The real behavioral-science-backed secret to building a successful business
Over the last six weeks, I've spent all my time thinking about organizational development.
Because all my work experience in the last 10 years has brought me to one conclusion: The way you design your company determines its success.
Which brings us to what I call the “Ree-Uh Performance Formula”:
Company Performance = Human Capital + Incentives
Very scientific, eh?
Every company is only as good as its human capital AND its incentive systems.
It doesn't matter if you’re the greatest behavioral science or behavioral economics expert in the world… If you have a bad team carrying out your ideas, you're going to fail.
Put great talent in a poisonous environment and it will wither. Put great talent in a great environment and it will flourish.
Things like market-timing are nearly impossible to predict. The only thing that companies can, realistically, impact are the quality of talent and the quality of life.
Which is why I've gotten utterly obsessed with two different things over the last few years.
The first thing is a field called psychometrics (also known as trait psychology). Trait psychology is interested in understanding all of the different cognitive and psychological traits that people have and figuring out how to measure them accurately. With accurate measures, you can make accurate predictions of future behavior.
The second thing I’ve gotten obsessed with is a field called incentive psychology (you can also call it reward or motivational psychology). Pretty self-explanatory, right? The questions that incentive psychology tries to answer are: what motivates people? Which types of rewards/gifts should you give individuals (to optimally increase their motivation and performance)? What are the downsides to different incentive/reward schemes? And how should you structure your reward programs?
Combining the best knowledge from these two fields gives you the best possible chance to build a successful company.
If you ignore their findings, you’re shooting the dark. You may be successful, but it’s probably due to blind luck.
If you follow their findings, you have a really good shot of building a world-class cash machine.
Which is why I tell all the startup CEOs I talk to one simple thing: spend all of your time identifying and hoarding talent. If you hire and inspire the right people, there's no limit to what your company can accomplish.
Look at the top companies in Silicon Valley over the last 20 years.
What do they have in common?
Sure, they all have apps.
Sure, they’re all internet companies.
But these are superficial similarities. What they really have in common is their obsessive focus on hiring the best people and treating them well.
For the longest time, Google was known as the best place to work. It attracted all the smartest engineers and product people.
Then, Facebook became the it company, and most of the top engineers from schools like Stanford and Harvard flocked to Facebook. A lot of great people from Google also jumped ship to the rapidly rising social network.
Then, for a brief period, Uber became the hot-shot company. Tons of the top engineers from Facebook ran over to get their pre-IPO Uber stock.
In the case of Facebook and Uber, PR and culture problems caused the company to hemorrhage some of its best talent, which is why these companies both seem to be trending downward—--while companies like Stripe, Google, and Amazon are ascending.
I actually think this could be a great stock-trading strategy: identify the top engineers in Silicon Valley and track where they go. Short the companies that are losing a disproportionate number of these engineers. Go long on the companies that are attracting these engineers.
Which leads us to the next question: How do you identify top talent? What does it even mean to be “talented”?
That’s a great question—one I’ll answer tomorrow.
PS: If you want advice on how to better design a successful organization (by hiring the right people or setting up the right incentive systems), you can sign up for time with me here: https://calendly.com/behavioral/60-minute-session?back=1&month=2019-07