How to build a business – Procrastination and Return on Relationships

My daughter has just started DP1. That is the Diploma Programme of the International School. Her tutor Mrs. Chowdhury has warned both students and teachers that time management is the biggest challenge, and social networks are the biggest threat. “That and procrastination” my daughter told me. I was going to tell her about the limited value of all these superficial friends sharing all these hardly relevant pieces of information. Mere distractions and reasons to shift focus away from serious study and school work. Apparently she was a step ahead of me.

And are we not on Facebook, LinkedIn and Twitter, too? Aren’t our most valuable assets our network, our knowledge and the intelligence we can gather about people, the companies they work for and the trends and themes affecting our markets? Aren’t we persuading our people to do what I am trying my daughter to dissuade from doing? Maybe we run the risk of procrastinating, too.

Great word… I looked it up.

The American Heritage Dictionary, for example, defines procrastination as “To put off doing something, especially out of habitual carelessness or laziness,” while Merriam-Webster Collegiate Dictionary calls it “To put off intentionally the doing of something that should be done.”

Some psychologists have suggested three criteria for a behavior to be classified as procrastination: it must be counterproductive, needless, and delaying. And while all procrastination is delay, not all delay is procrastination. It is “to voluntarily delay an intended course of action despite expecting to be worse off for the delay.”

Now I noticed a funny juxtaposition: where teenagers delay schoolwork because of relations and information, independent professionals often have the tendency to postpone networking and intelligence gathering to focus on the content and on their proposition. We see that in some of our partners. When on an assignment there is a tendency to focus on the job and to submerge in the pressure of the assignment, sometimes forgetting to actively maintain connections and share knowledge and opportunities. In between assignments productivity goes down, and although high on the to-do list, phone calls and research are postponed, or done at the last minute.

On the other hand, others – like myself – with more time for network- and research related activities run the risk of becoming addicted to meeting ever more people, to digesting more and more information in thousands of little pieces of information from RSS feeds, headlines, Twitter and LinkedIn updates and to storing and distributing contacts, opportunities and intelligence through applications like Salesforce.com and Yammer.

What makes sense, what does not, and how do we invest our time wisely?

Rolf Dobelli has written an interesting article, which was translated into Dutch and published last week by NRC-Next on how this constant stream of information affects us. In his view news (information) is to the mind what sugar is to the body: not very healthy, but difficult to resist. He calls it “small bites of trivial matter, tidbits that don’t really concern our lives and don’t require thinking. That’s why we experience almost no saturation. Unlike reading books and long, deep magazine articles (which requires thinking), we can swallow limitless quantities of news flashes, like bright-colored candies for the mind.”

According to Dobelli “At core, human beings are cavemen in suits and dresses. Our brains are optimized for our original hunter-gatherer environment where we lived in small bands of 25 to 100 individuals with limited sources of food and information. Our brains (and our bodies) now live in a world that is the opposite of what we are designed to handle. This leads to great risk and to inappropriate, outright dangerous behavior.”

There is some encouraging news in there: humans are suited for working in tribes, for thinking and Dobelli encourages us to take time to dive deep into he content. That sounds familiar: relations (a network), and content (knowledge). That sounds like us. But how do we strike a balance?

The 1970’s the management theories focused on Product Life Cycles. Companies were organized around how products were conceived, designed, tested, developed, approved, manufactured, sold and distributed to the market.

Of course customers made up the “market” and therefore in the 1980’s the focus shifted to customer-centric theories and the Customer Life Cycle.

Still, what defined the seller and the buyer was a transaction, when a product or service changed hands in return for payment. The customer life cycle provided a way for a seller to look at a buyer as not just a single transaction but as a series of “one-off” orders. Thus we moved from focusing on “getting the order” to “serving the customers needs” in the hope that the same buyer would return to the seller for more business.

However, due to the one-directional information flow, there were still some significant benefits being left on the table. The most visionary and innovative companies wanted to steal a lead in the Value Chain race and to do this the Relationship Life Cycle was developed.

