Know Your Relationship
By: Thomas P Seager
Tags: Hiring, Leadership, Relationships, Startup, Personal Growth

Photo by Annie Spratt on Unsplash

Know Your Relationship

Are you transactional, reciprocal, or personal?

At our little ice bath startup Morozko Forge, we’ve been thinking a great deal about what constitutes our company, and how we relate to all the myriad different people and organizations on which we rely to grow our venture. To help us sort it out, we created a way of thinking about our relationships as belonging to one of three categories: 1) transactional, 2) reciprocal, and 3) personal.

Transactional relationships are those in which the terms are made explicit, and there is little, if any, expectation of continuance. For example, when you are checking out at the grocery store cash register, the cashier might ask “How are you?”

But cashiers aren’t asking you because they have some deep, personal interest in your well-being. Your relationship is transactional, which is to say that you have an explicit understanding of what each of you is expecting from the other.

You are expected to hand over your credit card, and the cashier is expected to process your payment in the correct amount and help bag your groceries.

After that, you’re done with one another.

When we buy supplies, materials, parts, or components online, we typically engage in a transaction in the context of transactional relationship. We pay. They provide.

That’s it.

Communication in a transactional relationship is explicit. It focuses on quantitative answers to data-driven questions like: “How many? What size? What voltage? What length? What rate?” etc.

Free markets are perfect for transactional relationships. You don’t have to know a thing about the seller to buy the product. You only need to know the specifications of the product and the price.

Our company has lots of transactional relationships with our suppliers. These are characterized by searching for the lowest-price supplier who meets our minimum specifications.

We also have transactional relationships with our lenders.

No matter how much they talk about “relationship banking,” the fact is that we’ve never met anyone who has ever lent us money. Lending and borrowing all happens on the Internet, and it’s all driven by credit score algorithms, because that’s the way that transactional relationships work.

Reciprocal relationships rely on expectations that are not made explicit. The economic Theory of Reciprocity boils down to this:

In reciprocal relationships, people will reward kindness and punish selfishness.

Because the terms of reciprocal relationships are not made explicit, the parties must rely on contextual cues to interpret and communicate expectations. There may be strong cultural expectations, but these are norms, rather than rules. Without the explicit terms of a contract or transaction, reciprocal relationships require being aware of social and interpersonal cues, interpretation of those cues, the capacity to formulate responses to those cues that align with relationships goals (e.g., positive or negative), and the motivation to engage or carry out those responses.

Most of this happens so fast during a conversation that we’re unaware of how we process and respond in reciprocal relationships. Nonetheless, we sometimes misjudge the kindness (or selfishness) with which we have been treated, and thus misjudge our relationship. In those moments, we sometimes find ourselves regretting our commitments, or becoming more explicit (i.e., transactional) in our relationships.

Reciprocal relationships are based on shared expectations that serve self-interest, even when those expectations lack specificity. Because there is typically a time delay between offering a kindness and receiving one in return, reciprocity requires greater trust, or tolerance for risk of getting no return.

The best illustration of the difference between transactional and reciprocal relationships may be the opening scene from the original Godfather movie, back in 1972. It is a remarkable scene, in which the Godfather (Marlon Brando) he refuses a transactional relationship, to create an invitation for something more meaningful.

The opening scene from the 1972 movie, The Godfather, illustrates a preference for reciprocal over transactional relationships.

Notice how the undertaker makes a transactional appeal to the Godfather when he says, “How much should I pay you?”

The Godfather is offended by such a request. Instead, he guides the undertaker towards a reciprocal relationship. He points towards their existing familial ties, which suggests a social expectation of reciprocity. He makes clear his willingness to forgive the undertakers previous violations of these familial norms. And he explains what outcomes the undertaker can expect from a closer relationship.

However, to minimize the possibility of a misunderstanding, the Godfather explains the very nature of reciprocity:

“Some day, and that day may never come, I will call upon you to do a service for me. But until that day, accept this gesture as a gift on my Daughter’s wedding day.”

