Sunday, August 25, 2013

Sunday Night Scotch: Every Day, A New Reason to Start a Company

All bad precedents begin as justifiable measures.
- Julius Caesar

One of the non-tech items that caught my eye over the last week was the interesting news from UPS that was covered by all manner of news outlets, perhaps most colorfully by MarketWatch's Jim Jelter in the video spot called.... drumroll please... "Why Your Boss Is Dumping Your Wife". The video is after the break below in case you missed the news. To summarize, UPS decided that they were going to deny coverage to working spouses of employees if they were at a company that also offered health insurance. Regardless of the political excuses, this idea was inevitable: My former employer was imposing a non-trivial surcharge to employees of working spouses who were similarly eligible - and this was back in 2008. Oh, well. I guess both Dell and UPS are OK with not being on the Fortune "Best Companies To Work For" list.

I think this is a great opportunity to try and understand how something like this could seem like a good idea to anyone. First, a look at the math: According to the Health Connector website here in Massachusetts, the difference between insuring me, my spouse, and my two kids, and dropping my spouse, works out to be between $320 and $550 per month depending on the plan. That works out to $4-6K per year in cost, of which $3-4K might be paid by the company.  UPS claims that this will affect 15,000 employees, so that tops out at a nice round $60 million, or roughly 7% of net income in the last 12 months. (By coincidence, that is the exact figure the company mentions.)

Admittedly, there are two ways of looking at this: On the one hand, some might say that health benefits have become too extravagant to be shouldered by the shareholders of the business. It's the shareholder's money after all. I am way out on the other extreme, however: Why does the business and its leadership suck so bad, that this is the only scheme they can conjure to increase shareholder value? Professing your lack of love for your employees, prima facie like this, is surely not a way to make your customers happier. Moreover, that earnings bump next year will likely do nothing for the stock price. Analysts know well that it does not represent real growth in the business. So then, why bother?

Like human beings, large organizations are very complex. Also like humans, to get an idea of what really propels organizations, you need to observe them at the moments where they are least inhibited: In this case, a time of despair. The economy is rather flat. The numbers are likely to disappoint. Somebody is going to lose a bonus. This is where discipline counts. Real leadership would dictate that you go talk to customers and find out what can be done to grow their businesses and yours. Mediocre leadership would dispatch a team of "efficiency experts" to see if they can find coins under the sofa cushions in the employee lounge. Doing the former is hard. It's much easier to do the latter. Each time you opt for the latter, you only make things worse down the road.

The point here, is that it is very easy for big businesses to lose their compass a little bit at a time. The proven way to make money is by focusing on addressing the needs of customers. Whenever there are substantial resources devoted away from that one singular focus, it almost always leads to a bad outcome. The reason startups can do so well is because they have no choice but to focus on their customers or perish. The reason the Googles and the Microsofts of the world got so successful is because they enabled their employees to do the same in scale. Indeed, that $4K per annum is noise compared to the profits that they bring per employee.

As for my part, if you happen to end up working for the company that I want to build, I can assure you that your spouses will be covered. Your espresso will be provided. Your scotch will be free. We'll throw in a few meals as well. In return, I'm going to expect that you will devote all your energy toward delighting customers. Seems like a good deal, but I assure you that it's the much harder path. It's much more rewarding, though. This is something I know from experience.

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