Category Archives: Human capital

Expertise 15 years later

Expertise and the Independent Consultant

I recently reread my book, A New Brand of Expertise, published in 2001. It was a book about, as the tag line said, how ” free agents, independent consultants and interim managers are transforming the world of work.”

bookIt was an odd experience, after all of these years to read the words. Perhaps more prolific authors are used to it, but for me it was very strange. I was surprised at the passages I didn’t recall at all, (really, I wrote that?) including some rather remarkable anecdotes. I had to laugh at the few (and luckily there were only a few) references that didn’t hold up at all; for example, my advice to new consultants to build a personal brand offered Martha Stewart as the role model. Obviously this was written before her prison sentence. My opening chapter referenced the Donna Reed show, because her husband, ” the company man” was becoming an anachronism. My guess is there isn’t a millennial around who could relate to that TV reference. (Oops, I am dating myself, but I only saw the show in reruns as a very young child…)

What dismayed me was one aspect of the forecast I made 15 years ago about what would happen to this nascent independent marketplace in the years ahead. I had suggested that on the horizon there could be some simplification of the legal ambiguity that was a threat to the dynamic growth of an independent talent market. I offered hope that U.S. 344, the Independent Contractor Simplification Act, authored by then Senator Kit Bond of Missouri would pass. I was overly optimistic. Not only did it not pass, it never made it to the floor — It died in committee the following year.

And now, the independent contractor issue is in the limelight again as the “gig ” economy has been caught up in the ambiguous regulatory environment, as firms like Uber, Handy and Instacart try to maneuver in the anachronistic definition of employment today. . In the meantime, the free agent and interim management part of the gig economy has only continued to grow. Perhaps the sharing economy, led by the Uber driver lawsuit, will help bring much needed clarity to this issue. Isn’t it about time?

David Bowie Bonds and the Future of Work

David-BowieDavid Bowie was an innovator of so many things including  in 1997 the first securitization of music royalties which came to be known as David Bowie bonds.  In my book, A New Brand of Expertise  published 15 years ago, I posited that Bowie was the first to create a human capital bond, since he was in essence creating a security from the creative works of a brilliant mind — his own.  In my final chapter discussing the future of work, I asked this question: Why couldn’t there be similar bonds created in the human capital marketplace, synthetic instruments which could pool the revenue streams of thousands of the top independent consultants, protecting against down time, slow periods or any other cash flow disruption? A consultant bond, I argued, would place a value on knowledge much as companies value their intellectual property assets.

Now fast forward 15 years, the Bowie bonds, made David a cool $50 million but were not such a windfall for his investors given the industry economic disruption caused by the onset of music streaming.  For more on this see http://money.cnn.com/2016/01/11/media/bowie-bonds-royalties/.

Although the music royalty bond notion may have fallen from favor, the consultant bond has more legs than when I originally described it.  The weaknesses to my early argument, to be completely candid, was in the issuer.  I suggested that the consultants collectively would be the issuer.  Although I knew that was an unwieldy structure, it was thought provoking when discussing the future of work.  What is different now, though is the human cloud.

Whereas my firm, M Squared,  was one of the first to provide on demand expertise 28 years ago, now there are all sorts of intermediaries parsing work into everything from looking up addresses to  writing code to managing corporate operations.  These firms  source, place and pay their resources in the cloud, and many rank them there as well.  So my year 2000 notion of taking the top 500 consultants in an area was aspirational, but now there  could be ways to do it through the yelp like data being collected on consulting purveyors.  Human cloud companies could be the issuers.  Investors would be buying into the knowledge and talent market, with prices fluctuating with demand and supply.

I know it still sounds a bit far fetched.  But in the words of the inimitable Davide Bowie,

“Turn and face the strange, ch – ch- changes.”

 

Independent Contractors and the Bubonic Plague

Katy Steinmetz of Time Magazine had a great piece this week summarizing a joint Aspen Institute /Time study on the future of the gig economy. http://time.com/4169532/sharing-economy-poll/?xid=tcoshare  She discussed what may be the first attempt to quantify how many Americans are participating in the various aspects of the sharing world, from shared car services, to rented rooms, to odd jobs, as either a buyer or seller.  As you may imagine, the numbers are fairly staggering, with more than 44% of Americans taking part.

She also gets into the implications of the employment status of those who offer services.  In most cases they are classified as independent contractors (ICs)  rather than employees.  ICs, of course are not subject to withholding taxes and ineligible for benefits typically accorded employees.  Ride sharing giant,  Uber, is facing a class action lawsuit, where drivers are claiming they should be employees not ICs, an action now scheduled for June of 2016.

