The big news this week is that Austin Ligon, founder and former CEO of CarMax, is joining our board of directors! The board’s role is to ensure the management team makes money for shareholders over the short term and long term. The board meets quarterly to see whether we’re making money, and to go over any big initiatives we have planned.

A board usually consists of major shareholders and one or two folks known as outsiders, who have extensive operating experience but a very small stake in the company. Until now, the board has consisted of venture capitalists from firms like Madrona, Vulcan, DFJ and Greylock. I’m also on the board.

Austin is an ideal outside board member. CarMax, which opened its first store this week in 1993, is in many ways the Redfin of used cars, building trust with consumers by being honest and open with information in an industry that people haven’t always trusted. Like Redfin, CarMax is complicated, with huge analytical and online components, and operations spanning many locations.

Austin helped build CarMax into a company with $7.5 billion in 2006 sales, and retired a few years ago. He’s participating in Tuesday’s all-day board meeting. The board will join the Seattle employees for lunch, so if you have any questions, grab a chair next to Austin and fire away.

What does this mean for Redfin? Well, it’s a big vote of confidence in our business that someone of Austin’s caliber wants to get involved. Beyond that, Austin should help us figure out some tricky issues around managing a field organization, building a consumer brand and scaling a business. And he is a firm advocate of taking a long-term view and building a customer-driven business, both consistent with our values.

If you want to read more about Austin’s perspective, check out his presentation to Redfin when he visited our Seattle office this summer. We’ll announce the news publicly this week or maybe next!

The morning after we sent this note, we had our first board meeting with Austin; his insights were even better than we expected. Over the course of the day, it became clear just how relevant Austin’s experience is to Redfin — it was almost as if he were genetically engineered to be able to help us — and how much inspiration we can take from CarMax’s success. Here are some of the similarities between Redfin and CarMax that  Redfin’s management team was talking about long after the meeting was over:

• CarMax focused first on building consumer trust, in an industry where consumers were skeptical, and no brand was well-trusted.
• CarMax pays its field organization to do the right thing, not just sell cars at any cost.
• CarMax is unapologetic about offering low, no-haggle pricing. The industry in which it operates has been unapologetic about trying to maximize per-transaction profit, and hostile to the ideas of value or efficiency.
• CarMax believes that only way you can disrupt an industry is by being better and cheaper, not just one or the other.
• CarMax grew slowly, market by market, perfecting the customer experience before expanding.
• CarMax builds competitive advantage by gathering data about inventory, customers & operations that individual dealerships can’t match.
• CarMax accumulated operational expertise in a complex business that eventually created barriers to entry so deep that the company now has virtually no competition.
• CarMax’s first contact with customers is online, in an industry where the in-person salesman had been king.
• CarMax’s online competitors are lead-referral sites, which send customers to dealers of varying quality, operating in a broken system.
• CarMax has always focused on the long-term, limiting its initial appeal to investors, but maximizing return on invested capital over time.
• CarMax built a culture of respect for its employees, despite competing in a dog-eat-dog industry. For the sixth consecutive year, Fortune just chose CarMax as a Top 100 company to work for. No auto dealer or manufacturer has ever made the list.
• CarMax lobbied Congress to override anti-competitive state laws, and failed.

The only argument I’ve gotten in with Austin so far is whether the largest class of American state legislators consists of car dealers or real estate folks. Welcome Austin. We’re glad to have you aboard!

The post CarMax Founder Austin Ligon Joins Redfin Board appeared first on Redfin Real Estate Blog.

Running a lemonade stand, you don’t need to analyze gross margins or survey customers because you squeeze the lemonade yourself, and hand it to every customer. But once you have employees and customers you’ve barely met, numbers become more important.

For example, Redfin folks just finished reviewing a multi-million dollar business that wasn’t as profitable as it should be. We decided to get numeric on the problem, asking one of our number-crunchers to analyze tour costs and abandon rates in that market.

