About This Episode
Brad D. Smith, Executive Chairman of the Board of Intuit, shares his lessons in leadership and the role of a CEO in nurturing innovation. He talks about developing a Founder’s mindset, the importance of creating a learning environment where people treat success and failure the same way, and how to deliver the numbers today and reimagine the company for the future.
About Our Guest
Brad is co-founder of The Wing 2 Wing Foundation with his wife Alys. He serves on the Board of Directors at SurveyMonkey and is Chairman of the Board at Nordstrom. Brad earned his master’s degree in management from Aquinas College in Michigan and a bachelor’s degree in business administration from Marshall University in West Virginia, where he is an honored alumnus and benefactor.
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Highlights from Brad’s Session
1:03 – Special Offer: Free coaching session on our Customer Problem Zoom Tool (Sign-up at www.movestheneedle.com/toolkit)
01:35 – Introducing Brad
03:32: – What does serially disrupting yourself mean and how do you create an environment for that?
07:00 – Cornerstone moments that have shaped Brad’s leadership style
12:01 – How Brad uses the resources in his toolbox
15:42 – How to be an authentic leader and make each individual employee feel special
18:28 – Brad’s definition of innovation and how it permeates every aspect of the business
21:08 – The importance of codifying skills for leading with questions
22:58 – How Brad stepped into his role as CEO
26:08 – Brad tells us why being vulnerable is crucial for being a successful catalytic leader
28:01 – The importance of creating a learning environment where people treat success and failure the same way
32:01 – How to make every employee a part of customer-driven innovation
33:15 – The role of a CEO in nurturing innovation
36:24 – How to deliver the numbers today and reimagine the company for the future
42:22 – Matching talent to the different phases of Horizon Planning
44:47 – How to incentivize your innovators in a large organization
46:44 – Brad on developing a Founder’s mindset to navigate and balance needs of shareholders, customers, and employees
47:56 – Preserving the things that matter in the long term despite short term pressure
49:57 – Testing for true innovation vs. innovation theatre
51:58 – Brad talks about getting clarity on his “Why”
Episode Transcript
Kavita Appachu: Hey everyone. This is Kavita Appachu.
Mike Kendall: And I am Mike Kendall, we are your co-hosts for SHIFT brought to you by Moves The Needle
Kavita: At SHIFT, we hope to inspire you to make a difference. As we learn from top innovation leaders about how they are driving impact around the world. On today’s show, our guest is Brad D. Smith, executive chairman of the boat of Intuit. Intuit’s product portfolio includes QuickBooks payroll products and TurboTax, the leading consumer tax preparation software in the US. Intuit is currently ranked number 11 on Fortune’s 100 best companies to work for and has been recognized by People magazine as a company that cares and by Forbes America, as a best employer for diversity. We are excited to have Brad share his thoughts on leadership and innovation.
Before we jump in, I’d like to tell you about a special offer from Moves The Needle. For the next week. you can sign up for a 30-minute free coaching session to learn how to gain deep customer empathy and identify your customer’s underserved needs with our customer and problem zoom tool. Companies like Cisco, Humana, and Nike have used this tool to create breakthrough offerings for their customers. To sign up, just to visit the link on your screen and you’re in.
Mike: And now I’d like to introduce our guest, Brad D. Smith. Brad is executive chairman of Intuit, sport of directors and co-founder of the wing to wing foundation. He served as Intuit’s president and chief executive officer from 2008 to 2019, where he successfully led the company’s transformation from a desktop software company to a global cloud based product and platform company. During his tenure, the company’s revenue nearly doubled, stock price increased by more than 500%. and the team accumulated a robust list of annual best places to work awards. Intuit is known for being laser focused on customers, living and breathing innovation and championing those who dare to dream. The company has over 9,000 employees at 20 locations in nine countries with 2019 revenue of $6.8 billion US. Brad is co-founder of the Wing to Wing foundation with his wife, Alys. The organization’s goal is to champion human dignity and unleash human potential by advancing the great equalizers of education and entrepreneurship in regions where individuals and communities have been overlooked and underserved. He serves on the board of directors at Survey Monkey and is Chairman of the Board at Nordstrom. Brad earned his Master’s degree in Management from Aquinas College in Michigan and a Bachelor’s degree in Business Administration from Marshall university in West Virginia, where he is also an honored alumnus and benefactor.
Kavita: And now we’d like to share an interview with Brad Smith that Moves The Needle conducted at a round table for innovation leaders. Brad talks about how to serially disrupt yourself, the experiences that have helped shape his leadership style, and how he inspires people by being the dealer in hope and painting the art of the possible.
We asked Brad, how do you see really disrupt yourself?
Brad D. Smith: I think first of all, it recognizes that change is inevitable. It’s going to happen to you or it’s going to happen through you. And so there’s a conscious decision that you have to make as an individual or as an organization to be willing to disrupt yourself. And there are real facts of best practices that you can study as to how can you continuously do that. I think the first is it begins with the role of a leader and people always talk about the importance of a burning platform. And while burning platform is critical in change, it is not sufficient because people don’t want to run from something they want to run to something. And so, a leader’s job is to be a dealer in hope to paint the art of the possible, to lay out a vision of a better tomorrow, and then to unpack how the change in everyone’s contributions will be a part of putting their dent in the universe.
So that’s the first step. It’s the leader’s job to be a dealer in hope and paint the art of the possible. The second part of seriously disrupting yourself is being clear how you measure success, and you should only measure success in one way. And that’s through the eyes of the customer. You know, a brand is not what you tell a customer, your product or your company does, a brand is what your customer tells their friends and family members what your product or your customer does. And so it’s really important to build an organization that falls in love with the customer’s problem, not your solution. If you just think about Intuit, Scott Cook started this company more than three decades ago, as he watched his watch, struggle to balance the family finances we’ve been in love with that problem for 36 years, we’ve solved it through DOS, through windows, through the web, through the cloud, social mobile, global, and now an AI driven expert platform.