The IC versus employee  issue is a murky one and Steinmetz does a good job explaining the accurate and curious fact that there is no one legal definition of an employee. The IRS has 20 points which define employment status, but the primary factor comes down to who directs and controls the work.  That subjective framework is why the subject is fraught with abuse from both sides of the transaction.

Later in  a brief comment, she explains that the ambiguity of this body of law is inherent in its origins in 18th century England.  She didn’t quite get that one right…it was a bit earlier.

Our current employment structures are based on  the Master Servant body of English Law which is actually from the 14th century. As the bubonic plague, also called the Black Death, ravaged England, there was a need to identify who was the master of a particular area and who was the servant — hence the name.

Although the Uber case and others in the sharing economy have put the IC vs. employee question in the forefront, it has been an issue for years. Issues can create opportunities; companies like Collabrus Inc., which I founded, as well as others like MBO Partners, have created business models to eliminate the ambiguity inherent in the misclassification of workers.

Issues also create investigations. In the mid 90’s, I testified about the problem at hearings in Sacramento. At the time , the state of California was ardently pursuing anyone who was paid with a 1099 (an IC) versus a W2 (an employee), claiming that those receiving 1099s were just trying to skirt taxes. I explained there in the new world of just in time talent, old employment designations  and the social contract that goes along with it  were no longer relevant.  I ended my remarks pointing out that the bubonic plague ended a long time ago, so maybe it was time to update our regulations,

The wonderful State Senator, Milton Marks , of San Francisco, who served in the California senate for more than 30 years at that point chimed in and said, “She is absolutely right .  I know because I am so old, I was there  in the Middle Ages.”

I have to smile when I think of that hearing.  I also have to agree with my original assertion, it is time to rethink our employment law structures as the gig economy grows. IC status shouldn’t have anything to do with the bubonic plague, rather it should have to do with empowering individual business pursuits.

How mentoring strengthens your edge

Most people think of mentoring as a way to share the expertise gained over a long professional life.  That is a true statement, but not nearly comprehensive, since mentoring can expand your horizons in so many ways.

Fr those of us who may be semi retired, or flunking  retirement in my case, being an active mentor keeps you engaged in an ongoing business, like being a board member without the fiduciary obligations.  Moreover, it can keep you current in what is going on in the business segment today.  That currency is so important and so seldom appropriately valued.

Back in the M Squared days, I had a framework for evaluating consulting expertise, the “4 Vs”.  It frustrated me that so many people interviewed consultants as though they were hires, when by definition they are not. As such, it is important to screen for other factors, like the ability of the consultant to work in different environments, i.e., their Versatility.

The Vigor factor, was the idea that to be successful, you need to keep current with your craft.  Various professional disciplines achieve this by having continuing education requirements, whether it be in medicine or the the law .  But how does a marketing consultant keep current, or a CFO, a compensation consultant etc? There are ways, like attending conferences and doing research. When hiring a consultant, it is important to understand this dimension of their expertise.

Being a mentor can add vigor to your experience, because you are staying current with your mentee’s business.  Slack wasn’t around when I stepped down ( the second time) from M Squared, but I understand its power because of my connection with other ongoing businesses.  Similarly, I am getting new insights into how companies must recruit and manage millenials which differs from how I dealt with the gen-xers.  Having those new perspectives arrayed against the depth of experience makes for some very powerful insight to share.  It’s all good.

As for the other Vs, feel free to guess…

 

 

Unexpected Returns from Mentoring

We all hear that as successful business people we need to give back and we should be mentors. Cheryl Sandberg has made an industry of women mentoring up and coming women in all sorts of organizations.  The value proposition to the mentor though has been presented as a duty by virtue of our experience and expertise, and that is doing the role a disservice.  The truth of the matter is being a mentor is a tremendous  learning experience as much for the mentor as the “mentee”.

When I started my business, I was in the Young Entrepreneurs Organization  or YEO  (now just EO, since they lost the young part…).  Through an affiliation with  WPO, the World Presidents, of which I am now a member, I was matched with two great mentors.  One was my go-to-guy on financial management issues, and the other was a great marketeer who was invaluable to me years later when I sold my business. He was the one who at a wonderful dinner of YEOers and their mentors, toasted our relationship saying that  being a mentor was in ways more rewarding  than being a father, because unlike his children,  I actually listened to everything he said.

Now fast forward some 20 years and in the spirit of turn about is fair play, through WPO,  I have a few mentor relationships of my own.  They are  with entrepreneurs who have very successful professional services businesses, different from M Squared but still in the human capital space.  At times we may talk about difficult or unforeseen issues, but typically we focus on moving the business forward.  It is wonderful to make a suggestion or an introduction that could strengthen a new direction.  Similarly, sharing tough moments  can often resonate for my younger colleague  as he/she faces a difficult decision.   In those conversations you learn about yourself for in the telling is the lesson.

