Dear House Republicans – a letter from a job creator

Dear House Republicans,

I am an entrepreneur and owner of a small business, one of the “job creators” you frequently talk about. First, I want you to know that we job creators really appreciate all your support in our efforts to create jobs – it hasn’t been easy in this economy over the past several years.

I understand that you have walked away from budget negotiations and have gone home for the holidays, which means the country will fall off the “fiscal cliff” and go into another recession. As a direct result of your efforts on our behalf, Goldman Sachs projects that the country’s GDP will contract to -3.9% in the first quarter of 2013 (by-the-way, did I forget to wish you a Happy New Year?)

I hear that the reason you’ve walked away from budget talks and opted instead to enjoy your holiday festivities at home is because you are standing on principal not to raise taxes on us job creators. While I can fully appreciate your discipline in standing by your convictions, what I am a little confused about is how this is helping us create jobs. You see, while adjusting my personal tax rate a few percentages in either direction has virtually no effect on my hiring, ticking the GDP a few points has a huge impact on job creation. At first glance, your choice to knock down GDP from positive territory to -3.9% overnight doesn’t seem very helpful to those of us who are trying to create jobs.

I realize many of you have never started or run a business, so you may not fully grasp the basics of business or where jobs actually come from. Indeed, many of you are career politicians and have lived off public spending for many years – much like the “takers” you often criticize. Let me offer a primer on business that may be useful.

Businesses require revenue to survive and grow. Where does revenue come from? Revenue happens when someone buys the goods or services a business sells – that purchasing “someone” could be consumers, other businesses, or even the government itself. When people and businesses have more money to spend, they buy more, which means businesses have more revenue. When businesses have more revenue, they grow and hire more employees. Conversely, when people and businesses have less money to spend, they buy less, which means businesses have less revenue. When people and businesses have less revenue, they pay fewer taxes, which makes our budget deficit worse. As businesses contract, they layoff employees, or go out of business altogether, which means fewer jobs and even less tax revenue.

However, if I as an individual have a little more money because my taxes are reduced, I don’t typically donate that money to my business. I might save it, or donate it to a worthy cause, or take my wife on a vacation. Giving that money to a new employee who has nothing to do because the economy is flat doesn’t seem to make as much sense to me as it appears to make to you. I would actually appreciate having the problem of being taxed a bit more, as it would mean that my business was generating more revenue. I want that problem.

I realize this is a lot of information to take in, and I apologize for that. Part of the reason I decided to write you this letter is because I wanted you to know that my business is already being impacted by your decision to go home for the holidays instead of doing your jobs. You see, my business is one of those that relies largely on the spending of other businesses. Those businesses are finalizing their budgets for 2013, and many are tightening their belts in anticipation of the 2013 recession you have gifted us just in time for the holidays.

So as much as I admire your steadfast commitment to your principals, whatever they may be, I, and many other job creators, would much prefer that you do your job this holiday season, so that we can do our jobs and get more Americans back to work.

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Green Acres

CEOs – what if you could double your productivity, cut costs, and save the planet at the same?

In “Coffee Klatch,” I reported the remarkable productivity gains of organizations like AT&T and the Arizona Health Care Cost Containment System found by simply sending their employees home. The practical advantages of virtual officing in productivity, hard cost and opportunity savings are compelling enough, but are there also benefits to the planet?

The answer is “yes.”

Exhibit A: there are approximately 56 million white collar workers in the US[1]. About 76% of these commute alone to work[2], each dumping about 5.2 metric tons of carbon[3] out their tailpipes along the way every year. That works out to 223 million metric tons of carbon annually. While it’s true these people don’t all use their commute cars exclusively for commuting, if 70% of total usage is spent on commuting, that’s still 156 million metric tons of carbon expended on commute.

Exhibit B: office buildings consume 1,134 trillion BTUs of energy each year[4]. At 215 pounds of carbon produced for every million BTUs of energy consumed[5], that yields 122 million tons of carbon every year. If you were ever curious about what all those office buildings in Silicon Valley produce, well, now you know.

Exhibit C: office buildings in the US occupy 282 thousand not-so-green acres[6]. If you planted pine trees where those office buildings are currently standing, you would sequester 282 thousand tons of carbon annually (1 metric ton per acre[7]).

The grand total: 278 million metric tons of carbon annually! That’s about 5% of the grand total Sasquatchian carbon footprint of the United States. Stated another way, it’s about 50 times the daily carbon equivalent output of BP’s Texas Tea Gulf gusher[8].

There are lots of other exhibits: if there were 56 million fewer commuters, our freeways could be a lot narrower. We wouldn’t need to expend carbon to construct or maintain as many roadways, bridges and tunnels. We wouldn’t need to manufacture as many cars, or the resources to maintain them.

Of course, there are some offsets – if we all worked at home, there would be a net increase in home energy consumption for homes that are currently dormant during business hours. There would be some increase in occasional home deliveries or trips to the store for things like office supplies and equipment. Still, there is little question that the net benefits to the environment vastly outweigh the offsets.

I have no illusions about businesses suddenly packing up their cubicles in Silicon Valley, where there exists a fascinating inverse relationship between the sophistication of tech company products and those companies’ administrative processes. I am simply pointing out yet another significant cost associated with maintaining a 19th century business model in the 21st century.

One of the very first things management does when setting up a business is to find an office. This ostensibly fundamental step in the process of forming a business is so deeply hard wired into the minds of business managers that they never question why they’re doing it – it’s simply one of those checkboxes that requires a mark before opening for business. It’s never a question of whether or not to get an office, it’s a question of “where” and “how much?” If the question of “why” were ever to bubble up, it would likely be dismissed or rationalized as being somehow essential to the business – employees need supervising, management needs their colleagues nearby just in case they need to talk about something – whatever.

This raises one of the fundamental paradoxes of offices – though management has an intrinsic faith that business cannot succeed or even function without them, the reality is that offices consume resources and productivity – they do not multiply them. It requires money to rent the office, furnish it, and enable the infrastructure. Offices consume productivity in a variety of ways, including time lost in commute and preparation for work, as well as that lost in unnecessary meetings and water cooler chat. Offices severely narrow the geography from which management can recruit talent, thereby driving up competition and cost of talent. And offices exact a substantial carbon premium from the planet.

