This story first appeared in USA Today.
Brett Rosin and Grant Brown show you can turn what you love into a successful small business.
Q: I have always loved race cars. I would love nothing more than to start a business that allows me to live my passion every day. But what sort of business would that be and how would I even do it? -- Ray
A: When it comes to passion and business, there are two schools of thought.
On one hand, you have someone like Jeff Bezos. In the early 1990s, when he discovered that the Internet was growing at 2,300% a year, he decided that he had to take advantage of it and start an online business. His research led him to conclude that selling books was the way to start. Sure, he loved the idea of being an Internet pioneer, but his decision to sell books was a pragmatic one.
On the other hand, look at this quote from Steve Jobs:
"People say you have to have a lot of passion for what you're doing and it's totally true. And the reason is because it's so hard that if you don't, any rational person would give up. It's really hard. And you have to do it over a sustained period of time. So if you don't love it, if you're not having fun doing it, you don't really love it, you're going to give up."
One person who falls into the Jobs camp, who has learned how to take his passion and turn it into a business, is Brett Rosin of the RantSports Network. In four short years, he and his partner Grant Brown have turned their love of sports into one the best, and fastest growing, sports networks around.
In college, Rosin was a major league prospect with a 92 mph fastball . . . until he blew out his arm. Two elbow surgeries later, he decided to turn his love of sports into a business. In February 2010, he and Brown began to build and run a collection of sports team blogs, which would quickly swell to 155. Before long, they merged them all into a centralized hub known today as RantSports.
From the start, RantSports has an edge that made it stand out. I once heard of a business coach who gave a new entrepreneur this piece of advice: "Ask them what they want, then give them what they want." And what is it sports fanatics want? Usually, it is the chance to argue sports. So that is what Rant gave them.
There is no shortage of sports sites out there that report sports scores and news, but what Rant does differently and better is that they encourage their writers to have an opinion, defend it and debate it. And they clearly have fun doing so.
This sort of engagement allowed RantSports to get traffic from the get-go. By December of their first year, their combined blogs had 300,000 unique visitors, even though the company still had only two employees.
But to grow you need, money, and even though RantSports had traffic, advertising dollars and a sustainable business model, it still needed funding to get to the next level. Like so many new entrepreneurs, the founders of Rant Sports turned to friends and family and raised a seed round of about $300,000. This allowed them to bring in a few more employees and a lot more writers and grow the site even more.
And today? As of October 2013, RantSports has reached 96 million people with more than 1.4 billion page views in 2013. In November, they raised a round of investment of $3 million from Hudson Bay Capital and they launched a life style brand, Rant Lifestyle and Rant Chic.
When I asked Brett what advice he had for entrepreneurs wanting to turn their own passion into a business, he made a few important points:
1. Be willing to sacrifice. It takes a lot of time and energy to start a business from scratch, and "you have to be willing to give up some time on other things to devote the energy necessary to get the business off the ground."
2. Grind away. Keep at it. "Not all months were great months at the start, but we kept working at it."
3. Learn. There is a lot to know when you start a business, so it's important he says to study your craft, network, go to conferences, and get the help you need.
So, yes, you bet, starting a business from scratch is very possible, as long as you are a fan of what you do.
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Monday, February 24, 2014
WHATSAPP’S FOUNDER GOES FROM FOOD STAMPS TO BILLIONAIRE
This story first appeared in Bloomberg News.
The $19 billion deal to sell WhatsApp Inc. to Facebook Inc. (FB) started at Yahoo! Inc. more than five years ago, when Jan Koum became disillusioned at the way Internet companies were fixated on advertising.
He left Yahoo in 2007 with one of the company’s other engineers, Brian Acton, and started a company by 2009 that shuns advertising altogether. The strategy allowed them to concentrate on creating an easy-to-use messaging product instead of developing new ways to glean customer information for their marketing pitches, Koum said in a 2012 blog post.
“No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow,” Koum said in the post. A hand-written note on the his desk reads: “No Ads! No Games! No Gimmicks!”
Their approach paid off. WhatsApp amassed 450 million monthly users -- twice as many as Twitter Inc. -- who send billions of messages a day. Yesterday, Facebook Chief Executive Officer Mark Zuckerberg bought their five-year-old company in the largest Internet deal since Time Warner’s $124 billion merger with AOL in 2001, a deal that will almost certainly make Koum and Acton billionaires several times over.
For Koum, 38, the windfall would stand in stark contrast to his years as a teenager, when his family relied on food stamps after emigrating from Ukraine. The experience of living in a country where phone lines were often tapped, instilled the importance of privacy in him, said Jim Goetz, a partner with Sequoia Capital Ltd., WhatsApp’s lone venture capital investor.
‘Contrarian Approach’
WhatsApp doesn’t collect information like name, gender, address or age. Instead, users are approved after their phone numbers are authenticated.
“It’s a decidedly contrarian approach shaped by Jan’s experience growing up in a communist country with a secret police,” said Goetz in a blog post yesterday on Sequoia’s website. “Jan’s childhood made him appreciate communication that was not bugged or taped.”
Koum will join Facebook’s board of directors once the deal goes through. Facebook declined to make him or Acton available for an interview.
The partners are old enough to remember the first dot-com bust. Acton, 42, grew up in Michigan and was employee No. 44 at Yahoo, working on advertising, shopping and travel services, according to Wired. He invested during the boom and lost millions of dollars when the market imploded, according to Forbes.
Facebook Reject
He later hired Koum at Yahoo and served as his mentor, inviting him over to his house and taking him skiing, Forbes said. After exiting Yahoo, Acton said on Twitter that he was turned down for a job at Facebook in 2009.
The two founded WhatsApp later that year with the idea that smartphone users should be able to easily message each other without incurring fees from phone carriers. The service is free for a year, then costs 99 cents per year after that.
They eschewed marketing and didn’t employ a public relations person, relying on the word-of-mouth recommendations of its users instead. The service became popular with friends and family communicating in different countries, especially in Europe, because it circumvents the fees charged by phone carriers.
“While others sought attention, Jan and Brian shunned the spotlight, refusing even to hang a sign outside the WhatsApp offices in Mountain View,” Goetz said in the blog post. “As competitors promoted games and rushed to build platforms, Jan and Brian remained devoted to a clean, lightning fast communications service that works flawlessly.”
Stained Carpeting
In addition to avoiding advertising and self promotion, the two founders also mostly avoided Silicon Valley investors, and were adamant that they didn’t need any funding in 2010, according to Yoav Andrew Leitersdorf, a managing partner at YL Ventures GP Ltd. WhatsApp’s offices in Mountain View, California, were almost empty, with less than 10 desks atop stained carpeting, making the space look large, said Leitersdorf, who pitched an investment. While he met Koum and Acton and discussed the app’s growth for an hour and a half, he didn’t get the opportunity to invest.
