just build a hybrid? So for example, let's say you start as fit, right? So maybe I'm getting too greedy here, you got a smile on your face, I feel like you already know how to answer this. But why not just build a hybrid meaning in the beginning, you hire for fit, right? So you mitigate those early things you have the low risk model has fit. And then as you start approaching teenage to fully grown and mature company, you start packing in those people who fit now you pack underneath them, more foundational people who are really good at their job and the fit people at the top with the big tuna, the big CEO and the founder. And then the performance people are the worker bees are there, why not create a hybrid over time?

Martin Gonzalez  

Yeah. So let me tell you what the study says and the study actually found. So first of all, if whether you pick fit or performance based cultures, they're actually worse options for you. So building an autocratic or if a bureaucratic startup is actually worse options. So between the two of these are not bad options. But the studies looked at, you know, when these companies shifted their DNA or their blueprint, like, what would we see in terms of these metrics that they looked at. And that's actually the most detrimental choice you could make like by, by switching your DNA midstream, like you will actually see an increase in the turnover of your people, people who know how this business has been run, and you and you really, truly risk, you know, what has made you successful up to that point. 

Martin Gonzalez  

Now, if you're the caveat here, and this is how all social science research operates, if you're finding that you are already anyway, going under, and we see this a lot, right, in my own personal practice in supporting leaders. When the business really not doing well, don't stick to your guns, like there's probably something wrong here. So you might have to really shift I guess, if it's a question of how do you go from, you know, from good to great, you know, the study is very clear, be very cautious of that. To your specific example, like imagine that the inner circle of the CEO is kind of the ones reporting into the CEO. And then you bring in your strong, talented individuals under them, what you will likely see over the course of at least, you know, a year or two years is you will see that these people who think of themselves as you know, brilliant people who think that they need to be in meritocratic environments. They will leave because they will see very clearly that promotions and the inner circle is not based on talent, but it's based on fit are based on kind of the trust the loyalties, and that's not a terrible decision. Like I've been working recently actually with a company that really thinks of themselves as a family business. And it's part of their DNA to actually lean on people who are loyal to the family. Now do you want to completely turn that into a fortune ten type performance based environment? I'm not sure I'm not sure that that would be good for that business.

Ryan Miller  

Brilliant so don't don't mess the DNA of your culture it's it's pick one one or the other. And not that one's bad or in one's good, but just understand is, so number one if you're the one building the company and the culture understand what company culture are you building. Number two, if you're joining a company, it might be good to say, I'm like you said I'm used to a meritocracy. I'm an over performer and I should get rewarded for my efforts. If I give you 110%, hopefully, that shows you that I'm serious about this business and I'm gonna win and I want not only myself, but I want this whole company to be the best in the industry. And if you're in a fit business, they're going to be like, settled down, dude. Like what, you're making us look bad, I've had that and companies before too. Well, what do you, what do you say to that?

Martin Gonzalez  

I would say that there's some fit based organizations that are brilliant businesses and so you don't I think market dominance is not for everyone. Actually, I had a question for you. So it sounds like you've built several companies at this point, like, Surely you've seen or surely you've, you've played around a little bit with hiring for fit or hiring for performance, like what have you? What have you seen in your experience doing this?

Ryan Miller  

So you know, that's a great question and thank you for put me on the hot seat. So, you know, I'm split. And it is always a challenge for me, because I have to temper my natural side where I was like, I really liked this guy, I really liked this girl, they seem really, really good. They're a good fit, like they would be the that's literally someone I actually would hang out with, right, the beer test, right? Is this someone I'd actually go out for beers after work, whatever. And then I'm like, but can they deliver because at the end of the day, I didn't start this business to have a bunch of friends. And so there's this other side, the executive side is saying, but can they deliver on what it is you're actually hiring them to do? Because folks, if you're not a CEO, and many are, but if you're not, or you're close to that, you're really hiring to offset something, either from you or from another leader. And so you're saying, can I actually trust that this person will get this project, get the budget, get the whatever over the line? Can they perform? Right? Do they have the talent, the skill, the tenacity, and all of these things and so it is a constant internal battle, when hiring for me, is to say, this is someone that I would like to be around. In other words, they don't stress me out, because I'm very big on energy and one thing I've learned about talking to many billionaires on this show, and outside of the show, and it's not even billionaires, people who are successful and whatever that means, they're very big on protecting their energy, their mental, their physical energy, all of that. And so that's a big one for me, is, is this person going to add to my energy or the energy of the team or subtract from it, that's number one. Number two is, can they get the job done? And number three is, do they even want to get the job done? So is this just they applied, because I'm one of 1000? Or is this actually a job that fits into something they want in their goal? Right? So is this someone who truly wants to be part of a winning team? Great, in finance, great, but is this someone who maybe they minored in finance, but they're really an artist, or something like that and so it is a constant battle, I will be honest. 

