Small Business News
Local and national business news for Wichita, Kansas.The Kansas Blue Green Alliance is set to announce the results of the recent Kansas Wind Energy Supply Chain Survey.
First 747-8 takes flight
The test flight of Boeing’s 747-8 freighter has gotten underway after a more than two-hour delayed due to the weather. The flight was scheduled for 10 a.m. Monday but had been delayed due to heavy cloud cover. (BA) (SPR)
Capitol Federal Savings opens Andover branch
Capitol Federal Savings has opened its new branch in the Andover Marketplace development.
Boeing 747-8 to fly Monday
Weather has delayed the first flight of the Boeing Co.’s 747-8 Freighter. (BA) (SPR)
Kansas Sec. of State Thornburgh resigns
Longtime Kansas Secretary of State Ron Thornburgh announced Monday he will resign to take a job with an Olathe-based technology company.
East Wichita Sabor restaurant closes
Restaurateur Melad Stephan has closed his Sabor Latin Bar and Grille at the Waterfront, citing lacking sales.
Frontier, Midwest traffic improves
Republic Airways Holdings Inc. said its paying passenger traffic for January jumped 119 percent, thanks to its 2009 acquisitions of Frontier Airlines of Denver and Midwest Airlines of Milwaukee, which combined posted improved performance measures for the month. (RJET)
Former Corporate Lodging exec takes new job
Former Corporate Lodging Consultants CEO George Hansen has taken a position as director with Kansas City private equity firm TGP Capital Partners LLC.
Bombardier deliveries down in 2009
Bombardier Aerospace announced Thursday it delivered 47 fewer aircraft in 2009. The decline is attributed to the company’s business jet segment, as deliveries for its commercial aircraft increased from the previous year.
El Dorado chooses Kemper to manage Prairie Trails
The city of El Dorado is in negotiations to hire KemperSports to manage its Prairie Trails Golf & Country Club.
If you've got a business idea for WaterWalk, Jack DeBoer's ready to talk to you.
DeBoer's taking his sales pitch for downtown ground national, listing nine parcels on LoopNet, a national Internet clearinghouse for commercial property.
National marketing is just one step in DeBoer's plan to bring WaterWalk opportunities to a broad cross-section of developers, said Doug Rupe, manager of the project.
EPA ethanol rules good news for farmers
Ethanol producers are claiming a significant victory after the federal government last week bolstered their long-standing claim that ethanol is friendlier to the environment than gasoline.
The U.S. Environmental Protection Agency issued new rules and targets for biofuels called the National Renewable Fuel Standard.
The EPA concluded that growing, harvesting, making and transporting corn-based ethanol generates 20 percent less greenhouse gas than producing gasoline.
Creature comforts focus of one test 787
EVERETT, Washington — Boeing Co. designers and marketers are betting that a lot of subtle changes in the interior of the 787 jetliner will add up to strong passenger demand to fly on the plane.
Boeing last week showed off the first 787 with a passenger cabin installed. The plane, the third 787 to be built, is among six that Boeing is using in its flight test program this year.
While the other aircraft will test flight characteristics and aircraft strength, this plane, scheduled to fly later this month, is dedicated to cabin features and safety — the "passenger experience" as Boeing describes it.
iPad seems made for medical industry
SACRAMENTO, Calif. —Apple's new creation, the iPad, may be a novelty to many consumers, but hospitals already are starting to abandon paper-and-pen clipboards for hand-held digital tablets.
The idea is to improve care and safety by providing up-to-the-minute medical information on the patient that can help prevent mistakes. X-rays, medical charts, prescriptions and notes would be readily available at a tap of a finger.
Already, the iPhone has become a favorite tool among young doctors, who use many of the scores of health care-related apps, including encyclopedic information on pharmaceuticals.
Obama seeks ways for small business to create more jobs
LANHAM, Md. —Seeking to create more jobs, President Obama on Friday asked Congress to temporarily expand two lending programs for the owners of small businesses.
Obama said he wants to bolster the impact of the businesses that are the chief creators of new jobs in a struggling economy.
Just hours before he spoke, the nation's jobless rate finally dipped below 10 percent — to 9.7 percent — in the latest government figures.
Contrite Toyota chief to focus on quality control
TOKYO — Toyota's president apologized Friday for the massive global recalls over sticking gas pedals as the automaker scrambles to repair a damaged reputation and sliding sales.
But Akio Toyoda, appointed to the top job at Toyota Motor Corp. last June, said the company is still deciding what steps to take to fix brake problems in the popular Prius gas-electric hybrid.
Speaking at a hastily announced news conference that lasted an hour, a stern-looking Toyoda promised to beef up quality control.
Regulators' statement no comfort to bankers
Federal regulators had a message for nation's banks, thrifts and credit unions on Friday: They want the institutions to do their best to make good loans to creditworthy small businesses, and they shouldn't worry about being scrutinized by regulators for making them.
"The regulators recognize that small businesses play an important role in the economy and know that some are experiencing difficulty in obtaining or renewing credit," the statement said.
The statement was published by the Federal Reserve, the Federal Deposit Insurance Corp., Comptroller of the Currency, Office of Thrift Supervision and the Conference of State Bank Supervisors.
Bombardier deliveries down
Bombardier Aerospace's aircraft deliveries for the past year declined 13.5 percent in the past year but beat analyst expectations.
Orders, meanwhile, were soft.
The company announced Friday that it delivered 302 aircraft during its 2009 fiscal year, which ended Jan. 31. That's down from 349 a year earlier.
Spirit seeks 300 voluntary retirements
Spirit AeroSystems on Thursday announced a voluntary retirement program for Wichita employees age 55 or older.
To be eligible, employees must be managers, salaried or represented by the company's professional and technical union.
The offer is limited to the first 300 who apply, the company said.
Spirit misses 2009 target
Shares of Spirit AeroSystems stock plummeted Thursday after the company reported a disappointing financial performance.
Spirit's results fell short of Wall Street expectations on a day that the stock market was down in general.
Shares closed at $18.42, down $3.97, or 17.7 percent.
B of A, officials face N.Y. civil suit
NEW YORK — The New York Attorney General's office said Thursday it filed civil charges against Bank of America and its former CEO Ken Lewis, saying the bank misled investors about Merrill Lynch before it acquired the Wall Street bank in early 2009.
Civil charges were also being filed against Joe Price, who was chief financial officer at the time of the deal and is now head of Bank of America's consumer banking division.
At the same time Attorney General Andrew Cuomo's office was filing its civil charges, the Securities and Exchange Commission reached a settlement to resolve federal charges it brought against the bank over similar issues. It is the second time the SEC and Bank of America have tried to settle that case.
European EADS customers closer on military transport
BERLIN — The European Aeronautic Defence and Space Co. and seven countries that ordered its A400M military transporter narrowed their differences on financing the troubled project Thursday, the German Defense Ministry said.
Representatives of the two sides who met in Berlin were able to agree to a large extent on the timetable for the plane's delivery and technical performance parameters, a ministry spokesman said on condition of anonymity in line with department policy.
He said that the positions on financing — the main problem — moved closer. EADS and the customer countries agreed "to continue talks on the remaining gap in financing as soon as possible," he added.
Realtors group loses education director, lawyer
Two management team members have left the Wichita Area Association of Realtors in moves unrelated to the group's new chief executive, who started work this week.
Trista Curzydlo, an attorney and legal counsel to the board, and Karen Becker, the group's professional development director, have resigned, WAAR board president Tim Holt said.
In the meantime, new chief executive Tessa Hultz began her new job on Monday.
Dillons loses Kaw Valley plant vendor
A Manhattan company has ended a 42-year vendor relationship providing spring plants and flowers for sale at Dillons stores.
But Kaw Valley Greenhouse won't disappear from the Wichita landscape, with plans in the works to open several "parking lot stores" locally around April 1, company officials said.
Dan Parcel, retail director for Kaw Valley, said the company made a business decision that it "needed to branch out and become independent."
Broker is happy to be where he was in '90s
RP Realty Partners has hired commercial brokers Doug Malone and Leisa Lowry to handle leasing at Brittany Center at 21st and Woodlawn and Normandie Center at Central and Woodlawn.
The brokers, who are with J.P. Weigand & Sons , will work closely with Debbie McNeal , who manages the centers.
With Malone and Lowry focusing on leasing, they say McNeal will be able to concentrate on property management.
Survey looks at which retailers can thrive downtown
In about eight weeks, Wichita officials should have the beginnings of a retail recruitment checklist, spelling out the types of businesses that can prosper in a successfully revitalized downtown.
That's the job before Michael Berne of MJB Consulting, the Goody Clancy consultant studying the city's downtown retail markets.
It's a massive job on the surface: identifying who will shop in downtown Wichita and what they'll want to buy.
Cessna retooling delays deliveries of Skycatchers
Cessna Aircraft has sent a letter to buyers of its new Skycatcher, saying deliveries of its light sport aircraft will be delayed from six to 10 months.
The production line in Shenyang, China, must be retooled, necessitating the delays. The retooling will incorporate changes made to the Model 162 Skycatcher as a result of two spin accidents during flight testing.
Changes include reducing the travel of the control surfaces, increasing the size of the rudder and adding a small aerodynamic ventral fin.
Despite initial worry over city smoking ban, Wichita businesses see no big changes
Taking one approach, Dave Chaffin spent $45,000 to create a smoking room at Players Sports Bar & Grill.
Taking another, Richard Hunt put up a "no smoking" sign at Town & Country Restaurant.
Neither has noticed much change in business since the city's smoking ordinance went into effect 17 months ago today.
37th, Maize could get Menards home store
It looks like Menards could be coming to the Wichita market after all. Word is the deal for the Wisconsin-based home-improvement store to come to 37th North and Maize Road is back on.
"I guess I'd say I'm optimistic," says Paul Jackson , who is working on a 40-acre retail development called Stonebridge on the southeast corner.
But Jackson says there's no signed deal.
Airbus says Asia, Pacific will drive aircraft demand
Big demand for airliners and cargo planes will come out of Asia and the Pacific over the next two decades, a new study says.
Airlines in the Asia-Pacific region will take delivery of about 8,000 new passenger and cargo aircraft worth $1.2 trillion over the next 20 years, according to a study released by Airbus Wednesday at the Singapore Airshow.
The planes represent one-third of predicted global deliveries between now and 2028, Airbus said.
After nearly two decades in decline, the coupon is back.
Thanks to the recession, in 2009 consumers used coupons at a faster clip than they did the year before – the first increase in coupon redemption in 17 years, says a new study by Inmar Inc., a company that processes coupon transactions. Businesses issued 367 billion coupons last year and buyers redeemed 3.3 billion, a 27 percent increase from 2008's 2.6 billion – and the highest usage since Inmar began tracking trends in 1988.
Online coupon access increased 92 percent (Google searches for "printable coupons" and "online printable coupons" more than doubled) and redemption of those Internet deals leaped up 360 percent, although the Internet accounts for only a snippet – 1.5 percent – of all coupons redeemed. Thinking of an online blue light special? Inmar's study suggests 1 in 5 people who receive your Internet coupon will cash in. (How do they measure such a thing? A formula involving page views and the number of times the page is printed.)
Traditional newspaper inserts are still prime territory for bargain hunters – 89 percent of coupons are distributed that way, and the paper vouchers account for more than half of those redeemed at the checkout counter. But digital discounts – often offered through an ever-increasing crop of companies devoted to mobile coupon aggregation – may help you lure new customers. A third of users signed up to one such aggregator, Cellfire, say they've never used a paper coupon, according to Brent Dusing, the company's chief executive. Who's using Cellfire? Sixty percent are women, and the biggest age group is 25 to 34-year-olds. Sixteen percent of users are older than 45.
The Inmar study suggests companies still see the humble coupon – paper or otherwise – as the way to consumers' hearts.
"Brands saw coupons as a key to maintaining brand strength," says Matthew Tilley, director of marketing for Inmar's promotion services division. "If they reduced their promotional presence, they stood to lose sales to lower-priced competitors and store brands – so they doubled down hoping to create brand loyalty once the economic dust settles."
If you're planning to go the coupon route yourself, a primer on trends from Inmar's report: The clip-and-save renaissance forced companies to keep face values down – they declined by a penny to $1.44, a reversal of years of increase. Another change: Expiration periods contracted by 10 percent after years of remaining static.
Are you using coupons? Have you noticed higher redemption rates? What works and what does not? Leave a comment below.
Inc. 5000 Applicant of the Week: GreenLogic Energy
As applications for the 2010 Inc. 500 | 5000 arrive, we thought it would be worthwhile to shine a spotlight on some of the companies that are vying to appear on our ranking of the fastest-growing private companies in the U.S. (For more information and to apply, go to http://www.inc.com/inc5000apply/2010/.) One that caught our eye was Southampton, New York-based GreenLogic Energy.Founded in 2005, GreenLogic works with homes, businesses and municipalities from New York City to the tip of Long Island to install and maintain the best alternative energy solutions. According to GreenLogic co-founder and managing director Marc Cléjan, his company works to eliminate both the financial and environmental burdens of typical power sources.“We refer to ourselves as technology integrators,” Cléjan says. “We don’t build anything, but we search out the best products in the market and bring them to our clients.” The GreenLogic team uses several types of technologies to eliminate environmental impact, including solar photovoltaic (VP) and solar thermal systems, wind turbines, and geothermal heating and cooling. “By putting these technologies together, we can supply 100 percent of energy needs, [including] electric, heating, cooling, cooking, and in the near future, even transportation,” Cléjan explains.From 2007 through 2009, GreenLogic grew from having only 100 clients to 486, growth of 386 percent. He attributes the company’s increase in clients to a comprehensive marketing and sales approach, coupled with a superior network of referrals, which currently accounts for about 60 percent of their business. GreenLogic’s product systems also have 25-year warrantees, and drastically cut down not only the financial aspect of energy, but on carbon dioxide emissions, too. As a result of installing these combined technologies, Cléjan says that 25 percent of his company’s nearly 450 clients have no energy costs whatsoever. “When you take the full value of everything, it adds up to $50 million savings for customers, financially,” Cléjan says. “On environmental costs, the equivalence of carbon dioxide reduction would be if we went out and planted 1,000 acres of trees. Customers are signing up because this makes sense.”
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Will Your Texting Policy Stand Up in Court?
You have a mobile workforce, so you issue mobile devices to your employees. You pay for their mobile service and make sure their equipment is working. Since it's intended for business, you have the right to read employees' text messages. What's more, you have a policy that says so, in so many words. All employees must acknowledge this policy when receiving their Blackberry devices or other smartphones.
Legally, you might think you're well covered -- and you might be wrong. In Ontario, Calif., police officials reviewed an unusually large number of texts sent by a police sergeant named Jeff Quon. They found hundreds of sexually explicit texts. Quon sued, arguing that his bosses had no right to read the texts. The case made its way up the food chain to the Ninth Circuit Court of Appeals, which ruled in favor of the cop. Recently, the U.S. Supreme Court agreed to hear the case, with a final ruling expected this summer.
Whatever the court eventually rules, this is unlikely to be the last employment case involving text messages, and employers find themselves setting text and other communications policies in an increasingly confusing world. "Technology is changing fast and the courts are left to catch up," notes Jason C. Gavejian, an associate at Jackson Lewis LLP. "The biggest challenge is the interplay between federal law, and state and local law," he adds. "In one New Jersey case, the courts ruled that employers have an obligation to make sure employees are not viewing child pornography. That requires monitoring. Now the Supreme Court may rule that monitoring is illegal." If it does, the two rulings will be in direct conflict, and employers in New Jersey will have to choose between disobeying state and federal courts.
It should be clear by now that setting an appropriate policy governing the use of mobile devices is a very serious business. But many small companies don't take it seriously enough, says Michael McAuliffe Miller, partner in the labor and employment group at Eckert Seamans Cherin & Mellott, LLC. "The biggest mistake companies make is that they have no policy on texting and mobile communications," he says. "Or else, they have an off-the-shelf policy that they've downloaded from the Internet. Then they're inconsistent about enforcing the policy, especially with employees everybody likes."
Develop a policy on texting
If the above is a good description of how not to handle texting policy, what's the right way to do it, especially in light of the Quon case? Unfortunately, there's no one right way, but here are some steps that may help:
Have the right people create policy. "In many companies we consult, these policies are set by an IT person," notes James Sinclair, principal of OnSite Consulting, a hospitality industry consulting firm that specializes in helping financially troubled companies regain profitability. "I'm a big believer that these should be management decisions." Top management should set mobile communications policy, with input from legal counsel.
Update the policy often. Especially any time you provide employees with new types of devices. "One of the issues in the Quon case is that the police force's policy had been written to apply to e-mail, not texts."
Reduce expectation of privacy. "Employers should have a policy that says employees have 'no reasonable expectation of privacy.' That's the key phrase," Miller says. The policy should be distributed to employees at regular intervals, and they should be asked to acknowledge their agreement. "Some employers make that consent interactive," he adds. "It could be part of the employee's log-in process."
Specify who can change policy -- and who can't. In the Quon case, the police force had a formal policy that said texts weren't private. But a lieutenant told Quon informally that if he paid for any texts beyond the 25,000 characters a month on his pager plan, no one would read his texts. "You should have in your policy that no one but a designated senior official of the company can change the policy," Miller says.
Train managers about the policy. "You want to make sure managers get proper training so that when they inform employees about the policy they're doing it in a uniform fashion, consistent with what the company wants to accomplish," Gavejian says.
Specify how equipment is to be used. This is a tricky question. You can't define unauthorized use too narrowly, Gavejian says. For instance, if you write a rule against sexually explicit text messages, it won't apply to sexually explicit images. Instead he suggests a rule that company equipment be used only for business communications. At the same time, he acknowledges, such a rule may not be realistic. "You can't stop someone from sending a message home saying 'I'll be late for dinner,'" he notes. "I don't think there's one universal policy everyone can apply. It has to be analyzed on a case-by-case basis, and depending what technology you're using."
Keep messages on your own servers. This is a potentially costly solution that isn't right for every small company. But, because its clients' data is always highly confidential, OnSite Consulting chose to route all e-mails and Blackberry messages through its own servers. "We worked with our general counsel and did a lot of research," Sinclair explains. "By default, if you're going through our server, you're accepting our terms and conditions, and the messages are automatically copied and audited."
This solution may become more popular in the wake of the Quon case: One of the questions at issue is whether his employer had the right to demand his text messages from their pager company, and whether the pager company was right in acceding to that demand. OnSite's server is hosted and maintained by a hosting provider, but it does physically belong to OnSite. "We made it a priority and spent a significant sum for a technology we can't see or directly use and that does not contribute to our return on investment," Sinclair says. "But it provides another layer of protection for our clients." It also provides a real-world model of how to most safely handle employee communications. "We have to do it," Sinclair says. "We can't walk in there as a consulting company and have a less-than-perfect system ourselves."
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Making Cents of Social Media Tools
Let's get this out of the way: much like you, I too am sick of every single "social media" service that's going to magically bring customers in the door and turn them into lifetime fans of your business. Ever since Facebook, Twitter, and LinkedIn became mainstream applications, we've seen a torrent of entrants into the social space that's matched in number only by the sheer volume of vapid celebrity tweets on Twitter.But look underneath the surface and something interesting is truly afoot. Consumers across the globe are sharing media on Twitter and Facebook, friending relative strangers, becoming fans of their cities and their favorite shows on Facebook and talking with their public officials on Twitter. It seems obvious then, that where consumers are, business must follow.As a business owner or manager, where should you start? There are several social media tools that you can begin using right away with low friction and great upside. I have picked a few select examples but this list only scratches the surface. CoTweet: Do you run a service business? Do you live and die by customer service and word–of-mouth? It doesn't matter if you operate a small neighborhood cafe or a low-cost airline, you have most likely created a company Twitter account to engage with your customers who are also on the social network. CoTweet allows all of your employees to share one company Twitter account and engage obsessively with your current and future customers in a common voice. You can also see what the Twittersphere is saying about your business and reach out to them directly via CoTweet. Finally, you can even track all of your Twitter conversations in one place. Think it sounds hokey? Take a look at JetBlue's rather active Twitter stream, powered by CoTweet.SalesForce Chatter: You have undoubtedly come across SalesForce's myriad business offerings over the last few years. One of their latest is a slick collaboration offering called Chatter. Most small and mid-sized businesses deal with collaboration issues -- how do you run a lean and efficient business when your team is stuck in a meeting vortex for half the day? Smart companies are solving the problem by offering their employees the same kinds of social tools we all use to keep in touch with our friends around the globe. Chatter, for example, is a piece of collaboration software that allows your employees to "follow" each other much like on Twitter or Facebook. This way, employees can stay constantly updated on projects that various colleagues are working on across teams and departments. Chatter also allows team members to create groups instantaneously to discuss and collaborate on deals they are working on together. Users can post files, talk deal strategy and competition, and get on the same page without more dreadful meetings. The key point here is that different members of your team can engage with the stream of information at their own pace and "chime in" as needed, or simply consume the updates passively. I think we are going to see an increase in similar collaboration offerings in the next few years and Chatter is definitely a service to keep a close eye on. GetSatisfaction: No matter what business or industry you are in, you have likely already established a basic online presence via a company website that lists and/or sells all of your products online, a blog where you discuss your tactical goings-on, and likely, Facebook/Twitter pages where you engage with actual customers. But what happens when things go wrong with customers? How do you provide professional customer service online in today's hothouse media environment? A simple "Contact Us" page with a 1-800 number simply won't do. Enter GetSatisfaction, a thoughtful service that allows customers to report issues, start conversations and get in touch with your customer service reps painlessly. In a nutshell, the service provides your customers a simple online interface to ask questions and report problems. Your service reps can now maintain an official online presence and work with your customers' most pressing issues. GetSatisfaction also allows grouping of issues into meaningful "views" such as frequently asked questions, recently proposed ideas, most common problems with your product (and solutions!), etc. What's more, you can integrate GetSatisfaction directly into your site's domain at http://service.yourcompany.com, for example. This allows you to control the look and feel and maintain a seamless experience for your customers. Companies left and right are jumping in with both feet. Check out a traditional and established business -- Nike -- that has overcome these qualms and is taking advantage of social customer service. Nike integrates GetSatisfaction on their NikeRunning site, albeit mostly for technology issues.So what are you waiting for? Kick off 2010 with an aggressive investment in a few, or all, of these tools. Saumil Mehta is a product fanatic at Kosmix and an all-around Internet business geek. He tweets with nary a hint of self-promotion at @saumil and blogs about technology and personal rants at http://bitbubble.wordpress.com
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How to Write an Offer Letter
You’ve combed through a barrage of resumes with a critical eye, conducted several rounds of interviews, and finally selected the perfect candidate. The verbal offer has been made and the salary negotiation has ended. After all of this time, energy, and discussion, you ask yourself, “Is an offer letter really necessary?” Although we hate to be bearers of more paperwork, the short answer is yes. Skipping the written offer can lead to confusion later on. Interviews are stressful and emotionally charged occasions, and, even if you’ve mentioned job details throughout the process, it’s easy for either party to misunderstand or forget what has been discussed. Having an offer letter protects both employee and employer by making expectations clear. Documenting exactly what the job’s title, salary, tasks, and benefits are from the start can avoid arguments—or even losing that employee who you spent so much energy and time recruiting—later on.The following guide explain where to start, what to include, and how to personalize your written job offer.How to Write an Offer Letter: Where to Start • Research state laws - Every state has different employment laws. Some states, for instance, may require that a new employee complete a drug or background check within a certain amount of time after he or she is hired. State laws like this one may affect what contingencies and deadlines you want to include in your offer letter, and it’s important to know them before you write it. You can find more information about the employment laws in your state by checking with your department of labor or department of workforce development. • Make a verbal offer - “No candidate should find out they’ve been offered a position because they’ve received an offer letter in the mail,” says Dionna Keels, a senior corporate recruiter for one of the largest privately-owned company in the United States. She suggests making a verbal offer either in the interview or by phone first, and then sending a letter to make the details of the offer official. “It’s great if that first verbal offer can come from the hiring manager, the person who they’re directly going to be working for,” Keels says. “It makes it more personal. It makes it seem like the hiring manager cares and is excited about the person joining their team.”It’s also important to let your candidate know that you’d like to offer them a job as soon as you make the decision; waiting for snail mail to make the announcement can be catastrophic. “The minute I know my hiring manager wants them, I call that person and let them know that we’d like to extend an offer,” says Debbie Hatke, a talent strategy manager at Strategic Human Resources in Ohio. “If you’ve got somebody that is maybe considering your job and another job, and you really like them, you don’t want them to accept another job before they find out that you want them, too. “ Dig deeper: How to Hire Your First EmployeeHow to Write an Offer Letter: Writing the Letter • Start with a template - The easiest way to write a letter is to start with a template, such as Inc.'s offer letter template. The Society for Human Resource Management (SHRM) also has several templates that members can use. Adam Sokoliz, the vice president of operations for National Retirement Partners, an Inc. 500 company that went from 15 to 55 employees within an 18-month period, found his offer letter template googling “offer letter.” Any template will have to be adapted to your company and reviewed by a lawyer, but it will help you out with the verbiage that you need to get started. • The long and short - There are two approaches to writing an offer letter. You can either stick to the basics and send a follow-up letter with details about benefits and orientation once your candidate accepts, or you can give them all of the information at once. While there’s really no right approach, there are advantages and disadvantages to both. “I tend to like to keep it short,” Hatke says. “I don’t like to give the candidate too much information that they might not absorb." It might be appropriate, she notes, to send a more detailed two- or three-page letter if you are almost positive that the candidate will accept. • Legal considerations - If you aren’t intending to use the offer letter as a contract, take care to make sure that it can’t be misconstrued as one. The easiest way to do this is to include an at-will statement. All states have some variation of at-will employment, which means that an employer is free to terminate employment at any time for any reason (though not for an illegal reason) and that employees are free to resign at any time without notice or cause. Including a reminder that you are an at-will employer in your letter prevents your letter from being used as evidence in misrepresentation claims. Check your state’s website for the specifics of its at-will employment. Montana, for instance, only allows at-will employment for a probationary period. The SHRM also suggests these steps to making sure that your letter doesn’t have contractual implications: • Avoid using phrases that imply an indefinite future of employment, such as “job security,” “we’re a family company” or “in the future.” • Avoid written or oral statements of annual salary amounts; provide salary amounts in hourly, weekly or monthly salary terms. Stating an annual salary could imply that you will employ your candidate for at least a year. It’s important to have a lawyer look over your template to make sure that it doesn’t have contractual implications and that it clearly states any bonus program is not a guarantee. Sokoliz saved money by having an employment lawyer look over all of his standard documents, such as his employee handbook and offer letter, at the same time.
