Believing in People | Kevin Lavelle

Kevin: Good afternoon, y'all. Just to be clear index match is the best Excel function. I've been thinking a lot about that. I haven't haven't used index match a lot since leaving the consulting world. It's not really necessary in fashion.

So, I'm going to try to distill down, the things that I learned working in Charles Koch's family philanthropy. It's called Stand Together and learned a lot. Hopefully it is enough of a primer in 18 minutes with some Q and A. The goal is not to be comprehensive, but I spent years studying these things and I am hoping to give you guys a little bit of a kind of window into this and a toolkit to begin applying it yourselves. I'll also put my email at the end.

I'm happy to answer any questions. I feel really passionate about this stuff. So believe in people, title of the talk. It's also a title of one of Charles' books. What does that mean?

Ultimately, it's that you believe that people are each capable of extraordinary things and they have extraordinary gifts and that the systems that are around them may or may not allow them to be able to realize those gifts and produce great value in the world. The way that I like to think about this is I know what's best for my family and I wanna make decisions for my family. And when, in my life I have been an employee, there are things in times where I think I know something that my manager or maybe the leader of the business doesn't know. And I want to be entrusted and empowered to make those types of decisions. So this idea of bottom up versus top down kind of undergirds everything that is in this management philosophy called Principles Based Management.

So, bit about Koch Industries for context and to be abundantly clear, I'm not speaking on behalf of Koch Industries. I'm not an employee of Koch Industries. I have studied these for a long time. I've learned I've hired retired Koch executives to come in and teach it, to me and my business. I've also spent some time again working in an organization that uses these philosophies.

So Koch Industries, $125,000,000,000 annual revenue around, a 120,000 employees. They do work in over 60 countries. They double earnings on average every 6 years. Everything that I'm telling you is public information. That's all out there in the world.

But what I find, so fascinating about their business, if you study them, they do work in so many disparate fields. So they do commodities. They do high-tech. They bought Molex. They bought Georgia Pacific.

They do real estate, and yet they are continually successful again and again. And it's ultimately because of these philosophies. When I started learning them and I I went to some lectures and, again, worked with some retired Coke executives, I thought, yeah. Yeah. That's all well and good.

You guys have a very sophisticated, well oiled machine. You are capable of doing all these things. How could this possibly work in my startup? Well, what I'm gonna do here is walk you through a little bit of the overlying or the overarching philosophy and then some specific tools that I used in my business to begin to implement them. This did not come out well on the big screen.

Apologies. But I I joke this is a super secret manual, and he's published 3 books about it. So, you are welcome to dive into as much of this as you would like. Principle based management is the website. All the resources are there.

He puts this out there, and Koch Industries puts this out there in the world because there is a belief that if more businesses can succeed and, utilize these philosophies, more people will be able to realize their gifts and bring them out in the world. So, principle based management dot com. 3 great books. I recommend all of them. So my background, we're talking about it earlier.

I started a clothing company called Mizzen and Maine. May many of you may have seen an ad of Phil Mickelson dance dodging golf balls in our dress shirt. He's actually played, at Augusta National with Tiger Woods wearing our dress shirt. Had a great run building that business. I'm building a new business, helping parents get more sleep.

My email address is at the end. If you have a kid under 1 year old and you are struggling to sleep, shoot me an email. I'm happy to be helpful. And I spent 3 years working at a, philanthropy called Stand Together that Charles started, about 20 years ago. Alright.

So the 5 dimensions of principle based management, vision, virtue and talents, knowledge, comparative advantage, and motivation. I'm going to again give you a brief description of each of them and a tool of each of them. There are so much more information in these, but I wanna give you guys a little bit of the introduction so that you can start to apply them yourselves. So vision. A lot of people talk about vision.

It's everywhere. I think most people fail to understand. A lot of businesses talk about vision. They say, we wanna be the best. Okay.

What does that actually mean? That doesn't help people make a decision in their day to day. So many problems that emerge within a business are simply because employees, managers, customers, vendors, they don't know what you're trying to do. Distill it down fundamentally. Can every single person in your business say without hesitation, what is it exactly that our business is trying to do?

And how is it possible for us to do so? If this isn't crystal clear that every person can say it, like, at the drop of a hat to the point earlier about the formulas, if it starts to get too complicated, you're gonna lose people. Virtue and talents. I'm gonna distill it down real simply here. Are your company's values easily understood by every person in the organization, And are they shared by every person in the organization?