Martin Gonzalez  

And the point and energy is a really good one, because I think you could build a performance based culture and still draw positive energy from. Like, you could build a culture where people are debating you constantly, and still walk away feeling like, wow, that made me better and that could give you a boost of energy. I think what we're saying here is if you bring in so what we're not saying in the performance culture is that you tolerate toxic behavior, I, that and that is something in the book that you know, that I've written, make it very clear that this is not about tolerating this aberrant genius, who is brilliant, but then we'll kind of break things along the way. But it's what you prioritize, you prioritize this feeling of a family, and this unconditional kind of people and there's just startup that we talked about in this book, where they had a zero fire policy, zero fire policy. What the downside of this culture is that they were hiring for an office manager, like someone who sits at the reception to welcome guests. They interviewed 100 people or so before they could decide because the moment you hire them, you can they would like not to break their policy right and fire them. You could build that, but I don't know, I don't. I don't personally believe in going that far.

Martin Gonzalez  

Yes. So even though it's performance based, it's not seeing its toxic base. It's we're not we don't tolerate toxic behavior, no matter what that is, whether it's fit or performance, there still is undertones that you do need to play along. This is we all have, we all have plays to run will say as a team. 

Martin Gonzalez  

Yeah, part of my training as like an, like an applied or org psychologist is you need to come into a team and very instantly see, okay, is this a strong team. And the biggest tell of a strong team is the team that has a lot of conflict, but a conflict of ideas, as opposed to conflict of personalities, that is a team that's likely to succeed. So when you have a team where there is one person speaking, and everyone's listening, taking notes doing, I question how strong that team is going to be in the long run. 

Ryan Miller  

Interesting, you know, speaking of teams, you've heard a lot of CEOs talk about flattening their organization or a zero hierarchy organization. We're gonna flatten it, and it's to pyramid and we need to, instead of a vertical, we need more of a horizontal. And there's too many layers of management, sure that that can actually happen, I get it. I've been in big corporations where they needed to right size, I understand that, sure. But I'm curious, since you're so versed in the science and the data, talk a little bit about this, this trend that you're hearing CEOs, is it effective? Is it the right thing? Does it add value to a company or a fund or whatever it is? Maybe talk about flattening the hierarchy and the do's and don'ts of that.

Martin Gonzalez  

So your audience will know that I come from tech and tech has this unique love hate relationship with managers, like this is just a part of this whole journey. Engineers basically don't, engineers generally think that managers are from hell. In fact, there's a, you know, there's a story early in the day at Google where our head of engineering thought, okay, let's repurpose our managers and just have them report directly into. So we had this VP of Engineering and then something like 100 plus engineers reporting into them. Well, very quickly, they found that this VP of engineering was spending way too much time approving expense reports and vacation leaves and, and resolving interpersonal conflicts, so at least for that managers were useful. But I find that with CEOs and other industries, like these messages are fairly cyclical, when the economy is tight, and you need to de-layer or shrink the org, they will talk about how, you know, hierarchies evil. When you're in a growth, you know, growth trajectory, you want really good managers, because then that attracts the best people and keeps them there and so, so these things cycle around. 

