Employees becoming owners

OK, so you have spent the last few months locked up in the garage with your friend and you have hacked out something you feel has real value.  In order to hit the market window, you need to accelerate the deployment of some new features and also need some cash to pay for the ballooning hosting cost (because of all the new users of course!).  In summary, you need some money and more hands on deck.   The revenue model is not all figures out yet, so no cash-flow to speak of.  You realize that you’ll have to give up some of our company to get the resources you need so you consider your options…  You can sell some of it to investors and/or give share options to developers prepared to sacrifice salary for a future payday (surely they cannot get shares and get paid a full salary?).

Negotiations ensue… Everybody is pushing to get a bigger share.  There is an especially big disconnect between the external investor and the developers on who deserves the better deal.  The external investor believes he is due a big share because he is forking out real money and developers are just heads that should be paid.  The developers maintain that their effort will make or break the venture so they should be handed a big incentive to make it succeed. 

The above example might be an over simplification, but the issue I want to raise is the age old one of whether the money or the kilojoules are more important to a new venture.  In the spirit of openness is there not perhaps a way to transparently allow all parties to invest in the company in a open and, dear I say it, fair manner?  Can we not create an “open source” business funding model which everyone can understand, requires minimal “consultant” overhead and free people up to rather focus on making the whole thing a success?  

I have been playing around with a few ideas for fun and I am quite interested to hear your opinions.

Bear with me for a minute and let’s use an analogy to illustrate the point.  Let’s say a company is like a machine printing money for its owners.  In the beginning the owners had to spend money(resources) to get the machine built.  They paid a designer to draw up plans and a mechanic to put it together. When the machine was completed, they hired an operator to maintain the machine and they started to, well, print money. The fact that it was a particularly talented designer who designed a particularly efficient machine, which makes them particularly rich, does not escape the owners, but they are quick to attribute this to the fact that they know how to choose a good designer, and that they did agree on the design cost upfront. The designer, however, now says that he should receive additional compensation for his contribution to their success. Guess what happens…

Lets take it a bit further.  Lets say the owners initially had enough money to pay the mechanic and the operator, but not the designer.  They can get another investor on board(becoming a new co-owner) to provide the money in exchange for a share stake in the business; or they can offer that same stake to the designer if he would be prepared to do the design for free.  It should make no difference whether the new co-owner is an outsider or the designer.  The investment is the same, the ownership stake should be the same. Right?

Now back to real life.  Can we not cut through all this noise by making a $1 employee salary sacrifice worth the same stake in the organization as a $1 external investment? Any resource an organization needs should be valued the same.  Whether it is $1 cash, $1 development time or $1 management time. At any point in time the owners of an organization should be able to say, “Right, we need $50k to pay for an expansion to the data center. 5k shares will be issued for this investment.” Now an external investor can go for it, or half a dozen guys can offer to forfeit their salary for next month.  Your stake in the organization is proportional to the sacrifice or the investment you make.  

This makes it public knowledge that the company currently values its shares at $10.  It is up to you to decide whether this is a good offer or not.  Would be great fun to design an intranet app to show the current investment price!  The price might also be determined by reverse-auction so everyone gets a fair chance to invest and the company gets the best deal they can.

I am interested to hear your thoughts on this.  As an investor, would you invest in a company like this?  As an employee would you work for a company like this?

Some further thoughts

•  It can obviously only be for issuing new shares since insider trading laws will prevent the exchange of already issued shares in this manner
• Nobody can ever complain that they are not sharing in the company’s success in the proportion that they are contributing.  Everyone provides a service, having a value on the open market.  The extent to which you share in the upside is equivalent to the extent you were prepared to risk the downside.
• Some people are more risk averse than others.  This allows every employee to decide the level of exposure they want
• A company could mandate a minimum sacrifice from every employee to make sure everyone is hungry to succeed.

Inventing on principle

There are a number of ways to motivate people towards innovation. From other posts on this blog you can certainly deduce that I am very much in favour of methods which involve providing or deriving some form of mission, principle or “meaning”.

Here is an excellent video (about one hour in length) by Bret Victor describing his motivation to be innovative by discribing it as “Inventing on principle”.

His video basically runs through two parts. Firstly demonstrating some escellent examples of how to give designers immediate feedback on what they are creating rather than expecting them to simulate the results of their actions in their heads (In my mind these ideas will definitely shape the field of programming in the years to come).

Secondly he discusses aspects of being an technologist activist inventing for a principle. As social activists fight some social or moral “wrong” through organizing and influencing, technologyst activists fight some “difficiency” in the world by formulating and inventing solutions to it.

This is absolutely not the only way to drive innovation, but can definitely be one of the most powerful.

More of Bret's work here.  The javascript library he used here

Key Cultural Drivers for Innovation

Booz and Company annually publishes a “Glabal Innovation 1000” report, investigating the state of global R&D investment and innovation.  This year’s report was excellent as usual and worth the read if you have the time (report & summary video )

In the report they touch on a number of important topics, but I would like to focus on one aspect I found particularly interesting.  

