Auren Hoffman | Why Vendor Management Is A Skill You Need to Master Now | Chairman SafeGraph, Former LiveRamp CEO

0:00The CMO Confidential Podcast is a proud member of the I Hear Everything Podcast Network. Looking to launch or scale your podcast? I Hear Everything delivers podcast production, growth, and monetization solutions that transform your words into profit. Ready to give your brand a voice? Then visit IHearEverything.com. Welcome to CMO Confidential, the podcast that takes you inside the drama, decisions, and choices that go with being the head of marketing. Hosted by five-time CMO Mike Linton. Welcome, marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite.

0:55I'm Mike Linton, the former Chief Marketing Officer of Best Buy, eBay, Farmers Insurance, and Ancestry.com, here today with my guest, Oren Hoffman. Today's topic, why vendor management is a skill you need to master now. Now, Oren has been the CEO of SafeGraph, a company that collects and curates data about places for eight years. He is a serial entrepreneur, and I'm just going to say it out loud, a big data geek, having built and sold several companies, including Kyber Systems, BridgePath, and LiveRamp. He was a guest on the show about a year ago, and now he's back to discuss his belief that one of the key ingredients for business success will be superior vendor management in the next decade.

1:41In fact, he wrote, hiring an exec is like buying a super yacht. Expensive, high maintenance, and mostly just for show. Just rent the boat when you need it. So we're going to talk about that today. You know, before we even begin, though, I think, Oren, we ought to just take one minute and say what SafeGraph does so people know where you're coming from. Sure. SafeGraph is what's called a point of interest data. So if you're searching for Italian restaurants near me and on most of the major platforms outside of Google, you're almost certainly using the SafeGraph data. Excellent. So let's delve into the thinking behind the quote about hiring an exec is like buying a super yacht.

2:31Tell us more, like what's behind that? And what's the marketplace forces that made you post this? So, I mean, if you think of like a executive, really what an executive, an executive is someone who's done it before. or they're usually 20 years in, let's say, to their career, and they're very strategic. And in fact, that's what they want to do. They want to be very, very strategic. Most of the work that's done in a company, even a very, very large company, is very tactical. And so you're not getting the highest value out of most executives if you're asking to do these very, very tactical things, some of which they were very good at 15, 20 years ago.

3:21Yeah. And some of which they even like to do 20 years ago, but now they don't necessarily want to do it. They might be a little bit out of date with the new tools. They don't want. And if you think of just like the hourly costs that you're paying them is quite high. And so what you really want for most of these executives is their strategic knowledge. They have to be enough in the business. You can't just like talk to them an hour a month to get enough strategic knowledge. You have to be a little bit more in the business, but you don't need them 24 seven. They could guide. In fact, they could be a great mentor to, you know, your, so the person that might run marketing at your company doesn't necessarily need to be at the executive level.

4:08They could have a marketing mentor, maybe even someone like you as a marketing mentor that they could have. And that person could help guide them and help them understand things and help give them the core strategy that they will need. But then you really need an implementer who's running it. And you might call them an executive, but they don't have to be somebody who has 20 plus years of experience. But what you're almost saying here is rent the strategy. You know, buy the execution, rent the strategy. Yeah, that's right. And I think that's true for almost everything. So I think that's true for almost everything for most companies.

4:43And then if you try to think of like, okay, who's the executive that you could hire? Yeah. Well, for most companies you can't hire the best CMO, the best CFO, the best you're hiring, like the number, like 200 ,000 best, right. In most cases, make it so number 2000. Yeah. Yeah. And so it, yeah. Like why, but, but a lot of times you can rent the best or you can rent the top. Like it's a lot easier to rent someone who's really amazing. And so why not just get the very top talent that could really help you, really, truly the person that's out there that can help you. And then, of course, they like it better.

5:22Like imagine an executive and you're working for 10 companies. Yeah. And you're just doing the strategy. Like you're going to be happier as well. So it's the highest value need for both the company and for the executive. Hey, so Lauren, when you say rent, there's a lot of ways to rent. You can put somebody on the board, you can have an advisor, you can hire a consultant, you can rent a fractional. When you say rent, do you mean all those things or do you have a specific view of what rent? I think it could be any of those things. It is very hard to get the most out of someone who's part-time. And so most companies have just not yet built that muscle, whether they have an advisor, whether they have a fractional, whether they're just not very good.

