An interview with Greg Marsh, co-founder and former CEO OneFineStay, an Upscale company. By James Silver.

If you’d like to follow in Greg’s footsteps, applications for Upscale 3.0 are open now.

The hardest decision CEOs have to make is who to keep and when to fire, says Greg Marsh, cofounder of high-end hospitality firm onefinestay, which was sold to AccorHotels for a widely-reported £117m (€148m) in April 2016. Speaking to a roomful of Upscale 2017 founders at the Goldsmiths’ Centre in Clerkenwell, East London, he went on to cite Andy Grove, the late legendary Intel CEO to bolster his case.

“Grove famously said that about a third of the people he hires are great: they transform the function they’re in charge of, they inspire brilliant people and make his business fundamentally better,” summarised Marsh. “Another third are OK. They don’t really do much harm, or much good. And about a third are a disaster, and if he didn’t get rid of them quickly, they’d permanently damage his business. Grove said that that was his batting average having had a lot of practice and experience.”

At that point, Marsh challenged the group: “And if any of you think your batting average is better that that, you’re probably wrong and self-deluded. Getting it right, really right, more than about a third of the time is just luck. It’s a second-order skill and professional CEOs get a bit better at it gradually, until they get about as good, if they’re honest with themselves, as Andy Grove.”

‘Pit-of-the-stomach feeling’

A few weeks later, in a telephone interview, Marsh, reflects on his choice of words. “Perhaps a better way for me to have put it would have been that the most difficult thing for a founder to do quickly or early is to fire fast,” he says.

“It’s really easy to say ‘Hire slow, fire fast’ — but it’s incredibly difficult to do that in practice. Fire too quickly and you risk looking capricious to your other senior execs, your board and others.

“That natural tendency for an entrepreneur, who’s in sales mode, to sell the heck out of any potential hire, means that having pumped that individual’s stock within the company (whether that’s among executives, the broader company, the board community or, God forbid, the public community), if three months later you’re beginning to have that pit-of-the-stomach feeling that perhaps you’ve made a terrible mistake here, admitting that publicly is going to be difficult, embarrassing, and often very hard,” he says.

“It’ll also often have fallout, not only because you’ve got to replace the person, but you’ve probably also got to assume their responsibilities while you’re replacing them, which makes for a pretty miserable life in the interregnum.”

There are all sorts of good reasons why firing someone is always difficult, not least because it’s psychologically difficult to tell people they’re failing at something even if you can argue, over the medium term, that you’re doing them a favour, continues Marsh.

“Compounding that, though, is that in order to know whether an executive is unlikely to be effective in that role, you’re likely to have to give them quite a lot of time to set their stall out, hire the people they think they need, and to build the function or turn it around,” he explains. “And that period is time when, at the very least, the company is not making progress in that strategic capability area – and potentially worse.

“So you’ve got to give an executive time, but it’s time the company can barely afford and you can’t reach over their shoulder and micro-manage them during that period or you’re invalidating your own natural experiment as to their competence. So it’s a very tough one,” he says.

“You have to give space to that executive, be incredibly clear about what you’re expecting, allow them to make their own mistakes, but put pressure on them, by setting the expectation of how quickly you expect them to be able to deliver what you need of them.”

Like the majority of current or former CEOs, Marsh has acute, first-hand experience of the damage failing to pull the trigger quickly on a bad hire can do to an organisation. Describing it as “a common experience”, he estimates that perhaps as many has half the senior executives he hired at onefinestay didn’t quite work out for one reason or another. “And in several of those cases I left it much too long,” he recalls.

‘Like a bad relationship’

“You often know in your heart when [you should part company with someone]: It’s when you don’t want to spend one-on-one time with them, when it’s no longer exciting to hear them talking about their business, when there’s a lack of clarity, a fuzziness about what’s really going on, what they’re really doing, why things aren’t happening. When three, four or five months in, you still aren’t seeing output. When people who work closely with them don’t tell you how great they are, but dodge your gaze when you ask how it’s working out with ‘Jane Smith’?

‘Those are all the signs. It’s always easier day by day to ignore the signs than deal with them. But that’s like dragging out a bad relationship rather than sitting down and having The Conversation. We’re always psychologically averse to having those difficult conversations, but we always feel better once we’ve had them,” he counsels.

