When Management Misdirects Employees -- My Response to Ben Horowitz

By Jason Calacanis

Yesterday Ben Horowitz published a solid post "When Employees Misinterpret Management," which should have been titled "When Management Misdirects Employees."

He gives three examples, the most fun of which is him trying to get his sales team at Opsware -- the company he and Marc Andreessen famously rode through the bust to a huge, huge win -- to not cram all their sales into the quarter's last week.

In order to flatten the hockey stick of 90% of the deals coming in the final moments of the quarter, he generated incentives for booking earlier in the quarter. The result, as you might guess, was sales people holding deals and dropping them in the more lucrative first months of the next quarter.

This of course created a nose dive in the current quarter.

Incentives, huzzah!

What this shows me more than employees misinterpreting management is the absolute insanity of being a manager. Dealing with a rabid pack of sales wolves is perhaps one of the hardest management challenges in business.

Sales people are an odd group of mercenaries, and the best ones seem to have a perverse sense of competition and drive that is unique in the employment landscape. They are very aware of incentive structures and seem to love being put in them.

They like having a percentage of sales targets to hit, and levels and bonuses associated with certain milestones. The more complicated a structure and game, the more turned on and tuned in they seem to become.

Great sales folks seem to look at life as this huge casino or Zynga game, where they are placing 20 bets on five different tables.

Sale Incentive Structures

I've long learned to embrace this dynamic at new companies by setting
a) absurdly low base salaries (think $30K to 60K)
b) absurdly high commission structures (10% to 25%)


It's a filtering mechanism for me to get the most insane, rabid and self-confident sales folks -- and filter out the lame "professionals." The times I've put up six-figure bases and the standard 3% to 5% commission structures, I've gotten the weakest, non-rabid, meek sales executives who are more concerned with driving almost fancy cars, wearing fine clothing and having lush expense accounts than their actual commission structure.

Those sales folks are death at startups. They lack the drive and creativity to sell new products  because they are -- largely -- old, fat dogs.

At some big company with 300 sales folks, they're great for managing existing accounts. At a small company with under 10 sales folks, those "professional" sales types are the kiss of death. They need everything handed to them on a silver platter, and they can't close deals because of the product, the marketing kit or the fact that we're doing something new.

In fact, two sales folks I gave the low-base-and-high-commission structure to easily broke $500K in *commissions* for me in the first two years of the Silicon Alley Reporter and Weblogs Inc.

They both made fives times what I made as CEO -- and I loved it.

Remember, if you're getting 10% to 20% (or 10% on the first 500K, 15% on the next 500K and 20% over $1M), then you're going to make a lot of money when you get to $2M in sales (which is what most startups can do in years two or three).  

Any salesperson will realize that if he doesn't make money, he is simply not driven (or has kids to put through private school and is not a risk-taker... and startups need risk-takers).

Anyway, the most important part of Ben's piece is that as a manager, you have to think about the incentives you're putting out there, their impact and how they will be used.

Pay-per-piece Incentives

An example I've had building two content companies was the "pay per piece" versus salaried content creator models. At Weblogs Inc. we paid $2 to $15 a blog post during the early years of blogging. We had hundreds of bloggers so it was hard to keep track of everyone.

At some point we got a complaint about plagiarism and rewriting. We found that someone we had paid for hundreds of blog posts had been rewriting other people's stories for the past two months. We found this really offensive and lazy. It was essentially stealing -- even if it was legal.

Ironically, this type of reblogging -- the rewriting of another person's work without giving credit -- is the main business model of the Huffington Post today.

And it's wrong and short-sighted. I expect more from my friend Arianna.

Gabe Rivera of TechMeme, the fair aggregator that sends traffic to sources instead of stealing that traffic, wrote a passionate piece on this issue recently. That piece was based on the excellent columnist Simon Dumenco's excellent column on being abused by the Huffington Post.