6:05And so we all have to get better at managing these people who are not 100 % in our company. They have other things that they're doing. There's so many people today who have portfolios of 20 things, even your board member, right? They've got so many other things that they're doing. And most people don't even manage their board member very well. So how do you get the most out of this person? How do you have the agenda? How do you, how do you, again, how do you go to that highest value of things? And when you call your lawyer today and that lawyer is charging you 1500 bucks an hour, you have a sense of like, they're charging me 1500 bucks an hour.

6:44I better only call them for the right thing. And in fact, if I need something a little bit less, I'm going to call the associate and not call the partner. And I'm only going to bring them in when I need, you know, and so you have a sense of how to manage that. But for whatever reason, people haven't yet translated that to other people that they work with. So how do you set that up? Because, you know, you also said, look, you can rent almost anybody for one to two days a month. And I don't think you're talking about, look, okay, Procter & Gamble or Pepsi should maybe rent a CMO. But actually, I do.

7:19I probably, yeah. You know, maybe not like, you know, if you think of Procter & Gamble, they have like, they probably have 50 people who are called CMOs at that company. And most of those, you know, are probably not adding the value that they need to. Yeah. So let's go back to the, so if I'm going to rent some for one to two days a month, one how do i figure out the right fit for this and then how do i figure out how i'm going to manage this person like i manage my lawyer because i think the lawyer example is an excellent one uh which is you know you will send out you'll prepare everything and then you'll say maybe maybe the paralegal could do some of this because that's like you know 400 bucks an hour and um how how do you get ready to do this i think it's going to be very hard i think it's hard to retrain people but most people don't even manage their own employees very well um so it's very hard to manage people it's very hard to manage vendors it's very hard to manage anything and get the most out of them we're all very bad at it um and we if we can start thinking and especially if you start thinking about it in an hourly rate you start to get better um right if you're starting to think like if i rented you right now i may have to pay you two grand an hour that's a pretty expensive uh i am super expensive sorry i am super expensive yeah exactly so like and and and so like oh then i really need to start thinking about am i really getting the value out of this and by the way like at some point you might be like i'm not getting the value right i rented this person i'm not getting i'm i'm i'm renting them for two grand an hour and i'm i'm only getting four and a dollar worth of an hour worth of value um so maybe i and that that's a good forcing function to then move on to the next person.

9:04And by the way, it doesn't mean you only have to rent one CMO. You can rent three CMOs. I could get a mentor if I'm like running marketing. I can get a mentor for each different types of marketing. And then the CEO can talk to three slightly different types of people who can help me understand. So it could be a lot of different sizes. There's no one size fit all. Yeah. So how do I start? if I've never done this before, how do I even get started? I mean, I probably have the lawyer thing going somewhere or something. So a lot of times you're, you're in a company and you have a great person, let's say running marketing.

9:42And they're, they're 30 years old and they're, you know, it's a newer company. They're doing great. And like, we got to up-level this person. We got to, we, first of all, it would be great if this person had an amazing boss so they could learn. because right now they're the top marketing person. They can't even learn from, there's no one else who can even teach them. So they're not growing as fast. This amazing 30-year-old I have running marketing. And so you do a whole search, you hire some outside search firm and you bring in a CMO. And by the way, these have like 30, 30 something percent success rate that is even that it works long-term.

10:20A lot of times you end up losing that 30-year-old because you didn't hire the right CMO. Or the path, suddenly someone else just plucks that person out. Yeah, exactly. There's a lot of different types of things. So, okay, well, we already have this great person. A lot of times you already have this good person somehow for some random reason. Let's surround this person. I have Mary. She's my amazing up-and-coming marketing person. She's going to be a super strategic person one day. But today she's just a super doer. She's been in the industry for eight years. She's ready. Let me start surrounding her.

11:01Let me get her a mentor. Let me get her some other strategic. So it's a scaffolding around her. Maybe you think you need to replace her now, but if you scaffold her, all of a sudden you can delay that for X number of years. And then maybe you can delay it forever. And you have to get though, Mary, to buy in completely to this. or well i'm mary's gonna mary's gonna be bought in it's really getting you're like your board to buy it because your board's gonna be like we need someone mary's only 30 years old she can't run marketing for this company we're expecting this company to be a global power we can't have mary out there like she doesn't you know and so it's it's it's really getting the other executive you know the the board and everyone to be to she's gonna love it because now she's really gonna have a chance to grow she's gonna be accelerating she's gonna be doing things she's never been doing for so she's gonna be any great person's always optimizing for their own growth i think that's right that's right particularly if you get the right relationship you'll also have to go they'll get the right if you call a coach consultant board member whatever so they don't step all over the operations so they don't become a part-time and that is are there any tips you have for that?