“I was one of the few very lucky investors ever invited into that office, if you can call it that, and what I saw in Jan and Brian which I remember very clearly to this day was the most humble, intelligent, determined, in-love-with-their-baby, understated pair of entrepreneurs I have ever come across,” Leitersdorf said.
Autonomous, Independent
Venture capital firm Sequoia Capital invested $8 million in WhatsApp in 2011, for a more than 15 percent stake that is now worth about $3.5 billion, according to people with knowledge of the deal.
Koum’s aversion to advertising contrasts with Facebook’s efforts to make more money from people using its service on mobile devices. He said in a statement on the company’s website that WhatsApp will remain autonomous and operate independently.
“There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product,” he said.
The $19 billion deal to sell WhatsApp Inc. to Facebook Inc. (FB) started at Yahoo! Inc. more than five years ago, when Jan Koum became disillusioned at the way Internet companies were fixated on advertising.
He left Yahoo in 2007 with one of the company’s other engineers, Brian Acton, and started a company by 2009 that shuns advertising altogether. The strategy allowed them to concentrate on creating an easy-to-use messaging product instead of developing new ways to glean customer information for their marketing pitches, Koum said in a 2012 blog post.
“No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow,” Koum said in the post. A hand-written note on the his desk reads: “No Ads! No Games! No Gimmicks!”
Their approach paid off. WhatsApp amassed 450 million monthly users -- twice as many as Twitter Inc. -- who send billions of messages a day. Yesterday, Facebook Chief Executive Officer Mark Zuckerberg bought their five-year-old company in the largest Internet deal since Time Warner’s $124 billion merger with AOL in 2001, a deal that will almost certainly make Koum and Acton billionaires several times over.
For Koum, 38, the windfall would stand in stark contrast to his years as a teenager, when his family relied on food stamps after emigrating from Ukraine. The experience of living in a country where phone lines were often tapped, instilled the importance of privacy in him, said Jim Goetz, a partner with Sequoia Capital Ltd., WhatsApp’s lone venture capital investor.
‘Contrarian Approach’
WhatsApp doesn’t collect information like name, gender, address or age. Instead, users are approved after their phone numbers are authenticated.
“It’s a decidedly contrarian approach shaped by Jan’s experience growing up in a communist country with a secret police,” said Goetz in a blog post yesterday on Sequoia’s website. “Jan’s childhood made him appreciate communication that was not bugged or taped.”
Koum will join Facebook’s board of directors once the deal goes through. Facebook declined to make him or Acton available for an interview.
The partners are old enough to remember the first dot-com bust. Acton, 42, grew up in Michigan and was employee No. 44 at Yahoo, working on advertising, shopping and travel services, according to Wired. He invested during the boom and lost millions of dollars when the market imploded, according to Forbes.
Facebook Reject
He later hired Koum at Yahoo and served as his mentor, inviting him over to his house and taking him skiing, Forbes said. After exiting Yahoo, Acton said on Twitter that he was turned down for a job at Facebook in 2009.
The two founded WhatsApp later that year with the idea that smartphone users should be able to easily message each other without incurring fees from phone carriers. The service is free for a year, then costs 99 cents per year after that.
They eschewed marketing and didn’t employ a public relations person, relying on the word-of-mouth recommendations of its users instead. The service became popular with friends and family communicating in different countries, especially in Europe, because it circumvents the fees charged by phone carriers.
“While others sought attention, Jan and Brian shunned the spotlight, refusing even to hang a sign outside the WhatsApp offices in Mountain View,” Goetz said in the blog post. “As competitors promoted games and rushed to build platforms, Jan and Brian remained devoted to a clean, lightning fast communications service that works flawlessly.”
Stained Carpeting
In addition to avoiding advertising and self promotion, the two founders also mostly avoided Silicon Valley investors, and were adamant that they didn’t need any funding in 2010, according to Yoav Andrew Leitersdorf, a managing partner at YL Ventures GP Ltd. WhatsApp’s offices in Mountain View, California, were almost empty, with less than 10 desks atop stained carpeting, making the space look large, said Leitersdorf, who pitched an investment. While he met Koum and Acton and discussed the app’s growth for an hour and a half, he didn’t get the opportunity to invest.
“I was one of the few very lucky investors ever invited into that office, if you can call it that, and what I saw in Jan and Brian which I remember very clearly to this day was the most humble, intelligent, determined, in-love-with-their-baby, understated pair of entrepreneurs I have ever come across,” Leitersdorf said.
Autonomous, Independent
Venture capital firm Sequoia Capital invested $8 million in WhatsApp in 2011, for a more than 15 percent stake that is now worth about $3.5 billion, according to people with knowledge of the deal.
Koum’s aversion to advertising contrasts with Facebook’s efforts to make more money from people using its service on mobile devices. He said in a statement on the company’s website that WhatsApp will remain autonomous and operate independently.
“There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product,” he said.
WHY INFORMATION MOBILITY IS THE FUTURE OF BUSINESS
This story first appeared in workintelligent.ly.
On June 17, 1955, the Walt Disney Company opened a theme park called Disneyland in Anaheim, California. Chances are you may have heard of it.
One of the last Disneyland attractions to be finished was Tomorrowland, Disney’s vision of the world of tomorrow – in their case, 1986. Some of their predictions – such as the TWA Moonliner – never quite panned out. But others, such as the still-existing Autopia, depicted an accurate vision of the future; in particular, the yet-to-be-built interstate highway system.
The point? It’s hard to predict the future. Especially the future of business. No matter how much we might want to try. But we can make some educated guesses about where things are headed. And in business, you’ll need to make the right educated guesses if you want to grow and survive.
For example, did you know that data storage is doubling every 18 months? Or that there are now 1.5 billion smartphone users – and more than 5 billion mobile users – worldwide? Or that the average U.S. adult now spends nearly 2 ½ hours a day using a mobile device?
We’re already in a world of information mobility. In many ways, the future of business is now. And this will have serious ramifications for your business in the coming years.
Because the successful business of the future will be one that takes full advantage of these trends. Providing remote employees with anytime, anywhere access to critical files. Using mobile to improve communication and collaboration with easy-to-use, high-quality video conferencing. Even customer service will be different, because why should you have employees at one of your locations sitting on their thumbs while another location is slammed with customers? New technologies are enabling workers to provide customer service remotely, while being face-to-face and one-on-one, so your employees are always there when they’re needed.
