These people are normal. They have kids and dogs and jobs that they’ve held for 17 years. They work in the lowest-paid but highest-required degree social institutions and donate money to social injustice to help other people. They take care of their sick parents. They help other people when they can by sending them to community organizations or by just paying a light bill. They do the best they know how to do. They never think they were going to end up here.

At least I didn’t think I would.”

(source)

Ed Schipul

Two questions I like to ask in the interview process are below. (Oh don’t worry, most job applicants don’t take the time to google things like “schipul interview questions” so I’m pretty sure I’m not giving anything away.)

The first question is quite simple:

What is the goal of business?

The answer is simple:

To make money.

Now before you run me out of town on suspicion of being a citi-group-harvard-educated-asset-denuding-specialist, I’d like to differentiate between a business and the leadership. A business is a cold-hearted piece of paper that lives and dies on the oxygen of money. This does NOT mean the leadership can behave themselves in an unethical way. It just means that the business itself lacks a soul and that the soul must be transplanted in through ethical leadership and ethical employees working to create “greater value than cost” for clients. And the business must make a profit or at some point it will fail. And we all would lose our jobs. That sucks. Thus profit is good.

I would say about 50% of the applicants get the “what is the goal of business?” question correct. 25% say it out right. (I like that group.) 25% say it apologetically like they are embarrassed to admit they like money. (Baroo? Ya, check it. Money is awesome.) And 50% of the applicants just ramble on about “providing a service” and “interacting with customers” and “making management happy” and blah blah. For those applicants I always wonder “gee, are they going to work for us for free?” Yes take care of the customer, but you have to make a profit or you aren’t a business, are you? You can do both.

Regardless of the answer to the “what is the goal of business” question I always explain the correct answer and why. I wish someone explained that to me when I graduated from TAMU with stars in my eyes and a political science degree, bent on saving the world. (Then life happened. Now I’m a capitalist. Harumph. I’ll get another go at it when I retire.)

Regarding social responsibility I highly recommend reading James O’Toole on “The Ethics of Human Capital.” From the article:

I believe it can be argued reasonably that the creation of an ethical corporate culture is the prime role, task, and responsibility of a virtuous leader. For that to be the case, an ethical corporate culture would be defined as one in which all the stakeholders of an organization are treated with due respect. That is, the legitimate needs of customers, owners, suppliers, host communities, and employees would be both acknowledged and addressed by an organization. – James O’Toole

The second question I like to ask? It’s about compensation. It is:

What are people paid for?

I’ve never had an applicant get this one fully right. They usually respond with “taking care of the customer.” And I ask “so everyone in customer support at Amazon makes exactly the same?” They say “No.” I ask “Why?” and nobody gets it. My response is below (Note: I googled it extensively but can’t find the original source. This is my interpretation and if you know the source please tell me?)

What are people paid for? People in a business are paid for two things; responsibility and expectations.

