Wednesday, 4 July 2007
Court of Appeal Protects Investigator During Litigation
Bessie Gallanis-Politis sued her employer, LA County, for discrimination. During the litigation, a couple of supervisors investigated certain issues, purportedly to help prepare the discovery responses. They also took a number of other, incidental, actions, including requiring Gallanis-Politis to change her attendance records to "unapproved absence" when she attended depositions. She amended her complaint, suing the individual supervisors for retaliation. The Court of Appeal held that the supervisors' conduct arose from the litigation and were protected by California's anti-SLAPP law. In other words, the court said that Gallanis-Politis retaliated against the supervisors in violation of the statute. This case protects employees from employee-plaintiffs who attempt to sue managers involved in the defense of the case, and employee-plaintiffs who attempt to shield themselves from neutral policies during litigation. The case is Gallanis-Politis v. Medina, and the opinion is here.
Court of Appeal Upholds Termination for Personal Work on Company Time
Loggins v. Kaiser Permanente upholds summary judgment against an employee's claim of race discrimination and retaliation. Loggins was fired because over 80% of her hard drive contained personal documents. She was accused of devoting too much work time to personal business. (Bloggers and Internet junkies, beware). The case is important because it holds (1) timing of adverse action alone is not sufficient to prove pretext when alleging retaliation (2) the standard for retaliation claims under the Fair Employment and Housing Act is the same as under common law (wrongful termination) and (3) the employer's legitimate business reason simply must be "legitimate" -- non-discriminatory -- and is not held to any additional scrutiny for "fairness" or accuracy.
Damages in California Employment Law Cases
The court of appeal in Davis v. Los Angeles Unified School District Personnel Commission explains a number of principles applicable to damages awards in employment law cases. The case involves an employee who successfully claimed he was wrongfully demoted. The appeal concerns the measure of damages. The court held :the plaintiff does not recover back pay during the period when he or she is unable to work due to a non-industrial disability. The court also said that the employee is not entitled to reinstatement until he can perform the functions of the job. The court also explains how back pay is calculated with respect to mitigation. The opinion covers the "mixed motive" defense's effect on damages. This is a key case for settlement discussions, mediations, and if those fail - jury instructions on damages.
DGV
DGV
IRS May Tax Emotional Distress Damages
Last year, the D.C. Circuit held that emotional distress damages were not taxable and that to do so was unconstitutional. The case, Murphy v. IRS, arose in the context of an employment law matter. Well, the same panel just reversed itself. The court held that emotional distress damages not arising from physical injury were properly taxed under the Internal Revenue Code. Here is the opinion. Don't read it unless you enjoy the tax code, constitutional law, or want to turn to stone. Just saying.
DGV
DGV
Sunday, 10 June 2007
Social Entrepreneurship, MIT, and the eco-system
Social Development has emerged as a "legitimate area" for investment - with business plan competitions and venture capital funds being setup specifically for development. This raises an interesting question: is Social Entrepreneurship really different than so-called "regular" Entrepreneurship?
A few weeks ago, I was at the MIT 100K Business Plan competition finals in Cambridge, MA. Some of you may know that this is billed as the “world's leading business plan competition” and is part of the “ecosystem of entrepreneurship” around MIT.
So what did I notice this year? Other than the inflation of the prize to 100K, the biggest visible change was the addition of a “social development” track in addition to the regular entrepreneurship track.
I find this encouraging because there seems to be the growing recognition the purpose of entrepreneurship is more than to just “make money” – it’s to provide something valuable to the societies that they serve. The winning team in this track, Bagazo, provided an alternative to using wood for cooking in the entrepreneur’s native country, Haiti. Another finalist, Saafwater, came up with a new distribution system to provide clean water to areas in Pakistan which don’t have it at the moment. Another finalist wanted to provide a website for micro-lending, and another provided a system for alternative/renewable energy.
I was actually a finalist back in 1992 when it was known as the 10K competition (In between and for a long time it was the 50K) and have stopped by every few years to tap into this ecosystem. One of the things that I like most about this competition is that it’s a microcosm of trends in the world of entrepreneurship and venture capital.