Martin Gonzalez  

There's a really fascinating study that looked into, you know, into gaming studios. So in the tech space, and I want to put the right framing around this, we're not talking about a 12 layer hierarchy. Here, we're talking about places that tend to actually either opt for zero hierarchy or one layer of managers. What they looked at is, I think you want to gaming studios, and this was done out of Wharton, they tried to understand there's a belief in the gaming environment that with managers, again, this love hate relationship managers, they will create silos that will then create the serfs and kingdoms that get built. And then therefore the flow of information across these kingdoms get strained and we therefore have maybe less cross pollination of ideas and perhaps less creative games. So they wanted to put this idea to the test, right and so they looked at these few 100 gaming studios, they understood if they added a layer of managers to this to this group, like how does that look like in terms of the creativity of the game, and they measured that through some really interesting text analysis of game review, game reviews? And then they looked at well, what does it also mean in terms of commercial outcomes? So how much these games were able to sell? 

Martin Gonzalez  

What they found was that for every layer of managers you add, they saw a dip, a 1% dip in the creativity of these games. So yes, in some sense, to some degree, there is truth that these serfs, you know, strain cross pollination of ideas. But they found that for that 1% dip in creativity, you saw a 14% increase in commercial outcomes, so not a bad trade off, if you think about it. Now, you might say, look, it depends also on the life stage of the company. But really, I think the message here is this kind of this, this really popular idea that managers and hierarchy is evil really doesn't have a lot of evidence to back it up. Instead, what we want to say is think of bureaucracy and hierarchy in two different ways, these two are actually different things, we tend to conflate the two and to be fair, they tend to grow in tandem. But when you have really healthy or healthier for managers, they actually reduce the level of ambiguity in for the team and you avoid chaos. No hierarchy could lead to chaos, which is something that we very quickly forget when we, you know, when we raise the fists to, you know, to the bosses above us, right?

Ryan Miller  

Yeah. So every every layer in a hierarchy does create a 1% decrease in creativity, at least in this study. So there is somewhat of a downside and that makes sense affected, it's it's more believable that way, too. But then there's also a 14% 14 times upside. So I mean, when we're investing, we're always looking for upside and downside, and can we get a disproportionate upside given the downside? So this is certainly one of them. So I think what I'm hearing, then you keep me honest, Martin, is hierarchy matters. Leadership matters. Is that a fair summary? 

Martin Gonzalez  

It does and I want to say healthy hierarchy, because I think you, you can have a managerial chain that you know, power trips doesn't do the work properly. You know, one easy tell is to what extent do these managers actually connect one on one with their people? Like, it's a very basic, it's like management 101, unfortunately, it's not commonly done.

Ryan Miller  

You know, I recently went through that, and in my career, there was a company that had a lot of command and control style leaders that were over it, and it just decimated a lot of this group. And so these command and control, which we would argue is not really effective, unless the building is on fire or something chaotic is happening, but often, different leadership styles and healthy leadership styles do matter. And so can you connect with people? Do you build rapport? Do they trust you to talk about issues? Do they trust that you're not going to take credit for all the work? I've I don't know about you, we've had bosses like that they're all out there. But having a hierarchy as a structure is not enough, I think we're hearing but to fill that hierarchy with effective leaders. Now we're really talking so perfect. 

Ryan Miller  

In a lot of companies, you'll see that every once in a while there's disagreements between co-workers, between bosses, partners, whatever that is, and that can erode shareholder value. And I'm just curious, from your opinion, what have you seen as far as effective ways, is that healthy? Because I know in your book, you talk about this of having dissension or disagreements, talk a little bit about how to turn that into a very positive thing in a company that in essence helps shareholder value.

Martin Gonzalez  

You know, we spend a whole chapter in the book about this idea and we start the chapter talking about how Peter Sangay, who's this MIT professor who studied really how organizations really operate more like systems, he says the following, it's really grabs me when I first hear it. He says, the collective intelligence of a team of a leadership team is often lower than the average intelligence of its individual members. Which is maybe a fancy way to say, you can be brilliant, you can have A players, but that won't guarantee you an A team. In fact, the the likely tendency, when people come together as a group is they tend to actually come up with less optimal outcomes. You tend to amplify each other's errors, you tend to turn the group into less intelligent, you diminish the intelligence of the group when you come together. And so we spent a whole chapter just talking about, you know why it's so important to get this right. 

