ImaginativePRO Blog

WHY SOME STARTUPS SUCCEED, TOP REASONS WHY SO MANY FAIL, AND CROSSING THE CHASM

Over the last two decades of building and running businesses, and the last couple of years working full time with dozens of startup founders and CEOs on their strategies and funding plans in my consultancy business, I have observed that there are a common set of reasons that startups struggle and fail, and a consistent set of factors that make startup companies successful. 

I wondered if my observations were supported by hard data, and my curiosity around startup success and failure eventually got the best of me. I decided to do some in-depth investigation around this topic. I wondered if there were any research studies that showed why startups succeed and fail? I found several articles that were filled with unsubstantiated opinions and a few sources that had really great hard research around the topic. 

Why do companies fail?

According to an article in FastCompany, "Why Most Venture Backed Companies Fail," 75 percent of venture-backed startups fail. This statistic is based on a Harvard Business School study by Shikhar Ghosh. In a study by Statistic Brain, Startup Business Failure Rate by Industry, the failure rate of all U.S. companies after five years was over 50 percent, and over 70 percent after 10 years. 

This study also asked company leadership the reason for business failure, giving a list of four main reasons for failure with sub-categories below those. They also gave a list of 12 leading management mistakes. It is worth checking out the details. This research-based analysis confirmed some of my observations. I bracket the Statistic Brain finding into seven key reasons for that entrepreneurs experienced business failure:

1. Lack of focus
2. Lack of motivation, commitment and passion
3. Too much pride, resulting in an unwillingness to see or listen
4. Taking advice from the wrong people
5. Lacking good mentorship
6. Lack of general and domain-specific business knowledge: finance, operations, and marketing
7. Raising too much money too soon

All of these focus on the decision-making of the entrepreneur and general business knowledge.

In another study, CB Insights looked at the post-mortems of 101 startups to compile a list of the Top 20 Reasons Startups Fail. The focus was on company level reasons for failure. I think this list is instructive, but each of these reasons for failure is due to a failure in leadership at some level. The top nine most significant from this study are:

1. No market need
2. Ran out of cash
3. Not the right team
4. Got outcompeted
5. Pricing/cost issue
6. Poor product
7. Need/lack business model
8. Poor marketing
9. Ignore customers

Notice that all of these are business- and team-related issues, even the ones that relate to the product. Issues like there are always tied to leadership and the leader’s ability to build a strong team and drive a business model and business thought process and discipline. Also, keep in mind, if running out of money is the ultimate reason for failure, there are always other factors that cause this result.

Why do startups succeed?

Next, I looked for sources of information of why businesses were successful. I found some good research from Harvard Business School, Performance Persistence in Entrepreneurship, which suggest that serial entrepreneurs that have prior success are more likely to have success, and that the best VCs are good at picking serial entrepreneurs. However, that really didn’t answer my question about the qualities of the entrepreneur.

The best comprehensive research that helped to answer the “reasons for success” question that I could find was from The Ecommerce Genome by Compass in their Startup Genome report, which looked at 650 internet startups. Although this research is tech industry specific, I still think it is very instructive. The report stated 14 indicators of success. Some of the 14 were a bit redundant, but you should review the report yourself. This analysis also confirmed some of my observations. I bracketed these 14 indicators into nine key factors for success:

1. Founders are driven by impact, resulting in passion and commitment
2. Commitment to stay the course and stick with a chosen path
3. Willingness to adjust, but not constantly adjusting
4. Patience and persistence due to the timing mismatch of expectations and reality
5. Willingness to observe, listen and learn
6. Develop the right mentoring relationships
7. Leadership with general and domain specific business knowledge
8. Implementing “Lean Startup” principles: Raising just enough money in a funding round to hit the next set of key milestones
9. Balance of technical and business knowledge, with necessary technical expertise in product development

Are the reasons for success the opposite of those for failure?

There are things that you must possess to be a successful entrepreneur, but they won't guarantee success. That said, it stands to reason that if you fixed the reasons for business failure, you would at least improve your chances of success. So, I decided to look at the side-by-side comparison of the reasons for failure and the factors for success.

If you look at both the reasons for failure and the factors for success, it is clear that commitment to a plan is key. This, of course, implies having a plan. This does not mean that you are completely inflexible, but you can stay the course. This is why the most successful companies have one or two pivots. I do not think that every little business adjustment or fine-tuning as a pivot. 

A true pivot is a change in course of direction that results in a material change in the product-market strategy. It could be along the product axis or the market axis, but it has to be enough of a change that it really requires an adjustment in strategy and a corresponding adjustment in resource allocation. At least, that’s my definition. Passion and motivation are the obvious factors. Every entrepreneur, business coach, consultant, advisor, newscaster, investor and industry analyst talks about passion. Steve Jobs is quoted all the time about this. It’s probably become too cliché and overused at this point.

What I like about this analysis is that it goes to the root of the passion. People that are successful believe in what they are doing. The successful entrepreneur feels that they can make an impact and a difference in the world. There is so much inertia and negativity around getting a startup off the ground, much less getting it to “escape velocity,” that if you don’t have this deep-seated commitment to making an impact, you will surely give up. Successful entrepreneurs are competitive. They play to win, and they hate to lose. This trait may show-up differently with different personality types, but I have never met a successful entrepreneur that doesn’t have a competitive spirit and a will to win.

The next two things go hand-in-hand. I kept them separate since I think mentorship is so important, and it has played such a huge role in my career success. Just because you are willing to learn does not mean that you are willing to seek a mentor and listen to their guidance. By the way, I’m not advocating that you take every piece of advice and guidance from your mentors, but if you have selected strong mentors that have significant domain, technical or business expertise, you should at least consider thoughtfully consider what they have to say. Otherwise, why have them around as a mentor? It gets to humility. It’s one of those things when you think you have it, you don’t.

Successful startups are businesses. It therefore stands to reason that you need to establish and implement solid fundamental business principles and practices to improve your chances of success. Many technical founders fall in love with their product idea and consciously or unconsciously believe that if they build a better mousetrap, the world will beat a path to their door. However, both the success and failure studies show that you need leadership in the company with general and domain-specific business knowledge to be successful. Of course, you also need to have strong technical expertise in your chosen product development area. 

Does this mean that a technical founder cannot be successful as a CEO? No, it doesn't. Look at Dr. Irwin Jacobs, the co-founder and founding CEO of Qualcomm, as a classic example. Dr. Jacobs is a brilliant engineer and former professor at MIT. However, he also has a brilliant business mind and a lot of business knowledge. Prior to Qualcomm, Dr. Jacobs ran another company, MA-Com, so he had experience running a company. He also surrounded himself with a strong management team. There are many other examples of this success formula, but there are far more where there is a seasoned businessperson who has domain expertise leading the company, and a strong technical team driving product development. Steve Jobs (Apple, NeXT, and Pixar) is the classic example as a business-oriented founder. Meg Whitman (eBay) and Eric Schmidt (Google) are great examples of CEOs who were brought into companies at an early stage to complement an exceptional team of technical founders.

Finally, having a clear and realistic idea of how long things take, setting intermediate milestones for every 12 to 18 months, and raising just enough money it to get to the next set of key milestones, is not only important to capital efficiency, it is also important for success.

How do I become a member of the $100 million club?

Interestingly, according to the Kauffman Institute, in its article The Constant: Companies that Matter, the pace at which the United States produces $100-million companies has been stable over the last 20 years despite changes in the economy. The study sates, “Anywhere from 125 to 250 companies per year (out of roughly 552,000 new employer firms) are founded in the United States that reach $100 million in revenues.” My former company, Entropic, achieved this status. How do you become part of that club? You need some luck and a good sense of timing. However, as said by the Roman philosopher Seneca, “Luck is what happens when preparedness meets opportunity.”

Beyond that, you need a plan, persistence, perseverance, a willingness to be flexible, and a world-class team. You also need to be frugal, bright, and cultivate strong mentors. The best way know to do all these things well and efficiently is to follow a systematic process where you plan, commit, track results, promote accomplishments and raise the necessary capital, or "fuel in the tank," to drive the growth of your startup.

Plan. Commit. Win.

COMMENTARY:   As a consultant it always pains me when a startup client launches successfully and gains traction, but never seems to quite "cross the chasm" that all startups encounter, and must cross in order to "get to the next level."   Crossing the chasm simply means helping a product, service or technology move from "early adopters" to a larger market segment, sometimes called the "early majority," in the Product Adoption Curve (see below). 

Product Adoption Curve

The product adoption curve is a standard model that reflects who buys your products and when.

Think of it as the big picture view of your product adoption. It takes the product lifecycle and considers what happens at different points.

In most product adoption models, there are five distinct stages. Each stage represents an arbitrary amount of time, so what’s most important here is the process as a whole.

Now let’s break this down step by step, stage by stage.

Stage 1. Innovators

The innovators are the first group of people to invest in your product.

This is a unique group. People who buy super early are usually obsessed with technology and want to keep up with the cutting edge of technology.  When the first Apple iPhone was first launched on July 29, 2007, the innovators were the very first to buy the iPhone.  

What’s most important about the innovators group is its size. You might have noticed that it’s small. That’s completely normal.

This is why you might only get a few sales immediately after you launch. You’ll typically get about 2.5% of your total sales from innovators.

The Innovators

Stage 2. Early Adopters

At some point, you’ll see a swell in sales, and you’ll start to get a steadier conversion rate.

This is probably because the early adopters have arrived.

Like innovators, early adopters tend to be ahead of everyone else, willing to test the waters.

Early Adopters

Although early adopters are similar to innovators, there are some important differences.

It could be the case that early adopters have purposely waited to buy your product.

Whereas innovators are fine with rushing in and testing out something new, early adopters are a bit more hesitant. They still want to try something new, but they want a few reviews to consult.

Then again, it could be the case that they just found out about your product.

Expect your percentage of adoption to go up to about 13.5% or so.

Stage 3. Early Majority

Here’s when your product really gets some momentum going.

You’ve got a good amount of sales from innovators and early adopters. At this point, usually an even larger group sweeps in and gives you a heck of a lot more sales. Specifically, about 34%.