But we’re still in love with the same problem. Then the third piece of serial disrupting yourself, I think is important is to be clear about what won’t change. Your employees, joined your company for a reason, there was something they loved something they felt an affinity to. And while you need to create an environment where you question everything, you also have to be clear about those things that’ll be durable. And for us, it’s our mission, our values, and the order in which we serve our stakeholders, which is employees first, customers and partners second, and shareholders third. And I’d wrap up by saying one of the things that most people get nervous about when they think about disrupting yourself is how can I stay true to who I am? And I know that that is possible because every time I visit my mom back home in West Virginia, she opens the door, we get tears in our eyes and she gives me a hug. And she says the same thing every time, honey, your GI Joes are in the toy chest in the back bedroom, if you want them and I immediately smile and just like your reaction. I say, mom, here I am. In my mid-fifties, I’ve got two girls that have graduated college, and I haven’t played with those GI Joes in a long, long time. And she says, I know, but I remember how happy they made you and I’ve kept them just in case. And it makes me realize that I look in the mirror and I see a man here with gray hair and wrinkles. And my mom looks into my eyes and she sees the same baby boy she gave birth to seven years ago and it reminds me, you can become another version of you without losing who you are in the process. So I say that seriously, disrupting yourself is actually necessary, but it is not destroying the essence of who you are. It’s making you a better version of yourself. And as a leader, you have a role to play. But as an employee, you have a role to play as well.
Kavita: Cornerstone moments that have shaped Brad’s leadership style.
Brad: Yeah, my background was really formed in my early childhood. If I think back to where I grew up, there were four formative moments in my life. I grew up in the small town and can over West Virginia population 3000. If you round up a very rural part of the country and I had an idyllic childhood, great parents, two brothers, friends that have lasted a lifetime, but there really were these four cornerstone moments that shaped who I am as a human being. And I think as a result shaped how I show up in a business environment. The first was the age of six. I was sitting and watching TV with my brothers on a November evening and a newsflash scrolled across the TV screen that said a plane crashed at the airport in our hometown.
Our own town was only a mile wide, so it’s just one square mile. And I ran and looked out the window and I saw the mountain burning. And inevitably that plane was carrying the Marshall university football team. And that movie is now We are Marshall with Matthew McConaughey made this incident famous, but basically as a child growing up, I watched the community rise from those ashes and return itself to glory again. And it taught me an important lesson. That life is a team sport. We’re all angels with one wing and the way we fly is by holding onto one another. So that was sort of six years old. And what happened after the second was in the fourth grade, I had a crush on a little red headed girl, absolutely thought she was going to be my wife one day. And she beat me in a Spelling Bee.
And in the Spelling Bee, you know, she was a definitive winner and she sent me a note the next day and said, you will never be my boyfriend because you’re stupid. No, she’s a pretty insightful girl. She’s gone on to be a doctor and she was pretty smart back in the fourth grade. But I went home that night, my IQ didn’t go up, but my work ethic did. And I took a lesson from that. That intelligence is really applied effort. You can work hard and cover up anything that may not have been a natural gift. My third moment was in ninth grade, I had a really good friend. I had gone to kindergarten with all the way up through ninth grade and he became a boxer. He joined golden gloves boxing at first began to practice on the equipment and then began to practice on his friends and then turned into a bully. And one day I stood my ground and I fought him and I lost. And I went home to see my brothers, and my dad, and my mom and I was embarrassed. I thought they would want me to sleep in a tent outside, but my dad actually sat me down on the couch and told me he was never more proud of me than that day because courage, isn’t the absence of fear. It’s a willingness to stand up and face those things that scare you the most and then he enrolled me in martial arts. And by the time I was a senior I had a second-degree black belt. And so out of that experience I took two lessons. One is to stand up to those things that scare you the most. And the second is to be a champion for those who may be a victim or find themselves without the voice that they need to be able to stand their ground.
So that’s sort of three moments. I’ll fast forward to 1996. My mom and dad didn’t get the chance to go to college. And they had a dream to sand each of their three boys to college. And as I mentioned, we grew up in an area where everyone was pretty much in the same predicament, but we didn’t have a lot of wealth, but we were loved. And my dad had surprised us on Christmas morning and 1996 and had saved up money for a while. And he bought each of us three boys, a Marshall class rank, cause we all graduated from Marshall and he and my mom fulfilled the promise to get us through college. And we each had the year of our class rang and all three boys were really happy to get these. And by the way, we were in our thirties and forties,
We put our class rings on and the next day my dad drove me to the airport cause I was living in New Jersey at the time. And on the way home, he passed away of a heart attack. Suddenly at the age of 58, we didn’t see it coming. He didn’t make it home that evening. And so my brothers and I wear these rings to this day, regardless of how old we are, because it reminds me of a promise that was made and in return, it’s one that we pay forward. And so we lean into education. So that sort of what formed, who I am. I believe life’s a team sport. I believe that intelligence is applied effort. I believe you should stand up to the things that scare you the most and give voice and a champion for those who may not have an equal level playing field.
And the last is, remember who got you, where you are and always pay it forward. And if you go through my journey, I started out seven years in packaged goods in the soft drink industry, got a master’s at night, spent four years in direct mail marketing before the internet using big data to target through the mailbox, went to ADP for six years and had a chance to be a part of a technology company that was trying to be the first to be on the internet with a hosted payroll product and had the chance to lead that team. And then spent 16 years at Intuit leading each of our big businesses and ultimately culminating in the chance to lead the company as CEO for 11 years. Along the way, I surrounded by people a lot smarter than me who graded me on a curve. And I learned every single day,
Kavita: How Brad uses the resources in his toolbox.
