Are you uncomfortable with home-based workers?

Do home-based employees work with the same dedication and productivity as those in office cubicles next to each other?

That depends upon the management as much as the employee.  I have a friend who is a

CEO of a recruiting firm who “virtualized” her company after a decade of maintaining a fixed office location.  She organizes morning conference calls, has each employee tweet the others in their department when starting work and ending the day, creates the feel of closeness with employee contests, and rewards her best sales people by assigning them the best leads, creating an environment where the best excel and those unable to cut it in a virtual environment fall out on their own accord for lack of revenue.

But most important, the unpredicted benefit of having very low infrastructure overhead may be the one most important element in saving the company during the strongest and longest downturn in recruiting industry memory because of the recent recession.  Much larger recruiting companies were in trouble, with high fixed costs for facilities that could not be shed quickly.  This CEO’s decision to try to retain an excellent, motivated staff in a virtual environment paid off and continues to pay off in every way.  The employees are more satisfied, actually work more hours in a day even if spread over a longer period, and uniformly claim a better lifestyle as a result of the move.

[Email readers, continue here…]   But as you see from the story above, it does take more creative management to make this work. It is a management skill that was not taught nor learned until recent times. A creative CEO will find ways to motivate and compensate for the lone nature of working alone, but using social networking tools to make office workers and home workers feel and behave as a unit.   After all, with this generation of texting, tweeting, IM-based workforce, you’ll find as much of this kind of communication from adjacent cubicles as from distant home offices.

Let’s pause for a word about dress code and formal accountability for the home office worker.  Employees working at home must dress for work, even if casual, and find a schedule for the start of each work day that is to be counted upon by fellow workers.  It won’t be long before home workers will routinely greet each other via video conference from the home desk.  Although possible today and used by some, it is not a requirement of most employers with home-based workers.  Someone who “comes to work each day” even if to the computer in a separate part of an apartment, is putting on the business hat in a much more formal way that one who drifts to a computer in the room beside a blaring TV, dressed in pajamas and arriving whenever convenient.

How about the employee unable to self-motivate in a home environment?  With the proper measurements of productivity, it will soon become quite obvious to both the employee and manager that such an opportunity is not right for that person.

Ask any CEO who has tried letting employees work from home, whether for a day a week or as a rule with occasional office visits.  You’ll find stories of emails time stamped well into the night, work performed at unusual hours and productivity increases.  You’ll also hear a bit of pride in the telling.  A CEO that encourages this once-risky venture and is rewarded with increased performance, is a person fulfilled and willing to tell anyone who’ll listen.

Posted in Depending upon others, Hedging against downturns | Leave a comment

Niche marketing works. Here’s how.

How many of us throw away marketing dollars because our paid efforts reach an audience that is much larger than the target or niche audience we need to reach?  Whether it be for publications, social marketing, or even those once-necessary postal mailers, we have tools now that were not available just a few years ago.

So, let’s up our marketing knowledge first with a few short answers to marketing questions…

What Is niche marketing?  Simply, it’s offering a specific product or service to a specific group of people.

Why Is niche marketing important?  This is easy. Here’s a question to respond to a question:  Would you want to throw away advertising or marketing dollars reaching people who won’t buy no matter what? Of course not. So, aiming a brand-new smartphone full of great features but increased complexity using AARP Magazine as your marketing resource just won’t get the job done.  Your niche market is younger, and perhaps smaller – especially if the feature set on the smartphone is so radically new that you would need to reach early adapters.

So, what other benefits are there to niche marketing?  Here are just a few to consider…

[Email readers, continue here…]

  1. You’ll have less competition. If you can find a gap in the market and target a specific group of people that no other business is targeting, you’re onto a winner. Where else are consumers going to find your product, if no one else is offering it or if other companies offer it, but haven’t found the right niche audience?
  2. You’ll save money. Niche marketing means targeting the right audience at the right time for the right product.  That’s easy to say, but once was impossible to implement.
  3. You’re the expert. By narrowing your audience and product, you’ll be perceived as the expert and there may not be a competitor to challenge you with an adjacent ad or campaign.
  4. You’ll Think more deeply. If you’ve taken the steps to research your market and niche, the chances are that you’re taking your business seriously. You’ll wonder: ‘’Is this a worthy investment with probable payback in revenues? Will this campaign reach the audience I intend?”
  5. You’ll Have the Opportunity to expand your market with niche success. You won’t be wasting large amounts of time and money early on.  When you do connect with your niche, you will have resources to expand and alter your message for the next niche and then the next.