And with this mobile trend, borders will become even less important than they are now. Your office no longer stops at your walls, so why should country borders be any different? Of the 50-fold increase in smartphone data traffic expected by 2016, China alone is expected to account for 10 percent of that growth, matching the growth rate of the Chinese economy over the past 30 years. Any successful business strategy will need to accommodate a changing world economy, and have the means in place to be successful no matter where you are.
These changes will not be easy. While younger workers are generally comfortable with new technologies, they only make up 35 percent of today’s workforce. And because this rate is expected to grow significantly over the coming years, it will create challenges for your workforce. Any business wishing for success – and information mobility – in the coming years will need to find ways to give all types of workers the very best chance to be successful and productive, no matter how they work.
Because this shift to a more mobile world is coming. And businesses that don’t want to be left behind need their information to be mobile as well, so they have the agility to be successful in the fast-paced business world of tomorrow.
They need information mobility. You need information mobility.
Because the future of business is coming. And while the Moonliner might still be a ways off, the world of information mobility is already here.
On June 17, 1955, the Walt Disney Company opened a theme park called Disneyland in Anaheim, California. Chances are you may have heard of it.
One of the last Disneyland attractions to be finished was Tomorrowland, Disney’s vision of the world of tomorrow – in their case, 1986. Some of their predictions – such as the TWA Moonliner – never quite panned out. But others, such as the still-existing Autopia, depicted an accurate vision of the future; in particular, the yet-to-be-built interstate highway system.
The point? It’s hard to predict the future. Especially the future of business. No matter how much we might want to try. But we can make some educated guesses about where things are headed. And in business, you’ll need to make the right educated guesses if you want to grow and survive.
For example, did you know that data storage is doubling every 18 months? Or that there are now 1.5 billion smartphone users – and more than 5 billion mobile users – worldwide? Or that the average U.S. adult now spends nearly 2 ½ hours a day using a mobile device?
We’re already in a world of information mobility. In many ways, the future of business is now. And this will have serious ramifications for your business in the coming years.
Because the successful business of the future will be one that takes full advantage of these trends. Providing remote employees with anytime, anywhere access to critical files. Using mobile to improve communication and collaboration with easy-to-use, high-quality video conferencing. Even customer service will be different, because why should you have employees at one of your locations sitting on their thumbs while another location is slammed with customers? New technologies are enabling workers to provide customer service remotely, while being face-to-face and one-on-one, so your employees are always there when they’re needed.
And with this mobile trend, borders will become even less important than they are now. Your office no longer stops at your walls, so why should country borders be any different? Of the 50-fold increase in smartphone data traffic expected by 2016, China alone is expected to account for 10 percent of that growth, matching the growth rate of the Chinese economy over the past 30 years. Any successful business strategy will need to accommodate a changing world economy, and have the means in place to be successful no matter where you are.
These changes will not be easy. While younger workers are generally comfortable with new technologies, they only make up 35 percent of today’s workforce. And because this rate is expected to grow significantly over the coming years, it will create challenges for your workforce. Any business wishing for success – and information mobility – in the coming years will need to find ways to give all types of workers the very best chance to be successful and productive, no matter how they work.
Because this shift to a more mobile world is coming. And businesses that don’t want to be left behind need their information to be mobile as well, so they have the agility to be successful in the fast-paced business world of tomorrow.
They need information mobility. You need information mobility.
Because the future of business is coming. And while the Moonliner might still be a ways off, the world of information mobility is already here.
SATYA NADELLA, MICROSOFT'S NEW CEO, ON LESSONS HE LEARNT FROM STEVE BALLMER, BILL GATES
This story first appeared in The Economic Times.
When Microsoft tapped Satya Nadella as its third chief executive, the technology giant turned to a longtime engineering executive and company insider. He takes over at a critical time, as Microsoft grapples with both strategic and cultural challenges. In his first interview as CEO, Nadella, just weeks into his job, talks about leadership lessons from his predecessors, his management style and fostering innovation. This interview has been edited and condensed.
What leadership lessons have you learned from your predecessor, Steve Ballmer?
The most important one I learned from Steve happened two or three annual reviews ago. I sat down with him, and I remember asking him: "What do you think? How am I doing?" Then he said: "Look, you will know it, I will know it, and it will be in the air. So you don't have to ask me, 'How am I doing?' At your level, it's going to be fairly implicit."
I went on to ask him, "How do I compare to the people who had my role before me?" And Steve said: "Who cares? The context is so different. The only thing that matters to me is what you do with the cards you've been dealt now. I want you to stay focused on that, versus trying to do this comparative benchmark." The lesson was that you have to stay grounded, and to be brutally honest with yourself on where you stand.
And what about Bill Gates?
Bill is the most analytically rigorous person. He's always very well prepared, and in the first five seconds of a meeting he'll find some logical flaw in something I've shown him. I'll wonder, how can it be that I pour in all this energy and still I didn't see something? In the beginning, I used to say, "I'm really intimidated by him." But he's actually quite grounded. You can push back on him. He'll argue with you vigorously for a couple of minutes, and then he'll be the first person to say, "Oh, you're right." Both Bill and Steve share this. They pressure-test you. They test your conviction.
There's a lot of curiosity around what kind of role Bill is going to play with you.
The outside world looks at it and says, "Whoa, this is some new thing." But we've worked closely for about nine years now. So I'm very comfortable with this, and I asked for a real allocation of his time. He is in fact making some pretty hard trade-offs to say, "OK, I'll put more energy into this." And one of the fantastic things that only Bill can do inside this campus is to get everybody energized to bring their A-game. It's just a gift.
What were some early leadership lessons for you?
I played on my school's cricket team, and there was one incident that just was very stunning to me. I was a bowler - like a pitcher in baseball - and I was throwing very ordinary stuff one day. So the captain took over from me and got the team a breakthrough, and then he let me take over again.
I never asked him why he did that, but my impression is that he knew he would destroy my confidence if he didn't put me back in. And I went on to take a lot more wickets after that. It was a subtle, important leadership lesson about when to intervene and when to build the confidence of the team. I think that is perhaps the No. 1 thing that leaders have to do: to bolster the confidence of the people you're leading.
Tell me about your management approach in your new role.
The thing I'm most focused on today is, how am I maximizing the effectiveness of the leadership team, and what am I doing to nurture it? A lot of people on the team were my peers, and I worked for some of them in the past. The framing for me is all about getting people to commit and engage in an authentic way, and for us to feel that energy as a team.
I'm not evaluating them on what they say individually. None of them would be on this team if they didn't have some fantastic attributes. I'm only evaluating us collectively as a team. Are we able to authentically communicate, and are we able to build on each person's capabilities to the benefit of our organization?
