DRS Principles – “Good employees are the basis for every business success.”

DRS Investment follows its own principles and applies them in its own team as well as in the management of its own portfolio companies. A key principle for DRS is to find and develop good employees. This also includes “protecting” employees – especially from other employees with a negative influence. Consistency and courage are required here – because individual employees can destroy the motivation of a complete team. “Leadership” and not the famous kicker-table are decisive for satisfied employees. The shareholders bear the responsibility to establish a respectful leadership towards the employees. DRS Investment likes to play an active role here.

It is indisputable and plausible that good employees are important for the company’s success and that they should be encouraged. Large corporations therefore have HR managers who are strategically and professionally responsible for recruiting and development of employees.

Nevertheless, the promotion of talent is essential, especially in software companies. As a rule, this is in the hands of the company management, not infrequently the founder of the company. Since the founder often lacks a comparison and experience – especially if the company was founded at a young age – personnel management is often handled “from the gut” and to the best of his or her knowledge and belief. This can be good or bad.

Again and again we see software companies where the growth of the company slows down, often growth barriers within the organization are a reason. In addition, there is a high fluctuation rate and a shortage of skilled workers. And in this context, the topic of strategic personnel management is increasingly coming to the fore.

Because DRS Investment looks at and analyzes more than a hundred software companies every year, we often see similar patterns. We are happy to share our findings here:

1. Leadership roles are not lived out sufficiently
2. Long-standing employees are selected for management roles – even if these are not suitable for this purpose
3. Too few external, experienced managers are brought on board
4. No professional, external support is used
5. Employees are kept, even if they do their job badly
6. “Stinky boots” are tolerated
7. “Harmony” is written in capital letters
8. The founder of the company makes too late room for his successor

Ad 1.: Leadership roles are not lived out sufficiently

The culture of “togetherness” is particularly important in founder-managed software companies. This is of course desirable, as cooperation has an extremely positive effect on the motivation of employees. A high level of identification with the company and the purpose leads to top performance, nothing is impossible. Since the hierarchies in software companies are very flat and the employees are well trained, there is often a kind of grassroots democracy. This culture is helpful in the start-up phase. With increasing growth, hierarchical structures become necessary, not everyone should discuss everything.

The leadership roles to be filled are often filled by the best (technical) employees from the own team (see point 2). Employees without management experience often experience this career step ambivalently: on the one hand they are happy about the career step, on the other hand they are suddenly empowered to give instructions to their colleagues and are increasingly alien to them.

Since the progress in the company and often the salary increase depends on the new boss, they behave accordingly. On the one hand, the young team leader still wants to be considered an equal among equals, on the other hand, he is treated as the boss by his colleagues. If the new leadership role is not accepted, this leads to confusion and frustration among the employees, as the team is perceived as leadershipless.

The problem is particularly evident in conflict situations: If a manager is “conflict-shy”, conflicts are rarely proactively addressed and resolved. Criticism and clear feedback about poor performance are also not made transparent, which in turn frustrates the high performers of a team. This is a recipe for anger.

Ad 2.: Long-standing employees are selected for management roles…

…even if they are obviously not suitable for all of them. As described under point 1, the best and longest serving employees are often selected for leadership roles. This is understandable, since a.) the professional skills are projected onto the leadership qualities and b.) a close relationship of trust is maintained with the long-term employees. From our point of view, this view is an obstacle to selecting really good managers. It is more relevant to compare the tasks of the role with the abilities of an employee and to decide accordingly. Otherwise there is a great danger of destroying the productivity of excellent specialists and of risking dissatisfied employees because teams are inadequately led. In general, it is advisable to think outside the box and bring “fresh blood” into the company. Only an objective selection process reduces the risk of an incorrect appointment. Diagnostic tests and detailed organisational analyses help to achieve a good “matching” between role and candidate.

Ad 3.: Too few external, experienced managers are brought on board

From a certain company size it makes sense to buy knowledge. Growth poses great challenges to companies and it is simply inefficient to want to make any experience (however good or bad) yourself. It is much easier to bring on board experienced specialists and managers who have made their mistakes in the past with other companies and learned how the game works. It can be helpful to recruit employees from competitors or to try to recruit employees who have been working successfully in similar roles for years. Experienced employees always bring new knowledge into an organization or question traditional processes, rules and views in a very refreshing way. Important here: The corporate culture must be open to new ideas, criticism must be taken seriously and must not be formulated personally. A culture of “constructive conflict” is very helpful here.

Ad 4.: No professional, external support is used

It surprises us again and again that small software companies rarely use the possibility of external consulting. Especially for growth companies with a high speed of change and high recruitment costs, external support can be very helpful. Organizational consultancies that sensitize to permanent change and accompany it or define fields of development on the basis of organizational analyses are an option. In addition, it makes sense to work with personnel consultants who relieve a lot of administrative work when recruiting employees and fill specific positions via headhunting. The big challenge here is to work with really good consultants, because the selection of consultants is almost infinite. Over the years, DRS has built up a network of professional consultants and tried them out again and again in various situations. Such contacts in particular can be worth “gold” for a company at the decisive moment.

