BERKONOMICS – Business insights from Dave Berkus

Surrounding yourself with talent

Stealing time

by on Oct.23, 2014, under Depending upon others, Surrounding yourself with talent

It’s a big issue within any company.  With easy access to Internet shopping, games, social networks and more, employees are able to find many ways to focus on personal issues while at work, detracting from productivity and demonstrating a dis-respect for the time paid for by their employer.  In fact, if we were to be direct, we might label it “stealing time,” and consider it a crime of sorts.

Based upon the actual “loaded” cost of an employee per hour, that is certainly not an insignificant cost for the employer.  Certainly it amounts to many times the cost of stealing something tangible, such as a ream of paper from the supplies cabinet.  Yet, many of us treat the latter much more severely than the former.

Managing_force[Email readers, continue here...]  Let’s consider counter arguments.  Attracting great employees often requires us to offer special incentives, including flexible hours, unsupervised time off, and access to perks
such as free food and soft drinks.  Often, employees just expect some degree of freedom when they work, to be able to quickly shop or communicate with friends in the middle of their day.  In times past, older generations were perhaps more discrete when making personal phone calls (how ancient this sounds).  But they often did so anyway, and often spending more time and more company money in phone bills than today’s typical employee distraction.

How about the counter to the counter argument?  There is no way to sugar-coat the fact that paid time is for work, not for outside play.  The cost may seem small until someone calculates the combined cost over a year of time and screams “thief!”

As in all two-sided arguments, there usually is a middle ground. The boss who requires complete adherence to the work-every-minute ethic called for in the employee handbook generates ill will when enforcing the rule.  But the manager, who openly ignores the behavior, encourages more of it from employees who will fall in to follow the example they see openly acknowledged.

My solution is to acknowledge the fact of life, equate it to personal time once used for personal calls, and define a ‘limits of acceptability’ publicly.  “We recognize how difficult and intense your work is.   We think it prudent for you to take breaks as often as every hour if you need them.  We expect your breaks to be self-policed and no longer than ten minutes, to be used for all personal issues including personal use of your workstation.  Remember not to stray out of bounds of corporate decency and confidentiality, and be safe in protecting corporate security.”

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Some great coaches are younger than you are.

by on Oct.16, 2014, under Depending upon others, Surrounding yourself with talent

Especially for social media-based businesses, we all need to recalibrate our thinking about who is the teacher and who is the student.  There is nothing wrong with a manager slowing a conversation to ask for more background when speaking to an often-younger and more involved associate.  You know what I mean… The conversation goes something like this: “We found it on x site and using y app with z as our data object.”

GameSpy LA Times colorFirst, managers could not be paid enough or have enough time to stay entirely current with all of the details each employee or associate deals with daily.  Yet, many times that other person tries to explain an important finding or breakthrough, or make a significant comparison, using names of destination sites or apps or tools we have never used or heard of.

Yes, age often has something to do with it.  And occasionally, a manager has to work to join the club by trying new things, learning new tasks and using new language to relate to those already in the know.

[Email readers, continue here...]  I recall vividly one such experience.  I helped to found an Internet game company, playing the role of founding investor, chairman and even temporary CFO.  The company was destined to grow into a large, very valuable enterprise that we sold for many, many times our investment.  But that first day with the new employees was a test for
me.  Many years older than any of them, their initiation was to insist that I spend no less than forty-five minutes playing for the first time first person shooter games against Internet-based foes.  I had to acknowledge the difficulty of achieving high degrees of skill, and the size and terminology of the extended gamer community.  But most of all, I had to gain acceptance as “one of us” in an environment where my CEO coaching and my money did not count.

That was a lesson for me.  Taking the time to be taught by those able to master a skill or have extra knowledge is an important step to show respect for everyone at all levels in an organization.  And that respect flows in both directions, worth so much more than the time it takes to learn a skill or terminology or meaning.

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Two very powerful words: Great job!

by on Oct.09, 2014, under Depending upon others, Surrounding yourself with talent

The best managers we all know are the ones who take the time to praise good work in public, before an employee’s peers.  Most of us have a monthly award for the top person in a group of employees. And if we are big enough to formalize the process in a regular meeting, we make it a regular part of that meeting.