This was a necessary and good action to take, typical of an approach that we believe creates enormous economies of scale for Redfin and other online businesses: we store data on a wide range of customer interactions, so we can be more analytical than most brokerages. But running the numbers has two shortcomings:

• It isn’t actually an action. It’s a study, which will take weeks to complete, which may or may not result in a decision. Especially as a business grows, you need a bias for action.
• It encourages learned helplessness: the person running that business isn’t the number-cruncher. So now you have two people screwing in a light-bulb instead of one, and less accountability.

There’s an alternative, often championed by one of the best consumer investors I’ve ever met, Marc Singer. Marc doesn’t look for math wizards to run a business. He looks for lemonade-standers, people who even in large organizations find a way to make every problem small.

Marc is always talking to me about somebody who ran a restaurant, a chain of movie theaters, a lawn-spraying service, a maker of gizmos that deafen the deer who wander onto your yard. Rather than analyzing all the data from an under-performing business, Marc often digs into the customer experience. Why is the food cold or the popcorn-line too long?

Marc has a word for this way of thinking. He calls it a “merchant sensibility.” In its classic sense, merchant sensibility is the ability for someone to guess which of two similar products a small store should stock. “You still measure whether the product the guy chose actually sells better,” Marc once explained to me, “But someone with merchant sensibility gets it right more often than other people.”

People aren’t born with this ability, and the ones who think they are just don’t recognize their own mistakes. People learn it, leaning back against the men’s magazines with eyes narrowed while customers walk into the store, watching carefully where customers pause and where they move on.

If Marc were in that review of our multi-million-dollar business, he might have recommended a similar approach: get in a car and go tour houses with customers, to find out first-hand what’s broken in the business.

At my last startup, Plumtree, we had number-crunchers and lemonade-standers. At one extreme there was a guy known as Master Blaster, who hired a number-cruncher to sit on his shoulder all the time and tell him what to do. And at the other was my friend Ken Lowe, who ran our East Coast business.

Like almost everyone from New Jersey, Ken was a lot smarter than he pretended to be; he founded his college’s Chaucer club because each new club got a stipend for beer. A large man, Ken often greeted me by asking “How much you benching these days?” In a meeting where a dozen bigshots reeled off their titles, Ken would wrap up the intros by saying, “Ken Lowe, Emperor of Japan.” A colleague once penetrated the inner sanctum of his home-office and reported back that it consisted of an absolutely bare desk, and a shrine of Yankees’ insufferabilia.

When the time came for Ken to present to the executive team, I didn’t think he’d do well. For seven years at Plumtree, I sat petrified in these meetings as our CEO, John Kunze, tried to figure out if the presenter really knew her stuff.

People started over-preparing, learning a script or memorizing formulae to describe a business that they lived and breathed 12 hours a day, six days a week. This prompted John to ask, “OK, but what’s really going on in your business?”

This was exactly the question that Ken Lowe hit out of the park, because he spent most of his time meeting customers and prospects, saying little, listening a lot. He could tell you when a deal that hadn’t closed was going to close, and when a customer who’d bought our software was going to fail. He probably had lots of numbers but the only one he talked about was his “blood number,” a bottom-line the business would hit or else, as Ken would say, “there will be blood… MINE. HA HA HA!”

Now as Ken realized, you need data and first-hand experience. Without a broad data set, you can lurch from problem to problem, and anecdote to anecdote, based on whatever you just saw in the field, so that every week a new problem is the most important problem in the world to solve.

But as a business grows, you tend to get more number-crunchers and fewer lemonade-standers; in looking at the numbers you can forget the lemonade even exists. You need to work the spreadsheets and squeeze the lemons too.

The post Merchant Sensibility appeared first on Redfin Real Estate Blog.

