« Play the game with more than you can afford to lose. Only then will you learn the game. » (Winston Churchill).
Skin in the game
Do you have anything to lose or to win in your endeavors? Can you lose your shirt? Your job? Your savings? Your reputation? Your tranquillity? If you are successful, is there a reward for you at the end of the road? A bonus, a prize, a promotion? Respect from your peers? A personal fortune? How are your personal interests aligned with the success of your mission?
Hot coffee and fresh croissants
Do you like the smell of hot coffee and French croissants in the morning? Freshly baked out of the oven. Close your eyes and imagine the delicious scent of you favorite delight, guiding your feet on the way to the bakery. Where was the best croissant you ever had? Was it in a supermarket or at a small baker’s shop? We bet it was at the small shop. We place the odds of our bet at 9 to 1. A place run by a small business owner, who wakes up at 5 o’clock every morning and treats you with the best of his attentions. Did we guess right? There are strong incentives for small business owners to produce their absolute best work everyday. Let’s give you three reasons:
- First of all, small businesses have to do their best because their survival is on the line at any moment. Not doing your best is a fast and unforgiving road to ruin. You might see a dried or stale croissant in a supermarket, but it is very rare to see one in a shop where the owner is running the place. In a big company the performance of a single employee (or lack thereof) may not threaten the life of the company, but in a small business, performance and the fate of the company are very tightly and timely linked. When someone plays his or her shirt daily, things are too important and too serious to allow neglect. This is the first natural safeguard for quality.
- Second, small business owners put all their pride in their work. That’s the reason why they work so long hours. They have a brand to defend. A name. Their own. Stellar Space Studies, that sounds so sweet to us. This is an endless fountain for motivation. They will never count their time, and they will do their utmost efforts to prove their worth and to hold their reputation (read here).
- Third, they may make a fortune if they succeed. If a small French baker goes to New York, San Francisco, or Japan and the public gets crazy for his delicacies, he might become a millionnaire overnight. You can bet he is not going to waste a single minute of his time in unproductive behaviors. You will never see him binge watching Netflix. He is going to work every night to improve his art and produce the most succulent croissants that ever sat on a bakery shelf. The length of the cooking, the temperature of the oven, the proportion of flour and butter, and the mighty secret ingredient that will make his recipe unique. Those long hours of dedication will turn into exceptional expertise. Compound this behavior in every domain, and this is the collective wealth of a society. The more skin in the game people have, the more they are dedicated to their work, the more the skill level rises, and the more society benefits.
Will you have a coffee with your croissants?
Management and business
Of course, this works in both directions. The less, the less. Building skills requires effort. Quality requires effort. Building a nice house requires effort. It is much harder to align the bricks perfectly than to loosely throw them on top of each other. This is difficult. So, if there is no incentive for work or effort, what will guarantee that work and effort will happen in the first place? If it is all the same, after all, why bother? Why bust your ass for nothing? Why not indulge in lousy work if there’s no penalty for it, or worse, if good work is not rewarded anyway? Of course, not everybody wants to be a small business owner, but there’s always an opportunity for a company or a team manager to design schemes for people to have skin in the game. A bonus tied to the results. A penalty for bad work. A responsibility for consequences of decisions. A good compliment when deserved. A sense of pride. This will already start a virtuous cycle. How is it in your own environment? In our long years of experience, we’ve seen punishment for talent and good behaviors, only based on political decisions and power plays, by people who could afford such behaviors simply because they had nothing to lose from their bad decisions. This is the road to ruin. Don’t to it. If everybody had skin in the game in their daily work, the overall quality of products and services in a society would increase. So would the degree of common sense, the level of prosperity, the mental health of the population and its level of happiness. Always look for partners who have skin in the game, and try to implement it for yourself and your team too.
The big car dealership and the small garage
Let’s share an anecdote with you. Recently, we had a problem with a car. We lost the anti-theft bolt. Without it, you cannot remove the wheel nor change the tyre when you have a puncture. Embarrassing. Since it is a strategic part, you can only solve the problem at the official brand dealership, with your serial number. So we went to the big dealership. The wait and the service were awful. We suffered 45 minutes of wait, only to learn from an ostensibly bored and apathetic employee that it would take several weeks to manage. Then we went to a small garage for help. A jolly fellow came out, and he went out of his way to try to satisfy us. He passionately rummaged among the piles of gear populating his cave of wonders. He came back with briefcases of bolts of all kinds. Our brand. The sister brand. The mother brand. Plus alternative options. He tried old parts, new parts, screwdriver tricks, old tricks, new tricks. After 20 minutes of efforts, he was sweating like hell and had already undertook multiple solutions. Unfortunately in the end, none of them worked. But just compare with the previous experience. It was night and day. As a solution of last resort, he recommended another official dealership, but in the countryside, 70 km away. A much smaller one. We followed his advice, and there the problem was solved in three days with smiles and a coffee. The employees of the first dealership didn’t give a damn about their work. They obviously had nothing to lose. Neither their job, nor their bonus, nor their reputation. Much less their self image. On the opposite, the garage owner was marvellous, and the small dealership was perfect. Since then, we always work with them. Did you say skin in the game?
If this is your car, who would you prefer to entrust it to?
The big bank and the pharmaceutical company
If a bank is too big to fail, and if losses are guaranteed by the government in any case, what are the incentives to not gamble with your money? They have zero skin in the game. Liability is only on the client and the taxpayer. If a pharmaceutical company is legally shielded from judicial prosecution in the case of side effects, how extensive will be the safety tests? They have zero skin in the game. Liability is only on the client and the taxpayer. So how can you trust one or the other?
The fate of your health and your money,
when the ones you entrust them to have no skin in the game
James Bond and the alpinist
Why is James Bond so good? Doesn’t it have to do with the fact that he may end up killed very rapidly if he isn’t? Staying alive is a good incentive for being a skilled agent. What about the alpinist? How skilled are his moves? You can bet he has developed an advanced mastery of how to set his hands and feet on the mountain rock. When you play your life at every move, you need to be good. That’s what you want as a customer. You want to work with people who have skin in the game. The single fact that they are willing to take the risk is a proof that they have confidence in their own skills, and that they are ready to walk the hard path to become highly skilled professionals. Take advantage of it.
Correlation between skin in the game and skill
When choosing your suppliers, ask them if they have skin in the game. Ask them if they have a bonus according to their performance. Ask them if they endure a personal risk in case of failure. These are signs that will greatly improve your odds. At Stellar there is always a significant part of the salary that is triggered only after the delivery has been made to the customer. There is a link between work and reward, there is a link between mission accomplished and payment. That gives meaning to our work, and everybody likes it. So our advice to you is to always select partners who have skin in the game. Respect them, value them, cherish them, and try to put yourself and your team in a similar setup. This will fuel your common endeavors and you will be surprised at how good your results will become. Rewards and compliments will surely ensue.