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The costs may be hidden, but they are still there. That alone should motivate you to treat your staff well.
You'll hear people talk about the high cost of turnover, but when you try to press for the actual costs they don't really know. It seems like a mysterious thing that people talk about.
And it's true--the costs are largely hidden. It doesn't hit your profit and loss statement. It's not something in the budget. There are some hard costs, like the cost to post a position on a job board, or for specialized positions, the cost of a headhunter. But, even if you recruit strictly through word of mouth and employee referrals, there are costs to losing an employee. Here are the things you're paying for.
Lowered productivity. The person who left was doing something, right? And who is doing that job now that the position is vacant? No one? That's lost productivity right there. What if you just farm out the tasks to other people? Chances are, the most important tasks will get done, but other things will fall by the wayside.
Overworked remaining staff. Can you measure this in dollars? If your employees are exempt, their paychecks remain the same, so how is this a cost? Well, as they get stretched thin, their quality of work goes down as does their satisfaction and engagement. Which means that they are more and more likely to start looking for a new job and leave. And the longer they stay in their overworked roles, the harder it will be for you to regain their goodwill even after you've filled the vacancy.
Lost knowledge. A ton of people can do what your former employee did, but they don't have the specific knowledge she had. It's not just about putting numbers in a spreadsheet, writing code, or selling a product. It's about knowing the people, the traditions, the location of relevant information, what the boss likes and a million other things that come from working for a company for a long period of time. All that goes away when someone quits. And sometimes it's more than just general company knowledge. How many of your employees have their jobs documented well enough that someone could figure it out with their documentation? Do you have people cross trained? Does one person have control of the passwords?
Training costs. Paid training costs are obvious. If you have to pay $5,000 for a seminar to teach your new employee your complex internal computer systems, that's a cost noted on a spreadsheet. But, when there are no training classes to attend, there are still costs. Someone has to sit there and show him what to do. Someone has to double check work until the employee has proven himself. And that all takes the "trainer" away from her regular job. Which means you're paying two people to do one job. Costly.
Interviewing costs. If you have to pay travel expenses, that's costly. But if all your candidates are local, you still have to take the time to go through resumes, talk with numerous people, do formal interviews (which take an inordinate amount of time), talk with colleagues, and figure out who is the best employee.
Recruiters. I'm not talking headhunter fees (which are absolutely worth it for some positions), but rather the employee who has to find the candidates. In some business, you have dedicated HR or recruiting staff that takes care of this. They all get paid. And for smaller businesses, this task usually falls directly on the shoulders of the hiring manager--you know the one who is extra busy because he's down one person? That costs too.
What do all these costs add up to? Well how much? Estimates run as high as 150 percent of annual salary. Much less for lower level positions, but still significant enough to make retention a high priority for your business.
This doesn't mean you shouldn't fire problem employees. You should--because they aren't being productive and they encourage your good employees to quit. But, you should first try to counsel and coach and correct. And you should consider your pay scales for your good employees and give raises and bonuses when appropriate because it will cost you more to lose that good employee than the $5,000 raise you refused to give.
Turnover is expensive. Sometimes it cannot be avoided, but when it can, you should avoid it by doing the right things for your employees.
Fifty-two percent of small businesses still don't have a website. Don't be one of them. Check out these tools that will get your brand online--today.
There is no excuse for this one.
Recently, a survey by a marketing company called Yodel found that 52 percent of small businesses still do not have a website. (They interviewed a sample size of about 300 companies.) On top of that, 56 percent of businesses surveyed also do not use any means to measure online success.
C'mon, people. In the past, the only way to start a new site was to pay a design agency a few thousand dollars and hire a programmer. That's ancient history now. Several sites offer a quick and painless approach where you can plug in your own company graphics, type in some text, and have an amazing site with full SEO and social media integration by supper. Here are four.
One of the my recent finds, Webflow is smarter, savvier, and better-looking than some of the older build-your-own tools like Weebly or Webs. The interface is intuitive and the templates are amazingly good, but the main draw is that it is a full Web editor. You can use CSS3 style sheets that dictate the format and allow easier changes. There are alignment grids, custom form options, and even versioning to help you track your site design.
2. Jimdo for Mobile
Jimdo is a powerful template-driven tool for creating a website. I wrote about it last fall in the magazine. Now, there's a mobile version. You might wonder: do you really need to the ability to create a website from your phone? The mobile version allows you to snap photos and integrate them right into your site. As you might expect, it's great for designing a mobile website. And, you can start a site on the Web and make the finishing touches on your phone or tablet.
I also wrote about Sidengo for the magazine last fall, but it's still a favorite of mine for a quick, easy site with a trendy look. There are two main advantages. One is that Sidengo automatically re-formats the site for Web or mobile. And, you can create multiple sites with one account--e.g., one for each new product or marketing campaign.
Okay, maybe you don't have time to plug in graphics and text for a full site with navigational links. Smore is another favorite site builder of mine and it's intended for people who are pressed for time. At the very least, you can plug in a few details about your company and create an online brochure, one that has your contact info and mailing address. And, the finished sites look really professional.
Location data is money. Foursquare's got plenty of it, plus a new product that promises to make it profitable. Is the start-up finally having its moment?
In January 2013, PrivCo, the research firm, said Foursquare would fail by the end of the year.
Granted, the year isn't over--but it's pretty clear PrivCo was wrong.
On Thursday, Bloomberg reported that Foursquare was "in talks with multiple large technology companies about a potential strategic investment." According to the report, Foursquare is now back on track to beat sales expectations by the end of the year, and the business development team has been successful in attracting several new advertisers to their "post-check-in product."
What is their "post-check-in product," you ask?
As TechCrunch explains, the new Foursquare "will ping phones with personalized recommendations based on a user's targeted physical location, without needing them to check in at all."
In a recent interview with Fast Company, co-founder and CEO Dennis Crowley explained this product is basically the holy grail of local discovery, and one that has the potential to turn Foursquare from a fun, though niche social check-in site, into a massive local data company.
Personalized recommendations may seem like a marginal step forward--a decent iteration on an otherwise underwhelming product--but I'm inclinded to believe there's a bigger story here. As writer Austin Carr put it, "If Google has built a $294 billion business based on your explicit searches, Foursquare's bet is that the data behind your implicit intent are just as lucrative."
If the new product is a hit, big tech companies will be champing at the bit. Plenty of firms have attempted to become the "local layer" of the Web, but no one's really succeeded. (Perhaps Yelp has come the closest, but the recommendation site is continually bogged down with allegations that users are manipulating reviews.) The new product may--finally--put Foursquare in a good position for a big exit.
The question becomes: Who could be the highest bidder?
Perhaps the obvious answer is Apple. Over the last several years, Apple has been building out its own local programs. Its most recent acquisition, Locationary, is basically a local data broker--a nice complement to the company's new iOs map (which it's surely trying to improve).
Foursquare could potentially turn Apple Maps into a more social product, one that would likely boost user engagement and be an attractive selling point to advertisers. As Romain Dillet says on TechCrunch:
Foursquare could replace everything related to Yelp in iOS. At the same time, Apple released Find My Friends a year ago. It has very few active users and bad ratings in the App Store. Apple could safely forget about Find My Friends if Foursquare becomes an Apple app...It remains to be seen whether Apple could be tempted by its talented team of 150 people in order to develop the product further. Foursquare data becomes even more valuable for the users as people check in and add other users as friends.