Brad: So every morning I get out of bed and I hit the gym at 5:30 in the morning and I work out for an hour. I do cross training using P90X. So I’ve been doing that since 2008, I watch the opening bell of CNBC. I read the Wall Street Journal and New York times. And then I have breakfast with my wife and daughters and I head into the office usually about 7:30. I have a series of meetings, it’s usually back-to-back. I’ve learned some tricks on how to make sure that I’m able to stay current with emails and other things while also having these back-to-back meetings, because that’s the reality of the job. I usually call it a day around 7:00 PM. I’m able to get home, have dinner with my wife and daughters. And then from there I usually spend about an hour to an hour and a half, either watching a show together, or we talk about something and I go to bed about 9:30 and then I rinse, lather, and repeat the next day.
Saturday and Sundays, I don’t really change my get up in the morning routine. I do work until the wife and daughters are ready to go out and do something, which is usually about noon. I do it in my home office because I love it. I’m usually thinking ahead to what’s going to be coming up and then I try to be present with them every moment I can. Now, if I pull back and say, well, then what fills in that period of time? It’s really important to be explicit about the places you want to invest your time because every leader has three resources in their toolbox. You have your time, you have the talent that may work with you on a team and you have the dollars in your budget. You can get more talent. Even if it’s volunteer, you can get more dollars, even if you have to borrow from somebody, but you can never get more time.
And so I begin every year by explicitly saying if I had a hundred points of time, where am I going to spend it? I do 40 points of my time on the things necessary to run the company. Those are strategy and product reviews, staff meetings, talent reviews. They’re sort of the meetings that we call the operating system. And that’s 40% of my time. 30% of my time was in coaching and growing talent. So they were town halls, they were skip levels with 10 to 12 employees at a time, they were one-on-one sessions, they were coaching sessions. 20% of my time was spent outside learning from the best wheel makers. So public boards, CEO, round tables, anything I could do to go shadow another leader. And I’ve shadowed Andy Jassy at AWS and Sheryl Sandberg at Facebook, and Marissa Mayer, when she was at Yahoo, and watched how they lead their companies and took notes and learned and came back and shared.
And then the last 10% of my time was continuing to push my own growth and development. So I tend to read a book a week. Obviously I read the periodicals like Wall Street Journal, New York Times and watch CNBC and try to stay current and also try to learn from others. And I’m kind of famous or infamous for writing these Uncle Brad’s book reports. So anything I read, I type up a little book report and then I share it in the org. So that’s how I fill my time. And that’s how you keep yourself honest is every one of my appointments on my calendar is color coded either the 40%, the 30, the 20 or the 10 and every quarter, I sit down with my executive assistant and we see whether I’m on track or not. And then I make adjustments. That is to say, that’s in a perfect world and crises pop-up. So what you have to be willing to do is understand what’s difference between urgent and what’s different between someone else’s crisis that you can actually delegate to someone else. And you’ve got to be really good at triaging those things in the moment, or you’re going to get way off track in terms of where you should be spending your time.
Kavita: Brad shares how to be an authentic leader and make each individual employee feel special.
Brad: You talk about the feeling that it can create in someone. And we always say at Intuit, that people don’t care what you know, until they know that you care. Every individual wants to know their voice matters and the request is honored. So if you start with that, then you have to figure out how am I going to manage my time when you’ve got a lot of competing responsibilities. And one is actually just the way I’m wired. And I will admit, I am allergic to open action items. I’m allergic to a big stack of stuff that I haven’t gotten to, or a bunch of emails in my inbox. So that is something that I could say as a gift and a shadow. It’s a strength and a weakness, but the flip side is I’ve created hacks in my life to be able to be as responsive as you suggested that I was.
And that is something that I learned from other leaders. I don’t have one hour meetings. I have 45 minute meetings. And then what happens in that 15 minutes between meetings, I can quickly get on email and I can catch up with and respond to anyone who sent me a request. And my goal is to get it down to zero in that 15 minutes. And I never leave in the evening with anything in my inbox. I clear everything out. And so usually my last meeting is about six and I mentioned earlier, I stay till about 7. I make sure everything is clean. Now, by the time I wake up in the morning, I go to bed at 9:30, I have several hundred, but I get up in the morning. I do the opening bell, all that other stuff. And when I get in here, I do the same thing. I clear out as many as I can. And then in 15 minutes time slots, I will do the same thing. So those are the kinds of hacks. And the important thing is just to make sure that you don’t let things sit too long, because while it may feel like it’s not a priority to you, someone wouldn’t have sent it, If it wasn’t important to them. And your job is to create that responsive feeling in that individual, that they matter
Kavita: How Brad gets to know all his people and is accessible to them.
Brad: I would say because of the number of new employees and a growing company like Intuit, that there are people I haven’t met, but I would safely say that there isn’t Intuit employee who hasn’t had me present physically and their location, or seeing me live in a townhall, or I’ve had the chance to come up and say, Hey, can I ask you a question? I always eat in the cafeteria, I go get my own food. I sit at a table and sit with employees. People will come up and talk to me. Then I try to always stop by and say hi to people as I’m walking in the hallway. And my doors open with that said somebody in a meeting, you know, I can’t, I can’t interrupt, but I do try to be accessible because at the end of the day I serve them. They don’t serve me. And my job is to serve them.
Kavita: Brad’s definition of innovation and how it permeates every aspect of the business.
Brad: I can say innovation permeates all 100 points. It’s built into everything we’re doing and running the company in the 40%, it’s built in what I try to instill in others. When we’re doing the coaching and growing talent, it’s built into what I’m going to try to learn from others. When I go shadow Sheryl Sandberg and Andy Jassy and Jack Dorsey and the others that I’ve had the chance to be invited to come and see. And it’s the 10% that I’m studying and learning, which is how do we continuously reinvent ourselves. And so I would say it’s all a hundred points, but it kind of goes back to, if you go on Google and you type in the definition of innovation, most people will tell you without pulling up that definition, they think it’s about invention new to the world creation.