How to Find Your Niche?  So now I hope I’ve convinced you. But you have no idea what to do next. Think about your product or service.  Is there anything you could do to emphasize benefits that are unique to the niche? Competition is good, but – if there are hundreds of businesses out there that already have gotten to and penetrated this niche – you’re going to find it hard to get through the marketing noise.  So, narrow your message.

Emphasize features and benefits not addressed by others if possible.  Find a marketing or advertising outlet that is not saturated with other messages for nearly identical offerings.  Create social media posts with links to your site that drive search engine scores and increase search traffic.

Whatever product you’re trying to market, be sure to create at least an outline of a marketing plan and test your targets (niches) before jumping into the effort. You can do that by creating a small subset of the niche, and testing that segment before expanding to even the niche you’ve selected.

Keep your customer in mind. No need to race from unproven plan to large ad placement or social effort.  If targeting the small portion of your niche doesn’t yield expected results, revise the call to action, and try another subset. And most of all, never give up!

Here’s a quick nod to the folks at Colour Graphics for urging me to write this insight. – Dave


Posted in Growth!, Positioning | Leave a comment

Are you ready to take on an office lease?

Rent your first office with caution. 

Several years ago, I became involved with a Southeast Asian company looking to expand into the United States.  During the discussions with the CEO about hiring North American managers, he made it clear that he wanted us to find a first-class office facility from which to start the search process, and proceeded to name cities that attracted him.  Even after discouraging him from this backwards method of infrastructure-building, he kept bringing up the subject in subsequent months as new senior managers and sales people were hired, each starting with an orientation week at the Asian headquarters then returning to work from home.

With audio and video conferencing and all the tools for communication and collaboration available today, each of these four new employees felt empowered, connected and enthused to work from home for the first time.  The CEO was still talking about finding an office when the natural progression of growth made it obvious that two of the four needed to be replaced.  These two worked from homes in widely scattered cities.  Had the office been located to accommodate either one, the company would have had to find replacements in the same geographical area as the office.  Without that restriction, outstanding replacements could be located based upon skill and experience, not location.

[Email readers, continue here…]  Very early stage businesses, start-ups, actually benefit from the establishment of a virtual environment. The flexibility in hiring decisions, reduced fixed costs, forced highly specific communications and better definition of job responsibilities that most often result from need, almost always give a virtual startup the edge financially and flexibly.

So, can a startup exist for a reasonably long time as a virtual company?  A decade ago there was a stigma that prevented many CEO’s from thinking it possible.  Today, virtual offices are accepted at all levels of many organizations of all sizes.

Posted in Hedging against downturns | Leave a comment

How to make a small problem into a big one.

Allowing small problems to escalate into big ones is simple.  Just ignore the signs for long enough and the job is done.  It takes far more energy to review regularly the key performance indicators you’ve established for each individual and yourself.  But a small excursion caught early and corrected saves massive corrective resources later.

Take for example the manufacturing company with a small quality problem in one component, resulting in a test failure rate above the norm.  You can just reject the components, especially if coming from an outside supplier, or you can get to the root of the problem by examining the cause and re-engineering the process or product quickly, saving you and perhaps your supplier time and cost.  Such a culture of quality engineering has an additional benefit in creating a higher bar for all to see, making the public statement that quality is a top priority.

[Email readers, continue here…]  The same careful management applies to virtually every person and process in the organization.  If there are ways to measure successful output or execution, find them and use them regularly.  If one person or department is not pulling its weight, others notice and if no action is taken, often others are discouraged because of the lack of management interest and control.  The variant of “one bad apple” holds true in corporate cultures that to a degree entrepreneurial managers and young CEOs rarely credit – until a late correction is made and a collective sigh of relief can be heard company-wide.

Posted in Growth!, Protecting the business | Leave a comment

Even a taste of ownership motivates employees.

How about employees all the way down the line and through the corporation? How do we align them to the goals and strategies of the enterprise?  Obviously for the appropriate individuals, a bonus program aligned to the department’s goals is appropriate. But how about awarding stock options for all employees?

I discovered the power of ownership early in my management career, establishing an employee stock ownership plan (ESOP), once popular as incentive compensation as well as a tax write-off for corporations and even a way to slowly transfer ownership of a company from the founders to the employees.  These plans are not as popular today because of their complexity and difficulty to manage, lost in favor of simple stock option plans.