Journalists and bloggers are starting to hate The Huffington Post because it does not credit resources and rewrites original reporting. The site focuses on massive SEO and social media promotion, and it has successfully ridden under the radar of Matt Cutts and the Google Evil Panda because it has a celebrity facade (and former Googler as CEO).

They call this soulless focus on rewriting, SEO and social "the AOL way," and it's abhorrent to any writer. That's why the bloggers I hired for Engadget, Cinematical and Autoblog are leaving AOL in droves to work with -- wait for it -- former Weblogs Inc-lead startups, where writers are cherished.

AOL doesn't cherish its writers or the work of other writers.

Anyway, back to the "rewriter" at Weblogs Inc. We set so many goals around getting an extra buck or two when you hit X or Y posts that we had put someone on tilt to not care about the user and care more about the incentive.

The folks we had on $2K to $4K a month deals -- Nick Denton's payment strategy -- did excellent work and didn't frack around worrying about incentives. They were not as easy to put in a spreadsheet and quantify, but they didn't need to be quantified because they were qualified.

Bottom line: People who lack quality products focus on quantifying them.

It's for this reason I've started putting my editorial people on flat deals again at Mahalo. The incentive plans of "pay per piece" are awesome for MBAs and spreadsheets -- but they suck for the soul.

Now, you can't just "hire folks and walk away" or you're not going to get performance. You should, and we do at Mahalo and ThisWeekIn.com, create targets (formerly quotas, until I realized how much I hated that word) and goals.

My favorite strategy is to keep changing and layering in strategies and goals. For example, when we started doing educational videos, I charged folks with hitting 10 a week, then 15. Then more views and more likes. To increase goals you need to innovate on all levels (technology, editorial and work-flow) while not sacrificing quality.

Each goal was met with the following:

a) Shock: "You're changing the goals on us again?"
b) Combativeness: "Here's all the reasons we can think of why we can't do it."
c) Frustrated acceptance: "This is BS, but I guess we have to try."
d) Acceptance and execution: "Let's make a plan and get this done."
e) Exhilaration: "Holy cow, we did it!"

That's your job as a manager: get folks through the self-imposed barriers.

Now, some might argue that people should set these goals for themselves, but the fact is folks never push themselves as hard as they can go. Even Kobe, Magic and Michael Jordan will tell you they were pushed to excellence not just by themselves but by the folks around them.

It's great to discuss things with folks when you push them into the deep end of the pool with a challenge that seems insurmountable -- but into the deep end they must go. There is no time in startup land to debate excellence and performance.

You either do it or you get out... because you have 10 competitors who will do it if you don't.

The Huffington Post could solve its embarrassing rewrite problem by simply reading its own blog. Just thinking "what did we add to this story" would solve the problem. Setting a goal for writers to simply make *one* phone call per story would make the site less hated.

I actually think the writers at the Huffington Post should stand up to the AOL way like the Engadget writers did -- just say "We're doing original reporting or we are out of here."

Anyway, I don't want to bash AOL or the Huffington Post, as I'm a fan on their better days. I'm actually rooting for them, and I write this blunt stuff because I think they need to -- and can -- do much better.  

In Conclusion

1. Read Ben's piece.
2. Be careful what you incent for.
3. If you use quantitative incentives, be sure to complement them with qualitative ones.
4. The best systems are the ones that constantly evolve, challenge, change and layer incentives and goals, while constantly communicating why.
5. Most of the time when a team misinterprets a manager, it is the manager's fault for not anticipating the ramifications of his behavior or monitoring the system he put in place. It could also simply have been a bad idea on the manager's part.
6. Even if it is the employees' fault, the manager should take ownership since that's the easiest way to move on (e.g., "Listen, I set the wrong goal here. Let me reset the expectation and you tell me if you think it's correct.").

OK, I need to get back to work and take some of my own advice in this piece.  

#12: Startups that can't build quality focus on incentives.