If you haven’t already discovered this fact, such a process quickly becomes routine and predicable.  Small companies have trouble finding new people to honor after a while.  Some employees even disingenuously consider the process an exercise in pandering, discounting the effectiveness of the award, and disenchanting those very managers who thought they were reaching out to do a good thing.
2014-0329_OxyTEDx-0276For all of us, we should remember that the best possible way to honor great work is to do so immediately.  A “Great job!” coming at the right moment from the boss is valued as an honest recognition of good work, especially if done in front of an employee’s peers.

[Email readers, continue here...]  At times, it is an entire team that deserves the recognition, again immediately after doing a great job.  I found a formula that worked for me where most of the employees were in several buildings on the same campus.  First arranging for my assistant to obtain the appropriate amount of hundred dollar bills from the bank, and then to follow me around checking off names, I had my own personal holiday celebrating each individual in the team with a handshake, words of thanks, and a C-note.  With lots of laughter and thanks, the celebration and words “Great Job” made for a completely memorable event.  And those pop-up thank you visits from the boss certainly contributed to the culture of the company.  Word does travel.

Remember to reward those not present at the moment, and remember that the amount should be grossed up to take care of taxes and be entered onto the payrolls of the employees so rewarded.

I’m sure you have your own way to making “Good job!” work for you and your team.

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“Over-welcome” your new employees.

by on Oct.02, 2014, under Surrounding yourself with talent

A CEO friend of mine who manages her one hundred person remote workforce as a virtual company told me her story of how she welcomes new employees as she grows her firm. Strike that. She over-welcomes her new employees.

Days before the official start date, she makes sure that the new employee’s business cards arrive in the mail, that the employee’s phone and Internet services are up and running, and that an email account is already established. But many of us do that, maybe not so timely.

Managing_forceThen she topped her explanation with: “A few days before the start, a package arrives from us at the employee’s home with a welcome letter, a copy of the CEOs book, and a giant fortune cookie, with the fortune cookie message streamer clearly visible.”

[Email readers, continue here...]  “You will be successful at our company!” the fortune states.

What a great touch – especially for someone expected to be self-motivated enough to work long hours from home, to get to know fellow employees through Skype and texting, and to be productive immediately when hitting the ground.

It started me thinking. How many days or weeks or even months do we expect a new employee to take in becoming acclimated to our company and its culture, to the marketplace, and to our ways of doing business? For example, most of us expect a salesperson to be truly productive only after about six months of building a territory or client base. But isn’t there a better way to approach this expensive process of acclimation?

For a salesperson, how about paying an override commission to another sales person for a short period to help find and close new business? Or how about helping the employee gain confidence by handing the first several accounts to the new person ready to close? How about assigning a big brother or sister to each new employee to show them the culture and process? How about teaching a class in corporate culture yourself to one or more new employees? Some of us have done one or more of these things. But what could we have done better to launch a new employee successfully?

Maybe we should start with a surprise fortune cookie with a personal welcome message.

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Don’t be defensive, but defend.

by on Jul.17, 2014, under Raising money, Surrounding yourself with talent

When meeting with investors, during the period devoted to feedback after your presentation, you will hear comments and recommendations that don’t resonate with you. Some will be from a misunderstanding of your explanation. Some listeners will challenge your assumptions. Some will seem to ask just plain show-off questions, in which the questioner wants you and others in the room to know that s/he knows more than you do.

You are in a vulnerable position in that room, the salesperson looking for money before individuals who have nothing to lose but risky profits far in the future. You cannot appear to be standoffish, or above responding to some of these inappropriate questions.

Berkonomics books available at www.berkus.com

Berkonomics books available at www.berkus.com

Defend your position when appropriate. But listen carefully.   Although you may be completely right, the questioner’s comment may indicate that you are not getting your points across. That’s just as valuable for feedback as hearing a good, new idea.

[Email readers, continue here...] Sometimes, you will have an opportunity to present to several levels of an investor organization, from first prescreening, to a screening session with many present, to the final meeting of the members or partners. Plan to incorporate the appropriate responses to earlier questions in the presentation to avoid those being repeated. Show that you are both humble and adaptable.

