There is an argument that hiring is one of the "core" things for startups, and it is hard to do, so innovation might be warranted. Something like this experiment in setting salaries is only good if it makes recruiting/retaining/utilizing more effective. If you're doing it for any other reason, you probably have the wrong priorities. (The other part of this, paying everyone the same, actually does make a lot of sense in early stage startups, too.)
I think bringing people into the organization is probably harder than retaining them, though. (at least for the first year or two) I'd personally be more inclined to experiment with "set your own referral bonus" rather than "set your own salary". (I think in SFBA right now, for engineers, that number should be USD 20k. USD 10k might be justifiable. In a lot of cases, people like gifts more than the equivalent amount of money, so maybe USD 10k + USD 10k in travel/gifts/etc. Charity donations might also be valued more than money in some cases.)
I fired a company once that was paying me quite well, and where I liked my co-workers and liked my job very well, just because they wouldn't make some changes to these simple things. They were stuck in a very rigid office culture mode where everyone had to dress the part, keep certain hours, park in a certain place, etc. I'm not the only good employee they chased away like that either. Unlike me, some of the others went to work for competitors, or formed companies that competed with them.
I like that phrasing a lot :)
90% of people don't care what healthcare they get (as long as it is good), but 10% probably are really picky. Maybe a lot of people don't care about offices, but I'd take 50% as much money to have a private office (or at least quiet area in a large room without people walking behind me). Maybe some people are really picky about their particular monitor or keyboard. You can override those things for individuals who care but still have a pretty standard default for everyone.
We have the same problem at the company I work at. We have a ~20% 401k (not matching, just on top of you salaray - it's an ESOP). So your effective salary is 20% higher then your listed one. However, would you rather get 100K and 20K in a 401k, or a taxable 120K? Most young developers would say 120K - I have student loans to pay off!
So weird benefits packages, like large semi-random bonuses, are kind of bad because you can't compare them to straight up money.
There is an utterly batshit insane thing called a "Rollover As Business Startups" where you roll your own 401k over into a 401k in your newly-formed business which then buys its own stock and use that to capitalize your business. This basically lets you 1) use your 401k as capital when you can't raise (useful for franchises and traditional small businesses) 2) tax advantages. The IRS hates it, although it's fundamentally legal; they go after it on nitpicking detail compliance, which people often screw up. It's about $50-100k in 401k balance before it makes sense to do, since plan costs are about $10k to set up. I thought you could do it with Roth 401k, but it appears you may not be able to (if that could be done, it would be amazing.)
Also, the ESOP I work for doesn't have the 401k invest back into itself. lol. That sounds super shady. It's a normal 401k through a 3rd party company, where you choose to invest in different funds. I don't really touch it and just keep it in the default fund b/c I see the whole things as gambling.
I think the equivalent of 5% of your salary is put to buying ESOP stock from a pool (I'm not entirely clear how the pool works exactly)
Then separately an amount equivalent to about 20% of your salary is put by the company into a 401k which is vested after working there for two years. There is NO matching or anything. You don't put any of your money into the 401k.
The exact 401k percentage is based on that year's profits, so it allows the company some flexibility financially speaking. If we have a bad year then you get less in your 401k, but your base salary stays the same. If it gets really really bad then people's salaries get cut (that's happened only twice in the company's ~30 history)
Bonuses, dividends and ISOP [incentive stock options plan] shares (these are actual voting shares) are also handed out partly based on yearly profits.
The whole company operates on different contracts and the market is pretty volatile (I rather not say which one, but maybe you can guess), so the system allows a measure of stability for everyone involved.
I'm not sure what the benefit of making bad decisions would be.. maybe you can elaborate on that?
Career people that have been with us for 20+ years have huge amounts of capital tied up in ISOP and ESOP shares (as well as massive 401k's) and they effectively run the company. They often retire kinda early because they are making more from dividends than from their salaries. While I really love the system and I think it's significantly better than the other currently used systems in the tech industry (which are frankly outdated), the way old careerists run the show is rather anachronistic and I think hurts the company in a lot of ways. New hires don't feel as vested in the company and the most dynamic/in-demand people at the company are probably not the people that end up staying for 20 years. I mean in SV working for more than 4 years at one company is considered the signs of a bad programmer! However, on the other hand the old-timers are the people with the most experience and that really shows at certain times.... At the end of the day I get paid well and the organization is super flat (in a ~100 employees org I'm two levels down from the CEO)
For the individual employee, it's a very bad idea to have a significant chunk of retirement savings in your employer's stock. If your employer takes a turn for the worse, your job and your nest egg are both in jeopardy. So I would be skeptical of any stock benefits that don't allow the employee to immediately sell stock and reinvest elsewhere. If it's granted on top of a proper retirement package and the main benefits are profit sharing and shareholder rights, that's fine. If its used in lieu of any real retirement benefit that's a problem.
 "Immediately" being relative. Some companies have insider trading policies that restrict you to trading windows, but that's an unavoidable and separate issue.
Without going into the deep financials, it's much easier to live below your means now in your 20s then when you are raising a family later on in life. It would therefore be wiser to live below your means (even if this means living like a college student in San Fran or NYC) and choose 100k, be relatively frugal, and put away that extra 20k without tax. Starting a solid 401k in your early 20s is one of the most fiscally sound decisions you can make.
I don't mean to criticize your reasoning, I'm just offering another perspective.
If I were a 22 year old with 120k in college debt, I'd probably prioritize building a cash hoard. Plus, there are actually investments in operational stuff which will give you a higher return than even compounded 401k gains, and making those early might make sense. e.g. spending $500 to learn a key technology, living in a place which exposes you to the cofounders of your first startup or your future spouse, etc.
401k > college loan repayments above the minimum, probably generally true -- loan repayments are risk free, but it would depend a lot on the rate. If it's a 9% college loan, and you're in a 22% marginal tax bracket, and can get 3% return on your money, yeah. If you financed your college education on credit cards, ...
If you're loan rates are larger than the rate you're making in your 401k, then it's better to pay off the loans.
I think this gets even harder when you have employees in multiple offices and potentially multiple countries. I've seen posted wages for jobs where "Asians" got 1.37/h and "Western" got $20.45/h, posted on a sheet in the actual workplace wall.
I don't mean to be snarky, but, who are you to judge someone's priorities? The numbers and concepts you're talking about here, such as "a 0.1% improvement in A/R efficiency," are probably perfectly sound insights - if you're trying to optimize for revenue, profit, growth, etc. But it sounds like that's not his focus.
It's really refreshing to see a company leader with this much humility and integrity, and one who seems to be a lot more concerned with the quality of life of his team than the company's bottom line.
(I know that not all companies can realistically function this way, but I have a great appreciation for those that do. And if it all comes crashing down in a year then all you pragmatists can say I-told-you-so.)
It is totally valid in a non vc funded business to have a goal of "produce great income and lifestyle for the team" and "maximize the odds the business will be healthy in 20 years". In a VC funded business the general goal is to maximize expected return, which rewards high risk moonshots which may not pay off, but if they do pay off, will be huge.
Prof. Kay uses ICI which was a leading pharma company in the UK to explain obliquity in business. In 1987 ICI's mission statement read 'we make awesome products and innovate new drugs where possible to do good.' (wasn't in those words, but that was the message.) In 1994, they changed their mission statement to 'we exist to increase shareholder value,' and dropped the rest. The company went bankrupt not long after. The oblique route resulted in one of the largest companies in their field with the highest shareholder value, the direct route resulted in bankruptcy, i.e. the absolute lowest shareholder value.
