A-Clue.Com
by Dana Blankenhorn
Volume III, No. XXXII
For the Week of August 9, 1999

This Week's Clue: Compensation Strategies

This Week's Clue: Compensation Strategies

Shameless Promotion 

SSP (Shameless Self-Promotion)

B2B Ambition

The Cereal Game

Home Depot Doesn't Get It

Why So Many Grocers?

Clued-in, Clueless

How do you pay people? Salaries and benefits were once good enough, but in the "Web gold rush" everyone wants stock. Stock is very fungible, but when you give away equity you dilute everyone else's stake. There's a practical limit to how much of that you can do. It can also put enormous pressure on you to go public prematurely, before your business case is proven.

While I was on vacation over the last few weeks I met with several managers who were struggling with this problem. Some were more worried about tomorrow's profit than building today's team. Others figured if the talent didn't know how much they were making off them (or didn't seem to) all was well. The happiest, and most successful, were also the most innovative in their compensation schemes. 

How then do you keep "talent" - the programmers and writers on whose backs all good sites are built? You have to use some imagination, and it helps to recognize that the Internet is the most measurable medium ever. It's time to look at other forms of incentive compensation. Here are just a few: 

In designing a package for your talent, here are some other important points I'd suggest you consider. First, be generous. A small percent of something is worth more than 100% of nothing. Second, relate the incentive to the actual work being done. If you tie incentives to something beyond the worker's control they'll get angry, even if they're doing well. Fortunately, most talent is responsible for the success of pages, sections, or columns in a site. Third, set minimums. Paying royalties on customer one may work for books (dropping the advance) but you have costs you must get out first. Finally, work to make everything a win-win. Incentive compensation is designed to win the passion of your talent, giving them equity in their work without giving them equity in your company. Happy talent will, if you do your job correctly (managing, organizing, selling) make you a happy owner.

Shameless Promotion
 

http://www.newsbureau.com/aclue

Type "A-Clue.com" in the Offer Code field on the INB order form and receive a 15% discount on any order.



SSP (Shameless Self-Promotion)

You can now get your Daily Clue at ClickZ, putting a "clued-in" spin on the day's news. I'm also a semi-regular on TechEdge Radio and I'm continuing monthly columns for  NetMarketing, Boardwatch, and  Intellectual Capital. I'll also begin work soon with the IC folk on a book project concerning politics and the Internet, which will appear first on the Web. A-Clue.Com is also the Monday e-commerce column of Andover.News. Buy my book now. Subscription instructions are at the bottom of each issue.

Remember that it's still journalism -- checking the news, calling people, listening carefully and writing on deadline -- which keeps the Clues coming. If you're looking for excellent work, give me a call at 404-373-7634. Now back to the show...


B2B Ambition

Most of the excitement in the venture capital community these days involves vertical b2b portals. Companies like Altra Energy have proven the concept. It's estimated there could be thousands of these things in the next few years.

The only way to invest in the sector currently, however, is through Verticalnet, and they're a poor substitute. Their site traffic is growing smartly - 38% in just one quarter - and international visitors represent 40% of the total. This pleases the folks at Zona Research but it shouldn't. Plainly put, Verticalnet is too horizontal to succeed long-term. Buying a "template" for ecommerce won't work because b2b portals don't work on a template.

In b2b, each industry must be studied intently, and solutions must be customized to each industry. Altra, for instance, had to create terminals where natural gas suppliers could exchange gas, in order for its markets to work. Other industries have their own equivalents. Businesses that do a lot of import-export work may need special financing and warehousing arrangements. Others may need couriers to get samples to buyers quickly. The point is it's different in each industry - the aim is to save players money, not change how they do business. (The new buzzword for this is "clicks and mortar.")

I've no doubt that there will be roll-ups in the b2b portal business, but it won't happen until individual portals prove themselves (until there's cash flow to roll-up). It's foolish to assume that, because you're aiming at Industry A today, you have a template to succeed in B and C tomorrow. Someone else is likely aiming at B and C today. Your Clue, then, is the old football cliché. Play one game at a time.

The Cereal Game

While on vacation we stopped briefly at Kellogg's "Cereal City," a museum in Battle Creek, Michigan that replaced tours of the plant in 1986. To our surprise, we learned some things that are very relevant to the Web today.

First, the success of W.K. Kellogg and C.W. Post spawned a host of imitators, just as each new Web success is quickly copied. One key to Kellogg's survival was its focus on a customer benefit, in this case the waxed paper inner liner created by W.K.'s son. (Nepotism is not always a bad thing.) The cereal craze also caused a stock market boom (just as now) which crashed hard in what became known as the financial panic of 1907. (Events that end booms can be external as well as internal, but are devastating to the players nevertheless.) The key to Kellogg's recovery from that crash was its financial soundness. (Stock values change with prices, but cash remains cash.)