How to Write an Offer Letter: What to Include • Basic information: In the opening of your letter, include the title of the position, the start date, exempt or non-exempt status, and full- or part-time status. • Salary: Include how the salary will be paid and how often. How many details about benefits that you include in the letter is up to you. • Job details: List supervisor name, expected start date, and primary tasks. Note that these tasks may expand or evolve over time. • Contingencies: State that offer is contingent upon completion of an I-9 form as well as any other background checks, drug screens, physicals, or confidentiality agreements that you require employees to complete. • At-will employment: Depending on the rules in your state, include a phrase that notes the employment will be on an at-will basis. • Closing: Include a contact that can be reached for any questions about the agreement as well as the date by which you would like the letter to be signed and returned. Typically employers give their employees five to seven days to accept an offer. Hatke suggests that this period include a weekend. “Sometimes it’s not just the candidate making the decision, it’s other people in the family,” she says. “Do we want to move? Do we want to make this change? Is the money enough? Are the benefits going to be adequate? I like to give them some time to discuss it.”Dig Deeper: Legal Hiring Practices FAQHow to Write an Offer Letter: A Personal TouchHatke once hand-delivered an offer letter with a bouquet of flowers. “Small companies have the ability to be a little bit more hands-on than a Morgan Stanley, so they should use that to their advantage,” she says. “You’re not processing thousands of employees, you’re processing maybe two or three, so use that hands-on touch and really make the employees feel like you want them there."Keels typically includes a packet with extra information about benefits and an employee handbook with her offer letters, but she says that it can be nice to also personalize the offer with a mug or something with the company name on it. “You can include something to make that person feel like they’re part of the company, so that it’s more of a welcome packet than just an offer letter,” she says. “And that’s pretty low cost.”If you’re not excited about giving away flowers or mugs, it’s easy to include a phrase in the offer letter about how you are excited about the candidate joining your staff. Many small companies don’t hire often, and the candidate will be an important addition to the staff. It never hurts to let them know it. Dig Deeper: Hiring and Retaining Good Employees…It’s Tough!ResourcesInc.com’s sample offer letter: http://www.inc.com/tools/2000/12/21408.htmlHow to Hire Your First Employee: http://www.inc.com/guides/hr/20710.htmlThe Society for Human Resource Management: http://www.shrm.org/Pages/default.aspxFind a local branch of the SHRM here: http://www.shrm.org/Communities/SHRMRegions-StateCouncils-MAC/Pages/default.aspxThe department of labor’s guide to hiring employees and contractors: http://www.business.gov/business-law/employment/hiring/
The Best Smartphone Apps for Business
DataViz lets you create and edit Word and Excel files and PowerPoint presentations, and view PDF documents. A free version lets you view Word and Excel documents. Cost: $14.99
This app, by Burrotech, lets you use your phone's camera to scan contracts, receipts, and other documents as full-color PDFs and e-mail them to your desktop. Cost: $14.99
See what your customers really think about you with GPS-based app Loopt, which shows you where you're nearby friends -- or customers -- are on an interactive map and displays their Yelp ratings. Cost: Free
Seesmic neatly groups all your Twitter timelines in one screen. The coolest feature: the ability to customize alerts, so you will be notified only when specific tweets are posted. Cost: Free
Quickly exchange contact information without fumbling with cell phone keypads using Bump. It allows two users to swap info simply by tapping their phones together. Cost: Free
Conference via text message with TextPLUS, which enables users to text up to 20 people at once. It's a fast and cheap way to communicate with your employees and colleagues. Cost: Free
It’s unfortunate, but losing your phone is pretty much a part of life. WaveSecure takes a little of the edge off by allowing you to remotely lock the device, track the SIM card, and back up any data so you won’t lose any precious info or contacts. Cost: About $7 for every 3 months, $21 for one year. Free lifetime subscriptions for Android users until the end of March, 2010.
Gone are the days of those loud, startling phone calls in the middle of an important meeting. Using GPS, Locale lets you choose your phone settings based on your most common locations, then switches to that setting automatically when you enter the area. Cost: $9.99
Receive IMs and updates from AIM, Yahoo, Google Talk, MSN Messenger, ICQ, Skype, Twitter and Facebook users all through one program called Fring. Fring consolidates all of your messenger clients into one mobile app so you can chat with multiple people on multiple programs in one place - and on-the-go. Cost: Free
Need a graphic designer in the New York City area? Send out a request on WhosHere, a proximity-based social networking app for iPhone, that connects people using queries and then allows you to make free text messages or calls to them. Cost: Free
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Small Businesses Score Super Bowl Contracts with the NFL
The Super Bowl is not only the pinnacle of many an athlete's and a coach's career, but also some small business owners. The National Football League (NFL) has been striving to make this dream attainable to a larger group of businesses who wish to provide food and other services at the host stadium during the big game. The NFL established the Emerging Business Program in 1994 to give minority- and women-owned businesses the maximum opportunity to participate in the Super Bowl procurement process by providing them with the necessary information to win bids.The responsibility of attracting and educating business owners falls to local Super Bowl Host Committees, which are established in hosting cities well before the games take place. The Host Committee disseminates the preliminary information through various local media outlets, like radio and TV ads, and then it is up to the business owners to take the next step.According to Tisha Ford, manager of event business development for the South Florida Super Bowl Host Committee, small businesses must first register with certifying agencies to become eligible for Super Bowl vending bids. She says her team instructs small businesses to contact their resident Small Business Development Centers and their public school boards for certifying information.Outreach programs, including workshops, begin 14-months before the game, Ford says. “Workshops for the 2010 game were hosted [in 2009] that really focused on linking the small business owners to our Super Bowl purchasing entities, and to help align them with the right certifying local agencies.” Of the nearly 2,000 local small businesses that participated in the 2010 Super Bowl vending procurement process, 548 businesses received bids, with food vendors accounting for the majority, says Ford.Although this year’s Super Bowl will take place February 7, the NFL has already been hard at work preparing for the 2011 Super Bowl, in Arlington, Texas. For just over a year, the North Texas XLV Super Bowl Host Committee has been working to get the local community involved in the procurement process. And, since the 2011 Super Bowl will be the first-ever held in this location, Arlington has been setting a new precedent in terms of interested businesses this early on, says Robbie Douglas, the North Texas XLV Super Bowl Host Committee’s director of business development. “To have over 1,000 businesses registered at this point in the game is really unheard of,” Douglas says. “We’re big here in Texas – we’ll do everything big, and we’ll have more registrants than any other Host Committee.” The North Texas Host Committee held the first of its informational workshops for minority- and women-owned businesses in October 2009, and will host another on February 25, and the final workshop April 6. These sessions are meant to provide business owners with information related to insurance requirements, financing certification, and advice that will help them grow their business even after the 2011 Super Bowl, Douglas says. The online registration deadline to be a 2011 vender is March 31, 2010, and the certification deadline is May 31, 2010. The entire application and approval process can take up to seven months.Renee Dutia, CEO and founder of Regali, Inc. is one business owner who has formed a relationship with the North Texas Host Committee to learn about the procurement process. She will be attending workshops, conferences and educational programs on behalf of her Richardson, Texas-based marketing company, and she is hoping a Super Bowl bid will open Regali to a global audience.“[For the] long term, our relationship with a marquee client such as the North Texas Superbowl XLV Host committee offers us the chance to develop additional global opportunities,” Dutia says. “This is an immediate opportunity to develop a global project in line with, and in tune with, our local community leaders.”
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Welcome to the NFL: Winning a Super Bowl Contract
Mitchell Lombard, owner of Fort Lauderdale's Atlas Embroidery and Screen Printing, isn't forking over $2.7 million for 30 seconds of airtime at Sunday's Super Bowl XLIV – for him, just doing business with the NFL is ad enough.
"It's a feather in our cap," says Lombard, whose 60-person company will churn out thousands of t-shirts bearing the champions' name once the whistle blows. "It's a very small piece of our business – it's more of an accomplishment than anything else." (There's maybe a bit of understatement there: Lombard also says the contract allows employees "to get overtime and make back some of what they didn't get in 2009.")
For the big game, the NFL will hire dozens of small companies for jobs ranging from crafting mini metal lockers (tickets for premium seat holders are delivered in them) to arranging floral centrepieces for pre-game dinners. The businesses jump through major hoops for contracts that usually require a last-minute sprint – and low margins. The big prize, though, is not the money from the work itself – "though it's sweet because the economy is so rocky," says Lombard – but the experience, contacts and credibility that result in big payoffs later. Lesson: Don't judge a contract's worth only in dollars.
"Once you're able to put on your client listing that you did business with the NFL for the Super Bowl, it gives you a lot of credibility," says Solomon Davis, vice president of Tampa's Sol Davis Printing, which had contracts with the NFL totalling $31,000 for Super Bowl XXXV in 2001.
"Did we make a substantial amount of money? No. Did we get some exposure? Yes," he told Tampa Tribune. "Money-wise, it certainly wasn't what people thought we got." (Page 6 of the NFL's handbook for its Emerging Business Program, which targets women and minority-owned business, reads: "Do not expect to 'get rich' through this program." The words "Do not" are underlined and printed in boldface type.)
Still, the publicity played a huge part in the company's ability to exp and, adding equipment and employees (Sol Davis Printing has grown from Davis and his son to 13 people, for example.)
Francine Powers' Miami catering company We're Having a Party has participated in three Super Bowls, and Super Bowl 2010 – for which she's making boxed meals for parking lot attendants and soup for an NFL tailgate party – will be her fourth.
"Each time I bid, I act like it's the first time," Powers told CNN Money. "I don't take any of it for granted. This type of work is not going to make you a ton of money, but it puts your business on a better footing."
Case in point: Another big job - a contract for the Academy Awards Governor's Ball in Los Angeles - came from the corporate caterer she subcontracted for during the 1995 Super Bowl. And the exposure and experience (she says it taught her to handle high customer volume) Powers gained from working the Super Bowl allowed her to move her business from her home into commercial space. She also could afford new equipment.
Looking for a slice of next year's Super Bowl in Arlington, Texas? Don't wait - the game of contracts actually already has kicked off. For details, click here.
Google Asks NSA for Help Fighting Cyber Attacks
In a deal sure to raise questions about privacy and the role of government agencies in hack attacks, Google and the National Security Agency (NSA) are about to pair up in the name of protection, according to The Washington Post.
The deal – still being finalized – would task the NSA with analyzing the notorious Operation Aurora, an orchestrated attack on some 30 companies including Google. The agency would also guide Google on how to safeguard itself in the future.
Google and the NSA declined comment on the pact. But sources told the Post that the partnership was being designed not to compromise users' privacy – that Google might, for example, share information about the codes used in the attack, but not about compromised data.
The deal comes amid reports warning of increasing threats of cyber attack – and as government and business struggle to strike a balance between safety and privacy.
"Acting independently, neither the U.S. government nor the private sector can fully control or protect the country's information infrastructure," Director of National Intelligence Dennis C. Blair told the Senate Select Committee on Intelligence Tuesday.
Calling the Google attacks "a wake-up call" to those who haven't taken threats to cyber security seriously, Blair praised the company and others like it who promptly report attacks. They "greatly help us to understand and address the range of cyber threats," he said.
Google isn't the first company to turn to the NSA for help – an NSA spokeswoman confirmed the agency works "with a broad range of commercial partners and research associates" – but the search engine's sheer size and global influence makes its call for help noteworthy.
"When you rise to the level of Google... you're looking at a company that has taken great pride in its independence," Matthew Aid, author of NSA history "The Secret Sentry," told the Post. "I'm a little uncomfortable with Google cooperating this closely with the nation's largest intelligence agency, even if it's strictly for defensive purposes."
What do you think? Is it appropriate for the government's intelligence agency to work so closely with Google on security?
A New Website Connects Small Businesses to Temporary Help
When Inaki Berenguer moved from Boston to New York to start Pixable, a company that prints photo albums from Facebook pictures, he wasn’t sure if he wanted to take the chance on hiring a full-time employee. Realizing the odds for a nascent start-up staking claim in an economy that’s still rickety at best, he decided to go the safer route: find interns.“With an internship, if it doesn’t work out, no one loses,” says Berenguer, who co-founded Pixable with two fellow M.I.T. graduates a year ago. “But if a full-time employee walks out after two months, it looks bad on the company. We didn’t want to lose money.”That’s when Berenguer decided to enlist the help of Urban Interns, a website that aids small businesses in finding interns, temporary workers, and part-time help. After posting a job listing on the site last September, Berenguer was linked with five impressive interns within three days – one of which, a 24-year-old University of Pennsylvania graduate named Loren Appin, is now fully employed with Pixable as a marketing manager.“We started the site because we really felt like for small business owners, there was no niche marketplace focused on serving hiring needs for part-time jobs and internships,” says Cari Sommer, who founded the site with her partner, Lauren Porat, in February of last year. Through the site, employers pay $40 for a job posting and access to the candidate database for 30 days. Job seekers can search the listings for free, but also have the option of “highlighting” their profile for $12.95. The site initially only posted positions in the New York City area, but now includes jobs in Boston, Chicago, and Washington, D.C., and boasts more than 200 listings in all four cities combined.“I think it’s about small business owners finding the help they need and realizing that doesn’t necessarily take the shape of a full-time hire,” says Sommer. Considering recent employment statistics, it couldn’t be a better time for a site like Urban Interns to enter the recruiting market. For the fifth consecutive month, the temporary help sector added 47,000 jobs in December, while full-time employment capsized by 85,000 positions, according to data published by the Bureau of Labor Statistics. And despite the economic uncertainty, the number of paid positions on Urban Interns has remained around 45 percent, the website reports.Susan Houseman, senior economist at the Kalamazoo, Michigan-based W.E. Upjohn Institute for Employment Research, says increased activity among temporary agencies during a recession is not an uncommon phenomenon.
“Coming out of a recession, you usually see temporary help employment go up,” says Susan Houseman, who specializes in temporary hiring trends says. “Employers want to take a look at people before committing to them and putting them on pay roll.”Among Urban Interns’ most popular listings are those for social media tasks, which, coincidentally, fall under Loren Appin’s new responsibilities at Pixable. After interning for two months, he says he now feels he’s doing “high-level, influential” things to help steer the direction of the company.“I’m very happy with the transition,” Appin says. “Urban Interns set me up with a job I’m actually loving right now.”
Regret that Tattoo? No Problem
When Dr. Will Kirby and his partner decided in 2004 to open a business that would specialize in removing tattoos, they were eyeing a growing market. “Fifty years ago sailors had 90 percent of tattoos. Now, lawyers and doctors and everyone else had tattoos,” says Ian Kirby, Will’s brother and current business partner. The year before, a Harris Interactive Poll had estimated that about 17 percent of Americans had a tattoo.
Dr. Kirby noticed studios etching tattoos everywhere he looked, but he couldn’t find a clinic that specialized in serving the inevitable proportion of these studios’ customers who would regret their permanent body art. He opened the first Dr. Tattoff in Beverly Hills to fill this need. On Dr. Tattoff’s first day of business, 90 people inquired about the process of removing a tattoo. Six years, 50,000 treatments, and two more locations later, the environment for the unusual franchise concept has only improved. In an economy when start-up capital is hard to come by, Dr. Tattoff has plans to open an additional location in Texas later this year, and, if all goes well, to expand to nearly every state within five years.
“I think the demand is rising every day,” says Dr. Kirby. “There are 20-25,000 tattoo parlors putting on tattoos every day and very few people removing them efficiently. If you come to my clinic, we’re busy every day of the week.”In a 2006 Northwestern University study, 24 percent of respondents reported having a tattoo and 17 percent of them were considering getting it removed. More entrepreneurs are looking to cater to that 17 percent, whether it be through tattoo removal, training tattoo removal technicians, or, in one case, developing an easier-to-remove ink. The success of tattoo removal businesses like Dr. Tattoff was benefited by several trends. The most obvious was the increasing social acceptability of tattoos. An art that was once reserved for bikers and gang members has now, according to the Northwestern study, left a mark on nearly a quarter of the population. And as the number of tattoos increases, so does the number of people who regret them. Another trend is the improving technology for tattoo removal. “Before, lasers were kind of like bazookas; they would just blast the skin,” says Ian Kirby. “And doctors really hadn’t had enough experience with them to do much with them.” Now experienced practitioners are often able to remove tattoos with little or no scarring or discoloration. And, thanks to a new die, laser removal may get even easier. Infinitink, which was released by a company called Freedom2 last year, can be removed in fewer laser treatments than a typical ink tattoo. Although Freedom2 has thus far sold less than a mere $100,000 of the ink—tattoo artists like to consider their art permanent—it was met with high consumer approval in marketing tests. Despite lowering the number of paid treatments each tattoo would require for removal, Infinitink is a welcome development among tattoo removal businesses. “If you could get a tattoo and have it for spring or summer, show it off, and get it removed in one or two treatments come October, than I think many many more people who would never get a tattoo would get a tattoo, and many people who already have tattoos would get plenty more because they could just get rid of it if they didn’t want it,” Ian Kirby says. Palomar Medical Technologies, one company that sells lasers to tattoo-removal clinics, saw a 575 percent growth in sales between when they first started selling the device in 2000 and 2007. During the economic turmoil of 2008, purchases of the $75,000 device dropped by about a third, but Branden Morris, Palomar’s integrated marketing manager, commented that sales began to resurge last year. Tattoo removal training programs have also taken off. Louis Silberman, the co-founder of the National Laser Institute (NLI) in Scottsdale, Arizona, is opening a new location in Dallas within the next two months and planning at least five more. Since 2004, the institute has trained more than 3,000 people in laser tattoo removal. Silberman also started a consulting business specifically for tattoo removal start-ups last year. He says he’s currently in discussions with about 50 people who are interested in opening up tattoo-removal clinics, most who have been trained to remove tattoos in one of the NLI’s 3- to 14-day laser courses.In order to open a tattoo removal clinic, indirect supervision of a doctor is required. This means that a doctor has to be available for advice, but not necessarily in the building. Some states also require the technician to be a medical professional, such as a nurse, in order to perform the procedure. Despite these barriers to entry, Silberman sees the tattoo removal business as bound to succeed.“I would say the number one reason people want to take tattoos off is because they love them so much that they want to put on a new tattoo, but all their cool body parts are taken up by old tattoos,” Silberman says. “It made us realize, gosh, there’s a market for this.”
Banker's Fate in Question After TV Catches Him Looking at E-mailed Photos
An Australian banker caught on live TV showing a high interest rate in nearly-naked photos of supermodel Miranda Kerr has launched a viral video that has already drawn hundreds of thousands of views on YouTube – and fresh debate about employer Internet policies.
Macquarie Group client investment manager David Kiely provided a financial community primer for what not do to in public view when he clicked on an e-mail containing racy GQ photos of Kerr as his colleague Martin Lakos appeared Tuesday on the country's Seven Network TV, to discuss the central bank's surprise decision to keep interest rates unchanged.
Apparently oblivious to the live TV interview, Kiely managed a statistical analysis of another sort, assessing three pictures of Kerr in between glances at charts of financial data.
Kiely then glanced over his shoulder before Lakos – the economist doing the talking – crossed through the trading floor to the studio at the end of his 90-second interview. The clip became a viral video hit, earning a five-star rating on YouTube and a place as the top-viewed News and Politics video.
Both Macquarie and the Seven network issued statements in response to viewer complaints.
"On behalf of our viewers, we have expressed our concern to Macquarie," a Seven spokesman said."They have assured us they are taking the appropriate action."
Sydney-based Macquarie announced that the bank "takes matters such as the unacceptable use of technology extremely seriously" and that the matter "is being dealt with internally."
The bank – currently expanding in the U.S. – proceeded to e-mail its 11,500 staff worldwide with a copy of its Internet policy, telling them to "familiarise themselves," reported The Australian newspaper. Kiely – who's worked at the bank nicknamed the "Millionaire Factory" for three years – has been at home since the incident, awaiting a decision on his fate. It's expected later this week.
Internet users lined up in support of K iely, with a Daily Telegraph readers poll showing 85 percent thought he should be allowed to keep his job. Commenters around the world mostly also defended Kiely, pointing out that the Kerr pictures were from GQ, hardly shelf pornography.
Writing under the Internet handle Les, a user on the Perth Now newspaper website: "If he had the magazine there would he have gotten in trouble? Just another attempt to censor the internet and try and make it look like the devil."
Inc. 5000 Applicant of the Week: Booksfree.com
As applications for the 2010 Inc. 500 | 5000 arrive, we thought it would be worthwhile to shine a spotlight on some of the companies that are vying to appear on our ranking of the fastest-growing private companies in the U.S. (For more information and to apply, go to http://www.inc.com/inc5000apply/2010/.) One that caught our eye was Vienna, Virginia-based Booksfree.com.About 10 years ago, Doug Ross had a hunch that Internet retail was going to be big. At the time, books were one of the only products selling online with some popularity, but nobody had tried to rent them—until Ross founded Booksfree.com in 2000. While Netflix was simultaneously developing a similar program for videos, Ross instituted an online library system for books. It worked like a regular library, but he added a few improvements: he would send books directly to customers, charge no late fees, and let members return books through the mail at their convenience in order to receive the next book on their wish lists.Booksfree.com started with an inventory of about 100 best sellers and gained 600 customers within six months using what at the time was a novel rental approach. The four-person operation bought more books as they were requested, which was a significant start-up cost that led to a 90-day break in service."We just told everybody to hang onto our books, don't send them back, we're planning to re-open," says Ross. "We opened 90 days later and didn't lose a customer."The challenge of keeping Booksfree.com in business is long over. If you request a book from the company today, it's likely they'll already own it in their three million-book inventory. Your request will be automatically forwarded to the company's warehouse, where it will be printed and scanned to determine where one of 19 employees can find the book in the 7,500 square-foot storage space. The company processes about 30,000 such requests for books and audio books every month.Avid readers choose the service for convenience, to save paper, and to cut costs. Ross estimates that the average customer spends about $3 per book using his service, depending on which of the 45 different plans they choose. Some customers, he says, read a book every single day.Explosive popularity earned Booksfree.com a spot in the 2008 and 2009 Inc. 500, with the most impressive growth being a period between 2004 and 2007 that saw a 211 percent increase in revenue. Ross says that doubling revenue in the last four years makes his company a good candidate for continuing its trend through the 2010 list.
Inc. Goes Virtual
How Important is Small Business Goal-Setting?
Are small businesses properly highlighting their company goals and objectives for the New Year? According to the 4th Annual Staples National Small Business survey, which surveyed 300 nationally-representative businesses of 20 employees or less, more than 80 percent of businesses do not properly monitor their company’s goals. In response to the results of this report, office supplies giant Staples has teamed up with StickK.com, the online ‘commitment contracting’ company, to launch the first-ever “Staples StickK to It! Business Challenge.” From January 12 through April 12, small business professionals can log onto the initiative’s website staples.stickk.com and choose a goal from within the following focus areas: organization and increased productivity, greening the office, improving your working environment, maximizing the bottom line, and professional development and marketing. To track progress, business owners can enlist a referee – either someone of their choice or StickK will choose – and earn Staples EasyPoints for completing steps towards goals redeemable for office-supply merchandise and services. Staples is setting an example by setting its own company goal of recruiting one million small businesses to sign up for the Challenge, and they are working closely with the Association of Small Business Development Centers (ASBDC) to achieve their objective. On the timeliness of the program, Staples vice president of small business marketing, John Giusti, says, “What we liked about it was that everybody naturally starts off [with] New Year’s resolutions – both professional and personal. We wanted to focus on the initial part of the year and help people with their goals.” According to StickK.com co-founder Ian Ayres, his company’s services are not just for small businesses, but for entrepreneurs and individuals who want assistance committing to a goal. Whether they are getting their resume in order, or they want to commit to setting up office devices they are unfamiliar with, Ayres says with StickK’s design-your-own plan model, “the users are in control.” Lori Becker, president and CEO of the Boston-based publishing company, Publishing Solutions Group, is one small business owner who has signed her company up for the Challenge. She says that for her, goal setting is most vital for company feedback, which is important “because it helps to you understand if you’re going in the right direction, evaluates your progress, and challenges you to improve performance.” But sticking to your goals can be difficult, says Becker, who admits that this program would have been helpful in the past. “There have certainly been times when an employee expressed interest in learning a new task,” she says. “If we had a way to set a goal like this, it’s much more likely that the goal would be achieved.” However, for 2010, Becker says she is committed to monitoring company progress, and her goal this year will focus on generating new business beyond her traditional clients. “One of the things I really recommend,” Ayres adds, “is that people actually try to have at least three supporters. [You will be] much more likely to make some progress.”
