A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

If you work, no matter the industry, company size or the level, you’ve been hearing a lot about the importance of culture, especially over the last 10 years or so, most recently from investors.

Bosses know that ignoring culture puts them at peril, but the lesson is just sinking in for many founders.

Culture is a lot more than foosball tables, fancy food and kegs on Friday.

Culture is the values and ethics of the founders made understandable to all.

Sustainable culture is like a tripod, with customers, investors, and employees comprising each leg.

Founders often tend to focus on two of the legs — investors and customers — leaving the third leg to get along more or less on its own.

The problem is that when you over-favor one leg it will get too long; ignore another leg and it will shrink, but the end result is the same—the tripod tips over.

Simply put, concentrating excessively on one leg or another won’t assure success.

Worse, the third leg, employees, is often the shortest, scrawniest, and weakest leg of the tripod.

However, hip perks and a great ‘cool’ factor doesn’t always convert to loyalty and loyalty is bankable.

Founders who doubt loyalty’s bankability should read Frederick Reichheld, who’s written numerous books on the economic effects of loyalty, and shown in carefully researched studies that a 5% improvement in retention translates to a 25%-100% gain in earnings. (Loyalty Rules).

Loyalty happens because people like and trust what the company says it believes in and which is embodied in its culture.

In other words, good culture pays!

Image credit: HikingArtist

There are two attitudes when it comes to investing in people.

The common one considers it a cost that should be minimized.

The more astute believe it provides significant ROI.

Providing benefits can raise productivity and reduce turnover no matter the size or type of business.

Training is just as important (in England it can even stave off a corporate manslaughter charge).

It’s a well-documented fact that attitude/cultural fit are the most crucial factors when hiring, so where’s the sense in dumping people who are not only good cultural fits, but also possess institutional knowledge?

The graphic elegantly sums up the fear of the cost minimizers and the pragmatism of the astute.

One boss lesson that really needs to sink in is the true cost of replacing people.

• A decade ago replacing cost 2-6 times the annual salary and although the dollar amount has risen I’m sure the multipliers haven’t gone down—they’ve probably gone up, too.
• Losing the wrong person at the wrong time has the potential of crippling or even destroying the company.

As to ROI, look no further than Frederick Reichheld, founder of Bain & Company’s Loyalty Practice and author of Loyalty Rules!, and other loyalty books, whose carefully researched studies that a 5% improvement in employee retention translates to a 25%-100% gain in earnings.

That is one hell of a return for creating a culture that does the right thing by investing in its people.

Flickr image credit: Peter Baeklund

Here are the three main things to consider when hiring in order of their importance.

They aren’t rocket science, but they work.

1. Attitude—convincing someone to change it is like convincing the horse to drink the water.
2. Skills—can be learned; look for the frequency of job moves that required new skills.
3. Degrees—are like new cars that lose value the minute you take them off the lot.

Make sure the culture and management style they expect, based on discussions when interviewing, is what they get.

And practice daily the three main actions that will keep them loyal.

1. Appreciate them.
2. Provide ways for them to make a difference and notice when they do.
3. Provide feedback and challenges to help them grow.

Again, not rocket science.

Flickr image credit: Simon Cocks

Customer loyalty is a top priority no matter what you are selling—especially in retail.

Just ask Tony Hsieh, whose focus on Zappos’ workforce created the platinum standard of customer service that yielded a storied (and envied) level of customer engagement and loyalty.

The most important component by far is customer engagement. “Retailers should ask themselves, ‘how do I create a partnership with the consumer?’ instead of pulling one over on them,” says Harvard Business School senior lecturer José Alvarez. Many customers see loyalty programs as a way of being ambushed by the retailer.

Many retailers see smartphones as a successful way of engaging customers—but are they?

I have to wonder if they are taking into account the real numbers.

50.4% of the US population uses smartphones

• Asian Americans 67.3%
• Hispanics 57.3%
• African Americans 54.4%
• Whites 44.7%

Now take a look how the money breaks down.

48.5% of all smartphone handsets are Android, while Apple is at 32%, yet I constantly see product and service offers that require an iPhone.

Stop & Shop recently rolled out Scan It! Mobile, an app that turns a customer’s iPhone into a mobile scanner and checkout.

Gender-wise, smartphone use is nearly identical, 50.9% women 50.1% men, but age is a different story, with two out of three 25-34 year-olds having smartphones.

Marketers consistently target the younger demographic, but do they really have the money or are “Millennials the most screwed generation?”

The median net worth of households headed by someone 65 or older is $170,494, 42 percent higher than in 1984, while the median net worth for younger-age households is $3,662, down 68 percent from a quarter century ago, according to an analysis by the Pew Research Center.