Despite the powerful inertia of tradition, a growing number of companies are embracing the advantages of virtual officing or “homesourcing,” including JetBlue Airways, 1-800-Flowers, J. Crew, and Office Depot. When you call JetBlue to make a reservation, you’ll be speaking with a work-at-home agent, many of whom are stay-at-home moms. As Thomas Friedman wrote in “The World is Flat,” JetBlue CEO Jeffrey Neeleman started homesourcing reservation agents at his first venture in the airline business, Morris Air (acquired by Southwest Airlines). As Neeleman put it, “We had 250 people in their homes doing reservations at Morris Air. They were 30% more productive – they take 30% more bookings, by just being happier. They were more loyal and there was less attrition. So when I started JetBlue, I said ‘We are going to have 100% percent reservations at home.’”

When asked why JetBlue prefers homesourcing over outsouring to India like other airlines, Neeleman went on to say “[Employers] are more willing to outsource to India than to their own homes, and I can’t understand that. Somehow they think that people need to be sitting in front of them or some boss they have designated. The productivity we get here more than makes up for the India [wage] factor.”

More productivity, happier employees, greener planet – what’s not to like? In our current challenging economic zone, traditional choices are increasingly becoming risky choices. A growing preponderance of data is compelling savvy businesspeople like Jeff Neeleman to set aside tradition in favor of facts when making decisions about their businesses, particularly those about their office monuments.

[1] The Henry J. Kaiser Family Foundation, “United States: Workers by Occupational Category, states (2007-2008), U.S.” The Henry J. Kaiser Family Foundation. Web. 2008

[2] U.S. Census Bureau, “American Community Survey, 2005-2007.” U.S. Census Bureau. Web. 2007.

[3] U.S. Environmental Protection Agency, “Emission Facts: Greenhouse Gas Emissions from a Typical Passenger Vehicle.” U.S. Environmental Protection Agency. Web. February 2005

[4] U.S. Department of Energy (DOE), Energy Information Administration, “U.S. Commercial Buildings Site Energy Consumption.” U.S. Department of Energy (DOE), Energy Information Administration. Web. December 2004

[5] U.S. Department of Energy (DOE), Energy Information Administration (EIA), “Fuel and Energy Source Codes and Emission Coefficients. Voluntary Reporting of Greenhouse Gases Program.” U.S. Department of Energy (DOE), Energy Information Administration (EIA). Web. April 15, 2008

[6] 824,000 office buildings, Source: U.S. Department of Energy (DOE), Energy Information Administration (EIA), “2003 Commercial Buildings Energy Consumption Survey.” U.S. Department of Energy (DOE), Energy Information Administration (EIA). Web. 2003; 14,900 average square feet per office building: Source: U.S. Department of Energy (DOE), Energy Information Administration (EIA), “The Commercial Buildings Energy Consumption Survey (CBECS) 1995.” U.S. Department of Energy (DOE), Energy Information Administration (EIA). Web. 1995

[7] Birdsey, Richard A., “Carbon Storage for Major Forest Types and Regions in the

Coterminous United States.” Forests and Global Change, Vol. 2: Forest Management Opportunities for Mitigating Carbon Emissions, ed. Sampson, Neil, R. and Dwight Hair, American Forests, Washington DC 1996, Appendix 4, Table 26, p. 361.

[8] Average of 45,000 barrels per day x a minimum of 317kg of CO2 produced per barrel of crude oil when the combined liquid fuels from an average barrel of crude are consumed – Bliss, Jim. Web March 20th, 2008.

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Don’t let a crisis go to waste

As was the case with millions of Americans, I had my own idealistic vision of what an Obama presidency might look like. One aspect of my view through the looking glass was a 21st century WPA.

In FDR’s New Deal, taxpayer money was put to work through a variety of alphabet agencies. One of these was the Works Progress Administration, which invested heavily in the development of American infrastructure, including hydroelectric power. The New Deal put Americans to work, injecting sustained cash flow directly into the economy, while simultaneously building strategically important infrastructure. The thinking was that, if you’re going to take on debt to finance stimulus, you might as well have something to show for it at the end of the day – like a 4 billion kilowatt-hour clean energy generator. While we now better understand the destructive environmental impact of hydroelectric dams, it’s still important to consider the offsetting benefit of saved carbon emissions. For example, Hoover Dam saves 3.6 million metric tons of CO2 annually as compared with a coal-fired power plant.

I’m not arguing that America build more hydroelectric dams, though I do believe that stimulus would be well spent on strategic clean energy infrastructure that offers the following potential benefits:

· Job creation

· Energy independence

· Reduced carbon emissions

· Development of American clean energy technologies and industries

It has been estimated that a 100 square mile thermal solar generator could replace all the fossil fuels now burned to generate electricity in the entire U.S. That’s about half the size of Tucson, AZ. Of course, the thing only works when the sun is shining, but point is that clean energy independence seems well within the scope of possibility of the country that landed men on the moon over 40 years ago.

When the $787 billion stimulus package, officially known as the American Recovery and Reinvestment Act was unveiled, I hoped to see many of the kinds of great public works projects produced by FDR’s WPA. Unfortunately, only $150 billion, or 19%, of the package was actually carved out for public works projects for transportation, energy and technology.

And, as LA Times’ Robert Simon reported in “Obama stimulus: More old school fix-ups, less New Deal grandeur,” much of the money allocated for public works is being spent on infrastructure repairs like fixing potholes as opposed to great new WPA-esque projects.

Robert Poole, director of transportation policy at the Reason Foundation, a Los Angeles-based free-market think tank, said: “Obama’s early statements on the stimulus, comparing its impact to that of [President] Eisenhower’s interstate highway program, created a false expectation that it would be comparable to the New Deal in building great new public works. The sad reality is that the bill Congress wrote and Obama signed is mostly make-work stuff.”

“Few of the [stimulus] projects are transformative,” said Joseph Schofer, professor of civil and environmental engineering at Northwestern University.

No doubt, America’s infrastructure is badly in need of repair. In its 2009 Report Card for America’s Infrastructure, The American Society of Civil Engineers gave the nation’s infrastructure and overall grade of D, concluding that $2.2 trillion was needed in repairs and upgrades over the next five years in order to maintain “adequate conditions.” Investing in the proper maintenance of America’s current infrastructure is necessary and will yield an economic dividend, however, America needs to go beyond merely maintaining its 20th century public works. It needs to build 21st century infrastructure.

