Empathy Versus Sympathy In Management Consulting

I’ve had some interesting discussions on how corporate politics play a role when consulting to clients. Perhaps I have a parochial view here.

My take is that consultants should take no part in corporate politics.

It was a lesson that I learned early on while at the management consulting firm PRTM (a great firm to work for BTW – see Consulting Magazine PDF here).
Here’s the rationale for "no politics": consultants are often brought in to make things
better. Clients pay a premium for consultants for any number of
reasons. One common reason is that consultants are supposed to be
unbiased third-parties. If one gets consumed in politics, there’s not
enough focus on motivating everyone to get to the end goal.

Here’s another distinction (my own wrinkle) as it relates to consulting:

  • In consulting, empathy is the ability to understand what a person is going through.
  • Sympathy goes one step further. One not only understands a person but also agrees with the person on an emotional level.

Sympathy can be the "dark side of the Force". Suppose one is working
within a business unit (sponsored by one of the EVPs) and there are two
VPs below the EVP that don’t get along with one another. You are alone
in the office with one of the VPs that you may like better from a
personal chemistry point of view, and this VP starts to bad mouth the
other VP. If you join into this sort of thing, while you may be
ingratiating yourself with the one VP, you are hurting the client by
participating in politics. Bad mouthing is just not constructive. In
this sort of scenario, you should probably consider something like
letting the VP know that you can understand why he/she might feel this
way but that as a consultant, you can’t have any part in this. Other
good options would be to try to get the VPs to work it out
face-to-face. One may also want to probe a bit with the VP to see if it
is a worthwhile thing to bring things up with the EVP if the
disfunctionality is hurting the productivity of the business in a
significant way. Junior consultants should probably also consult with
their firm’s primary manager for the engagement, especially before
escalating things to the client sponsor level.

Watching Nickels And Dimes On Legal Costs In Start-Ups And Ventures

Venture capitalist Ed Sim had a good post recently that touched on a number of things ranging from principle-centered negotiation to matching the core DNA and chemistry of a team in a venture. He entitled his post, "Nickels and Dimes Don’t Add Up" to reflect his late-in-the-negotiation realization that perhaps the DNA of a prospective executive hire didn’t match up because some of the aspects of the negotiation got extended too long for little reason. Because negotiations for executive employment arrangements can be complicated and involve more layers of legal mechanics stretching into the Board-level, his post triggered some tangential thoughts I had on the costs of legal and bootstrapping these costs from garage-level operations through seed and some cases of Series A financing. I suppose I could have called this post, "Bootstrapping Legal So That Nickels and Dimes Don’t Add Up Too Much".

A core problem with bootstrapping legal costs (and following a variation of a "cash is king" strategy) is that a company may pay for things later by bootstrapping these things now. For example, if a company needs to perfect its intellectual property rights because of poor professional services agreements, this can be a sore spot to have to go back to every customer one has dealt with to perfect the agreements.

But lawyers can cost from $200/hr to $500/hr. To create additional pressure on ventures, post-bubble many legal firms
(not to mention employees and other partners) pushed down their
willingness to take stock options in lieu of portions of cash compensation. Some are willing to push off costs for a few months, but you need an in then.

Let’s face reality then. Not everyone can afford to have lawyers draft every legal document change, even if one tries to make sure that drafting is the last step after negotiating or planning business terms.

If find it useful early on to know what type of company is in the making. This way you can think about how complex the company may be in the reasonable future (e.g., 12 to 18 months). As examples of types of companies and some of the pertinent legal aspects:

  1. Services-only company – may need very basic things like NDAs, professional services agreements, and subcontracting agreements
  2. Software-only company – may need more advanced things like NDAs, MNDAs, licensing,
    maintenance, OEM inbound and/or outbound, distribution and partnership
    agreements
  3. Software and services company – may need all of the above, plus additional
    considerations for when they interrelate surrounding intellectual
    property rights and/or interstate tax, say

I’ve seen the stuff above range from $1,000 to $25,000ish. When one
talks about adding core infrastructure paperwork (e.g., equity, stock
option plan, executive employment docs) costing anywhere from $5,000 to
$25,000ish, and then adding stock purchase or recap docs (post Seed round)
costing anywhere from $25,000 to over $100,000, things add up over time. One really needs to breakdown the timing of company needs (and scope of work) to get narrower ranges on these costs (and thus to bootstrap the org along).