Each month, at the monthly company lunch for all, I’d greet everyone with “Hello shareholders”, and proceed to show the assembled throng slides of high level financial statements, pointing out progress against plan.  That form of open book management surprises many, but if the employees are stakeholders with a taste of equity, why not underscore the value of that equity by treating them as cohorts?  Yes, sometimes the news is not good.  They should know this, and from you not from the rumor mill.

[Email readers, continue here…]  Your fear that the confidential information may get out to the industry competitors should be tempered by the fact that you are not giving out the secret sauce, just the results of the past period’s performance.  All public companies including your public competitors must do this in greater detail each quarter, and it rarely damages their ability to sell into the marketplace.  Would bad news drive your best employees out the door?  Perhaps. But it is my experience with many companies that empowered employees, treated with respect and shared knowledge, will go far beyond expectation in remaining loyal to their associates and their employer.

And think of the time saved around the virtual water cooler if there are far fewer rumors to pass among your employees.

Posted in Depending upon others, Surrounding yourself with talent | 4 Comments

Why cash is only one measure of employee happiness

In 1981, Herb Cohen wrote and published “You Can Negotiate Anything”, an excellent guide to great negotiating.  I’ve read and reread the book a number of times and find myself using the techniques often in many areas of my life.  One of his lessons remains clearly on my mind and is a variant of the old “You name the price and I’ll name the terms” challenge that works so well in negotiation.

Cohen sets up an example where a senior position job candidate is stuck on a salary twice as high as the CEO is willing to pay, leading to a standoff between the two.  Cohen goes on to point to twenty five non-cash items that the CEO could have used to narrow and eliminate the gap, many of them untaxed perks worth more than face value because of the employee’s tax savings.  They include an expense account, company car, profit sharing, 401k contributions, medical coverage for dependents, free life insurance, educational payments, extra vacation, relocation expenses, paid trips to industry association meetings, or a small override on revenue from new products developed under the candidate’s watch.

[Email readers, continue here…]  One of the items on Cohen’s list of twenty-five was stock options.  That of course jumps to the top of the list for young, fast growing technology companies.  Many skilled, experienced executives have jumped from mature companies to more risky positions in smaller, fast growing enterprises primarily for the options.  In a previous insight, we explored the common percentage of a company’s fully diluted stock that is often granted in the form of options for new employees.  (See insight here.)

Many an executive has made much more than any cash compensation from exercise of “in the money” options after taking the leap to a smaller, fast growing company, attracted by just this form of incentive compensation.  When used in combination with several of the twenty five additional non-cash forms suggested by Cohen, salary alone does not seem to be the barrier most people believe it to be.

Posted in Depending upon others, Surrounding yourself with talent | 1 Comment

Would you pay a high achiever more than yourself?

Recently I was asked to review an offer letter for a senior director of business development. The CEO was concerned that he was offering far too much in the form of incentive compensation, with bonuses that could greatly exceed the base salary if all the bonus items were achieved.  I asked the CEO to imagine what the company would look like if all those bonus-expensive items were completely achieved in one year.

Upon reflection, he stated that revenues could double the following year, and that the company’s reputation among larger customers would be so greatly enhanced that the company could become the leader in its niche.  My obvious retort: “Then why not offer this candidate the moon if he can achieve this?”  The offer was sent and the CEO was much happier, dreaming of the possibilities, not the incremental cost.

I love to point out that my top several sales people were making more than anyone else in the company, including their boss.  These outstanding achievers worked for salaries below those of their engineering peers, and had to put it all on the line every day to earn their keep, let alone excel.

The best way to encourage alignment between your managers and the company’s goals is to create a bonus plan for each, with its payments made based upon the key performance indicators established for them and for their areas of responsibility, all in turn based upon the tactics and strategies contained in the company’s strategic plan.

[Email readers, continue here…]    It is amazing how few company CEOs grasp the concept that executives and managers should be compensated not just for doing their named job, but for exceeding expectations while advancing the corporate goals.  To align everyone in the organization in exactly the same direction is a task, one that is a powerful driver for growth.  People should be compensated well for such outstanding contributions.

What is the general rule for such a bonus plan? Provide no more than five key performance indicators derived from the strategic plan and fitted to the specific job of the manager.  Set time-based goals for each.  Provide bonus opportunities that add to approximately 50% of the base salary if all are achieved within the year.  Meet and measure progress truthfully each quarter.  Perhaps pay a portion of the bonus upon completion of these meetings.  Do not make the usual mistake of ignoring or passing on the progress of any of these items by just paying a part of the bonus at yearend because no-one carefully reviewed progress, or because circumstances changed and the bonus item could not be completed as written.

