CEO Unplugged

Isn't that catchy--customers come third?

I've gotten a lot of email from folks about last week's post about my philosophy of always putting employees first, even ahead of conventional priorities like shareholders and customers.  I'll admit that I was expecting this feedback, so I wasn't surprised when I received an email from a customer that began:

I admire your "Employees first" credo.  Respect it.  Which is going to make my complaint more difficult...

The customer went on to register a complaint and point out that maybe we should spend more time serving our customers and less time coddling our employees, since they pay the bills.  This is not an uncommon perspective (and not the first time I've heard it), but I'd like to respond to it and continue the thought from last week about how to prioritize the many constituencies that an entrepreneur/business owner has to deal with.

Customers are like oxygen
Simply put, customers are the oxygen of any business.  There's no denying that.  Without revenue, even the most high-flying, venture-capital backed, red-hot, media-adored, brilliant business will eventually fail.  And who provides that revenue?  Customers, obviously.

That's why they don't come first.  In fact, in my view of the world, they don't even come second.  First come employees.  See my post from last week for my philosophy on that.  You need employees because they build the company's products and deliver the services. Without your people, you have nothing (okay, except maybe yourself, but you count as a person too!). 

What comes next?  Well, you better have something to SELL, or else it's going to be tough to generate the oxygen, er revenue, you need to keep the company alive.  Yes, you can raise money, or take out a loan, to keep the company breathing at first, but think of borrowed or raised money as an oxygen tank, destined to run out eventually, and so precious that you want to keep it around for emergency use only, like when you're fighting an especially nasty fire.  That's why I believe that...

Your products come second
If your employees are the most important asset you have, then the products (I'm using product in a general sense here, to mean any product, good OR SERVICE) that they build/deliver are the second most important.  And in fact, they are the only assets that are truly assets.  People aren't assets, at least not in free countries, and no matter how much you invest in your people they can leave at any time.  But you OWN the intellectual property and organizational expertise that come from building, delivering and perfecting your product(s).  Not to mention that having an awesome product proposition is probably why you started your business in the first place.  What is it that your business makes/does which sets you apart from your competition.  What is it that your business makes/does which makes a mark on the world, and presumably makes the world a better place?   Your product.  What is it that makes your customers pay you money?  Your product.   Meaning...

Customers come third
I know, I know.  I can hear some of you firing up your email program now, to write me about how lame it is that Homestead puts its customers third.  Aren't we the reason Homestead exists, you will say?  Yes, I will respond.  Aren't customers always right, and always deserving of the utmost care and support?  Well usually, I will respond, hopefully with a little added tact, so as to avoid upsetting you too greatly.  The absolute truth is that businesses walk a tight rope every day, balancing the needs of customers with the needs of their employees, the realities of their financial model, and the desire to make a profit. 

There are many things Homestead could do which would make our customers happier, but we don't.  For example, I could give all Homestead members my home phone number or the cell phone numbers of all of our employees, and let you call at all hours of the day with questions.  Or we could give our products away at a loss, or even for free.  Or we could give discounts to customers who complain, and pass on the cost to the customers who love our service and exclaim that they would pay twice as much, instead of trying to keep our prices low and fair for everybody.  Or we could invest less in making our products easier to use (and therefore requiring less support) and invest more in answering our support line a minute more quickly.  All of these things would probably make a number of our customers happier, but they would all be bad business decisions that would hurt the company--PRIMARILY OUR CUSTOMERS--in the long term. 

That's why customers, I'm not afraid to say it, come third around here.

Can you guess what responsibility I believe comes fourth when building a company?  (Hint: there are five total.)  The answer next week.

Employees come first

I'm sure many Homestead customers, as business owners themselves, have read all of the business books which preach putting customers first, or profits first, or pursuing the theory-du-jour about "six sigma" excellence, etc.  It's not that these things aren't important, but personally, I think it's the wrong thing to focus on when building a company.  At Homestead, we've chosen instead to put employees first.  Above profits, and above customers.  It's not that those things aren't important, I just believe that great employees are the enablers that make everything else happen. 

