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1/4/2010
Can a single bottle of soda decimate you
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Can a single bottle of soda decimate your company? Absolutely.

December 22, 2009 | Steve Blank | 41 Comments |
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(Editors note: Serial entrepreneur Steve Blank is the author of Four Steps to the Epiphany. This column originally appeared on his blog.) Sometimes financial decisions that are seemingly rational on their face can precipitate mass exodus of your best engineers.
Last week, as a favor to a friend, I sat in on a board meeting of a fairly successful 3.5 year-old s tartup. Given all that could go wrong in this economy, they were doing well. Their business had just crossed cash flow breakeven, had grown past 50 employees, just raised a substantive follow-on round of financing and had recently hired a Chief Financial Officer. It was an impressive performance. Then the new CFO got up to give her presentation all kind of expected; Sarbanes Oxley compliance, a new accounting system, beef up IT and security, Section 409A (valuation) compliance, etc. Then she dropped the other shoe. Do you know how much our company is spending on free sodas and snacks? And to answer her own ques tion she presented the spreadsheet totaling it all up. There were some experienced VCs in the room and I was waiting for them to educate her about startup culture. But my jaw dropped when the board agreed that the free stuff had to go. Were too big for that now was the shared opinion. But well sell them soda cheap. Uh oh I had lived through this same conversation four times in my career, and each time it ended as an example of unintended consequences. No one on the board or the executive staff was trying to be stupid. But to save $10,000 or so, they unintentionally launched an exodus of their best engineers. This company had grown from the founders, who hired an early team of superstars, many now managing their own teams. All these engineers were still heads-down, working their tails off, just as they had been doing since the first few months of the company. Too busy working, most were oblivious to the changes that success and growth had brought to the company. One day the engineering team was clustered in the snack room looking at the soda machine. The sign s aid, Soda now 50 cents. The uproar began. Engineers started complaining about the price of the soda. Someone noticed that instead of the informal reimbursement system for dinners when they were working late, there was now a formal expense report system. Some had already been irritated when professional managers had been hired over their teams with reportedly more stock than the early
venturebeat.com//can-a-single-bottle 1/19
1/4/2010
Can a single bottle of soda decimate you engineers had. Lots of email was exchanged about how things were changing for the worse. A few engineers went to the see the CEO.
The exodus begins But the damage had been done. The most talented and senior engineers looked up from their desks and noticed the company was no longer the one they loved. It had changed. And not in a way they were happy with. The best engineers quietly put the word out that they were available, and in less than month the bes t and the brightest began to drift away. Startups go through a metamorphosis as they become larger companies. They go from organizations built to learn, discover and iterate, to predominately one that can execute adroitly having found product/market fit. Humans seem to be hard-wired for numbers of social relationships. These same numbers also define boundaries in growing an organization get bigger than a certain size and you need a different management system. The military has recognized this for thousands of years as they built command and control hierarchies that matched these numbers. The engineers focused on building product never noticed when the company had grown into something different than what they first joined. The sodas were just the wake-up call. As startups scale into a company, founders and the board need to realize that the most important transitions are not about systems, buildings or hardware. Its about the companys most valuable asset its employees. Great companies do this well. Next Story: The best original video games of 2009 Previous Story: gWallets analytics help game publishers rate special offers
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Anon
1 week ago
Ha. Good story, showing a typical form of age-related management blindness. Of course this must just have been the tip of the iceberg. There must have been far more profound problems, of which the silly soda issue was just a backbreaking straw, to mix in another cliche. Since the engineers presumably had options coming, I imagine they no longer felt any faith in the company's future, and also felt no faith in their own abilities to positively influence that future, or they presumably would have stayed on even in a more "corporate" atmosphere to promote a good exit and to maximize their own personal investments. Flag
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GoingLikeSixty
1 week ago
I've never worked at a start-up. But I am amazed that engineers would quit because their Cokes were 50 cents. I'm assuming they were well compensated for their work - cash and options - so I agree with Anon, seems that this would be just the tip of the iceberg. However, in my experience, CFO's and HR types have way to much influence in ALL companies. They should sit in a corner and hush until needed. Flag
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Adam Simon
1 week ago in reply to GoingLikeSixty
