Marina Gorbis's Blog, page 1586

When Growth is Deceiving

Although the economy is finally improving, growth is still hard to come by. As the founder and co-chief executive of Panera Bread, I can safely report that the growth challenge looms even larger in the brutally combative restaurant industry, where four out of five new concepts fail. After all, it's not like the country is clamoring for another restaurant.



But not so long ago, I happened upon another reason why growth comes hard: even when you think you're growing, you're probably not.

Let me explain. Like most retailers, restaurants have just two ways to drive customer transactions: get new customers to come through the door or get existing customers to return more often. A couple of years ago, Panera was growing new customer transactions from zero to a paltry one percent. That modest performance took me aback. After all, we had increased investments to improve the customer experience and thereby attract new guests. Why hadn't those investments produced better results?

Only after a deep dive into the data did I discover, to my surprise, that we were operating under the wrong assumption. We thought we were working from a baseline that was zero. In fact, the baseline was negative three or four percent transaction growth. Based on our investments, we should have hit about five percent growth. Instead, our so-called positive growth was mostly negative.

Why? Because most food-service companies compete in a bloody, shark-infested red ocean.The big fish are always looking to make a quick meal out of a laggard; schools of hungry new entrants are always anxious to tear into you. Thanks to the competition, it's not hard to lose more customers than you're gaining, for a net decrease.

To thrive in those hyper-competitive seas, a company must continually unleash value-creating innovations. If you've got a mature retail concept, and you simply continue with what worked in the past, plus a little more, competitors will take a bite out of your customer transactions. The size of the loss will vary by company and market. But rest assured, in our industry, failing to create game-changing products and services will likely lead to a significant drop in customer transactions. With that, the steep descent into the red begins.

Here's another way to think about it. My father was a CPA and amateur poker player. When he retired, he played professional poker in Las Vegas for eighteen months. At the end of that stretch he felt duty bound, as a CPA, to calculate his performance. Lo and behold, he discovered he won about three cents an hour. I was amazed that such a modest result left him ecstatic. But he understood that his nearly imperceptible winnings came only after he offset the House vigorish — the five-to-ten percent commission that the casino extracts from the pot.

In business as in poker, we must all figure out how to beat the vig.

Especially in a challenging business environment, we must continually re-examine our assumptions about how to get real growth. Though it doesn't show up on a spreadsheet, we must still account for the vigorish — the constant round of cuts our competitors extract. Even if we're investing enough to increase transactions by three percent annually, but we're paying a competitive vig of five percent, we're in the hole.

That's why, more frequently than we realize, simply relying on incremental improvements, which is tantamount to defending the status quo, often results in negative growth — even when you think you're getting a modest gain. With market and competitive conditions more punishing than ever, a strategy based on playing it safe is often more risky than betting on an unconventional idea. The better course of action (and the one with the lesser risk) is to innovate break-the-mold products while at the same time calculating the vig to understand your real growth.

True, that once-beloved buzzword, "innovation," has become a little ho-hum, as many executives focus on "running the business" and "execution." But it still bears repeating: Growth is deceiving, especially if we're not factoring in the cost that competitors take. To get the real growth we want to create, we must continually examine our assumptions. Otherwise, the House vig will quickly take its toll.

The Unanticipated Consequences of a Frictionless Mobile Experience

Many of us assume that mobile is essentially business as usual — just on a smaller screen. But often, it's not. The business impact of the switch to mobile can be counterintuitive and difficult to anticipate.

I'm working with several of the world's largest hotel chains to help them generate guest feedback, which we've traditionally done through the desktop PC. With an increasing number of guests now using mobile devices, we created a mobile-native feedback process, allowing customers to more easily join the conversation on their mobile device.

You might think — we certainly did — that improving the experience in this way wouldn't affect overall feedback about the hotel stay very much. We anticipated a slight positive bump by making the survey easier for customers, but overall, a minimal impact.

The opposite turned out to be true. The improvement in the survey experience caused a sudden drop in customer ratings.

