First On: Operations with Erez Mathan
My guest today is Erez Mathan, a startup leader who loves the unloved: Operations. While he currently serves as the Chief Risk Officer of GoCardless, one of Europe’s fastest growing and most admired companies, Erez was the company’s COO for several years and prior to that he’s held senior Operations positions at eToro and Cellcom. Erez views company building as a balance between setting process and letting innovation flourish, and it’s the role of the Operations team to strike that balance through continuous iteration. In our conversation we cover why Operations is so misunderstood, the pros and cons of building a career in the field, what’s required for Operational greatness and how to build a team that truly elevates an entire organization. If you’re a Founder who feels overwhelmed by the constant stream of fires to fight (so any Founder) I highly recommend a read.
Topics Covered: Operations strategy, org design, hiring, management tactics
To start, could you tell us how you built your career within the operations side of startups?
It was completely by accident. I did a degree in Industrial Engineering, and I come from a family of industrial engineers. Every one of them ended up in a totally different business in a totally different role, so I liked that generalist opportunity.
I took the first job I was offered as an analyst in an Israeli mobile company, where I had to use data to improve existing processes. After a year I was asked to lead the business analysis team for the whole org, which was generating ~$500M in EBITDA. It was nice to operate at that scale across supply chain, call centers, marketing, etc.
After three years I got headhunted by eToro to set up an Operations team, which owned fraud, customer support, payment processor relationships, finance and back office operations. They knew I didn’t know anything about those things but they liked that I had a strong data background; I understood data and could translate it into business processes. And from there I kept accumulating more and more domain expertise. I became a generalist that can wing it through data. I'm what I like to call an 80% guy; I get from zero to 80%, which i find to be the most exciting bit, and then pull in more qualified people. And then of course I ended up at GoCardless (GC).
How did you define the COO role at GoCardless? What you were responsible for and measured on?
When I first joined GC I was “Head of Ops” and we were very small, probably 20-30 people. One of the pieces of advice I give people joining young startups is that, in general, if you get offered a job as a COO at a three person startup, it's probably not a COO role. Usually at that stage what’s needed is a generalist that can do a bunch of things but it’s hard to call that COO.
At first I was in charge of CS, AML and fraud but soon my role expanded into other domains that I like to call “all of the stuff that Hiroki, the CEO, never wants to touch”, i.e. finance, legal compliance, banking, people. Those things grew my role to the VP of Operations role and then eventually COO, which became more of the general manager of the business. I had to build all of the internal functions to make the machine run plus ensuring some kind of cross functional processes to speed up delivery. When you’re 20 people it's quite easy, but when you grow beyond 70-80, people are unable to exchange information just by talking. At that point cross functional effort requires process thinking and focus on measuring the success of the process throughout
You mentioned something really interesting. I've heard in the past the COO role, at least within early stage startups, it's not a defined role but a reflection of the weaknesses or gaps in the CEO. Do you agree with that?
100%. You are complementing what the CEO feels that they're not very good at or doesn’t enjoy. A lot of COOs that I know actually run the business internally and the CEO is the external facing leader. This is why the role of the COO is variable between businesses - it serves as a reflection of the CEO and what they do well.
And since there is a lot of confusion with titles, let me confirm. Generally speaking a Head of Ops is a generalist doer, VP of Ops runs a single Operations function and a COO is an orchestrator. Is that right?
Yes I think that that's exactly the differentiator. Head of Ops solves local problems and does a lot of the doing themselves, VP of Ops is able to build and run functions which grow from the business needs and the COO is, like you say the orchestrator.
The last time we spoke, you said that Operations is an unloved area. What do you mean by that? Why do you think that's true?
It’s true except for the people that love it! The best analogy for me is that the Ops person is goalkeeper of the company in many ways so you get very little glory. If everything is quiet that means that you are doing your job well, which means you don’t get a lot of praise. The strikers (the commercial teams) and the brilliant midfielders (product) will shine during the game and are most likely to be the MVPs. The best operations people that I've seen take pleasure in doing the background work without being front of stage. It is a very thankless job most of the time. If your team loses it’s your job to chase all of the reasons why and fix them, which can be quite challenging or demotivating unless you're the kind of person who finds excitement in problem solving. It’s super important to solve problems but always take a bit of time to reflect at what you achieved and give yourself a pat on the back before running to tackle the next thing the business needs.