1. People are paid first for their level of responsibility.
   1. With power comes responsibility. Responsibility is hard. A manager should usually make more money than their employees. They have more responsibility.
   2. Responsibility does NOT mean strictly “management.” We have some awesome employees with huge amounts of financial or technical responsibility that are compensated for this while they don’t directly manage any “people.”
   3. Level up – organizations should give employees the ability to take on responsibilities that are smaller to prepare them for more responsibility later. Examples are things like managing the training schedule, managing interns, advanced reporting and research to help business decisions, keeping the break room clean, making sure we have paper in the printers. All of these things are responsibilities. If you are above cleaning the coffee pot you won’t work at our shop. (But I get that some people worship MBA’s, I am just not one….)
   4. Most applicants agree that paying people for their responsibility is fair. Tenure is nice, but younger more ambitious employees can and do pass up more senior employees in compensation. That is fair.
2. People are next paid for “what they are EXPECTED to do.” This one is more complicated. The good news is the employee is in complete control of managing their superiors’ expectations of them. Examples:
   1. Events – Events change expectations.
      1. If your star quarterback just won the super bowl they should be paid quite well next season. But wait! What if the day after winning the super bowl they crash on their motorcycle and shatter their throwing arm in 10 places? Well, then their new pay rate is zero. Harsh, but that one event completely changed your expectation of what they will do next season. To protect the other players and the owners, you can’t pay someone you think isn’t going to do anything the same as someone you think might win the super bowl. (Hopefully football teams take out insurance to take care of their players!)
   2. Tasks – Small tasks EXACTLY equate to bigger tasks. Humans are consistent like that.
      1. If you ask someone to clean the coffee pot and you get a delayed “<pause….> OK” then you can BET that is exactly how they will treat your 100k/year annual account. The applicant will TELL you they will differentiate, but once they settle in, small responsibilities are the best indicator of how they will handle larger responsibilities. An intern who doesn’t want to load the dishwasher to help out on their first day is best fired immediately. Pride is deadly. Servant leadership rules.
   3. Training – consume training like candy.
      1. Training is good for the employee because nobody can ever take knowledge away from you.
      2. It prepares them for greater responsibility (see 1 above)
      3. It means they are ready for new opportunities down the road. “Just in time training” is crap, be trained BEFORE the opportunity happens or else it is just an “event” and not an opportunity at all.
      4. If you don’t know a technology an employer is looking for, invest $30 in yourself and learn all you can at sites like Lynda.com or YouTube. (Side note: last Thanksgiving they asked me to ‘carve the turkey’. Why? Why would you let the guy who doesn’t spend much time in the kitchen ruin the bird on the most important family meal of the year? Luckily, I solved it with training on turkey carving. True story.)
   4. Hard Work and Initiative.
      1. Ideas vs Results – A well meaning employee says “hey I have this great idea for the company!” An employee that you expect will rock the world later has an idea, prototypes it, takes it as far as she can take it without company resources, and then schedules a meeting with you to go over “initial results and research.”
      2. I once had a sales job applicant interview with me and he started the meeting by showing me a six page marketing plan he had developed for the company. He presented it in its entirety and I was floored! Who wouldn’t expect this guy to be a rock star? (Side note: the plan was completely wrong because he didn’t know our revenue model. But WHO CARES?! This guy’s initiative and demonstrated work ethic was unbelievable. Sadly I lost him to a competitor.)
      3. Tabitha, who recently joined the company, set herself apart by doing her entire resume as a pop-up book. A skill she learned by watching YouTube videos in less than a week. THAT is initiative. And I am very glad she joined our team before a competitor hired her!

Compensation is a loaded conversation. Job applicants always have some idea of what they think they should be paid (not what they are “worth” but what they think they should be “paid” – big difference). The ones right out of school are told some industry average, some too high, some too low, by the University. Those numbers don’t add up. And I have yet to talk to an applicant who says “the school told me I should be able to create X value for the corporation. I realize the money paid to me initially is earned by the other workers and I really appreciate them taking a risk on training me.” Ya, that doesn’t happen. Ever.

See? That second question, what are people paid for, is a LOT more complicated. But there is an answer. And YOU are in control of setting expectations of yourself. So in many ways, people are very much in control of their income. They just frequently prefer to hide behind the “management hasn’t promoted me” excuse without working hard to increase their responsibilities and the expectations of what they will do in the future.

I would love your feedback on this post. And despite the last paragraph of my last big post, on this one I welcome your IDEAS! – Thanks!

Chron.com on What Are People Paid For? This is a cross-post so please comment on the Chron site if interested.

The problem is ideas. Too many of them.

My management philosophy has always been the same. “Hire good people. Train the hell out of them. Let them run.” There can be problems with this. If you train them and they run off to a field to pick daisies, you fire them. But my experience has been that people are a LOT more motivated when they are given the tools and the freedom to do their jobs.

I once worked at a large corporation where I needed a Vice President’s sign off to get a $30 book I needed to do my job. And I had to write up a justification about why I needed the book. I called it a “pre-book-report” at the time. Anyway, I come from a family that consumes books like other people consume Doritos so this blew my mind. My manager, her boss, the VP and I spent way more than $30 in salaries debating the merits of said book. Most of which was made up because none of us had read it. So while the CEO said we were there to “maximize shareholder values” the rest of us didn’t get the memo. So I kept reading books and just paid for everything I needed out of my own pocket.

And I vowed I wouldn’t cripple my employees that way when years later I started a company.

Back to ideas. Thanks to our clients we get to eat. And we help them make a profit using our technology and processes. Everything is thanks to our clients. They expect and deserve the best possible service at the best possible value that we can deliver. That takes training. And I am committed to training. So far this year we sent 11 people to SXSWi, 2 people to SMX, 2 people to DrupalCon, 2 people to NTEN’s NTC, 2 people to the TSG Summit, 2 people to PyCon, we have 4 scheduled to attend Tufte, etc….  And it’s only March 19! Perhaps I shouldn’t share this because my competitors can see that the secret sauce over here is training. But I’m not that worried as investor led companies tend to maximize profits for the quarter and therefore lack the discipline and will to invest so heavily in training. Particularly if all of those expenses hit you in the same quarter.

Now, all of those employees are back from cities all across the United States and they are walking in to my office with idea after idea. After idea. After idea. And ideas are good. But it’s too much.

