A Blog by Jonathan Low


Oct 21, 2014

Non-Compete, Non-Compute? How Companies Are Killing Employee Mobility

You wouldn't know it from the welter of new devices, apps and programs on the market, but the number of new businesses being formed has been declining for several years.

At the same time, established enterprises complain bitterly about the number of unfilled openings they have and their inability to hire people with the 'right' skills or background.

Common sense would suggest that if fewer new companies are being formed, there ought to be plenty of experienced people looking for jobs.

The answer to this apparent contradiction lies in the fact that businesses are making it harder for the people they do have to change jobs. It is, unquestionably, disruptive when an employee leaves. And the more senior or talented the person who departs, the harder and more expensive they are to replace.

And companies should do what they can to hold on to employees they value. The problem is that rather than paying them more or creating a more attractive work environment, they are simply placing more restrictive language in employment contracts. This includes using exposure to intellectual property, aka, trade secrets, as a reason for challenging employees attempting to take new jobs.

One of the reasons that Silicon Valley has been such a font of innovation and wealth creation is the relative ease with which 'the talent' can move around. California has strict laws prohibiting restrictive employee non-compete agreements. But employers are attempting to pass legislation at the Federal level which would permit such confining contracts - and would supersede state laws.

The reality is that skilled people will find either find a way to do what motivates them - or they will go someplace where they can. The irony is that American employers, including tech companies, are fighting to ease immigration restrictions at the same time they are trying to kill one of the primary reasons why skilled and talented people want to immigrate to the US. JL

James Bessen reports in The Atlantic:

Employee mobility and entrepreneurship have been wellsprings of innovation, but over the last decade or so, workers are changing jobs less frequently and forming fewer high tech startups. Noncompete agreements and trade-secret law have contributed to these trends.

Do Companies with Smaller Boards of Directors Outperform Their Peers?

Governance has always been about trade-offs: experience versus energy; expertise versus perspective; focus versus breadth. 

But just as the trend in corporate organization now favors spinoffs rather than acquisitions, so observers of the data are beginning to deduce an advantage in smaller rather than larger boards of directors.

The traditional argument for  more board members was that inclusiveness generated a broader array of points of view. From a risk management standpoint, this seemed prudent. It also had the advantage of demonstrating that the enterprise was conscious of the communities it served, whether financial, industry, political or social.

In a global economy, however, connected by intangible webs of mutual interest, such symbolism may be less important than the assemblage of appropriate talents and the ability to move adroitly to anticipate or react quickly to whatever the socio-economic maelstrom is hurling in your direction. As the following article explains, smaller and more agile appears to trump the alternative. But situational awareness is an issue. The challenge is being able to determine when circumstances dictate that the it's time for a change. JL

Joann Lublin reports in the Wall Street Journal:

Companies with small boards outperformed their peers by 8.5 percentage points, while those with large boards underperformed peers by 10.85 percentage points.

Signals and Outcomes: What's the Predictive Value of Online Chatter?

Electronic medical records appear ripe for abuse. All of that patient data just waiting to be aggregated and mined for insights on who might need, or better yet, who might be susceptible to the pitch that they might need some sort of drug, treatment or intervention.

But there are rules and everyone has access to the same information, more or less, which can be normalized statistically for regional, cultural and socio-economic factors. Or any other factor of potential interest.

So where is the advantage in that? Hard to come by, though surely some algorithms are better than others. There are, however, as yet untapped resources on the margins and we, as a society, have gotten there more quickly than was, perhaps, expected. We have blown past the easily accessible stuff and are digging deeper into the weak signals to see whether they can provide some sort of edge, whether it be financial, operational, organizational and, well, let's be honest: did we already mention financial?

That enterprises are attempting to make sense of whatever data is available should not be a surprise. Relatively inexpensive computing power and the relatively inexpensive human resources required to interpret it make this opportunity harvesting a given. What is not yet clear is whether the information gleaned is of sufficient moment to be worth the effort. But it almost doesnt matter: because if that knowledge isn't worth much, there's plenty more where it came from. JL

Caroline Chen reports in BusinessWeek:

Data hasn’t proven yet that signals lead to distinctive change in outcomes.

Oct 20, 2014

Apple Pay Starts Today: How Should It's Success - or Failure - Be Measured?

The commercial world trembled when Apple announced Apple Pay. After all, what has that company ever done badly, let alone wrong?

But it seems like just a few short years ago that Google launched its digital payments venture, Google Wallet. And who was ever going to be capable of stopping that beast?

If business and finance were easy, and everyone smart organization with a bright, new idea could dominate whenever it wanted, well, the world would probably be a smaller, less interesting place. But that's not how it works, most of the time. And when one analyzes the ways in which Apple has succeeded, it has often been by creating markets for products that never even existed previously.

That is most emphatically not the case with buying and selling. Not even with buying and selling online. So if today is the first day of the rest of Apple Pay's life, understanding how it is doing is going to be crucial to determining whether all that fear and loathing are justified, or just wasted energy.

There is an entire consulting practice built around KPIs, or key performance indicators. That it has its very own acronym should be a warning that there is lots of fluff and mediocrity. But there are also lots of smart people trying to get it right. What follows is at least one take on what to look for over the coming months. JL

Nish Modi comments in Venture Beat:

Apple Pay will face tremendous scrutiny in its first year. When we look back a year from now, how widespread will business and user adoption be? How many customer service horror stories will we have read about? Most importantly, will Apple have taken the steps to finally bring omnichannel payments into the mainstream?

