Cracking your Operating Model - How Companies Work & Make Money (2/2)

[Part 2] How do you design, implement, and improve your Operating Model? This is how we have changed it twice in the last 15 months at Nova to reach profitability.

Summary

1. ? Cracking your Operating Model: the theory and how we have changed it twice at Nova to reach profitability in the past 15 months?- This is the second edition of a short series where we will explore a critical yet often disregarded part of creating a startup: designing, implementing and improving the Operating Model, i.e. the way your team operates to serve your customers and make money. We argue that a good or bad Operating Model can be the “make or break” for your company, no matter the stage, but even most importantly when you start to scale. After going through the basics, we will show you how Nova used to work until 2022 and the changes we have done in 2023 and 2024 to improve our Operating Model and reach profitability.
2. ?? The Top Talent Report is an annual summary of the state of Top Talent created by Nova. Its goal is to give insights to both Nova members and companies looking to hire top talent.

TL;DR - If you missed part #1…

In our first issue , we covered 6 topics:

1. We first defined what an Operating Model is: the combination of 5 things that, linked to one another, make a company actually work. These are a) The organizational structure, b) The roles, c) The core processes, d) The north star metrics, and e) The technological systems.
2. Secondly, we explained why you should care about your Operating Model. Ultimately, we clarified that organizations do not rise to the level of their goals, but fall to the level of their Operating Systems, refining the quote from James Clear on Atomic Habits and translating it to the world of organizations, which end up doing what their processes, systems, org-charts, roles KPIs and incentives (a.k.a. “Operating Model”) make them do.
3. We then went on to explain the tough situation we were living in at Nova by the end of 2022, and how a failed investment round and the need to survive by becoming profitable pushed us to 1) lay a significant amount of people off (more on this on a future issue), and 2) change our Operating Model, which we had not revised for over 2 years.
4. Then we went on to explain the Operating Model of Nova before 2023 and showcased some of its core deficiencies. Basically, and particularly within B2B at a local level, we were suffering from complex processes, lack of specialization, poor incentives, and lack of accountability with people hiding behind big P&Ls which made us not reach our targets no matter how hard we worked.
5. Afterwards, we explained the process of improving the Operating Model with a bottom-up approach in which we involved the entire organization and we reached the conclusion that we had to change 3 things:a) First, we decided to remove 1 entire department (”Delivery”), as it was sitting in between Sales (in touch with clients) and Talent Agents (in touch with members), creating lots of complexities and redundancies.b) Second, we decided to structure our local teams into pairs of 2, which we started to call “PODs”. Each POD is a rather autonomous, independent unit of 2 individuals who own a sub-P&L, a subset of clients, and a smaller group of “similar” members. There is a lot of research around the idea of why 2 is the ideal number for a team to perform. Not 1, not 3, but 2. We will write more about this soon.c) Last, but not least, we changed the KPIs and incentives so that these PODs had unlimited commissions if they performed well. By having an independent P&L and this unlimited commission system, we ensured that each POD was a couple of highly accountable, autonomous “intrapreneurs”, true owners of their destiny with the right level of incentives.
6. Last, but not least, we explained the great success of this Operating Model change: for the first time in history, Nova became EBITDA positive as a group in June 2023 and remained with that trend from September 2023 onwards (the summertime is always bad for our B2B business).

4. How we tackled the focus problem with a new Operating Model shift in January 2024

Although we were generally satisfied with the change in Operating Model we did for 2023 when analyzing the company and preparing for 2024, we found many challenges that we needed to overcome if we wanted Nova to truly thrive and become a cash machine.

4.1 The deficiencies of Nova’s Operating Model in 2023

Even though we made our processes simpler by involving fewer people, our Talent Agents became excellent career advisors, and our POD model made our goals clearer and improved responsibility, we still found 3 main challenges with how we used to operate in December 2023:

1. First, role definitions were too broad, which resulted in people needing to multi-task frequently, which produced stress and reduced performance. This was happening particularly in 2 teams:

• Talent Agents: who had to do B2B Delivery, coaching, sell Nebula programs and community events, and were the reference person for members in their POD. You do not realize the impact of this performance until you sit and measure it carefully: for instance, when we compared their productivity on B2B delivery vs. the old Delivery team, they were at least 40-50% behind.
• Community Builders: who had to care both about growth, community events, and members who were not assigned to any other POD in a given market.