This is compounded because ideas are pretty cliche. You can’t patent an idea, you can only patent an implementation of an idea. Ideas only have value when you take action on them. It is results that create value, not ideas. Yet all of us in life want to provide the ideas and have them get done, usually by someone else. And we take it personal when someone shoots our idea down, and people know that, so the more ideas you throw out there the more people nod their heads in agreement. “Why yes, that is a good idea.” And it might be. But we’ll never know unless someone prioritizes it and commits the resources to implement the idea and then evaluates the results.

And some ideas are just bad. For example Ethan Watters expressed these emotions about one idea:

The idea of going to a Shriners meeting and listening to some high school student read her award-winning essay on the value of democracy seemed like an activity that I might encounter in the first ring of hell.

Nothing against the Shriners, but that is an idea that if you told me you were doing that I would say “hmmm, sounds interesting.” Yet I would be thinking: “No, that does NOT sound like a good idea for me and NO I do not want to test that idea.” But I wouldn’t say that.

A few years ago I judged a Tech-Transfer event for MBA students who presented a case on if an academic patent should be commercialized for the university where the research was done. I kid you not – this one patent was for a nanotech etching machine that was less than half the size and more expensive than one that was commercialized and in use in industry. It is hard not to look at that idea, shake your head, and think “was that just some dude who wanted to frame a patent for his wall?” I guess it’s academia so they have more wiggle room, but sheesh. This is an example of a bad idea that wasted time and money.

Testing ideas is expensive.

As a CEO your dream is someone walks up and says

“I had this idea so I prototyped it and the initial results look promising. Can we schedule a time to go over the results?”

And sometimes that happens. It really does. And those people get promoted at our company much faster than others. But more often than not you are presented with an idea like it is a sacred object and expected to immediately commit resources to test it. And there are simply too many ideas. And never enough resources.

(Sidebar: You actually get a LOT of innovation from the sales team (yes really) because they talk to prospects and see actual needs before people who only work with products we already support. Because no one within the company already knows X new product, a sales person with initiative will self install (read: prototype). That is how we started offering WordPress and Drupal as new product lines and THEY ARE GREAT!)

I was pondering the expense of organizing and testing all of these ideas while on a long walk with the dog this morning. A few possible solutions came to mind:

1. Set up a DIGG type ranking system for idea submission and have employees vote the ideas up or down.
   1. They talk about this a little in Groundswell. But Idunno, I rarely see committees find the best possible idea. They usually blend everything until you get a compromised version of mush. Or whoever can write the best python script wins the vote. I love Amazon reviews, but I rarely write one. Does that mean my ideas don’t have value because I won’t use that particular tool?
2. Require employees to write-up the idea and present it in an organized fashion at a scheduled time.
   1. This would stop the revolving door in my office of people presenting great ideas. Yet as I recently blogged about visionaries, it is the Eureka moments that lead to big discoveries. I am not sure a global “you must write it up” filter is in the best interest of the company.
3. Schedule office hours.
   1. This is probably something I should do as a CEO as I am a little too accessible at times which prevents me from getting my work done. But again, will I miss a Eureka moment? What is it that I do that could possibly be more important than working with our employees?
4. Say “no” to everything.
   1. Saying “no” to everything has actually worked well for me in the past. If the employee  isn’t motivated enough to overcome the first “no” then they aren’t that committed to the idea. Or so goes the thinking. But people are very different culturally. Extroverts ask me the same question 10 times while introverts won’t ask at all! Won’t this method bubble the “squeaky wheel” ideas up to the top? I doubt those are the best ones.
5. Make them run it by their manager first.
   1. Otherwise known as the “hide behind hierarchy” method. Would this not break the spirit of an employee if they felt the CEO was inaccessible? What if they had an issue with their manager at a personal level, but had a good working relationship, but didn’t want to share? And do I really want to be the type of founder who is unwilling to talk to any employee? The answer to that is a resounding “no!” I spend more time with employees than I do with clients because I know developing our employees is what it takes to get to great customer satisfaction!

I’m at a loss here. I see we have hit this point. I feel like I am drinking from a firehose and I can’t keep up. While ideas alone are worthless, the implementation of a good idea has definite value!

My question to anyone who has made it this far in the post is “do you know of a system that has been tested and works for a CEO of a high growth company to handle employee ideas?” And I specifically do not want ideas. What I need is knowledge of a system that has been tested and works. Even if that system is a behavior modification on my part.

