Archive for the ‘Startups’ Category

An Overview of Outsourcing

Saturday, December 13th, 2008

When I was with Day, Berry & Howard, I negotiated large, complex outsourcing contracts for a number of Fortune 500 companies.  For example, in one instance, it was more efficient for a pharmaceutical company to outsource its help desk to an expert provider of such services rather than to manage and maintain the resources necessary to operate the help desk function in-house.  In another instance, a bank outsourced its data processing function to an expert provider of data processing services for lenders.

This expertise I gained came in handy at E-Solutions Integrator, Inc. (e-SI). because it helped us to grow much more rapidly on limited resources. In the early days of e-SI, when we landed a project, we needed to quickly add software developers.  However, we didn’t want to hire full-time employees for a variety of reasons.  This was because the Internet – and our business – was growing so rapidly that it was hard to predict our needs and we didn’t want to take on employees we might not need in a couple of months when a project ended.  So we used the leverage of contractors and ultimately, we engaged hundreds of individuals  – in addition to our own core employees.

Outsourcing worked for us.  We hired contract organizations that provided employees in India.  This provided the flexibility we needed and increased our margins, as software developers in India cost significantly less than in North America.  Yet, we did have concerns and were careful to manage them.  These concerns included quality control, security issues and time constraints from having our resources on the other wide of the planet.

Broadly defined, outsourcing is subcontracting a process to a third party.  That process could involve a product or a service or part of either.  It could also involve a specific business function or a non-core competency of the organization.  We outsourced overseas, which technically, is called “offshoring.”

The Outsourcing Center is an Internet portal for information on methods to outsource information technology.  The Outsourcing Institute is a professional organization dedicated to outsourcing.  For individuals in the U.S. the Contract Employees Handbook is focused on helping contract employees manage their careers.

As it was, at e-SI, we grew and survived the Internet downturn because of the flexibility of being able to outsource.  Ultimately, though, we opened our own offices in India as our business prospered and our projects and customer list expanded.

Performance Appraisal

Thursday, June 26th, 2008

In late March, Sheryl Sandberg left Google to join Facebook, the social networking site, as COO.  She immediately instituted new management and operations processes.  These included guidelines for identifying and recruiting new employees, management training initiatives, and employee performance review procedures.

Fast-growing, entrepreneurial companies like Facebook are so busy that formalizing HR processes often are on the back-burner.  In fact, even larger companies (and some public companies I know) neglect setting up appropriate HR processes.  This not only can lead to liability, but to potential employee performance and satisfaction issues.

In the early part of my career, as an attorney at Day, Berry & Howard, we had only top down performance reviews that came from the partners with whom one worked.  With my own subordinates, I went further and instituted a more in-depth review of my own performance.  I regularly asked my assistants and occasionally, junior attorneys with whom I worked, questions like “How am I doing?”, “How can I do better to make us more efficient?” and “How can I help you to help me?”  To do this, you need to be open to criticism, which is something many hard-charging attorneys with Type A personalities have difficulty with.

For me, it paid great dividends.  I established excellent relationships that, for example, allowed me to delegate more of the mundane work to my assistants, which freed up my time for substantial work and allowed them to feel they were really contributing to our team.

360 performance review, which I understand that Ms. Sandberg initiated, incorporates more than just getting feedback from one’s superiors and subordinates.  It also can include getting feedback from departmental coworkers, those in other departments, suppliers and sometimes, customers.  Supposedly, it provides a more accurate picture of one’s strengths and weaknesses and ways to improve them (although there are some concerns about 360 performance appraisals).

At E-Solutions Integrator, we grew very rapidly from the outset.  We did not use 360 performance review during my tenure, but developed this performance evaluation form for both the reviewed employee and his or her manager to complete.  Each company needs to develop performance evaluation metrics that fit the needs of that particular organization, taking into account the job position, the requirements of that position, the type and size of the business, and the company’s stage of growth.  This form worked well for us in the early stages of our existence.

