Professional Documents
Culture Documents
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Growing up, we didnt have a lot of money, but my mother always grew her own vegetables.
Now were bringing generations together...helping thousands of families help themselves with
Grow Appalachias community gardens.
John Paul DeJoria, CEO and Co-founder
THE BEST IN PROFESSIONAL SALON HAIR CARE PRODUCTS
Guaranteed only in salons and Paul Mitchell Schools. paulmitchell.com
Your business succeeds
when you take care
of your people.
You want to focus on the health of your company. Let us focus on the health of your employees.
We offer health care solutions that are designed to help t your budget. And employee resources
that act like an extra set of hands. Because at UnitedHealthcare, we know a healthy workforce
and a healthy bottom line go together.
UnitedHealth Group ranked #1 by FORTUNE
INNOVATE
You Can Buy
Employee Happiness.
But Should You?
Companies that ofer lavish ben-
ets believe there is a return on
their investment. The challenge:
guring out how to calculate it.
By Scott Leibs
30
TECH
Now Comes
the Hard Part
In just a couple of years,
Chad Dickerson has turned
the famously troubled Etsy into a fast-growing,
valuable company full of satised people. Mission
accomplished, right? Wrong. Hes only begun to
take on the make-or-break stuf.
By Tom Foster
ON THE COVER AARON LEVIE, CEO AND CO-FOUNDER OF BOX, PHOTOGRAPHED IN SAN FRANCISCO BY EMILY SHUR
LAUNCH
Dont Bet Against
Aaron Levie
He sees whats coming,
he takes risks, and he
wins. Aaron Levie, CEO
of the cloud-computing
company Box, is our
Entrepreneur of the Year.
By Eric Markowitz
LEAD
Start-up Country
Nestled in the shadow of
the Rocky Mountains,
Boulder, Colorado, attracts
people who love to bike,
climband launch start-
ups. A close look at the
most entrepreneurial city
in America and how it got
that way. By Burt Helm
Features
88
MADE IN
BROOKLYN
Etsy employees
at company
headquarters
8 - INC. - DECEMBER 2013/J ANUARY 2014
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CONTENTS
100
Departments
16 Editors Letter
The unnecessarily precarious state of
small business
156 Founders Forum
Neil Blumenthal of Warby Parker
1
9
LAUNCH
43
81
TECH
97
INNOVATE
84
98
156
10 - INC. - DECEMBER 2013/J ANUARY 2014
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CONTENTS
TOP VIDEOS
on Inc.com
Steve Case
CEO of investment firm
Revolution; co-founder of AOL
ON THE IMPORTANCE OF
A STRONG NETWORK
Entrepreneurship
is a team sport.
Having a big idea
is important,
but its equally
important to have
a great team.
I NC. COM/I NC- LI VE
Lauren Bush Lauren
Co-founder of FEED
ONSTRATEGIC PARTNERSHIPS
Not every business
is a bleeding heart.
The businesses we
partner with want
to do good but also
worry about the
bottom line.
I NC. COM/I DEALAB
Youll nd the icon at the left on selected pages throughout
the issue. Thats your signal to grab your smartphone or tablet
and go deeper with the content on the page. Heres how:
1. Download the free Layar app from the Apple or Android store or at layar.com.
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3. Enjoy bonus videos and other content on your mobile device.
Go Beyond the Page
4 Questions to Help Build a
Purpose-Driven Team
Inc.com columnist Lee Colan explains the benets
of providing your team with a larger purpose.
I NC. COM/PEOPLE
Inc.com
Without a compelling purpose, employees are just putting in time. Their
minds might be engaged, but their hearts wont be. If you want your
team members to make every minute count, give them something to be
passionate about. To do so, you need to answer these four fundamental
questions that all employees ask, whether or not they ask them aloud:
Where are we going? (Goals)
What are we doing to get there? (Plans)
How can I contribute? (Roles)
Whats in it for me? (Rewards)
12 - INC. - DECEMBER 2013/J ANUARY 2014
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Find your
work-life groove
From laid back to more upbeat, you'll find a range of inspirations
in our Business Class. Savor gourmet cuisine, laugh through the
latest comedies or tap your feet to your favorite tracks. Get in
tune with the business of living.
emirates.com/us
Airline of the Year 2013 Skytrax World Airline Awards
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14 - INC. - DECEMBER 2013/J ANUARY 2014
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What Obamacare means for start-ups PG.20 Entrepreneur of the Year PG.30
PHOTOGRAPHBYSTEPHANIE NORITZ
DECEMBER 2013/J ANUARY 2014 - INC. - 19
Land of Confusion
FOR MONTHS NOW, THE DEBATE has raged
over the impact that the Afordable
Care Act, a.k.a. Obamacare, will have
on businesses. A number of the laws
provisions are only beginning to take
efect (see Obamacare Is Upon Us,
page 66), so the jury is out. But one
thing seems clear: For start-ups, the
laws impact is almost entirely positive.
Unlike your larger peers with 50
or more employees, you wont have to
pay penalties if your start-up doesnt
ofer health insurance starting in 2015.
That alone could be an advantage as
larger competitors struggle to ensure
they are in compliance. Moreover, your
start-up is likely to qualify for a sizable
federal subsidy if you do decide to ofer
health benets.
Companies with 25 or fewer em-
ployees making an average annual
salary of less than $50,000 are eligible
under the new law to receive a refund
up to 50 percent of their outlay on
health insurance in 2014, provided they
purchase through the federal Small
Business Health Options Program, or
SHOP, exchanges.
A major benet of the SHOP exchang-
Confused about Obamacare? Youre not
alone. A recent poll of small-business
owners with fewer than 50 employees
demonstrates just how much misunder-
standing still exists about Obamacare.
If the new health care
law has a winner, it has
to be start-ups
32%
believe they will be required to
provide health insurance
to their employees. (They
wont be.)
es is that
the plans
ofered are
specically aimed
at businesses and
typically cost less than
comparable plans on the open
market. If your employees pay
averages more than $50,000, you can
still purchase through SHOP, although
you wont qualify for the tax benets.
The benet of being able to ofer
employees health insurance shouldnt
be underestimated for start-up founders.
Your business is now in the running for
talent that might have shied away from
working at a start-up for fear of not
having health coverage. Beyond that,
having access to health insurance will
Insurance for entrepreneurs by entrepreneurs
For start-ups that choose to ofer their employees health
insurance, here are some entrepreneur-run private insurance
operators designed with small businesses in mind.
GO GLOBAL
Lumosity is looking
beyond the U.S.
It has subscribers
from more than 180
countries. Many users
come from English-
speaking nations,
such as the United
Kingdom and Austra-
lia, but Sarkar has
plans to reach a
broader audience.
The company recently
launched its German-
language site and
plans to roll out in
several more languag-
es next year. We
dont want language
to be a barrier to
using the product,
Sarkar says.
THINK FAST
Lumosity uses
research from
neuroscientists to
help create its games.
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22 - INC. - DECEMBER 2013/J ANUARY 2014
LAUNCH
SETH BANNON ALWAYS
loved politics, and in
2010, the 26-year-old
Harvard junior spent
the summer working
on the Connecticut
gubernatorial cam-
paign of Ned Lamont.
It wasnt Bannons rst
campaign, and it
wasnt the rst time he
was shocked by the
shoddy technology
used to organize
supporters and raise
funds. So rather than
returning to school in
the fall, he founded a
company, Amicus, with
an ambitious goal: to
overhaul the way non-
BRIDGE FUNDING
Seth Bannon on the
Williamsburg Bridge.
When the power went
out after Hurricane
Sandy, the bridge was
the only place a key
investor could get
cell service.
HOW I GOT FUNDED
Raising Funds to Help People Raise Funds
Seth Bannon wants to reinvent the way nonprofits do
business. His first job: getting investors to chip in
S
By CHRISTINE LAGORIO-CHAFKIN Photograph by STEPHANIE NORITZ
24 - INC. - DECEMBER 2013/J ANUARY 2014
LAUNCH
JUNE 2011
Bannon wins a
prize. But prizes do
not pay the rent.
Bannon is working on a
second round of funding when
Hurricane Sandy hits New
York. Before the proposed
$3.2 million round can close,
Bannon needs a signature from
Brad Gillespie, a partner at IA
Ventures. Unfortunately, the
storm knocked out the power
in Gillespies Lower East Side
neighborhood. So the investor
sets out on foot to nd a cell
signal. Finally, halfway across
the Williamsburg Bridge, he
gets a signal. I downloaded
the papers Seth sent and used
DocuSign to sign it while on
the bridge, Gillespie says,
surrounded by all these people
hanging out and drinking.
NOVEMBER 2012
Final tally:
$3.78 million
Amicus has 14
employees, an ofce
in SoHo, and clients
such as Human Rights
Campaign and the
AFL-CIO. Bannon never
returns to Harvard.