The people in the early majority are usually pragmatic and will only buy something once it’s been road-tested (at least a little bit) and has proven its value.

Early Majority

This is the beginning of your product’s peak. Maybe it’s gained traction with more marketing or word of mouth.

Stage 4. Late Majority

At stage 4, your product has been out for a while, and there’s widespread use.

However, there are still some people who are a bit skeptical of your product. Once they’ve put their worries to rest, they buy your product, and these people are usually in the late majority or laggards.

Late Majority

At some point during the early or late majority phase, you’ll have your peak where you get more sales than ever, and your product is at the height of its popularity.

Interestingly, in terms of adoption rates, the early and late majorities are usually roughly equal, around 34%.

Stage 5. Laggards

These are the people who buy your product after all the hype has died down. Sometimes, laggards purchase a product years after it’s been released.

Laggards might be extreme skeptics or people who have only heard about your product a long time after you launched it. Whatever the reason, these people don’t buy until much later in the product lifecycle.

The Laggards

Surprisingly, this is a pretty big group. 16% of your product adoption will come from laggards.

Try to wrap your head around the fact that laggards have a higher adoption rate than early adopters.

Change Your Marketing as Your Product Ages

At each stage of the product adoption curve, it’s likely there’s going to be certain demographics buying your product.

For example, innovators are more likely to buy on impulse, while buyers in the late majority will do lots of research before purchasing.

Each group has its own traits:

Characteristics:  Innovators-to-Laggards

And as your product gets older, it will become more well-known. So you might start out with a product no one knows but end up with a product everyone and their brother has heard of.

Given these facts, consider changing your marketing messages as your product ages.

The Apple iPhone Marketing Messages Over Time

The marketing of each successive version of the Apple iPhone illustrates how Apple changed its marketing message to appeal to innovators, early adopters, early majority, late majority and laggards.

A commercial for iPhone 2 showed off a lot of the hip new features:  music, email, and Internet browsing, to name a few.

iPhone 2 TV Commercial

This obviously appealed to a younger, more tech-savvy audience.

Then in 2010, three years after the first iPhone launched in 2007, the iPhone 4 came out with a commercial that featured two grandparents celebrating their granddaughter’s graduation:

 

iPhone 4 TV Commercial

Apple wanted to show that even grandparents (who may not have understood smartphones back in 2010) could benefit from the iPhone. This is important because older consumers are typically late adopters.

Apple’s strategy was clear: Begin by showcasing all the bells and whistles, then open up the audience to include more types of customers.

In the same way, you should think about what your marketing should look like at each stage of the product adoption curve.

For example, when the innovators and early adopters come rolling in, your marketing should clearly describe the value and benefits of your product.

Later on, perhaps in the late majority stage, you can utilize customer testimonials and reviews. This can help address the skepticism that later adopters typically have.

Think about addressing the common questions that each group has, innovators will ask themselves what’s so unique about your product, while the early majority wants to know what other people think about your product and why it’s useful.

Thinking like this can completely change your marketing. By sending a customized message every step of the way, you’ll battle objections and questions head-on.

Know How to Overcome The Chasm

In most product adoption curves, there’s a point that can make or break the success of the product.

It’s called the chasm. It’s the point between the early adopter stage and the early majority stage.

The Chasm

As the chart above represents, crossing the chasm means breaking into the mainstream market.  It’s one of the most difficult aspects of product adoption, but it’s one of the most important aspects to get right.  There’s even a bestselling book on the topic––Crossing the Chasm.

Crossing the chasm is particularly tough to do for a few reasons.  One reason is that as your product ages and grows, your audience will have higher expectations.  Specifically, your potential customers will want increasingly better reasons to buy your product.  You have to be ready to meet these demands throughout your product’s lifecycle, but it’s especially important in getting past the chasm.

As impulse buyers, the innovators and early adopters didn’t need huge reasons to buy your product. But to get the early majority to convert, that’s exactly what you’ll need.  You have to think about your branding and not just your product. You have to offer value and not just features.

Another reason for the difficulty is the possible necessity of pivoting.  In other words, to cross the chasm you may need to take a new angle for your campaign. Early on, you may be hedging on the idea behind your product. Early adopters are cool with that, but the early majority wants consistency.  In other words, to cross the chasm you may need to take a new angle for your campaign.  Early on, you may be hedging on the idea behind your product. Early adopters are cool with that, but the early majority wants consistency.

The Chasm

If you’re at the chasm right now, you might need to pivot yourself or even improve your product.

Don’t Forget The Laggards

You can’t stop after your product has hit its pinnacle and is riding the waves of success.  It's important to remember, the second largest adoption group is laggards, coming in at 16%.  A lot of people will be buying your product well after the hype dies down, and you can’t forget or alienate this audience.

Laggards are often skeptics, so at the end of your product lifecycle, your marketing should be laser-focused on overcoming objections.  Think about it––you’re marketing to people who resist change and may not even want to be a customer.  They’re going to need awesome reasons to invest in your brand. (A slew of positive testimonials, reviews, and press mentions will come in handy for this.)

Time also plays an important role. Think back to the iPhone example; sure, older folks are commonly seen with iPhones, but it’s been a decade since the device’s initial release.  It might take a lot of time and exposure to your brand for laggards to adopt your brand.  

Finally, you’ll also need to brace for the declining sales that inevitably occur at the end of the product life cycle.  If your brand is experiencing one or more of these symptoms (see below) listed in the Product Life Cycle chart, its time to evaluate whether you can extend its life by introducing an improved version, replace the product with an entirely new product or dump the brand or line entirely.  

Product Life Cycle

 

Courtesy of an article appearing in September 2014 issue of Entrepreneur and an article dated October 23, 2017 appearing in The Daily Egg and an article dated October 23, 2017 appearing in The Daily Egg

HOW TO HIRE A GREAT DATA SCIENTIST AS THE DEMAND FOR BIG DATA ANALYTICS RISES AND A SERIOUS TALENT SHORTAGE LOOMS

 

The huge demand for big data analytics, and scarcity in individuals with the right skills and experience, is driving the starting salaries for data scientists over $200,000, and it is going to get worse

A new species of techie is in demand these days—not only in Silicon Valley, but also in company headquarters around the world.  Pascal Clement, the head of Amadeus Travel Intelligence in Madrid, says.  

“Data scientists are the new superheroes.”

The description isn’t exactly hyperbolic:  The qualifications for the job include the strength to tunnel through mountains of information and the vision to discern patterns where others see none. Clement’s outfit is part of Amadeus IT Holding, the world’s largest manager of flight bookings for airlines, which has more than 40 data scientists on its payroll, including some with a background in astrophysics. The company recently launched Schedule Recovery, a product that tracks delays and automatically rebooks all affected passengers.

A study by McKinsey projects that “by 2018, the U.S. alone may face a 50 percent to 60 percent gap between supply and requisite demand of deep analytic talent.”  The shortage is already being felt across a broad spectrum of industries, including aerospace, insurance, pharmaceuticals, and finance. When the consulting firm Accenture surveyed its clients on their big-data strategies in April 2014, more than 90 percent said they planned to hire more employees with expertise in data science—most within a year.  However, 41 percent of the more than 1,000 respondents cited a lack of talent as a chief obstacle.  Narendra Mulani, senior managing director at Accenture Analytics, says.

“It will get worse before it gets better.” 

Many data scientists have Ph.D.s or postdoctorates and a background in academic research, says Marco Bressan, president for data and analytics at BBVA, a Spanish bank that operates in 31 countries and has a team of more than 20 data scientists. He says.

“We have nanotechnologists, physicists, mathematicians, specialists in robotics.  It’s people who can explore large volumes of data that aren’t structured.”

So-called unstructured data can include e-mails, videos, photos, social media, and other user-generated content. Data scientists write algorithms to extract insights from these troves of information. But “true data scientists are rare,” says Ricard Benjamins, head of business intelligence and big data at Telefónica, Europe’s second-largest phone company, which employs more than 200 of them.  Stan Humphries, chief economist at Zillow, the real estate listings site, says:

“You can find a great developer and a great researcher who has a background in statistics, and maybe you can find a great problem solver, but to find that in the same person is hard.”

Universities are taking note. MIT, where graduate students in physics, astronomy, and biology are fielding offers from outside their chosen fields, is in the process of setting up a dedicated data-science institute. Marilyn Wilson, the university’s associate director for career development, says the center will begin enrolling graduate degree candidates in 2016.

In the U.K., the University of Warwick introduced a three-year undergraduate data-science program last year, which David Firth, the program’s mastermind, says may well be the first of its kind.  He says.

“Big Business was complaining about the lack of people.  Finance is a major employer, but also large-scale insurers, large online commercial retailers, high-tech startups, and government, which has huge data sets.”

Accenture’s Mulani says he’s tallied some 30 new data-science programs in North America, either up and running or in the works. The University of Virginia began offering a master’s in 2014, as did Stanford. Many of those students may be tempted to drop out before collecting their degree.  Margot Gerritsen, director of Stanford’s Institute for Computational & Mathematical Engineering, says.

“Companies are scrambling.  We have second- and third-year students getting offered salaries much higher than what I get.”

Starting pay for some full-time jobs is above $200,000, she reports. Summer internships, meanwhile, pay anywhere from $6,000 to $10,000 a month.   To make these stints memorable, many employers offer perks such as free meals, complimentary gym memberships, and occasionally temporary housing.   Gerritsen says.  

“Sometimes you read about students getting abused in internships and working like slaves.  We don’t see that.”

The bottom line: McKinsey projects that by 2018 demand for data scientists may be as much as 60 percent greater than the supply.

COMMENTARY:  There is no doubt that data scientists are in high demand.  There is simply not enough talent to fill the jobs.  Why? Because the sexiest job of 21st century requires a mixture of broad, multi-disciplinary skills ranging from an intersection of mathematics, statistics, computer science, communication and business.   Finding a data scientist is hard.  Finding people who understand who a data scientist is, is equally hard. 

Jean-Paul Isson, Monster Worldwide, Inc. says.