Investment groups including venture capital fund managers will tell you that the very process of defending your plan will help you better think through the rough spots, better launch the business with fewer holes in reasoning, and better connect with resources that can be used to accelerate your growth to breakeven and beyond. The process is always time-consuming and grueling. But approached correctly, the time is well spent and the results almost always positive, even if money doesn’t come from the present effort.

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Find your champion.

by on Jun.19, 2014, under Depending upon others, Raising money, Surrounding yourself with talent

If you seek funds from an organized investment group such as an angel fund, venture capital entity, or even an investment club, the first thing you want to do is to find one person to buy into your vision, become excited by your enthusiasm and be willing to become the internal champion for your fund-raising effort.

In some groups, if you cannot find such a person, you cannot even find the way to apply for funding, as some groups make it imperative that any introductions come from the inside, from a member or partner.   In others, if you cannot find such a champion after initial presentations to a subset of the entire group, you will not be permitted to move from initial application to the next stages of due diligence and final funding.

And in all cases, simply sending in an executive summary of the business plan via email or filling in an application for funding on a website lowers the chance of success to near nil. If you cannot find someone on the inside, network with accountants, attorneys and bankers to find a name of an influential member or partner.

2014-0329_OxyTEDx-0276  [Email readers, continue here...]  You may have the most impressive plan in the world, but these organizations see tens of these each week, and often cannot be expected to understand the vision and potential of any at first glance at a document.   I receive three hundred unsolicited executive summaries a year, and my investment group, Tech Coast Angeles, sees over one thousand. Together we fund, maybe, twenty-five of these. Although much more than half are disqualified because of geographical location, industry, or amount of money needed, that still is a small percentage of funding to applications.

Banks and lenders often are the same way. Although anyone can walk into a bank and apply for a loan, those who are recommended by a trusted source are treated much more personally and have a greater chance of success.

Spend time finding your champion. Create time to network with members of these groups at their public events. Seek out names from your trusted sources.

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The Rule of Thirds

by on Jun.12, 2014, under Ignition! Starting up, Raising money, Surrounding yourself with talent

It is rare when one person starts a company, supplies all the funding, and shares no management tasks or equity with others, and still grows the company to any significant size, worthy of a multi-million dollar opportunity to cash out at exit.

We should think of the creation and growth of a high valued company as the sum of three parts, with three distinct classes of participants helping to make real value out of a raw start-up.

First, there is the entrepreneur, the visionary, and force behind the venture from start to finish. The reward for the entrepreneur, after years of effort, time and sacrifice, is measured by EA-9817what portion of the total pie s/he retains at exit, how much the person continues to participate through that time, and how many other resources are brought in to get to that point. Most importantly, the reward is measured by how much added value the total process creates over time. It is the old story of “100% of nothing is worth far less than 10% of a large number.”

[Email readers, continue here...] Few entrepreneurs can do it alone, with subordinate hired help and no expert management to share the burdens, skill sets and efforts involved in growing the enterprise. So co-management is the second group to share in the bounty upon a liquidity event. Often, if not co-founders, this group is rewarded through issuance of stock options from a pool of available options that usually totals 15-20% of the total company’s equity divided among all employees. Those who receive options but leave the company before a liquidity event may either purchase those shares represented by the options upon exit from the company, or lose the right to those shares, often 60 days after their exit.

The third group is made of the total number and types of investors, other than the founder(s). From friends and family early on, to angels that are not related to the founder(s), to venture capitalists for larger opportunities, these investors have risked their money in the venture for only one reason – to eventually profit from a liquidity event.

It is normal for the first round of organized angels to expect to purchase between twenty and thirty-five percent of the company with their investment. Second rounds, if needed, often drive the founder(s) into a minority position, unless the company has grown significantly by that time and can command a higher pre-money valuation, giving less stock for the same amount of investment. Investments in small companies involve a much greater degree of risk than investment in public companies, which provide immediate liquidity if needed and a ready measure of value at any time. That risk deserves reward if there is a profitable sale or even an initial public offering, rare as that event is.

So remember that there are three slices to the pie to consider when creating your company and again when considering a sale or liquidity event. All three deserve recognition for the risk, time and effort in driving the company to its ultimate value.