This caused quite a bit of consternation among the hotels — whose performance ratings (and, in some cases, compensation) are tied to their guests' experience. We explored a range of different hypotheses: Are we getting faster feedback? Is faster feedback more negative? Are people on mobile devices psychographically different — are they in a different frame of mind, less positive, more likely to leave negative feedback? Are we hearing from different customers? Wealthier? Younger? More business travelers?

After spending a lot of time with the data, we found only one thing these customers had in common: they were less engaged. We'd made it easier for people who weren't as interested in or loyal to the brand to be heard. Previously, they'd see an email requesting feedback, they'd click the link... and their mobile device would show a desktop survey. It didn't fit on their screen particularly well, or it took too long to load. They had had a neither particularly good nor bad experience, and the effort required to provide feedback was just more than they cared to give. It was only the folks who felt strongly about their experience — either positively or negatively — who would complete the process. Now that it was easier to provide that feedback, we began pulling in less engaged customers, and their "average" experiences resulted in lower scores.

In general, declining metrics don't inspire optimism. But in this case, the hotels were getting feedback from customers who previously hadn't even bothered. Lowering the friction of communication by becoming more mobile-friendly helped these hotels identify frictions elsewhere in their business. Guests who would have silently never returned because of an entirely fixable problem could be contacted with an apology and resolution, which turned many into loyal customers.

There's an instructive lesson here as the mobile paradigm shift — more smartphones are shipped annually than tablets, notebooks, and desktops combined — continues. Mobile, especially an experience designed for it, makes it easier for people to do things they might not have done otherwise: offer feedback, make a purchase, check sports scores. But you're not just getting more of the same customers you already had — you're adding new ones who represent not just a demographic shift, but have fundamentally different engagement levels.

The distinction may sound subtle, but precisely whom you draw in via mobile has very important ramifications for the way you design your experience... and the way these new customers will — or will not — interact with your business.

Do Adverse Events Give You Greater Resilience?

A history of a moderate number of adverse life events, such as parental divorce, death of a loved one, or even physical assault, seems to make people more resilient in the face of stressors, says a team led by Mark D. Seery of the University at Buffalo. In a study of undergraduates, for example, the pain and unpleasantness of putting the hands into ice water were highest for people who had experienced no adverse events, and least for those who had experienced about 5 such events, with higher numbers of negative experiences being associated with greater levels of pain and discomfort. Overall, the research subjects reported having had up to 19 adverse events; 7.5% reported experiencing no adversity.

We All Need Friends at Work

Survey after survey shows that employee engagement at work is at an all-time low. One way to help improve engagement at work is to foster friendships. We all know them: the good old fashioned friendships created when we chit-chat, hang-out, joke, and have fun with co-workers.

Tony Hsieh, the CEO of Zappos, the online shoe retailer with over $1 billion in sales, fosters fun and friendships as part of his corporate culture. The core values of Zappos help create a positive environment for employees and cost very little to implement. These values include embracing and driving change, creating fun and a little weirdness, pursuing growth and learning, and building a positive team and family spirit.

Research shows that workers are happier in their jobs when they have friendships with co-workers. Employees report that when they have friends at work, their job is more fun, enjoyable, worthwhile, and satisfying. Gallup found that close work friendships boost employee satisfaction by 50% and people with a best friend at work are seven times more likely to engage fully in their work.

Camaraderie is more than just having fun, though. It is also about creating a common sense of purpose and the mentality that we are in-it together. Studies have shown that soldiers form strong bonds during missions in part because they believe in the purpose of the mission, rely on each other, and share the good and the bad as a team. In short, camaraderie promotes a group loyalty that results in a shared commitment to and discipline toward the work. Camaraderie at work can create "esprit de corps," which includes mutual respect, sense of identity, and admiration to push for hard work and outcomes. Many companies are engaging in corporate challenges, such as bike to work day, wellness competitions, community service events, and other activities to help build a sense of teamwork and togetherness. Best practice companies also communicate widely about corporate goals and priorities to unify everyone.