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Attacks on Social Networks Increase By 70 Percent
Warning: Social networking is a huge risk to your company.
That's the conclusion of a report released Monday from IT security company Sophos, which found that the number of firms suffering attacks through social media jumped 70 percent between 2008 and 2009. Boston-based Sophos polled 502 companies worldwide for what it's dubbed its "Social Security" survey, part of its Security Threat Report: 2010.
About 57 percent of respondents said they have received spam messages via virtual communities, a 71 percent rise from 2008.
About 36 per cent of users claimed they have received software worms, viruses or other malware through the sites, a 70 per cent leap. (Sophos counted 50,000 variants of existing viruses in 2009, almost twice as many as in 2008.)
Not surprisingly, 3 out of 4 surveyed fear that employees' everyday activity on social networking sites exposes their business to danger and makes sensitive corporate data vulnerable.
Companies often can't block social networking sites because they've become a vital part of marketing and sales strategies. Nearly half of firms allow employees unfettered access to Facebook – a 13 percent rise from 2008 – although 1 in 3 firms has blocked Facebook entirely.
Those surveyed fingered Facebook as the biggest security risk, with 60 percent naming it the top threat. MySpace took 18 percent of the vote, Twitter 17 percent, and LinkedIn, 4 percent.
Everyone knows "you'll find more bad apples in the biggest orchard," Sophos senior technology consultant Graham Cluley blogged of Facebook, whose 350 million users make it the largest online social networking site. (Facebook last month partnered with Internet security company McAfee, offering users free six-month subscriptions to its security software and ordering those who are the victims of cyberattacks to cleanse their computer with a new free tool before logging in again.) But Cluley cautioned companies to keep an eye on LinkedIn, which provides hackers with what is effectively a corporate directory.
“Targeted attacks against companies are in the news at the moment, and the more information a criminal can get about your organization's structure, the easier for them to send a poisoned attachment to precisely the person whose computer they want to break into," Cluley wrote. Thanks to LinkedIn's listings of staff names and positions, it's "child's play to reverse-engineer the email addresses of potential victims."
Sophos's figures echo those released last week from a McAfee study, which warned of the growing threat of cyberattack on critical systems. Both reports come as companies are feeling particularly vulnerable: In December's high-profile Operation Aurora, hackers targeted employees (and their social networks) from Google, Adobe Systems, and two dozen others, hunting for ways to infiltrate the companies' computer systems.
The report also put companies on notice that Koobface – the notorious worm whose name is a Facebook anagram – is evolving and becoming ever-more sophisticated. In 2009, the worm automatically could create bogus accounts complete with pictures and personal information, then befriend strangers, earning access to their details. Antivirus software maker Kaspersky Lab last year concluded that attacks on social networks were 10 times as effective at spreading malware than email, thanks to the false sense of security users feel when they see messages that appear to be from people they know.
Sophos senior security adviser Chet Wisniewski told the San Francisco Chronicle: "Social media provides criminals with an opportunity. When I get a message on Facebook from my wife and I see a link, I'm going to click it."
Obama Outlines $30 Billion Small Business Loan Proposal
Naming job creation as his priority for 2010, President Barack Obama pitched his $30 billion loan program proposal Tuesday to help small businesses grow their companies through increased hiring. In Nashua, New Hampshire, Obama said he hopes to take money repaid by Wall Street banks as part of the $700 billion bank bailout known as TARP to create the Small Business Lending Fund, which would provide capitol to community banks to spur economic growth on Main Street."These are the small, local banks that work most closely with our small businesses – that provide them their first loan, and watch them grow through good times and bad," he told a crowd of more than 1,500 at a Nashua North high school.Citing a now-familiar statistic, Obama noted that small businesses have created roughly 65 percent of all new jobs over the past 15 years. The new loan program could, by loosening credit, help to create thousands of jobs, the president said. And jobs will be Washington's number one focus in 2010, Obama promised.
To encourage hiring, the president supports a tax credit that will encourage companies to hire workers, to pay competitive wages, and to expand facilities such as manufacturing plants. The administration also supports cutting the capital gains tax on small business investment.
Speaking in small-town New Hampshire, which has felt the economic pain of the deepest recession since the Great Depression, Obama stressed that the worst times are behind country. "Many good, hard-working people who met their responsibilities are now struggling because folks on Wall Street and in Washington didn’t meet theirs," he said. Obama bookended the speech by mentioning ARC Energy, a Nashua-based LED light manufacturer; the president toured the company's facilities earlier in the day, scoping out a machine that grows sapphire crystals. "The technology they’ve created is the only of its kind in the world," Obama said. "They’re this little business in a condo out on Amherst Street, and they have the potential to revolutionize an industry."
The president's small business speech comes one day after announcing a $3.8 trillion fiscal blueprint for 2011. The budget calls for an additional $100 billion in spending to bring down unemployment and boost the economy. At the same time, Obama said he plans to reduce the federal deficit, to eliminate 120 government programs, and to cap spending over the next three years. Already, the program has drawn criticism from restive members of Congress — a fact the president conceded in his speech. "Because there’s no magic wand that will make economic problems that were years in the making disappear overnight, it’s easy for politicians to exploit the anger and anguish folks are feeling right now," Obama said.
How to Price Your Products
One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome."It's probably the toughest thing there is to do," says Charles Toftoy, associate professor of management science at George Washington University. "It's part art and part science."There are a variety of different types of pricing strategies in business. However, there's no one surefire, formula-based approach that suits all types of products, businesses, or markets. Pricing your product usually involves considering certain key factors, including pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price. The good news is you have a great deal of flexibility in how you set your prices. That's also the bad news.The following pages will detail how to meet your business goals in pricing products, what factors to consider when pricing, and how to determine whether or raise or lower your prices.Price Products to Meet Business GoalsGet Clear about Making MoneyThe first step is to get real clear about what you want to achieve with your pricing strategy: You want to make money. That's why you own a business. Making money means generating enough revenue from selling your products so that you can not only cover your costs, but take a profit and perhaps expand your business.The biggest mistake many businesses make is to believe that price alone drives sales. Your ability to sell is what drives sales and that means hiring the right sales people and adopting the right sales strategy. "The first thing you have to understand is the selling price is a function of your ability to sell and nothing else," says Lawrence L. Steinmetz, co-author of How to Sell at Margins Higher Than Your Competitors : Winning Every Sale at Full Price, Rate, or Fee (Wiley 2005) and a business consultant in Boulder, Colo. for 40 years. "What's the difference between an $8,000 Rolex and a $40 Seiko watch? The Seiko is a better time piece. It's far more accurate…. The difference is your ability to sell."At the same time, be aware of the risks that accompany making poor pricing decisions. There are two main pitfalls you can encounter – under pricing and over pricing.
Under pricing. Pricing your products for too low a cost can have a disastrous impact on your bottom line, even though business owners often believe this is what they ought to do in a down economy. "Accurately pricing your product is critical at any point in the economic cycle but no more so than in a recession," says Laura Willett, a small business consultant and faculty member in the finance department at Bentley College in Waltham, Mass. "Many businesses mistakenly under price their products attempting to convince the consumer that their product is the least expensive alternative hoping to drive up volume; but more often than not it is simply perceived as 'cheap.'" Remember that consumers want to feel that they are getting their "moneys worth" and most are unwilling to purchase from a seller they believe to have less value, Willett says. Businesses also need to be very careful that they are fully covering their costs when pricing products. "Reducing prices to the point where you are giving away the product will not be in the firm's best interest long term," Willett says. Over pricing. On the flip side, overpricing a product can be just as detrimental since the buyer is always going to be looking at your competitors pricing, Willett says. Pricing beyond the customer's desire to pay can also decrease sales. Toftoy says one pitfall is that business people will be tempted to price too high right out of the gate. "They think that they have to cover all the expenses of people who work for them, the lease, etc. and this is what price it takes to do all that," he says. "Put yourself in the customer's shoes. What would be a fair price to you?" He advises taking little surveys of customers with two or three questions on an index-card-sized form, asking them whether the pricing was fair.Understand Your Other Business PrioritiesThere are other reasons to go into business. Understand what you want out of your business when pricing your products. Aside from maximizing profits, it may be important for you to maximize market share with your product -- that may help you decrease your costs or it may result in what economists call "network effects," i.e. the value of your product increases as more people use it. (A great example of a product having network effect is Microsoft's Windows operating system. When more people began to use Windows over rival products, more software developers made applications to run on that platform.)You may also want your product to be known for its quality, rather than just being the cheapest on the market. If so, you may want to price your product higher to reflect the quality. During a downturn, you may have other business priorities, such as sheer survival, so you may want to price your products to recoup enough to keep your company in business. Factors to Consider When Pricing Products"There are many methods available to determine the 'right' price," Willett says. "But successful firms use a combination of tools and know that the key factor to consider is always your customer first. The more you know about your customer, the better you'll be able to provide what they value and the more you'll be able to charge."Know Your CustomerUndertaking some sort of market research is essential to getting to know your customer, Willett says. This type of research can range from informal surveys of your existing customer base that you send out in e-mail along with promotions to the more extensive and potentially expensive research projects undertaken by third party consulting firms. Market research firms can explore your market and segment your potential customers very granularly -- by demographics, by what they buy, by whether they are price sensitive, etc.. If you don't have a few thousand dollars to spend on market research, you might just look at consumers in terms of a few distinct groups -- the budget sensitive, the convenience centered, and those for whom status makes a difference. Then figure out which segment you're targeting and price accordingly.Know Your CostsA fundamental tenet of pricing is that you need to cover your costs and then factor in a profit. That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Remember that the cost of a product is more than the literal cost of the item; it also includes overhead costs. Overhead costs may include fixed costs like rent and variable costs like shipping or stocking fees. You must include these costs in your estimate of the real cost of your product. "Come up with X first. X is your cost of raw materials, labor, rent, and everything it took to make the product so that if you sold it you would break even," advises Toftoy. "Y becomes what you think you need to make on it. That may depend on your business. Restaurants overall make about 4 percent, which is pretty low. If you want 10 percent then you factor that into your costs and that is what you charge."Many businesses either don't factor in all their costs and under price or literally factor in all their costs and expect to make a profit with one product and therefore overcharge. A good rule of thumb is to make a spread sheet of all the costs you need to cover every month, which might include the following:
Your actual product costs, including labor and the costs of marketing and selling those products. All of the operating expenses necessary to own and operate the business. The costs associated with borrowing money (debt service costs). Your salary as the owner and/or manager of the business. A return on the capital you and any other owners or shareholders have invested. Capital for future expansion and replacement of fixed assets as they age.List the dollar amount for each on your spreadsheet. The total should give you a good idea of the gross revenues you will need to generate to ensure you cover all those costs.Know Your Revenue Target You should also have a revenue target for how much of a profit you want your business to make. Take that revenue target, factor in your costs for producing, marketing, and selling your product and you can come up with a price per product that you want to charge. If you only have one product, this is a simple process. Estimate the number of units of that product you expect to sell over the next year. Then divide your revenue target by the number of units you expect to sell and you have the price at which you need to sell your product in order to achieve your revenue and profit goals.If you have a number of different products, you need to allocate your overall revenue target by each product. Then do the same calculation to arrive at the price at which you need to sell each product in order to achieve your financial goals.Know Your Competition It's also helpful to look at the competition -- after all, your customer most likely will, too. "Are the products offered comparable to yours? If so, you can use their pricing as an initial gauge," Willett suggests. "Then, look to see whether there is additional value in your product; do you, for example offer additional service with your product or is your good of perceived higher quality? If so, you may be able to support a higher price. Be cautious about regional differences and always consider your costs."It may even be worthwhile to prepare a head-to-head comparison of the price of your product(s) to your competitor's product(s). The key here is to compare net prices, not just the list (or published) price. This information could come from phone calls, secret shopping, published data, etc. Make notes during this process about how your company and products -- and the competition -- are perceived by the market. Be brutally honest in your evaluation.Know Where the Market Is HeadedClearly you can't be a soothsayer, but you can keep track of outside factors that will impact the demand for your product in the future. These factors can range from something as simple as long-term weather patterns to laws that may impact future sales of your products. Also take into account your competitors and their actions. Will a competitor respond to your introduction of a new product on the market by engaging your business in a price war?
Deciding to Raise or Lower Prices
One size does not fit all. You can only go so far pricing all your products based on a fixed markup from cost. Your product price should vary depending on a number of factors including:
What the market is willing to pay. How your company and product are perceived in the market. What your competitors charge. Whether the product is "highly visible" and frequently shopped and compared. The estimated volume of product you can sell.That opens the door to raising and/or lowering prices for your products. In order to make this call one way or the other, you should first understand what's already working. Analyze the profitability of your existing products, so you can do more of what works and stop doing what doesn't work. You want to find out which of your existing products are making money and which are losing money. You may be surprised at how many of your products are losing money -- fix those ASAP.You should also constantly re-evaluate your costs. To sell it right, you have to buy it right. If you are having a hard time selling a product at an acceptable profit, the problem may be that you are not buying the product right. It may be that your cost is too high rather than your price is too low.When to Raise Prices -- and HowYou should always be testing new prices, new offers, and new combinations of benefits and premiums to help you sell more of your product at a better price. Test new offers each month. Raise the price and offer a new and unique bonus or special service for the customer. Measure the increase or decrease in the volume of the product you sell and the total gross profit dollars you generate.It is a fact of life in business that you will have to raise prices from time to time as part of managing your business prudently. If you never raise your prices, you won't be in business for long. You have to constantly monitor your price and your cost so that you are both competitive in the market and you make the kind of money you deserve to make."The best way to determine if the product is being priced correctly is to watch sales volumes immediately after making any change," Willett says. "This can be done by watching cash collections (if the business is cash or credit card based) or credit sales (if accounts receivables are used) for the weeks following. If a price increase is too high, customers will react pretty quickly. Also watching the competition can help - if you've made a positive change in prices; competitors are likely to follow suit."But there is a right way and a wrong way to raise prices. You don't want to alienate your existing customer base by raising prices too steeply, especially during a recession. "Rather than have a sudden increase, have a strategic plan over two to five years during which you gradually increase your price 5 to 10 percent," Toftoy advices. "If the business is in trouble and you say, 'Hey, I'm going to mark everything up… that kind of scares people away. This way you haven't gone from $5 to $15. You've gone to $7.50 first.""In terms of raising the price -- this is more easily accepted in 'good' economic times," Willett says. "As the underlying cost of producing the product rises, the customer is prepared to accept the rise in the price to them. If the customer perceives that the firm's costs are going down while their price is going up. This will not be received well and is likely to backfire."When to Lower Prices -- and HowYou may realize that you have missed your target audience by pricing your products too high. You can always choose to discount your products or give customers something for free in order to get them to try your product or generate traffic to your storefront or website. "You have to get people in," Toftoy says. "People like getting something for free or some kind of discount. You can make Wednesday senior citizen day when seniors get a 20 percent discount. Then maybe you can offer a student discount day. Then all you're doing is keeping the price the same, but to those people you're giving them a cut but it's not like you've lowered all prices."Generally, lowering prices is not a good practice unless you are using this strategically to garner market share and have a price sensitive product or if all of your competitors are lowering their prices, Willett says. "An alternative to lowering price is to offer less for the same price which will effectively reduce your costs without appearing to reduce the value to the customer," she says. "Restaurants have found this particularly helpful in terms of portion sizes but this same strategy can be applied to service industries as well."Monitor Your PricingAnother key component to pricing your product right is to continuously monitor your prices and your underlying profitability on a monthly basis. It's not enough to look at overall profitability of your company every month. You have to focus on the profitability (or lack of profitability) of every product you sell. You have to make absolutely sure you know the degree to which every product you sell is contributing to your goal of making money each month. Remember: "People respect what you inspect."Here are some other practices to help you price right:
Listen to your customers. Try to do this on a regular basis by getting feedback from customers about your pricing. Let them know you care about what they think. Keep an eye on your competitors. If you don't have deep pockets and can't afford to hire a market research team, hire some college students to go out on a regular basis and monitor what your competitors are doing. Have a budget action plan in place. Try to have a plan for your pricing that extends out three to six months in the future.You owe it to yourself and to your business to be relentless in managing your product pricing. Remember, how you set the price of the products could be the difference between the success -- or failure -- of your business.Related Links:How to Price Business ServicesIf your business sells services instead of or in addition to products, here is a guide to help you set prices.Case Study: Finding the Right Price for a Hot ProductLuke Skurman's quirky college guides were a big hit. The problem was getting readers to pay. What if he gave the content away?Recession Pricing Strategies: How Low Can You Really Go?Tempted to cut prices? You're not alone.The Price Is RightSetting prices has always been more art than science. New software aims to change that.The Right PriceToo many new entrepreneurs harm their own prospects by under pricing their goods and services. But if those company owners just take the time to think, they can set their prices closer to fair market value.Is It Time to Raise Prices?Boost your bottom line by taking the guesswork out of pricing.Flexing Your Pricing MusclesDespite years of almost no inflation, you may have more pricing power than you think. Here's how to exercise it without bruising yourself in the process.Recommended Resources:The Art of Pricing: How to Find Hidden Profits to Grow Your BusinessBy Rafi Mohammedwww.rafimo.comThe author has a very interesting point about how to get out of the pricing “Catch 22” by adopting a multi-price mindset.How to Sell at Margins Higher than Your Competitors: Winning Every Sale at Full Priceby Lawrence L. Steinmetz, and William T. BrooksNational Federation of Independent BusinessThis trade association for small and mid-sized businesses maintains a section on how to set prices, when to give discounts, and when to raise your rates, among other topics.U.S. Small Business AdministrationGovernment agency for small business matters operates a website devoted to market and price decisions that businesses must make.
How to Build a Brand Internationally
Forty years ago, there were only a handful of truly "global brands" and they were made up of only the biggest corporations -- Coca-Cola, PepsiCo, Colgate-Palmolive, IBM, Shell. Then a rash of upstarts came along, such as Nike, Microsoft, Apple, and Honda, and pushed their brand reputation further than their actual sales footprint. But now that barriers to international trade have come down and the Internet has helped small and mid-sized companies compete on the global stage, building an international brand is a realistic goal for more and more businesses."Only in the last 10 years has global business become the benchmark for how you do business these days," says Hayes Roth, chief marketing officer for Landor Associates, a strategic brand and design consultancy that has worked on international branding with such companies as BP, Panasonic, and KFC. "Thanks to the Internet it's hard to keep your brand just localized. Once you're on the Web, you're accessible pretty much anywhere in the world. It doesn't necessarily make you a global brand but you have to be mindful of the implications."The following pages will detail what an international brand is, how to build a brand internationally, and how to build brand awareness in new international markets.
Dig Deeper: How Asa Candler Built the Coca-Cola Empire
How to Build a Brand Internationally: What a Global Brand IsIn starting a new business or seeking to increase growth at your current business by expanding into international markets, establishing and building a brand identity becomes essential. Branding involves what people think about your business and your products. "Think of a brand as a reputation," says Paul Williams, founder of the international marketing firm Idea Sandbox, which helps companies build their brands. "Building a reputation in any new market, including overseas, involves a first impression, which comes from the initial interactions someone has with your company, products, and services."Businesses can attempt to shape or form the branding of their company or products in many ways, including advertising, media, word-of-mouth, and contact with your products or services. A lot of thought and effort goes into branding, including naming products, designing logos, and ensuring that service is uniform throughout the business. Through continued exposure over time, your brand -- or your reputation -- is formed with potential and existing customers. "A brand is essentially a short cut, it is a way for a customer to get an instant recognition on what the promise is of a product or service and how that will benefit them," Roth says.The reason businesses spent time and money developing brand recognition is so that they can charge a premium for a product or service. People will pay more for a brand name product or service if it is recognized as a leader and a trusted brand and they know what they will get. Apple, for example, can charge more for its computers than some other companies because of its brand reputation for offering innovative design and quality electronics. The same can be said about Mercedes or BMW automobiles.
Dig Deeper: Falling in Love With Growth
How to Build a Brand Internationally: What You Need to Expand
When businesses try to expand their brand globally, those goals don’t change. But there are several steps you should take to make sure that your products or services will have a market overseas, that you can maintain quality in delivering and/or distributing your goods or services, and that your business or product branding meets cultural expectations -- and doesn't insult anyone -- in different parts of the world.
"The secret is doing your homework," Williams says. "Like any long distance relationship, it's got to be managed and needs more work than something you can see and physically touch, but it's not impossible."The following steps may help you in building an international brand:
Make sure you have a market. "Proven success with your current target audience doesn’t automatically mean that your new target will connect in the same way with your products or services," Williams says. "Ask your new market the questions you used to build your initial business plan." First and most important, he says, you’ll want to determine if a market exists for your product. If so, make sure the want or need isn’t already being well met by someone else. If there are existing competitors, what (in the perspective of your potential customers) makes you remarkably different? If there is a market and there are no competitors, make sure you find out why -- are there laws against distributing your products or can consumers buy them through other means? Make sure you can deliver. Make sure you can get your product to, or manufactured within, the new market. "Import and manufacturing laws vary from country to country," Williams says. "Ensure you can make your products reliably and consistently available to your new target markets." Investigate the local laws. You need to make sure your products meet the local standards for construction of components, use of chemicals, disposal of goods, proper labeling of products, etc. Re-examine your business and/or product names. In choosing a name for your business or product, you need to be culturally sensitive if you intend to sell in foreign markets. Make sure product names make sense to customers in your new markets, both in English and in the local translation. Williams, who has done international branding work with Starbucks, recalls how a holiday favorite in the U.S., the Gingerbread Latte, didn't sell well in Germany even though gingerbread was a favorite holiday cookie in that country. Sales of the drink increased dramatically when Starbucks began using the German word for gingerbread and rebranded the drink, the Lebkuchen Latte. If you are considering translating names, don't rely on computer translation. "You don’t want what you think is an effective name to mean something opposite or offend potential customers," Williams says. "Work with someone locally who can help make sure you communicate what you intend." Give your logo another look. Similarly, review your logo to make sure that you don't use any wording or symbols that would offend in a foreign market. "Ensure that any logos or symbols you use make sense and don’t offend," Williams says. "Do an international search to make sure your logo isn't similar to that of another international company." For example, if you are selling products in some Middle Eastern markets, a logo featuring the face of a woman might not be appropriate. The best way to understand these cultural sensitivities is to consult a branding or design firm -- either a local one or an international firm that can research cultural sensitivities. Understand packaging requirements. If you're selling a product, you need to consider the laws and customs and packaging requirements in your new markets before deciding on packaging for your products. Your packaging may use a clear plastic shell that hangs from a rod, but your competition may package their product in a box that can go on a shelf, Williams says. This may put you at a disadvantage. "If you're selling a packaged product around the world there are incredible hurdles," Roth adds. Shipping food across borders may require you to provide more nutritional information on packaging, in more languages, and there may be laws prohibiting the use of certain products in some markets -- even New York City has a ban on trans fatty acids, for example. Learn the local standards and ensure your packaging includes any necessary regulatory information and meets transportation standards. Register trademarks and domain names. Follow the process in your new market to ensure you preserve patent and trademarks. Thanks to the NAFTA Treaty your marks should already be protected in Mexico and Canada, Williams says. If you’re doing business in the European Union filing for a Community Trade Mark (CTM) will protect you. Another consideration is making sure the Internet domain name for your company and product are available. You still want to register a dot-com, which is the most popular domain worldwide for businesses. But you may also consider registering domains using specific country codes -- .nl for the Netherlands or .br for Brazil -- if you are targeting only one or two local markets and plan on providing up-to-date translations of your websites into the local languages.In taking these steps to building a brand internationally, it almost always helps to find local resources to help you understand and enter new foreign markets. You might consider entering into business with a local distributor or retailer in this new market. "It is nearly impossible to understand local culture simply by visiting a country," Williams says. "Find local customers, local translators. Just because you took two years of French in high school doesn’t make you qualified to understand the French market nor do French translations. Just as consumers’ needs are different in Rhode Island from those in Florida and California, so are the needs of consumers in Paris different from those in Marseille."
Dig Deeper: Trademark, Copyright & Patent Protection
How to Build a Brand Internationally: Building International Brand AwarenessThe way to build awareness of your brand in these new markets -- and increase sales because, let's face it, this is your goal -- follows the same formula you use to increase brand awareness at home. "Craft and communicate a message that is relevant to the needs and wants of your customers," Williams says. "Deliver this message in the places they are receptive to it, in terms they can relate to and understand, and through the channels that will truly reach your potential customer."