Martin Gonzalez  

I mean, there's some really obvious things that, you know, many have talked about around how you know, with a group that thinks very differently, that's not enough to then create an environment where you come up with really high quality decisions, you want to create the environment, the conditions, where you can tap into those individual intelligences. There's a really fascinating story in the history books of computer science. There's a lab manager, his name is Bob Taylor. And Bob works in a company called Xerox PARC. So for your younger audiences, they probably wouldn't know of Xerox PARC. So you probably know of Xerox, which is this old school kind of, you know, photocopying device. They actually built one of the most prolific innovation R&D hubs in reading in the history of computer science called Xerox PARC. It was located here in Palo Alto, near where I live and this is where you get personal computing. This is where Apple basically sees what it's like to have a screen and a mouse and these were all where it all began. This is where you have the technology, where those powers, Adobe, Pixar, Three Calm, a lot of what we use today was invented in this place, right? 

Martin Gonzalez  

And so Bob had a very good way of thinking about this, he said, it's not my role to solve disagreements, my role is to make sure I graduate every class one disagreement to a class to disagreement. What did he mean by that? So class, one disagreement is Ryan, let's say you and I are debating about something, a class one disagreement is I refute your argument by giving, by creating a straw man argument. Which is, that your idea represent in the weakest way possible, and then making it easy for me to refute, he says, instead of that, come up with class two disagreements. Where you read back, I will read back to you your argument in its best form possible, creating what some might call a strong man argument. And only then when you're satisfied with how I've talked about your idea, then I can present my own. And he said, it's not his role to resolve any of this, his role is simply to spot these class one disagreements and graduate them into class to disagreement. 

Ryan Miller  

Wow, also taking the role from straw man to strong man, typically, it sounds like what you're doing is empathy may not be natural for everybody and that's okay, everyone has their strengths. But I think what it's saying is the ability, if you want to classify empathy is the ability to put yourself in someone else's shoes and take their position and perspective is to say, hey, why don't you be an advocate for this agreement? And so the, let's say, our manager, we're coworkers and we're bickering. And our leader comes in and says, Okay, Ryan, I want you to take the perspective of Martin really advocate for his position and Martin, you take the perspective of Ryan. And so it's synthetically you've set a policy or procedure or whatever it is to move from class one to class two. Which is essentially just saying, hey, you know, it would be really helpful if you really considered their point as strongly as they do, both of us and then from there, hopefully, the truth will emerge somewhere in between, is that effectively, what we're talking about is healthy disagreements and conflict in a company. 

Martin Gonzalez  

That's excellent. I would go even further to say, empathy is not even required to do this. Well, if you can't muster empathy, look at this as a problem like a puzzle to be solved. Take on the challenge of taking someone else's idea and drawing up an argument for it, debate it out as if you're debating on their side, make it an intellectual challenge. And, and maybe that helps people kind of do the work of coming up with class two disagreements. Because I agree with you, I think empathy, like the reality is that if you hate the guts of the other person, it's really hard to really drop enough empathy to do this well.

Ryan Miller  

Yeah. Okay. Well, fascinating standpoint on that is yes, empathy can help. But really, I think, again, back to structure, this can be synthetically introduced into a lot of what we do, so I absolutely love that. Just moving on. I have another question for you. So, you know, corporations, they have all kinds of employees and leaders and different mindsets, maybe talk about what are some of those mindsets and how someone can go about working with them. So that again, we don't have these people issues that bring down companies? 

Martin Gonzalez  

Yeah. So you know, I work a lot with startup founders who think of themselves as disruptors in their industry like Mavericks, and they sometimes point that same energy and creativity towards the human condition in there, you know, the Human Factors of their team, only to realize that there's some reasons why certain practices have been have endured. And so we actually dedicate a whole chapter talking about some of these myths that these founders bring, bring to it. There's not enough time to go through everything, but I think there's some really worth calling out. So the first one that I think it's worth, we talked a bit about the myth of scaling without hierarchy. So let's leave that since we talked through that. 

