I can’t believe it has taken me so long to sit down and put these thoughts in writing. This should have been one of my first articles after starting BeyondProxy some eight years ago. On the other hand, maybe it has simply taken this long, both to realize the importance of this message and to have something to say.

If you’re reading this because you are passionate about value investing, community building, writing, programming — heck, pretty much anything that can add value to others — keep reading. I hope this article speaks to you. If it does, please reach out. I would love to hear from you.

Notice I don’t say “if you are skilled“, I say “passionate”. I’m not looking for someone with skill who will do the task at hand, deliver the project requirements, get paid, and consider it “case closed”. That’s an Upwork project. I’m looking for someone who will devote as much thought and care and creativity to our mission as I do. This takes passion, and with passion, no skill is unattainable.

So, this article is about the challenge of building a globally distributed, decentralized business whose main assets are:

  • the creativity of its people, and
  • the intellectual property that springs from that creativity;
  • the realization that our subscribers/members/readers afford us the ability to keep doing what we love, and
  • from that realization, a genuine interest in and singular dedication to adding value to those “customers”

There are no hard assets — no hotel, no factory, no software, not even any patents or trade secrets.

This adds a wrinkle to recruitment and retention: If you are considering joining BeyondProxy — Latticework, The Manual of Ideas, ValueConferences, etc. — you may be excited because you’ve heard about us and may have a perception that we are well-established and well-regarded in the value investing community. You may think that, therefore, you are joining a company with all of the trappings of a typical corporation: an org chart, clearly defined responsibilities, established processes, etc. You’ll just plug into the organization and do what is in your job description. That is not the case.

What happens on the retention side is that you may join and then realize just how lean, changing, and completely devoid of hard assets the organization really is. You may tell yourself that this is pretty much just “John+”, and if it’s “John+”, then why should I work for John? And if I do work for John, I should get a big chunk of the economics because I can do whatever John is doing. So, retention becomes a huge issue.

Pay is another huge issue. The day you join BeyondProxy, we take a hit to cash flow. Not only do we become less profitable from one day to the next, but the demand on my time and attention escalates. I love my independence, lack of schedule and, frankly, lack of responsibility for other people’s livelihoods. I have three kids, and that’s quite enough responsibility for me. Adding a management burden to my life is a big deal. So, in addition to the cash pay you may receive on day one, I am also making a payment in terms of time and attention. It’s tough to put a number on that but let’s just say it is large, and it does not scale well. There is no money you can bring in that will make me spend all day managing you.

My thoughts on pay are straightforward (at least to me!): If you are joining the company, our profit should go up as a result of you joining. It won’t go up on day one or day two or day three. But a year after you’ve joined, I should feel pretty sure that your presence has made us more profitable.

How is profit defined for purposes of pay? If my time and attention are required on the management side, then have you really increased the profit of the company if $10,000 more is coming in than what you receive in salary? What about the cost of my time? What about the contingent liabilities that get added every time a new employee joins? Maybe I’ll overlook some regulatory or tax requirement in your domicile, or maybe you’ll do something that results in the company getting sued. Certainly, the administrative burden goes up as a result of adding another person — even if it’s as small as clicking a “pay” button on PayPal every week or every month.

Or, let’s say you are taking on a new initiative but we are using our existing channels — websites, email list — to promote the new initiative. We are potentially losing subscribers and readers because we are promoting something to them, and we are using “marketing real estate” that could be used for promoting our existing products. A new initiative to some extent cannibalizes our existing offerings, if our existing infrastructure is used to promote the new initiative. I don’t worry about competitive cannibalization — the world is big enough for good products and services to succeed, but I do worry about cannibalization from doing too much on our own little platform.

These types of “costs” are easily overlooked, especially if your claim on pay increases as a result of overlooking them. And then it’s a very difficult conversation because the perception of value-add varies. I don’t want to be haggling or arguing with someone about their value-add. In fact, sometimes I might perceive someone’s value-add to be huge — much greater than their immediate contribution to cash flow — but cash pay has to come from somewhere. The cash has to be there. While I want to build long-term value for the company, cash payments in the present need to come out of cash flow, minus the cost of my time, the cost of leveraging my relationships, and the cost of contingencies (think of this as, “what would be the insurance premium to do away with all contingencies?”).

By now it is probably clear that there is no venture capital at play here. I own the company, and it is my money that makes each paycheck clear. It is also my money when you swipe the corporate credit card for a company expense. I am a frugal person who could live a minimalist lifestyle (the family makes that a bit challenging), so if the corporate card is swiped for an expense that might only be acceptable at a pre-2007 Merrill Lynch, then I won’t be too happy about it. I’m not going to disapprove it because the quality of my life won’t be enhanced by playing “HR manager”, but I’ll notice it. It will go somewhere in the back of my mind, reminding me that, “maybe this person is not entirely aligned with our mission and philosophy”.

What is my idea of compensation?

If you’re still reading and the issues I raise make sense, you might be wondering how in fact I propose to handle a working relationship.

On the compensation side, we can provide a salary to cover your living expenses, hopefully quite comfortably if you have a lifestyle “within reason”. By removing the anxiety-inducing logic chain “no pay, no food, I die”, the salary frees you up to do what you love and not worry about your existence. In this sense, I am taking a risk on you by committing to paying you no matter your near-term contribution to the business. I might do this for three months or for a year, it depends.