Think of it as the rule of the thirds.

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Accelerators: a recent and positive trend

by on Apr.24, 2014, under Growth!, Raising money, Surrounding yourself with talent

Often I see executive summaries from entrepreneurs who have never managed any form of business, or even managed employees in their past life, and who don’t know the first thing about business formation and managing for growth.  I used to tell them to find a partner with knowledge in business creation and management.  Although that is still a good idea in many cases, there is a recent alternative available to some entrepreneurs on a competitive basis that seems most attractive and positive.

Accelerators are organizations that selectively accept entrepreneurs into a program of intense coaching in a physical environment sponsored by the accelerator that also provides seed funds for the startup to begin its business.

[Email readers, continue here...]  Accelerators are popping up in college towns, urban cities and near existing technology hubs.  Some have become well known in the entrepreneurial community as benchmark operations for others to emulate, including  TechStars and Y-Combinator. Others have a more local flavor, catering to single audiences, such as students or 2014-0329_OxyTEDx-0276graduates of a nearby university.

Another term, incubator, is increasingly being used to define real estate operations run by universities or private groups in which the principal added value is the reduced price or free rent and access to resources from the incubator’s sponsor.  Accelerators, on the other hand, put entrepreneurs through a three week to three month intensive program closely monitored by accelerator management and volunteers, teaching, coaching, aiding and building the fledgling business to make it ready for its next round of financing upon graduation.

And graduation is typically marked by an organized “demo day” in which prominent investors, VCs, angels and super angels are invited to attend and see demonstrations and hear presentations from graduating entrepreneurs.  There are many stories of funding deals made on demo day amid the excitement of seeing new, polished startups with great ideas and the beginnings of an infrastructure.

Are you a candidate for an accelerator?  You’ll give up some small amount of equity to the accelerator, receive some amount of cash in return during the program, and learn more in a short time than you’d expect from more formal education programs.

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Ready, aim, fire. Really?

by on Jan.30, 2014, under Ignition! Starting up, Positioning, Surrounding yourself with talent

You’ve surely heard the variations on this theme.  “Ready, fire aim” was popular in the 1990’s, accredited to any of several authors.  I used the term to describe my efforts in the artificial intelligence field, experimenting with new devices, the lisp programming language, and our first trial installations.  It seemed an ideal way to describe a scrappy, entrepreneurial activity.

So why do so many business-book authors stress the opposite behavior? Ready, FIRE, aim. What happens to careful planning, sure-fire metrics, quality test scenarios, market research, a good business plan – all in place before pulling the trigger of a new opportunity.

And who is right here?

[Email readers, continue here...]  If you’re seeking investment from anyone other than friends and family, you’re probably going to have to navigate through the exercise of careful planning, documentation and execution.  Investors are a fickle bunch in general.  They want to know that DB Concordia2their money is not just being thrown at an idea that will become a trial by fire – literally.

On the other side of the argument is the truth of the claim that numerous iterations in the form of rapid prototypes and execution of new ideas in the field quickly refine the product or service to meet the needs of the customer, and at a far faster and cheaper pace than with careful pre-planning.

In the software arena, there is a term for this: “cowboy coding.” Without the need to carefully document the architecture and elements of a proposed application, a single programmer can much more quickly just code, test, and create revised code.  Without even pausing to document the process internally, no-one can easily take over the job, if for any reason the cowboy coder is no longer in control.  And the result? Typically, we call that “spaghetti code” to signify code that is so often changed that it no longer looks clean and traceable.

The conclusion is that the best process depends upon the product, its critical core nature to the business using it, and the way in which the entrepreneur approaches the need for outside investors.

Critical components of any operation or business must be carefully constructed, tested and inserted into the operation of the business.   On the other hand, if a new free iPad app has bugs, they can be corrected in the next automatic update, and probably without much customer noise.

Which is better for you: rapid iteration or careful planning?  What is your case for defending your method of creating new products or services?