“Being a data scientist is not only about data crunching. It’s about understanding the business challenge, creating some valuable actionable insights to the data, and communicating their findings to the business.” 

It is very unlikely that you will be able to hire a data scientist who can solve all your data problems. The skill-set presented below is a guide on how the modern data team should be equipped.

Click Image To Enlarge

What Makes a Great Data Scientist?

What are the personality traits of today’s data scientists? Do they have the skills needed to support businesses’ changing needs? How can senior management build cohesive teams to drive the most value from big data? Is this fast evolving discipline causing stress to its practitioners?   These are some of the questions that SAS Analytics tried to answer when it conducted a survey in 2014 of 596 respondents in the UK and Ireland who identified themselves as part of the data science profession. The survey highlights 10 key personality types as well as some of the challenges data scientists are facing today.

Summary of Findings

• Data scientists with “traditional” traits (analytical, logical, technical) make up the largest group (41 per cent), yet a significant proportion of data scientists display other traits, such as strong communication and creativity skills.
• We expect a lot from data scientists: to be technically proficient, mathematically agile, business savvy and good at communicating. Yet 55 per cent of data scientists have fewer than three years of experience in the discipline, and more than a quarter are adapting their behaviours to fulfil roles that are not well matched to their skills or work personality profiles.
• In most personality types there is a 70:30 split between men and women. The Geeks, the profile with technical bias, strong logic and analytical skills, shows a higher percentage of women at 37 per cent compared to 63 per cent for men.
• Data scientists are exhibiting high levels of work-related stress, with a total of 55 per cent of the respondents showing a level of stress, with 1 in 4 male and just under a third of female data scientists being heavily stressed.
• Organisations must better identify and define what they need from data scientists. Only then can they build and develop multi-faceted teams with the complementary skills needed to realise the full value of big data.  

This SAS survey report looked at the aggregated data of the initial 596 responses, received from 405 men (68 per cent) and 191 women (32 per cent).  Respondents’ experience ranged from less than a year to a handful of data science pioneers who have committed more than 21 years to the discipline.

The survey was based on the well-established DISC profiling methodology, which has been used for more than half a century to categorise respondents into a range of personality types with recognised characteristics.

By using DISC, SAS able to create the typical profiles of today’s data scientists, and explore how these compare to skills and personalities required by organisations.

The DISC Personality Profiling Methodology

The DISC methodology has been widely used to assess personality types for decades. This information is often utilised to analyse and build effective teams, improve communication and increase productivity. DISC is based upon a two-axis matrix:

• Vertical Axis:  Proactive to Reactive  
• Horizontal Axis: Introvert to Extrovert 

This generates four possible combinations – named D, I, S and C.  Individuals possess measures of all four of these combinations but in varying amounts. The values for each combination is calculated and plotted on a graph to illustrate the relative strengths of each.  These values can be matched to known behavioural characteristics to describe an individual’s personality profile.

Click Image To Enlarge

The Data Scientist Personality Mix

The SAS analysis identified ten psychometric profiles evident within the data scientist community, based on the responses to the survey so far.   These profiles are characterised by definable patterns that are well known to scientists and were consistently apparent in the survey sample.  

The ‘traditional’ traits associated with data scientists – such as technical, analytical and logical skills – still dominate. However, other less technical traits – such as project management, creativity and good communication skills – are also present. Organisations need data savvy individuals who are technically proficient, mathematically minded, business oriented and strong communicators.

It’s unlikely that any individual will have all of the skills required to maximise the value of big data.  So it’s important for managers to identify the particular skills needed and build a cohesive team of individuals with complementary skills and traits.  As we will see later in the report, failure to do so can result in individuals trying to fulfil roles to which they are not suited – which may lead to stress and burn-out.

Distribution of Personality Types in SAS Survey Sample

Click Image To Enlarge

 

Final Conclusions Drawn From The Survey

There is huge pressure on data scientists to display a range of skills: technical, mathematical, creative, business aptitude and communication. Unsurprisingly, organisations struggle to find this mix of skills in just one person, particularly when the majority of data scientists have only a few years of experience.

It is therefore important for managers to build cohesive, diverse teams that can answer all the needs of the organisation – not just data scientists but also data savvy managers to interpret the insights and transform them into actions. Organisations will need to:

• Manage the business’ expectations from data scientists
• Find and develop individuals with the appropriate skills and personality traits
• Create teams of individuals with complementary skills and experience
• Encourage peer to peer support, learning and development
• Match training to the business’ requirements.

It’s possible that, as technology develops, there will be less of a weighting towards the more traditional, technical personality traits – while demand for the less frequently found profiles such as the Ground Breakers, the Teachers and the Seekers will grow. As more respondents take part in SAS surveys, it is hoped to be able to explore this interesting development further.

Courtesy of an article dated June 4, 2015 appearing in Bloomberg Businessweek, an article dated August 30, 2014 appearing in Marketing Distillary and the results of a SAS survey titled, "What Makes A Great Data Scientist?"

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TWITTER ANNOUNCES THAT JACK DORSEY IS NOW THE FULL-TIME CEO OF TWITTER, ADAM BAIN BECOMES COO

After much speculation, Twitter officially announced today that interim CEO Jack Dorsey, who cofounded Twitter and served as CEO from 2007 to 2008, has dropped the “interim” and assumed the role of CEO.

Adam Bain, who was Twitter’s president of global revenue and partnerships at Twitter, will become the COO. Bain was another candidate for the role of CEO.

Adam Bain is now Twitter's Chief Operating Officer (Click Image To Enlarge)

Dick Costolo, former CEO and board member, has also stepped down from the board. Dorsey will still serve as a member of the board, but is no longer Chairman. In a Tweet, Dorsey said they were “working to change the composition of the board.”

According to the SEC document detailing the changes,

“Mr. Dorsey was selected to serve on the Board because of the perspective and experience he brings as one of Twitter’s founders and as one of Twitter’s largest stockholders, as well as his extensive experience with technology companies.”

Dorsey will not be receiving any direct compensation for his role as CEO, per the SEC document.

Nate Elliott, vice president and principal analyst for Forrester Research, in response to this morning's news, says.  

"Now that Twitter's CEO drama is out of the way, the company can get back to doing its job: Building products people want to use.  The key phrase there is 'building products' - something Twitter hasn't done nearly enough of."

Elliott compares Twitter to Facebook, noting that the reason the latter continues to grow is partly due to the new features and experiences it continues to offer, attracting an ever-larger audience. He says.  

"Twitter is stagnating because its product looks almost exactly like it did when it launched ten years ago."

Forrester Research analyst Erna Alfred Liousas adds. 

"It's time for Twitter to build and innovate.  Not every new idea launched will succeed - but if it launches enough new features, some will surely find a wider audience. And a wider audience is exactly what Twitter needs."

Dorsey said in an investor call this morning.

“It’s our goal to exceed the expectations the world has for us.  I’ll do whatever it takes.”

Referring to a product road map for 2016 in the call, Dorsey referred to Project Lightning, which will provide users with curated content centered around specific events, embedded across the Web and within other apps.

Dorsey is also the CEO of Square, a mobile payment-processing company; he has no plans to step down from that role. Square is reportedly gearing up for an IPO this year.

Some think that Dorsey splitting his time between the roles may lead to ineffective leadership for both companies. Others have compared the move to Steve Jobs, who ran Apple and Pixar at the same time.

Dorsey announced he was taking the helm as full-time CEO of Twitter in a series of tweets:

Click Image To Visit Jack's Twitter page

COMMENTARY:   Twitter’s search committee originally said it would consider only candidates who could make a “full-time commitment” to the company. As CEO of Square, Dorsey seemed to be disqualified, assuming he also remained head of the mobile payments upstart. And yet some investors, like Chris Sacca and Keith Rabois, have since said publicly that they believe Dorsey has—and can—run both Square and Twitter effectively at the same time.  sey, previously fired from Twitter, as the full-time CEO at Twitter.  

RE/CODE reported correctly on Wednesday, September 30 that Jack Dorsey would become Twitter's permanent CEO and still run Square through its IPO:

"Jack is apparently back — for good this time.

Twitter co-founder Jack Dorsey, who has been serving as interim CEO for the past three months, is expected to be named the company’s new permanent CEO as early as tomorrow, although that timeframe may change, according to sources. Dorsey will apparently continue to run Square, the payments company he founded where he’s also CEO."

Here's what Business Insider had to say about this decision.

"Square, which will go through a roadshow (for IPO), then hit the markets, also needs a full-time CEO to guide it through its initial stages as a public company. 

For this reason, the timing isn't great for Dorsey to be Twitter CEO right now. 

Despite this, Dorsey is the best, if not only, choice to lead Twitter.

Twitter needs a product-oriented CEO that has the moral authority to tweak the product to make it appeal to the billions of people that don't use Twitter. 

Twitter needs an insider who already knows the company and won't need to waste a year, or more, figuring out who does what and who should be retained, or canned. 

Dorsey checks both of those boxes."

Brian Blau, an analyst who covers the major social media companies for Gartner, says.  

"Landing Jack Dorsey as the permanent CEO is the best choice the company can make right now. The company has been struggling and without a CEO in place... [it] would create even more disruption when Twitter needs the opposite and should be focusing on how they will transform the product and business."

Here's what Mashable had to say about Jack Dorsey's appointment as permanent CEO at Twitter:

"The appointment ends months of scrutiny and pressure from prominent investors and analysts for Twitter to move more swiftly in deciding on a chief executive who can provide stability and product leadership. Now he must accomplish what his predecessor Costolo could not: re-ignite Twitter's stalled user growth without alienating longtime users, or else convince Wall Street why Twitter warrants a $20 billion valuation if it can't hit the mainstream.

The stakes could not be higher for Twitter. Its stock has been stuck in the gutter for months, with rampant speculation that its best hope is to be acquired. Facebook is attacking Twitter's core on all sides with new features to track and broadcast news in real-time. And there is an army of unicorns (billion-dollar startups) ready and eager to snatch up talented but concerned Twitter employees."