Does your talent management process nurture this from recruiting to hiring to managing to, ultimate separation. There's a lot of talk about values and isn't that so great and they're up on the wall and then every decision every day doesn't actually align to those values. And the values aren't a part of people's day to day lives. I'll give you a tool as to how you can do that, very effectively. Does your organization share knowledge effectively?

Again, I'm just gonna repeat. This is an overarching framework. All of this makes so much sense when I say any of these words. But if you consistently refer back to these tools and these questions, anytime a problem comes up, you may end up uncovering the solution a lot faster than just trying to poke holes everywhere. Is your business open to new ideas?

One of the reasons that Koch Industries has been so radically successful is their belief is every business that we're in today will eventually become obsolete. We should be the ones that make ourselves obsolete. We should be seeking out new ideas, new opportunities, new challenges. And if there's a business that's going to beat us, we should copy them, buy them, or find a way to beat them rather than just try and protect what we already have. Do you embrace the challenge process?

The challenge process is something where any person in the organization can challenge anyone else at any point in time. As you can imagine, there are ways to do that effectively and very, very, very formally, comparative advantage. The idea of division of labor by comparative advantage is probably one of the greatest unlocks in human potential, that we've ever had. Some people are better at certain things than others. So many organizations fundamentally come back to this person has been here longer.

They're related to the owner. They have some level of degree or seniority. And actually, it is hindering your ability and your organization's ability to be effective and to create more value. Decision making authority should be incredibly clear. When you don't delegate decision making authority as far out in the organization as possible, then you will hold yourselves back from progress and speed.

Great example. Great example of this. Koch Industries does a lot of stuff with big machines, big heavy machines, big AG, all those types of things. If everyone had to go back up to Charles Koch at the head of a 120,000 person organization to figure out what should I do next, they would obviously never have gotten there. It's a facetious example, but it illustrates the point.

Motivation. Is every person in your organization appropriately motivated to grow and apply their skills and create value for your organization? Many people think that motivation comes down to how much am I paid. There are so many things that motivate people far beyond pay. Certainly, pay matters, but there are so many things that you can help, appropriately motivate and incentivize somebody beyond just the payment or stock options that they have.

Fundamentally, I think most people lose sight. You can be paid really well and be totally miserable and lose sight of so much value creation because the work doesn't actually mean anything to you. Alright. So what are a couple tools? Again, we have those 5 dimensions.

Now I'm gonna go through one tool in each of them. If you go to the website, principle based management, you will see tons more tools. There's a lot of resources that you can apply them themselves. But I wanted to excuse me. I wanted to go ahead and walk through one tool in each of them, 1 or 2, to give you an idea of how to think about this.

So a couple years ago, Coke reorganized how they think about their business units in headwinds and tailwinds. And it's not to say that if you have a headwind in your business, you should not continue to pursue it. But if you have a headwind in your business, it should change the way that you are thinking about opportunities and challenges. In some cases, a major headwind in your business means it's time to go buy 10 of your top competitors because they are facing problems and you are well capitalized to do so. And if you have a tailwind, there may be an opportunity to accelerate some of those things that you had never done before.

If you think through the lens of where am I facing enormous resistance and where could I be going 10 times faster, It'll change the way that you think about the types of activities that you pursue, transactions, m and a, etcetera. And so this concept of headwinds and tailwinds aligns with vision because it's ultimately around where are we trying to go and how are we gonna get there. Virtue and talents. Awesome thing on interviewing earlier. I thought that was spectacular.

I'm gonna give another tool. I think nothing is in conflict with what you just said. My suggestion and based on what I've experienced is for every, every hire that you have, you should have the person coming into at least 3 interviews. And one of the things that was, so, paradigm shifting for me working in an organization with principles principle based management was each person that was interviewing the candidate was assigned a company value. I typically go into an interview and I would have 3 company values where I would be responsible for sussing out, does this person live up to these company values?

And all of my questions would be just around that. Only 1 or 2 people doing an interview would ask that candidate their actual skills for the role. I would go in and interview somebody for, let's say, finance. That is not my game, and I wouldn't ask them a single question on finance. Whereas so many interviews, people just go in and they feel like they have to ask questions relevant to the role.

