Incentives and Legends

Entrepreneurs and the early startup team all need to be motivated by a shared vision, passion and desire to build a large company.  Yet it’s the company legends that live on.

Fund Raising
Our little startup was less than a year-old.  We had been busy assembling our team and had just hired the last member of our exec staff.  We had also just closed our Series B financing with a major overseas partner.  The financing felt like a real validation of our strategy. In truth, it was only proof that our reality distortion field worked in Asia as well.

My Wife Thinks I Deserve a Bonus
One of the new hires was Bob, my VP of Business Development.  He knew so little about technology that I used to say he needed a manual to operate a light switch, but I hired him because a small voice said, “He’ll do extraordinary things.”

He did.  And still does.

Bob, among other things ran the fundraising for us in Asia and worked with an outside firm that had great connections in Japan to drag us around Tokyo and get the deal closed.  As in raising $10Million dollars kind of closed.

Everyone at our startup was working on startup starvation salaries, and Bob had taken a large pay cut to join us. When the Japanese partner deal was done, Bob said,  “Steve, I deserve at least a $10,000 bonus.  I haven’t been home in weeks, and I pulled off a financing even you admit was unbelievable.”

I patiently explained that this type of miraculous event was the norm for startups. The engineers were pulling off miracles on a daily basis, we were all taking fumes for salaries, but our payoff will be when our stock is worth something.  Until then, tell your wife you’ll get $10,000 when hell freezes over. No bonuses in a startup. To his credit Bob said while he understood, he was going to hear about it at home for not being appreciated.

Dinner
Since our management team hadn’t met each others’ spouses, I thought the financing would be a great reason to get everyone together for a low key celebratory dinner.  We picked a restaurant in Palo Alto down the street from the company and got a private room.

We drank lots of wine, had a nice dinner and after the dinner plates had been cleared I made a speech about teamwork, startup, passion, commitment, blah, blah.

I then congratulated the outside firm that Bob had used in Japan. I had invited their CEO and his wife and handed him a check for their retainer bonus for their help in the deal. Bob kept glancing at his wife who was giving him frosty looks and was very clearly not happy.

The New Briefcase
I then announced that it was unfair that Bob shouldn’t go unrecognized for his hard work so I had an award for him as well. The atmosphere around Bob’s wife began to thaw.  I said, “Bob had carried the same old beat up leather briefcase he had since law school and I knew he wouldn’t trade it for anything but I think its time he had something more professional looking.  So Bob, on behalf of the company, we bought you a new briefcase.”

The look on both Bob’s face and his wife’s went from happy to disbelief, to “I can’t believe you’re working for this idiot” on his wife’s face to “I can’t believe I work for this idiot” on Bob’s face.

I said, “Your new briefcase is under the table by your feet.  Why don’t you just put it on the table.”  Bob rooted around a bit and found the briefcase and put it on the table. It was the ugliest and cheapest briefcase you will ever see.

Everyone was now looking slightly embarrassed, all thinking that perhaps they had the most obtuse CEO in Silicon Valley. I thought Bob’s wife was going to throw a steak knife across the table.  I made another speech about how great Bob was and then sat down and said, “Lets get the waiter for coffee and desert.”

The ugly briefcase with its implicit statement sat on the table virtually steaming.

Legend
“Oh, one more thing,” I said.  “Bob, can you open up the briefcase and dump the papers on the table. We should clear out the stuffing so you can put your papers from your old briefcase in it.”

With almost an audible sigh, Bob unlatched the briefcase, held it upside down over the table and dumped out the contents.

In slow motion, dollar bills began to tumble out of the new briefcase.  And they kept coming out.  And they started making a pile of bills in front of Bob and his wife and the rest of the executive staff.

15,000 dollars in dollar bills.

Bob’s wife started crying.

I said, “Extraordinary work in a startup is the norm, but you performed even beyond my expectations. In my startups that’s worth recognizing.”

Rewards for extraordinary effort became part of the company’s legend.

Epilogue
Lest you think only salespeople are motivated by cash in a startup, over the life of the company we sprung the same surprise on engineers who did deliver the impossible. And at Christmas we gave out hundred dollar bills to each employee. While this small token of appreciation would have been dismissed if it had been a check, it had our engineers showing these bills to their friends in other companies.

In three or so years these cash incentives added up to no more than $50K. While everyone understood the theory that we were working to make the stock valuable (and we did,) the cash reminded them that we cared and noticed.

Lessons Learned

  • Cash has a much greater affect than a check.
  • Awards for critical contributions can make a lasting impact.
  • Small amounts spread through the company can be a great motivator.
  • Done correctly it turns incentives into legends.

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16 Responses

  1. Steve,
    After reading this post, I’m honestly not sure what to think. Here are a few questions I’m left with:

    Did Steve give out that bonus because he wanted to, or he felt pressure from Bob’s wife?

    Did the likelihood that Steve would change his mind about Bob’s bonus go up because Bob is part of the inner-circle, as opposed to the others at the company who were not?

    I agree that engineers perform miracles everyday. Why such a huge discrepancy between the bonus they got *$100) and the one Bob got?

