I read last week that there are a growing number of regions around the country where there are labor shortages. Businesses literally cannot find the workers they need to operate their businesses.
Today is Labor Day, a day to celebrate the workers who built America and the labor movement that rose up to protect workers from abusive labor practices.
And so it is worth noting that we don’t have enough labor in our country right now. Some of this results from the strong economy which is ten+ years into an expansion. Some of this results from restrictive immigration policies.
But whatever the cause, we have an abundance of capital and a shortage of labor in the economy right now.
That makes it difficult to operate a business and even more difficult to expand. Automation can solve some of these issues and I expect we will see more automation in an environment where capital is available to fund investments in automation and labor is very tight.
But the other question is how much longer should we maintain a restrictive immigration policy. I believe we should have more legal immigration in the United States. We have labor shortages and many talented people who would like to come here and live and work.
It seems like a no brainer to me that we should expand legal immigration in the US right now.
Many people in startup land believe that the answer to the challenges around forcing departing employees to exercise vested options is to simply extend the option exercise period to the maximum (ten years) allowed by the IRS.
It certainly is one of the techniques that are available to companies and one that a number of our portfolio companies have adopted. Another option, and one that I prefer, is for a market to develop around financing these option exercises (and the taxes owed) when employees depart.
However, if you are thinking about extending the option exercise period for departing employees, you should understand that it will cost your company something.
Here is why:
Options are worth more than the spread between the strike price (the exercise price) and what the stock is actually worth. They have additional value related to the potential for the stock price to appreciate more over the life of the term of the option.
There is a formula that options traders (and companies that issue options) use to value options. It is called the Black-Scholes formula.
If you click on that link, you will quickly realize that the math used in the Black-Scholes formula can be complicated. But fortunately, there is a neat little web app that I frequently use to estimate the value of an option. It is here.
So let’s say that your company is issuing options at $1/share (your 409a) but your most recent financing was done at $2/share. Then a four year stock option is worth roughly $1.25/share.
If, on the other hand, you offer a ten year option exercise period to your employees, the value of the option rises to $1.52/share, reflecting the longer period of time that the stock could appreciate over.
That is a 20% increase in the cost of issuing stock options. You could mitigate that by reducing the number of options you issue to incoming employees by 20% but that might make your equity comp offers less attractive to the “market” because incoming employees won’t value the longer exercise periods appropriately.
Stock based compensation costs are real costs even though many in startup land think of options as “free” because they don’t cost cash. The accounting profession has attempted to estimate these costs and companies do put stock based compensation costs on their income statements. If you go with ten year exercise periods instead of four year exercise periods, expect those expenses to go up significantly. Twenty percent is just the amount in my example. It could be larger, possibly as high as fifty percent (or more) if your exercise price is a lot closer to the current value of your stock.
This extra value of a ten year stock option versus a four year option is known as “overhang” by investors. It is the cost of carrying a group of people who have a call option on your stock but don’t have to pay for it for a long period of time. Generally speaking investors don’t like a lot of overhang in a stock.
All of that said, employees are the ones who create value for shareholders. They need to be compensated for that. And I am a fan of both cash compensation and stock based compensation. I like to see the employees of our portfolio companies well compensated in stock. That has a cost and everyone should be well aware of what it is. Longer exercise periods increase that cost. I would rather put more stock in the hands of the employees of our portfolio companies than give them longer exercise periods. But regardless of where one comes out on that tradeoff, it is important to recognize that it is a tradeoff. There are no free lunches, not even in stock option exercise periods.
Today, as is my custom on the first day of the new year, I am going to take a stab at what the year ahead will bring. I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right, and some wrong. But having a point of view, a foundation, is very helpful when operating in a world that is full of uncertainty.
I believe and have been telling those around me that I think 2019 will be a “doozy.” I think we will see major dislocations in the leadership of the United States, a bear market in stocks, a weakening economy, a number of issues with the global economy including a messy Brexit and a sluggish China. All of this will lead to a more cautious stance by investors in the startup economy. And crypto will not be a safe haven for any of this although there will be signs of life in crypto land in 2019.
Let’s take each of those in the order that I mentioned them.