So, we have striven to build a culture at Homestead that makes employees feel like they are the most valuable assets we have (which they are).  We don't do this simply with compensation, although it is certainly important to pay fairly and competitively.  Instead, we focus on creating a feeling of ownership and responsibility among our employees, and then empower them to make the best decisions for the company.  I am often asked how it is that we have fostered such a strong culture among our employees, and here are a few of the things that I usually answer:

1.  Make it part of your definition of success.
The first, and most important step, is to convince yourself that the single key to your success is great people, and that everything else will follow.  I believe that defining what you mean by success is actually harder than achieving that success (more on this later) and for us, having a world-class group of employees that love their jobs, behave as owners of the business, and treat our customers, employees, shareholders and community as THEIRS is the definition of our success. 
2.  Hire, hire, hire.
There is nothing harder, more time consuming, and more important, than hiring people.  In the past twelve years I have probably interviewed well over 1000 people personally, and have met with every individual before they became a full time emplloyee (we've hired over 300 people to date at Homestead).   All of the other managers at Homestead spend a significant amount of their time (probably 10%) on hiring, and the average candidate meets with about 10 people before the hiring decision is made.
3.  Create traditions, not just perks
People like traditions, whether they are with their family, their group of friends from high school or college, their church/temple, or their local community.  And traditions are a very powerful way to bind people together, create lasting memories, and mark the passing of time.  Why not have traditions at your company, instead of just perks?  Well, we do, and it all started days after I started the company in my room, when we needed a place to meet.  There was a favorite diner of mine (The Peninsula Creamery) that has served amazing milkshakes and hamburgers in Palo Alto for almost 100 years, and we decided to have a meeting there for lunch every Monday and discuss the important events from the past and upcoming week, so that everybody would be informed.  Back then our survival was pretty much week to week, and it was critical that everybody knew how we were doing, what they needed to focus on, and what the chances were that they would get their next paycheck.  Twelve years later our company is a bit more stable and we wouldn't fit in the Creamery even if we took every table, but communication is just as important.  So, we still have lunch every Monday for the entire company and all of the leaders of the company stand up and discuss what's going on, and we celebrate our triumphs, commisserate over our shortcomings, and have a little fun.  In twelve years we have never missed a Monday lunch.  Other traditions that we have established include: our annual Homestead Retreat, where we take all employees on a team-buliding trip for 3-4 days; our Homestead Anniversary Party, where we celebrate the anniversary of our founding by throwing a huge party for our employees and their guests; the Homestead Talent Show, which just occurred last week by the way, where our amazingly talented (and slightly crazy) employees put on acts for the extended Homestead family at a nearby theater (more on this soon: David Wu, our COO, and I performed a new song that just might make it on to the hold music soundtrack of our phone system); and Homestead Universities, where we have brown bag presentations--usually given by fellow employees--on topics ranging from how our software is architected to taiko drumming to ballroom dancing.

Well, I could go on, but that's enough to whet your appetite.   I'd love to hear what other people do to foster a strong culture in their company.  I'd encourage all founders or future founders out there to remember that your culture starts with you, and how you select and treat your very first employee, even if it's a contractor or a part timer.  Organizations have a way of reflecting the attitude, personality, and sensitivities of the earliest people, so choose wisely and invest heavily.  By the way, these things don't take a lot of money--in fact, they can save you money--but they do take a lot of time and thought.
--jsk

Why the blog, why the name?

So, what's with this blog?  Actually, I've been meaning to start a blog for some time now, as I really enjoy communicating with Homestead's awesome customers.  I'm always looking for ways to generate more conversations with them, and a blog seemed like a perfect way to conduct an informal conversation among many of us at the same time.  I also have lots of observations about the world of entrepreneurship and technology that I would like to bat back and forth with other like-minded (or unlike-minded) entrepreneurs, business owners and thoughtful people.  What better group for that than Homestead's extended family of customers, employees, investors and the millions of people who visit our site each month? 

So, here it is, my official blog.  I can't say that I'm a fanatic about blogs in general, but I think they do a great job of bringing people together to discuss specific ideas.  However, without the feedback loop, you might as well send out one of those cheesy newsletters, so I'm counting on all of you to help me out by joining in.  This is a place for your voice to be heard, so please post a comment if what you read here makes you want to say something!  I welcome any and all comments, as long as they are respectful and sincere.

As for the name of this blog, I'm an amateur (and fairly poor) singer/guitar-player and have been known to write parodies about the Internet, or Homestead products or employees, and perform them at various venues (including the amazing Homestead Talent show we put on every year).  For the launch of our QuickSite product line in 2005, David Wu (Homestead COO) and I performed one such song instead of giving the more traditional demo, at the DEMO Conference in Phoenix where 60 companies get six minutes each to show their stuff.  It went over quite well (we won the DEMOGod award) and created a temporary buzz in the blogosphere.  You can see the slightly embarrassing video here.  A more savvy entrepreneur would have capitalized on the buzz but I didn't, and over a year later the only benefit is that I occassionally am recognized at a conference or industry event as "that crazy dude who sang his demo at DEMO."

