inc magazine - january 2014 usa

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2American Medical Association, 2012 National Health Insurer Report Card survey.

©2013 United HealthCare Services, Inc. Insurance coverage provided by or through UnitedHealthcare Insurance Company or its affiliates. Administrative services provided by United HealthCare Services, Inc. or their affiliates. Health Plan coverage provided by or through a UnitedHealthcare company.

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Contents

PG.54

“Thrill seekers are drawn to this place.

Once you get out here, you want the ultimate thrill in business, too.”

—ALEX BOGUSKY, co-founder of Crispin Porter + Bogusky, an

advertising agency with a 700-person ofce in Boulder, Colorado

PHOTOGRAPH BY MATT NAGER DECEMBER 2013/JANUARY 2014 - INC. - 7

contents

54

108• innovate

You Can Buy employee happiness. But Should You?Companies that ofer lavish ben-

efits believe there is a return on

their investment. The challenge:

figuring out how to calculate it. By Scott Leibs

—

30

• tech

Now Comes the hard Partin just a couple of years, chad Dickerson has turned

the famously troubled etsy into a fast-growing, valuable company full of satisfied people. Mission accomplished, right? Wrong. he’s only begun to take on the make-or-break stuf. By Tom Foster

—

on the cover AAron Levie, Ceo And Co-founder of Box, phoTogrAphed in SAn frAnCiSCo By emiLy Shur

• launch

don’t Bet Against Aaron Leviehe sees what’s coming,

he takes risks, and he

wins. Aaron Levie, Ceo

of the cloud-computing

company Box, is our

entrepreneur of the year.

By Eric Markowitz

—

• leaD

Start-up Countrynestled in the shadow of

the rocky mountains,

Boulder, Colorado, attracts

people who love to bike,

climb—and launch start-

ups. A close look at the

most entrepreneurial city

in America and how it got

that way. By Burt Helm

—

Features

88

•mAde iN BrookLYN etsy employees at company headquarters

8 - inc. - deCemBer 2013/jAnuAry 2014

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contents

100

Departments

16 editor’s Letter The unnecessarily precarious state of small business156 Founders Forum neil Blumenthal of warby parker

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19• launch

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20 tip Sheet why start-ups shouldn’t be scared of the Afordable Care Act22 inc. 5000 insights Tips on generating users from a company with 50 million of them24 how i Got Funded Seth Bannon wanted to change the way nonprofits raise funds. first, he had to raise funds of his own. 28 Checked out why your online shoppers abandon their carts—and how to stop them38 Book review what malcolm gladwell’s new book does—and doesn’t—understand about entrepreneurs

—

43• leaD: state of sMall business

—

44 Small-Business outlook inc. 5000 entrepreneurs are upbeat, but economic concerns linger.46 the Big Survey A deep dive into our exclusive survey of inc. 5000 founders 50 Washington how uncle Sam could help entrepreneurs in 201466 obamacare your eight-point checklist78 Norm Brodsky why new small-business owners want to remain, well, small

—

81• tech

—

82 tip Sheet rising cybersecurity threats— and why you may be the perfect target 84 Arm Yourself A primer on five common hacks86 tech Support Leadership ideas from coders 94 Brad Feld The ultimate productivity trick

—

97• innovate

—

98 tip Sheet data-driven product development100 7 Questions For innovation guru vivek wadhwa102 how i did it eBay’s pierre omidyar on leadership and philanthropy106 Boom industry A snapshot of the fast-moving wearable tech market, from brainwave readers to smart socks 116 Jason Fried Learning to delegate—

84

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156

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CONTENTS

TOP VIDEOS on Inc.com —

Steve CaseCEO of investment firmRevolution; co-founder of AOL

ON THE IMPORTANCE OF A STRONG NETWORK

“Entrepreneurship is a team sport. Having a big idea is important, but it’s equally important to have a great team.”

INC.COM/INC-LIVE

Lauren Bush LaurenCo-founder of FEED

ON STRATEGIC PARTNERSHIPS

“Not every business is a bleeding heart. The businesses we partner with want to do good but also worry about the bottom line.”

INC.COM/IDEALAB

You’ll find the icon at the left on selected pages throughout the issue. That’s your signal to grab your smartphone or tablet and go deeper with the content on the page. Here’s how:

1. Download the free Layar app from the Apple or Android store or at layar.com.2. Launch the app and scan any page carrying the icon.3. Enjoy bonus videos and other content on your mobile device.

Go Beyond the Page

4 Questions to Help Build aPurpose-Driven TeamInc.com columnist Lee Colan explains the benefitsof providing your team with a larger purpose.

INC.COM/PEOPLE

Inc.com

Without a compelling purpose, employees are just putting in time. Their minds might be engaged, but their hearts won’t be. If you want your team members to make every minute count, give them something to be passionate about. To do so, you need to answer these four fundamental questions that all employees ask, whether or not they ask them aloud:

� Where are we going? (Goals)� What are we doing to get there? (Plans)� How can I contribute? (Roles)� What’s in it for me? (Rewards)

12 - INC. - DECEMBER 2013/JANUARY 2014

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Find your work-life grooveFrom laid back to more upbeat, you'll find a range of inspirations in our Business Class. Savor gourmet cuisine, laugh through the latest comedies or tap your feet to your favorite tracks. Get in tune with the business of living.

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m a n s u e t o v e n t u r e s l l c

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PResiDeNT RobeRT lapoinTe

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editor’s letter

w e l c o m e

economy 0.7 percentage points a year

in growth since 2010. Uncertainty—in

large part a product of our legislators’

inability to pass a budget or much of

anything else, not to mention their

habit of threatening default every

few months—has trimmed an esti-

mated 0.3 points a year from GDP.

what could possibly justify

throwing such obstacles in the path

of small businesses? The radicals say

federal spending is out of control and

must be reined in right now. But that

far overstates reality. Discretionary

spending is falling as a share of GDP;

the congressional Budget ofce

says by 2023, it will be lower than

it has been in more than 50 years.

meanwhile, the deficit has fallen

60 percent since 2010. “Deficits

become a problem when they drive

up interest rates,” University of

oregon economist mark Thoma

told me, “but there isn’t a shred of

evidence this is happening.”

The far more urgent problem

for your business in 2014 is lack of

demand. But when members of

congress threaten to devastate your

customers’ life savings and paralyze

the global economy by defaulting on

U.S. debt, are your customers more

eager to spend or less?

Inc. has no interest in taking

political sides, but we care about

small business. And this much is

clear: Because of congress, the state

of small business is far more precari-

ous than it needs to be. Another

debt-ceiling deadline comes up the

month after this issue leaves the

newsstand. If congress chooses to

bring the economy to the brink of

disaster again, whose interests would

be served? certainly not yours.

in This issue we name Aaron levie,

co-founder of Box, our entrepre-

neur of the Year (see page 30). levie

is every inch a founder for our times:

He’s 28. He launched out of his

dorm room. And he got where he is

by seeing technology trends sooner

and more clearly than anyone else.

He also got where he is by working

harder than anyone else, and he is

beating the skinny jeans of giant

rivals in the process. At Inc., we like

to see that.

A T The hearT of This monTh’s special report, the State of Small Business (see page 44), is a

survey: we ask Inc. 5000 ceos about their outlook, then add our own reporting on the

economy. You quickly come to two conclusions: The state of small business is strong;

entrepreneurs are as resilient, creative, and unstoppable as ever. But the economy in

which they operate is under siege by morons.

That is obvious to any business owner who lived through this fall, when congressional

radicals threatened to default on U.S. debt. But in fact, congress has been a drag on the econo-

my ever since it began its fitful recovery in 2009. even the fiscally conservative Peter G. Peterson Foundation is

dismayed: According to a study commissioned by Peterson, congress’s obsession with fiscal austerity has cost the

DAVID VS. THE HOUSE OF REPRESENTATIVES

eric schurenberg [email protected]

16 - inc. - december 2013/january 2014

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PG.24

Start-upSuccess.

ŦŦŦŦ

What Obamacare means for start-ups PG.20 Entrepreneur of the Year PG.30

PHOTOGRAPH BY STEPHANIE NORITZ DECEMBER 2013/JANUARY 2014 - INC. - 19

Land of Confusion

FOR MONTHS NOW, THE DEBATE has raged

over the impact that the Afordable

Care Act, a.k.a. Obamacare, will have

on businesses. A number of the law’s

provisions are only beginning to take

efect (see “Obamacare Is Upon Us,”

page 66), so the jury is out. But one

thing seems clear: For start-ups, the

law’s impact is almost entirely positive.

Unlike your larger peers with 50

or more employees, you won’t have to

pay penalties if your start-up doesn’t

ofer health insurance starting in 2015.

That alone could be an advantage as

larger competitors struggle to ensure

they are in compliance. Moreover, your

start-up is likely to qualify for a sizable

federal subsidy if you do decide to ofer

health benefits.

Companies with 25 or fewer em-

ployees making an average annual

salary of less than $50,000 are eligible

under the new law to receive a refund

up to 50 percent of their outlay on

health insurance in 2014, provided they

purchase through the federal Small

Business Health Options Program, or

SHOP, exchanges.

A major benefit of the SHOP exchang-

Confused about Obamacare? You’re not alone. A recent poll of small-business owners with fewer than 50 employees demonstrates just how much misunder-standing still exists about Obamacare.

If the new health care law has a winner, it has to be start-ups

ŦŦŦŦ

�

32% believe they will be required to provide health insurance to their employees. (They won’t be.)

es is that

the plans

ofered are

specifically aimed

at businesses and

typically cost less than

comparable plans on the open

market. If your employees’ pay

averages more than $50,000, you can

still purchase through SHOP, although

you won’t qualify for the tax benefits.

The benefit of being able to ofer

employees health insurance shouldn’t

be underestimated for start-up founders.

Your business is now in the running for

talent that might have shied away from

working at a start-up for fear of not

having health coverage. Beyond that,

having access to health insurance will

Insurance for entrepreneurs by entrepreneursFor start-ups that choose to ofer their employees health insurance, here are some entrepreneur-run private insurance operators designed with small businesses in mind.

—OSCAR A health insurance company launched by entrepreneurs-turned-financiers Josh Kushner and Mario Schlosser and backed by $40 million in venture capital. Currently licensed to operate in New York, Oscar promises greater transparency on costs as well as techy perks, such as unlimited access to telemedicine.

STARTUP INSURANCE Launched by Scott Gerber, founder of the Young Entrepreneurs Council (and an Inc.com columnist), Startup Insurance isn’t an exchange so much as a broker for insurance options tailored specifically to entrepreneurs and small-business owners. Time-strapped business

owners can get a quote on the website in just a few minutes or talk to professional brokers about plans by phone.

LIAZON A defined benefit exchange backed by $35 million in venture funding, Liazon ofers products that cater to small

employers who give workers a fixed amount of money each year toward health coverage. Liazon is set up like

an online store that lets buyers mix and match elements of the plans they want.


launch

• •24%

said they trust the government for reliable health insurance information.

18% can confidently define or explain what a health insurance exchange is.

24% believe they will be required to pay a penalty if they fail to provide health insurance to their employees. (They won’t be.)

Norm’s TakehealTh care reform’s biggesTchalleNge: youNg iNviNcibles—

i’ve always believed that, in our society, every citizen should have access to good health care. For that reason, I began providing my employees with health insurance as soon as I could aford it. Then, one day, I learned that an employee had gone to a hospital emergency room. I was concerned, but when I saw him the next day, he said he’d just had a cough and wanted it checked out. “But we give you health insurance,” I said.

“Nah,” he answered. “We don’t use that. We just go to the emergency room.”

I did some investigating and discovered that many of my employees weren’t using their health insur-ance. I thought maybe it was because they didn’t help pay for it. So I announced a new policy: The company would cover 80 percent of the health insurance cost for any employee who wanted it. The employee would have to pay the rest—about $5 per week. Eighty percent opted out. I couldn’t believe it. When I questioned people, they told me they didn’t need the insurance. They already had free health care at the emergency room.

For Obamacare to succeed, it will need to induce young, healthy people to buy insurance. My experience shows just how hard it’s going to be to get any healthy, uninsured people—young or old—to sign up. Meanwhile, the law will at least relieve start-ups of responsibility for employees’ health coverage. That’s one less thing you’ll have to think about in launching a business. Moreover, to the extent that Obamacare complicates life for your larger competitors, it may even give you a slight edge. You may also find it a little easier to attract talent, because providing health insurance will no longer be a competitive advantage. It all helps.—

Start-up thoughts from senior contributing editor and veteran entrepreneur Norm Brodsky. Got a question for Norm? Send it to [email protected].

• failure To coNNecT Persuading young, healthy people to buy insurance won’t be easy.

Source: eHealth Small Employer Health Insurance Survey

presumably keep existing employ-

ees healthier as well.

Afordable health

insurance also holds

the promise that

aspiring entrepre-

neurs will be able

to take the

plunge and pur-

sue their busi-

ness ideas. You

have to be com-

fortable with

risk to start a

business, but lack

of health insurance

has long been one

gamble too far. If you

are a sole proprietor,

you can purchase

health insurance from

your state exchange or

the federal exchange—

once the technical bugs

are worked out. If you’re just

starting out and have little or

no income coming in, you will

also probably be eligible

for a tax subsidy.

Craig Garthwaite, an assistant

professor of management and strat-

egy at Northwestern University, has

studied the phenomenon of “job lock”—

in which employees hold on to their

jobs purely for health care benefits.

He estimates close to a million people

could leave their jobs as a result of the

ACA—a number of whom will go on to

start companies.

“This will allow people to be

entrepreneurial, because it lessens the

risk that you will go without health

insurance until the business is a

certain size,” Garthwaite says.

—JeremY QUITTNer

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I nc . 5 0 0 0 I n s Ig h t s

From Research lab to Market leader in nothing Flat How a maker of brain-training games went from zero to 50 million users“We think of it as a gym for the brain,” says Kunal sarkar, cEO of

san Francisco–based Lumosity. the company’s online games chal-

lenge users in five cognitive-skill areas—speed, memory, attention,

flexibility, and problem solving. getting to 50 million users has meant

convincing people of the efectiveness of the games, which are based

on the theory of neuroplasticity—the ability of the adult brain to

grow new neurons and connections with the proper stimuli. In 2005,

sarkar teamed up with his college friend Michael scanlon, a Ph.D.

candidate in neuroscience at stanford University, and David Dre-

scher to found Lumos Labs. After two years of development, they

launched Lumosity.com. Basic membership is free, but premium

subscription plans start at $79.95 per year. With

$23.7 million in revenue last year, Lumosity

earned the no. 403 spot on the 2013 Inc. 5000.

here, sarkar shares some tips on how to build

your user base. —ROBIn D. schAtz

1 2 3 4—

ConvinCe doubters

People have challenged themselves with cross-word puzzles, Sudoku, and Rubik’s Cubes for years. Lumosity had to prove to potential cus-tomers that its pro-gram of consistent brain training was a better way to improve cognition. The com-pany made its case to consumers by stressing the underlying research and letting users judge the results for them-selves. “We help users track their performance over time so they can actually see how they’re making prog-ress,” says Sarkar.

—

test Your assumptions

Lumosity’s founders originally assumed that their market was aging baby boomers. But when the team began to test the games on the public and analyze the user data, it found they were appealing to twenty- and thirty-somethings as well. “Understanding who wanted this and why was a big part of get-ting to the scale we have,” says Sarkar. Research on how peo-ple use the games also led Lumosity to revamp and relaunch its mobile app earlier this year.

—

make users Your marketers

Scientific data is one thing, but testimoni-als from actual cus-tomers go a long way in winning over new users. Lumosity en-courages its users to contribute photos and stories of how the product has helped them. A page on the website shares fan letters from customers, including athletes, engineers, firefighters, and stay-at-home moms, as well as an airline pilot from England who credits Lumosity for helping him pass his pilot’s aptitude test.

—

Go Global

Lumosity is looking beyond the U.S. It has subscribers from more than 180 countries. Many users come from English-speaking nations, such as the United Kingdom and Austra-lia, but Sarkar has plans to reach a broader audience. The company recently launched its German-language site and plans to roll out in several more languag-es next year. “We don’t want language to be a barrier to using the product,” Sarkar says.

•think fast Lumosity uses research from neuroscientists to help create its games.

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Launch

Seth Bannon alwayS loved politics, and in 2010, the 26-year-old Harvard junior spent the summer working on the Connecticut gubernatorial cam-paign of Ned Lamont. It wasn’t Bannon’s first campaign, and it wasn’t the first time he was shocked by the shoddy technology used to organize supporters and raise funds. So rather than returning to school in the fall, he founded a company, Amicus, with an ambitious goal: to overhaul the way non-

•Bridge funding

Seth Bannon on the Williamsburg Bridge.

When the power went out after Hurricane

Sandy, the bridge was the only place a key

investor could get cell service.

h ow i g o t f u n d e d

Raising Funds to help People Raise FundsSeth Bannon wants to reinvent the way nonprofits do business. His first job: getting investors to chip in

S

By ChriStine lagorio-Chafkin Photograph by Stephanie noritz

24 - inc. - decemBer 2013/january 2014

LAUNCH

JUNE 2011

Bannon wins a prize. But prizes do not pay the rent.— CASH ON HAND � 37 CENTS

Bannon founds his company, then called BlueFusion, and recruits developers from Yale University to build it. He does everything he can to save money. “I was basically living in a stairwell in New Haven and using college meal plans to eat,” he says. Nonetheless, he burns through his meager savings. Bannon gets a break when Blue-Fusion wins the Yale Venture Challenge. Now he needs cash: “I literally had 37 cents in my bank account.”

JUNE 2011

A backer makes a (small) bet.— CASH ON HAND � $20,000

One of Bannon’s mentors is Miles Lasater, founder of Higher One, a New Haven, Connecti-cut–based financial services firm for universities and a fixture at Yale entrepreneurship events. After hearing Bannon’s pitch, Lasater commits $20,000.

JUNE 2011

A futurist is intrigued.—

Bannon moves to New York City. He’s attending a tech conference when he sees investor and thinker Esther Dyson. He approaches her by

saying, “Hello, Esther; nice to meet you”—in Russian. “She perked up, because she’s a big Russophile,” Bannon says. He doesn’t pitch his venture but in-cludes its name and URL in the signature of a follow-up email. Before long, Dyson emails back asking: “What’s BlueFusion?”

JULY 2011

Another well-placed ally signs on.—In July 2011, Bannon lists the company on the networking site AngelList and connects with Pedro Torres Picón, founder of Quotidian, which invests in service companies that aim to improve stodgy industries. Says Picón: “You could tell this was a guy who would not stop until he changed the world.” Bannon tells Picón he’s traveling to Silicon Valley to look for investment. Picón tells him to keep in touch.

JULY 2011

Sand Hill Road is not impressed.—

Silicon Valley is not hospitable. Bannon takes six meetings a day for a week, but the only nib-bles he gets are from investors he doesn’t care to work with. He returns home empty-handed.

AUGUST 2011–JANUARY 2012

That intrigued futurist? Now she’s an investor.— CASH ON HAND � $580,000

Unbowed, Bannon persuades Dyson to meet with him. “She was without shoes, on the couch, and I was so excited,” Bannon says. “Then she said, ‘I think you’re solving the entirely wrong problem.’ My heart sank.” Instead of leaving, he sits up straight, makes his case again—and persuades her to invest. Soon, thanks to Dyson’s eforts, David S. Rose, the former chairman of New York Angels, and Jim Robin-son at RRE Ventures join the round. So does Picón, who chips in $100,000. Not long after, Bannon changes the company’s name to Amicus.

JUNE–JULY 2012

Bannon challenges Peter Thiel to a game of chess. And wins. —Bannon is accepted to Paul Graham’s Silicon Valley–based start-up incubator, Y Combinator, and moves for the summer to the Palo Alto house where Facebook once set up shop. At a networking event, Bannon introduces himself to Founders Fund’s Peter Thiel—and promptly challenges the PayPal founder to a blitz game of chess. Thiel, a former U.S.-rated chess master, concedes the first game. Bannon has his attention.

AUGUST 2012

The Thiel connection comes through.—

By Y Combinator’s Demo Day, Amicus is profitable. It also has a new strategy for pitching, ditching an intensive 12-slide PowerPoint for a single piece of paper. Within weeks of the event, several venture firms commit $3.2 million. Bannon figures he’s done but agreesto meet with Luke Nosek, one of Thiel’s colleagues. “It was just love,” says Bannon. “Luke more than anyone probably got my vision for Amicus.” Founders Fund is added to the round. Thiel friends Bannon on Facebook.

OCTOBER 2012

A VC signs a $3.2 million ofer, surrounded by drunks.—Bannon is working on a second round of funding when Hurricane Sandy hits New York. Before the proposed $3.2 million round can close, Bannon needs a signature from Brad Gillespie, a partner at IA Ventures. Unfortunately, the storm knocked out the power in Gillespie’s Lower East Side neighborhood. So the investor sets out on foot to find a cell signal. Finally, halfway across the Williamsburg Bridge, he gets a signal. “I downloaded the papers Seth sent and used DocuSign to sign it while on the bridge,” Gillespie says, “surrounded by all these people hanging out and drinking.”

NOVEMBER 2012

Final tally: $3.78 million —

Amicus has 14 employees, an ofce in SoHo, and clients such as Human Rights Campaign and the AFL-CIO. Bannon never returns to Harvard. But he says he got quite an education in fundraising. The most important lesson, he says: “Make sure your revenue is growing, rather than putting so much time into a PowerPoint.”

�

profits raise aware-ness and funding. But first, he had to do some fundraising himself.


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Prototype shown with options. Production model will vary. ©2013 Toyota Motor Sales, U.S.A., Inc.

A NO-BRAINER THAT’LL HAVE YOU

LOOKING LIKE A GENIUS.

· CONTEMPORARY STYLING · HIGH-TECH AMENITIES · RENOWNED DURABILITY

LAUNCH

C H E C K E D O U T

Their Carts Are Full. So Why Won’t They Buy?Don’t you hate it when your online customers abandon their shopping carts before checkout? Well, you and everyone else: Only a third of online shoppers make it through checkout without abandoning items. The problem may lie in how you move people through checkout. The good news is, that’s easier to fix than you think. —KASEY WEHRUM

67% of all online shoppers will abandon items in their shopping cart.

That number jumps to

97%if those shoppers are using a mobile device.

Don’t give up on the ones who got awayAn abandoned cart doesn’t necessarily mean your customer is no longer interested. Here are two ways to lure shoppers back to complete their purchases:

� Send a reminder email: When done right, personalized, retargeted email reminders can generate an average of

$17.90 per email sent.

� Ofer free shipping:

77% of consumers say theywould come back if ofered free shipping.

1. Your Checkout button is hard to find.

� The Fix: Don’t be subtle with your call-to-action but-tons—that is, the Add to Cart and Start Checkout buttons. Boost their size, and make their color stand out. Shopping-cart abandonment drops 33 percent with large and direct call-to-action buttons.

2. Shoppers question the safety of their personal info.

� The Fix: Make sure the info about your site’s security is easily visible—if possible, include the icons of your security suppliers. The value of a shopper’s cart increases 16 percent when shoppers know their personal infor-mation is secure.

3. Getting through the checkout process takes multiple clicks.

� The Fix: Stream-line the checkout pro-cess by eliminating links and exit points during the final steps of the sale. There is a 12 percent increase in conversion rate with reduced navigation on checkout pages.

4. Shoppers are required to create an account before checking out.

� The Fix: Allow users to check out as a guest at the begin-ning of the process. You can always ask them to create an account after the sale. Conversion rates increase 45 percent when guest checkout is available.

5. Your return policy is buried in the fine print.

� The Fix: Set up an afxed or pop-up window with a run-down of your return information. Sixty-three percent of customers view the return policy before making a purchase.

Here’s where things go wrong (and how to fix them)

Source:Data compiled by Ripen eCommerce of Princeton, New Jersey


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What are you thinking about?We’re thinking about your security.

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To learn how to better protect your business, visit TycoIS.com

License information available at www.tycois.com. © 2013 Tyco. All rights reserved.

Tyco is a registered trademark. Unauthorized use is strictly prohibited.

Don’t Bet AgAinst AAron Levie

By eric mArkowitzPhotograPh by Emily Shur

aron Levie is pacing onstage, a micro-

phone in one hand and a cofee in the other. His Kramer-like

hair bobs above his head. We’re in the lunchroom of Box’s

97,000-square-foot Los Altos, California, headquarters, and a

group of about 50 new Box employees, mostly in their 20s, sit

on steel picnic tables facing Levie.

“There are phases in technology,” Levie announces, mid-

way through a presentation that sounds more like a TED talk

than a welcome speech. “Mainframe to PC, PC to cloud, to

cloud and mobile. These things come around every 10 to 15

2013Entrepreneur

of the Year


Launch

•GoinG somewhere

aaron Levie usually has a cup of cofee about him, and sometimes two. He literally runs

to meetings.

years, and we’re in one right now.”

He pivots and changes direction.

“And what that means,” Levie continues, “is that it’s a

catalyst for IT buyers to implement the next generation of

technologies that they’re going to run their businesses of of.

This opportunity did not exist in ’03 or ’05 or ’07 or ’08 or

’09. It is happening right now.”

Levie leaves no room for doubt: The hard drive is finally

dead. The PC is on life support. The ofce worker of today

has gone rogue—most likely, you and your employees are

accessing your files from iPhones or Android phones or

maybe tablets. All the trends we’ve been hearing about for

years—the consumerization of IT, BYOD (Bring Your Own

Device), software as a service—are now fully upon us. The

research company Gartner predicts that by 2015, at least 60

percent of information workers will be accessing their con-

tent on mobile devices.

For IT departments, the convergence of these trends pres-

ents an extraordinary challenge: How do you manage so much

information on so many diferent platforms?

“You have iPads, Android devices; you have iPhones; you

have Macs,” Levie tells his new recruits. “It’s changing the IT

landscape fundamentally. And we have to make sure that

we’re growing as aggressively as possible, selling to all the

CIOs as the solution to run their business on.”

Box has about 20 million users, spread out among 180,000

businesses, who use the platform to upload files, collaborate,

and share content online. Box has custom-

ers at 97 percent of the companies on the

Fortune 500.

“We have to build the best brand,”

Levie says, “and we have to develop our

site around the enterprise. If you don’t

become the company that rallies develop-

ers in the ecosystem, you don’t get to have

the network efects.”

His speech is winding down. He clicks

to the last slide.

“What we’re relying on is that we can

build enough traction, get enough of the

industry, that we become the de facto

platform in enterprise,” he says. “That

gives us a launch-of point into a bunch of other services. It

will be determined in the next year and a half to two years,

because the market is adopting this right now.”

Levie asks for questions, and an awkward pause ensues. He

stands there sipping his cofee, eyeing the room, when, finally,

an employee raises a hand.

“Is it possible for a company to last forever?” the employee

asks.

Levie laughs, a sort of nerdish chortle that echoes through

the room.

“Well, um, ha ha, yeah,” Levie says. “I appreciate you think

I know the answer to that. So that’s good. And…the answer is

yes. It is possible. And we will be

that company!”

The recruits laugh as Levie

takes a moment to actually con-

sider the question.

“I mean, it’s possible we won’t

even have capitalism in 200 years.

Maybe the Internet even

won’t exist. The idea is

that you’re always

talking about disrupt-

ing, always talking

about what’s next.”

ox, which Levie launched

out of his dorm room

at the University of

Southern California

in 2005, is a golden

child among Silicon

Valley tech compa-

nies. The company has

more than doubled its revenue every year and is on pace to

reach $100 million by the end of 2013. Box has more than 900

employees, spread out in ofces in Los Altos, San Francisco,

London, Paris, and Munich. Next year, Levie and his co-found-

er and chief financial ofcer (and boyhood friend), Dylan

Smith, plan to take the company public.

Investors, who have poured $300 million into the start-up,

are valuing the business at $1.2 billion—a sign both of their

belief in Box and their confidence that cloud computing has

finally matured. In one recent survey of IT buyers, researchers

noted a “whopping 65.6% of respondents indicated cloud as a

top investment area for 2013.”

Even these numbers, however, don’t explain why Aaron

Levie is Inc.’s Entrepreneur of the Year. That has more to do

with his anticipation of change and his boldness in doing

InsIde the Boxthe company at a glance

Employees: 900

2013 revenue (projected): $100 million

Outside funding: $300 million

Valuation: $1.2 billion

Companies using Box: 180,000

Individual licenses at those companies: 20 million

Largest number of licenses at a single company: 50,000

•

•

•

•

•

•

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Scan ThE pagE To SEE aaron LEviE aT fuLL SpEEd in a nEw

“TrEp LifE” vidEo. (See page 12 for details.)

32 - inc. - dECEmBEr 2013/january 2014

what looks crazy in the short term but in time looks revolu-

tionary. Cloud storage is basically a commodity. Levie recog-

nized this early on and changed Box’s orientation from

consumers to enterprise customers, where his relentless

focus on great design was particularly striking—and thus he

put some distance between Box and the pressures of the

commodity marketplace. He moved quickly into mobile. He

got out in front of fears about security. He was, and is, unen-

cumbered by legacy ideas and models, and he keeps making

good decisions.

Levie likes to say that fundamental shifts in technology

come around only every 10 to 15 years, and much the same

could be said about an entrepreneur like him. He possesses

the sort of wisdom and focus you’d expect of an industry

guru, but he acts with the 24/7 obsession of a scrappy start-

up founder. Give him 10 minutes, and he will make you a

believer. Scott Weiss, a partner at Andreessen Horowitz, one

of the venture firms that have invested in Box, describes

Levie as a “glow-in-the-dark” entrepreneur. “He’s unmistak-

able,” Weiss says. “You talk with him for five minutes, and he

says something funny and something smart and something

insightful. He’s a larger-than-life character.”

He’s also only 28. Levie stands a little under 6 feet tall and

has a slim, wiry frame. His hair sprouts in a graying forest

above his forehead. His eyes, deep-set and bluish-gray, are

each covered by a thin wisp of a brow. Like a lot of young

tech entrepreneurs, he has a uniform; his is a slim-cut J. Crew

suit, a pressed button-down shirt, and red sneakers.

