Building blocks for successful teams – evidence from business

At the moment there is a lot of discussion in VC and startup blogs on entrepreneur’s motives and financial rewards in early stage ventures. Mark Suster’s entry “Should Founders Be Allowed to Take Money off the Table?” is one of the most fruitful openings, and there are several others, too. But Suster’s entry made me really think about these issues.

His entry led me to dig deeper in the motivational aspects of entrepreneurial teams and success of the business ventures. I have stated in many occasions that business and sports have many common aspects, and I wanted to test my own propositions, too. And here is something that I found.

I follow constantly TED Talks website and once again, I found an exciting presentation by Dan Pink on surprising science of motivation. Here are some highlights of his presentation.

Now I want to tell you about an experiment using the candle problem, done by a scientist named Sam Glucksberg, who is now at Princeton University in the U.S. This shows the power of incentives. Here's what he did. He gathered his participants. And he said, "I'm going to time you. How quickly you can solve this problem?" To one group he said, I'm going to time you to establish norms, averages for how long it typically takes someone to solve this sort of problem. To the second group he offered rewards. He said, "If you're in the top 25 percent of the fastest times you get five dollars. If you're the fastest of everyone we're testing here today you get 20 dollars." Now this is several years ago, adjusted for inflation. It's a decent sum of money for a few minutes of work. It's a nice motivator.

Question: How much faster did this group solve the problem? Answer: It took them, on average, three and a half minutes longer. Three and a half minutes longer. Now this makes no sense right? I mean, I'm an American. I believe in free markets. That's not how it's supposed to work. Right? If you want people to perform better, you reward them. Right? Bonuses, commissions, their own reality show. Incentivize them. That's how business works. But that's not happening here. You've got an incentive designed to sharpen thinking and accelerate creativity. And it does just the opposite. It dulls thinking and blocks creativity.

This is not the only study in which the results are like this. Results have been the same in many studies during past 40 years. Intrinsic motivators have been found more important than extrinsic. Dan Pink continues:

… If you look at the science, there is a mismatch between what science knows and what business does. And what's alarming here is that our business operating system -- think of the set of assumptions and protocols beneath our businesses, how we motivate people, how we apply our human resources -- it's built entirely around these extrinsic motivators, around carrots and sticks. That's actually fine for many kinds of 20th century tasks. But for 21st century tasks, that mechanistic, reward-and-punishment approach doesn't work, often doesn't work, and often does harm. Let me show you what I mean.

So Glucksberg did another experiment similar to this where he presented the problem in a slightly different way, like this up here. Okay? Attach the candle to the wall so the wax doesn't drip onto the table. Same deal. You: we're timing for norms. You: we're incentivizing. What happened this time? This time, the incentivized group kicked the other group's butt. Why? Because when the tacks are out of the box it's pretty easy isn't it?

If-then rewards work really well for those sorts of tasks, where there is a simple set of rules and a clear destination to go to. Rewards, by their very nature, narrow our focus, concentrate the mind. That's why they work in so many cases. And so, for tasks like this, a narrow focus, where you just see the goal right there, zoom straight ahead to it, they work really well. But for the real candle problem, you don't want to be looking like this. The solution is not over here. The solution is on the periphery. You want to be looking around. That reward actually narrows our focus and restricts our possibility.

He highlights that lot of our today’s (and future) work require creative type of capabilities; working with several options and not targeted on a single solution. This stresses model of financial rewards based system. Pink says:

Dan Ariely, one of the great economists of our time, he and three colleagues, did a study of some MIT students. They gave these MIT students a bunch of games. Games that involved creativity, and motor skills, and concentration. And the offered them, for performance, three levels of rewards. Small reward, medium reward, large reward. Okay? If you do really well you get the large reward, on down. What happened? As long as the task involved only mechanical skill bonuses worked as they would be expected: the higher the pay, the better the performance. Okay? But one the task called for even rudimentary cognitive skill, a larger reward led to poorer performance.

