Why Positive Reinforcement Works Better than Punishment
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Welcome back to my podcast, Bill, where I share the lessons that I've learned in scaling big businesses and helping our portfolio companies do the same. In this episode, I want to speak to something I'm really passionate about, which is building a culture of positive reinforcement and why it's something you can't keep ignoring in your company.

If I were starting a company in 2024, the first thing I would do is create an environment where people wanted to work more, not less. 88% of employees believe that strong company culture is vital to the success of the business. Companies that prioritize having a strong culture have 33% higher revenue than companies that don't. A study done in 2023 revealed that only 15% of employees actually even feel engaged in the workplace.

Building a strong company culture is no longer a luxury. It is a necessity to survive. If you over-index on rewarding what you want more of, eventually those negative behaviors, for the most part, will extinguish themselves. Whereas punishment would be essentially somebody does something that you don't want to have happen, you negatively reinforce it.

So it would be like if a dog jumps up on the couch and you see it jump on the couch and you hit the dog. And so the dog has been punished for jumping on the couch. Now what happens in those instances is that the dog will continue to jump on the couch just while you're not looking. And in my opinion, culture is what people do when a leader's not present.

And so if you want a positive culture that can continue to work in your favor when you're not there, then I don't think that punishment works for you there. We see it's the same with humans and animals is that if you're punished for something, when the punisher is absent, the person does the activity they've been punished for. Whereas with positive reinforcement,

they genuinely develop an intrinsic desire to do that activity because it's been rewarded. So positive reinforcement is essentially rewarding behaviors that you want more of, whereas I think a lot of traditional management teaches you to punish behaviors you want less of.

So if I'm going to decide which of these two things do I implement into my company culture, here's what I would do is I would just look at what is the cost of each of these things. To give an equal shot, I want to give you guys a really pragmatic view of what the costs on both sides look like. So we'll start with punishment. The first cause of punishment is that creates an environment of secrecy because people are afraid to tell the truth out of fear of being punished.

They're afraid to reveal mistakes out of fear of being punished. They're afraid to tell you when they can't hit a deadline out of fear of being punished. And so what happens is that if people are afraid to talk about their mistakes and people are afraid to tell you what's going wrong, then you can't fix a mistake while it's small. And so small mistakes and small problems turn into big ones. And that's the biggest cost that I see in terms of punishment. The second cost is that it will create more stress and anxiety in your teammates.

When a threat is present, people feel more stressed. The side effect of that is that they're always wondering if and when they're going to punish you. And so you have this culture of people walking on eggshells. Even if this isn't you, you've probably observed where maybe you have somebody on the team. Maybe it's a leader that you know is not great for the team. And that person, you watch their team, they're constantly avoiding them, walking on eggshells, trying to avoid them in the office. And this is because they're constantly in a state of heightened stress because they don't know when that person's going to punish them next.

The third cost is that over time, there's a creation of resentment from that employee towards their boss. Because anything that is a threat to somebody, if over time what it feels like that they can't predict how to please this person, it's this constant unpredictability.

And so people start to resent that person for the way that they're feeling. And so when you punish people, you create an environment where they're not sure what's good or what's bad. They don't know what they're gonna get punished for or what they're not gonna get punished for. And so then they start to build up a sort of resentment to the person because they don't like the way they feel around them and they don't feel like it's fair because there's no rules. The fourth cost is that you're not gonna get discretionary effort out of people. What you see is that when people have a culture of punishment,

People are constantly doing the minimum required to check the box and clock out at five. And then when they clock out, they're like, fuck this shit, I'm not doing anything. That will happen to you if you use punishment. This is one of the biggest things people miss out on, which is discretionary effort. Why is it that the person that owns the company puts in the most effort? Because they have not been punished

by it. They don't get punished by people. They have the least amount of punishment. And so you have the most discretionary effort to put towards the business. Now, if you could create that environment for everybody else, yeah, do you know how you do that? Entrepreneurs don't have bosses, or at least they don't have people that are fucking yelling at them all day. And so one of the costs of if you choose punishment is that people are going to likely not give you the same effort that you want to own.

Like the reason that people work longer hours for me is because I give them encouragement. I make them better. I try to help them grow. And so there's an exchange of discretionary effort. I don't have to try and get you to grow as a person. I can just pay you and you can do your job. But I do. And therefore you reciprocate with putting more attention towards the thing that we both are trying to grow. And so if you don't give discretionary effort to your employee and instead you punish them and don't try to make them better, they're not going to give you any.

And what does that lead to? That leads to the next point, which is the cost of innovation. Innovation stems from creativity, which stems from people seeing how they could do things better than they do today. Have you guys ever seen "Mean Girls"? Remember Regina George? She's so mean to Katie.

