
The Elves Leave Middle Earth – Sodas Are No Longer Free (2009) - RKoutnik
https://steveblank.com/2009/12/21/the-elves-leave-middle-earth-%e2%80%93-soda%e2%80%99s-are-no-longer-free/
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anthony-james
As an accountant, I feel like employees are severely underpaid in highly-
skilled markets (like tech, not accounting), and I think that companies don't
actually capture the true cost of a single full time employee.

Most see a salary, benefits, fringe costs (like hiring HR and finance teams),
lunches, etc. Some of the better firms add in the cost of hiring employees
with intangibles, like communication, poise, and professionalism, but the
truly great see the largest potential cost - that they do better work at a
competitor.

If you're paying an engineer $100k to add 150k worth of value to your product,
the true value of their work is $300k: $150k worth of value to you, and $150k
worth of value that isn't added to your next closest competitor.

It's the same reason football teams say "defense wins championships" \-
because Defense is the only position where you can simultaneously score points
and stop your opponent from scoring. Offenses can only score.

Now, that employee shouldn't be paid $300k because that's the true value for
the organization, rather, they should be paid as close to the marginal benefit
they directly apply to the organization - in this case, $150k. Doing so may be
a breakeven point from a cash perspective, but a billion dollar company that
breaks even is worth more than a lemonade stand making $10 profit.

From an accounting perspective, this can be observed as employee expenses
(temporary equity accounts) providing value to products (permanent asset).
When the employee is terminated, the assets still remain, so for anyone with
any equity stake in the firm, it is beneficial to pay as much as possible up
to the point that the company a) doesn't run out of runway, b) retains talent
to further grow the assets and c) doesn't grow competitor assets.

The CFO that cut soda costs by $10k also boosted the equity of all the
competitors that hired the disgruntled employees - and most likely by a value
greater than $10k, and multiplied by each employee that left.

Just my $.02

Edit: Cut soda costs by $10k total, not per employee

~~~
dpandey
I don't think it was 10K per employee (that'd be a ridiculous amount of soda).
It was 10K total.

~~~
zhemao
I thought it would be fun to do the math on this one. A 12-pack of coca cola
cans is $5.00 USD. So 10K would buy 24K cans of coca cola. If that was their
yearly soda budget, it would be 66 cans per day. So yeah, obviously an absurd
amount for a single person to be consuming.

~~~
saghm
Not to mention that in buying the soda in bulk, they'd almost definitely get a
better price per can than a single six-pack

------
dpandey
Small perks like free lunches, gym membership or a massage every month are
huge in making employees happy.

We're a seed funded company and provide free lunches to our employees. We also
reimburse up to 100$ a month for fitness/gym memberships. Some of my friends
working in large organizations don't get these perks, and point out that
they're wasteful of a company that is cash flow negative and trying to
conserve capital.

What most people with such mindset don't realize is how valuable inspired
people can be. For employees to be inspired, they must do work they find
meaningful and they must be appreciated and challenged. But they also must
realize the company genuinely cares about them. Then they _want_ to give back
to the company; they want to exceed expectations because they love how the
company cares about them.

Now you need to show care to employees on an everyday basis, but one amazing
way to show it is with perks like these. 100$ a month for gym or 200$ a month
for lunch per employee is not outrageous if you compare that with how much you
pay them every month. It's almost miniscule. Also, in most startups at least,
they're getting paid below market rate in exchange for equity etc. Not having
to worry about lunch or gym everyday makes a huge difference psychologically.

The one situation where you can justify cutting perks is when the company is
going through a genuine crisis, cutting the perk is critical to get through,
and you let everyone know this is temporary and it's just something we all
must do to get through this crisis. Otherwise, instead of trying to cut soda
out, the management needs to focus on growing revenue and profits and ask
themselves why they're not succeeding there as much as they'd like to. Hiding
behind a soda cut isn't going to fix the issue.

PS: I used to worked at Salesforce where we got several days a year off just
to go volunteer time at non-profits. You'd be amazed at how much employees
love the company for allowing them to do things non-work related that they're
passionate about just a few days a year while getting paid for it. It says
that the company has a warm heart. The impact shows up in the company's
relentless growth year after year. Same with companies like Costco. Showing
care for employees has an outsized impact on the bottomline.

