• Performance Linked Incentives for Engineers

    A friend recently asked me about how I might define performance for web developers. It was an interesting question coming from one startup founder to another. He was concerned with how to present performance-based incentives to his developers when performance itself is so hard to measure for engineering work. I had a few thoughts to offer him and I wanted to share them here. 

    What is Performance?

    Engineering has a complex and difficult work flow – it happens on a maker’s schedule. Understanding this, it’s extremely difficult to determine a fair objective/set of criteria by which to measure someone. Lines of code are simply not going to cut it. So what does? Shipped stories? Defect counts? As far as I’m aware, none of these have worked.

    However, if you kick the measure of performance up one level-of-altitude to overall business performance, another problem comes into play. Engineers don’t always have a direct connection to driving business value. They are charged with delivering whatever is on the product backlog in a way that is elegant, stable, and secure. Ideally, they also deliver it quickly. But whose fault is it when the backlog is less than actionable or badly organized?

    So why does performance pay at all? And, when it does, who should reap the benefits?

    This is an even harder question, and the answer varies from business to business. The core goal behind offering performance-based incentives is to ensure the business keeps working, and maybe even winning. This makes sense. And it probably makes the most sense to provide these incentives to people who are actually making the business win (i.e. managers and other strategic roles).

    The flipside is that everyone, in theory, should be incentivized to make the business win. Let’s imagine a hypothetical scenario in which this is the case:

    Step 1: Engineer looks at backlog. He realizes that the first three ideas suck.

    Step 2: Engineer pushes back because he want the business to win.

    Step 3: Product Manager reconsiders one of the ideas in the backlog.

    Even in this scenario there are potential flaws: would the incentives actually motivate the engineer over the hump of inaction? Are incentives enough or does it take a particular archetype to motivate themselves through these extra steps? (I know engineers who will push back on tasks they don’t like, even if they’re paid $1/hr.)

    What about equity?

    Startups, in theory, have a built-in incentive for all employees (or most, depending on where you are): equity. If the business sells for millions, each person will get their piece.

    But is that potential enough to rule out incentive pay? Probably not. In my experience, human beings are remarkably impatient. Most non-founders don’t think on the time horizon required to care about this outcome. Furthermore, even if the engineer does have the long con in mind, the average person needs small incentives to hold them over. (Imagine any video game. You don’t go from level one to sixty in one jump. You need all the levels in between to feel like you’re progressing.)

    So what do you do?

    I think it depends a lot on the type and scale of the business. In most creative product-focused startups, I would argue against non-stock incentive-based pay that is specific to tech goals such as lines of code, uptime, etc.

    However, I DO think that operating businesses (with real revenue) can benefit from goals that everyone can get behind (i.e. a quarterly revenue or profit goal). The case for a shared bonus pool here is reasonable, and I would argue net-positive. I like P2P systems combined with management-driven allocations. So your peers and your managers decide what slice of the total bonus pool you receive.

    The key here, however, is that it’s a BONUS. It’s NOT an excuse to pay someone less than they deserve.

    N.B. I didn’t use the term “market rate” above. I think that market rate is a faulty concept in startup land. Startups have been systematically over-funded in a way that makes bootstrapped startups totally unfit to compete. So what the market can bear doesn’t matter. What matters is how passionate someone is about the opportunity and what they are willing to work for. Generally, equity levels the playing field here.

    One final footnote: Decent bonus schemes act as a nice deferred comp plan for very early stage companies. Let’s say a new engineer wants $10,000 in annual salary, but you can only afford $7,000. You can offer that engineer $7,000 with a $3,000 bonus if the company reaches $X in revenue. This way, if you can afford it, you’ll pay it and the engineer is in a better position to bet on the company.

    In short, there is some room in an early stage company for a “company-wide performance” bonus pool. But goals have to be well-defined enough for everyone to know what they are marching towards (i.e. post-product market fit). An attempt to create a bonus system before such a time seems like putting the cart before the horse. Chances are your business won’t even work – so why create complex incentive programs?



