A few years ago I asked why companies thought they could cut pay, benefits and hours and still expect their workforce to stay engaged and give a damn about the company’s success.

The answer, of course, is they can’t and the employees don’t.

Even as they cut pay and hours, retailers that sell “value pricing” still expect people to buy.

A good example is Wal-Mart, long known as the poster child of low compensation and king of the part-time workforce.

But in earnings calls the blame is on the costs that are going up with no mention of wages going down.

“Their income is going down while food costs are not,” William S. Simon, chief executive of Wal-Mart, said of the company’s customer base. “Gas and energy prices, while they’re abating, I think they’re still eating up a big piece of the customer’s budget.”

And down it has gone.

Adjusted for inflation, the national minimum wage reached a peak in 1968 and has lost about 6 percent of buying power since it was last raised in 2009.

I sometimes think Henry Ford was the last executive who understood that you can’t run a consumer economy if the consumers aren’t paid enough to buy stuff.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers. (…) The move proved extremely profitable…

Obviously, Wal-Mart has never had an executive who understood that simple principle.

Congress doesn’t either.

Simon says income is going down, but apparently he can’t make the connection between that and his company’s actions.

Simon and his ilk know that people need disposable income to buy stuff, but for that to happen they need to stop treating their people as disposable.

Flickr image credit: Bernard Pollack

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

Based on current media reading and discussions with founders and startup employees I decided it was time to revisit a 2011 post from Matt Weeks. I might add that the ethics underlying the Startup Social Contract are applicable to any company and every manager. –Miki

“Associate yourself with men of good quality if you esteem your own reputation; for ’tis better to be alone than in bad company.” –George Washington

For early stage companies (and for all well-run private, Pre-IPO or Pre-Acquisition firms), the stock awarded to employees and the executive team is a form of “social contract” that promises them unusually high “return” for their risk, hard work, “sweat investment” and belief in the company.

The unstated social contract goes something like this:

I will initially forego a higher salary and cash compensation, in lieu of stock options that will increase in value at a faster rate than possible elsewhere, and will “return” more than the forfeited cash compensation might have, over time.

This is both an investment risk approach (“Do I believe the company’s product or service can win in the marketplace?”) and a simple ROI calculation (“Is the salary/cash compensation I forfeit going to be made-up (and then some) in a reasonable amount of time?”)

Because I am now an “owner” (“investor”) in this company (seeking to boost stock value. i.e. company value), I presumably have strong incentive to help the company thrive.

This includes being diligent and helping avoid risk, helping to find and fix problems everywhere, as well as going above and beyond my “job description” to help the company thrive and grow. I am super-diligent and respect and protect the company’s assets, reputation and product/service quality.  I treat this as “my” company.

In short, as an owner-employee (at any level), I understand that I have to “have the company’s back” and that others in the company “have my back.” We all watch-out for one another.  Our stock positions fairly and accurately reflect our contributions and risk “investments” we’ve made in this venture.

If the workers and/or the exec team come to disrespect, disbelieve or ignore this social contract, the company is lost.

Image credit: HikingArtist

“[If people are] frustrated by red tape or by having someone breathing down his neck, someone for whom he has scant respect, if he has little influence on decisions which affect his work, and which he may not agree with, then he will pack up and go. And so he should. It is up to us, therefore, to create an organisation which will allow gifted individuals to unfold.”  –Ove Arup

Arup walked his talk and ran a company that embodied the six basic principles of a great place to work.

• Differences are nurtured, so individuals can be themselves at work and contribute their unique talents.
• Information is not suppressed or distorted, so people can find out what they need to know to do their work.
• Individuals are given meaningful chances to grow, becoming more valuable to the organization in the process.
• The company is a place where everyone feels proud to work, spurring them to go beyond their stated roles.
• People’s day to day work makes sense to them, and they understand how their own jobs fit in with everyone else’s.
• And they are not hindered by stupid rules.

It may not be easy, but no matter what approach your company takes, or what level manager you are, you can infuse these principles in your own group and shelter them from those above.

It’s not easy, but it can be done and the payoff is amazing.

Flickr image credit:

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

A few days ago I was asked if it was OK to warn a startup team by email that it was doubtful funding would happen before the money ran out.

My response was ‘absolutely not!’

The final word from a variety of experts is that it is not OK to fire, lay-off, break up, ask for a divorce, ground kids or any similar action by email, text or even by phone.

These are all subjects that must be done face-to-face for a variety of reasons, but all falling under one of the falling categories,

• Respect
• Trust
• Authenticity
• Transparency
• Fairness

The list goes on, but I’m sure you get it.

That said, I thought I’d repost a slightly edited how-to for dealing with bad news that is as applicable today as it was when hard-copy memos, wires, carrier pigeons and smoke signals were the normal modes of communication.

Bosses know when they’re in trouble (duh), but they still seem to think that their people don’t know the facts (double duh).

Too many bosses, from startups through Fortune 100 and everything in-between, clamp down, say nothing, run scared, freeze, bluster, or some combination thereof and do it by email and/or text.

