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1/ Lots of challenges and opportunities that get catalyzed by COVID-19. As we transition into a new normal, I’ve wanted to rethink a few parts of our strategy, structure and process - including things like norms and how we evaluate performance.
2/ In this state of uncertainty, how certain are we about how we currently measure success? Historically I’ve thought about measuring Inputs v. Outputs.
3/ To level set, Input goals are levers that drive Output goals:

-Sales: Close 3 new customers or bring in $1m in revenue (output) BY cold calling 50 customers this month (input)
-Product: Improve conversion rate by 5% (O) BY interviewing 10 customers to improve cust exp (I)
4) I would argue in SV it is more fashionable to be Output focused than Input focused.The belief is that quality of outcome matters more than the quality of your decisions -- or the sheer luck -- that led to that outcome.

But some are Input fans….

medium.com/parsa-vc/what-…
5/ As I’ve thought about how we measure performance internally, I’ve evolved my thinking on Inputs v. Outputs.

I believe the decision of whether to focus on measuring Inputs v. Outputs depends on the type of opportunity we are evaluating.
6/ I find Inputs more valuable in evaluating projects that have long feedback loops. For example, if a salesperson has a year-long conversion cycle to land a big whale- measuring that Output (Y/N) may be ineffective.
7/ Why? Because the manager doesn’t know if the salesperson is on the right track. The salesperson could have done everything right, but still lost. Or everything wrong and still won. Here I like @AnnieDuke's decision quality vs. outcome

Great book btw
amazon.com/Thinking-Bets-…
8/ I’m also reminded of @samhinkie’s letter, in particular the section on “Thinking about Thinking”
espn.com/pdf/2016/0406/…
9/ In cases with long feedback loops, Output focus may miss that the process is off track. Being off track on a major project for a yr will kill a startup. So will repeating a flawed process because the target was haphazardly achieved the first time.
10/ So measuring Inputs makes sense with long-feedback loop projects. An example of Inputs in sales might be running a sales funnel w/ clear metrics and goals.

11/ If the project is short-term focused, some consider Outputs more empowering to teammates because it lets them set the playbook (helps prevent micromanaging).

But there are other considerations beyond length of the feedback loop.
12/ How important is: is this a one-off project or is this something we need to get right over and over again? If the latter, I have found measuring Inputs often leads to building a process that is more repeatable, scalable and without Key Person risk.
13/ Let’s take an example that is more well known to VC Twitter…..VC firms. Most care only about Outputs- performance of the deals you invested into. The process matters much less to most VC’s (and their LPs) than the outcome. Makes sense. The goal is to make $, so measure that.
14/ But by focusing on Outputs, VC firms don’t build a repeatable process.

There are exceptions, mostly in analytically minded PE. TA Associates/Summit ($20b AuM+) were classic examples of caring about process - with team members having B2B sales funnels (cold-calling metrics)
15/ Real quotes from Top 5 VC firms in past yr:
“We don’t really have a sourcing process, deals just kind of come in.”
“We don’t put together materials about the opportunity. People just sort of talk it out.”

Common theme? No rigorous process that focuses on Inputs.
16/ Those are Top 5 VC firms (and each has been for 10+ yrs). So clearly something is working. What’s their secret sauce?

They ruthlessly focus on Outputs. And kick out the investment professionals that aren’t delivering. When someone at @sequoia isn’t adding value…….
17/ In long feedback cycle nature of VC I wonder if the approach of focusing much more on Outputs has helped or hurt VCs. Clearly for those I just quoted they are still performing well. Is that because of or in spite of the lack of process? What happens when Key Person leaves?
18/ w/o process, they have succeeded because of a few brilliant investors that win. And when Mary Meeker and much of the best talent left Kleiner, it was a blow that is hard to recover from, because the firm relied on Key People not on process.

fortune.com/longform/klein…
19/ This research from @McKinsey (p12) finds performance persistence is driven by individuals not the firm/funds.

mckinsey.com/~/media/mckins…
20/ What I’m saying doesn’t matter to the Key People who are relying on crystal balls to invest. It could matter for the teams around them, perhaps for their entrepreneurs, and for their LPs- all of whom would love to see a repeatable process that isn’t reliant on Key People.
21/ If the goal were to develop a machine that could deliver repeatable performance without Key Person risk, then a process would make more sense. Tech co's care a lot about repeatable, scalable processes. That creates more institutional equity value.
22/ To summarize, I think Inputs matter for a) longer feedback loop projects, and b) projects where building a scalable, repeatable process without Key Person risk matters. Are Outputs irrelevant? No, but I think Inputs gain meaningful importance in those situations.
23/ Final thought. Many of @amazon's projects are relatively short-term focused and performance can be measured quickly. They’ve continued to innovate because a well-executed initiative is rewarded regardless of its final outcome -- this creates a culture of risk-taking.
24/ @JeffBezos *mindset* is (very) long-term. He cares about getting the inputs right because over time that should improve decision-making quality and should lead to better outcomes. Certainly has for him.
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