Levie’s routine over the past several years has been strin-

gent. He wakes at around 10. He showers quickly, and arrives

“Tip: Take The sTodgiesT, oldesT, slowesT moving

indusTry you can find,”levie recenTly TweeTed.

“and build amazingsofTware for iT.”

Launch

• in ThE Thick of iT Levie is a hands-on CEO who rarely sees his desk.

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LAUNCH

at the ofce by 11 a.m. He downs two

cofees, sometimes holding two cups

at once. He rarely eats breakfast or, for

that matter, lunch. He spends 90 per-

cent of his daylight hours in meetings

or interviews, to which he walks very

quickly or even runs. He is almost never

at his desk. At around 7:30 p.m., he takes a nap for about an

hour, and when he wakes up, he gets really, really productive.

Each night, he probably sends a couple of hundred emails,

and by 2 a.m. or 3 a.m., he’s finally done. Levie does not take

weekends of, and, in the last handful of years, he has taken

one vacation, a three-day trip to Mexico with his girlfriend.

For all his decisiveness, he is a somewhat uneasy man—

self-deprecating, certainly less cocksure than your average

28-year-old centimillionaire—and as he talks about Box’s

competitors in a crowded market, I begin to understand why

he drives himself so hard.

“My hair’s gotten grayer,” says Levie. “I was gray before

Obama was.”

Box’s daily battles are with Accellion, Citrix, Huddle,

Google, Hightail, IBM, and Oracle—and the biggest of them,

Microsoft. Microsoft’s SharePoint collaboration tool is a

behemoth that generates nearly $2 billion in revenue from

65,000 companies, which manage a total of 125 million

SharePoint licenses.

SharePoint was built in 2001 and was originally focused

on sharing files within a company’s intranet system. Micro-

soft has made eforts to keep the platform up to date, but

there is a broad sense that it is falling behind. As a Forrester

report put it recently, SharePoint is experiencing its “awk-

ward teenage years.” The report went on to note that Share-

Point’s “uninspired user experiences mean that business

management isn’t satisfied.”

At Box, the user experience trumps all. Levie’s big insight,

in 2010, was that successful enterprise platforms of the future

would be driven by mobility and design—the ethos that has

propelled the consumerization of IT. Consumerization means

people are rejecting clunky business-specific hardware even

for work purposes; they insist on cool consumer devices. This

had been talked about for years, but it really hit an inflection

point in 2011, when smartphone shipments outpaced PC ship-

ments for the first time in history. Then, tablet sales began to

explode. The research company IDC predicts that in 2013, for

the first time, more tablets will be shipped than laptops. The

efect of this proliferation of mobile hardware has been a shift

in expectations around the software that runs on them.

“People aren’t going to put up with crappy software any-

more,” says Ben Haines, the chief information ofcer of Box.

“You have to have a fast, good user experience. And people

expect to have their information everywhere. If you’re build-

ing an application that takes four weeks of training, you’re

doing something wrong.”

If you’ve ever used an old-school collaboration tool like

SharePoint, using Box is a pleasure by comparison. Let’s say

you have a large document you’d like to share with colleagues.

It could be a Word document, an Excel spreadsheet, or even a

large movie file. You log in to Box and quickly upload the file,

tagging it with any relevant information. Other users within

IT’S A POWERFUL LESSON ABOUT THE ENTERPRISE SOFTWARE BUSINESS: BUILDSOMETHING EMPLOYEES AREN’T TOLD TO USE BUT SOMETHING THEY WANT TO USE.

THE BIG DISRUPTION WHAT BOX GETS RIGHT ABOUT DESIGN

ŦŦŦŦ

�THE EASY CHOICE Box is a powerful business tool that looks and feels like

a consumer product. Employees prefer it. Simple as that.

BOX EMPLOYS A brand design team of 11 and a user interface/user experience design team of seven. This reflects CEO Aaron Levie’s obsession with design (he did the first few Box logos himself) and also his belief in its power in business. “I think we’re uniquely positioned as a company that can take a lot of the design focus that you’d see in a consumer company and bring it to enterprise,” he says.

And that’s the big disruption.

Perhaps the most obvious mark of a consumer-facing design approach is the company’s choice in typefaces. Box uses a handful of fonts—Helvetica, Proxima Nova, and Gotham Rounded—that, according to the design team, were chosen for their “legibility and open geometric style that work well in text, on mobile devices, and on the Web.” To reinforce and

diferentiate the Box brand, the team uses varying combina-tions of what the company calls Box Blue colors, a mix that includes cyan, navy, and royal blue. The net efect of this approach is meant to be comfort. Maneuvering through the platform is intuitive. It’s easy. Levie pushes the idea that good design isn’t just about looking good on the screen—it’s a tool for more-efcient working. —E.M.


Vegas: Making the Unexpected Happen

“Zivelo is the future of how humans

will interact with machines.” That’s

Ziver Birg, founder and CEO of

Zivelo, a manufacturer of interactive

touch-screen kiosks for more than

35 industries, speaking. Nonetheless,

he continues, selling his machines

still requires people interacting with

people, and nowhere does a better

job of making that connection hap-

pen than Las Vegas.

“Las Vegas is a global hot spot,” says

Birg. “Foreign buyers who have the

opportunity to attend 10 trade shows

will choose the one in Las Vegas. I

have seen trade shows move from

Las Vegas to other cities and be-

come less successful.”

Zivelo is headquartered in Marion,

Indiana, and employs 200 people.

The company is expected to hit $10

million in sales this year—earning it

the #697 position on the Inc. 5000—

and it works hard to stand out from

the competition. Its products are

made in the U.S. from brushed alumi-

num, yet they carry a lower price tag

than those manufactured from steel

in Asia by their competitors. Image is

important, and Las Vegas helps Zivelo

connect with high-proÀle customers.

Exhibiting at the KioskCom trade

show there, Zivelo played on that ca-

chet and gave buyers the unexpect-

ed. Instead of Àlling the booth with its

machines, the company rolled in a

Bentley Continental GT—a $225,000

automobile—and placed one kiosk,

which enabled attendees to explore

information about Bentley automo-

biles, beside it.

Buyers clamored for a chance to sit

in the car, to explore the informa-

tion provided in the kiosk, and to

pick up invitations to Zivelo’s suite,

where a number of additional kiosks

could be viewed in a more relaxed

atmosphere. “We ended up landing

four Fortune 500 contracts among

many other customers from that

trade show, which was a major boost

for us at the time,” says Birg. “It was

deÀnitely a worthwhile experience

that helped us grow our business.”

Las Vegas: Helping you connect with high-profile clients.Ziver Birg, founder and CEO of Zivelo

Vegas means business.

The average Las Vegas trade show

delegate spends more time on the

floor. To be exact, 11 hours here vs.

5.9 to 9.5 hours in other cities. With

world-class meeting facilities, an

extensive range of hotel rooms,

and a city unrivaled in event and

convention experience, here,

business as usual is better than usual.

Find out all the reasons why so many

FORTUNE 500® companies choose

Las Vegas.

FORTUNE 500® is a registered trademark of Time Inc. Used with permission.

your Box network can then log in to their own accounts,

download the file, or share it with others as they please. The

Box platform also integrates with other enterprise software

providers (including Salesforce, NetSuite, Zen-Desk, and

others), which means you never really have to click of screen.

The site is designed with light-blue accents and a news feed;

until recently, it had a Like button—it’s a bit like using a work

version of Facebook.

And, as with Facebook, many of Box’s early users were

driven to the platform because their friends or colleagues

were using it. It had a viral network efect because it was

diferent, better. Using Box makes sending files easier and

makes collaborating with co-workers faster. In some small

way, it makes work more fun.

“Tip: Take the stodgiest, oldest, slowest mov-

ing industry you can find,” Levie recently tweeted.

“And build amazing software for it.”

Over the past few years, employees disen-

chanted with SharePoint’s stodgy user interface

or simply frustrated by the difculty in sending

large files over email began migrating to Box. It

was easy enough to do: Box is free to the basic

user. And as users signed up in droves, IT manag-

ers—who wanted a better way to secure the sensitive com-

pany files being trafcked through Box—began to take notice

and started buying up Box “seats,” the industry term for

subscriptions.

It was a Trojan horse strategy—sneak inside the enterprise

and then expand from within. Today, Box’s revenue growth

comes through viral adoption within its enterprise customers—

at each renewal cycle, IT managers are adding more and more

seats. For businesses, the service costs $15 per month per seat,

while enterprise customers pay around $35 per seat.

This story represents a powerful lesson to entrepreneurs

entering the enterprise software business: Build something

employees aren’t told to use but something they want to use.

Levie didn’t start of by selling to IT department buyers; he

started of by creating a great, free product that would attract

early adopters. Once these employees got hooked, they want-

ed more, and IT buyers were forced to purchase. Today, Box

has a sales team of more than 300 people, responding to

inbound sales calls from around the world.

n the second floor of Box headquarters,

the company has set up what it calls the

Genius Bar/IT Desk, an area in which about

a dozen mobile devices, ranging from

Android smartphones to Apple tablets, sit

on wooden stands.

In 2010, when Apple unveiled the iPad, most of Box’s

largest competitors seemed to treat the tablet as if it were a

peripheral device that most people would just use in their

personal lives—a consumer play. Some tech bloggers were

enthusiastic, but the more mainstream audience seemed to

fail to grasp the oncoming significance of tablets. Stephen

Elop, then the president of Microsoft’s business division,

said in an April 2010 interview that the company planned

to take a “wait and see” strategy to launching any software

for the iPad. Not surprisingly, IT departments, which tend

to take their cues from Microsoft, followed suit.

“When the iPad first came out, the initial reaction of IT

was like, ‘We don’t support that,’ ” says Josh Stein, a manag-

ing director at the VC firm Draper Fisher Jurvetson. “But

end users said, ‘Well, tough. We’re going to use these. I want

to use my iPad for work, and I’m going to use it whether you

let me or not.’ ”

Levie was way ahead of the curve. In January 2010, when

Steve Jobs stood onstage and announced the iPad, Levie knew

this tablet would change everything. (“I commit to spending

10% of my annual income on ipads,” he joked on Twitter.) In

the winter of 2010, Levie called his developers into a confer-

ence room and ordered them to have a Box iPad app ready as

soon as the tablet became available in stores.

“Aaron just walked into the board meeting and said, ‘We’re

betting the company on this thing,’ ” Stein says. “And it was a

great bet.”

On March 24, 2010—a week before the iPad was released

and two months after he first ordered his developers to create

the Box iPad app, Levie took to Twitter again.

“I’ve just seen the future... and there’s no longer any paper

in it. #boxipadapp.”

Technically speaking, building a mobile platform on

which to send company files isn’t all that challenging. The

real difculty is proving that the information will be secure.

The idea of being able to share any file with anyone at any

time is alluring, but it also introduces a massive security risk,

especially for businesses dealing with sensitive customer

information such as credit card numbers and health care

records. Among IT professionals and their employers, there

is tremendous unease. Levie saw that as an opportunity.

“The idea is, ‘How do we make Box become the enabler for

them to be able to move to the cloud—the solution for their

security in the cloud,’ ” Levie says. “So not that it’s a check box

that allows them to adopt Box; it’s actually the reason they put

documents in the cloud.”

The promise of superior security is why the start-up

drchrono became a partner of Box. Drchrono provides a

medical platform for doctors and patients. At a recent

health-tech conference in Silicon Valley, drchrono’s

co-founder and chief operating ofcer, Daniel Kivatinos,

demonstrated how doctors use the drchrono iPad app to

quickly pull up a patient’s medical history, along with any

relevant images, such as sonograms or chest X-rays. The

company isn’t pulling any of that data

from its own servers—it uses Box as the

Launch

“aaron just walked Into the board meetIng and saId, ‘we’re bettIng

the company on thIs thIng.’ and It was a great bet.”

C O N T I N U E D O N PA G E 14 2 •

36 - inc. - dECEMBER 2013/jANuARy 2014

sunlife.com/wakeup

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© 2013 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada.

SLPC 24806 10/13 (exp. 01/14)

LAUNCH

ŦŦŦŦ

Let’s Hear It for the UnderdogsMalcolm Gladwell’s new book celebrates a group entrepreneurs can relate to By LEIGH BUCHANAN

B O O K R E V I E W

developed performing on the

streets to support their im-

poverished families.

That sounds as if I’m

mocking the book, and I don’t

mean to. As always, Gladwell

spins a great yarn. He makes a

smart case for the paradoxi-

cally fierce power of nonvio-

lent resistance, like that of the

civil rights movement. His

questioning of the presumed

superiority of prestigious

schools—students may fare

better at less-elite institutions

where their self-esteem takes

less of a beating—adds a pro-

vocative wrinkle to the hot

debate over education. The

association of childhood

bereavement with success (a

disproportionate number of

accomplished people lost

parents early) is a bit of an

eyebrow raiser, but the theme

of personal compensation for

adversity rings true.

Although Gladwell barely

touches on business, David

and Goliath is full of ego

boosts for the entrepreneurial

crowd, who are told, for

example, that innovators are

open, conscientious, and

willing to court disapproval.

Readers will smile with

recognition at the tale of

Lawrence of Arabia leading

his ragtag band of Bedouins

600 miles through the desert

to take the Turks by surprise.

“The Turks simply had not

thought that their opponent

would be crazy enough to

come from the desert,” writes

Gladwell. Crazy is high praise

for an entrepreneur. Half the

fun of making it is proving

someone wrong.

Two of Gladwell’s insights

deserve more sober analysis.

The first involves the “in-

verted U curve,” which mod-

els the inflection point at

which the addition of units—

of efort, of people, of mon-

ey—stops making something

better; and the further point

at which adding units actu-

ally makes something worse.

Gladwell uses this device to

discuss optimal classroom

size and family wealth, but it

is also a useful conceptual

tool for scaling companies.

The second insight con-

cerns remote misses. During

the Blitz, Gladwell tells us,

Londoners grew largely in-

ured to the bombing. In fact,

many were emboldened.

Gladwell explains that people

who experience the thing

they fear most but emerge

unscathed feel invulnerable.

It’s a phenomenon entrepre-

neurs should guard against.

Just because you’ve escaped

a few hurtling boulders and

snake-filled pits doesn’t make

you Indiana Jones.

Each section of David and

Goliath begins with a passage

from Scripture attesting to the

ennobling power of weakness

or the illusory boon of strength.

The Bible’s most notable

quotable on that subject

(“Blessed are the meek, for

they shall inherit the earth”)

does not appear. Meek, out-

side of the Gospel, suggests a

failure of spirit. Weak, in the

Gladwellian context, means

starting from adverse circum-

stances, then using spirit,

guile, and everything else in

your quiver to triumph.

In his opening chapter,

Gladwell writes that “the act

of facing overwhelming odds

produces greatness and

beauty.” That, of course, is

what entrepreneurs do best.

They survey the battlefield.

They scrabble for weapons.

They summon courage. They

change the rules.

MALCOLM GLADWELL’S NEW BOOK, David and Goliath: Underdogs,

Misfits, and the Art of Battling Giants, argues that in a contest

between mismatched adversaries, perceived weaknesses can

be strengths, particularly when flexed in unexpected ways. In

a post-9/11, dot-com, Barack Obama world where institution

topplers emerge out of nowhere, this is not exactly news.

It’s certainly not news for entrepreneurs, who are devo-

tees of against-the-odds victories. With that crowd, Gladwell

is preaching to the choir. But not the Mormon Tabernacle

Choir. In Gladwell’s narrative framework, entrepreneurs would be congregants from a humble

church in Iowa who take down the Mormon Tabernacle Choir in a sing-of thanks to skills they

Although Gladwell barely touches on business, David and Goliath is full of ego boosts for the entrepreneurial crowd.


BO

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Jeff Cutler trains clients on the best ways to harness the power of social tools and content market-

ing in brand-building strategies for their products and services. Despite the current dominance of digital technology in those disciplines, Cutler finds face-to-face interaction the best tool for building his own business, and he relies on United Airlines to help him use it most effectively.

“Tere is nothing more valuable than being able to shake a customer’s hand, smile with them, and share a genuine connection,” he says. “It’s the way busi-ness has been done for years, and no technology advances are going to replace the value of face-to-face connections.”

Cutler is on the road about 25 times a year, conducting training sessions for businesses and organizations all over the world and attending conferences and networking events to meet pro-spective clients. He views travel time more as an opportunity than a chore. “Even a long flight is time well-spent if at the end of it I can shake hands with new connections and establish posi-tive relationships with potential cli-ents. I get energized being around smart folks and learning what they’re doing to succeed.”

United Airlines makes Cutler’s travel easier and supports his business goals

Case study: Jeff Cutler

Jeff Cutler: There Is No

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Air on the Side of Success: The Art of Connecting

in many ways. “United has routes practically everywhere I need to go, and United staff seem to like what they do and care about their custom-ers,” he says. “Te in-flight services and options United offers help me get work done while I’m in the air. Wi-Fi, upgrades, clear communication from the staff—it all helps make it possible for me to focus on my work, even while in transit.”

Tose amenities are nice to have on any trip, but sometimes they lead to concrete business opportunities, Cutler adds. On a recent flight to San Antonio to give a presentation, he was online checking email and connecting with attendees prior to arrival. While he was on social media, someone reached out to hire him for another engagement in Los Angeles.

Cutler believes that face-to-face inter-action provides a level of insight unattainable through electronic communications, and he relies on United to get him where he needs to be. An added bonus is how United does that. “To be able to fine-tune my product while sitting at 30,000 feet makes me feel like United is my office in the air,” he says. “Tis functionality enables me to keep my business run-ning no matter where I am.”

pA rT n E r p E r S p E C T I v E / U n I T E D A I r L I n E S

“It’s the way business has been done for

years, and no technology advances

are going to replace the value of face-to-

face connections.”

••••

pg.44Outlook 2014

The sky’s the limit, but some clouds are looming.

-

pg.50Washington

Small business–related legislation—real

and imagined-

pg.54Start-up Country

How Boulder, Colorado, became a mecca for

entrepreneurs -

pg.66ObamacareThe skinny on

the Afordable Care Act

Special Report

The State of Small Business

december 2013/january 2014 - inc. - 43

lis

a s

ul

liv

an

/ge

tt

y

In the face of squabbling

lawmakers, a government

that seems to close for busi-

ness every month or so, and

an on-edge economy, two

guys at our recent Inc. 5000

Conference are telling a

diferent story: optimism

and opportunity!

Both dressed like the

cartoon character Green Lantern, they

are spreading the gospel of the power of

small business to grow in the face of evil

economic forces. And they are perfectly

positioned to so do: Their company,

Ramsey, New Jersey’s Re:think, an

Internet marketer, has grown a super-

powered 1,186 percent over the past

three years. Co-founder Tom McVey

doesn’t see any reason such success

should be limited to the hundreds of

companies represented at the confer-

ence. His forecast for 2014? “The sky’s

the limit!” he says. “We believe any

business has a chance to stand out.”

It’s not just the Green Lantern guys

who feel this way. Their peers, the

CEOs of the 5000 fastest-growing

companies in the country, are hugely

bullish, too. In an exclusive survey of

recent Inc. 5000 founders and CEOs

(see page 46), 37 percent characterized

their business prospects as “excellent.”

Another 45 percent said their prospects

were “good.” (Not bad for a country

that, only recently, was on the edge of

economic Armageddon.)

In addition, these CEOs are count-

ing on expansion—big time. Eighty

percent said they planned to boost head

count, and the same share said they

would increase the number of products

and services they ofer. “I think it’s

unbelievable,” says Tom Gimbel, founder

of Chicago stafer LaSalle Network. “I

think the economy’s really good.”

The likes of McVey and Gimbel, of

course, aren’t your average joes. (The

typical Inc. 5000 company has grown

468 percent over the past three years.)

They always seem to be upbeat in the

face of adversity. Unlike many in the

business community, they feel they can

grow in good times and bad.

Despite the optimism, our all-stars

have concerns. That’s what makes this

year’s look at our Inc. 5000 growth

companies so interesting. In a normal

recovery, these CEOs would be 100

percent upbeat. But there are clouds of

doubt because of factors beyond their

control—doubts they share with busi-

ness owners across the board. Simply

put: If Andy Grove started an only-the-

paranoid-survive club, they would be

charter members.

Why so worried? Gridlock in Wash-

ington, the Afordable Care Act, and

weak-kneed consumers top the list.

THE OUTLOOK FOR SMALL BIZ IN 2014? THE SKY’S THE LIMIT. SORT OFAs usual, our Inc. 5000 folks are upbeat. But only, they say, if Washington cleans up its circus act By kimBerly weisul illustration By oliver munday

44 - inc. -decemBer 2013/jAnuAry 2014

lead • the state of small business

Those things are all related, and togeth-

er they produce high-water levels of

uncertainty. After all, who wants to take a

chance on a big new investment when the

stock market could plummet 1,000 points

because of gamesmanship in Washing-

ton? Sure, some in Congress do a great

job talking up the impor-

tance of small business. But

when it comes to providing

a stable legislative environ-

ment so that growing

companies can thrive?

Nah, that’s so German.

No wonder, then, that

among a broader spectrum

of businesses, pessimism

reigns. In a recent survey

from the National Federa-

tion of Independent Busi-

ness, 62 percent of CEOs

said now is not a good time

to expand. “In the past,

when we got into a strong

hiring pattern, it would go

18 months or two years,”

says Dean Le, of SoloPoint

Solutions in Santa Clara,

California, which places

engineers. “Since 2008,

we’ll have a couple of

strong months and then a

couple of weak months.”

Given all that, how will

things play out in 2014?

Well, look at the good news and the bad

news. And once you do, you’ll see that

barring any midterm election-year

suicide missions—or a curve ball or

two—the new year is going to look

pretty good compared with the most

recent stretch of economic activity.

We’ll start with the

good news.

One of the most impor-

tant factors: The housing

crisis is in the rearview

mirror. Housing has been

rebounding for more than

a year, with the S&P Case/

Shiller index of housing

prices up 11 percent in the

12-month period ended

last June. And there are

few things better than a

robust housing sector to

get an economy rocking.

First of all, about one-

sixth of small private

companies are in housing-

related fields, according to

U.S. Census data (home-

builders, lumberyards,

plumbers, and on and on).

And when home values

rise, that turns on the

cash-flow spigot. After all,

about a quarter of small-

business owners use the

equity in their homes for

business purposes, reckons Minneapo-

lis’s Barlow Research Associates.

Access to credit, a sore point among

fast-growth companies, is also getting

better—or at least it was. The final 2013

numbers will probably be depressed by

the government shutdown, but a Small

Business Administration report issued

before the closure showed year-to-date

loan volume up 15 percent compared

with 2012. Delinquency rates are also

at all-time lows, says William Phelan,

president of PayNet, which collects

data for commercial loans and leases:

Just 1.19 percent of small-business

loans are 31 days to 90 days overdue,

and only 0.29 percent are more than

90 days past due. “Small business is in

great fiscal shape,” he says. It helps that

big companies—often the customers of

smaller ones—are posting record prof-

its. Five years ago, putting the screws to

smaller vendors was a nifty way for big

companies to improve cash flow. Now,

there’s less incentive to do that.

That’s the sunshine. And in a perfect

world, or even a sort-of-perfect one,

the path would be clear. But in a

uniquely unproductive political environ-

ment, the path is anything but. To be

fair, mild political inertia can have a

bizarre silver lining for business: no big

surprises out of Washington. But when

the country’s elected representatives

shut down the government and only

inc. 5000

owners feel

loved BUT

misUndersTood

59%agree or strongly agree that entrepreneurial popularity is at an all-time high. But they also feel misunderstood.

62%agree or strongly agree that the popular press glorifies tech start-ups at the expense of other types of companies.

95%agree or strongly agree

that most Americans don’t really understand how hard it is to start and build a successful company.

inside the minds of entrepreneursHow are entrepreneurs feeling about the state of small business? To find out, Inc. surveyed Inc. 5000 winners from the past decade about a range of business, political, and cultural issues. One key takeaway: These scrappy business owners aren’t letting Washington slow them down.see the full survey results at www.inc.com/stateofsmallbiz.

• The past five years have been rough, but most Inc. 5000

entrepreneurs report a sunny business outlook.

• What would you say your business is worth today versus five years ago?

• If you made sacrifices to support your business in the past five years, what steps did you take?

60%PostPoneD VaCations

48%slasheD

Personal PurChases

27%solD

ProPertY anD Valuables

60%taPPeD saVinGs

63%Cut baCK

mY salarY

• How concerned are you about the following: VerY someWhat not

The value of your business

Your annual salary, total compensation

Being able to maintain your current lifestyle in retirement

• Their view of the U.S. economy? Not so optimistic.

46%

SOMEWHAT

POSITIVE 46%

the worst is over, and slow growth will continue.

NEUTRAL 16%

neither positive nor negative.

SOMEWHAT

NEGATIVE 26%

serious problems persist, and the economy will see a downturn.

VERY NEGATIVE 3%

the country is going to face another recession very soon.

••••

later realize that the families of soldiers

killed in action will be denied death

benefits, you’ve got more than garden-

variety infighting.

Bo Bothe, co-founder of Houston

marketing agency BrandExtract, says

the turmoil is tough on him. “My clients

don’t know what the impact of the health

care legislation is going to be,” he says.

“They don’t know what the impact of the

deficit will be. And when they don’t

know, they hold back.”

The Afordable Care Act promises

to make health insurance easier to buy

and more afordable for millions. But

for certain business owners, it just

mucks everything up. Tim Guenther,

CEO of Clickstop, in Urbana, Iowa, is

one. He’s got 64 full-timers and pays

100 percent of their health insurance.

Clickstop sells ratchet straps. After five

years of buying straps from China,

Guenther started assembling them

here. That allowed him to be more

flexible and customize orders.

But Guenther’s costs are higher than

his Chinese competitors.’ His team

includes 24 part-timers, and Guenther

wants the flexibility to add to their hours

as needed. But he needs to manage their

hours more closely: He is keeping them

under 30 a week so he doesn’t have to

ofer health insurance. “It costs us about

$7,500 to insure a family,” he says. “The

workers in China aren’t making that

much in wages in an entire year.”

That said, Guenther, like many in our

survey, is continuing to expand—he’s

just doing it with an eye on the Beltway.

For him, the glass is still half full. He’s

right. Fundamentally, the outlook is

pretty darn good. Economic growth is

supposed to pick up. (Mark Zandi, chief

economist for Moody’s Analytics, ex-

pects 2013 GDP growth to be just under

2 percent, but it should hit a relatively

robust 3 percent in 2014.)

And even if it doesn’t, businesses

will benefit from the housing rebound,

better access to credit, and more bullish

customers.

For companies focused on growth,

the forecast for 2014 is clear: mostly

sunny, with a chance of Washington. —

KIMBErly WEIsUl is an Inc.

editor-at-large.

muCh more 63% more 26%

same 4%less 6%

muCh less 2%

• What are your business plans for the next year?

Increase head count80%

80%

Expand products and services

58%

Make capital improvements

91%

Seek new U.S. customers

39%

Seek new international customers

29%

Borrow money

17%

Take on equity investors

• How would you rate your business prospects for the next 12 months?

eXCellent37%

GooD 45%

aVeraGe 14%

Poor 1%Don’t KnoW 2%

Ţ How would you rate the country’s economic prospects for the next year?

Ţ What is preventing a strong economic recovery?

Unemployment18%

Consumer confidence32%

Higher taxes52%

Gridlock in Washington51%

Federal, state, and local regulations42%

Reluctance by banks to lend31%

Health care reform41%

of entrepreneurs have a SLIGHTLY BETTER view of the economy compared with one year ago.

VERY POSITIVE 9%

looking forward to a sustainedperiod of growth.

THE BIG SURVEY

12%

Immigration policy

46 - Inc. - dECEMBER 2013/janUaRY 2014

Ill

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LEAD � THE STATE OF SMALL BUSINESS

� Most Inc. 5000 entrepreneurs we surveyed voted for Mitt Romney. Their top picks for President in 2016 might surprise you.

CHRISCHRISTIE

HILLARY CLINTON

PAULRYAN

RAND PAUL

ANDREW CUOMO

JOEBIDEN

34% 21% 9% 7%

Ţ�Which presidential candidates would you consider supporting in 2016?

DEMOCRATIC 18%

REPUBLICAN 42%

NEITHER PARTY 40%

Ţ�Which party is best equipped to improve the economy?

�Banks are the lender of choice. But the prospects of landing a bank loan are ify.

BANKS 47%

MOREWILLING 20%

SAME 15% WORSE 23% DON’TKNOW 11%

SLIGHTLY BETTER, BUTWITH CONDITIONS 31%

ANGELINVESTORS14%

CROWDFUNDING 5%

IPO 3%VENTURECAPITAL20%

FRIENDS AND FAMILY 10%

NO PLANS TO RAISEMONEY 42%

�Up with universal health coverage; down with Obamacare!

� Income gap? No problem.

67% of respondents who had an opinion are comfortable with the income gap, because it reflects each person’s contribution to the economy.

90% of respondents who had an opinion did not think the govern-ment should try to narrow the in-come gap in the name of fairness.

ŢHow will the Affordable Care Act affect your business?

Increasecosts

Force us todrop employee

health insurance

Allow us toofer healthinsurance forthe first time

Force cutbacks Make it easier to recruit

employees

Forceus to lay of

workers

AGREE that all citizens should have health care coverage.

ARE NOT in favor of the Afordable Care Act.

63%

61%AGREE DON’T KNOWDISAGREE

LIBERAL 10%

CONSERVATIVE 31%

MODERATE 59%

DIDN’T VOTE 3%

DEMOCRATIC 16%

SPLIT TICKET 35%

REPUBLICAN 46%

DIDN’T VOTE 6%

OBAMA 31%

ROMNEY 63%

DEMOCRATIC 17%

INDEPENDENT 36%

REPUBLICAN 47%

Ţ� Party Afliation

Ţ�Political Ideology

Ţ�2012Presidential Picks

Ţ�State and Local Voting Habits

LIBERALDEMOCRATS

3%

CONGRESSIONALDEMOCRATS 3%

CONGRESSIONALREPUBLICANS

9%

TEA PARTY14%

PRESIDENTOBAMA

23%

Ţ�Who’s to blame for political gridlock?

�Teach entrepreneurship? Great! Just don’t expect it to work.