  • Mobile eCommerce: Old, but still intriguing, news [Part Two]

    Before I begin, I want to give a quick shout out to Clay Allsop at Propeller for pointing out that there are companies out there helping retailers and shop owners differentiate their mobile and web platforms. I’m excited to see the cool implementations that may result.

    Quick Recap

    I left you on Wednesday with some thoughts about what I think this year’s Black Friday and Cyber Monday numbers mean for the future of mobile commerce. In particular, I touched on the importance of not looking at phones and tablets as smaller versions of the web as well as what the growth of showrooming and webrooming means for the relationship between Brick and Mortar and eCommerce (for more general insight into the future of B&M vs. eCommerce as I see it, check out this post).

    Today, I want to move away from the businesses themselves and look to the consumer. How does consumer behavior change when using phones vs. tablets vs. computers?

    Measuring Mobile Behaviors

    Ok, I’ll get to the consumer, but first, I want to talk about how we measure behaviors. My first question in thinking about all this is “Where’s the proof?” Everyone talks about how important it is to have a good mobile site, and the numbers certainly show an increase in mobile sales as well as traffic, but WHO is downloading your app? Is anyone actually acquiring NEW customers via the mobile channel, or are web customers simply adding a new channel/migrating over? So far, I don’t know that we have any way to measure this consistently, but it would be a useful statistic to have. Particularly since it would provide interesting commentary on the significance of mobile commerce as a tool to strengthen either CLV or CPA. (I have some strong opinions and probing questions on where these two are going to end up in the equation of success, stay-tuned for a post on this one).

    Consumer Mobile Behaviors

    So not surprisingly, people have already thought about this. They’ve considered who their customers are and how they shop. Case in point:

    Courtesy of visioncritical.com

    Courtesy of visioncritical.com

    But this infographic doesn’t answer nearly all the questions I have about how consumers interact with the mobile platforms available to them. And, to the best of my knowledge, no one has yet (if you’ve seen/heard/read otherwise let me know @adilwali). So here’s what I want to know:

    Are mobile shoppers browsing or searching for specific products? I want to know if consumers are passing time on their phones exploring what’s out there or just buying things they already need. Moreover, if consumers are browsing, are they then going back to their computers to actually buy? (This goes back to my question of CLV vs. CPA). According to an article by socialmarketingforum.net, one of the key barriers to mCommerce success is security concerns. Consumers aren’t convinced that transactions on their phones are as secure as on their computers. I expect this will change as digital wallets become more prevalent and a stronger resource for internet retailers.

    How much more interrupted is the shopping experience? I want to know if orders placed on mobile devices are generally larger or smaller than orders placed on computers. IBM average sales numbers put tablets about equal with computers and smartphones just below in terms of amounts spent. How does this break down for product quantities? Which brings me to my next question: if viewing real-estate matters, how do you know that the size of the screen isn’t a key contributing factor to lower AOVs (average order values)? The numbers this year show that while sales have gone up, AOVs have gone down – how much does this have to do with the rise in mobile shopping for the holiday season? The same socialmarketingforum article cited above also mentions that even though consumers like the convenience of mobile shopping, they prefer the resolution and size advantages of viewing products on a desktop. It’s harder to judge an object the smaller it is. The real question here may be about merchandising versus experience. Do different numbers reflect the different experiences of mobile vs. desktop shopping? Or should retailers be merchandising their products differently across different platforms?

    Finally, while visioncritical.com has broken down four shopping archetypes, who are they missing? How do the different archetypes interact with mCommerce. If the mom is usually looking for coupons, what’s the college-aged female looking for? How can retailers adapt their mobile platforms to best meet each archetypes needs?

    To sum this all up, I’ll leave you with some more numbers. mCommerce is going to keep growing and companies need to start gathering the data that will allow them to maximize their mobile potential.

    Courtesy of culturelabel.com by way of mashable.com.

    Courtesy of culturelabel.com by way of mashable.com.