The other obvious answer is Google. Like Apple, Google has poured a ton of time and resources into developing its local products. Buying Foursquare's data could be a huge play for Google, especially if the company's data can translate into higher ad-revenue from local businesses that already advertise on Google.
Say you live in New York City and you like bowling. Google probably already knows this about you, based on various search indexes associated with your account. Right now, when you log in, you're likely going to see ads for bowling alleys in New York. The only problem is that when you're on your computer, you probably don't have plans to bowl. But with Foursquare's location data, Google would be able to sell your location data to its existing local bowling advertisers at a premium price, giving them access to you when you're on-the-go. That gives advertisers the chance to hit you with an ad at the right time--and place.
Also, let's not forget that Google recently purchased Waze for $1.1 billion, reaffirming the company's willigness to shell out large amounts of cash to boost its local division.
Marissa Mayer and Dennis Crowley are old buddies. Back in 2005, when Mayer was still at Google, she was in charge of the acquisition of Dodgeball, Crowley's first start-up.
Since taking the helm of Yahoo in 2012, Mayer has been almost exceedingly vocal about the company's need to make serious acquisitions to boost its mobille and local products, and align itself with a younger generation. Enter Foursquare.
In June, Kara Swisher of AllThingsD reported on comments made by Yahoo CFO Ken Goldman:
Goldman added that Yahoo would continue to do acquisitions, "to help basically accelerate our progress… and continue to see the velocity of products in the mobile space."
Of most interest is "localization of the space," especially in providing search and content to consumers.
Hey, Dennis Crowley of Foursquare, that sounds like you!
It also fits the rubric of a standard, Mayer-approved Yahoo acquisition. As Quartz put it:
Like Tumblr’s rabid fan base, Foursquare has something going for it that makes it uniquely valuable. That’s its location data, which it shares with companies like Instagram and sells to various advertisers. While Yahoo’s approach to making Tumblr pay for itself is to load the site up with ads, the approach would probably be different with Foursquare, which only has 33 million users. Yahoo could use Foursquare’s technology and data to beef up its web search, by offering people search results based on where they are. Or maybe Yahoo could just make Foursquare profitable through ads, since Yahoo, being bigger, can more easily negotiate deals with advertisers.
A Credit Card Company?
Foursquare has a long-standing relationship with American Express, a partnership forged in 2011 that gave discounts to card members that checked in at various stores.
Some see Foursquare's location data as valuable to advertisers and local retailers, but it coud also be just as lucrative to credit card companies, who collect transaction fees on each and every purchase that's made. As the VC Hunter Walk explains:
Your credit card company has a tremendous amount of data on where you, and the world, shops. Not purchases at the SKU level--they largely don’t know what you bought at West Elm or Cheesecake Factory--but they do know that you spend $350 at a furniture store and $75 at a casual food chain. Now extrapolate this over millions of customers. Using covisitation data they could recommend to me other establishments visited by folks with similar spending patterns. “Hunter, because you enjoy West Elm you might also like SF Modern Design located at 1000 State St.” This would be especially helpful when traveling.
But none of these credit card companies are (a) skilled at building consumer facing applications, (b) upstream of purchase decisions and (c) have place level data for retail establishments. Oh but wait, Foursquare has all of those. By combining with Foursquare, the credit card companies could finally justify and preserve their transaction fees (in the face of competition from other payment options) but working to drive demand to the local retailers. Today they do this in very non-scalable ways such as one-off marketing programs such as AmEx Small Business week.
[Update: Microsoft is rumored to have its eye on the company too. A Foursquare partnership would give Microsoft a strong foothold in the social and mobile sphere's, especially as it develops its own set of tablets and smartphones.]
This is the dark horse option--the bizarre scenario in which Foursquare's future involves an IPO or bankrupcy. Both are equally unlikely, but considering the company's raised north of $100 million, Crowley may not find any acquisition offer under $1 billion palatable for himself or investors.
What is certain, however, is that a company that was once perceived to be the next "highly-funded casualty" is very much alive.
London calling ... New York technology companies. Submissions for the GREAT Tech Awards are due September 6.
If your start-up has been itching to open a London office -- or at least to get a British phone booth photo op -- now may be your chance to score a free plane ticket over, courtesy of the Queen. The UK goverment is sponsoring the GREAT Tech Awards to bring 5 New York-based technology companies to London for a week-long visit.
In addition to a "premium economy" plane ticket, winners will get a variety of introductions, a two-day business development program, limited legal services and company registration, and other benefits.
They'll be selecting a winner in each of five categories: hardware, education, lifestyle, finance and media. If you're interested in applying, you must be headquartered in the United States with a New York presence, have "a verifiable international client base and be ready to grow internationally," focus on technology, and have between three and 100 employees. Also, companies with a current UK presence are not eligible.
Applications are free and must be submitted by 11:55 pm EST on September 6. Winners will be announced on October 2 at the GREAT Tech Awards Gala in New York City.
When your day job--starting up a business--involves a lot of risk and uncertainty, your own finances should be a lot less unpredictable.
A lot of entrepreneurs won't admit it, but here's the cold, hard truth: Just because you manage the finances of your own business doesn't mean you're savvy at managing your own money.
In fact, often because entrepreneurs are busy starting up and managing businesses--an inherently risky endeavor--they overlook their own personal financial risks. But you can't afford to do that. Especially when your business introduces a fair amount of uncertainty in your life, your own financial situation should be comparatively less exciting and unpredictable.
Here, then, are five money moves every entrepreneur should consider.
Get a Game Plan
First-time founders: If you haven't already, figure out how much money you have (i.e., emergency savings) and how much you have coming in (say, from investments or part-time work). Then, estimate your expenses, both personal and business-related. You want to be clear about what you need in order to get your idea off the ground--and how long you can feasibly bootstrap until you enter the danger zone. I recommend shoring up at least six months' worth of emergency savings for individuals and nine months if you're a parent. If you're paying off debt, see what you can automate to make your life easier and ensure those expenses get paid.
Take a Money Minute
Each morning, I like to take what I call a "money minute" and check my account on LearnVest's financial tracker. Mostly I'll do this when I'm just getting into the office and planning my day. I'll simply log in and take a peek at my investments, then check for any erroneous fees, which sometimes happens when I dine out. From there, I'll try to get a sense of my personal spending--have I been eating out too much or overspending on travel? The answer usually keeps me and my husband, who shares my credit card, in line.
Side note: I've learned to do this for LearnVest too, except rather than view things all at once, I take some time each week to review separate emails and a dashboard which shows how many users signed up each month. As with my personal finances, I try to figure out what we should be doing more or less of and understand why something is happening. I look for patterns, behaviors, and insights to see where we should invest, where we should cut back, and how to plan for next season.
Know Your Risks
As an entrepreneur, knowing how your personal finances are connected to your business is crucial because you're so vulnerable. Let's say you take out a credit card for your business expenses. You'll be liable if you default and the card's in your name rather than a corporation. Similarly, if you take out a small business loan, the bank could come after your personal assets. Neither scenario is ideal, so if you're boostrapping, be sure you know your limitations. If you're running your business as an LLC, a limited partnerhip, or a sole proprietorship, your actual accounting of your finances will appear on your tax return, so it could impact your personal finances, not just those of your business.