Increasing shareholder value is only a motivation of the shareholders not surprisingly. Employees and customers have little interest in increasing shareholder value directly (unless they are significant shareholders) yet it is through motivating customers and employees that a company will grow and increase shareholder value the most. When longtime ICI employee Sir James Black (Nobel Prize Winner) was asked to change from making awesome drugs to pushing existing drugs on a roadshow to increase shareholder value, he left the company. He later created more blockbuster drugs in his new role, but not at ICI. Thus in VC funded and non-VC funded companies, I believe the goal should include to produce a great lifestyle for the team.
I think you omitted one valid priority for many startups, being a great place to work. I think many entrepreneurs are interested in this priority, separately from when it moves the needle in the areas you mentioned which help the business survive.
For many, survival, in business and in life, is not enough.
In this case, maybe it's a cost/benefit thing. If the cost of going from an informal consensus common salary to a more transparent formal salary (in implementation cost, and risk if it screws up) is low, go for it. If it's something like "we're going to try a new thing: only working one day a week", the cost is probably really high, so you'd want to be sure it was core.
There are strategies a company, or country, should abandon when survival is in jeopardy, but there are also values which are core to your identity. Abandoning those values when you come under pressure has a pragmatic effect on perceptions and ethical ramifications.
I also agree with you that being sure of what exactly your core values are is very important.
However, our example appears to be a company in peacetime. Our example experiment also appears to be very low cost. It isn't useful data to judge if non-survival core values for a company are worth defending in wartime.
For a country, defending non-survival core values during wartime is clearly worthwhile. This is where the analogy breaks down. For a company, there is clearly less moral obligation and practical costs to abandoning these values.
We can't say without doubt that defending values in a wartime company is the wrong priority. A combination of personal ethics and potential damage make that a case by case decision.
There are certainly situations where that's true, but it doesn't seem applicable here. They just launched a major new release of their core product, and suddenly found themselves with a bunch of extra money in the bank that they were deciding what to do with. That's not a "fight for survival" situation.
But it's important to remember that software is a human enterprise. You can do human things because that's the highest-ROI choice. But you can also do them because it's the right thing, or just the thing that's right for the people involved. Or heck, just because it's fun.
Maximizing shareholder value is popular business dogma, but personally I don't think it's a great way to run companies , and it's a terrible way to run one's life.
If you are going to use Apple as an example for anything, there are a couple key points:
1) You are not Steve Jobs, for all values of you.
2) Apple innovated in the Apple I/II days out of necessity -- there weren't really suitable standard options for them back then, at least for components. And even then, Apple was a pretty standard business from a structure and management perspective. Innovation was focused on the product. They didn't try business process innovations like selling direct BTO, they had a reseller/VAR network like everyone else at the time. They paid people like everyone else. Maybe slightly more secretive?
3) From what I've read, Steve's super hands on nature was most prevalent in the 1983-1986 Mac era, not before that. Obviously not in the long horrible winter.
4) Apple after the success of the iPod had essentially limitless resources. Not really relevant in the context of startups.
So, the relevant times to look are during the Mac (which wasn't really a commercial success), and in the comeback between 1997 and iPod. I don't think there was much innovation by Apple in either of those in ways other than direct product development -- the "skunkworks" idea of sending a team to build a product is pretty standard. The 1997-2001 period is still shrouded in Apple secrecy, so it don't really know the details of what Jobs did.
As far as people with backgrounds in growth giving the "only focus on your product, and things like the team and tools which let you make the product, ignore everything else", I'm struggling to think of a single startup founder or CEO with any real success who has ever said anything different. Plenty of those had faster growth for at least some period than Apple during the above two periods.
Elon Musk is another interesting case. Aside from the very high level "do the impossible", the big lesson of SpaceX seems to be "do everything in house." This is totally counter to the general trend and most advice in startups, at least in software. It is mostly valid in that the aerospace industry was incredibly pathologically fucked up, whereas the software industry is highly competitive and efficient. I'm not sure what the lessons of Tesla and Solar City are; the lesson of PayPal seems to be "merge with and get pushed out by Peter Thiel; profit", which is nice work if you can get it.
I also love these experiments. If they prove my intuition wrong then I have learned something. I hope they give an update in a few years.
This is how a financier would think about it (and I'm not saying it is always wrong). There's some finite risk allowance, and the idea is that you should load up 100% on business model risk-- which means no experimenting with open allocation, remote work, etc.-- because business model risk is what the VCs are good at analyzing and there's a bit of golden hammer syndrome ("when you have a great hammer, everything looks like a nail.")
As a practical directive, I think it's dead fucking wrong (practically; morally, people can run their businesses how they wish) and here's why. If you load up 100% on business model risk, then 0% gets allocated to employees. They get no autonomy, work long hours, and generally get abused because "we don't have any slack in the schedule". Well? If your business model is innovative but the only thing you're delivering to employees is the stereotypical soul-sucking corporate job, you're going to have to give 25-35% annual raises each year (as Wall Street does) to keep anyone good. That's expensive, unsustainable, and by necessity leads to an up-or-out culture that fries the place anyway. Of course, startups replace this with equity options and hope the exponential curve of the valuation will deliver the implicit raises, but anyone who can do basic math on a typical engineer grant (typically $5-20k per year at-valuation) is going to find it weak as a motivational tool.
If people have the autonomy to direct their own careers and work on things that interest them, they're a lot less expensive in the long run, because it doesn't take a 30% pay bump and a newer, shinier management title each year to keep them on. This is even more true in startups. People expect, e.g., Microsoft or Goldman, to be bureaucratic. If people go into a startup and find that the traditional hierarchy and closed-allocation regime are in place, they're going to feel cheated and get pissed.
If you want good people and you want them to be motivated by the work instead of an exponentially growing paycheck, that means you have to experiment and give them unusually high degrees of autonomy.
I hope we all agree startups have finite resources and shouldn't try to innovate (or really even spend much time on) the really mundane things which don't matter to that particular startup. Legal paperwork, trash disposal, etc.
It's an interesting question which things are in the middle, and how much innovation/experimentation is reasonable there. Hiring is clearly core, so things around hiring might be more legitimate grounds for experimentation than others. I don't think cash compensation is the pain point for most of that, though -- how people pick projects, how people are recruited, etc.
However, I have multiple roles and tasks, only one of which is development.
I definitely get a lot of insight during the regular day from fellow coworkers, and tend to do more "operational" (not developing) work better when I'm alongside peers than when I'm there alone late. It's also the kind of work where multiple people looking at one thing really helps, since one person might miss something important and another might notice something important.
So I think it depends on the kind of work you're doing and how you like to work. And that is partially why letting employees work when they want, and even choose where they work, can lead to them being more productive in general, at least as long as you can trust them to choose a schedule that makes them productive instead of one that lets them be lazy.
So, sign me up for a 6 hour day and you'll get my full attention all day. I won't "need" to spend time on HN or twitter or whatever to kill time because I'll be fresh enough to work all day.
Also, because i believe there is a hell of a lot more to life than work, we'll work 4 days a week.
A guy can dream, can't he?
After about 7 hours of coding, I feel my code starts slipping off. Also, I code better at night. I know people who can't code for more than 6 hours a day or their work gets shitty.
I usually code 6 to 7 hours a day, and I take my friday afternoon (or part of it) and night off. This sometimes means working just the morning and the first half of the afternoon, and sometimes means working until 4am on the Thursday and then not working at all on Friday.
I think when you have great people on your team, that love their work (Not their jobs. Their work), it gets eaasier. This people will do their best, and that can't be measured in hours. That's why a fixed schedule actually sucks and many, many people don't like it.