Incentives are powerful tools when used well and reviewed often.  They are a major part of a good manager’s work and should be treated as such by the CEO and all senior managers.

Posted in Depending upon others, Growth!, Surrounding yourself with talent | Leave a comment

Careful about equity and options in early stage businesses

This post is longer than usual.  For those negotiating equity allocations it covers some of the most complex issues to address in the process.  I just couldn’t reduce it to far fewer words…  Dave

Here is the warning: The execution of partnership equity allocations and of a good incentive program using equity is often mismanaged, damaging the corporate capitalization structure and even affecting the outcome of subsequent investment into the company.

Here’s an example: First, a brand-new enterprise is often formed from the efforts of several “partners”, each with an expertise valued by the others.  Equity is divided between the founders and the business begun.  Although this insight does not address this point of ignition, we should note in passing that things always change over time, and formerly strong founder-contributors can become a drag upon a business or lose interest if the enterprise is not quickly successful.

To protect against this, there must be some document in place from the beginning that clearly states the expectation of each founder as to contribution of time and resources to the enterprise.  The document should also contain clear buy-sell clauses, forcing any sale of shares to first be offered to the corporate treasury, then to the other founders in proportion to their holdings, and then if no interest, to outside investors.  It should contain a mandatory sale clause in the event of separation of a founder, so that a major owner who is passive in the enterprise cannot easily vote against measures other active founders endorse.

 And then there are options:  [Email readers, continue here…]   Stock options or phantom stock are the tools of early stage businesses used to attract great talent when there is not enough cash to pay market rates.  There are some rules.  First you must create a stock option plan using your attorney, which must be registered in many states as a security offering. (The fee for registration is well under $100, so this is not an issue.)  Options are usually best with “C” corporations, but granting options for either LLC’s or “S” corporations are not a real problem.

Most early stage companies make the mistake of making option grants to new hires at all levels that are too aggressive and distort the capital structure of the company to a degree that damages future professional investment.  Let me try to advance a few rules of thumb to help guide you here.  An option plan should carve out an addition of about 15% of the “fully diluted” shares.  If there are 85,000 shares issued to the founders, then a plan calling for 15,000 shares in a pool reserved for future hires is appropriate, making the fully diluted shares 100,000.  The board must approve the plan including this number, and shareholders must approve the plan as well.  Each grant to new or existing employees must be approved by the board before issue.

How about the price per share? The price per share for option grants is also an important consideration.  IRS rule 409a specifically calls for an appraisal of the value of the corporation’s stock current to within a year of any grants of options, although there is an exclusion for early stage businesses in which expert members of the organization or board may make such an appraisal if they qualify according to the exemption.  If there is only one class of stock, the same as the founders, and the appraisal of the single class of shares yields, say $2.00 a share, then options must be priced at that amount.  In other words, you cannot create bargain options at below “market rates.”  If you have a preferred class of stock with special protections, that class of shares will be valued at a price higher than the founder common shares, allowing stock options to carry a lower price per share than preferred investors may have paid.  This is important because high quality candidates should be induced to consider coming aboard at lower than market salaries using the tool of “cheap” options, properly priced.

How many options are appropriate for a grant? What percentage of the total company shares should be reserved for what specific job titles?  Inducing a new CEO to come aboard usually means creation of a stock option package of 5-8%. That size of grant would take much or most of the option pool.  A vice president, or CxO candidate, typically is offered between 1% and 1.5%.  Director level employees are typically granted ½%.  All other grants usually are much lower, allowing for the typical 15% pool to last for quite a while in most companies.

We will cover board members and advisory board members at a later time.

Options typically are earned over time, which we call vesting.  If a grant of 10,000 shares is made on January First, typically there is a four-year vesting period in which the employee earns the right to exercise (buy) 1/48th of the shares each month.  Many plans also call for a one year “cliff” in which an employee who is separated from the company before a year is unable to exercise even the shares which would have been vested at that point.

Any other important considerations? There is an important consideration that will become an issue with sophisticated candidates for VP and above.  We call these “trigger” provisions, in which selected options negotiated for a select group of senior managers, fully vest to 100% upon any change of control.  This provision allows these select individuals to perhaps profit handsomely in an acquisition by being able to exercise their options in full at the time of sale.  The negative side of this is that the buyer may not want to so enrich these managers that they may not be willing to come aboard the buyer’s organization, even if the existing options are replaced with options from the buyer company.

If all of this seems a bit overwhelming, we have just scratched the surface of option plans and incentive compensation.  This is an area of expertise that a CEO is required to quickly learn and carefully manage with the help of the corporate attorney and the board.