Craft your message. Having done your homework and researched the new foreign markets, and perhaps engaged the help of a local firm or representative, you have hopeful honed your domestic branding for this new audience. Be sure to note what the competition and other businesses are doing. "What may have seemed witty or charming in the U.S. may be misunderstood in your new market," Williams says. "Be careful playing the 'old and established' angle. An 'old' company in the U.S. can sound impressive, but you may be doing business in a country that has bottles of wine and rounds cheese older than your company." Deliver this message through the right channels. Don't rely on radio advertisements if your new market is a city in which people commute by subway or bicycle. Make sure you are communicating your message where it will be seen. Think about advertising inside the subway. "What are the habits your customer base in that other country? Where are they found? What is their lifestyle? What are they doing?" Williams says. There is no secret answer. It's up to you to connect the dots and find the right approach. Communicate in the right manner. The manner and tone in which you engage your potential and new customers is as important as the words you choose, Williams says. "Manner and tone will come across through your packaging, advertising, online, through your sales people, and even the way you answer the phone," he says. What types of interaction you will have with customers? What will be the tone you choose? What types of sales process and policies will you use? Even though you are based thousands of miles away, this is still a reflection on you and your brand. Remember that.While you focus on raising brand awareness, there is another component to building a brand internationally that needs your attention. You need to be vigilant in maintaining your brand reputation in every market in which you sell. That gets harder as your business gets bigger and expands into more locales. "Once you start having a couple of different offices or are in multiple states or countries or you've gone from 10 employees to 300 -- all of a sudden you're not a mom-and-pop operation anymore," Roth says. "Remember, your brand is a promise. You're starting to make a promise that people are buying into and you need to deliver whatever that product or service is."You need to ensure that your customers' experiences with your product, your business, and your staff are positive. That extends to how you deliver your product, product quality control, how service is delivered or structured, and how your people act. "The larger you get, it's not just you being the representative for your widget," Roth says. "You now head up an organization."In branding, one bad customer experience often resonates longer than one good experience. "One bad experience magnifies 100-fold," Roth says. "You need to have constant vigilance." You might consider developing an employee manual, investing in online training for your staff, and/or keeping in check how fast you grow so that you can ensure that you deliver on your brand promise no matter what market you serve.
Dig Deeper: Start Selling Internationally
Related Links: Inc.com Global Business Environment Section Localizing the Brand (Import/Export Financing) Six Ways to Open an Office Overseas Managing a Multi-Cultural Workforce Gone Global Going Global: 6 Questions You Should Be AskingRecommended Resources:Community Trade Mark (CTM) The Office for Harmonization in the International Market (OAMI). File for your CTM online.
International Branding Organization Non-profit organization dedicated to establishing branding as a specialized area of expertise.
MyBusiness.co.ukImport and export article.Buy USA.gov, US Commercial Services, US Department of CommerceHelps U.S. companies find international business partners, plus resources.Interbrand Surveys & Research “Best Global Brands”A guide to research great global brands.Landor's 2010 Trends ForecastMarket trends in the coming year and their impact on branding.
With IPO, Tesla Hopes to Raise $100 Million
Luxury electric car company Tesla is hoping to re-charge its bank account with a $100 million initial public offering. The company filed documents with the Securities and Exchange Commission on January 29, putting itself in prime position to become the country's first mainstream electric car company.
The six-year-old startup is run by Elon Musk, the South African-born PayPal co-founder who was Inc.'s Entrepreneur of the Year in 2007. The stock sale marks the first IPO from a U.S. automobile maker since Henry Ford's eponymous company made went public in 1956. Tesla's long-anticipated announcement is also the latest in a string of clean-tech start-ups going public. Codexis (No. 924 on Inc.'s 2009 5000), a Redwood City company that crafts designer enzymes for biofuel production, filed its IPO documents in late December. January saw filings from China-based JinkoSolar Holding Co. Ltd (which plans to list on the NYSE), and Fremont-based Solyndra, a maker of skinny tube-shaped solar panels for commercial rooftops.
Tesla's IPO stands out, however, as a potential bellwether that could juice the sluggish appetite for public offerings.
"People are going to be watching this one move through the pipeline," Matt Therian, an analyst with Renaissance Capital, a Connecticut-based IPO research firm, told Reuters. "It's probably a good sign for the IPO market."
Tesla's two-door $109,000 Roadster is the only model the company has on the market, and buyers include George Clooney, Matt Damon, Leonardo DiCaprio and David Letterman. Warren Brown, the Washington Post's automotive critic, called the Roadster "a head-turner, jaw-dropper. It is sexy as all get-out." He declared: "If this is the future of the automobile, I want it."
Tesla plans to answer criticism that its product is a trophy toy for the wealthy by selling a four-door family sedan, the Model S, in 2012. The Model S will sell for $49,900--the price made possible through a federal-tax credit.
The company's 173-page S-1 form filed revealed a few surprises, including that the company will pull the plug on the current generation Tesla Roadster "after 2011 due to planned tooling changes at a supplier." A new model will be available in 2013. The form also disclosed that Musk takes a yearly salary of just $1. (Musk is unlikely to be struggling: He took $175,000 in reimbursements for using his private jet, and received $23.89 million in option awards. And then there's his previous successes: eBay bought PayPal in 2002 for $1.5 billion, and Compaq paid $307 million for Musk's media company Zip2 in March 1999, when he was just 27.)
Tesla – the name pays homage to inventor Nikola Tesla, who made key discoveries in the development of commercial electricity – said in the filings that it had sold 937 Roadsters as of December in 18 countries. Through September 2009, it generated $108.2 million in revenue and accumulated debt of $236.4 million. Its net loss for 2009 was $31.5 million, a reduction from 2008.
The company has cash of $106 million, 514 employees – and a $465 million loan with loan guarantees it received from the Department of Energy on Jan. 21. The money from the IPO will fund a production center for the Model S sedan – which so far has 2,000 orders – and other capital expenditures.
Sponsored Section: Bricks or Clicks
The Internet has wrought profound change on franchising. New concepts unimaginable a few years ago today deliver value to customers almost entirely through the worldwide computer network. Other businesses exploit a combination of bricks-and-mortar locations and virtual storefronts to produce hybrid offerings. And it's safe to say that nearly all franchises today employ mouse clicks to market to consumers, communicate with franchisees, and run their operations.
For many potential franchisees, one of the first decisions comes down to a choice between an online business or one requiring some form of office or storefront outside the home.According to Philadelphia franchise attorney Lane Fisher, a member of the International Franchise Association board of directors, this decision revolves mainly around access to capital.
"In the traditional business world there is generally high capital investment, and there's generally delay in finding real estate and completing construction,"Fisher says. Money and time demands can be important for people who, for instance, have been laid off from corporate jobs and need to replace income quickly, he said.
Online businesses may also require more selling skills compared to bricks-and-mortar opportunities such as restaurants that rely on marketing, location, and walk-in traffic for much of their business, Fisher says. And opportunities involving physical storefronts also usually include some sort of exclusive territory, while an online franchisee could well be competing against the entire world, he adds.
When it comes to concepts that would be impossible without the Internet, Printinginabox.com comes quickly to mind.The Tampa franchiser enables entrepreneurs located almost anywhere to broker printing services that are fulfilled in Florida. Materials to be printed are delivered electronically by customers who click on the services they need at franchisee websites.
Even marketing is handled largely online, says President Brooks Palmer. Some franchisees rely on face-to-face selling, but others do mostly search engine optimization, pay-per-click ads and social networking. "It's an easy sell," Palmer says. "Our quality, turnaround, and pricing is second to none. And with our easy online ordering, customers can process orders without tying up too much of their valuable time."
The company has two physical locations and approximately 400 virtual locations, and Palmer is looking to hit 1,000 in 2010. Printinginabox.com charges no upfront franchise fee, only set monthly fees, and little training is required, Palmer says."Anyone can do thisif they put theirtimeintoit,"hesays.
A similar approach underlies Cybertary, a Roseville, Calif.,franchiser of virtual assistant agencies. Business can be conducted almost entirely online, with franchisees lining up clients and connecting them to virtual assistants through the Internet who perform word processing and other back office tasks."It allows you to work from home,and youcan fit your work intoyour life ratherthanthe other way around,"says Founder and CEO Patricia Beckman.
Cybertary franchisees' customers are mostly small and medium-sized businesses looking for part-time administrative assistance. Demand for virtual assistants has stayed strong despite the downturn, and franchisee demand has helped the company expand to 19 franchise locations --15 in just the second half of 2009, Beckman says. She anticipates adding three or four new franchise locations a month in 2010, and the company also plans to expand to Canada later this year.
While Cybertary uses the Internet to deliver its services, SearchMarketMe of Issaquah, Wash., helps other small business owners conduct Internet-based marketing campaigns. President Jenny Dibble says the company's objective is to fill the niche between solo web designers or SEO practitioners and traditional marketing firms that charge tens of thousands of dollars. "Businesses know enough about online marketing to know they want to do it, but they don't know how to do it themselves," she says."They know the web is where consumers are. But they don't know who to call."
SearchMarketMe's agency owners help design and implement online marketing efforts employing search engines, social media, e-mail, and more. The company has 56 agency owners in its network now, and anticipates adding 10 each month in 2010. "Online marketing is such an amazing field right now to go into," says Dibble."It reallyis just the perfectstorm."
The Internet represents an almost-perfect lead-generation tool for many franchises, including those that seemingly are almost entirely reliant on physical locations. Candy Bouquet International, Inc. of Little Rock, Ark., offers franchises that sell candies in flower-like arrangements. Although each franchisee has a bricks-andmortar location for walk-ins, the parent also provides leads virtually generated from people clicking on the company's main website, says Founder Margaret McEntire
Personal experience, rather than online marketing, is the main reason people become interesting in Candy Bouquet franchises, McEntire says. Many franchisees started by receiving Candy Bouquets themselves, when they were blown away by the way it made them feel --and by the idea of making a living likewise for others."It'ssomething that gets intoyourblood,"shesays..
Candy Bouquet has 577 franchised locations and in 2010 plans to add 150 to 175, including a number of international expansions. McEntire expects candy arrangements to exert considerable cross-cultural appeal. "We're one of the fastest growing international franchises there is," she says.
Customers don't need to walk into a store to do business with from Online Trading Academy. President Eyal Shahar has set up the Irvine, Calif., financial education franchiser as a sort of hybrid bricks-and-clicks business. Many customers first learn of Online Trading Academy through free learning resources found on financial websites, he says. Later, they may take a free class at a bricks-and-mortar training center, then graduate to paid training center classes and online courses for continuing education.
Online Trading Academy generates its revenue from paid financial education classes,but the customer relationship usually starts for free online. "We've found an incredible blend between both clicks and mortar," Shahar says. "Offering only one or the other was not effective." The company has 33 franchises worldwide, and next year hopes to open up in India and other U.S. and international locations.
The business of Valpak Direct Marketing Systems Inc. of Largo, Fla., all started on paper more than four decades ago and has now transitioned into a combination of online and offline worlds. Businesses still pay Valpak to print and distribute coupons to consumers in the familiar blue direct-mail envelopes. But today they also count on Valpak to make coupons available through its website and other digital media.
And it's gone far beyond that, says Kevin Drudge, manager of new franchise development. "We have recently enabled a mobile version of the site, as well as apps for the iPhone and iPod touch, Android, and Palm Pre platforms. We want to be everywhere our customers are looking for savings --in the mailbox, online, and on mobile --in ways that offer benefits for our consumers and advertisers."
Valpak has 175 North American franchisees. "In 2010," says Drudge, "we are focused on building on our core business with our franchisees, expanding our Canadian footprint, and developing, testing, and launching new digital products to the franchise network."
Coupons, training, and office help may be deliverable online, but haircuts? Not yet. Even bricks-dependent franchisers such as Regis Corporation of Minneapolis, Minn., parent of Supercuts and other concepts, do employ the Internet to communicate with franchisees and consumers. But one appeal of bricks-only opportunities is that they aren't vulnerable to the latest innovations, points out Alan Storry, vice president of franchise development.
"The industry is rock-solid and recession-resistant, "Storry says" We don't have to worry about technological obsolescence." Regis has over 12,900 locations worldwide, including around 4,000 franchise locations, with opportunities targeting different consumers and pricepoints. Storry says having all these concepts lets franchisees tap new consumers without having to grow geographically.
In 2010, Storry looks for franchise unit growth from Raze, a year-old upscale men's barbershop concept, and Cool Cuts 4 Kids, which aims to hit younger consumers. "We're looking at aggressive plans to grow all our brands," he says.
Within the hair industry are many niches and one of the most significant is occupied by Fantastic Sams Hair Salons. Jeff Sturgis, vice president for franchise development of the Beverly, Mass., company says their salons appeal to customers in search of a full range of hair care services, including cuts, colors and perms, at prices undercutting boutique salons.
For franchisees, Fantastic Sams offers an opportunity that requires only a flat royalty fee."That means as your business grows you're not paying more to us, which means your fee actually goes down as a percentage of sales,"Sturgis says.
With 1,300 current locations, Sturgis says they'll add 50 to 70 salons in 2010. They'll also address personal care trends. "Hair straightening, for example, has become a fairly popular service in the last year or two, so we've been providing a lot of technical information to make sure we can take care of customers looking for that service," he says.
With online-only, bricks-only and various blends to choose from, where does that leave the franchises that commonly feature lower investments than physical storefronts, but not as much Internet presence as pure click concepts. Actually, in pretty good shape.
Dennis Jarrett, CEO of Stratus Building Solutions of St.Louis, Mo., has grown the cleaning and building maintenance franchise to more than 4,000 locations since beginning in 2005. Green is the differentiator with Stratus. The company employs its own environmentally-preferable formulations for cleaning agents, and generally emphasizes a green approach in all it does. "That's the reason we've grown in leaps and bounds on the account side,"says Jarrett."Everybody wants to do their bit for the environment."
Stratus franchisees typically have a have small office. "But the Internet really drives our brand, our leads and our awareness," Jarrett says. Master franchisees often come from senior-level corporate backgrounds and are interested in growing multiple-unit franchises quickly, Jarrett says.
The same goes for the parent."We hope to be able to open another 20 master locations in the US. And double our unit franchise footprint,going from 4,000 to 8,000,"Jarrett says."We also hope to get into another six countries."
That kind of growth would put a smile on any entrepreneur and, with the help of WhiteScience Worldwide, that smile would be brilliantly white. The Roswell, Ga., company has established almost 1,000 accounts in establishments such as Caesars Palace, Hyatt hotels, and Ulta retail stores as well as cruise ships and shopping malls. Their new Whitening on Wheels (WOW) concept already has close to 100 representatives in the first few months, says President George Nelson.
WOW representatives operating in semi-protected territories buy WhiteScience's dental whitening product and equipment and resell product and services to spas, salons, and similar businesses, where customers will achieve an end result superior to over-the-counter products, at a fraction of the price dentists charge.
WhiteScience is growing rapidly in Israel, England, Italy, Croatia, South America and the Caribbean islands, Nelson says."The beauty of this business is you don't have to invest in brick and mortar and rent,"says Nelson."But it's not purely Internet. It's a hybrid."
The same could be said of franchising in general today, where few if any businesses operate completely off-line. For franchises trying to choose between a concept relying on a homepage or one with a physical storefront, the answer to the question "Bricks or clicks?" is increasingly, "Both."
How to Get People to Change
Forget PowerPoint. If you want to influence employee or customer behavior, charts and data typically won't cut it, say Chip and Dan Heath, authors of the 2007 bestseller Made to Stick and the new Switch: How to Change Things When Change Is Hard. In Switch, the Heath brothers explore ways to manage big changes in life and in business. "Change is hard, because we're schizophrenic," says Chip, a professor of organizational behavior at Stanford's Graduate School of Business. (Dan is a senior fellow at Duke University's Fuqua School of Business.) "Part of us may want to change, but part of us has this emotional connection to the way that we've always done things." In researching their new book, the Heaths consulted experts on subjects as diverse as how to diet and how to change society. "Time and again, we found the same principles coming up, whether it was individual change or organizational change or societal change," says Chip. Those principles, he says, involve appealing to both our rational and emotional sides. Inc. senior editor Bobbie Gossage recently spoke with Chip Heath about the book's findings.
What mistakes do leaders make when they are trying to change their organizations?
One of the main mistakes is when leaders come up with a new vision but never translate that broad analytical vision into something people on the frontlines can actually execute. I was talking to an entrepreneur who wanted his employees to have a "mindset of customer service." But if you're an employee, when you hear that, all you hear is buzzword, buzzword, buzzword, jargon, jargon, jargon.
What if you are dealing with some really stubborn people who don't like change?
You can try to find the feeling that's going to make them empathize with customers. For instance, Microsoft had some very stubborn programmers who thought they were writing brilliant software. But six out of 10 customers Microsoft surveyed couldn't figure out how to use the new feature. When they told the programmers this, their response was, "Where did you find six dumb people?" Microsoft brought the programmers into a usability-testing lab and put them behind a two-way mirror. When the programmers watched a real customer struggle with the software they designed, the programmers immediately started thinking about ways of changing it.
Don't try to argue with a stubborn employee. That appeals to the dark side of the analytical parts of ourselves.
What do you mean by the dark side?
Our analytical capacity is wonderful, but we face too many choices. If you give customers in a grocery store an assortment of 24 jams to sample, they're actually less likely to buy any of the jams than if there are only six jams. Very often we paralyze our analytical side by offering it too much to analyze. The same thing happens if you give your employees too many things to think about -- like having a "mindset of customer service." As an employee, there are 45 things I could do that might improve customer service, and I don't have time to do all of those things, so I end up doing none of them.
What about using carrots and sticks?
If you're offering bonuses or hiring and firing a lot of people so that you can find the few special people who can execute your vision -- those are expensive, time-consuming strategies. Very often, by making small changes in the environment, we lead people in the right direction without that expense.
So you should change the environment, not the employee?
One of the most basic mistakes that psychologists have documented is that we tend to blame people and their personalities for problems and ignore situations. One of my students, a director at Nike, thought of herself as a very open manager. She had an open-door policy, but when she asked for feedback, she learned that her staff thought she was a bad communicator.
After talking with her team, she realized the problem was the way her desk was set up. When an employee came in and sat across from her, her computer was right in the middle. She got distracted when e-mails showed up. After she rearranged her office so she would have to turn her chair away from the computer when an employee came in, she immediately got positive feedback. By fixing that environment, she fixed the problem.
You mention in the book that peer pressure is also a powerful motivator.
Social influence is strong. If a third of your employees aren't filling out their expense reports on time, what they may not know is that two-thirds of your employees are. Sometimes just understanding that a crowd of people is moving in a direction makes people uncomfortable enough to change. One of my favorite studies in the book is about a group of researchers who went into hotels that have those "Please reuse your towels" signs. They changed one of the signs to say, "Most people in this hotel reuse their towels at least once during their stay." Immediately, towel reuse rates went up 25 percent, and laundry bills went down.
Does a bad economic climate affect people's ability to change?
We commonly think that fear is a good motivator, but fear works for only a short time. And this recession has gone on for a couple of years in some parts of the country. So when we try to motivate people, we need to find feelings of hope and optimism.
How do you do that?
There's a technique we talk about in the book: looking for the bright spots. When you face a change situation, you're often demoralized and depressed. Instead of focusing on what isn't working, you need to shift people over to thinking, What have we done in the past that has been successful for us?
I was talking to a small-business owner whose firm is a general contractor. He had been killing himself by doing proposals for big government contracts, which the company would often lose. I asked him, "What are the last three times that you got a contract you were excited about?" Turns out they were all projects from referrals, and they tended to be not the bigger projects but projects for small and medium-size cities where relationships mattered more.
At this firm, they were masters of taking people who might not necessarily agree on what the fire station should look like and helping them resolve those conflicts. The firm shifted to focusing on smaller projects where it was in charge of a more complete project and people's skills were better utilized.
It's easy to get demoralized when you lose and you lose and you lose. But when you think about the last time you won and how you can do those kinds of things more often, that gives people a sense of hope and optimism that will motivate their behavior.
How to Advertise on Facebook
These days, it seems everyone and his mother has a Facebook page. In the U.S., about 100 million unique visitors flock to the social network every month. Many business owners are among them, using Facebook profiles to promote their companies and create customer communities. For some entrepreneurs, social networks have also become a useful advertising platform. Ellie Sawits, CEO of Frutels, a New York City–based maker of chocolate candies used to treat acne, says ads on Facebook are an affordable alternative to the high pay-per-click rates for acne-related keywords on Google's AdWords. "For me, the economics of Google just don't work," she says. But it's not easy to make your ad stand out among the Facebook status updates, party photos, and comments. Here are four tips to help you get started.
1. Choose your targetPeople who use social networks often divulge a plethora of personal information in their profiles, which can prove useful to advertisers. Facebook lets you pick and choose which groups you would like your ads to reach. Companies can target ads based on a user's profile information, such as age, gender, location, college, relationship status, and interests. You can choose to target people who are fans of your company's Facebook page or friends of your fans. Or avoid your fans altogether, if your goal is to broaden your pool of customers.
You can also advertise only to Facebook users who mention certain words in their profiles or status messages. For example, Howie Goldklang, co-owner of The Establishment, a hair salon and spa in Milwaukee, occasionally targets young women in Milwaukee whose pages mention the names of pop stars such as Justin Timberlake and Lady Gaga. Zeroing in on a specific audience lets you get the most bang for your advertising buck, but be careful about narrowing your focus too much. When Chris Lindland, founder of Cordarounds.com, a clothing site based in San Francisco, attempted to target specific colleges in an ad campaign, he didn't get many clicks. "I thought there was a chance to cordon off influencers in some way," he says. "But I had to realize, everyone wears pants."
2. Test, test -- and test some moreAd prices on Facebook are determined by auction, as they are on Google AdWords. You can pay based on either the number of times people see the ad or the number of times people actually click on it. The majority of Facebook advertisers choose the latter, says Tim Kendall, Facebook's director of monetization. Still, it's worth testing both payment types to see which is more cost effective, says David Berkowitz, senior director of emerging media and innovation for 360i, a digital marketing agency. He suggests spending about $20 or so for a small ad buy using both methods. "It's incredibly cheap to run tests," says Berkowitz.
Testing various target demographics is also a good idea, says Adam Golomb, the head of e-commerce at Eat'n Park Hospitality Group, a Pittsburgh-based company that runs a chain of 76 restaurants. Golomb launched an ad campaign last spring, hoping to draw more visitors to Eat'n Park's Facebook page, where the company posts surveys, contests, and coupons. In testing, Golomb found that an ad targeting women performed better than one that targeted both sexes. "The click-through rate dropped dramatically when we went out to both," he says. After he began advertising only to women, the company was able to add nearly 1,000 new fans over a two-week period.
3. Do your own trackingFacebook keeps tabs on how many times your ads are shown and the number of clicks they receive. But it doesn't track what users do after they click -- did they make purchases or just browse and move on? That's the largest drawback of Facebook's ad service, says Lindland of Cordarounds.com. "Return on investment is not immediately trackable," he says. Facebook's Kendall says the company is working to include more information in its reporting tools. Until that happens, it's critical to do your own tracking. "The beauty of microtargeting an ad buy based on location, age, and sex is the data you're going to get out of that," says Michael Kahn, senior vice president of marketing at the digital marketing firm Performics. "To not take advantage of that would be a terrible waste of an opportunity." Sawits of Frutels uses two analytics programs: Google Analytics, which is free, and HitsLink, which starts at about $10 a month, to track which Facebook ads result in purchases. Sawits, who spent $50,000 on Facebook ads in 2009, says her rate of return is about 2 to 1.
4. Make your ads popCompanies write their own ads, which may include a short headline, ad copy of 135 characters or fewer, and a small image. Ads must be crafted carefully, because it's tough to get noticed. Typically, three ads from different advertisers run next to one another. And, of course, there are photos and messages from friends that compete for Facebook users' attention. "It is a social network, so if you put up a traditional ad, you're going to be pushed to the side," says Goldklang. Edgy advertisements, he says, seem to work best for his hair salon, which caters to a young clientele. One advertisement that performed well last year proclaimed, "Springtime is here. Time to get waxed." "I find just being irreverent and trying not to write in traditional copyspeak connects us the best with potential clients," Goldklang says. Since he started advertising on Facebook a year and a half ago, the number of new clients who discovered the salon online has risen 20 percent.
Facebook will reject your advertisement if you use an image that is deemed too risqué or language that is deemed offensive or lewd. But it usually pays to push the envelope. Sawits says one of Frutels's Facebook ads that includes a photograph of a woman licking a lollipop gets the most clicks.
For Facebook's list of common advertiser mistakes, go to facebook.com/ads/mistakes.php.
Elevator Pitch: Prime Time Boxing
The Pitch: "We offer an intensive boxing fitness program for teenagers and adults. Our classes are not aerobics that imitate boxing -- our customers learn actual boxing skills. Because we have urban, industrial, and suburban locations, we know that our concept can thrive anywhere. We plan to expand by converting existing boxing and martial-arts gyms into Prime Time Boxing locations. We have a marketing partnership with Everlast, and we are finalizing a deal with an international sports company to co-brand the new gyms under that company's name. We are seeking funding for marketing and advertising and to hire a sales manager to support our expansion to five new locations."
CO-FOUNDERS: Angelo Nunez and Cary Williams-Nunez
LOCATION: Sacramento
EMPLOYEES: Two full time; seven part time
FOUNDED: 1998
LOCATIONS: Two company owned; one franchise
MONTHLY DUES: $139 to $249, depending on length of contract
2009 REVENUE: $566,000
2010 PROJECTED REVENUE: $750,000 without funding; $2 million with funding
GROSS PROFIT MARGIN: 10 percent
2010 PROJECTED GROSS PROFIT MARGIN: 30 percent
FRANCHISE FEE/ROYALTY: $27,000 up front/6 percent of sales
FUNDING SOUGHT: $500,000
The Investors Weigh InEXPAND, WISELY
Prime Time Boxing's partnership with Everlast gives it credibility, and I like the idea of acquiring existing gyms. The company will need to have a good understanding of its customers and be careful choosing new locations. Entrepreneurs often make the mistake of thinking they can duplicate the success of one or two locations everywhere. Prime Time Boxing should also play up its authenticity. There are a lot of 40-year-old men who want to feel young again. Taking a class that teaches actual boxing skills would give them a chance to do that.
