♦️Only work with and trust people who share the downside with you. That means they have something to lose if you don't win. It could be money, a public image, or something else if it's important to them. But it must be there.

♦️If you're faced with the decision to work with someone as a business partner, to hire a key employee or even a contractor on whom you'll be highly dependent, make sure you structure the collaboration so that they not only have a big, shiny carrot of future success, but also have the downside - namely, facing the consequences of failure.

♦️This is important because it's the only way you can force someone to be in the same boat with you and strive toward a common goal. Or, in other words, to have Skin in the game. 💸

♦️Honestly, I see this mistake being made by young entrepreneurs much more often than necessary. For example, founders find an important team member and immediately give them shares. Not options to be vested, just straight equity.

♦️The reason is that it's a free bet for that person. The only thing they risk in this case is the opportunity cost (i.e. they could do something else instead). Chances are they can work for a while to see if it's going in the right direction, and then leave if they don't think it's. And even sell you back the equity. It's not a loss for them. And believe me, they'll always have it in the back of their mind.

♦️They may not put all the effort into the project either - why should they? They've nothing to lose, only to gain. And people are much more motivated to avoid losses than to make gains (we'll talk about Loss Aversion bias and Prospect Theory later).

♦️Another example: If you hire partners to build something for you, and they charge you on an hourly or project basis, they don't care if your project will be successful. Why should they? They get their profit anyway. And that drives their daily decisions. All they want is their immediate profit - and for you, that means lowering quality, extending schedule, etc.

♦️This happens everywhere in our lives. The simplest example is any service you order. If you order a service that's no interest in you using it over and over again, you should never pay for it upfront. If you pay them only after the work is done, they'll at least share in the downside of a bad job.

♦️Those who always have people around them fighting for their interests become really successful. And this is only possible if they share the downside ❗