But if you add a preparation, commute, lunch-time, etc... you easily end up with only 4-5 hours of "recreation".
Now imagine you have a wife, kids, friends, side projects, maybe want to watch SICP lectures, learn some Haskell...
4-5 hours is simply not enough.
So after 100-110 years, maybe it's time to come up with even more efficient work day? (But keeping the right direction).
Personally I like to give it as much as a can for a solid, honest, 8 hours and call it a day. This way I can give it my all everyday, and still get the R&R I require.
I don't let other people's working longer hours than me affect me, though, because I know that my total productivity would decrease if I worked longer hours. If that's not the case for other people, or if they like work so much that they want to do more of it, or if they are bored in the evenings/weekends and want to dabble in something, that's great for them.
I think the factor that helps is that I don't have management that will say "yeah, but X worked 60 hours a week and you didn't", but I'm pretty up-front about that anyway, and just stand my ground.
All that having been said, I do find the US work ethic a bit crazy. Working crazy hours isn't good, and the amount of hours worked per week isn't usually proportional to productivity.
While we're at it though, letting employees set their own salaries is stupid. It seems like a short term gimmick, absolutely plagued with problems as a company grows. I don't even believe it's true - you'd end up leading people to the number you require, and it's like declaring the organization is flat, then leading it with subtle manipulation and hidden cliques.
In a weird paradox, startup CEOs love to avoid leadership, blog about it, and say it's a hip new approach.
I think the set of principles we've been operating under have been working pretty well and I believe Chris to be a genuine person, but I'm biased by being personally involved with this particular story. It might also be important to note that while he didn't give the numbers in the story, we all who voted got to see the numbers before and after (he's never hidden them from us) and the effect the new salaries have on our bottom line.
I can see how it could go wrong given employees trending towards unhappy/defensive and a boss trending towards dishonest, but that would be an awful situation to be in no matter what kind of gimmicks the bosses introduce.
At any rate, we're not really obligated to share our numbers on our blog. :-) Might be reasons we'd want to keep those private, no?
Also, since you're the OP and on the thread, I would love a post [or even a reply to this] on how your rental scheme is going [and perhaps some idea as to what portion of the product's revenue is from rental]. Very cool & interesting model we've thought a lot about lately.
BTW - I love the experiment and may use it for my next hires, your transparency is commendable and while it may not work for everyone I love the idea of making new hire salary negotiations into true salary discussions.
And the 'subtle manipulation and hidden cliques' is how human reality works - a flat organization structure just allows that to be the natural environment, rather than trying to force that natural human nature onto a strange arbitrary structure. You only get one set of politics and handicaps to fight, instead of 2 counterposed sets.
And finally, making decisions by fiat or decree is not leadership. Read literally anything about leadership, stretching back centuries of human thought on the subject, and you're realize how off the mark you are. He LEAD the company to the voting process, he LEAD the company on deciding how to develop/deliver/market (successfully, apparently). He's definitely a leader.
At the same time however, you have to pay market rates. If a good employee has an offer for 20% more than they are making, and they just had their first kid so they'd kind of could use more money, what do you do?
On one hand, you give them a raise - which breaks the collaborative system. On the other, you don't give them a raise, and you lose a key contributer who was bringing in far more revenue than their salary.
The fact is, your best employees are going to be constantly getting offers above what you pay them, and you need mechanisms in place to keep them. At the same time, transparency has to really be transparent if it's going to be a core value of the company - if I was told everyone was making $X but I found out that some of those people were making more, I'd be annoyed.
So my question is, how do you solve this?
Transparent criteria for salary mean that you avoid the politics associated with salary negotiations. And making even a single exception typically breaks that, meaning that now everyone at the company is incentivized to get higher-paying offers and bring to you, asking for more money. Ben Horowitz wrote a great post on this: http://bhorowitz.com/2010/08/23/how-to-minimize-politics-in-...
Personally I would say that you should avoid ad-hoc raises. I really like the idea of matching salaries to titles and matching title changes to a bi-annual performance review (for companies over a certain size.) And it gets a lot of the advantages you want-transparent compensation, no incentives for politicking, ability to pay people differently, and the ability to adjust the pay for the role according to market rates.
Edit: Fog Creek's compensation system is a good example. http://www.joelonsoftware.com/articles/fog0000000038.html
Seems like quite a pair of handcuffs to put on yourself.
I think I can offer some insight on that, because I'm Figure 53's employee #2 (after Chris). I live near San Francisco, where with some effort I could quite possibly find a job that paid 20% more than I'm making with Figure 53 if I wanted to. And my first child will be born in the next 3 weeks! Oh, I also bought a house in June, for extra measure. :-)
Would a 20% raise be enough to draw me away from Figure 53 to work for one of the many startups around here? Hell no. A 200% raise wouldn't be enough. Some of the many reasons why:
- I'm passionate about our products, but even more so about the art that gets made with them. I'm a musician who learned to code in order to make the tools that I wanted to use, and now I get paid to make those tools, and help other people use them. Whether it's a high school play or the Olympics, it's really freaking cool to see what your customers create with your work.
- Family is important to me, and working from home (and not on a 9-5) means that I'll be able to spend time with my daughter even after I come back from paternity leave. Chris is of a similar sensibility, so I never have to do any convincing on that score.
- I don't have to worry about whether the company's going to be around next month, because I know our money is being managed conservatively. We're in it for the long haul, which our customers also appreciate.
In short, Chris solves the issue of employee retention by making Figure 53 compete in many more important arenas than salary, from the more banal things like job stability to the more intangible things that go into quality of life. That's not to say that we aren't being compensated appropriately for what we do -- Chris has made it clear he's all ears if any of us ever feels we're being short-changed. But otherwise, if I went to him and said, "Hey, Schmooblr LLC is offering me 20% more, pay up or I walk", that would be a sure sign that I was not a great fit for the company in the first place.
> If a good employee has an offer for 20% more than they are making...
We let them leave. That said, it doesn't happen often (I don't know of a time it did). Our salaries (and annual bonuses) are generous, and any differences are more than made up for by various other perks.
That said, we do lose new hires to bigger offers. If this happens too often, the entire pay scale gets moved up to reflect market changes and/or inflation.
Another option is to reward those employees with non-cash rewards.
Finally if their contribution is easily measurable, a bonus or commission system tied to those metrics could be transparent and perceived as fair.
The owner has employees. Not partners. He is carrying all the risk. Slow pay? He pays. Personal guarantee needed? His house is on the line. Needs cash to hire the next employee or to float more payroll while the work ramps up? Ya its his cash.
He's effectively made everyone an equal partner with unequal risks and responsibilities.
That's not to say that that is what is happening in this situation - I don't know, but while I love the transparency aspect, I would not expect the 'allow employees to choose their salary' to reliably create a good outcome for the company. (Having said that, allowing management to set salary secretly doesn't always work great either.)
I expect that it only stands a chance of working well if your employees are genuinely bought in to the whole idea of the company.
Typically, people who are involved in decisions feel much more engaged in dealing with the results. My expectation is that if something happened to the company, his employees would be much more loyal. Certainly if I worked for him, I'd be willing to take some bad times with the good times.
The one open-books company I visited had extremely loyal employees and great camaraderie. Causality is hard to untangle there, but it's not unreasonable that this is much smarter that the "Mine! It's all mine!" approach to employee relations that is a common alternative.
if they wanted to be business partners they wouldn't become employees in first place
I suppose the lesson is that the owner/CEO should be involved and observing these decisions.