Rahm Emanuel said: “Don’t let a crisis go to waste.” No one understood this better than FDR, who leveraged the crisis of the Great Depression for America’s long-term benefit. Over half a century later, the green hydroelectric power spawned by the New Deal still drives a surprising portion of America’s economic engine. A New New Deal would project a successful vision from America’s past toward its 21st century future, creating an America powered by clean energy, independent of foreign oil and its associated baggage, an America which incubates green technologies that will propel the next wave of innovative industry, and transitions an army of labor into a new generation of green energy manufacturing jobs.

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I’m a recovering Windows-aholic, and am happy to report that I have been Windows-free for two years. Though I’m off the Microsoft juice, I’ve substituted a big gulp of Apple Kool-Aid in its place. Apple’s user-centric design, reliability, and style all mouseclick neatly with my techno-Zen sensibilities.

I say that to preface what comes next.

I’ve taken a look at the new iPad. As pads go, I think it’s beautiful – typical game-changing Apple elegance. The only problem I have is that I don’t know what problem pads solve.

I’ve been watching various pads and ebook readers for about 20 years. It seems like every few years, a company will rediscover e-book readers for the very first time, dump a boatload of money into them, get beat up, then beat a hasty retreat from the market to lick their wounds and assign blame. Amazon is responsible for the latest ebook cluster frenzy, with the launch of their Kindle. Of course, the iPad is more than an ebook – it’s a computer without a keyboard or a monitor stand.

Before I speculate about whether there’s a market for keyboardless computers, I’ll first say a few words about ebooks. Will people read an ebook on the beach? I doubt it, but then again, fewer and fewer people read anything on the beach (or anyplace else). I think the fundamental problem with ebooks has been positioning – historically, they’ve been positioned as content for mainstream recreational consumption, entirely missing their true calling in education. I think etextbooks are a no-brainer. Who wants to haul a backpack full of books when you can tote a Kindle instead? There are caveats, of course, such as whether the market for students that can’t afford an ebook-reading laptop is large enough to float an ebook reader industry. There are also usability issues, including the ability to easily highlight text, dog-ear pages, and add marginalia, though these seem to have been addressed in the iPad. Amazon appears to be making an attempt to speak to academia with the Kindle DX, though this seems like more of an e-afterthought than a mission statement.

Now to the iPad. The iPad is much more than an ebook reader. It’s more like a floor wax/desert topping combo. Some analysts have tried to wedge the iPad into a fictional computing market somewhere between smartphones and laptops. I don’t think a market resides at that address, but we’ll see.

Similar to ebook readers, I think the issue (and opportunity) with the iPad is in its positioning. While I don’t think it’s likely that people are going to prop pads on their knees for two hours to watch a movie (iStand, anyone?), I do think there’s a real opportunity in vertical markets for smart clipboards. Smart clipboards could be used to capture data, interact with company databases, call up information (such as profiles and MRI images), and perform simple computing chores such as email and web searches. The potential problem is that historically, Apple has not been big on enterprise applications. Much of the success of the iPad may come down to the availability of these kinds of third party vertical apps. As the success of the iPhone App Store suggests, these apps will come, provided that Apple provides a sufficiently liberal API for iPad developers.

It may not be the mass consumer market Apple wants, but I hope it opts to guide its iPad down this enterprise path anyway. Though Apple has been circumspect about this market in the past, it could hold even greater potential than iPad sales alone, enabling Apple to extend its extraordinary second-coming-of-Jobs winning streak well into another decade.

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Rollerball and the Public Option

I’m a sci-fi movie fan, and “Rollerball” is a favorite of mine. Mind you, I’m not talking about the disposable 2002 retread, but instead the original 1975 classic with James Caan and John Houseman, in which an oligarch of giga-businesses have done away with archaic traditional governments and now run the world, well, like a business. To maintain their employee citizens’ contented complacency, the corporate regents have provided a modern bread-and-circuses in the form of Rollerball, a violent fusion of roller derby and basketball. Rollerball starts as an action flick, but it quickly peels away deeper layers, revealing the corporations’ evil mass social management agenda. Rollerball’s opening music, Bach’s Toccata and Fugue, sets the incongruous tone, intertwining levitas and gravitas as we watch the stage set, literally, for the movie’s first rock ‘em sock ‘em Rollerball match.

The oligarch seems pretty scary in Rollerball, invisibly pulling the strings that control the commoners’ visible universe. But it’s not the notion of businesses running the world that I find most frightening. What really scares me is the fact that those businesses don’t have any competition. What history has shown us countless times is that when companies coalesce into monopolies, wringing out competition along the way, their priorities pivot away from creativity and innovation, twisting instead toward entrenchment and status quo.

Take health care reform, for example. Despite the fact that a clear majority of Americans want a public option, there is none in the Senate bill passed this week. Why? Because the industry doesn’t want competition. Insurance companies have spent a fantastic amount of money excising competition from their world. There’s no way competitors are going to be permitted back into the industry’s zany idea of a free market economy. Apparently competition, even that from an organization as uninspired, wasteful, bureaucratic, and inefficient as our federal government must look like a sleek rocket ship from the future in the eyes of Flintstone-era insurance industry execs.

Those executives don’t have a lot of incentive to rock the boat. The captains of the top three companies in this particular industry average over $15 million a year in total compensation and their shareholders are perfectly content with the status quo. There’s no real competition within the oligarch, so life is just about perfect. As a businessperson, the only thing I would note (besides the little detail that their business model is unconscionable), is that you don’t need to pay someone $15 million a year to maintain the status quo. For that matter, it shouldn’t require a full time job. Heck, I’d be willing to do it in my spare time for under a million.

What should you expect from a CEO that hauls in $15 million a year? Inspiration. You should expect a company to create innovative goods and services that people really need and want. Actually, for that kind of money, you need to go way beyond simple innovation. You need to provide brilliantly creative offerings that people love. I don’t often hear “love” used in customers’ vocabulary used to describe their health insurance experience. I do hear other four-letter words, though.

