Momentum Podcast: 534

The Top Grading Lie

by Alex Charfen

Episode Description

Full disclosure, I have a different experience with most business books than the average person does. Recently I was at a mastermind, and I had a familiar experience. One I have far too often. At this mastermind, someone at my table recommended the book “Topgrading,” and I could have jumped out of my skin. 

When it comes to books on hiring or processes on recruitment, there's a well-known book out there called “Topgrading.” Essentially it's a book based on stack ranking people in a company. Honestly, topgrading is a terrible process and one I've had personal experience with. In this podcast, I share a story of the Topgrading group coming into a company I had partnered on. Tune in to hear how this process failed this business, and how I ended up winning. 

There's a ton of books and process out there. You need to be careful about which ones you use and listen to. The majority of them haven't been challenged, and if they were, you would see that they are no good. Topgrading is one of them. If you want advice on how to hire the right people for your business, here's what you need to do. Take your candidates and look at the skill sets they have. Make sure they match your position, but more importantly, make sure they are excited about the job and that they are a true believer. Because you can have the perfect person on paper, but if they aren't genuinely excited about their position and they don't believe they are going to fail you. Find true believers who care and your entire business will change. Lastly, if you haven't yet, don't even bother reading the book “Topgrading.” Trust me; I'm doing you a favor.   

Full Audio Transcript

Recently I was at a mastermind and I had this familiar experience. Somebody at a table offered a book as a solution to somebody and it made my skin crawl. I had to say something about it and it happens to me all the time. See, I have a different experience of most business books than the average person does. I've been the consultant on the other side when the books have been handed out in businesses, when they've been given to a population of team members or when they've been applied in a business that I actually worked in. This one's personal and it's all about topgrading.

I'm Alex Charfen and this is The Momentum Podcast, made for empire builders, game changers, trailblazers, shot takers, record breakers, world makers and creators of all kinds. Those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy, and we are obsessed with creating momentum so we can roll over bureaucracy and make our greatest contribution. Sure we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will.

We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few who are willing to hallucinate. There could be a better future and instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters, clearly the most important people in the world because entrepreneurs are the only source of consistent, positive human evolution and we always will be.

When it comes to books on hiring and processes on hiring, one of the most well-known books probably from the last decade, not so much this one, but a really well known book is called Topgrading. And it is a book that was written by the HR executive that was at General Electric when Jack Welch was there. And so it's a book based on stack ranking. It's a book that says you can both in your workforce of team members and in applicants, you can stack rank people A, B, or C. And what you should do is once a year, just get rid of all the people who are C players and then your company will win and you'll win and your company will grow. And the way that they suggest you hire is you take all the applicants that you have and you stack rank them based on the questions that you ask in topgrading.

And topgrading it's so terrible. And there's so many parts of the process that are just awful in the way that it describes to find people is awful. But let me share with you my personal experience of their process, like up close and personal. There's a little history here. So let me first fill you in on the background. So when I was younger, I'm 46 years old now. When I was 21 years old, I became a consultant and I worked for a few years at my company and partner with another company called Thal Organization. And after a few years of building a consultancy, I stopped working with Thal Organization, I was out on my own. I worked for about a year, a year and a half on my own. Then I started working with a partner, Joe Jaconi and Joe joined the rep firm that I had and we started this company together and started growing like crazy.

We actually attracted Logitech as a client. We had some really amazing contracts. Things were growing and we were doing really well. And an opportunity came up. Now mind you, Joe and I were both in our early 20s. We had never been involved in a purchase and sale of a business of any kind. We were incredibly naive. Joe had been to school, I was a college dropout and along came somebody who was in our industry, his name was Ken Richard. He ran a company called Latinrep that was a competitor of ours. And we got together with Ken and we didn't know what the conversation was going to be, but it ended up Ken wanted to partner with us. He had an idea to join all of our companies together. And so Joe and I made a deal with Ken. We put together our businesses.

