When Santa Monica’s TrueCar Inc. went public in May, Chief Executive Scott Painter decided a brutally honest assessment of the company’s talent pool was required if the online car marketplace had any hope of growing at the accelerated rate analysts expect.
Nothing less than 50 percent top-line revenue growth each year would suffice as TrueCar continued to carve out its niche in the competitive automotive market, Painter believed. And to hit that pace and maintain it, Painter said, the company needed to recruit the very best talent, especially engineers. To make room for the high achievers, the company needed to lop off its underperformers – about 20 percent of its roughly 500 employees.
It was a test that extended right into the C-suite.
In a September meeting with top executives, he recounted recently, “my chief operating officer said to me, ‘There are 11 of us around the table with you … who shouldn’t be here?’”
After being put on the spot, Painter said he knew he had to judge his leadership team by the same standards as everyone else at the company.
“I said, ‘You know what? Fair question. Two of you shouldn’t be here. One of you needs to go this week … and we all know who that is. And the second person, you’re on notice and talk to me afterwards.’”
Four days later, TrueCar’s chief technology officer departed the company.
The official word from the company continues to be that he resigned. That former executive did not respond to an interview request.
“He wasn’t contributing and he knew it,” Painter said.
The company wouldn’t say what happened to the other executive.
Grading talent
Unlike CarsDirect, the company Painter founded in 1998, shoppers don’t buy a vehicle from TrueCar. Instead, they use the service to find out how much a specific type of car has sold for recently at nearby dealerships that are in TrueCar’s network. Car shoppers can then lock in a price based on that information.
The company has relationships with more than 10,000 dealerships in the United States, according to Painter, about one-third of the market.
That’s quite a turnaround from three years ago, when many dealerships boycotted the company, fearing the system TrueCar used then was initiating price wars by encouraging dealers to underbid each other. At its lowest point, TrueCar only partnered with about 3,000 dealers.
But after TrueCar changed its system to show customers what others had paid for a similar car, it became one of the fastest-growing private companies in the region. Painter decided to sell the company’s stock to the public, and TrueCar in May raised $70 million in its initial public offering.
But the pressure to grow is even more intense now that the company is subject to public scrutiny.
“You have to literally re-create your product every 18 to 24 months and you have to be constantly on that bleeding edge of more revenue and better margins,” Painter said, sitting in his corner office at TrueCar’s Santa Monica headquarters one block away from the Third Street Promenade.
The latest initiative is a revamp of TrueCar’s mobile app, a portal for more than half of the more than 5 million unique visitors it gets each month. A new version is scheduled to launch this summer.
Given the company’s newfound focus on building out the app, Painter explained that TrueCar would be in constant need of “A+” mobile developers.
As the 46-year-old chief executive sat with his back to large windows overlooking the Pacific Ocean, he offered a frank assessment of the internal reshuffling that resulted in the purging of 20 percent of his company’s workforce.
“The talent we were getting when we were using recruiters was, I would call it, ‘B+’ talent,” said Painter. “You have to get rid of your mediocre players because they’re holding everybody back and everybody knows it.”
So he cut down on the use of outside recruiters, who he said typically make the pragmatic choice.
“They’re not saying, ‘I’m going to hire the nut job that requires two times the amount of money,’” Painter noted. “Never mind that an A+ developer is worth 10-times more than a B+ developer.”
Going forward, TrueCar will rely more on internal referrals and hiring people with extraordinary skill sets regardless of whether or not they have an opening for a specific position.
And they’ll pay them well, too, Painter said.
“We’ve taken the blinders off with respect to putting boundaries around how much we have to pay people and where we find them,” he explained.
In the past, TrueCar had set ranges for paying people based on job descriptions. Now, the company pays what the market dictates and recruits the best people.
Rethinking norm
It has also changed the way it assesses employees once they are onboard. As a private company, TrueCar had its HR team conduct annual performance reviews. No more. The company joined the ranks of a growing number of businesses, large and small, that have dropped that practice.
A 2013 survey conducted by the Society of Human Resource Management in Alexandria, Va., found that 75 percent of human resources departments in the United States conduct annual performance reviews, but only 23 percent of the 1,350 HR professionals surveyed gave their company’s process an above-average rating.
Some leading tech companies, including Microsoft Corp. and Adobe Systems Inc., have acknowledged that their performance review systems might not yield the best results.
Samuel Culbert, professor of management and organizations at UCLA’s Anderson School of Management, said more companies, especially in the tech industry, are starting to buck the annual review process, which he calls a fraudulent and bogus way to evaluate employees.
Kim Cassidy, senior director of global talent for Santa Monica’s Cornerstone OnDemand, which helps companies manage their employees, said her company recommends managers hold quarterly check-ins with their employees and maintain a continual dialogue. But some managers have trouble doing so, and annual performance reviews can force them to give feedback to employees.
“I agree that we shouldn’t have to have formal mechanisms,” she said of performance reviews, but “sometimes leaders are uncomfortable having those conversations. We think people inherently know how to do it because they’re in a leadership role, and that’s just not the case.”
Painter said he mostly didn’t like that under TrueCar’s pre-IPO review process it took a year for managers to evaluate staff through a tedious ratings system.
He wanted to implement a quicker way to reward great employees and get rid of underperformers and looked to companies such as Netflix Inc. for inspiration. That resulted in a new system in which he “deputized” about 10 executives, granting them greater power to award bonuses and fire employees based on results.
He also asked the HR staff to boil down the bulky employee manual to a single page, or “charter.” In addition, he gave employees more freedom to make decisions, but he expects them to defend their choices, such as whether or not to book a first-class flight to a business meeting.
“We literally said, ‘In almost every case, people know what to do,’” Painter explained.
UCLA’s Culbert praised Painter for what he called a gutsy move.
“Not enough companies have confidence in their managers,” Culbert said. “When you get rid of performance reviews, you get the threat out of the relationship. What you want are healthy discussions, not staged conversations where everybody is telling parts of the story to try and create an effect on the other person.”
According to Painter, the changes have had a positive impact, culturally and fiscally.
So far, he has no regrets.
“It took us almost six months,” he said, “and we got rid of an enormous amount of overhead that did not affect one damn thing at the company.”