Friends at work also form a strong social support network for each other, both personally and professionally. Whether rooting for each other on promotions, consoling each other about mistakes, giving advice, or providing support for personal situations, comradeship at work can boost an employee's spirit and provide needed assistance. A recent story in the Fairfield County Gazette in Ohio highlighted the power of workplace friendship for brain cancer patient Tracy Lee. Three nights a week, one of Tracy's co-workers from the Fairfield County Board of Developmental Disabilities stops by with dinner for the family. Notes containing loving messages such as 'miss your smiley face' cover her office door. This type of support also creates a strong sense of community within the organization.

Some companies — among them Google, DaVita, Dropbox, and Southwest — have built reputations for fostering comradeship at work. Creating comradeship at work hinges on the leaders of organizations. That is, companies can and should create and value camaraderie as a competitive advantage for recruiting top employees, retaining employees, and improving engagement, creativity, and productivity.

I recently spoke with Gary Kelly, CEO of Southwest, who outlined some key points on how a leader can help foster a culture of camaraderie. First, Kelly notes that is it important for the leaders of the organization to have a vision for the culture. His advice is to "be clear in your mind on what you want the culture to be within your organization." At Southwest, they want a culture where employees feel they are part of a family. Kelly suggests leaders must "model the culture: spending time with employees, treating people with respect, having fun, being there for them personally and professionally, and putting people first — with empathy, kindness and compassion." Finally, Kelly notes it is very important for organizations to have products and services around which employees can feel proud and that organizations need to leverage the talents of the employees by letting ideas come forward.

People in organizations need to work together. So, managers and employees need to foster collaboration, trust, personal relationships, fun, and support. In an increasingly global and virtual environment, challenges for employees and managers will be to cultivate these personal relationships. Fostering friendships takes proactive effort.

Are there downsides to friendships at work? Sure, there can be bumps: professional jealousy, groupthink, negative cliques, split loyalties, loss of work time to socializing, and broken friendships. However, these are all manageable and the benefits of positive relationships far outweigh any negative outcomes.

What Made Same-Sex Marriage Go Viral?

Walking through the streets of lower Manhattan during the Pride parade Sunday felt more exhilarating than ever. Coming just a few days after the Supreme Court's rulings on the Defense of Marriage Act and Prop 8, the level of sheer joy in the crowd was palpable.

Though there is still a long way in the battle for equal rights for LGBT Americans, it's amazing to think how much has changed. "Don't Ask, Don't Tell" has been repealed, more states have legalized gay marriage, and a majority of Americans now support same sex marriage. Social media and grassroots support have been joined by corporate brands lending their thumbs up on the issue, to mostly positive feedback.

How did we get here? How did we get from a Democratic president signing marriage discrimination into law to a massive turn in the tide of public opinion? How did "LGBT" become rebranded as a mainstream cause while others that progressives have been doggedly trying to evangelize -- like reproductive rights or climate change -- are still seen as "niche" issues?

The history of the gay rights movement would take a book (or several) to recount. But to take one small piece of it, I think it's worth looking at how smart marketing used popular media to spread an idea that a dedicated group of activists had promoted tirelessly for decades.

Smart marketers make it seem like "everyone is doing it." Consider: back in March when the DOMA and Proposition 8 cases were heard before the Court, Facebook went red as millions of individuals, brands, and organizations changed their profile pictures to red equal signs in support of same-sex marriage. This wasn't an isolated campaign, stuck inside the progressive filter bubble. In fact, I would venture to guess that even those individuals with a conservative-leaning social network still saw several red equal sign profile pictures, even if they didn't know that Human Rights Campaign had designed them. According to Felix Schein, managing partner at communications firm Griffin|Schein and key advisor to the American Foundation for Equal Rights (AFER), the sole sponsor of the federal court challenge to California's Proposition 8, changing your profile picture in support of the cause became both an acceptable and hip thing to do, a symbol or a badge of identity. "What was unique was that people participated whether they were gay or not, signaling that these were not just LGBT cases but cases the public was willing to get behind," he noted.

