Employee vs. contractor: Here we go again.

Several years ago, I wrote an extensive article on the ten most important tests of a company in classifying a person as an independent contractor.  See http://berkonomics.com/?p=662 for that important insight.  But things have gotten much more complicated lately, partly because of the Uber, Lyft and other new generation of Employee-vs.-Independent-Contractorworkers and the best description of their class as “semi–independent.”

But now we have to weigh in with the U.S. Department of Labor definitions as well as the Internal Revenue Service, and try to make sense of the mix.  So here goes:

The Department of Labor (in its Fact Sheet #13) lists six classes of test for independent contractors:

  1. The extent to which the work performed is an integral part of the employer’s business. (If high, then employee.)
  2. Whether the worker’s managerial skills affect his or her opportunity for profit or loss. (If high, then employee.)
  3. The relative investments in facilities and equipment by the worker and the employer. (If worker is even remotely high, then independent.)
  4. The worker’s skill an initiative. (If initiative high and unsupervised, then independent.)
  5. The permanency of the worker’s relationship with the employer. (If high, then employee.)
  6. The nature and degree of control by the employer. (If rules are great and control is high, then employee.)

[Email readers, continue here…]  The IRS guidelines cover the same principles, but the IRS combines these into three basic classes to test that relationship and classify the person in question.

  1. Behavioral control: Does the employee have the right to direct or control how the work is performed through instructions, training or other means? (If yes, then employee.)
  2. Financial control: Does the business have the right to direct or control the financial and business aspects of the worker’s job? (If yes, then employee.)
  3. Type of relationship: How does the worker and the business perceive their relationship? (More difficult. If each considers this a contract, there should be documentation, but that would lean toward independent contractor.)

And the IRS has many more tests within this grouping. (See my article referenced at the beginning of this for those.)

The IRS helps a bit by providing form SS–8 which can be submitted to the IRS for a pre–determination of the status of a worker.

This is not a test to be considered lightly.  The penalties for misclassification are onerous, and early stage companies usually cannot afford the risk at the very time when they are most vulnerable.  One more time:  check out the previous article listed above for the ten tests.

And now, think of Uber, Lyft, AirB&B, and all the others that try to teach and enforce consistency, adherence to company rules, management of time, and determination of the quality of the worker’s facility or vehicle or tools.  And try to classify the worker using the above questions.  It becomes very difficult, and certainly leads to conflict, potential lawsuits, and lack of easy resolution.

No–one said that managing a business is easy. This range of issues just makes it even more difficult.  Yet, the risk of betting the farm on a wrong classification of an increasing number of workers is too great to ignore this subject or not to understand its impact upon the business.

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The Power of the glass half empty

Dave’s note:  This week we again welcome my co-author of “Get Scrappy” to give us some of her sage advice in only a way she could express it.  You’ll enjoy her style and message…

By Kim Shepherd

It’s great to get good reviews and hear positive feedback . . . positive is good. But negative is powerful. Don’t get me wrong: the glass is half full. But what’s in that “empty” half? I think it’s filled with clues on how we can make the good even better. The trick is to spot the clues.

Here are some ideas…

Hang in the negative

Not surprisingly, people like to focus on what’s working. But imagine this: at the end of a Glass-half-full-webproject or period, you get back a client satisfaction survey with a score of 100%. Now shake things up. Call the client and say, “We appreciate that feedback, but no one is perfect. Wasn’t there something we could have done better?”

For one thing, you’ve just blown that client’s mind. She’s thinking, “I just gave them a perfect score and they still want to be better? Wow!” But suppose she tells you, “Well, now that I think of it, there were a couple of days during the engagement when I wondered where things stood, but I wasn’t getting updates.”

[Email readers, continue here…]    This is feedback you can use, a guide for making that good thing even better. No, the changes probably won’t be huge. But Olympic athletes like Apollo Ohno take steps to shave .02 seconds of their time –– and sometimes that difference is golden.

