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How Down Is Down?

(September 29, 2000) Navigating a business from startup to success is no mean feat. 90% of all attempts fail in the first year. Another 7% are gone by the end of five. Internet or not, the business of running a business takes a lot more than luck and timing. Adequate capitalization, attention to the fundamentals, strong sales capacity, a good product and extraordinary customer service are the typical ingredients.

Given the fact that our market is exclusively composed of ventures with less than five years of real experience, it should be no surprise that quality varies wildly over time. Last year's winner becomes this year's goat more often than not. Often, the seeds of failure are sowed in around of success an attention.

Take theworksusa. Always crippled by a bad name, this scrappy little startup caught the market's attention over the last couple of years. Organized as a "recruiting service" (which means 'no direct correlation between postings and resumes'), the company literally pioneered the testosterone driven telesales organization that has come to dominate a large subset of our business. Attentive to customer service, they ranked at the top of our quality assessments for 1999.

Things change quickly. Our email boxes have flooded with complaints about the company's tactics and quality over the past 120 days. To say that customers are unhappy is to blandly understate the tone of the mail we've been receiving.

Here's an example:

I recently was solicited by TheWorksUSA to purchase their service. I have never approved of their sales methods. They tend to "strong arm" their potential customers, refusing them any kind of trial membership except for their 45 minute demo. They have no lead tracking package in their sales department. And so, each time one of their sales people called, they have no idea that a different sales person just called the same company. They log none of these conversations.
They also express a great deal of confidence in their database. As a result, they promised me that I would get plenty of local (Philadelphia Metro Area) IT professionals.
Anyway, I decided to "take a leap of faith" and try them out, in large part due to your review of their site in December of 1999. I have a great deal of respect for you and your organization. And so I felt your endorsement was good enough for me.
Anyway, within 24 hours of signing on, I came to the conclusion that their database in no way lived up to their promises for the candidates that I sought. I made them aware that I was not happy and that I wanted out or the contract and was effectively told that I signed the contract and would have to live with it.

While it is fair to say that not all services work for all customers, something more than that is happening at theworksusa. From what we can tell, a combination of IPO lust, a desire to become a technical company and trouble in capitalization conspired to help the company lose its grip on the market.

You can well imagine how it works.

With all good intentions, a couple of street smart entrepreneurs start a business. High levels of attention to customer success in the early days drive cash flow and the company starts to gain market momentum. The staff swells and traditional growth problems kick in. Often, the founders are simply ill-equipped to manage 'cancerous' growth (sometimes as much as 1000% per year).

The symptoms of growth problems occur out of the sight of the customer in their early stages. Usually, collections begin to lag with receivables stretching out beyond 60 days. This places profound pressure on the founders when it comes time to make payroll and pay vendors. Bright entrepreneurs are usually not trained to make the humiliating phone calls required to keep the vendors happy. Employees tend to leave when they don't get paid.

In our business, there is another creepy dynamic.

Results (warm bodies in empty seats) aren't enough to satisfy speculative investors. VCs, investment bankers and 'angels' want to see a technology play. Their assumption is that technology can be salvaged if the venture fails. So, when a company starts to go looking for investors, the pressure to produce a 'software product' increases.

Often, the entrepreneurs (who are great at finding warm bodies for empty seats) find themselves getting into the software development business. It's a recipe for disaster that drains even more resources from the core business.

The result is usually panic at headquarters, really angry customers and a growing number of vocal grumpy ex-employees. Quality begins to suffer, cashflow tightens further and the downward spiral begins.

At some point, the company ought to be shut down but the core entrepreneurial spirit thrives. (As one colleague says "you can't kill a vampire.) Wild swings in customer quality, increasingly harsh sales tactics and a variety of desperate moves characterize the death march.

At interbiznet, we get to know lots of entrepreneurs with big dreams and little wallets. We cheer them on while they succeed and notice when they begin to fail. At the root, our obligation is to help the industry grow, not to advocate a particular player. We would have liked nothing more than to see theworksusa succeed. Their scrappy approach (no MBAs in the crowd) and high intensity were charming and effective for a time.

The real moral to this story goes beyond a single company. If you are a buyer in the marketplace, you have to be constantly vigilant. Today's money saver can become tomorrow's money drainer in a very short time. Seemingly simple internal decisions can have wild implications for the flow of results you receive from a vendor. Measuring those results and demanding quality in return for your investment are the responsibilities of a customer in this market.

Over the next six months, we'll witness more failure and bloodshed in the marketplace. It's not that the market is consolidating, we're certain that it will continue to fragment into ever smaller niches. Rather, it's a skin-shedding that makes way for the next round of entrepreneurs.