During the late nineties, when the dot-com boom was in full force, the finalists (and winners) were often internet and IT companies. A few very well-known companies came out of the competition during this time, including Akamai, Direct Hit, and netGenesis. Tellingly, after the boom, the number of IT companies; pharma and biotech were all the rage. When I spoke at the semi-finals in 2005, the downward trend in the percentage of IT companies vs. biotech was starting to slowly reverse itself.
But what I found most thought-provoking about what I saw this year was that renewable energy and medical technologies fields took top prizes in both tracks - not just in the in the development track.
This raises several very intersting questions: Is Social Entrepreneurship something new? Is it something different then regular entrepreneurship? Are the two mutually exclusive or do they overlap in fundamental ways?
My most read post on this blog was about Mohammad Younas, from Bangladesh, who started the micro-financing trend – which was a way to invest very small amounts of money in “village entrepreneurs” on a small scale. This was a valuable service to the communities that he served, but it also turned out to be very good business.
I believe that all entrepreneurship should provide some valuable service to the communities that it’s serving; all social development tries to do the same, perhaps without the profit motive at the center. But it’s unclear whether the NGO and non-profit model, while providing great short term benefits, can really help to lift poverty levels and basic services over the long term. I read a book about China recently, and they called the economic development of China over the last 15-20 years the “greatest anti-poverty program in the history of the world” – because it lifted millions of individuals out of poverty and into the middle-class. And what was at the center of this program? You guessed it: Entrepreneurship.
Do the “desire for wealth” and the “desire to do good” go hand in hand? I believe they do: Every great (and even not-so –great) entrepreneur envisions that their product or service will help someone - their "target market". Perhaps one key difference is who is helped - villagers in Bangladesh, middle-class kids in suburban America, or people working in large corporations . Another key difference is the priority of the profit motive - it is often second in a social development venture, but it's still there.
The emergence of the Development track at the MIT competition is a welcome thing and evidence of a much larger trend. But I would argue that these two aren’t mutually exclusive - after all, the winners in the development track were for profit companies, not non-profit organizations.
Maybe in a few years they’ll merge these two tracks and there won’t really be any difference at all between “Entrepreneurship” and “Social Entreprenuership’.
A few weeks ago, I was at the MIT 100K Business Plan competition finals in Cambridge, MA. Some of you may know that this is billed as the “world's leading business plan competition” and is part of the “ecosystem of entrepreneurship” around MIT.
So what did I notice this year? Other than the inflation of the prize to 100K, the biggest visible change was the addition of a “social development” track in addition to the regular entrepreneurship track.
I find this encouraging because there seems to be the growing recognition the purpose of entrepreneurship is more than to just “make money” – it’s to provide something valuable to the societies that they serve. The winning team in this track, Bagazo, provided an alternative to using wood for cooking in the entrepreneur’s native country, Haiti. Another finalist, Saafwater, came up with a new distribution system to provide clean water to areas in Pakistan which don’t have it at the moment. Another finalist wanted to provide a website for micro-lending, and another provided a system for alternative/renewable energy.
I was actually a finalist back in 1992 when it was known as the 10K competition (In between and for a long time it was the 50K) and have stopped by every few years to tap into this ecosystem. One of the things that I like most about this competition is that it’s a microcosm of trends in the world of entrepreneurship and venture capital.
During the late nineties, when the dot-com boom was in full force, the finalists (and winners) were often internet and IT companies. A few very well-known companies came out of the competition during this time, including Akamai, Direct Hit, and netGenesis. Tellingly, after the boom, the number of IT companies; pharma and biotech were all the rage. When I spoke at the semi-finals in 2005, the downward trend in the percentage of IT companies vs. biotech was starting to slowly reverse itself.
But what I found most thought-provoking about what I saw this year was that renewable energy and medical technologies fields took top prizes in both tracks - not just in the in the development track.
This raises several very intersting questions: Is Social Entrepreneurship something new? Is it something different then regular entrepreneurship? Are the two mutually exclusive or do they overlap in fundamental ways?
My most read post on this blog was about Mohammad Younas, from Bangladesh, who started the micro-financing trend – which was a way to invest very small amounts of money in “village entrepreneurs” on a small scale. This was a valuable service to the communities that he served, but it also turned out to be very good business.