Listen to the silence

There’s also power in silence. No, I’m not going all Zen on you. Not long ago, Kathy Marshall, our Director of Recruitment Quality, blogged about this notion. She says the feedback she does get around quality is valuable, but she believes there is “quality gold” in the feedback that isn’t always offered. You have to go and get it.

This applies beyond client satisfaction surveys. For example, people tend to ignore introverts on their teams. But you need both introverts and extroverts. You don’t usually have to ask extroverts for their opinion –– in fact, sometimes the challenge is getting them to be quiet for two seconds.

But the introvert in a meeting may be quietly looking at the issue from multiple viewpoints or playing out different scenarios in his head. If you’re leading the meeting, make a point of asking the quiet ones to share. Or find some time alone and ask their thoughts.

Think inside the box

A lot of people rush to think outside the box. It’s sexy. But thinking outside before thinking inside is like trying to sell someone a drill when all they really need is a hole. Great innovators first look inside the box so they’re really clear on what’s there. THEN they turn outside.

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Leadership: Sell the dream; Make the reality.

As a leader, you set the goals, establish the strategies and tactics to get there (with help from others of course) and sell the dream to all of your stakeholders.  And that includes potential customers as well as executives and employees.

Sometimes growth happens without a leader envisioning it, living it daily, evangelizing it to anyone who will listen.  But not often.  More often, you (the leader) set the goal and

Leading 3d Characters Showing Command And Leadership

push for achievement – hopefully establishing a realistic set of strategies and accurate metrics to measure progress along a timeline.

I recently sat in on a roundtable meeting in which the executive of a company stated his goal as “educate the world.”  To be fair, he followed a bit later with a goal of thirty million dollars in revenue in five years, which got my attention.  The first statement was a mantra, a vision, a rallying cry.  But when he did state a monetary goal, he started a real conversation about how he will achieve it and with what resources, and which of several focused revenue models.

[Email readers, continue here…]  Note that “Educate the world” elicited little response until the group saw the financial goal.  Your executives, board and others will surely do the same.

You will have sold the dream – one that is tangible and actionable.  So that is the challenge you won’t be able to avoid.  With that number out there, you will be held accountable by your board (and hopefully yourself) to make this happen in the time period stated.

So is this different from the vision thing?  For sure. Leaders lead. Managers execute the plan.  You will have just set in motion a whole series of events which might never have begun without your establishing, then selling your dream that you set in a tangible form.

Make that your new reality.

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The power of THREE – Solving critical issues

Kids Wooden Number Block As Symbol For Numeracy Or Counting

Here’s a formula for success…

Let’s say you have been told by your board, by your chairman, CEO, or direct leader to solve three problems you identify and report back within a month showing progress – or that you have solved these three.

First, you’d worry that this is an artificial way to focus management.  Why three? Why now? After a short moment, you’d turn into action mode, perhaps calling in senior staff for a brainstorming session.

So you identify the three most critical issues, perhaps with the help of the group. What next?  Here comes the important part.

Define success: Think of what an ideal outcome would look like and find metrics to measure progress along the route.

Create milestones: Make them public, easy to identify when reached, and follow progress toward each, again publicly posting the progress and achievement.

Simplify the process:  Reexamine the definition and milestones.  Find ways to make each step clear and simple enough for all to understand and follow.  Err on the side of oversimplification.  Remember that this exercise has a time limit for completion.

[Email readers, continue here…]       Set expectations for each participant, clearly listing the expected outcome for each person and department, asking them to define the steps they will make toward completion and how they will measure each.

Measure the outcomes.  Was the intent to remove a barrier?  Increase marketing effectiveness? Increase sales closing rate?  Reduce manufacturing or shipping errors?  Speed the processes?  Measure how each of the three resulted in a gain, and publicly report the outcome.

Finally, celebrate the wins with the whole team.  Never forget to celebrate, compliment, reward.   Just three critical issues that will have led to three positive outcomes.  Now that would be a good month for any of us.  Why not try it now?