New York Magazine had some interesting things to say about Jack Dorsey's ability to manage two companies simultaneously and the decision to take Square public:

"Dorsey has been aggressive —  but not necessarily successful —  in both roles. Square has rolled out some innovative features, but it’s a minnow in shark-infested waters, competing with Google Wallet and PayPal, which is now taking a bite out of Square’s mobile card reader market. Dorsey at the helm of both companies may hint at a future moments of symbiosis between the two. For instance, Twitter recently unveiled an option to donate directly to a political candidate on the platform, using Square to process the contributions.

Overall, both companies have suffered over the past year. Square has yet to find a profitable business model. And despite rumors that the company was attempting to sell itself off during this downturn, Dorsey recently filed documents for a public offering, a strategy that has drawn plenty of skepticism.

Twitter's stock has been steadily dropping, down a third this year and now standing below its IPO price. But Dorsey seems to see it as a buying opportunity: He recently purchased another $875,000-worth of Twitter stock. He made the move public in the most @Jack way possible, simply tweeting a link to the SEC purchasing document. One of Twitter's main goals is to get new users — many who are intimidated by the immensity of content produced on the website — to become devoted tweeters. It's something the company hasn't had too much luck with so far." 

As for myself, I remain somewhat ambivalent about the decision to hire Jack Dorsey as the permanent CEO at Twitter.  I agree with the comments made by New York Magazine.  Dorsey was fired before.  How much has Jack Dorsey changed since he was fired from Twitter?  Will anything really change?  Running two companies simutaneously would be an issue with me.  Steve Jobs did it, Jack Dorsey is no Steve Jobs.  Jobs completely re-invented Apple shortly after his return.  He even forged an alliance with Microsoft, his "Big Brother" nemesis, and allowed Microsoft to invest $100 million in Apple to keep them afloat.    

The move to appoint Adam Bain as Chief Operating Officer, is a good strategic move.  Jack will need an insider to manage Twitter's operations, allowing him the time to focus on making Twitter a better product for existing and new users.   

Jack Dorsey is obviously familiar with the situation at Twitter, but I wonder if he has the ability to move quickly and decisively to make the needed changes to the site that will make Twitter more appealing, interesting and engaging, and help keep users glued to the site, and attract new users as well.  

In response to the above criticism, Dorsey tweeted on Monday:

“My focus is to build teams that move fast, and learn faster.  We're working hard at Twitter to focus our roadmap on a few things we can make really great. Our work forward is to make Twitter easy to understand by anyone in the world, and give more utility to the people who love to use it daily!”

Dorsey, however, has yet to prove himself worthy of being mentioned in the same breath as Jobs. Unlike Apple -- or Facebook under Mark Zuckerberg -- Twitter and Square, where he is also CEO, remain relatively niche services with highly uncertain futures. 

If I were Jack, I would be polling users for ideas and determining why the other 600 million registered users, who don't use it at all, don't like about Twitter.  I would be talking to some of the experts and thought leaders in the field of social media to get their opinions about Twitter.      

Courtesy of an article dated October 5, 2015 appearing in MediaPost Mobile Marketing Daily, an article dated October 5, 2015 appearing in Mashable, an article dated October 5, 2015 appearing in Business Insider, and courtesy of an article dated September 30, 2015 in RE/CODE, and courtesy of an article dated October 5, 2015 appearing in MediaPost Mobile Marketing Daily MoBlog, and an article dated September 30, 2015 appearing in New York Magazine

UBER'S BUSINESS MODEL IN PERIL AFTER CALIF JUDGE RULES DRIVERS ARE EMPLOYEES, AND THE POTENTIAL COSTS OF THAT DECISION

When a California judge ruled earlier this month that a lawsuit brought by Uber drivers could go forward as class-action, it re-opened the biggest question about the hottest company in Unicornland: Is its business model legal? And if not, can Uber survive?

The ruling has also reignited questions about whether the sharing economy, of which Uber is by far the largest participant and its poster boy, is fair to workers. Last week, workers’ advocacy group the National Employment Law Project released a report that equated Uber and other sharing economy companies to “turn of the century sweatshops” because of a lack of employee benefits and protections.

Investors think that Uber will not just survive, but thrive. They have driven Uber’s valuation up to $51 billion, much higher than what Facebook was worth when it was a six-year-old private company. But the recent lawsuits against Uber raise questions about what seemed like its inevitable success.

By now, many people know the debate. Uber currently classifies its drivers as independent contractors, or “1099” workers, rather than (W-2) employees. Uber says its drivers prefer the flexibility of being independent contractors. But that classification also allows Uber to avoid the taxes and insurance and other administrative expenses that companies usually have to pay to have a workforce.

How much would it cost Uber if it was forced to reclassify its drivers as employees, rather than independent contractors? By my calculations, with help from some experts, I crunched the numbers and got an answer, and it’s a huge amount: $4.1 billion.

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Uber declined to comment on Fortune's calculations. A spokesperson for the company said it’s difficult to know what additional costs Uber would have to pay if it were required to turn all of its drivers into employees because doing so would force the company to completely change its business model, which is exactly the point.

The California lawsuit was brought by four former drivers who think they deserve the status of employees and reimbursement of their driving expenses. But by certifying it as a class action, the judge said the eventual ruling in the case will apply to all of Uber’s California drivers, excluding only those who had specifically waved their right to participate in the current suit. Uber is fighting the lawsuit, as it has other efforts to force the company to put its drivers on its books. On Tuesday, Uber filed an appeal in the California case, asking the court to reverse the class action status.

Uber critics say the real reason Uber has opposed the shift is that it can’t afford it. Miriam Cherry, a St. Louis University law professor who has long followed the sharing economy, says Uber’s current business model is one part technology company and one part labor law workaround. The question is which part is bigger.

To figure that out, Fortune spent the past two weeks digging into Uber’s finances, employment law, and payroll realities. It enlisted the help of experts from two companies that specialize in payroll costs, Paychex and StaffOne. It also talked to SherpaShare, a third party application that helps ride-share drivers track their work, for data on the size and composition of Uber’s workforce, which SherpaShare estimates at around 200,000 drivers. (Uber says it has 160,000 drivers, but those numbers were from the beginning of this year.)

To get the $4.1 billion figure, Fortune started at the top. Uber’s recently leaked numbers—the company is private, so it doesn’t disclose its financials, but some have emerged—put the company’s expected sales this year at about $10 billion. Uber splits what passengers pay 80-20. Uber takes a 20% cut for allowing drivers to use its platform. The rest, $8 billion, is what the drivers get, which would be their salaries if they were employees, though Uber currently does not include that figure in its finances.

Two caveats: Uber has licensing deals for its technology with other companies, and those deals may be contributing to its $2 billion in revenue. So Fortune may be overstating driver salaries by a bit—but not by much. And, just to clarify, Fortune's calculations are based on what it would hypothetically cost Uber if it had to hire all of its drivers as employees. But even a legal loss in California won’t automatically mean it will have to change the status of all of its drivers, though it will add to the pressure on the company to do so.

Let’s move on. As 1099 workers, Uber drivers are responsible for paying all of their payroll taxes. If they were employees, Uber would have to split those taxes with its employees. Uber’s share: 6.2% of what it pays its drivers for Social Security and another 1.45% for Medicare taxes. And it has to pay those taxes for both its part-time and full-time workers.   Uber's share of Social Security and Medicare taxes, one of its largest new costs, would total $612 million a year. 

The next biggest cost: workers’ compensation insurance. Workers’ comp is regulated by each state, and not all states require it, though most states where Uber is active do. The one exception is Texas—but even there, a worker can demand that his or her employer pay for any work-related injuries, so Uber would be smart to have insurance. Rates vary by state and occupation. Those tend to be relatively high for taxi drivers, and particularly high in California, where about 20% of Uber’s drivers are based, according to estimates by SherpaShare. Total workers' compensation insurance bill: $512 million a year.

Next up, medical insurance. Under Obamacare, employers don’t have to provide medical insurance, but starting next year that decision comes with a $2,000 penalty per employee per year. Paychex says that on average employers spend $5,000 for single employees and $12,000 for family coverage medical insurance. But employers can provide basic medical insurance (and not pay a penalty) for about $3,000 per employee. According to a filing with the federal government, Uber spent $1,275,066 on its healthcare plan, which included prescription drug benefits, for the workers (non-drivers) that it does classify as employees from July 2013 through June 2014. The filing said the plan covered 442 employees, which means it cost $2,885 per employee.

The good news for Uber is that companies only have to provide healthcare to full-time employees. Uber says that many of its drivers log less than 10 hours a week, though it’s not clear if Uber is counting just the hours when the drivers have passengers, or total drive time. SherpaShare estimates only about 20% of Uber’s drivers work more than 40 hours a week. (Some might even qualify for overtime, but Fortune hasn't factored that cost in.) Nonetheless, providing medical insurance for its full-time drivers at the same rate that it paid in 2014 for other employees would cost Uber $115 million a year.

NerdWallet, which published an earlier story looking at what Uber drivers stand to gain from becoming employees, said that the company would likely have to provide drivers with nine vacation days, based on what it currently offers its employees. Paychex says providing vacation days and sick leave typically costs employers 6.9% of a workers salary. For Uber, again only for its full-time drivers, providing vacation days and sick leave would be another $110 million a year.

Unemployment insurance varies by state. The average of what employers pay in the four states with the most Uber drivers, according to SherpaShare, was $363 per employee.  Unemployment insurance would cost Uber an additional $72 million for Uber a year, plus just over $8 million a year for federal unemployment.

Let's recap Uber's exposure to additional costs as a result of the California ruling classifying drivers as employees:

• Additional Social Security and Medicare payroll taxes per year:  $612 million 
• Additional workers' compensation insurance per year: $512 million
• Additional medical insurance for full-time drivers per year:  $115 million
• Additional vacation days and paid sick leave for full-time drivers per year: $110 million
• Additional unemployment insurance (California) per year:  $72 million
• Additional federal unemployment insurance (Federal) per year: $8 million

If you tally all of the above, the total so far comes to:  $1.429 billion.   

OK, we’re nearly there.