While it is clear that the undertaker shall remain in the Godfather’s debt, there is no explicit quantitative measure of the debt, and no time table for its collection.

In reciprocal relationships, people “give” one another things in ways that may build a closer relationship. However, there is no enforcement of the reciprocity, outside the power each party has to create positive or negative consequences for the other. Should one party lose that power, they have little recourse and no appeal to contractual obligation.

Personal relationships extend one’s own sense of well-being to include others. That is, when you’re in a personal relationship, you include your partner’s well being in your consideration of your own.

We often like to believe that we form personal relationships with our closest friends and lovers. However, the test of a personal relationship is only found in the most troubled times.

Ask yourself, “What has my Lover been willing to risk in their own well-being, in the interest of mine?” and maybe the answer will surprise you.

When one party holds the expectation of a personal relationship, only to be treated as if they were in a reciprocal or transactional, the unmet expectation is likely to create feelings of betrayal.

The classic, “Frankly my Dear, I don’t give a damn,” from Gone With the Wind is a direct rejection of a personal relationship, because caring about the other’s well-being is what defines a personal relationship.

Know your relationship

Only by knowing your relationship can you avoid the pain of overestimating your expectations of others. Because a company is a group of companions, it is defined by relationships — so it behooves you to know what sort of relationships your company forms: with employees, partners, customers, and suppliers.

As human beings, we are hard-wired for sociability. At some limbic level, we seek the safety of mutual self-protection that can be found in reciprocal and personal relationships. Hundreds of thousands of human evolution have primed us to co-exist in close tribal relationships.

Nonetheless, the marketplace is predicated on transactional relationships. For example, we compete for talented labor in a marketplace. When employees are able to secure more rewarding employment elsewhere, market-based incentives would require them to incur real opportunity costs to working at Morozko Forge. Knowing that, we seek to pay above-market labor rates, in search of above average performance.

On the other hand, everything we know about human motivation suggests that working for an hourly wage is a demoralizing, dehumanizing, and unmotivating transaction — and that won’t achieve the level of creative energy required of a start up. So our President Jason Stauffer coined a mantra the “At Morozko Forge, we only extrinsically reward companions who are intrinsically motivated.”

Rather than give in to the temptation to create good feelings about the mutual caring that characterizes personal relationships, we reject cliches like “we’re a family” at Morozko Forge. While the implication of the familial metaphor is to create a sense of mutual caring and loyalty, the fact is that the cliche creates unwelcome inferences, misplaced expectations, and has a long history of being abused by those who would seek to exploit others.

Instead, we operate by invitation and audition. Although we eschew the transactional relationship with those people with whom we depend upon in the Production Studio, there can be no doubt that the relationship is dominated (at least in the beginning) by transactional considerations. For example, we audition new craftsmen to assess their skills and their market value. When we make an employment offer, it is based on our admittedly imperfect assessment of their productivity.

Then, we invest.

We train. We counsel. We educate.

For example, as a Professor of Engineering Business Practices at Arizona State University, I teach communication, teamwork, leadership, finance, and professional ethics. If you’re curious, you can find more information about my course at https://cee300.com/ and read most of my course materials here on Medium. In school, my students pay hefty tuition rates to take my class.

At Morozko Forge, we practice many of the same principals I teach, and in this sense, our companions recover more than a paycheck — they also acquire the much of the same knowledge that university students are paying for. The result is sometimes a transformation in the capabilities of the companion, making them more valuable to our company.

At which point, it behooves us to revise their compensation upwards, or risk losing them to a competing employer.

None of this is characteristic of a personal relationship, despite the fact that the first people we hired were close friends. A better way to think about it is to think of it as a reciprocal relationship — we invest in the professional development of the companion, and they reciprocate by investing their creative energy in growing our venture.

Nonetheless, with some of our companions we have developed a closer relationship. When a companion earns an equity stake, they become a partner. While their ownership in our venture binds them closer to us in a transactional way, it can’t help but also bring them closer in a personal way — because the mutual interdependence of partnership demands consideration of their well-being as part of our own.

What are you willing to risk to form the relationships you seek?

