A Management Message from the Bagel Guy

Paul Feldman is the Bagel Guy. He featured in Freakonomics – the books exploring the truth behind human behaviour. There is a lot for startup founders to learn from Feldman’s story.

Becoming the Bagel Guy

Feldman started out bringing bagels to the research institute where he worked. Demand grew and he began recouping his costs with an honesty box. If you took a bagel you deposited a dollar.

Co-workers paid for their bagel 95% of the time.

Feldman decided to start a business. Within a few years he was delivering thousands of bagels a week to 140 companies in the Washington D.C. area. People paid 92% of the time.

As the business grew, the recovery rate dropped. Then, after 9/11, it jumped 2 percentage points (15% improvement in losses) and stayed there. A sense of community increases people’s honesty.

What the Bagel Guy Knows

Feldman’s business is a case study in honesty. The findings are fascinating.

At first, people stole his cash. But when Feldman secured it in a box, the loss rate dropped to 1 in 7,000. Small crimes are easier – cheating the bagel guy out of a dollar is more likely than stealing his livelihood.

Small offices are up to 5% more honest than those with hundreds of workers. Payment rates drop during bad weather and rise when it is unseasonably warm. Holidays have a large impact, but it depends on when.

Christmas, Thanksgiving and Easter mean more cheating. So does Valentine’s Day. But July 4^th and Labor Day – the beginning and end of summer - do not.

When people have additional financial commitments they economise where it is easiest to do so. When there is a shared experience across a population without financial expectations, normal behaviour prevails.

The most intriguing finding is more anecdotal than statistical, due to limited data. Feldman observed that the more senior the employee the less likely they would pay. In offices where people were on different floors based on rank, the higher you go the lower the honesty.

Management Lessons for Founders

Roughly 1 in 10 people is dishonest (it’s not always the same people cheating). When selling a service there is a similar rate of time wasters. You must learn to identify and get rid of them quickly.

When you start out small, you have a shared sense of community and purpose and morale is high. As you expand cohesion reduces. This is when you must introduce processes to manage people effectively.

Staff are stressed at holiday times. If you burden them with extra work they will cut corners elsewhere. If you are making demands of people during vacations, you must learn to plan better.

Energy is likely to be lower when the weather is bad. Increase engagement at the start of calls and meetings at these times, using group exercises or by swapping stories.

Your largest clients are more likely to delay and argue over payments. Building a community of clients will reduce your bad debts.

Pay and Conditions

The more you pay people the more they expect. If a rival company pays more, it doesn’t matter that your cash flow is tight. People feel entitled to what they think they’re worth, which is often anecdotal.

This is why regular bonuses are poor incentives. People expect them and begrudge bonus cuts, let along cancellations. What you consider variable pay, your people treat as fixed. Going further and cutting salaries is one step from disaster, so make sure you have a proper process to manage cash flow.

Offering a reward at the end of a long project rarely works because the end is too far in the future. You must motivate early in a project and reward near the end. Better still is to provide smaller rewards for achievements along the way.

This thinking is at odds with how most corporations operate.

Bad Apples and Banks

Most people do the right thing. Remember that when they make a mistake. This is the time to earn respect as a manager and leader, by understanding and helping people to correct a problem.

There will be the occasional bad apple. Root them out quickly. Just be careful not to see everyone with suspicion. I’ve worked in enough investment banks to know contempt is the default response of managers at bonus time, and a reason why loyalty is low in the industry. People don’t trust each other.

You’ve chosen to be a startup. Don’t behave like a bank.

I'm Simon Maughan and I write The Profit Elevator as a guide for smaller businesses to accelerate growth. Respect and understanding people is part of The Diversity Development Method in my P.R.O.F.I.T. Through Process programme.

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