Your company: culture and incentives

By Stefan Sabev in Product Management — Dec 23, 2021

Your company and why the most important thing you obsess over might not actually be the most important.

Originally published on Substack

Culture eats strategy for breakfast

Perhaps the most important thing to get right as you are embarking on a company building exercise is building the culture inside it. Nothing can be as intangible, hard to grasp and at the same time vital to your success. Get it right and it will feel like you are speedrunning a game, get it wrong and every single decision in a company is going to feel like you are fighting against a gale of wind.

You can think of your company culture as the sum total of how your company behaves and operates - how you arrive at decisions, what your principles are, how you reward people and how you act. In good times culture is what helps you drive things forward and in downturns it is the thing that helps you stay on top of things. We are not going to ponder the philosophical in here, so let's dive in and understand what we can do to shape things in a growing company.

Culture, in this writer’s opinion should start with a clearly articulated principles stack1. This is the guiding principle in your mind of how decisions should be made especially when it comes to tradeoffs. For instance if you are presented with a decision and you have Principles #1 to #3, #1 is the strongest root principles, #2 is subordinate to #1 and so forth.

Let’s walk through an example with a fictional company called Acme Corp. Their principle stack is as follows:

Deeply understanding the problem is the most valuable skill
Shipping beautifully working products is more important than shipping
Focusing on few things and doing them right is more important than doing many things okay

As we can see here with this principles’ stack we will be creating a culture where customer obsession, understanding the problem and diving deep into that will be paramount. That will lead in turn to people diving very deep into the problem space, understanding users, perfecting the product and doing few things, but doing them really well. Executed well this will make Acme a paragon of well crafted products and it will make it stand apart from everyone else. Having said that, let’s now explore what trade offs we are making with this stack.

Acme is deeply obsessive over the problem, which will drive to mastery if handled well, however it can easily lead to paralysis if it’s not guided. The company emphasises that shipping well working products is more important than shipping itself, however the graveyard of failed products is littered with examples of things that were fantastic in its own right, however they simply did not hit the right market at the right time - Juicero, Betamax, HDDVD on the hardware side to name a few and countless others on the software. Hence it’s important to understand that a principle stack can be as much a liberating tool as it could be a way to skew every decision unfavourably in a direction we have not foreseen.

The problem with most modern companies nowadays, especially when it comes to culture, is that they do not have a clearly articulated principles stack which leads to countless hours of frustration. But consider this - how can you align on the downstream decisions if you are not even sure if you are aligned on these fundamentally simple things? It’s really hard to do so because everything you are arguing is downstream of actually where the misalignment is.

How can you rectify that? Be mindful of what your principles stack is and what comes first. Write it down as early as possible with your co founders or group of early employees and really, really make sure that you all value the same things in the same order. If you do not achieve that high level of cohesion at that level you will not be able to easily achieve cohesion downstream.

Think of these principles as the guiding light when it comes to culture. By clearly articulating it you will easily be able to point to what you value, what comes first and then that will illuminate your way. A lot of companies go down the rabbit hole of plastering meaningless statements such as “Customer obsession is our way of life” however when you have a word soup of about 5 of these how do you know what comes first? Everything is about trade offs and so is culture - what do you want to encourage and why.

Articulate it and you shall be free.

Show me the incentives and I’ll show you the outcome

Building a company requires assembling a group of people who are all aligned on the mission, outcomes and integrated into the culture and how people go about this. However, since we are all unfailingly human, we need to provide the right incentives for people to actually do that work.

There is ample material written about incentives by economists who spend far more time in that area than this author, so let’s instead focus on start ups and scale ups. Broadly there are two buckets of incentives:

Short term - salary, cash bonus
Long term - equity, options

Plenty has been written about those, so we will not go in there, however there is a third, hidden type that not enough people talk about and that is the advancement of people to have more impact - call it promotions, or assignments, etc. However this is the one hidden lever that people don’t think about enough.

Rewarding people for good work is without a doubt what we should all be doing as leaders. I is however vital for us to make sure that the narrative is such that people are not just seen to be doing good work and rewarded for it, but also their work resulting in tangible outcomes that everyone can reliably refer to post-factum and see the same thing.

So to cap it off - don’t reward people for playing the game, reward people for getting things done and achieving things you can measure.

Principles Stack by Ben Thompson and James Allworth