ITEN Newsletter August 2010

It occurs to me that there's not much point in going through hard times if we don't learn the lessons that are there for the taking.   It's obvious to most who bother to notice that on the whole, we humans only make difficult changes for the better when we absolutely have no other options left open to us.  We've been in such a time of required change for a while now; what are we learning?  If the economy returns to some semblance of pre-2008 or even pre-2000 vitality, are we going to blindly re-create the conditions for the next cycle of boom followed by bust?   The powerful momentum of our conditioning will probably mandate that we do so, but can we extract a few important lessons while we're in a "down" cycle and make some intelligent changes?  Capitalism is an interesting economic system, driven as it is by self-interest.  And it seems that every other system tried so far has had worse results.  The last decade has shown us how greed unchecked can spoil a lot of the fun of capitalism, and that's not such a good thing.  At ITEN and within other entrepreneurial communities around the world, we are already at work building tomorrow's major corporations.  While we build, can we start with wiser, more intelligent foundations that will serve us better in the more fruitful years to come? 

Here are a few specific ideas that might help us create a more sane environment...........what do you think?:

First, offer everyone in your company, now and in the future, an equity stake.  Grant shares, options, warrants, or whatever makes the most sense for your structure and strategy.  Being a "drone" in a start-up where the upper management has equity and the rest don't is a recipe for unhappiness, alienation and high turn-over.  Don't you want your customer service people, your engineers, your marketing people and office managers to be fully engaged and working their tails off for the success of your venture?  The prospect of a personal payoff if the company has a successful exit is a stronger incentive than any other motivational idea for people who are dedicating the major part of their days (and often nights and weekends) to make your venture take off.  Harness that strength for your company and watch how it unleashes the drive and creativity of the whole team.

Second, make a commitment that when the company is in a position to pay salaries you will not create an obscene differential between the highest compensated and lowest compensated employees.  A study that tracked the compensation in major corporations in developed countries found that in 2005, the ratio between the CEO and an average worker in a large corporation in Japan was 11 to 1, in France it was 15 to 1, Canada was 20 to 1, and in Britain it was 22 to 1.  By contrast, in the US in 1980 it was 40 to 1, it grew to 85 to 1 by 1990, and by 2005 it had reached an incredible 411 to 1.   I'm all for people making a lot of money, and profiting handsomely from their work and creativity, but this has gone beyond excessive and is undoubtedly a factor leading to greater weakness rather than strength in our economy and society.  As a founder, CEO or major shareholder in a venture, you can create and insist upon an environment where everyone's work is valued and everyone benefits as the company succeeds.  No doubt senior leadership deserves much higher compensation than the average worker, but nowhere near what this study says has become the norm in the US.....