Fight the Firing at Start-ups

A recent article in Inc. notes that “start-ups fire nearly 25% of their employees during the company’s first year of existence,” compared with less than 7% “let go annually by larger, more-established companies.” The Inc. piece sites a Wall Street Journal article that provides four drivers of this trend:

“Startups’ needs change quickly. Often the skills sought in the beginning of the year aren’t needed six months later when the company’s strategic plan has changed.

First time founders lack hiring experience. When staffing a company for the first time, rookie founders might have no idea which qualities they should really be looking for in employees.

Employees from the corporate world can’t adjust. These hires don’t realize how quickly they’re expected to move on projects, since they might have been used to a slower pace at their corporate job.

Getting fired is viewed as not such a big deal. Since it’s well known that turnover at startups is high, getting fired from a startup is not perceived as a career-ruining moment. This might be how some startups morally justify letting lots of employees go.”

The first three are real challenges for start-ups, but each can be easily solved by outsourcing – while also avoiding the human, financial and societal cost associated with such rapid terminations:

Startups’ needs change quickly. Outsourcing provides scalable solutions that can keep pace with growth, and allows access to a breadth and depth of skills that can be added, deleted or substituted as the start-up’s needs evolve.

First time founders lack hiring experience. An outsourcing firm that provides a fully-managed outsourcing solution for a particular process or functional area – such as finance/accounting, human resources, logistics, or marketing – takes this issue off the table. The entrepreneur does not have to worry about hiring, managing, or firing for non-core functions, and does not have to endure the costs associated with recruiting or the lost productivity from bad hiring decisions.

Employees from the corporate world can’t adjust. Outsourcing providers that work with start-ups have professionals with the required skill sets and sense of urgency. Moreover, they can leverage additional resources when needed to accelerate projects.

These three factors are challenges to start-up entrepreneurs, and outsourcing can solve all of them. The fourth driver, “getting fired (from a start-up) is viewed as not such a big deal,” is not actually a challenge to the entrepreneur, and it is not a perception that outsourcing can eliminate. But it is most certainly a challenge to the people that are fired. I would venture to say that those terminated from start-ups do not agree that it is “not such a big deal,” especially if they are past a certain age… This is a case where outsourcing can help the workforce in addition to the start-up: Join an outsourcing firm, where you are a revenue-producing part of the provider’s core competency, and enjoy a career path that is more stable and progressive, not dependent upon the vagaries of one particular start-up.

Back to School!

Today is Labor Day, marking the transition from summer to fall. While the “newness of fall” is not exactly a familiar phrase like the “newness of spring,” this is a time of reinvigoration in the business world – “back to school for adults,” as I like to say.

In a business context, Labor Day is more of a new beginning than New Year’s Day. Summertime distractions and vacation delays are in the rearview mirror, making it easier to get the attention of customers eager to get things done before the upcoming year-end. A sense of urgency increases to make the numbers before the year comes to a close. Executive teams want key decisions made and in place before the New Year begins. Conferences and networking events will soon be in full swing, generating new ideas and new connections. The rapidly-approaching fourth quarter is a time for strategic and tactical planning, a time to think about the big picture and set goals and objectives for next year, and to develop a budget that aligns with those plans; now is the time to make sure these activities are properly planned and scheduled.

Like the school year, the new business year starts now. Think of it as a fresh start, for yourself and for your business. Approach it with the same enthusiasm you had when you were a kid, boarding the yellow bus on the first day with a knapsack full of brand new school supplies.

Happy Labor Day!

The Persistent Myth of The Social Media Generation Gap

Last week I attended a meeting of a non-profit board I am on. In discussing membership initiatives, the role of social media came up, as is inevitable these days in any conversation related to marketing, communications or public relations. Predictably, one of my fellow board members said that we should get some of the “younger” folks to focus on our social media efforts.

Otherwise reasonably tech-savvy “older” professionals referring to social media as some sort of self-imposed line of generational demarcation is one of my pet peeves. These same 40+ executives, who have had no problem integrating other evolving web technologies into their personal and professional lives, and are adopting mobile applications at a blistering pace, for some reason have become Luddites with respect to social media. This attitude has the danger of becoming a self-fulfilling prophecy: If social media is cast aside as a younger person’s game, then the older generation will indeed put itself on the bench.

