The founding of a company is special. It’s a shot at building something new and consequential. But as Peter Thiel said in his book, Zero To One, “A startup messed up at its foundation cannot be fixed.” So how do you start off on the right foot?
I had the chance to ask veteran CTO, Mark Shaw, this very question and more. He’s had hands-on experience systemizing compensation in the early stages of building companies like Guidewire Software, Strava, and Inclined. Here’s what he had to say.
Lisa: Tell me more about you and your career.
Mark: I have been an engineering leader throughout my career and have always worked at growing companies. I love the building phase, managing and growing your initial team. My goal when building a team is to create an environment and culture that makes engineers want to stick around.
Lisa: As an engineering leader, what are the types of things you're thinking about as a business scales? For example, you've managed people and built teams over at Guidewire, Strava, and now Inclined. How has your thinking evolved through each of those roles?
Mark: Everything goes through these phases. It starts at the, “Gosh, we just need to build something” stage. At that point, I try to hire great engineers who align with the mission, are self-motivated, and can do the job without a lot of management. And this is precisely where Assemble plays a big role. A lot of the early decisions you make around compensation - both salary and equity - have very big, long-term ripples that you won't understand the significance of until later. So I think hard about how I can incentivize someone to align with my team’s goals and be an owner in the company. I think that's an important part at the early stages: aligning incentives and getting everyone to feel like an owner.
Lisa: What's the first inflection point that you have to confront as a technical leader?
Mark: This is a little further away, but it's really the next phase in the typical cycle. It’s that third or fourth wave of hiring; you've got 20 engineers and you are adding the 21st engineer. You recognize that the equity package is going to look different than it is for that first handful of engineers, and figuring out how you continue to incentivize people requires a different story. At this stage, you also have to start writing more stuff down and putting more processes in place as you bring on more junior people.
Lisa: When do you think people start asking about cash adjustments and how do you handle that objection early on?
Mark: It depends on the company and the person. I think this happens when people think about their career growth. They say to themselves, “Okay, great. I've been doing this for four years but my title hasn't changed. What am I doing for myself here and what's my next job after this?” It tends to be that second tranche of hires who don’t have the same ownership as the first wave. And they need a good reason to stick around. As a leader, it’s important to ask yourself, “Am I giving them a path?” If you don't have a solid story around the employee’s career path, then your only option is to throw dollars at them. So hopefully, you've got both the story to incentivize their ownership in the company and have the dollars to compensate them.
Lisa: So the career path and the employee's compensation package are both important, but how do you usually weave in the company's mission or trajectory of the business as you sell a candidate?
Mark: It's so important. I think the best engineering leaders do it authentically. I think people want to feel the spirit in you. Nobody wants to feel like they are just going through the motions. I also think it’s important to be realistic when talking about the upside. Don’t dumb it down by telling them they are going to be a billionaire. I show them that I believe in the upside and explain why the investors believe they can get a 10x return on the company.
Lisa: That's really helpful framing. And I think we can transition to another topic directly related to compensation. How have you seen compensation as a topic, especially for engineering leadership, evolve in the last couple of businesses you've started and supported?
Mark: I don't know that I've seen it evolve so much. That’s why I love the idea of what your team is working on. It is pushing that evolution along and helping it evolve faster. I do think where this issue hits first in a software company is on the engineering side in terms of improving the structure around compensation and equity levels. I think it hits engineering first because they get a large portion of the budget to pursue candidates with highly sought-after skill sets. Despite everyone being well-intentioned, after a while, it becomes difficult to convince others within the company why engineering is getting paid so much. That’s why having a real plan with a structure to describe the leveling and the compensation bands is so vital.
Lisa: I've noticed among our customer base that there are different incentives across different functions. HR and finance seem to focus on fairness, equity, and budgeting to make sure that an organization is appropriately resourced, whereas functional leaders try to attract and retain talent. What I've found is that the competitiveness that function leaders are vying for and the fairness that HR and finance leaders are vying for is not a zero-sum game. The more operationally efficient companies are, the better they become at both. Can you speak to how you see your incentives differently, and then how you go about communicating them with finance and HR?
Mark: I think you nailed it. At a high level, the CFO wants to run an efficient organization that spends rationally. Then you come in with the notion that the compensation bands we are paying are too low because the market is telling us. The CFO’s counter is to ask for the data to back up your statement. Now, I don’t believe this is the only way to look at this issue, but I do believe we can use engineering as a testing ground for implementing new compensation bands before rolling a uniform policy out to the rest of the organization. I just think that we're not going to get the right answers the first go-round, so it's better that a few groups test the bands to get some data and then make the case for fully implementing the policy across the company.
Lisa: So it sounds like you're saying two things: First, you need to engage functional leaders to come up with the right system, test it out, and iterate quickly. Second, you eventually make a decision as to whether a compensation system is working or not. How do you tell if a system is or isn't working in conjunction with HR, and then what do you do to solve compensation problems within engineering?
Mark: Frankly, I would ask, “What's my hit rate on hiring?” It’ll become clear if we are losing people because we aren’t paying them enough. Once you get a few of those signals, you can make a case for what needs to change so that you don't lose the next batch of great engineers for that reason.
Lisa: What kind of advice would you give to engineering leaders who are struggling to effectively communicate or work with finance and HR on compensation?
Mark: Bring them data. Instead of throwing up your arms and saying, “We're not paying enough,” bring actual examples of data and show finance and HR what your compensation bands look like. Also, bring up instances where someone is currently underpaid and ask how they would adjust the compensation bands.
Lisa: What role do you believe engineering leaders have in attracting and recruiting diverse talent?
Mark: I go back and think about ways I've evolved or mistakes I’ve made, and the number one thing I recommend is thinking about this early. As soon as you realize it's too late, turning the ship takes a long time. You have to think about the story for diversifying your team now because the people you hire today are going to be your leaders. In four to six years, they are the ones who will be recruiting talent from different walks of life.
Lisa: Ok, we’ve come to my last question. As the CTO, what is your playbook for compensation, specifically?
Mark: For compensation, it was always important for me to feel that I was doing the right thing. You never look at the way you compensate and what equity you give away as, “We are perfect.” You always feel that a person should be paid more and we learn that by their performance. There is always an imbalance, but I always wanted to take the right steps to correct that imbalance. And that can’t be done overnight, particularly as you get larger and battle for more money for your team. I personally ensure I feel good about taking those next right steps by supporting myself with data and being able to provide a story of why we're here and what I’m doing to get us to that next place. And the other piece is to not win people over in the early stages with money alone. Compensation is obviously important, but if you don’t have a compelling story as to why this is the best place for a candidate to join right now, then you're never going to win the compensation battle. And I think that's true for retention as much as it is for recruiting. So, I think establishing that story and evolving it as you grow should always be on your mind.