• Edward Nevraumont

Stripe and HR as a marketing function


HR as a marketing function 

Back in June, John Collison — the co-founder and CEO of Stripe — spoke with Patrick O’Shaughnessy on his podcast “Invest Like the Best.” Collison shared an interesting tidbit about the way Stripe operates: 

You need to be confident that you can really quickly roll out products. For two reasons. One is, there’s a business need to actually be able to do this. And oftentimes in certain parts of our business, we are competing with startups. The second is that... employees find it much more enjoyable to work as a company that’s moving quickly rather than working for IBM. And so we really think about speed as a quality of life, improvement of working with Stripe.

“Moving quickly” is a common business mantra, especially in the tech world. But Collison extends the value of that strategy beyond just the bottom line; moving quickly makes Stripe a “more enjoyable” place to work. And he’s not just talking about fun for fun’s sake. Stripe attracts the type of people who want to work for a company that moves fast — the same type of people who Stripe wants to hire. 


In a previous post, I wrote about the importance of a company mission. Without a mission, your company will end up hiring mercenaries — the type of employees who are ready to leave whenever someone else offers a higher salary. Organizations with clear missions, on the other hand, can attract candidates who are willing to take a pay cut, because most people appreciate being associated with positive values, industries, and products. And the concept of a mission isn’t restricted to charitable organizations or socially conscious companies. For example, even Disney’s mission of “quality family entertainment” allows them to pay less than companies like Unilever. 


At Stripe, Collison discovered that some employees appreciated the mission of “moving quickly.” Unlike altruistic missions such as “helping people in need,” the idea of “moving quickly” offers two selfishly valuable benefits for the company: you improve your competitive advantages AND you attract better employees. 


My first Marketing BS post was titled “Everything is Marketing.” I explained my theory that marketing encompasses all areas of a company’s operations. As such, a good CMO needs to not only implement plans for things like advertising and marketing research, but to also contribute strategies for tackling the obstacles that impact the company’s overall growth.


Often growth is not a traditional marketing problem; it is a product problem or a merchandising problem or an infrastructure problem. In that first Marketing BS essay, there was a function I didn’t mention: human resources. In many cases, a company’s growth driver is not a specific business function, but rather it is quality employees.


We all know that a company is made up of people. After I finished college (more than 20 years ago), I landed a job a Procter & Gamble. My president told the new recruits, “While P&G has great brands and great technology, the value of the company is in our people. If we lost all of our assets tomorrow, but kept our people, we could rebuild this company in a few years. But if we lost our people, even if we kept Tide, Charmin, and Pampers, we would be doomed.” He was wrong, of course. Twenty years after the president delivered that orientation speech, P&G’s billion-dollar brands still dominate the consumer packaged goods industry. Most of the people who were working for the company, though, are long gone. 


But the president’s overall message was correct. The people at a company matter — a lot. Two weeks ago, I argued that individual incentives are often more predictive of company choices than company-wide incentives. Although GPT-3 (OpenAI’s latest “word prediction engine”) is incredibly impressive, we are still a long way from a world where robots replace humans. Any company — even a company as brand- and technology-driven as P&G — is the sum of the people working there.

Fiber and Fios

America’s internet infrastructure was built with copper-based cables — the exact same material that was used for cable television, telephone, and even the telegraph (back in the 1820s). By the early 2000s, telecom companies sought to replace their copper cables with optical fibers, a technological breakthrough that drastically increased the speed for data transfers. Companies considered two different strategies for the upgrade: 

  • Fiber to the node (FTTN)

  • Fiber to the residence (FTTR)


Fiber to the node involved installing new fiber cables to central locations (“nodes”) in each neighbourhood. To carry signals from the node to individual residences, copper cables were used. Fiber to the residence took things one step further, by building a new fiber connection directly to every single home.

FTTN delivered a noticeable improvement in internet speeds. But FTTR was a gamechanger — data transfer speeds were an order of magnitude faster than the previous infrastructure. In terms of cost, FTTR was extremely expensive — much costlier than FTTN. Even worse, if an individual customer did not want to pay for the faster service, the company would end up installing fiber cables at a total loss. 


Under any set of reasonable economic assumptions, FTTN was obviously the “correct” option. Companies believed they could not make an FTTR upgrade pay for itself, even with the most optimistic take-up rates from customers. As you would imagine, most telecom companies chose the FTTN option.


But there was a notable exception: Verizon.


Verizon leaders wanted to build the fastest internet infrastructure possible, regardless of the economics. The company started building a FTTR network — branded as “Fios” — across their footprint. 


