Business Encounters: Life Scientist

Building Social and Financial Capital

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Dexter Robinson‘s blog post Building Social and Financial Capital persuasively argues that the world is changing and that a founder dedicated to the old school method of face-to-face communication doesn’t necessary have an advantage. And the founder better get on board with the changing nature of engagement if they hope to reach a younger audience. Moreover, the argument offers hope for younger individuals that they may indeed have found a way to level the playing field, or perhaps tilt in their favor.

Social media, or more broadly media that enable long distance communication through platforms across a large breadth of users, upends the old school model. It will likely replace it completely. Social media and Internet-based social connections are great for capitalism in that it provides a more efficient means of communication and for the best ideas to get support.

As an example, in the past Angels were people you had to meet through accountants and lawyers and who were difficult to connect with. They, of course, came with biases and would only connect with certain people. Now, they are more likely to be collected into online angel syndicates that will respond to online pitches. No handshakes. No introductions. And fewer biases. The only people who lose are people for whom the old system worked well for them. Folks high on the extroversion scale will continue to have an advantage, however the power won’t be so absolute.

The challenge with social media is that without focus it can become an enormous distraction. However, with focus, it can form the social capital necessary to launch a business. Robinson’s insight into how one could use social media to build a connection is a fantastic example. If you doubt the value of social media to make connections then perhaps you should ask him to perform a similar analysis of your situation.

Similarly, equity crowdfunding offers great potential for entrepreneurs to acquire the capital they need to launch their enterprise. As with the angel syndicates discussed above, collections of people whom one accesses via the Internet are likely to value ideas more based on their merit than on the presentation skills of the entrepreneur in a one-to-one framework. Those one-to-one skills will still be required. However, currently, those one-to-one presentation skills are predominate in importance and a lack of those skills can cut off the entrepreneur from funding even when the idea has great potential.

There is continued value in rewards crowdfunding as seen with Kickstarter and Indiegogo and many smaller examples. There won’t be enormous wealth to be obtained. However, there is enough capital and input and guidance for the entrepreneur to establish an idea, test the waters, and build a customer-focused enterprise from the beginning. In essence, reward crowdfunding has all one needs to get the ball rolling.

Further Reading

Photo Credit: Pixabay. CC0 Creative Commons. Free for commercial use. No attribution required

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We are a dedicated team of developers and researchers with the mission to improve the health of individuals through novel technology including games, virtual reality, and role-playing simulations. We welcome input from the full range of stakeholders to create a customer experience with the broadest applicability to improving health outcomes.

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Team Building and the Benefits/Risks of Homogeneous Teams

Let’s first discard the notion that this company is yours. It isn’t and won’t be. Every enterprise is more than one person. So, from the beginning, this company is dependent on others. It is not an extension of you. And you are not going to be the master of all domains. In fact, you might not even be the CEO if the typical CEO skills don’t match your best qualities. So, from the beginning, this company is a team

Many founder teams are friends and already have a close relationship. They may even have marital or blood relations. Enthusiasm and excitement eventually run straight into the issue of equity. How will this group of enthusiastic folks divide up the equity?

The above background can impede the necessary discussion. Often an egalitarian focus drives a plan for an equal split of ownership. If there are 3 founders, a 1/3 split is chosen as the solution to least likely ruffle feathers; but may lead to problems down the road

  • What happens if one person loses interest and fades away?
  • Do they still get 1/3 of a company that they aren’t contributing to?
  • What if the founders disagree? Does every decision require that two folks agree? How will that impact the third person?

A fair distribution among friends can be problematic. Other questions challenge a team of “equals.” For example, will the stake of the CEO be the same as the person who is in charge of sales? In the beginning, the sales position may be pretty easy, and the CEO is pushing hard. An equal split is inevitably going to frustrate the eventual CEO. If the CEO’s role is demanding and stressful shouldn’t that person get a larger equity stake?

When you play out these and many other scenarios it is clear that an equal division is a foolish idea. But that often doesn’t overcome the fear of breaking up the team or that facade that “money doesn’t matter.” So, what can the team do?

The best strategy is to agree to divide up equity later once roles and responsibilities are defined. And that retention of equity must depend on a long-term commitment. You can keep the “we’re all in this together” vibe and at the same time establish a plan that will serve your needs going forward.

The second issue is one of the skills and relates to the initial concern. If everyone is a friend, do they have complementary skills to launch a startup? Assuming the choice of founders was based on friendships or familial relationships, probably not. Perhaps you have a team of MBA students. Or everyone is 25. Maybe no one has ever been interested in sales or finances. In the worst case scenario, everyone is a “leader.” If so, you can assume that eventually there will be a fight to see who is going to be king of the hill and grab the top CEO position.

Look at the skills and talents and find the holes. You’ll need to fill those holes quickly. Be ready for the reality that the people you choose are going to want equity or a decent salary. It’s unlikely you have a salary that can compete with real-world jobs with competitive wages, offices, and fringe benefits. Be ready to give up equity.

