If you are leading a startup you will at some point have to decide how to compensate your team.  Who do you give equity to? Do you do profit sharing for the team, or just bonuses? Or should you just give a plain old vanilla salary.

Many of the CEO’s I have worked with are fundamentally sales guys. Not always, but often. They were frequently phenomenally successful sales guys in the past and their lone-wolf talents sent them off to start their own business which, because they could sell, avoided bankruptcy, beat the odds and became very successful.

Not surprisingly most of them love incentives and bonus plans – because most sales people are paid some sort of  commission. They figure that since it worked for them it should work for others. And it’s an honest mistake – one I’ve made. But I have often had this nagging doubt that just because it worked for this person in that circumstance, something doesn’t add up to it working now, in this role. But I could never convince myself and so I often lined up behind the driving force of the sales guy CEO.

I’m leading a startup at the moment, a B2B SaaS product. We have a staff of 4, soon to be 6, and 3 shared resources. So I’m thinking about compensation and incentives at the moment.

This morning I watched this TED talk: Dan Pink on the surprising science of motivation. (I’ve embedded it at the bottom of this post.)

His thesis is that consistent data from reputable universities shows that while incentives may work for well-defined, linear, mechanical roles, they are counter-productive for roles that require creativity and problem solving or have high degrees of ambiguity. Now I’m not a genius but I’m pretty sure I’ve never seen a startup whose work is primarily linear and well-defined. In roles that require creativity and problem solving and that operate in ambiguous circumstances, Dan argues the 3 key motivators are: AUTONOMY, MASTERY and PURPOSE.

Based on my huge respect for the work Gallup has done on engagement I think he’s very close but that he’s over-simplified it slightly. Gallup would argue that engaged employees can say yes to each of their famous Gallup 12 Questions, or Q12, or in short: are operating in an area of talent and passion, with a manager who cares and sets clear expectations for them.

Whether you go with Dan’s top 3 or the Gallup Q12, incentives or monetary rewards are strangely absent. So what is the leader of a start-up to do?

My plan for motivating my software startup team:

Here’s where I think I’m going as far as my plan for motivating my team:

1. Make sure they have great front-line manager. For now that’s me but we’re hiring a new team leader so I can transition into an advisory role and I have to make sure I get them a first class, Gallup Q12 style manager. And while I’m their manager I need to focus on the next 3 items:  (I have to admit that even as I write this I’m thinking that I need to lift my head out of preparing the VC presentation and running financials and make sure I am doing what I just wrote.)
2. Make sure that each of them is operating in their areas of talent and passion. Which means you had better have a way of figuring out their talents and passions.
3. Set clear expectations. In writing, because the spoken word gets forgotten and becomes vague over time.
4. Make sure that each of them know that I care about them personally. Which takes time doesn’t it. You have to slow down long enough to ask questions and listen and remember.
5. Pay them well enough that money isn’t an issue. I generally aim for 70-80% of the salary range for that job in that market (assuming you can get your hands on a recent compensation survey report.)
6. Give equity to the most senior leaders so that their success become inextricably linked to the long term success of the business. Where necessary give equity to some of the key people who take risks and sacrifice early on.
7. Avoid a short term focused bonus or incentive plan.
8. If the business generates profit, pay out decent bonuses to your team, but don’t link it to a linear “if you do X I’ll pay you a bonus of Y”. In fact, because of this TED talk, I don’t think I will promise a bonus at all. Instead I’ll be talking about “the team achieving its goals” and how we’ll all feel when we do because being part of a talented, successful team is very fulfilling for the kind of people I want on my teams. So when we do generate some profit (and we will), we’ll share the wealth in an appropriate way, but it will not be a focus of how we motivate it our team.

If you are leading a startup I’d appreciate your thoughts on the subject. Thank you for visiting www.strategycube.com

For the first 5 months of 2010 I was working 2 days a week for Sanjay Singhal, the CEO of Fusenet, an innovative tech incubator in Oakville, ON with a staff of 60. I was helping with general business strategy, business process development, online marketing training and leadership development. In May of 2010 Sanjay had a new SaaS business that he wanted to get up and running and he didn’t have anyone internally who was the right fit to lead the project, so he asked me to. The Fusepay business is a new subscription billing software service for small digital businesses.

Over the 7 months from May – Dec 2010:

• I led a cross-functional team in creating the dynamic business plan. We wrote it on a wiki rather than in Word.
• I led the competitive research and industry analysis.
• I led a cross-functional team in scoping the initial releases of the product as well as a 12 month-out feature set.
• I oversaw our 6 person Development Team which built a from-scratch working beta of the software in 4 months.
• I managed the overall project through weekly team meetings and made sure we hit our key release dates.
• In Oct 2010 we went live with our first internal customer, a startup within the Fusenet parent company. We have been processing live transactions for them for 3 months now.
• I built a very complex financial model that allowed us to fully model the business from an investment and return perspective. We also used it to model the impact of different pricing strategies.
• I met with several potential investors to discuss a potential Series A round of VC financing.

Despite Sanjay’s offer to have me run the business, I knew that I wanted to keep building some of the other businesses I’m involved with and I also felt that the project needed a leader with more SaaS Product Management experience than I have.  I spent the fall of 2010 interviewing candidates for this plum job – and got to meet some excellent people in the Toronto and GTA tech community. In early January 2011 we hired the former GM of e-commerce for Grand & Toy as our new CEO.  I will be spending the rest of January onboarding him and transitioning out of the project. I’ll miss the team – they were a great team to work with – but I know they will go on to build an amazing business and I’ll enjoy watching from the sidelines while I move on to put my energies into the other businesses I am building.

One of our clients needed a report created, at the request of one of their stakeholders, to outline the vision and plans for a project related to workforce management issues in a region of the Golden Horseshoe. We took 3 months and over 50 hours of research and report writing to create the 50 page report. The most innovative section of the report is a recommendation on how to use web enabled mass collaboration and web 2.0 technologies to solve regional workforce management related issues. The report included a detailed, “best practices” marketing strategy and plan as well as findings and recommendations related to web conferencing solutions and webinar creation & archiving solutions.