We actually ended up investing some money because his company was bigger. We had no clue what we were doing. I wish this was a better story. I didn't understand acquisitions. I didn't understand mergers. I didn't understand partnerships. We looked at what we thought we were looking at or what we should be looking at. And it ends up, we bought into a company that was actually losing money. The investment that we made that we were now a part of was a company that wasn't doing well. And so Joe and I got involved and within three months, maybe four months, we turned the company around, made it profitable. It continued to grow after a little bit longer. Joe and Ken started having some conflicts. And so Joe left the business. I continued to work with Ken. And over the course of a couple of years, we tripled the size of the business.

And when I say we, I mean Ken was there. And I went out and sold a whole bunch of stuff and tripled the size of the business. And it grew like crazy and it grew a lot based on the contacts that I had that we went out and started building this business. And so after a few years, Ken was involved in, I think it was an organization like entrepreneurs organization or something like that, like EO. And he went and he saw this presentation by these two guys on hiring, named Brad and Jeff Smart. And he decided to hire Brad and Jeff Smart to come into our business where I was a partner and determine what we needed to do next. And really what Ken was looking for was Ken wanted to determine how he no longer had to do everything or how he no longer had to work as much as he did.

He was looking for them to come in and tell him how to structure the company so that he didn't have to do as much, which at the time was interesting because I didn't really think he was doing that much to begin with. But I didn't have perspective from where he was, so maybe there was a lot going on. And so as a result, Ken made the decision in a company I was partners in and I was incredibly frustrated with this, to hire the topgrading group to come in and tell us what to do. And it was ridiculously expensive. In fact, I think it was around $25,000 and what they did was they came and they did a 360 on ken and interviewed everybody in the business to determine what the business needed, what was the big growth method that was going to happen for the business?

What was the lever that we could push that we are going to grow the business? And I remember going through this process. Now mind you, we had a team of about 25 people. The company was doing relatively well. Out of the 25 people I was managing or leading almost all of them except for Ken's personal assistant and we were both kind of co-leading one of the consultants we had in Latin America, but the rest of the team, I was pretty much leading it. And we started this topgrading process and I remember interviewing with Brad and Jeff Smart and thinking on my side how weird that they're not asking me questions about like how the business runs and where we make money and how we make money. It was all questions about me and how I felt and who I was and questions that were really weird honestly.

And we went through this process and I didn't really think much of it and it was probably 90 days, 60 to 90 day process. They interviewed Ken, they flew out to his office. Then they interviewed me and then they interviewed all the team members and then there was this big reveal where they were going to share with Ken and me, the results of what they got. So I wasn't actually in the meeting and I had to be somewhere else. And so Ken shared the results with me afterwards. And after this company came in and interviewed everybody and talked to everybody, here was their conclusion. We needed to have somebody in the business besides me that could manage the team and lead everyone because I was inexperienced and I was the biggest vulnerability and probably the reason that the company wasn't growing. And so we should go out and find a top graded, a top candidate to run our consultancy in the US and Latin America.

Who's the top person that could come in and change things for us? So they decided, and I remember telling Ken, we don't need somebody to come and run this business. It doesn't make sense. There's not a vacuum of leadership. We just don't have enough business. We need to go sign more contracts. And it's not that we need somebody to tell us what to do. We know what to do. What we really need is to just market more and sell more. And what I really wanted to say, but I was young and I wasn't an equal partner with Ken. I was a minority partner. I didn't have 50% of the company. It wasn't much less. But I wasn't the decision making partner. And I remember trying to negotiate with him and saying, "Ken if you would just get involved in sales and marketing and help us get some more accounts, we would do a lot better."

But instead he went through this topgrading process and their suggestion that what we really needed was somebody to replace him and to come in and lead the business shocked me and I didn't understand it. So I lived through the process. We get this reveal, they tell us we need to go hire someone. And then of course it was $25,000 to do this 360 and tell Ken we needed to hire someone. And it just so happens they were more than willing to sign a second contract to conduct an exhaustive search in the US and Latin America to go out and find the perfect top graded candidate who is going to run this business and just make it grow like crazy. And when you look at the topgrading process, it seems rational at the beginning. You're looking for candidates that have a history of success, that get good references, that have been in positions that they've succeeded in.