Some excerpts off his book on 37signals: http://37signals.com/svn/posts/945-excerpts-from-ricardo-sem...
His book: http://www.amazon.com/Maverick-Success-Behind-Unusual-Workpl...
Sure, company owners typically take bigger risks in a startup than paid employees, but often, it seems to be the case that most people who take the plunge have safety nets, alternatives, and upfront capital that represent significant privilege over the norm. Perhaps, relatively speaking, its just as risky for the employee who takes a paid job that may not exist in matter of months.
In our society, for people in which the startup thing really works out, our system could make you a multibillionaire. You could literally have one thousand times the wealth of someone who is a multimillionaire. Or a million times the wealth of someone whose managed to squirrel away a little bit of cash from the two jobs they work. It takes some serious stones and principles as an owner to deviate from a system that's designed to enrich you if everything goes to plan. I hope it works out.
Are you fucking kidding me? No, really.
OK, maybe, just maybe, if you have a very small homogeneous team and all of you are hippies this could make sense. Outside of that scenario it has disaster written all over it. This is just being a lazy CEO and not wanting to make decisions.
Part of your job as a CEO is to understand such things the ebbs and flows of the business and ensure that it can survive even potentially deadly (financially speaking) scenarios.
Do people vote themselves a pay reduction during bad times? Good luck with that one.
Do all employees understand and plan for future acquisitions, investments and expenditures? Of course not. Sometimes you have to horde cash to get ready to make an investment, launch an initiative or hire more people. It is my experience that few people in a typical organization truly understand the financial dynamics of a business. People tend to see a two million dollar sale as two million dollars and not as the risk it can represent and the timeline to making a profit. Sometimes only the CEO has a true mental image of reality.
Here's an example out of my own life. True story.
I closed a $2.5 million dollar sale. This is for a hardware product. We are to be paid in four $625K installments, with the fourth one being against delivery. Walked away from the meeting with a PO and a $625K check.
Fantastic, right? No. I was actually very concerned. This was early 2009. The economy was in bad shape. Banks were not lending. Everyone was bleeding money in one way or another. Most people would see a $2.5M sale as a huge win. I saw it as a potential mine field. Of course I was happy to have won the business. The reality of a CEO is to have a larger mental map from which to operate. This larger mental map told me that, while this was a nice win any number of things could go wrong and hurt us.
Here's a reality in the electronics manufacturing business: Lead times can be horrible. It isn't unusual to have to wait twelve to twenty weeks for components. In addition to that, a lot of orders are tagged with the "NCNR" acronym: Non-Cancellable, Non-Returnable. In other words: You can't back away from an order.
What does this mean when you need to deliver $2.5 million in product in four months. Well, it means you have to write a huge pile of purchase orders as soon as possible. The profit margin on this sale, if everything went perfectly, was approximately 25%.
There are two ways to see this. The immature/adolescent way to see it is: "Man, you are going to make $625K!". Reality means "We have to spend $1.875 million to get this done. The latter is where the minefield lives.
Employees are not in tune with these realities. They want a reliable paycheck every week and they want security. And, yes, they want to make as much money as possible. None of this is meant to be pejorative, it's just a reality.
So, what happened? Well, within a week of receiving that first $625K I find myself writing nearly $1.5 million dollars in purchase orders. I had to. If I did not pull the trigger right away we could not deliver on time. Most of the PO's were for NCNR items.
The next twelve months would send me to the hospital at least once from the stress I had to endure. The bank that was financing this deal for my customer decided to pull back. Our second installment didn't arrive for several months. When it did, it bounced. In the meantime the warehouse was filling-up with components we had to pay for. I had to use a combination of all of my credit cards as well as the full available equity in my home to pay salaries, bills and keep the business afloat. I did not fire anyone.
It was a nightmare of unthinkable proportions. The proverbial kiss of death. At least one person actually died as a result of this business transaction. No, not in my company. The CEO of an associated company had a massive stroke and heart attack. The stress was just too much for him to handle and he could not take a break to look after his health. Sad.
The story is far more complex than the short version above and far more nuanced, don't try to dissect it because you don't have enough information. I am simply using a simplified version as an example of business reality. It's a contact sport and sometimes you get bloody.
During this time most of my employees were not aware of the mess I was juggling. Why not? Are you kidding me? The easiest way to destroy a company is from within. People want sausage, they don't want to see it made. Most employees at a multidisciplinary business don't have enough information to understand what's going on. You'd have to spend a ridiculous amount of time educating everyone in order to ensure that they get it. That's an irresponsible misuse of time. Your testing technician needs to be in the shop testing boards, not looking over balance sheets. Same applies to your shipping clerks, receptionist, marketing manager and graphic designer.
So, yeah, I am coming off a bit harsh on this one. And rightly so. I think this CEO isn't a CEO at all. He wants to be buddies with his presumably homogeneous team. This decision is bad on many fronts. It sets up a bad situation. You will have to veto or flat-out take this "right" away at some point and, when you do, it will be hell.
The other item is this idea of the CEO choosing to get paid the same or less than everyone else. OK, well, five buddies start a business together, fine, that makes sense. In most other situations this makes no sense whatsoever. Most businesses outside the reality distortion field that is the SCV/Venture-Capital world are self-funded efforts with huge financial and time investments from the CEO/Owner. A lot of them require slaving away in your garage for years before you can scale. There is almost no way any employee can match the level of investment, effort or sacrifice this class of CEO put into the business before the first employee was hired. No way. CEO pay and employee pay have no correlation whatsoever. One is responsible for a very narrow domain. The other is responsible for everything, often at a personal level.
Pay your employees fairly, treat them well, be generous about vacations, be considerate, help them if they run into tough times (sick kid, parent, financial problem, etc.), pay for conferences and training courses, take them out on morale building trips and, if finances allow, be generous with bonuses and your recognition of their contribution to the enterprise. You are running a business, not a hippie commune.
Actually, yes. I read the Semco book mentioned above, and he has an example of it, that people agreed to pay reduction for everyone rather than layoff someone. Which is actually mirrored in other human experiences, where tough times seem to usually bring people together (contrary to what is often believed).
Another point from the book. They did financial training for the employees, so presumably, they understood financial dynamics. Semco employed lots of blue-collar workers, apparently, and it still worked for them. I don't see why company employing primarily SW engineers (smart people) couldn't handily do the same.
The key message from the book seems to be, just be honest about it, don't try to cheat, and it will work out nicely.
This is more of a Russian Roulette  scenario: If you don't vote for reduction in pay you might lose your job. Without knowing whether you are safe or not all you know is that there is some probability of losing your job. Therefore, the best option in front of you is to go for the pay cut and guarantee you are safe.
This is not an example of altruistic  behavior but rather almost exactly the opposite.
It's not itself a problem; you perceive it as a problem. It's kinda similar to democratic countries less willing to do military conquests. If you value democracy, you understand implicitly that it doesn't actually matter if your country has population 10 million or 100 million. That may matter for the elites on the top, these get extra credit from that; but for the common working guy, it means just 10 times more of the same.
The same way, (more) democratically run workplaces (and yes, they do exist in many places) have different goals. The point is, it's OK.
Maybe I'm hopelessly naive, but would that deal have been impossible to make on terms where the client paid the majority of those up-front costs. Since they were inevitable and the project could not be delivered without them, it seems like they would have an interest in doing so, and thus not half-killing their supplier!
I'm a new CEO: please help me learn from your experience!