2. Second, sales and delivery of Nebula Courses were not aligned, which turned into complexity and lack of performance. We had a global B2C team designing and running the programs, but then the sales of those relied on Talent Agents who were busy with their B2B delivery and their coaching sessions. Local PODs had a budget that they did not fully control as they did not design the programs, while the B2C global team, was unable to push the sales of programs and ensure its success.

3. Third, the “personification” of the Agent concept in a human being had varying effects, depending on which Talent Agent a member was assigned to. Although we wanted members to feel like Nova is their “agent”, we had pushed the figure too far, with almost 100% of Nova’s communication coming from one person: your assigned Talent Agent. This made your experience highly dependent on the quality of your Talent Agent and was putting us in a tough position when we needed to change your Talent Agent for whatever reason (change in the org structure, the person leaving for a new job, Novas changing jobs to a different type of role, etc.). We even had a product section called “Your Talent Agent” which incentivized this “personification” of the Agent concept where you could find a picture of the Talent Agent of the POD you were assigned to. Imagine the complexity of having this person leave the company or change roles.

4. Fourth, the experience at community events was weird. The Community Builder was managing the event, but you had been invited by your Talent Agent. The focus on sending all communications from the Talent Agent made people believe that they would meet their Talent Agent at certain events, which sometimes turned into a poor experience when they rather encountered our Community Builders.

5. Last, but not least, our B2B sales lacked predictability, which turned into peaks and valleys of sales depending on our workload in account management, the market conditions, and the Account Executives’ ability to multitask. One Account Executive could have 0 or 10 first meetings with potential clients in a given week, depending on the amount of work they had to put to do account management, so we ended up not nurturing our pipeline in peak times and thus having lows with very few new deals closings.

4.2 The changes in the Operating Model for 2024

Thus, we went back to the whiteboard like we had done in December 2022 and tried to re-imagine a better Operating Model where these 5 problems could be fixed. We ended up introducing 5 measures which we have just implemented a few weeks ago:

1. First, we have radically simplified the role of the Talent Agent, which is now fully focused on the B2B delivery of their POD. This has enabled them to focus on a clear North Star: achieving their POD budget, and the rest of their KPIs help them move in this direction (NPS of their clients and candidates, etc.). This has made us:

• Externalize the coaching service (a.k.a. “Talent Agent Sessions”) to third-party, certified coaches who use our methodology. Our dear Cristina Mateo has left her role as Talent Agent to run this entire business on her own, removing the distraction from Talent Agents (who may be “freelancers” in our pool and deliver these coaching sessions outside of their working hours)Moved the contact with members for things not related to career growth to other departments (mainly to Community Builders, but also to B2C for Nebula or growth initiatives).

2. Second, we have also dramatically simplified the role of Community Builders, who now only focus on community value. Instead of running behind both growth and engagement while sometimes helping out with other things, the new North Star of our Community Builders is how often our members use our platform, which we take as a proxy of value perceived (i.e. MAU / WAU / DAU - Monthly, Weekly and Daily Active Users). Their related KPIs, such as the NPS of our community events, help them in doing so. They are the ones writing newsletters, inviting people to events, and welcoming them in onboarding sessions, thus becoming the main point of contact for the community. This has made us move all growth-related activities from Community Builders to the global B2C team.

3. Third, we have moved all growth-related activities to a global B2C team, which is benefiting from them as they run the membership P&L. As you can already see, we are striving for independence and control of each department, so there are as few interdependencies as possible and each team can focus on their P&L and North Star metric. In this case, the North Star of the global growth team led by María Varela and Davide Lauritano is the number of paid memberships, which benefits from a higher number of nominations, better completion rates of our selection process, or higher conversions to our paid membership. If you didn’t read how we turned Nova into a paid membership, make sure to check it out here .