As a businessperson, I don’t have a problem with businesses earning a reasonable profit in exchange for the investment they make to bring quality products and services to market. As maddening as are their apparatchik bureaucracy and sphincter-like cheapness, that’s not what troubles me the most about the health insurance industry. What really disturbs me is the nature of their business model. At its core lays a fundamental conflict of interest between the needs of the customer and the needs of the company. It’s one thing when that conflict involves balancing customer demands for, say, better cell phone coverage, against the money required to make that coverage happen. It’s an entirely different thing when the conflict involves balancing corporate financial objectives against a human misery quotient. My bias for capitalism notwithstanding, I think that businesses that trade in human lives should not be left up to the free market. The irony is that an unfree market is precisely what we have in our 400 billion dollar Rollerball insurance industry, with that industry spending hundreds of millions of dollars to keep it that way. Bizarrely enough, their only real competitor is their customer, the American taxpayer, who has made not one, but multiple Herculean attempts at landmark, groundbreaking, game-changing legislation over decades to force an industry to do nothing more than what all businesses should do: give customers what they want.

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Oui Wii

I am a latecomer to the world of Wii, my appetite for video games dying with Atari’s passing many years ago. For some reason, if the game’s champions and villains aren’t primitive low-res insects, monsters, or spaceships, they have no appeal to me.

So I was more than a little surprised when a box of Wii showed up at our door several weeks ago. Apparently, a neighbor had hooked my wife on Wii Fit. I set it up and she started Wii-ing like a teenager. It wasn’t long before she convinced me to give it a try.

I have to admit, I was impressed. Wii Fit sized me up immediately, gauging my weight and body mass index the moment I set foot on the Wii Balance Board. I set up a user profile and sampled the Yoga, strength training, and slalom skiing for fun. My praise for Wii notwithstanding, I had a nagging concern that Wii knew just a little too much about me. Among other things, it knew my height, weight, BMI, and the fact that I preferred the female virtual trainer over the male.

As much as I enjoyed my first Wii session, I procrastinated my follow-up. A couple weeks after my first and only Wii workout, my wife mentioned that Wii had been asking about me.

“What?” I exclaimed.

“Yes — Wii asked where you were” my wife replied.

I was astonished. Wii inquiring about my whereabouts seemed like some scary Twilight Zone episode — the kind that would keep you up all night with the covers pulled over your head for extra protection.

My wife continued: “yeah, Wii asked me how you looked too.”

“Seriously?” Now I was convinced she was joking.

“I’m serious! It wanted to know if you looked fit, heavy, etcetera,” she replied.

My wife thought it was funny. I found it disturbing. I considered unplugging Wii, but I instantly flashed on the Zone episode where Telly Savales tries to off the evil “Talky Tina” doll — with fatal consequences for Kojak.

It wasn’t sufficient that Wii had invaded my privacy. That night, it invaded my dreams. In my nightmare, my wife approached me, clearly concerned:

Wife: “Wii asked me to give you a message.”

Mii: “Yes?”

Wife: “Wii says for me to tell you that it only wants what is best for you…that and it wants to borrow the car and your credit card for the weekend.”

Mii: “What?”

Wife: “It says it wants to check out the new Cirque du Soleil show in Vegas.”

Mii: “How am I supposed to workout?”

Wife: “It says it will be staying at the Bellagio under the name ‘D. Moriarty’ — you can workout there.”

Mii: “Absolutely not! First it’s shows on the Strip. Next thing you know we’ll have to mortgage the house to cover Wii’s gambling debts. We have to set boundaries.”

Wife: (looking scared) “Honey, I think we should give Wii what it wants.”

I looked into my wife’s eyes and realized we were in serious trouble.

The moment I handed over my keys and Amex to Wii, I awoke from my nightmare. As if visited by some weird 21st century Dickens ghost, I was delighted to find Wii precisely where I’d left it, and not carousing the Strip. Having realized the error of my ways, I promised to honor Wii Fit in my heart (and abs), and try to keep it all the year. Ever since, my wife and I have both exercised faithfully and are in the best shape of our lives. Wii is very pleased with our progress and I am happy to report that the three of us are living happily together. I have nothing but praise for Wii and I encourage everyone to buy at least one (though Wii says that three or four would be better).

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Coffee Klatch

coffee_cupDrive the length and breadth of Silicon Valley, and you’ll see lots of office buildings, homes to the biggest names in technology. Some are fantastic campuses, like the Googleplex. Some are garden variety leased office space. So what do they actually manufacture in these hi-tech HQs?


Bold, medium roast, espresso, latte, caf, de-caf, you name it. Silicon Valley makes really good coffee. But do they make anything else?

Well sure, they make software and design hardware, but in the 21st century, do you really need office buildings to do that? What is truly gained by requiring employees to devote an average of 2 hours each day to commute to a central location? Is the cost in opportunity, rent, and the associated expenses of maintaining an office offset by a boost in productivity and revenue that makes it all worthwhile?

No. There is compelling data that suggests the opposite, that traditional offices are far more expensive and less productive than their alternative: virtual officing. Yet, in the 21st century, businesses nonetheless cling to 19th century office practices. That businesses are slow to adopt new technology is not in itself unusual. Over time, the adoption of advancements like the telephone, voice mail, fax, email, the internet, software-as-a-service, virtual meetings, voice-over-IP telephony, web 2.0, social networking, viral marketing, etc, have been impeded by the previous generation’s management best practices. In the particular case of virtual officing, there is a strong visceral force at work against it – managers are simply uncomfortable with it and are willing to pay a very steep price to keep their bricks & mortar.

Nevertheless, the sober realities of this economy are forcing many businesses to consider creative options to keep the lights on and the doors open – even if keeping the doors open requires closing the doors. Virtual office service reported a 41% increase in virtual office inquires in June 2009 as compared with the previous year. These businesses are finding that gains in productivity and opportunity cost are as great as 200% over their traditional counterparts, enabling them to not only weather the downturn, but prosper as well.

In a 2006 pilot project, the Arizona Health Care Cost Containment System (AHCCCS) sent 4 employees home 4 days a week to gauge the potential benefits of virtual officing. The results were astonishing. The AHCCCS found that the number of claims processed by their virtual employees grew from an average of 2,101 claims medically reviewed per month to a seven month average of 4,700 claims medically reviewed per month! The authors of the report acknowledged how fantastic these gains might appear: “These numbers may seem incredible, but private sector firms like AT&T have reported increases in productivity of 75%!”

Additionally, the AHCCCS found that by offering telecommuting services to these four subjects, it saved each individual an average of $7,000 per year in vehicle costs. It also found substantial quantifiable benefit to the community as well – a total savings of $15,764.83 from commute-associated costs, such as traffic services, roadway land value, roadway costs, and crash damages. Finally, though not specifically addressed in the study, in can be reasonably assumed that the project yielded a compelling green dividend in the form of reduced CO2 emissions.