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How do you measure your effectiveness as a leader?

There are many roads to Rio, so they say.  But there is one overwhelming method of appraising the effectiveness of a business leader.


We can invent lots of metrics to measure progress for a leader, including revenue, profit, employee satisfaction, cost containment, percentage of available market, and more.  But managementofpainthese are all individual roads to Rio – which is the stated goal for the organization.

For many early stage companies with outside investors, the goal is to ultimately sell the company or even go public, always at a significant increase in valuation over time.  For larger or later stage companies, it could be to increase market share through acquisitions with the attendant elimination of competition or increase in a company’s reach.

[Email readers, continue here…] I prefer a financial goal, such as “achieve $20 million in revenue within five years.”  That requires real thought and strategies.

More importantly, what if you as a leader haven’t a stated goal for your enterprise?  How do you begin to measure your effectiveness if you lead without corporate purpose?

So if you find yourself unable to answer the headline question, it is time to regroup with your senior leaders, board members and investors – and look for consensus upon a goal.  With that in hand, short term or long term, you should then be able to plot a course of strategies and tactics for you, each of your direct reports, and the entity as a whole to focus resources upon and to progress through the steps to achieve that goal.

Yes, if you are a bad leader of people, you will lose human resources and frustrate your attempt to reach to goal.  And if you rough ride through your human resources just to achieve the goal and somehow achieve just that, does that achievement make you a good or great leader?   Perhaps your investors would think ‘yes’ while your entire staff would be in the opposite camp.

So, outcome measurement is a more nuanced art – involving goal achievement for the entity while being sensitive to and an enabling resource in the achievement of goals for your human resources as well.  And that’s not as easy as “simply” selling the company or achieving a financial goal over time.

So, how would you measure your effectiveness as a leader?

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The seven attributes of a highly successful start–up CEO

Dave’s note:  This week we welcome guest author, David Friedman, to tell us about his favorite startup CEO, and his take after interviewing her – asking for her list of attributes for startup success.  

By David Friedman

I met Kirsten Mangers several years ago after she successfully sold her startup, Webvisible.   Kirsten is the founder of ChickLabs, an incubator that focuses on helping primarily women entrepreneurs.  She is also the CEO of Immunogum, a start–up in Newport Beach, California.

Here are Kirsten’s Magnificent Seven attributes and roles for an entrepreneurial CEO:

Chief sales person. Selling is required whether it is for sales of the company’s products or selling the business idea to investors. Pure and simple, it is the number one attribute.  If a CEO cannot get comfortable selling, then he/she needs to find a strong complement or a replacement CEO.

Group of friendly businesspeople in suits standing head to head

Seven attributes of a highly successful start-up CEO

Culture Maven. The culture of a company attracts and retains great people.   Think about the culture of Google or Apple and you get somewhat different impressions.   But culture will help you succeed and be one of the differentiators to also–rans.

[Email readers, continue here…]  Chief Strategist. As Louis Carroll said in Alice and Wonderland: “if you don’t know where you are going, any road will take you there.”  CEOs need to set the direction and if necessary make the decisions to pivot the company.  Early startups will go through false starts and pivoting will be essential.

Teacher, tutor, and mentor. Kirsten claimed to be a whiteboard fanatic.  Where there is a whiteboard, she could share ideas and interact with the staff on a regular basis and even get others to critique, comment, and debate those ideas.   This goes along with the concept that the CEO needs to be a visible leader and wander about with the team.

You have to challenge yourself and others – even with ideas that seem outrageous.   Why?  You stay fresh and there may be a kernel of insight into the new idea or someone else may see another path to success buried in that idea. Someone may say: that’s crazy, but what if we did this?  Challenging prevailing wisdom and valuing the diversity of thought among people is critical to engage your team.

Chief Reporter and Scribe. This is the issue of transparency.   The CEO of a start–up needs to create an environment where everyone on the team feels that they understand and can contribute to the business’s success.   With normally smallish teams and fewer people, such discussions keep the team engaged and motivated.  I have personally witnessed employees banding together to find solutions to seemingly unsolvable problems.