I believe that all entrepreneurship should provide some valuable service to the communities that it’s serving; all social development tries to do the same, perhaps without the profit motive at the center. But it’s unclear whether the NGO and non-profit model, while providing great short term benefits, can really help to lift poverty levels and basic services over the long term. I read a book about China recently, and they called the economic development of China over the last 15-20 years the “greatest anti-poverty program in the history of the world” – because it lifted millions of individuals out of poverty and into the middle-class. And what was at the center of this program? You guessed it: Entrepreneurship.
Do the “desire for wealth” and the “desire to do good” go hand in hand? I believe they do: Every great (and even not-so –great) entrepreneur envisions that their product or service will help someone - their "target market". Perhaps one key difference is who is helped - villagers in Bangladesh, middle-class kids in suburban America, or people working in large corporations . Another key difference is the priority of the profit motive - it is often second in a social development venture, but it's still there.
The emergence of the Development track at the MIT competition is a welcome thing and evidence of a much larger trend. But I would argue that these two aren’t mutually exclusive - after all, the winners in the development track were for profit companies, not non-profit organizations.
Maybe in a few years they’ll merge these two tracks and there won’t really be any difference at all between “Entrepreneurship” and “Social Entreprenuership’.
Friday, 2 February 2007
The Bootstrapper’s Dilemma
The question of focus is an important one for any entrepreneur. We hear it all the time – from the idea of having a “core competency”, from implementing “niche marketing”, and even in the oft-referenced “elevator pitch” – getting your message so focused that you can literally give it within an elevator ride.
Of course, no one can argue that focus isn’t a good thing. But in a bootstrapped company without outside financing, this becomes a particularly tough issue: the question is where to focus and for how long? And what to do if the focus isn’t working? And is the current focus (the one you started with) blinding you to where the real opportunity is? Or is your real problem a lack of focus?
In a venture capital backed company, you typically invest in building a product for a specific market; you then hire the team that can go after that market, and over time you hopefully get enough success in that market from your sales and marketing team to recoup your initial investment and then some. Once you’ve done that, you can think about either taking the product into different markets or starting a second product. If your initial bet doesn't pay off, you think about raising money to attack another market (or hopefully this happens while you still have plenty of cash left), often with a change of management. Or the company goes bust.
But what do you do in a bootstrapped company when you have little or no outside financing?
This is an interesting question because you have two conflicting demands that are coming at you week after week, month after month:
1) you need enough cash and profits to keep the company going, and
2) you have very limited resources so it’s important not to spread yourself too thin.
In fact, these two demands are at the core of what I call the Bootstrapper’s Dilemma: If you have limited cash and need to keep the company going, you are likely to take any sales/revenue you can get, even if it’s not in the area of your focus. Furthermore, you may discover that the real opportunity is in a market/area that is adjacent to what your first guess was. But if you don’t focus, you are not likely to make much headway in any of the areas that you are attacking.
We had this problem at one of my bootstrapped startups – our technology/products could be used in several different markets, each of which was a legitimate and potentially profitable usage of the technology. Each of the markets had slightly (in some cases significantly) different use-cases, even though they all relied on similar (but not exactly the same) technology. This disparity between our different use-cases was causing us to spread our limited marketing and sales and development dollars too thin.
However, we never had enough cash to allow ourselves to focus on only one of those areas and turn down opportunities in the other areas, because focusing also meant that we might not have enough cash to survive long enough for that focus to pay off. In a bootstrapped startup, “Cash, not focus, is almost always King” – if you’re not bringing cash in the door – you might be out of business pretty quickly.
So this brings us to the question – if we agree that focus is important for growing a company, when is it appropriate to focus and when isn’t it?
In my company, one of our co-founders was always asking us to take a bet on one of those areas, and if that bet didn’t work, then it would mean we were done. In that scenario we should shut down the company and go on to other opportunities. The other co-founders, myself included, wanted to see the company survive no matter what – our intent was to build a going concern, not a big hit or a big failure - even if our initial guesses about the market weren't correct.
This brings up a different but not unrelated issue: getting alignment on the motivations of the principals in your company. This is an issue that you should think about carefully in any startup, even when starting a company with someone you know, and especially if you're starting a company with someone you don’t know well. I'll talk about this in another post.