Companies don’t have to provide a retirement plan. But if they do, they have to provide it for all of their full-time employees. According to Glassdoor, Uber has a 401(k) plan for its current employees, and offers a 3% match, meaning it will match its employees’ 401(k) contributions up to 3% of their salary. If all of Uber’s full-time drivers-turned-employees contributed at least that much, that would be another $72 million in 401(k) plan costs for Uber.

The last one is a big one: millage reimbursement. Not all states require companies to reimburse their employees for using their personal car for business. But California does. And since that is where Uber is based, there is a good chance that it will have to reimburse all of its employees, not just the ones based in California. Calculating this figure is tricky. Based on survey data from SherpaShare, the average Uber driver, full-time and part-time, puts in nearly 24 hours a week for the ride hailing company. The average speed in cities around the country where Uber is most used appears to be around 20 miles per hour. That means the average Uber driver covers about 475 miles a week. The IRS’s mileage reimbursement rate is 57.5 cents per mile. If Uber were to reimburse its workers at that rate, which it has been ordered to do in some cases, that would be an average of $273.13 a week, or just over $13,000 a year per driver. The total mileage reimbursement bill for Uber: $2.6 billion a year.

Add all of those costs up and you get to just over $4.1 billion. Sound too high?  Fortune thought so, too. So it had StaffOne’s Donna Meek, a payroll and HR expert, run her own independent calculation. Meek estimated the costs from the bottom up, looking at what it would cost Uber per worker, rather getting the total figures for each cost as Fortune did. Meek’s conclusion: nearly $1.5 billion before the cost of reimbursing drivers for their miles. So pretty close to what Fortune estimated.   Fortune also calculated how much more Uber's operating costs would increase if all its drivers were classified as employees.

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Could Uber afford an additional $4.1 billion in costs a year? Depends on how you measure that. Based on profits, no. Uber, by its own admission, is not profitable. So it really can’t afford its current expenses, let alone another $4 billion. But as Uber has told others, startups aren’t run on profits—they’re run on investors’ money. And they can afford their losses as along as those people are willing to keep funding them.

How long will investors be willing to fund Uber? According to leaked financial statements obtained by Gawker, Uber was on track to lose about $300 million a year, though those losses appeared to be growing. It had about $1.2 billion of cash at the end of June 2014. And it just raised an additional $1 billion this summer. That means Uber will likely have about $1.75 billion in cash in the bank at the end of this year.

Sounds like a lot. But if Uber had to swallow an additional $4 billion in costs, they would need to raise more money by the middle of next year, possibly sooner, or face extinction. And that doesn’t include any money it might have to pay out in damages, or past compensation. Uber could force its workers to take a pay cut. Many of them will be getting new benefits. And Uber would be covering some expenses, like gas and payroll taxes, that its workers are covering now.

But James Kimbrough, who drives about 20 hours a week in Austin as a second job, says that Uber has already cut what its drivers make by nearly a half in the past year in order to attract more customers. Any further reduction in rates—”even just a few more cents,” says Kimbrough—and driving for Uber is probably no longer worth it for him. He believes other drivers would feel the same way. So Uber doesn’t have a lot of wiggle room with the drivers.

At a $51 billion valuation, investors obviously believe that, given enough time, Uber is going to make money, and likely a lot of it. The question is how much longer will that take if the company faces an additional $4 billion in expenses—and are investors prepared to stick around for that long. Uber’s cash meter is running, and it’s running fast.

COMMENTARY:  If you missed it, the California Labor Commission ruled on Wednesday, June 17, 2015 that an Uber driver who brought suit was an employee, not an independent contractor. The decision was made after a San Francisco driver, Barbara Ann Berwick, filed a claim against Uber. The commission sided with her largely because it deemed Uber was "involved in every aspect of the operation."

Four more drivers subsequently sued Uber citing the case of Uber driver Barbara Ann Berwick, that won her case with the CLC.  A judge finally ruled that Uber drivers could file a class action suit, paving the way for all Uber drivers to file suit as a group.  Uber is appealing the ruling.  This case is so important to Uber, that losing at the appellate courts, and if necessary, in the US Supreme Court (if necessary), could become very costly for Uber.    

I have actually been involved in a case similar to Uber where the State of California ruled against a former employer mine.  California applies the economic realities test or amount of control the employer exerts over employees in the performance of their work.  In applying the economic realities test, the most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Additional factors that may be considered depending on the issue involved are:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal.
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary.(Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288).

In conclusion, if you utilize the services of independent contractors in your workplace, are providing workspace facilities (offices, desks, equipment, supplies, etc.), set specific work hours and work schedules, set specific guidelines and instructions for the performance of the work to be completed, provide regular supervision and guidance, and control as to where, when and how the work is to be performed, your indepndent contractors are probably employees.  Wow, this describes most of Silicon Valley employers, particularly startups, who as a general rule, employ many independent contractors, in order to avoid paying payroll taxes and providing employee benefits.

The panic at Uber HQ after the latest California decision ruling their drivers as employees is probably something like this:

 

Courtesy of an article dated September 17, 2015 appearing in Fortune and an article dated June 17, 2015 appearing in Business Insider and the California Department of Industrial Relations article titled, "Independent Contractor versus Employee" 

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HOW MUCH DO CHIEF MARKETERS GET PAID? [INFOGRAPHIC]

Most chief marketers earn between $100,000 and $350,000 per year, according to a recent report from The CMO Council.

Some 12% earn less than $100,000; 39% earn between $100,000-$199,999; 39% between $200,000-$349,999; 6% between $350,000-$499,999; and 4% earn $500,000 or more, the global survey of chief marketers (CMOs, executive vice-presidents, senior vice-presidents, and vice-presidents, depending on the top marketing title in each organization) found.

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Below, additional key findings from the report, which was based on 2013 data from a survey of 345 chief marketers from around the world (45% working at B2B-focused companies, 20% B2C, 35% hybrid).

Factors Influencing Pay

• The base compensation of chief marketers was found not to highly correlate with the number of people that the person manages.
• The the head of Marketing's job title (CMO, VP of marketing, SVP of marketing, etc.) also does not seem to correlate with base compensation.
• Compensation was found to correlate to reporting structure: Respondents making more than $500,000 are more likely to report directly to the CEO.
• CMO base compensation is also correlated with firm size. The larger the company, the more likely that the CMO makes more in base compensation and the more likely that he or she receives bonus compensation.

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Goals, Accomplishments, and Perceptions

• Marketers earning the highest levels of base compensation (more than $500,000) tend to be focused on driving business performance (e.g., top-line growth, market share, efficiencies, etc.).
• The key accomplishments of the top earners are centered on restructuring marketing to drive results, improving the yield/accountability of marketing, and building digital capabilities.
• Less than half of all respondents (48%) feel fairly compensated.
• Chief marketers are more likely to feel fairly compensated when they make more money.

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For more insights from the report, check out the following infographic:

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About the research: The report was based on 2013 data from a survey of 345 top marketers (CMOs, executive vice-presidents, senior vice-presidents, and vice-presidents, depending on the top marketing title in each organization) from around the world (45% work for B2B-focused companies, 20% B2C, 35% hybrid).

Courtesy of an article dated July 24, 2014 appearing in MarketingProfs

NEW STUDY: DITCH YOUR CHAIRS DURING MANAGEMENT MEETINGS, STANDING FOSTERS GREATER TEAMWORK AND EXCITEMENT

A NEW STUDY USING WEARABLE SENSORS SUGGESTS THAT TEAMWORK IS DONE BEST WHEN EMPLOYEES ARE STANDING UP.

As much as you might love slumping back in your chair and taking an open-eyed nap during long meetings, a new study suggests that teamwork is done best when employees are standing up.

It's the latest in a long line of research that examines the troubling effects of sitting. Evidence has piled up that “sitting is the new smoking”--that a sedentary lifestyle is linked to an increased risk for depression, heart disease, and diabetes. This is the first research we've seen that applies the anti-sitting argument directly to the boardroom.

The paper, “Get Up, Stand Up: The Effects of a Non-Sedentary Workspace on Information Elaboration and Group Performance,”  published recently in Social Psychological and Personality Science, analyzes teams of participants working for 30 minutes on developing and recording a university recruitment video. The teams either worked in rooms with chairs around a table, or with no chairs at all. While working, the participants wore sensors on their wrists that measured their physiological arousal based on the moisture produced by their sweat glands. Once the videos were finished, research assistants rated the teams’ collaboration and the quality of the videos, and the participants rated their team members’ attitudes--namely, how territorial they’d been. 

Lo and behold, the people who worked standing up had higher levels of physiological arousal, indicating excitement about the work, and were less defensive about their ideas than those who lounged in chairs. This lack of territoriality led to a better exchange of ideas and more engaging videos.  Lead researcher Andrew Knight of the Olin Business School at Washington University in St. Louis told Eurekalert. 

"Seeing that the physical space in which a group works can alter how people think about their work and how they relate with one another was very exciting," 

Knight himself had experienced the benefits of standing meetings while working for a software company, where groups would regularly crowd around whiteboards and work excitedly rather than lethargically. He found they always felt “more efficient and purposeful," which led him to want to back up this gut feeling with research.

Luckily, standing is free--so testing out these findings firsthand is as simple as getting employees off their butts.

COMMENTARY:

Strengths, Limitations, and Future Directions

Washington University of St. Louis integrated several types and sources of data – including physiological data, self-report data, and observational data – to draw inferences about how physical space influences interpersonal dynamics in groups. Our use of multiple data streams mitigates concerns of inflated relationships due to common method variance. Further, our use of a sensor to unobtrusively measure arousal highlights the potential for researchers to use new technologies to assess interpersonal dynamics in groups.

Despite these strengths, their conclusions must be interpreted with the limitations of their 
study in mind.   Their measure of territoriality was administered after the group task. In deciding to measure territoriality after the task, they weighed the costs of interrupting groups and sensitizing participants to the concepts under investigation with the benefits of measuring this pathway before groups completed their task.  Their ultimate choice to measure territoriality after the task may have influenced participants’ responses.  These concerns are mitigated by the fact that participants received no feedback prior to completing the post-task survey; nonetheless, they acknowledge that contamination may have occurred.  Future studies should replicate their findings using a measure of this mediator administered during the task rather than after it.