With regard to your comment about how "CFO's,,, have way to [sic] much influence in ALL companies," I couldn't disagree more. I once thought that C-Level decision makers were way overpaid, that anyone could read a financial statement, that bringing a product to market was mostly about getting the heck out of the way of engineers, letting them work their creative magic. I couldn't have been more wrong. Once I started to work my way up into decision-making, I realized that what the market (i.e. customers) want rarely jives with the creative vision of engineers. The challenge of managing engineers is gently coaxing them into pivoting from their vision and create something that customers actually want. Not to mention the severe challenge of actually figuring out what the market wants. CFO's and decision-makers are not overpaid. Without them, engineers would run company after company into the ground, coding crazy projects that don't sell. Flag
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JJJ
1 week ago in reply to Adam Simon
" Without them, engineers would run company after company into the ground...." Really? Once upon a time, Boeing was an engineer driven company, taking significant risks to develop quality products. 767? Success. 747? Success. 777? Success. After the merger with MD in late 96, Boeing became a "decision-maker" driven company focused on profit and reduction in perceived risk rather than product. The result? The 787. Flag
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Adam Simon
1 week ago in reply to JJJ
I did say "coding crazy projects that don't sell," not building amazing airplanes that are indispens able. Different type of engineering. :) But I suspect Boeing is more of the exception, not the rule. And not that decision-makers are infallible. Focus on quarterly targets and margins has stifled the brilliance of many a public company. But in early stage companies, you have develop your product piece-wise with the market. If you don't, 9 times out of 10, you're going to blow a giant hole in the ground filled with burning venture money. Flag
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JJJ
I see the position that you are coming from, but I have to disagree with applying it to early stage companies. :) Many of these venture capitalist funded start-ups are creating products and services that the market does not even realize that they need or want, so to slow down the process to try to react to a market that might not yet "get" what you are trying to provide would leave the window open for late-comers and unnecessary (imho) cash-burn. I think that this is inherent risk VCs take - they are backing something they have some faith in, but may have zero traction when taken to market. Anyhow, with respect to the original comment that you responded to, I believe that the poster's gripe is that some of these high-level decision makers make some non-sensical decisions based on nothing more than spread-sheets. By taking away small gestures such as free sodas (or it could be flex-time, casual dress codes, etc), which will realize the company a small amount of money or productivity, they elicit an overwhelming emotional response from their employees who will feel less like valuable assets and more like expendable drones. Oh, here's a story. I once worked for this medium sized company that had a pretty interesting head
1/4/2010
Can a single bottle of soda decimate you of HR. During this time, she was cracking down on employees not wearing their ID cards, and had sent out emails about it. Of course, a few days later, I rush out of the house without my ID. I walk into the lobby of the office to get buzzed in, and of course she's walking through at the same time. So I get the third degree. I'm contrite and I apologize, and I tell her that the receptionist knows me and that I am on the company photo registry if she will just pull it up on the computer over there. She says no and that I have to go home and get the ID. I try to explain to here that I have an immovable deadline this week, and that it takes me an hour to get to work each way and I'll call my manager right now so that he can escort me in. No, no and no. So, in her reality, my transgression has more impact on the company than my work on a multi-million dollar project. Flag
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GoingLikeSixty
Thanks for pointing out my bad grammer and spelling errers. You are vastly superior to me obviously. You expanded CFO's and HR types to ALL C-level execs. CFO's and HR are the most time-sucking, meetingcausing, value-detracting bunch in any company. Even if they worked for free, they would not be worth the hassle. Outsource your financial needs to a good CPA firm. Forget about HR. Take the risk and trust the people you hire to do the right think. (We're talking start-ups here!) Flag
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Steve
1 week ago
You guys miss the point about why charging for soda has a major impact. It's not the 50 cents. It's the fact that it says "we're not really in this as a team together anymore." I can guarantee that in virtually all these situations, these engineers have routinely gone "above and beyond" the call of duty -- canceling plans at the last minute to make sure a deadline is met, or staying late night after night, etc. And when it's early days and everyone is a team, hey, nobody sits to "balance the checkbook" and make sure that there's equal compensation for effort. After all, as mentioned, the company is part of the team -- taking care of the little things like food and drink. So when the company decides to charge for the little things, people DO "balance the checkbook" and almost universally discover that they are putting in a heck of a lot more than the company was -- and that's when they head out the door. Flag
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Jon
1 week ago
Agree with Steve. It has nothing to do with 50 cent coke and everything to do with a change in attitude. I'm curious, did you take that opportunity to save a company about to steer down a dangerous path?