68% agree or strongly agreethat the boom in entrepreneurial programs at colleges and universities is a good thing.

But only 41% think the characteristics necessary to succeed as an entrepreneur can be taught.

24%are willing to pay more taxes if they are used to address the nation’s most urgent problems.

38%might be willing to pay more taxes, dependingon the problem.

Ţ�Which funding sources will youconsider if you plan to raise money?

Ţ How willing are traditional banks tolend to businesses like yours right now?

THEY ARE ALLTO BLAME

48%

37%47%

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• Up With Start-UpS

Small-business owners are often the stars at State of the Union speeches. In 2013, it was Deb Carey of Milwaukee’s New Glarus Brewing (third from left in the second row).

NEarLY DONE DEaLS

Legislation covering two key issues

afecting smaller companies has already

been signed into law. The catch: Impor-

tant details remain unresolved.

The Afordable Care Act—a.k.a.

Obamacare—became law in 2010. But it

remains a kludge in progress: In April,

the administration delayed until 2015

the rollout of the state-run exchanges

that will allow employees a wider choice

of coverage options, and in July it pushed

back, also until 2015, the launch of the

employer mandate (forcing businesses

with 50 or more employees to buy cover-

It has become a ritual during the State of the Union address each January: As President Obama talks about small business as “the foundation of our economy,” the cameras pan to Michelle Obama. Sitting nearby will be a smiling entrepreneur, chosen to illustrate the administration’s commitment to young companies. In 2009, the guest was the owner of a solar panel installation firm in Colorado. In 2010, it was the CEO of a chain of supermarkets. In 2011, there was Zachary Davis, who had launched an ice cream shop in California, thanks to the American Recovery and Reinvestment Act. But even though Davis follows politics more closely than most entrepreneurs, he still works too many hours to pay much attention to Washington policy debates.

With business owners like Davis in mind, Inc. looked at the major policy issues afecting small-business owners in 2014—and whether real change has any chance of happening:

Uncle Sam coUld actUally Help BUSineSS ownerS in 2014. no, reallySome promising proposals might just come to pass.Others will wait for that cold day in hell BY DANIEL McGINN

BIl

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lA

Rk

/GE

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age or pay a penalty). Republicans still

talk of repealing it, and although that

seems beyond unlikely, there are key

details of the law that could change.

(See story on page 66.)

The second almost-done deal is the

JOBS Act. The first piece of the law,

which relaxes Depression-era rules that

ban companies from advertising invest-

ment opportunities to the public, went

into efect in September. The second

piece, which allows companies to sell

equity via crowdfunding, should be in

place by late 2014. Issues remain, such

as: What kind of disclosures must

companies make to investors? Michael

McGeary, political director at Engine, a

tech advocacy group, says the JOBS Act

“could be a real boon for young compa-

nies,” particularly those located outside

VC-dense areas such as New York and

Silicon Valley.

thESE COULD aCtUaLLY happEN (SOMEDaY)In early 2013, there was hope Congress

would make progress on two other

issues that small-business owners care

about: immigration and tax reform.

Momentum disappeared as Congress

became fixated on the debt ceiling and

Obamacare. But odds are good that we

will see new laws on each before this

Congress checks out in early 2015.

Immigration reform would afect

small-business owners in two ways. For

the majority, the big concern is making

it easier to verify a worker’s legal sta-

tus. The Feds ofer a voluntary online

system called E-Verify, and the immi-

gration reform bill passed by the Senate

last spring would make this system

mandatory. That broad bill also would

require noncitizen workers to show ID

with fraud-resistant “biometric mark-

ers” when applying for jobs.

Other businesses—particularly in tech

industries—care more about expanding

the inflow of high-skill immigrants.

These companies hope to see an expand-

ed H-1B visa program, the creation of

visas for immigrants who show proof of

VC backing, and a clearer path to citizen-

ship for high-skilled workers who are

here illegally. Political oddsmakers are

somewhat optimistic about reform pass-

ing in 2014, primarily because the 2013

Senate bill gained bipartisan backing

before stalling out in the House.

Tax reform is another key 2014 issue.

In late 2012, the Bush-era tax cuts ex-

pired, resulting in a tax increase (to 39.6

percent) on the highest earners. In Au-

gust, Obama un-

veiled a plan to

lower corporate

tax rates from a

maximum of 35

percent to 28

percent. This

one-two punch

seems unfair to small businesses, given

that a filer’s rate could vary more than

10 percent depending on what kind of

corporate structure he or she has chosen.

Senator Max Baucus and Represen-

tative David Camp, who lead their re-

spective congressional committees on

taxation issues, have been working on a

bill that they say would be fairer

to small businesses, but both men will

be leaving those posts in early 2015, so

it’s unclear how much success they

will have.

DrEaM ONThere are perennial issues that small-

business advocates love to promote and

that members of Congress will periodi-

cally peddle—but never go anywhere.

One example: The Kaufman Foundation

has pushed to make it easier for students

and professors to take innovations cre-

ated inside universities and launch pri-

vate companies. That’s a shift from the

current system, in which agonizingly

slow university bureaucracies must

approve such deals. It sounds like a rea-

sonable fix, but “universities hate the

idea,” says Kaufman’s Dane Stangler. In

July, House members discussed draft

legislation aimed at providing grants to

universities to promote innovative ap-

proaches to technology transfer. Similar

legislation has been introduced, unsuc-

cessfully, over the years.

Politicians also love to show love for

small business by attempting to reduce

regulation. Last summer, Senators Angus

King and Roy Blunt tried with the Regu-

latory Improvement Act of 2013, which

calls for a committee to come up with a

plan to review, simplify, and cut federal

regulations. Good luck. Why? What

business owners see as “red tape” are

often things that safety or environmental

advocates see as needed protections.—

DANIEL McGINN is a senior editor at

Harvard Business Review.

• iD NatiON: Immigration reform would help employers verify an employee’s legal status via an online system. Pictured: An immigration reform demonstration in Washington, D.C., in April.

Odds are good that we will see new laws on immigration and tax reform before this Congress checks out in early 2015.

52 - inc. - DECEMBER 2013/JANUARy 2014

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How do you turn a mountain backwater into a hub for fast-growing businesses? Ask the people of Boulder, Colorado, the most entrepreneurial city in America By BURT HELM PHoTogRaPHs By MaTT NagER

START-UP COUNTRY

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• Boulder, per capita, has more high-tech start-ups than any city in the country. A sampler:

souRCes: Kauffman founDation; u.s. Census buReau business DYnamiCs

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54 - inc. - decemBer 2013/jAnuAry 2014

e had barely started our tour of the Chautauqua, Boulder’s verdant 19th-century park, when my guide for the morning, local historian Carol Taylor, handed me the packet with the “cautionary tales.” They were photocopied news articles, all from national publications, all featuring Boulder and

all written—in Taylor’s mind, anyway—by superficial out-of-towner nincompoops. “Namaste and Pass the Naan,” read one’s subhead. “You will be hard-pressed to find one person here, including your 85-year-old grandmother, without a six-pack,” read another. Over four decades, as Taylor’s packet meant to show, writ-ers had missed the town for the lovely trees (and bike paths and mountain views)—unfairly reducing Boulder to a playground where smug eco-liberals pufed legal-ized marijuana and compared triathlon times.

“We’re so much more complex than that,”

Taylor said. She gave me a gentle, pleading

look. “Don’t just go back and write that every-

one rides their bikes everywhere.”

Out from the gleaming sunlight, a Lycra-

clad cyclist whizzed majestically by.

Let me just say, it’s hard to keep a straight

face when touring this idyllic mountain

city—and interviewing its start-up founders

and venture capitalists, its cofee-shop deni-

zens and microbrew cognoscenti. It’s so

tempting to linger on the glorious hippie

mane of the organic peanut butter CEO, or

quote the impossibly outdoorsy venture

capitalist (“I only invest in companies I can

ride my mountain bike to!”). But I don’t want

to be unfair or stoop to caricature. It’s not as

if they were handing out free joints to every-

body on Pearl Street, the city’s main drag,

on the day I arrived. (No, that was two days

earlier. The event was called the Boulder

Flood Relief Joint Giveaway.)

But easy as Boulder may be to mock, the

city is impossible to dismiss. Boulder is an

entrepreneurial powerhouse like no other. In

2010, the city had six times more high-tech

start-ups per capita than the nation’s average,

according to an August 2013 study by the

Kaufman Foundation—and twice as many

per capita as runner-up San Jose–Sunnyvale

in California. This vibrant culture has given

Boulder a prosperous economy: Without the

help of oil, natural gas, or any monolithic in-

dustry, Boulder County (population 300,000)

ranks among the top 20 most productive metro

areas in terms of GDP. Unemployment is 5.4

percent—almost two points below the national

average and a full point below the Federal

Reserve’s goal for the nation. It is the home to

a start-up incubator, Techstars, and a healthy

venture capitalist community.

Boulder as start-up haven is not a new

development, either. Since 1960, it has quietly

nurtured nascent industries, including natural



Wall Street to Main StreetWhen the Wall Street day-trading firm where Kate Maloney worked opened a location in Boulder in 2001, she jumped at the chance to move. “We’d wake up at 5:30 in the morning, tackle the market, and then go hiking up Sanitas, or rock climb in the Chautauqua,” she recalls. In 2007, Maloney founded TherapySites, a website design company that now sells Web templates to a wide variety of health care practices. Maloney has 34 employees, a handful of whom work out of her downtown Boulder loft.

foods, computer storage, biotech, and now

Internet companies. It’s the original home

of Ball Aerospace (one of the first NASA

contractors), herbal tea pioneer Celestial

Seasonings, StorageTek (later acquired by

Sun Microsystems for $4.1 billion), and the

biochemistry lab that led to Amgen.

But Boulder wasn’t always so afuent, so

collegiate, so pretty. The history of Boulder,

the start-up haven, is a fascinating story of

a community that built itself from scratch

through a combination of individual efort,

shared sacrifice, and counterintuitive choices

(not to mention a near-constant urge to skip

out of the ofce and get outdoors). Its success

is a very specific, and in some ways limited,

way of fostering a local economy. But it ofers

an unexpected solution to how cities all over

the U.S. could make themselves a welcoming

spot for start-ups.

When city fathers first laid

out Boulder, the city was

dry, barren, and unre-

markable—a two-mile

stretch of road at the

mouth of Boulder Canyon that served as one

of several mining-supply depots following the

1859 Colorado gold rush. Wrote Isabella Bird,

a British travel writer, in an 1879 book: “Boul-

der is a hideous collection of framed houses

on the burning plain.”

But a streak of exceptionalism ran through

Boulderites. They displayed a deep commit-

ment to city beautification and education. In

1877, just six years after Boulder ofcially

incorporated, citizens persuaded the state

legislature to make it home to Colorado’s first

public university; 104 families donated land

and money to build the campus. In 1889, the

citizens voted to issue a $20,000 bond to

build the Chautauqua, a place where visiting

Texas schoolteachers could hike, picnic, and

listen to lectures—a sort of bucolic TED Con-

ference of the time.

In 1908, citizens hired landscape archi-

tect Frederick Law Olmsted Jr. (the son of

the legendary creator of New York City’s

Central Park) to consult with them on how

best to plan the city—a precocious move for a

town of 10,000. His recommendations in-

cluded putting wires underground and keep-

ing streetlights beneath tree level, and he

cautioned them about suburban developers,

“dirty industries,” and pandering to tourists.

Above all, he said, Boulder must be beauti-

ful—a prosperous town where people would

spend their lives, not just make their money

and get out. “As with the food we eat and the

air we breathe, so the sights habitually be-

fore our eyes play an immense part of deter-

mining whether we feel cheerful, efcient,

and fit for life,” Olmsted wrote in his report.

Boulder might have remained a sleepy

pretty college town, were it not for the com-

munists. In 1949, fearful of a Soviet nuclear

attack, President Harry Truman issued an

order to stop the clustering of major build-

ings in Washington, D.C. The nation’s basic

research labs had to expand elsewhere.

Boulder citizens, sensing an opportunity,

bought up 217 acres of land and beat out 11

other cities to make that site the home of

the National Bureau of Standards’s new

Radio Propagation Laboratory.

At first, the D.C.-based scientists bristled,

considered it an exile. “They would say,

‘Where do we go to see the Indians?’ ” says

R.C. (“Merc”) Mercure, one of the founding

employees of Ball Aerospace, who was a

physics graduate student at the University

of Colorado at the time.

But the move put Boulder on the U.S. gov-

ernment’s map. In 1952, the federal govern-

ment made greater Boulder the site of Rocky

Flats, a 27-building nuclear weapons manufac-

turing facility. After the Department of Defense

ordered sophisticated rocket pointing controls

from CU’s labs, researchers, including Mercure,

left to form Ball Aerospace, which filled those

contracts and others. Eventually, the govern-

ment made Boulder the site of the National

Center for Atmospheric Research, and IBM

moved its tape drive manufacturing division

out there, which later led to the founding of

storage start-ups StorageTek, Exabyte, and

McData. On the backs of these technology jobs,

Boulder’s population doubled from 1950 to

1960 and then jumped to 67,000 10 years later.

By the late ’60s, scientists weren’t the only

new people moving in. Across the country,

the hippie movement was under way, and as

suburban teens and twentysomethings started

migrating to beautiful places across the coun-

try, many chose Boulder. (In the first half of

1968, drug arrests in the city doubled.) To Mo

Siegel, a Colorado boy who had grown up on

a ranch 80 miles away in Palmer Lake, the

assembled flower children were his kind of

people—and, in 1969, a potential market. A

health nut already, the 19-year-old began gath-

ering herbs in the foothills surrounding Boul-

der, filling up gunnysacks with chamomile and

red clover blossoms, sewing them into little


circle of lifeAlabama native Dale Katechis settled in Boulder in 2004 after he ran out of money on the way to Montana. He knew he was in love when he spotted the Flatirons mountains rising up behind the city, he says. Since then, he has started a brewery, restaurants, and a boutique bike company in Boulder. He has also developed his own take on vertical integration: His brewery’s spent grain feeds the cattle on his ranch, which is located outside the city. The cattle, in turn, provide the beef used in his restaurants’ burgers.


1859 GOLD RUSH

Thanks to gold, boulder booms. The first entrepreneur? Prospector a.a. brookfield starts the boulder city Town company, selling lots for $1,000 apiece.

1877 ScHOOL’S in

The university of colorado, boulder, opens with two teachers and 44 students.

1910 GOinG GReen

Frederick Law Olmsted Jr., whose father was the

landscape architect of Central Park in New York City, is hired as a con-sultant. His

advice: Embrace beauty, and prosperity will follow.

1949 BiG Science

boulder, in competition with 11 other cities, gets the national bureau of Standards’s radio Propagation Labora-tory, which, among other things, ana-lyzed radio waves on earth and from space. Its employees weren’t thrilled with their new exotic home.

1952 THe BOOM

The federal government builds rocky Flats, a nuclear weapons manufactur-ing plant; in 1950, the city had 20,000 residents; in 1960, 42,000.

1956 GOinG inTO ORBiT

Ball Aerospace & Technolo-gies Corporation arrives, a wholly owned subsidiary of Ball Corporation (yes, those glass Mason jars!).

1965 BiG BLUe

Ibm constructs an 85,000-square-foot facility to manufacture tape drives.

1969 TeAMAn

mo Siegel, a colorado entrepreneur, co-founds his tea company, celestial Seasonings—creating one of the world’s most famous brands in the process. boulder county’s population grows 78 percent from 1960 to 1970, and another 44 percent from 1970 to 1980. Today, it’s home to 305,318 people.

1980 UP WITH BIO

biotech pharmaceutical manufacturer amgen opens two locations near boul-der to make the anemia drug epogen.

1989 AnD THe

WinneR iS…

Tom cech, professor at the university of colorado, boulder, and Sidney altman, a cu graduate and yale professor, jointly win the nobel Prize in chemistry for their discovery of catalytic properties of rna.

1990 WE’RE NO. 1

believe it or not, boulder has the most high-tech start-ups per capita in the nation, thanks to a long history of high-tech institutions such as Ibm, the national Institute of Standards and Technology, the national center for atmospheric research, ball aerospace, and cu.

2006 WeLcOMe TO

THe START-Up cULTURe

Brad Feld and David Cohen co-found Techstars to help fund budding companies. The next year, Feld co-founds the VC firm Foundry Group with $225 million; it has invested in 68 companies, including Zynga and Fitbit.

2009 pOT SHOp

Helping Hands Herbals opens as one of boulder’s first medical marijuana dispensaries. boulder now has 32 dispensaries and 37 cultivation facilities licensed to do business in the city.

2013 THe FUTURe

Hoping to meet stafng demands at start-ups, cu’s depart-ment of computer science develops a new degree for liberal arts students.

muslin tea bags, and selling them, in 1969, as

Mo’s 36 Herb tea. It would become the first year

of business of Celestial Seasonings, the brand

that became known for teas such as Sleepytime

and Red Zinger. (Siegel eventually sold the

company to Kraft, bought it back, and then sold

it again to Hain Foods for $336 million.)

Celestial Seasonings was among the first of

many natural-foods companies, including

White Wave, maker of Silk-brand soy milk;

Horizon Organic Dairy; and Alfalfa’s, a specialty

market akin to Whole Foods. For these sorts of

entrepreneurs, Boulder was an ideal test mar-

ket. Given its population of afuent, outdoorsy

types, brands could test new ideas with a

friendly group of consumers in the local mar-

kets, work out the kinks at low risk, and then

take the successes to a more general market in

Denver and beyond.

“I just got so much support. Everybody

believed,” says Siegel.

With industry picking up and

the population booming,

the city could have stoked

the growth, welcoming

developers in to build out

new housing and ofces. Instead, it did the

opposite. In 1959, the city drew a line across

the surrounding mountains, above which it

would not provide water or sewer services—

purely in order to protect the view. In 1967,

residents instituted a special 0.4 percent sales

tax to purchase “green space” around the city,

stymieing developers, heading of major road-

ways, and preserving nature. Next, the city

limited new housing starts to just 2 percent a

year. Now the county manages more than

97,000 acres of open space. Boulder is in a

bucolic bubble, with the Rocky Mountains on

one side and parkland on the other.

Encircling the city with green space has had

several implications for Boulder, some expected

and some not. Though never exactly cheap

before, the limited space has resulted in sky-

high real estate prices—with a median price of

$431,200, single family homes are 1.5 times as

expensive as in Denver. Meanwhile, as the

preserved space flourished, so did the deer

population—and the hungry mountain lions,

which commuted in to eat the deer and, occa-

sionally, attack citizens of Boulder.

The green border, paired with the city’s

conservative zoning and development laws, has

also meant that national retailers—or any

monolithic competitor—have trouble finding

good spaces to open in Boulder. Meanwhile, the


BOULDeR: THe MAKinG OF A ciTYThe Colorado college town was meticulously planned to make it one of the more livable cities out west. The unexpected result? A start-up Shangri-la. —WILL YAKOWICZ

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city’s hard line against expansion doesn’t really

allow its own start-ups to grow much past a

certain size. The result? The town has made

itself a physical incubator for small businesses.

“After companies reach 500 employees, they

either have to move out to the other side of the

open space or sell,” says Kyle Lefof, a general

partner with Boulder Ventures since 1995.

But for those who can aford the housing,

steer clear of the mountain lions, and squeeze

into its limited ofce space, Boulder afords an

incredible quality of life—along with a place to

do business. The planning strategy, which at

first seems antibusiness, simply favors those

who are in it for the long haul—those who are

thinking about raising families and living in

Boulder until old age, and weeds out those that

would dive in because of a juicy tax incentive.

There are entrepreneurs like Phil Anson,

who came out after graduating from college

purely to bum around and climb. A onetime

line cook, he started selling premade burritos

out of a cooler to support himself. In time, he

found he liked scaling that business better

than scaling rocks, and Evol Burritos, his

73-employee company, now distributes to

supermarkets nationwide and rang up $12.4

million last year.

There were those who arrived in Boulder

by accident and fell in love. Matt Larson,

founder of Confio Software, moved there

because his biggest investor told him he had

to as a condition to getting funded (the man

lived in Boulder and wanted to be chairman

but didn’t want to move). Alabama native

Dale Katechis ended up in Lyons, the town

just north of Boulder, after he and his wife ran

out of money on the way to Montana. Kat-

echis started waiting tables. Then he opened

his own restaurant, Oskar Blues Brewery, and

started brewing beer as a way to get his eat-

ery’s name out, and found the beer sold better

than the food. (His brewery, which sells

Dale’s Pale Ale, made $33 million in sales last

year.) Little Lyons “was like Mayberry in the

mountains,” Katechis says, his voice tinged

with the last remnants of an Alabama drawl.

There are those entrepreneurs who moved

to Boulder when they were older, when they

already had money, almost as a reward to

themselves. In 2001, the Wall Street day-trad-

ing firm where Kate Maloney worked opened

an ofce in Boulder, simply because she and

some co-workers thought it would be more

fun. Six years later, she started TherapySites, a

Web company she runs out of a loft apartment

downtown. In 2006, adman Alex Bogusky

moved a chunk of Crispin Porter + Bogusky,

the advertising agency he co-founded, from

Miami to ofces in Gunbarrel, a town eight

miles northeast of Boulder. To Bogusky, out-

door sports lovers and entrepreneurs share a

common DNA: “Thrill seekers are drawn to

this place,” he says. “Once you get out here, you

want the ultimate thrill in business, too, and

that’s start-ups.” By the time Bogusky retired

from the agency, the Boulder ofce of Crispin

Porter + Bogusky had swelled to more than

700 employees—many of whom had moved

from Miami.

And finally, there are those who came out

of the University of Colorado and couldn’t

imagine going anywhere else. The most

famous is probably Marvin Caruthers, who,

as a biochemistry professor in 1980, helped

start the biotech firm Amgen. His co-found-

ers decided to put company headquarters in

Thousand Oaks, California, but Caruthers

HealtH nutMo Siegel started Celestial Seasonings in 1969. Back then, he sold his tea in health-food stores in Boulder (at the time, there were only three such shops). “Boulder was really conducive to the natural-foods industry,” says Siegel. “Everybody’s so healthy. If you don’t run or bike or ski—or hike or climb—you really can’t live here.” Now, of course, natural food is as ubiquitous nation-wide as Celestial’s Sleepytime tea.



PioneerAfter earning three degrees from the University of Colorado in Boulder, R.C. (“Merc”) Mercure became a founding employee at Ball Aerospace in 1956. “Ed Ball took us aside and asked us if we would consider getting into the electronics business,” Mercure recalls. “A few of us said, ‘Why not?’ ” Ball went on to land a contract with NASA and helped put a solar observatory into orbit.

kept a lab in Boulder. Since then, the Univer-

sity of Colorado has become a destination

for DNA and RNA research. Veterans of his

department, of Amgen, and of the univer-

sity’s biology departments would go on

to start biotech firms, including Applied

Biosystems, Dharmacon, Myogen, and

Pharmion, companies that sold for more

than $6 billion altogether.

I wish I could point to some municipal

entrepreneurship program or other business

initiative that enticed these people to start

companies in Boulder. But the thing is, entre-

preneurs claim the city stymies them more

than it helps. Mundane parking regulations

hindered business early on, says Niel Robert-

son, CEO of $12.6 million-a-year Internet

advertising start-up Trada. The city, in its

eforts to reduce congestion, gave Robertson’s

17-employee company just three parking

permits. (The company, which now has 100

employees, has since moved to a building

with a parking garage.)

Anson, the burrito maker, says it took

eight weeks just to get a permit to install a

new refrigeration unit at his plant. “They’re

so conditioned to say no to everything,” he

says. “It’s a massive pain in the ass.” But leave

town? No way. “It’s a dual-edged sword,”

says Anson. “It’s harder for me to run my

plant, but it’s also why people can’t build

mansions and block each other’s views, so

we have a balanced city.”

Of course, Boulder’s not perfect.

Many businesses would struggle

to exist there, especially those

that require heavy equipment or

a low-wage work force. Its regu-

lations, and its constricted land area, heavily

favor small companies. In fact, several start-

ups, including Internet security firm Web-

root and StorageTek, grew out of the town,

choosing to move out to a sprawling ofce

across the green space in neighboring

Broomfield. But many other entrepreneurs

decided to sell out and stay—and join Boul-

der’s growing number of angel investors and

venture capitalists, the next step in the city’s

development. Mo Siegel now invests in other

natural-foods companies. Caruthers helped

start Boulder Ventures, which invests almost

exclusively in Boulder entrepreneurs. All

together, venture capital firms invested

$587 million in Colorado in 2012—a far cry

from major venture hubs such as Silicon

Valley and New York City ($11 billion and

$2.3 billion, respectively) but significant.

They would rather do that than move to

some tony retirement place—because in

their minds, Boulder beats ’em all. That’s the

thing. Pretty much every entrepreneur told

me he or she started up in Boulder or stayed

in Boulder for that same reason: It’s a beau-

tiful place to live. And it’s beautiful not

because the city forefathers had some nifty

pro-start-up policy—but because they had

the foresight to plant lots of trees, welcome

a university and federal science labs, buy up

lots of parkland, and then stay disciplined

about preserving the beauty they had cre-

ated. The idea was simple: Make a city a

great place to live, and people figure out how

to make a living there.

—

BURT HELM is an Inc. senior writer.


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HE WAITING IS OVER. It is time to get

serious about Obamacare.

Though the much-feared employer

mandate has been postponed until 2015,

several other provisions of the Aford-

able Care Act take efect in January. One

benefit of the long lead-up to the full

implementation of the ACA is that em-

ployers, policy wonks, benefits advisers,

and lawyers have had a lot of time to pick

apart the law’s dense tangle of rules. In the process, these ex-

perts have come up with a number of strategies and work-

arounds to help you comply with the letter of the new law—and

in some cases recalibrate your health care strategy in ways that

can benefit both your employees and your bottom line.

How much of a headache will this phase of Obamacare be?

Good question. “At least in concept, it raises the cost of hiring,”

says Dane Stangler, director of research and policy at the

Kaufman Foundation. “On the other hand, remember that 95

percent of American businesses have fewer than 25 employ-

ees”—meaning they are exempt from most of the ACA’s provi-

sions. In fact, many of those small businesses could qualify for

tax breaks.

What follows are eight steps to consider. Some are sim-

ple, some are complicated; some pose problems, others op-

portunities. To help you prioritize, we’ve ranked each of

them—on a scale of one to five aspirins—in terms of hassle

and urgency.

None of this will be particularly fun. And we won’t blame

you if you keep complaining. But the time to act is now.

OBAMACARE IS UPON USAre you ready? Our checklist will make sure you capture every subsidy and avoid every pitfall BY ADAM BLUESTEIN ILLUSTRATIONS BY ED NACIONAL


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NOTIFY YOUR EMPLOYEESHASSLE URGENCY

BY OCTOBER 1, 2013, every

business with at least one

employee and $500,000 in

yearly revenue should have

given employees a written

Fair Labor Standards Act, or

FLSA, Exchange Notice,

informing them that: 1.

health exchanges are open,

and 2. even if they have cov-

erage through work, they

may be able to get insurance

more cheaply on the ex-

change, thanks to potential

premium and cost-sharing

subsidies. (You can download

a sample notice at the Depart-

ment of Labor’s website.)

If you missed the dead-

line, don’t worry. In Septem-

ber, the Labor Department

announced that laggards will

not be penalized. But do it

anyway, says Sheldon Blum-

ling, an employment benefits

attorney at Fisher & Phillips

in Irvine, California. “The

exchange notice does two

things,” Blumling says. “It

informs employees about the

exchange and where to get

information, but it also pro-

vides information about any

coverage the employer of-

fers.” You might be perfectly

happy for employees to go

out and get coverage on an

exchange. “But if you are

ofering what the ACA con-

siders afordable, minimum-

value coverage,” says

Blumling, “it behooves you

to make sure your employees

understand that they’re not

eligible for a subsidy. It’s an

employee relations issue.”

GET AN ACCURATEHEAD COUNT HASSLE URGENCY

THE EMPLOYER MANDATE is a

year away, but that doesn’t

mean you can ignore it. You

need to determine now

whether you will be afected

by it later. Doing so isn’t as

simple as it sounds. There

are really two questions here:

1. Are you a large employer,

as defined by the law? And

2. If you are, to which em-

ployees do you have to ofer

health coverage?

Under the ACA, compa-

nies with 50 or more full-

time equivalent, or FTE,

employees are considered

large employers and are

required to ofer health cov-

erage or potentially face

penalties starting in 2015. To

calculate how many FTEs

you have, you need to count

both full-time workers (those

LARGE EMPLOYER (50 OR MORE EMPLOYEES)

PINPOINT YOUR OBAMACARE STRATEGYHow will Obamacare afect your business? The answer depends on the size of your payroll and the health of your employees. Find where your company falls along the two axes on the chart below. The horizontal axis measures wages; the vertical axis gauges your work force’s health. Find your quadrant, and you will find the strategies explored in this story that are best for your business. —A.B.


Use expanded wellness incentives

to ofset higher premiums for less-healthy

workers.—

SEE: 7

SMALL EMPLOYER (49 OR FEWER EMPLOYEES)

Consider a private exchange, which

lets workers customize their coverage and contribution levels.

—

SEE: 3, 4

Try a group planin the SHOP

exchange if you meet the criteria for

a small-businesstax credit.

—

SEE: 4, 6

HEALTHIEREMPLOYEES

SICKEREMPLOYEES

If you can’t get a tax credit with a SHOP plan,

send employees to a public exchange.

—SEE: 3, 8

Self-fundingis also a good option

if your company’s health claims

have been low.—

SEE: 5

If you have less-healthy employees and want to ofer coverage,

try a SHOP or nonex-change plan.

—SEE: 3, 8

Consider no coverage or a

skinny plan and let workers buy on an

exchange.—

SEE: 3, 6

If you ofer coverage, consider self-funding

to avoid a community-rating “penalty.”

—

SEE: 5

LOWEREMPLOYEE

WAGESHIGHER EMPLOYEE

WAGES



who work an average of at

least 30 hours a week) and

part-timers. For example, if

you have 30 full-timers plus

60 people who put in an

average of 15 hours per week,

you have 60 FTEs—and could

face penalties if you don’t

ofer health coverage in 2015.