In the end, I believe that this question of focus isn’t as easy or as "cut and dry" as the simple rule of thumb: “you need to focus” – advice which is often given to (but not always listened to by) entrepreneurs.
Recently, I was speaking about this with a colleague who has been “in the trenches” as a CFO with multiple startups (both venture backed and bootstrapped), and his point was: When bootstrapping, you can afford to focus only if 1) you have enough outside money to see it through to the results of that focus or 2) you have a customer who’s funding you for some time, and you can afford, based upon the results of that customer, to turn away other potential customers which do not fit the same focus. Basically, you can only afford to focus if you can literally afford to focus. And if you want to focus, then find either such a customer or raise enough money so that you can do so.
On the one hand, focus provides that “laser-like” intensity which can allow you to really nail a business problem and get into a virtuous cycle where each sale helps to propel the next. On the other hand, insisting on a focus when the market is pulling you in a different direction means you might “miss the boat” on the real opportunity in a changing market; or worse, you might literally run out of cash.
I read a VC blog recently that talked about how one of his portfolio company’s entrepreneurs wanted to build a second, related product before the first product had really gained a lot of traction. The VC of course gave the standard adivce: “you should focus”. But after the entrepreneur insisted, he gave in, and the introduction of the second product served as a key factor in not only rapidly expanding sales, but in laying the groundwork for the eventual successful acquisition of the company.
I think this story makes a very good point. That’s why I like to talk about the “Zen of Entrepreneurship” – because you can’t always follow cut and dry rules without thinking through the consequences and applying them to the unique situation at hand. Sometimes you have to keep a "beginner's mind" when looking at a fluid situation, and recognize that the answer may not be the same as it was even six or nine or twelve months ago.
To truly succeed in the Bootstrapper’s Dilemma you have to adopt a Zen-like state of mind and find a delicate balance among these factors – where the market pull is coming from now, where you thought it was going to come from when you started the company, how much money and runway you have left, how you’re spending that money in going after your target market(s), and of course what your personal goals are for the company and your life. This balance is unique to you and your business and although you can go to others for advice, only you can find the real answer.
Of course, no one can argue that focus isn’t a good thing. But in a bootstrapped company without outside financing, this becomes a particularly tough issue: the question is where to focus and for how long? And what to do if the focus isn’t working? And is the current focus (the one you started with) blinding you to where the real opportunity is? Or is your real problem a lack of focus?
In a venture capital backed company, you typically invest in building a product for a specific market; you then hire the team that can go after that market, and over time you hopefully get enough success in that market from your sales and marketing team to recoup your initial investment and then some. Once you’ve done that, you can think about either taking the product into different markets or starting a second product. If your initial bet doesn't pay off, you think about raising money to attack another market (or hopefully this happens while you still have plenty of cash left), often with a change of management. Or the company goes bust.
But what do you do in a bootstrapped company when you have little or no outside financing?
This is an interesting question because you have two conflicting demands that are coming at you week after week, month after month:
1) you need enough cash and profits to keep the company going, and
2) you have very limited resources so it’s important not to spread yourself too thin.
In fact, these two demands are at the core of what I call the Bootstrapper’s Dilemma: If you have limited cash and need to keep the company going, you are likely to take any sales/revenue you can get, even if it’s not in the area of your focus. Furthermore, you may discover that the real opportunity is in a market/area that is adjacent to what your first guess was. But if you don’t focus, you are not likely to make much headway in any of the areas that you are attacking.
We had this problem at one of my bootstrapped startups – our technology/products could be used in several different markets, each of which was a legitimate and potentially profitable usage of the technology. Each of the markets had slightly (in some cases significantly) different use-cases, even though they all relied on similar (but not exactly the same) technology. This disparity between our different use-cases was causing us to spread our limited marketing and sales and development dollars too thin.
However, we never had enough cash to allow ourselves to focus on only one of those areas and turn down opportunities in the other areas, because focusing also meant that we might not have enough cash to survive long enough for that focus to pay off. In a bootstrapped startup, “Cash, not focus, is almost always King” – if you’re not bringing cash in the door – you might be out of business pretty quickly.
So this brings us to the question – if we agree that focus is important for growing a company, when is it appropriate to focus and when isn’t it?