On a more modest note, if you are happy with the service that a company is providing you, please pay them on time. In the entrepreneurial universe, a day or two delay makes a big difference. In general, these small businesses need their customers to really support them. Many of the casualties to come will be the result of payments that didn't arrive on time. It's really quite remarkable to understand that support can come from making your internal payment processes work to the letter of the contract.

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Chief Monster

(September 28, 2000) Recently, Monster announced the release of Chief Monster, an executve level job board.

Did anyone else think of Bobby Knight?

Chief Monster, indeed.

- John Sumser © TwoColorHat. All Rights Reserved.

How It Works

(September 27, 2000)

You start a company.

You write a business plan, remembering that marketing/sales is the largest expense by far.
You turn it into 15 succinct slides.
You learn how to explain it in a compelling way that takes less than two minutes.
You make sure to account for the time spent so far on the company balance sheet.

You figure out exactly when you'll be leaving and why.

You buy a really nice suit and pay a smart person to travel with you.
You start going to trade shows with your pitch.
Your Marketing person identifies 50 VCs who invest in the area.
Your Marketing person identifies 30 companies who would be likely buyers of your company.
You go to 30 VCs with your pitch.

They all say no.

Slightly more desperate, you thin the plan down.

You keep going to trade shows.

A VC (or potential buyer) gets interested.

You take the company through due diligence (loan qualification).

The VC invests in the company, buying some of your stock.
You sign a contract swearing that you'll never take another raise and always work there.
If the company is marginally successful, you go through it again.

If it fails, you and the VC own worthless stock. You're relatively broke. He's not.

(September 26, 2000) The good folks at Monster.com announced two odd statistics. First, "job seeker membership" reached 4 million. Second, the Resume database now contains more than 2 Million Resumes. Leaving aside questions about the age of the resumes and the obvious wondering about why so few of their visitors "sign up", we wondered if these numbers had anything to do with the fabled "passive candidate" we've been hearing so much about.

Mind you, Monster.com isn't alone in publishing odd statistics. It seems to be the current rage in the industry. It looks like the game has changed from simply saying "We're the largest" to "Here's a really big number proving that we're the largest." For some reason, all of the high-visibility services are participating in a macho "mine is bigger than yours" contest. How interesting for them. How unfortunate for customers.

These days, everyone we talk to is busy pitching the fact that their solution helps Recruiters discover so-called passive candidates. The traditional definition of the term is "a person who isn't looking for a job." Pretty simple, no? Really aggressive Recruiters use the net to scavenge for information about these people and their contributions (or potential contributions). In the old days, the telephone was used to mine the insides of a target company for likely candidates.

The essence of the historical definition of a passive candidate was that the Recruiter made the first move.

Today, the prevalent definition seems to be "came to a job board but didn't apply for a job."

We'd call it "looked for a job but couldn't find one." We bet that the much touted "passive candidate" is more likely to be a casualty of bad site design. By definition, passive candidates don't visit job boards. They are too busy with their jobs.

The term "passive candidate" seems to be a catch-all phrase that obscures more than it reveals. Before we can really get a grasp on this significant component of the Recruiting market, we'll need more precise definitions. For instance, the beauty of a Network (like CareerBuilder's or the interesting alliance of MicroSites at ITTA) is that it has the potential to reach people who didn't intend to look for work. This approach (which is useful for describing some visitors to some corporate employment sites) suggests that there is a motivational scale involved in the question. It's likely that passive candidates range from "mildly interested" to "not interested at all". Targeting along this motivational scale might well produce some interesting sub categories.

Meanwhile, we suggest you take claims about reaching "passive candidates" with a grain of salt.

(September 25, 2000) Phil Wolff is one of those characters you'd be lucky to meet once in a lifetime. Boundless in energy and enthusiasm, Phil (who keeps his resume online) currently works for Adecco as their Vice President of Extrapreneurial Strategy and Technology. Only two kinds of people can handle a title like that. Fortunately, Phil is not from the category that springs immediately to mind.

Take a look at his website.

A swirling maze of capabilities (you can post notes to his site), opinions and clear concise ideas, Phil offers readers a chance to paw through his mind as he tackles the myriad subjects related to Adecco's growth issues and his explorations of the intersection of commerce, technology and staffing.

The other wonderful thing about Phil's site is the way he carefully walks through his explorations without inherently involving his employer. Phil is the role model for free agents who are passionate about the universe they belong to. Interestingly, the site is hosted on one of Dave Winer's sites.

Checkout Phil's Journal of Extrapreneurial Strategy

NOTICE:
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© interbiznet 2012. All Rights Reserved.

Any and all materials on the site written by John Sumser are © TwoColorHat. All Rights Reserved.

You may download a copy for personal use.
Redistribution without permission is strictly prohibited.

colleen@interbiznet.com

interbiznet this week
(through September 29, 2000)

1st Steps In The Job Hunt
    - Toys R Us
    - Motivation
    - Interview The Interviewer
    - Web Literate

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