Gross margins were far greater than what I quoted. The number I quoted was what I realistically thought we could keep if all went well (defined as "normal"). Also, remember that you don't get to keep all the money you make, you have to slice off a good chunk and hand it off to the government. This is another area where a $2.5 million dollar sale is not a "we are swimming in cash" situation. Don't get me started on that one.
The other reason was: 2008. The economy took a dive. In a lot of industry segments orders evaporated from the books within one quarter. It was a do or die situation. In all honesty, I was looking down the barrel of an ugly gun. I was facing having to lay off a significant number of people. So I did what a CEO has to do under those circumstances. I took off my engineer hat and hit the road to sell, sell, sell. The result is that I landed a nice contract. The bad news is that buyers knew that they could extract very good deals during this weird time when everyone was hurting. In other words, as a seller you had limited leverage. Margins had to be tightened in order to get the deal. Plain and simple. Sometimes your choices are very limited.
> Was that your best option to keep the company going?
At the time, yes. There was nothing else in the horizon of the right scale. It would be a year (2010) before I saw an opportunity of that scale come across my table.
> Maybe I'm hopelessly naive, but would that deal have been impossible to make on terms where the client paid the majority of those up-front costs.
Well, I asked for 100% payment upfront. There was no way I could close that deal. Not even 50/50. It ended up being four 25% installments which, under normal circumstances, isn't bad at all. If you consider supply chain lead times and supplier credit terms (which I negotiated to 90 days in some cases) this would work out fine if all went according to plans.
I did not have the luxury of acting in consideration of payments not arriving on time without being dishonest. What I mean by this is that I could have waited until at least two payments were in the bank before issuing PO's and getting ready to manufacture. This would mean that I would most-definitely not deliver on time. I would have to lie about delivering on time in the interest of ensuring that at least half the cash was in the bank. This could setup a whole array of situations when deliveries end-up delayed by a month or two. I chose to be honest and pull the trigger right away. Bad decision? From hindsight, yes. At the moment the right thing to honor a commitment to deliver on time.
> and thus not half-killing their supplier!
I found that people don't generally think this way. I've had customers knowingly support my efforts because they liked the direction I was taking. Even though they were paying more and had to wait for the results they'd still support me. That is a microscopic portion of the TAM. A few people counted with one hand. The more likely scenario is that people want it for as little as they can get it. Period. At one point I chose to highlight the fact that our products were US designed and manufactured. The effort failed to produce any measurable sales above the noise floor. People don't think that way. They'd happily buy the cheaper Chinese alternative and don't think about the fact that, in doing so, are contributing to the slow destruction of the local manufacturing base. Ultimately you, as a CEO, are forced into an "if you can't beat them, join them" situation. I really rubs me the wrong way when I hear people talk about how companies are taking jobs to China because they are greedy. Thinking like that only reveals deep ignorance.
> I'm a new CEO: please help me learn from your experience!
Talk to people who actually run businesses. For the most part ignore those who do not. I say "for the most part" because I have long time friends who have always served as a "bring balance to the force" input, particularly during tough times. However, these people are few and far between and, in my experience, you've known them for quite some time. A lot of the people posting on sites like HN have never even run a cookie baking operation yet think they understand business.
To that end I'd be more than happy to speak to you off-list. My email is in my profile.
If you are a technical CEO (EE or CS major) I'd urge you to put a lot of time into understanding business. If you can, enroll in an MBA program. MBA's are, in my opinion, useless without context. However, if you do have context --for example, you are an EE and have experience in the industry you are addressing-- an MBA can probably save you from lots of pain and suffering. I wish someone had pushed me in that direction.
Beyond that, at some level nobody can teach you everything you need to learn. You have to hold the cat by the tail .
Learn to sell and market. It's an art. And you'll need to know how to do it with your eyes closed if things ever go bad. Selling isn't sitting at a desk waiting for phone calls or emails. It's a contact sport. It's finding business rather than business finding you. Very important. The "Little Red Book of Selling"  is one of a possible range of books you could use to get started.
 Mark Twain: "A man holding a cat by the tail learns something he can learn in no other way"
I think in the new millennium we should be experimenting with different models of running business. Why do you feel that a model that has worked well for the past 100 years is the final form of all business? Why say that it is a 'hippie commune' in such a derogatory manner? Not all businesses can use this model and not all CEOs should operate the way you feel. It is a multi0faceted world out there, and I believe businesses should reflect this.
Should your company run like this? No, its not in your mentality and probably not possible for your industry. But... Semco has proven that this type of model can work even for a large hardware manufacturer (marine pumps was their original line of business, but with innovation to their business format came lots of innovation in their product line).
All I see in your well though out post is anecdotal data wrapped in an inherent pessimism towards people and a 'hard-ball' mentality towards business. You are coming off harsh, but I don't think it is quite as righteous as you want it to be. You know what is best - for you - why not let others experiment and see if we can't create something different for business in the future. Some will fail, some will thrive, but it is the experimentation which is vital. And this post is a great example of someone who is in a position to do it, and may well be very successful. If they go bankrupt then come to HN and boast about how change is never good and your way is the only way to run a business. And I will still call you out on it even then.
One question for you: If you knew your employers finances (Semco gives all staff a 2 week course on understanding the books), and could see that if you didn't take a pay cut now, you would lose your job in 3 months as the company would go bankrupt, would you vote for a pay decrease or say fuck it, I'm keeping my salary the same and damn the consequences?
Really depends. If I felt the company would take a long time or have a low probability of pivoting and recovering, I would probably vote myself the highest salary I could and ride it down/start looking for another job. I assume quite a few others would feel the same way.
When this situation happened at Semco (Brazil has had a lot of problems with its economy over the last 20 years) management put forward keeping salaries the same, but letting people go. The employees countered with everyone getting salary cuts to see them through the down turn, with the hike back to normal levels agreed on beforehand.
I don't know if it was about wether or not the company the company would turn around, but it seemed a lot more based on loyalty to the company (plus all staff, even assemblyline workers set their own work hours) and no one really wanted to go back to working at a 'traditional' company. I think that in software dev a lot of the jobs are fairly the same work environment-wise, so your take probably could work if you are only at work for the money (and I know, everyone has bills to pay, I have a family so it would be a tough call for me to make as well but I don't think I would just try to hike my salary and hasten the doom of the company if they've treated me awesomely over the years)
If you spoke to any one of my employees you'd quickly understand that the 18th. century mentality claim would be an insult. For example, it wasn't uncommon for people to request a couple of days off to go see a concert out of town in the middle of the week. I can't think of any instance of not approving such outings AND also paying for the days they were away. In other words, treat people as you would like to be treated.
I ended my post with this:
"Pay your employees fairly, treat them well, be generous about vacations, be considerate, help them if they run into tough times (sick kid, parent, financial problem, etc.), pay for conferences and training courses, take them out on morale building trips and, if finances allow, be generous with bonuses and your recognition of their contribution to the enterprise."
That is far --VERY FAR-- from an 18th. century mentality. How dare you!
As for your question, well, any number of scenarios come to mind. Not the least of which is --as someone already pointed out-- voting yourself a pay INCREASE and using the time to FIND A NEW JOB.
This is a natural reaction to "the ship is sinking" type news. People are going to look after themselves and their families. And, at one level, there's nothing wrong with that. In the process they might exacerbate the problem and create a bigger problem.
Understanding business economics is NOT something you can learn in two weeks. The idea that this can be taught to every employee in an organization, regardless of station and education is simply ridiculous. I am not being elitist here. It's just reality. When I started off, as an engineer CEO, I knew fuck-all about finances, marketing, sales, accounting, inventory turns, accounts receivable, supply chain management, channels of distribution, taxes, regulation, leasing, and a million other things you need to understand to run a business effectively and efficiently. These things took years to learn and to learn them the hard way, making mistakes along the way. It was only later in life that I found myself wishing I had gone for an MBA. It probably took me ten years to get my "street MBA" the hard way.