In my company, one of our co-founders was always asking us to take a bet on one of those areas, and if that bet didn’t work, then it would mean we were done. In that scenario we should shut down the company and go on to other opportunities. The other co-founders, myself included, wanted to see the company survive no matter what – our intent was to build a going concern, not a big hit or a big failure - even if our initial guesses about the market weren't correct.
This brings up a different but not unrelated issue: getting alignment on the motivations of the principals in your company. This is an issue that you should think about carefully in any startup, even when starting a company with someone you know, and especially if you're starting a company with someone you don’t know well. I'll talk about this in another post.
In the end, I believe that this question of focus isn’t as easy or as "cut and dry" as the simple rule of thumb: “you need to focus” – advice which is often given to (but not always listened to by) entrepreneurs.
Recently, I was speaking about this with a colleague who has been “in the trenches” as a CFO with multiple startups (both venture backed and bootstrapped), and his point was: When bootstrapping, you can afford to focus only if 1) you have enough outside money to see it through to the results of that focus or 2) you have a customer who’s funding you for some time, and you can afford, based upon the results of that customer, to turn away other potential customers which do not fit the same focus. Basically, you can only afford to focus if you can literally afford to focus. And if you want to focus, then find either such a customer or raise enough money so that you can do so.
On the one hand, focus provides that “laser-like” intensity which can allow you to really nail a business problem and get into a virtuous cycle where each sale helps to propel the next. On the other hand, insisting on a focus when the market is pulling you in a different direction means you might “miss the boat” on the real opportunity in a changing market; or worse, you might literally run out of cash.
I read a VC blog recently that talked about how one of his portfolio company’s entrepreneurs wanted to build a second, related product before the first product had really gained a lot of traction. The VC of course gave the standard adivce: “you should focus”. But after the entrepreneur insisted, he gave in, and the introduction of the second product served as a key factor in not only rapidly expanding sales, but in laying the groundwork for the eventual successful acquisition of the company.
I think this story makes a very good point. That’s why I like to talk about the “Zen of Entrepreneurship” – because you can’t always follow cut and dry rules without thinking through the consequences and applying them to the unique situation at hand. Sometimes you have to keep a "beginner's mind" when looking at a fluid situation, and recognize that the answer may not be the same as it was even six or nine or twelve months ago.
To truly succeed in the Bootstrapper’s Dilemma you have to adopt a Zen-like state of mind and find a delicate balance among these factors – where the market pull is coming from now, where you thought it was going to come from when you started the company, how much money and runway you have left, how you’re spending that money in going after your target market(s), and of course what your personal goals are for the company and your life. This balance is unique to you and your business and although you can go to others for advice, only you can find the real answer.
Thursday, 2 November 2006
What Would Gandalf Do?
A Lesson from the Wizard: Look ahead, but don’t forget to look behind
The first lesson in this set comes to us from the behavior of Gandalf the Wizard in the Hobbit, which was the prequel to the Lord of the Rings trilogy.
In the book, Gandalf, has recruited the Hobbit Bilbo Baggins to travel with the 13 dwarves to the Lonely Mountain on an “adventure” to claim their long lost treasure, which is being guarded by the evil dragon Smaug. Sound familiar? Anyone who has been recruited on an entrepreneurial adventure to "find the treasure" can surely relate!
Like many “adventures” in the business world, at first the journey goes along swimmingly – they sing songs, light campfires, and otherwise enjoy themselves on the road. At some point, Gandalf leaves the party, and they suddenly find themselves without their leader.
How do they handle this situations? This "first adventure" has many implications for an entrepreneur who is just beginning his or her journey and the team of "adventurers" that he or she is leading.
NOTE: This is the first of a set of lessons about business, entrepreneurship, and life from my favorite fantasy and science fiction, such as the Lord of the Rings and the Earthsea chronicles – it’s from a book I’m working on tentatively titled: “Wizards at the Helm”.
It is a cold, rainy night, not even the dwarves are able to light a fire. Without Gandalf, the party is left in the dark to fend for themselves when suddenly they spot a fire in the woods. The party sends Bilbo to investigate, and they get into trouble with a set of monstrous trolls, who capture the hobbit and the dwarves and threaten to “eat them”.
