Good advice for startups.

SPONSORED BY The Kauffman Foundation Products Archives @venturehacks Books AngelList About RSS Venture Hacks header image 2 We don't pay you to work here by Nivi on January 9th, 2009 A raise is only a raise for thirty days; after that, it s just your salary. David Russo, VP of Human Resources at SAS Institute This is one of my favorite quotes from the book Hidden Value. It explains why mo ney by itself doesn t motivate high performance. Money by itself can only motivate the quest for more money. A raise is only a raise for thirty days; after that, it s just your salary. We are motivated to perform when our work expresses who we are, when the busines s goals are intrinsically meaningful to us, and we feel that we are valued as peo ple, not simply as economic agents. But, even in startups, financial incentives and HR practices often treat us like economic agents: Consider the implicit values conveyed in the modern management practices adop ted by many companies. Most firms today emphasize, among other things, the emplo yee s responsibility for being career resilient, employment at will and no-fault d ismissal, pay for performance, downsizing to cut costs, and maximizing sharehold er value above all else. What is the message any sentient employee takes from th ese practices? Pursue what is best for you, not the firm or the customer, adopt a free-agent mentality, and do not invest any more in the firm than it is willin g to invest in you. The underlying values are crystal clear, even if they are ne ver expressed in a formal way. In this sense, arguments by managers that value s tatements are irrelevant or inappropriate miss the point: All organizations have values; the only question is how explicit they are about them. And what happens when employees behave in accordance with these values? First , a rational employee is not likely to exert much effort in activities beyond wh at he or she is explicitly rewarded for. A show me the money mood prevails. Second , a smart employee will be constantly alert for new and better job opportunities in other organizations loyalty is for fools. Third, unless cooperation is explici tly monitored and rewarded, teamwork is viewed as optional To resolve some of the se problems, management s job is to design ever more sophisticated control and inc entive systems to ensure that the necessary teamwork occurs and that the loss of intellectual capital is minimized. The problem isn t that money is a weak motivator. The problem is that money is a t erribly strong motivator. By itself, money motivates the wrong people to do the wrong things in the quest for more money. This is why Zappos pays employees to leave. This is why Tandem Computers didn t te ll employees their salaries until after they started working. In other words: we

don t pay you to work here we pay you so you can work here. Organizing around values, not value The authors, Charles A. O Reilly III and Jeffrey Pfeffer, both from Stanford s Gradu ate School of Business, studied how eight companies, from Men s Wearhouse to Cisco , ignore the pernicious assumption that compensation should be the foundation fo r management systems: First, each of these companies has a clear, well-articulated set of values th at are widely shared and act as the foundation for the management practices that provide a basis for the company s competitive success. [e.g. Southwest's "Work sho uld be fun it can be play enjoy it."] Second, each of these organizations has a remarkable degree of alignment and consistency in the people-centered practices that express its core values. [e.g. Southwest: "We hire happy people."] Finally, the senior managers in these firms, not just the founders or the CEO , are leaders whose primary role is to ensure that the values are maintained and constantly made real to all of the people who work in the organization The senio r managers in each of these companies see their roles not as managing the day-to -day business or even as making decisions about grand strategy but as setting an d reinforcing the vision, values, and culture of the organization. Dennis Bakke at AES [a $2B company] claims that he made only two decisions in 1998, one of wh ich was not to write a book on the company. Extraordinary results with ordinary people The book s subtitle is How great companies achieve extraordinary results with ordin ary people. Every rational company in the world is trying to hire the best people in the wor ld. And all but one of them will fail at this task. There can only be one compan y with the best people. Hiring the best is a failing strategy. Organizations must be designed to thrive with ordinary people. If businesses can thrive with the capabilities of ordinary people, they can also thrive with extr aordinary people. Practices like Extreme Programming, that were designed for pro grammers with ordinary skills, work even better with extraordinary programmers. Read Hidden Value for specific recruiting, training, information-sharing, and re wards practices that aim to exploit the capabilities of ordinary and extraordina ry people alike. If people come for money, they will leave for money. James Treybig, CEO of Tandem Computers