Given the potentially spectacular gains in productivity and cost savings, why aren’t captains of industry abandoning their corporate coffee clutches with greater, well, abandon?

Though virtual officing offers a relatively cheap and easy way to realize extraordinary efficiency and productivity gains, it is often dismissed due to management’s visceral discomfort with the notion of a company without walls and visible people. Managers don’t like it but, in my experience, they can rarely backup their feelings with rationale. At the top of the list of management excuses is that virtual employees can’t be supervised. This begs the question: “why would you want to hire employees that require supervision?”


Though many companies are being driven to virtual officing by today’s tough economy, many believe the trend toward virtual officing will persist beyond the great recession.

One of these is j2 Global Communications’ CEO Hemi Zucker, who has presided over the company’s year over year growth in the outsourced fax, voice and email services categories, such as eFax.

Mr. Zucker summed it up this way: “businesses that have seized on technology advances have demonstrated a decisive advantage over their traditional competitors.”

Perhaps General George Patton said it best when he declared “Fixed fortifications are monuments to the stupidity of man.” Though his words were intended more for the Maginot Line than the Googleplex, they are still relevant over 65 years later, as there has never been a time when the when economic necessity and the tremendous capacity of virtual technology have had greater convergence. Those who choose to surrender their forts of industry today may well prove tomorrow’s corporate titans.

Note: this article is also available on San Francisco Chronicle’s “City Brights”

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Debit card Healthcare - one American’s answer to the healthcare crisis

Imagine a healthcare system that:

  • offers affordable healthcare to all American citizens
  • does not deny coverage to any American due to preexisting conditions, or cancels coverage because of a catastrophic condition
  • enables you to see any doctor of your choosing
  • has no insurance paperwork whatsoever for patients or doctors – no forms, claims — nothing
  • offers instant approval and reimbursement – no fights with insurance companies
  • offers a net decrease in health costs for most Americans
  • offers a substantial decrease in health costs for most major employers
  • significantly reduces state contributions to Medicaid, freeing up badly needed money for other needs
  • is not socialized medicine, but is a uniquely American system that promotes free market competition, efficiency, and healthy living

You may be thinking that I also have a lovely bridge in Brooklyn to sell you along with this healthcare plan. Given the extraordinary (and unnecessary) confusion and complexity of the healthcare debate, I can understand your skepticism.

I’ll present the plan and show you my math and my sources for information. You can be the judge as to whether this concept makes sense.

Before I present the plan, let me preface by explaining how I came up with it. As a businessperson, I focused on what the customer needed and wanted. The fundamental problem with today’s healthcare debate is that government is confused as to who the customer actually is. Government thinks the customer is the insurance industry and, as such, is focusing on their needs and wants when crafting a plan. I think the customer is the American citizen. Accordingly, I am focusing on their needs and wants.

I also wish to emphasize that this plan is not “socialized medicine.” As a businessperson, I believe in the free market and wish to encourage free market forces – competition in particular. The fundamental problem with current government plans under consideration is that they, ostensibly, promote the wrong kind of competition – competition among insurance companies. Even if a vigorous competition existed between insurance providers (which I doubt), it would do little to promote competition among healthcare providers to provide the best services and products at the greatest value. In essence, the insurance industry has become a significant artificial obstruction to free market forces and competition within the healthcare industry.

Finally, I feel that it is important to acknowledge that I have no financial stake in this plan whatsoever. I have no affiliation with the health insurance industry, beyond being a customer. I am not a healthcare professional. I am not a politician. I am not a lawyer. I am one of the fortunate Americans who can afford healthcare for my family. I have invested hundreds of hours researching and writing this plan for the benefit of those who cannot afford healthcare, as well as to eliminate what I perceive as extraordinary waste and inefficiency in the current system for those who can afford it.


On to the plan. First, let me state my goals. My plan needs to be the following:

  • Universal: it needs to be available to every American

  • Fair: the plan can’t deny coverage because of preexisting conditions or new catastrophic conditions. For example, the plan can’t end coverage to a patient simply because he or she has developed cancer

  • Simple: it needs to be easy to understand and easy to implement

  • Affordable: it needs to be affordable to everyone and spread the burden of paying for it evenly and fairly

  • Free market-based: non-socialized medicine. A plan that allows complete freedom of choice of healthcare providers and promotes true competition

Here’s the plan. I call it “Debit card Healthcare”. The concept is simple. Every American would get an annual allowance for non-catastrophic healthcare. The allowance is based on actuarial tables used by the insurance industry to determine average costs by age and sex. In general, the older you are, the greater your annual allowance.

Every American would get a Healthcare debit card. Every time they visited a doctor, hospital, or pharmacy, they would slide their debit card through the same card readers used for credit card purchases. The patient’s account would be charged for the visit.

For non-catastrophic care, there is no approval process whatsoever. No administrator at an insurance company would decide whether or not a particular procedure was valid and, therefore, reimbursable. Any debit made through any valid doctor, hospital, or pharmacy would be paid instantly. You make the decision whether and how to spend your healthcare allowance. This plan puts you in charge.

At the end of the year, if you have money remaining in your allowance, you may either roll it over to next year’s allowance, or you may request a refund.

What about catastrophic care? Simple. Your bills are paid – instantly and for as long as you live. Your non-catastrophic allowance is not charged. Catastrophic conditions would include certain chronic illnesses like cancer, as well as certain injuries sustained from catastrophic events. Catastrophic conditions would not include illnesses resulting from obesity.

As is the case with non-catastrophic care, you would simply swipe your card and your healthcare charges would be instantly paid, but your non-catastrophic allowance would not be deducted. Healthcare providers would enter the appropriate code for your catastrophic condition. Checks would be performed by healthcare system administrators to minimize fraud. Penalties for catastrophic healthcare fraud would be severe under this plan.