Critics (myself included) were right that the economics of Fios was underwater. It was a “bad” decision. And yet, something happened that I don’t think anyone, even the Verizon champions, expected.


After years of being on the defensive against cable companies who were slowly eroding their market share, Verizon was on the offensive. They had a better product than Comcast. Instead of trying to find ways to milk their customer base and shrink a little slower, they were growing at the expense of their biggest competitors (granted they were growing with negative economics, but they were still growing).


It turns out that people like winning.


After years of struggling to attract talent (who wants to work for a big, shrinking company that is trying to milk their remaining customer as long as possible?), they were attracting the top talent in the industry. Fios was cool for customers, but it was really cool for employees.


Hiring great employees did not solve all of the economic problems with Fios, but it did provide some company-wide benefits. Fios created a “halo effect” that allowed Verizon to attract quality talent across the company — most importantly in its mobile division. Despite the fact that Verizon lost iPhone exclusivity to AT&T in 2007, Verizon Wireless excelled in the mobile phone land grab, as more and more of the country went cellular. The ability to win in a very competitive industry was due, in no small part, to the company’s employees — an influx of talent that was a direct result of investing in the negative-economics of building out fiber to the residence.

Recruiting funnels

The Verizon example demonstrates one lesson — the power of (employee) branding — that HR departments can learn from marketing strategies. For another lesson, HR could take a look at “performance marketing.”


At the executive level, recruiting bears a strong resemblance to enterprise sales. Because, in both cases, each deal is extremely valuable, you only need to close a small number of deals. As such, you are willing to invest significant effort into the process, paying large “bounties” to successful sales or recruiting professionals. 


But as you move lower down the corporate hierarchy, the quantity of recruitment opportunities increases and the impact of each specific hire decreases. The “sales” process for positions below the director level — and especially for entry-level roles — looks more and more like a marketing funnel. 


I usually advise on the marketing side of businesses, but I recently worked with a company that recruits call center employees. Specifically, they needed help improving their recruitment process. To solve this problem, I guided the company to stop focusing on HR practices and start thinking about marketing strategies. Instead of marketing widgets to consumers, the company needed to market jobs to recruits. The result was a funnel that will look very familiar to anyone who has managed a modern direct-to-consumer marketing department:

  • Leads

  • Applications (lead-to-application conversion rate)

  • Interviews (application-to-interview conversion rate)

  • Job offers (interview-to-offer conversion rate)

  • Job acceptances (acceptance rate)


After developing the basic structure, we could cut the funnel by “recruitment channel” the same way we would for a marketing channel: paid search, organic search, affiliates, referrals. And then we could cut it again by sub-channels: “work from home” terms, “call center” terms, Indeed.com, LinkedIn, Craigslist, etc. For each channel and sub-channel, we could track our “cost per lead” through our “cost per acceptance.” Once we knew which channels yielded the best “cost per acceptance,” we could double down on those channels, and pull back on the channels with less impressive performances.


The funnel also allowed us to diagnose problems. For instance, we could see how friction we had created within specific parts of the funnel lowered our conversion rates. Just as a good marketer tries to take friction out of the purchase process, we began reducing friction in the recruiting process. Just as a sales funnel considers variation by salesperson, we could look at variation by recruiter. 


And just as some marketing channels attract better customers, some recruiting channels attract better employees. Call center employees require weeks (or months) to reach their full level productivity. Plus, they demonstrate low levels of “employee loyalty” — people regularly leave for better paying (or more rewarding) positions. Call center employees rarely remain with a company for years. When you combine all of those factors, call centers face a clear problem: they lose money on novice employees who are working at less-than-optimal productivity AND they can’t always retain the skilled workers for long enough to make up the initial investment.


Call center employees are convenient for diagnosing the opportunities because of their very clear performance metrics once hired. We could look at employees hired a year ago and compare them for things like:

  • Average handling time

  • Productivity

  • Hours worked

  • Tenure


By treating the recruitment process as a marketing function, we transitioned from a broad-based, non-accountable cost function to a metrics-driven ROI model. What ultimately mattered was not cost per lead or application, but cost per quality hour worked. That insight was realized by thinking about the problem from the perspective of a performance marketer.


This type of analytics is only possible if you have clear metrics — that you trust — for evaluating employees. But some version of this process can be implemented much further up the corporate hierarchy. Two decades ago, P&G’s Canadian recruiting team analyzed their funnel in a similar (if less rigorous) way. They looked at entry-level managers, gathering information about (1) the college from which they were recruited, and (2) their workplace performance at P&G.  


