I was watching Shark Tank, and there was a recap about an investment Barbara Corcoran did in a bathing suit company (The Mix Bikini). The founder of the company spoke about the blow out party he threw after receiving Corcoran’s investment:
“I would estimate we spent $50,000 on the party, at least.”
And that, ladies and gentlemen, is how you burn out your funding.
What was the amount Corcoran invested you ask? $50,000.
So much for The Mix Bikini.
But this post isn’t about dissecting the failure of The Mix Bikini. This post is about how you can burn through your funding. Specifically, it’s about why giving schwag to your employees is a really bad idea.
I Googled Schwag, and it has two definitions:
We’re going to focus on the first definition: giving away free products.
So why is schwag a bad thing?
I’ll get there. First, I’d like to tell you a story about a friend of mine.
Bruce (not his real name) recently joined a startup where, once he was hired, they sent a gift basket to his house. On his first day, he was given a water bottle with the company logo and a company tee shirt. And then there were other small items all presented in a beautiful box.
That’s really cool, right? Isn’t that what every cool Silicon Valley startup does? Add in some foosball tables and some ping-pong tables, and you’re ready to become the next Unicorn.
Bruce started working at the company, and he was really happy. The quality of the people was really high, and the company was hitting its revenue goals. Plus, he really enjoyed the work.
All seemed really well.
About two months after Bruce started working at the company, the company started raising its next round of funding. There were several interested investors, but none of the investors had given the company a term sheet yet.
Bruce didn’t think there was anything to worry about and neither did I. The company was doing too well for there not to be more funding, I thought.
A couple more months passed, and the company continued executing well. But there still was no funding.
I asked Bruce, “Are they cutting at all on spending?”
“No. That’s why I’m not worried. In fact, they are taking the whole company to the San Francisco Giants game this Saturday night.
“We’re all going to go in a big party bus. There’s going to be beer on the bus. It should be a lot of fun.”
Thoughts of The Mix Bikini started rattling around in my head.
A couple weeks later, Bruce told me rumors started swirling around that the company had a term sheet. It looked like Bruce’s company was going to close its funding.
Bruce was excited.
Two weeks later, the CEO of Bruce’s company called a company meeting. I’ll let Bruce tell what happened next:
“The CEO told us that we closed the funding. Then, he said there was a catch. We would need the funding to last longer, so there were going to be layoffs.
"Right after the meeting, my manager asked me to go to his office. I knew right then I was going to be laid off.”
And that’s why schwag is a bad idea.
Obviously, giving a tee shirt or a coffee cup with the company logo isn’t a problem. Schwag becomes a problem when it becomes excessive.
Tee shirts, gift baskets and the like don’t create a great company. A great company comes from within you and your team.
And that’s where many CEOs get it wrong. There’s no amount of schwag you can give employees that’s going to make your company successful. In fact, it’s just the opposite.
Excessive schwag is a bad leading indicator.
You need your money to last. And spending excessively on schwag likely means you are spending too much elsewhere.
You have to prioritize what’s important versus what isn’t important. It’s pretty obvious that parties and excessive schwag are not important.
Maybe, in Bruce’s case, the company was spending $100 on schwag for every new employee. It’s only $100, you’re saying.
But that’s not the point, right?
Well, yes, it is the point.
Ask yourself the question of what did the $100 really buy this company that a $10 tee shirt wouldn’t have?
Then, you have to ask yourself where else is the company not spending its money properly? Let’s start with taking the whole company to a San Francisco Giants game. How can you justify spending money to take your whole company to a baseball game when you know you might have to lay people off?
Here’s what Mark Cuban says about schwag:
“Never buy swag. A sure sign of failure for a startup is when someone sends me logo-embroidered polo shirts. If your people are at shows and in public, it's okay to buy for your own employees, but if you really think people are going to wear your branded polo when they're out and about, you are mistaken and have no idea how to spend your money.” Mark Cuban
You have tough choices to make when you are running a startup. By definition, you are likely losing money, so you have to make your money last. And that means you’re going to have to choose where not to spend your money and where to spend your money.
Your employees really don’t care about schwag. They don’t.
Take a survey of your employees today. Ask your employees what’s more important to them: schwag or a financially sound company?
I’ll bet the vote is 100% for a financially sound company. In other words, your employees want you to be appropriately frugal. (www.brettjfox.com/are-you-being-appropriately-frugal-and-why-its-so-important/)
Your employees want your company to win. Your employees want a great work environment. Your employees want to feel their voices are being heard. Your employees want their work to be meaningful.
In other words, your employees want to work for a great, successful company.
Your employees could care less about schwag.
Schwag, especially too much schwag, can send your dreams (and your employees dreams) up in smoke (Yes, the pun was intended).
What happened to Bruce?
Bruce landed on his feet really quickly. He had a couple of different job offers to choose from.
He started working at his new company a couple of months ago. He really likes the company a lot. And, the best sign of all is they didn’t give him any schwag when he joined the company.