Brian has worked with and for all sorts of leaders in his career which, in addition to his time at aQuantive, has included stints at General Mills, Capital Cities/ABC, Disney and Microsoft. His advice is based on the great bosses he’s worked for and the bad bosses, and from his own experience as a CEO. As he laid out seven best practices, we did our best to keep up with what he said. Below is not a transcript – no one at Redfin is a stenographer, and I don’t take much time to clean these notes up later — but some of the useful bits and pieces of what he said, in as close to his own voice as we could get:

Set clear objectives, hold people accountable and get out of the way: if I had to sum up my management philosophy, this would be it. You want objectives to be aggressive but achievable. Push decision-making down and out in the organization, essentially closer to the customer. At aQuantive, we tried to empower people in sales and support. That means you have to have the right incentives, the right objectives and parameters. But within that framework, the more you can push P&L responsibility out, the better. This will help you attract and retain the best people. Do you want to be the only leader in your company? No…

One of the fundamental responsibilities that a manager has is building a team. Who is on their team is their call. That’s the most important decision a manager makes. I interviewed candidates for managers who reported to me, but this was only to give input and of course to help in recruiting the candidate. I once met a candidate who one of my direct reports wanted to hire who didn’t really do it for me. He hired the candidate anyway, and about six months later he fired that person. We hurt ourselves over that six months, but the manager who hired him also hired five or six good people too. That not’s a terrible batting average. I used to tell my own board, “If you don’t like the team I’m hiring, then fire me.” I held that manager to the same standard.

Micromanagement does not scale. Founders can be micromanagers. Sometimes micromanagement comes from a vision, sometimes it comes from a manager just being insecure. Micromanagement results in the loss of talented executives. Do you want people working for you who just take direction? Or do you want people who are going to lead, who are going to push back? We all know of some visionary founder or “celebrity CEO” who may have a reputation for micromanagent and so we ask: what about him? Doesn’t he prove you wrong? My answer is “no.” First of all, if the company is truly successful, my bet is their micromanagement is seriously overrated. Or if not, they are an extreme exception — and they’ll be in deep trouble when that person leaves since the people below him or her have not been trained to lead themselves. To support the “exception” point, look at lists of the top companies: best-run companies, best-managed companies, best places to work. The vast majority of these companies – if not all of them – are not led by these “celebrity CEOs” with micromanagement tendencies. In fact, the best companies to work for are led by CEOs you couldn’t name.

The way to get job security isn’t to own every decision, but to hire smart people. The board may say, wow, this person is better than you are. That’s a risk I’m willing to take. I often tell people who work for me: “The more you tell me, the less I will bother you.” Tell me what’s going on in our one-on-ones and I’ll stay out of your hair.

Micromanagement is a virus: the time and energy wasted by people down in the organization modeling that behavior is huge. When I have to present to a micromanager, I’m expected to know everything just as he would, which is a waste of time. As CEO at aQuantive, I was once asked at a board meeting what I thought of an executive’s presentation, and I said you already heard what I think. That executive knew more about the topic than I did, and he represented my point of view. Maybe the Board wanted me to have some special insight, but my insight was hiring him.

It is far more important to be respected than liked: act with integrity, be honest and transparent, treat people with respect and dignity. Being direct and honest often can mean delivering difficult news, news that people don’t want to hear. Some people don’t get that. A senior HR person I worked with viewed his job as what might be called a union leader, to lobby for whatever the employees wanted. Yes, your job is to represent employee needs to management, but it’s also to represent management to the employees.

Some decisions employees won’t like. My standard was: “Could I be ok with a decision that showed up in the New York Times, could I defend it?” For example, a compensation decision: could I defend to this manager why I was paying his or her peer more than her based on their performance. Of course in a public company, the New York Times rule comes true, as many executives’ compensation is public.

That can create some interesting dynamics. At aQuantive we said we had no politics, and certainly we had very little politics. We could be direct and transparent, where people said what they felt in the meeting. In my view, for someone on my executive team, the worst thing you can do is not say anything in a meeting, then come in my office afterwards and tell me what you really thought. When people tried to do that, I’d say, “I don’t want to be a middle-man. Say what you think in the meeting.”

Give employees the right to be wrong: if we’re not making mistakes, we’re not taking enough risks. Just don’t make the same mistake twice. Make a mistake for the right reasons, for a client, for the business. Learn from your mistakes, and teach everyone. There are exceptions: mistakes of integrity are one-strike-and-you’re-out. Otherwise, mistakes can be good. One of my colleagues used to say: “The reason we’re better than other companies is because we’ve made more mistakes than they have.” Encourage a culture of admitting mistakes. No excuses, but explanations are fine. It’s great when a senior leader says in front of her boss that she made a mistake, it’s critical for others to see that, to see that it’s accepted, and not punished. It’s great to ask what might be considered “dumb” questions, and it’s great for other folks to see you ask dumb questions; you should model that behavior as an executive.

