Rakesh Malhotra January 23, 2020
As we look to scale Nuvalence (significantly) this year, one of the challenges we face is establishing and maintaining a winning culture. While conducting countless phone screens over the past few weeks, I keep finding myself trying to figure out the same thing: “How do I identify people who will really care?”
It’s a purposely broad statement because in this context, “care” is all-encompassing. We want team members who care about the quality of their work, our clients’ needs, our firm’s goals, doing the right thing, and so many other dimensions. As an industry, we’re getting better at evaluating technical skills but finding team members who will care about the right things can still be elusive.
By coincidence, this abstract concept was formalized for me when I listened to an episode of Naval’s podcast titled “The Principal-Agent Problem”. I was happy to stumble upon this apparently very well-studied area of social science. The podcast highlights the fact that employees don’t always act as owners of a business would if it’s not also in their own best interest. Naval goes on to say that this is why he prefers to hire smaller or boutique firms for professional services. They tend to produce higher quality and more accountable outcomes because all employees of those firms tend to have aligned incentives.
Many of our clients like working with us for the same reason. We’re not a huge firm, so everyone has a vested interest in producing a great outcome. This is almost never true of a larger-scale firm. Acknowledging this fact, how do we at Nuvalence maintain high-quality outcomes and accountability as we become a larger firm?
It’s All About Incentives
Amazon calls out “ownership” as one of its core leadership principles and nearly 10 years ago, the famous Netflix slide deck on its culture attempted to tackle a version of this challenge. The solution, unsurprisingly, is not to create well-maintained processes and methodologies to ensure quality results. The only durable solution is to hire and retain the best talent while aligning incentives of owners and “agents”. That last part about aligning incentives is really the key in managing the Principal-Agent Problem. We’re still figuring this out as we grow at Nuvalence but there are some specific principles we follow when it comes to aligning incentives:
We don’t reward team members for billable hours, we reward based on client outcomes and contributions (one of our principles is to act as though time is scarce)
When the firm does well, our team members must directly feel the results of that firm-wide success (not just their own personal performance)
Even though we are not a venture-backed corporation with traditional stock options, every team member has an ownership stake in the firm
We make bets on people who act like “owners” by giving them more responsibility, accountability, and rewards regardless of seniority
Most everyone at Nuvalence comes from a background of building commercial cloud products and services. This product-focused mindset naturally lends itself to a tighter sense of ownership. Projects come and go but great products are durable and leave legacies. We will continue to learn and course correct along the way and we’ll share what we learn here on our blog. I would love to hear your thoughts as well!