We Get What We Incentivize

Over the last two decades, I have been involved in several entrepreneurial endeavors that employed over a thousand people collectively. I have interviewed and hired many over that period of time, including negotiating compensation packages. The one thing I have learned from doing that is, you get the kind of behavior from people that you incentivize.

This is painfully obvious in the current economic meltdown compliments of a financial industry (and a few others) acting in their own shameless self interest, bent upon immediate gratification at the expense of creating any long-term value. Who could have guessed giving a half million dollar mortgage to a person with little to no income, low or non-existent credit, without any money of consequence as down payment could lead to problems?

Which is to say nothing about leveraging such worthless devices in convoluted credit default swaps bought and sold by ‘experts’ that were either recklessly ignorant about the construct or willfully (and I hope some day to be proven criminally) turning a blind eye, all the while raking in bonuses that were paid independent of the overall profitability of the parent organization. On what planet does that make sense!?

The better question however is how this came to pass? And the answer is not really as complicated as many would like to make it out to be. In most cases, the mortgage industry was incentivizing volume of loan originations over quality. In the get rich quick ethos that led to the fall we all are now bailing out, people were paid for churning paper, regardless of the ability of the applicant to service the debt.

Now all of the blame doesn’t rest there. Political correctness should also get some credit here thanks to the race baiting bombastic rhetoric of policy makers that were shamelessly pandering to the interests of uniformed constituents that made for great uniformed clients - of the very groups that were funding said politicians at the time.

It was all very cozy and encouraged with a wink and a nod; current moral outrage and fist pounding rhetoric notwithstanding. Those who opposed these sleazy practices at the time were labeled racists for not wanting the same American Dream for all citizens. So many retreated lacking the conviction of character to stand up and call it what is was – wrong and ultimately dangerous.

So it is that I am now wary of the so-called stimulus plan, the TARP, and the various and sundry bailouts being handed out. I am concerned that lost in the minutiae is a basic and fundamental discipline of understanding how the individuals that will lead the efforts to rescue these troubled industries will be compensated. The AIG bonus fiasco shined a bright light on this, but we are unfortunately lacking the stamina, and in many cases, the qualified personnel to evaluate such intricacies influencing many other companies bellying up to the public trough.

Imagine if you will, if the SEC would be empowered to pay investigators competitive wages to Wall Street players. Imagine if they could receive six and seven figure bonuses for uncovering fraud and corruption. Ask any one of Bernie Madoff’s victims if they would have minded paying a government employee a million dollar bonus for discovering his deceit several years ago.

We need to start incentivizing good behavior over bad. We have to be smarter in rooting out systems that still reward rampant self interest at the cost of unsuspecting others. We need to get back to understanding that wealth creation comes from starting and building great companies that employ people and advance new innovation and productivity. This had been the backbone of our economy and our global advantage … until we lost our way. And the surest way of getting back on track is to pay people to do the right thing.

Interview with an Iconic Entrepreneur

One of the greatest gifts of my job is the opportunity to meet entrepreneurs. Born around the globe and bred from all walks of life, it never matters the entrepreneur’s background, nor does it matter the outcome of their venture—be it success or failure. From each entrepreneur I come to know, I glean a new sense of appreciation for this path they’ve chosen and learn even more about what makes these individuals so unique. 

A couple weeks ago, I was fortunate enough to talk entrepreneurship with Barnett Helzberg, Jr., former CEO of—you guessed it—Helzberg Diamonds. An iconic entrepreneur in Kansas City, Barnett is the only one I’ve come to know personally who’s sold a company to Warren Buffet and to me, that says a little something about his ability to grow and run a business. 

I have known Barnett for a while, prior to taping the latest Top of Mind episode with him. He’s also the founder of the Helzberg Entrepreneurial Mentoring Program (HEMP), a program right here in Kansas City, MO that matches seasoned, successful entrepreneur mentors with less-experienced entrepreneurs. When he established the program, Barnett drew inspiration from his own 23-year mentoring relationship with Kauffman Foundation founder, Ewing Kauffman. 

Needless to say, I have come to know Barnett well through his work with HEMP. But it wasn’t until our recent discussion that I learned even more about his and his family’s inspiring entrepreneurial journey—including the times when he thinks the now nationwide chain of more than 200 stores was close to going out of business. Watch the interview with Barnett…he has a few things to teach us all.

Community Is the New Currency

In her book, It Takes a Village: And Other Lessons Children Teach Us, Hillary Clinton famously (or infamously, based upon your politics) advocated for a society that assumes shared responsibility for raising children. The book became a New York Times Bestseller and a conservative lightening rod to denounce what the right deemed as a nanny-state intrusion on family.