To weigh through some of this entrepreneurial & legal jungle, I find it useful to examine some pertinent operational considerations:

  1. Whether there will be a future for the venture  – Entrepreneurs are pioneering, experimenting, and there is high risk early on. Don’t expend too much on legal until you’ve figured out what you are doing and what works. Somewhat related to this, don’t make core foundation documents or organizational structures too complex and customized unless you really need to.
  2. How far out the next phase of the future is – Try to storyboard out the future of the firm in a rational way. Consider only structuring legal stuff to keep you rolling for 12 to 18 months. Things like getting perfect distribution, licensing, and maintenance agreements may not make sense until you’ve got more traction selling direct. Why? People may not be able to sell accounts for you until you’ve a critical or workable mass of reference accounts. Although one may pay $5K more or even $15K to fix the job in the future on a $10K job, weigh the costs systematically.
  3. What that future could look like – Will there be things like capital raises? On core infrastructure documents (primarily corporate finance documents), I would not mess around here too much. In my opinion, these problems are the most expensive to fix, and it is in part because the problems are more diffused through the legal documents. The key factor that one can control, however, is that looking for iron-clad documentation and customization can cause much $$ pain early on. Maybe some of this can be fixed if the venture makes it to the next round.

Yet another strategy is to look at each of these types of documents above and figure out where they are most likely to break. If you need lawyers to focus on just getting that piece of the document iron-clad, this is another strategy to minimize costs in a somewhat "layered way".

I also find it useful to note, at least based on my experiences, that so long as one is reasonably careful, there’s little that lawyers can’t fix. Delaying costs is a key principle to look at.

Aside from actively managing legal costs and mechanics, I have another good option. Consider having a lawyer in as one of your business partners. They can save you a ton and help put your mind at ease.

Note these are insights on legal topics within start-ups from a
non-lawyer but from a person that has worked with a number of lawyers
in corporate finance and infrastructure, intellectual property, and
employment and human resources within start-ups and growth firms. I have been spanked (lightly) by lawyers for drafting stuff.

Steve Shu

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Technology Executive And CIO Glass Ceilings?

This entry has been cross-posted at The CIO Weblog.

Kory/Ferry International, one of the well-known executive search firms, has an interesting article in Computerworld entitled, "Is There Really A Glass Ceiling For CIOs?" Probably interesting for all ambitious technology managers to reflect on. In the article (snipped a bit, ellipsis and bold added by me):

As more and more CIOs aspire to general management roles and to become chief operating officers or CEOs, it’s important to ask if there really is a glass ceiling arresting the upward mobility of technology executives …

As executive recruiters, we at Korn/Ferry International have so far found no hard evidence of a glass ceiling for CIOs … Our research has revealed important differences, as well as similarities, in the ways in which CIOs and CEOs approach critical leadership issues.

Here’s the some similarities and differences they found:

  1. CEOs and CIOs have similar leadership styles
  2. CIOs exhibit a more adaptive thinking style (CEOs tend to steer more than adapt)
  3. CIOs tend to demonstrate less tolerance for ambiguity than CEOs
  4. CIOs demonstrate (on average) noticeably less confidence than their CEO counterparts

Some random selections of things they say will help to further the cause of getting a CIO promoted:

  • Move form cost-center to profit-center mentality
  • Understand financial statements
  • Bring in the money

With this as backdrop, would I conclude that there are no glass ceilings for CIOs as Korn/Ferry did? Perhaps. But unless a CIO is very proactive, the presence of the trench that CIOs are in is pretty close to a glass ceiling to me. Although its nice to talk about working on the three bullet points I’ve outlined above, many CIOs will have a hard time finding opportunities to really cut their teeth in these areas when they are nose deep in CIO stuff (for example, a proactive "bring in the money" angle could be tough). Perhaps getting CIOs more opportunities to work on boards would be a good step to increasing their global view.

Steve Shu

Continue reading “Technology Executive And CIO Glass Ceilings?”