And then part of the process with topgrading is you ask for references up front and I think they call it the TROC, Threat Of Reference Check. You tell everybody you're going to check their references so that they tell you the truth and then the appointment or in your interviews. And it's basically a system founded on thinking that people are going to make stuff up. So you use a threat of reference check to get them to tell you the truth. And then you do this exhaustive search and you're going to find the absolute best person to run the business. And I remember going through this process and Ken would send me resumes to read, and I would think, I don't even understand why I'm reading these. We don't need this person. There's not a position for them available in this company.

They've made this up. We don't have a vacancy of leadership. And I'd think, what in heck is this person going to do when we hire them? So Ken went through the interview process. It was exhaustive. It was exhausting for me because I had to keep talking about how we were going to hire somebody while I was actually trying to run our business day to day. And it was overwhelming. And I remember when Ken came to me and said, "We've done it. We've found the person who's going to come in and run the business. It's amazing. We're so lucky to get him. He's a Harvard MBA and he's worked at Microsoft." And by the way, Ken didn't have to tell me he was a Harvard MBA because within five minutes of meeting, Hernán, the guy who we hired through topgrading, within five minutes of meeting him, he told me he was a Harvard MBA.

His names is Hernán Rincón. He actually is the CEO of Avianca Airlines in Latin America right now. The sitting CEO. What's interesting is on his resume, probably because he wants to be top graded, his experience that I'm talking about doesn't show up. He's actually sanitized his resume. He never worked for me and Ken at Latinrep because it was so disastrous. Here's what happened. Topgrading went out and found the "perfect person" right resume, right education, right background, right contacts. You know what happened? Within a couple of days of coming into our business, he made a comment about how the type of consultancy we had wasn't really a respected consultancy. We could actually improve by offering new services and I remember thinking, "Holy crap, he doesn't even understand what we do and he doesn't respect what we do." And within a few months of trying to work with him, it was like pulling two ends apart at the middle.

I knew how to run our business. I knew how to grow the business and he kept wanting me to do things like fill out reports for him and tell him what I was doing and introduce him to my clients so he could have a relationship with them and all kinds of stuff that felt gratuitous and completely unnecessary. It was a just constant fight and constant frustration and it all culminated after about six months of Hernán with us, we had our major, huge event of the year. So not only do we have a consultancy, but we ran this very large event where we got all the retailers and distributors in Latin America together. It was called Latin Channels. It was the biggest event of its kind. And I remember getting to the event and knowing that things had changed because when I got to the event, my room assignment, I had a suite, not a normal room. I was an owner.

So I had a suite at the hotel of the event in the basement. No joke, it was literally in the basement, no windows in my suite. And then Ken and Hernán had the two presidential suites on the top floor of the Beverly Hills. I can't remember what hotel it was, but it was the Western White House for Reagan and it was like a joke. I got to this event. I was already irritated with Hernán. I hadn't really been communicating with Ken a lot. I get to this hotel, I'm in the basement. The two of them were in the presidential suite. All of the clients that were there knew me, did not know either of them, so I was going into meetings introducing the two of them, or they knew Ken, they did not know Hernán. I was constantly introducing Hernán and then 45 minutes later having a client walk up to me and saying, "Why is that guy there? What does he do? What is he going to do for you guys? It didn't make sense in the meeting. We don't understand him."

It was the most frustrating couple of days of my life. We had a four day event and by the third day of the event I had decided I can't do this anymore. I can't work for this guy. At that point I had grown cynical. I was calling him Hank behind his back. I was not happy with being around him. I felt like he was demeaning and condescending every time he talked to me. And after the events of the day at our big event, I asked to get together with Hernán and Ken and I told Ken, "I'm not doing this anymore. I'm not going to report to..."