For me, the value proposition of the book boiled down to the societal benefit of raising socially balanced children with the requisite cognitive and academic skills to contribute to society—an aspiration that is not the sole providence of the right or left.

I have concluded that there is some value to "the Village," but in an emerging way that may be redefining what we expect from the communities in which we engage. As it relates to entrepreneurs considering where to start a company or how to engage the assistance of others, I see increasing value in a variety of forms of communities such that I believe communities are emerging as a form of currency in our economy. Namely, some communities are providing direct economic benefit to entrepreneurs capable of identifying, engaging and leveraging these communities.

Let me offer some evidence. In March, I attended the fifth annual gathering of the Global Entrepreneurship Congress in Rio de Janeiro. More than 2,000 people representing 130 countries attended the Congress and shared ideas, best practices and assistance promoting an assortment of programs, resources and networks. There for all to witness was activity that had genuine economic value -- either as gifts of resources, time and access or other linkages.

Whereas the research purists reading this would (rightly) suggest that one couldn't simply assert that economic benefit is directly caused by this global network, one could certainly observe a correlation. By virtue of many individuals coming together in a community of common interest and purpose, they can extract value in obvious and less obvious ways.

Back in the U.S., we launched a new experiential-based learning program for aspiring entrepreneurs starting new firms called 1 Million Cups. The premise behind 1MC was built from the notion that if we could have more conversations (presumably over a cup of coffee), we could encourage and assist more individuals to start firms by sharing the knowledge and experiences of others. The program ostensibly has become a platform for community-based experiential learning for the aspiring entrepreneurs who present every Wednesday morning.

Founders of two startups get six minutes to present a company overview followed by roughly 20 minutes of Q&A from the audience, which now boasts more than 200 weekly in Kansas City, Mo. Invariably, each company gets the question, how can the community help? For the entrepreneurs who have done their homework, namely participate as a community member in several 1MCs prior, they will anticipate this question and get a rare opportunity to ask a sizeable crowd to: sample my product, register for our newsletter, help with warehouse space, sign our petition, help us find programmers or other employees, etc.

At the recent one-year anniversary of the program, alumni got on stage and shared an update on their progress post-1MC. Participant after participant could point to tangible benefits from the program, by virtue of the 1MC community that engaged with them.

A more recent book espousing the virtue of community (ecosystem) is Brad Feld's Startup Communities: Building an Entrepreneurial Ecosystem in Your City. In the book, Feld identifies roles for people in the community: Leaders and Feeders. In his view of successful ecosystems, Leaders are bona fide entrepreneurs and Feeders are everyone else who has an interest in supporting and growing such communities.

The existence of these communities, however, isn't always obvious. That's why we recently deployed a new channel on our website, entrepreneurship.org, named ID8 Nation. ID8 is a multimedia online journal focusing on entrepreneurial ecosystems of cities around the country. The channel debuted with a look at the iron city better known as Pittsburgh. Stories, videos and photos attempt to stitch together a tapestry of the vibrant community in Pittsburgh, partly to help its residents see what's happening among them, and partly to showcase great ideas that can be shared with other communities looking to promote similar activity.

In an increasingly mobile world with lessening geographic constraints to starting and growing companies, we need to help entrepreneurs identify the communities that may best serve their needs. In so doing, communities will realize the economic benefit of supporting the activities and needs of founders who are working hard to plant the seeds of economic growth in their "community gardens."

An Educated Choice

Back in November, my son and I took a trip to Ann Arbor, MI to tour the campus of the University of Michigan. The school was among a handful that my son was considering with his graduation just a few months away. For me, the visit conjured up thoughts on the investment of college, and whether or not it’s really worth it, which you can read here.

Now, with graduation parties and caps and gowns abundant, my eldest, along with my wife and I, were ready to sit down, lay out the options, and make a decision as to where he would begin the next phase of his educational and life journey. I have to say that my wife and I have been blessed with three bright, entrepreneurial children, including my son. Like the proud parent I am, I’ll brag just a little and share that he graduated 5th in a class of 700. So he had some options. After narrowing down his choices, my son brought three great schools to the table for consideration.

Before I lay out the field of choices, I feel obligated to offer a bit of a disclaimer. One factor weighed heavily on both his decision of where to apply, and ultimately his decision about where to go. In all honesty, my son doesn’t see college graduation as a given. Instead, he seems to have picked up the entrepreneurial bug that’s running rampant in our home and anticipates launching a startup that will call for his full-time attention around his sophomore or junior year. So to him, the most important things on his college must-have list are things like a solid selection of potential co-founders, a culture that embraces risk taking, tools to him launch and grow a business, and an alumni and community network that support new ventures. When he hit on that last one about community, I realized he might be listening to his old man after all, for I’m convinced—and he’s heard all about it—that community is the new currency.