But if you actually look at the different aspects of the definition of innovation, it’s about taking something existing and making it new again, it’s about creating something that the world has never seen. So, there’s all kinds of versions that innovation applies to your core products, it applies to your legacy, it applies to your future. And you’ve got to have all those versions in there. And basically, to answer your question of what are the things we try to do to instill that we have a blessing our blessing is Scott Cook, our founder. Scott is one of the most innovative, intellectually curious, introspective leaders I’ve ever been around in my lifetime. And for many years, Scott could intuitively look at a product and let you know, whether it would or wouldn’t work, but it was a black box. And so over the years, Scott has learned to unpack how he does that and turn that into a set of frameworks and principles that we call customer driven innovation and Design for Delight, which you’re very familiar with because you were a catalyst that helped us do this. And you know what we do, that’s different than many. We codified those techniques and we don’t make only product managers, engineers, and designers responsible for that. We train HR professionals, lawyers, finance, experts, everyone in the company, including our executive assistants are all trained on the innovation techniques and all asked to apply those techniques every day. So what do I do in those meetings? I inspect what we expect.
If someone says, I have an idea, I say, great, show me the problem statement, the customer problem statement. What was your hypothesis? What is your leap of faith assumption? Can you show me the results of your experiments? What worked, what didn’t work? And just by asking those questions, it reinforces how somebody wants to be prepared before they show up in a meeting. And it reinforces the importance of innovation,
Kavita: Brad, on the importance of codifying skills for leading with questions.
Brad: Well, it was codified for me, honestly, the day I joined the company, because it was instilled in the company’s culture that leaders don’t lead with the answers you give, you lead with the questions you ask. And we’ve often cited that very few companies are gifted with a genius with a thousand helpers, and we can name those geniuses in our lifetime. You know, Steve jobs being one. And while Scott Cook, I would argue is that Scott decided many years ago that he wanted democratize innovation. Not basically have it go to one person with thumbs up, thumbs down, and then along the way we learned that that was how the best companies we admire do the same thing. We went and study Google and Larry and Sergei said that this process of having these big innovation hack days and them doing thumbs up thumbs down was always invigorating because they got exposed to some of the great innovation, but it didn’t always predict the winners.
So they created the Google labs and what they did is had everybody build prototypes and put their apps up on a lab. And then they actually watch which ones were getting downloaded and had the highest customer satisfaction ratings. And those are the ones you bet on. And so we said, wow, there’s something to be said there. So we borrowed the unstructured time concept from Google. We made it 10% time here. We taught all employees how to do innovation and to practice this lean experimentation process, we created a lab so that they can put their stuff out in front of customers. And we began to fund anything that had market-based evidence, that it was doing the right thing for customers. And by doing that, I kind of learned a new way of leading. And that is you lead with the questions you ask, not with the answers that you give and quite frankly, the decision maker is the customer, and that’s the best kind of innovation of all.
Kavita: How Brad stepped into his role as CEO.
Brad: I can tell you when I first was named CEO in August, 2007, and then officially took the job January, 2008. So we had a transition period. I had grown up in the company, had run three different businesses. I’d been here five years. And one of the investors with all due respect was honest and said, wow, you’ve got big shoes to fill. And there was no question. I was falling an iconic leader who had followed iconic leaders before him. Yeah. And I was inheriting a company that was performing well. And so in sort of a halfhearted response, I said, no question. I have big shoes to fill, but I’m from West Virginia. We don’t wear shoes. So that solved that problem.
But I took his question to heart and I sat back and I said, how can I really understand where change is necessary versus where I’m wanting to put my mark on something? And those are two very different things. And I decided to go on a listening tour from August until December. And I wanted to go meet with employees. I wanted to meet with our shareholders. I wanted to meet with fellow CEOs in the industry. And I wanted to meet with our board members. And I asked them all the same three questions. What are the biggest untapped opportunities that you see ahead of Intuit that you believe if we capitalize on them, we’ll create a whole new chapter of success for the company. The second question I asked is what are the greatest risks facing Intuit that if we fail to respond or adapt, could end this amazing run as a company? And the third is what is the one thing I could do to screw this up?
And as crazy as it is when you’re talking about frontline employees to board members, to fellow CEOs, looking from the outside, the themes and the common messages screamed out at me, the company needed to become a connected services or cloud based company. We were desktop. We needed to embrace social platforms, mobile devices, and global expansion. In a hundred days, I was able to come back and share and everyone felt their fingerprints were on it. They thought they wrote it. And they did because they gave the input that we are going to be a connected services company, a cloud based company that embraces social mobile and global. And the first question I got is how are we going to do it? And I said, the good news is we’re rolling out 10% unstructured time. We’re all going to get trade on innovation. And you’re going to help us figure out how to do that.
Fast forward 90 days, the first version of TurboTax on a mobile phone was developed by employees. And we had no idea it could even be done. And fast forward, three years, 1800 experiments were run. $400 million in revenue were produced from products that came from employees that were never decided by the CEO staff. They were decided by the employees and we find them. So that’s sort of the questions, and I would say the opportunity is to step back and ask yourself, are we driving change because it’s necessary? Or am I driving change because I want to demonstrate that I could put my mark on something and try to minimize that second one and really focus in on the first.
Kavita: Brad tells us why being vulnerable is crucial for being a successful catalytic leader.