So what are Marsh’s tips on mitigating risk over hiring, and thus avoiding such situations in the first place?

He advises three key steps for screening candidates.

First, he suggests entrepreneurs be upfront and realistic about how bad they almost certainly are at interviewing.

“If you accept, as a premise, that the world’s best interviewer is probably only going to get it right about half the time, call that x, then to be proscriptive about it, let’s say the probability of failure in any given interview is ‘1 – x’, how do you reduce the total systemic probability of failure of a process? You raise ‘(1 – x) to the power ‘n’, where ‘n’ is the number of people taking a view.

“So what does that mean [in practice]? It means don’t rely on your own intuitive judgement alone, also rely on it, but empower people you trust, who have context, to participate in an interview process. So if there are two founders, each of you separately meet the person and everyone is licensed to veto. If you have a board member whom you trust, then empower him/her to interview, genuinely license them with the power of veto, in fact encourage them to veto if they have any suspicion or anxiety about the recruitment decision, no matter how good the person seems on paper. Now you’ve raised ‘(1 –x) to the power 3’, so if ‘x is 0.5’, you are now down to only one in eight in likelihood of hiring a dud.”

Marsh’s second step is to test the candidate’s true motivation. “How did we do that [at onefinestay]? After a few iterations we developed a practice of having quite detailed working sessions with [prospective] senior executive hires. It’s very demanding to ask a senior executive to take a few days out of their presumably – if they’re any good – busy schedule to prepare notes and thoughts on a presentation in advance of your meeting with them, but it weeds out quickly people who interview well but actually don’t think well.

“The attendant risk is that you end up unfairly privileging or favouring people who can present a PowerPoint slide-deck really effectively. Ex-consultants tend to be very good at this, but it doesn’t necessarily mean they’re effective executives of course.”

‘Reference the heck out of them’

Once a candidate has gone through the working session, where they’ve been challenged to see how they think on their feet, then step three is to, as Marsh terms it, “reference the heck out of them”. That encompasses both formal referencing through a headhunter, but also informal referencing through back channels, he says.

“Talk to people who are willing to be candid. Don’t rely on a printed reference. Don’t do referencing only in a confirmatory spirit either; don’t soft-peddle what you hear. People tend to understate a candidate’s weaknesses, because very few like to be honest about weaknesses. So every time you hear something that smells like a potential issue, dig and dig and dig. Do it tactfully. And once you hear it in one reference call, take it to your other reference calls too.”

Part of the point to referencing, continues Marsh, is to try to be better at managing the candidate if and when they join. “So if after doing three, four or five reference calls a pattern emerges, and that pattern gives you real cause for concern – such as a sales person who isn’t good at meeting targets or a marketing person who isn’t thoughtful or insightful about customers, or a technologist who isn’t that good at technology — then stop and really rethink your decision.”

He’s also at pains to emphasize that referencing is no mere formality and as such it should never be delegated by a founder. “You should always do your own referencing,” he says. “You learn far, far more from listening to the pause in someone’s answers than anything else.”

Always have a question designed to test for hesitation, he says. “One of the ones I like is this:

Q: On a scale of one to ten how would you rate Jane Smith as a marketing professional versus all the other marketing professionals you’ve seen or worked with?

Pause.

A: 7.

Q: Interesting. Why? What would it take for her to be a 10, or why isn’t she a 10?

“And now you’re asking the important question,” says Marsh. “The other one I always asked in reference calls is this:

Q: Have you ever had suspicion about the person’s character, ethics or integrity?

“If there’s even a moment’s hesitation in the answer to that question, then pass on the candidate no matter how good they look on paper, because you’ll live to regret [hiring them],” he says, before anticipating my next question. “And, yes, I’ve been there and done it.”

Applications for Upscale 3.0 open October 2017. To stay up to date with all Upscale news follow us on twitter and sign up to the Tech City UK newsletter. For more information on the programme visit the Upscale website.

For more in this series:

“Here’s how to retain your company culture as you scale” Jess Butcher, co-founder at Blippar

“Managing your own psychology is the number one challenge founders face” Asi Sharabi, CEO, Wonderbly