I believe that we will have a different President of the United States by the end of 2019. The catalyst for this change will be a devastating report issued by Robert Mueller that outlines a history of illegal activities by our President going back decades, including in his campaign for President.
The House will react to Mueller’s report by voting to impeach the President. Which will set up a trial in the Senate. That trial will go so badly for the President that he will, like Nixon before him, negotiate a resignation that will lead to him and those close to him being pardoned for all actions, and Mike Pence will become the President of the United States sometime in 2019.
I believe this drama will play out through most of 2019. I expect the Mueller report to be issued sometime in the late winter/early spring and I expect an impeachment vote by the House before the summer, leading to a trial in the Senate in the second half of the year.
The drama in Washington will have serious impacts to the economy in the United States starting with our capital markets.
The US equity capital markets enter 2019 on shaky ground. Though the last week of the year brought us a relief rally, the markets are dealing with higher rates, some early indications of a weaker economy in 2019 (possibly due to higher rates), and, of course, the potential for the drama in Washington that we’ve already discussed. Here is a chart of the S&P 500 over the last five years:
I expect the S&P 500 to visit 2,000 sometime in 2019 and then bounce around that bottom for much of the year. This would represent a decrease in the S&P’s trailing PE multiple to around 15x which feels like a bottom to me given the recent history of the equity markets in the US:
Interest rates have been rising gradually in the US for the last three years. The Fed has taken its Fed Funds rate from essentially zero three years ago to almost 2.5% today:
The rates that are available to consumers and businesses have followed and I expect that to continue in 2019. Here is a chart of the interest rates on the three most popular mortgage products in the US:
When it gets more expensive to borrow, marginal projects don’t get funded. And what happens at the margin has a much larger impact on the economy than most people understand. No wonder the President wants to fire the Fed Chairman.
I expect the combination of higher rates, uncertainty in Washington, and storm clouds globally (which we will get to soon) will cause business leaders in the US to become more cautious on hiring and investment. Consumers will make essentially the same calculations. And that will lead to a weaker economy in the US in 2019.
The global picture is not much better. The eurozone is about to go through the most significant change in decades with some sort of departure of the UK from the EU (Brexit). It remains unclear exactly how this will happen, which in and of itself is creating a lot of uncertainty on the Continent. I don’t expect most businesses in Europe to do anything but play defense in 2019.
Probably the biggest unknown for the global economy is the resolution of the ongoing trade tensions between China and the US. It seems inevitable that China will make some concessions to the US to resolve these trade tensions. But, of course, what happens in Washington (first issue) may impact all of that. In the meantime, the uncertainty around trade and exports hangs over the Chinese economy. China’s GDP has been slowing in recent years as it achieved relative parity with the US and the Eurozone:
Any significant trade concessions from China could impact its growth prospects in 2019 and beyond, which will take the most powerful engine of global growth off the table this year.
So all of that is a pessimistic take on the broader macro environment in 2019. How will all of this impact the startup/tech economy?
The startup/tech economy is somewhat immune to macro trends. Many startups and big tech companies were able to grow and expand their businesses during the last financial downturn in 2008 and 2009. Some very important tech companies were even started in those years.
The tech/startup economy is driven first and foremost by technical and creative (ie business model) innovation. And that is not impacted by the macro environment.
So I expect that we will continue to see big tech invest and grow their businesses and do well in 2019. I expect we will see IPOs from big names like Uber/Lyft/Slack, although I also expect those deals will get priced well below the lofty expectations they have in mind right now. Some of that will be because of weak equity markets in the US, but it is also true that most of the IPOs in 2018 also priced below the lofty “going in” expectations of founders, managers, boards, and their bankers. The public markets have been much more sanguine about value than the late stage private markets for a long time now.
However, I do think a difficult macro business and political environment in the US will lead investors to take a more cautious stance in 2019. It would not surprise me to see total venture capital investments in 2019 decline from 2018. And I think we will see financings take longer, diligence on new investments actually occur, and valuations to come under pressure for even the most attractive opportunities.
But all of that is going to happen at the margin. I expect 2019 to be another solid year for the tech/startup sector as we are in a possibly century-long conversion from an industrial economy to an information economy and the tailwinds for tech/startup vs the rest of the economy remain in place and strong.