And then you know what Katie does? She doesn't want Regina to lose weight to fit into her prom dress. Instead, she gives her weight gainer bars because she actually resents her and wants the opposite. Now why is that? Because Regina is a punisher. And so if you don't want your employees to treat you like Katie treated Regina, then you don't punish them. That's what always going to happen is that you're never going to get innovation and you're always going to have people that are actually trying to probably make things worse, not better.

Why? Because they would love to catch you in a, I told you so. How many of you have ever had a job where you've been like waiting for your boss, this thing to happen so you could be like told them that? And so you lose out on innovation, you lose out on creativity. You essentially don't unlock any part of that in their brain because you're putting them in an environment where they feel unsafe.

Their discretionary effort goes towards, "How can I do to you what you have done to me?" And the last cost of punishment is that people will only work as high as the bar is high. And so what happens is that because people do the minimum required to keep their job, you just have to keep raising the bar if you want people to do more. There's no "they do more because they want to." It's "they do more only because they have to."

And so you have to continue to raise the bar of what you can hire, the type of people you can bring in, because you unlock a zero discretionary effort out of everybody, which also means you have to hire more people to get the same amount of work done. Because if you got 30% more effort from every single person on your team, that means that you would have a 30% reduction in workforce because you get more from each person you bring in. Whereas if you punish people all the time, you get 30 to 50% less effort from those people, which means you might have a team that's double or triple the size.

One of the telltale signs I can have of a company that punishes is they are overstaffed. You look at places like Goldman Sachs, McKinsey, all these other places where people go and it's like a badge of honor that you've lasted two years because it's a punishing environment. It's hard to work there because they continue to raise the bar and tell you that if you don't do things, you'll get fired rather than inspire you to do more.

The thing is, is that it is unavoidable. We as humans punish each other. The difference is are you doing it intentionally and are you doing it to manipulate someone's behavior or is it an automatic reaction that you need to work on yourself? And so I have tried not to focus on the fact that I do accidentally punish people from time to time because it is unavoidable and nobody is perfect and no system is perfect.

Now let's look at the cost of positive reinforcement. So positive reinforcement creates an environment of security because people feel like they can make mistakes. People feel encouraged when they feel like people are not going to punish them. They feel more free to try new things, to do different things, and to make mistakes that we all make.

And so what that actually ends up doing is facilitating a culture of learning where people feel like they're constantly able to pour more into work because they know that they can try things, make mistakes, learn from those mistakes, acquire new skills and try again. Whereas in another culture of punishment, people just stop the moment a mistake is made and then they try to hide it and not tell you about it.

The second cost of positive reinforcement is that people feel a sense of excitement and they want to come to work. And so rather than creating feelings of stress and avoidance in the workplace, you actually create a place where people want to be there more.

And so people who have only ever worked in a place that they felt fear and anxiety, they don't understand this. They see people coming in early and staying late. They're like, oh yeah, punitive culture. Like they're really working you to the bone. You're like, no, I'm here because I want to be here. I like coming here. I actually like it sometimes better than home.

And so people don't understand that that's possible. And they see it and think you must continue to raise the bar and tell them they've got to be there 5 a.m. to 8 p.m., whatever it may be. But the reality is that people like being at work. And so that's what positive reinforcement does. It gets people to put in discretionary effort that punishment can only get by raising the bar over and over again.

The next cost of positive reinforcement is that you have teammates who are empowered. Now, you could look at this as a good thing or a bad thing. Some people I've talked to are like, "I don't want my teammates to feel empowered. I don't want them to know what they're capable of because then they could leave me." But the reality is, is if you empower somebody and you invest in them and then they stay,

Imagine the benefits you get there. And I know that they could leave and some people will. But what you unlock when you empower people and you give them the space to try new things within your company by encouraging them, you get so much more innovation, creativity, and you grow the company. People work hard because they like the consequences of the hard work. The consequences of the hard work are they get empowered.

They learn. They get to be with their teammates. They get to be at work. They get to be in an environment they like. And so you actually create it where they like working hard because they get positive reinforcement from the people, from the environment, from the boss. You benefit just as much as they do because you're learning. You're growing. You're becoming the person you want to be and you like it.

Now, I think a common misconception is that positive reinforcement means you don't give feedback. That's not true at all. There's a difference between giving feedback and giving an insult. So to critique somebody is to make them aware of a discrepancy in their performance. It doesn't mean to punish them for it. It doesn't mean to yell at them for it. It means to make somebody aware that their performance is supposed to be here. It is here. There is a discrepancy. What do we want to do about it?

versus you are stupid, you are dumb, you suck, I'm going to fire you because you suck at this thing. And so a lot of people misinterpret the difference. Now, just because I have a culture of positive reinforcement doesn't mean I don't critique people. I critique people all the time. But the way in which I critique them and the way I position it is much different than somebody who punishes people.

So for example, if I have an employee, they do a presentation and it's not quite up to par. I might just tell them, "Hey, how do you think you did on that presentation?" And they would say something and I would say, "Amazing. Your goal is to be X, Y, and Z position, correct?" And they would say, "Yes." And I would say, "Amazing." So somebody who is able to be in this position, they would do this one thing differently. "Do you think that next time you could do that one thing differently during your presentation?" And then they would say, "Yes." And I would say, "Amazing." It's that simple.

