Interview with Andy Flanagan, Founder, Chairman and CEO of eSchoolmall, November 2, 2000

W = Wharton     F = Andy Flanagan

W:   Could you give just a brief description of E-school Mall?

F:    E-school Mall makes enterprise resource software for procurement for the public sector, specifically K through 12 institutions.  Our software enables through XML -- other internet based technologies -- suppliers in schools take time and money out of the process of running the school district.

W:   The first question is what are three ways that leadership in e-businesses differs from leadership in traditional bricks and mortar businesses?

F:    Clearly, in my opinion, leadership is the only differentiation between an e-business and a bricks and mortar.  I say that because brick and mortar companies have technologies that are as robust as e-businesses.  So I believe it's the speed of decision-making, levels of empowerment, and the expectation of accountability that's built into the first two points.  What I mean by that is if you build a hierarchical system that requires employees to look for approval as opposed to following their instincts, you waste time and money.  So the first is clock speed.  The second, the level of empowerment gets into what are you going to do when somebody makes a mistake.  That is, what's your basic philosophy on making mistakes?  My personal view is that the more mistakes my employees make the better off we'll be as a company because we'll make them earlier in our life cycle, we'll be able to recover faster, we'll learn faster, and we'll be able to eliminate dead ends.  The third is the expectation.  A lot of people come into dot-com companies after they have 20, 30, 40, 50 employees.  It's no longer two guys and a dog.  It's no longer in the basement.  The expectation is that they perform at an equivalent level of two levels higher from where they came from in terms of their decision making authority and the risk that they need to take in their current role. 

W:   What are the necessary individual qualities of a successful leader in the internet economy?

F:    First of all, I believe you need an incredible resilience, an unyielding desire to win.  This spirit has to be present because there are so many reasons why you could fail.  You have a better-funded competitor, they have a better product, they have a brick and mortar coming in or the customers don't want it.  In my opinion, the number one personal trait of a successful leader has to be that competitive edge.  That has to be immediately balanced by flexibility.  You have employees that you're dragging, in many cases, hundreds of yards.  They're very qualified, talented people that you need to have to succeed, but you can't just say, "we have to win it", so the flexibility to change your leadership style by employee.  And then the third would probably be trust.  You have to be able to trust the people that you hire to run the business and make decisions, which ties to the first three that we discussed, the flexibility, the empowerment, the expectation level. 

W:   Given those capabilities that you just described as being essential for leading an e-business, how or where have you yourself been able to develop them?

F:    First of all, I read everything I can.  My basic assumption is that the information I need is there, I just haven't found it yet.  So I jam as much as I can into my brain on leadership, on success cases, and on failures.  I probably spend more time studying failures than I do successes.  I think I rely on the web relentlessly.  I probably read items over the web more than I do any other medium.  I generally read about two books at a time.  Any chance I get to go somewhere, whether I'm in an airport or whatever, as opposed to checking email or voicemail I pick up some external resource just because I'm besieged in the office.  I can't do that at home.  I have two young kids and family is very important.  The time that you can do that you need to spend 100% of the time with them, in my view.  So I rely on reading relentlessly.  I would also say that I learn from my advisory boards and my board members. I probably ask the same question of a lot of people to see what the different answers are.  And out of that I just go with what I agree with and I take what I can.

W:   In the past leadership has been defined in the context of classic business environment.  What criteria do you use to measure your own leadership success?

F:    I would say the first criteria, the absolute success, is very comparable to that of a brick and mortar.  We're building a large profitable business quickly.  To the degree that we achieve our milestone, to the degree that we deliver a quality product in a quality manner to our customers, I've succeeded.  More specifically, I really look to the people that report to me and the first level employees.  I don't want to skip that middle level, but just to pick to extremes, I look at how their operating in the environment that we have, which is an incredibly fast paced environment.  If they're making decisions and they're taking risks.  If their asking the right questions.  The biggest risk is that I think I'm doing one thing and my employees interpret it a different way.   The culture they see is from my senior staff, not from me.  So I look at the disconnect or the connection between my senior staff and the first level employees as a measure of whether I’ve been successful.  It's all about communication.

W:   What kind of culture would you say exists at your company, how did you establish the particular tone, and how do you institute this or how did you inculcate this into your organization?