Brad: There’s three characteristics that I personally look for in anyone to believe that they have the capability of leading large teams. The first is intellectual curiosity. The second is humility or vulnerability. And the third is grit, perseverance. And if you go back, there was a lesson I learned from my father, who I’ve mentioned to you earlier. He and my mother are the greatest people I’ve ever wanted to be, my dad, as I mentioned, didn’t get to go to college, but he had a successful career in packaged goods as well. And then ended up being the mayor of our hometown. And I was home one day and I was already working at another company. And I had a master’s degree in management and this education behind me and my dad is the mayor was giving a speech to our hometown. And he used the word ain’t about a dozen times.
And after the speech I went up and said, hey dad, are you open to some feedback? And he said, sure. And I said, what give? You used the word ain’t in front of these people about a dozen times? And you always corrected my brothers and me when we use that grammar. And he looked me in the eyes and he said, son, this is who I am. And look at them, this is who they are. And if they see that I’m capable of being mayor without being perfect, maybe one of them will dream of being the mayor as well. And then he said, never forget. I’m not talking about values and ethics, but people prefer their leaders with flaws because that makes leadership more attainable for the rest of us. So I think the most important thing a leader can do is to put a chink in their armor to admit when they don’t have an answer to ask for help. And that makes it safe for everyone else to try and fail and to make mistakes as well. And collectively you’ll learn from those experience.,
Kavita: The importance of creating a learning environment, where people treat success and failure the same way
Brad: I have made more mistakes than any average human being times 10. And I am smarter and wiser as a result. And I think it’s important to create the environment where people treat success and failure the same way as a chance to learn. And I’ll give you two. One is prior to joining into it. I worked in a company and was asked to lead an effort that I fundamentally thought in the days of the.com boom, that clicks would replace bricks. That we would be able to launch this completely hosted version of a product and never need a direct sales force again, and then put in a spreadsheet just how big that would be. If only the board would give us two $20 million checks, one to sign an exclusive deal with AOL at the time the leading portal and the other design would be Microsoft bCentral, which was the other B2B portal. And the board signed up on it. They bought off on our spreadsheet. They bought off on our hypothesis and $40 million, we went. One year later, I had to show up in that same boardroom to describe the results. And at that period of time, in 12 months, we had achieved 15 sales at $1,800 ARPU. Each now I’m from West Virginia, but higher math tells you that 1800 is not 40 million. And I called my dad on the way in. And I said, hey dad, I think my career is over. I think I’m going to get fired. I don’t know what to do. And he said, son, we’ve all been there. Here’s what I want you to do. I want you to go in and stand in front of them, look them in the eye and say, this is what I thought, this is where I was wrong, and this is what I would do differently if I had the chance to do it again. And that’s the presentation I gave. And in that boardroom in a top floor in New York city, only one director did this 👏🏼👏🏼👏🏼.
And I thought, wow, that is the career light flashing in the corner of my eye. And that individual looked me in the eye and said, congratulations, you have just learned three important lessons and taught us along the way. The first is you’ve disproven the critics who say that we can be displaced by clicks. And now we’ve proven that you do need salespeople and we have a big sales force. So that is a durable, competitive advantage. The second thing is your team built the first hosted version of this product and we can put that in our sales bags and we can get to market faster than anyone else. And a third is you just made a $40 million mistake. And I know for a fact, you will not make that same mistake. Again. What I want you to do is go make a bunch of new mistakes because that’s how we learn.
And they promoted me. Yeah, I was promoted out of that meeting and I could not believe it. And from this day forward, I have celebrated everyone who’s made a mistake and told them to fail forward. Now at Intuit, I was responsible for QuickBooks, the small business accounting platform at the time. And we were shifting to the cloud and there was a big debate whether QuickBooks online, which had been built in the late nineties was fresh enough in the mid two thousands, or if we needed to build a Greenfield product. And, I ended up getting in the debate back and forth and being a non-engineer, I went with someone that I really trusted and said, we’re going to invest in this new platform called Merlin and two and a half years and $70 million later, it never saw the light of the day and crumbled under its weight.
And I had to stand up in front of our engineers and say I was wrong. And this is what I learned you should build just in time, not just in case, we had a perfectly architected product that we refused to let customers even build anything on until it was exactly the way the architecture said it should be. And we did nothing for two and a half years other than staff, all the innovation in the company. So now I’m a big believer in thin slices, quick to market, and none of these big bang sort of deliveries, because they just crumble under their own weight. That’s two. I could give you a thousand more, but I think these two are plenty.
Kavita: We asked Brad, if you were to go back and do it again, what would you do differently?
Brad: I would have engaged the rest of the organization and not quarantine the Merlin team off in a building on their own. We moved them off so everyone thought that’s where innovation happened and everybody else was relegated to yesterday’s technology. Big mistake. I disagree with some of the pundits who say you have to hive off innovation from the core, because the core will kill it. I actually think the core will kill it, even if you hive it off because the antibodies will be strong. I think you’ve got to make everybody a part of the innovation process. So that’s number one is I would co-locate it. Number two is it would be customer innovation, not technology out. So Merlin was a technology in search of a problem, and we should have started with what’s the most important problems customers have. And how do we actually deliver a solution on the newer version of technology to solve that problem? Well, we can just then thin sliver improvements and then ultimately have rewritten the product over a few years. By the way, that’s what QuickBooks online has now done. We pivoted back QuickBooks Online became the harmony edition and now is QBO and it is a worldwide product and it is absolutely fantastic. I just cost us two and a half years while I actually put the resources someplace else.
Kavita: The role of a CEO and nurturing innovation – How to make every employee a part of customer-driven innovation.