Your company has acknowledged that it needs to create much more of a unified "one Microsoft" culture. How are you going to do that?
One thing we've talked a lot about, even in the first leadership meeting, was, what's the purpose of our leadership team? The framework we came up with is the notion that our purpose is to bring clarity, alignment and intensity. What is it that we want to get done? Are we aligned in order to be able to get it done? And are we pursuing that with intensity? That's really the job.
Culturally, I think we have operated as if we had the formula figured out, and it was all about optimizing, in its various constituent parts, the formula. Now it is about discovering the new formula. So the question is: How do we take the intellectual capital of 130,000 people and innovate where none of the category definitions of the past will matter? Any organizational structure you have today is irrelevant because no competition or innovation is going to respect those boundaries. Everything now is going to have to be much more compressed in terms of both cycle times and response times.
So how do you create that self-organizing capability to drive innovation and be focused? And the high-tech business is perhaps one of the toughest ones, because something can be a real failure until it's not. It's just an absolute dud until it's a hit. So you have to be able to sense those early indicators of success, and the leadership has to really lean in and not let things die on the vine. When you have a $70 billion business, something that's $1 million can feel irrelevant. But that $1 million business might be the most relevant thing we are doing.
To me, that is perhaps the big culture change - recognizing innovation and fostering its growth. It's not going to come because of an org chart or the organizational boundaries. Most people have a very strong sense of organizational ownership, but I think what people have to own is an innovation agenda, and everything is shared in terms of the implementation.
How do you hire?
I do a kind of 360 review. I will ask the individual to tell me what their manager would say about them, what their peers would say about them, what their direct reports would say about them, and in some cases what their customers or partners may say about them. That particular line of questioning leads into fantastic threads, and I've found that to be a great one for understanding their self-awareness.
I also ask: What are you most proud of? Tell me where you feel you've set some standard, and you look back on it and say, "Wow, I really did that." And then, what's the thing that you regret the most, where you felt like you didn't do your best work? How do you reflect on it?
Those two lines of questioning help me a lot in terms of being able to figure people out. I fundamentally believe that if you are not self-aware, you're not learning. And if you're not learning, you're not going to do useful things in the future.
What might somebody say in a meeting that, to you, sounds like nails on a chalkboard?
One of the things that drives me crazy is anyone who comes in from the outside and says, "This is how we used to do it." Or if somebody who's been here for a while says, "This is how we do it." Both of them are such dangerous traps. The question is: How do you take all of that valuable experience and apply it to the current context and raise standards?
Any final big-picture thoughts on how you're going to approach your new role?
Longevity in this business is about being able to reinvent yourself or invent the future. In our case, given 39 years of success, it's more about reinvention. We've had great successes, but our future is not about our past success. It's going to be about whether we will invent things that are really going to drive our future.
One of the things that I'm fascinated about generally is the rise and fall of everything, from civilizations to families to companies. We all know the mortality of companies is less than human beings. There are very few examples of even 100-year-old companies. For us to be a 100-year-old company where people find deep meaning at work, that's the quest.
When Microsoft tapped Satya Nadella as its third chief executive, the technology giant turned to a longtime engineering executive and company insider. He takes over at a critical time, as Microsoft grapples with both strategic and cultural challenges. In his first interview as CEO, Nadella, just weeks into his job, talks about leadership lessons from his predecessors, his management style and fostering innovation. This interview has been edited and condensed.
What leadership lessons have you learned from your predecessor, Steve Ballmer?
The most important one I learned from Steve happened two or three annual reviews ago. I sat down with him, and I remember asking him: "What do you think? How am I doing?" Then he said: "Look, you will know it, I will know it, and it will be in the air. So you don't have to ask me, 'How am I doing?' At your level, it's going to be fairly implicit."
I went on to ask him, "How do I compare to the people who had my role before me?" And Steve said: "Who cares? The context is so different. The only thing that matters to me is what you do with the cards you've been dealt now. I want you to stay focused on that, versus trying to do this comparative benchmark." The lesson was that you have to stay grounded, and to be brutally honest with yourself on where you stand.
And what about Bill Gates?
Bill is the most analytically rigorous person. He's always very well prepared, and in the first five seconds of a meeting he'll find some logical flaw in something I've shown him. I'll wonder, how can it be that I pour in all this energy and still I didn't see something? In the beginning, I used to say, "I'm really intimidated by him." But he's actually quite grounded. You can push back on him. He'll argue with you vigorously for a couple of minutes, and then he'll be the first person to say, "Oh, you're right." Both Bill and Steve share this. They pressure-test you. They test your conviction.
There's a lot of curiosity around what kind of role Bill is going to play with you.
The outside world looks at it and says, "Whoa, this is some new thing." But we've worked closely for about nine years now. So I'm very comfortable with this, and I asked for a real allocation of his time. He is in fact making some pretty hard trade-offs to say, "OK, I'll put more energy into this." And one of the fantastic things that only Bill can do inside this campus is to get everybody energized to bring their A-game. It's just a gift.
What were some early leadership lessons for you?
I played on my school's cricket team, and there was one incident that just was very stunning to me. I was a bowler - like a pitcher in baseball - and I was throwing very ordinary stuff one day. So the captain took over from me and got the team a breakthrough, and then he let me take over again.
I never asked him why he did that, but my impression is that he knew he would destroy my confidence if he didn't put me back in. And I went on to take a lot more wickets after that. It was a subtle, important leadership lesson about when to intervene and when to build the confidence of the team. I think that is perhaps the No. 1 thing that leaders have to do: to bolster the confidence of the people you're leading.
Tell me about your management approach in your new role.
The thing I'm most focused on today is, how am I maximizing the effectiveness of the leadership team, and what am I doing to nurture it? A lot of people on the team were my peers, and I worked for some of them in the past. The framing for me is all about getting people to commit and engage in an authentic way, and for us to feel that energy as a team.
I'm not evaluating them on what they say individually. None of them would be on this team if they didn't have some fantastic attributes. I'm only evaluating us collectively as a team. Are we able to authentically communicate, and are we able to build on each person's capabilities to the benefit of our organization?
Your company has acknowledged that it needs to create much more of a unified "one Microsoft" culture. How are you going to do that?
One thing we've talked a lot about, even in the first leadership meeting, was, what's the purpose of our leadership team? The framework we came up with is the notion that our purpose is to bring clarity, alignment and intensity. What is it that we want to get done? Are we aligned in order to be able to get it done? And are we pursuing that with intensity? That's really the job.
Culturally, I think we have operated as if we had the formula figured out, and it was all about optimizing, in its various constituent parts, the formula. Now it is about discovering the new formula. So the question is: How do we take the intellectual capital of 130,000 people and innovate where none of the category definitions of the past will matter? Any organizational structure you have today is irrelevant because no competition or innovation is going to respect those boundaries. Everything now is going to have to be much more compressed in terms of both cycle times and response times.