4. Fourth, we have aligned the sales and delivery of Nebula programs by giving the B2C team behind them, led by Courtney Madl, the ability to drive not only the delivery but also the sales of the programs to both Nova members and prospects. This is enabling us to align the incentives of selling and delivering great programs without any “intermediaries” as we had last year.

5. Finally, we have taken the lessons from Predictable Revenue and we have created an SDR unit within our B2B sales team. We have hired 1 drive, highly ambitious, young Nova per market to manage the initial stages of our sales process (both inbound and outbound) to increase the amount and quality of meetings of our Account Executives, who no longer need to spend as much time prospecting and can focus most of their time on meeting qualified clients and doing account management.

4.3 How we managed the change and the impact on the first few weeks

Since we had just changed our Operating Model 12 months ago, we remembered well the lessons on how to perform a change like this. As we did in 2022, we focused on:

1. Ensuring we found the “truth”, the best possible set of ideas to improve our operating model, using our “idea meritocracy” culture
2. Managing the change with highly transparent and open communication and involving people in the process so it became more of a bottom-up than a top-down thing. Once again, we had a set of open discussions with different teams where we gathered insights, and feedback and tested our hypotheses, to ensure people were on board with the changes
3. Taking care of the people, particularly those whose roles were changing, and ensuring they understood the reasons and felt listened to. This is a tough process, as once again people have had to leave us as they did not fit with the new way of doing things, but we are proud and grateful to have done it in a way in which everyone has felt taken care of and we have left a good impression on the few teammates leaving.

Although it is early to assess, we are quite certain the change has been for the better and we can already grasp an increased level of focus, ownership, and autonomy.

It looks like teams are still working hard, but finally smarter thanks to the greater focus on 1 key priority (a.k.a. North Star) and being able to do it with a higher level of autonomy and independence from other departments.

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5. Takeaways from changing an Operating Model

We would never have expected a “small change” to have such a huge impact, but it does: you can turn a company from losing hundreds of thousands of euros to EBITDA positive by just changing its Operating Model, without even touching the business model or the pricing.

There are 7 core learnings of this 15-month period where we have changed twice the way we work, organize teams, define roles and processes, set KPIs, and use tools. By order of importance:

1. Try to organize your teams by couples to increase autonomy, independence, and scalability. There is a lot of research that explains that 2 is the best size for a team (we will write more about this soon).
2. Simplify, simplify, and simplify. Focus is the biggest luxury of the XXIst century: protect your teams from distraction and multitasking by setting them to have 1 core priority and a clear North Star aligned to it.
3. Look for autonomy between teams/departments and try to ensure sales and delivery of a given product or service are as much as possible dependent on the same team to avoid time and value lost in translation.
4. Break down budgets to the smallest possible units to hold people accountable and align KPIs to each position, including an unlimited bonus/commissions where possible to drive outstanding performance.
5. Predictable Revenue models on B2B work. Do not reinvent the wheel nor think your Account Executives will be different.
6. Avoid “personification” and dependence on a specific human being from your team. Try to have your company behind things (and not a concrete employee) as often as possible.
7. Manage the process of finding the right Operating Model with a bottom-up approach by fostering an idea-meritocratic culture. Be transparent about the need for change and care for your people, particularly those most affected.

That is why, to all entrepreneurs and organizational development managers out there, we would highly encourage you to spend some time this 2024 to have a closer look at your organizational structure, roles, KPIs, processes, and systems and to try to crack your Operating Model.

You won’t regret it: as you know by now, your company won’t rise to the level of your budget but rather fall to the level of your Operating Model.

?? The Top Talent Report 2023

The Top Talent Report is an annual summary of the state of Top Talent created by Nova. Its goal is to give insights to both Nova members and companies looking to hire top talent across 3 areas:

• The current state of top talent
• What does top talent want in their ideal job
• What are the best companies to work for

The Top Talent Report 2023 was created as the result of a survey answered by +1.000 Nova members in April and May 2023.

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