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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Valuing Competence vs. Loyalty

Comments (14)

Today’s lunch time conversation was about valuing competence vs. loyalty.  In some organizations, loyalty is the most important attribute while in others competence is valued over loyalty.

I have a different take on the distinction – I view competence as the most important attribute while assuming loyalty.  Loyalty is a binary factor for me that is a superset of trust.  In the absence of “loyalty” (and trust) nothing else matters.  But a “loyal incompetent” is also worthless to an organization.

In my first company, we valued competence.  We were intensely loyal to the people that worked for us and as a result many of them had long tenures with us.  We were inexperienced in evaluating “competence” in certain situations so we definitely had folks around that were “less competent” for a while, but we usually (but not always) figured it out over time.  Often, we were able to help them either become “more competent” or adjust their roles to play to their strengths, but sometimes we just missed.  I learned a lot from that, especially when I reflect back on it and some of the struggles we went through.

The company that bought my first company had a split personality.  There was a subset of the senior team that valued competence highly and demanded loyalty.  If you were competent, they were equally loyal to you (it was a “bidirectional loyalty.”)  There was a different subset of the team that was equally powerful from an operating perspective and located in a different geography where the leader valued loyalty over competence.  He had plenty of “average” people on his team, but they supported him regardless of the situation.  You can imagine some of the entertaining situations a guy like me got in – where I had huge loyalty to the gang that valued competence but not much to the gang that valued loyalty.  Yeah – it was confusing.  I learned a lot there also.

Over time, I’ve developed what I think is a pretty good personal framework which is analogous to the “no assholes rule.”  At this point in my life, I don’t want to work with people I don’t like.  For me, “like” covers a lot of ground, but fundamentally I have to trust and respect them.  For me, trust and respect is driven by competence, but assumes a bi-directional loyalty.  I then implement my own filter which I call the “fuck me over once rule.”  Everyone gets to fuck me over once.  When I find myself in a fucked over position, I confront the person.  If we reconcile, there’s one more chance.  If not, we are done. 

It’s similar to how I think about the CEO’s of the companies I’m an investor in.  I’m 100% supportive of the CEO until the moment I’m not.  I view my position as working for the CEO – doing whatever he thinks I can do to help him and the company succeed.  I’ll always give direct and open feedback.  If I ever reach the point where I don’t have 100% confidence in the CEO, the first person I talk to about it is him.  I try to be as clear as I can about what isn’t working from my frame of reference and am mutually willing to hit the reset button (e.g. go back to 100% support, recognizing my concern).  If things don’t improve (including the potential of me changing my frame of reference), then as an investor I feel a responsibility to take action.

Both of these approaches are examples of valuing competence as the most important attribute while assuming loyalty.  I’m always willing to take one more shot at any situation (where I’m demonstrating my presumed loyalty) where I think someone is falling down on the competence dimension.  However, if the other person isn’t willing to reciprocate (demonstrate bi-directional loyalty) while attempting to address whatever the competence issue is, we are finished.

I’ve encountered virtually every iteration of this you can imagine in the 200+ companies I’ve been involved in over the past 20+ years.  Sometimes I / we succeed; sometimes I / we fail.  The entire dynamic is always complicated, as it’s never really a 1 to 1 situation, since it includes many founders, executives, employees, investors, and other constituents of the company.  When a CEO has a clear point of view on this, it’s relatively easy to deal with and participate in, even if it’s different than my point of view.  However, I find that when there’s clarity in the thinking, some derivation of my point of view typically (but not always) holds true.

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  • http://intensedebate.com/people/ben_casnoch2532 Ben Casnocha

    At this point in my life, I don’t want to work with people I don’t like. For me, “like” covers a lot of ground, but fundamentally I have to trust and respect them.

    So I see three different concepts in here. I also don't want to work with people I don't like, but am willing to make exceptions if necessary. I also don't want to work with people I don't "respect" (broad word), but am willing to make exceptions if necessary. I will not work with people I do not trust, no exceptions.

    I then implement my own filter which I call the “fuck me over once rule.” Everyone gets to fuck me over once. When I find myself in a fucked over position, I confront the person. If we reconcile, there’s one more chance. If not, we are done.

    One of the concepts I've been thinking about is whether the trust established anew after a "fucked over" situation can be stronger than the original bond. Ie, does the rupture, if reconciled, actually strengthen the long-term prospects of the relationship. Many say that even if you re-build, it can never be the same. I tend to think that sometimes going through a low point, a trust-breaking point, can be a long-term net gain in some cases.

  • http://sophisticatedfinance.typepad.com rhhfla

    You draw the correct conclusion, but you are caught up in this misunderstanding about loyalty. Loyalty is to principles not people. Your 0/1 view about relationships with CEOs is all about a principle(s) violated and not really the people involved.

    As an aside, I have always found people who "demand" loyalty from subordinates to be poor CEOs. Typically, because they lack principles.

    Talk about your principles and do not confuse the discussion by mentioning loyalty.

  • http://intensedebate.com/people/bfeld bfeld

    I agree that the reconciliation after one breach of trust can be very powerful. However, I’ve found when the trust gets breached a second time, all of my assumptions about the relationship were invalidated. Hence the one time rule. Oh – and it’s my responsibility to call the other person out if trust is breached – if I don’t do this, then I’m not holding up my end of the bargain.

  • http://www.ryanpark.org Ryan

    Brad, I'm curious as to how you define loyalty. Are you talking about loyalty toward principles, as rhhfla suggests? Or is this about loyalty to the company, or loyalty toward individuals at the company?

    • http://intensedebate.com/people/bfeld Brad Feld

      Equally split between principles and people.

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  • http://funnelwebs.com/fi/ Web Suunnittelu

    I'm with Brad on this one. I think loyalty and competence go hand in hand.

  • http://www.izit.com David Coakley

    Brad – Great post. If I were a professor teaching a course on entrepreneurship I'd use it to start off the course.

    Entrepreneurs face very difficult decisions dealing with their team members as business grows and the needs of the company change. Throwing in the towel on "loyal incompetents" on the team is one of the most difficult things I've had to do and one of the least pleasant aspects of growing a business.

    The larger an organization becomes the more "loyal incompetents" that organization is likely to be filled with. This creates opportunity for leaner-meaner-smarter (i.e. more competent) entrepreneurial companies to capture market share at the expense of these fat-dumb-lazy companies.

    The last few months have demonstrated more clearly than ever how "loyal incompetents" can rise to leadership positions in some of the largest companies over time.

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