F:    I would say our culture is pretty well defined as to what we're trying to achieve.  I say that in that the development of culture is a multi year project.  When it's three people you can kind of enact it immediately.  But when you have 70 or 150 employees it's an evolution.  People believe it and then they come and become a part of it.  Pretty soon you have a culture.  So it's not an event.  The culture we have in our company is first and foremost about employees.  We believe in the service profit value chain that successful and satisfied employees are going to yield profitable and satisfied customers.  A lot of companies do that the other way around.  In our case it's all about employees first.  We started out with that statement, and that was a firm belief of me and my partner.  We came from a company that was very well respected and that was something we viewed as a core competency of that company at the time, and we believed it.  So it came from our own value set.  The second is about performance, superior performance.  We hold ourselves accountable to absolute metrics like everybody else does, in many cases probably more so.  The third really would be about responsible risk taking.  And then the fourth would be about a fun and friendly environment.  I say these four pretty distinctly because it leads to your second question of how do we create it.  The process we used to establish our culture was actually quite formal, especially for a young company.  Six months in, we planned an event for the one year mark to actually go offsite with our senior management team, with input from our employees about what culture did they desire.  What did they view the company to stand for?  What was our core purpose and mission based on a years' work they had done?  Then, as a senior team in a three day offsite, had to process what we felt we were really here to accomplish.  It was a collaborative process.  It really was not something that as two founders we said, "This is the culture and here's what we've got."  What was most amazing about it was that what we got from the employees matched perfectly the vision that Dan and I had when we were at the beginning.  If we were to describe what culture we would want to create you would say, "one, two, three, four, five" and we nailed four out of five.  It was a stunning event.   We made a decision very early on to bring in a very senior level HR executive.   We brought him in specifically to help us build a culture where we would retain and value our employees.  We didn't see a problem getting 400 employees, and we didn't see a problem getting a lot of customers.  We felt the big challenge would be for a company to grow that quickly and keep it from ripping apart.  So we wanted to focus on the attention of the employees first, and that's why we brought him in and did the retreat.  Following the retreat every single employee was part of, roughly, an 11 person debrief.  Either me or Dan came in and said, "here's the feedback you gave us."  We took the entire organization through what we had done for three days because, of course, your team goes off for three days and everyone says, "So what do you think they're doing?"  So at the end of that we were really able to articulate not only what we felt the core values of the organization needed to be and were, but we were also able to give them specific feedback on their input, whether we validated it, embellished it, changed it, reprioritized it.  It gave them an opportunity to give us feedback on those four and thankfully they came back and said, “ we do think this.”  We do those four things very well, we all agree with those."  You can't get 70 people to agree with everything.  But they felt they were representative and they were elements of a visionary goal for us to achieve over a multiyear period.  So inside of our recruiting processes, inside of our performance feedback processes, we've driven six behavioral competencies tied to the four values that we have.  Then when you go down to the managing performance assessment document we have for every employee you see those six cultural elements in there.  So it's a closed loop process. The only way you get it done, inculcated, is to make it real every single time you communicate. You're going back to these same four things, otherwise it's just a poster on the wall. Communication is the one thing we really hammer to the employees as our number expectation of them.  If something is wrong, tell us now.  If something is going very well, tell us now.  We have a regular cadence of employee communication sessions, coffee with me or Dan.  So it's a pretty formal process but out of 70 employees we've only lost two in 15 months.

W:   How did you build your leadership team?

F:    Dan and I pretty much planned at the beginning to bring in our senior team early.  That's not an easy thing to do given that the people we were shooting for we expected to take from Fortune 100 companies in current senior level roles.  We started out right out of the gate gunning for the top rack.  In a way, it was also a selfish endeavor in that if you take somebody with 15 to 20 years, or 25 or 30 years experience they've done so many things they can do about three jobs in the short term.  So we also were able to get about 30 employee workloads out of about 15 of us.  So we were all doing everything.  It was pretty funny.  We had our top HR guy who also was a VP of finance for a worldwide operation.  So guess what, he was also our CFO.  Our CTO came first.  We brought him with us, so to speak.  We knew him prior to actually taking the job and that was a fairly easy conversation.  We strategized that our CFO would be our last hire, our most important hire, so we wanted to have a strong as possible team to get the strongest possible candidate.  Our first hire was a brand marketing and product management individual because we were going to be in a very large market, it was going to scale rapidly, and we were going to be a technology company.  We wanted to have somebody who really could help build a quality product and present an image that was consistent with the position in the marketplace we expected to take.  So our number one senior hire was brand management product management.  So we got somebody out of SAP, a company that is very well respected.  Thereafter was the employee piece, senior VP HR.  That was for all the reasons we discussed earlier, to be able to support the operation.    Next we actually used Executive Search resources who identified the candidates.  As a result we were able to bring on our senior bus dev, our CFO, and our Vice President of Services Delivery is our most recent addition.  So the first four we did personally and the last four we did through Executive Search. 

