Chapter 14. Trust the engine of high leverage teams. In 2003, Warren Buffett, one of the most successful investors in the world, and the chairman and CEO of Berkshire Hathaway was interested in buying McLane distribution, a $23 billion provider of Supply Chain Solutions that was owned by Walmart, we’d be safe to assume that making that happen would be a huge and extraordinarily complex undertaking. Just the due diligence, or the process of confirming the what he had been told about the business was accurate, would take monumental effort. It would require dozens of attorneys reading every contract, equipment lease, real estate purchase document and union agreement. It would take a small army of accountants going over every line item on the company’s annual quarterly and monthly financial statements, combing through every asset lien and debt. It would take a team of compliance officers to audit, investigate and verify every capital expenditure, legacy technology and stated risk, it would likely involve looking into relationships with macleans top customers. All of this could easily have added up to millions of dollars and taken six months or more to complete. Which makes what actually happened. so incredible. buffet closed the McLean deal, over a single two hour meeting, and a handshake. Just 29 days later, the purchase was complete. Buffett wrote, we did no due diligence. On the basis of his prior experience, he concluded he knew everything would be exactly as Walmart said it would be and it was a two hour meeting and a handshake with no due diligence. Think of the time money and effort saved based on the simple fact that one party trusted the other to be true to their word. It’s an example of how trust can be a lever for turning modest effort into residual results. All of us work with other human beings in some capacity. Some of us do it in highly matrix organizations, where we report to more than one person deal with internal and external customers and have to coordinate across siloed departments and or functional groups. Some of us work in and across smaller teams that are expected to function nimbly get things done quickly, and produce more with fewer resources. Even those of us who work for ourselves have to manage relationships with clients and customers, coordinate deliverables with suppliers and partners and so on. Each of these environments adds layers of complexity, some avoidable others not. We all work with other people in our personal lives too. and here also people are a source of complexity. There are coordinating schedules in and across our immediate family, extended family blended families. There is managing relationships within our friend groups, and negotiating competing desires within our local community. No matter the context, working with other people can be overwhelming. You have to allocate mental resources, you have to preserve relationships, you have to align diverse or competing priorities. Just think of the effort involved in deciding where to eat when you’re getting together with a big group of friends or family. The more people involved, the higher the coordination costs. Even easy decisions can become much harder than they need to be. There is an easier way to get the right things done together. When you have trust in your relationships,
they take less effort to maintain and manage. You can quickly split work between team members. People can talk about problems when they come up openly and honestly. Members share valuable information rather than hoard it. Nobody minds asking questions when they don’t understand something. The speed and quality of decisions go up, political infighting goes down. You may even enjoy the experience of working together and you perform exponentially better because you’re able to focus all your energy and attention on getting important things done rather than on simply getting along. When you have low trust on teams, everything is hard. just sending a text or an email is exhausting as you weigh up every word for how it might be taken. When the response comes back, you may experience a jolt of anxiety. every conversation feels like it’s a grind. When you don’t trust that someone will deliver you will feel you need to check upon them, remind them of deadlines, hover over them review their work, or you won’t delegate anything at all. assuming you’re better off just doing it yourself, the work can start to stall altogether. You can’t have a high performing team without high levels of trust. Trust is the engine oil for high performing teams. We all know that you need to add oil to a car engine in order to keep it operating. But not everyone understands exactly why. It’s because inside the engine, the many fast moving parts can create friction when they rub up against each other. The oil is the lubricant that keeps those parts sliding smoothly instead of wearing each other down. This is why if the engine runs out of oil, your car will stall or even grind to a halt. Sounds a lot like what happens on low trust teams doesn’t it? inside every team or many people with interrelated roles and responsibilities moving at high speeds. Without trust conflicting goals, priorities and agendas rub up against each other creating friction and wearing everyone down. If the team runs out of trust, it is likely to stall or sputter out. Trust is like the engine oil for the team. It’s the lubricant that keeps these people working together smoothly, so the team can continue to function. The key to getting effortless results in and across teams is to have systems in place to ensure that the engine is constantly well oiled. The higher that’s worth more than 100 other hires. The best way to leverage trust to get residual results is simply to select trustworthy people to be around. Steve Hall, a successful entrepreneur told me about a controller he once hired to help manage the finances for his automotive company. It wasn’t until the controller had been with the company for five years that Steve stumbled on a $300,000 accounting discrepancy. When he questioned the comptroller, she was apologetic. She made it seem like a well intentioned mistake. But Steve and his CFO had their doubts. They were no longer sure they could trust her in that position and decided to find a replacement. However, this all came at a time when the business was growing rapidly. And they didn’t want to deal with the potential disruption. So instead of firing her, they decided to build support around her. Five years later, they discovered that the $300,000 mistake had turned into $1.6 million stolen from the business. When she learned that she’d been caught. She resigned via text message and left town. No one at the company ever heard from her again. In hindsight, Steve admits my mistake was even worse than hiring someone I didn’t trust. I hired her. She lost my trust, and I continued to have her stay on long after she lost my trust. hiring someone trustworthy starts with a simple and obvious first step, but one that many routinely overlook. Making sure you are hiring someone honest and honorable. someone you can trust, uphold a high standard when nobody’s looking. But hiring someone who is trustworthy is also about hiring someone conscientious someone you can trust to uphold their responsibilities, to use good judgment to do what they say they’re going to do when they say they’re going to do it. And to do it well. It’s someone you don’t have to supervise or micromanage. Someone who understands the team’s goals, and who cares as much as you do about the quality of the essential work to be done.