12:10Like for people that are going to be the, you know, the vendor in this case, the rented yacht? Well, I think people are going to have, they're going to have to learn how to do that as well. And the best person, the best people there are the people who can manage, you know, manage the client rather than having the client manage them. Yeah. Right. And so that, that's really the problem today is that you, it's like, and that's true for the best people, even that you hire full-time is you want someone who manages your company manages you. You don't want to have to manage them whether it's, whether it's a executive assistant all the way to you know, your CFO, if you have to manage your CFO, that's like, that's a bad hire.

12:59Right. And so, you know, so ideally this, like the, the, the, and hopefully the, you know, this executive is usually going to be pretty senior person. So they, you know, they have to come with the ability to be able to manage the client well. And if they don't, then you're, you know, by the way, the good news is like, okay, well, if you're just paying them an hourly rate or a monthly rate or whatever it is, so you're paying them 10 grand a month or something, right? And they have, they have 20, you know, 15 clients or whatever they have, you know, it's like, well, okay, like three months in, if they're not working out, you can just stop.

13:33It's not a big deal. It's easy. Whereas if you hired that person, you know, it's like, that's like, you know, over a million dollar decision after three months if it didn't work out. And it really, it really can slow down the strategy if you hire them. Yeah, yeah, exactly. You just had to pay 200 grand or more to the search firm. And then you have to give that person 500 grand in severance and, you know, and all this other stuff that you would have had to do that, like, you don't have to do anymore. So if I'm giving advice to someone out there, recruiting somebody into these things, what are the questions you should ask?

14:08If you're like the CEO or the board or whoever is recruiting this super yacht person for two days or three days a month, any good questions you should ask? I mean, honestly, help them understand your business and see if they could add value. So a little mini case study almost in the beginning. You know, whatever. Like, they're going to be asking you questions about your business, I'm sure, right? Like, any good person is going to be asking. And they'll probably already be adding value on the first call. If they're not, they're probably not good. And then, like, you know, again, the downside of trying someone is so low.

14:49So why not, like, you know, if you think they're adding value already on the first call, you like their personality, it's working. it's like if you have to bring on a CMO, the process to do that is going to take you, it could take you a year and you're going to have to call gazillion references. You're going to have to interview gazillion candidates. So just the hiring process to bring on a CMO is going to take hundreds of hours of your company to go do that. Whereas if you're going to bring on a CMO consulted, well, again, because the downside is so low if they don't work out, you could bring someone super fast.

15:29And then of course, like when you're hiring someone full-time, like you have to convince them. It's really hard to convince them because they only get one shot. It's like they only work on one CMO at once. So why are they going to work for you? You're going to have to, all these people you want are not going to want to work with you. They're going to have so many other options. Whereas again, if you're at the fractional, it's going to be so much easier to get that person that you want. And your theory is, It's not just CMOs. It's almost anything, right? Any executive related thing. Yeah. I think anyone who's strategic.

16:02So any like C level thing, most companies, again, like outside the very, maybe the very, very biggest companies, most companies shouldn't have. So what the companies that I'm interacting most, you know, startups, that startup might have like a few hundred people, but I don't think a few hundred person startup should have a CFO, a CMO. Now, again, you can call that person a CFO or CMO. You can call whatever. If you want to call Mary a CMO to make her feel good, great. Right. You can call her whatever you want. She is running marketing at your company, so call her that. But you don't need to have that, like, super executive that's been there, done that gazillion times already.

16:42I think this is right. We've had a, we had a.

16:48Oh, oh, and a CMO. And she said, it's really important. You understand the position you're hiring for because you're hiring essentially off a football team. So if you need a quarterback, that is totally different than if you need a wide receiver or guard or defensive tackle, you have to know what you want. And this would allow you to practice with what you want versus try and hire exactly right particularly in that uh early and middle stage company where yeah and by the way in that in your analogy a lot of companies you don't even know that you're playing football right so yeah you would think yeah if you know you're playing football you know the rules of football you need a good kicker right right you need that but like you don't know the game often and like why do you necessarily need a kick you you're like again if you if you have an nfl team you got to go spend you know five million dollars a year on a great kicker every nfl team goes to do that if you got a good kicker and you're playing baseball and you spend five million dollars a year on that person a guaranteed contract for 10 years like this is a terrible decision right so you don't know you just you just don't know so having that you want an all-around athlete that can do lots of things you don't necessarily want who someone could just kick that ball and kick that field goal for you that is a very bad use of time unless you know precisely what you need well and i also think uh if you're in particularly in startup land or early stage companies you may think you need a super quarterback but really what you might need is someone that is fantastic at acquisition uh and and maybe social media or something just to get things going versus somebody that's run like a fortune 500 department yeah that's right by the way like patrick mahomes if you want patrick mahomes to play to play on your team right now you can't right he's he's committed to to um to the kansas to the kansas city chiefs but right now if you want patrick mahomes to just teach you a little bit how to do it he is available you literally can go i bet he i bet he has a camp i bet he has a camp yeah he's expensive but you can get him right now you can get him to come to your house and teach your kid if you really want, if you want to pay for it, literally he's available.