This is their first “true adventure” on what I think is a very archetypal heroic journey, and as you can see it’s not an inconsequential one – their very lives are put into mortal peril!
Gandalf’s departure allows the party to “test its mettle” – and though they are found lacking and need to be “bailed out" of this incident, the episode represents an important point in the development of both Bilbo and Gandalf as characters and heroes.
Many early stage business ventures also face death when they first try to make it on their own. But it’s the trials themselves which harden up the group and prepare them for the challenges which lay ahead. It is important to get through this first set of trials, even if you have to rely on a board member, or a mentor, or a wizard who knows the terrain.
And in fact it is Gandalf, who has dealt with Trolls before, who shows up in time, plays a clever trick on the Trolls, and rescues the party. After they are rescued, the dwarves naturally ask Gandalf: “Where were you?”
He answers, “Looking ahead”
The next question from them is: “And what made you come back?”
“Looking behind.” said Gandalf.
What can this teach you as you go on your own “heroic journey”?
To truly be a wizard you have to be able to anticipate what’s going on ahead of the curve, and sometimes this means scouting out into the future and leaving others behind to take care of present tasks.
But even when you do that, no matter what you see, you can’t ignore what’s happening in the present. You need to not only be able to scout ahead, but also bring those with you on the journey safely through the "road of trials". But it's not enough to do it all yourself. You also need to give them room to develop their own abilities as “heroes” and not lean on you as a crutch. This will serve you in the long run.
The first lesson in this set comes to us from the behavior of Gandalf the Wizard in the Hobbit, which was the prequel to the Lord of the Rings trilogy.
In the book, Gandalf, has recruited the Hobbit Bilbo Baggins to travel with the 13 dwarves to the Lonely Mountain on an “adventure” to claim their long lost treasure, which is being guarded by the evil dragon Smaug. Sound familiar? Anyone who has been recruited on an entrepreneurial adventure to "find the treasure" can surely relate!
Like many “adventures” in the business world, at first the journey goes along swimmingly – they sing songs, light campfires, and otherwise enjoy themselves on the road. At some point, Gandalf leaves the party, and they suddenly find themselves without their leader.
How do they handle this situations? This "first adventure" has many implications for an entrepreneur who is just beginning his or her journey and the team of "adventurers" that he or she is leading.
NOTE: This is the first of a set of lessons about business, entrepreneurship, and life from my favorite fantasy and science fiction, such as the Lord of the Rings and the Earthsea chronicles – it’s from a book I’m working on tentatively titled: “Wizards at the Helm”.
It is a cold, rainy night, not even the dwarves are able to light a fire. Without Gandalf, the party is left in the dark to fend for themselves when suddenly they spot a fire in the woods. The party sends Bilbo to investigate, and they get into trouble with a set of monstrous trolls, who capture the hobbit and the dwarves and threaten to “eat them”.
This is their first “true adventure” on what I think is a very archetypal heroic journey, and as you can see it’s not an inconsequential one – their very lives are put into mortal peril!
Gandalf’s departure allows the party to “test its mettle” – and though they are found lacking and need to be “bailed out" of this incident, the episode represents an important point in the development of both Bilbo and Gandalf as characters and heroes.
Many early stage business ventures also face death when they first try to make it on their own. But it’s the trials themselves which harden up the group and prepare them for the challenges which lay ahead. It is important to get through this first set of trials, even if you have to rely on a board member, or a mentor, or a wizard who knows the terrain.
And in fact it is Gandalf, who has dealt with Trolls before, who shows up in time, plays a clever trick on the Trolls, and rescues the party. After they are rescued, the dwarves naturally ask Gandalf: “Where were you?”
He answers, “Looking ahead”
The next question from them is: “And what made you come back?”
“Looking behind.” said Gandalf.
What can this teach you as you go on your own “heroic journey”?
To truly be a wizard you have to be able to anticipate what’s going on ahead of the curve, and sometimes this means scouting out into the future and leaving others behind to take care of present tasks.
But even when you do that, no matter what you see, you can’t ignore what’s happening in the present. You need to not only be able to scout ahead, but also bring those with you on the journey safely through the "road of trials". But it's not enough to do it all yourself. You also need to give them room to develop their own abilities as “heroes” and not lean on you as a crutch. This will serve you in the long run.
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