But he says he got
quite an education in
fundraising. The most
important lesson, he
says: Make sure your
revenue is growing,
rather than putting
so much time into a
PowerPoint.
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CONTEMPORARY STYLING HIGH-TECH AMENITIES RENOWNED DURABILITY
LAUNCH
CHECKED OUT
Their Carts Are Full. So Why Wont They Buy?
Dont you hate it when your online customers abandon their shopping carts before
checkout? Well, you and everyone else: Only a third of online shoppers make it through
checkout without abandoning items. The problem may lie in how you move people
through checkout. The good news is, thats easier to x than you think. KASEY WEHRUM
67%
of all online shoppers
will abandon items in
their shopping cart.
That number
jumps to
97%
if those shoppers
are using a
mobile device.
Dont give
up on the
ones who
got away
An abandoned cart
doesnt necessarily
mean your customer is
no longer interested.
Here are two ways to
lure shoppers back to
complete their purchases:
Send a reminder
email: When done right,
personalized, retargeted
email reminders can
generate an average of
$17.90
per email sent.
Ofer free shipping:
77%
of consumers say they
would come back if
ofered free shipping.
1. Your Checkout
button is hard
to find.
The Fix: Dont
be subtle with your
call-to-action but-
tonsthat is, the
Add to Cart and Start
Checkout buttons.
Boost their size,
and make their color
stand out. Shopping-
cart abandonment
drops 33 percent with
large and direct call-
to-action buttons.
2. Shoppers question
the safety of their
personal info.
The Fix: Make
sure the info about
your sites security
is easily visibleif
possible, include the
icons of your security
suppliers. The value
of a shoppers cart
increases 16 percent
when shoppers know
their personal infor-
mation is secure.
3. Getting through
the checkout process
takes multiple clicks.
The Fix: Stream-
line the checkout pro-
cess by eliminating
links and exit points
during the nal steps
of the sale. There is a
12 percent increase in
conversion rate with
reduced navigation
on checkout pages.
4. Shoppers are
required to create
an account before
checking out.
The Fix: Allow
users to check out as
a guest at the begin-
ning of the process.
You can always ask
them to create an
account after the
sale. Conversion rates
increase 45 percent
when guest checkout
is available.
5. Your return
policy is buried in
the fine print.
The Fix: Set up
an afxed or pop-up
window with a run-
down of your return
information. Sixty-
three percent of
customers view the
return policy before
making a purchase.
Heres where things go
wrong (and how to fix them)
Source:Data compiled by Ripen eCommerce of Princeton, New Jersey
28 - INC. - DECEMBER 2013/J ANUARY 2014
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What are you thinking about?
Were thinking about your security.
/ 1.800.2.TYCO.IS Safer. Smarter. Tyco.
80 percent of the worlds Top 100 retailers, many of the nations largest airports, 8 of the Top 10 banking institutions and
every U.S. Federal Courthouse has Tyco Integrated Security thinking about the safety of their enterprise. And every one
of those relationships started exactly the same way: with us listening. Its why were more than a security company.
Were your Tyco Team.
To learn how to better protect your business, visit TycoIS.com
License information available at www.tycois.com. 2013 Tyco. All rights reserved.
Tyco is a registered trademark. Unauthorized use is strictly prohibited.
DONT BET AGAINST AARON LEVIE
BY ERIC MARKOWITZ
PHOTOGRAPH BY EMILY SHUR
ARON LEVIE IS pacing onstage, a micro-
phone in one hand and a cofee in the other. His Kramer-like
hair bobs above his head. Were in the lunchroom of Boxs
97,000-square-foot Los Altos, California, headquarters, and a
group of about 50 new Box employees, mostly in their 20s, sit
on steel picnic tables facing Levie.
There are phases in technology, Levie announces, mid-
way through a presentation that sounds more like a TED talk
than a welcome speech. Mainframe to PC, PC to cloud, to
cloud and mobile. These things come around every 10 to 15
2013
Entrepreneur
of the Year
30 - INC. - DECEMBER 2013/J ANUARY 2014
LAUNCH
GOING SOMEWHERE
Aaron Levie usually has
a cup of cofee about
him, and sometimes
two. He literally runs
to meetings.
years, and were in one right now.
He pivots and changes direction.
And what that means, Levie continues, is that its a
catalyst for IT buyers to implement the next generation of
technologies that theyre going to run their businesses of of.
This opportunity did not exist in 03 or 05 or 07 or 08 or
09. It is happening right now.
Levie leaves no room for doubt: The hard drive is nally
dead. The PC is on life support. The ofce worker of today
has gone roguemost likely, you and your employees are
accessing your les from iPhones or Android phones or
maybe tablets. All the trends weve been hearing about for
yearsthe consumerization of IT, BYOD (Bring Your Own
Device), software as a serviceare now fully upon us. The
research company Gartner predicts that by 2015, at least 60
percent of information workers will be accessing their con-
tent on mobile devices.
For IT departments, the convergence of these trends pres-
ents an extraordinary challenge: How do you manage so much
information on so many diferent platforms?
You have iPads, Android devices; you have iPhones; you
have Macs, Levie tells his new recruits. Its changing the IT
landscape fundamentally. And we have to make sure that
were growing as aggressively as possible, selling to all the
CIOs as the solution to run their business on.
Box has about 20 million users, spread out among 180,000
businesses, who use the platform to upload les, collaborate,
and share content online. Box has custom-
ers at 97 percent of the companies on the
Fortune 500.
We have to build the best brand,
Levie says, and we have to develop our
site around the enterprise. If you dont
become the company that rallies develop-
ers in the ecosystem, you dont get to have
the network efects.
His speech is winding down. He clicks
to the last slide.
What were relying on is that we can
build enough traction, get enough of the
industry, that we become the de facto
platform in enterprise, he says. That
gives us a launch-of point into a bunch of other services. It
will be determined in the next year and a half to two years,
because the market is adopting this right now.
Levie asks for questions, and an awkward pause ensues. He
stands there sipping his cofee, eyeing the room, when, nally,
an employee raises a hand.
Is it possible for a company to last forever? the employee
asks.
Levie laughs, a sort of nerdish chortle that echoes through
the room.
Well, um, ha ha, yeah, Levie says. I appreciate you think
I know the answer to that. So thats good. Andthe answer is
yes. It is possible. And we will be
that company!
The recruits laugh as Levie
takes a moment to actually con-
sider the question.
I mean, its possible we wont
even have capitalism in 200 years.
Maybe the Internet even
wont exist. The idea is
that youre always
talking about disrupt-
ing, always talking
about whats next.
OX, WHICH Levie launched
out of his dorm room
at the University of
Southern California
in 2005, is a golden
child among Silicon
Valley tech compa-
nies. The company has
more than doubled its revenue every year and is on pace to
reach $100 million by the end of 2013. Box has more than 900
employees, spread out in ofces in Los Altos, San Francisco,
London, Paris, and Munich. Next year, Levie and his co-found-
er and chief nancial ofcer (and boyhood friend), Dylan
Smith, plan to take the company public.
Investors, who have poured $300 million into the start-up,
are valuing the business at $1.2 billiona sign both of their
belief in Box and their condence that cloud computing has
nally matured. In one recent survey of IT buyers, researchers
noted a whopping 65.6% of respondents indicated cloud as a
top investment area for 2013.
Even these numbers, however, dont explain why Aaron
Levie is Inc.s Entrepreneur of the Year. That has more to do
with his anticipation of change and his boldness in doing
INSIDE THE BOX
THE COMPANY AT A GLANCE
Employees:
900
2013 revenue (projected):
$100 million
Outside funding:
$300 million
Valuation:
$1.2 billion
Companies using Box:
180,000
Individual licenses at those
companies: 20 million
Largest number of licenses
at a single company: 50,000
companies choose
Las Vegas.
FORTUNE 500
PG.44
Outlook 2014
The skys the limit, but
some clouds are looming.
-
PG.50
Washington
Small businessrelated
legislationreal
and imagined
-
PG.54
Start-up Country
How Boulder, Colorado,
became a mecca for
entrepreneurs
-
PG.66
Obamacare
The skinny on
the Afordable
Care Act
Special
Report
The State
of Small
Business
DECEMBER 2013/J ANUARY 2014 - INC. - 43
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n the face of squabbling
lawmakers, a government
that seems to close for busi-
ness every month or so, and
an on-edge economy, two
guys at our recent Inc. 5000
Conference are telling a
diferent story: optimism
and opportunity!
Both dressed like the
cartoon character Green Lantern, they
are spreading the gospel of the power of
small business to grow in the face of evil
economic forces. And they are perfectly
positioned to so do: Their company,
Ramsey, New Jerseys Re:think, an
Internet marketer, has grown a super-
powered 1,186 percent over the past
three years. Co-founder Tom McVey
doesnt see any reason such success
should be limited to the hundreds of
companies represented at the confer-
ence. His forecast for 2014? The skys
the limit! he says. We believe any
business has a chance to stand out.