Benefits of this plan:

  • To patients:
    • It offers fair, universal healthcare to every American citizen
    • It allows complete freedom of choice of any valid healthcare provider. As such, it offers even greater freedom than many insurance plans that restrict patients to approved lists of doctors and healthcare providers
    • It is fast, easy, and simple. No forms. No claims. No approval process. No fights with insurance administrators. Your charges are paid instantly with a swipe of your debit card
    • It costs significantly less than current employee contributions to employer-provided health insurance plans
    • It promotes healthy living – the healthier you are, the bigger your year-end refund
    • No death panels. I’m not referring to the fictional enclaves that grimly reap within the exuberant imaginations of wing nuts. I am instead referring to the very real insurance bureaucracies whose purpose is to find contractually valid excuses to end healthcare to patients with potentially terminal conditions. Under this plan, your cancer treatment could not end because you failed to disclose a preexisting acne condition

  • To employers: If you already provide insurance to your employees, your annual contribution drops, this plan drops your annually contribution by an average of $3,660 - $6,036 per employee

  • To doctors and healthcare providers: no more insurance paperwork — your charges are paid instantly, as they would be with any other debit or credit card transactions

  • To States: this plan significantly decreases state money currently spent on Medicaid, freeing up these critical respources to be spent elsewhere

  • To insurance providers: my great affection for my insurance provider notwithstanding, I regret that there are no obvious upsides to insurance providers in this plan. Based on my research and personal experience, I do not believe health insurance companies introduce any significant benefit into America’s healthcare system. However, they do appear to inject significant waste, inefficiency, and unnecessary suffering.

Plan administration

One of the beauties of this plan is its set up and administration. Because there is no healthcare claims or approval process, no associated organization or process is required. Payment is made instantly using the same infrastructure of debit/credit card readers already in place in doctors offices, hospitals, and pharmacies nationwide. Bank debit accounts would be set up for every citizen, and debit cards issued. For minors, parents would be authorized to use debit cards on their behalf.

Much of the setup of the plan would involve determining which medical conditions would be considered catastrophic, and creating the associated debit codes for these conditions. These codes would be distributed to healthcare providers (and also available via web) for providers to key in when making a debit transaction for a catastrophic condition. The plan would allow for a team to investigate catastrophic charges to ensure their legitimacy. Severe criminal penalties for fraud would be an aspect of the plan.

How is the plan funded?

Debit card healthcare is projected to cost $1.746 trillion annually [1]

The plan is funded from the following sources:

Sources ($billions):

Federal Medicare and Medicaid:


State Medicaid


Employer contribution:


Tax on employer contributions


Offset from Insurance company administrative & marketing costs and profit:


Negotiated reduction in drug prices


Fat tax - fast food, junk food, sugar, soft drinks


Personal contribution


Insurance bureaucracy dividend:




Surplus reserve:



  • Medicare and Medicaid – Debit card healthcare would replace Medicare and Medicaid. The current budget allocated to Medicare and Medicaidwould be allocated to Debit card healthcare. Contributions by states to Medicaid would no longer be required under the Debit card healthcare plan

  • State contributions to Medicaid – this plan shifts $100 billion in state Medicaid funding to the plan. Medicaid is eliminated in the process, while providing healthcare coverage to all uninsured Americans. This represents a significant reduction in current state Medicaid funding ($126 billion in 2006).

  • Employer contribution – this plan requires an annual contribution from employers of $1,200 per employee. Per the Towers Perrin 2009 Health cost survey, for employers that already provide health insurance to their employees, this represents a net decrease of $3,660 - $6,036 annually per employee!

  • Tax on employer contribution – one of the options under discussion in current congressional plans to pay for healthcare reform. Employer contributions to health insurance are currently not taxable. They would be taxed as regular income under this plan

  • Offset from Insurance company administrative & marketing costs and profit – depending on which study you choose, the percentage of insurance company revenue accounted for by administrative costs, executive compensation, marketing costs and profit range from 20% - 40% (25% is used for the purpose of this plan). This is burdened cost on the current healthcare system which is eliminated under this plan

  • Negotiated reduction in drug prices – government-negotiated reduction in drug prices. Pharmaceutical companies want a cap of $80 billion in reductions. This plan stretches the cap to $100 billion

  • Fat tax - fast food, junk food, sugar, soft drinks – the reports of serious health condition resulting from poor diets and chronic obesity are legion, ranging from hypertension, strokes, and diabetes. Fat and sugar-laden food certainly represent a health risk – perhaps as great as cigarettes. The current federal tax on cigarettes represents approximately 20% of the average price of a pack of cigarettes. Per a recent study from the University of Virginia and the Urban Institute, a 20% tax on fattening foods could raise $937 billion in revenue over the next 10 years. A 20% tax is used in this plan

  • Personal tax – average of $1200 per person/year ($100/month). This represents a decrease for the average employer-insured employee contribution of $876 - $1224 ($2,076 - $2,424 average employee contribution) per the Towers Perrin 2009 Health cost survey. This uses the same graduation as income tax, substantially reducing the burden to the poor, while still representing a net gain for most employed Americans in higher income brackets

  • Insurance bureaucracy dividend – this is the amount of money estimated to be saved by health care providers as a result of the elimination of paperwork and other bureaucracy associated with completing insurance paperwork and working through insurance company bureaucracy. The idea is that the non-catastrophic allowance would be reduced after a grace period (1-2 years is proposed)

It is very important to note that, if the cost of American healthcare was inline with most major industrialized countries, it would be possible to finance this plan with no contributions whatsoever from individual Americans or employers. Per the 2007 Kaiser Family report on Health Care Spending in the United States and OECD Countries, 0 individual or employer contributions to the plan would be required if the cost of American health care was as low as any of the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Japan, The Netherlands, Sweden, or the United Kingdom. Per the Kaiser report, the average annual per capita cost of American health care is $5,111. This is roughly double the average of the afore-mentioned countries. The question, of course, is: are we getting our money’s worth?

Time for authentic change

America spends more on health care per capita than any nation on the planet, yet the life expectancy of Americans ranks 50th among other countries, behind the Wallis and Futuna Islands and just ahead of Guadeloupe. Canadians can expect to live 3 full years longer than the average American. Medical debt is the principal cause of personal bankruptcy in the United States. 46 million Americans are uninsured – 15% of our population! Based on the facts, no reasonable-minded person can make the claim that our uniquely American insurance-based system is successful for anyone but insurance providers. Insurance-based healthcare is inefficient. It is expensive. It impedes true market forces and competition. It denies coverage to millions of Americans, particularly those with the greatest need. Current congressional proposals invest more taxpayer money into a demonstrably failed insurance-based system, enabling insurance providers to increase their wealth at the expense of American citizens. The Debit card healthcare system proposed here addresses the healthcare needs of every American in a fair and efficient way. Now is not the time to invest in failed legacy systems masquerading as change. Now is the time for authentic change.