Free Whitepaper And Corporate Blogosphere (Corporate Intranet) Software

21Publish, a niche provider of blogging software for turnkey blogging communities (as contrasted to personal blogging platforms), has just released a free, new whitepaper (note: PDF file) on selecting software for corporate blogospheres (i.e., blog intranets).

Whitepapers are used to help people understand the tradeoffs when attacking certain problems, whether this is selecting an embedded database, email solution, or message queue vendor. Whitepapers try to do this with an unbiased approach as much as possible – the goal of a whitepaper is to show thought leadership and help people. Not to sell software directly. If it does, great.

In any case, in my work as a consultant to 21Publish, I’ve learned that there are different value propositions and functional features that one should look for in a community publishing solution as compared to personal blogging platforms, and such aspects are laid out in the whitepaper.

The whitepaper release is also on the heels of release of a new pricing plan that provides free use for communities of up to 100 users. I’ve started to suggest use of the software for certain classes, alumni groups, small companies, and schools as a communication platform. Take the step to introduce one of your non-profit or commercial communities to blogging. They may also find that the 21Publish solution is appropriate for their use. Help spread the word by emailing, talking, or blogging about it. Thanks!

On Benefits For Small Companies

Ross Mayfield has a great post that introduces the notion of a professional employer organization (PEO) like Administaff, and I wanted to add some caveats based on my experiences with small organizations.

Companies like Administaff provide a product that encompasses a number of things, one of the most beneficial things being that one can get lower rates for benefits (especially healthcare insurance) because Administaff essentially gets purchasing power discounts by aggregating employees into a larger pool. The mechanics of using a company like Administaff are such that employees essentially engage in dual-employment arrangements. For the purposes of cash payroll and benefits, the employees are employed by Administaff. For the purposes of stock option compensation, intellectual property and invention, etc. rights, employees have a co-existing, direct relationship with the small company. (As a note, when adding Administaff coverage, sometimes employers need to perfect pre-existing agreements or add additional agreements with employees – as examples, literally firing employees may trigger severance clauses & simply adding people to a form Administaff employment agreement may not cover special terms like performance and milestone bonuses, etc.).

When exploring a company like Administaff, however, I think its also important to look at independent brokers that can get companies a mix of health insurance, dental, STD, 401(k), etc. In the end, Administaff (or another PEO) may make sense, but there are some other levers that I see for considering an independent broker:

  • Who coverage is provided by – Companies like Administaff currently only provide health insurance via United Healthcare. Your employee base may have a preference for Blue Cross Blue Shield (perhaps because of coverage by state), and the company’s demographics (and foreseeable demographics for a year) may be such that marginal purchasing power benefits passed on to the small company are not that big.
  • Tax and cash flow adjustments – If your company uses something like QuickBooks Payroll Service (where payroll and the accounting system are tightly coupled) and has an able finance person, your company can sometimes be more agile and flexibile in accelerating, decelerating, or changing benefits withholdings (e.g., 401(k) withholdings) across payroll periods. The end result could be substantial and creative tax savings (say $4K-$7K per employee/yr if one considers both 401k and Section 125 plan fringe cases) for both the employee and the company.
  • Between bootstrap and having enough cash – Although companies like Administaff have different tiers of plans, beyond simply changing deductibles, etc. using benefits brokers one can literally form fit a plan into the demographics. For example, you may find that only health insurance, 401(k), and cafeteria plan (or whatever) have any meaning for the company. When using a particular PEO, you may be canned into a plan that throws in some extra stuff (e.g., dental, STD) that you don’t want $wise.

On yet the other hand, there are a lot of headaches that people can avoid by using something like an Administaff. When employees depart, for example, administering COBRA and/or continuance benefits come to the top of mind. It is a pain in the neck to manage yourself. Multi-state employees are also a pain, but some of the pain is alleviated when using QuickBooks deluxe payroll service (which I find that people rarely use, but I swear by it – just get it in early in an org and at the very beginning of a tax year).