The University studied groups engaged in a 30-minute task, which may be a boundary condition of  their findings.  Estimates of typical meeting duration in organizations vary. Panko and Kinney
(1995) reported that nearly 75% of meetings are 30 minutes or less; Cohen and colleagues (2011)
found an average meeting length of 73 minutes (SD = 41). The 30-minute meeting length that they studied thus likely generalizes directly to many situations commonly found in organizations.
Still, future research is needed to explore the temporal boundary conditions around their finding
that a non-sedentary workspace enriches interpersonal processes in groups engaged in
knowledge work. It is possible that the benefits of a non-sedentary space would dissipate or even
reverse over longer periods of time if people become fatigued or irritable.  However, one 
promising approach for longer meetings might be for group members to oscillate between
standing and sitting over the course of the meeting.  Recent research (Oppezzo & Schwartz, In
Press) suggests that the beneficial effects of movement on creativity persist even after
individuals sit down.  Thus, it might be possible to use a standing format for the first 30 to 45
minutes of a meeting and then switch to a sitting format without sacrificing performance.
Research is needed to examine such questions.

Because the University examined one performance episode, their findings cannot speak to the
durability and permanence of the effects of a non-sedentary workspace across multiple group interactions. Although they do not have data on groups engaging in multiple tasks, they believe it is unlikely that members would become habituated to the effects that they proposed and found in this study.  The physiological and behavioral changes that they observed stem ultimately from physical effects (e.g., motion, physical location in space), rather than from perceptions of the novelty of the environment (Oppezzo & Schwartz, In Press). In post-hoc analyses they explored the possibility that the novelty of the environment might account for their results using a three-item measure that group members completed after the group task (e.g., “The room we worked in helped us feel creative.”). They found a non-significant effect of condition on members’ ratings of the novelty of the room (B = -0.05, p = 0.70), suggesting that people in the non-sedentary condition did not view their environment as more novel and conducive to creativity than those in the sedentary condition. Nonetheless, research would be useful to unpack how people respond to a non-sedentary environment across multiple group interactions.

Implications and Conclusions

The most important implication of this study is that the physical context in which a group
works can shape interpersonal dynamics and, ultimately, group performance.  Adopting a non-sedentary workspace may have benefits not just for individual physical health,  but also for group performance on knowledge work tasks.   By increasing arousal and reducing territoriality,   a non-sedentary workspace enhances the extent to which people engage in collaborative information elaboration – a key ingredient to high performance on knowledge work. These findings are important both theoretically and practically.  Theoretically, the physical space in which a group works is an important contextual input that scholars have, to date, largely ignored (Hackman & Katz, 2010). The manipulation that we investigated in this research – in which we simply removed chairs from the room – was relatively small, yet produced meaningful differences in group arousal and group idea territoriality.   Practically, office configurations and furniture are aspects of the workplace over which leaders often have direct control. Our results suggest that, if leaders aspire to enhance collaborative knowledge work, they might consider eschewing the traditional conference room setup of tables and chairs and, instead, clear an open space for people to collaborate with one another.

Courtesy of an article dated June 16, 2014 appearing in Fast Company Design

8 OF GOOGLE'S CRAZIEST OFFICES, DESIGNED TO FOSTER AND ENABLE INNOVATION

GOOGLE IS KNOWN FOR ITS ZANY OFFICE DESIGNS, FROM STROOPWAFEL CEILINGS TO SLIDES TO SCOOTERS. AND YOU THOUGHT YOUR OFFICE'S FOOSBALL TABLE WAS COOL.

While most of us 9-to-5ers hunch over in boxy, fluorescent-lit cubicles, feeling lucky if our office has a snack machine, the Google employees of the world are zooming around on scooters, slipping down tube slides, playing on their indoor putting greens, and gloating about the awesomeness of their offices. If they can even be called offices--the designs of these nerd playgrounds so outclass your average corral of homogenous desks that we had to round them all up in a grand, jealousy (and sometimes eye-roll)-inducing slide show, on the occasion of Google unveiling its new Mexico headquarters. As one Google spokesperson told the New York Times, designers of Google offices have but one goal: “to create the happiest, most productive workplace in the world.” Marvel at the most over-the-top workspaces of Google’s big happy techie family and lament not being better at computer science.

NEW YORK CITY

The off-the-wall design of this conference room in Google's New York City office uses cutaways of old iron bathtubs as sofas. (Click Image To Enlarge)

Occupying an entire city block, the New York-themed amusement park of Google’s Chelsea-based headquarters has hallways decorated with subway grates and fire hydrants, graffiti’d conference room doors, and chandeliers made of meat hooks, a nod to the nearby Meatpacking District. One conference room is set up like a tiny Seinfeldian New York apartment--think exposed brick, an electronic drum set, and awkward family photos on the wall. Victorian-style portraits of Star Wars characters decorate the library. Scooters provide its 3,000 employees transportation around the 2.9-million-square-foot building, which welcomes dogs.

GOOGLE NEW YORK -- Google’s Chelsea-based headquarters has hallways decorated with subway grates and fire hydrants, graffiti’d conference room doors, and chandeliers made of meat hooks. (Click Image To Enlarge)

GOOGLE NEW YORK -- Google's New York headquarters features a digital bookshelf. (Click Image To Enlarge)

AMSTERDAM, THE NETHERLANDS

GOOGLE AMSTERDAM -- Designed by local studio DDOCK, the Amsterdam office designs take inspiration from their location’s cultural history and visual flavor, capturing the playfulness inherent in so much Dutch design. (Click Image To Enlarge)

Designed by local studio D/DOCK, Google’s Amsterdam office designs also take inspiration from their location’s cultural history and visual flavor, capturing the playfulness inherent in so much Dutch design. The ceiling panels are designed to look like stroopwafels--that quintessentially Dutch gooey waffle-cookie. Maybe Googlers draw inspiration from sugar cravings? 1960s caravans serve as meeting rooms, complete with lawn chairs and fake grills.

GOOGLE AMSTERDAM -- The ceiling panels are designed to look like stroopwafels--that quintessentially Dutch gooey waffle-cookie. Maybe Googlers draw inspiration from sugar cravings. (Click Image To Enlarge)

DUBLIN, IRELAND

GOOGLE DUBLIN -- Top that with veritable jungles decorating workspaces, and Google's downright Dr. Seussian Dublin campus is possibly the most playground-like in the whole family. (Click Image To Enlarge)

Office foosball tables are old '90s startup news, but an office putting green? Top that with veritable jungles decorating workspaces, and Google's Dr. Seussian Dublin campus is possibly the most playground-like in the whole family.

GOOGLE DUBLIN -- Google's Dublin office is a spunky, brightly colored playground for nerds. (Click Image To Enlarge)

GOOGLE DUBLIN -- Lounge chairs, pool tables, and interesting light fixtures abound, all of which help create a relaxing, fun-filled work environment. (Click Image To Enlarge)

GOOGLE DUBLIN -- Office foosball tables are old '90s startup news, but an office putting green. (Click Image To Enlarge)

TEL AVIV, ISRAEL

GOOGLE TEL AVIV -- And, of course, there are Space-Age egg chairs. (Click Image To Enlarge)

Occupying eight floors of the Electra Tower in Tel Aviv, these offices look like what elves and fairies might build if they held board meetings. Designed by Camenzind Evolution in collaboration with Setter Architects and Studio Yaron Tal, the office features Space-Age egg chairs, ivy and flower-covered walls, shag carpeting, a Lego room, a tube slide between floors, and a view of the Mediterranean sea from the rooftop deck.

GOOGLE TEL AVIV -- Occupying eight floors of the Electra Tower in Tel Aviv, these offices look like what elves and fairies might build if they held board meetings. (Click Image To Enlarge)

GOOGLE TEL AVIV -- The office features ivy and flower-covered walls, shag carpeting, a Lego room, a tube slide between floors, and a view of the Mediterranean sea. (Click Image To Enlarge)

LONDON, ENGLAND

GOOGLE LONDON -- Google's London locale is anglophilic dreamhouse fit for Mr. Bean himself. (Click Image To Enlarge)

The trifecta of Google offices in London range from a space station-like space that seems straight out of a Stanley Kubrick movie to this happy kiddie funhouse to a decidedly homey anglophilic dreamhouse fit for Mr. Bean himself.

GOOGLE LONDON -- A conference room at Google London's 'Super HQ' (Click Image To Enlarge)

GOOGLE LONDON -- Google London's cafeteria offers employees a seeting area where they can meet in small groups. (Click Image To Enlarge)

MOUNTAIN VIEW, CALIFORNIA

The original global headquarters in Mountain View, California, the heart of Silicon Valley, is a sprawling, sun-drenched campus known as the Googleplex. (Click Image To Enlarge)

The original global headquarters in Mountain View, California, the heart of Silicon Valley, is a sprawling, sun-drenched campus known as the Googleplex. “It’s easy to feel like we’re back in college,” Googlers brag in their career page's description of the campus. Here’s why: hundreds of bikes and scooters provide transportation from the conference rooms to the bowling alley, the climbing wall, beach volleyball, and weekly “TGIF” celebrations. Whether hacky sacks are involved in those celebrations, we don't want to know.

PITTSBURGH, PENNSYLVANIA

This hanging netting makes the perfect place to hack, come up with new ideas or just relax at Google's Pittsburgh, Pennsylvannia office. (Click Image To Enlarge)

Google toned down the Google for its Pittsburgh headquarters, opting for exposed pipes and peeled paint to channel the Steel City's rough-and-tumble vibe.

GOOGLE PITTSBURGH -- For their Pittsburgh headquarters, Google opted for exposed brick and peeled paint to channel the Steel City's rough-and-tumble vibe. (Click Image To Enlarge)

GOOGLE PITTSBURGH -- The Pittsburgh office fills the penthouse of a 100-year-old Nabisco factory with pool tables and other crucial aids to techie focus. (Click Image To Enlarge)

ZURICH, SWITZERLAND

In this hammock filled room in Google's Zurich, Switzerland office, employees hang from hammocks or slings to hack, read, invent or just relax. (Click Image To Enlarge)

Zurich Google employees are called Zooglers. And they're virtually required to contract Peter Pan Syndrome in this fireman pole, slide, videogame, and hammock-filled workspace.