As Tina Rosenberg notes in her book, Join the Club, successful social movements in the digital age share tactics that make them popular and akin to "clubs" that people want to join. Often irreverent, sometimes funny and sometimes dead serious, successful movements appeal to youth and social media influencers who want to identify with leaders driving change. Social media gives everyday people the ability to "stand" with movement leaders, just by changing their Facebook photo or their Twitter avatar.

In addition, several professional sports stars have come out over the last year, moving the conversation from the Sunday political shows to prime time. Schein cites Baltimore Ravens' star Brendon Ayanbadejo voicing his support for marriage equality as a turning point: "ESPN never would have touched marriage equality but for Brendon speaking out, but because Brendon played in the Super Bowl and on the championship team the issue received previously unmatched exposure. That was a big deal." The subsequent coming out of the NBA's Jason Collins, drove further enthusiastic coverage on social media that was then echoed by news outlets. Again, as our sports heroes supported their teammates who came out, we gained a sense that not taking the chance to stand up for gay rights meant standing on the wrong side of history.

At the risk of sounding like I'm diminishing the issue, it became "uncool," as Schein says, to be anti-gay. From our favorite TV Shows (Modern Family, Glee) to our sports, entertainment and even political heroes, positive peer pressure drove the pro gay rights agenda.



Smart marketers pick values that are hard to argue with. Equality activists used quite traditional "American" tropes and messages such as family values, cherishing marriage, and individual liberty. Schein notes that from the beginning of the Prop 8 case campaign, messages were purposefully couched in the language of American family values, and not constitutional law. There were fewer rainbow flags and more American flags.

Schein notes that social media helped drive this new narrative of family values: "Social media adopted the frame more quickly than mainstream media, such as the #loveislove hashtag, and the 'marry who you love' family argument. The mainstream media spent more time in the constitutional argument than the emotional space of social media." These arguments touched a universal audience. Everyone wants to be able to love the person they love freely, regardless of their sexual orientation.

It's such a powerful frame, in contrast to many social issues that have struggled to find a mainstream audience. For example, women's rights supporters have found the "pro choice" label difficult to build emotional heft around; after all, when faced with the label "pro life," the notion of "choice" feels lesser. The gay rights movement is that it co-opted the notion of being "pro-family," something the reproductive rights movement has been unable to do thus far (though not without trying).

Smart brands know what their customers value. The digital age means consumers wear our opinions and values openly — on our Facebook pages and Twitter profiles. I wear with pride brands whose values I support. In this, I'm like 66% of women bloggers and 63% of shoppers. And increasingly, brands and public figures feel comfortable weighing in on these debates, whether it's Levi's, Budweiser and Nabisco on the "pro" side, or Chick-fil-A on the "con" side. This is different than targeted advertising, in which an ad might feature a gay couple, for example, to appeal to that audience. This is a brand taking a stand and saying, "We know our customers stand for this and we do too." It seems to work — Chik-fil-A reported higher sales after making their political views known, even though it also spurred a boycott — and we're going to see more of it.

For instance, take the pink sneaker craze inspired by Texas State Senator Wendy Davis, the politician who filibustered for 11 hours against that state's restrictive anti-abortion bill. As photos of her pink sneakers circulated in social and traditional media, shoppers who literally wanted to #standwithwendy (by wearing her shoes) flocked to the Mizuno site. Mizuno said daily traffic to its website has doubled and that Davis' Wave Rider 16 is now its most-viewed page. The shoes are sold out. "We are proud of the running shoes we develop for our customers and know the Wave Rider's design is able to provide the comfort and cushioning needed for any endurance event, whether it's a 5K, a marathon or a 10+ hour filibuster," the company said.

Results like that are only going to encourage more brands to wade into the political fray.

How to Ace an Internal Interview

You've put your hat in the ring for a new position at your company and you just got word that you've been selected for an interview. What could be easier than chatting with managers you already know? Piece of cake, right? Wrong. Internal interviews require the same rigor as interviews with an external company. They also pose a unique set of challenges.