1/4/2010 Flag
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Alora
1 week ago
This is an awesome story, very succinctly retold. Thank you. I can't tell you how many times I've witnessed this type of thing happen. Even worse, I can't tell you how many times -- even after someone points out what the new leaders are doing -- they simply do not care, or it's too late, because the damage has been done. The only good thing about having lived through this so many times, is that I've become particularly good at helping to navigate it when it happens. But it's such a hard chasm to cross, and far too many people do not stop and consider the implications before acting. I hope the team you witnessed recognizes the danger in their brute force approach before it's too late. Flag
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Mike
1 week ago
That soda was a constant reminder to the engineers as to where they worked, a startup or a large com pany. Why do you think Google gives away free food ? Why do people work long hours at a startup ? It's not to balance the excel spreadsheets. When the free soda was taken away it made the engineers realize what type of company they were in, and for many it was not a place they were interested in being any more. Too often people assume that options will make people put up with anything but every engineer knows how many startups fail to make it. Sure they want the options but they also want a work environment that appreciates them and is will to pay to create an environment they are comfortable working in over the weekends and at night. Flag
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Ian Graham
1 week ago
Great post, really enjoyed it. This reminds me of a story (perhaps urban legend) about HP reforms and a tradition they have around cookie and tea time that is almost identical to the situation you describe. IMHO the question is more about the change in culture of the start-up (now a company) and far less about in financial implications. The cost of the soda to the company is relatively insignificant in the greater scheme of things and the 0.50 per coke is not significant to the Engineers. However, the implications in terms of corporate culture are significant. Little is BIG in terms of culture and tradition of a start-up. Flag
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Noodle Intranet
1 week ago
Yes, good post. I believe start ups should hire those positions from within or at least have some original employees in
1/4/2010 Can a single bottle of soda decimate you the meetings about canceling the free food. If the company was doing so well why were they cutting cost? That doesn't add up. If things were great and they just raised cash, free food shouldn't of been cut. Sometimes what happens is a company hires a new CFO or HR manager and that person starts implementing rules that may work in som e cases but if you haven't worked for the company you won't know what the outcome will be, that is why you should always have an original employee in those meeting so they can be the voice of the engineers etc.
Tim Flag
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Matt Doar
1 week ago
Yup, I've seen that happen too. Keep the sodas free. If you don't get why, you may not be a good fit for a startup. Flag
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Haggie
1 week ago
If you are bailing after three years at a successful start-up that is going well in this economy because the company has grown more formal and responsible as it gets bigger, you are an idiot. That is the growth track of any successful startup. Those are the signs you WANT to see. Otherwise, those long hours and options are going to be worthless. If you want free soda and unlimited foosball, just keep living in mom & dad's basement. Flag
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Matthew Grayb osch
4 days ago in reply to Haggie
Haggie, is it too much to ask that a company that routinely expects its engineers to work overtime be willing to throw them bones like free sodas or reimbursement for dinner? Are you suggesting that good morale is n't worth the expense? Flag
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Haggie
4 days ago in reply to Matthew Graybosch
If you work for a start-up, you work the hours that are required to get the job done. If you want to be compensated for every minute past 5pm that you work, the post office is hiring. Flag
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charlie
4 days ago in reply to Haggie
Is 3 years and sucessful still considered a startup ? Flag
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Postmaster
1 week ago
I've personally seen the soda suck twice, and both times, it was due to an acquisition, and both tim es, without question, it denoted a turning point in the attitudes. I haven't seen a discussion once regarding ROI for the free drinks and snacks - just an absolute dollar amount. So, I wonder which is the cause and which is the effect. I work in a medium-to-large public company now which doesn't subscribe to the free soda model, but I honestly wonder if we were to implement it, would it cause any change in the 9-to-5 attitude so many people display... Is there a way to implement some of the tiny perks had by the startup community and foster the above-and-beyond attitudes found in startups? Flag
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jojo
1 week ago
Quick, somebody print up some T shirts with the motto, "Dude, don't mess with our soda machine!" Flag
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jojo
1 week ago in reply to jojo
I think I just came up with a most brilliant idea. A stock options soda machine! By plucking down 50 cents in the machine you can purchase stock options from the company and get a free can of Coke (sponsor) as compliments! Genius! Flag
