Time To Experiment: Democratizing Our Budgets
Besides from being part of Corporate Rebels, I'm a governance researcher for a startup called Polis. We are developing methods and mechanisms that help other purpose driven organizations be more democratic. This way not only shareholders, but all stakeholders can have influence on the decisions that are made. We want to practice what we preach. So that’s why we started an experiment to see how we could democratize our budgets.
When we started this experiment we didn’t have any team-budgets. The only source of income we have were the funds provided by the founder of the company, while all our teams are currently in research stage. This meant that we could focus all our time on research and steadily grow our organization, while we weren't making any profit. Nevertheless, at the end of the month everyone would receive their salary on their bank-account. No questions asked.
This might seem a bit strange for a company in the startup stage, but compared to a lot of traditional organizations I think it's not that different. Everybody is working really hard and is focused on their tasks, but most of us don't know how their efforts are influencing the results of the company, or where the money that ends up in their bank-accounts comes from.
Access wasn't enough
Unlike traditional organizations, at Polis, everyone has access to all (financial) information. Every member can see the salaries of their colleagues and we receive regular updates on how much money we spent as an organization.
Even though we had access to all of this, nobody seemed to really care or understand much about finances. Rather logical. We all got our salary at the end of the month, and funds didn't seem to be running out anytime soon, so why bother? Does this sound familiar for those of you working in more traditional organizations?
Why we bothered
We are a purpose driven company, so we're not interested in making as much money as we can. For us talking about money isn’t about optimizing our profits, it is about choosing how to invest and set priorities. We believe that we can make better decisions by enabling the wisdom of the whole organization. Furthermore we wish to encourage all our members to be interested in how we spent money and participate in deciding what our priorities are.
Keeping this in mind we formulated the goals for a successful experiment;
- We want a solution that would increase the sense of ownership amongst our members
- We want to create more awareness that funds can run out and we need to keep that in mind when setting priorities.
- We want to provide more insight on a team-level so that everyone can understand how the finances of their team work, and have the skills to influence it.
- By creating team-budgets we want to empower teams to make their own decisions regarding hiring and team expenses.
After identifying what we wanted to do, we created the following experiment:
We divided the budget into team budgets, broke that down into monthly budgets based on the expense of previous months (salary, tools, etc.) and shared that with the teams.
- This made it easier for each team to see how much they spend on what and where they could save money.
- The teams use the monthly budgets as a guideline, they are free to spend more money. But they are aware of the consequences, because spending more will bring down the runway of their team.
If at the end of the period a team has spend less then their budget, they can redistribute the remaining monthly budget in three ways;
- They can decide to add the funds to their own team’s budget and increase their runway, or save money for some investments in the future.
- They can redistribute their funds to any of the other teams if they think it makes more sense for that team to use the funds.
- They can choose to redistribute their funds to a Collaborative Fund, for which any member of the organization can create proposals.
By default, any remaining funds will be added to the Collaborative Fund. So if a team wants to redistribute their funds differently, they have to state that.
The Collaborative Fund (inspired by Enspiral’s Co-budget) can be used to finance proposals created by any of the members.
- Any member can create a proposal for how to spend the money in the Collaborative Fund. Using our Proposal & Decision making process the organization can decide how we spend that fund.
The funds members loan to the organization are added to your team's budget.
- Inspired by Italian worker-cooperatives, every member has the possibility to loan part of their salary back to the organization. Employees get higher returns then they would on the bank, and the company has a cheaper loan.
- The funds you loan to the organization will be added to the teams budget, giving you the chance to influence how the money is used.
Rules to guide the experiment
The teams are free to decide how they spend their money. If they want to hire someone, they can! However, they also know that they are affected by the consequences and the salaries need to come out of their budget.
By default any remaining funds are added to the Collaborative Fund. This might seem harsh and unfair but we think that, especially in the beginning, there has to be some incentive for everyone to think about it and make a conscious decision.
The teams are free to decide how to come to a decision. They can choose a finance representative, collaboratively decide each month, or come up with their own alternative.
We will evaluate the experiment after a couple of months and if there are any concerns in the meantime those can and should be shared in our assembly or via Slack.
What we hope this experiment will do;
- It forces teams to think about why and how to distribute funds.
If your team thinks it's important we do more marketing, it's probably not a smart thing to redistribute your funds to the Governance Team.
- It aims to stimulate information sharing and collaboration between teams
If you don’t know what other teams are working on, you’ll probably not give them any of the remaining budgets.
- Teams pitching ideas/proposals to the rest of the organization to get additional funding.
- We hope that this will be a first step in getting more financial awareness and ownership within our organization, and we are convinced that we’ve learned a lot once we evaluate after a couple of months.
Potential negative outcomes;
We thought about this and identified some potential negative outcomes that we wanted to prevent while designing this experiment.
- Teams start spending more money to make sure they spend everything in their budget (hopefully the option to any remaining funds to your own team’s budget prevents this behavior)
- Teams getting into disputes over money (luckily we have some conflict resolutions methods that will help us if this becomes reality)
- Teams not making conscious decisions about how to redistribute their funds, but just keep adding their funds to their own team-accounts as a ritual. (We hope that transparency counters this)
- And probably many other negative outcomes we couldn't think of yet, but that we hope to prevent with a thorough evaluation
What we learned thus far
After presenting these ideas, discussing the concerns, adding and changing some of the elements, we voted on the proposal and it was accepted. The experiment has just started and it's too fresh to draw any conclusions, but there are some things we learned when preparing it. Giving access to (financial) information is not enough, you need to present in a way that people understand. Making everyone responsible motivates them to not waste money. One of the teams quickly realized they were still paying for a tool they weren't using anymore. Canceling it immediately increased their runway. Simple as that. And last but not least, discussing and trying to understand issues raised by the other members, helped us improve the experiment by adding the Collaborative Fund.
I'm pretty sure that in a couple of months, we have much more lessons. To be continued...