The question often arises which culture traits are most important to help foster an innovative environment.  Booz&Co addressed this question by.  (i) Asking the top 1000 R&D spenders who they consider to be the most innovative companies.  Then (ii) asking these companies what culture they look to establish.  The results are shown below.  

Now you might say that there are no surprises here, but I found the following particularly interesting:

• Passion and pride for the company’s products and how they are perceived by the customer are off the charts.  In other words they want people whose passion and sense of worth is driven by whether the company is loved by its customers.
• The traits normally associated with a “nice” working environment (respect, openness, collaboration..) is considered important, but not nearly to the same level as identification with the company’s products.
• Tolerance for failure, which are often raised as excuse for poor performance in under performing companies, came dead last.  This shows that people do not innovate when they they feel secure in failing, they innovate because they have a personal interest to remain better than the competition.  

From this some practical ideas come to mind...

• Demonstrate to everyone that you love your products and you insist that everyone else in the organization does the same.  There is no room for accepting and releasing inferior products.
• Give everyone in your organization ample opportunity to interact with customers.  Whether it is sessions of praise or insult.  No-one should be isolated and thus allowed to become insensitive to customer needs and perceptions.  Being on the red carpet with your boss shouting at you or praising you is just not the same as seeing the expression of jubilation or disappointment in the face of a customer.
• If your organization is really passionate about meeting customer needs, there will not be time to go into the “post-mortem tailspin” when things go wrong.  People will hold themselves accountable and implement whatever is necessary to stop it from happening again.  They have personally lost something and don’t want it to happen again.
• When you have to choose between being a nice guy or shipping a good product, you now know which will have most impact on your company’s competitive edge.

Why this blog?

This blog is dedicated to references of insightful, thought-provoking Internet material, relevant to the technology manager.  

A well known saying in management theory states that “You cannot manage what you do not measure”.  I have always believed that, in technology management, this is a very naive focus. “You cannot manage what you don’t understand”, sounds much more like a winning plan.  This does not mean that you have to be the lead techie in your company (although more technical knowledge always helps), it means that you have to have some understanding of what you do.  

Now, what do you do? In this blog I focus on six areas:
(1) Business Strategy - How to best make money from what your company does
(2) Innovation - How to keep being better than the competition
(3) Managing Techies - Getting the most from your team
(4) Cool Technology - Having an awareness of game changing technologies
(5) Consumer behaviour - Getting a better understanding of the people you sell to
(6) Interesting times - Events and trends shaping our world

A good understanding of the above goes some way to improving the quality of a technology manager’s decisions.  The topics are not meant to be exhaustive and is rather presented as “thought for the day” tidbits to keep your grey matter engaged. Nobody has time to spend hours on a website, so I have limited each post so that it should not take more than 15 minutes of your time.

Feel free to comment on any of the posts.  They were chosen to be thought provoking!

Synthesized happiness?

How can we make customers happy when they choose a product that they did not know they needed? Perhaps have them synthesize their own happyness?

Dan Gilbert does a great TED video where he discusses the concepts of Natural and Synthesized happiness (worth a look).  Dan defines natural happiness as the happiness that you experience when you get what you dreamt of.  Synthesized happiness is the happiness you “make” after you either did not get what you dreamt of, or you did not really have any dream to start off with.  Modern society seems to frown upon synthesized happiness, but it is no less real.

So, if people buy your breakthrough product, they will naturally tend to grow more fond of the product over time.  Increasingly favouring what they own against what they decided not to buy.  

Dan then goes further to show how “freedom“ is the enemy of synthesized happiness in that it creates uncertainty at the instant when the person is most ill equipped to handle it (he does not understand the product yet). This means you should only put forward product options and information which you know your target customer already has an opinion on.  In a fast changing world where vendors have to educate customers on the valuethey should extract from their products, one should be careful to limit the options.  

Interesting how Apple’s product portfolio strategy differs from the rest of the consumer electronics market.

What motivates people to better performance?

If you have not done so already, do yourself the favour and watch the video on motivation by Daniel Pink. I cannot agree more with his conclusions...  

According to Dan, the three factors which lead to better team performance (and satisfaction). These are:
(1) Autonomy - Ability to make decisions and act upon them
(2) Mastery - The opportunity to get better at stuff
(3) Purpose - Contributing to the big picture

How much of the above are you affording your team?

Where will Europe’s tax come from in future?

Through all the very interesting news coming from the European financial crisis I found this gem which I feel gives concerning insight into Europe’s future. Not sure where the data comes from, but one can understand the various governments’ inclination to fund budget deficits with loans if you look at this declining ratio of workers to retirees.  While social responsibility is increasing, less people are productively contributing to the economy and paying tax.  

Can governments survive in such and environment?