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rob inincanada
1 week ago
At least they still HAVE the option of sodas and snacks! We used to have cola and candy machines (never free in my 20
1/4/2010 Can a single bottle of soda decimate you years with the company). The cheapest I can remember getting them was 0.50 a can. When the machines were removed it was CDN$2 a 510 mL bottle! A bag of chips was CDN$1.25 a bag! The vending company took the machines in November so we no longer even HAVE THE OPTION to grab a quick snack or drink.
During the super hot and muggy weather the company will, by contract with the union, provide bottled water and popsicles free of charge to the employees. If that weren't in the contract though we wouldn't be getting it. I say they should just be glad they still have the option! Some of us don't and never have! Flag
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Jason
1 week ago
The best engineers for a startup are not always the best engineers for a larger company. At a certain point, startups need to change culture somewhat, and that means changing people and changing attitudes. I don't think companies should charge for soda, but making an obvious mistake like that seems like a good way to clean house without having difficult conversations. Flag
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Rudolf
1 week ago
For want of a bottle of coke an IPO was lost Flag
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jojo
1 week ago
I think I just came up with a most brilliant idea. A stock options soda machine! By plucking down 50 cents in the machine you can purchase stock options from the company and get a free can of Coke (sponsor) as compliments! Genius! Flag
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soopmail
1 week ago
I just fell into this post, I have no entrepreneur experience and the only startup I tried to be part of, failed miserably, however that doesn't stop me offering my thoughts... It's all about how to manage change imho. I now work for a large Multi National. They had, for a few years, offered free fruit to all staff as part of a health conscious, staff caring, "touchy feely", we love our people drive. Of course, in times of cost cutting, save every cent culture, this free
1/4/2010 fruit was removed. Now, my point.
Minute cost saving/cutting is a difficult thing to do. No wonder companies (especially new ones) get it wrong. In this example, this free fruit was a "no brainer" to all before it was removed. Only 30% of the staff took advantage of it and when they did, it was almost a 'given' that this would always be around. When it was removed, 90% of the workforce sat up and noticed that it had gone and wondered why such a 'petty' move was made. Essentially, the company had shown 90% of the workforce that they no longer considered the health / happiness of the staff a priority and that it was worth a measly @$10K/year. My suggestion (for what it's worth) would have been to show the staff exactly how much this good will gesture was costing and ask for ideas where they could cut back to offset if needed. I for one would suggest a 5% cut to all management consultancy rates. I assume that would be > $10/year ;) Flag
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mark
1 week ago
Re: Haggie's post You are correct, but when companies get more "formal and responsible", when bean-counting becomes more important than morale of the employees, will be when the best and brightest innovators leave for greener pastures. They don't have to worry about "this economy" because they always have employment options and will use them when they perceive themselves becoming part of a machine rather than a group of talented individuals. Flag
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mark
1 week ago in reply to mark
Good blog post by the way Alora. Flag
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tompark
1 week ago
I've seen this exact EXACT same thing happen (at 25 cents and at 50 cents per soda). Complaints, realizations, attitude/hour adjustments and quiet departures. Absolutely, definitely true. But this doesn't necessarily "decimate your company". It's the evolution of a startup to a larger company, stated well here as: "They go from organizations built to learn, discover and iterate, to predominately one that can execute adroitly having found product/market fit." "Decimate your startup" would be more accurate. Flag
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Roljac
1 week ago
Twice I've been the person hired to get rid of the metaphorical soda machine. In each case, support for my decisions came from the top (the board and the founders). At the old version of bike.com the changes were quick and the remaining team stayed focused. At the next start up the changes were more painful. Changes HAD to be made- we had about ten months of cash left and it was clear that the "free" model we were using wasn't working. Along with the free food we lost some of the most talented folks. We were lucky that a core group stayed and we were able to shift our roadmap to a course where we reached profitability quickly. If I had it to do over again I would focus more on the strategy and plan and less on the small cultural changes (like telling the engineers they couldn't smoke pot on the roof at 4:20pm). Flag
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Kent
6 days ago