The result is management by rumor, which once started never ends.

The way to deal with bad news is directly, openly and honestly.

Even when the subject is no funding or lay-offs this axiom applies; in fact, it’s the only approach that gives your company or your reputation a chance of emerging intact.

Here are six basics to keep uppermost in your mind—whether they are comfortable or not.

1. Bad news must be communicated in person—just like good news.
2. Employees aren’t dumb—they know something bad is happening—and if they’re not explicitly told what it is, rumors will make any difficulty a catastrophe and a catastrophe a death knell.
3. Management must be explicit about the ultimate potential consequences. In a situation that’s unfolding, such as a funding or economic crisis, when no one knows the ultimate outcome or can predict when it will change, frequent updates are effective.
4. Everyone hates uncertainty, which is all you may have to offer, so analyzing and then explaining the worst case outcome as well as what you’re doing to counter it and how your people can contribute goes a long way to stabilizing the team and gaining their buy-in to your plans.
5. Successful plans are dependent on how well they are communicated, which is what determines employee buy-in; if you choose the delusional approach of minimizing the situation then you should expect minimal results and maximum disruption.
6. Share the outcome of your thinking, whatever it is—layoffs, plant closures, project cancellations, etc. If you don’t trust your people with the information your problems are far more serious than you realize.

Any solution to a crisis must be seen as fair, reasonable, and businesslike. If management’s reaction is illogical, petty, slipshod, unrealistic, draconian or any combination of these, then it’s likely employees will conclude the ship is about to sink and leap off.

People understand that difficult situations demand difficult remedies, and they appreciate that management must at times step up to harsh challenges. But if solutions are irrationally or whimsically applied, they become a demoralizing factor, increasing the difficulties that people encounter in trying to do their jobs.

Finally, you should always attempt to find a positive note to leave with employees. Everyone already knows that things are bad; it’s your job to find a potentially favorable course of action.

Just remember, you hired your people for their brains, so don’t expect them to suddenly go dumb. Employees easily spot propaganda masquerading as a solution.

Predicting an impossibly favorable outcome not only demeans your reputation, but also could affect your future entrepreneurial efforts.

Image credit: HikingArtist

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

1. How fair is your company’s compensation plan?
2. Do you have a compensation plan for both salary and stock?
3. Do you pay your “stars” more, whether cash, stock or both?
4. Do you offer it to lure them in the door?

If you answer ‘yes’ to questions 3 and 4 then you must answer ‘no’ to 1 and 2.

Winging it with no plan is a major ingredient of financial disaster.

Offering high salaries and/or giant stock options before knowing how well a person will perform at your startup is a recipe for talent disaster—history may not accurately predict the future.

One of the key determinants of satisfaction — or dissatisfaction — with compensation is how employees feel their pay package compares to others, according to Wharton management professor Matthew Bidwell. “No doubt if somebody thinks he or she is doing the same work as another who is paid a lot more, this leads to resentment and ultimately to disengagement.”

And the last thing you need in a startup is resentment and disengagement.

Image credit: HikingArtist

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

Pretty much anyone breathing who has any link to the tech world is familiar with the patent lawsuit that Apple just won (for now) over Samsung.

It reminded me of an episode of Shark Tank when Mark Cuban blew his top over the entrepreneur’s patent contending that it should never have been issued.

I would love to hear his reaction to Apple’s patented rounded corners (that obviously predate not just the iPhone, but Apple itself).

And that train of thought reminded me of something I wrote for Technorati last year about Entrepreneur Magazine; here it is slightly updated for accuracy.

What better way to win the hearts and eyeballs of your target market than by suing them?

Talk about lousy customer service.

But that’s the approach taken by Entrepreneur Media Inc. (EMI), publishers of Entrepreneur magazine and associated properties, such as entrepreneur.com.

The original founder trademarked “entrepreneur,” which seems contrary to the concept of “distinctiveness” (Patent Office info), but what do I know?

Policing the use of ‘entrepreneur’ are the 2,000 lawyers employed by Latham & Watkins who work out of 31 offices around the world.

We’re not talking just about letters; they go after small biz in court and win big judgments.

I had a joint venture with Bun in a Can called Watch Startup Café where we posted videos of entrepreneurs talking about their companies and the passion that drove them to do it.

We almost named it “Meet the Entrepreneurs”—lucky for us we didn’t.

I wonder if I should expect a cease and desist letter for Thursday’s Entrepreneur posts.

There has been much talk about the need to update the US Patent and Trademark Office and how tough it is to get protection for new services, business processes, etc.

It’s probably simplistic of me, but I think the Patent Office should clean up its old messes, too.

One thing that might help is if instead of protesting in comment sections those who move in the entrepreneurial world canceled their subscriptions.

That is what I’m doing.

“Entrepreneur;” “rounded corners;” sometimes I really do wonder what’s in the water in Washington.

Option Sanity™ wins their hearts through fairness.