So how do you create that self-organizing capability to drive innovation and be focused? And the high-tech business is perhaps one of the toughest ones, because something can be a real failure until it's not. It's just an absolute dud until it's a hit. So you have to be able to sense those early indicators of success, and the leadership has to really lean in and not let things die on the vine. When you have a $70 billion business, something that's $1 million can feel irrelevant. But that $1 million business might be the most relevant thing we are doing.
To me, that is perhaps the big culture change - recognizing innovation and fostering its growth. It's not going to come because of an org chart or the organizational boundaries. Most people have a very strong sense of organizational ownership, but I think what people have to own is an innovation agenda, and everything is shared in terms of the implementation.
How do you hire?
I do a kind of 360 review. I will ask the individual to tell me what their manager would say about them, what their peers would say about them, what their direct reports would say about them, and in some cases what their customers or partners may say about them. That particular line of questioning leads into fantastic threads, and I've found that to be a great one for understanding their self-awareness.
I also ask: What are you most proud of? Tell me where you feel you've set some standard, and you look back on it and say, "Wow, I really did that." And then, what's the thing that you regret the most, where you felt like you didn't do your best work? How do you reflect on it?
Those two lines of questioning help me a lot in terms of being able to figure people out. I fundamentally believe that if you are not self-aware, you're not learning. And if you're not learning, you're not going to do useful things in the future.
What might somebody say in a meeting that, to you, sounds like nails on a chalkboard?
One of the things that drives me crazy is anyone who comes in from the outside and says, "This is how we used to do it." Or if somebody who's been here for a while says, "This is how we do it." Both of them are such dangerous traps. The question is: How do you take all of that valuable experience and apply it to the current context and raise standards?
Any final big-picture thoughts on how you're going to approach your new role?
Longevity in this business is about being able to reinvent yourself or invent the future. In our case, given 39 years of success, it's more about reinvention. We've had great successes, but our future is not about our past success. It's going to be about whether we will invent things that are really going to drive our future.
One of the things that I'm fascinated about generally is the rise and fall of everything, from civilizations to families to companies. We all know the mortality of companies is less than human beings. There are very few examples of even 100-year-old companies. For us to be a 100-year-old company where people find deep meaning at work, that's the quest.
Friday, February 21, 2014
INVESTORS VALUING INTERNET COMPANIES ON 'EYEBALLS' AGAIN
This story first appeared in USA Today.
The halcyon days of the Internet appear to be returning as investors are justifying sky-high valuations not on profit, but on "eyeballs."
Shares of Facebook jumped $1.57, or 2.3%, Thursday to $69.63 despite paying what appears to be a lofty $19 billion for online messaging system WhatsApp.
But investors are increasingly finding ways to justify such lofty purchase prices for Internet companies by looking at how much is being paid for "eyeballs," or users. Investors are betting mobile Internet usage is in such a nascent form getting the users is the hard part, and finding out how to make money on those users comes later.
And looking at it that way, Facebook got a bargain. By paying $19 billion for WhatsApp, Facebook is buying 450 million users at $42.22 each. Compared with the $141 per user valuation at Facebook, WhatsApp was cheap. In fact, the valuation paid for WhatsApp is lower than the per-user price on most other Internet darlings. Investors are paying $85 per user at professional networking firm LinkedIn, $52 per user at review site Yelp and $125 per user of online messaging service Twitter.
Those aren't even the highest valuations. Investors are paying $418 per user at online review site Angie's List and $748 per user at online advertising firm Google, based on the 540 million users it reported in its latest annual report. Due to its ability to mine personal data on its users and sell that data, Google commands a lofty 36 P-E based on its earnings the past 12 months, which is double that of the stock market and the technology sector.
The price Facebook paid for WhatsApp would make it more valuable than roughly half the stocks in the Standard & Poor's 500 index. WhatsApp's buyout price values it even higher than Chipotl?e Mexican Grill, at $17.1 billion, which is a constant target of investors arguing about overvaluation.
But there's a warning to investors to remember this type of "eyeball" math caused problems during the Internet bubble of 2000. Investors paid unsustainable prices for Internet initial public offerings on the idea that profits would follow users. But for many companies with broken business models, those profits never materialized, and investors suffered some of the most brutal losses in stock market history.
The halcyon days of the Internet appear to be returning as investors are justifying sky-high valuations not on profit, but on "eyeballs."
Shares of Facebook jumped $1.57, or 2.3%, Thursday to $69.63 despite paying what appears to be a lofty $19 billion for online messaging system WhatsApp.
But investors are increasingly finding ways to justify such lofty purchase prices for Internet companies by looking at how much is being paid for "eyeballs," or users. Investors are betting mobile Internet usage is in such a nascent form getting the users is the hard part, and finding out how to make money on those users comes later.
And looking at it that way, Facebook got a bargain. By paying $19 billion for WhatsApp, Facebook is buying 450 million users at $42.22 each. Compared with the $141 per user valuation at Facebook, WhatsApp was cheap. In fact, the valuation paid for WhatsApp is lower than the per-user price on most other Internet darlings. Investors are paying $85 per user at professional networking firm LinkedIn, $52 per user at review site Yelp and $125 per user of online messaging service Twitter.
Those aren't even the highest valuations. Investors are paying $418 per user at online review site Angie's List and $748 per user at online advertising firm Google, based on the 540 million users it reported in its latest annual report. Due to its ability to mine personal data on its users and sell that data, Google commands a lofty 36 P-E based on its earnings the past 12 months, which is double that of the stock market and the technology sector.
The price Facebook paid for WhatsApp would make it more valuable than roughly half the stocks in the Standard & Poor's 500 index. WhatsApp's buyout price values it even higher than Chipotl?e Mexican Grill, at $17.1 billion, which is a constant target of investors arguing about overvaluation.
But there's a warning to investors to remember this type of "eyeball" math caused problems during the Internet bubble of 2000. Investors paid unsustainable prices for Internet initial public offerings on the idea that profits would follow users. But for many companies with broken business models, those profits never materialized, and investors suffered some of the most brutal losses in stock market history.
Tuesday, February 11, 2014
JAMES DEAN ESTATE SUES TWITTER OVER FAN'S ACCOUNT
This story first appeared in USA Today.
INDIANAPOLIS -- The legal fight between the estate of James Dean and the online social network Twitter can't be told in 140 characters.
It's much more complicated than that.
