For your start-up just say "NO" to PTO

Start-ups: Just say "No" to PTO
   
  No, I am not talking about some Parents-Teachers Organization. I am no parent to any kid out there. You see more and more companies are offering a benefit to their employees usually referred to as PTO (personal time off). It is supposed to help the employees be really honest about their reason for not showing up or their desire to miss a day or few days from work. Sometimes things work as hoped for. However, if your start-up has this benefit in writing for its employees, when things turn sour it may very well be a liability you may regret.

PTO that is not taken, perhaps allowed to carry over from prior years, or that was taken but never accounted for properly, builds up into a statutory liability for the company and a potential personal liability for its directors.

If the company ends up failing, it is obligated to pay out all that accumulated value to its employees as part of the shut down process. If the company doesn't have the cash, the Board members must come up with it out of their own pockets. Needless to say, no one is going to let this happen, so the behavior it drives is to force the company to make a shut down decision while there is still enough cash in the bank to cover all those statutory liabilities.

This can materially reduce the time for the ever-hoped-for miracle event to occur that might avoid the abyss. Right now, I know of a firm with over $250K in the bank, but the board may have to shut it down or fire-sale it because there is about $250K of PTO "overhang" hanging like the Sword of Damocles over the firm. On the other hand, if we could run the company off that cash for a month or two more, perhaps something good could happen on either the customer or M&A front.

There is a better way, and it is a way gaining favor with many start-ups in the New England especially in New Hampshire. You run the company with no time-off policy at all! Time off is between you and your manager. There is no vacation or sick time accrual, no build-up of liabilities that can hurt you later. If you are getting your work done and clear the time-off with your manager, take what you need. The risk for abuse on the employee side is handled by the performance review process. If an employee abuses the system, they either don't get a raise, or don't get that next exciting assignment, or in the extreme don't get to work at the company any more. The risk for employer abuse is handled by good employee mobility. If the company isn't reasonable about allowing time off, employees will take their talents elsewhere.

The "no policy" policy probably takes some getting used to. But it could give your start-up the little bit of flexibility it needs to make it past a very difficult period, a period that otherwise might mean the end for everyone.  

My 2 cents on Election and SSI

   Remove the Cap on   Social Security

I am apolitical by nature. The entire process of electing representatives, from city councils to Presidents, leaves me cold. Blame my spiritual upbringing or my extraordinary microeconomics professor H. Scott Bierman. The latter helped me crystallize a handful of tangential thoughts about our system into a unifying theory regarding what governs human behavior, political or social.

But that does not mean I don't read a newspaper, watch TV news, or occasionally surf the Interwebs to watch the latest follies in politics and government. And what I see regarding the Social Security system is the single silliest and ridiculous "problem" that our country faces.
I am quite fortunate that, just like many other people, I have the pleasure of reaching the payday in the second half of the year when my FICA disappears and I have extra money. Found money.
But why is it so?                                                      
                        
I don't work for the Government Accountability Office, but I am pretty sure that if there was no Federal Insurance Contributions Act (FICA) limit, if we all paid FICA all year no matter how much we earned, that we could solve the Social Security problem. Current law says that employees pay 6.2 percent FICA tax on the first $106,800 of earnings per year to help finance Social Security. People who are fortunate enough to make more than $106,800 pay zero FICA tax on every dollar they earn above that cap. Obama favors phasing out that cap slowly over a number of years. Romney would probably not favor this - he would likely rather see no FICA at all and a privatization of our retirement benefits. But if you are going to eliminate the cap, why not just do it once and have it done?
                                                                                  
As anyone who knows me well would tell you, I am no supporter of taxes of any kind. They are a coerced transfer of wealth from the people to the government, who then can spend the money any way it pleases. None of our founding fathers envisioned that as the desired outcome, and rightly so. Nobody should ever be forced, either as a rule of law or to a mugger in the streets, to give up what is rightly theirs. Having said that, please be aware that no where do I imply that taxes should not be paid. I paid my fair share.
However, if there is going to be a tax, at least let us not make it regressive and punitive to those who earn less. FICA is the most regressive tax in our system. It favors those who earn more than the FICA cap, and it punishes those at or below the cap in terms of earnings. Given the potential for insolvency in the Social Security system, abolishing the $106,800 cap on FICA is the simplest and fairest road forward.
Eliminate the cap on FICA. Fully fund Social Security.
Then we can begin working on how to balance the books in a fairer tax system, one that taxes everyone equally, and one which finances a much smaller government apparatus. The possibilities are endless.
Take this first small step forward and eliminate the cap on FICA.

Tell Me A Story

Tell Me A Story

Over the last couple of months, I've had two entrepreneurs come into our offices to present their respective companies, only to get the same reaction from me. You see my day-to-day job deals with helping companies find the working capital they need. Out of those two data points, a more generalized issue is lurking.

 

Both CEOs waxed passionately about their technology and their business opportunity.  But in both cases, I had a real problem understanding exactly what the product did, and why customers would care. They had fallen into the trap of their being too close to their forest to describe the trees to me.

 

In the first case, I came up with the somewhat awkward request to, "Give me an example use case."  However, after the second one, I found a better way to convey my need:

 

"Tell me a story."

What I was asking for was to be walked through an example of a potential customer encountering the product. 

 

• What is their problem?
• What would they see? 
• What would they do?
• Why would that matter to them?  

In reality, what I needed was a verbal or PowerPoint surrogate demo. The funny thing was the second CEO had in a previous life worked as a consultant to government bodies and had given this exact advice to his clients.  "Don't tell them what you do or what to do. Tell them a story!"

 

Years ago, as a partner for World Financial Group in MD I went through some media training led by a guy named Alan Meyer.  At one time, he served as a speech writer in the Reagan White House and happened to be the one on call when the Marine barracks was bombed in Lebanon. He recounted how he drafted the address Reagan was to give to the country on that tragedy, and took it up to the personal residence side of the White House for the President to review.  His draft was very factual, calling out what happened in straightforward terms.  Reagan was sitting there in his bathrobe, waiting for the draft. He looked at the yellow pad with the speech written on it and had a response that was immediate and memorable. 

 

He took a red pencil and put a big "X" across the text on the first page. Needless to say, this is about as strong a slap in the face as a speech writer can get at any level, but particularly at that level. 

 

Reagan then turned to him with a somewhat softer tone and said something to the effect, "The American people don't want the facts, they need the story." And with that, Alan started work on a second draft. You may recall some of these words:

 

"This past Sunday, at 22 minutes after 6 Beirut time, with dawn just breaking a truck, looking like a lot of other vehicles in the city, approached the airport on a busy, main road. There was nothing in its appearance to suggest it was any different than the trucks or cars that were normally seen on and around the airport. But this one was different. At the wheel was a young man on a suicide mission..."  

 

The "Great Communicator" understood the most powerful thing you can do is put the audience in the picture.  Have them feel like they are there, experiencing the issue first hand.

 

When you go pitch your company to potential investors, don't give them the facts, tell them the story!