~~~
davidw
> the company genuinely cares about them

They don't though, in most cases. All that stuff is just window dressing. I
haven't thought about it a lot, but genuinely caring might mean not firing
someone going through a rough patch, when their productivity is pretty bad.

~~~
dpandey
I'd say that when you've worked at a company > 6 months, you know if your
manager cares about you. You know if the management cares about you. Doesn't
take much to figure that out.

I think there are 1-1 and public ways of showing care. When an employee has a
performance issue and is going through something rough, you have a private
conversation, nobody else needs to know (unless they're impacted/frustrated
and you let them know some of it to make them cut some slack) and the employee
is taken care of.

Perks are a public way of taking a stand and saying I care about people and
will provide these perks and won't take them away except in the direst of
situations. Providing perks won't make people love you, but it shows you care.
They're nice to get and show thoughtfulness. Especially if you're not
obnoxious otherwise.

~~~
davidw
Thinking out loud: maybe "giving without expecting anything in return" ? Perks
and compensation are things you mostly expect to get something back from.

Something genuinely nice/caring at the place I work now was the Wednesday
before Thanksgiving where they just told everyone to go home after lunch and
enjoy the long weekend.

~~~
dpandey
That's a great example.

------
imagist
> The most talented and senior engineers looked up from their desks and
> noticed the company was no longer the one they loved.

This is well-worded. The problem for these execs wasn't that the company was
no longer a good place for engineers. The problem was that the engineers
_noticed_.

Don't be the engineer who doesn't notice their job sucks until they start
charging for soda. By that point you've been working for a terrible company
for a long time.

------
everyone
The free soda n junk in startups is bullshit. I'd rather get paid a little
more and spend that on what I choose (something healthy). Who would be enticed
by that? What is enticing to me is the freedom to work how/where/when I want.

~~~
Fnoord
Agreed. TANSTAAFL, and I guess it is the old left (as in everyone equal) vs
right (free choice) debate.

We get free bread for lunch. Cool, but I don't wanna eat bread.

Coffee is free. Cool, but it is bad quality, my el cheapo espresso machine at
home is even better. Plus I'll experience a massive down in the evening. Oh
hey, not the employer's problem.

I've never seen free soda anywhere, but the thing is: it is just a lot of
sugar, with too little water. I won't drink that if I get paid for it.

At least water is free, and that's important in the summer. I'm free to go
grab a cup, and the walk is healthy, too.

Then there's these parties 'for team spirit', with all kind of fried food.
Cool. Guess who pays for that?

Screw all this. Like you said; "I'd rather get paid a little bit more."

~~~
aoeuasdf1
I agree with you - but there are two advantages to giving perks like food:

No transaction costs. Not just the actual monetary cost of the transaction,
but no need to employ people to man registers, no need to wait in line to pay.
And more subtly, no need to argue with yourself about whether it's worth it to
buy the item you are consuming.

Secondly, these perks are bought in bulk and provided without having to pay
income tax on them. So it's just cheaper than paying people more and having
them buy the goods.

That being said, I do wish there were more healthy options by default.

~~~
everyone
An additional point as to why I dont like this.. I'm busting my ass in the
code mines making this amazing software thats making us all money. Then
'management' waste it on frivolities, like free junk food, booze, time wasting
exercises, stuff that _they_ like. It also means they may be unthinkingly
following the silicon valley style 'startup' stereotype, which is actually
almost depressingly ironic. Anyway, its not a big deal, but that stuff is a
warning sign for me.

------
mcguire
" _It never ceases to amaze me how many startups make the mistake of killing
off the free drinks._ "

(One of the comments on the page.)

But wait a minute. Killing off the free drinks is just the signpost. The
change is primarily in the size and the culture of the company itself.
Charging for sodas might be the first, but it isn't the biggest change that
the company is going to, and going to have to, make as it grows.

Does anyone really believe that IBM, Amazon, Facebook, or Google would still
be their happy fun startup selves if they still gave away free sodas?

~~~
kylec
I would be shocked if Amazon, Facebook, and Google _don 't_ still give away
free sodas.

~~~
serge2k
Amazon doesn't.

Facebook and Google both give away free food, so I can't see why soda would be
a problem.

Microsoft has free soda and the food is fairly cheap.

~~~
mikestew
_Microsoft has free soda and the food is fairly cheap._

Eh? Could have changed since I was last there eleven years ago, but in the
last four or five years of my tenure I rarely ate in the cafeterias because
for less money I could get more and better food within a five minute walk.
_And_ I got to go for a walk at lunch. (So I guess I'm talking on the order of
fifteen years ago. Never mind the old man in the corner mumbling to himself
about how it was better, er I mean worse, back then.)

------
kevin_b_er
> Some had already been irritated when “professional” managers had been hired
> over their teams with reportedly more stock than the early engineers had

That right there is a huge warning sign that they're not valued well and that
they never were.

~~~
mooreds
Wait. I know all about having dunderheads hired above me, having gone through
the dot com bubble and crash.

But are you implying that no VP should ever be hired over the early engineers?
I can imagine numerous situations where doing just that would provide value to
the engineers and the company. And an experienced VP, even if expensive, can
be a bargain if they've "done this before".