The roots of the legal saga date to 2009, when a fan of the Hoosier-born actor set up the Twitter account @JamesDean. His goal was to share a love for the Hollywood icon, who starred in the movies "Rebel Without a Cause," "Giant" and "East of Eden."
Now, Twitter and the anonymous owner of @JamesDean are targets of a lawsuit alleging unauthorized use of Dean's name and image. Both are trademarked by James Dean Inc., which represents Dean heirs who consider his name and likeness a valuable commodity.
The lawsuit highlights the lag that often occurs between the law and the dynamic world of social media, said Gerard N. Magliocca, a professor at the Indiana University Robert H. McKinney School of Law in Indianapolis.
Not all potential legal issues, he explained, can be predicted or addressed by the law before they come to a head outside a legislative chamber or courtroom.
"This isa first-of-its-kind case, as far as I know," he said.
Magliocca said the federal Anti-Cybersquatting Piracy Act covers the unauthorized use of celebrity names when it comes to Web domains but not Twitter user names, called "handles." As part of the lawsuit, James Dean Inc. wants Twitter to hand over to it the @JamesDean account.
"As social media becomes more important as a source of advertising," Magliocca said, "people will be more concerned about who owns what."
The lawsuit initially was filed in Hamilton Superior Court. But attorneys for Twitter, whose more than 241 million users flood cyberspace with 500 million tweets a day, want it moved to the U.S. District Court for the Southern District of Indiana. The request is being sought because of the potential amount of damages at stake and federal issues such as trademark infringement.
The transfer motion was submitted Friday, one day before what would have been Dean's 83rd birthday.
To fans, Dean is frozen in time. He will forever be the young, rebellious movie star who died at the age of 24 in a 1955 car crash. And that powerful image remains a highly valuable commodity nearly 60 years later, vigorously protected by Carmel-based celebrity licensing agency CMG Worldwide.
"CMG's clients have valuable intellectual property vested in their name, image and likeness," Mark Roesler, CMG's chairman and CEO, said in a statement to The Indianapolis Star. "For these reasons, CMG is trying to recover the James Dean Twitter account which directly bears our client's name, which the public would look to for authorized and verified statements and representations by the people who most care about our client, namely, our client's family."
Roesler said CMG clients, such as James Dean Inc., have worked for decades to build and protect their brands. Despite those efforts, he said, Twitter is letting individuals use valuable copyrighted images and other legally protected intellectual property without the owners' permission.
Attorneys for Twitter and James Dean Inc. did not return calls from The Star.
In email exchanges with The Star, the man behind the @JamesDean account declined to give his name but said his account "is strictly a fan account, as can be seen from the tweets."
The account bio features a picture of a brooding Dean in a white T-shirt and red jacket. It says: The King of Cool, New York City, Hollywood.
Past posts have included comments such as:
"Seeing James Dean changed my life the same way hearing the Beatles did. If anyone could legitimately say, 'I'm you,' it was James Dean."
"James Dean's motorcycle goes on public display Nov. 23 as part of the Indiana State Museum's 'Eternal James Dean' exhibit."
"The lasting fascination with James Dean stems from the unusual potency of his work, as well as the way he lived his life."
The lawsuit also names four other "John Doe" defendants who have Twitter accounts using variations on Dean's name and his image, but the main focus is on @JamesDean because it uses the name CMG wants to start its own official Dean account.
The man behind the account said he wanted to remain anonymous because CMG and James Dean Inc. do not, to his knowledge, have his name. He is identified only as one of five "John Does" named in the lawsuit.
"I have never tried in any way to profit from it," he said. "I started the account because I am a longtime James Dean fan and have a connection with him."
Dean grew up in Fairmount, Ind., about 60 miles northeast of Indianapolis. He graduated from Fairmount High in 1949 before leaving for California and then New York to pursue his acting career.
The lawsuit filed Dec. 31 in Hamilton Superior Court notes that James Dean Inc., an Indiana -based corporation set up by his family, is the exclusive owner of the name, likeness, voice, rights of publicity and endorsement, worldwide trademarks and all other intellectual property "of the late internationally recognized movie star, James Dean."
Documents filed with the lawsuit say CMG Worldwide, which represents other celebrity images such as Marilyn Monroe, Jackie Robinson and Babe Ruth, has attempted "on numerous occasions since Oct. 11, 2012" to make Twitter take action to block and identify owners of the unauthorized accounts. Those accounts could give the impression, the lawsuit said, that the users have permission from James Dean Inc. (JDI) or CMG and "result in immeasurable and irreparable damage to JDI."
Copies of email exchanges between CMG and Twitter officials, which are included with the lawsuit, show CMG and JDI contend the accounts also violate Twitter's policy for fan accounts. The lawsuit says such accounts should be clearly designated as a "fan page" or in some other way make clear that it is not officially associated with Dean or JDI.
In an undated response, a Twitter representative told CMG that officials "researched the (@JamesDean) account and determined that it is not in violation of Twitter's Trademark Policy. The account is not being used in a way that is misleading or confusing with regard to its brand, location or business affiliation."
Twitter officials added they do not have a "username reservation policy." The social networking site, which went public in November and is now valued at more than $800 million, lets users exchange short, 140-character messages called tweets.
Maglicco, the IU law professor, said the lawsuit plows into virgin legal ground. He added a First Amendment argument also could be raised by the operator.
"It may come down," he said, "to what is the goal of the person with that account."
If the person is not using it for commercial purposes, he added, the common law "right of publicity" that James Dean Inc. asserts in the lawsuit may not apply.
"Here's the problem," Maglicco said. "We really don't know who owns it or what their motivation is."
INDIANAPOLIS -- The legal fight between the estate of James Dean and the online social network Twitter can't be told in 140 characters.
It's much more complicated than that.
The roots of the legal saga date to 2009, when a fan of the Hoosier-born actor set up the Twitter account @JamesDean. His goal was to share a love for the Hollywood icon, who starred in the movies "Rebel Without a Cause," "Giant" and "East of Eden."
Now, Twitter and the anonymous owner of @JamesDean are targets of a lawsuit alleging unauthorized use of Dean's name and image. Both are trademarked by James Dean Inc., which represents Dean heirs who consider his name and likeness a valuable commodity.
The lawsuit highlights the lag that often occurs between the law and the dynamic world of social media, said Gerard N. Magliocca, a professor at the Indiana University Robert H. McKinney School of Law in Indianapolis.
Not all potential legal issues, he explained, can be predicted or addressed by the law before they come to a head outside a legislative chamber or courtroom.
"This isa first-of-its-kind case, as far as I know," he said.
Magliocca said the federal Anti-Cybersquatting Piracy Act covers the unauthorized use of celebrity names when it comes to Web domains but not Twitter user names, called "handles." As part of the lawsuit, James Dean Inc. wants Twitter to hand over to it the @JamesDean account.