You've written about using Operations, and later Risk as the Chief Risk Officer, as being a true strategic lever. A lot of founders and startup people view Operations as necessary, particularly for regulated businesses, but it's not necessarily a growth driver. How do you respond to this critique? What have you done to reverse that thinking?
When I made the switch to Chief Risk Officer one of the challenges for me was making the function more than the bearer of bad news. Risk is not sexy. The image people have in their heads when you talk about risk is a bunch of nay sayers, sitting in a small office with no commercial understanding of the business. I needed to figure out how to get myself and my people motivated. A compelling vision cannot be, “we are just the protectors of the company” or “we're here to make sure no regulator gets angry”. I stole the NYPD motto “to protect and serve” and made the mission of the team to “protect and grow GoCardless”. The protect element is super important of course, as it’ll be the strong base you can build on, but the more exciting bit was once you build the “protect”/safety net what can layer on top?
I basically looked at it in three pillars. We called the first one “risk as IP ( intellectual property)”. If we use the example of fraud prevention, we're here to make sure that we don’t lose money to fraudsters, that’s the protect part. But if we do this super well, we can sell that platform to our customers so they can also protect themselves. All of a sudden you move from a cost center to a potential revenue generating unit, which gets quite exciting because we're moving to offense and placing risk in line with the Sales and Marketing.
The second pillar was “risk as a feature”. This is all about how well you “sell” risk management. If the plan is at some point to take the business public, unless you have your Risk A-game, nobody's going to buy the stock and the IPO could flop. So risk as a feature is for me was ensuring that Risk [the function] sells the business better. If you have your risks well managed, more people will comfortable “buying” the company or product.
The last pillar was “unlocking potential”, which challenged us to think creatively about Risk and Compliance. Legislation can be quite vague with multiple ways to interpret. If you really read the detail, sit down with the teamand challenge their thinking you can actually find several ways to improve the product and gain a competitive advantage. We were quite innovative compared to our competitors because we took the time to read, understand and question.
With Risk and Operations, the function basically boils down to managing complexity. And I'm curious how you assess a team's ability to do that and embedded that capability within a team over time?
I think it’s our role to strip things down and ask very stupid questions. Tech companies attract smart people, who have a tendency to think too much about edge cases. Ops people need to have a mentality of “getting to 80%” because if we try to get to 100% from day one it’s going to take quite a lot of time and by the time it’s shipped it won’t be fit for purpose. The whole point of scaling a company is to put something in place that’s just about okay for this stage and then rip it out in six months later and replace it with the new 80%. And then do it again and again until we get to a really big size where optimization is required (moving from 80% to 100%)
New functions or teams can sometimes not fit within a startup culture. You’ve likened it to an organ rejection. What did you mean by that? Do you think that Operations is uniquely susceptible to this?
You always need to strike a balance between process and letting innovation flourish within the company. More importantly there needs to be the right amount of process and the ability to measure how that process is running. It's super important not to be overbearing with these things otherwise you risk introducing too much complexity and kill innovation.
When I started with GC I ran the customer support team. I started by asking; how many tickets are you answering a day? How many tickets can an agent handle? How long does it take to resolve each ticket? What are the main reasons for our customers coming to us? And when I got all of these puzzled looks in front of me I realized if we don't start measuring the performance of these processes, we're going to end up in a situation where the company cannot scale.
There's a mentality in startups to do things that don't scale and I totally agree with that as long as it's time bound and you’re clear on when to focus on scaling.
Ops seems like something that every founder thinks about but not in their initial hiring sprint. Most of the time hiring is all about engineers and maybe salespeople but quickly they realize, “this is killing me and I need help”. What’s your view on when is the right time to build an ops team or bring on a more experienced operator.
You kind of need to find someone who is comfortable operating in the unknown. A brilliant generalist who’s humble enough to know their limits. If you want these brilliant generalists to grow with the company and not churn you need to ensure that they are able to identify the stage where they need to replace themselves with a specialist for a specific domain. I found that building the People or Finance functions from scratch worked quite well at the beginning, but there's a stage that I had to hand it over to someone who's done it before.