W:   How do you integrate new people into your company?

F:    Probably not as well as we should.  That's probably the biggest challenge that we have.  Trying to catch up on the institutional knowledge in a short period of time for a new employee, you do one of two things.  You feed them coffee for about 48 hours and never let them go home, put everybody in front of them, or you have a real formal program.  So we really rely on having a formal employee orientation, taking them through every aspect of the business.  In the early days we started out with the first three days of every month we would do this.  We were bringing in probably five to seven people every other week.  Ten to twelve people a month is probably about right.  Pretty big session.  Some people had been there for a few weeks before the actual workshop, but we took them through every aspect of the business.  Dan or I would stop in and spend two hours on why we founded the company and we'd tell the story.  The two guys and a dog story.  All the way through the initial strategy, implementation, marketing, and PR.  Every single aspect came through with the senior leader describing the programs that were in place and how they interrelated to the different job functions. 

W:   How do you compensate your employees?

F:    For the field-based staff we compensate them in a manner that is very consistent with our P & L.  Our P  & L is driven off of licensing fees and transaction fees.  So it's a base plus a commission tied to the number of transactions that are done.  What that really supports is the customer satisfaction focus of our field-based employees.  If the customer is not comfortable using our software there's an immediate impact to the first level employee whose job it is to maintain a level of customer satisfaction.  We also reward them for above average job along those lines.  The rest, we really have done a lot of external benchmarking inside the market with a number of agencies both out of Silicon Valley and in the New York, Philadelphia, DC area to understand base compensation rates, mix of equities, what percent of the company should be in the employees hands.  We're 50% above the going rate for other companies, so our philosophy has been to be a market leader in terms of total pay compensation which includes base salary, benefits, and equity.  We do that through objective data as well as through basic recruiting.  You know if you're being successful if people are saying, "yeah."  If they're saying no and you say, "why" you find out real fast if you're below the market.

W:   As a leader, what are your top priorities?

F:     Communication, clearly, number one above all else.  You can put that inside of communication to employees, shareholders, perspective shareholders, venture capital, it doesn't matter.  My number one job is to be able to communicate.  My number one job as a leader is to communicate our strategy and then listen, make it an interactive conversation not just dial the voicemail and broadcast messages.  I think of my job as the person that's got to be the most flexible and the most passionate advocate for our business in the most dire times.  Nobody needs me when things are going great.  When things are going great I look very good.  I want to reward the senior managers and the directors and the first level employees for driving superior results.   I want to be there to thank them personally, but my job really is to help people that need help and jump into the fire and say, "I'm here with you."  I would also say it really would be communication, but empathy, that commitment to get involved and only ask people to do what you'd be willing to do yourself. 

W:   What type of relationship with your board results in success for the company?

F:    My personal view is a relationship where you can tell a board member how bad things are going today and listen to their feedback without worrying about repercussion.  I would expect from a board, as an element of success, the same thing that my senior leaders would expect of me, which is somebody who's willing to roll up their sleeves and listen, not judge, help try and find a solution.  And when you're not speaking to them they're off kind of thinking, "Hmm, I wonder what I could do?"  I have a board member who's part of an organization that's going through one of the worst financial crises of their history as a corporation.  They're a top 50 corporation. He called me the day before they released earnings to say, "Hey, you know, I was just thinking of you, wondering how you're doing.  I was thinking about that idea and I thought you might be able to talk to A, B, and C to get another perspective."  That moment exactly defined why that person is on my board.  Why I respect the person so much, and why my board, I feel, is a competitive advantage.  In the midst of whatever they're doing, he took the time to say, "Hey, I'm thinking about you."  Forget if the feedback wasn't something that helped, the mere fact that I know I'm not alone there..  There are certain things as CEO that I really can't tell an employee.  I'm lucky I have a co-founder.  But the board really should be a safe refuge where somebody is going to tell me, "you're crazy" if I'm crazy.  So I think the essence of an open, honest dialogue, that counsel, that trust has to be there.