"As social media becomes more important as a source of advertising," Magliocca said, "people will be more concerned about who owns what."
The lawsuit initially was filed in Hamilton Superior Court. But attorneys for Twitter, whose more than 241 million users flood cyberspace with 500 million tweets a day, want it moved to the U.S. District Court for the Southern District of Indiana. The request is being sought because of the potential amount of damages at stake and federal issues such as trademark infringement.
The transfer motion was submitted Friday, one day before what would have been Dean's 83rd birthday.
To fans, Dean is frozen in time. He will forever be the young, rebellious movie star who died at the age of 24 in a 1955 car crash. And that powerful image remains a highly valuable commodity nearly 60 years later, vigorously protected by Carmel-based celebrity licensing agency CMG Worldwide.
"CMG's clients have valuable intellectual property vested in their name, image and likeness," Mark Roesler, CMG's chairman and CEO, said in a statement to The Indianapolis Star. "For these reasons, CMG is trying to recover the James Dean Twitter account which directly bears our client's name, which the public would look to for authorized and verified statements and representations by the people who most care about our client, namely, our client's family."
Roesler said CMG clients, such as James Dean Inc., have worked for decades to build and protect their brands. Despite those efforts, he said, Twitter is letting individuals use valuable copyrighted images and other legally protected intellectual property without the owners' permission.
Attorneys for Twitter and James Dean Inc. did not return calls from The Star.
In email exchanges with The Star, the man behind the @JamesDean account declined to give his name but said his account "is strictly a fan account, as can be seen from the tweets."
The account bio features a picture of a brooding Dean in a white T-shirt and red jacket. It says: The King of Cool, New York City, Hollywood.
Past posts have included comments such as:
"Seeing James Dean changed my life the same way hearing the Beatles did. If anyone could legitimately say, 'I'm you,' it was James Dean."
"James Dean's motorcycle goes on public display Nov. 23 as part of the Indiana State Museum's 'Eternal James Dean' exhibit."
"The lasting fascination with James Dean stems from the unusual potency of his work, as well as the way he lived his life."
The lawsuit also names four other "John Doe" defendants who have Twitter accounts using variations on Dean's name and his image, but the main focus is on @JamesDean because it uses the name CMG wants to start its own official Dean account.
The man behind the account said he wanted to remain anonymous because CMG and James Dean Inc. do not, to his knowledge, have his name. He is identified only as one of five "John Does" named in the lawsuit.
"I have never tried in any way to profit from it," he said. "I started the account because I am a longtime James Dean fan and have a connection with him."
Dean grew up in Fairmount, Ind., about 60 miles northeast of Indianapolis. He graduated from Fairmount High in 1949 before leaving for California and then New York to pursue his acting career.
The lawsuit filed Dec. 31 in Hamilton Superior Court notes that James Dean Inc., an Indiana -based corporation set up by his family, is the exclusive owner of the name, likeness, voice, rights of publicity and endorsement, worldwide trademarks and all other intellectual property "of the late internationally recognized movie star, James Dean."
Documents filed with the lawsuit say CMG Worldwide, which represents other celebrity images such as Marilyn Monroe, Jackie Robinson and Babe Ruth, has attempted "on numerous occasions since Oct. 11, 2012" to make Twitter take action to block and identify owners of the unauthorized accounts. Those accounts could give the impression, the lawsuit said, that the users have permission from James Dean Inc. (JDI) or CMG and "result in immeasurable and irreparable damage to JDI."
Copies of email exchanges between CMG and Twitter officials, which are included with the lawsuit, show CMG and JDI contend the accounts also violate Twitter's policy for fan accounts. The lawsuit says such accounts should be clearly designated as a "fan page" or in some other way make clear that it is not officially associated with Dean or JDI.
In an undated response, a Twitter representative told CMG that officials "researched the (@JamesDean) account and determined that it is not in violation of Twitter's Trademark Policy. The account is not being used in a way that is misleading or confusing with regard to its brand, location or business affiliation."
Twitter officials added they do not have a "username reservation policy." The social networking site, which went public in November and is now valued at more than $800 million, lets users exchange short, 140-character messages called tweets.
Maglicco, the IU law professor, said the lawsuit plows into virgin legal ground. He added a First Amendment argument also could be raised by the operator.
"It may come down," he said, "to what is the goal of the person with that account."
If the person is not using it for commercial purposes, he added, the common law "right of publicity" that James Dean Inc. asserts in the lawsuit may not apply.
"Here's the problem," Maglicco said. "We really don't know who owns it or what their motivation is."
Monday, February 10, 2014
REPORTS: YAHOO TO PARTNER WITH YELP ON SEARCH
This story first appeared in USA Today.
Yahoo is partnering with online review site Yelp to enhance its search results and attract users, according to several reports published over the weekend.
Citing an unnamed person who attended a Yahoo employee meeting Friday, The Wall Street Journal said CEO Marissa Mayer revealed plans to incorporate Yelp's local business listings, user-generated reviews and photos into Yahoo's search engine results. The new feature will be made available in the coming weeks, according to the Journal story.
The new partnership is part of Yahoo's initiative to distinguish itself from market leaders Microsoft Bing and Google. In December, Yahoo's share in the search market was 10.8%, compared to Micorsoft's 18.2% and Google's 67.3%, according to ComScore.
This year, Yahoo's shares have declined 7.9%, but San Francisco-based Yelp has climbed almost 30%.
The specific terms of the Yahoo-Yelp deal couldn't be determined. Bloomberg, MarketWatch and The Wall Street Journal reported that both Sara Gorman, a spokeswoman for Yahoo, and Yelp spokesman Vince Sollitto declined to comment.
However, Yelp has similar existing content partnerships with Microsoft and Apple.
Yahoo receives its primary search technology through a multi-year pact with Microsoft, under which Microsoft gets 12% of Yahoo's search ad-generated revenue. The Journal cited executives close to Mayer, who have described the deal as a disappointment.
In February 2013, Mayer promoted Yahoo veteran Laurie Mann to run Yahoo Search.
When she led search at Google, Mayer was involved in the company's attempt to acquire Yelp for at least $500 million in 2009.
Yahoo is partnering with online review site Yelp to enhance its search results and attract users, according to several reports published over the weekend.
Citing an unnamed person who attended a Yahoo employee meeting Friday, The Wall Street Journal said CEO Marissa Mayer revealed plans to incorporate Yelp's local business listings, user-generated reviews and photos into Yahoo's search engine results. The new feature will be made available in the coming weeks, according to the Journal story.