Chief Recruiter. To be successful, a strong team needs to be assembled and nurtured.  As Kirsten said, it all starts with people – and finding the best people is the biggest challenge.  When she interviews someone, she has asked some interesting questions to probe the character, drive, and attitudes of the recruit.   One question I like is: “If you were on a three–hour flight and could sit next to one person, who would that person be and why?”   From this answer you can determine motivation and quest for learning, both of which are critical in a start–up

I believe that these sage words of wisdom from Kirsten will help an aspiring entrepreneur be successful and potentially be as successful as Kirsten.  It can’t hurt for more seasoned managers either

Posted in Growth!, Surrounding yourself with talent | 1 Comment

What you can’t ask in an employee interview

Dave’s note:  This week, let’s welcome an expert in employment background checks, Chris Dyer, CEO of PeopleG2, to help us explore one dicey subject that gets lots of entrepreneurs and managers into trouble by being completely unaware of what they cannot ask a candidate in an employment interview.  Here’s Chris…

By Chris Dyer

Here’s a real warning to employers and managers.

A list of problematic interview questions would stretch to circle the globe at least once, if not twice.  So how do we know what questions can be asked?

Let’s break this down into two examples using Bob and John.  They are both entrepreneurs leading their “up and coming” technology firm.  As the final portion of the hiring process, each of them chooses to interview the candidate personally.  Each head of

Interview and key concept

“A list of problematic interview questions would stretch to circle the globe…”

the company will interview the same candidate, a woman named Sally – 45–years–old, married, with two children.  She is a United States citizen, but was born in Spain when her mother was stationed in the U.S. Army.

Bob begins to ask questions about past experiences, past jobs, and then turns to some personal topics.  “When did you graduate from college?”  “Were you born in the United States?”  “How many children do you have?”  “Are you married?”  In a separate interview, John asked many of the same questions.  However, Bob’s motivation for asking his personal questions was because he wants to hire younger, energetic, and enthusiastic employees. He believes they will work harder, for longer hours, and for less money.  Bob believes immigrants are lazy.  He is certain that a mother will not focus on her career, missing work to care for her sick child or to attend a parent–teacher conference.

[Email readers, continue here…]  John asked the same questions, but for very different reasons.  He knew someone who attended Sally’s university and wondered if the two knew each other.   Based on the military family background, John innocently asked about Sally’s birthplace simply out of curiosity.   He also asked about her family and marriage, as the company believes in work/life balance, and celebrates its family–friendly environment.  John wanted to know all about Sally to see if she would be a good fit within his corporate structure.

We can probably agree that Bob is a jerk, and John is a nice guy.   Nevertheless, both interviewers asked the same questions.  Does intent matter?  Believe it or not, the answer is no.  They may both have broken the law.  Especially if Sally answered their questions.

Federal and state governments have what is called “Protected Classes.”  At the federal level, examples include protections around race, color, religion, national origin, age (over 40), sex, pregnancy, citizenship, and veteran status.  At the state level, additional protections can include genetic information, sexual orientation, AIDS/HIV, medical conditions, political activities or affiliations, and many more.

Which classes apply to your company and the applicant are surely questions for a qualified attorney.  And understanding what the federal and state restrictions are that apply to your hiring situation can be the best defense you have.  If you know the protected areas, you can avoid asking questions like those listed above.

It will also help you understand other complex situations.  For example, assume Sally’s religious beliefs include that she cannot work on Sundays.  If the job does not specifically require her to work on Sundays, then questions around this topic would be inappropriate.  But, if you were hiring her to manage a team that works with the NFL, and everyone needed to work on Sunday, a careful conversation could occur.  “Can you work on Sundays because the job specifically requires this?” could be appropriate.

From hiring my first employee to the present, I have conducted over 5,000 interviews.  I have found that understanding the protected class restrictions is the best way to navigate the complicated process of asking legal questions, while still understanding the applicant and the candidate’s fit with the company.