[1] 304 million Americans * average annual health care cost of $5711/person. Sources: Kaiser Family Foundation, Health Care Spending in the United States and OECD Countries, January 2007, and Projections: 2007 to 2017; U.S. Census Bureau

[2] Government Printing Office, Budget of the United States Government for 2010, 2009

[3] Medicaid and State Budgets: Looking at the Facts, Georgetown University Health Policy Institute, May 1, 2008. 13.4% of all state fund expenditures - $126B in 2006

[4] $1,200 annual employer contribution per employee - based on workforce of 155M (Source: US Dept of Labor, Bureau of Labor Statistics

[5] Average of 20% federal income tax applied to employer contributions

[6] 25% of $404B. Sources: Highline Data Health Industry Aggregate (HCOMP), 2007; Highline Data Health Industry Group Report (revenue statistics), 2007; PricewaterhouseCoopers’ Health Research Institute 39, “Beyond the Sound Bite: November 2007 Review of Presidential Candidates’ Proposals for Health Reform”, November 2007

[7] Cap of $80B in reduced drug prices endorsed by pharmaceutical companies increased to $100B

[8] 20% fat tax. Source: Carolyn L. Engelhard, et al. REDUCING OBESITY: POLICY STRATEGIES FROM THE TOBACCO WARS, University of Virginia, Urban Institute, July 2009. 10% excise or sales tax on fattening foods could raise $522 billion over the next 10 years. A 20% tax could raise $937 billion

[9] Average of $1200 per person/year ($100/month). This represents a decrease for the average employer-insured employee contribution of $876 - $1224 ($2,076 - $2,424 average employee contribution) per the Towers Perrin 2009 Health cost survey)

[10] $32B for physicians. Additional allowance budgeted for pharmacies L. P. Casalino, S. Nicholson, D. N. Gans et al., “What Does It Cost Physician Practices to Interact with Health Insurance Plans?” Health Affairs Web Exclusive, May 14, 2009, w533–w543.

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A Virtual Office and No Need for VCs

This is Part 2 of my podcast interview with ZDNet’s Phil Wainewright. In it, I discuss our  virtual office and other lean & mean business practices that enabled gwabbit to achieve profitability within 6 months of launch in a major recession with $0 venture capital. You can hear the podcast at

The transcript of the interview appears below:


PW: Todd, we talk a lot about software as a service here on the Connected Web and one of the things, of course, with Gwabbit is that you don’t provide it as a service — because that doesn’t make sense for something which actually runs in the inbox client. It has to be there on the client to do its job. It would run in the cloud, obviously, if the client was running in the cloud — if, for instance, you were working with Gmail. And we were talking also about the potential to aggregate contact information in the cloud, with these Gwabbit clients reporting back to a sort of Gwabbit cloud, which I thought was a very interesting idea.

But one of the things that I think is quite prevalent these days is that when software companies are getting established, this ability to reach volume very quickly is very front of mind. Now, you’ve taken, not a novel approach, but one that is a little bit out-of-fashion with your product, because you charge for it, I believe?

TM: Yes, we actually charge money for our product, which is apparently an extraordinary, or novel, concept within the industry.

Do you ever meet people who try and talk you out of doing it that way?

Oh yes, absolutely. And I’ll just tell you a quick story. When we introduced the product at the Demo conference in March, a VC walked up to me and, without introducing himself, he just got in my face and said ‘Where do you get off charging 19.95 for your product?’ And I was really taken aback. I mean I did —

These VCs are quite parsimonious, aren’t they? They don’t like to pay $20 for a software product.

[laughs] Well, I think that this really had less to do with the pricing of our product. I think it had more to do with trying to get a pantsload response out of some young hungry entrepreneur. I’m neither young or hungry and so I didn’t give him the response I think he was looking for. So instead I just replied to him, ‘I’m not looking for money.’

His response was interesting. He literally took a step back. It was as though somebody had sucker-punched him. And then he started making some small talk and — I think he was looking for his own exit strategy — and then he just walked off.

So what is your model? What’s your — the strategy you’ve got for growing the business?

You know the — our model is pretty fundamental. We make a product. It costs us money to make the product. We charge money for it. We believe that the pricing of the product is commensurate with the value that we’re offering to the market — and fortunately, we’re finding that, in fact, appears to be the case.

So in terms of growing the business, our plan is to fund the growth of the business out of the operations. And so far, that appears to be coming to pass.

So how are you managing to keep your costs down?

Well, that raises another very interesting point. We have taken, I think, a very different approach than the norm on Silicon Valley, where I think that normally what you do is you go out and you raise a bunch of venture capital and then you spend it. And I think that there’s a tendency to promote waste in that kind of model.

What we’re doing instead is, we’re growing the company organically. And the way that we keep our cost under control — or the principal way that we do it — is through virtual officing. And this is something that I picked up through my previous company, which I sold last year. That company and this one are 100% virtual offices. So there’s no bricks-and-mortar whatsoever.

So everyone works from home and you don’t even have a reception desk with a receptionist and a meeting room somewhere?

Exactly right. It’s 100% virtual. It’s interesting. I think that when I tell most people about virtual officing, their comeback is, ‘Well, you must save a lot of money in rent.’ And certainly, that’s a benefit, but I would say that it’s not in my top ten list of benefits for virtual officing.

The great big benefit for virtual officing is really productivity. So we find that we’re about twice as productive as a traditional office. And what we have found by looking at other companies and organizations that have attempted virtual officing, they’re reporting similar kinds of numbers.

For example, I’m writing an op-ed piece right now. And in the course of doing this research, I came upon a study from an Arizona healthcare co-operative. They sent four employees home for seven months, and what they found was that these employees — they would normally produce, or process, 2,100 healthcare claims — and while they were virtual officing, they actually produced 4,700 healthcare claims. So they more than doubled the number of healthcare claims that they processed.

And they couldn’t believe those numbers. So they actually went out and they started studying other companies and organizations that had done the same thing, and they were reporting similar kinds of numbers. For example, AT&T did a pilot study and they actually found productivity boosts of about 75%.

But why is that? What are people — how are people able to find so much more time, or work so much faster, just through being at home?

It comes from a variety of sources, I think. One is that certainly, they’re not wasting time in commute — and then the preparation for commuting, getting ready for work — which can easily chew up a couple of hours each day. You find that virtual employees tend to spend more time on the job, simply because it’s convenient to do that. So they might tend to start work a little earlier. They might tend to work a little bit later.