Martin Gonzalez  

We talked about the myth of structural harmony, which is this tendency to want to think of an ideal culture or an idealized organization of one that's completely conflict free. And what you find actually is as you're building out the different structures of your team, or you have a finance team and HR team, you know, a sales team, a product, team, etc, engineering, and you might even go further and have a hardware and a software arm. What you'll find is actually there is baked into the designs of these, or these sub organizations, and they're OKRs, or KPIs, you have inbuilt checks and balances that sometimes show up as conflict. And I think what many leaders make a mistake of is they conflate personal conflict with structural conflict and those could be very, two very different things. Personal conflict could be about, you know, agendas and personalities, whereas, you know, structural conflict is about OKRs that are really meant. So an example of how this sometimes sounds like is software, I know that they can always update the software every two weeks, if they want to do, but hardware you need to launch, you can't Launch Iterate the hardware, you need to launch a really excellent product. Well they don't see eye to eye on deadlines, finance is going to always push HR to not over hire, HR will always say finance, you know, to get the right people we need more Budget. Sales and Marketing will have the same spat . We return numbers because well, marketing, you didn't you know, awareness is down or sales, you don't get distribution. So these things exist, now, as a leader, you don't want to resolve all of this, you actually want to let that all play out, because that brings out the best in the team. So that's one of them. 

Martin Gonzalez  

The other one we talked about, which I really enjoy speaking to is this myth of sustained heroics, a lot of founders themselves who own their companies. They are, you know, their company is an extension of themselves. And so they're, they work all hours every day, into the weekends into holidays. And there's this belief that well heroics is what stood up this company, by myself, by my co founders, we should have a company based on this culture of heroics and you know, a few things are problematic with that. So one obvious one is that if people wanted to be entrepreneurs, they probably wouldn't work for you. So if you're looking for the entrepreneurial spirit, where people are willing to put in all the hours, you will be hard pressed to find that and so 50% of 100 people is much more than 100% of view. Other things are part of the culture too. When you have a culture of heroics, you have what some psychologists have begun to call, I've begun to call this overperforming, underperforming dynamic. Where the over performer will be looked at over time by the team as someone who will save the day, someone who will put in the long hours. And ever so slightly, the underperformers begin to lean back a little bit more, they will underperform a little bit more because they know that there's someone who's going to save the day. On top of that this over performer will then grow resentment towards the team and start to see themselves as the hero. And so it's just really sticky dynamic that's hard to break out of where the hero swoops in constantly. Everyone else somehow feels like, you know, the damsel in distress, who's willing, you know, who's ready to get saved, and that dynamic will play out if you begin with the premise that heroics is really important. Um, so instead, what we asked leaders to do is to think about how do you reduce the single points of failure in your company? These are your heroes, they're also your single points of failure. How do you create systems? How do you have a system where you're hiring really strong people who then can put in the right systems in place to make sure you're building an enduring company. And this is why in many ways, this heroic founder will most of the time, 90% of founder CEOs will not take their company public, most company go public are going to be taken public by a professional CEO. And that's a big part of why these founder CEOs don't scale so fast, because they hold on to some of these beliefs, including this idea of sustained heroics.

Ryan Miller  

Wow, brilliant, you know, a big part of that, and this is a healthy activity is developing an exceptional team. How do CEOs build an exceptional team that can handle the constant hustle and stress of the day to day, what would you say to that? 

Martin Gonzalez  

Yeah, so the first thing I would say is make good decisions as early as possible? I think there is, we spent a whole chapter talking about the trap of speed where there is this systematic error that leaders that we find CEOs fall into and founders fall into where you're under extreme amounts of pressure to raise that next round of funding, to launch that product, you know, to meet this customer's needs. And what happens is all those important things come into the foreground and then all the other things that have more future benefits fall into the background. And usually that's things around you know, hiring well and not you know, and not hiring sloppy or stemming or toxic culture or letting go of that person who might be a really top performer but it's not but it's contributing very negatively to the culture. Those things tend to take a backseat and our encouragement for stuff all this, like don't like don't get sloppy on those things get ahead. In the book, we actually outline 20 of what we think are those things that drag the team over time. If you don't get those right early on, they drag the team over time. 