Brad: Two parts, it’s role modeling, what matters most, which is serving customers. And the second is walking a mile in someone else’s shoes, so that you understand what they have to deal with. And then as a manager, you have the ability to improve that experience for them. And so one of the things we do every year, as you just suggested is we do Lifeline where people volunteer to go take TurboTax customer calls in these peak periods, these Batman years, as you just described them, and we don’t get the special treatment or the easy ones we dive in and customers with that anxiety of not understanding taxes first of all, the fear of getting an audit from the IRS and the fact the clock’s ticking, and if they don’t hit send by midnight, they’re late. And you got that energy. Plus, the fact that they’ve got these complex questions and you got to find a way to navigate. So, we have a lot of tools over the years, we built for our agents when you’re a manager and you’re using those tools and you can’t find the answer quickly, the first thing you want to do when you’re off that phone is go get that tool fixed. So, there’s no better way to remove friction or bust barriers than to actually have to eat your own dog food. So we try really hard to do that. That’s why we do follow-me-homes of customers. And that’s why we do in this case, follow-me-homes with our agents, where we sit there and we have to live in the same real-world experience they do and find the pressure of, okay, what’s getting in their way. Other things that we do like that is I do skip levels, two or three skip levels a week. And that’s usually touching 24 to 36. This is when I was CEO.
Now as Executive Chair, my calendar’s changed a little bit, but it would be meeting with frontline employees, usually two or three dozen a week. And I asked them all the same questions, just like I did. When I stepped into the CEO job. In this case, I asked them, what’s getting better than it was six months ago. What is not making progress or is moving in the wrong direction. And if you had a magic wand, what’s the one thing you wished I would leave this room and go change immediately. And what happens is you meet with two or three groups a week and you start to hear the common patterns. And then we go back as a management team and we prioritize getting that fixed. If, however, what I’m hearing in the room is something called learned helplessness, which is this desire to say, here’s a problem. And you have to go fix that, Mr. CEO, then I use it as a coaching moment. And I say, well, what are the ideas you have of how you might fix that? And how could you get that? If somebody above you, wasn’t able to come in and fix it and you kind of teach at the same time you learn. So that’s one of the things I do. The other thing is, each year our company does thousands of hours of follow-me-homes, where we have to directly go observe customers in their natural environment. We don’t just do research and look at data. And as a CEO, I did 60 hours of follow-me-homes as well every year. And so if you’re role modeling, what’s important and you’re also learning directly from customers that informs how you’re going to allocate your resources. If you’re role modeling, what’s important and learning from employees and skip levels, and if you’re actually using the tools they have to use, and you’re taking the questions from customers in the heat of the battle, those are three good examples of where you both show what’s important and you learn really quickly what needs to get fixed. Yeah.
Kavita: Brad shares how to deliver the numbers today and reimagine the company for the future
Brad: What ends up happening is it’s all rooted in the question of, do you want me to deliver the numbers today or do you want me to reimagine this company and build the stuff that’s going to help us for tomorrow? And the answer is yes. And then people want to say, well, you have to have a choice. And that’s an artificial question. I’ve often said that it’s an and not an or, and Jeffrey Moore wrote the book Horizon Thinking, we turned that into Horizon planning and Horizon planning as a hundred point exercise that Google and others made famous. And we put 70% of our resources into continuing to innovate and grow our existing products. So TurboTax, QuickBooks at the time, Quicken, Mint, all the products, you know, 20% are to fund the saplings, the ones that have been put in the market already past product-market fit and now they’re scaling. And we focus in on those and say, how do we give those the growth that they deserve? And then 10% is the unstructured time and the 1800 experiments to try to see if there’s a there, there, and the only rule of thumb to the point is you can’t borrow from the future to cover the existing. And you can’t borrow from existing to cover the future. And so you force teams dependent upon where they are. They have to make tradeoffs amongst themselves. And that is constant tension. You hear from the Horizon one team, Hey, we’re the ones producing all the profit. We got a quarterly earnings call coming up. We’re going to miss our number. If you just let me have some of that money from X, Y, Z, then I could hit the number and I have to respond with, we’re all paid to do the job we have. And you were given the resources and signed up for a plan. And I need you to come back with three different ways you can solve this problem without taking money from the future. And the same thing happens on the other side is, Hey, if I had more of that QuickBooks money, I could turn this thing into a billion dollar business. So how do you work through that? We actually came up with a set of metrics that you’re familiar with called Succession metrics. And there are four toll Gates. And as a leader, you have to ask the right questions and you need to look at the right metrics at the right time. The first is it okay to go into this? It’s great succession metrics.
The first thing that we teach is when you have an idea that you are not yet sure is going to resonate in the market, the only thing you have to be able to answer is whether they achieve the love metrics and the love metrics are three metrics. Does it deliver the benefit in the customer’s life, the customer expected when they hired the product? The second is, is the customer actively using that product now and replacing the old substitute with your product? And the third is, are they telling friends and family members, which is word of mouth or net promoter? Those are the only three questions we ever ask a team who’s come in and said, I have a new idea. Now there is a question underneath that below the line, which is okay, now that we’ve got that, do you have any idea whether somebody will pay us for this down the road? Now that question is simply, do you have any idea?
Okay, now you go to the second. And the second is cohorts and cohorts are now that you’ve gotten that input from the market and you’ve built a V2. Are you improving those three love metrics? And then the second part of the question is, do you have a dry test in the market? That’s demonstrated that the customer’s willing to give you their credit card number. It doesn’t have to be revenue. It’s simply, Hey, I ran a test and people actually opted in. And so they put their credit card number in. So that’s the second. Now keep in mind. These first two metrics have nothing to do with revenue or profit or LTV to CAC. They’re all about delivering benefit to customers. They’re actively using it and they’re talking about it, virally to their friends and family.