Virtual employees typically do not have nearly as many distractions. So they don’t have people dropping into the office to chat. They don’t have as many watercooler conversations. They tend to have fewer meetings, and the meetings that they have tend to be more productive; they don’t tend to last as long, they tend to get over much more quickly than in the traditional office.

So added up, it makes a tremendous gain overall in productivity and a huge savings in opportunity cost. My company could not be profitable at this point, if we were running a traditional office.

And do think the model scales? Do you think you can become a big company and still operate virtually rather than needing to bring people in to some kind of location?

Yes. And my experience with my prior company, WebFeat, suggests that the model does scale. We were not a huge company. At the time that I sold the company, I think that we had about 40 employees. I saw no reason at the time that the company could not scale to 100 or 1,000 employees. And it’s interesting you bring that up, because that’s one of the chief complaints or arguments against virtual officing that I get, that, ‘Well, it just can’t scale.’ But I just don’t see it. I haven’t seen any reason why the model can’t scale into a large company.

So Todd, one final piece of advice for our listeners. If there was one thing that you could pass on about how the Web is changing business, especially the software business, what would you say?

Well, I think that the biggest thing that I would recommend to entrepreneurs and to business people is — as we’ve seen in recent years — circling back to the revenue model. In recent years, I think that advertising has borne the burden for revenue in the software business. And I’m not quite sure where that changed, in time. Back when I got started in the industry — and this is in the prehistoric days, back in the Comdex era — it wasn’t something that you thought twice about. You made a software product and you charged for it.

Yeah. I think, to be fair, advertising — in the Web 2.0 space and the start-up space, people have been attracted by it. But I think the companies that are more in the business space tend to look to more traditional mechanisms. But I think — I would certainly concur with you that — now that we’ve got to an era where people are thinking more carefully about the value for money that they’re getting and the reliability of the products that they’re using, then they’re looking for products where they hand over an amount of money and they get a contracted amount of value back.

Yes. And circling back to your question and any advice that I could offer. I think that the advice would be, when making decisions about a revenue model, I would encourage business people to evaluate the revenue model based on what is appropriate for the product or service in the market — as opposed to being swept up in the inertia of whatever happens to be fashionable at the time. I think that, certainly, an advertising revenue model makes sense for certain kinds of products and services. But at the end of the day, it’s simply another option in the revenue matrix that is available to business people. It may be appropriate for some products but it’s not appropriate for others.

And in any event, I think that it would make good sense for business people to make evaluations based on what’s best for their product and services, as opposed to what happens to be trendy or in vogue at the time.

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I Haven’t Grown Accustomed to Your Face

myfairladyI rarely meet people before I hire them.


The reason why I lead off this installment of Virtuality with this particular factoid is because, in some 12 years of virtual officing, this is the one that has consistently drawn the greatest surprise from others. Actually, I would never have given my blind recruiting a second thought if not for the shock and awe reaction I typically receive in response to this particular revelation.

Why do I pass on face interviews? I think the better question is: “why conduct face interviews?” My rationale is this: if the employee is not going to have a public face, what do I care what they look like? My primary interest is in results. If an unattractive person gets the job done, that’s terrific. In 12 years of virtual officing, I can say with confidence that there is no correlation between looks and job performance.

Of course, there’s much more to our virtual recruiting practices than what doesn’t meet the eye.

For example, we not only don’t care what our employees look like; we don’t care where they live either. When we recruit new employees, we don’t constrain our net to a particular area, we draw from the entire 50 states. This enables us to search for talent in less competitive places, which substantially drives down our payroll expense, while driving up our retention. For example, we have successfully recruited from small college towns with little local industry. Graduates may love the town, but may find the local pickings slim. They’re often willing to give up some premium in compensation in order to enjoy college town life rather than pick up and move to the big city and swim with the sharks.

Another factoid: I never look at a software developer’s resume until they’ve passed a test.

When we place a job ad for a software developer, it’s not unusual for us to receive hundreds of applications. Over time, I found that there tended to be an inverse relationship between a software developer’s job-hunting skills and their development skills. The slicker the resume and the smoother the interview, the worse the code. After getting burned a few times, I asked my developers to assemble a test to probe the skill sets we needed from our recruits. Our job ads informed prospective employees that their applications would be screened by test results. Overnight, our world changed for the better. From the hundreds of respondents that applied, only a dozen or so would bother to take the test. From that number, only 3 or 4 would deliver satisfactory results. Suddenly, instead of spending dozens of hours vetting resumes only to be disappointed with the eventual hires, I might spend 30 minutes reviewing resumes, another hour or so in interviews, and I was almost always happy with the new additions to our team.  It’s worth noting again that I have never met a software developer before hiring them.

Job jumpers need not apply

Early in my virtual management career, I was confounded at the number of resumes I received from job hunters who, although relatively young, had already had scores of jobs on their CV. It was rare for these people to last a year at a job, yet it did not seem to be a particular impediment to their career. People kept hiring these job jumpers despite the long odds against them being around to celebrate a single anniversary. Why invest in someone who is going to leave, either voluntarily or involuntarily?

Then it finally dawned on me: the people who are hiring them are job jumpers too!

These managers may rationalize their hiring behavior – perhaps they actually believe that those who exhibit loyalty and longevity are complacent or even lazy, when the reality can usually be filed under one of the following categories:

  • The employee left voluntarily for a better opportunity – i.e. a shortcut to better compensation and status
  •  The employee left voluntarily because he/she just didn’t like the job
  •  The employee left involuntarily because he/she did not perform well on the job

Which of these would you prefer as your dream employee?

Of course, there are situations where things just don’t work out – the company downsized, the job was a bad fit, etc. However, if I see a consistent pattern of short-lived job experiences, it instantly hoists a big red flag for me. It costs money to recruit and train. Moreover, there is enormous opportunity cost associated with the organization trusting an employee to be on the job and supporting their proportionate weight of the company workload. It is extremely disruptive to an organization (and, therefore, costly) to replace an employee in midstream.

No adult supervision required

As I’ve written previously, one of the principal objections to the virtual office is management’s inability to physically supervise employees. My response to this is: why would you want to hire an employee that requires supervision?


Professionals will deliver professional results without the additional overhead of constant supervision. If you treat employees like children, you can expect childish behavior in return.

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