Reading Incentives Without Losing Your Soul

There's a particular kind of cleverness that gets celebrated in startup circles: the ability to see through everything. To identify the "real" motivation behind every action. To reduce human behavior to a simple calculus of self-interest. This usually gets called being "clear-eyed about incentives." Often it's just cynicism wearing a Patagonia vest. Understanding incentive structures genuinely matters. If you're building a company or investing in one, you need to think carefully about why people do what they do. You need to design compensation that rewards the outcomes you want. You need to anticipate how partnerships might evolve when interests diverge. Ignoring incentives is naive, and naivety kills companies. But there's a failure mode on the other side that's equally dangerous, and far less discussed. The trap of pure incentive thinking I love game theory. But when you start seeing every human interaction as a game-theoretic puzzle, you lose access to information that matters. You stop noticing when people are genuinely trying to help—which means you stop being able to identify your best potential partners, employees, and investors. You design systems that assume bad faith, which then create it. You become the person who, upon hearing about an act of generosity, immediately asks "but what are they really getting out of it?" I've watched founders torpedo partnerships because they couldn't accept that people are not fully financially driven. Trust is earned, but when people earn it, if you don't give them that trust, you also lose something important. The sophisticated-sounding question "what's their angle?" can blind you to important information: that many people, much of the time, are trying to do right by each other. Incentives as context, not explanation The most effective operators I know think of incentives as the water everything swims in. Pervasive, but not the whole story. Your sales team will focus on what you measure. Compensating “new logo adds” or “account expansion” or “usage” or “additional product adoption” can do wildly weird or wildly useful things for a sales team. Most of the great salespeople also genuinely love helping customers solve problems. I enjoy understanding territory division and SPIFs. The art is designing systems that let the second flourish while the first keeps everyone honest. In venture, “structure determines strategy” —a fund's size, stage, and return requirements will push investors toward certain behaviors whether they intend it or not. The art is building relationships where you can talk openly about where interests align and where they might not. I'm obsessive about this at my own firm, Conviction, in part because I've felt the pull myself. As a first-year VC associate, I was comped on "sourcing" rather than my P&L. So I put an awful lot of effort into sourcing and pushing for investments to get done, even when I really wanted to act like an owner. The incentives were pointed one direction; my self-image pointed another. The incentives mostly won, until I later changed them. The question I keep returning to now: how do we structure ourselves to be great pickers and company-builders, rather than asset managers? Those are very different jobs, and the incentives pull in different directions. Get the structure wrong and you'll drift toward the second even if everyone on the team wants to do the first. In practice When designing incentive structures, start by assuming good faith, then build in accountability. This feels different from assuming bad faith and trying to constrain it. The former creates an environment where trust can grow; the latter creates one where everyone protects themselves. Example being vesting schedules: you can frame an out-of-market offer with higher equity comp and a six-year vest as "we don't trust you to stick around" or as "we're building something together and want to make sure we're both aligned." Same structure, completely different culture. When evaluating other people's incentives, remember that humans are messy. We act against our narrow self-interest all the time—for pride, for meaning, for relationships, out of curiosity or stubbornness or loyalty or spite. At the meta level, self-image can be one of the greatest incentives: people will leave money on the table to be the kind of person they want to be. I know more than one founder who turned down a multi-billion dollar acquisition because he wanted to see if his idea about the market was right. Couldn't explain it in terms of expected value. Just wanted to know. A mental model that flattens all this into "people respond to incentives" would have completely missed what he was about. When someone does something generous, try letting yourself believe it. You might be wrong occasionally. But a life spent keeping score and searching for hidden angles is worse than being fooled now and then. The smartest thinkers about incentives aren't the cynics. They're people who understand that incentive structures are one layer of a much richer picture, and that the best outcomes come from working with human nature in its fullness. Design for the humans you want and want to be, not the humans you fear.