Games People Play

“Show me the incentive, and I’ll show you the outcome”

It’s a very human tendency to assume that other people are playing the same game as you. But that’s a dangerous assumption to make.

If you’re reading this, you’re likely in the startup world. 

The startup game

If you found a startup you’re playing a game where your long term path to riches is a bet that you can build a company that’s valued (and ultimately sold or publicly traded) at a multiple to earnings.

That’s one game.

I’m in a group with 350+ other “agency” owners. Recruitment agencies, Youtube content agencies, lead gen agencies - you name it, people are building agency style businesses. The name of that game: cash-flow. There might be an exit in here, but it only starts to become worth talking about once you cross $10m or so in revenue. Which is a very high bar to cross.

No VC in their right mind will back a recruiting agency. It doesn’t scale very well and there’s no 100x return in sight.

Consequently a lot of people in that group struggle to understand the logic of venture backed companies. But they’re playing different games, with different rules.

The Venture Capital game

Venture capitalists don’t like to talk about this very much, but they are playing a different game to founders.

I think it’s useful to remind yourself - while VCs present themselves as entrepreneurs, they’re fundamentally financiers. 

After all - that’s their business model.

Like other financiers on a 2 & 20 compensation plan, you have to ask: does this individual VC plan on making their fortune from the management fees they charge their LPs, or from the investment returns they make?

A friend of mine who worked at a fund explained the numbers to me a few years ago. It’s mind blowing stuff. If you raise 3 funds, call it with $500m total AUM over a 16 year time period, you charge $100m in management fees.

Not bad!

Sure, you have some expenses, and it’s embarrassing socially if you don’t invest in some winners with that money… but would you be ok with professional embarrassment from time to time for an average income of $6.6m a year? Life could be a lot worse!

The Investor vs. the CEO vs. the Salesperson

I was talking to a friend the other day about a tech company that recently went public. He’s not convinced that this company is going to survive in the long term. 

He might be right. 


That’s the exact wrong frame to look at things if you’re a salesperson. There are plenty of tech companies with pretty mediocre financial results that have paid salespeople millions of dollars in commissions over the years.

Bad for investors, but pretty good for the salespeople who worked there!

We can see this in reverse as well: back in 2021 it seemed like every investor couldn’t profess their love for Snowflake quite enough. But on the sales team it was another story. Territories were being cut up, quotas were increasing and the sales team was growing quickly. 

If you’re the CEO of Snowflake this is the name of the game. If you’re an investor, it’s probably a good sign! And if you’re Joe Bloggs on the sales team… it’s a huge problem.

Founders need to keep this in mind, especially when talking about equity

Salespeople think about their compensation differently to engineers.

When you talk to engineers, you’ll often hear them talk about Total Compensation, which is a combination of base salary + bonus + equity.

Whereas salespeople focus on On Target Earnings, which is base + variable compensation (commissions from hitting their quotas). Salespeople expect commissions to be uncapped (after all, why would you punish a winner), and they also expect equity. But they’re realistic about it.

Unless you’re the VP of Sales, the very first sales rep, or a CRO, the amount of equity you make is going to be a nice bonus, but that’s about it. 

As a founder you likely own 100 - 500x more equity in the company than the average sales rep.

Salespeople get that. They’re not angry about it. They get that there’s risk, enormous time commitments & opportunity cost and stresses that come with starting a company.

They have a shorter time horizon than you when it comes to these things.

They need to hit their number this year (after all, you won’t be keeping them for long if they don’t). So the 50,000 foot view doesn’t work quite so well for them.

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