I’m a long way from being any kind of expert, but it seems to me that basing a loyalty/customer engagement model on smartphones, let alone iPhones, doesn’t make much sense when viewed through the lens of actual usage and related income stats.

Have you heard about a very smart startup called Developer Auction?

Developer Auction, which allows companies to bid for the services of high-performance software engineers. It’s a disruptive idea because the San Francisco-based company makes it easier for companies to find workers, which in turn get more money for their services.

It generates revenue by taking 15% of the negotiated salary and then kicks back 20% of that to the candidate.

I’m sure it will make a lot of money, at least in the short-term considering the current hot market.

It also is the absolute stupidest hiring move companies can make, not that that will stop them.

I can think of no better way to find developers to whom money is everything and product passion and loyalty are words in the dictionary.

Not to mention the effect on the current team, company culture and internal salary structure.

But it does offer the wow factor of cutting-edge bragging rights and the fanfare will probably camouflage the hiring manager’s lack of staffing skills.

Rather than address the stupidity again, I refer you to three posts I wrote early last year, insanely stupid hiring, insanely smart hiring and insanely smart retention and stars that thoroughly cover the subject.

Take time to read them and feel free to call or email me (contact info on the right) if you need any assistance at no charge—I never charge for doing good deeds.

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Flickr image credit: pkevinconnell

An excellent article on loyalty citing research from various Wharton professors on the subject of worker loyalty is a valuable read.

It’s good for bosses and employees alike; the former can use it to analyze and improve their approach, while the latter can give a printout (anonymously, if necessary) to their boss.

One of the most valuable findings is that in some ways nothing has changed on the employee retention front over the years.

Human nature, Harter adds, “doesn’t change when the economy changes. It might take on a different dynamic” during a recession, but what remains constant is “the need to be connected — to a manager, a co-worker and/or a purpose, and also the need to be recognized.” People’s perceptions of their own standards of living “did drop as the economy dropped,” he says. But that same drop was not registered in workplaces where employees said they have “someone who encourages their development. There is something about having a mentor, or someone in your life who helps you see the future in the midst of chaos, that can make a difference.”

Wharton marketing professor Deborah Small cites a body of research on what is called “procedural fairness,” indicating that much of what employees feel about an organization “is not the outcomes they get, but the processes. If people feel like processes are handled fairly in the organization, even if they don’t get the best for themselves,” that would tend to encourage loyalty.

Recognition, fairness, being valued and encouraged to grow are still the most powerful intangibles when it comes to retention and their source is still the immediate boss and maybe their boss.

As I wrote last year, caring begets caring and the actions that show you care aren’t found in compensation packages.

Flickr image credit: fsse8info

A study by Bain & Company, published in 2001, showed that acquiring a new customer can cost six to seven times more than retaining an existing customer, and that increasing customer retention rates by 5% boosts profits by 25% to 95%.

Why is it that so many managers ignore the connection between happy employees and happy customers?

Why do they insist on putting the cart before the horse and only invest in their people after revenues increase?

In yet another study researchers again found that customer retention is a function of great customer service, in other words, happy employees result in more loyal customers who spend more.

Zappos may be the poster child of the happy workforce, but there are many ways of achieving the same happy results.

2006, American Express, the credit card issuer, started an internal program that involved training and incentivizing its staff to get customers more engaged. The company transformed its traditional service call by getting rid of scripts and taking customer service representatives off the clock — which allowed the representative to decide how long he or she wanted to spend on each call. It also changed its employee compensation structure, directly linking a big portion of incentive pay to customer feedback. The result: Customers increased their spending on Amex products by 8% to 10% and overall service margins widened, according to a case study by Joseph Handelman, a professor at Ross. In the most recent quarter, the company announced that card members spent a record amount on their Amex cards; total revenue was $7.74 billion, up 5% from a year ago.

Underlying Amex’s actions was recognition of the intelligence of their customer service workforce and a decision to trust their people to treat their customers well and the payoff for doing so was substantial.

Lack of trust in employees is the elephant in managerial corridors and while it sometimes stems from a manager’s own insecurity it’s more often the result of poor hiring.

Managers claim that careful hiring is time-consuming and takes too long, but that’s a cop-out to short-term thinking, as is gutting customer service when the economy slows.

“When sales and profits are down, customer service is easy to cut. It [poor customer service] doesn’t show up right away. Where it shows up is in long-term customer profitability.” –Ronald Hess, professor of marketing at William & Mary School of Business, who studies customer satisfaction and loyalty.

And while you can’t control the economy, you can focus on eliminating the elephant within your own organization.

Flickr image credit: Phillip Martyn

The following email came in over the weekend (edited and shortened for clarity).

