Month: January 2016

Over the last year I’ve spent a fair bit of time talking about Dan Price and his experiment in raising the the minimum salary at Gravity Payments to $70,000 a year.

Wages are a devilishly tricky issue. They’re not the best predictor of employee satisfaction. High wages won’t guarantee success. And managers rightly worry about overpaying an under-performing employee.

Wages are tricky because when you hire an employee, you have a problem: you have work that needs to be done and you need someone who will just do it but you don’t really know if you can trust them.

And so we’ve come up with an elaborate set of tools to help weed out the employees we can’t trust. We ask for resumes and then screen them against the minimum qualifications for the job. We define KPIs and MVPs and measure them ad infinitum. We institute 360-degree, peer-based, annual performance reviews and grade our employees against predefined rubrics. All the while, we’re setting expectations and looking for signals about whether we can trust them.

It’s not just us. Our best employees hire us just as much as we hire them. They know that they shouldn’t just take a job because it’s available. They have goals of their own and they’ll use the opportunity to work for us as a platform from which to reach their own goals. And like us, they’re constantly watching for signals about whether they can trust us.

At its core, then, the employment relationship is just that: it’s a relationship.

As with any relationship, the initial signals we send about our intentions will strongly influence its eventual success. Long-term relationships can be strengthened by the shared experience of the group. But at the beginning of the relationship, the signals are all we have.

Because the signals are all we have, getting the conversation about wages right is critical. What we offer will stand as a proxy for our expectations about the relationship with our employees. Without the benefit of experience (and often with it) our employees will judge our commitment to the relationship based on how we propose to pay them.

That’s why paying employees like Dan Price does is the right idea. Paying employees significantly above the market ought to make us very careful about properly defining the relationship with them because it will be a costly mistake if we don’t. And when we put our money where our mouth is, it’s hard to ignore.

If you’re the kind of person who reads this blog out of personal interest and not merely out of maternal loyalty (thanks Mom!) you most likely know a bit about Clayton Christensen. There’s a reason I’ve quoted him as much as I have: he’s one of the world’s foremost business thinkers and it’s really not an exaggeration to say that his theory about disruptive innovation has changed the way our world works.

This week I read an article he wrote called The Capitalist’s Dilemma. In that article, Clayton and his co-author, Derek van Bever, describe spreadsheets as “the fast food of strategic decision making.” Very briefly, they highlight how the popularity of spreadsheets “has given rise to an unhealthy dependence” on financial metrics in modern business.

Clayton and Derek quote Scott Cook, the founder of Intuit, who observes that focusing on financial outcomes too early in the innovation process produces “a withering of ambition.” Explaining that financial metrics lack predictive power, Scott says “Every one of our tragic and costly new business failures had a succession of great-looking financial spreadsheets.” In response to this failure of spreadsheet-based decision-making, Scott explains, his new-product teams no longer submit a spreadsheet to justify new innovation, they focus instead on “where we can change lives most profoundly.”

I love this idea.

I love it even more because of the tension that it creates with another idea I’ve talked about: the idea that a great business idea is simply a spreadsheet with a skin on.

Spreadsheets are familiar. They’re ubiquitous. And they offer the siren clarity of black-and-white numbers. But because spreadsheets lack predictive power, they’re also like James Surowiecki’s noisy crowds: when spreadsheets tell us what to do they override our decision-making process in a way that leaves us searching for someone (or something) else’s expectation about the value of our business.

That’s a really perverse role for such a powerful tool. Instead of allocating our time, our money, and our emotional energy to the strategies we really want to implement, this sort of reliance on the spreadsheet pushes us to change our behavior in order to satisfy people who don’t have the same information, the same dedication, or even the same goals we have.

So by all means, make sure your business plan makes financial sense. But don’t let the spreadsheet fool you. Capitalism is not finance, success is not a high internal rate of return, and otherishness is a spectacular way to create healthy business.

 

 

 

 

This week I read an article on LinkedIn by Jan Rutherford. In his article, he briefly reviews a book called Leadership BS by Jeffrey Pfeffer, who is a professor at Stanford University.

Apparently, in Leadership BS Jeff teaches that the leadership development industry, with all of its self-help books, executive coaching, and deep thinking, is not delivering an ROI.

Over the last year I’ve spent a lot of time thinking about the ROI of this blog. If you’re calculating the ROI based on how much money I’ve gotten out of it, it’s a clear loser. But I’m not doing it for the money. As long as I keep it up, the blog and all of its content will be free.

The ROI of a blog like this is two-fold. First, the blog is a way for me to work on my ideas. It forces me to shape my thoughts into something resembling coherence at least once a week.

The second part of the ROI comes from people putting these ideas into practice. It exists in building what Jeff calls an “environment in which ordinary, albeit conscientious, people can reliably produce desirable results.”

That’s why it’s so important to think about why we’re in business. As Clayton Christensen said in How Will You Measure Your Life: “How do you make sure that you’re implementing the strategy you really want to implement? Watch where your resources flow . . . . Because if the decisions you make about where you invest your blood, sweat, and tears are not consistent with the person you aspire to be, you’ll never become that person.”

It’s just as true of business as it is of people.

What job were you hired to do?

That’s a funny question to ask an entrepreneur. Ask a dozen business owners and you’ll probably get more than a few funny looks in return. Then maybe some answers like this:

“What do you mean? I wasn’t hired, I hired the employees.”

“I wasn’t hired to do a job. I needed work and found that I was good at this, so I started selling it. And I’ve never worked a day since.”

Other business owners might sense that there’s another question lurking nearby. They’d tell you that they’re “hired” by their customers to do a job well. Or that they were hired to be your personal executive assistant, or to make your house stun passersby, or to make sure you don’t die while you’re using a ladder.

In his book, How Will You Measure Your Life, Clayton Christensen asks his readers the same question: what job are you being hired for?

To help his readers understand, Clayton uses the example of a friend of his who came home from work one afternoon to find the breakfast dishes still on the table and no evidence of dinner. Sensing his wife had had a rough day and needed a hand, he didn’t say anything, he just cleared the dishes and started making dinner. As he did so, his wife quietly disappeared upstairs. Finding her in their bedroom after he began feeding the kids, he expected to be thanked for helping out, only to find that she was very upset—at him.

As they talked, the realization dawned on him. His wife explained that she hadn’t had a hard day because of the chores. It had been difficult because she had spent hours and hours with small demanding children and hadn’t spoken to another adult all day. What she needed most right then was a real conversation and he had essentially given her the silent treatment, all the while thinking he was doing her a favor.

Clayton concludes, suggesting that if we studied the subject, “we would find that the husbands and wives who are most loyal to each other are those who have figured out the jobs that their partner needs to be done—and then they do the job reliably and well.” He then continues, “[t]his principle—that sacrifice deepens commitment—doesn’t just work in marriages. It applies to members of our family and close friends, as well as organizations and even cultures and nations.”

This is what I meant when I said we have to change our passions and learn to be passionate about helping someone else. It’s not just about helping our customers, that’s table stakes. Any business that doesn’t take care of its customers is destined for failure.

No, as employers, we have been hired by our employees to do even more important jobs, jobs that make the importance of meeting financial targets and creating network effects pale in comparison. We’ve been hired to take risks that they can’t. We’ve been hired to bring stability. We’ve been hired to have a vision, to shape it, and to help them see it. We’ve been hired to have expectations and then to provide a platform from which leaping can occur.

We can’t do those things without sacrificing our own reasons for doing business.

But that’s the job we were hired to do.