Keep in mind that you don’t

actually have to ofer insur-

ance to the part-timers—only

to your full-time workers.

Also, understand that if you

own or have a substantial

ownership interest in more

than one company, those

companies are considered a

single entity under the law,

and the total number of

FTEs across all those busi-

nesses will determine large-

employer status.

For many businesses,

employees come and go

throughout the year, which

further complicates the

question of who is a full-time

equivalent employee. For that

reason, the law asks employ-

ers to pick a given measure-

ment, or look-back, period to

determine whether workers

are full time. This period can

be anywhere from three to

12 months—choosing the

time frame is up to you. Just

remember that the shorter

the period, the more often

you will have to count. A

12-month look-back period is

most convenient, says Paul

Ashley, an adviser with First-

Person, an Indianapolis

benefits and HR firm. It also

means that if your policy

renews on January 1, you

should already be counting,

so you know who’s eligible

for the company plan when

open enrollment for 2015

starts next October.

CONSIDER WHETHER YOU WILL OFFER COVERAGE AT ALLHASSLE URGENCY

ONCE YOU’RE FAIRLY confident

which boat you are in—small

or large employer—you can

start making some decisions.

First and foremost: Will you

ofer employee coverage?

If you’re a small employer,

you don’t have to; the law

doesn’t require it. And now

that public health exchanges

make guaranteed, “afordable”

coverage available to indi-

viduals and families, employ-

ees of small companies are not

as dependent on work-based

health plans as they have been

in the past. “You have to ask

whether employer-sponsored

coverage is an important part

of employee retention and

attraction,” says Michael

Bodack, a broker with York

International in Harrison,

New York. “For some small

companies, there’s no down-

side to dropping coverage,

paying people a couple of

extra bucks, and sending them

to the exchange.”

If you’re a large employer

thinking of adding or expand-

ing coverage in 2014, you

might want to wait. A 2013

study by researchers at the

Stanford School of Medicine

found that roughly 37 million

people now getting employer-

sponsored insurance would

be financially better of get-

ting coverage through public

exchanges. Largely this is

because they could qualify for

credits and subsidies available

to individuals and families

earning up to 400 percent of

the federal poverty level.

Although the ACA limits how

much you can ask workers to

pay for self-only coverage,

there is no requirement that

you subsidize their family

members as generously. As a

result, the cost for family

coverage through an employ-

er could be double or triple

what it would be through

an exchange.

In 2013, covered workers

contributed an average 29

percent of the premium for

family coverage, or $4,565,

according to the Kaiser Fam-

ily Foundation. Say one of

your workers makes $35,000

a year and has a nonworking

spouse and two kids.

Average-priced employer

coverage for the family would

cost about 12 percent of

household income. If this

same family went to a public

“For some small companies,there’s no downside to dropping coverage, paying people a coupleof extra bucks, and sending them to the exchange.”


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exchange, it would qualify for

subsidies on the basis of

household, not individual,

income. As a result, the em-

ployee could buy a silver-

level family plan for just

$1,373 per year, or about

3.9 percent of household

income after subsidies.

The catch: Neither em-

ployees nor their family

members can claim ex-

change subsidies if self-only

afordable coverage is avail-

able through their work. The

only way to make sure they

can get the subsidies is to

not ofer that coverage. That

will open you up to a $2,000

per-person annual penalty,

after your first 30 workers,

in 2015. (Unless you try a

skinny plan approach; see

No. 6.) But, Blumling says,

“it could make more sense to

pay the penalty for your

employees’ benefit.”

DECIDE WHERETO SHOPHASSLE URGENCY

FOR SMALL COMPANIES that

want to ofer insurance, one of

the biggest changes in 2014 is

that there are a lot more ways

to shop for it. If you have 49

or fewer employees, you can

use the new Small Business

Health Options Program, or

SHOP, exchanges run by

states or the federal govern-

ment. These exchanges were

designed to give employees of

small businesses an easy way

to choose from an array of

plans, from diferent carriers,

at a given metal level

(bronze, silver, gold, plati-

num) chosen by their em-

ployer. But under transitional

rules meant to ease adminis-

trative burdens, in 2014 the

36 exchanges administered

by the federal government

will ask employers to pick a

single health plan to ofer

employees. (The multiple-

choice functionality should

be available in 2015.) State-

run SHOPs can use either

approach, but the reality is

that in many states, there are

just one or two providers of

small-business coverage

anyway. What’s more, em-

ployers and benefits experts

around the country are find-

ing that many plans ofered

through exchanges ofer

narrower networks of doc-

tors and hospitals. Insurers

say these narrower networks

help them control costs and

thus keep premiums down.

But it can mean that employ-

ees lose access to favorite

doctors and other specialists.

Private health-insurance

exchanges, if they’re available

in your state, are another

option. In private exchanges,

the employer selects a menu

of plan options from one or

more insurance carriers and

decides on a dollar amount it

will contribute toward em-

ployee health benefits. Em-

ployees then use the funds,

plus any additional amount

they want to contribute, to

buy a plan as rich or stingy as

they choose. Some private

exchanges ofer as many as 20

coverage options.

Private exchanges ofer

employees more choices than

the SHOPs—not to mention

being easier to use than many

state exchanges—and may

also ofer one-stop shopping

for ancillary benefits such as

vision, dental, life, and dis-

ability insurance, which are

not available in the public

exchanges. For large em-

ployers, human resources

consultancies such as Aon

Hewitt, Towers Watson, and

Mercer have established

private exchanges. Small

businesses and sole propri-

etors can look to exchanges

such as Minnesota-based

Bloom Health (which has

plans in multiple states)

and HealthPass in New

York State, as well as single-

carrier private exchanges

run by regional insurers.

EXPLOREA SELF-FUNDED PLANHASSLE URGENCY

STARTING IN JANUARY 2014,

insurers will be required to

use “adjusted community

rating” when setting premi-

ums for individual and small-

group plans sold on the

exchanges and the private

market. This means that

insurers can’t consider

health history (or factors

such as occupation or gen-

der) in determining premi-

ums; instead, carriers must

ofer all small employers

(generally, those with 49 or

fewer employees) in a given

geographic region essen-

tially the same deal. Limited

adjustments are allowed

only for age, family size (i.e.,

individual or family), and

tobacco use.

This is great for small

companies with a history of

large health claims that have

driven up premiums. But

community rating will fall

hard on younger, healthy

companies. “Small groups


Some companies will “have no other choice than looking at self-funding.”


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could see premiums dou-

bling, depending on their

age and other factors,” says

Blumling. As a result,

healthy companies that meet

their state’s small-group

definition and want to ofer

coverage “almost have no

other choice than looking at

self-funding or partial self-

funding for their first renew-

al in 2014,” says Ashley, of

FirstPerson.

In self-funded plans, an

employer sets aside funds to

cover employee health

claims, rather than paying

per-employee premiums to

an insurance company.

These plans are not subject

to the ACA’s community-

rating requirements. Compa-

nies with fewer than 250

employees typically combine

self-funded health plans

with stop-loss insurance,

which protects them against

losses from higher-than-

expected claims in a given

plan year. If actual claims

are less than the amount that

has been funded, you’re

refunded the diference.

Once limited mainly

to large companies, self-fund-

ing is now becoming acces-

sible to ever-smaller groups.

Says Ashley: “More and more

carriers are ofering modified

self-funding products specifi-

cally designed for groups as

small as 10 employees.”

PONDER THESKINNY STRATEGYHASSLE URGENCY

IT’S NO SURPRISE that a law as

complex as the ACA would

come with some unintended

consequences and perverse

incentives. The so-called

skinny plan strategy is one of

those consequences. It’s

hard to understand, regula-

tors hate it, and you might

find it a tad unsavory. But a

good number of employers

are considering it nonethe-

less, so it’s not a bad idea to

understand how it works.

Say you own a large busi-

ness—a restaurant, retailer,

or manufacturer—with lots

of low-wage workers. Start-

ing in 2015, if you don’t ofer

them “minimum essential”

health coverage and any

employee gets a subsidy on a

public exchange, you’ll be hit

with a penalty: $2,000 times

your number of full-time

equivalent employees, minus

30. If the coverage you pro-

vide is unafordable or

doesn’t meet the ACA’s mini-

mum-value test, the penalty

seems higher: $3,000 times

the number of employees

who get subsidized coverage

through a public exchange.

The skinny plan strategy

works like this: An employer

ofers employees health

coverage, but in a really

watered-down, really cheap

version that flunks the ACA’s

minimum-value test. As a

result, the employer faces the

$3,000 per-employee penalty.

But here’s the catch: The

total penalty depends on the

number of employees who

actually claim subsidies and

purchase coverage on an

exchange. Those using the

skinny strategy, essentially,

are betting that ofering lousy

coverage will result in a

lower total penalty than not

ofering coverage at all. “It’s

an unintended consequence

of the law,” says Blumling.

“Regulators really don’t like

it. But they don’t seem to

have a way to stop it.”

A skinny strategy will not

earn you any PR points. And,

Blumling warns, “you’ve got

to make sure it’s executed

properly to weave through

competing regulatory guid-

ance.” But some employees,

especially those who are not

currently insured through

work, may actually appreci-

ate skinny plans.

That’s because low-wage

workers are highly likely to

forgo health care coverage

altogether—just 37 percent

of single employees earning

$15,000 to $20,000 per year

participate in employer-

sponsored health plans,

according to a 2013 survey

by benefits consulting firm

ADP. And even with federal

subsidies, a single person

making $20,000 a year

would still have to pay an

average of at least $587 a

year in premiums for an

exchange-based plan. A

more limited, even lower-

cost option might be attrac-

tive to that worker; it also

would let him avoid the

individual mandate pen-

alty—$95, or 1 percent of

taxable income, in 2014.

And if this employee

Those using the skinny strategy, essentially, arebetting that ofering lousy coverage will result in alower total penalty than not ofering coverage at all.



decides he wants more ro-

bust coverage, he can get it

through an exchange—and

qualify for subsidies, to boot.

LAUNCH AWELLNESSPROGRAM HASSLE URGENCY

GENERALLY, IF YOU SUBSIDIZE

employees’ health-insurance

premiums, you have to do so

equitably. The exception: Since

2006, employers have been

permitted to vary premiums

on the basis of participation in

wellness programs—charging

less for those who take part or

more for those who don’t.

Starting in 2014, the ACA

will increase the incentives

that you can ofer, from 20

percent to 30 percent of the

total cost of coverage for

participation in “health-con-

tingent” wellness programs—

which require participation in

a physical activity, for exam-

ple, or meeting certain health

standards, such as a desired

cholesterol or blood sugar

level or body mass. To encour-

age smokers to quit, you can

charge them premiums up to

50 percent higher than those

for nonsmokers. And if you

don’t already have a wellness

program in place, there are

$200 million in federal grants

available to help you start one.

Let’s say your group health

plan has an annual premium

for employee-only coverage of

$6,000, of which the employ-

ee pays $1,500. You ofer

employees a chance to un-

dergo a health-risk assess-

ment to see if they meet blood

pressure, cholesterol, and

body mass targets, along with

a program to help those who

don’t meet the targets to work

toward them. You can give

those who participate an

annual premium rebate of up

to 30 percent of the total

annual cost of employee-only

coverage. In this case, the

maximum rebate would be

$1,800; but you can pay any

amount you choose. If you

ofer a smoking cessation

program, you can charge

smokers who don’t enroll in

it a surcharge up to 50 percent

of the total cost of cover-

age—$3,000 in this case.

A surcharge on smokers’

premiums can have an imme-

diate financial payback: A

smoker’s premium is higher

than a nonsmoker’s and there-

fore drives up your company’s

average premium. Having

them contribute more helps

ofset those additional costs.

The impact of other kinds

of wellness initiatives is hard-

er to gauge in dollars and

cents. In large-group plans

that aren’t afected by com-

munity rating, encouraging

employees to be healthier can

help keep long-term health

costs down by reducing over-

all medical claims and corre-

sponding rate increases. A

2010 study by Harvard, for

example, showed an average

return on investment of $3.27

per $1 for wellness programs

when considering health care

costs alone.

In smaller companies, the

return on investment comes

mostly through reduced

disability and workers’ comp

claims and soft savings, such

as reduced absenteeism and

higher productivity. “If you

have a company with 10

people, it’s a huge issue when

someone is in poor health

and not coming in to work—

or coming in and not per-

forming,” says Thomas Parry,

president of the Integrated

Benefits Institute, a nonprofit

membership organization

that provides health and

productivity research to

companies of all sizes.

CLAIM YOURTAX CREDITHASSLE URGENCY

IF YOU HAVE 25 OR FEWER full-

time equivalent employees,

pay average annual wages

below $50,000, and pay at

least half of the premium cost

for employee-only health

insurance, the government

wants to help you. Really.

The Small Business Health

Care Tax Credit has been

available since 2010, but in

2014, the maximum credit is

increasing, from 35 percent

of employer-paid premiums

to 50 percent. Qualifying

businesses will be able to

claim the expanded credit for

up to two consecutive years.

The amount of the tax

credit varies on the basis of

the size and wages of your

work force. The credit can

be used only to ofset taxable

income, so if you have no net

corporate income in the

current year, you can carry

the credit forward or apply it

up to one year back.

If your plan starts in Janu-

ary 2014 or later, you will

have to buy coverage through

your state’s SHOP exchange

to qualify for the credit.

Under a transitional rule,

though, plans purchased

outside the exchange that

have a 2013 start date but roll

over into 2014 will also be eli-

gible for the credit in the

2014 tax year, as long as you

buy through the exchange on

your next renewal.

—

ADAM BLUESTEIN, a Burlington,

Vermont–based journalist,

covers Obamacare for Inc.

If you have 25 or feweremployees, the government wants to help. Really.



s t r e e t s m a rt s

Norm Brodsky

••••

The New entrepreneurial Status QuoBusiness owners aren’t creating as many jobs as they used to. Why? They don’t want to

Norm Brodsky is a veteran entre-preneur. His co-author is editor-at-large Bo Burlingham. They also are co-authors of Street Smarts: An All-Purpose Tool Kit for Entrepre-neurs. Follow them on Twitter at @normbrodsky and @boburlingham.

been practicing for many years.

Not until the mid-1980s did entrepreneurship

become cool, thanks partly to Inc., but even more

to people such as steve Jobs and Bill Gates. they

had built big companies from scratch, and most of

us wanted to do the same. Back then, $100 million

in annual revenue was big. that became my goal,

and I reached it, creating thousands of jobs in the

process. then I made some bad mistakes, landed

in Chapter 11, and wound up destroying almost as

many jobs as I’d created. Fortunately, other entre-

preneurs weren’t so reckless. they turned the U.s.

economy into a job-generating wonder.

For at least two decades, I seldom ran into any

entrepreneur whose notion of success did not

include building a business that would one day

have a lot of employees. But that changed in the

mid-2000s. I began seeing more entrepreneurs

with a diferent mindset and a diferent goal. many

didn’t want employees at all. What they did want

was the ability to support themselves and their

families without having to report to a boss—in a

word, independence. thanks to the Internet, more-

over, they had an increasing number of avenues to

pursue their independence.

Now, I’m not saying there aren’t any entrepre-

neurs who want to build big companies. Obviously,

many do, and some succeed. Witness twitter,

Facebook, and Zappos, among others. But I believe

entrepreneurs with such aspirations are a minority

these days. as I’ve noted, most of the would-be

entrepreneurs I meet are starting Web-based businesses on the side while continuing to hold

full-time jobs. their goal is to be independent rather than to build something big.

I expect this trend to accelerate, with one diference. members of the post-millennial

generation won’t wait until they already have jobs before starting businesses. they’ll be

planning for their independence from the get-go. that will pose new challenges for compa-

nies that want to attract and keep the best people. smart companies are already ofering

employees a degree of independence unthinkable 20 years ago, including paid sabbaticals

and flexible hours. they realize that they’re competing for talent, not just against other em-

ployers but also against the opportunity for employees to go out on their own. You can expect

this competition to become increasingly intense. Now is the time to start preparing for it.

wheN you get to be my age, you

realize that, in business at least,

climate change is real. the envi-

ronment for starting companies

is constantly evolving. I believe

that, overall, it’s easier to start a

business now than at any other

point in my lifetime. I also

believe more people are trying to start businesses than ever before.

so you might think we’d be seeing new companies generating more

jobs than ever, but we’re not. the reason says a lot about where we’re

going—and where we’ve been.

a little history here. Young entrepreneurs today tend to take for

granted the encouragement they get from family, friends, and soci-

ety at large. that wasn’t the case when I started my first business in

1979. entrepreneurs were generally regarded as either eccentrics or

losers. my mother was ashamed to tell people what I was doing.

she would introduce me as her son the lawyer, although I hadn’t

ScaN the page to See Norm aNSwer a queStioN from aN eNtrepreNeur. (See page 12 for details.)

Do you have a question for Norm? Write to him at [email protected].

78 - iNc. - DecemBer 2013/jaNuary 2014

ev

aN

ka

Fk

a

“We actually trust people.”—CHAD DICKERSON, CEO of Etsy. The question is, Does the Etsy community trust Dickerson? See “Now Comes the Hard Part.”

PG.88

�CRAFTYEtsy employees, surrounded by Etsiness, at company headquarters in Brooklyn, New York

WhatWorks. What’s

Next.

ŦŦŦŦ

Smart ideas stolen from coders PG.86Now the hackers are coming after you PG.82

DECEMBER 2013/JANUARY 2014 - INC. - 81PHOTOGRAPH BY REED YOUNG

HigH Alert5 Stats You Should Know About Cyberthreats

•

For mAnY YeArS, the average American

small business was an unlikely target

for a sophisticated cyberattack. Fewer

financial resources and a relatively

unknown brand worked in your favor

to ward of hackers. Not anymore.

The dam has broken for small compa-

nies when it comes to security. Jeremy

Grant, an adviser at the Department of

Commerce’s National Institute of Stan-

dards and Technology, says in the past

two years he has seen “a relatively sharp

increase in hackers and adversaries

targeting small businesses.” According

to the security company Symantec,

cyberattacks on small businesses rose 300

percent in 2012 from the previous year.

Smaller companies are attractive

because they tend to have weaker online

security. They’re also doing more busi-

ness than ever online via cloud services

that don’t use strong encryption tech-

nology. To a hacker, that translates into

reams of sensitive data behind a door

with an easy lock to pick. If you have

any Fortune 500 companies as customers,

you’re an even more enticing target—

you’re an entry point.

Worse, the laws safeguarding com-

mercial bank accounts aren’t as strong as

those for personal accounts. Banks won’t

always reimburse businesses whose

accounts get hacked, especially if a bank

can prove its security meets federal

guidelines, but the business’s isn’t up

to snuf. (Individuals aren’t expected

to have strong security in place.) Patco

Construction, based in Sanford, Maine,

learned this the hard way when hackers

siphoned $588,000 from its bank ac-

count in 2009 and its bank refused to

reimburse the full amount. Patco sued

the bank and finally won after two

appeals. The court ruled that despite the

bank’s security, it should have caught

the suspicious transactions.

So what can you do about the growing

threat of hackers? First, put in place the

best tech barriers you can aford, like a

cloud-based security app. Then patch

your biggest vulnerability: your people,

says Chris Hadnagy, founder of security

training firm Social-Engineer. Teach

employees not just to devise smarter

passwords and spot sketchy emails but

also to think critically about their online

actions. “If you just want people to

follow the rules—don’t think, just do—

you create an easy environment for

[hackers],” he says. —JoHN BrANDoN

once every 3 minutes How often, on average, companies come into contact with viruses and malware

•Top 5 filenames used as bait in phishing scams•Details.zip•UPS_document.zip•DCIM.zip•Report.zip•Scan.zip

tip Sheet

••••

Think you’re too small to catch a hacker’s eye? Big mistake. You’re probably the perfect target

•An enTrY poinT AT everY deSK Hackers can get into your company through a single email attachment or innocent click on a bad link. Even the strongest firewall is no substitute for educating employees about how security breaches happen and what they can do to protect themselves and your brand.

special

cybersecurity

report

82 - inc. - dEcEmBEr 2013/JanuarY 2014

Sp

rE

ad

: il

lu

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ra

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nS

: m

aT

TH

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iST

Er

; F

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To

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� �3 things hackerswant most

g

1. Customer data

2. Intellectual property

3. Bank accountinformation

1 in every 291 emails containsa virus.

1. OVERSHARE“I’m on Facebook, Twitter, and LinkedIn, but you won’t find information about my family, hobbies, likes, dislikes. You won’t see pictures of me and my kids on vacation or check-ins from where I buy cofee.”

2. TRUST MY INBOX“I follow a meticulous process when I receive emails from companies like Amazon. I hover over links to verify + source, and I don’t click on links. I open a browser, type in the URL, and log in to my account.”

3. REUSE A PASSWORD “This isn’t about your bank getting hacked. It’s about someone hacking your Facebook account and then trying the same password on your bank account. The chances of running into a scam like that are very high.”

BEYOND THE PASSWORDEntrepreneurs don’t let other entre-preneurs get hacked. Here are three start-ups working on high-tech, and highly secure, alternatives to the traditional password. —J.B.

1. Bionym �Toronto-based Bionym has developed the Nymi, a wristband with two electrodes that read your heart’s unique—and difcult to copy—electrocardiogram signal. You can use the band to unlock computers, tablets, phones, and other smart devices. Available in early 2014 for $99.

2. ClefThe three twentysomethings behind San Francisco–based Clef wanted to develop a more secure way to log in to a website. They came up with Clef Wave, a free app that generates a unique image on your iOS or Android smartphone. You point your phone at your webcam, which reads the image. The image cannot be stolen, because it stays on your screen for only a few seconds. About 250 websites, including some WordPress sites, have enabled the service.

3. IlliriIlliri is a New York City start-up that’s trying to replace the password with audio waves. The app emits a unique sound on your smartphone that can be used to unlock another device, log you in to a website, or process a payment. The sound lasts for 10 seconds and can be heard within 1 foot of your device. For now, it’s available only in a free business-card app called CardXChange for iOS and Android.

3 THINGS ONE SECURITY PRO WON’T DO ONLINE:

�

TECH

$188,242Average annual cost of a cyberattack on a small or medium-sizebusiness

—CHRIS HADNAGY, founder of security training firm Social-Engineer

SOURCES: SYMANTEC, FIREEYE, FCC

tech

Weak PassWords

With a $300 graphics card, a hacker can run 420 billion simple, low-ercase, eight-character password combina-tions a minute.

80% of cyberattacks involve weak passwords.

55% of people use one password for all logins.

In 2012, hackerscracked 6.4 million LinkedIn passwords and 1.5 million eHarmony passwords in two separate attacks.

• Use a unique password for each account.• Aim for at least 20 characters and preferably gibberish, not real words.• Insert special characters: @#$*&• Try a password manager such as Last-Pass or Dashlane.

The best way to build stronger defenses is to identify your company’s weak spots

F Irst tHIngs fIrst: There are way more than five

ways that cyberthieves can break into your busi-

ness. (They’re surely thinking up new methods as

you read this.) Often they use more than one ap-

proach in a single attack. Even so, small-business

hacks tend to fall into a few categories. We turned to security

professionals and “ethical” hackers—they help businesses

identify their vulnerabilities—to find out the most common

methods used and what you can do to protect yourself and

your brand. —JOhn BrandOn

socIaL engIneerIng

Think 21st-century con artist tactics, e.g., hackers pretend to be you to reset your passwords.

29% of all security breaches involve some form of social engineering.

Average loss:$25,000 to $100,000 per incident

In 2009, socialengineers posed as coca-cola’s CEO, persuading an exec to open an email with software that infiltrated the network.

• Rethink what you reveal on social media—it’s all fodder for social engineers. • Develop poli-cies for handling sensitive requests like password resets over the phone. • Have a security audit done.

MaLWare attacks

An infected website, USB drive, or ap-plication delivers software that can capture keystrokes, passwords, and data.

8% increase in malware attacks against small busi-nesses since 2012

Average loss froma targeted attack: $92,000

In February, hackersattacked about 40 companies, including apple, facebook, and twitter, by first infecting a mobile developer’s site.

• Run robust malware-detection software like Norton Toolbar. • Keep existing software updated.• Use an iPhone—Android phones are targeted more than any other mobile OS.

ransoMWare

Hackers hold your website hostage, often posting em-barrassing content like porn, until you pay a ransom.

$5 million is extorted each year.

The real cost is the data loss—paying the ransom doesn’t mean you get your files back.

Hackers lockedthe network at an Alabama aBc TV station, demanding a ransom to remove a red screen on every computer.

• As with mal-ware, don’t click on suspicious links or unknown websites.• Regularly back up your data.• Use software, such as Kaspersky Internet Security 2014, that specifi-cally checks for new exploits.

How

It works

rIsks/costs

Notable

scams

Your

best

DefeNse

Illustrations by MattHeW HoLLIster

PHIsHIng eMaILs

Bogus but ofcial-looking emails prompt you to enter your password or click links to infected websites.

125%

rise in social-media phishing attacks since 2012

Phishers stole $1 billion from small businesses in 2012.

Scads of smallbusinesses were targeted in 2012 with phishing emails designed to look like Better Business Bureau warnings.

• Keep existing software, operating systems, and browsers updated with the latest patches. • Don’t automati-cally click on links in emails to external sites—retype the URL in your browser.

SPecIAL cybeRSecURITy

RePORT

Sources: Symantec, Kaspersky, Verizon, CSO, LastPass, abcnews.com, Osterman Research, Neohapsis Security Services

84 - Inc. - dECEmBEr 2013/JAnUAry 2014

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TECH

t e c h s u p p o rt

The Essential Management Book You’re Not ReadingA coding handbook gains a cult status for its simple leadership ideas

ExtrEmE Programming ExPlainEd: Embrace Change, Second Edition,

lacks the alliterative punch of Good to Great or The Efective Execu-

tive. But the book—written for coders—has become a kind of man-

agement bible. Kent Beck, who created extreme programming, or

Xp, as a team-based methodology for producing high-quality

software, was surprised to find his ideas embraced by nontechnical

managers as well. “people would tell me that their salespeople

started to pair up,” says Beck, referring to the Xp practice of two

coders sharing a single computer. the book’s profile among non-

programmers began to surge after a 2005 New Yorker article fea-

tured a food company’s attempt to develop a healthful, delicious

cookie using Xp principles. Want to try it? here are three Xp ideas

any start-up can steal. —LeIGh BuchANAN

1 2 3—no-tech communication

XP prizes simple communica-tion, which in practice means “the least technology possible,” says Beck. At Menlo Innova-tions, a custom software firm in Ann Arbor, Michigan, every employee in every department communicates with paper, pushpins, yarn, and sticky dots, which they plaster across walls to chart the course of their work. “In companies, there is so much pain between the business side and the technical side or the front ofce and pro-duction, or management and the line staf,” says Richard Sheridan, Menlo’s co-founder and CEO. “Beck showed us how to break down barriers by creat-ing a common language with the simplest possible tools. Yes, there are technology-based ways to do all this. But this way works better for the humans.”

—informative eavesdropping

Beck writes that an observer should be able to walk into an XP workplace and suss out what’s going on in 15 seconds. Luxr, a San Francisco–based company that makes coaching products for start-ups, has an open ofce where almost everything happens in public. “Eavesdropping and overhear-ing are encouraged and how we keep informed about things,” says founder Janice Fraser. Employees make decisions among themselves and pin relevant notes to the wall. Everyone is expected to absorb what’s going on and to ask questions if he or she misses something. As a result, meetings are virtually nonexis-tent. “Anytime you have to pull 30 people into a room to get them up to speed, that is pro-foundly wasteful,” says Fraser.

—personal feedback on demand

Continuous improvement is impossible unless you know what works and what doesn’t. That requires feedback. XP stipulates regular feedback on code quality, but of course the practice also benefits process-es and employee performance. At Menlo Innovations, for ex-ample, any employee at any time can convene a lunch meeting at which colleagues ofer input on her strengths and weaknesses. At Luxr, Fraser solicits team feedback after every 60-day planning session. She has winnowed by 75 percent the time those sessions take and improved the accuracy of the company’s estimates. “By building in feedback,” she says, “we’ve been able to take this big hair-ball and reduce it to some-thing manageable.”

•

crack the code Smart management

tactics lurk in a manual for

programmers.

86 - iNC. - december 2013/January 2014

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In hIs fIrst week as chief technology ofcer of the e-commerce company Etsy, Chad Dickerson took

a promising engineering candidate to a café near the company’s ofce in the Dumbo section of

Brooklyn, New York, to conduct an interview. While the two were sitting at the bar, the new CTO

got a text message from Etsy’s founder, Rob Kalin, saying the site was down and nobody knew why.

Trying to remain calm and not give away the bush-league crisis, Dickerson excused himself and

headed to the restroom to respond. In a series of texts and calls, while his candidate sat nursing a

drink in the other room, he learned to his horror that the site didn’t even have a way to tell visitors it

was experiencing technical difculties. “You’d go to Etsy.com, and it was like dead air,” Dickerson

says. In the scramble that ensued, someone remembered, “Oh, yeah; we used to have this blog. Let’s

Now comes the hard Part photographs by reed young

by tom foster

What do you call a company that is growing rapidly, has hundreds of happy employees, and is worth hundreds of millions of dollars— but is still deeply troubled? You call it Etsy. The story of a distinctly 21st-century management challenge

88 - iNc. - december 2013/january 2014

tech

• It’s quIet In hereChad Dickerson has done

wonders within this building. Out in the Etsy community,

not everyone is sold.

get that going again, so we can at least

redirect people there.”

Etsy had launched in 2005 as a

marketplace of handmade goods, and by

the time Dickerson arrived, in 2008, the

craze for artisanal products was well

established in popular culture. Kalin’s

company was perfectly positioned at

the center of it all (and Kalin himself

would be on the cover of Inc. twice).

Individual crafters would crochet

beanies and whittle baby toys in their

garages, and Etsy would provide them

online storefronts and access to a vast

customer base. Kalin had recruited

Dickerson to join Etsy with a passion-

ate narrative about how the site was

trying to change the world through the

sheer power of craftsmanship. Dicker-

son had long harbored something of a

hippie streak, and he was restless in his

job running the advanced-products

team at Yahoo, so he took a chance and

moved with his wife across the country

from Silicon Valley to Brooklyn.

