[hisnameismanuel]

Better said - the revenue model is the ultimate reflection of your culture.

I'm working on a startup right now that has this understanding at the core.

We are building a revenue model with a fixed margin of profit.

In our company, no matter how many costs the teams cut, they'll always end up with the same short-term profit. So - it's pointless to screw the customer to try and get some kind of short term win.

Their job won't be to manage the P&L, their job will be to reinvest all the remaining margin into the customer experience.

We got this idea from Costco, who do something a bit similar.

In terms of Google, I don't have an easy solution, but it's clear that Google's internal incentives (actual culture) are overriding whatever barrier is in place (that thing is called culture).

[lukifer]

> Their job won't be to manage the P&L, their job will be to reinvest all the remaining margin into the customer experience.

Just listened to this 2013 talk [0] by Thom Hartmann, who made a quite cogent case that a high marginal tax rate (90% under Eisenhower, 74% under LBJ) was good for business and workers alike: business owners were incentivized to expense and reinvest as much as possible, including into hiring, wages, and benefits. That reinvestment came to benefit the owner when they sold the business, at the drastically lower capital gains rate.

Curious that in the absence of a more stern tax incentive, there seems to be a strategy of implementing a self-imposed profit cap. (I'll have to research the Costco case further, I didn't know that.)

[0] https://www.youtube.com/watch?v=039Zh9KBCqY

[hisnameismanuel]

Thanks for your comment.

To be clear, we're talking about a profit margin cap.

Our bet is that in 2030, we'll be a massive business because of the volume we're driving, which will come from the customer satisfaction that is derived from our continuous reinvestment into the business.

This is Costco's business in a nutshell - satisfaction drives scale, they reinvest the benefits of scale into their customer satisfaction (good products at low prices), and the resulting customer satisfaction drives more sales which means more scale, and on it goes.

Amazon is trying to get at something similar with their 'it's always Day 1' and 'customer obsession' refrains, but this effectively relies on Jeff Bezos staying alive or his successor being equally effective.

We believe that that's a bad structure in the long term. If we can build the right long-term economic incentives directly into the business structure and then allow it to play out for long enough to prove the benefit, then that should hopefully limit tinkering by our successors.

We are also building some other culture-reinforcing mechanisms into the business, such as ensuring that ALL employees, including devs, execs, office cleaners, etc, regularly speak with customers. It will be part of your contract upon signing with the company that you must speak with X customers per week.

This way, we won't be tempted to make an anti-customer decision, as ALL of us will face the heat on our phone calls for the coming weeks and months.

[Ozzie_osman]

I'd love to hear more about how this works. How do you avoid having too much (or too little) profit?

[hisnameismanuel]

(We're not a software startup.)

We're setting a fixed margin. 14% (exact number TBD) of all revenue will go into a profit account. And that will be the profit, it can be reinvested into the business only as capital spend.

86% of revenue is what the rest of the team will need to work with. They will be required to spend that 86%, all of it, on team and customer satisfaction (improving the product, improving the service, reducing the price).

They'll primarily be measured on customer satisfaction. All promotions (unless you're in a role that is directly tied to say, online conversion rate), hiring, firing, and ongoing management will be based on metrics around how happy our customers are.

Our profits will increase with volume, because we'll have happy customers.

Note, an analog to this model is very common in the franchising industry. Many franchises take a fixed percentage of revenue as their 'take', but in our case the business 'take' will simply go to a profit account.

We won't do 14% on day one, it will take a little while to get there, but that model will be our overall guidepost.