Comfort in ambiguity and self awareness of their own limitations strikes me as something extremely hard to assess in an interview process. How would you suggest a founder assess what great looks like within those capabilities?
Yeah I think hiring is probably the hardest problem to solve in any company. I look at this in four elements of hiring theory. The first is all about making sure that you structure your hiring process to eliminate bias. Most people get quite impressed when they see a shiny CV with brand names associated with success stories. I’d say that probably 95 times out of 100, when we hired people with very impressive CVs they ended up not fitting the bill. In my hiring processes there's always at least one stage with a blind interview and an objective way to assess someone, maybe on a case study, where the interviewer doesn't get a chance to see the CV. They know the name of the candidate and that's it.
The second one is what I call “keeping it real”. It is very important to portray the full picture of the role; where we would like to be in two years and where we are now. Now is the time to make sure that the candidate understands what’s coming before they commit to joining the company. You can support all of that with the case studies throughout the process. If you expect them to roll up their sleeves while also designing strategy, make sure that you have two tasks that cover both bases. This allows you to assess engagement and also gives the candidate a true reflection of where we are today and what they’ll be asked of in their first days.
The third is about culture adaptability. Culture is an ever evolving thing so I think it’s key to test for cultural adaptability and less about culture fit. It's really important to understand how people respond to curve balls being thrown at them. How do they think about senior hiring or org designs? What do they think about the triggers that require change in a company? If a candidate is adaptable that means that they will also adapt to the ever changing culture in your business and you'll probably have like longer term success with them. The last thing is that I always look at hiring processes as a learning experience for me. Always make sure that you test the people that you're interviewing on the challenges that you're thinking about now. You should always ask, “did I learn something new from the person that I just interviewed?”. If the answer is no, then you're probably not doing it right or the candidate is not the right person.
On cultural adaptability, how does that manifest? Are they stressed or do things quickly become political or something?
Depending on what stage your company is at, you may need to pivot a lot. You may have built all of these grand plans but suddenly need to shift direction. When people are not adaptable they usually see them get very stressed quite quickly and frustrated with that pace of change. It's just not fun for them and can cause a slow spiral out of the organization.
Are there specific profiles or talent pools that you have found a lot of success with?
I didn't come from a consulting background, but the founding team of GC did and I think there is quite a lot of benefit to having those sorts of people in the team as long as you test for delivery. Consultants can be great at hypothesizing and thinking broadly. But at the end of the day, this is a delivery game.
My personal bias is to look for people who understand data. And to be clear, that is not just technical ability to manipulate large data sets. It’s just as important to be able to infer insights from data. I find more often than not, people with technical capability don't really understand how the numbers map back to the business that they're trying to run. Over the years I’ve always tried to get as many engineers or economists as I can, but one of the things that I found is actually linguistics people are quite good when it comes to understanding the nitty gritty details of something and making sense out of the data a process produces.
As we close out I want to get your perspective on what you might tell individuals that are thinking about startup Operations careers. What are the pros and cons?
I like to focus on what can be improved first so I’ll start with the cons, it’s a tough gig and it can grind you down quite quickly. You need to be very humble and willing to be in the background. The big pro I see is there aren't many roles that allow you to see the company as a whole and how it operates. Ops gives you the ability to kind of take part in everything that's going on. The even bigger positive for me, personally, is that at a certain scale every function within a business becomes a machine. If you're a good machine operator that's something that can transfer to different domains. At a certain stage sales leadership is not about selling, it's about how well you run a sales machine. That can be applied to many business functions.
What about a more experienced person who has a good operations background but is from a more traditional industry and is now starting to think about the startup world?
It's extremely important to vet the company, the stage and the challenges before you join. Startups in general are very shiny and cool from the outside. “We're building this awesome thing. Here's our PlayStation and pool table.” It may all look great but the reality is that probably only 5% of the people find it suitable for what they're looking for. I think that you need to enjoy the pace of change and you need to see it as a source of energy.
And lastly, what would you tell yourself 10 years ago, if you go back?
Study history and become an academic, you'll have less gray hair!
I would tell myself to do what I've done up until this stage. Look for things that are broken and continue to try and fix them because that's the thing that opens you up to more and more opportunities. Make mistakes, take chances, and try to learn as much as you can. And probably the piece of advice I give everyone but find very hard to apply it myself - enjoy the ride.