Its not just the Green Lantern guys
who feel this way. Their peers, the
CEOs of the 5000 fastest-growing
companies in the country, are hugely
bullish, too. In an exclusive survey of
recent Inc. 5000 founders and CEOs
(see page 46), 37 percent characterized
their business prospects as excellent.
Another 45 percent said their prospects
were good. (Not bad for a country
that, only recently, was on the edge of
economic Armageddon.)
In addition, these CEOs are count-
ing on expansionbig time. Eighty
percent said they planned to boost head
count, and the same share said they
would increase the number of products
and services they ofer. I think its
unbelievable, says Tom Gimbel, founder
of Chicago stafer LaSalle Network. I
think the economys really good.
The likes of McVey and Gimbel, of
course, arent your average joes. (The
typical Inc. 5000 company has grown
468 percent over the past three years.)
They always seem to be upbeat in the
face of adversity. Unlike many in the
business community, they feel they can
grow in good times and bad.
Despite the optimism, our all-stars
have concerns. Thats what makes this
years look at our Inc. 5000 growth
companies so interesting. In a normal
recovery, these CEOs would be 100
percent upbeat. But there are clouds of
doubt because of factors beyond their
controldoubts they share with busi-
ness owners across the board. Simply
put: If Andy Grove started an only-the-
paranoid-survive club, they would be
charter members.
Why so worried? Gridlock in Wash-
ington, the Afordable Care Act, and
weak-kneed consumers top the list.
THE OUTLOOK FOR SMALL
BIZ IN 2014? THE SKYS
THE LIMIT. SORT OF
As usual, our Inc. 5000 folks are upbeat. But only, they say, if Washington
cleans up its circus act BY KIMBERLY WEISUL ILLUSTRATION BY OLIVER MUNDAY
44 - INC. -DECEMBER 2013/J ANUARY 2014
LEAD THE STATE OF SMALL BUSINESS
Those things are all related, and togeth-
er they produce high-water levels of
uncertainty. After all, who wants to take a
chance on a big new investment when the
stock market could plummet 1,000 points
because of gamesmanship in Washing-
ton? Sure, some in Congress do a great
job talking up the impor-
tance of small business. But
when it comes to providing
a stable legislative environ-
ment so that growing
companies can thrive?
Nah, thats so German.
No wonder, then, that
among a broader spectrum
of businesses, pessimism
reigns. In a recent survey
from the National Federa-
tion of Independent Busi-
ness, 62 percent of CEOs
said now is not a good time
to expand. In the past,
when we got into a strong
hiring pattern, it would go
18 months or two years,
says Dean Le, of SoloPoint
Solutions in Santa Clara,
California, which places
engineers. Since 2008,
well have a couple of
strong months and then a
couple of weak months.
Given all that, how will
things play out in 2014?
Well, look at the good news and the bad
news. And once you do, youll see that
barring any midterm election-year
suicide missionsor a curve ball or
twothe new year is going to look
pretty good compared with the most
recent stretch of economic activity.
Well start with the
good news.
One of the most impor-
tant factors: The housing
crisis is in the rearview
mirror. Housing has been
rebounding for more than
a year, with the S&P Case/
Shiller index of housing
prices up 11 percent in the
12-month period ended
last June. And there are
few things better than a
robust housing sector to
get an economy rocking.
First of all, about one-
sixth of small private
companies are in housing-
related elds, according to
U.S. Census data (home-
builders, lumberyards,
plumbers, and on and on).
And when home values
rise, that turns on the
cash-ow spigot. After all,
about a quarter of small-
business owners use the
equity in their homes for
business purposes, reckons Minneapo-
liss Barlow Research Associates.
Access to credit, a sore point among
fast-growth companies, is also getting
betteror at least it was. The nal 2013
numbers will probably be depressed by
the government shutdown, but a Small
Business Administration report issued
before the closure showed year-to-date
loan volume up 15 percent compared
with 2012. Delinquency rates are also
at all-time lows, says William Phelan,
president of PayNet, which collects
data for commercial loans and leases:
Just 1.19 percent of small-business
loans are 31 days to 90 days overdue,
and only 0.29 percent are more than
90 days past due. Small business is in
great scal shape, he says. It helps that
big companiesoften the customers of
smaller onesare posting record prof-
its. Five years ago, putting the screws to
smaller vendors was a nifty way for big
companies to improve cash ow. Now,
theres less incentive to do that.
Thats the sunshine. And in a perfect
world, or even a sort-of-perfect one,
the path would be clear. But in a
uniquely unproductive political environ-
ment, the path is anything but. To be
fair, mild political inertia can have a
bizarre silver lining for business: no big
surprises out of Washington. But when
the countrys elected representatives
shut down the government and only
INC. 5000
OWNERS FEEL
LOVED BUT
MISUNDERSTOOD
59%
agree or strongly agree
that entrepreneurial
popularity is at an
all-time high. But they
also feel misunderstood.
62%
agree or strongly agree
that the popular press
glories tech start-ups
at the expense of other
types of companies.
95
%
agree or strongly agree
that most Americans
dont really understand
how hard it is to start
and build a successful
company.
INSIDE THE MINDS
OF ENTREPRENEURS
How are entrepreneurs feeling about the state of
small business? To nd out, Inc. surveyed Inc. 5000
winners from the past decade about a range of
business, political, and cultural issues. One key
takeaway: These scrappy business owners arent
letting Washington slow them down.
SEE THE FULL SURVEY RESULTS AT WWW.INC.COM/STATEOFSMALLBIZ.
The past ve years have
been rough, but most Inc. 5000
entrepreneurs report a sunny
business outlook.
What would you say your business is worth
today versus ve years ago?
If you made sacrices to support your business in
the past ve years, what steps did you take?
60%
POSTPONED
VACATIONS
48%
SLASHED
PERSONAL
PURCHASES
27%
SOLD
PROPERTY AND
VALUABLES
60%
TAPPED
SAVINGS
63%
CUT BACK
MY SALARY
How concerned are you
about the following: VERY SOMEWHAT NOT
The value of
your business
Your annual salary,
total compensation
Being able to maintain your
current lifestyle in retirement
Their view of the U.S.
economy? Not so optimistic.
46%
SOMEWHAT
POSITIVE 46%
The worst is over,
and slow growth
will continue.
NEUTRAL 16%
Neither positive
nor negative.
SOMEWHAT
NEGATIVE 26%
Serious problems
persist, and the
economy will see
a downturn.
VERY NEGATIVE 3%
The country is going
to face another
recession very soon.
KIMBERLY WEISUL is an Inc.
editor-at-large.
MUCH MORE 63% MORE 26%
SAME 4% LESS 6%
MUCH LESS 2%
What are your business
plans for the next year?
Increase head count
80%
80%
Expand products and services
58%
Make capital improvements
91%
Seek new U.S. customers
39%
Seek new international customers
29%
Borrow money
17%
Take on equity investors
How would you rate your
business prospects for the
next 12 months?
EXCELLENT
37%
GOOD
45%
AVERAGE 14%
POOR 1%
DONT KNOW 2%
How would you rate
the countrys economic
prospects for the next year?
What is preventing a
strong economic recovery?
Unemployment
18%
Consumer condence
32%
Higher taxes
52%
Gridlock in Washington
51%
Federal, state, and local regulations
42%
Reluctance by banks to lend
31%
Health care reform
41%
of entrepreneurs have
a SLIGHTLY BETTER
view of the economy
compared with one
year ago.
VERY POSITIVE 9%
Looking forward
to a sustained
period of growth.
THE BIG SURVEY
12%
Immigration policy
46 - INC. - DECEMBER 2013/J ANUARY 2014
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Most Inc. 5000 entrepreneurs we surveyed voted for Mitt Romney.
Their top picks for President in 2016 might surprise you.
CHRIS
CHRISTIE
HILLARY
CLINTON
PAUL
RYAN
RAND
PAUL
ANDREW
CUOMO
JOE
BIDEN
34% 21% 9% 7%
Which presidential
candidates would you
consider supporting
in 2016?
DEMOCRATIC 18%
REPUBLICAN 42%
NEITHER PARTY 40%
Which party is
best equipped to
improve the
economy?
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LEAD THE STATE OF SMALL BUSINESS
UP WITH START-UPS
Small-business owners are often the stars at State of the Union speeches. In 2013, it was
Deb Carey of Milwaukees New Glarus Brewing (third from left in the second row).
NEARLY DONE DEALS
Legislation covering two key issues
afecting smaller companies has already
been signed into law. The catch: Impor-
tant details remain unresolved.
The Afordable Care Acta.k.a.