Digital Energy: Science Is Cool Again for Venture Investing, But This Time It's Different...

Science is back. Not that it ever really disappeared, mind you, it's just that sometimes the astounding capabilities that can be harnessed are not always commercially viable. Which is not all that different from any other innovation.

But the point is that things have both eased and tightened sufficiently to foster more interest in exploring what might be done in this very large space.

They have eased to the extent that the broader economy has made technologically enhanced devices of interest to consumers interested in improving their lives while managing the expense of doing so. They have tightened, as the following article explains, because the app world and its extensions has simply become so congested that few can make a breakthrough, let alone make money.

There is also an element of growing self-knowledge in this. An awareness that despite tech's - and venture capital's manifold extraordinary successes - there are some things it does optimally. And some it does not. So that investing in those, like digital energy, which is about identifying, aggregating and managing data, can make a lot of money because it relies on processes from which vast profits have been wrung before, meaning easier learning curve, bigger margins and a greater chance of goal achievement. Deductive reasoning meets opportunity. JL

Katie Fehrenbacker reports in GigaOm:

The resurgence has more to do with the consumer web space becoming insanely crowded with a wave of startups, as well as a recent “correction” away from avoiding all things related to cleantech over the last couple of years.

Breaking Up Is Hard To Do: HP and the New Spinoff Bubble

It's not you, it's me. Well, actually, it is you, but I was raised to deflect controversy.

When Meg Whitman finally announced the long rumored split of HP into two separate units, it was not, let us stipulate, from a position of strength. She was brought in to run HP by a fractured board whose previous attempts at management change had, to be charitable about it, resulted in less than optimal outcomes.

If there is one thing she has evidently learned in her long and largely laudatory career, it's that there comes a point when you need an exit strategy. Her predecessors had always avoided what many in the company considered ' the final solution.' That moniker will understandably be offensive to some, but it was used to convey, in part, the steep decline from the days of Dave Hewlett's and Bill Packard's respect for the employee and aversion to layoffs versus the latter day disregard for the human capital otherwise known as people who invent stuff and then make it work.

But with the capital markets growing impatient with the lack of anything beyond minor, incremental avoidance of failure (as opposed to actual success), desperate times required desperate measures. The solution, however, may prove as difficult to achieve as whatever that previous strategic goal might have been.

Many people in tech become incensed when their noble calling is conflated with fashion. They find it demeaning, even if Apple has demonstrated conclusively its laudatory financial results. And given the historic link between tech and finance, it is worth noting that there is also a fashion sense to finance. But we're not referring to bespoke suits, yellow ties and suspenders. Conglomerates and scale and aggregation become the thing, until some dog whistle blows that only those on Wall Street can hear, and then suddenly, focus and specialization become the rage.

They make money either way, it's the transaction that counts. When it comes to either option, but particularly, in this case, spinoffs, those responsible for actually making the surviving enterprises work often find that this is not quite as neat and clean as the world has been assured it will be. Intangibles that combined to make certain processes and systems mesh are torn asunder. Relationships are severed. Confusion over roles and responsibilities cause conflict. Cultures change, as do managers. Suppliers are nervous. Customers are wary. In short, it becomes, for at least a while, something of a Potemkin Village, with a handsome facade whose insides to not always match the gleaming front.

This may have been the best of a slew of bad options facing HP. But it is part of a trend whose drivers often have less to do with organizational effectiveness than with other, frequently more personal ends in mind. And either way, it is hard to do. JL

James Stewart reports in the New York Times:

This year is likely to top the record of 66 spinoffs reached in 1999 and 2000, the peak of the technology bubble

Oct 19, 2014

Costco Goes to China Without Opening a Store - via Alibaba's Tmall

Adapt or die. When in Rome. The perfect is the enemy of the good.

If you wish to be global, you'd better be ready to throw out the rule book. Because your rules are just someone else's affronts.

Due in part to geopolitical tensions, companies operating in China have, of late, felt the cold chill of regulatory disapproval. Walmart, KFC, McDonalds and others have been confronted with a bewildering array of legal challenges that raise questions about the quality of the products they sell and the efficacy of their processes.

The attacks have affected sales because the Chinese are hyper sensitive about food safety issues in particular, given the incidents over the past few years that have raised questions about domestic suppliers. But the authorities, more subtly, may also be signalling their disapproval, which makes patronage of such enterprises a risk many prefer not to take.

Costco, one of the largest membership 'wholesalers,' sales products in bulk to members who pay an annual fee to shop there. Because the company's margins are so thin it makes most of its income from those fees. But China being China, Costco has turned its traditional model on its head: no fees and, more interestingly, no stores. Working through Alibaba, whose IPO last month was the largest in human history, Costco is demonstrating that intangibles like picking the right partner, finding a model that works best in the new market matter a lot and being prudent about up front investment can be more important than traditions, however successful they have been in other markets at other times. JL

Angel Gonzalez reports in the Seattle Times:

It’s quite different from its standard business model: An Alibaba spokeswoman said shoppers using the service won’t need a Costco membership. Costco relies on member fees for a sizable portion of its profits.