Get a Roth IRA
Saving for retirement is probably not high on your to-do list when you're in the process of staring up--but it should be. A Roth IRA, which grows absolutely tax-free, is one of the best and most flexible vehicles out there for retirement savings (though there are some limitations, depending on income). You can invest in it almost whatever you want--from mutual funds to bonds up to $5,500 in 2013 ($6,500 if you're 50 and older)--and if you're ever in a bind, you can access some of that money without major penalties. Another perk of the Roth IRA? If you've just quit your day job, you can roll a traditional IRA or 401K into it.
Consider Umbrella Coverage
Let's say a colleague slips and falls at a company party and decides to sue. He threatens to wipe you out financially and shut down your business. With an umbrella or excess liability coverage, you help to protect yourself from big financial threats. This kind of policy goes above and beyond auto and home insurance, which is good since you have more to lose. Think of it as an additional layer of insurance, worth up to $1 million to $2 million. Most umbrella insurance claims are related to car accidents, but they also offer protection for accidents at work.
Thanks to bigger companies focusing on their mobile apps, smaller developers have found themselves in a more expensive and competitive market.
As the number of mobile app downloads increases across the United States, the cost for app developers to gain loyal customers has risen to its highest rate in two years, according to a new study by Fiksu.
The Boston-based mobile app marketing company found that the cost for acquiring new loyal app users through advertising has reached $1.80 per customer, an increase of 20 percent since June. Fiksu defines loyal users as people who open an app three times or more.
Fiksu's App Store Competitive Index, which tracks the volume of downloads per day in the top 200 ranked free iPhone apps, shows a four percent rise, from 5.6 million daily downloads in June to 5.8 million in July. Last year, that number was just 4.37 million. Because of this rising demand, a greater number of name-brand companies are focusing on mobile strategy.
"The continuing surge in mobile app users is attracting bigger brands eager to use apps to create long-lasting, ongoing engagement, and their spending is pushing up costs," Micah Adler, chief executive of Fiksu, said.
This is bad news for smaller developers, especially for the ones building free apps, as they often rely on their customer base to make in-app purchases. While established brands have bigger budgets that can keep up as marketing costs rise, start-ups have to take on larger risks to capture those loyal users.
Adler said there are two additional factors "applying upward pressure on user acquisition costs." First, Apple's new App Store ranking algorithm forces low-ranked app creators to spend more money to enhance their rating. Second, larger companies are flocking to Facebook's mobile app advertising platform, which came out late June, driving up the price of ads.
In short, as the growing mobile app market becomes more tempting to larger businesses, it will only become harder -- and more expensive -- for start-ups to compete.
Before you pop the bubbly and celebrate that new big client, ask yourself: is this a blessing or a curse?
Enjoy the pop of a champagne bottle being opened. You just put a leash on your first Big Dog. An international company on the Fortune 1,000 list is now your client. Following the arduous process of becoming an approved vendor, there’s an immediate cash stream. Not bad.
That’s the blessing and curse of the Big Dog, the one client that comprises more than 50 percent of your revenue. Huge success on the front end and the possibility of instant, fatal failure when it all evaporates in the blink of an eye. You’re not a good businessperson if you don’t exploit the Big Dog, but you’ll never be a brilliant businessperson if you don’t mitigate the risk that comes with it.
Ride the wave, but look for the next one.
I’ve been there--as much as 80 percent of our business came from one client several years ago. Clients happily referred us to their colleagues within the same company. We worked hard to diversify our client base so when Big Dog missed a quarter and cost-cutting began with "vendor consolidation," we weren’t chained to the fence.
Here are your next steps:
1. Exploit your win, inside and out. Spend half your time building new business inside the big client and half your time leveraging the client to win business with other companies. The money you’re winning from the Big Dog needs to be discounted by the risk. And the credibility you’ve earned has got to be leveraged into new prospects.
2. Follow people. Some of your peeps at Big Dog are going to leave to join other companies. This is the best way of diversifying your business. People, not companies, sign you and your company. The respect and credibility you’ve earned persists when those folks join another firm. Your business obligation is to monetize it.
3. Bank your success. Remember that part about the discount on the earnings from Big Dog? Talk to your accountant. A percentage of those earnings must be banked into a "rainy day fund." Remember Aesop’s fable: Are you an ant or a grasshopper?
4. Divide and Conquer. Use your staff wisely. Assign someone to focus on building business at Big Dog. And someone else to focus on building business outside it. As a business owner, you need to be the one coordinating the effort--but stay out of the picture for a while. You shouldn’t be in the first meeting because there needs to be a second and third meeting.
5. Make hay while the sun shines. Can you get your clients to give you a public endorsement while everything is hunky dory? On LinkedIn? On your website? In a letter of recommendation? It’s a lot easier to get that endorsement before the winds blow in a different direction, the cost reductions start, and the layoffs begin. When that happens, everyone thinks about themselves and generosity evaporates.
Remember that there’s nothing wrong about big cash flow--except the fact that it rarely continues forever. So mitigate the risk of the reward. That Big Dog can keep you warm on a cold night. Just make sure there are a few puppies around, too.
Part 1 of 3 in a series on the questions you should ask a VC/PE when you're looking for an investor for your business.
I was fortunate enough to have a fairy tale startup--we bootstrapped, raised $5M, grew to be a market leader, and had a great exit. Since then I’ve played all the other roles around the table in other companies’ stories--some fairy tales, some tragedies--as an angel, VC, seller, acquirer, advisor, and Board member.
What I’ve found is that those seeking capital usually don’t understand the motivations and limitations of those providing capital. When I was running my business, I certainly didn’t.
This lack of understanding makes it harder than it has to be on the entrepreneur. Running your business, figuring out a growth strategy, getting an investor to believe in your story--these things are hard enough. Divining the opaque rationale behind decisions that investors make is the burden I’m trying to alleviate here.
Find a structural fit, not a strategic fit.
Since equity is the most high profile of capital options, in Part 1 of this series I’m going to concentrate on "The First Questions You Should Ask a VC/PE."
These questions are not intended to address strategic fit, such as whether the investor has market knowledge of your industry, or whether the partners are value-add board members. The focus here is finding the right structural fit--whether the investors have the ability and desire to put cash into companies like yours right now.
All things being equal, I always found that structural fit was a higher priority over strategic fit. My company was a great strategic fit for lots of investors, but it wasn’t a structural fit for most. So I got nowhere. In the end, I raised money from a group that was not a strategic fit, but was a terrific structural fit.
Go get the cash.
In the end, strategic fit is neither necessary nor sufficient to raise capital, but structural fit is. So, onto the questions.
Your question: "When did you close your current fund?"
Their answer: "We closed our fund within the last 24 months."
What it means: "We have money burning a hole in our pockets and need to invest in as many businesses as we can right now."
VC/PE firms are General Partners in 10 year "closed-end" legal Limited Partnerships. That means the fund is contractually bound to invest and divest its investments and return money to its Limited Partner ("LP") investors within 10 years of when it is created (investments can and do go longer--frequently---but it’s not the goal).
Firms want to put their money into companies within 3 years so they have time to mature and get to exit, because average hold times are approximately 7 years. If their last fund closed four to five or more years ago, they still have money in their fund, but it’s almost all reserved for their existing investments.
Timing is everything.