Anyway, I like unplugged music, and I like unplugged conversations, so there you are.  I'll try to always give you the truth, unfiltered and without amplification or distortion.  If you think I'm spinning, call me on it.  As for the guitar playing, I'll keep practicing.

The Homestead Backstory - Prelude

Every entrepreneur has a reason for being.  You can learn a lot about a company and their product/service by asking questions about where it all began.   Instead of boring you with the entire Homestead back story, from time to time I'll share snippets of our story, and why we are here.

I started Homestead years ago because I knew I was the kind of person to pour everything into my work, and I wanted to build something worthwhile.  Since I was a software guy, that meant developing products that normal people could use; ones that empowered the “little guys” to compete with the “big guys” who had all of the money and resources and technology.  I noticed that most technology companies built technology for each other and sold it back and forth, reinforcing the battlements so to speak, but not really helping people outside of the technology field.  There were exceptions of course (like Intuit, Microsoft, Yahoo) but they were outnumbered 10 to 1 by the database companies, CRM systems, sales-force automation companies, supply-chain management, yada yada yada.

So, I started Homestead to focus on people who didn’t have millions of dollars and dozens of employees to throw at technology.  They had their own energy and creativity, but couldn’t or wouldn’t want to spend it all on using technology.  Small businesses were the sweet spot of this group, and as we developed Homestead over the years they became a larger and larger part of our customer base.  Now over 75% of our new customers are small businesses or non-profit organizations, and they need our products more than ever.  That’s because larger companies are squeezing more and more competitive advantage out of their large technology investments.  Instead of the Internet “closing the gap” between small and large guys, it has widened it, and we need to work harder to close it again, or small businesses are going to keep losing out to the big brand companies as they have already in many areas (think hardware stores, local banks, small jewelers, neighborhood coffee shops).

Anyway, over the next few weeks I'll chronicle how I ended up being an entrepreneur, how we started Homestead, and how it has grown and changed over the years.  Please let me know if you have any specific questions about the Homestead "backstory" and I'll make sure to weave them into the narrative.  Thanks for reading!

 

2 Must Reads for Entrepreneurs

Kevin Maney of USA Today, one of the good guys in the business press, recently asked me to participate in his online Thursday CEO Book Group. He asks participants to review one “old favorite” business book and one new book. I thought I’d repurpose my post to him below (or you can read the original post):

Old book: Built to Last by Jim Collins and Jerry Porras. This is the book that started my entrepreneurial career, so to speak. I was struggling with what I wanted to do with the small software company I had created a few years prior when I happened upon this tour de force of the business book world.

What struck me as so profound was the concept that most great companies today have been around for a very long time, and they started out as small, struggling companies like the one that I was running at the time. Did you know that Sony's first products were a rice cooker (market failure) and heating pads (market success)? Or that HP started out with auto-flush urinals (market failure), bowling foul-line indicators (market failure) and oscilloscopes (a famous market success)? So, it didn't seem such a leap to turn a barely-profitable company selling a children's programming language, and named after the German word for "potato juice," into something bigger and better, which has turned out to be Homestead.

Other juicy tidbits in this book, which I use all the time in my day-to-day management practices, include building a "cult-like culture" that creates loyal, dedicated employees; setting "big hairy audacious goals" or BHAGs that seems impossible but people somehow rally to achieve; "clock building not time telling" which roughly means that great companies create frameworks for many ideas and leaders to emerge, as opposed to being dependent on one great/lucky idea or one charismatic leader; and, finally, the "genius of the and" which means always finding a way to do both great alternatives instead of forcing people to choose. My employees hate that one.

New book: Raising the Bar by Gary Erickson, founder of Clif Bar Inc. This book was a quick and enjoyable read through the history of Clif Bar, and Gary's ultimate decision not to sell out for millions the company he had lovingly crafted, as most of his competitors ultimately did.

Having faced those types of decisions myself, it was inspiring to read about an entrepreneur who had the courage and faith to "double down" on his own talents and dreams, even after it had yielded much success and provided him with a very profitable opportunity to cash out and retire. Being a fellow cyclist, I especially enjoyed the sections about his long bike rides in Europe and the many analogies he drew between adventure sports and building a company. Clif Bar's dedication to its employees, the community, and the environment, are awesome, and I wish all companies were run in such an enlightened way.

On the down side, the book was a bit pedantic at times, and tended to take several of the metaphors a little too far. Still, on the whole, I would recommend it for anybody trying to build a company to last.