I was asking myself if this could be culture based phenomenon. It could, but Pink’s examples prove that results are not culture dependent. At London School of Economics scientist have gone through 51 studies of paid for performance plants, inside the companies. Their conclusion is clear:

"We find that financial incentives can result in a negative impact on overall performance."

As Pink says there is a mismatch between what science knows and what business does. Pink continues:

… what worries me, as we stand here in the rubble of the economic collapse, is that too many organizations are making their decisions, their policies about talent and people, based on assumptions that are outdated, unexamined, and rooted more in folklore than in science. And if we really want to get out of this economic mess, and if we really want high performance on those definitional tasks of the 21st century, the solution is not to do more of the wrong things. To entice people with a sweeter carrot, or threaten them with a sharper stick. We need a whole new approach.

So, what is then The Solution? Pink says the answer is based on intrinsic motivation:

It's an approach built much more around intrinsic motivation. Around the desire to do things because they matter, because we like it, because they're interesting, because they are part of something important. And to my mind, that new operating system for our businesses revolves around three elements: autonomy, mastery and purpose. Autonomy, the urge to direct our own lives. Mastery, the desire to get better and better at something that matters. Purpose, the yearning to do what we do in the service of something larger than ourselves. These are the building blocks of an entirely new operating system for our businesses.

I found also Paul Grahams new blog post “The Anatomy of Determination” very exciting. He and his team at YCombinator have spent a lot of time trying to learn how to predict which startups will succeed. Y Combinator is a new kind of venture firm that has specialized in funding early stage startups, and they help entrepreneurs to develop their case from idea to a company. YCombinator team learned quickly that the most important predictor of success is determination. At first they thought it could be intelligence, but found out that it's not the deciding factor. He says:

In most domains, talent is overrated compared to determination—partly because it makes a better story, partly because it gives onlookers an excuse for being lazy, and partly because after a while determination starts to look like talent.

I can't think of any field in which determination is overrated, but the relative importance of determination and talent probably do vary somewhat. Talent probably matters more in types of work that are purer, in the sense that one is solving mostly a single type of problem instead of many different types…

… Perhaps one reason people believe startup founders win by being smarter is that intelligence does matter more in technology startups than it used to in earlier types of companies. You probably do need to be a bit smarter to dominate Internet search than you had to be to dominate railroads or hotels or newspapers. And that's probably an ongoing trend. But even in the highest of high tech industries, success still depends more on determination than brains.

He points out that determination consists of three elements: willfulness, discipline, and ambition. For him, determination is about “willfulness balanced with discipline, aimed by ambition”. The good news is that at least two of these three qualities can be developed: you may be able to increase your strength of will; you can learn self-discipline; and most of us are malnourished with ambition. The challenge is once again what these concepts mean; those are as complicated concepts as determination.

Talent is without a doubt one of the top three factors, and Graham says that third one is how much you like the work.

If you really love working on something, you don't need determination to drive you; it's what you'd do anyway. But most types of work have aspects one doesn't like, because most types of work consist of doing things for other people, and it's very unlikely that the tasks imposed by their needs will happen to align exactly with what you want to do.

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Dan Pink and Paul Graham have found out the same result that has been found also in sports, especially in team sports. If you talk to top athletes, despite the fame and (possibly) huge financial compensation of their work, they always talk about how much they love their sports, how much they desire and work to become better and learn more, how committed they are with their team, and how important is the spirit of the team.

Success in sports is highly dependent on talent of the people but even more about their intrinsic motivation and determination. Once again, business and sports have very much in common…

References

Mark Suster: Should Founders Be Allowed to Take Money off the Table?
http://www.bothsidesofthetable.com/2009/09/02/should-founders-be-allowed-to-take-money-off-the-table/

Dan Pink on the surprising science of motivation. TED Talks, August 2009.
http://www.ted.com/talks/dan_pink_on_motivation.html

Paul Graham: The Anatomy of Determination. September 2009.
http://www.paulgraham.com/determination.html