Any set of predictions for 2019 from me on this blog would not be complete without some thoughts on crypto. So here is where my head is at on that topic.
I think we are in the process of finding the bottom on the large, liquid, and lasting crypto-tokens. But I think that process could take much of 2019 to play out. I expect we will see some bullish runs, followed by selling pressures taking us back to retest the lows. I think this bottoming out process will end sometime in 2019 and we will slowly enter a new bullish phase in crypto.
I think the catalyst for the next bullish phase will come as the result of some of the many promises made in 2017 coming to fruition in 2019. Specifically, I think we will see some big name projects ship, like the Filecoin project from our portfolio company Protocol Labs, and the Algorand project from our portfolio company Algorand. I think we will see a number of “next gen” smart contract platforms ship and challenge Ethereum for leadership in this super important area of the crypto sector. I also expect the Ethereum open source community to ship a number of important improvements to its system in 2019 and defend their leadership in the smart contract space.
Other areas of crypto where I expect to see meaningful progress and consumer adoption happen in 2019 are stablecoins, NFT/cryptoassets/cryptogaming, and earn/spending opportunities, particularly in the developing world.
There will also be pressure on the crypto sector in 2019. The area I am most concerned about are actions brought by misguided regulators who will take aim at high quality projects and harm them. And we will continue to see all sorts of failures, from scams, hacks, failed projects, and losing investments be a drag on the sector. But that is always the case with a new emerging technology that allows anyone to set up shop and get going. Permissionless innovation produces the greatest gains over time but also comes with the inevitable bad actors and actions.
So that’s where my head is at on 2019. Do I sound pessimistic? I suspect I do, but I am not. I am incredibly optimistic, like my partner Albert and can’t wait to get going and make things happen in this new year. It is going to be a doozy.
I heard about a cool program that helps NYC tech companies build more diverse teams. It is called Winternships.
The program is run by a group called WiTNY (Women in Tech and Entrepreneurship in NY) which is a three year-old collaboration between Cornell Tech and CUNY to drive more female students into tech majors or minors, and into the NYC tech ecosystem.
It works like this:
A Winternship is a paid, three-week internship experience during the January academic recess for freshman and sophomore women in tech. Participating companies design an ‘immersion’ experience in their business – students sit in on meetings, meet executives, go on site visits — and they work together on a challenge project that they pitch on the last day. WiTNY identifies students based on a match between your needs and their skills. Their team will even help you craft the Wintern experience if you want.
Here are some stats on the program:
Last January, 46 companies raised their hand and welcomed 177 CUNY women into their companies. Amazingly, 54% of these young women were able to parlay that experience into a paid summer tech internship somewhere in the city.
And here is the demographic of the CUNY student body:
CUNY is among the largest and most diverse universities in the country, with 250,000 undergrads and approximately 85% students of color.
If your team is trying to figure out how to diversify your internship and entry level hires, or just want to open your doors to transform the lives of young New Yorkers, considering hiring a Wintern team this January. And if you’re a small startup or a non-profit, WiTNY will even pay the student stipends for you.
Sounds great, right? If you want to host a Winternship at your company this January, you can get started here.
WorkMarket has been a big part of my personal portfolio for almost eight years.
USV and Spark seeded WorkMarket in June 2010, backing two serial entrepreneurs Jeff Leventhal and Jeff Wald.
The idea was to create a cloud based SAAS application to allow enterprises to manage their contingent workforces which were growing in size and complexity. It seemed like a timely opportunity at the time and it was. Eight years later the SAAS contingent workforce management market is in the hundreds of millions of dollars annually and WorkMarket is the creator and leader of it.
But like all startups, the WorkMarket story has a number of twists and turns. The market was a bit slower to develop than we had initially hoped and it wasn’t until the last few years that big companies started to include contingent workforce management in their SAAS budgets.
We also lost one of the two founders, Jeff Leventhal, when he stepped aside at the end of 2014 and was replaced as CEO by Stephen DeWitt who was recruited to the opportunity by Jordan Levy, who has been everything you could ask for in a co-investor.