Obamacarebecame law in 2010. But it
remains a kludge in progress: In April,
the administration delayed until 2015
the rollout of the state-run exchanges
that will allow employees a wider choice
of coverage options, and in July it pushed
back, also until 2015, the launch of the
employer mandate (forcing businesses
with 50 or more employees to buy cover-
I
t has become a ritual during the State of the Union address
each January: As President Obama talks about small business
as the foundation of our economy, the cameras pan to
Michelle Obama. Sitting nearby will be a smiling entrepreneur,
chosen to illustrate the administrations commitment to
young companies. In 2009, the guest was the owner of a
solar panel installation rm in Colorado. In 2010, it was the
CEO of a chain of supermarkets. In 2011, there was Zachary
Davis, who had launched an ice cream shop in California,
thanks to the American Recovery and Reinvestment Act.
But even though Davis follows politics more closely than
most entrepreneurs, he still works too many hours to pay
much attention to Washington policy debates.
With business owners like Davis in mind, Inc. looked at the major
policy issues afecting small-business owners in 2014and whether real
change has any chance of happening:
UNCLE SAM COULD ACTUALLY
HELP BUSINESS OWNERS IN
2014. NO, REALLY
Some promising proposals might just come to pass.
Others will wait for that cold day in hell BY DANIEL McGINN
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50 - INC. - DECEMBER 2013/J ANUARY 2014
Payroll stressing you out? Start using Intuit
C
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F
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:
G
A
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S
T
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;
N
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A
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H
A
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B
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R
G
/
C
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B
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;
S
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V
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B
A
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G
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;
N
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C
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;
C
O
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B
I
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60 - INC. - DECEMBER 2013/J ANUARY 2014
LEAD THE STATE OF SMALL BUSINESS
citys hard line against expansion doesnt really
allow its own start-ups to grow much past a
certain size. The result? The town has made
itself a physical incubator for small businesses.
After companies reach 500 employees, they
either have to move out to the other side of the
open space or sell, says Kyle Lefof, a general
partner with Boulder Ventures since 1995.
But for those who can aford the housing,
steer clear of the mountain lions, and squeeze
into its limited ofce space, Boulder afords an
incredible quality of lifealong with a place to
do business. The planning strategy, which at
rst seems antibusiness, simply favors those
who are in it for the long haulthose who are
thinking about raising families and living in
Boulder until old age, and weeds out those that
would dive in because of a juicy tax incentive.
There are entrepreneurs like Phil Anson,
who came out after graduating from college
purely to bum around and climb. A onetime
line cook, he started selling premade burritos
out of a cooler to support himself. In time, he
found he liked scaling that business better
than scaling rocks, and Evol Burritos, his
73-employee company, now distributes to
supermarkets nationwide and rang up $12.4
million last year.
There were those who arrived in Boulder
by accident and fell in love. Matt Larson,
founder of Cono Software, moved there
because his biggest investor told him he had
to as a condition to getting funded (the man
lived in Boulder and wanted to be chairman
but didnt want to move). Alabama native
Dale Katechis ended up in Lyons, the town
just north of Boulder, after he and his wife ran
out of money on the way to Montana. Kat-
echis started waiting tables. Then he opened
his own restaurant, Oskar Blues Brewery, and
started brewing beer as a way to get his eat-
erys name out, and found the beer sold better
than the food. (His brewery, which sells
Dales Pale Ale, made $33 million in sales last
year.) Little Lyons was like Mayberry in the
mountains, Katechis says, his voice tinged
with the last remnants of an Alabama drawl.
There are those entrepreneurs who moved
to Boulder when they were older, when they
already had money, almost as a reward to
themselves. In 2001, the Wall Street day-trad-
ing rm where Kate Maloney worked opened
an ofce in Boulder, simply because she and
some co-workers thought it would be more
fun. Six years later, she started TherapySites, a
Web company she runs out of a loft apartment
downtown. In 2006, adman Alex Bogusky
moved a chunk of Crispin Porter + Bogusky,
the advertising agency he co-founded, from
Miami to ofces in Gunbarrel, a town eight
miles northeast of Boulder. To Bogusky, out-
door sports lovers and entrepreneurs share a
common DNA: Thrill seekers are drawn to
this place, he says. Once you get out here, you
want the ultimate thrill in business, too, and
thats start-ups. By the time Bogusky retired
from the agency, the Boulder ofce of Crispin
Porter + Bogusky had swelled to more than
700 employeesmany of whom had moved
from Miami.
And nally, there are those who came out
of the University of Colorado and couldnt
imagine going anywhere else. The most
famous is probably Marvin Caruthers, who,
as a biochemistry professor in 1980, helped
start the biotech rm Amgen. His co-found-
ers decided to put company headquarters in
Thousand Oaks, California, but Caruthers
HEALTH
NUT
Mo Siegel started
Celestial Seasonings in
1969. Back then, he
sold his tea in health-
food stores in Boulder
(at the time, there
were only three such
shops). Boulder was
really conducive to
the natural-foods
industry, says Siegel.
Everybodys so
healthy. If you dont run
or bike or skior hike or
climbyou really cant
live here. Now, of
course, natural food is
as ubiquitous nation-
wide as Celestials
Sleepytime tea.
62 - INC. - DECEMBER 2013/J ANUARY 2014
LEAD THE STATE OF SMALL BUSINESS
PIONEER
After earning three
degrees from the
University of Colorado
in Boulder, R.C. (Merc)
Mercure became a
founding employee at
Ball Aerospace in 1956.
Ed Ball took us aside
and asked us if we
would consider getting
into the electronics
business, Mercure
recalls. A few of us
said, Why not? Ball
went on to land a
contract with NASA
and helped put a solar
observatory into orbit.
kept a lab in Boulder. Since then, the Univer-
sity of Colorado has become a destination
for DNA and RNA research. Veterans of his
department, of Amgen, and of the univer-
sitys biology departments would go on
to start biotech rms, including Applied
Biosystems, Dharmacon, Myogen, and
Pharmion, companies that sold for more
than $6 billion altogether.
I wish I could point to some municipal
entrepreneurship program or other business
initiative that enticed these people to start
companies in Boulder. But the thing is, entre-
preneurs claim the city stymies them more
than it helps. Mundane parking regulations
hindered business early on, says Niel Robert-
son, CEO of $12.6 million-a-year Internet
advertising start-up Trada. The city, in its
eforts to reduce congestion, gave Robertsons
17-employee company just three parking
permits. (The company, which now has 100
employees, has since moved to a building
with a parking garage.)
Anson, the burrito maker, says it took
eight weeks just to get a permit to install a
new refrigeration unit at his plant. Theyre
so conditioned to say no to everything, he
says. Its a massive pain in the ass. But leave
town? No way. Its a dual-edged sword,
says Anson. Its harder for me to run my
plant, but its also why people cant build
mansions and block each others views, so
we have a balanced city.
O
f course, Boulders not perfect.
Many businesses would struggle
to exist there, especially those
that require heavy equipment or
a low-wage work force. Its regu-
lations, and its constricted land area, heavily
favor small companies. In fact, several start-
ups, including Internet security rm Web-
root and StorageTek, grew out of the town,
choosing to move out to a sprawling ofce
across the green space in neighboring
Broomeld. But many other entrepreneurs
decided to sell out and stayand join Boul-
ders growing number of angel investors and
venture capitalists, the next step in the citys
development. Mo Siegel now invests in other
natural-foods companies. Caruthers helped
start Boulder Ventures, which invests almost
exclusively in Boulder entrepreneurs. All
together, venture capital rms invested
$587 million in Colorado in 2012a far cry
from major venture hubs such as Silicon
Valley and New York City ($11 billion and
$2.3 billion, respectively) but signicant.
They would rather do that than move to
some tony retirement placebecause in
their minds, Boulder beats em all. Thats the
thing. Pretty much every entrepreneur told
me he or she started up in Boulder or stayed
in Boulder for that same reason: Its a beau-
tiful place to live. And its beautiful not
because the city forefathers had some nifty
pro-start-up policybut because they had
the foresight to plant lots of trees, welcome
a university and federal science labs, buy up
lots of parkland, and then stay disciplined
about preserving the beauty they had cre-
ated. The idea was simple: Make a city a
great place to live, and people gure out how
to make a living there.
SEE: 7
SMALL EMPLOYER (49 OR FEWER EMPLOYEES)
Consider a private
exchange, which
lets workers customize
their coverage and
contribution levels.
SEE: 3, 4
Try a group plan
in the SHOP
exchange if you meet
the criteria for
a small-business
tax credit.
SEE: 4, 6
HEALTHIER
EMPLOYEES
SICKER
EMPLOYEES
If you cant get a tax
credit with a SHOP plan,
send employees to a
public exchange.
SEE: 3, 8
Self-funding
is also a good option
if your companys
health claims
have been low.
SEE: 5
If you have less-
healthy employees and
want to ofer coverage,
try a SHOP or nonex-
change plan.
SEE: 3, 8
Consider no
coverage or a
skinny plan and let
workers buy on an
exchange.
SEE: 3, 6
If you ofer coverage,
consider self-funding
to avoid a community-
rating penalty.