No jerks: no matter how smart someone is, if someone can’t get along with others, if somebody treats others badly, they’re out. Sometimes you worry that somebody is too smart to fire, too valuable to fire. That’s never true. The collateral damage that is being done to the morale and effectiveness of the people that “jerk” is interacting with is enormous, even if it is often hidden from his or her direct boss. When you do make the decision to fire someone who is a “jerk”, you often hear that the whole team will quit. That never happens either. Hire slowly, fire quickly. It’s right for the team, it’s right for the company, it’s right for the person leaving.

Have a bias for action: gather the data you reasonably can and make a decision. What people don’t realize is that sometimes doing nothing is a decision. You can get bogged down with consultants, meetings, PowerPoints. You want an organization where it’s always clear who is supposed to make a decision. This lets some people give input and others make the decision rather than having two people both posturing, because they’re vying to make a decision. And always align authority and responsibilty. You don’t want to be in a situation where you have no authority but you’re still accountable, where you can get blamed for something you didn’t do; or conversely, where someone who does make the decisions is not held accountable for them.

As CEO, I always felt the fewer decisions I was making, the better we were doing.

Live or die by your values: most companies have values but they often have too many. Who can remember 13 values? aQuantive only had four values, and everyone knew them. It was hard to pick just four; someone, for example, would say excellence has to be a value, I mean, don’t we want to be excellent? My job as CEO was to pick just four. What other decisions did I have to own? Well certainly picking the team was the most important. Acquisitions were a big part of our strategy. I had to make the final decision on compensation and budgets.

And that was it. What was interesting about Brian is that on the one hand he’s such an indelible figure – tall, with a deep voice uninflected by many doubts – and yet he stood in front of us for an hour trying to do the impossible, erasing himself bit by bit so you could see all the other great leaders at aQuantive more clearly. Many thanks to Brian for coming by, and to Madrona for hooking us up with him. We had a lot of people at Redfin buzzing about it, and already one meeting on Friday night giving someone authority over a problem he’d previously had to helplessly take the blame for — so it was definitely a big hit.

Any comments or questions for Brian, just post ‘em below and we’ll make sure he takes a peek.

(Photo credit: Jeff Louella on Flickr)

The post The Self-Erasing CEO, Brian McAndrews, on Pushing Decision-Making Closer to the Customer & Making the Most Mistakes appeared first on Redfin Real Estate Blog.

Redfin’s Matt Goyer read it first, to make sure it wouldn’t offend anyone. Matt’s an insightful soul, so I knew he would also appreciate the nuances of my argument.

When he was done, he looked up and said, “So you’re saying I should be a ***hole.”
“No,” I said, “I’m saying you should be a sensitive ***hole…” We stared at each other. “Or maybe not an ***hole at all.”

It’s a tough balance. As the CEO of InterContinental Hotels Group said of himself in a recent New York Times profile: “I’m very sensitive to how people are thinking and feeling at any given moment.”

But he also described himself as a super-action hero, boldly acting on his own in ways that surprised everyone. And this is what’s nearly impossible: to know how a decision will make everyone feel, then to make that decision anyway. It’s why many great technology entrepreneurs have mild forms of Asperger’s syndrome: it frees them to act, to decide, to drive people without much emotional friction.

If you don’t start that way, maybe that’s how you end up. Last week, I saw the “September Issue,” a documentary about Anna Wintour, the head of Vogue Magazine, and her efforts to publish its phone-book-sized September 2007 issue. It was moving to see so many flamboyant, talented people work so hard to make something irrevocable, definitive and perfect; many are undoubtedly now unemployed.

The entire movie consists of Anna walking into one room after another, picking one skirt or photo out of 50, and leaving the creators of the other 49 absolutely annihilated.  Time and again, she is asked how she feels. She mostly answers with the warmth of a bare steel table.