------
peterwwillis
I still don't understand why companies would willingly serve free drinks (and
snacks) that they know will only deteriorate the health of their employees.
Free drinks, sure, but 290-calorie cans of sugar, and bags of fat? Say what
you will about adults having free will to make bad choices, but your company
doesn't give away free cigarettes.

~~~
dsr_
Right next to those are generally the free diet sodas, the free seltzers, and
the free teas and juices.

Next to the chips and candy are the protein bars, trail mix, nuts, and fresh
fruit.

Over in the cafeteria, next to the free pizza is the free salad bar.

With any luck you've got a range of employees. Some are concerned about their
weight; some are concerned about getting enough vitamins; some really really
want a boost of sugar and caffeine. It's possible to cater to all of them.

~~~
peterwwillis
Some really need a cigarette. Would you provide cigarettes in vending
machinea?

------
pascalxus
What? They quit the company because they no longer got free sodas? I'd rather
have an extra 300$ of salary per year, than free cans of Sugar all year. And,
if the best developers have so much bargaining power as to leave, just because
of sodas, why aren't they leaving toxic work places like Amazon in droves?

Other places are cutting cost in far more profound ways: laptops and computer
equipment, etc.

~~~
garysieling
I think that's probably over-estimating the case value by a fair amount,
because the company should be buying in bulk. They also would take the expense
off their taxes, whereas if you buy soda, both of you pay taxes.

~~~
pascalxus
This is a good point. But, there's also some inefficiencies that creep in
because like a centrally planned ecomonomy, the company can not adequately
predict the demand for each free snack, food and drink, leading to excess
waste (at least for perishable items).

personally, I would rather have teas and vitamin waters, rather than cans of
sugar.

------
CarolineW
(2009)

That's not to say that it's no longer relevant. It is relevant, perhaps even
more so now. But it was written in 2009.

Have things changed?

~~~
joezydeco
Nothing really. This story comes up all the time.

[https://news.ycombinator.com/item?id=11635066](https://news.ycombinator.com/item?id=11635066)

HN doesn't have "sticky" posts, but sometimes you wonder if it should.

~~~
CarolineW
It's been submitted a lot:

[https://hn.algolia.com/?query=Elves%20Leave&sort=byDate&date...](https://hn.algolia.com/?query=Elves%20Leave&sort=byDate&dateRange=all&type=story&storyText=false&prefix=false&page=0)

Massive discussions:

[https://news.ycombinator.com/item?id=5751329](https://news.ycombinator.com/item?id=5751329)

[https://news.ycombinator.com/item?id=1007750](https://news.ycombinator.com/item?id=1007750)

------
gopalv
> It’s about the company’s most valuable asset – its employees.

There are often two ways to look at that statement.

Employees aren't fungible and how that cuts both ways.

The longer someone works in an established company the more tribal knowledge
they accumulate to the extent that an equally talented fresh face cannot
replace.

And the other is that some employees have already done their part & are now
not easily moved into a different role (Peter principle or otherwise).

That fine line is somewhat scary to look at, particularly when you work in a
boom-bust environment like a video game company or when the company does a
tough pivot.

------
gdulli
My company is just about to make a mistake like this. It's sad to know it's
coming and watch it happen in slow motion.

------
pdimitar
The thing that irks me about ALL of the places I ever worked at is that they
prefer to shower you with benefits like [small partial] free dental, gym
memberships, food stamps, and what not.

It seems nobody ever stops to think "Hey, our employees are ADULTS, right? How
about we just give them all these money as a flat paycheck increase and let
them decide what to do with them?".

I switched desires many times in my life. Sometimes I've been going regularly
to dentists, other periods I've been going to the gym, and then I have been
eating twice a day for months -- and half a year later I wake up to the fact
that it's much healthier to eat 5-6 times a day (but food stamps don't cover
for more than 1 meal), and then a year later I figure I simply want to watch
most of the modern sci-fi TV shows in several huge binge sessions. Examples
abound from mine and many others' experience.

These organizational policies are pandering to the common lowest denominator.
_THIS IS ABSOLUTELY FINE_. The part that pissed me off in many of my office
jobs in the past is that the managers fail to recognize the people who don't
want their free things and would prefer another format of loyalty bonuses.

The biggest failure of the management in organizations like those in the OP is
the fact that these people are under the illusion that they can shoehorn their
people into strict processes during one big effort session, and then never do
management ever again.

This never works.

------
desireco42
This old, famous article from Steve Blank... not sure what to make of this?

Did Google started to charge for it's meals or something?

------
flinty
Is this in response to the bloomberg article on how the new CFO over the past
year has been cutting moonshots?