SEE: 5
LOWER
EMPLOYEE
WAGES
HIGHER EMPLOYEE
WAGES
68 - INC. - DECEMBER 2013/J ANUARY 2014
LEAD THE STATE OF SMALL BUSINESS
who work an average of at
least 30 hours a week) and
part-timers. For example, if
you have 30 full-timers plus
60 people who put in an
average of 15 hours per week,
you have 60 FTEsand could
face penalties if you dont
ofer health coverage in 2015.
Keep in mind that you dont
actually have to ofer insur-
ance to the part-timersonly
to your full-time workers.
Also, understand that if you
own or have a substantial
ownership interest in more
than one company, those
companies are considered a
single entity under the law,
and the total number of
FTEs across all those busi-
nesses will determine large-
employer status.
For many businesses,
employees come and go
throughout the year, which
further complicates the
question of who is a full-time
equivalent employee. For that
reason, the law asks employ-
ers to pick a given measure-
ment, or look-back, period to
determine whether workers
are full time. This period can
be anywhere from three to
12 monthschoosing the
time frame is up to you. Just
remember that the shorter
the period, the more often
you will have to count. A
12-month look-back period is
most convenient, says Paul
Ashley, an adviser with First-
Person, an Indianapolis
benets and HR rm. It also
means that if your policy
renews on January 1, you
should already be counting,
so you know whos eligible
for the company plan when
open enrollment for 2015
starts next October.
CONSIDER
WHETHER YOU
WILL OFFER
COVERAGE AT ALL
HASSLE URGENCY
ONCE YOURE FAIRLY condent
which boat you are insmall
or large employeryou can
start making some decisions.
First and foremost: Will you
ofer employee coverage?
If youre a small employer,
you dont have to; the law
doesnt require it. And now
that public health exchanges
make guaranteed, afordable
coverage available to indi-
viduals and families, employ-
ees of small companies are not
as dependent on work-based
health plans as they have been
in the past. You have to ask
whether employer-sponsored
coverage is an important part
of employee retention and
attraction, says Michael
Bodack, a broker with York
International in Harrison,
New York. For some small
companies, theres no down-
side to dropping coverage,
paying people a couple of
extra bucks, and sending them
to the exchange.
If youre a large employer
thinking of adding or expand-
ing coverage in 2014, you
might want to wait. A 2013
study by researchers at the
Stanford School of Medicine
found that roughly 37 million
people now getting employer-
sponsored insurance would
be nancially better of get-
ting coverage through public
exchanges. Largely this is
because they could qualify for
credits and subsidies available
to individuals and families
earning up to 400 percent of
the federal poverty level.
Although the ACA limits how
much you can ask workers to
pay for self-only coverage,
there is no requirement that
you subsidize their family
members as generously. As a
result, the cost for family
coverage through an employ-
er could be double or triple
what it would be through
an exchange.
In 2013, covered workers
contributed an average 29
percent of the premium for
family coverage, or $4,565,
according to the Kaiser Fam-
ily Foundation. Say one of
your workers makes $35,000
a year and has a nonworking
spouse and two kids.
Average-priced employer
coverage for the family would
cost about 12 percent of
household income. If this
same family went to a public
For some small companies,
theres no downside to dropping
coverage, paying people a couple
of extra bucks, and sending
them to the exchange.
70 - INC. - DECEMBER 2013/J ANUARY 2014
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exchange, it would qualify for
subsidies on the basis of
household, not individual,
income. As a result, the em-
ployee could buy a silver-
level family plan for just
$1,373 per year, or about
3.9 percent of household
income after subsidies.
The catch: Neither em-
ployees nor their family
members can claim ex-
change subsidies if self-only
afordable coverage is avail-
able through their work. The
only way to make sure they
can get the subsidies is to
not ofer that coverage. That
will open you up to a $2,000
per-person annual penalty,
after your rst 30 workers,
in 2015. (Unless you try a
skinny plan approach; see
No. 6.) But, Blumling says,
it could make more sense to
pay the penalty for your
employees benet.
DECIDE WHERE
TO SHOP
HASSLE URGENCY
FOR SMALL COMPANIES that
want to ofer insurance, one of
the biggest changes in 2014 is
that there are a lot more ways
to shop for it. If you have 49
or fewer employees, you can
use the new Small Business
Health Options Program, or
SHOP, exchanges run by
states or the federal govern-
ment. These exchanges were
designed to give employees of
small businesses an easy way
to choose from an array of
plans, from diferent carriers,
at a given metal level
(bronze, silver, gold, plati-
num) chosen by their em-
ployer. But under transitional
rules meant to ease adminis-
trative burdens, in 2014 the
36 exchanges administered
by the federal government
will ask employers to pick a
single health plan to ofer
employees. (The multiple-
choice functionality should
be available in 2015.) State-
run SHOPs can use either
approach, but the reality is
that in many states, there are
just one or two providers of
small-business coverage
anyway. Whats more, em-
ployers and benets experts
around the country are nd-
ing that many plans ofered
through exchanges ofer
narrower networks of doc-
tors and hospitals. Insurers
say these narrower networks
help them control costs and
thus keep premiums down.
But it can mean that employ-
ees lose access to favorite
doctors and other specialists.
Private health-insurance
exchanges, if theyre available
in your state, are another
option. In private exchanges,
the employer selects a menu
of plan options from one or
more insurance carriers and
decides on a dollar amount it
will contribute toward em-
ployee health benets. Em-
ployees then use the funds,
plus any additional amount
they want to contribute, to
buy a plan as rich or stingy as
they choose. Some private
exchanges ofer as many as 20
coverage options.
Private exchanges ofer
employees more choices than
the SHOPsnot to mention
being easier to use than many
state exchangesand may
also ofer one-stop shopping
for ancillary benets such as
vision, dental, life, and dis-
ability insurance, which are
not available in the public
exchanges. For large em-
ployers, human resources
consultancies such as Aon
Hewitt, Towers Watson, and
Mercer have established
private exchanges. Small
businesses and sole propri-
etors can look to exchanges
such as Minnesota-based
Bloom Health (which has
plans in multiple states)
and HealthPass in New
York State, as well as single-
carrier private exchanges
run by regional insurers.
EXPLORE
A SELF-FUNDED
PLAN
HASSLE URGENCY
STARTING IN JANUARY 2014,
insurers will be required to
use adjusted community
rating when setting premi-
ums for individual and small-
group plans sold on the
exchanges and the private
market. This means that
insurers cant consider
health history (or factors
such as occupation or gen-
der) in determining premi-
ums; instead, carriers must
ofer all small employers
(generally, those with 49 or
fewer employees) in a given
geographic region essen-
tially the same deal. Limited
adjustments are allowed
only for age, family size (i.e.,
individual or family), and
tobacco use.
This is great for small
companies with a history of
large health claims that have
driven up premiums. But
community rating will fall
hard on younger, healthy
companies. Small groups
LEAD THE STATE OF SMALL BUSINESS
Some companies will
have no other choice than
looking at self-funding.
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LEAD THE STATE OF SMALL BUSINESS
could see premiums dou-
bling, depending on their
age and other factors, says
Blumling. As a result,
healthy companies that meet
their states small-group
denition and want to ofer
coverage almost have no
other choice than looking at
self-funding or partial self-
funding for their rst renew-
al in 2014, says Ashley, of
FirstPerson.
In self-funded plans, an
employer sets aside funds to
cover employee health
claims, rather than paying
per-employee premiums to
an insurance company.
These plans are not subject
to the ACAs community-
rating requirements. Compa-
nies with fewer than 250
employees typically combine
self-funded health plans
with stop-loss insurance,
which protects them against
losses from higher-than-
expected claims in a given
plan year. If actual claims
are less than the amount that
has been funded, youre
refunded the diference.
Once limited mainly
to large companies, self-fund-
ing is now becoming acces-
sible to ever-smaller groups.
Says Ashley: More and more
carriers are ofering modied
self-funding products speci-
cally designed for groups as
small as 10 employees.
PONDER THE
SKINNY STRATEGY
HASSLE URGENCY
ITS NO SURPRISE that a law as
complex as the ACA would
come with some unintended
consequences and perverse
incentives. The so-called
skinny plan strategy is one of
those consequences. Its
hard to understand, regula-
tors hate it, and you might
nd it a tad unsavory. But a
good number of employers
are considering it nonethe-
less, so its not a bad idea to
understand how it works.
Say you own a large busi-
nessa restaurant, retailer,
or manufacturerwith lots
of low-wage workers. Start-
ing in 2015, if you dont ofer
them minimum essential
health coverage and any
employee gets a subsidy on a
public exchange, youll be hit
with a penalty: $2,000 times
your number of full-time
equivalent employees, minus
30. If the coverage you pro-
vide is unafordable or
doesnt meet the ACAs mini-
mum-value test, the penalty
seems higher: $3,000 times
the number of employees
who get subsidized coverage
through a public exchange.
The skinny plan strategy
works like this: An employer
ofers employees health
coverage, but in a really
watered-down, really cheap
version that unks the ACAs
minimum-value test. As a
result, the employer faces the
$3,000 per-employee penalty.