Securities Offerings on the Internet

Wednesday, March 19th, 2008

In the 1990s, my colleague, Lou Turilli,* and I wrote an article for The National Law Journal about how the Internet might shape securities offerings. I followed that up with an article for Wall Street Lawyer, Securities Offerings Online By Small, Nonpublic Businesses. It specifically focused on whether small companies could viably offer and sell securities on their own via the Internet. I concluded that, “Clearly, selling securities online is a viable concept. Yet until fundamental issues such as the problem of gaining visibility, the lack of secondary markets, the arbitrary pricing and the disinterest of established investment bankers each are addressed, the opportunity for small businesses to raise capital in cyberspace will hold great promise as an idea, but be of limited practicality in the real world.”

I don’t think that my conclusion has changed. Distribution and pricing remain key obstacles for companies that want to promote their own online offerings. Marketing the securities is still a serious issue, and there are credibility concerns for the companies as well. Thus, serious companies will continue to pursue the traditional route.

* Lou and I practiced law together at Day, Berry & Howard. She recently was Vice President and General Counsel of Ryerson.

Sam Walton’s 10 Rules for Success

Thursday, March 6th, 2008

In 1962, Sam Walton founded Wal-Mart. He built it into the largest retail company in the world. He had 10 rules for success….

Rule #1
Commit to your business. Believe in it more than anything else. If you love your work, you’ll be out there every day trying to do the best you can, and pretty soon everybody around will catch the passion from you – like a fever.

Rule #2
Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations.

Rule #3
Motivate your partners. Money and ownership aren’t enough. Set high goals, encourage competition and then keep score. Make bets with outrageous payoffs.

Rule #4
Communicate everything you possibly can to your partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors.

Rule #5
Appreciate everything your associates do for the business. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free and worth a fortune.

Rule #6
Celebrate your success and find humour in your failures. Don’t take yourself so seriously. Loosen up and everyone around you will loosen up. Have fun and always show enthusiasm. When all else fails put on a costume and sing a silly song.

Rule #7
Listen to everyone in your company, and figure out ways to get them talking. The folks on the front line – the ones who actually talk to customers – are the only ones who really know what’s going on out there. You’d better find out what they know.

Rule #8
Exceed your customer’s expectations. If you do they’ll come back over and over. Give them what they want – and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses – apologize. Stand behind everything you do. ‘Satisfaction guaranteed’ will make all the difference.

Rule #9
Control your expenses better than your competition. This is where you can always find the competitive advantage. You can make a lot of mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.

Rule #10
Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody is doing it one way, there’s a good chance you can find your niche by going exactly in the opposite direction.

Mark Cuban’s Rules for Startups

Thursday, February 28th, 2008

Mark Cuban founded broadcast.com, which was acquired by Yahoo! during the dot.com boom. He has some generally good rules for startups here.

Ask the VC

Thursday, February 14th, 2008

I get asked a loteven by experienced executiveshow much equity they should expect when negotiating to work for private companies. That’s all over the map and really depends on the company, the position, etc., but here’s a blog that tackles that subject and more: Ask the VC. It’s written by Brad Feld and Jason Mendelson, who are with Mobius Venture Capital and The Foundry Group.

This blog is worth checking out if you’re a small company planning to seek venture investment or even an entrepreneur trying to build a better private company. I like blogs with a lot of meat and little fat…and this is one of them.

Here’s one of those odd little twists that happen in life. Brad was the CTO of a company called AmeriData Technologies that was later acquired by General Electric. When I practiced law, I represented a venture firm that invested in AmeriData. I met the two founders of that company, but don’t recall meeting Brad.

Voting Trust Agreements and Effecting Corporate Action

Saturday, February 2nd, 2008

If you want to cause a corporation do something on the corporate level if a particular event occurs, there are a variety of avenues you can pursue. Here are some options:

* Put a provision in the corporation’s charter (AKA Article of Organization or Articles of Incorporation). However, this is inflexible and costs money. If you want to change the provision, it’s a hassle. Plus, it’s a public document, so all the world knows what you’re doing.