The third tollgate and succession metrics is what we call the market metric and the market metric is that your 3 love metrics are better than the best alternative in the market. So this is where you start to measure competition. And the second thing you look at is are you winning more of the decisions than your competitors? Are you gaining share now below the line, this is where monetization finally kicks in, and it is LTV to CAC with every unit you sell. Are you able to demonstrate you’re increasing lifetime value or reducing the cost to acquire the fourth and final metric is the only one this final metric by the way, is I’ll come back and map into horizon planning. It’s called the financial metrics and it is revenue and profit. And those are the two things that we look at there. In addition to things like customer base growth, the last set of metrics, the financial metrics, those are what the first group are held accountable for, which is Horizon one. They have to have great net promoter scores. They have to be able to show their customer bases are growing. They have to have revenue and profit. And they’re able to reinvest that the second set of metrics, which are okay, what do you have Horizon two. They get to do the market metrics and the market metrics for them, having Love metrics better than the competitive alternative. And do they have an LTV to CAC? That’s getting better, so, they are the growth saplings. the Horizon three, which are the 10% unstructured times. They get the first two. And that simply are your love metrics getting better with every version. And just tell us that there might be a way to make money down the road and that’s it. So crazy enough, I always get asked by startups, how do you multiply your market cap the way you did? How’d you get your stock price? And I said, by not measuring that, by measuring the only thing that matters, what matters to the customer, those metrics, revenue, the number of customers, your stock price, your valuation. We call them vanity metrics. They only satisfy one person, you and don’t spend any time focused on them.
Kavita: How do you match talent to the different phases of horizon planning?
Brad: That’s a wonderful question. And it’s a very important part of our Horizon planning methodology. And the answer is yes, you also not only match metrics to the different stages you match talent. And if I take the three Horizons that I just mentioned, Horizon one, which is the core products, we’re already a market making money, Horizon two are the fast growth saplings who need to prove LTV to CAC and market share, and Horizon three, which are the early stage product-market fit. What we have ended up terming the labels of the kinds of people cause they opt in and I’ll come back to are there exceptions? And the answer is yes, very rarely, but the Horizon one people who love to be a part of that, you can imagine being a rowing crew, they love being in a boat with another group of men and women rowing and perfect precision. And when they operate together, they can raise the boat off the water and achieve things that no human being can do on their own. They love being a part of a system. They would have played for Coach Wooden in the sixties and UCLA, a player that makes the team great is worth more than a great player. That is what energizes them. Horizon two are your whitewater rapids, adrenaline junkies. They’re in the boat that boat’s bouncing. Water’s coming in, they’re falling out, they’re grabbing each other by the life jacket, get in here, man, let’s just keep going. And they are all about the ride and the danger that comes with it. And there are people that are wired that way. They’re usually bungee jumping and doing all the other stuff that you see in New Zealand. Horizon three are those that love to adopt for sunken treasure. And they’re okay going down 20 times and only coming up one out of 20 times with the gold to bloom, but they are just in the thrill of cannot discover something that no one else has discovered. Very few people can love being that dive for sunken treasure, get energized by the adrenaline of whitewater Rapids. And they get comfortable being a part of a system where they’re just one of many. And so that’s why many founders, quite frankly, are serial entrepreneurs. They start a business, they love that. And then they get to a point where the administration of the company or the other functions come involved and they want to step down out of that. And that’s okay. That’s not a sign of failure. It’s playing to your gifts and you do have to then change your incentives for each of those. And so you have to align the metrics and the incentives and the talent to the individual Horizons,
Kavita: How to incentivize your innovators in a large organization.
Brad: What we’ve learned and we’ve thought about doing is to make success on their ability to succeed in that stage, come up with ideas that are solving important, unsolved problems that the world hasn’t solved well today and creating some durable advantage and getting to product-market fit and they get rewarded and incentivized for that. Their name will be forever attached to whatever idea they created. And that’s why we give out the Scott Cook Innovation awards. Well, we’ll go back and we’ll look at inventors in the company who may have been a part of a team, and it may have gone to other teams down the road, but it ends up changing the world in profound ways. And then they are recognized as having been the seed corn, the inventors to do that. We gave out a Founder’s award of a few years ago and the Founder’s award went to Hugh Molotsi, who long after he had been in the payments business had gone on to other parts of the company, but he had created a business that became hundreds of millions of dollars. And so, we awarded him without him even expecting, a million dollars in stock, which of course, the stock then appreciated quickly. And he’s traveling the world right now having some fun. But I think the answer to your question is to not tie their success to you got to wait for the seven year burn rate for this to happen. But to say you get rewarded for being a serial entrepreneur. If that’s what you choose to do, because you loved adopt for sunken treasure, your name will always be associated. And if it changes the world, we won’t forget. But in the meantime, you’re going to make a really good living, just continuing to create the next new thing. And many times people will say, hey, I want to go along with it. And we say, well, you can do that. Just to understand you’re going to have to evolve and adapt to who you are and how you inter-operate with others because the skill sets in this next chapter are very different. It does not make you a bad person. Just makes you someone that’s going to have to be committed to practicing a new set of skills.
Kavita: Brad, on developing a founder’s mindset to navigate and balance needs of shareholders, customers, and employees.
Brad: Sure. I think it starts with the assumption that really good shareholders care about the same thing you do, which is a company culture that’s built to last that can attract top talent in a very hot labor market. That does great things for customers that a startup coming out of a dorm room won’t easily displace and does that with some level of discipline that they’re going to expect some return on their investment. So if you really start with that and you’re going to have some shareholders that aren’t wired that way, right? They’re going to be the quick in and out. And then you have to be comfortable with just making them unhappy because you have to have a founder’s mindset. And we all know why we list them in that order. Thomas Edison said that, a vision without execution is merely hallucination. So you can have this beautiful idea for a customer. Hey, I’m customer centric and customers are first, but then if you don’t have anybody who can build it, it’s just a drain. So you have to have employees first and you’ve got to get them all jazzed up about falling in love with the customer and then giving them the tools to do that. And then they’ll change the customer’s life. And the shareholders will be happy.