Martin Gonzalez  

The second one is, and this is partly the inspiration behind this book is, you know, we built this workshop that somehow received crazy rave reviews that at some point, it had reached founders in about 70 countries. And it's a workshop that we've now started to call the bonfire moment, which is also the name of the book. But the Bonfire Moment is, is a single day that we asked leadership teams to go through, it's a single day, across the 365 days in a year, and perhaps the five years you will be together as a team, just one day. And in this day, we've structured the day to really get into discussing some of the elephants in the rooms, having some of those uncomfortable decisions, conversations that we usually leave for, you know, when you know, when we can get to it. It's things like talking about, you know, how will we operate when one of the team members is no longer scaling well and how, what's an appropriate way that we can approach this, you know, co founder, this loyal friend, you know, who built from, you know, this company from the very beginning, like, what's a good way to do that? What are some of the hard truths about how I'm leading that is really getting in the way of the performance of this team. There's, there's a part of this workshop, which I, for me, is the most endearing part of it is what we call the bullshit circle. And in this part of the workshop, we invite people to reflect on how they bring a lot of the insecurities and self doubts into the work and how the masks we all wear sometimes create this toxic environment for folks. So all that to say, one, don't get sloppy on the people decisions, these are really important, and they will spell success and failure. And then to go go, go have a bonfire moment, pick up a book, the book outlines everything you need to know to do this and it could be it could it could really help you along the way.

Ryan Miller  

Brilliant. So as we wrap things up, I'm just curious. Is there anything else you'd like to say closing remarks, ways people can reach out to you the name of your book, where to get it? Any, anything at all?

Martin Gonzalez  

Well, first of all, thank you for having me, Ryan, it's been so fun to prep for this. It's been so fun knowing you and I look forward to finally in person hanging out. So I'm active on LinkedIn, please reach out there, the book The Bonfire Moment: bring your team together to solve the hardest problems startups face, co-authored with Josh Yellin. It's available anywhere you can find books. Amazon is a good place to Barnes and Noble, a few other places and it's available globally, too. So wherever you find yourself in the 100 countries, your listeners find themselves in, you're bound to find the book. And yeah, to reach out, I am always happy to connect if you have questions if you're working through some really sticky people problems. Part of the why of love this work, Ryan is a lot of this work is about what happens behind closed doors. It's the things that CEOs who often find themselves feeling really lonely and some of the struggles they have no one to really confide in and talk through. If you want to talk, reach out and we'll chat. 

Ryan Miller  

All right, buddy. Well, we'll, I think you and I will always be texting each other here. So just to summarize everything that Martin and I spoke about, begin with the end in mind, know if you're hiring people for fit or for performance, and stick with it. The second thing is don't be afraid to build a company that has a hierarchy, but with one caveat is be sure to have effective managers within that hierarchy. If you want to gain that 14% performance increase, bad managers can just ruin all of that. The next one was just effective conflict that can be healthy for a company just simply requires a culture of understanding perspectives. And so make sure that as you're building a company, and you really want to build a valuable company, that you're building one with the people in mind that say, hey, if there's different perspectives, I need teams and people who have the ability to take that on, and not just project their internal traumas or whatever it is that they're doing, but really understand, put that aside and say, hey, maybe I'm not seeing something, help me understand your sights very effective and that could really help unlock a lot of value in your company, or the companies you're investing in. And then the next one is just be careful being a hero, think about your succession that sometimes these hero founders or CEOs, sometimes they hesitate, and they have this hero complex or whatever it might be. And often, according to Martin in the data, is saying like that actually can hinder people at a certain point where they don't go public or they don't exit because of that. So just be careful and consider your succession and know when it's time to step out and hire a more professional manager. If that's you ain't no shame in the game you just get it done, and move that vision forward. And then finally, to build an effective team, don't be in a rush to hire but be in a rush to cut out toxic behavior. You do these things and you too will be well on your way in your pursuit of Making Billions.

Ryan Miller  

Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better. And make sure to come back for our next episode where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.