COMMENTARY:   No wonder Google seems to get the most talented software engineers and talent from around the world.  Google offices are no ordinary by any means, but represent a sort of fantasy land for hackers.  

Courtesy of an article dated April 10, 2014 appearing in Fast Company Design

IS FACEBOOK@WORK FACEBOOK'S WAY TO TAKE AIM AT LINKEDIN'S TURF?

There are no shortage of items on Facebook CEO Mark Zuckerberg's plate. Sometime in the coming months, presumably, he has drones to manufacture and launch to begin beaming Internet connections to far-flung areas of the globe. Then there's incorporating the world's most popular mobile instant messaging app, WhatsApp, which Facebook acquired in February 2014 for $16 billion (mostly in Facebook stock), and is slowly assimilating into all things Facebook. Video ads, monetizing Instagram, which Facebook acquired in April 2012 for $1 billion, finding new and better uses for Facebook's new virtual reality headgear maker Oculus, which Facebook acquired in March 2014 for $2 billion, and targeting small business owners are a few other "to-dos."

But that's why Zuckerberg's surrounded himself with quality people, to keep all those Facebook fires burning. And if the rumors are true, delegating at least some of Facebook's latest ventures has freed Zuckerberg and his tech team to explore yet another, potentially game-changing, alternative: FB@Work. Depending on what direction FB@Work opts to take, assuming it comes to fruition, it could land right in professional networking leader LinkedIn's sandbox.

Click Image To Enlarge

What's all this about FB@Work?

It should be noted that rumors involving what some are calling FB@Work have swirled, off and on, for a few years. But the scuttlebutt has picked up steam of late after an infamous, "anonymous" source, this one supposedly a Facebook insider, spilled the beans. Apparently, the FB@Work initiative is being spear-headed in Facebook's London office, which has added some fuel to the speculation fire.

Lars Rasmussen shows off Google Wave in May 2009 (Click Image To Enlarge)

Why? Because the Facebook London team is led by Lars Rasmussen, a former Google exec who just happened to spearhead Wave, a collaborative tool that was shelved about four years ago after being ignored by users. Wave was designed to be a real-time instant messenger and data-sharing solution. That sounds awfully similar to the rumors swirling around Facebook right now.

Google Wave screenshot in May 2009 (Click Image To Enlarge)

Whether Facebook decides to go all-in with an enterprise solution, or simply offer businesses a cleaner, scaled-down version of what is essentially the Facebook pages we've come to know, isn't clear. But the revenue-enhancing possibilities of either option -- advertising, selling the FB@Work solution as a separate entity, garnering and utilizing even more user data to name but a few -- certainly make a business solution worth pondering.

Top Social Networks Comparison Chart (Click Image To Enlarge)

Would it make sense?

If you're a fan of LinkedIn, unfortunately it's been a dismal year. With its stock price down over 23% in 2014 -- compared to Facebook's 23% jump in the same period -- LinkedIn is being questioned like never before. With its string of improving year-over-year revenue growth from three distinct lines of business, LinkedIn has enjoyed a lot of positive investor sentiment. But fundamental concerns surrounding its business and declining income have some industry pundits less than enamored. Is LinkedIn vulnerable?

LinkedIn vs Facebook share prices since the start of 2014 (Click Image To Enlarge)

With about four times LinkedIn's 300 million plus members, Facebook's 1.28 billion monthly active users (MAUs) number is astounding. As it continues to grow its user base every quarter, that growth certainly isn't coming domestically. Why? Because seemingly every U.S. citizen who has access to the Internet, and likely even some who don't, are Facebook users. And with Zuckerberg's mission to bring the Internet to the world, Facebook could saturate the planet as it has the U.S.

Leveraging all those users to take on LinkedIn, even indirectly, would seem natural. And Facebook certainly doesn't shy away from taking on large-scale initiatives. Make no mistake, delving into LinkedIn's world of professional networking requires a major commitment. But the upsides of building a solution to share data and ideas across an organization would warrant the effort. And it's not such a stretch when you consider that companies have already adapted Facebook's Group functionality as a pseudo-platform for business, primarily using Facebook's Group feature and Messenger.

Top Social Network Platform Comparisons As Marketing Tools (Click Image To Enlarge)

Final Foolish thoughts

Motley Fools knows trading on rumors is short-term thinking, and a recipe for long-term disaster.  However, even if FB@Work doesn't come to fruition -- though there's tremendous potential should it decide to -- it reinforces the notion that Facebook has multiple ways to continue its phenomenal growth, some of which have not even been considered yet. All those opportunities should keep Facebook investors smiling, and keep LinkedIn fans watching their backs.

COMMENTARY:    The phrase “Facebook at work” usually suggests people frittering away the day on the social network and not actually doing their jobs. But according to an anonymous source inside Facebook, the company is working on a way to put the social network into a more positive light in the office. It is building an at-work version of Facebook.

The source says.

“We are making work more fun and efficient by building an at-work version of Facebook.  We will touch code throughout the stack and on all platforms (web, iOS, Android, etc.).”

The source, who refers it as “FB@Work”, says the effort is based in London.

What’s not clear is whether FB@Work is something being built as an internal enterprise communication platform, or whether there are ambitions to leverage Facebook to drive new business, by giving people a way to interface with the hundreds of millions of people who already use it to market their businesses and themselves — along the lines of LinkedIn.

A spokesperson for Facebook says the company doesn’t comment on rumor or speculation and has “nothing to add at this point.”

Using Facebook for internal communications already exists on a less formal basis.

One ex-Facebook employee told TechCrunch. 

“Everyone at Facebook uses Facebook for work.  Most of their communication and planning is done though Messages and Groups. It would be a pretty natural thing to try to expose this way of using Facebook to get things done at the office to the rest of the world. It’s a really fast and efficient way to get things done.”

Essentially, from what I understand, at Facebook, every team has its own Group, and when they join and leave the company or change roles, they are added or removed from the relevant Groups. They have authentication security built into them and are synchronized with the company’s wider HR database.

This answer from 2012 to a Quora question, about what tools Facebookers use to communicate with each other, also details how Facebook uses Groups, email and chat; and how it has built a couple of tools internally — Pixelcloud for sharing and commenting on images (including new design prototypes), an in-house-built task management tool that’s compared to Asana — among other external platforms. Added to that these days is Quip, the mobile-first word-processing platform co-founded by Facebook’s former CTO Bret Taylor.

Tellingly, that Quora answer was penned by a Facebook engineer who is now based in London — where the “FB@Work” project is supposedly based.  The engineering team in London, incidentally, is headed up by Lars Rasmussen, one of the two people behind Graph Search who relocated to London from Facebook’s HQ in 2013.

Before joining Facebook, Rasmussen developed Google Wave, a promising-looking collaboration product that was eventually discontinued when Google couldn’t get enough user traction.

External companies are also already using Facebook for work, too.

Clara Shih, the CEO of Hearsay Social, told TechCrunch. 

“Facebook Groups and Group Messaging have already been transformative for how we communicate and collaborate at Hearsay Social.  As a social media software company, we know 100% of our employees are on Facebook. Rather than reinvent the wheel or ask employees to login to yet another system, we decided to create a private, unlisted Facebook Group to house many of our real-time company chats and conversations.”

At the same time, two other sources told TechCrunch that Facebook has been talking about launching a Facebook for enterprises product for three or four years already.

But the starts and stops of that effort speak both to the opportunities and challenges of doing so.

Another ex-Facebooker told TechCrunch.

“I keep hearing rumors about this. This is one of the two projects that constantly get started and come close to being launched but have been cancelled at the last minute.” 

The other? An equally telling push against Facebook’s current demographic boundaries: a version of Facebook for under-13s.  The source says.  

 

“They were both started more than three times, and fizzled out more than three times.”

With Facebook for minors, the privacy hurdles have been too high. With enterprise, the problem was different the same source said:  

“Facebook employees find using Facebook for work communication really useful, but it wasn’t clear whether it would serve a broader demand.”

At the same time, the idea of launching a whole new service raises questions about how this might fit into Facebook’s wider business.

The social network has made inroads here and there with revenue streams beyond advertising and into areas like virtual currency, e-commerce, and, allegedly, money transfers.

So the question would be whether Facebook could potentially monetise software services or simply offer them as useful but free tools, whose value is simply in getting people more engaged and spending more time on the social network. A business that does that, after all, may end up seeing the value of Facebook more and then translating that into other services, like buying ads.

One of the sources told TechCrunch.  

“It’s hard for me to believe that this would be a significant revenue opportunity for Facebook. They may charge but ultimately decide not to.”

On a different front, another person claims that Facebook has had wider plans for an enterprise product that might, say, compete more with the likes of LinkedIn.

This source told TechCrunch.  

“This has been on the list of things to do for three years but just has’t made it to the top of the list.”

Tellingly, though, there are sticking points for such a service.

The source said.  

“Facebook is thought of as a community and place for friends, and LinkedIn feels more transactional.  Facebook has to be careful not to lose that community appeal.”

There have already been moves at Facebook to build out ways of bridging CRM databases with the social network, but these appear to be mainly in the realm of advertising, as in the case of Custom Audience ads launched at a Salesforce Dreamforce conference in 2012.

Putting any skepticism aside, there are obvious opportunities if Facebook — now with over 1 billion users — did ever launch “FB@Work.”

Shih, who, in a previous role at Salesforce, was an early mover in the area of leveraging Facebook to build sales contacts with an app called Faceconnector, told TechCrunch.  

“Both the ‘consumerization of IT’ trend as well as blurring of personal/professional online identity create opportunities for Facebook to play a role in enterprise services.  Certainly, the message at the most recent f8 of ‘move fast with stable infrastructure’ is a departure from the very anti-enterprise ‘move fast and break things’ motto of the past. Other consumer platforms, from Google Apps to LinkedIn, have built successful enterprise businesses and functionality, so perhaps Facebook will follow suit.”