What the Experts Say

Too many candidates, and hiring managers, shortchange the internal interview process; they view it as a formality and think that all of the evidence is already there. This is a mistake, says Claudio Fernández-Aráoz, a senior adviser at global executive search firm Egon Zehnder and author of the forthcoming, It's Not the How or the What But the Who. "It's in your best interest, and that of the hiring manager, to go through a deep assessment to be sure you have the right competencies and fit," he says. John Lees, a UK-based career strategist and author of Just the Job!: Smart and Fast Strategies to Get the Perfect Job, agrees. He says that too many internal candidates treat these meetings as development conversations, not as interviews. "People typically neglect to offer good evidence of achievement because they believe it's already known to interviewers," he says. Next time you're up for an internal role, keep the following principles in mind.

To tell or not to tell?

The first question you face is whether to tell your current manager that you're applying for the position. "Honesty is the best policy not only because your boss is likely to find out soon enough but also because he will be a key reference in the process," says Fernández-Aráoz. Lees suggests you ask for your manager's advice on how to best pitch yourself for the position. This request will help you assess where he stands. "If your boss doesn't want you to move on or will actively block your promotion, you have to rethink your strategy," he says. If you're worried that your boss will be vindictive or hurt your chances, talk to the hiring manager and see whether he can keep your application secret until the time is right.

Don't assume you have an edge

You might think that because you're a known candidate, you have a leg up. In some cases, this may be true. Fernández-Aráoz says that smart companies know that hiring a current employee is faster and cheaper. But that doesn't guarantee an advantage. The hiring manager might be looking to bring in a fresh perspective or skills that she assumes no one in the organization has. And, as Lees points out, she's likely to be influenced by what's happened in the past: "If the last appointment was an internal candidate, and it went horribly, she may be looking for an external one this time around." Remember this is a competitive process and you shouldn't rest on your laurels assuming the job is yours.

Research, research, research

Fernández-Aráoz says one of the biggest mistakes that internal candidates make is "not asking enough questions about the new job, its challenges, and the performance expectations." Without that information, you won't be able to perform well in the interview or assess whether you're a good fit for the role. Don't rely on the job description, which may not give an accurate picture. If possible, set up a meeting with the hiring manager in advance of the interview. "Do your homework," says Fernández-Aráoz, "and speak with people in similar roles and people who previously filled the role you're applying for."

Know your reputation going into the room

"The external candidate has the advantage of being a total stranger and starting with a clean sheet," says Lees. You aren't so lucky. Regardless of your performance record, people in your company may have preconceived ideas about you. "Even a good reputation can act against you," Lees says. If people think of you as an excellent operations guy, they may have a hard time imagining you as a strategic thinker. Before you start the interview process, make sure you know what others think of you. Ask someone you can trust to be candid — a mentor, an external coach, or someone in a learning-and-development or HR role.

Then be prepared to challenge or reshape others' opinions. You can say, "In the past people have assumed I didn't have strategic thinking skills, but let me tell you what I've been working on lately." Of course, you need to do this carefully so you don't come off as confrontational or defensive. "Don't insinuate that people don't understand you or that you haven't gotten the right opportunities," says Lees.

Set the ground rules for the conversation

Interviewing with someone you know can be awkward. If you know the interviewer well, you can check in before the meeting and ask how he wants to handle it. If your relationship is more removed, try to strike a balance in your tone. "You can and should be friendly and informal with someone you know well, but you also need to be fully professional," says Fernández-Aráoz.

You may also wonder how to talk about a work history the interviewer is already familiar with. Again, ask directly, saying something like, "I'm going to provide the same level of detail as I would in an external interview so I might be telling you some things you already know. Is that OK?" Lees advises erring on the side of offering as much evidence as you can. Fernández-Aráoz agrees: "Any solid candidate would understand that it is in the best interest of everyone to be thorough."

Address career blemishes

It's likely that you'll have to speak to a few missteps in your past. "This is the hardest territory," says Lees. "It's easy to become defensive or make your boss sound like an idiot." Some mistakes really can't be explained away in an interview room; if you're coming off a less than stellar project, you might consider getting a few more positive experiences under your belt before applying for a new role. But if you honestly believe you're ready for the new job, speak candidly about what went wrong and what you learned from it. Hopefully, the hiring manager will understand. Fernández-Aráoz says: "Nobody is perfect, but as long as you are qualified, and are willing to learn from your mistakes, I would never hesitate to hire you."