Just about the only thing you can teach someone in two weeks is probably how to read a balance sheet and not necessarily how to understand it. That's useless. A business is not a balance sheet. That's just a snapshot in time and is meaningless in terms of understanding where you are going and all of the micro inputs driving your current and future states (if I may inject a little state machine talk here). This state machine is very complex. You want employees at all levels working on what they were hired to do, and not busy trying to decipher states with faulty input information. It is counterproductive and it has the very real probability of cause horrific results (people leaving because they panic).
The topic at hand was this idea of letting employees select their own compensation through voting. That's just nonsense when applied to any real organization outside of perhaps a few very narrowly defined outliers.
One example that comes to mind is that of sales people. This can be a really odd group. They are generally very aware of finances at a transactional and COGS level. If you let them vote for their own compensation you'd probably be shocked by the results --and I don't mean "pleasantly surprised".
I have never had a sales person come to me and say something like: "Hey Martin, I haven't sold anything in three months. How about we lower my salary so I have a chance to pull out of this hole I am in and show you guys that I can bring in the sales.". Ha! Never. They keep flying the plane right into the ground. Even after repeated talks where we look at numbers and I highlight the fact that they've been receiving advances on commission they have not earned yet for weeks, not one person has ever suggested a cut in pay. That is NOT how people think.
If, on the other hand, you put someone (or a group) in a do-or-die situation and the options are a bunch of people are fired or all of you take a pay in cut things are different. The decision to go for the pay cut has NOTHING whatsoever to do with understanding finances after a two week class. Nothing. I'll let game theorists dissect this one if they deem it worth their time. The mechanism is very simple:
- If I don't take a pay cut they will have to lay people off.
- I could be one of those people.
- Without private information from management signaling that
I am safe, I could be gone.
- Therefore, the best way to ensure that I don't lose my job
is to support the idea of an across-the-board pay cut.
- We all win and I don't have to worry about losing my job.
In many ways it is one of those "Interesting game. The only way to win is not to play." moments.
This is very much a "Tragedy of the Commons" case. As you scale up the hippie approach. They are bound to destroy the very entity that feeds them.
The best example we have of this are highly unionized businesses. The unions, effectively and by force, get to vote for their own compensation and benefits. If they don't get what they want they go on strike and cause untold damage.
In nearly every case I can think of in the US, unions have succeeded in extracting pay and benefits that are absolutely ridiculous in the context of anyone living in the real world. They have also succeeded at killing-off or seriously damaging entire industries and even cities.
For example, in a rational framework a city should not devote 40% of their budget to pensions. Yet it is happening. Cities and businesses are going bankrupt because of this. If these people were rational and truly cared for the enterprise (city or business) they would analyze the numbers, understand the problem and not vote themselves these ridiculous compensation and benefit packages. The would voluntarily scale them down. That is not happening. And that's not 18th. century thinking, that's people in the US today. That's how they behave. That's reality.
That guess is wrong. I have started, run and sold my own companies before, and I'm currently bootstrapping a new SaaS company right now. I don't know about using other peoples money, as I have always self-funded, I am a firm believer of organic growth, as I have never been too concerned with becoming mega-rich, I just like to fund my lifestyle. First company I started and sold was way back in 1989, when I was 18 years old, of my bedroom and using hotel meeting rooms to see clients. Nowadays I mostly consult and mentor SMEs, as I enjoy working with plucky entrepreneurs. the only reason I'm starting a new business is that I just had my second child, so I need extra funds for my lifestyle now :)
>If you spoke to any one of my employees you'd quickly understand that the 18th. century mentality claim would be an insult...
>That is far --VERY FAR-- from an 18th. century mentality. How dare you!
How dare I? So it is fine for you to call people (experimenting with their own, so far successful, business) childish "OK, I'll be the grown-up in the room.Are you fucking kidding me? No, really."
But if I politely say that you have an old fashioned view of business your hackles immediately rise and you get morally wounded. Let alone throwing around the word hippy to describe something you don't like. Why not just call him a commie-pinko-bastard and be done with it. Or do you use the term hippy to imply drug taking as well as loose morals? You could call him naive, inexperienced and so forth. I would call him brave and innovative. But those are just our respective viewpoints.
Part of this is my fault, so let me clarify what I mean by 18th century mentality (I didn't mean to imply that you're an asshole or a slave-driver, I did read your comment all the way through, and you're one of my favorite commenters here on HN):
"Business needs a hierarchical structure with one strong leader at the top, calling all the shots taking all the risks and profits, as this is the only way that works and without it fickle employees would destroy the company within a matter of months if left to their own devices."
Patriarchal is another way at looking at this type of business mentality, and I associate it with what you said regarding being an adult and 'hippies'. You see yourself as the tough, but fair father figure of the company. There is nothing wrong with that, and a lot of successful software projects run under the auspices of a 'benevolent dictator for life'. Being ex-military I know first hand that this type of structure is necessary for successful battle operations. I just happen to think that there are also other valid models out there, and people shouldn't be attacked as acting childish or hippyish just because they try something different. Maybe for your industry the model you prescribe is they only way. That makes me sad as even you pointed out that a man died because of the stress, and you yourself went to hospital. Considering that business is an abstract model that we humans have invented, wouldn't you rather find a better way of doing business than to push yourself into an early grave?
Business is often regarded as war, but that is a choice we make.
>Understanding business economics is NOT something you can learn in two weeks. The idea that this can be taught to every employee in an organization, regardless of station and education is simply ridiculous. I am not being elitist here. It's just reality.
The reality is that it has been done, and quite successfully. It may sound ridiculous, but it actually has been done. Of course, two weeks won't give you MBA level understanding of business economics (in all honesty, a lot of the MBAs I've worked with probably spent about 3 hours learning finance), but you can structure the information in such a way that they understand enough to be able to make informed decisions about their salary and so forth. I know that you're quite intelligent ere's a thought experiment for you: what information and at what level would you present to your staff if you only had 2 weeks to give them a solid foundations of money flows in and out of a company? Especially from a 'street MBA' viewpoint. I bet you'd come up with a pretty solid course.
>You want employees at all levels working on what they were hired to do, and not busy trying to decipher states with faulty input information.
Some of the world's most successful companies have employees who also know the bigger picture of what is going on in the company. It doesn't have to be the extreme that you're suggesting, where the janitor isn't mopping floors because he is busy on excel trying to figure out a 10% cost cutting maneuver. But would you be against the janitor who, knowing his departments cost impact on the company, tries to see if the floors would look better with 2 instead of 3 coats of wax, thereby cutting his wax costs by a third?
>One example that comes to mind is that of sales people. This can be a really odd group.
You're preaching to the choir here. I completely agree. I remember one salesman I worked with who didn't understand the differences between profit mark-up and profit margin. He kept wondering why he was losing money when he discounted something. All agreement aside, one of the best salesmen I knew talked his managers into canceling his salary completely, but paying him a higher commission rate. Needless to say the managers wished they had run through the numbers a little more before agreeing to it, as he cleaned up.
>That's how it works. Again, people are not analyzing business finances. Management puts a fork in the road in front of them. Two choices. Choice number one means you might lose your job. Choice number two, you don't. No brainer.