The last few years at WorkMarket have been amazing. The senior team that Stephen and Jeff Wald built is among the best that I have had the opportunity to work with. And the contingent workforce market really exploded in 2016 and 2017.
But like all exploding markets, the expanding opportunity brought a lot of new entrants and buyers interested in getting into it. And one of those big companies, ADP, made us an offer we could not refuse, both in terms of the financial opportunity and the fit with their business. ADP has been helping enterprises, large and small, with human capital management solutions for decades and has the customer base, market knowledge, and capital to lean into this opportunity in a way that a venture backed startup never could.
So WorkMarket is now part of ADP and I am pleased with that outcome. Jeff Wald will take over leading WorkMarket for its next phase and he is well suited and deserving of that role. He has been the one constant for the eight years that I have worked on WorkMarket. Everyone else who was there at the start has come and gone. But Jeff and I saw it through from start to finish and I appreciate that very much.
I also want to acknowledge Stephen and the senior team of Grady Leno, Jim Chou, Marcy Shinder, and Tom Benton. As I said, this is an amazing team and it has been a pleasure to watch them build the product, market, and customer base. They are all superstars in my book.
This is the way of the VC business. You get inspired by an idea and a couple founders. You spend a lot of time helping them build something. You give a piece of yourself to the business. And one day, you are done. That day, for me and WorkMarket, is today and I have enjoyed the ride very much.
This is a post that I am struggling to write. I really have no idea what is going to happen in 2018.
Will the crypto markets continue in their bull cycle? I have no clue. I was showing my daughter’s friend an app that helps people save and invest and he said to me “I don’t need that, I just buy some ETH every week.” I said “that’s a good plan until it isn’t.” I just don’t know when buying crypto will stop being a good idea. It was a great idea in 2017.
Will the economy extend its eight year expansion? I have no clue. The longest post WWII economic expansion was 10 years from 1991 to 2001. Can this one beat that one? Maybe. Will this one also burst over the collapse of another tech bubble? Maybe. But again, I have no idea when that might come.
Will the corporate tax cuts that are coming from Trump’s tax bill lead to increased hiring and investments, or will companies simply hoard that cash or pay it out in dividends? Likely a bit of both. But I think Wall Street has largely priced in the increased earnings so I’m not sure the tax bill will be a boon for the stock market in 2018.
Will the current Internet oligopoly (Amazon, Apple, Facebook, Google) continue to take share from the rest of the sector, or will one or more start to falter? I’d like to see the latter, but I suspect it will be more of the former.
Will the rise of massive growth funds (SOFTBANK, Sequoia, etc) lead to the best and brightest tech companies delaying IPOs even longer? The logical answer is yes, but I think the answer may be no. We see an increasing desire of founders in our portfolio to take their companies public.
Will the tech backlash that I wrote about yesterday continue to escalate? Yes.
Will we see more gender and racial diversity in tech? Yes.
Will Trump be President at the end of 2018. Yes.
Will the GOP lose control of Congress in the midterm elections. Yes.
Will we avoid war with North Korea? I sure hope so.
So there you have it. Ten questions. A few predictions. A lot of unknowns. That is how I am going into 2018.
Maybe I got tired of predicting a breakout year for crypto as I had mentioned it in my 2015 and 2016 predictions, but whatever the cause, I completely missed the biggest story of the year in tech.
If you look at the Carlota Perez technology surge cycle chart, which is a framework I like to use when thinking about new technologies, you will see that a frenzy develops when a new technology enters the material phase of the installation period. The frenzy funds the installation of the technology.
2017 is the year when crypto/blockchain entered the frenzy phase. Over $3.7bn was raised by various crypto teams/projects to build out the infrastructure of Internet 3.0 (the decentralized Internet). To put that number into context, that is about equal to the total seed/angel investment in the US in 2017. Clearly, not all of that money will be used well, maybe very little of it will be used well. But, like the late 90s frenzy in Internet 1.0 (the dialup Internet) provided the capital to build out the broadband infrastructure that was necessary for Internet 2.0 (the broadband/mobile Internet), the frenzy in the crypto/blockchain sector will provide the capital to build out the infrastructure for the decentralized Internet.