The transaction thinking is replaced by interaction thinking, and instead of only measuring Return on Investment, and focusing on the bottom line, or on “What’s in it for me”, network companies like ours should focus on Return on Relationship or “What’s in it for everyone involved”. In other words, the measurement is on relationships and determining how everyone has benefited from the relationship, as well as how everyone can continue to benefit from it.

It is not easy to measure what investment is required to build a network of serious relationships. Let alone what the return is. This is abundantly clear for people who are active in the executive search business: it takes years to get to know, assess, and interact with a network of people, that at some point in time might be candidates for jobs at your client. To be able to determine who is the perfect candidate for a role in a company requires that you not only have an excellent idea and an expert opinion about someone capabilities, but also about how they would fit in the clients environment, in the longer term ambitions, in the personal situation. And then it takes a relationship build on trust to approach and convince someone to change jobs. What the clients sees is a few phone calls to someone you already knew, not what is involved in knowing. That is why we do not charge our clients based on the hours we spent, or on a percentage of the annual salary of the hired candidate, but leave it to the client. He can base the reward on the value he perceives, on how satisfied he is.

Return on Relationship is a term most often used by Ted Rubin.

Rubin makes a case for establish social networking metrics based on “conditions of satisfaction” (a concept promoted by Jeffrey Hayzlett, former CMO of Kodak and the author of The Mirror Test). In other words, what are the specific outcomes that will bring satisfaction to you, your brand, your business, and your customers? Engage, Educate, Excite, Evangelize. Evangelizing by your users is the end goal. To get there concentrate on building relationships and not numbers of viewers or visitors. Most measurements and statistics that are used with regard to relationships (such as number of Facebook fans, Twitter followers, retweets, site visits, video views, positive ratings and vibrant communities) are merely indicators that a brand is doing something that is creating value. That is only a starting point for RoR.

I cannot say we are able to measure our RoR. A metric like Net Promoter Score could give an indication on how clients look at the relation, and the satisfaction it brings to them. What we do know is that relations are not only established with clients, but – and equally important – with candidates, partners, suppliers, staff, thought leaders and others. We also know that metrics should include words like “trust”, “engage”, “authentic conversation” and “reputation” – all things that are at the heart of what a network company stands for. And possibly these things can be defined by setting up conditions of satisfaction, based on our purpose, vision and values.

So if Relationships are the new currency, and if we continuously invest in them, and want to be able to measure them, should we reward our staff and partners also on how they create value from their relationships?

In all three areas of focus we distinguish: reputation, structure and performance relationships play a role. We used to make the interaction transactional in all here areas, by allocating to our partners (besides a large portion of their personal turnover) a percentage of turnover based on how effective they were bringing new people into the partnership (Reputation), but we recently decided to change this and now allocate only percentages (but a larger percentage than before) for commercial activities that lead to revenue (Performance).

Instead of rewarding for RoR we decided that the knowledge and the network are assets that are so integral to who we are that we select partners on both.

Information and access are no longer scarce commodities. Attention is. On a personal level we should be careful what information we pay attention to, and then it should better be serious attention. In the network it works the same we, we can organize access to anyone, but our success will be determined by being able to decide with whom the interaction will lead to a relationship that is authentic, meaningful and beneficial for all.

How to build a business – Pay What You Want for Executive Search

Pay What You Want

A while ago I have written a blog on Client Value Pricing: the Client can determine the Value of products or services delivered afterwards, and decide what he wants to pay for it. Some people call it PWYW or Pay What You Want. I promised to post regular updates on how this is working out for us.

Luckily I am not the only one in our company who writes blogs about our business. Tjibbe van der Zeeuw published an article yesterday called Qhuba switches to Client Value Pricing for Executive Search, which generated some interesting comments both from internal and external colleagues. Since this piece was in Dutch, and since I am really eager to share his views and experiences, I have translated and slightly adapted it below.

Due to the influence of the Internet and social media the business models of executive search services are increasingly questioned. Why pay peppered invoices to agencies if you can tap into a network of candidates for your vacancies through channels such as LinkedIn or Twitter.

