Incentives are one thing. Legends are another.

(Editor’s note: Serial entrepreneur Steve Blank is the author of Four Steps to the Epiphany. This column originally appeared on his blog.)
Entrepreneurs and the early startup team all need to be motivated by a shared vision, passion and desire to build a large company.  Yet it’s the company legends that live on.
Our little startup was less than a year-old.  We had been busy assembling our team and had just hired the last member of our exec staff.  We had also just closed our Series B financing with a major overseas partner.  The financing felt like a real validation of our strategy. In truth, it was only proof that our reality distortion field worked in Asia as well.
One of the new hires was Bob, my VP of Business Development.  He knew so little about technology that I used to say he needed a manual to operate a light switch, but I hired him because a small voice said, “He’ll do extraordinary things.”
He did.  And still does.
Bob, among other things ran the fundraising for us in Asia and worked with an outside firm that had great connections in Japan to drag us around Tokyo and get the deal closed.  As in raising $10 million kind of closed.
Everyone at our startup was working on startup starvation salaries, and Bob had taken a large pay cut to join us. When the Japanese partner deal was done, Bob said,  “Steve, I deserve at least a $10,000 bonus.  I haven’t been home in weeks, and I pulled off a financing even you admit was unbelievable.”
I patiently explained that this type of miraculous event was the norm for startups. The engineers were pulling off miracles on a daily basis, we were all taking fumes for salaries, but our payoff will be when our stock is worth something.  Until then, tell your wife you’ll get $10,000 when hell freezes over. No bonuses in a startup. To his credit Bob said while he understood, he was going to hear about it at home for not being appreciated.
Since our management team hadn’t met each others’ spouses, I thought the financing would be a great reason to get everyone together for a low key celebratory dinner.  We picked a restaurant in Palo Alto down the street from the company and got a private room.
We drank lots of wine, had a nice dinner and after the dinner plates had been cleared I made a speech about teamwork, startup, passion, commitment, blah, blah.
I then congratulated the outside firm that Bob had used in Japan. I had invited their CEO and his wife and handed him a check for their retainer bonus for their help in the deal. Bob kept glancing at his wife who was giving him frosty looks and was very clearly not happy.
I then announced that it was unfair that Bob shouldn’t go unrecognized for his hard work so I had an award for him as well. The atmosphere around Bob’s wife began to thaw.  I said, “Bob had carried the same old beat up leather briefcase he had since law school and I knew he wouldn’t trade it for anything but I think its time he had something more professional looking.  So Bob, on behalf of the company, we bought you a new briefcase.”
The look on both Bob’s face and his wife’s went from happy to disbelief, to “I can’t believe you’re working for this idiot” on his wife’s face to “I can’t believe I work for this idiot” on Bob’s face.
I said, “Your new briefcase is under the table by your feet.  Why don’t you just put it on the table.”  Bob rooted around a bit and found the briefcase and put it on the table. It was the ugliest and cheapest briefcase you will ever see.
Everyone was now looking slightly embarrassed, all thinking that perhaps they had the most obtuse CEO in Silicon Valley. I thought Bob’s wife was going to throw a steak knife across the table.  I made another speech about how great Bob was and then sat down and said, “Lets get the waiter for coffee and desert.”
The ugly briefcase with its implicit statement sat on the table virtually steaming.
“Oh, one more thing,” I said.  “Bob, can you open up the briefcase and dump the papers on the table. We should clear out the stuffing so you can put your papers from your old briefcase in it.”
With almost an audible sigh, Bob unlatched the briefcase, held it upside down over the table and dumped out the contents.
In slow motion, dollar bills began to tumble out of the new briefcase.  And they kept coming out.  And they started making a pile of bills in front of Bob and his wife and the rest of the executive staff.
15,000 dollars in dollar bills.
Bob’s wife started crying.
I said, “Extraordinary work in a startup is the norm, but you performed even beyond my expectations. In my startups, that’s worth recognizing.”
Rewards for extraordinary effort became part of the company’s legend.
Lest you think only salespeople are motivated by cash in a startup, over the life of the company we sprung the same surprise on engineers who did deliver the impossible. And at Christmas we gave out hundred dollar bills to each employee. While this small token of appreciation would have been dismissed if it had been a check, it had our engineers showing these bills to their friends in other companies.
In three or so years these cash incentives added up to no more than $50K. While everyone understood the theory that we were working to make the stock valuable (and we did,) the cash reminded them that we cared and noticed.
Image by xtoq via Flickr