An Unintended Consequence of Profit Sharing
By Adam Siegel on August 20, 2015
When Ben and I started Cultivate and talked about the core tenets we wanted the company to follow, one was to have people we worked with share in the profit the company was generating outside of any normal compensation.
Naturally, we created a profit sharing plan and doled out profit sharing “units” to each person. In turn, we created a Cultivate “stock price” which we update regularly based on our current profits, so each person knows how much their units are worth. We display this on a big TV every Friday.
Given we’re bootstrapping the company, we’re only able to dedicate about 40% of the profit in to profit sharing. The rest must go in to building the business and creating some cash reserves in the bank.
Right now we can support much of our burn rate with product sales and related professional services. And fortunately that portion of our business is growing. But we’ve also had had an entire segment of our business doing custom development projects unrelated to enterprise crowdsourcing.
This all seemed fine (and has been working well from a revenue perspective) until a recent all-hands discussion, where the speed of implementing our growth strategy was questioned. "If we think our strategy is solid, why aren’t we going all in?" In response, "Failing fast," "risk/reward," and "raise a round" were bantered about the room.
When I thought about our conversation later, I realized the profit sharing plan had created a thought pattern in my own mind I hadn’t necessarily intended.
In order to not stand up at the end of the year and tell people they were getting nothing from profit sharing, or even worse, a joke amount like $2/unit - I am loath to take bigger risks, get upset about trivial expenses (seriously though why is Adobe Creative Cloud so damn expensive,) and have likely been biased by overly short term thinking as we obsessively make sure we’re in the black month to month.
Regardless, it brought up a lot of healthy questions for us to contemplate and discuss in the coming days and weeks as we continue on this journey:
Should belief in our growth strategy dictate how much risk we take?
In taking on bigger risk are we just being impatient?
How does the short term sacrifice of not being as focused hurt not only the
company, but those who may start to feel disconnected from the company’s core
Is profit sharing creating the right incentives for everyone at this stage
of our company?
Since our business is about helping organizations change the way they work, we’ll continue to be transparent about how we work and what we learn along the way.
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Adam Siegel/@amsiegel is the CEO of Cultivate Labs