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

Fire fast, not last.

Here is one that takes a real leap for a younger manager or CEO to believe.  After hiring someone with all the attendant enthusiasm followed by the training and learning curve, if an employee shows signs of weakness in the job or problems dealing with contemporaries, it is the natural tendency for most of us to go first into coaching mode, and reset the observation clock to see if our excellent coaching does the job.

A month or so later, when no apparent change has been noticed, we may move from coaching to a polite warning and maybe even the dreaded note-to-file.  Another month, and the probability of a decision to separate becomes obvious and the move initiated.  Lawyers will tell you that this progressive chain of moves is good for the company, protecting against lawsuits by a disgruntled former employee.

Then there is the ninety-day clock to consider.  In most states, employees gain rights after the ninetieth day on the job that make it more difficult to fire an underperforming employee without careful documentation of reasons for concern.

[Email readers, continue here…]  But – before or after that ninety day line – surprisingly, in post-exit interviews after emotions have dissipated, most former employees (who were handled respectfully during the separation process) and most managers will agree that the move should have been made sooner.  The former employee will often state that he or she was at least somewhat unhappy in the job, knowing that the fit was not as good as it should be. The manager will most often admit that he or she did not move aggressively, following best judgment in coaching the employee toward separation much earlier.

Firing fast in most every case is best for everyone, as opposed to long, drawn out sessions and stressful employee periods of waiting for a verdict in between sessions.  It does sound counter-intuitive. But I would believe the post-exit interviews.  Why not conduct your own survey of fellow executives and managers and see what they think.  If they agree, you should re-calibrate your expectations and act sooner, with the important caveat that employees must always be treated with respect.  Remember that there are many times when documentation to file is a required protection for the company against possible lawsuits, especially by protected classes of employees.

Posted in Depending upon others, Protecting the business | 3 Comments

Hire as if your survival depends upon it.

Aside from visionary management, this is your most important job.

Many of us go through the motions of hiring to fill a position, trying to use our intuition and skills to find the best candidate for the job.  Sometimes we use consultants or recruiters; often we use internal talent to fill most positions.

And over the years, we students of business success have learned that there is a science to the hiring process that continues through the life of an employee’s tenure with the company.  Bradford Smart captured this succinctly in his book, Topgrading. His thesis is that “A” players amount only to the top ten percent of the talent pool at any given time, and that your job is to find, recruit and retain only “A” players to make a successful business.  It is hard to argue with that.

What is hard to find, is the rare CEO that makes the process of hiring top recruits such a priority that he or she spends personal time deeply involved in the specification, resumé review, interview and selection of top employees.  Most of us are “far too busy” to do all of that.  And yet, aside from managing the vision of the enterprise, the most important job of a CEO is to find, recruit and make productive “A” players for the team.

[Email readers, continue here…]  As an investor and board member for numerous companies, it is increasingly easy for me to quickly evaluate the quality of senior team members in an organization as I probe for strengths and weaknesses in the enterprise.  Teams where the CEO is comfortable enough to delegate to “A” players and manage the strategies for growth stand out as rare and powerful.  Conversely, it takes very little for a CEO to derail what could be a great team and company, by ignoring the details involved in finding the right talent for each senior position, and by failing to communicate the strategies and empower the team to execute.

A successful hire is not just the responsibility of the recruiter and manager to whom the recruit will report.  Many companies require that finalist candidates be interviewed by company contemporaries, good employees who fill similar level positions. Some even encourage interviews with those the candidate would manage.  Agreement among the interviewers becomes an empowering experience for those conducting the interviews and agreeing to the decision to hire, and paves the way for a quicker assimilation of the new employee into the organization whose cohorts are already prepared to receive and encourage the new hire.  This is not an inexpensive process when considering the cost in time and productivity of the interviewers.  But finding “A” players is not an easy job, requiring a stretch of resources at each stage of the process.

Weeks ago in these posts, we explored strategic planning within the enterprise. We spoke of developing strategies and tactics that are measurable for each department.  Now is a good time to complete that chain by suggesting that paying significant incentive compensation to the people empowered to execute those strategies and tactics is critical to the success of the plan as well as to the organization.  Aligning everyone toward the same goal and using the practice of rewarding for achievement of milestones defined by the tactics from planning, makes for a great business, managed by a leader who understands the process.

What makes a great leader great?  Of course, it’s great execution by great employees acting as a unit in the best interests of the enterprise.  No-one can do this alone.  No CEO can do this with “B” players or less.

Posted in Depending upon others, Growth! | 2 Comments