Warren Buffett uses three criteria for determining who is trustworthy enough to hire or to do business with. He looks for people with integrity, intelligence, and initiative that we ads that without the first the other two can backfire. I call this the three eyes rule. After the disaster with his controller, Steve Hall had to find a replacement. Rather than blaming the whole thing on just one bad apple, he and the CFO looked long and hard for any ways in which they might have unwittingly enabled the problem to occur. This honest self assessment helped them see how they needed to improve their hiring process. They had hired the most recent controller haphazardly by way of an off the cuff suggestion from a supplier going forward, they committed to a new process. It involved more time and effort upfront, but Steve now understood that investing wisely in return rooting interviewing and onboarding once could reduce his risk many many times over. His new hiring criteria mirrored the three eyes rule. In the end, they hired a man who had no experience in the automotive industry. he’d run accounting for a law firm, but he was a complete fit on integrity, intelligence and initiative, a self starter with an unimpeachable ethic and the ability to figure out problems on the fly, or put more simply, they really trusted him. Austin has been a valued member of the company for years now, even after the business was sold to a fortune 500 company he was kept on. He’s been promoted three times since the high trust higher turned out to be one of the company’s highest performance. When you can say these four little words, I trust your judgment and mean them. It’s like magic. Team members feel empowered, they take a risk they grow, trust is strengthened, and then it tends to spread. as executive coach Kim Scott writes in her best selling book, radical candor, when people trust you and believe you care about them, they are more likely to engage in this same behavior with one another, meaning less pushing the rock up the hill again and again. hiring someone is a single decision that produces effortless results. You get it right once and that person adds value hundreds of times over. You get it wrong once and it can cost you repeatedly. It’s like skimping on a shoddy oil filter. It might keep the engine running smoothly in the short term. But the moment that filter starts leaking, it will cause problems throughout the system. Who we hire is a disproportionately important decision that makes 1000 other decisions. Each new hire may well influence future hires, gradually shifting the norms and the culture over time. Often there will be pressure to fill a role immediately, as the vacancy creates a short term headache. But while hiring quickly may lighten the load at first, hiring well will lighten the load consistently and repeatedly saving you many more headaches in the long run. Create a high trust agreement. There are three parties to every relationship, person a person B and the structure that governs them. When trust becomes an issue, most people point at the other person. The manager blames the employee, the employee blames the manager. The teacher blames the student the student blames the teacher, the parent blames the child, the child blames the parent. Sometimes we are able to recognize that we were the ones at fault. But we rarely think to blame the structure of the relationship itself. every relationship has a structure, even if it’s an unspoken unclear one. A low trust structure is one where expectations are unclear where goals are incompatible or at odds where people don’t know who is doing what, where the rules are ambiguous and nobody knows what the standards for success are and where the priorities are unclear and the incentives are misaligned. A high trust structure is one where expectations are clear. Goals are shared roles are clearly delineated. The rules and standards are articulated and the right results are prioritized, incentivized and rewarded consistently. Not just sometimes, most people can agree that this type of relationship is preferable. The problem is that low trust relationship structures generally happen by default rather than by design.
I once hired several professionals to help us remodel our home. They were employed by three different companies, but had worked together on a variety of projects over many years. They liked one another they seemed competent. Each individual had come highly recommended. I thought the pieces were in place for a high trust experience. I began to worry only after I asked for a written agreement with dates attached to it and never received one. But I was eager for the renovations to get going and decided it wasn’t worth pausing the work until we had it. This turned out to be short sighted. While each person on the team worked competently enough on their own. As a team, they were far from cohesive. There was no parallel processing. There were no clear workflows, a vendor would complete a task and only then would the next piece of work be ordered. So some of the cabinets would get installed, while others would be delayed for weeks. There was miscommunication sometimes we’re Because would turn up to work but the materials hadn’t arrived. They couldn’t agree on deadlines. They couldn’t agree on who was responsible for what so some efforts got duplicated while others slipped through the cracks. We were given incorrect dimensions for an appliance, so it needed to be reordered from a different manufacturer altogether to fit in the limited space. The end result, the remodel was completed late and over budget, and the experience for everyone involved was harder at every turn than it needed to be. That’s the typical outcome when you have a low trust structure. A couple of years after this frustrating experience, I was invited to speak to the lean construction Institute LCI, a trade association working to address the decline in efficiency within the construction industry. While other labor intensive industries have seen efficiency improved since the 1960s. Today in the United States, a whopping 70% of construction projects are delivered late and over budget, and more concerningly 800 construction related deaths and 1000s. More injuries are reported each year. The LCI sees Lean principles as being key to improving this situation. One solution is a unique business contract they refer to as the deal that ties each participants compensation to the outcome of the whole project, rather than to the work that individual contributed. aligning the incentives in this way encourages the different parties to act as one team and to make decisions that benefit the whole project, rather than their own self interest. They not only feel a sense of ownership, but I’m motivated to take initiative to make the whole experience more efficient. Whether we’re remodeling a home or leading a team of colleagues, we can all create a similar high trust agreement to make it easier to get the right things done together. Even a one time investment in such an agreement can pay dividends. And it can be as simple as sitting down together and codifying the following results. What results do we want roles? Who is doing what rules? What Minimum Viable standards must be kept? resources? What resources people money tools are available and needed? rewards? How will progress be evaluated and rewarded? Taking a little time to build a foundation of trust is a valuable investment in any relationship. It’s a lever that turns a modest effort into residual results.