Interesting Article On The Future Of PayPal

PayPal is a phenomena we’ve seen in the fairly recent past, but it’s interesting to think about the possibilities of significantly challenging Visa or MasterCard and moving beyond the traditional eBay markets. If one does a very crude compounded annual growth rate comparison using info in the attached BusinessWeek article, PayPal gets to be about 20% of the size (payment volume) of Visa in 15 years. From BW,

And more than ever,
PayPal is knocking elbows with Visa, MasterCard, and the banks that
issue their cards. It just passed American Express, the leading bank
card issuer. PayPal now has 72 million worldwide accounts, compared
with AmEx’s 65 million. Yet that pales next to card associations Visa
International and MasterCard International Inc., with 1 billion and 680
million cardholders, respectively. Likewise, PayPal’s $19 billion in
total payment volume last year falls far short of Visa’s $3 trillion
from all of its member banks. PayPal, however, is expanding much faster
— 44% last year, to Visa’s 14%.

Sure folks at Visa can claim that (per the article) "consumers want to put as much of their purchases [as they can] on the payment vehicle they know and trust." That said, PayPal is kind of different animal. In some ways, the PayPal vehicle can be thought of being beyond convenience. There’s some other key psychological marketing and use factors in play beyond just trust. Like the casino chips one gets in Las Vegas, people can both receive PayPal payments and make PayPal payments like it it is just funny money (or email). And there’s no negative association with credit card debt and high plastic fees with PayPal. I bet the marginal propensity to spend PayPal dollars could be much higher than Visa in some sectors … not that we want to increasing spending … but that is yet another story.

Analogy Between Entrepreneurship and Optimization Problems

Having both a business and engineering background, I have tendencies to try to think things out in advance very carefully. Perform strategic analyses, competitive assessments, comprehensive/near-exhaustive engineering analyses, etc. Although I’m exaggerating slightly, there’s a lot said for thinking "globally". Why be trained to think any other way?

But thinking globally can be overdone and is just one paradigm. Another option is to think more "locally", to see what is around you, to react to market demand, to see what positive and negative responses one gets when packaging products, and to be opportunistic and experimental. These latter two characteristics are very entrepreneurial in spirit.

To get a little deep and techie for a moment, in engineering disciplines such as signal processing, data compression, and neural networks, there are a variety of optimization problems where things like training a digital machine to make predictions about what type of audio sound signal to send out through set of speakers (say to cancel out road noise within the interior of a car but not the CD music coming out of the speakers) are achieved in a large part by measuring the error in the results and providing feedback to the digital machine (which is trying to learn to achieve its task). The scope of error can be thought of as a "surface", much like the terrain in mountainous areas like the western region of the US. Sometimes the digital machine will make an error that is higher or lower depending on what is going into the machine.

There are at least two ways for these machines to adapt, and these are like the global and local concepts I referred to at the beginning of this post.

A global engineering technique to updating the machine could be analogous to flying over the terrain of western region of the US and getting a look at the low spots. Since we are trying to minimize the "error" by finding the lowest spot possible, this more global view has the benefit of looking at all of the data. Renting a helicopter can be expensive though. Additionally, a global look may not always be a GLOBAL look. There could be lower spots on the other side of a mountain right in front of you. Additionally because one is so far from the surface, it is possible that perspective you hold is distorted – you cannot actually see the true contour of the terrain by being so high up (to use an often used business phrase … "to be at the 50,000 foot-level").

A local engineering technique (one case being called a "gradient descent algorithm") is where you start in one spot (say at the top of the mountain or at a randomized point) and you look for the steepest slope downward. You then walk a little bit in that direction. If you walk too fast, you can wipe out and the situation becomes unstable. Although this technique may result in a local minimum (i.e., not the lowest spot on the terrain), it can be an effective technique for moving forward. Other techniques (cheaper than renting a helicopter) to finding low spots may be to have multiple people dropped off in different spots and communicating via walkie talkie. Hybrid global and local techniques also work.

In any case, I am all for global thinking, but often it is refreshing to think about things more locally. For one thing, you are well grounded in reality and have a structured method for moving forward. As long as one can step back from time to time and look out at the horizon and to see whether the global goals are being met, it is another way of achieving some balance.

Update (5/18/05): Speaking of optimization problems and neural nets, if you haven’t tried this neural net based site for the game twenty questions, it is pretty remarkable. Quite a body of knowledge captured within. More info also here at Marginal Revolution.

Update (5/22/05): And in honor of Darth Vadar … try the Sith version