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.
"Do people vote themselves a pay reduction during bad times? Good luck with that one."
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.
I posted about this Semco example in another comment. This is not an example of people voting to reduce their salaries because they understand the business finances. That is a ridiculous idea.
This is more of a Russian Roulette [1] 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 [2] behavior but rather almost exactly the opposite.
Workers are not capitalists. They are not interested in money accumulation and growth of the company (for whom, anyway?). They may only be interested in investment if it keeps their job running. Ergo, they won't vote the same way you would like them to do it, because they value a different thing.
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.
Why did you take a deal where you took such a risk with such a limited return? Was that your best option to keep the company going?
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!
> Why did you take a deal where you took such a risk with such a limited return?
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 [1].
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" [2] is one of a possible range of books you could use to get started.
[1] Mark Twain: "A man holding a cat by the tail learns something he can learn in no other way"
About the MBA:
Good lord yes! You don't even need to get an official MBA, if you're an autodidact do something like the personal-MBA, which is basically a reading list covering all the different aspects of business. And for all the newly minted MBAs out there, go and work in an industry before trying to run it. You'll get a lot more respect from other business leaders if you've spent time in the trenches and know the domain you're talking about
Up-voted as I like to be reminded from time to time that 18th century mentality is still prevalent in the world. I don't think you're being the grown-up, you are just talking from your world view. You sound similar to the people who railed against Ford's 5 day work week - "The workers will all be drunken and fighting and murdering and and and and..." But it worked out fine in the end. The 'hippie commune like' extra day off didn't destroy the fabric of society. In fact, productivity and profits went up.
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?
>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)
My guess is that you don't run a company and have never run one. You probably never risked it all to start a business in your garage and grow it to the point where you can employ dozens of people. Self funded, not with other people's money. There's a huge difference there as well.
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.
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 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.
>My guess is that you don't run a company and have never run one. You probably never risked it all to start a business in your garage and grow it to the point where you can employ dozens of people. Self funded, not with other people's money. There's a huge difference there as well.
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 am glad your opinion comes from actual experience running a business. More often than not comments like these come from people who never have yet, for some strange reason, believe they understand business.
> 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.
Thanks for the well thought out comment (again). I think we do see eye to eye on a few things, and we would probably butt heads on others. Which is the way things should be.
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.
I wish I had done the same. Friends were telling me back then to just shut it down and BK the thing. To be perfectly frank, cultural baggage prevented me from doing that. I come from a family of entrepreneurs. I've seen my own parents slog it out against all odds and make it. I have to tell you, it is a fucked existence. Social stigma aside, tripping the circuit breaker would have been the right approach. Live and learn.
I absolutely agree with you on the CEO pay issue -- the (founder) CEO should be paid somewhat less than the lowest "real" engineer (not an intern or trainee), at least until Series B or later. Generally on the order of $100k in SFBA, vs. $120-150k for IC engineers. At a seed/pre-A/A, maybe $40-60k vs. $80-100k. A non-founder CEO is probably a sign that you're fucked until B, anyway, but would require a much higher cash comp. Founders should have their upside primarily in equity. In a VC funded startup. In a self-funded small business, founders tend to be substantially below market for a year or two, then approximately market, and then start taking money (if they can) at market or above around year 3 or 4. The problem with non-VC-funded startups is it is much less likely for employees that the company will be sold, so their equity (if any) is less likely to be meaningful, so they demand much higher cash or bonus compensation (i.e. the normal in consultancies). This raises costs for the company, and makes certain kind of people non-hireable.
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.
There's nothing wrong with paying everyone under a specific job classification the same. Say, your shipping clerks. Nothing whatsoever wrong with that. What is insane is having them vote on it. That makes no sense. The only exception to this might be a very small group of reasonably well educated (in business as well as their craft) individuals. They could objectively look at the business and just as objectively make decisions. At that point you, effectively, have a quasi de-facto multi-CEO situation, which could be cool if the business is not going anywhere past that point. Impossible to scale.
It's different when it's a 5-15 person startup, or a consultancy or other essentially partnership organization like that, vs. a more hierarchical organization.
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).
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.