So here’s my two cents worth to save lots more over time: develop a good list of questions, ask others in your company to give you feedback, and consider consulting with an employment attorney.  Review carefully what you can’t ask in an employee interview.

Posted in Depending upon others, Protecting the business | 1 Comment

How can I trust that my virtual employees are working?

Dave’s note: For the second week, we welcome my co-author of “Get Scrappy,” Kim Shepherd, to give us her answer to the oft-repeated question:  “How can I trust that my virtual employees are working?”  You’ll recall that Kim is an expert here, managing her company of over one hundred employees around the world literally from a post office box – with every one of them, including herself, working from home in a virtual environment. Now that’s special. Here’s Kim…

By Kim Shepherd

  1. Hire passionate, entrepreneurial and highly professional people, and then step aside.

At our virtual company, the employees set the bar high on their own. Of course we have expectations and KPIs, but any slackers would soon find themselves very uncomfortable surrounded by results–oriented team.

But you can get a little piece of mind through “virtual time cards.” All our remote

beautiful young woman relax and work on laptop computer while working on laptop computer and read book at home

Virtual employees can be more productive.  It takes trusting management, good metrics, and entrepreneurial employees.

employees, for example, log their hours, and their calls are logged automatically. We can see if they’re working at 6 AM or 11 PM, and we can see chunks of time OFF in the middle of the day. But we don’t have to micromanage them. The work is getting done because they manage themselves better than a boss ever could.

  1. My employees will lose control of their time and resources.

The first thing you have to do is pull “personal empowerment” off that poster on the wall and embrace it as real. Really real. Let your employees manage their own time –– but provide tools and resources. At our firm, most of our people can work any hours they want, as long as the work gets done. We’ve made a number of time management and project tracking tools available via our CRM system.

  1. Without direct supervision, performance will suffer.

[Email readers, continue here…]  On the contrary, we monitor performance better now that we’re virtual. We have to. Clearly define KPIs and expectations, create systems to track them, and then take it up a notch: reward the strong performers.

One more thing: supervisors need first–hand experience of working virtually in order to support, motivate and coach their teams. Send the supervisors home too.

  1. I won’t be able to retain top talent.

At our virtual company, we retain almost 100% of the people we want, and we do it almost 100% virtually. We do have an annual face–to–face All Staff meeting, and team members who live near one another get together when they can. But technology makes the miles disappear. Take webinar tools: you can be face–to–face and virtual at the same time. And anything that can be in a handbook can be online.

  1. There’s no teamwork or collaboration in a virtual workforce.

Are you kidding? We do more now than when we were sticks–and–bricks. We hold weekly “dodgeball” training sessions where team members toss questions at the trainers. We’ll hold tiger team sessions to tame a particularly toothy problem. We’ve set up a “loops” system, like chat rooms for specific topics. They let us build on one another’s ideas and keep stakeholders in the . . . well, you know.

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Leaping off the cliff: Making your business virtual

Dave’s note:  I am so pleased this week to introduce my co-author of “Get Scrappy,” Kim Shepherd, CEO of Decision Toolbox.  Her firm is a model of a virtual company, with over 100 employees and absolutely no office other than a post office box.  Wow!  You’ll enjoy her style and resonate with her message.  Here’s Kim…

By Kim Shepherd

At my CEO roundtables, all too often I listen to leaders who are perfectly positioned to transform their company into a virtual one to great financial gain, but who are afraid to take the first step. These same CEOs sit in their corner offices and email the COO in the next–door office and call their VP of Sales rather than walking down the hall. What they don’t realize is that this is virtual work, and the only hurdle that needs to be overcome is ego. Ego prevents leaders from accepting that the company can function without its leaders—especially it’s CEO—as a physical presence.