19:04So it's like, again, you can't hire him as a quarterback for your team. That is not. But literally the best quarterback, maybe, you know, one of the best quarterbacks in the history of the world you can get. That's how, that's why these things are so powerful. I think that's a super analogy. And I am guessing that as AI becomes more mainstreamed in everything, this will drive the need to use even more vendors, or at least that would be my theory. Am I right in that theory? That is my belief. Yes, that's my belief. Tell me how you think it plays out. Well, I think we're moving into a world where the, if you just think of the most important skill in the last century, that was the ability to identify, hire, and manage talent.

19:58And there are tens of thousands of great books on that. Every single MBA has at least three or four courses on how to do that well. We've all talked about it. Everyone has a sense of that. Everyone has been hired and many of which has hired and manage people. So we all kind of have a sense of those types of things. That is still an important skill. But in this century, the most important skill is the ability to select and manage vendors. And that vendor could be contractors. That vendor could be software. It could be a lot of different types of things. Almost every company has way more vendors than they have people.

20:42Outside of Walmart and Amazon, which they employ over a million people each, almost every company has way, way, way more vendors. Sometimes we're talking about one or two orders of magnitude more vendors than they have people. And there is no book about it that I know of, know how to do it. There's no MBA courses on it. It is extremely hard to do, but that is the most important skill that we all have to get better at. Your thing would be if business schools are really keeping up with the marketplace they would someone somewhere would create a class on this yeah i mean for sure i mean obviously like i mean i think business school is complete waste of time and i mean it's i mean it's very good if you want to spot found your spouse or something so like and it's just have fun so you know it certainly has some value there but like it has bad roi outside of like social reasons.

21:42But even putting that aside, like you would expect that you'll know that the schools are more relevant when they start moving in that direction. I love this comment because I think it's going to generate a lot of discussion from a lot of the business school people we've had on the show. I want to just stay on this provocative note and say in our first show you said that everyone in procurement should be fired um because they weren't very good at vendor management they were just good at cost management do you still feel the same way yeah i mean most companies don't even have anyone in procurement i mean you got to be you got to be 500 people plus usually before you have someone in procurement if you had someone if you had a someone called procurement and you're 100 people well your company's going to go under anyway like that you're you clearly don't know how to manage your company right so usually you're talking like whenever you don't have a procurement person until you're at least 500 maybe a thousand people yeah you have to get you have to get pretty big or procure you always have to be big and already by that point you have like so many random bureaucratic people that do bureaucratic things that you you know you probably have 30 percent of people you should probably get rid of that you know have jobs like quote-unquote procurement but yeah of course like procurement is like it's a negative it's not just zero value it's negative value at almost every company and it's negative value because it's in the way of the actual project or give me a just it makes the whole idea of having a procurement person is to make things move slower and right that is literally the idea it's like at some point you want to buy something and you're like okay i'm i'm i'm getting to the decision i want to buy now i have to bring in the procurement team and they have to go do their thing.

23:27Right. So that is, that is literally what you have procurement do is to, is to slow things down. That makes no sense in most companies. Like, why would you want to slow things down? And then they save you like 3%. It's like, so you just slowed the whole, everything down for 3%. Like, and then it's like, and it's a bad experience for the other people in your company. They hate it. It's a bad experience for the vendor. So they're probably going to give you like 20 % less service because now they have to deal with this. And they just had like a bad experience. Imagine you're hiring somebody. And some companies do this.

24:02It's like right before you're going to hire them, you like put them through this whole terrible process. And then you should you try, instead of like them, they wanted a hundred grand a year and you like beat them down to like 98 grand a year, right. Or something. And, you know, by showing them all these things and, you know, they're going to come in, they're like, ah, I hate this company. Like you would just like, again, And some companies do that to their employees. So they're, they're, they're, they're, they're, they're, they're, those companies will likely go out of business. Like they're just not good.