And we need that infrastructure badly. Transaction clearing times on public, open, scaled blockchains (BTC and ETH, for example) remind me of the 14.4 dialup period of the Internet. You can get a taste of what things will be like, but you can’t really use the technology yet. It just doesn’t work at scale. But it will and the money that is getting invested via the frenzy we are in is going to make that happen.
This is the biggest story in tech in 2017 because transitions from Internet 1.0 to Internet 2.0 to Internet 3.0 cause tremendous opportunity and tremendous disruption. Not all of the big companies of the dialup phase (Yahoo, AOL, Amazon, eBay) made a healthy transition into the mobile/broadband phase. And not all of the big companies of the broadband/mobile phase (Apple, Google, Facebook, Amazon) will make a healthy transition into the decentralized phase. Some will, some won’t.
In the venture business, you wait for these moments to come because they are where the big opportunities are. And the next big one is coming. That is incredibly exciting and is why we have these ridiculous valuations on technologies that barely/don’t work.
The Beginning Of The End Of White Male Dominance:
The big story of 2017 in the US was the beginning of the end of white male dominance. This is not a tech story, per se, but the tech sector was impacted by it. We saw numerous top VCs and tech CEOs leave their firms and companies over behavior that was finally outed and deemed unacceptable.
I think the trigger for this was the election of Donald Trump as President of the US in late 2016. He is the epitome of white male dominance. An unapologetic (actually braggart) groper in chief. I think it took something as horrible as the election of such an awful human being to shock the US into deciding that we could not allow this behavior any more. Courageous women such as Susan Fowler, Ellen Pao, and many others came forward and talked publicly about their struggles with behavior that we now deem unacceptable. I am not suggesting that Trump’s election caused Fowler, Pao, or any other woman to come forward, they did so out of their own courage and outrage. But I am suggesting that Trump’s election was the turning point on this issue from which there is no going back. It took Nixon to go to China and it took Trump to end white male dominance.
The big change in the US is that women now feel empowered, maybe even obligated, to come forward and tell their stories. And they are telling them. And bad behavior is being outed and long overdue changes are happening.
Women and minorities are also signing up in droves to do public service, to run for office, to start companies, to start VC firms, to lead our society. And they will.
Like the frenzy in crypto, this frenzy in outing bad behavior, is seeding fundamental changes in our society. I am certain that we will see more equity in positions of power for all women and minorities in the coming years.
The Tech Backlash:
Although I did not get much right in my 2017 predictions, I got this one right. It was easy. You could see it coming from miles away. Tech is the new Wall Street, full of ultra rich out of touch people who have too much power and not enough empathy. Erin Griffith nailed it in her Wired piece from a few weeks ago.
Add to that context the fact that the big tech platforms, Facebook, Google, and Twitter, were used to hack the 2016 election, and you get the backlash. I think we are seeing the start of something that has a lot of legs. Human beings don’t want to be controlled by machines. And we are increasingly being controlled by machines. We are addicted to our phones, fed information by algorithms we don’t understand, at risk of losing our jobs to robots. This is likely to be the narrative of the next thirty years.
How do we cope with this? My platform would be:
Computer literacy for everyone. That means making sure that everyone is able to go into GitHub and read the code that increasingly controls our lives and understand what it does and how it works.
Open source vs closed source software so we can see how the algorithms that control our lives work.
Personal data sovereignty so that we control our data and provision it via API keys, etc to the digital services we use.
A social safety net that includes health care for everyone that allows for a peaceful radical transformation of what work is in the 21st century.
2017 brought us many other interesting things, but these three stories dominated the macro environment in tech this year. And they are related to each other in the sense that each is a reaction to power structures that are increasingly unsustainable.
I will talk tomorrow about the future, a future that is equally fraught with fear and hope. We are in the midst of massive societal change and how we manage this change will determine how easily and safely we make this transition into an information driven existence.
In my work to prepare for the Future of Labor conversation we had at NewCo Shift a few weeks ago, I talked to a number of experts who are studying job losses due to automation and thinking about what might be done about it. Two ideas that came up a number of times were the “robot tax” and the “basic income.”
The ideas are complementary and one might fund the other.