Now, just a few days into his job, he

began to wonder if he had made a

terrible mistake.

It wasn’t just the technology that

was a disaster. Kalin had started the

company, along with two friends, when

he was a 24-year-old recent graduate

armed with a classics major and a pas-

sion for furniture making but little to no

technology or business acumen. His

lack of experience didn’t limit the com-

pany at first, but as Etsy grew and took

on tens of millions of dollars in venture

capital financing, it began buckling

under the weight of its success. Cus-

tomer service was a joke, for instance;

sellers who had problems often waited a

week to get a response to an email.

Kalin’s co-founders left the company in

2008 and said the experience had been

like “an abusive relationship.”

That’s the company Dickerson took

responsibility for in 2011, when Etsy’s

board removed Kalin and named Dickerson CEO. Since then,

head count has more than doubled, to more than 450. Gross

merchandise sales have roughly tripled and are on track to

approach $1.5 billion this year. There are more than a million

shops on Etsy, 18 million items for sale, and 60 million monthly

unique visitors, up from 25 million when Dickerson took over.

Not only is Etsy moving fast, but under the hood, things are

running smoothly. The site is stable and fast, mobile trafc has

surged, and a custom payment platform has streamlined the

buying process and added a new rev-

enue stream. Transactions happen in

nine languages across more than 200

countries. Within the company, Dicker-

son has created a culture in which

employees have a high degree of cre-

ative freedom and, when things go

wrong, accountability without blame.

“We actually trust people,” Dickerson

says. He calls the approach a “radical

decentralization of authority.”

It’s a remarkable success story: A

leader takes over a troubled operation

intimately tied to its founder and earns

the trust and admiration of his staf

members by, in large part, trusting them.

Spend a few days hanging around Etsy

headquarters, lunching at picnic tables

and tearing up paper plates so they’ll

break down more easily in a compost

pile, and you come away with the im-

pression of a confident and enlightened

company. An IPO is widely anticipated.

And yet, spend just a few minutes

scanning the Etsy forums, where sellers

trade tips and discuss Etsy-related

issues, and another story quickly emerg-

es, one in which Etsy faces nothing

short of an existential crisis. On the

forums, a highly vocal faction of mem-

bers accuses Dickerson of selling out the

company’s mission. In this narrative,

Dickerson was brought on as a tool of

the investors, who want the company to

grow at all costs. Etsy is just a step away

from becoming eBay, these people say.

At issue is what belongs in the Etsy

marketplace. The individual artisans

who helped build the company from

scratch believe handmade goods

should be just that, nothing more. This

sounds reasonable enough—until a

successful seller finds herself unable to

meet demand and has no choice but to

leave Etsy if she wants to expand her

business. There are countless examples

of exactly that happening.

Etsy, which makes most of its money

by charging a 20-cent listing fee for each product and taking a

3.5 percent commission on each sale, clearly needs to keep its

best sellers around. At the same time, the company can’t aford

to alienate its passionate core. It adds up to a distinctly 21st-

century dilemma for Dickerson. It’s not enough for the CEO of

Etsy to build great shopping technology, post big sales num-

bers, and inspire his work force. He’s the leader of a commu-

nity as much as a company, and that means balancing wildly

divergent priorities. That his particular community includes a

••••

Walking the talkAs the replacement for a company founder, Chad Dickerson had to win the trust of his team. Here he talks about translating tactics into action.

Be TransparenT aBouT Change: “Nine months in as CTO, I’d made about 15 personnel changes on a team of 20. People were demanding answers: Why are you doing this? I said, ‘I’m doing it for the good of the company and the community. Six months from now, if the company is worse for it, I’m a jerk. But if six months from now the company is better for it, you’ll know I did it for the right reasons.’ I took a lot of risk, told people I was taking the risk, but told them it was going to get better.”

Find Time For The FuTure:

“By the summer of 2009, we were losing our minds; the site was blow-ing up every day. I started a small group of the best engineers, and I called it the Breakfast Club. I said, ‘I know you don’t like to get up early, but I want you to come here for break-fast three days a week, and we’re going to talk about the future only, nothing about what’s going on. We’re going to build the Etsy future.’ ”

do WhaTever’s neCessary: “One year, right before the kickof for holiday shopping, we discovered we needed a new server. We literally needed it the next day, so I pulled out my Amex and ordered the server. It was delivered to a FedEx center in Moonachie, New Jersey. I ran out of the ofce in Brooklyn and drove to Moonachie. I pulled the car up into the loading dock at our data center and carried it over to the guys who would install it.”

tech90 - inc. - december 2013/january 2014

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tech

• the writing is on the wall Etsy employees are surrounded by Etsy products and Etsy thinking.

million-plus artist types with, in many cases, anticommercial

tendencies, makes it all the harder. Only if he can earn the

community’s trust, as he earned the trust of his staf, can he

prove himself a visionary CEO.

t o understand the conflict that’s roiling Etsy’s

community and the challenge facing Dickerson,

consider the case of Tielor McBride. A bearded

28-year-old Brooklyn-based leather-goods maker,

McBride joined Etsy in 2010. He was designing

window displays and interiors for Ralph Lauren stores, but

after he got promoted into the advertising department and the

work left him creatively unfulfilled, he decided to turn his

hobby of making rugged leather and canvas bags into a profes-

sion. He made his first sale on Etsy in late 2010, under the

shop name TM1985, and business took of a few months later

when he was highlighted on Etsy’s homepage as a Featured

Seller; he had 200 orders in one day.

As sales picked up on Etsy, McBride’s connections in the

fashion world also started paying of, and he began selling bags

to independent boutiques in Brooklyn and beyond. His busi-

ness quickly exceeded his capacity to turn out bags in his

workshop, so he decided to expand his production operations,

as any budding entrepreneur would.

Today, 12 skilled workers make TM1985 bags and wallets

and other accessories in a small family-owned leather-goods

factory in New Jersey. McBride visits the factory two or three

times a week to make sure the foreman knows what’s coming

down the line, to keep an eye on quality, and occasionally to

help punch out leather or rivet pieces. He designs all his prod-

ucts himself and still makes prototypes in his own workshop,

but increasingly, he spends time on operational matters. He

will sell half a million dollars’ worth of bags this year, about

90 percent of that through his wholesale channels and just

a few percent through Etsy.

“I’ve benefited a lot from Etsy—I got my start there,”

McBride says. On one level, his success is a testament to the

cultural movement that made Etsy possible. His brand’s

entire reason for being is a rebuke to big business and a re-

turn to personal attention to detail. And yet, as he’s grown,

the amount that his hands touch any individual piece has

shrunk to nearly zero.

For Dickerson, supporting successful shops like TM1985 has

been a high priority. Historically, the company has done this by

amending the guidelines for what does and

doesn’t belong in the marketplace. What C O N T I N u E D O N pA g E 14 4 •

92 - inc. - dEcEmbEr 2013/january 2014

“Her success at the American Dream is a real triumph.” —THE NEW YORK POST

Born on the eve of China’s Cultural Revolution, Ping Fu was separated from her family at age eight. After a traumatic childhood, she found her way to the United States; her only resources were $80 and a few phrases of English. Yet Ping persevered and eventually started a pioneering 3D printing company,

Geomagic, that changed the world.

“She tells her story with intelligence, verve, and a candor that is often heartrending. . . . Her life story is

moving and inspiring.” —THE WALL STREET JOURNAL

“This is an utterly unique memoir, a fascinating look at one woman’s

journey from Mao’s China to the top of the American tech world.”

—TONY HSIEH, CEO OF ZAPPOS.COM,

AUTHOR OF DELIVERING HAPPINESS

“Not only has she triumphed over adversity most of us can scarcely imagine, but she has managed to

draw out of her experience a wealth of practical business lessons.”

—BO BURLINGHAM,

AUTHOR OF SMALL GIANTS

NOW IN PAPERBACK.For a free excerpt, visit www.bendnotbreak.com.

tech

••••

the Simple change that’s completely transformed how I Get things DoneNo app, checklist, or special process required

the United States. Techstars, which I co-founded,

has programs throughout the country and has

recently expanded overseas. My writing on start-

up communities (Startup Communities: Building an

Entrepreneurial Ecosystem in Your City) and with

organizations like the nonprofit UP Global takes

me around the world. So I felt compelled to travel.

Sometimes I enjoyed it, but as an introvert, mostly

I found it exhausting. I wondered, Could I really

be as efective at this work without traveling?

Part of the reason I was able to travel as much

as I did was that I set up my systems to be able to

work from anywhere. If I had to be in New York

for a few days, I was just as connected to Boulder

(my home base) as I would have been from any-

where else. My epiphany was that because I

could work from anywhere, why not make that

place Boulder?

There were only two things I had to do to make

this work. The first was decide to stop traveling

completely. I’m not good at doing things moder-

ately, so it had to be all or nothing.

The other key was really mastering videocon-

ferencing. It’s not a new technology—I’ve been

using it for many years—but the vast majority of

companies I work with have unique, inadequate

setups. Usually this means you wind up with the

least-common denominator: a crappy Skype call.

At the Foundry Group ofce in Boulder, we

installed Oblong’s Mezzanine system, which we

believe is the future technology for collaborative, distributed work. (Full disclosure: Foundry

is an investor.) We rolled out LifeSize videoconferencing in every Techstars ofce. We made

sure each conference room had high-quality audio and video for any Web-based videoconfer-

ence call. We figured out how to deal with multiparty calls and learned the magic trick of

separating audio and video streams. I tried every videoconferencing software program I could

find and practiced relentlessly, driving as many calls to videoconferencing as possible. And I

learned that when I am on a videoconference, I can’t have anything else going on, or else I pay

almost no attention. So I’ve learned to give the task at hand my sole focus.

It has been transformative for me. Since June, I feel as if I’ve been doing the best work of

my life. I’m as creative as I’ve ever been. I’m in the moment completely when I’m working.

I’m no longer shredded from the exhausting and dehumanizing process of trying to get

from one place to another by air travel, and I’m getting all my work done at the same time.

The real bonus? Walking my dog every morning is a special joy, and going to bed each night

with my wife is magnificent.

Ithink i’ve discovered the ultimate productivity trick (and

sanity saver). After 25 years of traveling 50 percent to 75

percent of the time for business, I’ve stopped. Completely.

I returned home from my last trip on May 17 and haven’t

taken a business trip since.

I initially cut out business travel for self-preservation

reasons. If you read my last Inc. column, you know that I

struggled through a depressive episode in the first half of

2013. Depression wasn’t new to me, but this time I slammed into a

wall. After months of traveling almost nonstop and binge sleeping

on the weekends to recover, I woke up one day in January and

realized I couldn’t—and didn’t want to—do it anymore.

So I stopped. As part of a series of tactical life changes, I elimi-

nated business travel the rest of the year to see how it worked out.

The result? It has been incredible—so incredible that I’ve decided

not to travel for business at all in 2014.

In case you’re wondering, my work is international. Foundry

Group, the VC firm where I’m a partner, has investments all around

S TA rT- U P S C h O O L

Brad Feld

Brad Feld is an entrepreneur and the managing director of VC firm Foundry Group in Boulder, Colorado. He co-authored with his wife, Amy Batchelor, Startup Life: Surviving and Thriving in a Relationship With an Entrepreneur.

94 - Inc. - deCemBer 2013/jAnuAry 2014

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PG.102

“My goal has been to expand opportunity to as many people as possible.”—PIERRE OMIDYAR, founder and chairman of eBay, shown near his home in Hawaii

Ideas.Breakthroughs.Disruption.

Data-driven product design PG.98 The wearable tech boom PG.106

DECEMBER 2013/JANUARY 2014 - INC. - 97PHOTOGRAPH BY MICHAEL LEWIS

tip Sheet

A/B TestsuSell, an online marketplace for used electronics, wanted to see whether it should expand into items such as used textbooks, clothing, and video games. Using Optimizely, an online A/B testing tool, uSell created two versions of its homepage, the regular one and one that included the new items. The test showed customer interest in new items—and a negligible drop in electronics sales, so uSell went ahead with the expansion.

•testing the Waters Three ways to put data in product development

Designing An innovATive product requires

impeccable taste, sharp instincts—and, of

course, good data.

Taking a page from the tech industry,

product makers and retailers are em-

ploying A/B testing, a technique fre-

quently used to refine websites.

Traditionally, that involves showing

users two slightly diferent versions of a

webpage to see which one drives more

sales. For example, Version A might

have a button that says Buy Now, while

Version B says Get More Information.

For online developers and marketers,

these sorts of experiments have become

the industry standard. A survey from

MarketingSherpa finds that, of the

online marketers who measured return

on their A/B testing, 81 percent reported

a positive return on investment.

Now, companies that make physical

stuf are using these tests to determine

what customers want and how best to get

them to buy. Crowdery, a Y Combinator–

backed start-up based in San Francisco, is

working on a widget that would let retail-

ers collect data on which potential prod-

ucts customers prefer. Crowdery’s

technology is still in beta testing, but the

process can be as explicit as asking con-

sumers to vote on a favorite shirt style in

hopes of scoring a presale discount if the

item ultimately gets made. Or Crowdery’s

code can lurk silently in the background,

walking users through a typical transac-

tion before informing the cus-

tomer that the item is not yet

available.

Founder Maran Nelson came

up with the idea after working

with a company that makes and

sells backpacks. At the time, the

founder of that business was

worried about investing time and

money into manufacturing de-

signs that might prove to be un-

popular with customers. “We

started seeing that there was this

pain point for retailers,” says

Nelson. “Ultimately, you have an

industry making huge financial

decisions in a very inelegant way.”

Unlike traditional focus group

participants, customers in these

sorts of A/B tests often believe

they are about to purchase a

product, which makes the feed-

back more valuable. For instance,

Julep, a Seattle-based cosmetics

start-up, tested demand for a new

nail-polish wand by taking out several

ads on Google. One ad presented the new

IDEO-designed wand as a tool for so-

phisticated color mixing. The other

promised results similar to those at a

professional nail salon. Overwhelmingly,

people clicked on the ad touting the

professional-salon quality, says founder

and CEO Jane Park. She expects to start

shipping the gadget in May. Because of

the results, she’s now considering ofer-

ing the wand’s color-mixing attachment

as a separate product.

In addition to ads, Julep regularly taps

customers for input, including polling its

Idea Lab, a group of 5,000 customers who

weigh in on early prototypes. These sorts

of tests help speed up the development

cycle and validate demand for an item

before it hits the market, says Park. Even

Want to develop a product that customers will love? Take a cue from Internet companies

Putting Data in

••••

•

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INNOVATE

HOW JULEP GAUGES CUSTOMER DEMANDCosmetics company Julep launches 50 products a year. Here’s how it makes sure customers will buy them.

IDEA LABAbout 5,000 customers have joined Julep’s Idea Lab. Once a week, the product development team sends them an email survey, asking what they want in, say, a mascara. “For instance, do they want lengthening, curling, thickness?” says founder Jane Park. “A lot of times, there are compromises we have to make.”

ONLINE ADVERTISEMENTSJulep frequently places text ads on Google for not-yet-available products to see which marketing message gets the most clicks.

SOCIAL-MEDIA SURVEYSEvery month, Julep asks its fans on Facebook and Instagram to vote on which products they prefer. The results aren’t always a reliable indicator of sales, says Park, but customers like being involved in decisions.

TESTING PARLORS In the Seattle area, Julep operates four nail parlors in which it tests products in development on paying customers. “You can get a lot of great data online, but sometimes it’s nice to get firsthand feedback,” says Park. After salon customers raved about a new skin-repair serum, Julep marketed the product online. It quickly became one of the brand’s top sellers.

DESIGNASK THE RIGHT QUESTIONDon’t waste your time testing small tweaks. The choices you’re asking cus-tomers to make in an A/B test should be diferent enough for your audience to notice. The bigger the diference, says Robert Moore, a statistician and the CEO of RJMetrics, the fewer people you need to poll to produce statistically mean-ingful results.

SIMULATE REAL LIFEThere’s a big diference between paying people to participate in a focus group and having them actually think they’re about to spend money on something. You’ll get a more accurate reflec-tion of customer demand when people believe they are being asked to open their wallets.

DON’T BECOME A SLAVE TO THE NUMBERSIn the same way that politi-cians shouldn’t govern by opinion polls alone, leaders should avoid making deci-sions on data alone, says Jane Park of Julep. Just because something does well in an A/B test does not guarantee it will be a hit in the marketplace.

�MANI METRICS

Julep CEO Jane Park at one of her testing nail

parlors in Seattle

small tweaks made with feedback from cus-

tomers—whether it’s a slightly diferent nail-

polish formula or an improved package

design—can make a big diference in sales. So

that input is invaluable, says Park, even if it

occasionally proves her wrong. “I have a dis-

agreement with my creative director almost

every day,” she says cheerfully. “But there’s a

simple way to settle any argument: We take it

to the people.” —RYAN UNDERWOOD

�SurveysThe men’s apparel company Bonobos is obsessed with helping customers find the right fit, so much so that first-time customers are encouraged to buy and return several pairs of pants to find the perfect match. By surveying customers making returns, the company discovered that one of its shirts was “poofing” in an unflattering way. Bonobos responded quickly and slimmed down the item, which boosted sales.

innovate

Why this topic?

After coming to Silicon Valley

from North Carolina a few

years ago, my wife made me

realize something strange.

You don’t see women here at

tech conferences. You don’t

see women on the boards of

tech companies. You don’t see

women CTOs. When it comes

to the workplace, women

aren’t there. It’s like the Twi-

light Zone. So I started re-

searching the causes of the

problem and speaking out

about it. And the more I

spoke, the more attacks I

endured from the Silicon

Valley elite. I said, Aha! This is

the root of the problem.

Why did you decide to

crowdsource the book?

I started a major research

project at Stanford [on wom-

en and technology], which

we are wrapping up right

now. But academic papers

have to be boring. I said, Let’s

do a book about this issue

where I can express all the

opinions I want. But it

doesn’t make sense for a guy

to tell women how to fix their

problems. I used my private

mailing list, hoping I would

get women to help me spread

the word. My goal was to get

30 to 50 women to tell their

stories. I ended up with more

than 500. I also crowdfunded

this, so it wouldn’t be just my

project. I wanted to raise

$40,000. I got $96,000.

Which stories, in particular,

impressed you?

The stories are all amazing.

You see how from the time

they are young, women are

not encouraged to take on

hard mathematical tasks or

to do world-changing inno-

vation. They are discouraged

in school and then in college

and then they join the work

force and find they are the

only female engineer in the

department or the whole

company. And they get treat-

ed diferently. Every woman

who contributed told us

about a hardship and how

she got over it.

In your experience, do men and

women innovate diferently?

Women are more sensible in

the businesses they start.

They are not going to ask for a

gazillion dollars from a ven-

ture capitalist for some hare-

brained scheme to do yet

another photo-sharing app.

They focus on the practical.

Which also means their com-

panies are initially smaller

than the guys’ companies.

Which is OK. They have

lower failure rates. I like those

companies better.

Much of innovation involves

teamwork. Does that help

women—because they are

naturally more collaborative—

or hurt them, because the

men in the group may be

more assertive?

Women benefit from being

more collaborative. They

generally talk a lot more

about their partners and the

support that they got and

mentorship. They value

teamwork more than the

guys do. But the guys can

hold them back.

What do you hope female

readers will take from

these stories?

Women face the same prob-

lems everywhere, but they

think they are alone. Reading

the stories of how other wom-

en surmounted their difcul-

ties is going to provide

inspiration. I have no doubt

about that.

What about male readers?

I think the majority of readers

will be women.

7 q u E S T I O N S f O R

where are the women innovators? Male academics don’t inspire female innovators. Female innovators inspire female innovators. So when Vivek Wadhwa sought to highlight women’s struggles and achievements in the innovation economy, he teamed with journalist Farai Chideya to solicit stories from women around the world. Wadhwa, whose CV includes Stanford, Duke, and Singularity University, took a break from editing the book to discuss the project with editor-at-large Leigh Buchanan.

QPhotograph by Ian allen

Scan THe page To See WaDHWa DIScuSS HIS reSearcH. (See page 12 for details.)


BUILT TO SUCCEED: WHEN PIGS FLY

Create your own Sprinter your way. Just go to the “Build & eQuip” tool at www.mbsprinterusa.com. With a multitude of confi gurations, there’s a Mercedes-Benz

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BUILD YOUR OWN

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Brand Building at the Farmers’ Market

From its unusual name to its unique product to its creative marketing, When Pigs Fly is a brand that’s all about upscale and slightly offbeat. Brothers and co-owners Andrew and Ron Siegel put a lot of focus on building and maintaining that brand, and their fl eet of Mercedes-Benz Sprinters fi gures prominently in their efforts. “We make high-quality artisan bread that’s unlike anything else in the marketplace,” Andrew says, “and we deliver our bread in a Mercedes-Benz. We think that’s kind of cool, and it goes hand-in-hand with our branding.”

Part of When Pigs Fly’s marketing strategy is to cultivate

the type of upscale consumer attracted to the natural and healthy foods movement. Farmers’ markets are a great way to connect with them, so the Siegel brothers

sell special lines of breads to farmers’ markets that they don’t sell to supermarkets. “Farmers’ markets are a great way to meet people and introduce them to our brand,” Ron says. “It promotes the farm-to-table movement along with our own brand, it gives us an opportunity to interact

with people, and it’s fun.” When Pigs Fly also sponsors the York Gateway Farmers’ Market, held in the company’s hometown of York, Maine, from June through October.

Mercedes-Benz Sprinter: My Sprinter, My Way

The company has box trucks and other vehicles in its fl eet, but its six Sprinters are the vehicles of choice for critical deliveries and events—and especially to promote the When Pigs Fly brand at farmers’ markets. Its newest Sprinter is a 2012 Model 2500 Cargo Van with 144-inch wheelbase, and they bought it because of the reliability and low maintenance costs they have experienced with their other Sprinters, one of which has gone well over 220,000 miles with no major repairs required.

“The Sprinter easily accommodates all of the gear we need for farmers’ markets—multiple racks of bread, a

big tent to keep everything out of the sun, and all our other supplies,” Andrew says. The Sprinter’s BlueTEC diesel engine provides fuel economy that is 50 percent better than the company’s other vehicles, and the van

is highly maneuverable and dependable in all kinds of weather conditions, he says. “There’s a sense of pride that comes with driving a Mercedes-Benz Sprinter. It

turns heads when you drive down the street, and that’s great for our brand.”

•

blue-sky thinking

Pierre Omidyar, shown near one of his homes in Hawaii, is plotting his next move: media mogul.


—

On Labor Day weekend in 1995, a 28-year-old Pierre Omidyar sat down at his computer to write the code for what would become the business known as eBay. Today, the San Jose, California–based company has 31,500 employees and $14 billion in revenue and has made Omidyar, now eBay’s chairman, one of the richest people in the world. He has lately focused his energies on philanthropy. Through the Omidyar Group, he has donated and invested more than $1 billion in both non- and for-profit organizations focused on economic, social, and political progress. But Omidyar is not interested in random acts of charity. Instead, he is inspired by something he discovered about leadership in the early days of eBay: If you empower others to do good, they will.

hen i first started working as a

software engineer, I had really high

standards, and I often felt other

people weren’t meeting them. But

over time, I realized that even if

others on the team weren’t doing

everything as perfectly as I wanted

them to, if they got 80 percent of

the way there, then that’s awesome. Because there are

five of them, and five times 80 percent is much larger

than 100 percent of me. That led me into this idea of

leveraging other people. Let them bring their own

skills and talents to the table. They’ll solve problems

in a diferent way than you would yourself.

in 1991, i co-founded my first start-up, Ink Development,

which made software for an early tablet computer.

The company, which was later renamed eShop, was

acquired by Microsoft in 1996. It wasn’t a huge acquisi-

tion, but it definitely gave me a larger appetite for risk.

around the summer of 1995, I started thinking about

the idea of building an online marketplace. I had

always been interested in markets—specifically, the

theory that in financial markets, goods will trade at a

fair value only when everyone has access to the same

information. That’s a pretty cool theory. But the prac-

tice of it hit me when I had a little bit of extra money,

as told to

issie lapowsky

photograph by michael lewis

•

“Inspiration ismuch more effective than delegation.” Pierre omidyar, eBay

innovate

••••

How

I Did It

W

innovate

and I wanted to invest in an IPO for a gam-

ing company. The company went public at

$15 a share. My broker calls me and says,

“Well, you got the stock at $24.” I’m like,

“How come?” He said, “Well, $15 was the

ideal price, not the price that people like

you can get.” I was like, “What do you

mean, ‘people like me?’ ” The takeaway was

that the theory of efcient markets is really

great—in theory. In practice, regular people

are locked out.

I started thInkIng, This Internet thing—

maybe I can use it to help bring the power

of financial markets to regular people. Of

course, regular people aren’t selling stocks

in their households. They’re selling stuf.

I thought, There’s a real opportunity to

create a marketplace that could bring the

power of efcient markets to regular people.

So that’s what I did that Labor Day in 1995.

In February oF 1996, about six months after I

created eBay, I started receiving a spate of

complaints. Everyone was complaining

about each other. I felt very much like I was

a parent who had to adjudicate the brothers

beating each other up. It was like, “He start-

ed it!” “No, he started it.” I realized this was

going to be a big problem if it kept going this

way. So I wrote the community a letter and

posted it on the site. I said, “I’m giving you a

tool, a feedback forum. If you have an hon-

estly bad experience with someone, post it

publicly. And if you can take the time to give

positive praise when someone does some-

thing good, please do that.”

It was a real experIment, and I didn’t know what to expect.

But in the days and weeks that followed, I was enormously

gratified to see that the vast majority of the comments coming

in highlighted the good things people were doing that went

above and beyond the transaction itself.

that experIence led me to believe that this is what we had to do

internally at eBay, too. Instead of telling my executives what to

do, I should try to inspire them with a vision of where we’re

going and let them translate that in their own terms, based on

their own experience, their own expertise. Inspiration is much

more efective than delegation.

by august oF that year, I started talking to my friend Jef Skoll

and persuaded him to leave a wonderful job at Knight Ridder

and help me build eBay. But I was never the founder-CEO type

like Bill Gates or Steve Jobs. Even in those early days, my feeling

was Jef and I would build the company to a certain point, and

if we were successful, we’d bring in professional management.

My skills were innovation and creation, but

in order for all that to thrive, I knew we

would need real managers, people who

knew how to build big organizations.

It was my Idea to brIng in Meg Whitman

as CEO in 1998, and I have to say, I really

believe we set an example of how that

transition should be done. What often

happens is a founder grudgingly brings on

a more experienced CEO and sticks around

and still tries to run the company. That

wasn’t the case with us. I stayed at eBay for

a year to help with the transition, but from

the very first day I said, “I’m just going to

advise Meg behind the scenes. She’s run-

ning the show.”

the year aFter I leFt eBay, for example,

the site was down for about 22 hours. It

was a disaster. What Meg decided, and it

was really a key moment in her leader-

ship, was that we were going to call every

one of our top 10,000 sellers and apolo-

gize. She wanted to make sure the com-

pany internalized that we’re here to serve

real human beings, and when we make

mistakes, there are consequences.

we went publIc In 1998. I had not in my

wildest imagination expected the IPO to

be so successful. We priced the shares at

$18 and closed on the first day at about

$47. It was more money than I could ever

use. I really felt this immediate sense of

responsibility. All I could think was, I’m

now the steward of a fortune. How do I

make sure this gets put to good use?

as a new phIlanthropIst, the literature tells you you have to

work through the nonprofit sector. We did that through 2002

and 2003, until I started feeling frustrated. I couldn’t tell you

exactly what it was, but I felt like we weren’t meeting our

potential. That led to the formation of Omidyar Network,

which was built on the insight that in order to have large-scale

positive change in the world, you can’t limit yourself to work-

ing in the nonprofit sector.

my entIre approach to philanthropy is rooted in what I wit-

nessed at eBay, the way millions of people used it to create their

own businesses. As a philanthropist, I try to help people take

ownership. Everything I’ve done is rooted in the notion that

every human being is born equally capable. What people lack is

equal opportunity. My goal has been to expand opportunity to

as many people as possible so they can reach their potential.

That’s the approach we took with eBay. It’s kind of hard to

make bad decisions when that’s in the top of your mind.

••••

omidyar’s next act: media mogul

—

Pierre Omidyar describes his life’s mission as helping people realize their potential. Next up: a digital-media venture, launched with journalist Glenn Greenwald, who first broke the news about the NSA surveillance scandal in The Guardian last summer. The as-yet-unnamed site will special-ize in investiga-tive journalism designed to “convert main-stream readers into engaged citizens,” Omidyar wrote in a blog post in October. The ex-pected price tag for the venture: as much as $250 million.


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chn

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mp

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m a

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$1.

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20

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o a

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uch

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to

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stu

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m J

un

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ese

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h. H

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’s a

lo

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at

the

pro

du

cts

alr

ea

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on

the

ma

rke

t a

s w

ell

as

a f

ew

of

the

ite

ms

lau

nch

ing

in

th

e n

ext

ye

ar.

If y

ou

wan

t in

, mo

ve

fast

: Th

ere’

s h

ard

ly a

ny

ro

om

lef

t o

n t

he

hu

man

bo

dy

th

at i

sn’t

ab

ou

t to

be

cov

ered

by

a d

evic

e. —

RY

AN

UN

DE

RW

OO

D

Co

mp

an

ies

race

to

cre

ate

we

ara

ble

de

vice

s fo

r th

e w

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le b

od

y

RE

AD

Y T

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IN

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to

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y 20

14).

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re

cord

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d

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ches

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20

14).

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mo

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t in

to a

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klac

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t ($

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).

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UM

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TS

’S JE

T

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ke a

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e G

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fo

r at

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tes.

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as a

cam

era

and

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acks

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lays

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ser’

s sp

eed

($5

99,

sp

rin

g 20

14).

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snap

s tw

o g

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ng

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s ta

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ries

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it w

icks

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ay s

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t ($

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).

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OT

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INS

IGH

Ttr

acks

bra

inw

aves

an

d le

ts u

sers

co

ntr

ol

gam

es t

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ath

ical

ly ($

229,

sp

rin

g 20

14).