Principles to Remember

Do:Tell your current boss that you're applying for another position

Find out how people perceive you so you can reshape that reputation if necessary

Ask the hiring manager how he wants to handle the conversation if you know him well; otherwise, strike a tone that's both friendly and professional

Don't:Presume that you are a shoe-in for the job, even if you feel you're the most qualified

Approach the interview as a development conversation — treat it like the competitive process that it is

Get defensive about mistakes you've made in the past — be honest and explain what you've learned

Case study #1: Make your case

Mary Beth Perdue had stiff competition when she applied for the newly created position of vice president of external reporting and analysis at Freddie Mac in 2009. "I was up against some other great candidates and while I was closest to the work, these other

folks were also very qualified," she says.



Mary Beth went through ten interviews over two months, first with HR, then with various people she'd be working with, and finally with the CFO. She put a lot into preparing: she worked with a coach, brushed up on the technical aspects of SEC reporting, and talked with her boss about what challenges she might face in the process. She then took each interview seriously, dressing formally and carefully conveying what made her most qualified, even when the interviewer was familiar with her work history. "You have a relationship but you still need to get your points across," she says. While the process was intense, Mary Beth said she was glad she went through it: "It proved I was the best candidate. If it had been an inline promotion there might have been a perception of favoritism but I gained respect by going through all those interviews."

Case study#2: Address concerns directly

At the financial services company where Sean Reed* works, it's common to switch roles often. In fact, he's been through nearly 20 internal interviews in his six years with the company. His last application — which secured him his most recent position as the director of a rewards program — was one of the easiest but still presented challenges. Namely, one of the interviewers, Carl*, was someone who had recently interviewed him for another position that he didn't get. "I was very nervous because here's somebody who knew why I wasn't hired for the last job. He had information I didn't have," Sean says.

Still, Sean proceeded with his normal pre-interview routine. He set up a meeting with the hiring manager (who he already knew from a previous role) and asked his current and past boss to send supportive emails. He also sat down with the outgoing director and another person on the team to find out what the role entailed and how he could be most successful. "When I went in for the first interview with the hiring manager, I thought I hit it out the park. I had so much information going in. I knew what the mandate for the role was, which was very different than the job description," he says.

His interview with Carl was next and Sean wasn't surprised by the first question: What makes you qualified for this role if you weren't for the last? Sean explained why he was interested in both roles but that his skills and experience were better suited for this one. He was able to convince Carl and the rest of the interview went smoothly. A few days later, he found out that the job was his.

*Not their real names

At Last, a New Business Model for Tesla

On Friday, Tesla Motors, the company behind the Tesla Model S, arguably the most promising all-electric challenger to the century-long domination of fossil-fuel cars, announced an innovative switching station based infrastructure that would bring its flagship product one step closer to being the first all-electric no-compromises luxury sedan.

We were delighted to hear of this latest move by Tesla. Almost four months back, on this blog, we called for Tesla to complement the path-breaking technology in the Model S sedan with an innovative business model to match (Tesla's Model S: Technology Outruns the Business Model). The proposed battery-swap system will allow a driver to replace a depleted battery with a fully charged battery in less than 90 seconds — faster than filling up a tank of gas — giving electric vehicles the almost unlimited range of fossil fuel vehicles.

Pioneered by the now bankrupt electric vehicle company, Better Place, the switching station concept is a kind of insurance policy: if and when the motorist runs out of charge the car company promises to provide him with a fully charged battery. Typically, the motorist must pay to avail of this offer. The car company covers the motorists range risk by building these switching stations.

As some of our analysis and research on these switching station models has shown, like many other risks, it turns out customers overestimate the risks of running out of battery — and a provider company that pools this risk across many customers can afford to insure it for a significantly lower cost than the individual motorist perceives will benefit from offering the service. Thus, switching stations can be a win-win, motorists are relieved of their range anxiety and the car company can get many more motorists to sign up.

