My Presentation

I just wrapped up presenting at the Lane Powell Conference in Seattle. It was a total blast. Here is the presentation I gave...

Social Media for Human Resources - Hire, Retain and Leverage Employees

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Combining Forces: Question 1

At Smarter Social Media we have always used pluURL - a web development firm out of New York - to handle the technical components of our operations. Over the past month I've been in talks with pluURL CEO Yaw Etse about merging our operations. Our goal is to create a one stop shop to support businesses online - from developing websites, social media and mobile apps (pluURL) to brand monitoring and engagement with social media (Smarter SM).

Makes sense. But coming together is not always easy. Using SocialCast I've floated four major topics of discussion. Here's the first question with my first reply (at this point I feel kind of like I'm talking to myself):

What is our business? What pain do we plan to address? What is the vision for the next five years? Who are our target customers?

As young, ambitious and capable entrepreneurs, should we focus on a space experiencing rapid change? Look at history – Rockefeller and Carnegie became the word’s richest men because the industrial revolution increased demand for petroleum and steel, Branson made a fortune from airline deregulation in England, Gates made billions from the shift to desktop operating systems and software. There are countless examples.

Strategically, it is essential that we have an advantage in the industry in which we choose to focus. Being young and social media savvy is great, but is not a good enough reason. There are millions of people our age who are social media savvy. So what are our advantages?

We are great marketers: Jaspar and I are marketers by nature. Our first venture was promoting nightclubs and in many ways social media marketing is no different. You have to influence a group of people to take action, be it showing up to a club or buying a product online. Shawn has added a fresh perspective to our process, bringing real world social media marketing expertise. Shawn’s creative and subversive talents are extremely valuable.

We are great web developer(s): Yaw’s ability to develop websites is adds an essential ingredient to the mix. We cannot only develop campaign ideas, but develop the websites and applications they require, in house. This technology expertise enables us to develop a platform that will build long-term equity value beyond, which our individual talents as marketers cannot.

We are connected, young, charming and good looking: Successful people want to help us. They want to see us succeed. They want to be a part of the process. These connections are ESSENTIAL. They will bring us customers, partners and investors.

We are located in LA and NYC: There are about 18 million prospects in our combined geographies. The biggest brands in the world are headquartered blocks from us.

We are hungry: Yaw, Shawn and I have experienced what it is like to work the corporate life. The feelings of coming in on a Monday morning and wondering in terror “Is this the rest of my life?!” I speak for myself when I say I will not go back. This leaves me no option but to turn this into a money making business.

We are humble: We have all come off of a year long ventures that had lackluster success at best. We know what it is like to dream of millions in year one. We know the hard work it will take to achieve our dreams. Our expectations have been tempered. Which will serve to increase our ability to endure the tough times to come.

Please feel free to add other advantages to this list.

Gettin’ Paid

We have come a long way since the earliest systemized credit payment processing platform. The Charga-Plate was a dog tag like piece of metal that left a customers information on an ink ribbon when pressed. Today the international payment processing system enables hundreds of billions of dollar of transactions every year. Unfortunately, it has become totally convoluted and overpriced.

Albert Wenger had a great post today describing the problems he has with the current payment processing industry. I want to focus in on one of these problems – CHARGES. The fee system is so complex that it has taken me the past year to figure out how it works. Here is what I have figured out to date - every transaction we process at TaskUs is used to pay five parties:

1) Authorize.Net – Approves the credit card transaction and submits it to the cardholders bank.
2) Issuing Bank – Fronts the money for the credit card holders (Citibank, Bank of America, Wells Fargo)
3) Credit Card Brand – Visa or MasterCard provides the network to link and process the transaction (AMEX acts as Credit Card Brand and Issuing Bank).
4) Card1 – Deposits the money in our bank account and sends us a nice paper summary of the money we make every month.
5) Us – The company who provides the actual service the customer paid for.

Seems like a whole lot of cooks in one kitchen doesn’t it?

What this means is that credit card fees for merchants (especially small merchants like us) are high. We pay between 2 and 3.5% + $0.20 per transaction. But our average ticket price is over $100. Which means our net fees are between 2.2% and 3.7% of revenue. Not fun to give up, but manageable.

Now consider the case of a micro-merchant, someone whose average ticket is $5 or less. For example a photographer who wants to sell a photo for $1. If this photographer were to work with our merchant solutions they would give away between 22% and 23.5% of their revenue!

There are better options for the micro-merchant - Amazon Flexible Payments and PayPal Micropayments would charge 5% + $0.05 for this same transaction – or 10% of revenue. But, as Wegner point’s out in the comments section of his post, these solutions require that you use their networks. They cannot be seamlessly integrated into a merchant’s website in the way Authorize.Net is in ours. Far more egregious from my perspective is that this merchant is charged 10% of revenues!