Our search practice believes that by diligently building and maintaining a network of potential candidates, by continuously gathering intelligence on customers and on the labor markets there definitely is a valuable role to be played as an external intermediary. As an agency the focus of your services shifts from organizing “recruitment” to supporting the “selection”. By maintaining a prolonged and intensive relation with candidates, who can also be or become clients or partners, you will have valuable knowledge of the intrinsic motivation of people (which cannot be distilled from their resume or CV) and of their development potential as well as of their value on the longer term. That is: the very things that you can only see and understand if you really know someone longer and better. Enriched with knowledge of labor markets, an understanding of potential career paths and the specific circumstances and challenges of the client as well as your relationship with stakeholders in the selection process the intermediary can be an advisor to both candidate and client. That is where the headhunter becomes valuable. Headhunting is a job for consulting professionals. And a pretty labor-intensive job at that. What to the client might initially perceives a “making a few calls and sending a CV” takes – behind the scenes – years of investing in relationships, following people, building dossiers, gathering intelligence and having numerous meetings and discussions. These investments can only be recovered with matches is made. The client usually sees what happens between the moment a contract with the agency is signed, and the moment a labor agreement with the candidate is signed. What happens before and after this sheds a different light on the amount on the invoice.

The challenge of the headhunter is therefore to convince the client of the value of the network he built, as well of his market knowledge and consulting skills in guiding and guarding the process with a long-term focus. The challenge of the client: to  determine and decide how honest the headhunter does this. We all know the examples of recruiters saying yes to anything, indicating that the search will pose no problems, only to find out later that he overstated and overestimated his capabilities. Reputation and track record should be leading in this decision, and it should not be reduced to a discussion about the lowest rate (often expressed as a percentage of the salary the candidate will earn) or about the most flexible No Cure No Pay attitude.

This would be bad news for all parties.

The calculation model that has grown to be commonly used for these services is strange in itself. The shorter the process and the higher the salary the better the headhunter is rewarded. There is no real correlation between the outcome of this calculation and the client value of the service provided. At the moment of signing up the candidate as an employee the client cannot know what value the newly attracted resource will bring him. For the headhunter it is difficult to explain for what effort (in time, investment, and risk) he is charging the client.

The most serious drawback of the currently used methods and processes is that implicitly they lead to short-term transactional relationships between all stakeholders (employers, candidates and agents) and work solely towards a signed employment contract as an end point of the cooperation. That is recruitment as a production process, with one contract as input and another contract as output. In an optimal relationship each of the contracts poses a starting point. The No Cure No Pay principle strengthens the short-term thinking and leads to a total lack of mutual commitment.

Tjibbe

Tjibbe, who is running our Executive Search practice, made a conscious decision three years ago to leave the corporate world of Executive Search, where recruitment is a production process, signed contracts are the products and advertising is the icing on the cake, to develop an alternative service as an intermediary between the candidate and the client. He did this because he wanted to and because he thought that role would be relevant. Sometimes he is involved in “old-fashioned” search assignments, but he also proactively introduces candidates to clients, manages the selection process, or advises senior management on whether or not they are making the right choice on a self-recruited candidate (because he knows both individuals well). He councils and coaches candidates on career changes, or HR Departments on labor market communications. In all cases it is difficult to determine beforehand what the value for client will be. Therefore, we leave it up to that to the client to determine that himself, afterwards. Based on what benefits he sees, or what cost he saves, or based on anything else that is important to him.

Now we can focus on what we do best: developing ideas, seeing opportunities for people, matching and supporting professionals in their careers. And now we do not have to engage in miserable discussions about one percent more or less of an annual salary. Whether it will actually work? Ask me in about one year. The first experiences are certainly very positive and satisfying and lead to exciting assignments such as for an investor with a vacant CEO position, who is looking for a seemingly impossible combination of a banker and an entrepreneur, or for an energy company who wants to appoint senior female managers in technical areas, or for a global Telecom enterprise who is looking for international M&A professionals with both technical, financial and commercial expertise. Challenging questions that we gladly take on because we understand the market, because we know the people and because they deserve to be successful.