You get what you reward

If there is one law that guides human behavior across generations, it is that incentives drive behavior. We can map this law across every industry, but it is especially revealing in healthcare, which is why, despite extraordinary advances elsewhere, we are reaching a point of global despair.

Much could be said about this topic, but this is not one of those articles that talk about the draconian impact of the business model in healthcare that rewards procedures/utilization and not outcomes(1).

Instead, this article (or random assortment of thoughts) is about how incentives shape a team’s performance — and how choosing to optimize for the short term or the long term ultimately defines the structure of those incentives(2).

One Sword story on this:

We've always said that we're building Sword to be a generational company. A company where our kids will be eager to work at. And when you think through these lenses, the optimization pathway shifts from short-term decision making about what maximizes the company value for the next three years (or that lovely IPO) to what maximizes its value 50 years from now.

But although we repeated (and still repeat) this message across all of our all-hands and in all our communications (through the religious mantra of saying that we’re still only 5% done), it’s hard to materially drive behavior changes in how everyone operates. Revenue is the logical end goal that everyone in the startup world has been indoctrinated to believe is the ultimate measure of success. But optimizing for revenue is short-term thinking, because any company can take many shortcuts to maximize revenue in the short term with dire consequences in the long term(3). There’s a full graveyard of companies that have made this mistake.

Instead, we set out to focus on the one metric we know, without question, will drive our value 50 years from now. In healthcare, that comes down to how effectively you heal patients and how consistently you deliver strong clinical outcomes. So, how do you shift the belief system from worshipping revenue to prioritizing clinical outcomes? The answer is simple: incentives.

In 2024, we decided, accepting significant short-term revenue pain, to launch a new pricing model where we would only make a profit if we successfully improved the patient’s condition. We aptly called this new model Outcomes Pricing. Clients, of course, love it. But more importantly, everyone at Sword realized that the number one, two, and three priorities are to focus on improving our solutions to maximize the delivery of clinical outcomes. Otherwise, we don’t make a profit.

The results? We were already the industry leader in delivering clinical outcomes, but this decision enabled us to increase our clinical outcomes by 80%. Now, everyone at Sword, whether in product, engineering, design, or clinical, wakes up and goes to bed thinking about how they can drive clinical outcomes.

Why? Because that’s the incentive.

As simple as that.