All this means that your company could be a perfect strategic fit that the firm loves, but they can’t invest because it’s not a structural fit for the fund due to timing--because they’ve already placed their bets. There are two exceptions to this:
- If the firm has had a lot of big exits in the first few years (this is statistically rare), they’ll be able to recycle the returns into new investments like yours and still have time to exit within the 10-year time frame.
- If your company has a direct and high probability path to exit in a very short time period
Probability-wise, though, your chance for greatest success is to concentrate your efforts on VCs/PEs that are in the honeymoon phase of their latest fund (within 3 years of latest close). They’re ready, willing, and able to invest--indeed, they have to get the cash out as soon as possible because they have a "burning platform" of the 10-year total time window.
A firm’s initial investments define its style.
Your question: "What size is your average total investment?"
Their answer: "We typically invest $2M at first and reserve $4-6M total for each investment."
The answer tells you a lot about the firm’s style--early stage, late stage, growth, buyout, etc. For example, you can have two identical size funds, but a larger initial investment means they are looking for either larger companies or to control positions in smaller companies.
Importantly, this also means they will have fewer investments to get to their target return--that means they want less risk (more mature companies means less chance of an investment going to zero) and have a narrower target return window (they don’t need investments to be a Google-type exit to offset a lot of zeros). This makes sense because when fewer companies fail, the remaining ones don’t have to be intergalactic home runs for them to get the fund to its target returns. (The next section will elucidate why this is important.)
Your relationship with risk should guide your search.
PE firms focused on more mature businesses average a capital loss ratio (how much of their investment capital goes to zero) of about 15 percent, whereas early stage VCs average about 35 percent. That means those PE firms take on much less risk than the typical VC, and that means they are looking for more experienced management, and companies with more revenue and profits, diverse and large customer bases, and a leading market position.
Knowing this is important because the VC/PE firm’s style has to suit who you are and what you want. Let’s say you’ve been slaving away to get your business to $10M in revenue. You see big opportunities but you’re sick of the grind and want some cash now while someone else sweats the pressure of growth and competition.
You need a firm whose strategy will allow a control recap (give you some cash for a majority of your equity) and growth capital (new cash on top of the cash that goes to you) and is comfortable finding new management. This is typically a firm with a larger fund (>$200M) that makes larger first investments (>$5M).
You might find a VC/PE firm that’s a great strategic fit (that knows your product type and market), but if they make smaller investments, they are looking for minority equity in a hungry entrepreneur who wants to lead the company to world domination. Your situation won’t be a structural fit and therefore they would be unlikely to invest.
Understand their funding from their point of view.
Start by asking the following:
Your question: "How big is your current fund?"
Their answer: "Our current fund is $100M."
What it means: "We need to return $300M to our Limited Partners."
VC and PE behavior is driven by aggregated returns to their LPs. A typical target return for a fund is 3x cash-on-cash return and >20% IRR (net of fees) to LPs over 10 to 12 years. With such returns they’ll be a top performer in most years and will be able to raise another fund--which is most professional investors’ ultimate long-term goal.
This return target is a pretty universal rule for all equity investors, whether a $25M or $500M fund, a VC or PE, or early or late stage specialists. An individual firm’s focus may vary--which determines strategic fit--but all firms need to rattle their cups to get money from big pools of money (ie LPs), and managers of those pools are similar in looking for such returns.
Here’s why this matters: Fund size determines everything in a deal that matters to an entrepreneur.
Do the math.
Think of it this way: If I’m a $100M, early stage VC fund, about $20M goes to management fees (10-year fund, 1.5-2 percent management fee per year, plus deal fees, plus dead deal costs, etc), and about $30M goes to zero (average VC capital loss ratio is 35 percent). That means only $50M will actively make returns. On average, about $25M will just return the original investment, leaving $25M of investment bets to make $300M.
A typical such fund averages 15 bets, starting off with a $2M investment per company and reserving an average of $5M (which not every company uses). Based on the average numbers, 5 companies will be a total loss, 5 will return the original investment, and 5 will be responsible for returning the lions share of the $300M.
That means each of those winners must return $50M+ a piece. That’s a 10x multiple of the total $5M investment in each company. We’ve all heard how VCs look for "10 baggers" and this math substantiates why. What entrepreneurs don’t know is that this drives the types of companies the VC/PE can invest in, and the price they can put on those companies (their valuation).
If they love your company, can it still work out? (No.)
Let’s say a VC loves a company--the industry, the product type, the stage, the entrepreneur. It’s a 100 percent strategic fit. They can’t make the investment unless they can structure the deal to potentially get them their target return of $50M+. How do they do this?
First of all, they need to believe the business can eventually sell for enough to make the return. For example, you have a $2M revenue software business, and your plan says it’ll grow in five years to $15M with a $2M profit. Excluding the fairy tale world of Instagram, a good price is 2-4x revenues, so let’s say 3x revenue, or $45M.
That means even if the VC owned 100 percent of your business, they can’t reach their target return of $50M+ (absent an Instagram lotto ticket). So even if a VC loves everything about your company, and objectively growing from $2M to $15M in five years is great, the investment is not a structural fit for the fund because of return potential.
Second, a VC/PE’s ownership percentage needs to support the return target. Let’s say your projections show explosive growth from $2M to $50M revenue and $10M EBITDA in five years. That’s an eventual projected sale price of $150M (at that size, EBITDA multiples are more common, and 15x EBITDA is a generous middle-of-the-road valuation). The VC needs to own one-third of your business at that sale price to get their $50M. If you want $5M, the maximum valuation you’ll get is likely $10M or less.
Here's the take-home: Listen to the math.
Math around what the VC/PE believes will happen at sale--not your plan, your product, or you--is what drives valuation. And valuation is usually the hot button issues for entrepreneurs.
So if you know how fund math contributes to VC/PE investment decisions, you can more efficiently determine whether your company is a structural fit with a particular VC/PE.
These questions should help you ascertain the key characteristics of a VC/PE to see if they’re a structural fit for your company. In Part 2 of this series, I’m going to go over the questions you should ask yourself so that you know if, what type, and what amount of capital is appropriate.
After a poor grade this spring in its San Jose State University partnership, online education start-up Udacity reports new data with better results.
The ever-ballooning field of online education took a big hit this summer when news broke that more than half of the students who took Udacity's online courses at San Jose State University this spring failed the class. The poor results inspired the college to temporarily suspend its partnership with Udacity for the fall semester.
Now, the Palo Alto-based company, which is one of many providers of massively open online courses, or MOOCs, is making a comeback.
Udacity has just released the pass rates from its summer program at San Jose State, and the results are substantially more promising. Pass rates were up across the board, and in some classes, including Elementary Statistics and College Algebra, they even surpassed pass rates for on-campus students. Here's how they stacked up:
- Elementary Statistics: Spring pass rate: 50.5 percent; summer pass rate: 83 percent; on-campus pass rate: 76.3 percent
- College Algebra: Spring pass rate: 25.4 percent; summer pass rate: 72.6 percent; on-campus pass rate: 64.7 percent
- Entry Level Math: Spring pass rate: 23.8 percent; summer pass rate: 29.8 percent; on-campus pass rate: 45.5 percent
- General Psychology (not offered in the Spring): Summer pass rate: 67.3 percent; on-campus pass rate: 83 percent
- Intro to Programming (not offered in the Spring): Summer pass rate: 70.4 percent; on-campus pass rate: 67.6 percent
According to Udacity co-founder and CEO Sebastian Thrun, the company changed a number of pieces of its strategy to improve pass rates this time around. For starters, Udacity re-recorded some of its least successful course videos. The company also changed the pacing of the courses, so students knew ahead of time when they were falling behind, and added more staff to support students online.
