Change the Incentive. Change the World.
There is no avoiding the information overload around the turmoil in our society and business environment. From political unrest to scandals ousting unicorn CEOs to Game of Thrones style corporate takeovers to consumerism pushing for more from companies, there are major issues facing each and every company, entrepreneur, and startup today. The tech world is no different. With longstanding VCs collapsing under sexual abuse allegations to Uber’s CEO asked to resign due to everything else, we are in a situation where we can add to the problem or step up and lead the change.
Starting and running a business is one of the hardest, but fulfilling things I’ve ever had the honor of doing. It takes grit, imagination, empathy, and resiliency. The thing that I’ve realized the most, is everyone you encounter has their own set of incentives they are trying to accomplish. VCs are looking to find their unicorn. LPs are there to maximize their return. Entrepreneurs are looking to survive for tomorrow. Startups are trying to build a culture and something to change the world, while meeting financial obligations from their investors. Employees at startups are hoping to solve the mission of the company to change the world. The consumers are looking for ease and simplicity in their lives. The entire ecosystem around business is driven by varying sets of incentives. I argue that these vary incentives are what is creating the turmoil that we see in our society and our business environment.
The driving force on the supply side of business is mainly financial. Increasing revenue or decreasing costs makes investments look better, businesses look stronger and their leaders are applauded for reaching these milestones, with no reverence for much else. The reward for simply being a unicorn or a successful VC has always been good enough for our society. If there were issues outside of the financial aspects of the business, a blind eye was usually used to continue to reward these companies.
However, the demand side is changing a bit. Consumers are looking to buy from companies that align with their values. They are shifting their mindset on what they need their businesses need to provide. No longer is it simply providing a product or service that meets a need. Now consumers are looking for companies and brands to have values, to have a point of view on certain issues, to provide amazing workplaces, to have a clean supply chain, to stand for something, and to respect them, as consumers, as part of their brand story.
This brings an amazing opportunity for Tech to actually start to change the world. The consumer needs are shifting in a way that the supply side can now change the incentives that are placed throughout the business and startup ecosystem. Now, we need to measure on values driven organizations. Organizations that create good in the world, but do well at the same time. From the top at LP investment to the bottom of startup or company employees, incentives need to change to view more than just financials, but the legacy we are creating, the world that we’re empowering, and the lives that the organization touches. Our money needs to empower good, not just more money.
So how should we do this? How do we start to change these incentives?
The fact is, the incentives have already changed. Consumers are doing that for us. The share of wallet is now going to companies that have values, that stand for something, that are diverse, that are good, that give back, and that treat their employees, supply chain and consumers with empathy and respect. We’ll continue to see this as the business environment unfolds over the coming decades. This consumer shift will change the way we look at investments, our business structures, the cultures we create and how we treat our consumers.
Shareholders: It all starts with money. It all ends with money. What we need to look for now, is how can the money do more? We need investors to ask more questions outside of return on investment. We need to look at return for good. Not only should we defer our money to the investment houses with ethical investing strategies, but are ethical as well. Accountability needs to start at the top of the house.
Investment: VCs, PE firms, and banks need to enhance their investment process and strategies to include the good part of the business, not just the financials. The success of the future with consumers will force companies to be good while doing well. The incentives for investment should not only forecast the revenue, run rates, and costs, but also the good parts of the business around diversity, philanthropy, ethics, employee culture and consumer engagement.
Entrepreneurs: To be a successful entrepreneur, we need to reward for the good things, not just the financials. In the case of Uber, we saw a lot of ethical situations that resulted in termination. This was the right outcome, however the blind eye that was turned for over a year was the issue that needs resolved. Being an entrepreneur in today’s society is a tremendous responsibility, one that shouldn’t be taken lightly. You can’t only make money, but you need to make good.
Startups / Businesses: Building business and organizational structures around the incentives of money and financials alone creates a culture of chaos. Silos are created based on the incentive of a specific department that produces miscommunication, lack of collaboration, and unintended competition. This all results in a misaligned culture focused solely on shareholder value over consumer and societal value. This needs to flip and focus on consumer and societal value first and financial value second. The ecosystem will hopefully provide the right incentives that allows for this to happen.
By simply changing the incentives that we provide on our day to day lives, we can change the world.
The incentive is the single biggest issue facing our business environment and society. We only get what we measure. If we only measure based on the financials of a company and not on the character of a company, we will continue to see major red marks on our history and our industry. By simply changing the incentives that we provide on our day to day lives, we can change the world.