Then comes the question of cash bonuses. In order to avoid haggling “against” an employee, the expectation should be that a bonus is completely discretionary and should not even be expected. You’ll get some sort of bonus if I believe that your net contribution to the business, after all of the costs enumerated above, materially exceeds your salary. And then, the bonus will be a fraction of that net excess, not the whole thing. So, the best is to not expect a bonus. If you are adding tremendous value and you get a bonus that is disappointing, we can discuss it or you can simply conclude that you are not sufficiently valued and should pursue something else.

I fully support people leaving if they feel it’s right for them, for whatever reason. I am not looking to build a jail or a team of indentured servants. If you feel you’ll do better in some other constellation, great! I will even help you as best as I can. I really have zero worries or competitive impulses in that regard. You want to take the customer list with you? No problem. Anyone who believes that customer lists or ideas are somehow valuable, is completely off-base, in my humble opinion. To me, execution is everything. Loving your customers is everything. Holding a customer list is nothing. Long after someone leaves with a customer list, I’ll keep loving my customers, and they’ll love me back. They may also love you, which is cool. Love is not a limited commodity.

Then there is the issue of equity. Here I have to say, “equity in what?” My company is my life — my working/creative life anyway. You are not getting equity in my life. Certainly not immediately, and certainly not if you leave.

If at some point I remove myself from the company or the company is sold, that is completely different. If the company is no longer my life, then there is plenty of equity to go around. I don’t feel like I need to hold onto all the residual value that was built up with your help.

There’s a major caveat here, too: The level of equity you receive will be entirely discretionary. I cannot know right now what your contribution will be over the next x years. Maybe I could say something like, my colleagues (as a group) will get 10%, 20%, or 50% of the equity when the company is sold or I retire from it (e.g., by moving to a chairman role with absolutely no operating responsibilities). It won’t be 50% if the company has two employees. So, the aggregate number is up in the air. The bottom line: I want to be fair, but I want to be able to decide. And I want to be able to decide freely at the point of maximum information and context, which is the time of the event that triggers the equity participation. I will not decide any numbers in advance. So, again, if you want to be satisfied, it’s best not to expect anything. A positive surprise might be in store.

I understand that such a compensation structure — if you can even call it “structure” — is a complete no-go for most people, and that’s completely fine. I wish I could accommodate everyone, but I can’t. I know what is acceptable to me and what I consider to be fair, and I’ll act that way.

I do believe it is legitimate to ask how I decide what’s fair. It almost goes to the issue of worldview. What will make me not simply screw everyone when it’s “bonus time” or when that time of “exit” comes? I fear that some employees may indeed feel screwed at that point. I fear that when that point comes, if you add up the equity percentage expected by each employee, you might arrive at something well above 100%, maybe even 1000% or more. That’s the challenge, and that’s the danger. I don’t want to end up with an objectively great outcome for the company and for the employees, yet be hated because people expected even more. That’s why I really hope you won’t contact me or join if you’re one of the folks who would push that collective equity expectation toward 1000%. You’ll be unhappy, I guarantee it, so better take a different path.

On the other hand, if you have a passion for what we do and you truly expect nothing beyond the base salary, please reach out. Not so I can take advantage of you but so we can move together along a journey of growth, experimentation, learning, and self-discovery. We will build a valuable business but we will also appreciate that the journey is the goal. What you do every day is far more important than what happens on “exit” day. And if this is your view, if you really internalize it, chances are that when that day comes, when the equity is actually worth something, you’ll be thrilled about the outcome.

That final outcome, if you will, may never even come. Maybe we’re just going to enjoy the journey for as long as we possibly can. Maybe there is no concept of retirement or need to retire. Like the fisherman who was satisfied with one boat because he knew that at the end of a business with 1,000 boats, he would anyway just want one boat.

If the point of “exit” does come and the value of the business is clarified in concrete terms, then I will think about each individual contribution by going back to the things I value most in a business context: hard work, long-term orientation, and loyalty. Show you care, build the business for the long term, and don’t constantly bring up compensation or threaten to leave. I am not great at doling out compliments so I may not say much, and for long stretches of time it might even feel like the things I just mentioned are not top-of-mind. Trust me, they are — they are noticed and incredibly appreciated.

Not to get too philosophical, but when/if that day comes when equity upside becomes a reality, what will go through my mind? How will I spend the money that might be there? I certainly won’t spend it on myself. I don’t even expect to own a house — not now, probably not ever. In this life, we are renters — we may think we own things, but we don’t get to keep them. So why not internalize that by avoiding ownership as much as possible. In any case, I would face a choice of giving the bulk of money to charity or giving it to my colleagues — those who embodied the values of hard work, long-term orientation, and loyalty. I know a little bit about charities and not-for-profits by now, and what I’ve seen is a lot of bloat amid the programs that actually help people. Unless the charity model improves in major ways, I feel I would much rather reward people I know and care about. Let them take care of their families and their communities. We’ll see… the day I need to make such a decision may never come, and if it does, who am I to say that I’ll be able to resist the “devil” dangling dollar bills?

I don’t expect much in the way of inbound inquiries, but at least now I have something I can share with those interested in joining us. Still interested?