JOHN BURNS General partner, Highland Consumer Fund Lexington, Massachusetts
STEP OUTSIDE THE RING
Similar businesses have a low entry cost, and as Prime Time Boxing starts to grow, it could face tremendous competition. The company must think through its positioning carefully. I like that it has contacted legitimate brand partners, which brings huge clout. But it must be careful not to be too closely aligned with the sport of boxing, which does not have the same cachet that it did 15 or 20 years ago. In its marketing, the company should focus on the art of boxing and clearly communicate that its classes are for exercise and self-defense, not to train people to become Olympic boxers.
GEOFF HILL Vice president, Roark Capital Group Atlanta
TRY FREEBIES
The Nunezes have done a great job building their company. Our region has seen previous investment in this space, so there seems to be some affinity for this type of fitness concept. However, Prime Time Boxing's prices put it at the high end of the fitness market, and in a tough economic climate, people tend to scale back on things like this. I would suggest a lower introductory price or a free weeklong trial to help the company get in front of more potential customers. The company should also address safety issues. Boxing is a much higher-impact activity than traditional exercise, and that may concern investors.
JIM SCHRAITH Member, Foothills Angels El Dorado Hills, California
Using Crowdsourcing to Control Inventory
Susan Gregg Koger is a lot like her customers. The 25-year-old co-founder of ModCloth, a $15 million online clothing retailer based in Pittsburgh, Koger lives and breathes fashion, eschewing mainstream mall taste in favor of offbeat, often vintage-inspired pieces such as floral housedresses and flapper hats. "Our customers are young women in their 20s who live for fashion-forward clothes the same way we do," says Koger. ModCloth has always prided itself on having an open channel of communication with customers, through, for example, frequent contests and an active Twitter feed. Says Koger: "Our internal motto is 'ModCloth is a company you're friends with.' " So she decided to do what any good friend would do: take her customers shopping with her and ask for their advice before making a big purchase.
In October, ModCloth began asking customers to help the company decide whether to carry certain items in its store. ModCloth's initiative, called Be the Buyer, encourages customers to vote online on clothing samples. If a garment receives enough votes, ModCloth will sell the item.
In the past, Koger and her three-person buying team relied on their own fashion sense to select the items offered on ModCloth.com. They traveled around the country, sifting primarily through small collections from independent designers. But the buying team sometimes found clothing samples it loved but couldn't afford to purchase because of the minimum order size. Clothing manufacturers generally need large order commitments -- typically anywhere from 120 to 500 pieces, says Koger -- before committing to production. If a larger retailer hadn't already plucked a certain sample out of the lineup, ModCloth often wouldn't risk committing to the kind of large-scale purchase needed to push it into production.
But now, says Koger, the company can confidently gamble on what were once risky items by securing the most valuable of opinions before taking the plunge -- those of its customers. Each sample is put up for a vote on ModCloth's website for 14 days, and after tallying the votes, the company decides whether it's worth the investment. If an item is picked, the customers who voted in favor of it receive an e-mail when their chosen design becomes available for sale. There is also a comments section for each garment and a feature that lets customers send a link to the clothes to their Facebook and Twitter friends.
Koger says the program benefits everyone involved. Not only do the customers get to play a firsthand role in choosing their own fashions, but ModCloth reduces much of the guesswork involved in fashion buying. "The customers are helping us make a safer financial bet by eliminating the risk," says Liz Bensink, ModCloth's site manager. "Now if we order some of those samples, they'll be exclusive to ModCloth, and we already know that our customers voted them into existence." Plus, the designers get a chance to produce the clothes that larger, more mainstream outlets passed on.
The first batch of 66 product samples appeared on ModCloth's site in late October. By the end of November, those items had received more than 100,000 customer votes, and Koger had decided to carry about 40 percent of them. Molly Miltenberger, a regular ModCloth shopper, weighed in on some of the samples. A self-proclaimed scarf lover, she voted in favor of a green plaid scarf with tassels and another brightly colored striped one with pompon fringe. Only the latter received enough votes to make it into production, but Miltenberger says that's OK. She will buy the one that will be produced. Plus, she is thrilled that the company is letting her vicariously experience her "dream career" of being a professional buyer.
In addition to the votes, ModCloth also received thousands of comments, some of which were harsh -- and often amusing. One customer quipped about a printed yellow dress, "It looks like a cat shred a '70s polyester and then threw up on the shreds." Of another multicolored outfit, a shopper wrote, "I like the cut, but the pattern makes me want to kill myself."
Snarky or not, the comments reflect a high level of customer engagement. Plus, many of the remarks proved insightful, says Bensink. For instance, a heather-gray cotton dress, which did not make it into production, got a fair number of yes votes, but commenters kept pointing out the same flaw in the dress: It was too sheer. In the future, ModCloth may even consider asking a designer to make changes based on the criticisms of customers. "The customers are letting us know why they voted the way they did," Bensink says, "and the point is to see how comments and votes translate to sales."
It's too early to tell what the exact conversion will be, says Koger, but the initiative has already boosted traffic to ModCloth.com. The number of visitors increased 25 percent in the first month after launch, partly because enthusiastic participants were promoting their favorite samples on their Facebook pages, Twitter feeds, and personal blogs. Thrilled by the response, the ModCloth team has continued to add new samples to the voting page. "Items are getting 50 votes mere minutes after we upload them on the site," says Bensink. "It's so exciting for us to watch. We had this customer base ready to interact with us, and we just needed to give them a proper forum."
For more on incorporating customer voting, read senior writer Max Chafkin's June 2008 cover story about Threadless, which produces T-shirts only after they receive high scores from customers. Find it at www.inc.com/keyword/feb10.
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Using Viral Video to Boost Sales
When it comes to explaining what your company does, video often speaks louder than words. YouTube demos featuring seemingly mundane products such as blenders and mattresses have attracted hundreds of thousands of viewers online. And getting noticed doesn't require slick production from a professional studio. Even a company on a shoestring budget, using just a basic camera and simple editing software, can produce an entertaining demo that reaches thousands of prospective customers.
FrontPoint Security is one company that is successfully using video demonstrations to expand its pool of customers. The company, based in McLean, Virginia, sought to position its $99 home security systems, which customers can install themselves, as more user-friendly alternatives to systems from companies like ADT. But sales reps found that the message wasn't getting through to many prospective customers, who had little knowledge of how most security systems worked. Last August, the company began posting video tutorials on its website and on YouTube. Since then, the number of monthly sales leads FrontPoint receives from its website has increased 250 percent. Its most popular video, which shows how to install the company's security system in two minutes, has been seen thousands of times.
FrontPoint now posts several videos a month. They are developed primarily by its marketing and public relations teams, which collaborate on scripts before shooting each clip. Initially, the company hired a videographer, but the employees soon learned enough to film their own clips. FrontPoint has even begun posting demos from its customers, to whom the company sends Flip video cameras to film footage. Once the customers return the cameras to FrontPoint, employees use Apple's Final Cut Pro to edit the footage and add an introduction and background music. "Video was a total black box for us, but we can produce great video now in a day or two," says Chris Villar, FrontPoint's CEO.
FrontPoint has lots of company, as more and more businesses discover the power of videos. Smule, a Palo Alto, California, maker of iPhone apps, produces in-house videos to launch each of its products. Co-founder Ge Wang filmed and edited some of the early productions using a $600 camera from home and iMovie, a free software program for Macs. The company's two demos for its Ocarina app, which lets the iPhone function as a kind of flute, have attracted a combined 1.5 million viewers. One video shows Wang using the app to play the theme from the Nintendo game The Legend of Zelda. The other features several Smule employees and their spouses playing "Stairway to Heaven" on their phones. "What people seem to like about the videos is that they are clearly made by the same people who make the app," says Wang. "Our wackiness and quirkiness show through." The videos' success has translated into brisk sales for Smule. Ocarina is one of the iPhone's top-selling apps, having been downloaded more than 1.5 million times, at 99 cents each.
Although straightforward demos are often effective, using a product in amusing and unexpected ways can pique interest. Most of the videos Kiva Systems sends to prospective clients illustrate how the company's robots, used to retrieve inventory within warehouses, streamline order fulfillment for retailers. But the Woburn, Massachusetts, company also encourages its employees to think of more creative ways to demonstrate its systems, which typically cost $3 million to $5 million. To celebrate the holiday season in 2007, a Kiva employee recorded the warehouse robots moving in time to the march from the Nutcracker Suite. The minute-and-a-half clip generated more than 50,000 views. "When you're talking to somebody about having robots in their facility, you sometimes get a blank stare," says Mitch Rosenberg, Kiva's vice president of marketing. "These types of videos are primarily for fun, but the secondary effect is that people hear about a practical way to use a robot."
There is no sure-fire way to score a hit video, but the most effective demos have several features in common, says Lee LeFever, founder of Common Craft, whose popular "In Plain English" series of animated videos explains complex concepts such as cloud computing and the stock market. "They should focus more on how a product fits into someone's life, not how it works," he says. For instance, if you make software, he suggests pairing screen shots with a story illustrating what particular problem the product solves. In Common Craft's video for LinkedIn, a fictional owner of a small business guides viewers through several of the site's features, which are illustrated with charmingly nontechnical paper cutouts. LeFever advises writing a script in advance, as FrontPoint Security does, to ensure that the video conveys the company's message clearly. He also suggests making the videos as brief as possible, ideally no longer than three minutes.
Sometimes producing an engaging video takes some tweaking. Many services, including YouTube, offer analytics tools that let you see at what points in the video people tend to lose interest and click away. Knowing which parts of the video strike a chord may even help you hone your overall marketing pitch. For instance, Kiva Systems, which uses a tool called Wistia to privately e-mail clips to prospective clients, studies the analytics to see which video segments clients replay most. "If we see that a lot of customers are focused on, for example, energy savings, we'll know to put energy savings first on our reading materials," Rosenberg says.
Ultimately, though, videos can provide value beyond the hard sell. Kiva's video of dancing robots attracted the attention of one of its clients, Zappos, the online retailer, which later filmed a joint promotional video with Kiva at Zappos's warehouse in Kentucky. The lighthearted video, which includes several Zappos employees, stars a Kiva robot that dreams of racing in the Kentucky Derby. Like the Nutcracker clip, the video for Zappos does not focus on the robots' routine warehouse work. But, says Rosenberg, it fills another important function: establishing the company's brand among both prospective and current clients. "It reminds our customers that we're not just a hardware vendor," he says. "We're fun-loving people."
For more on how to create entertaining company videos -- and to see examples of some of the most popular product-related videos on YouTube -- go to www.inc.com/keyword/feb10.
Rounding Up Staff Ideas
Business owners are always on the hunt for new ideas -- ways to cut costs, increase revenue, and improve products and services. Often the most cost-effective source of ideas is right in front of you. "More companies are turning first to their employees to tap into those free ideas lying around in their heads," says Jeffrey Phillips of OVO, an innovation consulting firm in Raleigh, North Carolina. But what do you do when employees are too shy to speak up?
That's the predicament in which Mike Hall found himself. Hall, the CEO of Borrego Solar Systems, an El Cajon, California, company that installs solar power systems, says many of his employees, especially the engineers, are introverted and were reluctant to come forward with ideas. "Other people just didn't see it as part of their jobs to speak up," says Hall.
Last year, Hall decided to organize an internal contest he called the innovation challenge. All 50 of Borrego's employees were encouraged to submit ideas about improving the business. After everyone had a chance to review the submissions hosted on the company's intranet, employees used SurveyMonkey, a free online survey tool, to vote for their favorite idea. The prize for the winner: $500 in cash.
The competition drew only a handful of suggestions, but nearly all of Borrego's employees participated in the voting process, which encouraged Hall to stick with it. He now holds the competitions quarterly and receives more than a dozen submissions per contest. Several of the winning ideas have already been put into place, such as using software to help the sales and engineering teams collaborate. Once employees began to see their suggestions being put into action, says Hall, participation increased. "We knew we had people who might be shy about submitting ideas," he says. "We gave them a forum that encourages everyone to share."
With a standard suggestion box, employee ideas sent to management often seem to disappear into a black hole. Using technology to track and rank each submission can help ensure that every idea gets a fair shake. In the past few years, several companies, including Imaginatik, Spigit, and Brightidea, have launched applications designed for collecting, discussing, and ranking employee ideas. These programs look and function like a cross between Facebook and Digg. With Brightidea's software, for example, each employee has a profile that displays his or her ideas, the number of times he or she has commented on the ideas of others, and whether co-workers felt the ideas and comments were good ones. The program uses this information to tabulate scores for each employee and then ranks the top idea generators. The rankings are intended to create a spirit of competition that encourages participation. "Recognition from their peers is a powerful motivator for many people," says Murat Philippe, a consultant with HR Solutions, a workplace consulting firm in Chicago.
Such systems are helpful when in-person meetings become awkward, whether because of introverted employees or a scattered work force. Fleishman-Hillard, a public relations firm with more than 2,000 employees and 80 offices around the world, began rolling out Brightidea's software to 150 of its employees in July. The software, which starts at about $15 per person per month, is a way for Fleishman-Hillard's dispersed staff members to pitch ideas together. "We used to brainstorm in face-to-face sessions using whiteboards and Post-it notes, which was a laborious process," says Kathie Thomas, a senior vice president at the company.
No matter which system you use, you had better be prepared to turn employees' ideas into action. "There's nothing worse for morale than when employees feel like their ideas went nowhere," says Larry Bennett, a professor of entrepreneurship at the Whitman School of Management at Syracuse University. Companies need to develop a process to bring those ideas to life. At Borrego, each idea that Hall wants to use gets assigned to an executive sponsor. Projects are often spearheaded by the person who made the suggestion, but if an idea is generated from outside a department -- for instance, if someone in engineering comes up with an idea for the marketing department -- a sponsor will be nominated. Employees can track the progress on the company's intranet.
But Hall makes it clear to employees that the winning idea won't always be the first one implemented. After a recent competition, one of the runners-up was quickly put in place. The idea was to begin offering power-purchase agreements, which involves paying the upfront costs to install solar equipment at customers' locations and then charging them monthly for electricity. "We've been able to generate a lot of great ideas by tapping everyone's brains," he says.
Starting a New Business Cooperative
If you are forming a co-op, don't accept just anyone, warns Howard Brodsky, the founder of CCA Global Partners, a multibillion-dollar company that manages co-ops and has more than 3,800 members. Some co-ops make the mistake of indiscriminately adding members in the interest of attaining scale quickly, he says. Here's what you should look for in a co-op partner:
Strong reputation in the industry If early members are known as effective sellers or leaders, others will want to join.
Good credit Co-ops must negotiate with manufacturers and others in the business community. Bad apples reflect poorly on the whole barrel.
A mix of skills Look for smart product, marketing, and finance people. Building a co-op is like staffing a company from the ground up.
Ears to the ground A big advantage for retail co-ops is members' closeness to their customers. Choose members who are good at sensing changes in consumer demand.
Compatible personalities Co-op members need to support one another. They often develop close friendships. Don't include anyonewith whom you wouldn't want to go to dinner.
To learn more about co-ops, go to the websites of the National Cooperative Business Association, NCBA.coop, and BizUnite, a buying group that services co-ops, BizUnite.com.
The Benefits of Joining Cooperatives
Mike Fleck still feels the sting whenever he sees the billboard. You can't miss it if you are heading east on Route 37, a hypnotic unfurling of strip malls, pizza joints, and chain stores in Toms River, New Jersey. The message: "Benjamin Moore has a new home. House of Paints," followed by an address less than two miles down the road.
A few yards past the sign stands Flecks Paint Spot, a Benjamin Moore dealer for 18 years. Last May, Benjamin Moore unceremoniously yanked its line from Fleck's two paint stores, costing him $350,000 worth of annual business -- 18 percent of his sales for 2008. Benjamin Moore told Fleck that, as one of its signature store dealers, he had violated his contract by letting his sales of the product fall and by failing to stock one of its new lines. But Fleck believes the company had another motive: to punish him for joining the Coatings Alliance, a cooperative of paint retailers that manufactures its own products. As a member, Fleck has a financial stake in selling C2, the alliance's line of premium paints, which he offered alongside cans of Benjamin Moore. "I think [Benjamin Moore] wants to stick my head on London Bridge and make an example of me," Fleck says. A spokesman for Benjamin Moore declined to comment.
Despite the blow, Fleck is glad he has joined the co-op. For starters, members of the alliance are rallying around Fleck, extending his payment schedule and including him in trade show presentations. Co-op partners have traveled to New Jersey on their own dimes to work behind the counter and train Fleck's five employees in selling C2 products. They even hosted a wine-and-cheese night at Flecks Paint Spot for local decorators, some of Fleck's most valued customers. "I don't know how they find the time, because they have their own stores to run," says Fleck. "But I appreciate what they're doing. They've made the job enjoyable again."
The Coatings Alliance was born of one man's exile from Corporate Color. Tom Hill III, a vice president of research and development at paint company Pratt & Lambert, was cut loose in 1996 after Sherwin-Williams acquired his employer. After turning consultant, Hill heard frequent complaints about paint manufacturers focusing on the big-box chains and ignoring smaller chains. "The big companies knew how to sell to the Home Depots and Wal-Marts of the world," says Hill. "They did not know how to deal with the independent channel."
Hill wondered: Suppose small paint retailers got together to manufacture their own brand of premium paint -- just for themselves? In other words, how about a co-op? Such organizations are common: Think Land O'Lakes and The Associated Press. Worldwide, 750,000 co-ops serve more than 730 million members, according to the National Cooperative Business Association. Most co-ops form to achieve purchasing or marketing clout.
What Hill had in mind -- a group of retailers manufacturing their own product -- was less common but not unprecedented. Ace Hardware, for example, is a cooperative of more than 5,000 stores that manufactures some of its own branded lines. That model makes increasing sense, as it has gotten easier for small businesses to share information and collaborate, says Stephen Spinelli, the president of Philadelphia University and an expert on co-ops. "If you have enough [retailers] with entrepreneurial incentives working together," says Spinelli, "they can be more innovative, versus a corporate chain."
In 1998, Hill and his co-founder, Greg Stebbe, invited five paint dealers to hash out a business plan for what would become the Coatings Alliance, based in East Amherst, New York. The group envisioned a manufacturer whose customers would also make all decisions. Each member would make a one-time investment of $50,000 to fund research and development, manufacturing, and operations. The alliance would then sell the members products at prices that would raise margins to as high as 60 percent, compared with margins of 30 percent to 40 percent for many other paints. "We flipped the traditional industry model, where paint companies made large margins and retailers made small margins," says Hill.
For its product line, C2 Paints, the alliance adopted a European system that draws on 16 base colors instead of the typical 12. Its marketing innovations included poster-board-size paint samples customers can take home to observe how Swallow Tail blue will look in the powder room, and color chips made from actual paint. That may not sound revolutionary, but standard chips are made from inks or lacquers, which means what customers see in the store may look different from what dries on their walls.
The alliance's governing structure, too, sets it apart from other manufacturers. It is run by six committees composed of member-dealers. That helps provide C2 with quick and reliable market research. "People are basically running focus groups with their customers every day," says Hill. "They bring that feedback straight to us."
The marketing committee holds weekly conference calls to discuss advertising that promotes both C2 as a national brand and individual retail partners. The color committee meets at varying intervals to refresh the 496-pigment line once every three years. "The groups are very small, and the more often they meet, the smaller they are," says Harry Adler, a third-generation owner of Adler's Hardware & Design in Providence. "It's 180 degrees from bureaucratic. We are as quick with decision making as anything I've ever experienced."
The committee chairpeople report to Hill, and Hill reports to the executive committee, which determines the co-op's strategy. One issue before the committee is whether to expand sales of C2 to nonmember paint stores. More stores selling C2 paint would mean more income for the alliance. But some worry that nonpartners won't give the product the kind of sales effort they feel it deserves. "We debate that all the time," says Hill.
Today, the Coatings Alliance is 52 members strong. Its $10 million in annual revenue is used to support R&D, manufacturing, and marketing. The cooperative has accomplished its principal goal: making partners less reliant on large vendors.
But it has also made them competitors to those vendors, and that leaves some potential partners skittish. Hill says several dealers have decided not to join the alliance out of fear of losing their Benjamin Moore lines. All they have to do is look at what happened to Mike Fleck. He continues to sell down his remaining inventory of Benjamin Moore paints. But when that runs out, Fleck will have to rely on his C2 sales, along with those of a few other brands. Still, he is confident C2 will eventually more than make up for the loss of Benjamin Moore. "People try it, and they like it," he says. "And it's much more profitable than any line out there."
Blogger Logic: Jeffrey Zeldman on the Problem With Self-Promotion
No entrepreneur can succeed without getting the word out, writes Web designer and blogger Jeffrey Zeldman at zeldman.com. But that's a lot different from being a loudmouthed self-promoter.
"There is a difference between being arrogant about yourself as a person and being confident that your work has some value. The first is unattractive, the second is healthy and natural. Some people respond to the one as if it were the other. Don't confuse them. Marketing is not bragging, and touting one's wares is not evil. The baker in the medieval town square must holler 'fresh rolls' if he hopes to feed the townfolk."
2009: A Tough Year to Sell a Business
No doubt about it, 2009 was a tough year for selling a business. Tight credit thinned the ranks of buyers, and falling sales and profits meant sellers could no longer hope for the heady multiples they might have gotten just a few years ago. Inc. checked back with six of the companies featured on this page in 2009. What we found was a bit sobering. Only one company changed hands, and even that one was only partially sold. Fortunately, though, not all the news was bad. Here's the update.
NO PROBLEM RACEWAY PARKA partial sale is better than none at allOwner Pat Joffrion sold one of his two racetracks in Louisiana. After six months on the market, it went for $1.5 million to U.S. Racing Club, a company that plans to build a country club and condos around the track. Joffrion is asking $4.9 million for his other track, a drag strip, and other facilities.
MADE FOR SUCCESSA deal done in by the credit crunchThe owners of this audio-book company, Bryan Heathman and Chris Widener, struck a deal to sell this Washington State business in May 2009 to a private equity group putting together a roll-up of self-publishing companies. They had been hoping to get $1.1 million. But the investors couldn't secure adequate financing. Heathman ended up buying out Widener, who is preparing for a U.S. Senate run in Washington. Heathman, who now plans to hold on to the business, regrets not hiring a broker to manage the attempted sale, a chore he says took up 75 percent of his time over the course of a year.
BERRY BROTHERS SAWMILLNo deal, no problem. Business is booming.Railroad ties are this sawmill's primary product. When owner Tim Hanback put his Tennessee mill up for sale for $850,000 last March, the federal government had just announced its stimulus package. Given that railroads are anticipating federal dollars for track improvement, they have been stepping up orders for ties. That spurred Hanback to double the production capability of his mill. Business has since improved dramatically, and Hanback has taken the mill off the market.
THE ISLAND INNStranded for the winterAfter a solid summer season, the Island Inn, located off the Maine coast, had several interested buyers, including foreign investors attracted by the low value of the dollar. But as there are no firm buyers yet and regular ferry service has been suspended for the winter, it will be a while before the owners, Philip Truelove and Howard Weilbacker, will be able to show off their spectacular property. They are sticking to their $4.3 million asking price.
MOUNT WATERMANA ski resort sale that didn't go anywhereRick Metcalf says he received a full-price offer for his California ski resort from a large corporate owner with several ski operations. But the buyer ran into trouble securing financing. The company remains interested, however, as do several other parties. Metcalf anticipates good 2010 results and has no intention of lowering his $1.7 million asking price. He's just keeping his fingers crossed for a snowy winter.
COUNTRY LANES NORTHNo reason to hurryUnlike many businesses struggling through the economic downturn, Robert Carlson's 24-lane bowling facility in Minnesota saw sales rise last year. Maybe bowling really is, as is often said, a recession-proof business. Carlson has received expressions of strong interest from buyers around the country, but none willing to meet his $2.4 million price, which remains firm.
Take a Deep Breath
1. REGISTER
Even if you detest review sites, it's still worth opening a business owner account on Yelp, Citysearch, and any other website on which your customers are talking about you. Registering generally allows you to correct inaccuracies, receive alerts when you are reviewed, and respond to your critics.
2. BREATHEJust because you can respond doesn't mean you should. Anything you say -- in a private message, a personal e-mail, or even a voice mail -- could end up on the Web. If there's no way to respond to a review without being angry, profane, or aggressive, don't do it at all.
3. BE GRACIOUSApologize for what the customer didn't like, and offer to make it right. When Lauren Hart, owner of the Root hair salon in Phoenix, received a two-star review from a woman who didn't like her haircut, she wrote, "I am so sorry that you are unhappy with my work," and then offered to pay for a cut at a competing salon. The woman wrote an equally gracious response and upgraded the Root to four stars.
4. COMPLAINIf you can't be nice to the reviewer, try complaining to Yelp directly. The site removes reviews in cases where there is a conflict of interest (for instance, if the review has been written by a competitor). Other grounds for removal include hearsay, hate speech, and attacks that are unrelated to the customer experience.
5. AVOID THE COURTSThe Communications Decency Act protects websites from being held responsible for the actions of their users. And although defamation lawsuits against Yelpers have, in rare cases, succeeded in getting reviews taken down, suing tends to attract the ire of other Yelp users. If you decide to sue, be ready for more attacks.
You've Been Yelped
On October 30, 2009, Diane Goodman logged on to Yelp.com. Like many business owners in cities across the country, Goodman had lately developed a small obsession with the website, which allows customers to publish critiques of local businesses. She had been visiting her company's Yelp page every day to see what her customers had written about her bookstore. Goodman found reading Yelp reviews to be emotionally wrenching -- but she also couldn't look away.