On Railroads, Trucking and the Environment (for the PR curious, check Bernay’s work for Mack Trucks in 1949)

…railroads have major cost and environmentaladvantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. (pg 3)

Rail moves 42% ofAmerica’s inter-city freight, measured by ton-miles, and BNSF moves more than any other railroad – about 28% of the industry total. A little math will tell you that more than 11% of all inter-city ton-miles of freight in the U.S. is transported by BNSF. Given the shift of population to the West, our share may well inch higher. (pg 14)

On being optimistic in the current economic environment:

No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and1941, America’s best days lie ahead. (pg 3-4)

On the folly of economic reporting periods to understand the value of a company:

Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of the earth’s movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit. (pg 4)

On hiring well. Talent is the secret to business:

Our trust is in people rather than process. A “hire well, manage little” code suits both them and me. (pg 7)

On the mobile home industry (they own Clayton) and the government’s policies that relate to home ownership:

To explain: Home-financing policies of our government, expressed through the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the price advantage that manufactured homes offer.We finance more manufactured-home buyers than any other company. Our experience, therefore, should be instructive to those parties preparing to overhaul our country’s home-loan practices. Let’s take a look.  [Net Losses as a Percentage of Average Loans in 2010 for Clayton was 1.72%]

…

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.

…

But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford. (pg 16-17)

On selecting talent:

One footnote: When we issued a press release about Todd’s joining us, a number of commentators pointed out that he was “little-known” and expressed puzzlement that we didn’t seek a “big-name.” I wonder how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959. Our goal was to find a 2-year-old Secretariat, not a 10-year-old Seabiscuit. (Whoops – that may not be the smartest metaphor for an 80-year-old CEO to use.) (pg 19)

On Net Income and why it is useless to measure the health of a company:

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and measuring its progress.Let’s focus here on a number we omitted, but which many in the media feature above all others: net income. Important though that number may be at most companies, it is almost always meaningless at Berkshire. Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like.

We have that flexibility because realized gains or losses on investments go into the net income figure, whereas unrealized gains (and, in most cases, losses) are excluded.

…

…Charlie and I have never sold a security because of the effect a sale would have on the net income we were soon to report. We both have a deep disgust for “game playing” with numbers, a practice that was rampant throughout corporate Americain the 1990s and still persists, though it occurs less frequently and less blatantly than it used to. (pg 21)

On real valuations and being unable to pinpoint a number:

Our inability to pinpoint a number doesn’t bother us: We would rather be approximately right than precisely wrong.

John Kenneth Galbraith once slyly observed that economists were most economical with ideas: They made the ones learned in graduate school last a lifetime. University finance departments often behave similarly.Witness the tenacity with which almost all clung to the theory of efficient markets throughout the 1970s and 1980s, dismissively calling powerful facts that refuted it “anomalies.” (I always love explanations of that kind:The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential,anomaly.) (pg 21)

On the social responsibility of conservative financial practices (no leverage) and keeping cash on hand:

Charlie and I have no interest in any activity that could pose the slightest threat to Berkshire’s well being. (With our having a combined age of 167, starting over is not on our bucket list.) We are forever conscious of the fact that you, our partners, have entrusted us with what in many cases is a major portion of your savings. In addition, important philanthropy is dependent on our prudence. Finally, many disabled victims of accidents caused by our insureds are counting on us to deliver sums payable decades from now. It would be irresponsible for us to risk what all these constituencies need just to pursue a few points of extra return.

On NOT paying dividends and instead reinvesting. Always a growth stock in a way:

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month. Our net worth has thus increased from $48 million to $157 billion during those four decades and our intrinsic value has grown far more. No other American corporation has come close to building up its financial strength in this unrelenting way.

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in oureconomy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008 (pg 24)

And towards the end of the letter he does what a good business man should. HE ASKS FOR YOUR BUSINESS!

The best reason to exit, of course, is to shop. We will help you do that by filling the 194,300-squarefoot hall that adjoins the meeting area with products from dozens of Berkshire subsidiaries. Last year, you did your part, and most locations racked up record sales. In a nine-hour period, we sold 1,053 pairs of Justin boots, 12,416 pounds of See’s candy, 8,000 Dairy Queen Blizzards® and 8,800 Quikut knives (that’s 16 knives perminute). But you can do better. Remember: Anyone who says money can’t buy happiness simply hasn’t learned where to shop.