So what three schools were we looking at? Well, there was the University of Michigan and its School of Engineering, Case Western Reserve University, a private school in Cleveland, OH, and the University of Akron, a public school also in Ohio. As with any parent weighing in on the decision, tuition was a big factor. The initial sticker price for the private school was predictably the highest, but when factoring in the scholarships my son received, it was the University of Michigan that took the prize for most expensive at $200,000 for four years—all because we were crossing the state border to get there. Rounding out his top three was the University of Akron’s $8,000 per year price tag, after his applicable scholarships.

As we grappled with the options, we all acknowledged some truths in the decision making process, which I’ve listed out as some commencement speech-like thoughts applicable to any high school graduate:

1) Your future is what you make of it. Yes, it’s a little cliché. But that doesn’t make it any less true. A high school graduate can go to the best school in the country—however they deem it the best. But if they don’t embrace the opportunities surrounding them, there is no guarantee of success. And of equal relevance, people of limited educational advantage have been more successful than anyone would have imagined. It’s up to you.

2) College is no longer the sole repository of knowledge. Today’s online tools and offerings and third-party educational organizations like TED-Ed are abundant and with them, a motivated student can propel themselves educationally beyond anything my generation could have imagined.

3) Select a college for its inventory of resources, not its name. This is especially true when you’ve got an entrepreneurially-inclined child like mine. We looked at each school with a very critical eye and took serious inventory of each school in terms of its assets and programs that would encourage his entrepreneurial proclivities. We looked for things like startup and business plan competitions, industry partnerships, and a faculty with actual entrepreneurial experience (not a CV built to ensure a tenure track) dedicated to mentoring.

Considering these things and reconciling cost vs. benefit, the choice was clear and simple: the University of Akron.

Now not everyone will think we made the “right” choice. Those who think that are most likely buying into the notion that bright ideas, great opportunities, and a hopeful prospect for one’s future are the exclusive entitlements of a privileged few. It’s an idea that higher education has been forced to perpetuate—and I can understand why. But it’s false. Academia is going through a transformation, not unlike the music and print industry. And it’s a much-needed change if you ask me.

Regardless of what’s happening in higher education, I saw my responsibility as the parent of a future potential entrepreneur is to help my son optimize the choices life presents him. My child can graduate from college (should he choose to do so) debt free, with an entrepreneurial mindset. I am certain that pairing will serve him far better than leaving a campus with a debt burden that will hamper his earnings for years to come.

These are the decisions entrepreneurs face on a daily basis—should I buy into the hype or make the right decision for me. Making the most of what life gives you is what being an entrepreneur is all about.

Global Scholars Graduate

What do financial planning, synthetic crude oil, and campaign building have in common? They’re the focus of three entrepreneurs who have recently graduated from the Kauffman Global Scholars Program.

I sat down with these impressive young entrepreneurs to talk about the six-month program, which educates recent graduates from across the globe about the world of entrepreneurship. The program exposes scholars to valuable classroom work, peer-to-peer training, and hands-on experiential learning through internships.

In their own words, our conversation brought to light how this program attracted these incredibly bright individuals, helping them evolve their business ideas, while preparing them to charge into their future entrepreneurial endeavors with confidence.

Getting Out of the Building

The room was busy, but certainly not crowded. There were enough gaps in between the groups of people that I knew if I stood there in the doorway much longer, people would surely realize I had no one to talk to, that I didn't know anyone. That fear set in. The paralyzing gut-clench signifying I was in the self-conscious beginnings of an embarrassing moment.

Maybe you're one of those lucky souls who have no idea what I'm talking about. Maybe you're someone who is completely at ease in a crowd of strangers, moving from unknown people to new friends without a second thought. But if I was to guess, most people (this is not scientific, just an assumption-invalidate it if you must) feel that artic sweat of nerves come over them at this point when you must make those first steps towards talking with a new group of people. You try to think of some quick starting lines that will break the ice; something genuine that you hope will be returned with a likewise heartfelt response. For most of us, it's not the conversation that we have a problem with. We're well adjusted, pretty normal people who can carry on the follow-up questions and wit stained replies. It all lies in that opening sentence. Will this person accept my proposal of communication?