Scanning the page, Goodman discovered that an amateur critic -- a Yelper -- had written a new review of Ocean Avenue Books, the small store in San Francisco where she is the owner and sole employee. Over the previous few years, Goodman's store had received a handful of reviews on Yelp. Most of them were positive, but they often contained just a touch of cruelty. For instance, there was the customer who gave her five stars out of five but went on to describe her store as "poorly lit, mothball infested, disorganized, and a bit chaotic." Another described Goodman as "a sweet lady" but also recommended that she give the store "a good cleaning."
"I know it's a mess," Goodman says, showing me inside the shop, a 650-square-foot box with tall shelves and haphazard stacks of paperbacks blocking the aisles. "But it's just me working here." Goodman is 49 years old and has an easy smile. She opened the store, at a different location, in 1992. "I have the kind of business where I get really close to my customers," she says. "I'll spend hours talking to people who are lonely. That's the job."
But a few years ago, the job started to change. Whereas before dissatisfied customers might have complained directly to Goodman or simply gone away, now they were seeking relief on the Web. "In the past, if someone was difficult, you could just tell them to leave," she says. "But you can't do that anymore. You talk to someone, and a couple of minutes later, it's on Yelp."
Goodman began reading the latest review. "This place is a TOTAL MESS," wrote somebody who went by the handle Sean C. "I think this place needs to close down for a few days and do a thorough cleaning and organization and get rid of all the crap!"
Goodman was angry -- yet another review about the mess -- and she decided to let Sean C. have a piece of her mind. She clicked a link on Yelp's website, opening a tool that allows business owners to send messages to reviewers. "Why don't you come in here and say it to my face?" she wrote. "Are you too much of a coward?" She told him that she knew who he was -- so few people came into the store that it was obvious -- and that the store was a mess because sales were slow. Over the next few hours, she sent several more angry messages. She warned of a "world of pain." "Goodbye pussy boy I will be contacting your employers," she said. And: "Your mom was a bitch and she didn't teach you how to behave. That's why your life is such a mess right now."
Sean C. went back to the Yelp page for Ocean Avenue Books, amended his review of the store, and attached the e-mails. He also attached the e-mails to a post on Yelp's message boards under the subject "Getting threatening and crazy e-mails from business owner." Dozens of the amateur critics who write reviews on the site jumped to his defense. Someone named Morgan M. wrote, "That owner is fucking crazy," and Patricia H. wrote, "Wow, what a nut job!" A few attempted to defuse the dispute. "Leave the small [companies] alone," wrote Verona N. "They are already struggling to keep their heads above the sea of large businesses."
For two days, Goodman was transfixed by the discussion -- and she started to get paranoid. "I couldn't tell if the people coming into the store were real customers or just people who were going to say something about me on Yelp," she says. A customer would ask an innocuous question -- for instance, "How long have you been open?" -- and Goodman would panic, fearing that her response might become fodder for yet another Yelp comment. "I was saying to myself, 'Come on; that's crazy,' " she says. " 'Don't think this way.' "
At the end of the second day, she decided to end the crisis by apologizing. She figured out Sean's last name -- Clare -- with a Google search and found his address in the white pages. His house was just two blocks from her store. She walked up the stairs to his front porch and, at 6 o'clock on a Sunday evening, knocked on his door.
Accounts differ as to what happened next, but a struggle ensued. Goodman says she started to explain that she had come to apologize for her e-mails and was attacked; Clare says Goodman began yelling, forced her way into his house, and refused to leave. In any case, the two became entangled, grappling until Goodman fell down the steps. When she hit the ground, Clare ran back inside and slammed the door. The police arrived a few minutes later.
They told her she would be booked for battery and remanded to San Francisco General Hospital for a mental health evaluation. She sat and listened, bewildered. Since when, she wondered, was it illegal to knock on a neighbor's door? And why, after all the nasty things that had been said about her in public, was she the one being punished? Wasn't she the victim here?
More than anything, she blamed Yelp. Out of nowhere, the little company had somehow managed to get between her and her customers. It had hurt her business and caused her to humiliate herself, first online and now, improbably, in the real world. "I've never met any store owner who likes Yelp," Goodman says. "We're all gritting our teeth. It's evil."
Everyone's a critic. The cliché has long been a useful way to brush off a caustic remark or a biting comment. But now it's true -- and it's driving entrepreneurs crazy.
Maybe you've seen the red decals posted outside your local takeout joint or your nearest watering hole. They say,"People love us on Yelp." Or, if you happen to own a service business, maybe you have received a red business card from a customer with the words, "You've been Yelped!" printed in large block letters. The calling card directs business owners to the site where they -- and the entire world -- can read what the customer really thinks of them.
A bad Yelp review can damage more than an entrepreneur's ego. Yelp is by some measures the most popular reviews website in the world, with more than 26 million monthly readers and a library of user-generated content that is probably matched only by Wikipedia. There are some eight million Yelp reviews, covering service businesses in most major American metropolitan areas, along with Ireland, Canada, and the United Kingdom.
Yelp was founded in San Francisco in 2004 by Jeremy Stoppelman and Russel Simmons, two men in their 20s who wanted to make it easier for consumers to find good businesses and avoid bad ones. What they created was an online yellow pages with attitude. Yelp lets anyone critique any business and grade it, with ratings from one star to five stars. Yelp then uses a closely guarded algorithm -- the company won't discuss even the basics of how it works -- to determine which reviews are displayed prominently, which are buried, and which are removed from the site. Most Yelp reviews are overwhelmingly positive, but some are painfully negative, often in a personal way. Reviewers will insinuate that there are rats in the kitchen, that the owner looks like a meth head, that the merchandise is stolen. They will suggest that the barber's razors aren't sterilized, that the restaurant manager is racist, or that the business, whatever it sells, is just plain bad -- to be avoided, one star, DO NOT GO HERE!!!
Yelp allows companies to respond to reviews, either by posting a public comment on their Yelp page or by sending a private message to the reviewer. A company can edit basic information on its Yelp listing -- such as a phone number, Web address, and operating hours -- but it can't remove itself from Yelp. The upshot is that in the 33 cities in which Yelp has established a firm foothold, most companies must contend with the fact that they neither control nor wholly understand the mechanism by which millions of customers decide where to spend their money.
Yelp makes money by selling ad space to small businesses. Salespeople typically call a company that has received several reviews and encourage the owner to "claim" his or her Yelp page. This allows the business to respond to reviews and receive traffic reports from Yelp. Once a business has done this, the next step is an offer of a $300-per-month paid sponsorship, which buys the company advertisements elsewhere on the Yelp site. "We explain to them how getting more exposure on Yelp benefits their business," says Jordan Grossman, a salesman in the company's San Francisco office who let me listen in on his sales calls. "Usually the reaction is positive."
But not always. The Web is littered with the testimony of business owners who claim to have been shaken down, slandered, or otherwise damaged by Yelp and its users. Go into any service business, find the owner, and ask her what she thinks about Yelp, and you are liable to get, at best, a mixed response. A restaurateur in Phoenix told me that reading Yelp reviews is like "panning for gold in shit." "Anybody can ruin your business," said another restaurant owner in Lafayette, California. He urged me to "come out and expose these guys."
The speed at which Yelp -- only five years old, unprofitable, and cute in all the ways that Silicon Valley start-ups tend to be -- has managed to attract animus would be enough on its own to make it worthy of examination. But Yelp is also noteworthy as a case study in start-up success. It has managed to pull ahead of entrenched, well-funded competitors while building an enormous community of dedicated writers and readers. According to the Internet research firm comScore, the site's traffic increased 45 percent over the past year, even as Citysearch, a 14-year-old site owned by the Internet conglomerate IAC, saw its traffic drop slightly.
Yelp doesn't disclose its revenue, but the figure is thought to be about $30 million. The company, which has raised $31 million from venture capitalists since 2004, expects to be profitable by the end of the year and has more than $15 million in the bank. Yelp employs roughly 300 people, and Stoppelman, the company's CEO, expects the figure to increase to 500 by the end of this year. Max Levchin -- Yelp's first investor and the co-founder of PayPal -- says he expects Yelp to be "one of the highest-return investments I've ever made." Indeed, as Inc. went to press, rumors surfaced that Google was in talks to buy Yelp for $500 million.
Stoppelman and Simmons met while working as engineers at PayPal, the online payments firm that was founded in 1998, taken public in 2002, and then sold to eBay for $1.5 billion. PayPal was a contentious, intensely competitive place, and it launched the careers of entrepreneurs who helped create many of the successful companies that Silicon Valley would hatch over the next decade. The so-called PayPal Mafia -- led by co-founders Elon Musk, Peter Thiel, and Max Levchin -- founded or provided angel investment to Facebook, Tesla Motors, Digg, Flickr, YouTube, Kiva, Slide, and LinkedIn.
Yelp's beginnings were, as a result, anything but humble. The company was, literally, conceived over lunch and funded -- to the tune of $1 million -- by dinnertime. At the time, Stoppelman and Simmons, who were 26 and 25, respectively, were working in a 10-person incubator created by Levchin. He instructed them to look at a handful of investment ideas, one of which was "the yellow pages for the 21st century."
As Stoppelman and Simmons ate lunch one afternoon in the fall of 2004, they talked about building a service that would allow you to e-mail a question to your friends -- for instance, "Who knows a good doctor in San Francisco?" -- and then publish the results online. (The idea of allowing people to publish reviews without being prompted, which is today Yelp's core offering, was an afterthought.) It was Levchin's 29th birthday, and about an hour after the lunch ended, Simmons and Stoppelman approached their boss and pitched the concept. They had no PowerPoint presentation and no specific revenue plan; just a sense, Stoppelman says, that they could make something that would appeal to lots of people.
Levchin hesitated. "I wasn't sure if it would work," he says. "But the guys were really enthusiastic about it. And in my experience, when you have smart people who work well together, it's foolish not to invest." Maybe because it was his birthday -- or maybe because he had made tens of millions of dollars on PayPal -- Levchin agreed, investing $1 million in the half-baked idea.
During its first few months, Yelp was a failure. It attracted few readers or writers beyond the founders' friends and family, and it did not impress the venture capital investors whom Stoppelman pitched at the end of 2004. After a few weeks of unsuccessful meetings, Stoppelman and Simmons went back to the office and set about trying to improve their product. "We got the doors slammed in our face over and over again," Stoppelman says. "But that was lucky." Had Yelp succeeded in raising money, it probably would have attempted a national rollout. But without any additional funding, he and Simmons had to stay local. "We said, 'You know what? If we just create a cool city guide in San Francisco and it's worth $10 or $20 million, that would be a win. We don't care.' "
The idea of talking about a $20 million exit as a mere "win" betrays a hardheadedness that is one of Stoppelman's strengths but that can also make him seem strangely cold. Stoppelman's analytical tendencies make his reviews almost comically dispassionate. Writing on his blog about a book he read recently, The Lives of Ants, he calls it, "an okay survey of the ant species." A review of the clothing retailer French Connection sums it up as "clothing of medium-level quality."
Without the cash for a national rollout, Stoppelman decided to focus on making Yelp famous locally. With the help of a buzz-marketing guru he hired on a whim, Stoppelman decided to select a few dozen people -- the most active reviewers on the site -- and throw them an open-bar party. As a joke, he called the group the Yelp Elite Squad.
Levchin thought the idea was crazy -- "I was like, 'Holy crap: We're nowhere near profitability; this is ridiculous,' " he says -- but 100 people showed up, and traffic to the site began to crawl up. Because the parties were reserved for prolific reviewers, they gave casual users a reason to use the site more and nonusers a reason to join Yelp. By June 2005, Yelp had 12,000 reviewers, most of them in the Bay Area. In November, Stoppelman went back to the VCs and bagged $5 million from Bessemer Venture Partners. He used the money to throw more parties and to hire party planners -- Yelp calls them community managers -- in New York, Chicago, and Boston. The company now employs 40 of these people.
As Yelp's influence grew, bars and restaurants were increasingly willing to host the parties -- which involves giving away drinks, food, and space -- in the hope that the crowds would come back and write positive reviews. By the summer of 2006, Yelp had amassed 100,000 reviews and was attracting more than a million users a month. That June, the San Francisco Chronicle called it "San Francisco's online 'it' guide for what's hot and not." Around the same time, potential acquirers came calling. Neither Stoppelman nor Levchin will discuss specifics, but they acknowledge that a large technology company offered to buy the then-30-person company in 2006. Yelp turned down the offer. "It was a tough call, and it was contentious at the board level," says Stoppelman. "Because if we said no, we'd have to build a real company."
Building a real company meant creating a sizable sales force. With an additional $10 million raised from Benchmark Capital at the end of 2006, Stoppelman set up call centers full of salespeople in New York and San Francisco. Today, 150 young people spend their days cold calling businesses that have been reviewed. For prices that range from $300 to $500 a month, advertisers get to pick a "favorite review" that appears at the top of their Yelp page, which can help a company with some bad reviews create the impression that it is beloved by its customers. Yelp advertisers can also elect to have their ads appear when someone searches for local businesses in their industry or on the Yelp pages of their competitors.
The pitch has proved reasonably popular -- Grossman told me that a typical Yelp salesperson generates at least $8,000 in monthly billings -- but it has also attracted controversy. Some business owners have reported seeing their Yelp ratings fall after they declined to buy advertising. The rumblings came to the surface in a 2009 article that appeared in the East Bay Express, a weekly newspaper in Oakland, California. The article, "Yelp and the Business of Extortion 2.0," suggested that Yelp salespeople, like Mafia foot soldiers, were threatening businesses with bad reviews if they did not buy a sponsorship package. Stoppelman denies the charges.
But the suspicion and anger are symptomatic of a larger problem, namely that Yelp's algorithm is a mystery to nearly everyone outside the company. Stoppelman says this is necessary to prevent business owners from hiring shill reviewers, but nearly every business owner I spoke with in reporting this story complained of being caught in the crossfire. "We've had some positive reviews suddenly disappear," says Laurie Lavy, the owner of an upscale home furnishings store in Phoenix. "They say it's the algorithm. But the whole thing is weird."
I met Lavy, and two dozen other business owners who had been touched in one way or another by Yelp, after traveling to Phoenix, which is something of a frontier for Yelp. Yelp plans to open a sales office in Phoenix later this year, but right now, the lone face of the company's Arizona operation is a community manager named Gabi Messinger, a compact, bubbly woman of 35.
As far as I could tell, being a Yelp community manager consists mostly of sending little messages of encouragement to users. Messinger has sent thousands of the messages, with bromides such as "cute pic" or "great review." "When I send a compliment, it encourages other people to do the same, and that creates the culture." Being a model Yelper for Messinger also means setting an example of openness. She has written reviews of two sex shops and two gynecologists ("There are not too many people I trust to go 'down there,' but Dr. Bartels and Dr. Webb are on that list!"). It also means engineering a seemingly endless series ofparties and outings.
One afternoon in November, I joined Messinger as she called on a number of businesses that had participated in a Yelp promotion earlier in the year, giving discounts on such things as haircuts and massages to Yelpers. Our first stop was the Root, a salon in downtown Phoenix. The owner, Lauren Hart, a 48-year-old with short black hair, took a break from wrapping a customer's blond locks in foil to tell me about how she came to love the Web. "Two and a half years ago, I didn't know how to turn on my computer," says Hart. "I thought the Internet was something for my kids."
Things started to change when a new customer mentioned to Hart that she had found the salon on Yelp. "When you're in a trend-driven business, if you're not keeping up with the trends, you're just going to get old with your clientele and die," says Hart. She lifted the ban on Internet usage in the office, took a basic computer class at the Apple Store, and showed up at one of the monthly meetings Messinger holds for business owners.
Today, the Root offers deals on its Yelp page -- anyone who mentions the site might get a free conditioning treatment -- to attract new clients, and Hart tries obsessively to avoid negative reviews. When a new client makes an appointment and mentions Yelp, Hart generally checks to see if the person has a profile on the site. If the Yelper has written bad reviews, Hart will make sure she personally cuts the customer's hair. Hart responds to every review -- which in 29 out of 30 cases has meant saying thank you.
Like every business owner, however, Hart cannot help focusing on the rare exceptions. "I've had one negative review," she says. "The customer called in and wanted the owner, and when she came in, I could tell she wasn't my type." The new client seemed edgier than Hart's typical clientele. Hart cut the woman's hair, and at 2 o'clock the next morning, Hart received an automated e-mail about a new review: two stars. She was devastated.
"The fact is, I can walk out this door and trip over salons," she says. "A bad review would be horrible. In this economy, good enough isn't good enough." But unlike Goodman, the bookstore owner, Hart kept her head. She composed an apologetic reply, and, using her Yelp account, sent a private message to the dissatisfied customer. Hart suggested a competing salon and offered to pay for a second haircut there. The result? The two-star review became a four-star review. (For more on how to respond to a bad review, see "Take a Deep Breath.") Hart told me that if a junior stylist were to get a review below three stars, she would consider firing the stylist. "My girls flinch every time we get one of those e-mails," she says.
And yet Hart loves Yelp. Amid a recession that has been disastrous for most retail businesses, sales at the Root have grown 148 percent compared with last year's. Meanwhile, the Yelp traffic -- Hart says she gets two or three new customers every day -- has allowed her to stop advertising in the local neighborhood newspaper, which had cost her $400 a month. Apart from the services and discounts she offers Yelpers, she hasn't paid Yelp a penny. "There are a lot of business owners who feel like Yelp reviews just happen," she says. "But it's not true. Responding to reviews, giving offers, maintaining your page -- it all makes a huge difference."
If Hart's story shows what's possible when business owners embrace Yelp, it also helps explain why some yearn for a world in which a single mishap might go unnoticed and in which a business's employees don't have to live in terror of customers' comments. Though the Yelp users I met in the course of reporting this story seemed well intentioned enough -- some were amateur writers who enjoyed the creative process of composing a review; others used the site to find like-minded friends -- it's impossible to write a negative Yelp review without experiencing the thrill of righteous indignation. One Yelp Elite member in San Francisco, a man who has written more than 100 Yelp reviews, told me, "I write reviews to screw over businesses I don't like."
This makes sense, when you think about it. American society has, for more than a century, been defined by corporate power, and the Internet has upset that balance, mostly for the good. When someone sends a Twitter message about his baggage being lost by a large, publicly traded airline -- "Delta sucks!" -- it's hard to argue that this is a bad thing. Delta does suck in that instance. And Delta can take it.
But Yelp encourages people to be unsparing in their critiques of companies that can't take it -- companies that are small, independent, and not particularly profitable. The site capitalizes on our impulses to take down the Man, but, in doing so, turns us against mom-and-pop businesses -- already hit by globalization, consolidation, and a recession. At its best, Yelp is meritocratic, helping good businesses like Lauren Hart's to thrive. At its worst, Yelp empowers people who do not need to be empowered at the expense of those who are already struggling. There's a lot of insanity in Diane Goodman's story, but there's also this truth: Review sites can be unbelievably cruel.
On some level, Stoppelman seems to know this. In 2008, the company gave business owners the ability to respond privately to reviews. Last year, Yelp allowed businesses to publicly confront their critics. "The main thing we've done is try to do a better job reaching out to the local business community," says Stoppelman, who regards entrepreneurs' anger as a source of great disappointment. "The most frustrating thing is talking to owners who say, 'Yelp has been great,' and then they think for a minute and remember the one negative review. I understand that people want to be heard, but you're meeting the Yelp founder, and all you want to talk about is a single review that doesn't even matter in the grand scheme of things. I don't understand that."
There's arrogance in this remark, but Stoppelman's suggestion that business owners simply move past their bad reviews has merit. Yelp is not your friend; it's your critic. And if it became your friend -- by, say, censoring angry reviews -- customers would probably abandon it for a site that allowed them to more fully express themselves. Or they could just post an angry blog, tweet, or Facebook message. Questions about whether Yelp is good or bad are academic.
"I don't like Yelp, but I realize I can't do anything about it," Diane Goodman says near the end of our conversation. She tells me that though she doesn't regret going to Clare's house, she does understand why he might have felt threatened. "I'm sorry I wrote those mean things," she says. "If I read those e-mails, I'd probably think I was crazy, too."
Goodman's case may be extreme, but business owners all over the country are struggling with this new order. "I sometimes wish these people who tee off on you would have to divulge where they worked so I could criticize them," says Julian Wright, the owner of La Bocca, a restaurant in Tempe, Arizona. "But the reviews help us get better faster." Brad Keeling, the owner of a chain of dry cleaners, says Yelp reviews are to be heeded. "It's the public's opinion, and I don't mind hearing it," says Keeling. When someone criticizes him, he defends himself or simply apologizes. In several cases, he has been able to get customers to remove or at least revise their bad reviews. He estimates that 10 percent of new customers find him on Yelp. "Ignoring Yelp gets you nothing," he says. "You can't hate the future."
Of course, it's easy to see why so many business owners, faced with millions of Yelpers, each capable of ruining or at least damaging a business, choose to look on the bright side. Jane Reddin, who owns a crafts store in Phoenix, complains to me for 10 minutes straight about Yelp, assailing the company's business model, its arrogant salespeople, and the stupidity of the average Yelp reviewer. "They don't know what they're talking about," she says. "It's as if they're complaining that the gazpacho is cold."
So, I ask, you're not the biggest fan of Yelp?
She protests. "That's not what I'm saying at all," she says. "I adore the community aspect of Yelp." She thinks the Yelpers are an asset to the Phoenix business community. She is a happy user of Yelp and has written 38 reviews, most recently giving five stars to Oliver & Annie, a pet store.
Reddin pauses for a second, puts a hand on my shoulder, and smiles.
"Can you imagine if I said something negative in a national magazine about Yelp," she says. "What would happen to my reviews?"
Max Chafkin is Inc.'s senior writer.
Saul Griffith's House of Cool Ideas
Like any thoughtful person, Saul Griffith has ideas as he walks around: Hey, wouldn't it be cool if… You know, we sure could use… Why doesn't someone make a better… But it's hard to imagine anyone who does this as often, and in such a variety of areas, and -- this is the important part -- with such acute ability to execute them. Whereas most people muse, Griffith makes.
"My life is a living laboratory," Griffith likes to say, and he certainly does live it that way, walking around until he bumps into a problem and then retreating to his San Francisco lair to figure out how best to create his way around it. The bearded, 35-year-old Australian is a rare specimen in the commercial universe: a hybrid of inventor and entrepreneur with the aptitude to identify things that the world needs and then make and sell them. He is, for lack of a better and more established term, an inventrepreneur, and to follow Griffith around is to be constantly stooping to pick up ideas for products and companies that trail behind him like coins that have fallen through a hole in his pocket.
"Saul is an omnivorous inventor," says Neil Gershenfeld, the director of MIT's Center for Bits and Atoms and one of Griffith's former postdoctoral advisers at that university. "He invents the way most people breathe, as a fundamental aspect of how he functions."
When the MacArthur Foundation handed Griffith one of its famous "genius grants" in 2007, it called him a "prodigy of invention in service of the world community." It cited his work at MIT, where as a graduate student he demonstrated how machines can self-assemble, and where he designed a membrane-based molding system that could be used to mass-produce cheap corrective lenses for the developing world (and that eventually became a company now known as OptiOpia); as well as his work educating children about science through the quirky, instructive cartoons known as Howtoons; and, lastly, for the many other clever and practical devices born at Squid Labs, the now-defunct Bay Area research laboratory that once served as his home base.
When I visited him in San Francisco last fall, Griffith was in the middle of a career swerve. He had recently removed himself from his last start-up, an ambitious alternative-energy company known as Makani Power, and he had only just turned on the lights at his newest company, Other Lab.
Other Lab is not an easy business to define. You might call it an incubator, though Griffith avoids the term because of the stink it obtained during the dot-com boom and bust (that is, as a place where investment capital is wasted on foosball tables and projects that go nowhere). You might call it the lair of a mad scientist. Essentially, it is a workshop in which inventions are launched and tested in the hopes that they become products that either will be sold off or will grow into companies.
Griffith is especially worked up these days about climate change. It's the issue that most drives him, and his colorful talks on the subject make him a hot commodity at egghead jamborees such as TED and PopTech. Of late, he has embarked on a personal "energy diet," attempting to curtail what he realized was a hypocritical lifestyle for a climate-change evangelist. How did he come to realize this? Because he was curious, and when he's curious, interesting things almost inevitably happen.
In this case, Griffith and his Other Lab mates built arguably the world's best and most user-friendly carbon calculator. WattzOn (wattzon.com) will possibly one day become a thriving business -- you can easily imagine companies licensing the technology to analyze their business footprint -- but in the meantime, it's a free online tool that spits out detailed analyses that, in Griffith's case, not only caused him to give up driving but also to forgo imported wine, cancel his beloved New York Times subscription (to the continued chagrin of his wife), and ditch his dryer for a clothesline that ticked off his landlord.
Origami insulation Explorations in the design of lightweight, high-efficiency energy-saving materials
"I'm working on phasing carbon out of my life," he tells me as he plucks his infant son, Huxley, from a plastic tub mounted to the front of a clunky-looking three-wheeled bicycle Griffith had brought back from Denmark; he is, naturally, intending to build a better, cooler version of it. "As a friend put it -- very well -- I'm trying to figure out how to live the life I would like others to lead." He sighs. "But, man, it's hard."
If the economic climate were different and investment capital for out-there-seeming businesses hadn't suddenly vanished in late 2008, Griffith would probably still be pedaling from his San Francisco home for a ferry ride to Alameda Island and the retired air-traffic-control tower that housed Makani Power. There, he and his pals were well on their way to delivering scalable wind energy using airplane-size robotic kites inspired, in part, by the wings Griffith has been designing to power his kite-surfing hobby since college.