And he said, "Well what can we do to make this work?" And I said, "Well, if I have to report Hernán, this is not going to work. And if he's working in the company, it's not going to work. And since you made the decision, he's the savior of this business, it's not going to work. So we need to figure out how to dissolve this and how you buy me out or how we move apart, but we're not going to do this together."

And Ken started making noises about how he didn't want to buy me out. How I was surprising him with this, how I was screwing everything up. It was not a good meeting. It was contentious. We actually left and said, "Let's go cool down and we'll come back in an hour and a half." And I went on a walk for an hour and a half trying to figure out how I was going to extricate myself from the situation. I no longer wanted to be partners with Ken. I didn't want to work with Hank or better otherwise known as Hernán Rincón.

I couldn't stand him. He came in and I felt like he was completely disrespectful to me from the beginning. Maybe the guys at Topgrading had said that I didn't have what it takes. So he didn't really have to like work with me and I felt like there was a high likelihood that I was on my way out. Since Hernán came in, he was probably there to replace me. And so I was playing into exactly what they wanted. So I started asking myself how could I make this work for me? And there was a part of our business that Ken and Hernán not only didn't want, but they were going to shut it down. It was our US part of our business. We had a huge consultancy on Latin America and about 10%, 20% of our business was in the US but it was struggling because I was the one who had grown it.

And because I had transitioned almost all of my efforts to Latin America, it wasn't growing. So I proposed to Ken and Hernán that I would take the US business, they could take the Latin America business. I would have a six month non-compete where I would not compete in Latin America and if I could take the US business, the non-compete was only six months that I would walk away without any type of payment for the ownership that I had in the business. That that's all it would take.

And I could tell in the meeting with the two of them that they were almost giddy at how easy this was going to be. They asked a bunch of questions to kind of make it seem like they didn't think they were getting a great deal, but I could also tell that right behind their questions they were thrilled that this is what I wanted because they were going to throw it away anyway.

So here's what topgrading did to that business. Let me give you the post-mortem. You know what it's interesting is? You hear a lot about processes like this. You don't hear a lot about like what happens one year later. So let me tell you what happened. I took that tiny little part of our US business. It was 10%, 15% of the company and I grew it over the course of the next year, about 15 times. It was actually by the end of the next year, it was bigger than the original company had been all together. And six months later I had gone into Latin America and I was handing my old company their lunch, crushing them from Florida and slowly building a team in Latin America. But absolutely demoralizing them. And it was only nine months from the day that I sat down with Ken and Hernán to the day that Hernán put Latinrep out of business, they went bankrupt.

So here's what topgrading did. They went out and found the perfect candidate with the perfect background, with the perfect contacts, with everything else. But here's what they didn't look at. Was Hernán a true believer? Did he actually want to do what he was being hired to do or was he just an opportunist looking to move to another opportunity? Within about 45 minutes of meeting him, I knew he didn't want to be in our company and he didn't even understand what we did. The fact is you can hire the perfect person on paper and the perfect person in their history and the perfect person in their background, but if they don't care about your business then it doesn't matter. And that was the biggest issue was that Hernán really didn't want to do what he was doing with us and he really didn't understand it.

So topgrading in my book is horrible. It's a joke. In fact, if you look at the book Topgrading, it's all about stack ranking candidates before they come in. Well, if you look at the result of stack ranking candidates that are in a business, that was a practice at G. Every manager would take all their people and they would rank everybody A, B or C, and the bottom 10% of all the people would get fired. Well, you know what? Companies who did that have now been sued and have lost hundreds of millions of dollars. Well, topgrading on the way in, it's like stack ranking on the way in looking at the resume and how people answer questions and what their background is, but what they don't talk about is hiring true believers. Then here's what I was in that business working in Latin America. I was a true believer.

I didn't think we were just running a business. You know what I felt we were doing? What I felt we were doing is we were bringing technology down to Latin America and cutting down the massive curve it took for the same products to be in the US to be in Latin America. When I started working in the territory, when I was 21 years old, it was about a three year delay. So if you've got a product here in the US. It was three years before you could buy it in Latin America. I had a stated goal that we were going to bring that down to six months. By the end of me being a consultant in Latin America, it was more like three and a half to six months. So we had not only gotten there, but we beat it.