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Plans? Humbug! Show me what you’re made of.

by on Nov.14, 2013, under Finding your ideal niche, Surrounding yourself with talent

By David Steakley

Our guest insight this week comes from David Steakley, a past President of the Houston Angel Network,  and a reformed management consultant.  He is an active angel investor, and he manages several angel funds in Texas.   Hang on, David tells it like he sees it!  – DB

Business plans are interesting.  But, as a famous field marshal (1) said, no battle plan survives contact with the enemy.  I have found it more important to assess the capabilities of the founding team to react, revise and pivot (quickly change direction), than it is important to assess the business plan.  How do you know whether your founder team and your added executives have the right stuff to survive contact with the enemy?

In addition to the ability to pivot, character matters, too.  As my kids have commenced driving, I’ve harped incessantly, hopefully to the point of their nausea, on the notion that they should always have in mind that everyone driving on the road is in a massive conspiracy to collide with them, and make it appear that the collision was an accident.  “Just assume everyone is trying to kill you,” I say.

I take this approach to angel investing.  I begin by assuming that the founders of the company are incompetent, psychopathic, lying con-men and thieves; and I try to convict them of these charges.  I ask them innocuous questions, and try to check as many seemingly inconsequential details of their story Basic_Berkonomics_front_coveras I can.  Where did you go to school?  When did you graduate?  In what field was your degree?  What was your first job?  Why did you leave that job?  Where did you grow up?  Did you play sports in high school?  What are your hobbies?

[ Email readers, continue here...]  Faithful in little; faithful in much.  If someone will deceive about a small matter, he will deceive about anything and everything.  I don’t do business with liars.  If I am unsuccessful in proving these charges, then, perhaps the company is a candidate for investment.

I was a partner at a large global consulting firm.  We hired literally hundreds of thousands of graduates every year.  They had no meaningful experience.  The only way to evaluate them was to look for a kind of raw, athletic talent.  To help us in this, we adopted a technique which I believe is now universally used, but which was unusual at the time.  We called it behavioral interviewing.  This technique relies on identifying specific traits and characteristics which one wishes to find, either negatively or positively, and then asking the candidate to tell specific true stories about situations in which s/he would have had an opportunity to demonstrate the traits in question.  A lot of the value of this technique relies on the interviewer being extremely aggressive with the candidate about the minutest of details within the story offered.

For the founders of companies in which I am considering investing, I have concluded that flexibility, intellectual nimbleness, and a relentless focus on dispassionate examination of factual evidence of results, are some relatively rare traits with which I cannot ignore.  “Tell me about a time when you changed your mind about something important,” I will ask.  “Tell me about a time when what you were doing wasn’t working.  How did you know it wasn’t working?  What was the problem?  What did you do?” “Tell me about a time when you screwed up big time.  What happened?  What did you do?”  I will ask questions about the tiniest details of their stories.  What were you wearing?  What time of day was that?

I have actually had people respond along the lines of “I don’t recall a time when I screwed up.” Or “Sometimes I have been let down by my subordinates and my partners, though.”  Check, please!

But, a more common problem is that you find out by detailed questioning that the story presented is not really a true specific story, but a theoretical composite story, which reflects theoretical behavior the interviewee assumes you want to hear about.  I don’t want to work with these people.  They are trying to tell me what I want to hear, and they do not want to admit the possibility of fault.

I want to work with people who are pleased to discover mistakes, errors, and opportunities for improvement.  I will not work with people who hide mistakes, who ignore errors, and who pretend that everything is wonderful.  I want to work with people who face the truth.

One of my very
favorite entrepreneurs is the shining example of taking himself to task over errors and missteps, and of a constant vigilant search for how things are going wrong in his businesses.  Recently he launched a unit which developed a casual browser-based online game, monetized through micro-transactions for virtual in-game goods.  One of the beautiful things about this kind of business is the depth and immediacy of information available about performance and results. So, when something is changed, you find out immediately how the change affects results.  This company has been through so many iterations of its model that I have lost track.  I love the willingness to experiment, and the perpetual dissatisfaction with how things are going, and the relentless quest for improvement.  This guy is going to make me a lot of money, or die trying.

So, focus on the personal traits and characteristics of your team.  Things will definitely go wrong.  You want to have some idea of how your team will react when that inevitably happens.

(1)      Helmuth Von Moltke the Elder, 1871

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