In 2000, I joined the company as president, and he and I led the company on a rapid Leaping_off_cliffgrowth clip. In just over eighteen months, we were on track to double in size. Then along came September 11th. Overnight, just about every company went into a hiring freeze and massive layoffs dominated the news. Not a good time to be in the recruitment business. About 65 percent of our competitors went out of business during this time; it was our industry’s version of the Great Depression.

[Email readers, continue here…]  We brainstormed with a consultant and each other.  One idea kept rising to the top of our list: abandoning our Class A office space which had been designed and decorated with great love. It was much more than an office.  At the time, it seemed like the very heart of our firm – and to close it down would mean the end of our company—and our dream. Fortunately, our financial consultant was on hand to coldly point out that, actually, staying in the office space would mean the end of the company.

So we moved out.

The flexible work environment at our virtual company goes beyond work–from–home options.  The entire company is virtual and all of its team members work from home offices. Sophisticated, proprietary technology coupled with technologies such as VoIP phones, IM, and social networking tools keep the team linked together, while a progressive, results–focused management style keeps performance and productivity at a Get Scrappy front coverhigh level. The company has team members throughout our home state and now even the world, with three of our members working from as far as 7,500 miles away.

The glue that holds the company together is technology and our unconventional culture. Our experience hitting rock bottom helped us to open our eyes (and keep them open) to new ideas, no matter how outrageous or impossible they might seem.

Getting into a suit, commuting hours to work, spending time at the water cooler, “earning” two weeks of vacation time each year, requesting time off to tend to a sick child—technology has antiquated all of these conventional ideas.

Your leap into the virtual world doesn’t have to be dramatic; simply start with using it just one day a week, and monitor not only the productivity but the health of your culture.

(You can find the book at booksellers or by clicking here.

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Above all, consider the corporate gate keeper.

Looking for an entrance into a VC, an angel group, a bank, a CxO for a sales opportunity, or any other entity?  There are always gate keepers whose job it is to filter out the inconsequential or inappropriate, and allow through those with most promise.  That said, gate keepers can and do block some great opportunities before the decision maker even has a chance to use his or her expertise to evaluate.

So how do you reconcile this?  Getting beyond the gate keeper and finding your way directly to the decision maker(s)?  Every sales person with a bit of street history will resonate with this question.

One answer is to find someone with a relationship to either the gatekeeper of the

goalkeeper soccer player people on football stadium grass field

Gate keepers are like goal keepers: rewarded for keeping the other player out of the goal…

decision–maker.  LinkedIn might be good as a start, but beware.  Few of your contacts will be willing to use their valuable social or political capital helping you with a sales effort, and you will definitely strain your relationship with the intermediary if not a close friend.

[Email readers, continue here…] Using your attorney or accountant to find who is close to the decision maker sometimes works. After all, you have a paying relationship with these resources, and asking for help is not considered a daunting request.  Do you have any contacts or friends within the target company?   An inside name is an excellent ice–breaking opportunity.

Are you working with or selling to a particularly important competitor to your target customer?  Dropping that name will often immediately draw a response if the decision maker is curious or particularly competitive. Just remember, selling can be a strip–tease in which you reveal very little in the name of confidentiality, making it appear to be valuable comparative information.  Let me reinforce this:  never reveal competitive information to gain access or advantage.  It is unethical and your target will immediately worry whether you might do the same someday.

Another way to approach the gate keeper directly is with a strategic idea or extremely profitable suggestion that he or she can make their own, and enhance their standing within the company.  You must be willing to offer this freely, obviously ultimately connected to your product or service for implementation, but never claimed by you to be your idea.

One of my companies is in just such a position as I write this, able to offer an idea that is worth many millions and saving massive headaches, but having to make the idea owned by the gate keeper.  It takes careful presentation, lack of ego, and a real focus on the implementation tactics to make this work.  But what power.   So, after all, do consider the gate keeper as a potential partner whose “commission” on the sale is social and political approval from above.  Or, if you can pull it off without alienation, don’t take the time to consider the gate keeper at all.

Posted in Growth!, Positioning | 2 Comments