Google has recently announced a micropayment solution for content providers. But it would take 30% of revenues, in the exact same split the Apple iTunes store uses with app developers and music companies.

I would like to see a start up enter the foray in the way PayPal did in the 90’s. But I fear that taking on the payment processing world require serious connections to the vested interests that profit from things remaining just the way they are – expensive and unmanageable for micro-merchants.

The Strategist

Tom has always emphasized that in business the Strategists make many times more than the Executors. As he puts it, "A brilliant strategy that is poorly executed will always be more successful than a horrible strategy that is brilliantly executed."

This week Seth had a post that echoed this sentiment. Here's the Hierarchy of Success:

1. Attitude
2. Approach
3. Goals
4. Strategy
5. Tactics
6. Execution

Notice - Execution is a the bottom of the hierarchy. Yet, it seems that almost everyone in the world is focused exclusively on execution. This is because the immediate emotional effects we feel come from execution. Good days and bad days at work generally stem from how well we execute.

Jaspar pointed out to me that this week we went from feeling like our business was on the ropes on Wednesday to feeling on top of the world on Friday. In reality very little changed. Our strategy, goals and approach are constant. What did change was our execution. Wednesday we lost a sale, Friday we made one.

The take away is this - The most effective business people maintain perspective. If you are focused on the daily details your an executor. Effective strategists are a rare breed, and this is why the world's best CEO's and entrepreneurs earn so much more than the world's best COO's.

Education

On this blog I avoid politics. I realize that readers interested in the adventures and entrepreneurship of a twenty-something, are not necessarily interested in my political perspective. But there are some instances in which I cannot contain myself. Education policy is one of these areas. Here are my views on K-12 education, in brief:

Who is the most important person in the classroom?

The student.

After all, the entire purpose of education itself is (or should be) to educate the student. However, this is not the case in our system. Education should run like business. Students are consumers of the services produced by teachers. However, powerful teachers unions have reversed the priorities so that teachers are put first at the expense of students. In the business of education, the immunity of the provider – read teacher – to the needs and wants of the consumer – read students and their families – is shocking. In no other place is there such a dramatic distortion of priorities.

Here are the problems:

1. Tenure – the inability to fire an employee is found in no other business. Yet, in education (one of our countries most important enterprises) teachers with two to three years of experience are made untouchable. Short of physically abusing their students these suppliers are set for life. Imagine saying to a chef that he would be paid the same thing for decades to come, regardless of how quality of meals he made. Certainly, a good portion of chefs would continue to cook well because of their passion for the act, but many chefs would loose motivation. On bad days, they would cook slowly. If challenges came up they would shrug their shoulders and ignore them, because they would be set to collect the same paycheck regardless.
2. Seniority – unions insist that payment and retention be based on seniority. So that a poor teacher 30 years in, earns more than a terrific teacher with 10 years experience. What’s worse, seniority insists that all lay-offs start with the newest additions. So, as Matthew Tully points out in his coverage of Indianapolis’s attempts at education reform, teachers nominated for the teacher of the year award are laid off, in order to protect those with more “seniority”.
3. Litigation – unions insist upon “due process” for teachers put under performance review. “Due process” turns out to be reviews that take years and cost hundreds of thousands of dollars in lawyers bills (those dollars are your tax dollars). Upon a real review the vast majority of teachers put under performance review are done so for charges so egregious, that in any other business they would be fired on the spot. In Steven Brill’s recent piece The Rubber Room, examples of New York City public schools teachers found drunk and asleep with a full class of students are given. The process that Brill details is required to get rid of these teachers can cost up to half a million dollars in lawyers fee and take longer that the O.J. Simpson murder trail, all while the teacher under investigation continues to receive her salary, and accumulate a pension!

Fortunately, we are in a rare position in our political history where something may actually be done about these problems. Democrats are normally seen as in the pocket of the teachers unions. But our President (who I have long supported on this blog) is not. President Obama and Secretary of Education Arne Duncan, have both voiced their support of charter schools, parent/student choice and the end of seniority practices.

These positions often shock the teachers themselves. Here is the BEST part of the Brill’s article:

“(A teacher under investigation) sat in a lounge chair that she had brought from home. She declined to say what the charges against her were or to allow her name to be used, but told me that she was there “because I’m a smart black woman.”

I asked the woman for her reaction to the following statement: “If a teacher is given a chance or two chances or three chances to improve but still does not improve, there’s no excuse for that person to continue teaching. I reject a system that rewards failure and protects a person from its consequences.”

“That sounds like Klein and his accountability bullshit,” she responded. “We can tell if we’re doing our jobs. We love these children.” After I told her that this was taken from a speech that President Obama made last March, she replied, “Obama wouldn’t say that if he knew the real story.”