Though he's pleased with the results, Thrun recently told me by phone, "We're not perfect yet. There are a lot of improvements we can make, but invention is a process. You have to work really hard, look at data, and improve to get better and better and better."
Another big change this time around is the fact that for the pilot program this spring, Udacity made a concerted effort to recruit students from underserved high schools in California. After all, Thrun says, the purpose of MOOCs is not to replace a college education for people who have access to one, but to expand access to education to people don't. "A lot of people say, 'How does this compare to on campus?' but I think that's the wrong question," Thrun says. "The question is, 'How does it compare to nothing?'"
The summer session, however, which was open to the public, primarily consisted of students who already had some sort of post-secondary degree. This switch does call into question just how well MOOC providers like Udacity are able to serve communities that have little to no access to a college education. In a recent speech on affordability in higher education, President Obama referenced Udacity's upcoming partnership with Georgia Tech University, which, beginning this January, will offer a Master's in Computer Science for $7,000. President Obama listed this as one example of how universities are embracing "innovative new ways to prepare our students for a 21st century economy and maintain a high level of quality without breaking the bank."
While Thrun commends President Obama for encouraging technological innovation in education, he says the San Jose experiment has taught him that MOOC providers like Udacity, Coursera, and edX still have a long way to go before they're a viable substitute for a traditional college degree.
"I believe Obama is really after creative new solutions, and I'm extremely hopeful that we can bring a hardcore education to people who have no access whatsoever, but that doesn't mean we won't fail a lot," Thrun says. "We have to be humble. It's a serious topic. It's not going to be solved overnight. We have to be honest about the fact that we're experimenting, and we haven't solved the problem, but we're making progress."
Engaged employees are productive employees. Here's how to foster a more motivated workforce.
When you're starting a business, every day brings with it some new unexpected twist or turn. However, the moment you add employees into the mix, that challenge increases many times over.
The good news is that there are some simple things you can do to ensure that your people are fully involved in, dedicated to, and enthusiastic about their work. Take these 7 steps and your employees will be as engaged in your business and its success as you are.
1. Create a Partnership
The best way to encourage your people to consistently give their very best on the job is to create a partnership. Treat each employee as a valuable member of your team, and give them the autonomy to make decisions and do their work as they see fit, so long as they meet their performance standards.
2. Involve Your Employees
Involve employees more deeply in your organization by inviting them to join cross-functional teams that draw on the expertise and talent of people from different parts of the organization. Let each team have the authority they need to make decisions on their own -- especially when the decisions directly affect them.
3. Let Your Team in on the Plan
Be as transparent with your people as you can be, in terms of providing information on how the company makes and loses money, letting them in on any strategies you may have and explaining to them their role in the big picture. When your employees understand the overall plan, they will view themselves as an important, vital piece of the puzzle.
4. Provide Feedback on Performance
Regularly set aside time to tell your people what they are doing right and point out any areas for improvement. If performance is not up to par, work with them to develop ideas on how to improve. It’s important that employees feel they are supported by you and the organization, rather than being left behind because of an occasional mistake or bad call.
5. Keep Promises
Never make a promise you can’t keep, and when you do make a promise -- no matter how small it might be -- be sure to follow through with it. Even if you think your employees don’t care about it, you can be sure that they are keeping score. If you aren’t certain that you will be able to follow through on a promise, then don’t make it.
6. Create a Productive Work Environment
A workplace that is trusting, open and fun will be the most productive and successful. Be open to new ideas and suggestions that come from your employees, and show them that their voices are being heard. Regularly set time aside for team-building exercises and meetings, and make them fun so your employees actually look forward to participating rather than looking for reasons to ditch them.
7. Thank Them
A sincere thank-you for a job well done can be a powerful motivator for continued success and is an essential tool for every manager. Thank your employees personally and promptly when you catch them doing something right by writing a quick thank-you email or text message, or by dropping by their office to tell them in person.
Take a walk in your employees’ shoes -- would you be enthusiastic about working for yourself? If not, then give these 7 steps a try.
We asked Inc. readers to confess their worst habits ... and what they're doing to improve.
You need a lot of good habits to successfully build a company. But admit it: you've probably developed a bad habit or two along the way. We asked Inc. readers to spill their worst business behaviors (and how they're trying to correct them).
The biggest problem people confessed to? Trouble staying focused.
"...lack of morning focus! Always scattered. Trying to organize the morning better and seriously prioritize!" -- @rcsolak
"Bad habit: allowing the URGENT (and sometimes the TRIVIAL, such as an email with its hair on fire) to block out the IMPORTANT" -- @KevinLMK
"Taking on too many projects at once...so I set a goal to work on high priority ones for >= 3 Hr per day." -- @BrentBrewington
If those sound like you, there are plenty of tricks for improving your focus. "Project management blackbelt" Tony Wong lays out the 7 things highly productive people do, like cutting out multi-tasking and working in 60- to 90-minute intervals. 14 founders shared their own secrets, including whiteboards, playlists, and walks. And if you're really struggling to focus, you may want to look at your diet: nutritionist Barbara Mendez suggests committing to breakfast, avoiding sugar, and always pairing coffee with food.
Some other bad habits readers mentioned were:
- Working weekends when it's not strictly necessary
- Letting business relationships get personal (instead, work on building extraordinary relationships)
- Forgetting names (try making a vivid association when you meet someone new)
And in the "most ironic" (or honest) category, several people confessed to Tweeting during meetings. On this one, there are two easy fixes. First, cut the multitasking, which studies have found makes you worse at switching among tasks. Then consider shorter, more focused meetings for your company.
Did this list miss any habits you're trying to break? Let us know in the comments or on Twitter or Facebook using the hashtag #BadBusinessHabit.
Choose from among too many options makes people feel paralyzed and unsure of themselves.
Consider what your brand offers and think less, not more. This is true especially when you’re developing new products or services. Fewer choices translate to higher sales. So if you’re hurling myriad selections at customers, blindly hoping that one will fill the bill, your customer may just leave with his or her basket empty.
Research backs me up. Barry Schwartz, a psychology professor and author of The Paradox of Choice, found that when people are confronted with too many options, they’re likely to experience anxiety, regret, and even paralysis.
Sheena Iyengar’s 2000 study at Columbia University, which compared consumer behavior when shopping for jams, found a whopping 30 percent of customers presented with a limited 6-jam selection made a purchase, compared to just 3 percent of those who saw the extensive 24-jam selection. And Daniel McFadden, an economist at the University of California, Berkeley, also found that consumers become disconcerted with an abundance of options. Will they misunderstand the alternatives or even their own tastes if they yield to a whim. And will they regret it later?
The lesson for the marketplace is indispensable. Don’t let your customers worry that they’re making the wrong decision. Make it easy for them.
People Need Hand-Holding
Countless studies show that the more clearly people understand the unique features of a new product, the more likely they are to buy it. CEB’s Managing Directors Patrick Spenner and Karen Freeman said that after surveying 7,000 consumers and experts to understand what made consumers “sticky,” it turns out that “decision simplicity”--the ease with which consumers could gather trustworthy information and confidently weigh their options--was the single biggest driver of purchasing and brand commitment.