The new partnership is part of Yahoo's initiative to distinguish itself from market leaders Microsoft Bing and Google. In December, Yahoo's share in the search market was 10.8%, compared to Micorsoft's 18.2% and Google's 67.3%, according to ComScore.
This year, Yahoo's shares have declined 7.9%, but San Francisco-based Yelp has climbed almost 30%.
The specific terms of the Yahoo-Yelp deal couldn't be determined. Bloomberg, MarketWatch and The Wall Street Journal reported that both Sara Gorman, a spokeswoman for Yahoo, and Yelp spokesman Vince Sollitto declined to comment.
However, Yelp has similar existing content partnerships with Microsoft and Apple.
Yahoo receives its primary search technology through a multi-year pact with Microsoft, under which Microsoft gets 12% of Yahoo's search ad-generated revenue. The Journal cited executives close to Mayer, who have described the deal as a disappointment.
In February 2013, Mayer promoted Yahoo veteran Laurie Mann to run Yahoo Search.
When she led search at Google, Mayer was involved in the company's attempt to acquire Yelp for at least $500 million in 2009.
MAMAS, DON'T LET YOUR BABIES BE BORN AT AOL
This story first appeared in Bloomberg Businessweek.
AOL Chief Executive Tim Armstrong ruffled more than a few of his employees’ feathers when he disclosed this week that two AOL workers’ “distressed” babies had whacked the company with $2 million in medical bills.
The costly children were cited—along with more than $7 million in costs from the Affordable Care Act—as the reason AOL changed its 401(k) account match to an annual lump sum payment. Workers who aren’t on the payroll at year’s end will forfeit AOL’s 3 percent matching contribution to the accounts. IBM made a similar change in 2012. If you plan to quit, management thinking goes, forget about collecting our share of your retirement savings.
Many employees didn’t react well to either bit of news, according to news reports. First, there’s the financial blow to workers, who will lose 401(k) funds if they leave AOL, as well as miss the opportunity to have the company’s match bolster their financial returns over a full year. There’s also the shock that accompanies hearing your boss tag a colleague’s difficult pregnancy and her newborn child as the reason your retirement plan was cut.
Why did two babies with special medical needs cost AOL $2 million? Most large employers are self-insured for their workers’ health coverage, given the savings such plans can yield over traditional group insurance. Self-funding means that an employer pays for health care rather than buying an insurance policy for their workers. Such plans now cover 60 percent of private-sector workers with health insurance—an estimated 100 million Americans. Financially, self-funding is practically a no-brainer if you have 1,000 or more employees, given the dramatic surge in U.S. health-care costs. The “law of large numbers” takes over and big employers’ annual medical expenses can be projected with relative precision, says Jon Trevisan, a senior vice president at Willis North America, an insurance brokerage that consults with employers on health coverage.
It’s not clear what kind of health plan AOL has; but with 4,000 employees, the company is likely self-insured. The company declined to comment Friday on that subject or the CEO’s remarks. Armstrong declined an interview request, an AOL spokesman said.
Given the astronomic costs that a heart attack, premature birth, or cancer can inflict, some self-insured companies purchase what are called stop-loss products to limit their financial exposure. Those limits can kick in for an individual employee’s claims beyond a certain level, or for an entire employee group in aggregate. Once a company has a certain number of employees, however, stop-loss insurance products may not make financial sense given the general predictability of workers’ typical annual claims, Trevisan says. But whether their worker pool warrants stop-loss coverage is a matter of executives’ risk tolerance as much as actuarial and cost-benefit analyses. Some companies may be comfortable forgoing stop-loss coverage for 3,000 workers, while others with 10,000 or more may decide to buy it. “It depends on the risk tolerance that a company has,” Trevisan says. “At the end of the day, it’s about how comfortable the employer is in assuming risks.”
AOL, the parent of the Huffington Post news site, is a media and Internet company with a workforce that may be younger—and healthier—than most employers’. If so, its annual claims could be even more predictable than a more age-diverse employee pool. That could argue against buying pricey insurance products to limit catastrophic claims—but it could at times lead to a $1 million baby bill.
The costly children were cited—along with more than $7 million in costs from the Affordable Care Act—as the reason AOL changed its 401(k) account match to an annual lump sum payment. Workers who aren’t on the payroll at year’s end will forfeit AOL’s 3 percent matching contribution to the accounts. IBM made a similar change in 2012. If you plan to quit, management thinking goes, forget about collecting our share of your retirement savings.
Many employees didn’t react well to either bit of news, according to news reports. First, there’s the financial blow to workers, who will lose 401(k) funds if they leave AOL, as well as miss the opportunity to have the company’s match bolster their financial returns over a full year. There’s also the shock that accompanies hearing your boss tag a colleague’s difficult pregnancy and her newborn child as the reason your retirement plan was cut.
Why did two babies with special medical needs cost AOL $2 million? Most large employers are self-insured for their workers’ health coverage, given the savings such plans can yield over traditional group insurance. Self-funding means that an employer pays for health care rather than buying an insurance policy for their workers. Such plans now cover 60 percent of private-sector workers with health insurance—an estimated 100 million Americans. Financially, self-funding is practically a no-brainer if you have 1,000 or more employees, given the dramatic surge in U.S. health-care costs. The “law of large numbers” takes over and big employers’ annual medical expenses can be projected with relative precision, says Jon Trevisan, a senior vice president at Willis North America, an insurance brokerage that consults with employers on health coverage.
It’s not clear what kind of health plan AOL has; but with 4,000 employees, the company is likely self-insured. The company declined to comment Friday on that subject or the CEO’s remarks. Armstrong declined an interview request, an AOL spokesman said.
Given the astronomic costs that a heart attack, premature birth, or cancer can inflict, some self-insured companies purchase what are called stop-loss products to limit their financial exposure. Those limits can kick in for an individual employee’s claims beyond a certain level, or for an entire employee group in aggregate. Once a company has a certain number of employees, however, stop-loss insurance products may not make financial sense given the general predictability of workers’ typical annual claims, Trevisan says. But whether their worker pool warrants stop-loss coverage is a matter of executives’ risk tolerance as much as actuarial and cost-benefit analyses. Some companies may be comfortable forgoing stop-loss coverage for 3,000 workers, while others with 10,000 or more may decide to buy it. “It depends on the risk tolerance that a company has,” Trevisan says. “At the end of the day, it’s about how comfortable the employer is in assuming risks.”
AOL, the parent of the Huffington Post news site, is a media and Internet company with a workforce that may be younger—and healthier—than most employers’. If so, its annual claims could be even more predictable than a more age-diverse employee pool. That could argue against buying pricey insurance products to limit catastrophic claims—but it could at times lead to a $1 million baby bill.
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