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reco

rds

vid

eo a

nd

ca

n b

e m

ou

nte

d o

n

a h

elm

et o

r a u

ser’

s ch

est.

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als

o

wat

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f ($

40

0).

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ME

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IRE

LE

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K A

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ND

tr

acks

ph

ysic

al a

ctiv

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es

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rned

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d s

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y ($

119

).

JAW

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’S U

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trac

ks s

leep

, act

ivit

y, a

nd

cal

ori

es.

It s

end

s an

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r to

o m

uch

ti

me

spen

t o

n t

he

cou

ch ($

130

).

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BIT

’S F

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mea

sure

s p

hys

ical

ac

tivi

ty a

nd

sle

ep

qu

alit

y. It

als

o

fun

ctio

ns

as a

sm

artw

atch

, d

eliv

erin

g p

ho

ne

no

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s($

130

).

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trac

ks e

xerc

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inte

nsi

ty a

gain

st a

p

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($14

9).

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CH

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E

trac

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xerc

ise,

cal

ori

es, a

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ity.

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lus,

it g

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y vi

bra

tes

to w

ake

use

rs u

p ($

150

).

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stra

tio

n b

yP

ET

ER

CR

OW

TH

ER

�IN

TE

RA

XO

N’S

MU

SE

mea

sure

s b

rain

wav

es

and

lets

use

rs c

on

tro

l ga

mes

wit

h t

hei

r m

ind

s ($

269

).


innovate

clo

the

sn

ow

th

at t

he

tech

no

log

y ex

ists

to

wea

ve s

enso

rs in

to w

ash

able

g

arm

ents

, exp

ect

to s

ee m

ore

clo

thin

g li

ke t

he

fort

hco

min

g s

mar

t sh

irts

fro

m s

tart

-up

s h

exo

skin

an

d o

msi

gn

al. t

he

up

sid

e: p

utt

ing

se

nso

rs in

to c

loth

ing

pro

vid

es m

ore

acc

ura

te a

nd

det

aile

d

info

rmat

ion

ab

ou

t vi

tal s

ign

s an

d p

hys

ical

act

ivit

y th

an w

rist

d

evic

es d

o. t

he

do

wn

sid

e: t

he

clo

thes

do

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see

m p

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cula

rly

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rdab

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r pra

ctic

al. (

hex

osk

in’s

sh

irt,

ou

t in

ear

ly 2

014

, is

pri

ced

at

$39

9.)

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co

nsu

mer

s w

ant

to w

ear t

he

sam

e sh

irt

ever

y d

ay?

lif

e-l

og

gin

g d

ev

ice

sn

ow

th

at p

eop

le s

har

e ev

ery

mu

nd

ane

mo

men

t o

f th

eir

lives

on

Fac

ebo

ok

and

tw

itte

r, th

e n

atu

ral n

ext

step

is a

24

-ho

ur v

ideo

log

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era

mak

er g

op

ro h

as a

big

lead

in

this

sp

ace,

par

ticu

larl

y am

on

g s

po

rts

enth

usi

asts

. th

e co

mp

any

alre

ady

sells

no

rth

of

$5

00

mill

ion

a y

ear w

ort

h

of

cam

eras

, wh

ich

can

be

mo

un

ted

to

on

e’s

bo

dy.

bu

t th

ere

may

be

an o

pp

ort

un

ity

for l

ess-

con

spic

uo

us

reco

rdin

g

dev

ices

th

at c

an b

e w

orn

all

day

, eve

ry d

ay. s

tart

-up

s su

ch

as n

arra

tive

an

d K

aptu

re h

ave

alre

ady

man

aged

to

rais

e h

un

dre

ds

of

tho

usa

nd

s o

f d

olla

rs v

ia c

row

dfu

nd

ing

sit

es.

el

ec

Tr

ic f

ox

y’s

pu

ls

e r

ing

m

on

ito

rs h

eart

rate

du

rin

g

wo

rko

uts

(sti

ll in

pro

toty

pe)

.

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tch

es

Wh

en it

rais

ed $

10 m

illio

n o

n K

icks

tart

er,

peb

ble

pro

ved

th

ere

was

hu

ge

cust

om

er

dem

and

fo

r a h

igh

-tec

h w

atch

th

at

no

tifi

es u

sers

of

inco

min

g e

mai

ls o

r p

ho

ne

calls

. bu

t b

efo

re lo

ng

, th

e ca

teg

ory

will

be

cro

wd

ed w

ith

big

co

mp

etit

ors

. sam

sun

g is

hea

vily

p

rom

oti

ng

its

gal

axy

gea

r, an

d a

pp

le,

so

ny,

an

d g

oo

gle

are

all

exp

ecte

d t

o

lau

nch

th

eir o

wn

wat

ches

so

on

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Bra

inw

av

e r

ea

de

rsJu

dg

ing

by

thes

e n

ew h

ead

wea

r dev

ices

th

at

resp

on

d t

o h

um

an b

rain

wav

es, i

t’s

har

d t

o t

ell

wh

ose

dys

top

ian

vis

ion

of

the

futu

re w

on

ou

t:

geo

rge

orw

ell’s

1984

or W

oo

dy

alle

n’s

Sleeper.

Fo

rtu

nat

ely,

th

ese

dev

ices

fro

m s

tart

-up

s su

ch a

s In

tera

Xo

n a

nd

em

oti

v ar

en’t

mea

nt

to p

olic

e a

per

son

’s in

ner

mo

st t

ho

ug

hts

bu

t ra

ther

to

imp

rove

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nce

ntr

atio

n a

nd

giv

e a

use

r han

ds-

free

co

ntr

ol o

f co

nn

ecte

d d

evic

es. I

f th

ese

pro

du

cts

man

age

to

live

up

to

th

eir c

laim

s, t

hey

co

uld

att

ract

a b

ig

follo

win

g. I

nte

raX

on

has

alr

ead

y ra

ised

mo

re t

han

$

6 m

illio

n in

VC

fu

nd

ing

.

gla

sse

sIn

wh

at s

eem

s lik

e th

e lo

ng

est

pro

du

ct ro

llou

t in

his

tory

—th

anks

in

par

t to

10

,00

0 in

flu

enti

al b

eta

test

ers—

go

og

le g

lass

is s

et t

o

hit

th

e m

arke

t in

20

14. g

oo

gle

’s d

elay

has

op

ened

th

e d

oo

r fo

r o

ther

co

mp

anie

s d

esig

nin

g t

hei

r ow

n s

pec

s w

ith

bu

ilt-i

n

dis

pla

ys. m

icro

soft

is re

po

rted

ly t

esti

ng

a ri

val e

yew

ear d

evic

e,

and

sta

rt-u

ps

such

as

Ver

gen

ce L

abs

and

rec

on

Inst

rum

ents

are

la

un

chin

g t

hei

r ow

n n

ich

e m

od

els.

pe

BB

le

’s s

ma

rT

Wa

Tc

h

dis

pla

ys t

exts

, em

ails

, an

d c

alls

($15

0).

ex

erc

ise

tra

cke

rss

o f

ar, m

ost

wea

rab

le d

evic

es a

re a

ctiv

ity

trac

kers

, an

d t

he

com

pet

itio

n f

or

cust

om

ers’

wri

st s

pac

e is

esp

ecia

lly

fier

ce. t

her

e ar

e so

man

y co

mp

anie

s in

th

is s

pac

e th

at it

is s

tart

ing

to

see

co

nso

lidat

ion

: In

ap

ril,

Jaw

bo

ne

bo

ug

ht

bo

dym

edia

fo

r an

est

imat

ed $

100

m

illio

n. o

ne

of

the

mo

st f

orm

idab

le

com

pet

ito

rs in

th

is c

ateg

ory

is F

itb

it. I

ts

new

Fo

rce

trac

ker,

wh

ich

do

ub

les

as a

sm

artw

atch

, co

uld

ste

al m

arke

t sh

are

fro

m t

he

likes

of

peb

ble

an

d s

amsu

ng

.

Th

e n

iKe

+ ip

od

se

ns

or

•

fits

into

Nik

e+ s

nea

kers

to

tr

ack

a ru

nn

er’s

pac

e ($

19).

WiT

hin

gs

’s p

ul

se

•

clip

s to

a la

pel

to

tra

ck a

u

ser’

s h

eart

rate

an

d

ph

ysic

al a

ctiv

ity

($10

0).

he

ap

sy

lo

n’s

se

ns

or

ia

sm

ar

T s

oc

Ks

u

se t

exti

le s

enso

rs a

nd

a

Blu

eto

oth

an

klet

to

tra

ck

spee

d a

nd

cad

ence

($

149,

sp

rin

g 20

14).

om

sig

na

l’s

sm

ar

T s

hir

T

con

tain

s te

xtile

-bas

ed s

enso

rs t

hat

tr

ack

hea

rt ra

te, b

reat

hin

g, a

nd

ac

tivi

ty (n

o p

rice

or r

elea

se d

ate

yet)

.

lu

mo

Ba

cK

’s p

os

Tu

re

Be

lT

vib

rate

s w

hen

use

rs s

tart

to

sl

ou

ch. I

t al

so t

rack

s ac

tivi

ty

and

sle

ep ($

150

).

sa

ms

un

g’s

ga

la

xy

ge

ar

n

oti

fies

use

rs o

f in

com

ing

calls

an

d e

mai

ls. A

lso

incl

ud

es a

sp

eake

rph

on

e, v

oic

e re

cogn

itio

n,

and

a b

uilt

-in

cam

era

($29

9).

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pT

ur

e’s

Kl

ip

reco

rds

aud

io c

on

stan

tly.

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rs p

ress

a

bu

tto

n t

o s

ave

the

pre

vio

us

60

sec

on

ds

of

con

vers

atio

n ($

75, s

pri

ng

2014

).

ru

nn

er

: Ja

Co

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te

ph

en

s/g

et

ty;

pr

od

uC

ts

: Co

ur

te

sy

Co

mp

an

y (

23)

•

above and

beyond

Veronica Rose, founder of Aurora

Electric, specializes in big, complex projects,

such as the construction of One

World Trade Center in Lower Manhattan.

Most of her workers are union electricians,

whose contracts mandate decent

benefits. But she provides gold-plated

perks. Why? “It creates a much better

work environment,” Rose says.

108 - INc. - DECEMBER 2013/JAnuARy 2014

INNOVATE

employees don’t pay a dime for health

insurance. A registered dietitian is on

hand to help workers create nutrition

plans. If employees require time of to

handle a family emergency, they get it,

no questions asked. They get bonuses

and profit sharing.

What kind of employer are we talk-

ing about? Some perk-laden tech start-

up embroiled in a perpetual war for

talent? Nope.

In fact, the company in question is

Diamond Pet Foods, a manufacturer of,

yes, pet food based in Meta, Missouri.

The company, founded in 1970, has 535

employees at facilities in three states.

Most of them are the kinds of factory

workers and manual laborers who

would be happy to have the most mod-

est of benefits packages, let alone the

lavish one supplied by Diamond.

Why go to such lengths when many

of its peers do precisely the opposite?

The answer: a substantial ROB, or re-

turn on benefits.

Wages at Diamond are no higher

than those at similar manufacturers. But

voluntary turnover is at a mere 3 per-

cent, compared with an industry average

of almost 11 percent. And people don’t

just stick around—they produce. “When

employees don’t have to worry about

health care or financial issues, they can

focus on success and growing our busi-

You Can Buy Employee Happiness. (But Should You?) Companies that ofer lavish benefits believe there is a return on their investment. The challenge: figuring out how to calculate it —

By scott leIbs photograph By alessandra petlIn

INNOVATE

ness,” says Andrew Brondel, the com-

pany’s director of administration. “They

have the mental clarity to see areas for

improvement and to take the initiative

to ofer and implement new ideas.”

In an age of outsourcing, declining

real wages, and ever-rising contributions

for health care (assuming insurance is

ofered at all), you don’t hear about this

kind of thing very often. But some com-

panies still go to extraordinary lengths

and expense to attract, develop, and

retain their employees. They treat ben-

efits less as a cost of doing business than

as an investment in their most important

resource. More entrepreneurs would be

wise to adopt such practices, says Kevin

Lynch, leadership executive-in-residence

at St. Benedictine University’s Center for

Values-Driven Leadership. “When I was

a CFO, I tended to regard benefits as a

burden,” Lynch says. “I’m now confident

that they do pay of—in the form of at-

tracting good employees, retaining them,

and making them more productive.

When you have happy, satisfied employ-

ees, that creates value that does find its

way into traditionally calculated ROI.”

That’s the thinking at Diamond.

Benefits at the company account for

about 35 percent of total compensation

costs, compared with about 30 percent

for a typical private employer, according

to the Bureau of Labor Statistics. Many

managers might see the greater expense

as a threat to margins. But not Brondel.

Robust benefits, he says, boost morale

and well-being, and that translates into

higher productivity. Diamond’s workers,

Brondel says, are willing to dig in when

demand spikes, which gives Diamond a

competitive advantage. Pet food is a

cyclical business: Demand rises in win-

ter as animals consume more food.

So everyone needs to step it up as tem-

peratures drop. “I’ve literally heard

people say, ‘I know the company has my

back,’ ” Brondel says, “ ‘so I’m giving

them everything I’ve got.’ ”

That logic is taken to another level at

Aurora Electric, a Jamaica, New York–

based electrical contractor that works on

large, complicated projects, including the

World Trade Center in Lower Manhat-

tan. At its core, the company has just four

employees, but that number rises to as

many as 50 depending on how many

projects the company has under way.

And all of them get lavish benefits—even

though many are union electricians who

join the work force on a project basis.

(Under union contracts, employers pro-

vide coverage; they are required to meet

certain minimum requirements but free

to go above and beyond.) Aurora’s perks

include complete funding of what found-

er Veronica Rose describes as a “Cadillac

health plan that covers everything, in-

cluding wellness programs and even a

30-day drug or alcohol rehab program.”

The company also ofers a tuition-

reimbursement program that employees

can use to build skills in any field, not just

construction or electronics.

Rose’s union electricians are not

payrolled employees. So why invest in

the kinds of benefits that most compa-

nies justify in large part for the impact

such perks have on retention? “It creates

a much better work environment,” Rose

says. “Everyone is much more engaged.

Instead of running to me with every

little thing, they help each other.”

Rose admits that she views treating

workers well as an end in itself. But the

practice also has a serious business

rationale. “We only do very specific

kinds of electrical work,” she says. “We

need electricians who have the highest

security clearances, who have years of

training in fiber optics and related tech-

••••

HOw TO gET A bETTErrETurN ON bENEfITs—

• Tailor your offerings To

your specific work force.

Survey your workers about what they want, whether it’s flex-time, financial planning, or training and development. “Smaller companies have a big advantage here, because the decision makers are closer to the employees,”says Kevin Lynch, of St. Benedictine Uni-versity. “Plus, it’s easier for small companies to be flexible in accommodating diferent preferences.” When Integrated Project Management Company of Burr Ridge, Illinois, surveyed its employees, for example, it found they were indiferent to a long-term-care policy it had been planning to ofer. But they were very keen on training pro-grams, so the company focused its eforts in that direction.

• communicaTe The value

of whaT you offer. Diamond Pet Foods makes sure that every new employee un-derstands the inner workings of its self-insured health plan. As a result, says Andrew Brondel, the director of administration, employees understand that every insurance claim is being paid for with, in essence, the same pool of “Diamond dollars” that also funds the company’s

401(k) matching contribution. That makes employees unusu-ally disciplined about the medi-cal services they use. Along those lines, entrepreneur Paul Spiegelman advises that you create an internal team that understands your benefits and educates employees about them continuously; an internal PR campaign ensures that employees don’t lose sight of what they have.

• once you offer a benefiT,

don’T rescind iT.

If employees see benefits taken away at the first sign of trouble, they will assume that the com-pany simply ofers them as gravy during good times but has no real commitment to them.

• geT The righT help.

“Employee benefits are complex and getting more so,” Lynch says. “There are many legal and financial issues that require technical competence from a dedicated expert. The key is to find one who understands your business and can apply his or her technical competence in a way that provides value to your company.” If the person is not willing to take the time to truly get to know your organization, move on. —S.L.

110 - INc. - December 2013/January 2014

I believe GoToMeeting is really that keydriver for successful collaborations

Mindjet CMO

Jascha Kaykas-Wolff

.

Try it free for 30 daysgotomeeting.com

INNOVATE

nologies, and have pursued credentials

on their own time. I need the cream of

the crop, and they are hard to find. So I

create an environment in which every-

one wants to come and work for me.”

Rose’s instincts—that a well-designed

benefits package can yield real, bottom-

line results—are echoed by a number of

business leaders. “Not enough company

leaders try to quantify the results of

providing both a good company culture

and a good benefits package,” says Paul

Spiegelman, founder of BerylHealth and

The Beryl Institute and chief culture

ofcer of Stericycle, a medical services

company with 13,000 employees.

“Historically, companies have relied on

their financials as leading indicators.

But employee satisfaction, customer

satisfaction, attrition rates, and similar

metrics should serve as your leading

indicators, with financials becoming

your lagging indicators.”

When managers begin correlating one

metric to another, Spiegelman says, they

“begin to see the relationship between

investing in your employees and financial

results.” Spiegelman’s own experience

provides a case in point. A few years ago,

his companies began ofering a new

health benefit—the opportunity to see a

registered nurse within two hours, either

at work or at home. There was an almost

immediate payback: In just four months

at Beryl, for example, 71 insurance claims

were avoided and 246 work hours were

saved (equating to an estimated $18,000

in wages) as employees got immediate

care rather than having to visit a doctor.

St. Benedictine University’s Kevin

Lynch believes smart leaders are evolving

toward a broader view of what consti-

tutes compensation. To some degree, he

says, they may have no choice. Younger

workers increasingly regard work as

being about something more than just a

paycheck. “They expect to be treated

with more respect,” he says, “and that

includes accommodating their external

commitments, career goals, and other

factors. All benefits programs are expen-

sive propositions, but you can maximize

the impact by ofering the benefits that

matter most to your workers.”—

ILAN MOCHARI and ADAM VACCARO

contributed reporting to this story.

••••

Leaders of the pack

how the winners were chosen: more than 240 applicants were judged on a weighted scale that encompassed health care (35 percent), retirement (25 percent), insurance (15 percent), and company culture (25 percent). To qualify, applicants were required to have been in business for at least five years, employ from five to 1,000 people, and be based in the u.S. Winners were chosen by a panel of judges consisting of Paul Spiegelman, found-er of berylHealth and chief culture ofcer of Stericycle; Dallas Salisbury, president and ceO of the employee benefits research Institute; Lisa Kottler, senior vice president of nFP retirement Services; Kevin Lynch, executive-in-residence at St. benedictine univer-sity; and George Gendron, the former editor in chief of Inc.

The organizations profiled on these pages are among this year’s winners of The Principal 10 best companies for employee Financial Security contest. The competition, sponsored by Principal Financial Group and The build network, honors companies for their commitment to employee benefits, creating cultures that support work-life balance, and ofering career advancement through training programs. below, the 10 winners and what makes them stand out from the pack. —S.L.

company industry employees notable

The American Institute Nonprofit 660 A health and wellness program of Certified Public that includes biometric screeningAccountants and cooking classesDurham, NC

Aurora Electric Contracting varies Pays tuition for nearlyJamaica, NY any degree program

Capital District Health insurer 700 Offers monthly one-on-onePhysicians’ Health Plan financial-planning workshopsAlbany, NY

CORE Engineering Construction 28 Since 2004, only two employeesand Construction have left voluntarily.Winter Park, FL

Diamond Pet Foods Manufacturing 523 Offers free annual wellness exams; Meta, MO a registered dietitian helps employees create nutrition plans Groupware Technology IT services 80 Offers free gym memberships to Campbell, CA employees and family members Integrated Project Risk mitigation 115 Provides mentoring and a $10,000Management tuition-reimbursement programBurr Ridge, IL

Medicus Solutions IT services 10 Offers resources to help workersAlpharetta, GA with parenting, elder care, and work- life balance issues

Nyhart Consulting 100 Uses its actuarial expertise to helpIndianapolis employees set and achieve retirement-savings targets

The Starr Conspiracy Marketing 32 Offers unlimited vacation timeFort Worth

—

—

112 - INc. - December 2013/January 2014

innovate

L ike many an entrepreneur,

Daniel Lubetzky saw a

problem and decided to

fix it. Most snack and

energy bars, he thought,

looked (and tasted) like

heavily processed slabs

of unrecognizable ingre-

dients. It didn’t have to be that way.

Instead of letting assumptions steer

him into making compromises (“or”

decisions), he set out to accomplish a

number of “and” goals with his products:

healthful, tasty, convenient, profitable, and

purpose driven. Following Lubetzky’s

“and” philosophy, sales of Kind’s fruit and

nut bars have gone from $1 million in 2004

to more than $125 million in 2012. He says

the bars’ tag line (“Do the kind thing”)

has inspired customers to log more than

340,000 acts of unexpected “kindness”

on the company’s website. Lubetzky calls

it a product line without compromises.

Well, good for him, you say. It doesn’t

work so conveniently for entrepreneurs

in the real world, right? Well, sticking to

his principles wasn’t so easy for Lubetz-

ky in the beginning, either.

Or rather than and is an easy trap to fall

into because of the way the brain relies on

mental shortcuts to make quick deci-

sions—what psychologists call heuristics.

Sometimes the assumptions built into

those shortcuts are valid, and sometimes

they’re not. (When they’re not, they can

create opportunities for entrepreneurs.)

When Lubetzky decided to create

low-sugar bars, he assumed he would

have to make compromises—either use

sugar alcohols, which can cause diges-

tive discomfort, or artificial sweeteners.

“Our goal had always been to make

all-natural foods with ingredients you can

see and pronounce,” Lubetzky says, “and

I realized months into the project that we

simply weren’t doing the right thing.”

So Kind experimented with spices

such as ginger, cinnamon, and chili, and

finally found its low-sugar flavor combi-

nations. “It took us an extra year,” he

says, “but it was definitely worth it: Dark

Chocolate Nuts & Sea Salt bar is the

fastest-turning SKU in the category.”

That bar has only 5 grams of sugar.

A year ago, Lubetzky’s team had a

diferent challenge: how to make

chewy and crunchy granola bars, a

seemingly contradictory goal. They

solved the problem with better and

more expensive packaging to seal in the

precise texture.

Every founder at some point believes

he or she faces an impossible balancing

act—a choice between quality and profit,

or business goals and social impact. But

if you focus on the long-term impact of

a decision, you may find it doesn’t have

to be an either/or choice. “When a social

objective and a business objective are

built into your business model,” Lubetzky

says, “those goals don’t conflict; they

strengthen each other.”

OW N E R ’ S M A N UA L

my product strategy? zero compromises Even for entrepreneurs with plenty of resources, tradeofs are usually a way of life: What’s great for the bottom line isn’t good for the environment. Aim for ultra-healthful and you’ll rarely get delicious, too. At some point, you must make com-promises—this or that, because rarely can you do both. Daniel Lubetzky founded Kind Healthy Snacks using a diferent approach: He replaced the word or with the word and.—JEFF HADEN

Bake your goals into your business model. Even if some of your aims are in tension, a goal you don’t set is a goal you cannot achieve.

identify every assumption. The innovation process starts with recognizing the usual thinking and methodologies so that you can then find ways to challenge them.

ask the right questions. Repeatedly asking, “Why?” and “Why not?” is the antidote to incorrect assumptions, especially if an assumption that was once valid is no longer today.

Focus on the future. Shortcuts are tempting when you manage for short-term results. Instead, let long-term goals guide you.

View compromise as the last resort. “Or” decisions are the easy way out. Challenge your employees to find a way—they will be better for it.

••••

Photograph by Poon Watchara-amPhaiWan

114 - inc. - dECEmbER 2013/januaRy 2014

LuBetzky’s ruLes For no-compromise products:

*Source: 2013 Afl ac WorkForces ReportZ130889A 9/13

How will you make the right decisions?Call your local Afl ac of ce or download our Employer’s Guide:

afl ac.com/HCRGuide

Health care

reform is

confusing.

Only 5% of employers

say they understand

health care reform

really well.*

innovate

••••

Marketing Without MarketingRather than spending money to snag new customers, lavish some love on your current ones

far more people know about Basecamp? So we

decided to talk to some marketing execs about

what they would do if they were charged with

spreading the word about Basecamp.

It was an interesting exercise. Not because we

hired someone. We didn’t. But I learned a lot about

marketing in the process.

When I hire a designer or a programmer or an

ofce administrator, I know what I’m getting. But

marketing is diferent. The very definition of the

term changes depending on whom you’re talking to.

To some, it’s all about search-engine optimization.

To others, marketing means advertising. This

one speaks in terms of public relations. That one

approaches marketing through the lens of analytics.

But what was interesting to me was that no

matter the specific orientation, every marketer

we met with was focused on one thing: customer

acquisition. To the marketers—to most people,

I guess—the goal of marketing is to expand your

market by picking up business that you didn’t have

from people you didn’t know.

I understand that. You market to increase

awareness, attract customers, and spark sales.

It makes perfect sense.

But the more I spoke with all of these talented

and passionate marketers, the more I realized that

I wasn’t interested in what they had to ofer. In

fact, I found myself thinking less about new cus-

tomers than about our existing ones.

So we made a decision: 37signals will begin

spending money on marketing. But rather than targeting new customers, we’re going to focus our

energy and resources on helping current customers get more out of the Basecamp they have.

You’re probably thinking, Say what? If you already made the sale, why bother selling it again?

That’s the thing. If my crash course in marketing taught me anything, it’s that I don’t want

to market to boost sales in the short term. Instead, our marketing eforts will be about expanding

our current customers’ awareness of what’s possible with our product. I want today’s custom-

ers to know more about how Basecamp can help turn them into heroes of progress at work.

The way I see it, I can spend a lot of time and money trying to persuade a bunch of newcomers

to try Basecamp. Or I can spend a lot less efort helping current customers get more out of some-

thing they’ve already purchased and enjoy using. As I said at the outset, sales take care of

themselves when you put out a great product and treat your customers with the ultimate respect.

Or, to put it another way: If you take care of your existing customers, they will take care of

your new customers.

love selling. But I’ve always been suspicious of marketing, at

least the way it seems to be practiced by most companies. It

seems to me that a lot of marketing is often deployed to

cover up a product’s deficiencies rather than point out what

makes it great, to confuse as much as to illuminate.

So there is no marketing department or chief marketing

ofcer at 37signals. Instead, we behave as if everything we do

is marketing. Customer service is marketing. So is product

quality. The phrasing of that error message, what you call

that button, how you greet your customers—it’s all market-

ing. And so far, so good: Our flagship product, Basecamp, has

earned the business of tens of thousands of businesses almost entirely

on the basis of word of mouth.

But I’ve recently begun wondering: What would our business be

like if we put some efort into formal marketing? How many more

people could we reach? How many more Basecamps could we sell if

g e T r e A l

Jason Fried

Jason Fried is co-founder of 37signals, a Chicago-based software company, and co-author, with David Heinemeier Hansson, of Remote: Ofce Not Required.

I

116 - inc. - DeCember 2013/january 2014

jef

f s

Cio

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ino

OUR LATEST

RESEARCH fi nds that talent management is a core strength—maybe the core strength—of the most successful growth companies.

ILLUSTRATION BY BEN WISEMAN

STAR POWERHOW TO RECRUIT, REWARD & RETAIN TOP TALENT

THEBUILDNETWORK.COM - 1

Should you give employees an allowance? IDEA #03 No noobs, please: Get new hires up to speed fast IDEA #07 Intrapreneurship 2.0 IDEA #08

Management insights for leaders

of high-growth companies.

IDEA 01

BUILD

QUARTERLY

The Build Quarterly Report On:

Talent Management

{INTRODUCTION}

As mentioned above, the companies profi led in this section are part of the inaugural Build 100 Index, a groundbreaking research project that has identifi ed the country's leading sustained-growth companies. We will announce the list in these pages in March 2014. For more information, see T eBuildNetwork.com/about/Build-100.

The strongest, most adaptable U.S. companies don’t look much alike. They don’t coalesce around predictable industries or locations. They don’t serve the same customer segments. And they’re no more likely to be well-established organizations than companies founded after the dot-com bust. But as Build continues to research the few remarkable companies that grow consistently, year after

year, handily outpacing their peers, we are seeing one common, dominant theme emerge: a focus on tal-ent. The most successful organizations tend to appreciate, invest in, and value their employees.

When we conducted initial research for our upcoming Build 100 Index (appearing in the March is-sue), we asked senior executives at 146 high-performing companies nationwide to identify their greatest strength. The majority said that people are their biggest drivers of growth, specif cally in regard to:

Customer service (64 percent)

innovation (52 percent)

We don’t want to be overly reductive. Answers ranged widely over the 10 choices of ered, as shown at right. In the end, however, what matters most is how your employees work together. In fact, employee collaboration is critical to a company’s long-term success. When we asked, “Where do your company’s most valuable and actionable ideas originate?” we expected companies to cite the importance of indi-vidual employees—after all, aren’t most brainstorming sessions designed to extract the best insights from each person?—but the emphasis on the value of internal teams was striking.

And when we asked, “What might derail your company’s growth or even threaten its survival?” a majority of respondents (81 percent) cited “Sudden loss of a key employee” as a concern.

Talent concerns emerged in another way as well: T e only major obstacle to growth shared by

a majority of respondents was training future supervisors and managers. What’s more, the survey results show that training and development challenges are highly correlated with those related to acquiring and retaining employees and customers. In other words, talent development is important and tough—even for the most successful companies.

The numbers do point to some best practices, though. Survey data suggest that companies with the highest levels of sustained growth are more likely than others to provide workplace incentives for superior performance. Those with the highest revenue were also more likely to believe in the power of sharing f nancial success with employees.

In fact, 82 percent of sustained-growth leaders recognize that sharing fi nancial success,

employee diversity, and transparency help a company grow. Yet only about half of them say they make these talent-retention polices a “vital part of their business.” There is a notable disconnect between what companies believe and what they actually do.

On the following pages, we explore key steps that top-performing companies take to recruit, de-velop, and retain the best talent, and recommend additional resources that address each challenge.