Why does this mindset exist with respect to social media, while other new technologies are perceived as age-neutral? I believe it is because of a failure to understand what social media is: “Social” implies a trivial, non-business purpose, and “Media” suggests that non-marketers need not bother.

Neither is true. Social media builds networks and communities – of friends, yes, but also of professionals and their businesses’ customers, prospects, referral sources, suppliers, employees and contractors. Twitter, in particular, is more of a tool to find and discover important links, news and information, curated by trusted sources that you may not have any personal relationship with, which you can draw value from whether or not you tweet yourself, as discussed in this blog post by Benchmark Capital’s Bill Gurley. Social media has opened new pathways of communication and collaboration, facilitates connections that would have been unthinkable just a few years ago, and is a key enabler of the virtual business model. Social media destroys the hierarchical, command-and-control organizational structures of yesterday, where information had to be sent upstream to be aggregated, distilled and sent back downstream. Instead, we now have a spider web of interrelationships that can be leveraged to share knowledge, generate business, and get work done. Point-to-point, rather than hub-and-spoke. As Nilofer Merchant writes in a Harvard Business Review blog post, these seismic shifts render the very term “social media” a misnomer. Ms. Merchant, who also has written an ebook on the topic, writes, “Social can be – and already is – more than media.” She advances the theory that traditional business models and strategies have been rendered obsolete by social media’s ability to create value through the distribution of power and innovation.

The irony is that the facts do not even support the notion that social media is only for the young. Regardless, as another board member observed, whether you are older than the typical social media user or not, if you’ve got another 10 or 20 years left in your career, you’d better figure it out.

Virtual Number Two

I recently read an interesting article by Jack Welch in Fortune magazine, in which Mr. Welch used Mitt Romney’s selection of a running mate as a springboard to discuss the essential criteria for a vice president. The piece was written before Governor Romney selected Paul Ryan, but the article remains relevant in its identification of the attributes of a solid “number two,” whether in politics or business.

As they say, it’s lonely at the top, and Mr. Welch notes that some CEOs feel isolated in their decision-making. This is particularly true for entrepreneurs in early-stage companies that may lack an experienced management team. The concept of a “number two” often implies a clear second-in-command and successor to the CEO. But aside from the succession planning that good corporate governance requires, not every CEO is ready, willing or able to explicitly identify his or her “number two” to the rest of the company or the outside world. Still, the CEO should be able to draw the necessary support from each member of his or her executive team.

Two of the criteria Mr. Welch identifies for a “number two” are having “guts” and being a “partner” to the president or CEO, and I believe every one of the CEO’s direct reports should have these attributes. “Guts” means having the courage and confidence to carry out the difficult responsibility of sharing with the CEO bad news, negative messages percolating among management or employees, or even constructive criticism. In short, it means not being a “yes-man,” and being willing to express disagreement. On the flip side, though, being a “partner” means expressing that disagreement only in private, while always standing as one with the CEO in public. As Mr. Welch notes, it also means that none of the CEO’s direct reports should allow their offices to become places to “slip initiatives through.”

The CFO may or may not be the explicit or implicit “number two” that is ready and able to step in as CEO if needed. Regardless, the CFO – like all members of the executive team – must have “guts” and be a “partner” to the CEO. It falls to the CFO to communicate the hard financial realities of decisions, particularly in a high-growth (and high burn rate!) environment.

Can a Virtual CFO fill this role? Yes! In fact, a Virtual CFO is uniquely positioned to deliver hard messages to the CEO. While a member of the executive team, a Virtual CFO also brings the outside perspective of a consultant and is free from the concerns of internal political dynamics. In early-stage, emerging growth and lower middle market companies, engaging a Virtual CFO enables access to a level of talent and experience that generally is not affordable or necessary on a full-time basis. With this level of knowledge and experience, a Virtual CFO can be an all-around counselor and coach to the entrepreneur/CEO.

Of course, both Virtual CFOs and full-time hire candidates must be evaluated for the necessary attributes. CEOs should encourage their existing CFOs to be candid, and should foster an environment where the CFO feels comfortable sharing conflicting points of view and expressing disagreement in private.

CEOs and CFOs, please share insights about your relationships, and your perspective on the balance between “guts” and “partnership”.