See, I was a true believer. I was in it for the territory. I was in it for changing things. I was in it for growing our business, but I also saw a massive opportunity to take Latin America, the place where I was born, I'm from Mexico. To take Latin America and shortcut this massive technology gap and get people products faster and get products released in Latin America either concurrently or directly after they were released in the US, and it worked. Hernán was just looking for an opportunity. He was an opportunist. He still is an opportunist. Maybe he is a true believer in Avianca and the airline that he works with. But I would say different. He was just looking for a position and looking for a place that was next. It wasn't a passion for him.

It wasn't something he cared about. It wasn't something that kept him up at night. I mean, maybe I'm wrong, maybe all those things are true. But in my opinion, working with him, I didn't feel any of those things. And so whenever somebody mentions the book Topgrading, you now know why my skin crawls because I was actually displaced in a business that I was succeeding like crazy in by their process. And the post-mortem shows I won, they lost. I know that it sounds kind of petty to say it that way, but that's the reality. And so oftentimes there's these books and processes that we feel are sacred and work all the time. But I want you to know something. There's a lot of books and a lot of processes out there that haven't been challenged, haven't been tested, haven't had somebody stand up and say, "Hey, this really doesn't work and topgrading is absolutely one of them."

So here's how you should hire people in your business. Look for the skillset, look for the match of what they are doing. Look for them to be excited about the position and then hire true believers. You want them to be true believers, one, in you and who you are. Two, in your business and what you do. And three, in your clients and what they do. And if you can't find someone who believes in you and who are because you're new or because you don't have a following or because you don't have that much exposure, at least find people who believe in your company and what you do and your clients and what they do. Within the first couple of days of meeting Hernán, I knew he didn't believe in our company. He actually didn't like the type of consultancy we were, so he was going to come in and change it, which didn't make any sense to me.

Not only do we not hire a true believer, we hired the opposite. Somebody who was coming in thinking that the company needed to be fundamentally changed and made into something new, which it was. It was made into a bankrupt and nothing, by a Harvard MBA with all the right qualifications who had run Microsoft Latin America or some big division of Microsoft Latin America. So true believers, people who care in a small business matters so much more than the perfect resume and everything else. And that's not to say that topgrading in a larger organization where you need to stack ranking might not work, it might. But as an entrepreneur, it's the worst book you can read on hiring people. You shouldn't follow any of the processes in it. Find true believers that care about your business, care about who you are, care about what you're doing and care about the outcome as much as you will and your entire business will change.

If you're ready to start growing a team and you'd like some help. Man, I wish I had help when I was younger. I struggled to build teams. I struggled coming out of that partnership with Ken. It wasn't easy. I had to essentially start over and get new contracts signed and it wasn't an easy process and building the team to help me out of that wasn't easy either. And I've been through it, I've built teams, I know the struggles, I know how difficult it can be. So as a company, we've built the coaching products to help you do exactly what you need to do to build a team. We've essentially built the coaching products that I wish desperately I had when I was in my 20s because I know things would have worked out differently for me. And so if you're interested in some help with growing your team, growing your business, making decisions, so you can stop feeling like you're doing it all yourself, go to and do three things.

One, download a copy of our Billionaire Code Decoded. It will be provided to you for free. It's an eBook about the nine levels that it takes to go from startup to successful $100 million entrepreneur. Second, you can check out exactly where you are on the Billionaire Code so that you'll know what you should be focused on now and what's coming next. And third, register for a call with a member of my team. Let us help you go through your business, understand where you are now, where you want to be, and what are the roadblocks and challenges that you have in place. And we will help you understand how to get past those. And if our company can help you in any way, we will share what we do with you and help you move forward. So go to Apply to get on a call with a member of my team and let us show you how we can help you build a business, grow a team, and change the world.

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