But heres the catch: The
total penalty depends on the
number of employees who
actually claim subsidies and
purchase coverage on an
exchange. Those using the
skinny strategy, essentially,
are betting that ofering lousy
coverage will result in a
lower total penalty than not
ofering coverage at all. Its
an unintended consequence
of the law, says Blumling.
Regulators really dont like
it. But they dont seem to
have a way to stop it.
A skinny strategy will not
earn you any PR points. And,
Blumling warns, youve got
to make sure its executed
properly to weave through
competing regulatory guid-
ance. But some employees,
especially those who are not
currently insured through
work, may actually appreci-
ate skinny plans.
Thats because low-wage
workers are highly likely to
forgo health care coverage
altogetherjust 37 percent
of single employees earning
$15,000 to $20,000 per year
participate in employer-
sponsored health plans,
according to a 2013 survey
by benets consulting rm
ADP. And even with federal
subsidies, a single person
making $20,000 a year
would still have to pay an
average of at least $587 a
year in premiums for an
exchange-based plan. A
more limited, even lower-
cost option might be attrac-
tive to that worker; it also
would let him avoid the
individual mandate pen-
alty$95, or 1 percent of
taxable income, in 2014.
And if this employee
Those using the skinny strategy, essentially, are
betting that ofering lousy coverage will result in a
lower total penalty than not ofering coverage at all.
74 - INC. - DECEMBER 2013/J ANUARY 2014
LEAD THE STATE OF SMALL BUSINESS
decides he wants more ro-
bust coverage, he can get it
through an exchangeand
qualify for subsidies, to boot.
LAUNCH A
WELLNESS
PROGRAM
HASSLE URGENCY
GENERALLY, IF YOU SUBSIDIZE
employees health-insurance
premiums, you have to do so
equitably. The exception: Since
2006, employers have been
permitted to vary premiums
on the basis of participation in
wellness programscharging
less for those who take part or
more for those who dont.
Starting in 2014, the ACA
will increase the incentives
that you can ofer, from 20
percent to 30 percent of the
total cost of coverage for
participation in health-con-
tingent wellness programs
which require participation in
a physical activity, for exam-
ple, or meeting certain health
standards, such as a desired
cholesterol or blood sugar
level or body mass. To encour-
age smokers to quit, you can
charge them premiums up to
50 percent higher than those
for nonsmokers. And if you
dont already have a wellness
program in place, there are
$200 million in federal grants
available to help you start one.
Lets say your group health
plan has an annual premium
for employee-only coverage of
$6,000, of which the employ-
ee pays $1,500. You ofer
employees a chance to un-
dergo a health-risk assess-
ment to see if they meet blood
pressure, cholesterol, and
body mass targets, along with
a program to help those who
dont meet the targets to work
toward them. You can give
those who participate an
annual premium rebate of up
to 30 percent of the total
annual cost of employee-only
coverage. In this case, the
maximum rebate would be
$1,800; but you can pay any
amount you choose. If you
ofer a smoking cessation
program, you can charge
smokers who dont enroll in
it a surcharge up to 50 percent
of the total cost of cover-
age$3,000 in this case.
A surcharge on smokers
premiums can have an imme-
diate nancial payback: A
smokers premium is higher
than a nonsmokers and there-
fore drives up your companys
average premium. Having
them contribute more helps
ofset those additional costs.
The impact of other kinds
of wellness initiatives is hard-
er to gauge in dollars and
cents. In large-group plans
that arent afected by com-
munity rating, encouraging
employees to be healthier can
help keep long-term health
costs down by reducing over-
all medical claims and corre-
sponding rate increases. A
2010 study by Harvard, for
example, showed an average
return on investment of $3.27
per $1 for wellness programs
when considering health care
costs alone.
In smaller companies, the
return on investment comes
mostly through reduced
disability and workers comp
claims and soft savings, such
as reduced absenteeism and
higher productivity. If you
have a company with 10
people, its a huge issue when
someone is in poor health
and not coming in to work
or coming in and not per-
forming, says Thomas Parry,
president of the Integrated
Benets Institute, a nonprot
membership organization
that provides health and
productivity research to
companies of all sizes.
CLAIM YOUR
TAX CREDIT
HASSLE URGENCY
IF YOU HAVE 25 OR FEWER full-
time equivalent employees,
pay average annual wages
below $50,000, and pay at
least half of the premium cost
for employee-only health
insurance, the government
wants to help you. Really.
The Small Business Health
Care Tax Credit has been
available since 2010, but in
2014, the maximum credit is
increasing, from 35 percent
of employer-paid premiums
to 50 percent. Qualifying
businesses will be able to
claim the expanded credit for
up to two consecutive years.
The amount of the tax
credit varies on the basis of
the size and wages of your
work force. The credit can
be used only to ofset taxable
income, so if you have no net
corporate income in the
current year, you can carry
the credit forward or apply it
up to one year back.
If your plan starts in Janu-
ary 2014 or later, you will
have to buy coverage through
your states SHOP exchange
to qualify for the credit.
Under a transitional rule,
though, plans purchased
outside the exchange that
have a 2013 start date but roll
over into 2014 will also be eli-
gible for the credit in the
2014 tax year, as long as you
buy through the exchange on
your next renewal.
CRAFTY
Etsy employees,
surrounded by
Etsiness, at company
headquarters in
Brooklyn, New York
What
Works. Whats
Next.
Smart ideas stolen from coders PG.86 Now the hackers are coming after youPG.82
DECEMBER 2013/J ANUARY 2014 - INC. - 81
PHOTOGRAPHBY REEDYOUNG
HIGH
ALERT
5 Stats
You Should
Know About
Cyberthreats
Top 5 lenames
used as bait in
phishing scams
Details.zip
UPS_document.zip
DCIM.zip
Report.zip
Scan.zip
Tip Sheet
Think youre too small to catch a hackers eye?
Big mistake. Youre probably the perfect target
TECH
$188,242
Average annual
cost of a cyberattack
on a small or
medium-size
business
CHRIS HADNAGY, founder of security training rm Social-Engineer
SOURCES: SYMANTEC, FIREEYE, FCC
TECH
WEAK
PASSWORDS
With a $300 graphics
card, a hacker can run
420 billion simple, low-
ercase, eight-character
password combina-
tions a minute.
80% of
cyberattacks involve
weak passwords.
55% of people
use one password
for all logins.
In 2012, hackers
cracked 6.4 million
LinkedIn passwords
and 1.5 million
eHarmony passwords
in two separate
attacks.
Use a unique
password for each
account.
Aim for at least
20 characters and
preferably gibberish,
not real words.
Insert special
characters: @#$*&
Try a password
manager such as Last-
Pass or Dashlane.
The best way to build stronger defenses is to identify your companys weak spots
F
IRST THINGS FIRST: There are way more than ve
ways that cyberthieves can break into your busi-
ness. (Theyre surely thinking up new methods as
you read this.) Often they use more than one ap-
proach in a single attack. Even so, small-business
hacks tend to fall into a few categories. We turned to security
professionals and ethical hackersthey help businesses
identify their vulnerabilitiesto nd out the most common
methods used and what you can do to protect yourself and
your brand. JOHN BRANDON
SOCIAL
ENGINEERING
Think 21st-century
con artist tactics,
e.g., hackers pretend
to be you to reset
your passwords.
29% of all
security breaches
involve some form of
social engineering.
Average loss:
$25,000 to $100,000
per incident
In 2009, social
engineers posed as
Coca-Colas CEO,
persuading an exec
to open an email
with software that
inltrated the
network.
Rethink what
you reveal on social
mediaits all fodder
for social engineers.
Develop poli-
cies for handling
sensitive requests
like password resets
over the phone.
Have a security
audit done.
MALWARE
ATTACKS
An infected website,
USB drive, or ap-
plication delivers
software that can
capture keystrokes,
passwords, and data.
8% increase in
malware attacks
against small busi-
nesses since 2012
Average loss from
a targeted attack:
$92,000
In February, hackers
attacked about 40
companies, including
Apple, Facebook,
and Twitter, by rst
infecting a mobile
developers site.
Run robust
malware-detection
software like
Norton Toolbar.
Keep existing
software updated.
Use an iPhone
Android phones
are targeted more
than any other
mobile OS.
RANSOMWARE
Hackers hold your
website hostage,
often posting em-
barrassing content
like porn, until you
pay a ransom.
$5 million
is extorted each year.
The real cost is the
data losspaying
the ransom doesnt
mean you get your
les back.
Hackers locked
the network at an
Alabama ABC TV
station, demanding
a ransom to remove
a red screen on every
computer.
As with mal-
ware, dont click on
suspicious links or
unknown websites.
Regularly back up
your data.
Use software,
such as Kaspersky
Internet Security
2014, that speci-
cally checks for
new exploits.