Ad 5.: Employees are kept, even if they do their job badly

In every company there are employees who do not work at the same level as the others. This is usually uncritical, especially as such employees often have “hidden” skills that cannot always be measured in good code or sales deals. It becomes problematic when employees are so bad that other colleagues have to join in or repair their work. Understandably, this leads to frustration. It is therefore incomprehensible if the company management (or the responsible team leader) does not put an end to this. The responsible managers must have the courage to quit “low performers” in order to protect their own team and corporate culture. Sounds hard, but is fair.

Ad 6.: “Stinky boots” are tolerated

Even more fatal than holding “low performers” is holding “stink boots”. As stink boots we call coworkers (frequently even high-level personnel or managing directors), who are technically brilliant, personally however difficult. These consider themselves then gladly also still irreplaceable. Dishonesty, mobbing, narcissistic behaviour and much more are often tolerated when an employee is perceived as “irreplaceable”. The irreplaceability can manifest itself in head knowledge (“the only one who knows the code”) or sales talent (“without him/her, one third of the turnover is lost”). Sometimes employees or even shareholders are simply afraid of such people or the upcoming decision. In our experience, it does not make sense to hold on to such “stink boots”, as they destroy the culture of a company or significantly reduce the productivity of entire teams. The unmeasurable and thus invisible loss of productivity is often worse than the loss of the highly praised skills of the stink boot. In general, it is dangerous for companies to become dependent on individual employees or to be susceptible to blackmail. The boots often use this dependency to gain personal advantages from the situation. A “No Asshole Policy” applies to DRS, i.e. a zero tolerance of stink boots. Especially supposed “stars” with a stinky boot attitude should be visibly and comprehensibly fired. This is the only way to protect valuable employees and develop a positive culture.

Ad 7.: Harmony” is written in capital letters

The zero tolerance for stink boots does not mean that conflicts should be avoided in a company or that everything runs harmoniously. The metaphor of the three monkeys (see nothing, hear nothing, say nothing) shows nicely how it should not run. Constructive and non-personal criticism, putting one’s finger in the wound, absolute transparency, the introduction of new ideas, the struggle for the best idea – all this leads to conflicts that an organization should endure and resolve. Under the heading of “living constructive conflict”, we encourage our employees to repeatedly engage in constructive conflict and work out solutions. A deceptive harmony on the surface all too often obscures the view of the fermentation of problems beneath the surface. It does not always have to be “peace, joy, pancakes” if the personality of everyone is respected.

Ad 8.: The founder of the company makes too late room for his successor

No joke: We’ve often sat together with entrepreneurs who, at 75 years of age, are still stuck in the executive’s chair and think that they won’t have to start the succession process “for a few years”. From our point of view, it is irresponsible towards employees and customers to be negligent in dealing with their own succession. In the ideal case, it is the founder himself who thinks about establishing a founder-independent management system at an early stage. Here, too, much can be done wrong: The choice of the “perfect son-in-law” (in the truest sense of the word) is a possibility, but rarely optimal. DRS Investment is very familiar with succession planning. We have made good experiences when we first agree on the procedure and timing between the founder and, if necessary, external investors. The process itself should then be accompanied professionally, for example by first defining the management culture and control system of the company as part of an organisational diagnosis. Since a company founder can seldom be replaced 1:1, a reorganisation of the organisation as well as a new filling of vacant positions can make sense. As an investor, DRS actively supports this change process.

Conclusion: Good employees are the basis for every company’s success. In order to provide them with an optimal working environment, shareholders and management must actively work on the working conditions within the company. This is not so much about the famous kicker-table as about the respectful management of employees. Conflicts are not excluded, but pre-programmed. DRS recommends to meet these conflicts constructively and to make decisions with courage and consistency. External support can have a great effect here. The prerequisite for this is to deal positively with new things and change.

About DRS Investment

DRS Investment GmbH is a private investment company. In addition to management equity, DRS invests capital from selected family offices exclusively in stable and established niche software companies (“Vertical Market Software”) in Germany, Austria and Switzerland. DRS was founded in 2017 by the entrepreneur and investor Dr. Andreas Spiegel with the support of other private equity investors in order to acquire software companies with the aim of managing and developing them on a long-term basis (“Buy and Hold”). DRS Investment currently holds stakes in Ascora GmbH (Germany) and XELOG AG (Switzerland). DRS Investment plans to build a large portfolio of small to medium-sized software companies with an EBIT of between €0.5 million and €3 million and a company valuation of up to €30 million.

Further information is available at: https://www.drs-investment.com/Weitere Informationen unter: www.drs-investment.com