Steve Jobs understood the value of simplicity, and made it a hallmark of Apple’s renewed success when he returned when as CEO in 1997. He drastically reduced the number of products the company offered, and made all of them easy to use right out of the box.
According to Jobs’ biographer, Walter Isaacson, Jobs learned the power of simplicity while working the night shift at Atari after dropping out of college. Atari games did not come with a manual and the makers understood that the games had to be “uncomplicated enough that a stoned freshman could figure them out.” For example, its Star Trek gave players only two directions: “1. Insert quarter. 2. Avoid Klingons.”
Simplicity is about subtracting the obvious and adding the meaningful,” says John Maeda, the president of the Rhode Island School of Design and former MIT Media Lab professor in his book, “The Laws of Simplicity.” The takeaway: Pare product choices down to understandable alternatives, and make the differences between those alternatives immediately clear.
Sometimes leadership is quite simple: Avoid these three phrases.
Great leadership is hard. Very occasionally, it's pretty simple-- like just not saying dumb things.
In the spirit of simple leadership, I give you my personal top three dumb things leaders shouldn't say. No doubt your mileage will vary:
1. "Don't bring me any surprises."
I hear it all the time, and so do you (maybe you're even guilty of it yourself)-- a leader is blindsided by some event they couldn't have predicted, and, out of embarrassment, swears they'll never be caught unawares again.
At first they work harder, longer, assimilating data like an apocalypse is on the horizon that only they can avert, but then...bam. Another unexpected shoe drops, another unpredictable event occurs, and our leader is left with egg on their face all over again.
Redoubling their efforts, the leader adds another layer of protection against catastrophe - a mantra they begin doling out to all their direct reports: "Don't bring me any surprises" (or its close cousin "Don't bring me any bad news").
Well, guess what happens when you tell people often enough not to bring you any bad news or surprises? They don't bring you any bad news or surprises. Does that mean that all of a sudden there isn't any bad news items or surprises going around? Of course not.
It just means they're brushing them under the carpet...because, well, because you told them to. (Where did you think they were going to put all the bad news and surprises you told them not to bring to you?) Which in turn means that there is now a time bomb waiting to explode right in your face.
If you're concerned about predictability and consistency, do yourself a favor and don't try to wish away bad news or surprises. Try the opposite. How about telling people "The first whiff you get of bad news or a surprise, bring it right here." That way you do actually stand a chance of controlling things.
2. "If you were an animal, what kind of an animal would you be?"
Or "What body of water would you be?", or "What books influenced you when you were young?" or "What's your favorite color?" --any question, in fact, that you think provides some deep insight into whether or not a potential employee has the 'right stuff'.
It's all meaningless pseudo-psychological mumbo jumbo, and adds precisely zero to a true understanding of a candidate's ability to do the job you're hiring for. If you need to ask one of these pointless, irrelevant questions for your own peace of mind, by all means go ahead. Just don't confuse what's going on with an effective job interview.
3. "Don't take it personally."
Really? You're talking to, let me check...yes, a person, about them, their work, their livelihood, their ideas, their sense of competence, their choices, their discretionary effort, their life's work, and you're telling them not to take it personally?
How about you give every person who works for you a free pass for a week to make whatever comments they like to your face about what you say, do, or suggest, in whatever terms they wish, so long as they preface it with "Don't take this personally...".
If you don't think the act of working with others is in any way 'personal', perhaps you might be better thinking of a career as, I don't know, a beekeeper, perhaps? They really don't take things personally.
Looking for additional tips on leveraging your leadership potential? Download a free chapter from the author's book, "The Synergist: How to Lead Your Team to Predictable Success" which provides a comprehensive model for developing yourself or others as an exceptional, world class leader.
Shazi Visram, CEO and founder of Happy Family, explains how to get through the growth phase--without resorting to private equity.
In May, Shazi Visram sold her organic food company Happy Family to Danone--the only acquirer she had ever been willing to consider. Technically, that wasn't the only option she had. She could have tried to go public, but that would have meant she wouldn't have had a strategic partner. What about private equity? Now that would have been a cop-out, she says.
Here are her tips on getting through the growth phase--without selling your soul to private equity.
1. Find world-class advisers who have done what you want to do. Learn from great examples of how you can do what you want to do your way.
2. Be ready to do more work. It's harder and takes more work to raise money from individuals. But it can be done--many people seek the emotional reward of supporting something socially responsible. So pitch and pitch and pitch. When you get investments, it will be from people who believe in you and your vision and want to be a part of it.
3. Create a phenomenal team you trust. Constantly think about whether your staff can do what you need today and also tomorrow. Match your vision of the future with that of the people on your team. When you have great advisers, great investors, and a great team, you don't need private equity: You have everything.
Don't confuse collaboration with consensus. Here's how to make sure your team is moving forward and not getting stuck.
In today's increasingly complex business world, most work gets done within a matrix of internal teammates and external partners, some of whom report directly to you and other who do not. Gone are the days of traditional functional structures, particularly for businesses with multiple products, services and locations. Today, organizational charts have more dotted lines than Los Angeles freeway. As a result, collaboration is a critical success factor for winning teams. The word says it all: "co-labor," to work together.
A common problem in this area is confusing collaboration with consensus. Consensus is a form of decision-making, whereas collaboration is a way of working together. Business is not a democracy, and everyone does not get to vote on everything. Sliding down the slippery slope of consensus will put the brakes on your business. Morphing collaboration into consensus can start looking like a trial jury--it enables any one person to hit the emergency brake on a decision. As we know, juries are not known for speedy decision-making.
Certainly, there are strategic decisions that you want all team members to buy into before moving forward, but 99% of business decisions within a matrix organization are made with a collaborative process.
To collaborate well, you must clarify four key roles on any team. There are plenty of models and cute acronyms for these roles, but I prefer the clarity of simple language and definitions:
LEAD the team.
This role is the person ultimately responsible for the completion of a project or task, and the one who delegates work. There must be only one lead specified per project or task, and s/he is the one who makes final decisions after considering input from others.
DO the work.
People with this role directly perform the tasks assigned by the lead. Others can be delegated to assist in doing the work. Performers seek input from subject matter experts.
In a consulting role are those whose opinions are sought, typically subject matter experts. There must be two-way communication between the performers and experts about best practices and alternative approaches.
The final role belongs to anyone who is kept up-to-date on progress, often only on completion of milestones. Here, communication is just one way.
Clearly communicate and agree to these roles before you begin any project or initiative. Keep it simple and your effective collaboration will generate fast results!
Download free book chapters from the author's book Stick with It: Mastering the Art of Adherence for more tips on leadership and collaboration.
At least he's thinking like a businessperson and holding colleges quantifiably accountable.
At least President Obama's thinking like a business person. His higher education plan may be a little showboat-y, but it's a start to a discussion that needs to happen.
In the spring, he released a college scorecard, Last week, he announced more proposals to hold colleges accountable by linking financial aid for students to those government ratings. Pending congressional approval, the plan would kick in by 2015.
The higher ed plan is based on the model of the Race to the Top educational plan for public schools, in which states get federal money based on the quality of test scores. Stakes-driven testing is already controversial, but it's one way to tackle education reform. Will it work for colleges? It's a political minefield. Still, it's an entrepreneurial approach to figuring out the disaster of unaffordability when it comes to getting a college education in America today.