    But after reading it just now, I wasn’t left feeling inspired to perform a well-thought out dramatic act. Instead, I got the feeling that the rich got richer and the poor got poorer. I’m guessing there are parts of the story that got lost in the retelling?

    Sincerely,
    Matthew

    • 1. Bob’s request made me think, that yes, he did do something extraordinary and waiting years for an IPO wasn’t the way to reward it. (His comment about his wife was just amusing.)
      2. Never crossed my mind about the “inner circle” but I had spent the last 2-weeks flying around the world with Bob.
      3. Perhaps the epilogue wasn’t clear. Read it again, engineers received equivalent bonuses.
      4. You missed point 3. The rich got richer… etc. may be your world view, but nothing in the story supports it.

  2. Your history never ceases to amaze me Steve. Thanks for the reminder that equity is swell, but Cash is King ;)

  3. Am I the only one who sees the briefcase stunt as incredibly tacky and disrespectful? Why would you intentionally mock him (and his wife) in front of the rest of the team?

    And, cash is great, but $15,000 in ones? Talk about a beat down to have to take it to the bank and have it counted, not to mention the risk of loss. I’m sure you also have to do some kind of paperwork for large cash deposits.

    I just don’t agree with this management strategy – I don’t think making fun of someone’s obvious personal sacrifice, especially in front of their family who is bearing the REAL sacrifice of lower compensation, is ever okay.

    As the wife of someone who has been in this lower-pay, no bonus start-up situation, I find your method incredibly offensive and just plain tacky.

    • Yes, I think you need to read the story again.

      The wife was crying because she was happy. She thought it was a generous gesture. And it was $5K more than she had her husband ask for. 17 years later we all still laugh about the dinner.

      At times stories are ink-blot tests of what’s going on in the life of the reader.

  4. Whoa! Speechlessly cool….

  5. Yes, A’Dell, I agree with you. This is incredibly tacky. Money is a very private, and sensitive matter for most people. So, to first humiliate someone in front of his spouse and peers at a company dinner, and then dump 15,000 dollar bills on his lap… is tasteless. Maybe on a reality show, but not in real life.

    Steve, you offer many things worthy of imitation, but this is not one of them.

    Mark

  6. This post seems to have engendered a range of responses from: “incredibly tacky” to “cool.”

    As I mentioned in an earlier reply, comments appears to be an ink-blot test of your sensibilities.

    The reality on the ground (and over multiple startups) was no one was offended, most were incredibly appreciative all were amused.

  7. I think that reading the story, coldly, without having been there, can create a bit of a strange feeling. But, whoever has worked in a start-up knows that a gesture like that, in that particular context, would have been greatly appreciated but Bob, his wife and all the otehr genuinely committed people around the table.
    And I suspect, it bought Steve goodwill worth several times the $15k.
    Great story Steve, as usual.

  8. I’m sorry, but I do not understand these comments. It seems obvious to me that none of you have ever really spent time in a start-up. I, for one, think that the briefcase stunt was very startup-esque culturally and there’s nothing disrespectful about it. It provided both the reward and the humor to lift Bob’s spirits. No one was making fun of anyone. These comments are baffling…

  9. Steve,

    Despite some of the negative comments, I found this story to be inspiring and the lessons learned to be spot on. Having been in 3 start-ups working directly for the CEOs, I’ve done my share of what I’d consider spectacular stunts. Sure, I got some annual bonuses along the way, but the auto-deposited check never felt as good as the time I got an unexpected gift.

    I was killing myself trying to get a large deal done for the company and my boss saw me drooling over the new $350 Bose headphones while walking through the airport together. He knew I’d never spend my own money on it, so he took the company credit card out and bought them for me. To this day, when I put the headphones on, I think about his generosity and how great it made me feel that my efforts were appreciated in more than just the traditional ways.

    Sincerely,
    Matt Kaplan

  10. I’m glad I read this blog. Another great story.

    Thanks.

  11. Whether you disagree with the behavior or not, I don’t see the point of trying to ruin Steve’s happy memory by criticizing so harshly. It’s a sad fact of life that a lot of the moments you were happiest make you cringe when you look back at them — don’t contribute to that.

    I personally thought the story was so well told that it works even if your reaction to it in real life would be different. There’s a lot of emotional setup without revealing the twist at the end.

  12. When you work that hard for a boss, that kind of gesture and joke doesn’t make you feel bad at all. It dramatically deepens your commitment level by demonstrating the value you brought to the team.

    Great story.

  13. [...] Unternehmer und der frühen Start-Team alle müssen durch eine gemeinsame Vision, Leidenschaft und Lust, ein großes Unternehmen bauen motiviert werden. Dennoch ist es dem Unternehmen Legenden, die live auf Fonds. Raising Unser kleines Startup war weniger als ein Jahr alt. Wir waren damit beschäftigt Montage unser Team und hatte gerade das letzte Mitglied unserer [eingestellt. . . ] URL des Original-Artikel http://steveblank.com/2010/02/01/incentives-and-legends/ [...]

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