How does the rigid regulatory burden (Sarbox, etc) of the 51st (or 50th?) employee jaundice the company and the associated inelastic compliance requirements influence free flow creativity within an organization? Companies can't operate in the same free flowing and creative environment when the increased size of the company automatically triggers additional legal mandates. I'm wondering if the marginal impact of one-more-employee was a greater influence on the company mindset than the marginal impact of one-more-can-of-soda. Secondly, it seems incredibly weird to me that a 50 person company couldn't come to an agreement on such trivial manners. You make it sound like the company is nothing more than a bunch of very clever monkeys performing for the executive circus masters. Isn't there any dialog before decisions are made. And are all the "executive" decisions in this company irreversible? I don't understand why a group of 50 reasonable people couldn't come to agreem ent when one of the group members asks them for ways to shave a few bucks from the operating budget in the upcoming year. A simple memo like -- "we'd like to cut $X from expenses next year. One suggestion is to raise the price of our previously free soda. Let's talk about it / anyone have any alternative ideas / objections / etc" I don't understand why a 50 person firm would have such a rigid hierarchy ... one where they couldn't talk about issues such as the cost of soda in the cafeteria. However, I believe that the mindset cause by the additional regulatory crush could possibly play a m uch bigger role in this case. If you're running a company and confronted with new regulatory encumbrance -- brought on by the growth of employees in your company: Scares the crap out of any normal person who's previous work was devoted primarily to mission and vision of the company. Regulation demands -- and therefore creates costly and inflexible behaviors within organizations. Flag
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bobb y d
6 days ago in reply to Kent
I think we need to shift some paradigms and do some outside-the-box optimization of this comment. Flag
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Darren Crawford
6 days ago in reply to Kent
Kent... I agree with you. I find "why a group of 50 reasonable people couldn't come to an agreement" comment to be humorous... ever been in a relationship with just ONE other person? It is really not about being reasonable. People are emotional by nature. Engineers, in general, are technicians for a reason... they love DOING the work. They don't have tim e to lookup and see what is going on around them at the company. They just want to do their thing. The rigid hierachy is really another unintended consequence of having government regulations like SabOx. Those regulations do nothing but hamper innovation (what got this business started in the first place), and like the sand crabs in the pail, pull each other back into the bucket of sameness that has become "corporate" america. Flag
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Kent
6 days ago in reply to Darren Crawford
Darren - thanks. On second thought, I think you're correct (and I'm wrong) about getting groups to easily agree to changes, that, at first glance might seem trivial. I'm missing one of the main points of the article. Flag
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Artie
5 days ago
So Were too big for that now translates to English as "We've grown into less"? Flag
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Nick
3 days ago
If paying 50 cents for a soda is the worst thing that this company has going for it then its employees should be thankful. STFU and pay the frikkin' 50 cents for the soda ya cheap bastards. JEEZ!!!! Flag
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Sheridan Forb es
3 days ago
Steve's article reminded me of my experience back in 1980 at Hewlett-Packard. I worked for the Treasurer at the time and he walked in from an Executive Committee meeting. One topic of the meeting was how much the "free donuts" were costing HP at the time--in the millions. The vote was called with everyone voting in favor to abolish the custom. When the vote got to Dave Packard and Bill Hewlett, they asked if the employees believed the donuts were a "benefit." Someone answered yes and Dave Packard said, "We don't take benefits away from our employees!" Bill and Dave both vetoed and donuts were free every morning until they both retired. Flag
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BKM
2 days ago
Taking away treats can hurt and should be avoided -- always true that inexpensive or even free things can have huge value. But sometimes these things must be done. When that's the case at least there's a chance of avoiding delivery of a punch and more likely a sting. Punch = being surprised by a sign on the machine one day. Sting is at least possible with an advance discussion or even an email: "Gang, here's the deal, we know this is unfortunate, we love free snacks etc. too, but we feel we need to make a change, here's why." Any leader or manager with an EQ over 100 should know that. Separately, one would hope that benefits that continue to be offered by the company evolve over time in more meaningful ways. Flag
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corkescrews 7 hours ago From twitter via UberVU
Save company culture, not pennies: How a single can of soda can decimate your startup. http://bit.ly/86GVzU RT @leighpod @cdny YAY4FREE SODA tsuder 13 hours ago From twitter via BackType
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Can a single bottle of soda decimate your company? Absolutely. http://ow.ly/S8yV #fb #in Higher_Times 1 day ago From twitter via BackType
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RT @TheCodeFactory @VentureBeat Can [a] bottle of soda decimate your company? http://bit.ly/5g3sXq I've worked for that company: 3 times. indiehotelier 1 day ago From twitter via BackType
RT @VentureBeat Can a single bottle of soda decimate your company? Absolutely. | VentureBeat http://bit.ly/5g3sXq oppgreen 3 days ago From twitter via BackType
Can a single bottle of soda decimate your company? Absolutely. | VentureBeat http://bit.ly/5g3sXq RT @VentureBeat
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1/4/2010