The use of switching stations by Tesla also highlights two truths that we have repeatedly encountered in our study of hundreds of business model innovations (we document these in our forthcoming book "The Risk Driven Business Model: Four Questions that will Define your Company", Harvard Business Press, 2014). First, we often see that groundbreaking technology rarely achieves mass adoption without a corresponding innovation in the business model around the sale/use of the technology.

Second, a new business model can often make the ownership and use of existing products/technology more environmentally and socially favorable. To begin with, business models that align incentives of users with the environmental impact of their use can make existing products and technologies more sustainable. What's more, as previous disruptive technological advances like the Internet show, new technologies often offer greater potential than existing business models can realize with them.

Specifically, the innovative technology offerings of some green technology firms often come with economic characteristics (scale-cost functions, risk profiles, cash flow profiles, etc.) that are drastically different from the traditional technologies that they substitute. Thus, to realize the technologies' full potential, these firms must pair their innovative technology offerings with business models that facilitate commercialization, adoption, and scaling of these innovative technologies — Tesla's adoption of the switching station framework being a case in point.

We believe these patterns extend far beyond Tesla — there are numerous innovative technologies that are waiting for an innovative business model that will facilitate their use and adoption, and there are numerous business model innovations that can make everyday activities more sustainable. We hope that some of our readers will follow the lead taken by Tesla and help change the world, one business model at a time.

If You're Out to Change the World, How Do You Know When to Move On?

A certain phrase has gained currency in my world lately: the notion that a social enterprise must have an "exit strategy." Social enterprises, of course, are organizations designed primarily to yield social versus financial value. But here the community is borrowing a term from traditional venture capitalists, who know that a big part of maximizing returns is having a plan for when and how to end one's involvement in a venture and invest resources elsewhere.

It's much-needed advice. At least in my corner of the social enterprise world (the part that focuses on communities' access to good water), I have yet to see a successful, strategic exit. To be sure, many international water agencies have left developing countries but those exits tend to reflect a loss of funding or end of a contract — or sometimes a convenient belief that a community water challenge has been solved by simply installing a water system and providing basic community management training.

Sadly, there are also the investors who don't exit at all: the international NGOs who become a permanent feature in a country, seemingly doing little more than sustaining themselves for decades. You know them. These are the organizations that speak with conviction about how well they know a specific nation and its issues as they celebrate their 25th anniversary working there.

If we truly planned for return-maximizing exits — made that the explicit objective and kept our sights on it throughout — much about our programming and behavior would change. Because the road to exit is not already well trod in the water development sector, we at Water For People are attempting to map it for ourselves. Even more, we hope we can model it for others.



When your mission is social benefit, the "when" of the ideal exit is in a sense very simple. It isn't when enough clean water has flowed that you think your efforts have paid off. It is when the problem that was preventing enough clean water from flowing has been solved. A venture capitalist can declare victory when he or she no longer needs a startup to produce more value. In our work, victory means that the districts where we work, comprising hundreds or even thousands of villages, no longer need our support to keep water systems operating.



The magnitude of that goal can make the right time to exit seem like "never." That is particularly true in the water sector. Every international NGO (INGO) and aid agency involved in water supply has a mission statement along the lines of "we envision a world where no one dies of a water-related disease." Ours is similarly ambitious: to ensure reliable water services for Everyone Forever in the districts we have targeted worldwide. Faced with a daunting goal like that, most agencies default to tracking their incremental efforts. A good year is one that sees more beneficiaries served, more wells built, more loans given and repaid. Metrics like these may reassure donors, or give one INGO more influence than another, but they shed little light on whether these interventions brought a district closer to a point where INGOs are no longer needed. These incremental efforts tend to establish endless cycles of INGO work and perpetuate their continued involvement in addressing water challenges.

The key, we think, to breaking these habits, is to shift the focus from immediate returns to lasting impact with a clear exit strategy. More specifically this means to work at reasonable scale; to measure not what you are putting in, but how effectively you are catalyzing others' contributions and scaling back yours; and to monitor long afterward to determine whether solutions are proving sustainable. (For a full explanation of the principles of Everyone Forever, see here.)