The difficulty with personal relationships is the exposure and vulnerability that they create. For example, when we migrate from a position of independence to interdependence, we may feel some loss of autonomy, of self-determination, or of control.

That can be threatening.

Including another’s well-being in our own requires that we put something about ourselves at risk. It does not require that we risk everything — only that we examine our values closely enough to understand what we value less than the relationship (and how much).

This comes up for us at Morozko Forge in two ways: 1) honoring our warranty, and 2) honoring our commitments to the companions employed in our company.

Warranties, and Guarantees

In the first case, we have invested extraordinary resources in traveling to our customers to ensure their Forge is in good working order. I once flew 4000 miles on two days notice to fix a leaky tub.

We offer an ecstatic guarantee: if our customers are not ecstatic about their purchase, they are entitled to a full refund of their purchase price.

We’ve issued only two refunds — both because our production lead times grew too stretched out as we struggled to achieve scale. Those former customers never had the chance to take delivery.

For everyone else with an issue, we’ve traveled to the site to fix the issue, whether that was in Knoxville, Oklahoma City, or Portsmouth.

We flew from Phoenix to Oregon to shore up a customer’s old wooden floor when our calculations showed that their Forge might overload the floor joists. We rented a crane to lift a Forge up onto a rooftop in southern California when it wouldn’t fit up the stairs. And we’ve built entire new Forge to replace units that didn’t stand up to the salt spray and humidity of outdoor seaside installations.

In each case, we learned more about how to improve our product and better serve our customers. Had we been stuck in the mentality of a transcational relationship with our customers, we might not have acted at our own expense to serve their needs. However, in these cases we valued the money we spent less than we valued the potential to create closer, more reciprocal relationship with a customer. In some cases, the unsolicited testimonials our customers have provided have made the risk more than worthwhile.

Commitments to Companions

While many of our readers no doubt understand the enlightened self-interest that is characteristic of a commitment to an ecstatic customer experience, the more difficult condition is a test of our commitment to a companion. For example, when a craftsmen fails to meet productivity expectations, it’s easy to say “Bad hire!” and fire the craftsman.

We have yet to do that, because subpar productivity is not what will sever a companion from our company. It’s not that we haven’t let people go, because we have… just not for a lack of productivity.

Productivity is one of the things we are willing to put at risk to create the possibility of a closer relationship. Those with whom we’ve severed our relationship have been for a lack of honesty, not for a lack of productivity.

Not that it’s been easy.

When you’re three months behind on delivery dates, and mistakes in production necessitate rework and repairs, it’s very tempting to scapegoat under-performing employees.

It might even work. For example, in his book No Rules Rules, Netflix CEO Reed Hastings talks about the importance of “talent density,” and describes the boost in productivity his company experiences after a round of layoffs. The lesson Hastings drew from this experience is that Netflix could be improved by offering generous severance packages to under-producing employees, and instead hire others.

We’ve considered it.

But when our partners sat down around the kitchen table, what impressed me most was the fact that none of our partners would have been qualified for our current roles, had we adopted Hasting’s approach. I would not be CEO, Jason would not be President, and Adrienne would not be a Cold Coach. Because we had to figure out along the way how to do these difficult jobs that never existed before, each one of us might have been fired for lack of productivity.

We decided that, rather than sever our relationship with honest, motivated, under-performing companions, we would seek to experiment with new roles, redefined duties, and new auditions — for as long as the companion was motivated to earn their position within the company. We thought, “Are we such poor judges of character and capability that we made a bad hire? Or did we misjudge the role of this companion inside the company?”

What is the Role of this Relationship in Your Future?

As we consider what it means to be a company, and the commitments we must make to partners, companions, suppliers, and customers, we’ve found it’s helpful to discriminate between transactional, reciprocal, and personal relationships. When we reflect on the type of relationship we are working toward, we can align the investment of our expectations, risks, and resources accordingly.

Knowing our relationships sometimes helps us avoid the manipulations, misalignment, and disappointments associated with unmet expectations, misalignment of interests, and rejected reciprocity.