At its simplest, a “robot tax” is a tax on companies that choose to use automation to replace human jobs. There are obviously many variants of this idea and to my knowledge, no country or other taxing authority has implemented a robot tax yet.
A “basic income” is the idea that everyone receives enough money from the government to pay for their basic needs; housing, food, clothing so that as automation puts people out of work we don’t see millions of people being put out on the street.
What is interesting about these two ideas is that some of the biggest proponents of them are technology entrepreneurs and investors, the very people who are building and funding the automation technologies that have the potential to displace many jobs.
It is certainly true that we don’t know that automation will lead to a jobs crisis. Other technological revolutions like farming and factories produced as many new jobs as they wiped out and incomes increased from these changes. Automation could well do the same.
But smart people are wondering, both privately and publicly, if this time may be different. And so ideas like the robot tax and the basic income are getting traction and are being studied and promoted.
You ought to be willing to raise the tax level and even slow down the speed. That’s because the technology and business cases for replacing humans in a wide range of jobs are arriving simultaneously, and it’s important to be able to manage that displacement. You cross the threshold of job replacement of certain activities all sort of at once.
There is a lot of economic surplus that could come from automation. Let’s look at ride sharing. Today I pay something like $15 to go from my home to my office in the morning. Something like $10 of that ride is going to the driver. If the ride is automated, either the price goes to $5, saving me $10 a ride which then is surplus to me, or the profit that Uber is making goes up significantly, which is surplus to them. Some of both is likely to happen. This surplus could be taxed, either at the company level or the individual level, so that the cost of the ride doesn’t go down nearly as much and the driver can continue to compete with the robot or the driver can collect some basic income, funded by the robot tax, while they find a new line of work.
At least that is the idea.
I would not characterize myself as a proponent of a robot tax or a basic income. But I find these ideas interesting and worth studying, debating, discussing, and testing at a small scale to understand their impacts. We should absolutely be doing that.
I picked up a bad head cold in SF this week. It’s rainy and cold there and that got the best of me. So I’m running a post from the archives and medicating myself instead of writing today.
Retaining Your Employees
I hate to see employees leave our portfolio companies for many reasons, among them the loss of continuity and camaraderie and the knowledge of how hard everyone will have to work to replace them. Many people see churn of employees in and out of companies as a given and build a recruiting machine to deal with this reality. While building a recruiting machine is necessary in any case, I prefer to see our portfolio companies focus on building retention into their mission and culture and reducing churn as much as humanly possible.
There isn’t one secret method to retain employees but there are a few things that make a big difference.
1) Communication – the single greatest contributor to low morale is lack of communication. Employees need to know where the company is headed, what they can do to help get there, and why. You cannot overcommunicate with your team. Best practices include frequent one on ones between the managers and their team members, regular (weekly?) all hands meetings, quick standup meetings on a regular basis for the teams to communicate with each other, and a CEO who is out and about and available and not stuck in his/her office.
2) Getting the hiring process right – a lot of churn results from bad hiring. The employee is asked to leave because they are not up to the job. Or the employee leaves on their own because they don’t enjoy the job. Either way, this was a screwup on the company’s part. They got the hiring process wrong. The last MBA Mondays post(two weeks ago) was about best hiring practices. Focus on getting those right and you will make less hiring mistakes and experience less churn.
3) Culture and Fit – Employees leave because they don’t feel like they fit in. Maybe they don’t. Or maybe they just don’t know that they do fit in. Another post in this series on People was about Culture and Fit. You must spend time working on culture, hiring for it, and creating an environment that people are happy working in. This is important stuff.
4) Promote from within. Create a career path for your most talented people. The best people are driven. They want to do more, develop, and earn more. If you are always hiring management from outside of the company, people will get the message that they need to leave to move up. Don’t make that mistake. Hire from within whenever possible. Take that chance on the talented person who you think is great but maybe not yet ready. Work with them to get them ready and then give them the opportunity and then help them succeed in the position. Go outside only when you truly cannot fill the position from within.