Conclusion and Closing Statements

I hate posting rumors, but they are sometimes fun to explore and try to expond upon.  One thing is true, Facebook's user growth has flattened in well developed countries like the U.S., the U.K. and nations of Western Europe, and most of Facebook's growth is now coming from Asia, India and South America.  International growth will eventually peak and flatten out as well, so that Facebook's advertising revenues, will eventually peak and flatten out as well.  It is inevitable.  

Having said this, Facebook must become less dependent on advertising revenues, and offer services to SMB's and large corporations.   Facebook@Work, in which ever form it finally takes, could eventually include human resources applications and recruiting services like those offered by LinkedIn.  So yes, Facebook is very likely to present a real threat to LinkedIn.  Whether Facebook@Work can offer human resources applications and recruting services as efficiently as LinkedIn remains to be seen.  LinkedIn has first-mover advantages by being the first and biggest social network for professionals, has conquered the learning curve, has well established relationships with HR departments at both SMB's and large corporatons, and has creditability and experience on its side.  

If Facebook@Work is to become a true competitor to LinkedIn, it must expand its user profile to include current and past employers, educational background and accomplishments.  This will require a completely new expanded "corporate" version of Facebook that incorporates this type of information.  I don't see this happening for years.  Many Facebook users will be reluctant to opt-in to Facebook@Work and duplicate the same information they already have at LinkedIn.  

To make my point:  When Google+ came on the seen three years ago, Facebook prevented app developers from using their apps to allow users to download their Facebook user profile information and migrate it to Google+.  This effectively "blocked" Facebook users from easily migrating to Google+ without entering their complete profile date all over again.  I see LinkedIn taking similar defensive measures to "block" migration of their user profiles to Facebook@Work. Folks, it's going to be a war, and this could become the Achilles heel of Facebook@Work,  You can bet that LinkedIn is not going to lay down and takeover their turf.       

Courtesy of an article dated June 29, 2014 appearing in Motley Fool

15 MARKETING, SALES, TECHNOLOGY, LEGAL AND ACCOUNTING SOFTWARE TOOLS THAT THE MOST SUCCESSFUL ENTREPRENEURS USE

With the vast array of business tools available, a marketer may feel overwhelmed about which ones to choose. Fortunately, the fine folks at ExpertCircle created an infographic outlining experts' favorites, which can help you decide which ones to try out for your business.

When choosing technology for their top initiatives, the ExpertCircle panel chose UserTesting, Jira, and mixpanel. They can help with such initiatives as analytics, performance management, enterprise business applications, mobile technologies, and cloud computing.

Sales tools that the panel preferred are Highrise, Leads360 (now called Velocify), and Bidsketch. Tools can help deal with such challenges as having leads that are qualified but not yet ready to buy and having marketing leads that never convert to sales.

Choosing the right accounting and financing tools for one's business can also be daunting. ExpertCircle recommends wave accounting and Expensify. They can help prevent the most common business mistakes that can trigger an audit by the IRS, such as home office deductions, misidentifying their workforce, and excessive deductions.

For legal tools, the infographic lists LegalZoom, Trademarkia, and DocuSign as the top three must-haves for businesses. They can help with the top five lawyer categories, such as family divorce, personal injury, criminal law, auto accidents, and intellectual property.

Find out more recommended tools in the following infographic.

Click Image To Enlarge

COMMENTARY:      I would also like to add Vine, a neat mobile app for developing short six second videos and Instagram, a mobile app for taking photos and creatinging 15-second videos which can be used for ads and promo's.   With the coming addition of video ads to Facebook's newsfeed, both apps offer marketer's the ability to develop simple and cost-effective ads for sales and marketing.   And, let's not forget Intuit's QuickBooks accounting software.  I have used QuickBooks before, and installed several packages for clients, and you cannot beat QuickBooks for the price.

Courtesy of an article dated August 27, 2013 appearing in MarketingProfs

LINKEDIN REPORTS Q2 2013 REVENUES AND EARNINGS, BEATS FORECAST, REPORTS REVS OF $363.7 MIL, UP 59% OVER Q2 2012

Despite slowing growth in its ad business, LinkedIn on Thursday, August 1, 2013, reported a 59% gain in overall sales in the second quarter on the strength of its recruiting and subscriptions businesses.

Revenue for the professional networking site rose to $363.7 million from $228.2 million in the year-earlier period.

Click Image To Enlarge

The company’s adjusted net income for the quarter was $44.5 million, or 38 cents a share, compared with $18.1 million, or 16 cents a share, a year ago. Analysts, on average, had expected LinkedIn to report an adjusted profit of 31 cents a share on revenue of $353.8 million.

Click Image To Enlarge

LinkedIn’s user base globally reached 238 million in the quarter -- up 37% from a year ago, marking the largest gain since the third quarter of 2011.

LinkedIn CEO Jeff Weiner said in the company’s earnings release. 

“Accelerated member growth and strong engagement drove record operating and financial results in the second quarter.  We are continuing to invest in driving scale across the LinkedIn platform in order to fully realize our long-term potential."

Click Image To Enlarge

LinkedIn's revenues for Q2 2013 by product all saw significant increases from Q1 2013.

• Talent Solutions - Sales from LinkedIn’s recruiting services business, called Talent Solutions, increased 69% from a year ago to $205 million, accounting for 56% of total revenue. 
• Marketing Solutions - Sales from LinkedIn's advertising division, called Marketing Solutions, rose 36% to $85.6 million, or 24% of overall revenue. That marks a steep drop, however, from 56% growth in the prior quarter, and 68% in the fourth quarter of 2012.
• Premium Subscriptions - Sales from LinkedIn’s premium subscriptions grew 68% to $73 million, or 20% of overall revenue.

Click Image To Enlarge

U.S. revenue totaled $224.3 million -- or 62% of first-quarter revenue -- while international markets contributed $139.4 million, or 38%.

Sample LinkedIn Sponsored Updates ad  (Click Image To Enlarge)

LinkedIn in July formally launched Sponsored Updates, the news feed ad unit it had been testing with select advertisers for the previous six months. As LinkedIn transitions from its reliance on display ads and customized ad offerings to Sponsored Updates, analysts predict the shift would have a near-term impact on ad growth this year. stated JPMorgan analyst Doug Anmuth, in a research note on Wednesday previewing LinkedIn’s Q2 results.

JPMorgan analyst Doug Anmuth stated, in a research note on Wednesday previewing LinkedIn’s Q2 results.

“We believe home page feed ads on LinkedIn can work particularly well in a professional content environment.  However, LinkedIn is likely to increase inventory slowly here and will also face some back-half expense pressures related to data centers and the Pulse acquisition.”

The Wall Street firm does not expect the new ad format to reach significant scale until late 2013 or early 2014. During the earnings conference call, LinkedIn executives affirmed that view, citing the moving away from larger, one-off ad deals to more “scalable” ad options including Sponsored Updates.

Weiner noted the new ad unit was opened up widely through its self-serve ad platform only two days ago, and added that creating a set of APIs (application programming interfaces) to help agencies create campaigns using Sponsored Updates was a “high priority.”

During the quarter, LinkedIn also continued to ramp up its content offerings, expanding its roster of “Influencer” bloggers, revamping its LinkedIn Today digital newspaper, and introducing new tech-oriented discussion groups with tech industry publisher IDG Communications. It also launched LinkedIn Contacts, a new resource to help users build and maintain professional relationships.

Click Image To Enlarge

LinkedIn user engagement metrics continued to see significant increases.  

• Members - LinkedIn reported 238 million global members at the end of Q2 2013, up 9.17% from Q1 2013 and up 36.78% from the Q2 2012.  
• Unique Visitors - LinkedIn drew 143 million unique visitors globally each month on average in the second quarter, up 34% from 106 million in the year-earlier period, according to comScore data. 
• Page Views - LinkedIn Page Views were up 25% to 11.7 million, on average, from 9.3 million a year ago. 
• Traffic - Its U.S. traffic as of June was 50.6 million.

Click Image To Enlarge

LinkedIn's outlook for the current quarter calls for revenue between $367 million and $373 million. Following its earnings announcement, the company’s stock price was up about 7% in after-hours trading to almost $229 a share after closing Thursday at $213 a share. 

COMMENTARY:   I am very impressed with LinkedIn's financial results for Q2 2013.  With ads representing only 24% of total revenues, LinkedIn is gaining tremendous momentum in monitizing talent solutions (recruitment services).   In fact, LinkedIn nosed out online recruiting giants Monster.com and CareerBuilder.com in recruitment revenues during Q2 2013.   Things are looking good as employers increase payrolls in 2013, but if another recession hits, this could become a problem for LinkedIn.

Click Image To Enlarge 

Sponsored Updates are more beneficial than LinkedIn’s current advertising system because the posts are integrated into your news feed rather than appearing in a sidebar. This makes it more likely that users will read and potentially interact with your promoted posts. These promoted posts are priced either by impressions or number of clicks (CPM or CPC). While Sponsored Updates were initially launched with availability for companies that have an account representative, this will be expanded very soon to anyone who has a Company Page.

Marketing data shows that newsfeed ads are getting higher engagement rates, and LinkedIn's Sponsored Updates ads in a users newsfeed could become a big seller.   I have a feeling that video ads in the newsfeed, like those contemplated by Facebook, are not too far behind.   This should significantly increase LinkedIn's marketing solutions (advertising) in the second half of 2013. LinkedIn's stock hit a new high of $235.58 on August 2, 2013, following its Q2 2013 results, and one has to wonder just how much higher its stock will increase before investors starting warning of a bubble.

For those of you would like to further your education regarding LinkedIn's financial results, below is LinkedIn's Q2 2013 Financial Results slideshow:

LinkedIn Q2 2013 Earnings Call from LinkedIn

 

Courtesy of an article dated August 1, 2013 appearing in MediaPost Publications Online Media Daily and an article dated August 1, 2013 appearing in Ere.net