Business Encounters: Life Scientist

Hiring Dilemmas and Keeping Top Performers

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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.

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Angel Funding: Structuring (Part 4 of 7)

The actual structure created for a life science startup will not be substantially different from any other startup investment. Thus the following information is not specifically customized to the needs of the life scientist-entrepreneur.

Structuring an early stage investment can be seen from two perspectives. The first perspective focuses on the complexity of the structure. In general, this requires a simple, yet understandable agreement which is based on trust and mutual respect of both parties. The simplicity of the agreement is important because in most cases funding from the angel will not be the last funding. For both the founder and the investor it is important that the structure created at the outset is acceptable to venture capitalist in later rounds without significant modification.

The secondary component is the actual agreement terms. Structure includes more than ownership stake, though ownership stake is often the most important and most contentious issue, so it makes sense to address it first. The primary decision is between two choices. The first is offering the investor common shares and various rights that would likely accompany the common shares. The alternative is some type of preferred shares as well as the many possible rights that would be conferred alongside preferred shares.

Arguments for either can be made. Essentially, common shares will not confer many of the special rights available to preferred shares, yet common shares will be simpler to arrange. For a small stake in a company, common shares may be the easiest and most logical path to follow. The potential upside can be added through additional rights to invest in additional rounds as well as to sell when anyone else sells shares.

Preferred shares may provide additional rights related to board selection, obtaining dividends, obtaining internal information, making decisions regarding liquidation, or conversion or redemption of shares.

The final type of investment would be a convertible note which is more attractive currently. This avoids actual negotiation on the price and sets the share offering tied to a future event. The note is likely to be convertible into preferred stock and discounted to the rate of the actual sale of preferred stock as compensation for the additional risk that the angel endured. The advantage is that neither party must agree on a valuation at this time. At a later time, the financials will be more clear and the venture capitalist will likely be more skilled at valuation. The convertible note provides an incentive to gather additional funds via venture capital at a later time, and because of changes in the discount rate, the incentive is to obtain those funds earlier rather than later. Thus, if additional funding is not expected, this is not a logical path to follow.

The note includes the possibility that the investor would be repaid if additional funding is not received. However, in such a case it’s more likely that the company is not viable and all the funds would have been lost. If additional funds are not received then the angel has likely taken on a large risk and received a fairly meager rate of return on the note. Again, in such situations, a note is the optimal structure.

Additional important parts of the structure beyond the capital structure discussed above would be the expected involvement of the investor regarding participation in the board or acting an adviser. The structure should also include the expected time that the entrepreneur will be involved as well as the salary and expected time the entrepreneur will stay with the company. Finally, reporting (as with any contract) is essential and should offer financial information for the company as on a monthly and quarterly basis as well as significant expenses.

The entrepreneur should consider that a request for preferred shares will require a more complicated legal agreement to clarify the details and the investor rights. This also increases the time for the negotiation as well as the legal costs involved. However, to avoid confusion and disagreements later it’s logical to invest wisely regarding time and energy and ensure that the agreement is both sound and clear to both parties.

It can be a complicated and difficult series of decisions, but hopefully this helps with structuring early round investments in a way that best suits your life science startup.

Newsprint Ads Related to Health (Part 3 of 5)

Newspapers hold advertising potential for certain healthcare segments. Here are some examples of newsprint ads that have focused on health in the past few years.

The NY State Nurses Association ad highlights the health support features of Medicaid to a target market of the elderly. The apparent value proposition is that if changes to Medicaid are resisted these benefits will remain; if not they will go away. It engages the user via a small healthy child and teddy bear and text-based pleas to support the needs of children, the elderly, and the disabled. The ad’s call to action is probably related to voting or contacting a politician since both are done frequently by the elderly or to check out a website and is expected to yield the benefit of no change to health services for the respondent. The ad appears to target the elderly because almost all Medicaid funds primarily help the elderly with home care and nursing home costs. The objective was neither measurable nor attainable. Highlighting the value of children, the poor, and the disabled adds emotional appeal but these are not large voting blocks. This ignores the more clear value of Medicaid to the elderly: Medicaid supports them when they become ill or infirm.

Generation Solutions’ newspaper ad highlights the ability of the home health care service to help the elderly with improving “gait speed” to a target market of professional caregivers and primary care providers. The apparent value proposition is that the services will confer a lower risk of mortality to the patients of the market by addressing gait limitations. It engages the user via a frail looking elderly woman (whose life will not end prematurely) and non-emotional data/results related to a study. The ad’s call to action is to contact the agency and is expected to yield the benefit to the respondent that a patient’s gait speed is improved. The objective was measurable in terms of increased calls although not especially attainable unless this ad was in a newspaper only seen by health care providers (which is possible). It would be more effective as an ad targeting family caregivers which had less data and said “talk to your loved one’s physician about gait – it could help her recover and avoid a repeat fall.”

The Carolina Select Home Care newspaper ad highlights the quality of their agency to a target market of the elderly with physical conditions, as well as certified nurse assistants. The apparent value proposition is that the elderly will receive high-quality care and that nurse’s assistants will work in a better facility. It engages the user via a picture of a healthy and smiling older person with the assumption that their service achieves such an outcome. The ad’s call to action is to call a phone number and is expected to yield the benefit of learning about an environment that is good for the elderly person or a nice place to work. The objective was measurable by following call rates after placement of the ad and quite attainable. The one limitation is the ad has two targets. It seems more logical to run two different ads with a more clear focus and see which one is more effective.

Renew Home Healthcare’s newspaper ad highlights the comfort and zero cost of their agency to a target market of the elderly with a physical condition. The apparent value proposition is the elderly person will receive more comfort and achieve higher independence if they use Renew Home Healthcare’s services. It engages the user via a picture of a tidy home and friendly young home health care worker, further supporting an emotion of calm and ease. The ad’s call to action is to call a phone number and is expected to yield the benefit of learning about an environment that will promote their healthy return to independence.The objective was measurable by following call rates after placement of the ad and quite attainable. The ad has a simple message and focuses on the fact that making a choice will not incur costs.

The Overactive Bladder research study newspaper ad highlights the problems of an overactive bladder and implies that by participating in the study the elderly person enrolled will potentially gain access to a medication that might help. The apparent value proposition is potential relief from the effects of an overactive bladder (incontinence). It engages the user via a woman who looks troubled and a smiling man. The ad’s call to action is to call a phone number and is expected to yield no cost for treatment and possible compensation. The objective was easily measurable by phone call records and probably attainable. Since there is a chance the person gets a placebo, it would be helpful to highlight how participation could help others by learning something new. Also, some compensation would likely be received by all participants. If so, that benefit should be more clearly advertised.

Picture Credit: Flickr user Jon S

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