Hi Miki, About seven months ago my company (name deleted) started providing most of the perks you see written about, including teaching how to be an entrepreneur. We thought that our efforts paid off when we were about to hire some amazing people. Fast forward to the beginning of July when two of my top developers quit because the entrepreneur class was canceled due to the launch schedule of a new product. To top that off, Friday my architect gave notice, explaining that he had found an angel investor and it was a guy he had met at one of our classes! What the hell is going on?

I’ve received seven similar emails and four phone calls over the last few months; they’ve come from executives and managers in development, sales and marketing at all levels in new startups, growth companies and larger, public corporations.

They all say they have gone to extraordinary lengths to attract people, but many of those hired left in 15 months or less.

They all complain that talent is scarce and that many of the people they do manage to attract have no loyalty or interest in anything except their own career.

The managers say they hear variations of the same stories over and over at events they attend, over lunch or when grabbing a beer after work.

My response to each is tailored to their personal situation and much gentler than what I’m going to write now.

You know the old saying that you get what you pay for? That is just as true when it comes to hiring as it is when shopping.

People who join for money or stock or perks will leave for more money or stock or perks.

They have no loyalty because they are not invested emotionally—there is no reason to be. Many candidates get the feeling they are doing the company a favor by joining, based on the lengths to which companies are going to recruit and hire them, and if they leave, they leave. No big deal.

The next part of our discussions focused on where to find and how to hire people who would be invested in the company. Obviously, no silver bullets, but the basics of solutions that each could tailor to their own needs.

Please join me tomorrow when I share that information with you.

Flickr image credit: stevendepolo

Today is my birthday and I’m not working (I wrote this on Sunday).

From the time I was old enough to understand that my birthday was the day of MY birth, my special holiday, I refused to go to school on April 26.

No matter where I worked I’ve always taken my birthday off.

I never lied about it and even mentioned it during my interviews. I said I was happy to work weekends, Christmas, other holidays, but not on my birthday.

Surprisingly, they all agreed.

So it’s not surprising that when I started RampUp Solutions part of the culture was no one worked on their birthday; nor did they have to ‘make up’ the time off.

Over the years many executives have explained to me why giving people their birthdays off was a bad idea; here are their arguments and why they are wrong.

• Too expensive – not when viewed as a recruiting, productivity and retention tool. It was surprising how many people viewed having their birthday off as a deal-breaker when interviewing.
• Disrupts work flow – 95% of work can be scheduled to avoid a birthday and employees are the first to recognize the other 5%.
• Other employees would be jealous – these execs and mangers just didn’t get it. They saw this as a perk for “stars” or “professional staff,” as opposed to everybody, totally missing the point.

Think about it, it’s one of those little things with enormous ROI.

And while you’re thinking, please have a piece of cake and drink a birthday toast to me.

Happy Birthday to ME

(No, there are not enough candles, in case you are wondering:)

Fickr image credits: http://www.flickr.com/photos/zedbee/103147140/ and http://www.flickr.com/photos/moonlightbulb/4871952762/

The research findings of Frederick Reichheld, founder of Bain & Company’s Loyalty Practice and author of Loyalty Rules! and other loyalty books, showed that a 5% improvement in employee retention translates to a 25%-100% gain in earnings.

For decades I’ve said that people who join a company for money will leave for more money, but those who join for the culture will usually stay as long as the culture is synergistic with their own values.

So when you set out to build a great working environment which comes first, culture or communication?

It’s a good question; one that seems similar to the chicken and the egg.

Without a culture that insists on, and supports, open, honest, complete communication it’s unlikely that people will indulge in it, but it takes that kind of communication to create and implement that kind of culture.

Which really comes first, culture or communications—or is it a conundrum? For that matter, who cares?

The answer is neither.

What does come first is the founder/CEO/department head/etc’s MAP (mindset, attitude, philosophy™). Because it’s what’s in your head that sets the culture and defines the kind of communications the your organization will have.

The way you communicate is a mindset, grounded in your attitude towards others, which, in turn, is based on your personal philosophy.

MAP is learned, not innate, it changes, either passively, through the influence of those around you, or dynamically, in ways that you consciously choose.

Good MAP, like good culture, is (in no particular order) authentic, positive, open, flexible, honest, secure,  interested, enthusiastic, patient, sincere, trusting, encouraging, caring and loves creativity (its own or others).

MAP is everywhere and affects everything—which is why salespeople who understand their customers’ MAP sell more.

Managers are more successful when they understand their people’s MAP.

It’s to your advantage to understand your colleagues’ MAP, no matter your position or theirs.

Managers and candidates should understand each others’ MAP to be sure, at the least, they are synergistic.

While understanding other people’s MAP is important, it is absolutely vital is to understand your own.

Not only understand, but accept that while you can change your own MAP you cannot change theirs.

Flickr image credit: http://www.flickr.com/photos/zedbee/103147140/