2 - BUILD - DECEMBER 2013 / JANUARY 2014

CONSISTENTLY GROWING COMPANIES DON’T ALL HAVE

THE SAME DNA, BUT THEY DO APPEAR TO SHARE ONE

CRITICAL GENETIC TRAIT: A FOCUS ON TALENT.

Customer service

D. - Informal personal networks

E. - Board members

F. - External professional advisers

G. - Suppliers

H. - Other

A. C

usto

me

r se

rvic

e

B.

Hir

ing

in

no

va

tors

D.

E.

F. G.

H.

I. J. K.

C.

66%

53%

39%

27%24% 23%

19% 19% 16% 15% 14%

C. - Consistency & ef ciency

D. - Product development

E. - Design & marketing

F. - Selling

G. - Convenience/product selection

H. - Lifestyle/product quality

I. - Market dominance

J. - Low prices/cost control

K. - Other

Hiring innovators

Identify your greatest strength

Where do your company’s most valuable

and actionable ideas originate?

What are your biggest drivers of growth?

What might derail your company’s

growth or even threaten its survival?

81%

Sudden loss of a key employee

64% 52%

HIRING

1

ENGAGEMENT

DEVELOPMENT

RETENTION

ONBOARDING

3

4

5

2

Decoding Talent

A. Individual employees 87%

B. Teams within the company 80%

C. Customers 67%

D. 25%

E. 24%

F. 20%

G. 9%

H. 2%


SOURCE: Build Network survey of 146 growth companies

BUILD

QUARTERLY IDEA 02

{HIRING}

Big Ass Fans is serious about linking its hiring process to its culture and values.

To make the best possible hires, it’s critical to know what traits you’re looking for in job candidates—and to be sure that whoever you think you want can deliver what your company actually needs.One company that gets this right is Big Ass Fans, a $125 million manufacturer of residential,

commercial, and industrial fans. Founded in 1999, the company now employs 445 people. Founder Carey Smith still oversees operations.

In his (completely serious) role as Chief Big Ass, Smith is large and in charge: He acts as both the company’s CEO and culture czar. He works hard to hire people who are in line with BAF’s value system, which we’ll describe as fun-but-don’t-mess-with-us.

Smith is particularly interested in employing people who possess two specif c personality traits: curiosity and positivity. Don't all companies want those traits? you ask. Maybe. But what separates BAF from the pack is its ability to screen for them, reinforce them via training and culture, and maximize their impact. Perhaps as a result, the company is experiencing breakneck growth—its revenues have more than doubled in the past three years.

Smith recently shared a few insights into his screening and retention strategies.

1 Screen for curiosity. Just because his organization reveres engineering and hands-on skills (making, testing, f xing) doesn’t mean that college time spent studying the classics is irrel-evant. Quite the opposite. “Some of our best people are English majors,” he says. “A liberal arts degree is a good thing. You’re looking for people [who] are naturally curious, who want to know why. I love engineers; they’re great. But with liberal arts majors, if they’re really engaged and they really studied, they’re curious.”

2 Screen for positivity. Job candidates usually wear a smile, but Smith strives to pierce the veil. “I will say, ‘It’s not going to be a conventional interview,’” he explains. “I try to make them uncomfortable. I try to make sure we push the boundaries. I might ask, ‘Why did you leave that place? That’s a good company. What the heck were you thinking?’” The impres-sion Smith most wants to make is that BAF, for all its cheeky nicknames and self-mocking YouTube videos (posted under the username Fanny the Donkey), is a serious place to work and slackers will not be tolerated.

3 Reinforce values via training. Most new hires start on the industrial rather than the commer-cial/residential side, because the primary contacts tend to be maintenance supervisors who know what they want and aren't shy about demanding it. Learn to make them happy and you are well on your way to becoming a strong contributor.

4 Reinforce values via culture. Watch the YouTube video “Because Not Everyone Is a Big Ass Fan” and you'll see what we mean. It underscores Smith’s belief in pushing boundaries, and also illustrates the “play hard” side of the company’s “work hard, play hard” mantra.

Photograph by

Jörg Meyer

THE BUSNESS: Big Ass Fans designs, engineers, and manufactures fans for homes, schools, hotels, stadiums, and many other commercial and industrial facilities.

EMPLOYEES: 445

ANNUAL SALES: $125 million

LOCATION: Based in Lexington, KY

OTHER VITALS: A team of 40 engineers drives innovation; the company holds 93 patents, with another 144 pend-ing. It also has the world's only R&D lab devoted to testing large-diameter fans.

BAF is hardly the fi rst or only company to tout a work-hard, play-hard culture. But it’s not easy to foster this type of atmosphere, especially if key employees work remotely. For some useful advice, read the August blog post “How to Foster a Work-Hard, Play-Hard Culture With Blended Teams” at oDesk.com. For more on smart hiring practices, search #buildrecruiting on T eBuildNetwork.com.


BUILD

—CAREY SMITH,

Founder and Chief Big Ass, 61

“It’s been quite a while since I made a job candidate cry.”

C. Jason Hollan,

Systems Engineering

Manager, 36

Jay Fizer,

Research &

Development

Laboratory

Manager, 40

Ed Quinn, Director

of New Business

Development, 41


GE Capital

At GE Capital, we’re not just bankers, we’re builders. So, in addition to smart financing, we also bring

expertise from across GE. For the Blommer Chocolate company, Paul and his team from GE Capital

held an intensive three-day energy audit. They identified 90 improvements to save energy, cut costs

and support Blommer’s long-term sustainability program. Chances are we have someone like Paul

with the know-how to help your business grow. Stop just banking. And start building. GE works.

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GE Capital Food, Beverage

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BUILD

QUARTERLYIDEA 03

{ONBOARDING}

You can shorten the distancebetween making a great hireand achieving optimumperformance. Here’s how.

Online marketplace Etsy takes a dif erent approach to its onboarding “boot camp”: New hires spend four to six weeks rotating through all of its internal teams. T is not only provides great training but also gives rookies an instant network of co-workers, which helps them feel welcome and enables them to tap into the company’s collective expertise far more readily than a slower acclimatization process would. Does your company see onboarding as an opportunity rather than a chore? To share your story, search #fi rstdays on T eBuildNetwork.com.

Studies show a strong connection between three critical talent metrics—productivity, retention, and engagement—and how well a company addresses “onboarding,” the orientation and social-ization that employees receive during their f rst 90 days on the job.At Texas Instruments, for example, employees who participated in an improved onboarding pro-

gram became fully productive two months faster than employees in a traditional program, according to a Society for Human Resource Management report.

Drexel Building Supply of ers an ideal case study. The company has nearly doubled its work force since 2008, its growth powered by customer service, product expertise, and teamwork. Its approach to onboarding stresses those values:

1. T e Yard Every new hire starts in the lumberyard, getting to know “the heart of Drexel’s busi-ness,” explains Stacey Stof el, the company’s marketing director. During “team boot camp,” new hires heft the products, handle custom orders, and work alongside frontline employees.

2. T e Card Also on Day One, every new employee is handed a two-sided business card bearing Drexel’s 10 core values—ethics, respect, balance, winning attitude, communication, devel-opment, teamwork, change, have fun, and accountability.

3. T e Hotline Following boot camp, new hires spend time answering the customer-service hot-line to get a clear understanding of the company’s challenges and opportunities.

4. T e Hot Dogs Owner Joel Fleischman regularly hitches a Weenie Wagon to his truck and delivers lunch to customer job sites. He brings along Drexel employees, including new hires, so they can master customer service. That helps drive referrals. —ANNI RODGERS


ILL

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BUILD

QUARTERLY IDEA 04

In an increasingly collaborative and connected world, success depends more than ever on the subtle art of infl uence.

{PARTNER PERSPECTIVES}

A CFO persuades a highly regarded controller to leave a comfortable job and join her company. A department head inspires his team to put in the extra ef ort needed to make a seemingly impossible deadline. A company strikes a deal with a key supplier to jointly expand into an emerging market. In these examples and scores like them, the factor that often spells the dif erence between suc-

cess and failure is “strategic inf uence.” It’s a concept that originated in the military, to describe one country’s ability to shape another country’s actions and policies. In that sphere, inf uence largely equates to power. As the term has migrated into the business world, however, its def nition has altered. Today, an executive’s strategic inf uence is not nearly as dependent on authority as it is on integrity, and on the strong ties forged with people inside and outside the organization who respect that execu-tive’s knowledge and point of view and respond positively to them.

Strategic inf uence is quickly becoming a critical skill because the nature of work is changing: success now depends on the ability to collaborate with all parts of the organization and to manage a web of connections that spans the broader business community. It begins with networking, progresses to relationship building, and culminates in a strong bond characterized by a high level of trust and respect, to the point where the person values your opinion over most others.

Strategic inf uence is, in a sense, the tangible outcome of many behaviors that senior business leaders are routinely encouraged to practice, from fostering a culture of transparency and account-ability to developing their top talent and recognizing outstanding performance.

77 percent of

employees prefer

a leader who

gives them the

resources they

need to get things

done, rather than

one who simply

strives to be

“inspirational.”

77%

Connect Communicate Build Trust

A COLLABORATION WITH

STAY CONNECTED

The f rst step in growing your strategic inf uence is to make time for it, which is not easy. Build-ing relationships and cultivating networks is an important activity, but usually not one that people tend to prioritize. Even a brief amount of time devoted to it each day, however, whether spent making IL

LU

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BY

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BUILD

T is article is adapted from "T e Art of Strategic Infl uence," part of the Action Resource Series produced by GE Capital in conjunction

with T e Build Network. For more, download the free Access GE app, available at http://app.accessge.com.

of global CEOs

plan to drive suc-

cess by “partner-

ing extensively”

with other com-

panies, including

competitors.

70%

a quick phone call, sending a friendly email, or having unhurried face time with a colleague you don’t talk to very often can make a huge dif erence.

You can’t network with everyone, of course, and some contacts are more important to nurture than others—even if you can’t always be sure which ones those will prove to be. Think strategically about whom you’d like to forge stronger ties with and why. Consider what their concerns and priorities might be, and where you have common ground, a shared interest, or the opportunity to help each other.

It’s also important to think beyond the boundaries of your own company. Attend conferences, meetings of professional associations, or other events with an eye toward making contacts that can progress to strong relationships and ultimately to an expanded sphere of inf uence.

IT’S NOT (ALWAYS) ABOUT YOU

Whether it’s a hallway chat with a co-worker or a meeting of fellow CEOs, face time is an es-sential component of building stronger connections to the people you need to inf uence. To elevate the relationship to that level, focus on three activities: listening, of ering help, and building trust. Try to see things from their point of view, and look for common ground and opportunities to share each other’s expertise.

The strongest bond you can forge with a colleague, client, or any business contact is respect, which is borne of trust. And that often hinges on how reliably you deliver on what you promise. One consultant dubs it the “say/do ratio”: the more often you deliver on a promise, the more strategic inf uence you will accrue. In other words, strategic inf uence is not a measure of your popularity but of your credibility, your authority, your reputation, and your ability to inspire others.

Making those traits known to others often depends on strong communications skills, a fact that senior executives sometimes overlook. Many senior executives mistakenly believe that if they com-municate a message once, that should suf ce. In fact, there is tremendous value in repeating important messages through a variety of channels, to make sure all employees truly hear it and understand it. The more readily people within your company—and outside it, as well—know what you’re doing and why, and how that squares with your past statements and actions, the more likely you will gain inf uence.

Communication goes both ways. It is also critical to listen carefully and to keep an open mind. Dis-agreements are inevitable, but they present an opportunity to ask another person to explain his or her point of view or decision in more detail. You may ultimately be convinced. Even if you aren’t, by having a dialogue you have seized an opportunity to strengthen your relationship.

Not all of your ef orts at relationship building will result in greater strategic inf uence, but the important thing is to focus on it more than you’re probably doing now. The margin for error in today's ever-more-interconnected business world is small. The dif erence between good and great is small. Developing a greater level of strategic inf uence and encouraging the rest of the organization to do the same can make all the dif erence.


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They need benefi ts that fi t their lifestyles

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You can provide the right

solution for everyone

Your workforce is made up of unique individuals. Different ages. Different incomes. Different benefi t needs. With Unum’s broad array of benefi t choices, you can build a comprehensive plan that helps employees protect what matters to them. Supplement your medical plan with accident, critical illness or hospital indemnity benefi ts. Provide additional disability coverage to protect more income. Or share funding to offer more coverage for less. Better choices mean better benefi ts for all. To learn more, visit unum.com/betterchoices.

DISABILITY ° L IFE ° ACCIDENT ° CRITICAL ILLNESS ° HOSPITAL INDEMNITY

© 2013 Unum Group. All rights reserved. Unum is a registered trademark and marketing brand of Unum Group and its insuring subsidiaries.

Insurance products are underwritten by the subsidiaries of Unum Group. NS13-204

BUILD

QUARTERLYIDEA 05

For many bosses and employees, cash is still king. But when is the best time to give it? Most of en it is doled out at the end of something (a fi scal year, a big project, etc.). But some argue that bonuses pack more punch when you give them in advance. Yes, there is a catch: If bonus recipients don't deliver, they have to give the money back. To learn more, search #buildincentives on T eBuildNetwork.com.

{INCENTIVES}

What motivates employees to perform at their best? Rewards, yes, but perhaps not the kind you’d expect.

You know that employees perform best when they are rewarded not only with a suitable paycheck and benef ts package but also with additional incentives. Performance and prof t-sharing bonuses are

common (even to the point of being taken for granted). Although employ-ees rarely give back a check, when it comes to getting them to really lean in, there may be a better way to go.

Recent studies show that employees respond better to noncash re-wards and other incentives than they do to an extra injection of moolah. It is, however, a f ne line. According to the Journal of Economic Psychol-og y, employees do choose cash over noncash rewards when given the choice in the abstract. But they change their minds when presented with a specif c noncash reward. More important, other research suggests that noncash incentives produce a greater measurable boost in productivity than cash does.

Ef ective Environmental, a Texas-based environmental services company, subscribes to this theory. Every year, Ef ective Environmental doles out an all-inclusive family vacation to f ve employees. Managers in each of the company's divisions submit nominees, and the senior leader-ship team chooses the winners based primarily on who is deemed to have given maximum ef ort day in and day out.

Why vacations? Travel, it turns out, may be the most ef ective incentive of all. According to a study by Site International Foundation and the Incentive Travel Council, 96 percent of employees say they are motivated by travel incentives, and 72 percent who earn the reward say they feel increased loyalty to the company.

Of ering travel incentives may also be good for your bottom line—

even before accounting for its ef ects on productivity. T e U.S. Travel

Association notes that “in order to achieve the same ef ect of incentive

travel, an employee’s total base compensation would need to be increased

by 8.5 percent.”

Ef ective Environmental also treats its employees to a generous benef ts package, which includes higher-education tuition assistance for employees’ dependents. The company also covers 100 percent of work-ers’ health care costs. Studies have shown that health insurance not only motivates employees but also plays the single biggest role in attracting new talent. —ADAM VACCARO

96 PERCENT of employees

say they are motivated by

travel incentives, and 72

percent who earn the reward

say they feel increased loyalty

to the company.

PH

OT

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RA

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BY

IS

TO

CK


96%

build

quarterly idea 06

When it comes to helping employees prepare for retirement, inertia can be a positive force.

{partner perspectives}

Since the early 1980s, 401(k) plans have made a steady march from obscure tax provision to retirement-planning mainstay for tens of millions of American workers.

It has not been an easy journey. For three decades companies have invested substan-tial amounts of time and money to both encourage workers to participate and to guide them in the basics of managing their accounts.

Yet, despite ofering on-site seminars, web-based tools, one-on-one counseling sessions, and virtually every other form of education imaginable, a typical 401(k) participant today has an account balance of just $79,000. As a result, many will face a very rude awakening as retirement draws near. Employees readily admit that they simply don’t think about how (or how much) to save for retirement because they are focused on current worries, or because, for younger workers, retire-ment seems so far of. In short, they fall victim to inertia, and to date eforts to jolt them out of it have been mixed, at best.

Companies wish it were otherwise, because most truly want their workers to enter retire-ment in good financial shape. And, from a bottom-line point of view, they’d prefer to not have workers distracted by financial stress, which has been shown to impact everything from sick days to on-the-job performance.

Employers can take heart, however: A raft of new research is shedding much-needed light on why educational eforts so often fall short, and, more important, is revealing alternative approach-es to plan design that may be far more efective.

aCtions speak Louder than BroChures

This research comes not from the worlds of retirement planning or investor education, but from behavioral fnance and cognitive science. In fact, the work of one researcher, Yale’s Laurie Santos (recently cited by Time as a leading campus celebrity for her class “Sex, Evolution, and Human Behavior,” or “Sexy Psych” as Yale students refer to it) has inspired important develop-ments far outside the laboratory. As Jerry Patterson, Senior Vice President of Retirement Investor Services for The Principal Financial Group, explains, “Science is helping us to understand the gap between what people say they do and what they actually do. When it comes to retirement planning, it turns out that knowledge is just 20% of the equation. Behavior accounts for 80%.”

Employers have been relentlessly hammering away at the knowledge part of the equation when they would be better served to focus on the behavioral component. “If you ask both compa-nies and employees whether they are happy with their 401(k) plans,” Patterson continues, “most will say yes. They feel they have the right tools, a good mix of investment options, etc. But when you look at whether the plans are succeeding, based on participation rates, deferral rates, and other criteria, very often they are not.”

The answer may lie not in education, therefore, but in plan design. By adopting a few simple

auto-enrollment

alone has been

shown to propel

participation

rates to 90% from

less than 40%

among employees

with less than six

months’ tenure.

90%

a collaboration with

12 - Build - december 2013 / January 2014

BUILD

Chart data: Plan Sponsor Council of America

but critical plan features, employers can make huge leaps in all the success factors cited by Patter-son. Four in particular are worth noting:

auto-enrollment transforms inertia from a problem into a solution by automatically putting

employees into the plan while giving them the option to opt out. Tat’s a complete reversal of

the far more common approach: coaxing employees to participate by schooling them on the

financial realities of retirement, the value of an employer match, and all the other benefits

that so ofen fail to move them to join.

auto-escalation increases an employee’s deferral percentage each year, helping them save

more without having to take any overt action.

sweeping current employees into the plan at least one time, which is a sort of Big Bang ap-

proach to boosting participation.

using an asset-allocation choice such as a lifestyle fund as the default investment option,

rather than a money-market fund or similar cash equivalent.

These features can be augmented with other plan design elements, such as stretching the match formula to encourage higher employee deferral rates (at no additional cost to the employer) and providing online account access so that partici-pants can adjust their deferral rates. Auto-enrollment alone has been shown to propel participation rates to 90% from less than 40% among employees with less than six months’ tenure. Some companies opt instead for “active-choice enrollment,” which doesn’t automatically put people into the plan but does require every employee to fll out a form indicating whether they will or won’t participate. “This is another example of be-havioral science in action,” Patterson says. “When you require people to tell you that they are opting out, many won’t, perhaps because they don’t want to be seen as being irresponsible.” This option also boosts participation rates.

One criticism of auto-enrollment programs is that companies often set the initial deferral rate so low that it won’t put employees on a path to true retirement readiness. Patterson suggests a plan designed around a “6+1+1+1+1” approach: employees defer 6% of income the frst year, and it is automati-cally bumped up 1% in four successive years until it reaches the 10% annual rate often recommended.

“If you can get 90% of your workforce participating, at an average 10% deferral rate, and with 90% of them allocating a portion of their accounts into stocks or other non-cash-equivalent investments,” Patterson says, “you will have a plan that really works.” Thank you, science.

50-199 200-999 1,000-4,999 5,000+ All Plans1-49

$131,199

$75,556$69,447 $67,058

$71,358$78,854

Plan Size by Number of Participants

average 401k account Balances

theBuildnetwork.com - 13

build

quarterly idea 07

At this company, employees get an annual allowance of $1,500 that they can spend to learn about (almost) anything.

{training & Development}

Hiring new talent is both costly and time-consuming. According to a 2012 survey of 500 human resources professionals, the average cost to fll a position is nearly $11,000, and it generally takes new employees eight months to become fully productive.But wait, it gets worse: Companies typically lose 23 percent of new employees during their frst

year on the job. So the time and efort managers spend to hire and train new talent is often wasted. Think of all the resources you could save if you simply worked harder to retain existing staf.

What more could you do? Projectline Services, a $27 million marketing consultancy, has a simple (and replicable) answer. The company helps its people stay engaged by helping them grow. Each full-time employee—there are currently 175—gets a $1,500 annual allowance to spend on pro-fessional development.

“We encourage everyone to think about personal development and personal education,” says CEO and co-founder Mike Kichline. “It could be buying a book. It could be taking a class. It could be getting a degree or a certifcation. . . . The intent is that people will use this to develop or strengthen skills needed for their current role, or it can be used to prepare them for their next role based on per-sonal or professional goals.”

Here’s how it works:

Each staf member meets regularly with his or her manager to talk about professional development. Te employee may propose a plan for spending the allowance.

Te manager may suggest alternatives.

Following the discussion, the employee submits a formal request.

Assuming the request is approved, the funds are released.

When the employee’s efort is complete, results are reviewed with the manager. Sometimes staf members share their pursuits with the rest of the company. For example, a small group recently presented what it learned in a class about infographics during a brown-bag lunch.

Projectline tends to give people plenty of latitude. One employee took a flmmaking class, Kichline says, after demonstrating that “even though this wasn’t necessarily in direct line of sight for his current role, it would be something he could apply to many areas within the company.” Since taking the class, the employee has produced multiple videos for the company.

Helping employees achieve their goals has become a defning trait of Projectline’s culture. Last year, for example, the company introduced the International Employee Volunteer Travel Grant, which allows employees to travel abroad to help charitable causes. Through the grant, one employee went to Tanzania to help a nonproft group address the HIV/AIDS epidemic.

Perhaps as valuable as the professional development is the dialogue it fosters between employees and managers. By seeing how staf members spend their allowances, Projectline management gets a window into what empoyees really value—both inside and outside the ofce. —ilan mochari

Tere are other ways to ofer fresh yet afordable employee development programs. In an article in CFO, Michael Lehman, former chief financial ofcer of Sun Microsystems, lays out a seven-step plan that “helped propel at least eight of his former stafers into their own CFO roles.” And on the Mindflash blog, author Bill Cushard ofers three simple steps for making development a “two-way street” where employees have a say in the opportunities they pursue. To read more about training and development, search #builddevelopment on TeBuildNetwork.com.

On average,

23 percent of

new employees

leave during

their first year

on the job.

23%

14 - build - december 2013 / January 2014

PROFESSIONAL DEVELOPMENT REQUEST FORM

Projectline Services believes in keeping things simple. This is the form employees f ill out to tap into their $1,500 annual training & development allowance.

Request Title

Employee Name

Approving Manager

Use

Activity Date

Location

Cost

Payment

Link to Additional

Information

Client Coverage Plan

Personal Development

Alignment

How the funds are to be used.

Insert link to any additional information about this activity.

Will this use of funds require missed time during workday hours? (If so, what is

the coverage plan and how long will it need to be in place?)

How does this align with your personal development plan?

I will register/order myself and will pay this out of pocket and submit

this item to accounting for expense reimbursement

I would like HR to register/order and pay for this on my behalf

✓

“T e best recruiting is the recruiting you don’t have to do, because you’ve kept people for a long time.”—MIKE KICHLINE, CEO,

Projectline Services


Riding a Profi t RocketFor CRS Technology Consultants, migrating to the

cloud has been a game-changer—in every respect

BROUGHT TO YOU BY

16 - BUILD - DECEMBER 2013/JANUARY 2014

BUILD

QUARTERLY

BUILD

PARTNER PERSPECTIVE

“It has been a game changer,” says Jordi Tejero of his decision to migrate his company, CRS Technology Consultants, entirely to cloud-based solutions for everything from mission-critical software to voice communication. “Since we started down this path about three and a

half years ago—really looking for efficiencies, looking for ways to make our guys more productive and more available—we have tripled our profitability.”

A BEVY OF BENEFITS

Based in Southwest Florida, CRS offers IT consulting and support services for companies as far f lung as Mexico City, acting as a fully outsourced IT department for many of its small and medium customers. Here are some of the ways that Tejero sees cloud technology boosting his company’s productivity—and its bottom line:

• Proactive engagement. Through its cloud-based remote monitoring and management tool (AVG’s Level Platform), CRS engineers can monitor their clients’ networks and connected devices. “If one of their workstations has, say, a bad block on its hard drive or a server seems about to fail, the system alerts us, and we can run diagnostics and repairs remotely,” Tejero explains. “If that doesn’t work, we’ll go on site and swap out the equipment before it ever takes the client down.”

• No downtime. Thanks to Comcast’s unified communications (UC) platform, Business VoiceEdge, coupled with a cloud-based line-of-business solution, ConnectWise, CRS engineers can do their job wherever they are—and on just about any device they prefer. Just recently, a member of Tejero’s team was stuck at an auto dealer while his car was being repaired. “In our old world it would have been, ‘Okay now he’s out of pocket for three or four hours.’ Instead, he fired up his laptop and used the Comcast smart-phone app to continue handling customer service tickets seamlessly.”

• Employee satisfaction. Productivity for CRS also means being able to attract and retain the best staff. “Since we need fewer people to do the same amount of work, I can pay our good people more money,” Tejero explains. And since they can work anywhere, when two valued employees moved away from the area—one as far as Wisconsin—CRS was able to hold onto them. “We opted to use the technology and keep good employees versus just sending them on their way,” Tejero says.

• Open communication. Having software in the cloud and available throughout the organization—and even to customers—means everyone is on the same page all the time. “Now if we have an issue that goes on for multiple days or involves multiple engineers, it’s all being worked from one ticket, one central place,” he explains. “Everybody has access to that information without having to hunt it down. Even if that saves every employee ten minutes a day, the numbers add up really quickly.”


• Interoperability. Not only can people communicate more easily, but CRS’s cloud-based solutions can as well. “We’ve chosen cloud providers that fully integrate with each other,” Tejero says. For example, when Level Platform detects an issue with a client network, it automatically generates a service ticket in ConnectWise. The system can then close the loop by informing the client that an issue has occurred, and keep them informed until it’s resolved.

For Tejero, it’s all about liberating his clients from worry and getting on with their business. “Working in the cloud has freed us up to help our clients move their business forward,” he says. “Since they don’t have to spend the dollars on fixing stuff, they’re able to spend those dollars on truly forward-thinking items that can grow their business.”

SERIOUS FUNCTIONALITY

Comcast Business VoiceEdge is a critical component of that strategy. VoiceEdge offers CRS greater efficiency by delivering a UC solution that allows users to call from their desk or mobile phones and have it appear as if they’re called from the office. CRS can enjoy constant connectivity without the capital investment and hardware management that typically come with traditional private branch exchange (PBX) phone systems.

“We had been dealing with basic telecommunications products for years,” Tejero says. “When we got serious and looked at the features, functions, and benefits of Business VoiceEdge, it was an easy choice.”

To learn more about how Comcast Business VoiceEdge can improve communication for your organization, visit business.comcast.com/smb/services/phone/managed. For more information about how mobility is enabling the workforce and improving productivity, download the free white paper, Empowering the Mobile Workforce: Hosted Voice Solutions Help Boost Productivity and Customer Service, at business.comcast.com/empowering-mobile-workforce.

BUILD

QUARTERLY IDEA 08

So a key employee wants to strike out on her own? Show her how she can do it without leaving the company.

Alas, employee retention is a major challenge for many growth companies. Shai Bernstein, an assistant professor of fi nance at Stanford Universi-ty, published research in late 2012 that shows that innovators tend to leave their jobs at an increased rate af er companies go public. One way to combat this is to separate the roles of CEO and board chair. “When CEOs are more protected from market pressures, they are more likely to take on more innovative or risky projects” that satisfy the needs of inventive employees, Bernstein tells Build. To learn more, search #buildretention on T eBuildNetwork.com.

When Web strategist Cara Olson returned to digital marketing company DEG following a four-month maternity leave, she had big news: She planned to resign and start her own company. CEO Neal Sharma heard Olson out and made a counterproposal: Why not launch it

within DEG? The division, he told Olson, would be hers to lead and direct.Eight years later, Olson—now director of direct marketing and e-customer relationship

marketing for DEG—heads a unit that employs more than 30 people and generates one of the com-pany’s largest revenue streams.

This was no one-of decision for Sharma. He has tapped many DEG employees to oversee projects that let them pursue their passions while meeting the company’s business needs. In fact, about half of the employees who have been with DEG for more than a year hold dif erent positions from those they were hired for. T e result: a 92 percent retention rate. Sharma of ers three strategies for fostering the kind of “intrapreneurship” that can help you retain top talent:

1. T ink like a VC. Even though Sharma is predisposed to let-ting employees embark on new projects, he assesses the risks and potential returns in much the same way that a venture capitalist would. The chance to retain a key employee should be regarded as “an opportunity to invest,” he explains.

2. Crowdsource the company’s

values. Rather than craft a mission statement, company leaders posed this question to everyone: “What does this company stand for?” The an-swers inspired new mission and value statements, which helped map the job paths that employ-ees can travel.

3. Insist on solutions. Employeesare free to criticize and complain, as long as they also pitch solu-tions. When they are required to f nd answers to the problems they see, they are already think-ing about their next project within the company, whether they realize it or not.

—ADAM VACCARO

{RETENTION}


ILL

US

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AT

ION

BY

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TW

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R

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QUARTERLY IDEA 09

{ENGAGEMENT}

This list of questions may help you get a fast read on whether your employees are equipped to succeed.

In a 2009 interview in Forbes, Douglas Conant, who was CEO of Campbell Soup at the time, described how the company had, as part of develop-ing a “continuous loop for closing the engagement gap,” adopted a system in which the top criterion for leaders’ evaluations was “their ability to inspire trust in those around them.” Conant said that as part of his own ef orts in that regard, he “send[s] out about 20 thank-you notes a day to staf ers, on all levels. And every six weeks I have lunch with a group of a dozen or so employees, to get their perspective on the business, and to address problems and get feedback.” To learn more about engagement, search #buildengagement on T eBuildNetwork.com.

“Employee engagement” is, admittedly, a catchall term, not to mention an endlessly marketable consulting concept. So if you’re skeptical, we understand.