These past days I sat in on Steve Blank's Lean LaunchPad educators class in Palo Alto, California, learning the inscustomer development methodology, and how teachers around the country were facilitating this idea. For those who aren't familiar with this subject, it's the idea that in order to launch a sustainable business or startup, you need to get out of the building and interact with your customers in order to prove or disprove the assumptions you've made about who they are and/or what pains they have that your company can solve. Students are asked to do countless interviews with what they think are their preferred customers. In talking with these "customers" students learn whether their assumptions about what their customers want from a product or service is actually the reality. There were countless issues discussed during the course, but the educators kept coming back to the largest problem they encountered with their students-getting them out of the building.

and outs of

Sometimes students would come back having done little to no interviews. These groups weren't allowed to present that week, because they couldn't comply with the simplest direction: Get out there. Students suffered from nerves during cold calls. They didn't know how to go up to people and start a conversation that produced the answers they needed. Teachers told stories over and over of students lacking the confidence to validate their hypothesis.

So it's not just me. Others suffer from the same lack of courage in this area as well. When I started in this area of entrepreneurship nine months ago, I experienced the same timidity and anxiety about getting out of the building and meeting entrepreneurs, and it was a requirement of my job. Without talking to entrepreneurs and discovering their pain points, how could I ever know about entrepreneurship in its entirety? I needed to find out how I could best help them, and what things they really needed to make their businesses thrive. Just as those approaching their startup through the Lean LaunchPad method needed to find their customers pains in order to help them, I had to be able to talk to entrepreneurs in order to know how to energize and assist the entrepreneurial community.

It wasn't easy. I started with the jargon. At least being able to relate to the vocabulary could keep me going in a conversation for a little bit. "VC funding is not as common as you would think," and "bootstrapping is how the majority of startups begin" were enough to keep people believing I had some credibility. But slowly and surely I found myself interacting with my prospective "customers" more and more. Getting out of the building, or in my case, my own head, and just asking people questions provided me more insight and knowledge about entrepreneurship than sitting at my computer doing hours of research would. I realized my ideas or assumptions about entrepreneurs-people with money searching for their next big idea to jump on and invest in or hackers in hoodies coding the next Facebook-were based on...well, to be honest, I have no idea what they were based on, probably things seen in movies or TV.

Getting out of the building isn't easy. For most people, doing research, tinkering with code or making business plans is what feels comfortable, but these things alone cannot launch a business. Or personify what entrepreneurship is. It is only after interacting with your target market, whether it's customers or other entrepreneurs that you can find a pain to solve.

I still get that gut-clenching feeling standing in a room of people I don't know. I probably always will. But now I know my interactions will lead me closer to aiding entrepreneurs. This is doubly true for founders. A startup cannot definitively say their product or service is solving a problem until they get out of the building, or out of the lab or out of their house...and ask someone.

Entrepreneurship Hits Global Stage in UN Genral Assembly

Yesterday, entrepreneurship was given a spotlight panel at the United Nations General Assembly. This was a great sign of the growing belief that entrepreneurship provides a path to economic growth and a decrease in poverty levels around the world. Our VP of Entrepreneurship, Thom Ruhe, was asked to speak on a panel to discuss entrepreneurship education — an exciting opportunity for the Foundation to continue our mission of advancing entrepreneurship on a global scale.

Thom talked about the importance of presenting people with the opportunity to adopt an entrepreneurial mindset, something we believe can ignite them to follow their ideas and passions into thriving businesses and ventures. He highlighted the need to provide people with the tools and education that allow entrepreneurship to flourish in cities and countries everywhere. Describing several of our programs (Global Scholars, Ice House Entrepreneurship Program, and Kauffman FastTrac), Thom demonstrated the significance of infusing entrepreneurship into educational programs of all levels, and for people of all ages.

Thom also pointed out that Kauffman's Global Entrepreneurship Week opens doors on a worldwide scale by raising awareness of the economic benefits from encouraging entrepreneurs to start and grow companies. This year, during the week of November 18, more than 20,000 events will take place in 135 countries.

Many of the other panelists seconded Thom's thoughts with declarations that innovation and creativity are essential for thriving nations and economies. Luke Williams, a professor at NYU's Stern Business School, added that "an entrepreneurial mindset is the best thing economic leaders can have these days." Hopefully, this and other comments made to the General Assembly go a long way in solidifying entrepreneurship's seat at the table alongside the other topics regularly discussed on this global stage. For Thom’s final statement, a quote from our founder Mr. Ewing Kauffman, said it all. "Every individual we can inspire, that we can guide, that we can help to start a new company is vital to the future of our economic welfare."