Here are some other echoes. Cereal companies, most notably Kellogg's rival C.W. Post, were among the first big advertisers. (A good reputation, driven by advertising and a product that meets the claims of the advertising, is powerful in bad times as well as good times.) Finally, there's the lesson of Kellogg's brother J.H. His famed "sanitarium" - think 19th century Pritikin Center - really got things started, and the first corn flakes were cooked in its kitchen. But J.H. missed the whole boom out of idealism. He didn't like adding sugar and other flavors to his "health food" product. The J.H. Empire fell to dust after the 1929 stock market crash - the sanitarium is now a federal office building - while little brother W.K. founded charities that remain important. (Winning is a long-term thing, and brings its own opportunities.)

Home Depot Doesn't Get It

Home Depot Inc., which plans to launch its sales site this fall, has sent letters to many of its largest suppliers, including Black & Decker and Whirlpool, telling them that if they sell direct on the Web, it may drop them from its shelves. (The report I saw came from Fortune Magazine, whose archives are handled by pay-for-play site Northern Light.)

This is a serious threat. Home Depot is far more dominant in retailing than, say, Wal-Mart is in the products it sells. It's even more dominant than Toys R Us was at its height. Risking the wrath of "big orange" doesn't just court trouble, but bankruptcy court. The threat must be taken seriously.

What's most Clueless here is it may also be taken seriously at the U.S. Justice Department's antitrust division. The ability to destroy a vendor by preventing their entry into new distribution channels is a key Clue that someone needs to spend more time with their lawyers. If the department chooses to make a case, this demand becomes Exhibit A.

Another point for the Clued-in, of course, lies in how overly broad Home Depot might become. Maybe it can stop Black & Decker from putting a cash register on its site, for a time. But what of the thousands of hardware stores around the world which carry Black & Decker on their shelves? What of other hardware Web sites, or Lowe's? Can their sites be enjoined? (If they're not what's the point?) Could Home Depot try to keep other stores from selling online what they have on their shelves?

For the suppliers it's a Hobson's Choice - damned if you do and damned if you don't. Home Depot already owns many of its suppliers (like Behr paint, which is featured on its ads). For Home Depot it's a pack of trouble over a site that isn't up yet, and which probably won't work until its third or fourth iteration. Your Clue is that the Web can frighten anyone...it frightens everyone. (Except those with a Clue...)

Why So Many Grocers?

The continued failure of online grocers like Peapod and NetGrocer have some scratching their heads about the launch of such new players as the Amazon-backed HomeGrocer and Softbank-backed Webvan. These will collide in San Francisco before taking-on Boston-based Streamline.

The Clue here is simple. It's not about groceries. It's about winning the ground war. The crucial link between today's occasional e-commerce purchases and tomorrow's e-commerce routine is a delivery infrastructure that can move the equivalent of a Wal-Mart through your community each day. If you can capture that end of the transaction, the thinking goes, you become the gatekeeper (and low-cost service provider) to every other e-commerce player. This is not a battle among grocers, but among delivery fleets. It's not Webvan vs. Homegrocer, but Bechtel vs. Amazon vs. UPS, FedEx, and Fingerhut. This is a battle worth keeping an eye on.

Clued-in, Clueless

Clued-in is Leo Sheiner. Most of those people we cite here did one smart thing recently that got my attention. Leo is always there. His product is great (he's a Web auditor), his postings to lists are always thoughtful, and if economics were justice he'd be richer than Bill Gates. Economics aren't justice, but I understand Leo's doing just fine, for which we should all be thankful.

Clueless is Network Solutions Inc., because the way it's seeking to maintain and extend its domain monopoly sacrifices the future for the present. Rep. Bliley's fight with ICANN is a rear-guard action, probably a losing fight. Spamming domain name holders keeps them from remaining your customers. Demanding payment from non-customers to be in your directory makes that directory just a list of your customers. The list of sins goes on, but it all adds up to short-term thinking.


A-Clue.Com is a free weekly email publication registered with the U.S. Copyright Office as number TXu 888-819. Subscribers can receive either a .txt file or .htm file. The .htm version features links that become active from inside a browser. To take your name off the list, simply write REMOVE as the subject, or content, of a message replying to any issue. To request your free copy, write us at Dana.Blankenhorn@ att.net  or +A_Clue . To subscribe you can also write to a-clue@list.mmgco.com  with the word "subscribe" in the subject. (Address your request for the .txt version to a-clue_textonly@list.mmgco.com . You can unsubscribe with a note to the same addresses and the word "unsubscribe" in the subject.. We're on the Web at http://www.a-clue.com and http://www.ppn.org/clue.