Time vs. Productivity

Once in a while I’ll get an email or read a review from someone who is skeptical about tracking hours because they are concerned that time alone isn’t a good measure of contribution. They are right. Just because you put time towards something doesn’t mean the time is productive.

Many people want to reward productivity or “value creation.” This would be great but, it’s way too subjective and nearly impossible to track. First you will have to define what it means to be productive or create value. Then you will have to deconstruct your activities to determine which activities were productive or created value. Then you will have to place a theoretical value on it so you can track it relative to other measures.

Count What You Can Count

In a dynamic equity split you have to count what you can count. If it can’t be counted then it’s left out of the model. Not because it’s not important, but because trying to measure things that can’t be consistently measured will lead to arguments and renegotiation that will cause too much damage to the company. You have to create a proxy for what you are trying to measure.

Time is extremely easy to measure and track. To mitigate the risk that the time is unproductive we use the Grunt Hourly Resource Rate (GHRR!) which provides a proxy for productivity and value creation. The best predictor of future behavior is past behavior. People with lots of experience are likely to apply that experience in the future. These people, therefore, would have a higher GHRR! than someone with less experience.

You do run the risk that time will not be productive. However, most time tracking programs give you the ability to track time to specific projects and capture notes about that time. This is one of the most powerful tools available to a start-up company. If you ever suspect that a person’s time is not productive you can simply review the time logs to see what they have been up to.

Not long ago I was working with a Grunt Funded company that was concerned about the lack of sales and sign-ups on their site. We reviewed their time logs and found that nearly all of their time was being spent on development projects. So, they wrapped up their projects and turned their attention to sales. I’ll bet you can guess what happened.

Alternative Calculations

This concern is usually raised by more experienced entrepreneurs. I think it’s because they are afraid their contribution won’t be properly valued. I recently introduced a start-up to a person who can distribute their product on a national basis. It took about five minutes, but the value is huge. Clearly my GHRR! is not a good reflection of my productivity in this particular case. However, the Grunt Fund will accommodate this type of value creation through the use of finder’s fees and commission calculations.

So, I haven’t come up with a better proxy for productive time than the GHRR! (but I’m open to suggestions). At the end of the day, a Grunt Fund is based on rules that the herd can easily agree to. If you want to create a scheme for measuring value creation go for it. And, please let me know how it works!