The recruiting team considered two other pieces of information: 

  • What percentage of managers were promoted in their next three years?

  • What percentage of managers lasted five or more years at P&G?


By looking at employees through this new lens, the recruiting team discovered some surprising insights. P&G Canada traditionally focused on the three schools (Queen’s, Western, and the University of Toronto) that delivered the best “hit rate” for hiring quality candidates. As an added bonus, people recruited from those universities achieved high scores for “percentage of managers promoted in their next three years.” However, recruits from those schools also scored very LOW on “percentage of managers still with the company in five years.” In other words, P&G succeeded at hiring great managers from top Canadian schools, but then failed to keep them at the company.


At the time, P&G was a 100% “recruit from within” company — so all senior leaders would be eventually drawn from the ranks of their college recruits. Keeping the talented managers around was essential for the future success of the company. But their recruitment funnel was not aligned with their corporate philosophy. Focusing on graduates from top schools was not laying the foundation for future executives. 


During the analysis of their hiring process, the team realized that their best school for recruitment was NOT Queen’s, Western, or Toronto — it was Wilfrid Laurier University, a smaller institution that is often overshadowed by its more prestigious neighbour, the University of Waterloo. Perhaps because other prominent companies were NOT recruiting from the WLU campus, P&G was able to attract their top students. Plus, WLU graduates were great fits for P&G: they not only scored well on the matrix for quality (promotion rate), but also for tenure (staying 5+ years). 


The return on recruiting investment at WLU was much higher than any other school in the country. Based on the analysis, P&G shifted their relative recruiting budgets from the “best” schools to the “best for the company” schools. They treated HR like a marketing function.

Writing as a competitive advantage

When John Collison mentioned Stripe’s emphasis on moving quickly, podcast host Patrick O’Shaughnessy asked which other attributes helped the company attract and retain talent. Collison immediately talked about the importance of writing:

Patrick McKenzie [an early Stripe employee] said, “Stripe is a celebration of the written word, which happens to be incorporated in the state of Delaware.” I’m not sure I go quite as far as Patrick, but it is a pretty important part of the culture... We’re always shocked that the returns to writing well are really high. And it feels like the world hasn’t fully internalized that. Certainly when you have a 3000 person global company as Stripe is, you’re going to need to do lots of asynchronous communication. Obviously not everything is going to the entire company, but generally documents have many more readers than they have writers. And so it behooves you to put time into your communication. And so we have always been shocked [at the] underemphasis that people place on kind of crisp, written communication. [Emphasis mine]

Collison continued to explain how he — as the CEO — spends a great deal of his time working to improve the quality of writing at the company: 

I do a lot of editing of written materials at Stripe, and I still find myself leaning on the — it must be a cliché at this stage — how would you explain this to your friend in a bar? ... People somehow adopt a voice that is full of complex filler or corporate jargon when writing in a corporate environment. And then if you ask them, “What does Stripe Radar actually do?” Oh, “It prevents fraud for businesses.” Why don’t you just say that. And so I found that as a really useful device.
Another device I tend to use is, I get people to read something and then just like, tell me everything they can remember for it. And then basically delete everything they can’t remember... Most things tend to be too long and not edited tightly enough.

You might think it’s odd, or even inappropriate, that the CEO of a $30-billion-dollar company spends his time line editing product descriptions. How is that task possibly worth the ROI of his time? Collison, though, understands the impact. In the same way that Verizon Fios was not just about the revenue from selling fiber access, Stripe’s emphasis on writing well is not just about improving communications: 

We certainly made [intelligent writing] a big part of the culture early on [and] like any culture, it’s self perpetuating. I think people for whom that’s important tend to be drawn to it.

A certain type of person is attracted to a company that values good writing. And when those people join the team at Stripe, they not only excel at writing, but they also thrive in many other capacities. The time Collison spends improving the company’s quality of writing is not going to pay for itself with higher short-term (or even long-term) conversion on product pages. While clearer writing might help achieve those goals, the real value of line editing is marketing to employees.


Keep it simple,

Edward


Questions for your marketing team

  • How does your recruiting team manage their funnel? Have you seen their funnel reports? How could you help improve the reporting and breaking down of recruitment by “channel”?

  • Beyond compensation, what are the reasons that people are drawn to your company? Can you identify characteristics that attract the type of talent you are looking for AND ALSO help the company (e.g., moving quickly; great writing). In what ways could you double down on those characteristics? In what ways could you promote those characteristics to external candidates?

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Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.

© 2020 EDWARD NEVRAUMONT
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