In sum, it’s okay to start with a homogenous group. But eventually, you need a heterogeneous team of people who get along. With such a team, when the times get tough you’ll have the comradery AND the skills you need to weather a financial storm and succeed going forward.

Further Reading

Photo Credits: CC BY-SA 3.0 Nick Youngson and Milbank_Diversity_Committee.jpg ‎(497 × 311 pixels, file size: 57 KB, MIME type: image/jpeg) Licensing: This work is licensed under the Creative Commons Attribution 2.5 License. The image was created by Milbank, Tweed, Hadley & McCloy LLP, who also holds the copyright. The image is available upon request from the firm.

Hiring Dilemmas and Keeping Top Performers

Herrenkohl’s book How to Hire A-Players: Finding the Top People for Your Team- Even If You Don’t Have a Recruiting Department suffers from four problems.

The first problem, a “dump them” attitude, is based on the static assumption we associate with human resources. That is, that individuals have defined and mostly immutable skills and talents. In fact, in terms of cognitive tasks (vs. say a physical challenge of putting a ball in a hoop) rarely do individuals recognize their complete skill set. And supervisors have little time to investigate the full set of talents.

In an ocean full of fish, it may indeed be simpler to throw a fish back, but in a competitive market for talent there is logic in seeing if the fish you have can fulfill a need, but in a different area. And a more dynamic company will have expanding and changing needs. An existing employee who is not performing may be appropriate to meet those needs. It’s far more efficient to take an existing known employee and move them to a position where they’re more productive than to fire such an employee and to replace them with an alternative. Of course, if the fish is apathetic or nasty, then put it back in the water.

The second weakness is in the “get the best” attitude. This assumption also does not recognize that human resources are a competitive market. Folks who are “A-players” understand that. They will, by definition, be more expensive and harder to retain. In some cases, such as programming, the added productivity far outweighs the added cost, but in that case it is mostly because better programmers like to program more than they like to negotiate salaries. In business, highly valuable staff are quite adept at negotiating higher salaries commensurate with the skill set. Consider what Goldman Sacks pays its upper level staff.

The effort to obtain “A-players” may be equivalent to Porter’s marketing strategy of a race-to-the-bottom. By competing for a limited resource you are implementing a plan that is repeating what your competition is doing. As in marketing, it may be more strategic to apply an approach that is unique and different. Look outside the obvious. You’ll end up with a gem that no one else sees.

The third weakness is that the book is caught in an older/non-digital model of corporate growth. Most new startups with high capitalization are tech or life science companies. The book ignores the fact that in the current age we can have enormous corporate valuations based on just 20 employees. Recruiting 20 employees is not as challenging or difficult. Finding and optimizing talent is still important, but with a low head count it need not be as complicated or time consuming. Performance problems will also be more obvious.

The final change that the book misses is the movement toward digital marketing and models of sales that do not use human resources. Marketing efforts, including social marketing and content marketing, feed the sales process and enable much more willing customers, thus decreasing the emphasis on a skilled sales team. Platforms create enormous potential wealth without the need of dedicated resources concerning human capital other than information technology resources to maintain the platform. And IT resources are commodities at this point that can be purchased from external vendors.

Further Reading

Photo Credit: Carol GarnettFishing Father, Daughter Sunrise CC0 Creative Commons, Free for commercial use, No attribution required. Created April 23, 2006.

Let Good Times Destruct the Status Quo (Part 2 of 3)

Last week we described a theory that creative destruction happens because of downturns that spur new solutions, and the lack of a downturn in the health economy is why medical education is stagnant.

An alternative model found that in fact creative destruction happens during periods of growth not recession. Think of the dot com bubble that spawned Google. Facebook also launched in a time of plenty. Uber arrived after the crisis of 2008 was over and has been on a tear ever since; they’re now the leader in driver-less cars and trucks. So, an abundant IPO and M&A environment that is full of resources spawns even more opportunities for creative destruction.

Certainly health care has done nothing but grow and in several markets (e.g. Pittsburgh and UPMC) consolidation and integration and rapid growth are pretty obvious. With all that money sloshing around it should have led to enormous opportunities for creative destruction. Sure medical schools have replaced dark, depressing lecture halls with windowed learning environments full of round tables and projectors, and others have built huge simulation centers with mannequins and rooms for standardized patients. But if one contrasts that with the growth of Apple and the impact of the iPhone or Google and search, it’s clear that the enormous riches of healthcare (17% of GNP and growing) haven’t translated to enormous change.

Why not?

Perhaps paranoia and fear of a recession is really the key. A history of a growth period following a recession would include a sense of anxiety (i.e. “we’ve got to be ready!”) about the potential for another recession. Without a past recession (such as we had in 2008 for real estate especially and other markets but not health care) there is no anxiety going forward. So, easy or constrained flow of money is not the key to creative destruction. Money just enables such destruction when combined with anxiety about being ready to weather the next storm. And thus with medical schools and their hospitals as the top revenue generation for universities, and hospital CEOs and VPs among the highest paid executives in universities, there is little need for the health care industry to worry that the days of growth are coming to an end.

Picture Credit: Medical Office Careers

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