In the above, of course it's a no brainer, people have no access to finances, and management lays out the options. One company I consulted with worked with their staff during the financial crisis to work out how to deal with the problems of lay-offs. Three of the youngest staff members came up with a novel idea, where they split one job between them. They had objective results that needed to be achieved each month, and they split the time and money according to who needed what each month. For example, when one of them needed to go on holiday he worked a whole month by himself, and took all the pay. I also had the pleasure once of consulting with a board minus 2 employee at a large insurance company. He had to lay off people in his department (the department with the largest revenue and profit) even though he was already short of staff. His main complaint was that the monthly car allowance for his boss would pay for 7 full time sales people which could bring in $Xmm per year. Luckily for management those numbers are well hidden. All of this came from the result of a three-quarter of a million dollar consulting project which came up with a hard to find outcome - lay-off 30% of the staff to cut costs.
As for unions I don't like them or believe in them and I think they are also a part of the 18th century mentality I mentioned earlier. They are a knee jerk reaction to the way a lot of traditional companies treat their employees. This again harks back to the idea that business is war, only for the unions the enemy is the employer, which is downright dumb. And let's not even go into the levels of corruption present in unions.
Business is there to make money. I just think that there are more ways to skin that cat, and that you shouldn't shout down someone who is trying a new method. The person who tried this seems smart enough, and with your experience you could probably give him some extremely useful tips about what to avoid, what problems may come, and see what he does with that. But why should he read past are you fucking kidding me you childish fucking hippy?!?
To find he should follow your method of business that leaves people in hospital or dead?
> I didn't mean to imply that you're an asshole or a slave-driver
Thanks for the clarification. That's exactly what I took from your 18th. century comment. Clearly that is not what you meant.
> Business is often regarded as war, but that is a choice we make.
A business, past a certain point, becomes a living organism. Sometimes you think you go into work every day with a plan and then the business ends-up telling you what you will be focusing on that day. Much the same, one can start with altruistic intentions with the full intent of having a communal and collaborative relationship with external entities (customers, associates, suppliers and even competitors). Then you learn that few play by those rules and business can devolve very quickly (and often does) into a war-like atmosphere. I have examples of this galore.
Granted, different business segments behave differently. I have a sense that a lot of the SV startups exist in this innocent utopia they've created. There are industries where you don't dare share internals or technology details unless you are willing to be eviscerated by your competitors inside of a microsecond. Old world thinking? Maybe, but it is very real. Until such time as this changes you have to live and work within this reality.
> you can structure the information in such a way that they understand enough to be able to make informed decisions about their salary and so forth
You see, I view that as a total deviation from the mission. My job as a CEO isn't to try to figure out a way for every layer of the organization to have enough understanding of business finances to be able to vote for their own salary. What's that old saying about being up to your ass in alligators? That, to me, would be a major failure in fiduciary duties. It would also be a major failure in operating the business efficiently. I can't see a reality where I want my shipping clerk, graphics designer, electrical engineer, sales force, customer services folks and marketing manager to devote time to becoming familiar with company finances. It can also become a huge time and money sink. As employees come and go you now have to educate the new ones so that they can become part of their respective voting blocks. It just can't scale.
I've stated that I can see this working in a small (5 to 10) company consisting of a very homogeneous group of similarly educated and capable people with compatible mindsets. I can see that. When things are going well everything can work just fine. If things take a turn for the worst you can have serious problems. The only way this can work well under all conditions is if all employees have, as their absolute top priority --and at the expense of their own livelihood--, the survival and well-being of the company. If you happen to put together a group like that then they'll make the right decisions during good and bad times.
There's also another element to this. It takes a lot of intestinal fortitude to be an entrepreneur. Things can get very rough. Nearly every entrepreneur I know has horror stories to tell. Nearly all of them speak of stress, sleepless nights, tensions within family and relationships, neglect, reduced quality of live and more. It isn't always like that, of course, as a business becomes successful you can begin to truly enjoy the fruits of the effort.
Bringing employees into the sausage making innards of a business can be hugely distracting. You don't want your employees going home with the worries and stresses that upper management absorbs every day. A programmer who spends all day worried about the numbers she just saw is not likely to be able to focus on her job. Sometimes ignorance is bliss. Bad things happen in business every day. That does not mean that the business is up in flames. In order to ensure that employees don't interpret things the wrong way now you've added yourself the task of constantly having to educate them as to the minutiae of what is behind every balance sheet you release. That's a lot of work that is absolutely not necessary. That's not what a CEO is there to do.
As for my comment style. Was I harsh. Probably so. I firmly believe that this is an utter waste of time, it is potentially dangerous and definitely counterproductive. It further feels like the CEO is trying to avoid the responsibility of having to deal with compensation. Employee compensation, particularly if you consider sales, is one of the toughest things I've had to learn about. I remember having a stack of probably ten books on compensation theory next to my bed for a while. Not easy work. Once you develop an approach it's easy.
I can totally see a young CEO being totally overwhelmed by just this task. A CS curriculum teaches you little if anything about running a business. From that perspective it is easy to escape and justify the idea of letting the employees vote for their own compensation. The problem here is that you will, eventually, have to deal with making sausage. So I end up calling it a "hippie" solution. Yeah, OK, maybe harsh. It simply reflects my first level reaction to something I though was not running a business but rather trying to create a commune.
> You're preaching to the choir here. I completely agree. I remember one salesman I worked with who didn't understand the differences between profit mark-up and profit margin.
It's just amazing to me how everyone who's run a business with sales people has similar stories. When perplexed about how to hire good sales people I sought the advice of every CEO I could reach. Almost invariably the conversation started with them rolling their eyes and saying something like "Oh, boy! Let me tell you what I went through!".
I just thought of something: Maybe there's opportunity for disruption here?
> As for unions I don't like them or believe in them and I think they are also a part of the 18th century mentality I mentioned earlier.
Now I know there's at least two of us on HN.
> you shouldn't shout down someone who is trying a new method
And you are right. I'll keep that in mind for future comments and see about coming off a little softer while delivering the same or a similar message. That said, there are things in business that are time tested. For example, it's hard to imagine someone inventing a new accounting method. If, for example, a CEO of a software startup was consumed with the idea of doing accounting differently and I was an investor in that company I'd fire them. They need to focus on the business at hand and not go off in tangents. My read on this business of "vote for your own compensation" was that this CEO is now devoting time to something that has nothing to do with the mission at hand.
> your method of business that leaves people in hospital or dead?
Well, to be fair here, it isn't the method of business that puts people in the hospital. Sometimes you can do everything exactly right and still end-up losing. The period of time I described (2008~2010) saw absolute carnage in businesses across nearly all industries. Lots of people were caught off guard. If you've invested ten, fifteen or twenty years growing a business only to see it implode in a few quarters due to external factors completely out of your control it will cause tremendous stress. Back then we all heard stories about people jumping out of buildings and walking in front of trains. I remember making a comment over email to a good friend of mine in December of 2009. When I read that email today it absolutely scares me. It reveals my mental state at the time. I had reached a very dark and ugly place due to what was going on with my business. I told him that I had reached a point where I understood, in no uncertain terms, why people committed suicide due to business and financial problems. I am mentally very tough and have always had a great support group in the form of friends and family. So, I wasn't thinking of taking my own life but I got a scary glimpse of how someone could very easily get there when things go really bad. Of course, my friend called me in panic as soon as he saw that email. We went out for dinner and he came out of it understanding where those comments came from (and was comfortable not chaperoning me).
Again, the stress doesn't come from the business method but rather the every day goings on. The first time you get sued for something you are not going to sleep. Lose a good employee, same thing. A competitor takes away a good opportunity will create stress. A customer posts an ugly and unfair critique in an industry blog, not good. None of these things have anything whatsoever to do with a management style. They are simply realities of business.