No. I'm trying to see, does this person have integrity? Are they fearless? And then help your employees understand what are great questions to ask so that they can get to the bottom of that rather than tell me about a time you were fearless. Right?

So, this is a skill that has to be developed. Most people are terrible at interviewing. I thought I was great at interviewing. I'd run my own company before. But when I went in and worked at Stand Together, I saw people who interviewing was like a core competency of theirs, and I learned so much of this.

So that's one thing, making sure you get interview right. Virtu and talents matrix. I'm gonna buzz through this, but I think this is one of the coolest tools that I have ever seen. Across the x axis, talent. So low talent to high talent.

The y axis is Virtuer values. Low Virtuer Values TO High Virtuer Values. The ideal candidate is quadrant 1, very talented, very virtuous, highly aligned with values. The worst candidate is highly talented and very low virtues or very low values alignment. The joke of the, quadrant 4 is an evil genius which is someone who's incredibly talented but has very low virtues or values aligned with your company.

They can do an enormous amount of damage in your company in a very short period of time. This is just meant to be a tool. You don't say we will only hire people in quadrant 1. But it's a way when you get a much of people who've done interviews around the table to align on how do we think about this candidate. Where do we think they are in the virtues and talents matrix?

And, by the way, this and many of these other tools, again, on the website, highly encourage you to go check that out. Knowledge benchmarking. So when it comes to how you are performing as an organization, most people will just say, well, how did we do last year? How are we doing this year? What's going on?

Isn't that so great? Let's pat ourselves on the back. But if you benchmark each of your functions within your organization and your overall performance against your peers, against the companies that you want to be, you may find that you are far short of your potential. You may also find that you are in another league altogether. But most organizations don't actually go out and compare themselves on a line by line basis, whether it's, net promoter score, whether it's customer satisfaction, retention, churn, or they'll only do it on one metric.

They'll say, well, our revenue is so much bigger than these 3 other competitors. Except for those other 3 competitors, their net promoter score, their churn, all these other things are far better, and so that means those guys are probably gonna come kick your butt really soon. And so a great business is going to challenge itself from a knowledge systems and sharing process to say, how are we doing relative to everybody else? Comparative advantage. So this dimension here, 2 tools to consider, r r and e, role, responsibilities, and expectations.

Most people are used to a job description. Job descriptions tend to be pretty poorly matched to the person who ends up in that role. Okay. So we need somebody who is running retention marketing. You write the job spec for retention marketing.

When that person comes into the role, maybe it's an 80% overlap, maybe it's 90, maybe it's 50% overlap. They're good for the role, but, actually, their skill set lends them to be also helping with things like, let's say, email marketing. And so the idea with an r r and e, role, responsibilities, and expectations is once that person has come into the role and been there for a month or 2, have them write out a list of their responsibilities and a list of expectations of what great performance looks like. You'll actually be shocked at how hard it is for most people to do that despite having done it something their entire lives. They got hired with a job spec.

They will look at the job spec, and then they will sit down and go, what are my responsibilities? And then within, excuse me, each responsibility, what does great look like? Because the good thing with this is you can then at the end of the quarter, the half year, end of the year, you can align it and say, tell me how you did against your own expectations of what great looks like. Now you as their manager are supposed to look over it and sign off on it and make sure that they're good with it. But it's an incredibly illuminating thing for most organizations and most employees to be able to go through.

Every person's r r and e should be open to every person in the organization because people should understand where they fit in the matrix of all the things that are happening across the organization. A specific example of where this ended up being hugely helpful at Mizzen and Maine, we had a headquarters. If you Google us, you can find our headquarters. It's not hard. We also had a flagship store about 3 miles away.

That was where we wanted all customers to go. But we would have customers just Google us and show up to our headquarters. And there was real friction between our store team and our headquarters team. We only have 40 people in the organization, but there were different teams. And so the the headquarters team, the person who managed the office and all the supplies and all that stuff, kept looking at the store team and saying, why aren't you taking care of these customers coming in?

And the store team was saying, you run this building. Why aren't you taking care of them? And so what we ended up doing through an RR and E exercise was basically taking care of customers in person is a responsibility of the store team. And so they took ownership of that in a totally different way, And going through this process deduped that challenge and helped us understand that gap. Decision rights as a fundamental concept is who has the authority to make what decisions.