HOW
IT WORKS
RISKS/COSTS
NOTABLE
SCAMS
YOUR
BEST
DEFENSE
Illustrations by MATTHEW HOLLISTER
PHISHING
EMAILS
Bogus but ofcial-
looking emails
prompt you to enter
your password or
click links to infected
websites.
125%
rise in social-media
phishing attacks
since 2012
Phishers stole
$1 billion from small
businesses in 2012.
Scads of small
businesses were
targeted in 2012
with phishing emails
designed to look
like Better Business
Bureau warnings.
Keep existing
software, operating
systems, and
browsers updated
with the latest
patches.
Dont automati-
cally click on links
in emails to external
sitesretype the
URL in your
browser.
SPECIAL
CYBERSECURITY
REPORT
Sources: Symantec, Kaspersky, Verizon, CSO, LastPass, abcnews.com, Osterman Research, Neohapsis Security Services
84 - INC. - DECEMBER 2013/J ANUARY 2014
Your zeal for capturing every moment is limited only by the capacity
of todays smartphones. Or at least it was until now. Thanks to
My Cloud, youll never run out of space on your phone again,
because you can save photos all in one place and instantly pull up
each one - from anywhere and at any time. wd.com/mycloud
Western Digital, WD and the WD logo are registered trademarks of Western Digital Technologies, Inc. in the U.S. and other countries; My Cloud and absolutely are trademarks of Western Digital Technologies, Inc.
in the U.S. and other countries. Other marks may be mentioned herein that belong to other companies. Product specifcations subject to change without notice. Picture shown may vary from actual product.
2013 Western Digital Technologies, lnc. All rights reserved.
My Cloud
NO-TECH COMMUNICATION
XP prizes simple communica-
tion, which in practice means
the least technology possible,
says Beck. At Menlo Innova-
tions, a custom software rm
in Ann Arbor, Michigan, every
employee in every department
communicates with paper,
pushpins, yarn, and sticky dots,
which they plaster across walls
to chart the course of their
work. In companies, there is
so much pain between the
business side and the technical
side or the front ofce and pro-
duction, or management and
the line staf, says Richard
Sheridan, Menlos co-founder
and CEO. Beck showed us how
to break down barriers by creat-
ing a common language with
the simplest possible tools. Yes,
there are technology-based
ways to do all this. But this way
works better for the humans.
INFORMATIVE EAVESDROPPING
Beck writes that an observer
should be able to walk into an
XP workplace and suss out
whats going on in 15 seconds.
Luxr, a San Franciscobased
company that makes coaching
products for start-ups, has an
open ofce where almost
everything happens in public.
Eavesdropping and overhear-
ing are encouraged and how
we keep informed about
things, says founder Janice
Fraser. Employees make
decisions among themselves
and pin relevant notes to the
wall. Everyone is expected to
absorb whats going on and
to ask questions if he or she
misses something. As a result,
meetings are virtually nonexis-
tent. Anytime you have to pull
30 people into a room to get
them up to speed, that is pro-
foundly wasteful, says Fraser.
2013 Schneider Electric. All Rights Reserved. Schneider Electric, APC, Smart-UPS, and Business-wise, Future-driven are trademarks owned by Schneider Electric
lndustr|es SAS or |ts aff|||ated oompan|es. A|| other trademarks are the property of the|r respeot|ve owners. www.sohne|der-e|eotr|o.oom 998-1209036_GMA-S_Nexus
TECH
THE WRITING IS ON THE WALL Etsy employees are surrounded by Etsy products and Etsy thinking.
million-plus artist types with, in many cases, anticommercial
tendencies, makes it all the harder. Only if he can earn the
communitys trust, as he earned the trust of his staf, can he
prove himself a visionary CEO.
T
O UNDERSTAND THE CONFLICT thats roiling Etsys
community and the challenge facing Dickerson,
consider the case of Tielor McBride. A bearded
28-year-old Brooklyn-based leather-goods maker,
McBride joined Etsy in 2010. He was designing
window displays and interiors for Ralph Lauren stores, but
after he got promoted into the advertising department and the
work left him creatively unfullled, he decided to turn his
hobby of making rugged leather and canvas bags into a profes-
sion. He made his rst sale on Etsy in late 2010, under the
shop name TM1985, and business took of a few months later
when he was highlighted on Etsys homepage as a Featured
Seller; he had 200 orders in one day.
As sales picked up on Etsy, McBrides connections in the
fashion world also started paying of, and he began selling bags
to independent boutiques in Brooklyn and beyond. His busi-
ness quickly exceeded his capacity to turn out bags in his
workshop, so he decided to expand his production operations,
as any budding entrepreneur would.
Today, 12 skilled workers make TM1985 bags and wallets
and other accessories in a small family-owned leather-goods
factory in New Jersey. McBride visits the factory two or three
times a week to make sure the foreman knows whats coming
down the line, to keep an eye on quality, and occasionally to
help punch out leather or rivet pieces. He designs all his prod-
ucts himself and still makes prototypes in his own workshop,
but increasingly, he spends time on operational matters. He
will sell half a million dollars worth of bags this year, about
90 percent of that through his wholesale channels and just
a few percent through Etsy.
Ive beneted a lot from EtsyI got my start there,
McBride says. On one level, his success is a testament to the
cultural movement that made Etsy possible. His brands
entire reason for being is a rebuke to big business and a re-
turn to personal attention to detail. And yet, as hes grown,
the amount that his hands touch any individual piece has
shrunk to nearly zero.
For Dickerson, supporting successful shops like TM1985 has
been a high priority. Historically, the company has done this by
amending the guidelines for what does and
doesnt belong in the marketplace. What
CONTI NUED
ON PAGE 144
92 -INC.- DECEMBER 2013/J ANUARY 2014
Her success at the American Dream
is a real triumph. THE NEW YORK POST
Born on the eve of Chinas Cultural Revolution,
Ping Fu was separated from her family at
age eight. After a traumatic childhood, she
found her way to the United States; her only
resources were $80 and a few phrases of
English. Yet Ping persevered and eventually
started a pioneering 3D printing company,
Geomagic, that changed the world.
She tells her story with intelligence,
verve, and a candor that is often
heartrending. . . . Her life story is
moving and inspiring.
THE WALL STREET JOURNAL
This is an utterly unique memoir,
a fascinating look at one womans
journey from Maos China to the top
of the American tech world.
TONY HSIEH, CEO OF ZAPPOS.COM,
AUTHOR OF DELIVERING HAPPINESS
Not only has she triumphed over
adversity most of us can scarcely
imagine, but she has managed to
draw out of her experience a wealth
of practical business lessons.
BO BURLINGHAM,
AUTHOR OF SMALL GIANTS
NOW IN PAPERBACK.
For a free excerpt, visit www.bendnotbreak.com.
TECH
The Simple Change Thats
Completely Transformed
How I Get Things Done
No app, checklist, or special
process required
the United States. Techstars, which I co-founded,
has programs throughout the country and has
recently expanded overseas. My writing on start-
up communities (Startup Communities: Building an
Entrepreneurial Ecosystem in Your City) and with
organizations like the nonprot UP Global takes
me around the world. So I felt compelled to travel.
Sometimes I enjoyed it, but as an introvert, mostly
I found it exhausting. I wondered, Could I really
be as efective at this work without traveling?
Part of the reason I was able to travel as much
as I did was that I set up my systems to be able to
work from anywhere. If I had to be in New York
for a few days, I was just as connected to Boulder
(my home base) as I would have been from any-
where else. My epiphany was that because I
could work from anywhere, why not make that
place Boulder?
There were only two things I had to do to make
this work. The rst was decide to stop traveling
completely. Im not good at doing things moder-
ately, so it had to be all or nothing.
The other key was really mastering videocon-
ferencing. Its not a new technologyIve been
using it for many yearsbut the vast majority of
companies I work with have unique, inadequate
setups. Usually this means you wind up with the
least-common denominator: a crappy Skype call.
At the Foundry Group ofce in Boulder, we
installed Oblongs Mezzanine system, which we
believe is the future technology for collaborative, distributed work. (Full disclosure: Foundry
is an investor.) We rolled out LifeSize videoconferencing in every Techstars ofce. We made
sure each conference room had high-quality audio and video for any Web-based videoconfer-
ence call. We gured out how to deal with multiparty calls and learned the magic trick of
separating audio and video streams. I tried every videoconferencing software program I could
nd and practiced relentlessly, driving as many calls to videoconferencing as possible. And I
learned that when I am on a videoconference, I cant have anything else going on, or else I pay
almost no attention. So Ive learned to give the task at hand my sole focus.
It has been transformative for me. Since June, I feel as if Ive been doing the best work of
my life. Im as creative as Ive ever been. Im in the moment completely when Im working.
Im no longer shredded from the exhausting and dehumanizing process of trying to get
from one place to another by air travel, and Im getting all my work done at the same time.
The real bonus? Walking my dog every morning is a special joy, and going to bed each night
with my wife is magnicent.
