But be careful—even if you have a cofounder, there can only be one CEO. And if you pile on the cofounders, you’re asking for trouble. Having two founders works well. Three can work sometimes. I’ve never seen it work with more.

I remember one startup we worked with that had four cofounders. Every decision was made by consensus, which meant every decision took forever. They’d never started a company before, so even the most basic questions were endlessly debated—hiring, product changes, who to take money from, and how to structure the agreement. If they couldn’t agree they would hem and haw, trying to be nice, trying to be reasonable, watering down their opinions until the company fell behind the competition, ran out of money, and the board had to swoop in, remove some founders, and change the whole team around.

Google Ventures, now known as GV, was an investor. They knew our financials and had always been extremely supportive, so I wasn’t worried about the number. I was worried about which teams we’d work with, what technology we’d share, what products we’d build. Nest wasn’t joining Google for the money—we were joining to accelerate our mission. So it was always mission first, money second.

Together with Google, we went through every single function—marketing, PR, HR, sales, every part of the company. We established where we could create synergies and where we couldn’t, figured out which managers would be assigned to us, how we would do the hiring, which perks people would get, which salaries they could expect, which teams would be working together closely, and how those relationships would be established.

It took a lot of time. In fact I was starting to get a lot of eye rolls. “Really, Tony? You want to get into the details of this now?” Yes, yes, I do. It’s important.

And it was—critically important and usually overlooked.

Most acquisitions are driven and overseen by bankers, and bankers only make the real money if the deal goes through, so they’re motivated to move fast and get paid. They don’t care about getting every detail of what happens to employees right. They don’t really care about cultural fit. Not deeply.

In those first months, we also moved to bolster trust within the studio in another way: Just as we had refused to sign employment contracts, we now moved to eliminate contracts for everyone. At first, many people thought the move was an attempt to wrest power away from the employees and give them less security. In fact, my feeling about employment contracts is that they hurt the employee and the employer. The contracts in question were one-sided in favor of the studio, resulting in unexpected negative consequences. First and foremost, there was no longer any effective feedback between bosses and employees. If someone had a problem with the company, there wasn’t much point in complaining because they were under contract. If someone didn’t perform well, on the other hand, there was no point in confronting them about it; their contract simply wouldn’t be renewed, which might be the first time they heard about their need to improve. The whole system discouraged and devalued day-to-day communication and was culturally dysfunctional. But since everybody was used to it, they were blind to the problem.
I wanted to break that cycle. I believed that it was our responsibility to make sure that Disney Animation was a place that people would want to work; if our most talented people could leave, then we would have to be on our toes to keep them happy. When someone had a problem, we wanted it to be brought quickly to the surface, not to fester. Most people know that they don’t get their way on everything, but it is very important that they know they are being dealt with straightforwardly and that they, too, will be heard.

This corporate détente, if you will, wouldn’t have been possible, I think, without the Five Year Compact.
The document, while providing great comfort to Pixar employees, prompted several complaints from the Disney Studios human resources department. The complaints boiled down to the fact that they didn’t care for the exceptionalism that our carefully guarded policies implied. My response to this stemmed less from a loyalty to Pixar than from my commitment to a larger idea: In big organizations there are advantages to consistency, but I strongly believe that smaller groups within the larger whole should be allowed to differentiate themselves and operate according to their own rules, so long as those rules work. This fosters a sense of personal ownership and pride in the company that, to my mind, benefits the larger enterprise.

You are the customer of the supplier,” I said. “Why doesn’t the same principle apply?”

“Well, we recently renegotiated our lease agreements with the mall operators and owners,” he said. “We went in with a Win/Win attitude. We were open, reasonable, conciliatory. But they saw that position as being soft and weak, and they took us to the cleaners.”

“Well, why did you go for Lose/Win?” I asked.

“We didn’t. We went for Win/Win.”

“I thought you said they took you to the cleaners.”

“They did.”

“In other words, you lost.”

“That’s right.”

“And they won.”

“That’s right.”

“So what’s that called?”

When he realized that what he had called Win/Win was really Lose/Win, he was shocked. And as we examined the long-term impact of that Lose/Win, the suppressed feelings, the trampled values, the resentment that seethed under the surface of the relationship, we agreed that it was really a loss for both parties in the end. If this man had had a real Win/Win attitude, he would have stayed longer in the communication process, listened to the mall owner more, then expressed his point of view with more courage. He would have continued in the Win/Win spirit until a solution was reached they both felt good about. And that solution, that Third Alternative, would have been synergistic—probably something neither of them had thought of on his own.