You just never know when an idea that looks like a toy will one day morph into something far bigger and why, in these early days of Other Lab, a bike is never just a bike.
I ask him what other things he has bumped into in his quest to go carbon neutral that he would like to reimagine.
"There are so many," he answers. "Public transportation. Heating systems. Videoconferencing…" He shakes his head at me. "We should have been doing this interview by videoconference."
3-D test An early test of a software program that renders 3-D objects in flat pieces. This ball is made of 12 pieces.
The Genius RacketThe inventor embodies a particularly appealing version of the entrepreneurial ideal. Everything he or she creates is potentially a business. But especially among the truly gifted, the problem would seem to be focus. A brilliant and curious mind wanders, and successful business requires focus. Or does it?
Not necessarily, says Mark Rice, the Frederic C. Hamilton Professor for Free Enterprise at Babson College and the professor of technology entrepreneurship at the Olin College of Engineering. Rice has also headed up the technology incubator at Rensselaer Polytechnic Institute, so he has spent much of his career at the corner of entrepreneurship and invention.
Rice believes that this issue of singular focus versus a more scattershot approach is moot for the most exceptional people in the still small constellation of successful inventrepreneurs. "The really good ones do both," he says. "So much of innovation comes from connecting across things where other people don't make connections." (The most celebrated of the really good ones would have to be Dean Kamen, he of the AutoSyringe insulin pump, the Segway, the iBOT stair-climbing wheelchair, and a new robotic prosthetic arm. Kamen produces his inventions through a successful company called DEKA.)
Rice would argue that it's a waste of Griffith's talent to limit himself to a single project, because true innovation involves far more misses than hits. "Our VCs are the world's best pickers of promising innovations," says Rice. "And they only get it right two times out of 10. And they've looked at 100 to invest in one. The challenge still is, How do we get more Deans and Sauls?"
Part and parcel of being an inventrepreneur is the acceptance that you will often be ahead of the market, and that you have to just create and move on. Griffith calls this the "throw it over the fence" approach to invention: Create, show off, and then quickly sell the entire product (or its license) to a company that will build and market it at whatever scale is appropriate.
For a number of reasons, we are in a golden age for inventors, one in which anyone with a great idea can share it with the world. Griffith is particularly well positioned. He has got a burgeoning brand name (his own), a cheap marketplace (the Internet), and the software, technical know-how, and contacts to micromanufacture. He has no inventory and not much overhead. He owns the intellectual property. He has minimal pressure to produce revenue in the short term, because he has always been able to attract grants, investment money, or consulting contracts.
About the time I was pondering what it means to be Saul Griffith, I happened to read a Thomas Friedman column in The New York Times intended as a rebuttal to the many people ready to drop the curtain on the American business empire. Our country, Friedman said, had at least one ace up its sleeve.
[T]here are still two really important things that can't be commoditized. Fortunately, America still has one of them: imagination. What your citizens imagine now matters more than ever because they can act on their own imaginations farther, faster, deeper and cheaper than ever before -- as individuals. In such a world, societies that can nurture people with the ability to imagine and spin off new ideas will thrive.
Now, Friedman wasn't talking about Saul Griffith. But his point is critical to understanding why Griffith's unconventional way of running a business isn't really that unconventional at all.
Take WattzOn. Griffith isn't entirely sure how or when WattzOn will make money, but that's not the point. In the tomorrow-is-too-late tech culture, there's no time to analyze risk. And because tools are so readily available, there's no reason to. Just build it. If it doesn't find a market, move on.
For now, WattzOn is used by a core of dedicated people whom Griffith invites to refine and critique it; even the calculations used to measure the impact of a particular thing (say, drinking bottled water) are open to debate. The idea over time, though, is to perfect all those specific measures and to have users add every possible nuance of an American's life so that the tool gets easier and easier for people to use. At some point in the not-distant future, Griffith will have the most accurate tool around for measuring an individual's (or collective's) energy use as well as a gigantic pile of data, both of which will be commercially quite valuable as we are pushed toward a greener lifestyle.
As a business, he says, "we're letting it grow until we figure out what to do. It's easy to do these things and see how they go. Then figure it out later."
Tricked-out trikeDrawings for a particularly personal project: a superior child-carrying tricycle
The Ninja ScientistYou will find Other Lab in an unremarkable industrial building in San Francisco's Dogpatch neighborhood. Inside is the (barely) organized chaos of a place where guys don't just think things up; they also make them. There are workbenches and power tools, bikes and parts of bikes, built and half-built models of things, and two massive filing cabinets with neatly labeled drawers containing what would seem to be every kind of bolt, screw, cleat, nut, valve, and nail manufactured on the planet Earth.
In these lean, early days, Other Lab has only three full-time employees: Griffith, the mechanical engineer and so-called lead scientist; Jim McBride, a fellow MIT postdoc and the house physicist (who happens to be on vacation during my visit); and Jonathan (Jach) Bachrach, yet another MIT guy who is technically a software engineer but like the other two has a far broader purview. He is an artist and language fanatic who studied cognitive psychology, computer science, and visual arts and who wears shorts that could be confused for pants, or vice versa. Like the boss, he sports a serious beard.
When Bachrach spots me scribbling something he said in a notebook, he clarifies that it is Jach with an h and not a k. He had, he says proudly, "reverse engineered" his name so that it is perfectly aligned, and that while that might be unusual, it made a lot more sense than changing the h's in his last name to k's, because that would have required a more formal name change and might have screwed things up for his wife and kids.
"It's the third name he's had since I've known him," Griffith says.
One of the first things Griffith does when he arrives at work is remove his Crocs. He then proceeds to carry out his day, in a workshop full of screws, nails, razor blades, and wood chips, barefoot.
"There are two theories on safety," he pronounces. "There's the SUV model: You wear steel-toed boots and helmets and just survive the injury. Or you go naked, and you're hyperaware of your surroundings. That's ninja style. I'm ninja."
So Saul Griffith works barefoot in a workshop.
"Don't tell OSHA."
He and Bachrach have a conference call scheduled with one of the world's largest toymakers, based in Germany, and because Griffith is stuck with unexpected child care, he hasn't been able to make a model he needs. So the two men convene over a drafting table, and Griffith begins to cut a cardboard model that appears to be a giant puzzle piece while cooing at his son.
Later, Bachrach suggests to me that one thing that makes Other Lab effective (and nimble) is that it can easily produce prototypes in-house; impromptu fabrication is a strength for both him and Griffith, on top of their individual specialties. Bachrach was inspired recently by a friend who is a toymaker and who churns out prototypes and stows them away in a cabinet. When the market appears primed for a specific kind of toy, he pulls one out and sells it. Then it goes on top of the cabinet as a totem of his success. And the collection grows. Some will be hits. Others might fail.
"To some degree, we want to do that," Bachrach says. "We're playing around with the idea of building a reputation as a home of cool ideas."
The tip of Griffith's razor blade snaps off and pings across the office, just one more hazard waiting to test the ninja scientist.
What else is going on here? So many things.
The bikes and partial bikes are study pieces for the kid-carrying trike. Griffith shows me a model built out of Legos -- it is more stretched than the clunky Danish bike, has two wheels up front, and leans with the rider. "Legos -- the best prototyping tool of all time," he says.
At one point, a deliveryman wanders in and announces the arrival of 400 pounds of lightweight metal shafts, a peculiar order. "It's for a bike-rack project," Griffith says, and then produces a model for a small, customizable, lightweight, and easily assembled bike rack that can be fit to any car in any configuration. You just cut the shafts to size and put it together. The design of the rack is, essentially, in the joints. "It could be a bike rack, a surfboard rack, anything," he says.
In Griffith's world, almost everything can be improved, and almost anything is worth the time that might take. Not because the world so desperately needs a smarter bike rack but because there are direct but invisible threads that run from the frivolous to the profound.
Many things under way at Other Lab relate to a DARPA project on programmable matter (DARPA being the Defense Advanced Research Projects Agency, the famous federal government research laboratory in which far-fetched ideas are pursued until they become not-so-far-fetched. For instance, the Internet). "It's cool math for decomposing 3-D geometry," Griffith says.
Space-filling curves Patterns for a 3-D chain that can create any shape. Now
Currently, the men are fiddling with toy applications based around some nifty modeling software written by Bachrach (that's the math Griffith is talking about). Using the software, they can scan or design pretty much any object and then print it in pieces so the object can be assembled in 3-D. The first tangible application of this project is the 3-D puzzle. Sitting here and there are plastic elephants and dinosaurs that appear to be inflatable but are actually puzzles made up of interlocking plastic pieces. There's a metal ball, made of pieces, as well as a 3-D gorilla made by stacking flat pieces of cardboard on top of one another.
"What's the mega-application?" I wonder.
"I'm not sure there is one," Griffith says. "Making car bodies a little easier to assemble, maybe? Sometimes you gotta enjoy an idea for what it is and hand it off to somebody and see what they can do."
For the more linear among us, it would seem hard to create a productive day out of this mess, but a mind like this doesn't require conventional structure. You seamlessly shift from toys to energy and then make a bike rack over coffee.
"Did I promise you something other than chaos?" Griffith asks me at one point. "If so, I'm sorry."
Inflatable airfoil A study for a lightweight airfoil, or wing. The goal was to see how much distortion occurred when the wing was inflated and how that affected performance.
Look! Up in the Sky!"Basically, I just spent two and a half years working on utility-scale energy," Griffith says with a sigh as he chews at a slice of fancy pizza. By this he means an energy project that could produce electrons for the grid in mass quantity, as opposed to something clever that barely generates more energy than you put in to build it. "For me, energy is the issue of the century, both in consumption and the way we make it."
By 2007, Squid Labs had splintered into the various component parts that it had spawned: OptiOpia; Howtoons; Instructables, a user-generated DIY site that teaches people how to make just about anything at home; Potenco, which makes hand-held human-powered generators that can be used to recharge cell phones and laptops, and which is also working on bike-mounted units that could bring power to remote areas; MonkeyLectric, which makes some seriously cool bike lighting that is now on sale in bike shops around the world; and Makani Power, where Griffith chose to deep-dive.
Griffith devised a way to harness wind energy where no one else was -- high in the sky, where it blows hard and, more important, consistently. Makani's plan was to deploy robotic kites the size of corporate jets. They would fly at 1,000 feet to 5,000 feet, converting wind to energy through a turbine and running the energy down to earth via a tether line. A fleet of Makani kites, Griffith believes, could power a city. The company received $15 million in investment from Google as part of that company's renewable-power initiative. "It's a matter of time before someone makes high-altitude wind energy a commercial success," Griffith says. "It's not going to be next year, but it's not 100 years away. "
And until the dying days of 2008, Makani was humming along, honing its technology and increasing both the size of the kites and the duration of their flights. A prototype the size of a piano tested on Maui was generating enough energy to power five American homes. Then the recession hit. The investment tap ran dry; Griffith says, "We had to scale back pretty dramatically to survive. We cut down to the smallest possible technical team."
This would gut many people, and surely it was painful for Griffith, but he also saw it as an opening, and so among the things slashed from the budget was himself. "I'm an expensive employee," he says. "I could still be useful, but there are others who could be more useful." As founder, he remains involved in the company's big-picture decisions, but he is no longer involved in the day-to-day operations. Instead, Griffith took survey of his life -- fragmented market, baby on the way -- and decided to abandon the deep dive and return to the surface. He would paddle around and pursue many ideas.
It was not an especially complicated or well-thought-out process. He collected a few core people and thought, We've got some interesting ideas. We can survive. We'll boot up Other Lab.
To get things started, he had some consulting gigs ("major energy companies, I think you can say") as well as a DARPA grant, his 3-D modeling software, and "a whole bunch of other ideas in the energy space." Plus Howtoons, which sells books and hopes to soon complete a deal to produce educational materials for a federal agency. For start-up capital, he dipped into the $500,000 award that came with his MacArthur grant.
"We have some work that's good and paying," he says. "We have a whole bunch of intellectual property we're trying to get out in the world -- cool stuff that we've developed but never had time to push out. We do this superhigh abstract math and physics stuff, but then you're always thinking about its association with other things. We realized, Wow, we could use this to make amazing cardboard gorillas or jigsaw puzzles."
So that started as something else entirely?
"That started," Griffith says, "when DARPA said, 'We would like you to build us Terminator 2, quite literally.' [Terminator 2, if you're not familiar with the movie of the same name, was a sort of animate silver goo that looked like mercury and could fashion itself into any form it encountered, animal or otherwise.] Their example: Wouldn't it be great if our soldiers had a screwdriver that became a wrench that became an airplane?"
I laugh. He doesn't. "There's a deep relationship between information and structure," he says. "You need a certain amount of information to describe a 3-D structure."
This is not easy to grasp, but the gist is that Griffith and Bachrach haven't yet made T2, but in the early stages of fumbling in that general direction, they have made some cool 3-D gorillas that can easily be manufactured in pieces, and given a few more months, they might also change the way cars are assembled.
"We specifically have been working on this idea that we can build a mechanical synthetic analog to DNA," says Griffith. "Turns out, I can build a string that can fold any 3-D shape from a string of tetrahedra. By choosing a left- or right-hand fold at any hinge, it can make any shape. And we developed some pretty elegant math and theory that describes how you do that."
That has since become another puzzle -- a strand of plastic DNA that can be made, via a series of rights and lefts, into just about anything. It's out at toy fairs now and should be in stores sometime in 2010.
"This is a pretty cool frontier," he says. "So we developed a bunch of tools that describe geometry -- that's how we ended up doing these surface models, which relates to making better jigsaw puzzles, which relates to inflatable elephants, which relates to how you sew more optimized T-shirts. It's a very fruitful, fun area to think about."
As much as Griffith loves to come across as a fun-loving eccentric, he wants to make it very clear that he's also up to serious science. Sure, he's having fun with puzzles and bikes, but his real passion is and always will be energy.
As he bounces along from idea to idea, all the while salting his sentences with ominous facts about the energy problem, I can't help wondering if he isn't going to give himself a crisis of conscience. I ask if he ever feels as if he's not making the best use of his abilities. Does he not feel pressure to be the Dean Kamen of climate change?
"Every day, I wonder if I'm working on the right things," Griffith says. "But I want to enjoy what I do. Everyone does."
He would be thrilled to churn out one product after another that finds a market, however small, because he feels as though the little guys are now at the helm of innovation's ship. But he certainly hopes that a big hit isn't far off. And he wants more than anything for one -- or several -- of those hits to make a real impact on climate change.
He has, he says, "every entrepreneur's problem. You're always trying to find the union of things you want to work on and things that are marketable and investable. And to find the overlap in that Venn diagram."
As the two of us eat lunch, Griffith wanders back around to the underlying question of all these conversations.
"Here's the business story," he says. "We're going to hit 450 parts per million" -- the scientific assessment of the maximum amount of carbon our atmosphere can handle -- "because we have no choice, and whoever invents technologies that allow people to increase their quality of life while hitting that number wins -- and wins big." He pauses.
"The business landscape looks like infinite possibility."
Josh Dean is a regular contributor to Inc. For the March 2009 issue, he wrote about the Wexley School for Girls advertising agency.
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Lessons From a Blue-Collar Millionaire
It's Takeout Tuesday at Nick's Pizza & Pub, and the air is thick with the smells of hot pizza crust, peppers, onions, and cheese. Eighteen young men and women -- most of them high school age -- form an assembly line between a row of worktables and a long bank of pizza ovens. The kids laugh and shout, even as they focus intently on their tasks.
Nick Sarillo, 47, stands halfway down the assembly line, holding a giant wooden pizza board. As the company's founder and CEO, he doesn't usually work the pizza line anymore. But he is happy to lend a hand when he can, and the kitchen crew needs all the help it can get on Tuesdays, thanks to a program Sarillo launched in March 2009 in response to the recession. A sign in the lobby explains the logic behind the policy:
Kane County unemployment 6.3% vs. 11.1% Sept. 2008 -- Sept. 2009 ½ Price Monday and Takeout Tuesday are here to stay until the unemployment lines go away.
That is, customers pay half price for pizza in the dining room on Mondays and half price for carryout on Tuesdays. The effect has been to turn the two slowest days of the week into the two busiest. Indeed, the program proved so popular that it initially overwhelmed the kitchens. "Our promise is to have pizzas ready in 15 minutes with no mistakes," says Sarillo. "We had so many orders that the time got up to 25 minutes. Guests were getting upset. It was OK if I was here to orchestrate, but it got pretty bad if I wasn't."
So what did he do? "I built a system to replace me," Sarillo says. "I put together a checklist of things that had to be done by 4 p.m., so we could handle the volume. It took about four weeks until it could work without me. Now we're nailing it."
There are, according to the trade magazine Pizza Today, 70,000 to 75,000 pizza establishments in the United States. Nearly every town has at least one, and -- except for arguing over which makes the finest slices -- people seldom pay them much notice, let alone think of them as a potential source of business and management wisdom.
And then there's Nick's Pizza & Pub.
Its two restaurants in the northwest suburbs of Chicago have attracted visitors from far and wide who have heard about Sarillo's approach to management and the effect it has had on employees. The numbers tell the tale. In an industry in which annual employee turnover of 200 percent is considered normal, Sarillo's restaurants lose and replace just 20 percent of their staff members every year. Net operating profit in the industry averages 6.6 percent; Sarillo's runs about 14 percent and has gone as high as 18 percent. Meanwhile, the 14-year-old company does more volume on a per-unit basis (an average of $3.5 million over the past three years) than nearly all independent pizza restaurants. And customers, it seems, adore the service: On three occasions, waitresses have received tips of $1,000.
Sarillo grew up around pizza. His father, Nick Sr., owned a restaurant called Village Pizza in Carpentersville, Illinois, which he started when his son was in the eighth grade. When Sarillo opened his first restaurant, in Crystal Lake, in 1995 (the other opened in nearby Elgin in 2005), he patterned it after his father's, right down to the pizza recipe. In one key respect, however, he was determined to make it different. That difference -- and the secret of the company's success -- can be summed up in one word: culture.
Sarillo has built his company's culture by using a form of management best characterized as "trust and track." It involves educating employees about what it takes for the company to be successful, then trusting them to act accordingly. The alternative is command and control, wherein success is the boss's responsibility and employees do what the boss says. Think of the Navy SEALs versus the National Guard. Both approaches can work, but they produce very different cultures. If done right, moreover, trust and track can allow a company to be nimble, flexible, and productive enough to perform at the highest level through good economies and bad.
Sarillo is the first to admit that he is an unlikely spokesman for the benefits of a strong company culture. When he launched Nick's, he had never heard of company culture. A former construction worker, he got into the business, he says, because he had three young children and there was no restaurant in the area at which families could get together, kids could play, and parents could relax and have fun. He didn't have a management philosophy -- at least not one he could articulate. He did believe, however, that he had a choice about how the business would be run. "Everyone I knew who'd had a business told me, 'No one cares like an owner. No one works as hard as an owner,' " Sarillo says. "They said, 'Watch out. People are going to steal.' I set out to prove them wrong. I wanted a place where everyone worked hard and cared a lot; where people enjoyed coming to work, felt good afterward, and weren't motivated to steal. If I couldn't have that kind of business, I didn't want to have a business."
In the end, he built the kind of business he wanted by developing a unique management system. Not only is it strikingly effective, but it's a stark illustration of the notion that good ideas can spring from the most humble of sources. If you look closely, you can identify 10 key ingredients of Sarillo's recipe for building a company culture that delivers.
1. Feel your community's pain; share its joyHalf-Price Mondays and Takeout Tuesdays are symbols of Nick's ongoing commitment to the communities in which it operates. So was a decision in August 2008 to surprise the guests one Thursday evening by picking up the check, in recognition of the tough times many were facing. "It cost us $20,000," says Sarillo's partner, Christopher Adams, "but it created tremendous buzz."
It also reinforced the company's reputation as a community bulwark -- a reputation it has been assiduously building since Day One. The restaurants host fundraisers almost every week, with the company contributing 15 percent of the gross profit generated by the event. In addition, Nick's sponsors two or three large benefits a year, many of them for families facing high medical bills because of a health crisis. For the benefits, the company donates 100 percent of its gross profit for the day, and servers often kick in their tips. "I have never known them to turn away anyone with a legitimate charitable purpose," says Crystal Lake Mayor Aaron Shepley.
All of this has an ancillary benefit for the business. "It reminds our team members how incredibly different we are from any other place they know," says Adams.
2. Hire only A+ playersForty-one percent of the company's 182 employees are ages 16 to 18, almost all of them still in high school. The others include a large number of mothers, college students, and people whose main job is somewhere else. Such employees do not typically make for a stable work force. Yet people who work at Nick's seem to find the culture irresistible. "When I come here, I really don't feel like I'm coming to work," says server Aubrey Judson, 25. "My boyfriend doesn't understand it. I just like to be here." She works only on weekends, she adds, as she has a full-time job at an online advertising agency during the week.
Her job as a server was very likely the more difficult of the two to land. Just one of every 12 applicants to Nick's gets hired. "I was really surprised by the process," she says. "You get interviewed twice, and you take a personality test."
The explicit goal of the process is to hire only the best of the best -- A+ players, in the language of the company. People who inquire about a job receive a handout detailing the company's purpose and values. They are advised not to waste their time applying unless, after perusing the sheet, they think Nick's sounds like a place they would like to work. If they decide to move forward, they first have a talk with a manager. Nearly all of them are then invited to an interview. Twenty percent of those are invited to a second interview. Two managers are in each interview, and one sits in on both. In other words, candidates need four yes votes from three managers to receive an offer. Those who aren't selected get a thank-you note and a voucher for a free pizza.
Along the way, the applicants are scrutinized and tested. There is a lot of role playing, not to mention the occasional off-the-wall question. "They asked me, 'What are you doing to improve yourself physically, mentally, or spiritually?' " says Scott Jewitt, who had been a manager at Bennigan's, Lone Star Steakhouse, Boston Market, Panera Bread, and CiCi's Pizza before joining Nick's in the fall of 2008 and now is an operating partner. "I was speechless for a moment. It was so different from any interview experience I'd been through. And I'm not an amateur." Ninety-six percent of those hired stay at least a year.
3. Learn, grow, compensateGetting hired at Nick's is a ticket -- not just to a job, but to the company's training program, which is elaborate, rigorous, and ongoing. It begins with a two-day orientation, which includes more role playing and discussion of the company's purpose, values, and culture. That's followed by 101, a four-hour stint in the kitchen, where everybody goes through a basic pizza-making course. The new hires then separate into work groups and move on to 201, in which they are trained and certified in specific jobs. A pizza maker, for example, may take two to four weeks to reach the level of proficiency required for certification, after which she can make pizzas on her own. When she gets certified in two other jobs -- say, salads and sandwiches -- her wage goes from $8.25 to $9 per hour. After certification in six positions, it increases to $9.50 an hour, and she gets a red hat. (Up to then, she has been wearing a tan hat.) Certification in nine positions earns her a black hat and a raise to $11 an hour.
It's her choice, however, whether she goes for any certifications beyond 201. She can stay at one certification as long as she likes. Then again, she might want to go on to 301 and become a trainer, which offers a variety of benefits, including eligibility for profit sharing and preference in scheduling. To qualify, she must achieve mastery in her certifications -- that is, a top rating on a one-to-five scale -- and read the book Mastery: The Keys to Success and Long-Term Fulfillment, by George Leonard. She then takes a three-day course on communication and leadership. At the end of the course, she receives a Leadership 301 Passport with a checklist of 30 specific behaviors she is required to model or recognize someone else modeling. She has five weeks to complete the passport, which involves observing and describing two such incidents for each behavior and getting a member of the leadership team to sign off on it. Finally, she takes a train-the-trainer course. On completion, she becomes a trainer.
4. Systems are for building trustThis is not the sort of training curriculum you expect to find in a company doing just over $7 million a year in sales. Then again, the same could be said about all of Nick's systems -- from hiring to inventory management to the handling of workplace conflict. Pretty much everything that happens in the business has been thought through, defined, and taught, right down to the best method for greeting a customer.
Take the process of opening and closing the kitchen. In a typical restaurant, a supervisor is responsible for both, has a long checklist of things to be done, and tells everyone what to do. At Nick's, by contrast, the whole kitchen crew is responsible. To help people keep track of what needs to happen, there is a laminated "ops card" for each task involved. Each ops card is red at the top and green at the bottom and has its own slot in a converted timecard holder. In the morning, when staff members come in, the ops cards are in the slots with the red end showing. Whenever a task is completed, someone turns over the corresponding ops card so the green end is showing. By closing time, all the cards are showing green. It's then the manager's job to make sure they are all red again before people arrive the next morning.
The system is an important mechanism for creating a trust-and-track culture and for breaking the habits of command and control. "Managers trained in command and control think it's their responsibility to tell people what to do," Sarillo says. "They like having that power. It gives them their sense of self-worth. But when you manage that way, people see it, and they start waiting for you to tell them what to do. You wind up with too much on your plate, and things fall through the cracks. It's not efficient or effective. We want all the team members to feel responsible for the company's success."
Some people would no doubt find such a regime unbearable, but Nick's employees appear to thrive under it, especially the high school students. "Parents tell me, 'I don't know what you did to my kid, but whatever it is, keep doing it,' " says Sarillo.
What Sarillo has done, on one level, is simply to treat high school students -- and everyone else -- like intelligent, responsible, and, above all, trustworthy human beings. "All of our systems are geared toward creating a culture of trust," says Sarillo. "A lot of people would say trust is intangible. We've made it tangible by putting these systems in. They allow you to see whether the trust is there and whether the way people behave is promoting or undermining trust."
