Venture Hacks

From The Human Equation:

“Seven dimensions that seem to characterize most if not all of the systems that produce profits through people.

1. Employment security.
2. Selective hiring of new personnel [especially screening for attributes that cannot be taught such as attitude and cultural fit.]
3. Self-managed teams and decentralization of decision making as the basic principles of organizational design.
4. Comparatively high compensation contingent on organizational performance.
5. Extensive training.
6. Reduced status distinctions and barriers, including dress, language, office arrangements, and wage differences across levels.
7. Extensive sharing of financial and performance information throughout the organization.”

The author is Jeffrey Pfeffer, a professor at Stanford. He also co-wrote Hidden Value, which we covered in We don’t pay you to work here.

Implementing the whole system

Extreme Programming works well when you implement all of its practices. Most of the practices by themselves have too many flaws to be very effective. Each practice by itself may even have more disadvantages than advantages.

But all of the practices together work well. Why? For each practice, there are other practices that obviate its flaws. Wheels by themselves just roll a bit and fall over. But when you connect them to a car, the entire system can get you from Boston to San Francisco.

The practices in The Human Equation also work well when you implement them all. You can’t offer extensive training if you plan to lay people off when times are tough. That’s just a good way to waste money on training. You can’t offer employment security if you don’t hire new employees very selectively and if you don’t terminate the ones that aren’t effective.

If you’re searching for a magic incentive system to get high performance from your team, there isn’t one. If you’re willing to do the hard work of implementing a set of simple organizational practices, The Human Equation and Hidden Value have some suggestions.

“A raise is only a raise for thirty days; after that, it’s just your salary.”

– David Russo, VP of Human Resources at SAS Institute

This is one of my favorite quotes from the book Hidden Value. It explains why money by itself doesn’t motivate high performance. Money by itself can only motivate the quest for more money. A raise is only a raise for thirty days; after that, it’s just your salary.

We are motivated to perform when our work expresses who we are, when the business’ goals are intrinsically meaningful to us, and we feel that we are valued as people, not simply as economic agents.

But, even in startups, financial incentives and HR practices often treat us like economic agents:

“Consider the implicit values conveyed in the modern management practices adopted by many companies. Most firms today emphasize, among other things, the employee’s responsibility for being career resilient, employment at will and no-fault dismissal, pay for performance, downsizing to cut costs, and maximizing shareholder value above all else. What is the message any sentient employee takes from these practices? Pursue what is best for you, not the firm or the customer, adopt a free-agent mentality, and do not invest any more in the firm than it is willing to invest in you. The underlying values are crystal clear, even if they are never expressed in a formal way. In this sense, arguments by managers that value statements are irrelevant or inappropriate miss the point: All organizations have values; the only question is how explicit they are about them.

“And what happens when employees behave in accordance with these values? First, a rational employee is not likely to exert much effort in activities beyond what he or she is explicitly rewarded for. A ‘show me the money’ mood prevails. Second, a smart employee will be constantly alert for new and better job opportunities in other organizations—loyalty is for fools. Third, unless cooperation is explicitly monitored and rewarded, teamwork is viewed as optional… To resolve some of these problems, management’s job is to design ever more sophisticated control and incentive systems to ensure that the necessary teamwork occurs and that the loss of intellectual capital is minimized.”

The problem isn’t that money is a weak motivator. The problem is that money is a terribly strong motivator. By itself, money motivates the wrong people to do the wrong things in the quest for more money.

This is why Zappos pays employees to leave. This is why Tandem Computers didn’t tell employees their salaries until after they started working. In other words: we don’t pay you to work here—we pay you so you can work here.

Organizing around values, not value

The authors, Charles A. O’Reilly III and Jeffrey Pfeffer, both from Stanford’s Graduate School of Business, studied how eight companies, from Men’s Wearhouse to Cisco, ignore the pernicious assumption that compensation should be the foundation for management systems:

“First, each of these companies has a clear, well-articulated set of values that are widely shared and act as the foundation for the management practices that… provide a basis for the company’s competitive success. [e.g. Southwest’s “Work should be fun… it can be play… enjoy it.”]

“Second, each of these organizations has a remarkable degree of alignment and consistency in the people-centered practices that express its core values. [e.g. Southwest: “We hire happy people.”]

“Finally, the senior managers in these firms, not just the founders or the CEO, are leaders whose primary role is to ensure that the values are maintained and constantly made real to all of the people who work in the organization… The senior managers in each of these companies see their roles not as managing the day-to-day business or even as making decisions about grand strategy but as setting and reinforcing the vision, values, and culture of the organization. Dennis Bakke at AES [a $2B company] claims that he made only two decisions in 1998, one of which was not to write a book on the company.”

Extraordinary results with ordinary people

The book’s subtitle is “How great companies achieve extraordinary results with ordinary people.”

Every rational company in the world is trying to hire the best people in the world. And all but one of them will fail at this task. There can only be one company with the best people. Hiring the best is a failing strategy.

Organizations must be designed to thrive with ordinary people. If businesses can thrive with the capabilities of ordinary people, they can also thrive with extraordinary people. Practices like Extreme Programming, that were designed for programmers with ordinary skills, work even better with extraordinary programmers.

Read Hidden Value for specific recruiting, training, information-sharing, and rewards practices that aim to exploit the capabilities of ordinary and extraordinary people alike.

“If people come for money, they will leave for money.”

– James Treybig, CEO of Tandem Computers