Yesterday I learned even more, for yesterday I discussed my new business idea with one of these exceptional leaders. Her perspective was very valuable, and fresh, since she is in an adjacent business constantly.  She let me know about quasi-competitors or substitute services of which I had been unaware.  She questioned certain premises and raised new issues.  I learned not only more about the business segment I am exploring, but I learned more about  her critical thinking processes, the questions she would ask and the approaches she might take.  It was enlightening, refreshing and energizing.

They say mentoring is a way to give back  But, with an homage to the holiday season, it is in the giving that you receive.

1099 Questions about the gig economy

Professor Laura Tyson of the Haas Business School published a great piece  last week about the challenges of the gig economy.https://agenda.weforum.org/2015/11/how-can-we-protect-workers-in-the-gig-economy/

She focused on digital labor platforms, noted that nearly 400 million people have posted resumes on Linked In The problem, and of course there always is one, is that as this contingent workforce has grown through the likes of Uber, Taskrabbit and Upwork, employment has not, since most of the work is done on an independent contractor basis. As such,these individuals are  paid on a 1099 not a W2, and separated from the employment based benefits which provide the proverbial safety net via health insurances and retirement programs. She goes on to discuss the policy implications as well as the interesting coalitions being formed around this issue.

Although Professor Tyson discussed the independent contractor (IC) issue as a relatively new phenomenon, it is not. Independent consultants, and other professionals like  real estate agents  have faced this issue for decades.  For many, creating the answer to the safety net issue was part of the calculus of starting their independent business in the first place. These individuals were making a deliberate choice to create an independent, professional  lifestyle , another point that often gets lost in the IC debate.

From my research several years ago ( which clearly needs to be updated) a significant minority of ICs were able to secure benefits through a spouse.  Further proof of that is that when we set up benefits programs for ICs the greatest interest was in tax deferred income and retirement products.  Granted, the sample we were targeting included the highest paid ICs, so they would have had arguably the greatest economic flexibility.  In the last 5-10 years, the IC ranks, thanks to the new digital platforms,  have grown to  include lower wage workers.

Conversely, according to a recent article in the Economist, the data does not support amazing growth in this IC economy,  with the caveat that labor statistics are egregiously poor in both the UK and US .  (Indeed, the US government discontinued the tracking of contingent workers  in 2005 by eliminating the Contingent Work Supplement . Senator Mark Warner  has requested  that  the Bureau of Labor Statistics, and the IRS reinstate it.  ) In a 10/23 article, the author, Laura Gardiner,  notes that the number of self employed workers in the US is actually falling and the proportion of full time workers  in both countries has not decreased. Freelancers represent only 2% of the workforce in Britain.

Gardiner goes on to suggest that this non intuitive lack of growth may be the result not of  bad statistics but of improper definitions.  The gig economy, also the sharing economy, includes the 1099 worker but also encompasses the AirBnB hosts, for example, who don’t see that extra income from renting a room  as  job related. This is true for many participants in the sharing economy, suggesting that the true size of the current market activity may be significantly understated.    In some cases the income may go unreported but in most it will just appear as 1099 income. As such, that may be the better metric to track.

The  Bay Area Council Economic Institute did just that.  It compared the growth in the number of  1099s  issued ( not the dollar value)  with the number of W2 returns by year and indexed for inflation.  Although 1099s tended to peak  and then retract after recessions, as demonstrated in 1990, 2001 and 2007 the pattern has changed.  Since the financial crisis and attendant recession in 2009, 1099s issued has continued to rise, while W2s have shown greater variability. 

By 2025, Tyson suggests the gig economy will approach $2.7 trillion in global GDP. Hopefully by then we will have a better understanding of how the marketplace functions,  and a much better handle the policy infrastructure needed to support it to ensure the independence and flexibility it affords can be sustained.

 

Repurposed Expertise

At the Vision 2020 conference, Stewart Butterfield, CEO of Slack described the importance of humanity in business, connecting at a personal level with your clients. He then went on to describe a customer service exchange which was an homage to the original Star Wars movie.   Although it was a great story, I was still struck by his opening riff on the origins of the rapidly growing messaging company; he and his colleagues repurposed some software from another life, “pivoting” to the messaging space.  I fixated on this point, perhaps, because I had been in the repurposing business as well, but I repurposed expertise.