Can a single bottle of soda decimate you

Can a single bottle of soda decimate your company? Absolutely.

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Can a single bottle of soda decimate you

Tags: employee benefits, expansion

Can a single bottle of soda decimate you

1 week ago in reply to GoingLikeSixty

Can a single bottle of soda decimate you

1 week ago in reply to Adam Simon

1 week ago in reply to JJJ

1 week ago in reply to Adam Simon

1 week ago in reply to Adam Simon

Can a single bottle of soda decimate you

Matthew Grayb osch

4 days ago in reply to Haggie

4 days ago in reply to Matthew Graybosch

Can a single bottle of soda decimate you

4 days ago in reply to Haggie

Is 3 years and sucessful still considered a startup ? Flag

1 week ago in reply to jojo

For want of a bottle of coke an IPO was lost Flag

1/4/2010 fruit was removed. Now, my point.

Can a single bottle of soda decimate you

1 week ago in reply to mark

Good blog post by the way Alora. Flag

Can a single bottle of soda decimate you

Can a single bottle of soda decimate you

6 days ago in reply to Kent

6 days ago in reply to Kent

6 days ago in reply to Darren Crawford

Can a single bottle of soda decimate you

Can a single bottle of soda decimate you

Can a single bottle of soda decimate you

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Can a single bottle of soda decimate you

thomaslynn 1 day ago

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Can a single bottle of soda decimate you

Susan_Davis 1 day ago From twitter via BackType

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Trackback URL http://entrepreneur.venturebeat.com/2009/12/22/can-a-single-bottle-of-soda-decimate-your-company-absolutely 2009 VentureBeat. Dedicated Hosting by ServerBeach

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