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock allocation system.  It’s so easy a CEO can do it.

Warning.
Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.”
Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Flickr image credit: HikingArtist
This article was first published as Entrepreneur Magazine Vigorously Defends ‘Entrepreneur’ Trademark on Technorati

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

Long-term success is as much about attitude as it is about product.

How do you rate yourself on the following?

I believe that

• good information can come from nobody; bad information can come from somebody;
• values verbalized must be values lived;
• to be valid, a social contract can not embrace the concept of “but me;
• fairness comes from applying all rules evenly and equally, no exceptions;
• listening, especially when it’s something you don’t want to hear or from an unusual source; and
• it’s sometimes necessary to modify or let go of an initial vision and pivot in order to succeed.

What would you add to the list?

Option Sanity™ embodies fairness.
Come visit Option Sanity for an easy-to-understand, simple-to-implement stock allocation system. 
It’s so easy a CEO can do it.

Warning.
Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.”
Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Flickr image credit: HikingArtist

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

People never cease to amaze me even though I know that what you see isn’t always what you get.

“Pete” is a great example of that.

Pete is an entrepreneur and a friend of mine works for his company.

My friend raves about the great culture. He says it is merit-based, treats everyone fairly and has very little of the politics and favoritism he has seen at other companies. He likes the values and Pete’s attitude to giving back to the community.

The company isn’t new, but it is still private, so when my friend heard that Pete was thinking of issuing stock he sent a link to Option Sanity and introduced me.

Long story short, we had an extensive conversation; Pete talked about his belief in the importance of fairness and merit and giving back and I explained how Option Sanity™ would strengthen his culture and work to ensure the fairness that seemed so important to him.

And because Pete was so emphatic about the importance of giving back I told him about 1% of Nothing, started by Shervin Pishevar and Matt Galligan, with the goal of getting startups to donate 1% of their equity to a charity of their choice.

Pete ended our conversation saying he wanted to think about it and work with the Option Sanity demo.

I just received an email and I thought it ironic that it came on Thanksgiving.

Although he dressed up his response in complimentary language, the upshot of what he said was that both Option Sanity™ and 1% of Nothing were naïve ideas.

He said that he wanted to have complete freedom when awarding incentive stock as opposed to committing to a methodology, even though he structured it. Some employees were relatives or good friends and he wanted the ability to give them more. He wasn’t worried about performance, because he could always rescind the grant or fire them.

With regards to 1% of Nothing, although he planned to give to some of the proceeds of an eventual sale to charity there was a good chance that certain products in development would substantially increase the value of the company.

He had a specific dollar amount in mind for charity and saw no reason to possibly exceed that by giving the 1%.

I was totally floored.

Option Sanity™ is authentic

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.” Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Image credit: HikingArtist

With all the research and resulting proof, much of it expressed in dollars, why is it so difficult for companies to execute good cultures?

There is no lack of advice and how-to help available and in a variety of ways, from consultants to books, blogs to videos.

Real-world facts show that good culture is still elusive; one of those ‘should’ actions that are frequently talked about, but often not done.

You create the culture in which those subordinate to you work, no matter your level of management, from team leader to CEO,

CEOs set overall company culture, while subordinates then create, intentionally or not, their own culture that either copies it, is synergistic to it or diametrically opposed to it.

The only guarantee is that whatever culture emerges will accurately reflect its creator’s thoughts, values, beliefs—in other words, MAP.

And therein lies the reason and the problem.

All the cultural intelligence focuses on good culture, with touchstones such as fairness, trust, authenticity, merit, etc.

If those attributes aren’t the bedrock of your own MAP then it’s impossible to implement a culture that embraces them.

So if you are looking to change a non-performing culture or improve a mediocre one, be sure to look deep inside yourself first to know what is possible and what won’t stick unless you change first.

Flickr image credit: zedbee

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

Do clichés annoy you? There’s a good reason some of the tired, old clichés stay around—namely, they work. They say what needs to be said in a way that isn’t left open to interpretation, like ‘walk your talk’ as opposed to ‘authenticity’.

I was reminded of this after listening recently to an entrepreneur.

Here are the salient points of the conversation,

• he had built a culture based on fairness, trust and authenticity;
• he worked hard to hire the smartest people available;
• salary and stock options were based on necessity, i.e., he did what he had to do to land the best candidates.

I asked him what would happen when people learned of the discrepancies between their package and a peer’s; that the approach seemed to fly in the face of his “fairness, trust and authenticity” statements.

He replied that

• people trusted him to do what was best for the company;
• he was fair to each person based on their individual expectations;
• any effort to implement a uniform compensation (salary and/or stock) policy would hobble his ability to hire stars; and
• it was a non-event because nobody knew anyone else’s package.

I have to admit, the naiveté of his final point cracked me up (I managed to control my hilarity).

Basically, he seems to believe that fairness, trust and authenticity have flexible meanings and that expediency trumps them all.

What do you believe?

Option Sanity™ ensures stock grants walk your talk.

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.” Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Image credit: kevinspencer