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What is your "Lime Equation" secret metric? →

The Case For Finding Your ‘Lime Equation’ And Keeping It Secret

Sixteen years ago, I thought that owning a bar and running a tech startup simultaneously would be a great match for my ADD. Ultimately, what made the late nights and shenanigans worthwhile was discovering the “Lime Equation,” a formula that revealed which employees were stealing from the bar. Today, I would argue that every CEO needs a secret Lime Equation that he or she can use to gauge the performance of employees, free from manipulation.

A case for secret performance metrics must sound odd coming from the same guy who argued that all salaries should be open knowledge among employees. However, this is a rare case where secrecy can actually create more trust, freedom and transparency in the long run. Like the observer effect in physics, the mere act of watching your Lime Equation can change the outcomes it measures.

The Origins of the Lime Equation

In 1999, I opened a bar in SoHo called “Recess.” At the age of 26, it seemed like a good idea. My job was to take out the money at the end of the night, but theft is the bane of bars. Staff notoriously steal money, and bar owners go to extreme lengths to stop them. Many put in security cameras, measure bottles, search employees’ bags and ultimately create a mini surveillance state.

These invasive measures have two consequences. First, employees figure out a way around all of them. They put bills in clever stacks so that the cameras can’t see the real numbers. They pour water into vodka bottles so you can’t take accurate measurements. They hide cash in places you won’t dare search. Hell, they bring in their own bottles of liquor to sell from.

Second, these half-baked security schemes tell bar staff that you don’t trust them, and it becomes a self-fulfilling prophecy. They think, “Well, if you think I’m stealing anyway, I’m going to do it and get away with it.”

I didn’t have a good plan for preventing theft, but as Recess became successful, the bar needed me to bring more singles, limes and lemons throughout the night. We didn’t have limes and lemons delivered – we just bought bags as needed. I started to notice that there was a relationship between the number of drinks served and the bags of limes we’d get through. Being a math geek, I examined this and found a stunningly close correlation between sales and limes, accurate to plus or minus 5 percent.

So if the sales to limes ratio didn’t match up, that meant something was wrong with the theory, or something was wrong with the bar.

I started rotating the bartenders and bar backs so I could determine who was on duty when the Lime Equation failed. Within one week, I identified who was stealing money, asked him to open his bag and found $2,500 in cash. The rest of the staff had no idea how I figured this out. Each time someone began stealing a significant amount of cash, I caught the culprit, much to everyone’s bewilderment. With a reputation like the Dread Pirate Roberts, I convinced everyone to give in — to honesty.

Tech Startups Need Lime Equations, Too

Cameras, random searches and bottle measuring encourage staff to steal from bars. The surveillance apparatus tells employees that they aren’t worthy of you trust, and it fails to solve the problem. However, if staff don’t know what you’re tracking, you don’t need to Orwellianize your bar. After the victory of the Lime Equation, I realized this same lesson applied to tech startups.

Micromanaging people always encourages them to inflate numbers, cheat the system and “look good” at the expense of integrity. A Lime Equation, on the other hand, can give CEOs an honest view of performance without relying on arbitrary measurements have little correlation with results.

For my first major startup Lime Equation, I looked at total email volume and the ratio of internal to external emails – and I did not tell a soul. If email volume for an employee dipped from 500 in March to, say, 200 in April, I knew something was up. Maybe the employee was growing unhappy at the company. Maybe he or she was having personal issues.

The change in numbers was cause for a conversation in which I could diagnose the problem and help the person get back on track. The Lime Equation helped me manage performance and morale without setting quotas, enforcing 9 to 5 hours or otherwise micromanaging people in ways that encourage dishonesty.

With this net in place, I could finally relax and be less of an ass. Instead of asking employees to tell me how they were being productive – a charade of a conversation that encourages exaggerations – I could just look at the hard email volume captured in numbers. Instead of hearing people’s stories about what was happening, I saw what was happening.

However, I told no one that I was watching email volume. If employees knew my Lime Equation, they would manipulate email volume – consciously or unconsciously. I saved the Lime Equation and saved my employees from this temptation so I could trust them without any reservations.

What’s Worthy of a Lime Equation?

Free from the burden of checking and enforcing arbitrary performance guidelines, the Lime Equation helped me run a more effective company. By keeping the Lime Equation secret, I kept everyone honest, including myself.

Still, the overwhelming majority of metrics that matter to a businesses should be transparent. Sales, social metrics, customer satisfaction, support response times and dozens of indicators should be accessible to all the people who depend them to measure and improve their craft. The difference with a Lime Equation is that it can’t instruct people like these metrics can because it is a proxy measurement for a smorgasbord of desirable behaviors. The Lime Equation metric is not a desirable outcome in itself, like a sale or 5/5 review.

The hardest part of a Lime Equation is finding the right one. To do this, look at what you currently micromanage. Whatever is killing peace of mind and stressing your employees out – whatever calls for the corporate equivalent of security cameras and random searches – that is what needs a Lime Equation.

The secret metric could change over time. A company struggling with retention could use LinkedIn page refreshes to gauge morale. If people are constantly using the site, they’re probably looking for a new job. Alternatively, you could look at your job referral program. If job referrals are high, current employees likely have confidence in your company. If it’s low, people might not want to draw their friends into the hell they see around themselves.

If you’re a business leader and you care about the dedication, output and passion of your team, find the metric that correlates with those attitudes; that number is for you and you alone.

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