But earlier this year, when Gallup released its annual report on employee engagement, it in-cluded a simple tool that may help you quickly determine where your work force stands. When properly measured (Gallup argues), engagement extends beyond an assessment of how happy your employees are on the job—it also reveals whether that happiness manifests itself in superior performance.

Gallup’s report is based on the results of a survey, administered to more than 25 million employees in 189 countries, in which respondents answer “true” or “false” to a dozen statements. These questions, Gallup says, constitute “the best predictors of employee and workgroup performance.” Here goes:

12 INDICATORS OF ENGAGED EMPLOYEES

Ideally, employees always check "True," but the "False" answers are more revealing.

The f rst two criteria are critical; they address employees' primary needs. The others address three stages: how workers contribute to the whole and are valued; organizational f t; and development.

1 I know what is expected of me at work.

2 I have the materials and equipment I need to do my work right.

3 At work, I have the opportunity to do what I do best every day.

4 In the past seven days, I have received recognition or praise for good work.

5 My supervisor, or someone at work, seems to care about me as a person.

6 T ere is someone at work who encourages my development.

7 At work, my opinions seem to count.

8 T e mission or purpose of my company makes me feel my job is important.

9 My associates or fellow employees are committed to doing quality work.

10 I have a best friend at work.

11 In the past six months, someone at work has talked to me about my progress.

12 In the past year, I have had opportunities at work to learn and grow.

T F


A more efficient supply chain

makes me happy.

UPS makes me happy.

–Jack Roush

Chairman, Roush Enterprises

When Jack Roush wanted to take the kind of performance

engineering he puts into his engines and build it into his entire

company he only made one call—to UPS. By consolidating

all of his freight, package, air, tracking, billing and reporting,

Jack saved a tremendous amount of time and money.

How does he manage it all? With UPS WorldShip®—the carrier-

supplied software that lets companies process and track their

package, air freight and LTL shipments in a single system.

Find out how logistics solutions from UPS make CEOs like

Jack Roush happy at ups.com/happy.

Copyright © 2013 United Parcel Service of America, Inc.

T eBuildNetwork.com

Anyone who has ever read a mutual

fund prospectus or scrutinized the

fi ne print in investment-company

ads knows the old saw about the

value (or lack thereof) of “past

performance.”

When it comes to driving your com-

pany’s growth strategy, however, it

turns out that the opposite is true:

Past performance is virtually the

only guarantee of future results.

In studying the performance of

1.4 million U.S. companies from

2005 to 2010, Build has found that

an elite group—just 1% —created

72% of all net new jobs during

that period.

T e correlation between job

creation and ongoing success is

far more predictive of future

results, says Build economist-

in-residence Gary Kunkle, than

revenue or any other single perfor-

mance metric. In short, companies

that add jobs year af er year are

far more likely to continue growing.

Job growth is the X factor.

Armed with these insights, Build is

putting together a new index, the

Build 100, to celebrate the best

of the best. More important, we’ll

work with these A-list companies to

examine what they do (and don’t do)

to spur growth over the long haul.

Why does “sustained growth” mat-

ter? If your company exhibits sus-

tained job growth one year, it is 50%

more likely to grow again. Repeat

that over two years and the odds of

growing again hit 67%, and so on,

creating a straight line from steady

growth to exceptional growth.

Sustained-growth companies are

found in every industry across the

country. No matter what, where

or to whom you sell, exceptional

growth is within reach.

We will unveil the Build 100 in the

March issue of Inc. T roughout

2014, we will bring you a host of

insights from this elite group.

WHAT’S THE SECRET TO STEADY, SUSTAINED GROWTH?

WE PLAN TO FIND OUT.

BUT WAIT! THERE’S MORE.

We’ll also give you a way to benchmark your company’s management practices, corporate culture, and other facets of your business against the Build 100 companies. For details, search #Build100 on T eBuildNetwork.com.

“PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.”


Who insures you doesn’t matter. Until it does.

Financial Strength and Exceptional Claim Service

Cyber Security | D&O | E&O | Employment Practices Liability

Crime | Kidnap/Ransom | Property & Casualty

Chubb Group of Insurance Companies (“Chubb”) is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries,please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued.

Chubb, Box 1615, Warren, NJ 07061-1615. ©2013 Chubb & Son, a division of Federal Insurance Company

www.chubb.com/inc5000

back-end content-management system

to secure its files.

Box is able to provide this service

to companies like drchrono because,

as of April 2013, Box was certified as

Health Insurance Portability and

Accountability Act, or HIPAA, compliant,

the industry standard for protecting

electronic health records. Getting

HIPAA certification is the ofcial way

to assure patients a provider is taking

all the right steps to protect their medi-

cal information online. But becoming

HIPAA compliant is a notoriously

lengthy and expensive process. (Share-

Point is HIPAA compliant; some other

Box competitors are not.) HIPAA com-

pliance is proving valuable: In 2013,

Box’s sales in the health care industry

grew more than 81 percent.

Today, about 30,000 third-party

developers use Box’s application pro-

gramming interface, or API, a set of

functions that allows a third-party

company to access Box’s internal data

and to layer its information onto Box’s

servers. Box is recording about 700

million API calls per month from third-

party developers—a measure of how

often users are pulling information

from Box on an app.

Nonetheless, fears about data

breaches are a drag on Box’s growth.

Enterprise companies are not yet con-

vinced that putting sensitive company

documents into the cloud, let alone on

the servers of an eight-year-old start-

up, is worth the risk. Many of the com-

panies that use Box—especially Fortune

500 companies—have not fully inte-

grated their systems within Box’s serv-

ers. They use the platform to upload

and share files, but that doesn’t mean

their employees are allowed to post and

share just any company documents.

“The market is not mature yet,” says

the analyst and writer Krishnan Subra-

manian. Because of these fears, Subra-

manian believes Box’s $1.2 billion

valuation might be a bit exaggerated.

He puts it at closer to $1 billion. It’s not

just Box or even cloud content-man-

agement services that face concerns

about security, either. It’s the entire

software-as-a-service industry.

Levie knows this, and when you

spend enough time around him, you

begin to notice something peculiar.

Despite Box’s meteoric growth, and

despite the company’s valuation, and

despite the fact that Levie himself is

worth north of $100 million, he genu-

inely seems to view himself as the

underdog, and not merely in the mar-

ketplace. It’s more a cosmic, even philo-

sophical view of himself.

One of Levie’s favorite writers,

Malcolm Gladwell—whom Levie

recently brought in to speak at a

customer conference—once said that

underdogs are “capable of things the

rest of us can’t do [because] they look

at things in diferent ways.” In his most

recent book, David and Goliath, Gladwell

asks, “And what does it take to be that

person who doesn’t accept the conven-

tional order of things as a given...?” (See a

review of the book on page 38.)

When Levie first announced that he

was building an enterprise software

company for the modern age, he was 23.

He had no idea what the conventions of

the game were. He had never used any

of the software he hoped to disrupt. But

to Gladwell’s point, not knowing the

conventions—or simply refusing to

acknowledge them—appears to have

become Levie’s best asset. And the fact

that he feels the odds are against him

and against Box—that isn’t a reason to

stop; it’s a reason to continue.

“We are the forefront of a really

transformative industry,” Levie told his

group of new recruits. “So make sure

you’re working as hard as possible to

make sure we win.”

“And that’s mostly,” he said, “my last

word.”—

ERIC MARKOWITZ is a reporter for

Vocativ.com.

�

E N T R E P R E N E U R O F T H E Y E A RC O N T I N U E D F R O M PA G E 3 6

STATEMENT OF OWNERSHIP,

MANAGEMENT, AND CIRCULATION

1. Publication title: Inc.

2. Publication number: 0162-8968

3. Filing date: September 30, 2013

4. Issue frequency: Monthly, except for combined

December/January and July/August issues

5. Number of issues published annually: 10

6. Annual subscription price: $23.95

7. Known office of publication: 7 World Trade

Center FL 29, New York, NY 10007-2195

8. General business office of publisher:

7 World Trade Center FL 29 , New York, NY

10007-2195

9. Publisher: John Tebeau, 7 World Trade


Editor: Eric Schurenberg, 7 World Trade


Managing Editor: Alexandra Brez, 7 World

Trade Center FL 29, New York, NY 10007-2195

10. Owner: Mansueto Ventures, LLC, 7 World

Trade Center FL 29, New York, NY 10007-2195

11. Known bondholders, mortgagees, and other

security holders owning or holding 1% or

more of total amount of bonds, mortgages,

or other securities: None

12. N/A

13. Publication title: Inc.

14. Issue date for circulation data below:

September 2013

15. Extent and nature of circulation

Average no. of copies No. of copies of

each issue during single issue published

preceding 12 months nearest to filing date

A. Total number of copies............804,765..................843,598

B. Paid circulation

1. Outside-county paid

subscriptions......................548,416.................548,964

2. In-county paid

subscriptions.................................0............................0

3. Sales through dealers and carriers, street

vendors, counter sales, and other non-USPS

paid distribution....................30,387....................40,956

4. Other classes mailed

through the USPS...........................0.............................0

C. Total paid distribution..............578,803..................589,920

D. Free or nominal rate distribution

1. Outside-county....................148,495..................149,544

2. In-county.........................................0............................0

3. Other classes mailed

through the USPS...........................0.............................0

4. Outside the mail.......................3,464...................10,649

E. Total free or nominal

rate distribution.......................151,959.................160,193

F. Total distribution.....................730,762..................750,113

G. Copies not distributed................74,003...................93,485

H. Total.........................................804,765..................843,598

I. Percent paid circulation..............79.2%....................78.6%

I certify that the statements made by me above

are correct and complete.

—Mark Rosenberg, CFO142 - INC. - DECEMBER 2013/JANUARY 2014

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began as a 4,000-word rules document

ballooned to 14,000 words by 2012, as

various exceptions and fine distinctions

were accounted for. McBride was able to

continue on Etsy because his manufac-

turing partner qualified as “partial pro-

duction assistance” under the rules.

The problem was, nobody was quite

sure what partial production meant, and

many of the other rules were similarly

unclear. Rather than settle debates, the

complex thicket of regulations created

new debates and an ever-larger enforce-

ment burden for the company. If a

wedding-dress maker enlisted her sister

to work with her in her studio, that would

be an acceptable labor arrangement, but

if her sister worked in another state, it

would not. Why? Technology changes

have complicated matters further:

What if someone designed a toy on

a computer and produced it with a

3-D printer? Would that be hand-

made? Why is it any better or worse

than Tielor McBride’s bag factory?

Just as important as finding

ways to keep sellers like McBride

within the rules is providing them

with a diferent class of customers.

Rather than letting McBride make

90 percent of his sales to other

retailers, for instance, Dickerson

has created a wholesale market on Etsy.

It allows Etsy members to connect with

retailer partners such as West Elm and

Nordstrom, as well as independent bou-

tiques around the country.

The wholesale program is one step in

a wider efort to professionalize Etsy’s

sellers. A tool called Shop Stats provides

a dashboard of store-performance met-

rics. A Seller Education Program teaches

members business skills such as how to

merchandise for the holidays and how to

generate trafc through social media.

One goal of the professionalization of

Etsy, Dickerson says, is to give sellers

more time to focus on designing and

making their products. The other goal, of

course, is to increase sales for everybody.

D ICKERSON, 41, IS AN unlikely tech

CEO, a former English major

at Duke who started his career

as a ponytailed aspiring jour-

nalist and fell into Internet technology

somewhat by accident. Eventually, he

became a pioneer of modern Silicon

Valley–style tech culture, the man who

made the hack day a staple of the start-up

world when he was at Yahoo. A little bit

round and rumpled, with salt-and-pep-

per hair, he radiates a basic decency that

makes it entirely believable when he

talks about his underlying idealism.

It’s a profile that doesn’t fit the

craven-capitalist picture you’d get of

Dickerson if all you knew of him was

what appears on Etsy’s user forums. The

disconnect comes down to trust. Dicker-

son has earned it among staf members

because he delivered them from a de-

moralizing situation and because of the

open, honest culture he created. Oddly,

those same core cultural principles have

been absent in much of Etsy’s manage-

ment of its community. When Dickerson

talks about creating opportunity for

sellers, many interpret that as code for

him wanting to court big business and

move away from the craft movement.

They call Dickerson’s company Etsy-bay.

Nowhere has the lack of trust played

out more clearly than in the debate

around so-called resellers, distributors

of mass-produced goods that masquer-

ade as handmade on Etsy. Nobody de-

nies that resellers exist—because Etsy is

an open platform, anyone can sign up, so

a certain level of spam is inevitable—but

many Etsy members suspect the com-

pany of quietly tolerating them to collect

the revenue they generate.

In early 2013, Dickerson sat down

with Heather Jassy, Etsy’s vice president

of member operations, and gave her the

task of reimagining the company’s mar-

ketplace guidelines. “I want you to write

a new set of policies,” he said to her,

“and my only requirement is that you do

it in a sensory deprivation chamber,

without referring to the current ones.”

The project became known inter-

nally by the code name Humanscale.

“We wanted to emphasize the idea that

this was about people,” Dickerson says.

The previous rules centered on trying to

define what is handmade and what is

not. The new rules wouldn’t even bother

to define handmade, and instead took

shape around three broad principles

that Dickerson has encoded throughout

the company’s culture: authorship,

responsibility, and transparency. Now he

would try to encode those cultural val-

ues in the selling community.

In Dickerson’s words, authorship

means that “the items you sell begin with

you; Etsy is not a place to sell items that

you had no role in making.” Responsibil-

ity means “you take responsibility

for the way your items are made

from beginning to end.” And

transparency means “you should

be open and honest about all the

people and partners involved in

what you are selling on Etsy.”

More practically, the new

guidelines allow sellers to hire as

many people as they want, in any

place they want. Sellers can enlist

manufacturing partners to pro-

duce all or part of the goods

they’ve designed. “Partial production

assistance” is gone, as are other, similarly

complicated conceptions. The only re-

quirements are that sellers submit appli-

cations to use mass production—an

in-house team will review them—and

that approved manufacturing partners be

disclosed on the shops’ About pages.

It’s a radical departure from the past,

and for the first time a decentralization

of authority when it comes to the com-

munity. “We are trusting the sellers to

�

N OW C O M E S T H E H A R D PA RTC O N T I N U E D F R O M PA G E 9 2

Nowhere has the lack of trust played out

more clearly than in the debate around so-called resellers.


prInTed In THe uSa. cOpyrIGHT ©2013 by manSueTO VenTureS LLc. all rights reserved. Inc. (ISSn 0162-8968) is published monthly, except for combined july/august and december/january issues, by mansueto Ventures LLc, 7 World Trade center, new york, ny 10007-2195. Subscription rate for u.S. and possessions, $19 per year. address all subscription correspondence to Inc. magazine, p.O. box 3136, Harlan, Ia 51593-0202; 800-234-0999; [email protected] (u.S., canada, International). please allow at least six weeks for change of address. Include your old address as well as new, and enclose if possible an address label from a recent issue. Single-copy requests: 800-234-0999. periodical postage paid at new york, ny, and additional mailing ofces. canadian GST registration number is r123245250. canada post p.O. box 867, markham Station main, markham, Ontario L3p 8K8. pOSTmaSTer: Send address changes to Inc. magazine, p.O. box 3136, Harlan, Ia 51593-0202. material in this publication must not be stored or reproduced in any form without permission. requests for permission should be directed to [email protected]. reprint requests should be directed to The yGS Group at 800-290-5460, ext. 128. Inc. is a registered trademark of mansueto Ventures LLc. december 2013/january 2014 VOL. 35 nO. 10

make the right decisions,” Dickerson

says, “and do it in a marketplace that’s

open and honest.”

A few dozen Etsy sellers have

gathered at Etsy headquarters

for a town hall meeting in

which Dickerson will an-

nounce the new production guidelines.

Around the world, more than 5,000 Etsy

members are tuning in via webcast.

“The sellers here and those of you on

the webcast are really who helped build

this company, and as we grow, I want

Etsy to commit to getting closer to the

community, not growing apart,” Dicker-

son begins, pacing in front of the audi-

ence with a vintage sewing machine and

a few spools of fabric arrayed on a table

behind him. “We all know that Etsy can

only do well when our seller community

does well—when you do well.” He an-

nounces that the company plans to

launch a new era of transparency and

open communication with sellers.

From now on, Dickerson says, Etsy

will release a detailed quarterly summary

of its performance and strategic goals, so

sellers can have a better understanding of

why the company makes the decisions it

does. Beginning today, the company will

unveil a new section of its website that

ofers much more detail than previously

available about its market-integrity ef-

forts. The new section will detail how

many shops are being flagged as potential

violators, how many investigations are

opened by the company, and how many

shops end up getting booted. A few peo-

ple applaud when he announces that

Etsy will now ofer phone support for its

sellers, something the community has

long begged for.

Things are going well so far, and the

audience remains polite as Dickerson

launches into the real reason for the

meeting—the Humanscale production

guidelines, which are now 900 words,

down from the previous 14,000. When

he opens the floor for questions, some

are easily dismissed (Is Etsy selling out?

No. Why are there so many resellers?

We’re constantly fighting it), but others

prove trickier.

One seller in the room points out

that, under the new rules, it’s possible

that Ikea could qualify to sell on Etsy.

As long as there were a person at Ikea

designing a product and vouching for

the sustainability of its production

process, why couldn’t that product now

qualify? Dickerson’s response: “If Ikea

called today and said they want to

be on Etsy, I’d hang up. They should

buy from Etsy.” It’s not an entirely satis-

fying answer, because there’s nothing

in the rules that explicitly prevents

established brands from listing their

products, other than a subjective appli-

cation-approval process. Saying no to

Ikea is an easy call, but what about a

smaller but established company that’s

serious about sustainable production?

How big is too big? Etsy doesn’t have

clear answers to those questions yet.

The most important aspect of the Ikea

question is simply that it was asked. To

Dickerson, of course Ikea would never be

able to sell on Etsy. But to a community

that doesn’t yet trust him, that’s not

obvious. The risk of knocking down the

confusing old rules is that people can

interpret it as a flinging open of the doors

to bad actors. Which is exactly what

happens on the Etsy forums as people

watch the town hall webcast.

“Oh noooooo... this is not sounding

good AT ALL :(”

“Well handmade just died. Etsy just

voluntarily self-imploded.”

Dickerson and every other Etsy

executive I spoke to said the company

ran no financial projections when devel-

oping the Humanscale project; every

decision was just about responsibility,

transparency, and authorship. That’s

a highly principled move for an

e-commerce company that’s normally

driven by data. But the fact remains that

empowering sellers to grow more easily

can only help Etsy continue to grow—

which is, of course, the point.

Dickerson sees the Etsy of the future

as a market not of handmade goods but of

what he calls “person-to-person” com-

merce. “It’s all about creative people

building businesses, connecting people

through commerce, and making items

that have stories behind them,” he says.

He envisions Etsy sellers mobilizing

skilled workers in struggling former

industrial communities like Detroit.

Manufacturing isn’t a bad word in this

vision of Etsy; it’s essential. If Etsy is

going to change the world, it’s going to do

it by opening a vast market of humanely

and sustainably produced goods dreamed

up by real people who really care about

quality. It’s no less soulful a vision than

Rob Kalin’s ideal of individual crafters

crafting for a living. And Dickerson sees

no reason handmade goods can’t coexist

in a person-to-person market with goods

made in small factories.

In the days and weeks after the town

hall, a few supportive threads in the

forums vie for attention with the

doomsday predictions. Dickerson hopes

that time will prove him right, as the

company approves the right kind of

manufacturers, drives out the wrong

ones, and devises new tools to help

everyone sell. “At the risk of sounding

quite self-aggrandizing, I just have like a

really deep sense of responsibility,” he

says. “I know that there’s a lot of conflict

and protest in the community, but I

really want the community to be suc-

cessful. When I think about the changes

we’ve made, it’s always been in the name

of that.” If only the community would

believe him.

TOM FOSTER is an editor-at-large for Inc.

the risk of knocking down the confusing old rules is that people can interpret it as a flinging open of the doors to bad actors.

december 2013/january 2014 - iNc. - 145

TO ADVERTISE CONTACT 646.322.4290 | WWW.INC.COM

FRANCHISE SPECIAL ADVERTISING SECTION

As 2013 drew to a close, the International Franchising

Association expected U.S. franchisers to end the year on

a positive note, with the hope of signifi cantly better things

to come in 2014. “We expect the number of franchise

establishments in the United States to increase by 1.4

percent in 2013, near the pace of 2012,” says Alisa

Harrison, spokesperson for the Washington, D.C.-based

trade group for the franchise industry.

Whether measured by employment in franchise

establishments or sales growth, the franchising story in

2013 was about the same: Not as well as 2012, and not

as well as several years ago, but better than it’s been

most of the time since the last economic downturn.

“We are growing but not at the pace we saw before the

recession,” Harrison said. “We do expect to see the pace

pick up once the economy gets to a full recovery.” But

even if the restoration of pre-recession vigor to franchising

as a whole awaits the return of a revitalized overall

economy, individual franchisers are forging ahead with

plans for expansion and innovation in 2014.

Fit Body Boot Camp has perfected a way to give fi tness-

seeking consumers all of the benefi ts of having a personal

trainer, without most of the costs. And the Chino Hills,

California-based company delivers that service in indoor

boot camp business franchises that provide fi tness

entrepreneurs with turnkey systems, marketing strategies

and ongoing support.

Founder Bedros Keuilian calls Fit Body Boot Camp the

“anti-franchise franchise” because of its level monthly

franchise fee that isn’t based on a percentage of sales.

Another reason is their “done-for-you” marketing systems

that create and manage advertising through campaigns

on platforms such as Facebook, Google and Groupon.

“We’ve made it so turnkey that franchise owners practically

don’t have to lift a fi nger for marketing,” says Keuilian.

Fit Body Boot Camp currently has 218 open locations.

Most are in the United States, and mainly in the coastal

states, although Fit Body Boot Camp also has operations

in several countries on four continents. By the end of

2014, Keuilian says that number may have more than

doubled. “At the rate we’re going we’ll easily add 200

more location in 12 months,” he says. “But each month

we keep adding more. So it’s very likely we may add

another 400 locations within a year.”

For Seniors Helping Seniors, 2014 looks to be an

additional year of positive developments for the Reading,

by Mark Henricks

franchiseSpecial advertiSing Section

To adverTise conTacT 800.938.4660 • www.direcTacTionmedia.com



Pennsylvania-based franchiser of non-medical in-home

care businesses. “Our franchise partner councils are all

working together to continually reinvent and to constantly

improve our franchise system to help us be the best we

can become as leaders of our industry,” says co-founder

and CEO Philip Yocom.

There are almost 250 Seniors Helping Seniors operating

right now. During 2014, Yocom plans to open 100 more.

Among challenges they’ll address are expanding the

company’s entry into the United Kingdom, its fi rst foray

into international franchising.

One of the challenges at Daycare Cleaning Services is to

find ways to deal with the inquiries from potential

customers that are too far distant for the Cherry Hill, New

Jersey, company to serve. “We’re seeing a lot of interest,”

says President Rob Nestore. “We get calls each and every

day from potential customers throughout the country.”

Daycare Cleaning Services specializes in providing

cleaning services for childcare businesses, including

daycare facilities and preschools and public and private

elementary schools. “Customers are starting to realize the

importance of how a clean and healthy building with shiny

fl oors can increase their enrollment, which in turn increases

their revenue,” Nestore says.

The unmet opportunity to satisfy customers beyond

Daycare Cleaning Services’ service area led Nestore to

begin offering franchises. At this point, the company has

one location serving New Jersey, Pennsylvania, Delaware

and New York.

Challenges in growing the Daycare Cleaning Services

system relate primarily to identifying suitable franchisee

prospects. “Getting the customers isn’t the problem,”

Nestore says. “It’s fi nding the right candidates to replicate

the area that I personally built up in New Jersey.”

Until those candidates are identifi ed, Nestore will continue

fi elding calls from prospects he can’t serve from his existing

location. “Unfortunately, it’s diffi cult for us to provide services

when the customers are that far away,” he says. “That’s why

we’re currently looking for area developers.”

Daycare Cleaning Services recently hired a national sales

manager to work with prospects for cleaning services as

well as franchises. “In 2014, we’ll continue to grow strongly

throughout the mid-Atlantic area picking up contracts with

new childcare chains as well as individual schools,”

Nestore says. “We continue to look for new prospects and

candidates that are going to fi t our model.”

Our Town America’s model is about connecting the new

people in town with existing businesses. Franchisees of

the Pinellas Park, Florida-based company provides people

who have just moved into a home with bundles of gift

certifi cates and coupons for area retailers. The Welcome

Packages help newcomers feel welcome while helping the

sponsor businesses that pay for the packages gain loyal,

long-term customers.

We’re an opportunity that lets you feel good about what

you do,” says founder and CEO Michael Plummer. “You’re

building relationships from new families moving into the

area to businesses that desperately need them.” In



addition, Plummer says, Our Town franchises appeal to

people who want solid income potential while working

from home and enjoying fl exible hours. “You don’t have

to open a business and be a slave to it.”

There are 47 existing Our Town franchises, concentrated on

the East Coast and Midwest but as far west as Phoenix. By

this time next year, the company anticipates having a

minimum of 60 locations, and they could be located almost

anywhere. “I’d like to get more on the West Coast and a

couple more in Texas,” Plummer says. “But if somebody

called from Seattle, I’d be fi ne with it.”

If a mobile phone caller needs a case or other accessory for

a wireless device, he or she will do fi ne to look for the nearest

Cellairis location. Franchisees of the Alpharetta, Georgia-

based company offer a wide range of stylish accessories,

as well as specialty services such as phone repair, from mall

kiosks and inline stores.

“Cellairis is a simple, clean retail concept with a minimal

investment and no virtually national franchise competitors,”

says Marty Welch, vice president of franchise sales. “We are

young, cutting-edge, and in tune with all the latest changes

in the mobile marketplace.”

One of the biggest new initiatives at Cellairis is the expansion

of its full retail store franchise model. The company has also

added a number of innovative new products that are

proprietary to Cellairis. “2014 will be a banner year for the

Cellairis brand,” Welch says.

The company has more than 800 locations in the U.S. and in

Canada, Mexico, Chile, Dubai, the United Kingdom and the

Caribbean. Over the next year, Cellairis anticipates opening

100 new locations. Target markets include major cities in

existing markets such as the U.S., Canada and Mexico, as

well as new markets in Colombia, Brazil, the United Kingdom

and other European countries. “The USA is our primary market,

but growth through international expansion will double our size

in just a few years,” Welch says.

The primary objective of Kahala is to become the world’s

biggest and best franchise company, but not in that order.

The Scottsdale, Arizona-based franchiser of 15 different

quick-serve food concepts operates on the premise that

being the best franchise will naturally lead to growth, both by

growing existing concepts as well as by developing and

acquiring new ones.

Under such well-known brands as Cold Stone Creamery and

Blimpie, Kahala has more than 3,000 locations in 26 countries.

The company lately has been emphasizing growth in America’s

Taco Shop, which features food prepared according to recipes

from the founder’s Mexican-born mother. Over the next year,

Kahala expects to grow in all U.S. markets and, eventually,

every country where it already has outlets. America’s Taco

Shop is planned to be expanded from its current markets in

Arizona and Maryland to California and Texas.

For FirstLight HomeCare, succeeding in 2014 starts with

taking care to choose the right franchisees and to work with

them effectively. “We are extremely selective on who we bring

into the family to make sure we bring in people who are going

to be successful in the long term. It’s a true partnership

mentality,” says Bill McPherson, executive director of

franchise development for Cincinnati franchiser of non-

medical in-home care businesses.

Another key to FirstLight HomeCare’s prospects is the fact that

it addresses a large and pressing need. “In-home senior care

is the number one or two fastest growing industry in the U.S.,”

McPherson says. The fact that FirstLight HomeCare provides

non-medical companion and personal care, as opposed to

skilled care, is also a plus. “There are signifi cant changes taking

place with the Affordable Care Act and changes to overtime

laws that are going to affect skilled care concepts and

independent providers very signifi cantly,” McPherson says.

Presently, FirstLight HomeCare has 73 territories in 27 states.

In another year or so, McPherson expects to add 40 or 45

more territories to that total. “We’re very close to bringing on

our fi rst Canadian master franchise agreements in British

Columbia and Ontario,” he adds.

Franchising overall is very close to being in position for a robust

expansion. Harrison said much depends on how the federal

government addresses healthcare, job growth and regulation.

If those moves are positive, faster growth in franchising could

be in the offi ng. “But if the uncertainty in the economy remains,

we will see modest growth,” Harrison said.

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founders forum

How do you measure success? By the number of lives we’ve positively impacted.

What’s one mistake you made early on? To build our first website, we hired a firm whose quotes were half the price of everybody else’s.

What was the hardest lesson in your first year of business? That lack of sleep really does impede productivity.

What’s the toughest part of being in charge? The fact that only hard decisions reach your desk.

What’s the best motivator for employees? Feedback.

What’s your proudest accom-plishment in your business? We’ve distributed more than 500,000 pairs of glasses to people in need across the globe.

Gut instinct versus expertise: Which is more important and why? Both are extremely important, and you need to understand the strengths and limitations of both. We like to question our gut in-stincts but also approach problems with a beginner’s mindset.

What’s the biggest myth in business? That widgets are made in a sys-tematic way. If you peek behind the curtain at any type of company, you’ll see that things are far less organized than you’d expect.

What have you learned about yourself running your business? I’m not as smart as I think I am.

What have you sacrificed for success? Beer.

Whom do you admire most as a business leader? Florence Nightingale. She is one of the most dynamic social entrepreneurs in history.

neil Blumenthal

Fast growth and an ever-more-valuable brand are gratifying, but for Neil Blumenthal, co-CEO of the innovative retailer Warby Parker, nothing trumps mission By issie lapoWsky Photograph by steven BraHms

e x i t i n t e rv i e w

scan tHe paGe to see neil BlumentHal talk

aBout BuildinG a Brand to last. (See page 12 for details.) For the Founders Forum video interview with Inc.’s Scott Gerber, go to www.inc.com/founders-forum.

•visionary Neil Blumenthal has developed a signature combination of technology, design, customer service, and doing the right thing.

156 - inc. - decemBer 2013/JaNuary 2014

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inc magazine - january 2014 usa

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