5) Assess yourself, your team, and your company. We have discussed various feedback approaches here before. There is a lot of discomfort with annual 360 feedback processes out there. There is a growing movement toward continuous feedback systems. Whatever the process you use, you must give your team the ability to deliver feedback in a safe way and get feedback that they can internalize and act upon. You must tie feedback to development goals. Feedback alone will not be enough. Build a culture where people are allowed to make mistakes, get feedback, and grow from them. I have seen this approach work many times. It helps build companies where churn rates are extremely low.
6) Pay your team well. The startup world is full of companies where the cash compensation levels are lower than market. This results from the view that the big equity grants people get when they join more than makes up for it. There are a few problems with this point of view. First, the big option grants are usually limited to the first five or ten employees and the big management positions. And second, people can’t use options to pay their rent/mortgage, send their kids to school, and go on a summer vacation with the family. Figure out what “market salaries” are for all the positions in your company and always be sure you are paying “market” or ideally above market for your employees. And review your team’s compensation regularly and give out raises regularly. This stuff matters a lot. Most everyone is financially motivated at some level and if you don’t show an interest in your team’s compensation, they won’t share an interest in yours (which is tied to the success of your company).
I believe these six things (communicate, hire well, culture matters, career paths, assessment, and compensation) are the key to retention. You must focus on all of them. Just doing one of them well will not help. Measure your employee churn and see if you can improve it over time. A healthy company doesn’t churn more than five or ten percent of their employees every year. And you need to be healthy to succeed over the long run.
As I mentioned yesterday, I am moderating a panel this morning at NewCo Shift Forum on The Future Of Labor.
As I think about, there are three big megatrends impacting the future of labor/work.
The first has largely played itself out over the past thirty years and that is globalization and outsourcing. I believe we have seen most of the impact of that trend in the US as wages and the standard of living has risen dramatically around the world and has stagnated here in the US for the working class. We are not yet in balance with the rest of the developed/developing world, but we are getting close enough that it is a much harder decision now to move a job somewhere else.
The next two big megatrends are starting to happen and they will shape the next fifty years. They are the move to an on demand model for work and the automation of work.
And so, the two people that are joining me on stage this morning are people who can help us think about where all of this might be going.
Stephen DeWitt is the CEO of USV portfolio company Work Market. I wrote a bit about Work Market here a few months ago. Work Market’s software allows employers of all shapes and sizes to arrange the people they work with into labor clouds. These labor clouds include freelancers, contractors, and full time employees. When they need something done, they issue the work order to the labor cloud and someone picks up the work order and gets it done. If you think about many of the operational things companies do (provide customer service, install something, attend a marketing event, make a house call, etc), these labor clouds allow an employer to get the work done without thinking about the kind of relationship they have with the worker. This is the “on demand” model for work and I think we will see this model explode in the coming decades.
Maya Rockeymoore is the CEO of Global Policy Solutions, a think tank and advocacy organization that focuses on the needs of workers and their communities. She is an expert on the US Social Security System and has written extensively on it and other issues.
I talked to Maya last week in anticipation of this panel discussion and I wanted to get her take on what happens to all of the jobs we could lose to automation over the next few decades. She explained to that we may want to look at the safety net that we built with social security as a model. We will get into that in more detail this morning as that is an interesting idea to me.
I don’t think all the work opportunities will be gone in fifty years. But I do think the nature of work is changing quite dramatically in front of our very eyes. Some jobs will clearly be automated out of existence. We are already seeing that. And other jobs will go from being full time employment to on demand employment and that will require big adjustments from everyone, including policymakers.
I thought it was interesting in Henry Blodget’s talk at DLD, which I blogged this past weekend, that we have gained 30 hours a month in productivity over the past fifty years and that 28 hours of those gains have gone towards watching TV. We are going to gain even more hours in productivity over the next fifty years. And what we do with those hours will say a lot about who we are as people, what we value, and where we are headed as a society. It is very possible that jobs and work will matter less and other things will matter more, a concept my partner Albert has been considering in his book World After Capital.
We should be talking about these issues as a society instead of pretending that we are going to bring back all of the jobs lost to globalization and outsourcing over the past fifty years. Those jobs are more likely to be gone completely via automation than coming back to the US. So that’s what I plan to do with this panel today. It should be interesting.