Kavita: Brad shares how to preserve the things that matter in the long term, despite short term pressure.
Brad: Yes. For example, in the great recession, there were conversations and questions around, uh, the revenue got cut in half for us. Unlike many of our peers who actually ended up declining in growth, we still grew mid-single digits, but we originally had started the year before the Lehman brothers crash with a higher plan and we had to adjust it and in doing so, we tried our very best to preserve the incentives inside the company and the pay levels and the stock options and the other stuff. And the investors began to ask, well some investors, why don’t you just freeze your bonuses? You know, why don’t you do these things? And we basically said, because that will impact the company culture. And we preserve what has been magic in this company. And we will do that continuously.
The second part that happened in the recession as we deepened our discounts. In fact, in many cases, we’ll give our product away for free because we knew our customers were hurting. And if we were there for them in this time of need, they would remember us later that was antithetical to some of the short term shareholders, but it proved true. We came out of the recession with faster growth than any of our peers and we gained market share in the downturn. And so we just go back to what’s most important to those stakeholders. And regardless of the short term pressures, how can you do your best to preserve the things that you know will matter in the long run. Now you’re going to have to always make trimming, you know, we slowed down travel and expenses. And we had to say, in fact, the bonus pool, cause we missed our plan. Didn’t pay out a hundred percent, but some paid zero. I think that year we paid 60 and our employees were really delighted to get 60% of the plan when the company was performing at the levels that we were relative to the original. So those are just a couple of examples, but the takeaway there is stakeholder by stakeholder, what are the things that I can’t afford to change or I will disrupt what has always made this place magical and then change everything else.
Kavita: How do test for true innovation versus innovation theater?
Brad: The most important thing I would test is, is it a learning organization that falls in love with a cause greater than itself. And so many times it’s the nature of a company. It’s the nature of a product leader to fall in love with what they have versus what the world needs. So I’ll give you what I would test for in that scenario. If I’m in an interview process or I’m trying to do some background research,
We often challenge our teams to say, when they’re pursuing a problem, we ask them three questions who are three outside of our industry that have solved a similar problem? And what did you learn from them? Who are three in our industry who have tried to solve this problem? And what do you learn from them? And tell me three ideas you’ve considered and explain why you’ve rolled out the other two? Before you tell me what you’re so passionate about, what you force in that discussion or you reveal in that interrogation is whether someone is truly in love with learning from the best wheel makers or they’re in love with their own idea. That’s probably the greatest truth test I would give.
The second thing that I would test for is asking them, can you tell me the biggest mistake that you’ve made or this company has made when it comes to innovation? And what were the lessons that you learned? Because if it’s an organization that is afraid or an individual leader, who’s afraid to admit mistakes and failure, then they aren’t going to be successful. Thomas Addison, and we all know, it depends upon who you believe at 10,007 attempts to create the light bulb. And he said, I didn’t fail 10,006 times. I proved 10,006 ways, it wouldn’t work. That’s a real innovative culture that a catalyst wants to be a part of. Those are two that will come to mind. I’ll think about more, but I think those, the first one is definitely the meat of the matter. And the second one is a real revealing characteristic of its culture.
Kavita: Brad talks about getting clarity on his “why”.
Brad: I love quotes and Mark Twain had a famous quote that the two most important days in your life are the day that you’re born and the day you discover why. And I really needed to go through a process of making sure that I understood my why. And so I interviewed people who are in their seventies, who are living these incredibly productive lives, full of vitality. And I asked them what choices they made around my age that allowed them to set up this next chapter. And they gave me a set of questions that I’ve posted on LinkedIn. If you get a chance to read the article, but the essence of it is I’m really clear what my why is. And if you think about those four formative moments in my life that we started this interview with, I would tell you my why is to be a champion for the overlooked and the underserved to be a warrior for human dignity and human potential. And to level the playing field of opportunity for those who have the aspiration and the grit to try. And I’m focused on two areas with my wife, we’re focused on education because that was the gift my mom and dad gave my brothers and I, and we wear these Marshall rings to remind us to pay it forward. And I’m focused on entrepreneurship because if you look at the 75% reality, 75% of gen Z do not want to go work for a company. They want to own their own business. In 75% of all new jobs will be created by startups, but 75% of venture capital money went to three places last year, California, New York and Massachusetts. So, while God was egalitarian and making that talent and aspiration were equally distributed, economies are not. And so, what are we doing is we’re basically leaning in and saying, we need to help education change itself to teach lean agile experimentation, to create catalytic leaders, to teach people that it’s okay to fail. This isn’t ABC D&F. You have to get out there and fail quickly so you can learn faster and that hopefully it will create entrepreneurship. And that’ll give all these zip codes around the world, and I know we don’t have zip codes outside of the world, but in the U S all these disadvantaged regions, the same opportunity to create the next Amazon as Jeff had when he went to Seattle and that’s our focus, and I’m going to spend all my energy doing that. I’m not sure what vehicles will end up allowing me to do that, but that’s the passion. That’s how I’m going to measure success. From this day forward.
Kavita: We would like to thank Brad for joining us on shift. Brad has had a large influence on us, both personally and professionally, his motivational and compassionate leadership style has inspired us and many around the world. We hope his lessons in leadership will inspire you as well to be empathetic, authentic, and drive impact for your customers, employees, and communities.
Mike: Before we wrap up, I’d like to remind you about our special offer this week. When you sign up, you can receive a free 30-minute coaching session to learn how to use our customer, problem, zoom tools. And also, don’t forget to take advantage of Moves The Needles resources for thriving during uncertain times that movestheneedle.com. Thanks again to our guest, Brad Smith. Be well and lead the SHIFT.