GEICO will have a booth staffed by a number of its top counselors from around the country, all ofthem ready to supply you with auto insurance quotes. [etc...] (pg 24)

If I have quoted it above. Particularly if it is bold. It is an opinion I agree with. I think the man speaks the truth.

imjustatomato writes “Top computer science conferences typically have an award given to the best paper submitted to that conference. This web page compiles the best paper awards for 16 conferences since 1996, in artificial intelligence, HCI, databases, information retrieval, and theory. Link to Original Source

So here’s my advice: If you want to become an entrepreneur… or a musician, an occupational therapist, a magician — or whatever — be certain that you know what excites you and why you want to succeed, and don’t fret over how you’ll get there. Know that when you’re driven by the right motivating forces, you will eventually discover all the right things necessary to succeed. (source)
- Jay Steinfeld, CEO of Blinds.com

“The foundation blocks of standard finance were now in place, supporting one another.  Investors are rational, prices are efficient, risk is measured by beta and investors form portfolios by the rules of mean-variance portfolio theory.” (1968) (pg 6)

and

“…a 1929 article in The Literary Digest stated: “The first step in a safe and sane financial program is insurance…After insurance, the next requirement is to build up a cash reserve of at least $1,000 in the savings bank.  After that, automatic thrift should be contracted for through installment savings plans, such as building-and-loan associations offer.  When these fundamental steps have been taken, the investor is in position to acquire high-grade bonds and guaranteed first mortgages on real-estate.  The next advance can be toward diversified preferred stocks, which offer a somewhat higher return….The last step should be outright purchase of the best grade of diversified common stock.”  (p. 55).” (pg 11)

Is it just me or does that advice from 1929 advice sound a lot like the cult of, sage advice giver, Dave Ramsey? Hmmm. The article concludes

Facts I did not know then but know now show that speculators stabilize prices at some times but destabilize them at others.  I have changed my mind as facts changed.

Much of finance has changed since the Financial Analysts Journal was founded in 1945, but the drive to uncover facts and make sense of them remains. Change of mind is an integral part of the process. As Maynard Keynes famously said “When the facts change, I change my mind.  What do you do, sir?”

- Statman,  Klimek, 2004

Some of these economics debates will never be settled. If investors are rational or normal for example. If speculators stabilize or destabilize markets.

I’d expect some economics debates will be settled sooner such as if high speed computers give an unfair advantage. Or if commercial real estate is in a bubble. What I do know is we aren’t out of the woods yet in 2009. But I have a sneaking optimism which is somewhat unlike me when it comes to our financial systems…

From the article:

It’s been a grim recession for computer companies. First quarter PC shipments were down 8.1% from year ago levels and down 14% from the prior quarter. But that’s what happens in recessions. The newer data, though, says green shoots are sprouting, with important implications for business and investors.

As this chart shows, the severe drop off in demand has been punishing. But with technology advancing — and computers aging — the seeds for a replacement cycle are in place.

There is no rational reason to think PCs will auto-replenish based on needs. Aging hardware can run less demanding apps in the cloud just fine. Running a business I am holding off on hiring. Thus being a growth business we have extra hardware on hand even if we simply hold back. Other businesses have done layoffs so logically they have computers by-the-extra. Why would all of the declining lines suddenly turn back up Morgan Stanley? They won’t.

As the article indicates Netbooks WILL go up, but at a lower cost per unit. If people switch from MS Office to Google Apps this takes less hardware, not more. And it lets employees work remotely without installing a VPN at great expense and frustration. The article acknowledges this but doesn’t reconcile the amazing recovery in the graph with the stated:

…a key driver of demand in the next 18 months will be smaller and smaller computers. The growing popularity of netbooks, those smaller laptops that can easily fit in a briefcase or handbag and offer basic computing tasks, such as web browsing, are the prime case in point. Netbooks are cheap, and with new, high efficiency processors now on the scene, they will likely get more powerful, and cheaper still.

My point here isn’t that PC sales are in a slump, an article from May that suggested we were at the bottom (nope!), and are going to stay that way for a while. My main point is that Morgan Stanley analysts are still viewing the world through rose colored glasses. And that didn’t work out so well for us last time.

Why do I chew on these bones? Because the market has to correct. Stop trying to delay it, pull the band-aid off, review home values, but lets start talking with candor again please.

Well, I guess I can’t do that anymore…  From David Pogue at the NYT with emphasis added by me.

* Another InfoTrends analyst reported, surprisingly, that digital camera sales have actually peaked, and has declined since last year. Meanwhile, the manufacturers are feeling the pain: Konica Minolta has exited the Canadian market, Sony and Olympus have cut camera production and workforces, and the Kyocera/Yashica/Contax corporation has exited the digital camera market entirely.

The VEL image (above) is from The Price Advantage, by Marn, Roegner and Zawada – definitely worth the $70 USD if you are in marketing given the importance of price in communicating brand value and moving products and services "off the shelf".