The proposal requires colleges to submit data on, for example, debt, tuition, the percentage of low-income students, graduation rates, and graduates' earnings. Those ratings would be compared to peer institutions and would then determine how students get loans, grants, subsidies, etc. (This would kick in by 2018.)
Are government rankings a good idea?
Not a lot of people are happy with the news.
Rep. John Kline (R ) who is the chairman of the House Education and Workforce Committee, is not keen on the idea of government rankings: "I remain concerned that imposing an arbitrary college ranking system could curtail the very innovation we hope to encourage--and even lead to federal price controls."
"Naturally, the President blamed somebody else and demanded more authority over higher education," wrote editors at the Wall Street Journal. "Tying aid to whatever the bureaucrats decide is the right tuition is a back-door form of price controls. Even more disturbing is the idea that a federal political authority will decide which curricula at which institutions represent a good educational value."
"The Federal government should keep its fat fingers off curriculum choice," said Al Lord, the former head of the college lender Sallie Mae.
But something has to be done. "This spring, 9 of 10 families we surveyed said financial aid would be 'very necessary' to afford college--the highest level we've seen since 2007," said Rob Franek author of The Princeton Review’s Best Value Colleges. "In 2009," he added, "the biggest worry students and parents had was 'we won't get in to our first choice college.' Now it's 'the level of debt incurred to pay for the degree.'"
The one faction that has been, interestingly, silent on this issue--in my highly unscientific client poll--is the business community.
Most businesspeople I know, including many who aren't fans of the President, support what he's doing. Why? Because the President is taking a quantitative, accountability-based (and hence business-like) approach to the problem.
The government is higher ed's biggest customer, and it's flexing its muscles.
Most businesspeople have a huge chip on their shoulders when it comes to the university system. I live outside of Philadelphia and am surrounded by some of the best colleges and universities in the country--Penn, Villanova, Swarthmore, Haverford, and Bryn Mawr.
It's a plush life being at college, both for professors and for students. But the burden falls on the students to emerge, often heavily in debt ($26,000 is the average) unless it's their parents who are footing the fat bill, and find a job.
It's not news that the higher education industry operates on another planet. Costs at four-year public colleges have risen 257 percent since 1993. Tenure guarantees your job for life. Students get total independence to party non-stop and sleep through their classes or fail them.
Still, there's a role for the government to play in higher education. The fed spends about $150 billion annually on student aid. That shouldn't change.
I'd take the same tack as the President: I'd use my purchasing power to make things better. He's saying: I (the taxpayer) am your largest customer. I don't think you're all giving me (the taxpayer) the best bang for the buck. So I'm going to spend my (the taxpayer's) money where I get the most value.
"It's exactly what I do with my suppliers," one client told me. "We're constantly evaluating and always making sure we're getting the best value. The ones that give us the best value get more of our business."
Just as in a sustainable business model, it's about value, not costs.
This emphasis on value, not necessarily costs, resonates with business owners. Cost and value are two separate things. We struggle to educate our customers about this. The small retailer may not be as inexpensive as the Walmart down the road, but their level of service is higher. The corner grocery story may be struggling to match prices at the supermarket in the strip mall, but their cuts of beef are worth it.
It's none of our (or the feds') business what professors are paid, whether athletic programs get too much cash, whether a college's infrastructure costs are too high. This plan isn't about how colleges operate. Neither is it any concern of ours how a supplier runs his or her business.
Here's what's true: The President is the steward of taxpayer money. Just like a CEO is the steward of his or her shareholders' money. Each must choose to spend the money he or she has been entrusted with as wisely as possible.
Which is why the proposed "ranking system" emphasizes value. The wrangling starts now and is bound to be contentious. But the ambition is right on: Create a system that compares colleges against their peer groups and weighs various factors, such as job placement, and then folds them into the decision-making process.
Who should run the show?
The colleges themselves? No thank you. Media companies who create their own rankings? Nope. As a business owner, I'd rather see the government take on a role as arbiter. Sure, bureaucrats can screw anything up. But the downside is minimal.
The President has done much, over the past five years, to upset the business community. And he's far from running a pro-business administration. But I'll give him this much: his ideas to make higher education more affordable and valuable sound like something a business owner would also propose. And for that he deserves some extra credit.
"Never take no for an answer" is some of the worst advice about selling that you'll ever get.
Salespeople are often told to never take no for an answer. If you follow that advice, however, you're setting yourself up to sell less rather than more. Here's why.
1. Some people simply aren't going to buy.
"Never take no for an answer" assumes that making the sale is just a matter of asking for the sale in a different way. However, there will always be people who are not going to buy, regardless of what you say or do. These people self-identify themselves by saying "no" early in the engagement.
2. Some people will buy but cost too much to sell.
Some prospects that will eventually buy end up taking so long to decide, and asking you to do so much for them, that it's not worth your time and effort selling to them. Like the prospects who aren't going to buy, these prospects self-identify by saying "no..." early in the engagement but adding a condition that delays the sale.
3. Persistence costs you money.
A good salesperson quickly weeds out poor prospects and focuses on real opportunities that create the maximum revenue with the minimum of overhead. Here's good advice: if first you don't succeed (i.e. you get a big "no"), try, try again... but with a different prospect.
In short, NO means NO. Why fight against reality? Accept the no and move on.
Before you give in to the promise of letting data discover new hire potential, be sure you know exactly what's being promised.
Big data is supposed to solve all kinds of problems. Look deeply enough into the patterns of what you wouldn't normally have time to investigate and you can find insights that will make a critical difference to your company. Or so the theory goes.
As I've said before, big data can be useful... once you've mastered "small data," or the normal high-level information you can use to better direct business. But say yours is one of the companies that has done so. You run an efficient ship. Can big data help you? Maybe, but only if you approach it with some wariness and ask the inconvenient questions when it comes to the assumptions and methods put into play.
For example, Evolv is a software company that tries to analyze big data to improve workplace productivity and performance. One of its conclusions is that "technological aptitude is increasingly important in selection of the hourly workforce." Here is Evolv's director of analytic products Nathan West discussing the concept:
The result is something that is seductive: A simple test could help identify better candidates for jobs. Someone who has downloaded and installed a browser other than the one shipping with his or her computer or device shows a willingness to adopt new technologies. Using the browser factor as an indicator, the company found that employees who scored higher on tests of "willingness to adopt new technology as well as technical proficiency ... actually stayed 17 days longer, missed 15 percent less work, and adhered to schedule much better when they were at work."
Sounds good? Maybe, but here is where you have to ask the tough questions and not drift away on a happy cloud after listening to a company's pitch.
Check the baked-in data assumptions
Where did the data come from? What kind of workers and companies was Evolv able to follow? How well would the types of tasks and workers compare to your operation? Is there any kind of bias in the data selection that might not apply to your company? For example, are all of the sample companies large enterprises rather than startups? You'd have to test to see if the data still applied because the universe of companies is so different.
What assumptions does the analysis make?
Is the test reasonable? It's fine to assume that someone is more technically flexible if they downloaded another browser, but that's an assumption placed atop the data before analysis. All you can tell from someone filling in an online form is the type of browser they have used, not the type of browsers on their computers. What if someone prefers the feel of Internet Explorer to Firefox or Opera? It could be that the choice itself indicates something about inclinations, but that is different from the stated assumption.
