Your captain

“What is the ratio of fixed to variable in your CEO’s annual compensation?” — is the first thing I ask the company owner. “The CEO only has a fixed salary,” he replies puzzled. Such an answer is a “red flag.” I describe possible negative symptoms in the company and see the owner’s amazement, “Do you have a video camera in our office?” Although each company’s problems are unique in their own way, there are a few things whose presence predictably aggravates, confuses and complicates everything. In business, the incentive system is the cornerstone.

“Never, ever, think about something else when you should be thinking about the power of incentives,” said Charlie Munger, Warren Buffett’s closest partner. In my humble experience as a co-founder of companies and a PE/VC fund manager, I’ve seen more than once how important it is to align the interests of the owner and the CEO. In a sense, the first person is a “transitional form”-not yet an entrepreneur, but no longer an employee. Like the captain of the Dutch East India Company, the CEO steers a ship that does not belong to him. On distant seas his power is great, and in times of storm it is absolute. How could the beneficiaries of the expedition, who trusted the captain to invest their money in spices, be sure that he would preserve and increase their assets as his own? Especially given the grim statistic that only one out of three ships returned.

In the novel “Shogun,” the captain dreams of riches that will change his life abruptly if he successfully returns home with his valuable cargo. He will finally be able to buy his family a house and himself a ship. In compensation for the risk and in exchange for the power, the captain would receive, in addition to his salary, a share in the profits the investors had managed to make. In an ocean of uncertainty, you, as a founder, need not a captain-executor, but a captain-partner.

Yours sincerely,

-Alexander

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Alexander Lyadov

Alexander Lyadov

As a business therapist, I help entrepreneurs to navigate faster in non-standard situations.