Remember: the objective is to solve the problem not temporarily but forever. If Water For People supports a program that leads to full and ongoing water coverage in a geographic area like a district, it will only be deemed a success if these districts never need another INGO for their water challenges again. If water systems break down and another agency is needed, then we have failed to achieve our goal.

The smart venture capitalist thinking about exit strategy doesn't assume that every investment will succeed. With a clear exit strategy, we're able to see when our continued efforts are no longer effective. We either see the potential for full coverage at a district level in alliance with local governments, local communities, and the local private sector, or we leave because we cannot catalyze that activity. We either wind down as others step in or we recognize that we are part of the problem because we are making ourselves a permanent development fixture, and close.

In short, we either transform lives by working in a way that actually keeps water flowing, or we do not. Either way, we exit.

It's OK to Give Shareholders Access to Outside Directors

I recently participated in a stimulating roundtable discussion on how U.S. boards of directors should engage with their companies' shareholders. While it is common in Western Europe for non-executive directors to meet with shareholders to discuss strategy, governance, executive compensation, risk, and other matters within the board's purview, U.S. firms have historically given the CEO and other management members exclusive responsibility for communicating with investors.

In recent years, institutional shareholders in U.S. companies have started demanding direct access to non-management board members in order to assess the quality of board stewardship. Although some firms have relented, many continue to resist.

One seasoned director at the meeting I attended argued that only the CEO should speak for the company because outside directors may inadvertently divulge material, non-public (insider) information. He added that a company also must speak with one voice because differing views among executive and non-executive directors may lead shareholders to believe that the board is in discord.

I retorted that most non-executive directors are experienced executives who will have little difficulty discerning which information can or cannot be shared with outside shareholders. At the same time, institutional investors by and large do not wish to receive inside information because they would be prohibited from trading.

Furthermore, I stressed that, even when a board is "singing from the same hymn sheet," nuances gleaned from speaking with different board members can yield meaningful insights to both shareholders and the board. Diversity of opinions, rather than indicating board dysfunction, may also give shareholders confidence that the board is tackling important issues holistically and not plagued by groupthink.

The illustrations below — drawn from my engagements with European companies — show the value of engaging with a broad cross-section of board members:

Key Risks. Consider, for instance, meeting individually several outside directors of a global bank and asking each of them about the key risks facing their institution. A board member with a technology background may stress the importance of ensuring the integrity of the IT platform and protecting it from intrusion, while another from an emerging market may focus on the challenges in assessing credit quality and verifying the provenance of client funds in certain jurisdictions. Meanwhile, the chairman may be preoccupied with an entirely different matter — a veteran bank chairman told me recently that he was greatly concerned that the promising new CEO may someday become "unchallengeable from below and from the board and lose his own self-doubt."

Strategy. Now, take the board's role on strategy. If asked whether the board spends sufficient time reviewing strategy, many CEOs would unequivocally say, "Yes," and most of them will undoubtedly mean it.

However, non-executive directors will often have a slightly different take. A non-executive chairman might respond: "The management team is extremely open and ready to share ideas with the board, but we often don't have the time to have in-depth discussions." Meanwhile, a non-executive director whose background is in a different sector may share the chairman's sentiment but express a desire to receive more frequent briefings on industry trends so that he and other "generalists" on the board could be quicker to identify matters that may have strategic significance.

For institutional investors, such discussions greatly aid their understanding of how the board fulfills its responsibilities. Yet, none would run afoul of insider-trading laws and the diversity of viewpoints expressed would in no way suggest a malfunctioning board. On the contrary, meetings with shareholders may yield insights for the board on how to perform even better.

It is also important to note that while many matters can be discussed with the CEO, on some governance issues — for example, executive compensation and combining the roles of chairman and CEO — it would be wholly inappropriate for the company to be represented by management.

For these reasons, engagement with the CEO alone won't do.

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A written transcript will be available by July 10.