Incidentally, the reason I ended-up in the hospital was actually a combination of extreme dehydration and stress. On a very hot Sunday went out to kayak at the lake --peak of the summer-- and took plenty of water with me but no electrolyte drinks (gatorade). After that I rested a little and then decided to go back to the office and spend a few hours working on some code. Long story short, I ended up in the hospital. It turns out dehydration and stress are a bad combination. Nothing wrong with me. Just needed to rest and get my body back in balance.
The only thing I want to add is that you don't need to be 'soft' when delivering your viewpoint, you can be hard but not have to put people down. You have a wealth of experience, and that doesn't need to be softened.
And for the record, September 2008 was also one of the worst times for me business wise too. Just started a new company when Wall St went to shit. Unlike you though, I didn't power through it, I took a rain check. Closed the company up by December and sat on my heels for a while (cough 4 fucking years cough). I know where you're coming from and I do respect your fortitude.
Paying everyone the same is actually quite common at startups. Or, paying the same job roughly the same (i.e. paying all eng/design one thing, and maybe paying sales people on a totally different structure). I've seen companies up to 50 employees do this, with essentially $100k and $150k for two types of employee. There was some variation in equity, both by date of hire and responsibility.
There are huge organizations (USG, military, union shops, etc.) which have standardized pay, too. It seems to work well for them. The basic principle is separating cash salary from other motivation. That works in some places, doesn't work in others. It would probably be a horrible idea to pay a sales team which had variable levels of work output the same fixed salary with no variable compensation.
I'm a big fan of being transparent with financials and other metrics in early-stage tech companies (absolutely in the seed range, and in A; it becomes more debatable in a 50-150 person organization.) Mainly because it is good for people to know what numbers actually matter -- if a company is cashflow-constrained, it does make sense to burn time on building vs. buying certain products, or looking for sales which are lower revenue but paid up-front. If a company has a specific milestone, it might be making otherwise non-optimal decisions (like selling something at negative margin). Management probably should be highlighting these issues, but sometimes it is better to have the raw data.
In Silicon Valley hiring now, particularly for dev/design/devops/product, you actually are competing for people who could start a business on their own, and who are likely to do so in the future, so they value having access to this information and learning about how decisions are made. One of the key things is accepting that you probably will not retain people for 10 years, and maybe not even for 4, but if you can get great work for 1-2 years, that's better than 0 (or mediocre work for 5).
As a rational person it's natural to gravitate toward purely objective.. well anything.
Generally people on the receiving side don't seem to handle this well; everyone gets bent out of shape because they think they have a special case.
Seriously I never quite understood why the whole world is full of conflict and claims and counter-claims until I became a parent of small children. Then it made sense.
Probably a headline similar to the following some time in 2014.
Unbelievable Mistakes I Made in My Last Startup (figure54.com)
139 points by ry0ohki 5 hours ago | flag | 78 comments
When you stop and think about it, that is one really powerful statement.
Which must be why it's so easy to mess up running a company, because channeling that power is no easy thing to do. It takes a lot of self-control and even more control in general.
I think a lot of hackers/startups underestimate this by thinking that because they can control machines then that automatically implies that they can handle a petty company.
It's effectively a re-worked version of what partnerships (law/CPA/etc) do for the partners themselves (vote on how much of the profit to take, vs. paying employee bonuses/etc.).
My gut assumption is that this will work up until the point where you have more than 2 'layers' of employees, or in any organization where all of the players involved are not highly skilled individual contributors (what would your secretary or janitor vote their salary to be, in an office of coders/etc?).
One comment I must make is that I do not believe this will work in the long term. I am guessing when the company goes onto hard times there would likely be a unionization to force to keep from a pay cut (which is bad). However, there are cases where because everyone is in it together they are willing to not be paid for a period of time.
An example of this would be an interesting conversation I had with a founding member of Molex (they make connectors in every computer pretty much in the world http://en.wikipedia.org/wiki/Molex) who claimed that the owner came in one day and said there was no way to pay any of them, but if they stuck with him they would have a job for life and the pay would be based on company profits. The old man I was talking to was the janitor from 1940 and was still the janitor in 2005 and was one of the highest paid in the company (ironic huh!).
Anyways, the point is even a billion dollar corporation starts off this way and it seems reasonable enough and good enough to get loyal and hard working employees. There will be a time for change, but for now it is an interesting experiment and will likely work.
I don't expect to keep this system forever, but it's a good fit for us at this particular moment in time. I expect it will change as we change.
What happens when sales decline? By giving everyone an increase in salary, you're committing to pay that amount for the foreseeable future. If you can't ... then layoffs will happen.
So what if you used a salary + bonus structure? The problem is that firms have been abusing this for years, and employees are wise to it now. "Bonus? Never seen anyone pay on it, so doesn't matter."
From reading, I believe he had too much money in the bank, and too much getting in. So, yeah, we can't keep this stored forever, since the cart's still going up, and we have a lot to spare, let's raaise salaries to something we can keep in our current situation, possibly still storing a little.
If he was dumb enough to just raise to infinite and beyond (The sky is the limit!), I don't believe he would have been so successful until now.
The motivation of the employees is to choose the red dot (employees' choice) not so high that you have to overrule their choice, but otherwise higher than the blue dot (employer's preference) and the white dot (current salary). Looks like they were successful this time :)
This would be more interesting article if employees were willing to reduce their own salary in lean times, or to relinquish a raise in good times.
I think a low red dot would illustrate a healthy company where employees have great buy-in to the success of the company - to the point that they are willing to protect the company's cashflow at their own expense - but this technique is going to create that situation.
I'd be interested to come back to this experiment in 5 years time, let's say.
That may move the needle on employee hiring, retention, or performance. Or it may just make the owner happy, specifically in the example the author appeared to value shared ownership as a goal in itself.
The author also appeared to appreciate the vote on pay as a metric to determine how the employees viewed the state of the company (i.e. how big the communication gap was between himself and the employees given the company's promotion of internal transparency).
Not maybe. Obviously. Obviously, no matter how close knit the team is, and how well you know everybody, people still love the almighty dollar, and if they can will get more of them for doing the same amount of work. The boss on the other hand, as much as he loves transparency and communication and won't admit to it, also loves the almighty dollar, and subconsciously leant low.
Perhaps a democratically selected bonus would be a safer option.
I would also be curious to see some actual numbers behind this topic. Especially the number of employees + founders, and the skill sets of that combined team.
- Oh yeah? Wow!
- Yes, please go ahead, for instance mine is Bob
The correlation to the novel is limited however in our example. We're not talking about industrial complexes full of employees with vastly different market rates; we're discussing a 5 person team.
To abusively stretch a definition, "Communist" policies like this seem to have some success in very limited scope, such as family households. The other comments indicate it is apparent to everyone that as presented such a system would not scale to a larger organization. Such policies could be used as inspiration or a baseline to build scalable compensation plans that recognize individuals (or teams) that provide varying market value.
Seems a bit much to have people set their own salary. What happens if you have an engineer who decides their worth $190k when in reality they're worth $100k at best?
I prefer the idea of providing other benefits like flexibility to work from anywhere and a sane vacation policy (take as much or as little as you want, but make sure your shit gets done).
I'm all for workplace policies that give a greater amount of discretion to employees as to how, when, and where to work. But "set your own salary" is a bit like "set your own hours". Your decision ends up being highly constrained by existing norms, and by the fear of being terminated if you fail to choose the answer intended by management.