You hear about “repurposing” a lot in the software business.  Instagram had famously flopped as a platform until it was repurposed as a photo sight.  In the human capital space, though, its not a term of art.

Independent consultants ( like those from M Squared or The Talent Group or Cerius Executives)  are accomplished professionals who have a body of expertise in a given discipline.  With every assignment they take, they are, by definition, enhancing their  intellectual capital, since even though one engagement may be similar to another, each has its unique challenges. To meet those challenges – or opportunities — they need to repurpose their arsenal of management  and consulting skills. My favorite gigs were always those where the client agreed to engage a consultant who was pivoting to take the assignment, by applying expertise in consumer goods to digital media, for example.

As I think about my book project, perhaps there should be a repurposing chapter…

The New Book via the Old One

To think about the new book, I need to go back to the old one,  A New Brand of Expertise; How Independent Consultants, Free Agents and Interim Managers are Transforming the World of Work.  The title is a mouthful, I admit, but it wasn’t my idea. That idea came from the publisher.

book

Speaking of ideas, it wasn’t my idea to write a book actually.  In 1998 I was visited by a British CEO, Dennis Russel,  who ran a business somewhat like mine in the UK. He sought me out specifically because he had written a book entitled  Interim Management about this nascent industry of brokering the expertise of senior executives.  He wanted to publish a US version, but his publisher said he needed a US co-author.  Once I read the book, I understood the publisher’s constraint.

Although we were in the same industry, his book did not speak to my marketplace.  His book was far more about the tragedy of British Managing Directors (MDs) who needed to find a new purpose in life.  The MDs came off as somewhat pathetic fellows who were cut down in their business prime of life and needed to craft an alternative.  I say” fellows” deliberately, since Dennis apologized in the book for using only male pronouns.  It made sense, you see, since no MDs in those days were female.

The US story and particularly the San Francisco Bay Area story was one of empowerment and success.  My MDs, the independent consultants with whom we worked, were not folks who needed a shot in the arm after getting laid off from a financial firm.  Rather, they were competent, pedigreed individuals who made a career choice to go into business on their own.  They were relatively evenly split male and female, although certain expertise areas could have a higher concentration of one gender or another.    This was not a business by default but rather one by design.  The stories I told were of incredibly accomplished individuals who were best in class at what they did.  Additionally many of them pursued other interest at the same time; our consultants were playwrights, pilots, sculptors, musicians and entrepreneurs who were crafting a professional life that enabled them to pursue all of their goals, not just business ones.

It didn’t take me long to agree to be the coauthor. In M Squared I had the perfect laboratory to do my research.  I could do deep data dives on our network of 12000 consultants, and I could also select several consultants to profile in a far more in depth way, capturing their stories, and adding the essential dimension of authenticity to what could be a rather dry business book.

It was an interesting process. My editors at Butterworth Heinemann kept quitting — not due to me but by happenstance.  Later, an Inc. Magazine editor for whom I had written several articles gave me hell for not pressing the publisher for a consistent editor.  “They help you write the book”, he  said in an exasperated tone, after the book was in final proof stage.  I guess I just didn’t need the help.

Ultimately, my book was very different than my colleague’s book because our worlds were different.  Now 14 years later, the world is different from what it was.  when I wrote the original book, social media were two words seldom found together in a sentence.  Linked In did not exist, so the online connectivity and access that is taken for granted today was not a factor in how that market operates.  The marketplace is now fundamentally different.  It needs a new book…

Charles Handy would be proud

Goldman Sachs announced today changes to its Associate program with the goal of retaining more of these junior hires.  A senior official was quoted a saying that they do realize that they train these guys up for others to hire , but they still want to keep some percentage of these employees.  Charles Handy would love that statement.

Handy was a British organizational theorist who is second  behind Peter Drucker on the Thinkers 50 List of most influential business minds, yet few Americans have heard of him.  A former Shell executive turned University professor, he started writing about organizations in the mid 1970’s.

It was his book, The Age of Unreason, written in 1987, that totally supported the M Squared business model, but also  foretold not only the current gig economy, but also the travails of Goldman Sachs and its Associates program. In that book, he describes the organization as a shamrock, with one leaf being core employees, another being temporary workers, whose ranks would expand and contract,  and another being on call expertise.  In describing these three pools of talent, he suggested that large organizations, like Goldman Sachs, would become like the British army;  unskilled, raw talent would enter and be trained by the enterprise.  Some would be promoted through the organization to the senior ranks, but in the grand scheme of things,most would leave after some short level of obligatory service – service which made the individual far more marketable in the labor force.

So thank you, Goldman, for doing your part in enhancing the skill base of entry level employees, or more precisely, creating the Wall Street army.

 

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