  • Mobile eCommerce: Old, but still intriguing, news [Part One]

    In the wake of this year’s Black Friday/Cyber Monday stats, I want to talk about mobile commerce: the truths, the questions, and the abundant opportunities. I’ll be honest, the importance of mobile commerce isn’t escaping anyone playing the eCommerce game. In fact, it may be the most agreed upon movement out there — consumers spend a lot of time on their phones so eCommerce apps need to be available to them. And there are tons of stats to support the growth of mobile, particularly after the past four days.

    Courtesy of teach.ceoblognation.com

    Courtesy of teach.ceoblognation.com

    Some background stats

    According to IBM, Black Friday mobile traffic increased 34%  over 2012 to make up 39.7% of all online traffic and mobile sales constituted 21.8% of online sales. Cyber Monday was also strong in mobile, showing 31.7% of all online traffic and 17% of sales. The breakdown of smartphones to tablets was interesting too:

    “Smartphones drove 24.9 percent of all online traffic on Black Friday compared to tablets at 14.2 percent, making it the browsing device of choice. Tablets drove 14.4 percent of all online sales, double that of smartphones, which accounted for 7.2 percent of all online sales. Tablet users also averaged 15 percent more per order than smartphone users, spending on average $132.75 versus $115.63 for smartphone users.”

    Compared to Cyber Monday:

    “Smartphones drove 19.7 percent of all online traffic compared to tablets at 11.5 percent, making it the browsing device of choice. When it comes to making the sale, tablets drove 11.7 percent of all online sales, more than double that of smartphones, which accounted for 5.5 percent. On average, tablet users spent $126.30 per order compared to smartphone users who spent $106.49.” (Read the full Black Friday and Cyber Monday reports).

    The Big Question

    So what does this all mean? We know phones and tablets are important in the future of eCommerce, but what should companies actually be doing about it?

    Differentiating Web from Mobile

    Tinder screenshot

    Despite universal acknowledgement that mobile apps are increasingly important for eCommerce companies, those apps continue to be viewed as just paired-down versions of web apps. They’re not. Thinking about tablets and smartphones as smaller versions of desktops is a dangerous game: Best Buy and Sony Style both failed to adapt their sites to tablet users and lost out on Cyber Monday (Mobile Commerce Daily has a good article about this). On the other hand, dating site Tinder is crushing it in the mobile sphere by creating an app that is NATIVELY mobile. Users swipe though potential matches instead of clicking or scrolling.

    But what about eCommerce sites? Some retailers are certainly catching on. Both REI and Nine West have created mobile apps that are meant for use in store. They recognize that shoppers want to be able to compare products in real time. The REI app has a product scan option where shoppers can scan the bar code of any product in store to see details and customer reviews. Nine West now provides in-store ipads with an app from which shoppers can browse, see details and reviews, and then order online, all while still being able to try on the item in-store.

    Mobile apps offer incredible opportunities for marketing and personalization. Cache is doing this right. They’ve adapted their push notification system to respond to shoppers habits. If a shopper generally browses certain parts of the site, they get notifications about specific items that they may have viewed. And, like REI, the Cache app also offers in-store bar code scanning.

    There is so much opportunity inherent to mobile shopping; retailers need to remember that having a mobile app does not mean having a responsive web page.

    Showrooming vs. Webrooming

    Brick and Mortar isn’t disappearing anytime soon. But the growth of mobile shopping means that eCommerce and B&M don’t need to be in constant competition. If showrooming and webrooming are growing trends, mobile apps and in-store tablet implementations could help companies create harmony between the two. eCommerce companies should be looking to build better cross-channel experiences as Nine West is doing. Moreover, companies should think about offering incentives to customers browsing online — if the customer webrooms on his phone, why not offer him a promo when he walks into the store? Promotions could work across channels, providing incentives for shoppers to be interacting with retailers on multiple channels, thereby increasing exposure.

    Coming up in Mobile eCommerce, Part Two:

    Mobile Behaviors and a few questions to turn things on their head.