‘Incentives are a superpower’ is a phrase made famous by Charlie Munger, an investor and partner of Warren Buffett at Berkshire Hathaway.
Incentives drive just about every human behaviour. And for the most part, the stronger the incentive, the more immediate the change in behaviour.
Smokers who survive heart attacks are more likely to give up smoking than those who are at risk of a heart attack. And in the same way a salesperson is more likely to say what a customer needs to hear to secure their commission, a person who wants to achieve a lifelong ambition to be a doctor will study their heart out to achieve the required standard.
As a founder in a startup or a high growth company, incentives play a central role in performance and milestone achievement.
I look for incentives that drive my team, partners, potential hires, customers, investors and people in our communities.
My radar is also always on to identify triggers that may change those incentives.
Because incentives are a leading indicator of behaviour.
Leadership is a contact sport
Two friends of mine, Ben Pronk and Tim Curtis, often refer to the idea that leadership is a contact sport. It means that you need to repeatedly engage, one on one, with the people you lead or the communities you seek to influence.
This contact is the only way founders can understand incentives. Or detect when they start to shift.
Otherwise, there is a high chance the assumptions you make as to why a new hire joins, a team member quits or an investor decides to withdraw at the eleventh hour will be wrong.
I’ve found that a mix of trust (i.e. being consistent over time) and respectfully-asked, direct questions are crucial to understanding incentives.
While I’m no psychologist, I have found that people often act based on two types of incentives. I’ll call one ‘human’ and the other ‘functional’.
The human incentive is underpinned by curiosity and to some extent, altruism. The functional incentive tends to be more about how money can be made, and how influence can be developed.
Human and functional incentives coexist. Think of them as a pie chart, their sum is 100%. They change based on circumstance, life stage and a myriad of other factors.
The point is that two factors drive incentives. Those factors change with time. And the only way a founder can understand or influence the resulting behaviour is to lead, knowing that leadership is a contact sport.
I have a set of questions that I use to uncover incentives. Much like validated questionnaires that use just a few questions to help establish risk factors for health, these questions help me develop an understanding of a person’s incentives.
The questions below are not an exhaustive list, more my starting point.
- When interviewing candidates: What is the next job you hope to secure after your time at Drop comes to an end?
- When meeting with a customer: How can we help take you closer to happiness (and further away from fear)?
- When meeting investors: What do you need to believe to invest in our team?
- When brokering a distribution partnership: What is the fastest way to create value for your customer?
- When building a community: What is important to you about our vision?
Each of these questions is designed to start a conversation and I try asking them in the first meeting.
I also tend to revisit these questions from time to time in the relationship as a means to gauging if incentives are shifting.
One last thing…
Understanding incentives is critical because they help to predict behaviour. In addition to asking the questions above, I also find myself asking why? as the follow-up question. A lot.
These questions have helped increase the quality of my decision making, saved me a ton of time and short-circuited what could have been (very) poor hiring decisions.
My last question is for you. What techniques do you use to uncover incentives?