Whereas on the other side, if you're punishing somebody, it'd be like, that presentation sucked. Do it again. You start labeling somebody. You start making it personal. You start using vague insults to try and get people to change their behavior. And that's what a lot of traditional management does.

I was watching Selling Sunset and I'll just never forget, Mary is now the manager and she's talking to Christine and she's like, "I need you to stop. I need you to stop being a bitch." And I literally thought to myself, like vague insult, personal. She literally did it all wrong. Whereas if she had said, "You want to do this, you want to have your own brokerage one day, right?" She'd be like, "Yes." "Well, I think that in order to have your own brokerage one day, you should do this one thing differently. Do you think we can commit to that?" How different would that conversation have gone? Would she have even quit the firm? I think these things to myself when I watch Selling Sunset.

A lot of people ask me if I continue to positively reinforce people, isn't it going to lose its value? Which I would ask, do you ever feel upset when your wife tells you that you're hot, that you look muscular? Do you ever feel upset when your husband tells you that you look sexy, that you look great in that dress? Do you think that he could tell you too many times? Do you think that she could tell you too many times? Or do you feel like you could hear that shit all day, every day?

Don't you think you would like your spouse more the more they complimented you? Especially if they were genuine compliments. So a lot of people come to me and they say, "I'm worried I'm going to be over encouraging." And I'm like, "Listen, you won't. I promise you." We have a natural proclivity most of the times towards negativity, towards seeing what's wrong, because that helps us innovate and make things better.

And so the likelihood that you over-index is low and the likelihood it would have a bad effect is basically zero. I actually don't think that you can positively encourage somebody enough because as long as you're pointing out the right things that you're encouraging them about, you're going to get the outcome you want. I would say the downside of positive reinforcement is how long it takes to train. You have to teach it. You have to understand it. It is difficult to implement and it takes a lot of iterations over time.

And so something that I've seen, for example, is that I've taught my team positive reinforcement, the basic principles. But then people are fearful of accidentally punishing people. They're fearful of delivering feedback candidly because they're worried it will punish somebody.

And I think that there's a difference between punishment and consequences. The reality is, is if you don't do your job that we pay you for, you won't have a job. That is something that is an expectation set on the forefront of taking a job. And so that is a consequence of

if you don't do your job. So for example, I had a conversation with somebody. That person decided to do something that was against our code of ethics. And so I said, "Hey, I just wanted to let you know, you can continue to do this. If you continue to do it, you may not also continue to have a job here. Which would you like to continue doing? It's up to you." I didn't yell at them. I didn't insult them. I didn't punish them. I presented them with the option. They already were aware that what they had done had violated our code of ethics, and it was up to them to choose what they want to do next.

So a lot of people ask, how do I know that it's actually working, positive reinforcement? I would say that you get more of the behaviors you want and less of the behaviors you don't want. How that might show up in the workplace would be you see people coming in early. You see people staying late. You see people helping people they don't have to help and you haven't asked them to help.

You see people wanting to arrange work activities when there is no need for work activities. You see people wanting to do work dinners. You see people wanting to talk to each other. You see people talking to each other on weekends, doing things with each other outside of work. All of these things they're doing because work itself is very reinforcing for them, and so all things associated with work become positively reinforcing, and so they want all of all the things to increase.

If you positively reinforce people properly, they want to work more and they also want to be around things that remind them of work more too. And so the more that you see them trying to bring all those associations in closer, the more it means positive reinforcement is working. You know, for me personally, implementing a culture of positive reinforcement has been because my mission is to make people's lives better through work, not worse.

If I make $100 million or $1 billion, but I've made people's lives worse, I've made my community worse, I've made people's families worse, then I don't feel like that's success to me. And so success to me and how I define it would be that I make everybody's lives better who interacts with my company while achieving those goals.

That aligns with my personal values and the values that I exhibit in the workplace. And so that's always been my mission. And then I've also just seen it works better. And here's the thing, you know, people ask me like, well, it's so selfless of you to be doing positive reinforcement. Guys, if I punished my team, when I walked into my building, do you think that I would feel wanted? So a lot of people say like, you're not going to get anything. It's just so selfless. No, it is selfish because I want my team to want me to be there.

I want to walk in and feel like I'm part of the team, not a dictator that the team doesn't want around.

And so for me to continue to want to work and to be able to work for long periods of time, for decades to come, I have to want to be at work too. And you know who doesn't want to be at work more than the employees who hate their jobs? The person who punishes everybody that everybody runs from when they walk in the room. Guys, thank you for listening to this episode of Build. If you liked this episode, if you found value, go ahead, screenshot it, share it on Instagram, Twitter, Facebook. I don't even think you use Facebook anymore.

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