* Create a Shareholders’ Agreement. The agreement among shareholders would recite all the reasons for the behavior, but there’s no guarantee that the behavior will occur, so it’s much riskier. A shareholder agreement gives the right to demand action, but can’t force the action. Only a lawsuit can do that.

* Change the corporation’s Bylaws to require the change. This doesn’t cost anything and it’s not public. That said, it ties the hands of the directors. If the event is conditional, then you also would have a side agreement among the shareholders to require the event to occur if the condition occurred. However, there’s an argument that this restricts the directors’ ability to manage the corporation unless all the directors are parties to the side agreement.

* Create a Voting Trust Agreement. A voting trust transfers the legal title to the stock and its voting rights to a trustee for a certain period of time. It affects only those shareholders who are party to the agreement. It provides flexibility and privacy and is fairly inexpensive.

Like any legal document, a voting trust agreement is a creature of the particular jurisdiction to which it is subject. The voting trust must be acknowledged by the corporation and its shareholders. Further, it’s a good idea for the trustee and alternate trustee to acknowledge it also.

A Conditional Voting Trust Agreement is a voting trust agreement that has no affect unless a particular event occurs. In that case, the trustee will step in with control of all shares to guarantee the results. Essentially, the trustee is an enforcer. It’s a good idea to avoid requiring the trustee to have physical possession of the shares in any voting trust agreement, as that could delay the trustee’s actions.

Employee Morale: Sometimes the Little Things Make a Big Difference

Friday, January 25th, 2008

Little things can sometimes make a big difference in company morale. It’s not all about compensation and perks.

An example of this is what I did at E-Solutions Integrator, a startup at which I was COO. e-SI, a technology services / software development firm, was born during the Internet boom. Our employees were working long hours and were doing a great job in helping to build the company.

Early on, when we had 20-25 employees, I bought a gross of movie tickets. I wrote a personal note to each employee about their contribution, how they individually had made a difference to the company, and how much their efforts were appreciated. I enclosed a couple of movie tickets with each note.

I walked through the office and spoke with each individual, and handed them the personal note. This was something I’d done on a whim, and I didn’t expect the response. It really made a difference, and I saw a lot of big grins. Months later, some of the personal notes were still pinned up in employees’ cubes. It took little effort on my part, but was a big boost to morale during busy, demanding times.

Communication in Your Company

Tuesday, January 1st, 2008

Communication is critical to all of life’s relationships. Anytime two or more people are involved in a common endeavor or activity, a potential for miscommunication exists. And if the potential is there, it may well happen—that’s Murphy’s Law.

While it’s not typically a major focus when starting a company like sales, finance or the other functional areas, it is critical to success. As the organization grows, careful and clear communication among the company’s employees will make or break the company, especially if it is going through hard times or is operating during a time of market turmoil.

During my career, I’ve advised hundreds of clients ranging from tiny operations to global giants. What’s separated the great from the mediocre companies, regardless of size, has been the employees’ ability to communicate effectively.

For example, many companies develop a mission and key goals. Sometimes, they’re posted on a website, in an employee handbook or in the front lobby. Sometimes, they can be found only in the head of the company’s founder. Typically, company missions and critical drivers are not communicated or not communicated well to employees. As a result, employees can end up working towards different ends and at odds with each other.

Here are some practical tips for better company communication:

  • Focus on what is important to your company—mission and goals—regularly in company meetings. You have to repeat this information over and over and over; it can take a long time to sink in. You want everyone on the same train going down the same tracks.
  • You’ll gain trust by sharing knowledge than by hoarding information.
  • If you have bad news, it’s better to let your employees know than have rumor and uncertainty eat away at your company’s morale. Keeping Morale Up When Your Business is Down goes into more detail on this.
  • Communication in person is best.
  • Communication by video is second best.
  • Communication by telephone is third best.
  • Communication by written word is the least best way to relate to someone. Words, without visual or oral clues, are easily misinterpreted. Who among us has not ended up in a series of email or text exchanges that became angrier, misinterpreted or confused because of miscommunication?