24:29And, you know, government does that sometimes to their employees, but they're like the, the only one, their only employer. It's for certain types of things. If you want to work for like the FBI or the CIA, they're going to do that to you. But like, you have no choice there, but like for most things, like you just don't want to do that. You want people to have a great experience coming in. And that means you have to treat your vendors well. That doesn't mean you have to overpay them or anything. just like you don't have to overpay your employees, but you've got to treat them well. You have to think of your vendor as like part of the team.

24:59And that could be even an API. You want to be able to use that in the right way. You want to treat it well. You want to treat the other people well. So they're helping you. They're supporting you, et cetera. The sound bites coming off the show are going to be fabulous. I'm just saying. And I want to stay on this because you also wrote a note that you are shorting Booz Allen, the consulting firm that gets most of its revenue from the government. Tell us why and what lessons can business leaders take from this whole thing we've just been talking about? So start with Booz and then go into like what's happening.

25:41So Booz Allen is a, they make 98 % of their revenue from the government. And they're often doing things that the government should do themselves. So this is like, it's not exactly where it's like you're having a vendor who's doing something in a, you know, you're hiring someone for three hours a week to do a specialty thing. In their case, most of the people you hire through them are full-time people doing something, you know, it's like, it's like the Pentagon hires, they have many people, Booz Allen, who joined the Pentagon to help them buy ammunition, right? It's something that like, they should be able to do themselves.

26:22And they're often hiring like a 27 year old person who has a political science degree, who's just a normal person, it's probably relatively smart person, but they could have hired that person themselves. And then they pay them, you know, and that person's like commuting to the Pentagon from Minnesota every week and all in costs is$1.1 million. That's like a typical thing. Like no one, there's no one in the world who thinks this is a good bargain. Yes. You need someone to help you buy ammunition. There's no reason why they can't bring that person on. And they can bring that person on like internally to go do that.

27:00Now, now the Pentagon might need better hiring and firing authority, which they don't have today. So there's a whole bunch of things. So this is also this short is a bet that this administration is going to be a little bit more sensible. They're going to have the right hiring and hiring and firing authorities. They're going to do a few other sensible things so that like folks like the Pentagon can actually make the right decisions. But the lesson here, if I put all of this together, I think what you're saying is, geez, you know, because they are renting booze to do regular jobs. And they're essentially renting booze, Booze Allen to do their normal job and they're overpaying for it.

27:40So their vendor management in this case is terrible. Correct. And so what you're saying is the lesson here is you have to look at everything and the outputs, including the vendors. Is that right? And do you have any tips for how to do that? I mean, a lot of these things, you don't need tips. Like, they're actually just common sense. Yeah. Like, there isn't anyone who would look at what the Pentagon spends on booze and thinks, like, this is good, right? I mean, there's literally nobody. It's bipartisan. Like, it's not like, you know, it's from Elizabeth Warren to Tom Cotton. You know, it's like it's bipartisan.

28:20They think this is bad. So it's like I can't even imagine there's like one of 100 senators who would think this is a good thing. So everybody from every walk of life is going to think this is bad. Now, it doesn't mean booze won't continue. You know, I have a short on them. The company stock has gone down pretty significantly since I shorted it. But like, I might be wrong about that. And, you know, they might, you know, if you're long on government dysfunction, then you're long on booze. If you think government will actually reform over time, which I'm hopeful, but that may, you know, that historically has not been the case, then maybe, you know, maybe then you're short on booze.

29:00CMO Confidential does not give financial advice. Yes, exactly. I know you also wanted to say one or two words on kind of the dichotomy of private equity firms and how.

29:22private equity firms and i wasn't really around in the 80s but my guess in the 80s and 90s is that a company that was bought by a private equity firm was a way better run company than a company that wasn't um so the average company that private equity firm you know back then they called them lbo companies or whatever they were they were leaner they moved faster they had less bureaucracy um they were more profitable uh they um they had a better strategy they employed smarter people and because they would do a leverage bio lbo thing and that would put pressure on the company to cut all the bureaucracy you were just talking about i mean it isn't it isn't any different today they still load them up on debt still the same thing today but for whatever reason I think the alpha back in the day was the reason why these private equity firms existed was to take a company and make it much, much better.

30:24Now, back then, the interest rates were pretty high. So it was actually very expensive. They often had to do junk bonds. They were often in the teens percent that they had. So the debt was very, very, very expensive. So they really had to make the company much better. Now, you start to go to the world in the 2000s where the debt gets cheaper and cheaper and cheaper. At some point, it gets close to zero. And you don't have to. It becomes a lot more about financial engineering than really making that company better. So the average private equity person who's who's been in the business for the last 15 years, they could make tons of money without necessarily improving the company.