The farther out you can decentralize decision making, the better off your organization is going to be. Give people closest to the problem the authority to solve that problem. There are certainly limits and some things legal liability, HR, some of them do have to be centralized to limit the total liability of your organization. But the further out you can empower people to make decisions, the better. Lastly, most difficultly, is, motivation.

So one tool is compensation. There's plenty of other tools. Total compensation for total value creation. This is something that most people would say that they do. However, if you look at most job offers and you look at most compensation discussions, it's you are a VP of marketing.

Your VP level can make between $125,015,150,000. If you do a great job, you can make up to 10% of your salary. And if you do a bad job, you will make 2% of your salary and a bonus. Good luck. For an owner like mentality, what if as a VP of marketing, I came up with the I'm gonna dance dodge golf ball Phil Mickelson video campaign that garnered over a 1000000000 views and helped our enterprise value grow by x.

And I say at the end of the year, you're going to make a $12,500 bonus. Thanks for coming. Most people are eventually going to say that's b s. I I should make maybe even twice my salary in a bonus because I created significant value. It doesn't mean that I necessarily have to give them profit sharing.

But this idea that everyone fits in a band is a construct created because it's just easier to put people into buckets and say, this is what you can make. It's not an easy thing to do this. And one of the things that you will learn as you study principal based management and read Charles's books is it's really, really, really hard to get this right. But ultimately, if you do it right and you treat people with respect and all the other dimensions are aligned, people will eventually trust you. And so there are a lot of people that work for an organization like Koch Industries that they will make a relatively low base salary every year, but they will make 3 to 10 times their salary at the end of the year in a bonus because of the way their compensation structure ends up working.

So as a recap, vision, virtue and talents, knowledge, comparative advantage and motivation. I know I just flew through this. The reason I did this is because I wanted to try and take a very con complex abstract topic with a lot of buzzwords and a lot of things and try and at least explain to you how I implemented some of them. There is my email, kevin@harbor.co. That's my new company.

Feel please feel free to email me. I love this stuff. I think this is one of the most extraordinary management philosophies I've ever seen. There's no shortage of frameworks and constructs and all those things that exist out there. If you are interested or wanna learn more, I'm happy to chat over email.

And I think I've got time for 1 or 2 questions. So I've got 1 minute. Question. The part where it's hard to get right is, you will never get someone's compensation exactly correct because they will always think maybe it should have been a little more. In some cases, wow, that's better than I thought.

And so you need to do it in a way that you get it right over time. And so there are years where your business will do great and they will be flush, and they may think, wow, that was even more than I expected. And there are years where your business is not necessarily going to do that well and so you won't have as much to be able to distribute. But in time, people will feel like this is a better opportunity for me financially and for meaningful work and all the other incentives. And the organization has treated me well and done it right.

And so as a first startup and second startup, blending together equity and cash in a high growth business where we're trying to invest in the future, that is especially hard because we're not a business that is distributing profits to its owners until much later down the line. And so we have to kind of, couple those things together. Maybe one more question. Yeah. Go ahead.

At the end of the day, most most roles are not this is how much revenue you produced. And so a few things that they talk about in the books and frameworks is you need to go out and look what is what is the market telling us that this role is worth? Is this person a top performer, a middle tier, or maybe not so great? If we were to have to go and replace them, what would that cost us to replace that individual? And so then you start to say, okay, let's just use a round number.

A $100,000 role, you know, mid tier, good, good value producing role. You may end up saying this person produced realistically at least 50% more value than their salary alone. And so we were gonna go ahead and distribute a $50,000 bonus to that individual. That's not because they produced $500,000 worth of excess value and I'm giving them 10%. It is very subjective into the point the question earlier.

It it's really hard to get subjective numbers right. In fact, you're always going to get it wrong to some degree, but you need to build that trust over time. If most people who hear this thing, I'm gonna go do this compensation philosophy because this makes a lot of sense. I'm gonna go do that. That's the last thing that you have to change because you have to build the trust throughout everything else for people to feel like I'm going to be treated fairly by the system.

And it's not a way for them to just pay me less because they've come up with some arbitrary number. Alright. Last point is if you use it as a way to pay people less, they'll just leave. And so it needs to be people feel like I am getting more than, I would if I were just at a pay band type organization because if I create more value, I'm going to get more of a reward. So it is all very subjective, and that is one of the things that makes it so incredibly hard to do.

Thank you guys very much. Appreciate it.

This transcript was generated with Transistor AI