5. Coach in the moment, not after the factTo be sure, just about every company has systems of one sort or another. A common one is the annual performance review, which almost all management experts would say is essential for giving employees the feedback they need. But Sarillo doesn't believe in performance reviews. Rather, managers and employees are trained to coach in the moment, providing feedback immediately.
There are actually three forms of feedback at Nick's. The first is called a feedback loop and applies mainly to new employees. At the end of a shift, a trainer will ask, "What is one thing you did well, and -- if you could replay the tape -- what is one thing you would do to enhance your performance?" It's a two-way conversation, hence a loop.
The second form is called performance feedback and, again, usually comes at the end of a shift. After observing someone's performance, the manager or trainer will mention one thing the person did well and one thing he or she should try to improve.
The third form is direct feedback and happens in the moment. Suppose, for example, that Sarillo observes a host with her head down as a guest walks by. "With a smile on my face and in a nice way, I'd say, 'Eyes up, Rhonda. Remember, five steps with every guest.' " He is referring to another mechanism: Smile and greet a customer whenever you come within five steps of one.
As for deciding when to provide feedback, managers are taught that everything is an interview. "We do a lot of role playing in our job interviews," Sarillo says. "When you observe a behavior, the question is, Would you have hired that behavior? If yes, you can recognize it. If no, you can coach it. But either way, you should do it in the moment."
6. A consultant can be more helpful than you thinkSarillo says he first got the urge to expand to new locations in 2002, but he wasn't confident in his ability to do it without outside help. So he brought in an accountant and then a couple of consultants. "They all talked about control, control, control," Sarillo says. "I felt like I was on Mars. What I was doing was obviously working, but I didn't know anyone else who ran a business this way. I mean, I'm an ordinary guy. If I can do it, anybody can." Then he met a consultant named Rudy Miick. "He asked all the right questions," says Sarillo.
He decided to hire Miick, who didn't come cheap. Sarillo estimates that, in 2003 and 2004, he spent $200,000 preparing to expand, 80 percent of which went to pay for Miick's services. That's a lot of money for a business doing just over $3 million a year in sales. But Miick played a key role in helping the restaurants streamline their management systems, which helped reduce employee turnover from 185 percent to 20 percent. Given a cost of $1,500 to recruit, interview, and train a new employee, the drop in turnover alone saved almost $250,000 a year.
7. Turn negatives into positives by making talk safeSarillo uses a system called safe space, which allows employees and managers to have difficult conversations by following certain well-defined rules. One rule, for example, is that statements must be based on data, not feelings or speculation. Another rule is to identify "the moose in the room" -- that is, something many people are aware of but no one is talking about -- the goal being to nip gossip and rumors in the bud. Adams, for one, feels that safe space is "the most important way we create trust in the organization."
One team member recently used safe space to question Sarillo about a sarcastic remark he had made. Sarillo had intended it to be good-natured joshing, but it came across as pointed criticism. "I said, 'Holy cow! I didn't realize it,' and I apologized," Sarillo says. "It reminded me that sarcasm can be lethal when you're the boss. I have my share of imperfections, and I love it when team members call me out on them. It's not a threat if you have a culture based on trust. In fact, it proves that the trust is there."
8. "Why" is more important than "what" or "how"Sarillo likes to say he doesn't tell people what to do. Instead, he prefers to explain the situation and let them choose. Of course, giving people choices rather than orders requires trusting them to do the right thing. But it works the other way as well: They have to trust you enough to believe your explanation of the situation. That means making sure they understand why they are being asked to do whatever it is you want them to do.
Explaining the "why" is particularly important, Sarillo says, for young employees. "Today's teens are as strong and as good as any previous generation of workers, but you need to share the 'why' with them. The days of 'do what I tell you' are gone. You simply won't be successful."
That can present a challenge for managers accustomed to giving orders, as Sarillo discovered the hard way. In 2005, he and Adams set a goal of having five restaurants by the end of 2010. To achieve it, they realized they would need experienced general managers to run the restaurants they had. The three people they wound up hiring came out of established restaurant chains. On the surface, the managers embraced the company's purpose and values, as well as the systems that support them. Eventually, however, Sarillo decided he had to let all of them go. One tip-off was their inability to control costs.
As usual, the devil was in the details. Each Nick's Pizza & Pub has a just-in-time purchasing system, whereby food and beverage usage is tracked daily and orders are placed two or three times a week. A physical inventory is done once a week and then matched against the prior week's count, minus usage, plus purchases, to make sure the costs are under control. The goal is to keep beverage costs at about 22 percent of revenue and food costs at 20 percent.
But week after week, the costs ran too high, and physical inventory counts didn't jibe with usage and purchases. When Sarillo finally investigated the problem, he traced it to the managers' inability to let go of their old habits. "Their idea of leadership was telling people what to do," he says. "They had someone else put in the numbers, and when the numbers came out wrong, they didn't dig deeper to discover why. Because they didn't know the 'why,' they couldn't share it with the team members. When you know the 'why,' it's really easy to figure out what to do, but sharing that kind of information wasn't how they'd been trained to manage."
In the end, Sarillo turned over the responsibility for tracking costs at the Elgin restaurant to a 24-year-old woman named Jenny Petersen, who had begun working at Nick's when she was 16. She solved the problems in four weeks. She could do it, she says, because she cared about the 'why.' "I think it's a matter of personal drive and ambition," Petersen says. "You need the drive to ask questions and do the research. If our inventory numbers are off, there's got to be a reason. I like finding out what it is."
9. "Trust" without "track" is an invitation to troubleIn retrospect, Sarillo acknowledges that hiring those managers was one of his biggest mistakes in recent years. It became a big mistake, however, because he wasn't paying attention. For two years, he was totally focused on laying the groundwork for a new Nick's in Chicago, which was supposed to open in mid-2008. Only after that plan fell through did he turn his attention back to the existing restaurants. The company was in serious trouble, mainly because he had invested so much time, energy, and money -- about $300,000 -- in the Chicago project, but also because of slumping sales and out-of-control costs at Elgin and Crystal Lake.
From a distance, he attributed the problems to economic factors over which the company had no control. But as he looked more closely, he realized there was more to it. The cost-control issues were symptomatic of something deeper. The general managers weren't supporting the systems, and so the company's culture was beginning to change.
And yet Sarillo had to admit that the problems were ultimately his responsibility. Looking back, he says, "The big lesson is accountability. Results are results. You have to be real about how people are doing. I wasn't holding those managers accountable for their results and their behavior because I wasn't keeping close enough track of what they were doing."
10. Beware of growing before you -- and the company -- are readySarillo didn't keep track in part because he was mesmerized by growth. He had decided to expand into Chicago, in the belief that a Nick's there would provide visibility the company could never get in Crystal Lake and Elgin.
He was eventually forced to cancel the Chicago project, however, when he lost his bank financing in mid-2008. The turn of events appeared at first to be a disaster for the company. It turned out, however, to be a blessing. "Because we were not able to do Chicago, we wound up doing something more important: fixing the culture in Elgin and Crystal Lake," says Sarillo. "If we'd opened in Chicago, I wouldn't have had so many financial problems, but I would have had much, much bigger cultural problems. By the time I found out about them, it might have been too late."
In the process, he learned an important lesson about the type of management he will need in the future. "I've decided there are two ways to get the right person to run one of our restaurants," he says. "One, you can get a new manager like Jenny Petersen, who hasn't already developed bad habits somewhere else. Or, two, you can get a manager with experience in the industry who's completely fed up with the corporate way of doing things and thinking, I really need a change." That's the story with Scott Jewitt, the operating partner at Crystal Lake.
So is Sarillo still committed to opening other Nick's Pizza & Pubs? "Oh, yes, I feel more inspired to grow than ever," he says. "People really do want to have a meaningful place to work, and that is one thing I know how to do well. So how could I not want to keep doing it for more and more people? I mean, what could be a more fulfilling life?"
Bo Burlingham is an Inc. editor-at-large.
How I Did It: Arianna Huffington
When Arianna Huffington was growing up in Greece, she dreamed of going to Cambridge University. She made it happen. Early in her career, she aspired to be a serious writer but had little money and a pile of rejection slips. She got a loan, kept trying, and eventually published a dozen books. Huffington, 59, has a knack for setting her sights high and getting what she wants. Her latest success is the Huffington Post, launched in 2005. Today, the news and blogging website has an editorial staff of 53, consistently breaks important news stories, and attracts eight million unique views a month.
My father was a newspaperman. During World War II, when Germany occupied Greece, he was publishing an underground newspaper. He was caught and sent to a concentration camp, where he spent the rest of the war. Afterward, he recovered at a sanitarium in Greece, where he met my mother, who was recovering from TB. I was conceived before they were married.
My mom was the biggest influence in my life. One day, I looked in a magazine and saw a picture of Cambridge University, and I said I wanted to go there. Everybody else laughed. But my mother said, "OK; let's find out how you can go there." She borrowed money for us to go to England. She made it clear if I failed -- if I didn't get into Cambridge -- it was not a big deal. But I got in.
At Cambridge, I was passionate about debating. I was never to the far right. One of the debates I participated in was with John Kenneth Galbraith and William F. Buckley on the role of government and the markets. I was chosen to make the opening speech, arguing against an unregulated free market. On social issues, I was always pro-choice, pro-gay rights, pro-gun control.
I moved to New York from London in 1980. In 1986, I married Michael Huffington and moved to Washington. I wrote a biography of Picasso and a book on the human instinct for meaning. In the '90s, I wrote a syndicated column and co-hosted Left, Right & Center on public radio.
My journey politically has always been about the role of government. My transformation had to do with my conclusion that in order to have a level playing field, we did need an activist government. That was the shift. It was a very specific transformation and happened after [Newt] Gingrich and the '94 Republican government.
In 1997, I got divorced and moved to Los Angeles. My marriage gave me the two most important things in my life -- my daughters. The end of the marriage was painful, but now Michael and I are able to be friends and even take vacations together with our children.
I ran for governor of California in 2003. The campaign was a failure, but I learned about the power of the Internet. Most of our money for the campaign, almost $1 million, was raised online.
After the '04 presidential race, I had a meeting to discuss the role media had played in the election. Among those at the meeting was Ken Lerer, who became my co-founder. We discussed creating a platform that would be a combination of 24/7 news and a collective blog. That was the beginning of the Huffington Post.
We agreed that we would each raise half the total needed to launch the site. I ended up raising my half from friends in a week. A year and a half later, we took in venture capital from SoftBank Capital, whose managing partner at the time, Eric Hippeau, is now our CEO.
The site launched in May 2005. Arthur Schlesinger Jr. was the first person I invited to blog. He'd fax me his blogs. I remember criticism: "That's not blogging." But I felt it didn't matter how a blogger's thoughts got on to the site. In our first week, we had postings from Julia Louis-Dreyfus, Larry David, Gary Hart, John Cusack, and Walter Cronkite.
The most fascinating thing is the people who said no to blogging, then subsequently said yes. I remember Norman Mailer said, "I can't do it -- I can't do anything until I finish my book." I said, "Fine, no problem." Three months later, there was this scandal of guards at Guantánamo flushing the Koran down the toilet. Norman calls me and says, "OK, I'll write about that. I'll e-mail you."
I get my knack for relationships from my mother. She was incapable of having an impersonal relationship with anybody. The delivery man would arrive at the house, and she'd say, "Sit down; have something to eat." As a result, I find it very easy to connect with people. And that's part of the Huffington Post. I'm bringing in voices -- some well known, some not -- and providing a platform.
Some people criticized us for not paying our bloggers, but we've always had professional editors running the site. And we now have almost 4,000 contributors, from politicians and entertainers to academics and leaders of nonprofits.
During the 2008 campaign, one of our citizen journalists, Mayhill Fowler, reported on Barack Obama's remarks at a San Francisco fundraiser. Obama said that Pennsylvania blue-collar voters "cling to guns or religion or antipathy to people who aren't like them." It derailed the campaign for a while and showed how much a citizen journalist could influence a national election.
There were reports we were going to sell, but that was false. We've raised another round of funding, giving the Huffington Post a valuation of over $100 million.
We call the Huffington Post a newspaper. I don't think that newspapers are dying. I think there will be fewer of them, but there will always be newspapers.
Taking a Niche Brand Mainstream
THE PROBLEM
In our January/February 2009 issue, we wrote about Mighty Leaf Tea and its founders, Gary Shinner and Jill Portman. The pair was determined to extend the reach of Mighty Leaf's premium tea beyond its core market. Though the company had already carved out a profitable niche selling to luxury hotels, restaurants, and specialty-food stores, Shinner and Portman wanted to extend sales to large supermarket chains. Charlie Woodruff, the company's sales director for the eastern U.S., pushed back. He believed there was still plenty of room for growth in Mighty Leaf's current markets and feared that a mass-market push would taint the brand's upscale image. After much discussion, Shinner and Portman forged ahead despite the objections. They hired a national sales director and within a year signed their first supermarket account. By October 2008, Mighty Leaf had a presence in Kroger, Publix, Safeway, and Stop & Shop, and sales were expected to hit $20 million by the end of that year, up from $16.4 million in 2007.
WHAT THE EXPERTS SAIDBrian Morgan, a Chicago-based analyst with Euromonitor International, thought it was the right time to move into supermarkets. Seth Goldman, co-founder of Honest Tea, was lukewarm on the strategy, arguing that selling in supermarkets would put downward pressure on prices for the upscale tea. Christopher P. Ramey, president of Affluent Insights, said that if Mighty Leaf was set on selling to supermarkets, it should do so under a different brand.
WHAT'S HAPPENED SINCEThe recession put a crimp on sales to hotels and restaurants, but supermarket sales performed well and more than helped offset any softness in the company's other markets. Revenue hit $20 million in 2008 and was expected to grow another 10 percent in 2009. "Some considered it a risky endeavor," says Shinner, "but it helped us diversify." Now, Woodruff is a believer. "I realized to grow a brand, you have to have the meat and the potatoes," he says. "We've been able to come downmarket in a way that just blew me away."
WHAT'S NEXTUp to now, Mighty Leaf hasn't invested heavily in marketing. In the year ahead, the company plans to ramp up spending, especially on the Web and via social networks. "There's a lot more we can do," says Shinner. "We're looking to turbocharge the brand."
Bed and Boardroom
From 1986 to 1991, my husband and I lived in the dilapidated 19th-century farmhouse at Stonyfield Farm (the land for which our yogurt company is named). The huge, wood-heated building housed the offices and yogurt works, as well as two apartments: one for us and one for our partners, Samuel and Louise Kaymen, and five of their six kids. Newly engaged and fresh from living in my own apartment, I adjusted easily to sharing quarters with Gary. It was shacking up with his business that was hard.
We had zero privacy. Trucks groaned up our narrow gravel driveway at all hours. Employees were ever present, glancing at what was for dinner and frequently using our bathroom if the public one was occupied. When our best yogurtmaker couldn't find a babysitter for her son, yours truly would rock the boy to sleep while his mom worked the night shift. Our kitchen table overlooked the yogurt works, so we couldn't get through a meal without distractions from outside (Did that guy really just throw a lit cigarette into the Dumpster?). Hosting guests was a challenge. Arriving for a relaxing weekend in the country, they'd inevitably get caught up in the madness -- grabbing a shovel to help dig out a truck stuck in the mud -- before going to bed and nearly freezing to death in our unheated spare bedroom upstairs.
One afternoon, I walked into our kitchen cradling bags of groceries and found a young man I didn't recognize grabbing cutlery and plates from our cupboard. I stopped in the doorway and stared. "We have a lunch meeting in the office," he said nonchalantly. I was speechless, feeling completely invaded at the most basic level. This was my kitchen. My stuff. Then I chided myself. These were the people keeping the company afloat, and we all believed in using fewer disposables. Why couldn't I feel good about sharing; why was I so uncool? Still, I thought, there have to be boundaries. Only, where did they lie?
That question was answered a few months later. One Sunday morning, Gary and I were in bed when into our room walked an unfamiliar teenager. He announced he'd been hired to clean the offices, and did we know where to find the broom? By Monday night, our apartment door had a lock on it. But that bit of iron was mostly symbolic, a finger in a leaky dike. Employees, job applicants, investors, and suppliers still flowed freely through our home -- only now they knocked first.
The moment you create a business, you step into a twilight zone where the barrier between what is work and what is not starts to break down. The deterioration accelerates for entrepreneurs who work out of their homes. You may start off with a home-based business but soon find yourself with a business where you and your family also happen to live. I got an earful about this from Anna Breyer, whose husband runs a construction business. She is irked that trucks and trailers are always parked in her yard and feels awkward having employees walk through her house when it's piled high with dishes and laundry. "Sometimes, I'll have to sign for an early-morning lumber delivery while I'm still in my PJs and the dog's barking and my kid's screaming," she told me recently. Anna says things have improved with small changes, such as putting a coffeemaker and microwave in the garage for employees to use, instead of having them in her kitchen.
Privacy isn't the only issue. In homes shared with companies, living space may be drastically reduced by the demands of workspace and inventory storage. Sandy Abrams, an acquaintance in California, described to me how she was once literally imprisoned by her business supplies. Fifteen years ago, when she started Moisture Jamzz, a company that makes skin-conditioning gloves and socks, Sandy filled every room of her L.A. apartment with fabric rolls and shipping boxes. The dining-room table was piled high with packing tape and stationery. One day, an earthquake caused the fabric and boxes to tumble in front of the door. Sandy and her husband spent 10 terrified minutes clearing a pathway so they could exit.
Sandy still runs Moisture Jamzz out of her house (though she doesn't manufacture or keep much inventory there). But now she has strategies to contain it. She limits the company's impact on her space by storing stationery and press kits behind closed doors in her home office, and limits its impact on her time by letting business calls go to voice mail after 5 p.m. She also protects her family's privacy by meeting with vendors at the local Starbucks.
Of course, certain hazards of sharing a home with a business apply to anyone with a home office. We're all familiar with that slippery slope of nipping in after dinner -- just to clean up a few e-mails -- and emerging at midnight. (A friend of mine who frequently found herself making middle-of-the-night visits to her home office eventually put a sign on its door -- "Get a life" -- to remind her somnambulating self that she was being obsessive, and whatever it was could wait until morning.)
But for home-based entrepreneurs, daylight brings an additional challenge: diplomatic separation of the family's waking hours from the company's operating hours. A friend who wrestles with this commented to me that most people, including his wife and kids, have an ingrained belief that work is something you leave home to do. They assume that if he's home, he ought to be available to the family. Sometimes, his wife pokes her head into his office to see if he'd like to take a break and have lunch together. "She doesn't understand that I just don't want to break the work spell," he said. "I'm in the zone and need to stay there during the workday. But she takes it personally."
This resonated with me as I recalled those times I'd walk into Gary's home office while he was on a business call, only to watch him wince at my intrusion. And I realized that I react the same way. When Gary or one of the kids interrupts me on a work call, I brush them off with that frantic wave that is more desperate dismissal than greeting. Such behaviors inflict small hurts, little bits of damage that accumulate. Over the years, Gary and I have learned to deliver messages by silently slipping in and placing sticky notes in each other's line of sight. We have trained ourselves to distinguish between physical presence and availability. Though my eyes tell me that Gary is in his home office, he is not, for my purposes, at home. He is not available for figuring out where to meet friends for dinner or how to celebrate Danielle's birthday. I don't take it personally anymore, nor does he.
Cohabitating with a business increases the stress level of entrepreneurship exponentially. When home and company share an address, entrepreneurs and their families need to find ways to create the emotional equivalent of physical distance -- a gap that keeps worlds from colliding. Sometimes, the only means available will be closed office doors or a new location for the microwave or some sticky notes placed in front of your spouse. It might not hurt to scrawl "Get a life" on one or two of them.
Meg Cadoux Hirshberg (mhirshberg@inc.com) is married to Gary Hirshberg, president and CEO of Stonyfield Yogurt. She writes a regular column about the impact of entrepreneurial businesses on families.
A Little Less Conversation
When was the last time you scheduled a meeting and invited eight people instead of the three people who really needed to be there simply because you didn't want anyone to feel left out?
When was the last time you sent a companywide e-mail that said something like, "Hey, attention coffee drinkers: If you finish the pot, make another!" even though there is actually only one person who violates this rule (and she's your co-founder)?
When was the last time you got into a long discussion over the color palette for the new brochure with a programmer, who has nothing to do with the brochure but sure knows that he doesn't like orange?
These are symptoms of a common illness: too much communication.
Now, we all know that communication is very important, and that many organizational problems are caused by a failure to communicate. Most people try to solve this problem by increasing the amount of communication: cc'ing everybody on an e-mail, having long meetings and inviting the whole staff, and asking for everyone's two cents before implementing a decision.
But communications costs add up faster than you think, especially on larger teams. What used to work with three people in a garage all talking to one another about everything just doesn't work when your head count reaches 10 or 20 people. Everybody who doesn't need to be in that meeting is killing productivity. Everybody who doesn't need to read that e-mail is distracted by it. At some point, overcommunicating just isn't efficient.
It's a particularly insidious problem for fast-growing start-ups. When you're really small and you're just starting out, you don't have that many people, so keeping everyone in the loop on everything doesn't really take that much time. But as you get bigger, the number of people who might potentially get involved in any particular discussion increases, and the amount of stuff you're doing as a company increases, and the amount of time you can waste overcommunicating becomes a serious problem.
As companies expand, the people within them start to specialize. At such a point, some managers will conclude that they have a "keep everyone on the same page" problem. But often what they actually have is a "stop people from meddling when there are already enough smart people working on something" problem.
It's not that Bob in Accounting doesn't have anything useful to say about the photography for the new advertising campaign. Yes, Bob has a master's in fine arts. Yes, Bob is an amateur photographer. And maybe he even has better taste than do the people in marketing. Still, Bob shouldn't be telling the marketing manager what to do, because it's just not efficient. In fact, it's highly inefficient.
The cost of overcommunication within organizations was fleshed out by Fred Brooks in his 1975 book, The Mythical Man-Month. Brooks helped run the OS/360 project at IBM, building a giant operating system for the company's mainframes. In those days, computers were large, room-size, water-cooled machines, sometimes with a massive 256,000 bytes of main memory. OS/360 was probably the largest software project ever attempted to that point. And it was monumentally late.
Every time some aspect of the project fell behind schedule, IBM assigned a few more people to the task. And what Brooks noticed, which still surprises people, is that this didn't work. His observation came to be known as Brooks' Law: Adding people to a late project tends to make it run later still.
Read that sentence again, because it's not intuitive. Brooks discovered that adding people to a project will put it further behind schedule.
How can that be? Well, when you add a new person to a team, that person needs to communicate and coordinate with all the other people on the team. This doesn't sound like a big deal, but it is. The new kid doesn't know what's going on, so somebody else on the team -- somebody who just last week was doing productive work -- has to stop his or her work and show this newbie the ropes.
The bigger the team, the worse it gets. When you have a team of one person, you have no communication requirements. None.
Add a second person, and now you have a single connection: Adam and Mary have to talk to each other once in a while.
Now add a third person, say, Srinivas, and suddenly we've gone from one connection to three, since Srinivas has to talk to Adam and Mary.
Add a fourth person. I'm running out of names here to help me out -- OK: Britney. If we add her, and she needs to coordinate with all of them, you get six connections.
For the mathematically inclined, the formula is that if you have n people on your team, there are (n2-n)/2 connections. This chart illustrates how this becomes a problem:
PeopleConnections 1 0 2 1 3 3 4 6 5 10 6 15 7 21 8 28 9 36 10 45As you can see, the communications costs start to rise pretty rapidly until, on large teams, all anyone ever has time to do is to coordinate with everyone else -- and no one gets any work done. In 2006, Moishe Lettvin, a former programmer at Microsoft, wrote a blog post describing the year he spent coordinating the list of items that would be featured on one menu in Windows Vista -- the menu you use to turn off your computer. (See The Windows Shutdown Crapfest.) Lettvin figured that 43 people all had a voice in designing this one menu. Forty-three! By Brooks's formula, that means managing 903 connections. Lettvin says he spent so much time on coordination tasks that, in 12 months, he produced fewer than 200 lines of code.
As the boss, you need to design ways to reduce communications paths. Eliminate companywide mailing lists -- or at least charge $1.50 to post to them. Stop having large meetings. You need a culture in which people don't get uptight because they weren't included in a meeting, which means you need a culture that rewards people for doing their jobs and frowns on meddling in other people's work.
And on every project, assign one person to make sure that communication happens -- but only the right communication. Otherwise the team will just start having long meetings with everyone there and, frankly, people will socialize, and bloviate, and speechify, and argue about things they don't really care about just to hear their own voices.
I think this is probably one of those cases in which the old, 1950s style of management accidentally got something right. In those General Motors–style companies, they at least had an idea for how information needed to move up and down neat, regimented org charts, which showed a modicum of recognition that the right answer is not that every single person in the organization needs to pay attention to everything.
When you started your company, you probably did a great job of communicating. Everybody told one another everything. And your customers loved it, because when they called in to ask about their purchase order, everybody knew where it was. But as you get bigger, you can't keep telling everybody about every purchase order, so you have to invent specific communications systems so that exactly the right people find out and nobody else. Not because it's confidential. Because it's a waste of time.
Joel Spolsky is the co-founder and CEO of Fog Creek Software and the host of the popular blog Joel on Software. For an archive of his columns, go to www.inc.com/author/joel-spolsky.
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