How important are the implications?
Having people stay longer and miss less work is a fine goal, but drop this into a bigger context. First, that sounds like an average. What is the variation in the number across different industries and employee bases? In other words, how likely is it that you would see roughly similar results? Second, in the context of how you operate, are the improvements meaningful? Staying an extra 17 days sounds great, but what percentage does that add to the overall average length of employment? Does it matter that much? Do you have employees that get paid sick time? If not, and if you have enough employee coverage, does the time missed from work even matter? It might, but then again, it might not.
What are the hidden downsides?
You've selected for one set of characteristics, but as they say in math, you can't maximize for two variables at the same time. Do the people who install a separate browser fit other parts of your company's culture? Are all quality of work measurements equally strong? They may well be, but if you don't ask, you won't know.
When it comes to big data, be open to using it, but don't do so blindly. Ask tough questions of the data, the analyst, yourself, and your business. If you're going to implement changes based on some analysis, you want to be sure that you'll get what you are expecting, and not an unpleasant surprise.
No one likes to be nagged (or fined) into getting fit. 37signals has found a better way.
We probably don’t need to tell you that keeping fit isn’t just good for your employees’ bodies its also good for your business. Plenty of business owners have rounded up the benefits of a healthy workforce here on Inc.com before, including everything from more energy to lower health insurance premiums and team bonding.
Less obvious than the benefits of a fit workforce is how to convince your team to get healthy. After all, we’ve all experienced how tricky it can be to improve fitness just on an individual level. Motivating a whole team to hit the gym and swap green beans for Ben & Jerry’s is even more difficult.
Some business owners opt for the hands on approach, setting up a specific wellness plan and subsidizing the cost, while others advocate turning fitness into a game to harness your staff’s innate competitive streak. Offering healthy food during office hours is another way to go. But all this nudging and nagging can produce a backlash if employees feel like they’re being pushed to do things they’d rather not, or, in the worst cases, get the clear sense that the whole exercise is simply a way for management to shift health-related costs to them.
At 37signals they take a different approach. Rather than dictate how team members need to get in shape or offer prizes or financial penalties based on their progress, the famously innovative software company instead provides a simple fitness subsidy for staff to spend as they like. Emily Wilder recently explained the system on the company blog:
37signals employees get a monthly fitness allowance to put toward whatever helps us stay in shape.
What makes this benefit awesome (and effective) is that we get to choose how to make the most of it for ourselves -- it’s inspired by the same ethos behind our practice of hiring Managers of One, then leaving people alone and counting on them to do good work. Unlike company wellness programs that include discounted memberships at a particular gym or other specific incentives, the laissez-faire approach trusts employees to decide what works best for them.
While a few of us rarely spend the money or use just part of it, many of us leverage it toward activities that might otherwise by cost-prohibitive: primarily gym memberships, classes and personal trainers.
The post goes on to list the variety of activities team members spend their allowance on, from horseback riding to CrossFit and capoeira. The approach is obviously simple to administer -- just dangle cash and let employees decide whether to take advantage of the offer or leave a perk on the table -- and by the sound of the diverse list of activities it’s also popular. Plus, there’s no risk of a backlash or backsliding once the management sponsored healthy living push winds down.
Looking for other ways to encourage healthy living without annoying your team? Simple changes to the work environment you provide them might help.
Would 37signal’s approach to fitness work at your business?
Living and working with purpose is a process of self-discovery--and one most of us never let ourselves undergo.
"The deepest form of despair is to choose to be another than himself." Soren Kierkegaard
After my last post on How to Know if You're Working (and Living) with Purpose, I had the opportunity to hear from a handful of readers about their fear that the path they've chosen isn't the right one.
We are lured into thinking that the purpose of life equals upward social mobility, establishing a career, accumulating wealth, competing (and winning), and holding power.
Even if we can admit to ourselves that we aren't fulfilled with success' trappings, all too often we cling to our illusions because they're all we know.
Here's what I'd like to propose: Maybe our purpose has nothing to do with what we do for a living. Maybe our purpose is really about living authentically and discovering who we really are.
Most people will never be able comprehend this perspective.
You live from the outside in, not the inside out.
People are taught from a very young age to look to others for guidance. Social norming is an important part of childhood--you figure out how to act in relation to everyone else--but the problem begins when you extend that process to include something as personal as your life purpose.
Some have earned our trust and the ability to help us find our unique purpose. If that's you, consider yourself lucky!
But most people, even the well meaning, opt instead to fit us into a slot that makes more sense for them. To gain their approval, you willingly slide into the slot. To maintain the approval, you learn to chronically deny who you are.
In too many cases, you live the script for someone else's life.
You look for a career before you listen for a calling.
Our society has reduced success to a list of boxes to be checked: graduate from school, partner up, have kids, settle into a well-defined career path, and hang on until retirement checks can be collected.
This well-worn path pushes people in the direction of conformity, not purpose.
We're so busy avoiding self-induced fears of not being [fill in the blank] enough--smart enough, creative enough, pretty enough--that we rarely stop and ask, "Am I happy and fulfilled? And if not, how should I go about changing things?"
Finding your purpose is about listening to an inner calling. In "Let Your Life Speak," Parker Palmer says that we should let our life speak to us, not tell our life what we're going to do with it.
A calling is passionate and compulsive. It starts as an inkling ("I'd like to try that") then swells into a mandate that you just can't shake.
A calling isn't an easy path, which is why most of us never know it. We fear the struggle, the foolishness, the risk, and the unknown.
So we choose a career because it matches the boxes we've been told to check.
You hate silence.
We live in a society that does not value silence. It values action.
But living without silence is dangerous. Without it, you end up believing that your ego--and all that it wants--is your purpose. If you play this scenario out, you know it doesn't end well.
Live a life where Ego is in charge and you're left with burnout--and a burning question--"I have a great life. Why am I not fulfilled?"
Silence muffles the noise and creates a space for authenticity to surface. In silence, you can ask yourself questions about how your life and work are really going and pause to wait for the answer. In silence, you give the data of your life the time to converge into a few lessons.
Typically, though, before the lessons have time to sink in you're off to the next distraction.
You don't like the dark side of yourself.
Carl Jung called it the shadow.
It's the underbelly of your personality that you'd rather others not see. It represents your deficiencies, your failures, and your selfish drives. Most of us flee before anyone has the chance to see this side.
But here's the thing: the part of you that's darkest has the most to teach you about your purpose.
If discovering your purpose is really about self-discovery, your darkness shows you where you most need to grow.
More importantly, it shows you from whom you most need to learn. And it's the people you like least who have the most to teach you about yourself.
But most ignore the dark side. Instead, you seek comfortable relationships that reinforce worn, stale images of yourself.
You devalue the unconscious mind.
In "The Social Animal," David Brooks takes aim at the bias in our culture that "the conscious mind writes the autobiography of our species."
Like Brooks, I believe our culture has a relative disdain for the unconscious mind and all that is represents--emotion, intuition, impulses, and sensitivities.
To discover your purpose, you must get comfortable with the non-logical mind. You must become accustomed to not having the answers. You must tolerate ambiguity and get OK with struggling. You must allow yourself to feel--deeply feel. Thinking your way to a purposeful life will never work.
But this is a tall order for most people. One that they deny, scoff at, ridicule, or downright ignore.
Which is why most of us will live our lives having never known our true purpose.