Reputation vs. Regulation

In the world of employment practices, we are sometimes so wrapped up in determining whether a regulation prohibits us from doing a thing that we forget to ask whether we should do it at all. For example, because California is an at-will state, a company can generally withdraw an offer of employment at any time. However, presenting a candidate with an offer and a start date will probably lead that person to cease looking for other opportunities. If that offer is revoked, you can imagine the frustration the candidate is going to feel when they have to play catch up in the job hunt, especially if they declined other offers because they had already accepted yours. That frustration may even cause the candidate to look into legal remedies on the basis of discrimination, if they belong to a protected class. At the very least, a negative experience usually leads someone to express their dissatisfaction to 26 others. That number is more likely to be higher when the experience directly affects someones livelihood though. Eventually, this bad mojo affects the company reputation so much that it becomes difficult to recruit top talent who are then more likely to work at the competition. Because websites like Glassdoor and social networking forums like LinkedIn have accelerated and amplified the effects of negative employee experiences, it's extremely important to carefully consider how your policies can impact your reputation even if they are lawful.

Unpaid Interns

With the downturn in the economy over the past few years, we've seen an increasing number of unpaid intern positions pop up, which capitalize on the eagerness of people to work in any capacity on the chance that they may get a permanent job. This has prompted the Department of Labor to begin scrutinizing these positions to ensure that employers are in compliance with the wage and hour rules under the Fair Labor Standards Act (FLSA). There are six factors that need to be met in order for an intern to be unpaid:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;  
  2. The training is for the benefit of the trainees;  
  3. The trainees do not displace regular employees, but work under their close observation;  
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded; 
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and  
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. 

According to Advisory Letter 12-09, "If the workers are engaged in the primary operations of the employer and are performing productive work (for example, filing, performing other clerical work, or assisting customers), then the fact that they may be receiving some benefits in the form of a new skill or improved work habits is unlikely to make them trainees given the benefits received by the employer." In other words, if you are using interns as a form of free labor, you're probably out of compliance and could be the target of a potential wage and hour claim. As I've mentioned previously, the penalties piled on top of the owed wages can make this an extremely costly mistake, especially if unpaid interns have been a longstanding practice at your company.

The Right (Sales) Stuff

Most startup companies are born out of a clever idea and gobs of sweat equity in turning that concept into a product or service. The biggest decision you face at that point is how to market your product, draw in investors and reach your exit strategy. Unfortunately, product development skills don't always translate into sales savvy, so many founders must look to bring in leaders to grow their sales orgs.

Traditionally, the path to fast money and showing the "hockey stick" growth curve to boards has led companies to gravitate towards sales executives with backgrounds transactional sales models where quantity is the key driving metric. Initially, this method produces "revenue" numbers that prompts investors to throw tons of cash into the expansion of the company, which increases the operational overhead. However, when the incentive for the department is aligned with speed and quantity, shortcuts are usually taken, which manifests itself in escalating churn and more resistance to repeat purchases.

The boiler room environment is best suited for very simple transactions that focus primarily on a fixed, predictable cost to result relationship. For example, "X number of dollars buys you Y number of leads, which results in a Z increase in sales... how many leads would you like to buy?" However, if your product requires a better understanding of the client before the pricing can be prepared, like a media campaign or consulting services, the transactional sales org is most likely going to try and find a way to convert that into their model. This usually produces something along the lines of, "Our service will cost you less and produce X results for your business, so you should buy from us." The expectation set is that of a fixed result. The customer may believe this the first time, but if the results don't match the expectations, they will probably cancel and be unlikely to renew. That churn not only takes projected revenues off the table, but will also make it harder to course correct down the road due to the negative experiences accumulating in the market space about your company. Meanwhile, the accelerated growth will have left you with a tremendous overhead and with the inevitable sagging sales figures, your burn rate will go through the roof.

An alternative method known as the complex or consultative approach is based on the notion that the customer's needs must be understood in order to make their experience with the product or service more successful. This usually results in a longer ramp time and sales cycle, but provides solid revenues by minimizing churn and building a reliable book of business. The sales leaders that are most appropriate for this kind of role will come from a space where sales and account management are somewhat blurred. For example, consultative salespeople are often in regular contact with their clients, managing their expectations and reinforcing the value statement. This type of sales org is evaluated on metrics like activity, quality and retention. Opting to go this route may not generate as much of a funding frenzy, but will probably result in a much lower burn rate since the infrastructure will never get ahead of the pipeline. That means you'll be operating in the black and less affected by fluctuations in the mood of the funding community. It also creates real value in your company, whether your exit strategy is to sell or to IPO.