For some, it is necessary to be this way. The historian Edmund Morris described a day he spent with President Reagan, starting just outside the elevator with an unscripted photo opportunity alongside a police officer, blinded in the line of duty. This meeting and the ones that followed put Morris through the wringer; the sensitive writer was exhausted by lunch.

But Reagan, famous for momentarily failing to recognize his own son in a handshake line, deftly moved from one emotionally drenched encounter like this to another without apparently feeling a thing. Morris concluded that this detachment was the only way Reagan could make any decision affecting millions.

I don’t know if the choice is that stark for all of us. In the mostly dreadful Wim Wenders film, “Wings of Desire,” the angels can hear the thoughts of everyone in a train, on a street or in a cafe. The film is a near-unbearable cacophony of mortal thoughts that gradually becomes a comforting hum. When one angel forsakes his heavenly powers, he enters a cone of silence, unable to know what anyone is thinking but now able to act in the world. He can’t believe how lonely it is.

This loneliness is all well and good if you’re Ronald Reagan, or Anna Wintour, or an angel, who knows just what to do. But for the rest of us, the cacophony is essential to making a decision.

We engage people because we have to in order to figure out the best course of action. This is what makes deciding in the end so painful: that we’ve identified with a point of view completely that we then have to reject. It is hard to be emotional and then unemotional. It is hard to lose yourself in your company’s mission without occasionally forgetting the feelings of the  people on the mission with you.

But I have never given up on the idea that you can — and you have to — strike a balance between empathy and decision.

The post The Sensitive Orifice appeared first on Redfin Real Estate Blog.

No one objected. And almost everyone in Seattle read the post. As a French courtier observed, “the people we call our friends are merely the ones we know would not themselves murder us, but would let the murderers have their way.”

The CEO in question was undoubtedly a hard-charging Maniac. But that’s not always bad. I tend to divide leaders into two types: The Maniac and The Professional. The Maniac is emotional, demanding, unreasonable. His great gift is high standards. He gets away with it only by being brilliant and charming.

I once interviewed someone managed by the most brilliant, charming business leader in the world: Steve Jobs. The experience was, the interviewee explained in a thick French accent, “the most harrowing of my life.”

Maybe it’s impossible to accomplish anything insanely great without a Maniac — anyone running a start-up team has to have, at the least, the glands of a Maniac. But anyone with a heart spends nights regretting it.

Whether we acknowledge it or not, plenty of leaders try to be like Steve Jobs and no one else can be. A lot of startups blow up because of the Steve Jobs syndrome.

Lately, I’ve found a second role model: the manager at the Capitol Hill QFC. Unassuming, a little pink in the skin, slightly rotund, the guy who runs my neighborhood grocery store is the portrait of The Professional. He’s a far cry from Steve Jobs, but his admirable qualities at least seem repeatable. I’ve studied them carefully:

1. He’s accessible. On any busy weekend, he’s standing at the head of the registers, ready to direct a customer to a can of beans. He carries a clipboard, which he tucks under his arm as soon as you approach (what does he have written down there?)
2. He shops in his own store, loading up in the frozen food aisle late at night, joking around with the graveyard employees stocking the shelves. Straining to hear their conversation, I once saw one of them — probably earning less than $10 an hour — give him a hug.
3. He’s a part of the team. He wears the QFC outfit with pride, his grocer’s tie nicely knotted. Though he’s not very tall, his posture is so straight he almost seems to be leaning back, as if better to survey a Thackeravian bustle of commerce. He doesn’t stand apart from his team, except by how he carries himself.
4. He smiles a lot, almost as a form of breathing.  Since I believe that a company’s brand, like a painting or a poem, is essentially just an emotion sustained across time and between people — his smile is important to me; at some level, one of the emotions expressed by a brand has to be a form of joy. It starts at the top, and it can’t be faked.
5. He works hard. Late at night and on weekends, he’s always there.

I know it’s uncool to have a grocer as a role model alongside a tech god, but a lot of high-tech managers, myself included, could learn a lot from Mr. QFC.

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