I
THINK IVE DISCOVERED the ultimate productivity trick (and
sanity saver). After 25 years of traveling 50 percent to 75
percent of the time for business, Ive stopped. Completely.
I returned home from my last trip on May 17 and havent
taken a business trip since.
I initially cut out business travel for self-preservation
reasons. If you read my last Inc. column, you know that I
struggled through a depressive episode in the rst half of
2013. Depression wasnt new to me, but this time I slammed into a
wall. After months of traveling almost nonstop and binge sleeping
on the weekends to recover, I woke up one day in January and
realized I couldntand didnt want todo it anymore.
So I stopped. As part of a series of tactical life changes, I elimi-
nated business travel the rest of the year to see how it worked out.
The result? It has been incredibleso incredible that Ive decided
not to travel for business at all in 2014.
In case youre wondering, my work is international. Foundry
Group, the VC rm where Im a partner, has investments all around
START- UP SCHOOL
Brad Feld
Brad Feld is an entrepreneur and
the managing director of VC rm
Foundry Group in Boulder, Colorado.
He co-authored with his wife, Amy
Batchelor, Startup Life: Surviving
and Thriving in a Relationship With
an Entrepreneur.
94 - INC. - DECEMBER 2013/J ANUARY 2014
E
V
A
N
K
A
F
K
A
PG.102
My goal has been to
expand opportunity
to as many people
as possible.
PIERRE OMIDYAR, founder and
chairman of eBay, shown near his
home in Hawaii
Ideas.
Breakthroughs.
Disruption.
Data-driven product design PG.98 The wearable tech boom PG.106
DECEMBER 2013/J ANUARY 2014 - INC. - 97
PHOTOGRAPHBY MICHAEL LEWIS
Tip Sheet
A/B Tests
uSell, an online marketplace for used electronics,
wanted to see whether it should expand into items such
as used textbooks, clothing, and video games. Using
Optimizely, an online A/B testing tool, uSell created two
versions of its homepage, the regular one and one that
included the new items. The test showed customer
interest in new itemsand a negligible drop in electronics
sales, so uSell went ahead with the expansion.
Testing
the Waters
Three ways
to put data
in product
development
DESIGNING AN INNOVATIVE product requires
impeccable taste, sharp instinctsand, of
course, good data.
Taking a page from the tech industry,
product makers and retailers are em-
ploying A/B testing, a technique fre-
quently used to rene websites.
Traditionally, that involves showing
users two slightly diferent versions of a
webpage to see which one drives more
sales. For example, Version A might
have a button that says Buy Now, while
Version B says Get More Information.
For online developers and marketers,
these sorts of experiments have become
the industry standard. A survey from
MarketingSherpa nds that, of the
online marketers who measured return
on their A/B testing, 81 percent reported
a positive return on investment.
Now, companies that make physical
stuf are using these tests to determine
what customers want and how best to get
them to buy. Crowdery, a Y Combinator
backed start-up based in San Francisco, is
working on a widget that would let retail-
ers collect data on which potential prod-
ucts customers prefer. Crowderys
technology is still in beta testing, but the
process can be as explicit as asking con-
sumers to vote on a favorite shirt style in
hopes of scoring a presale discount if the
item ultimately gets made. Or Crowderys
code can lurk silently in the background,
walking users through a typical transac-
tion before informing the cus-
tomer that the item is not yet
available.
Founder Maran Nelson came
up with the idea after working
with a company that makes and
sells backpacks. At the time, the
founder of that business was
worried about investing time and
money into manufacturing de-
signs that might prove to be un-
popular with customers. We
started seeing that there was this
pain point for retailers, says
Nelson. Ultimately, you have an
industry making huge nancial
decisions in a very inelegant way.
Unlike traditional focus group
participants, customers in these
sorts of A/B tests often believe
they are about to purchase a
product, which makes the feed-
back more valuable. For instance,
Julep, a Seattle-based cosmetics
start-up, tested demand for a new
nail-polish wand by taking out several
ads on Google. One ad presented the new
IDEO-designed wand as a tool for so-
phisticated color mixing. The other
promised results similar to those at a
professional nail salon. Overwhelmingly,
people clicked on the ad touting the
professional-salon quality, says founder
and CEO Jane Park. She expects to start
shipping the gadget in May. Because of
the results, shes now considering ofer-
ing the wands color-mixing attachment
as a separate product.
In addition to ads, Julep regularly taps
customers for input, including polling its
Idea Lab, a group of 5,000 customers who
weigh in on early prototypes. These sorts
of tests help speed up the development
cycle and validate demand for an item
before it hits the market, says Park. Even
Want to develop a product that customers will
love? Take a cue from Internet companies
PUTTING DATA IN
MANI METRICS
JulepCEOJane Park at
one of her testing nail
parlors in Seattle
small tweaks made with feedback from cus-
tomerswhether its a slightly diferent nail-
polish formula or an improved package
designcan make a big diference in sales. So
that input is invaluable, says Park, even if it
occasionally proves her wrong. I have a dis-
agreement with my creative director almost
every day, she says cheerfully. But theres a
simple way to settle any argument: We take it
to the people. RYAN UNDERWOOD
Surveys
The mens apparel company Bonobos is obsessed with
helping customers nd the right t, so much so that
rst-time customers are encouraged to buy and return
several pairs of pants to nd the perfect match. By
surveying customers making returns, the company
discovered that one of its shirts was poong in an
unattering way. Bonobos responded quickly and
slimmed down the item, which boosted sales.
INNOVATE
Why this topic?
After coming to Silicon Valley
from North Carolina a few
years ago, my wife made me
realize something strange.
You dont see women here at
tech conferences. You dont
see women on the boards of
tech companies. You dont see
women CTOs. When it comes
to the workplace, women
arent there. Its like the Twi-
light Zone. So I started re-
searching the causes of the
problem and speaking out
about it. And the more I
spoke, the more attacks I
endured from the Silicon
Valley elite. I said, Aha! This is
the root of the problem.
Why did you decide to
crowdsource the book?
I started a major research
project at Stanford [on wom-
en and technology], which
we are wrapping up right
now. But academic papers
have to be boring. I said, Lets
do a book about this issue
where I can express all the
opinions I want. But it
doesnt make sense for a guy
to tell women how to x their
problems. I used my private
mailing list, hoping I would
get women to help me spread
the word. My goal was to get
30 to 50 women to tell their
stories. I ended up with more
than 500. I also crowdfunded
this, so it wouldnt be just my
project. I wanted to raise
$40,000. I got $96,000.
Which stories, in particular,
impressed you?
The stories are all amazing.
You see how from the time
they are young, women are
not encouraged to take on
hard mathematical tasks or
to do world-changing inno-
vation. They are discouraged
in school and then in college
and then they join the work
force and nd they are the
only female engineer in the
department or the whole
company. And they get treat-
ed diferently. Every woman
who contributed told us
about a hardship and how
she got over it.
In your experience, do men and
women innovate diferently?
Women are more sensible in
the businesses they start.
They are not going to ask for a
gazillion dollars from a ven-
ture capitalist for some hare-
brained scheme to do yet
another photo-sharing app.
They focus on the practical.
Which also means their com-
panies are initially smaller
than the guys companies.
Which is OK. They have
lower failure rates. I like those
companies better.
Much of innovation involves
teamwork. Does that help
womenbecause they are
naturally more collaborative
or hurt them, because the
men in the group may be
more assertive?
Women benet from being
more collaborative. They
generally talk a lot more
about their partners and the
support that they got and
mentorship. They value
teamwork more than the
guys do. But the guys can
hold them back.
What do you hope female
readers will take from
these stories?
Women face the same prob-
lems everywhere, but they
think they are alone. Reading
the stories of how other wom-
en surmounted their difcul-
ties is going to provide
inspiration. I have no doubt
about that.
What about male readers?
I think the majority of readers
will be women.
7 QUESTI ONS FOR
WHERE ARE
THE WOMEN
INNOVATORS?
Male academics dont inspire female innovators.
Female innovators inspire female innovators.
So when Vivek Wadhwa sought to highlight
womens struggles and achievements in the
innovation economy, he teamed with journalist
Farai Chideya to solicit stories from women
around the world. Wadhwa, whose CV includes
Stanford, Duke, and Singularity University,
took a break from editing the book to discuss
the project with editor-at-large Leigh Buchanan.
Q
Photograph by IAN ALLEN
SCAN THE PAGE TO SEE WADHWA DISCUSS HIS RESEARCH. (See page 12 for details.)
100 - INC. - DECEMBER 2013/J ANUARY 2014
BUILT TO SUCCEED: WHEN PIGS FLY
Create your own Sprinter your way. Just go to the Build
& eQuip tool at www.mbsprinterusa.com. With a
nultltuu o conguratlons, thrs a Mrcus-Bnz
Srlntr otlon uslgnu to t your nus. Anu to
connct wlth a Mrcus-Bnz Srlntr ualr nar you
touay, slnly cllck on th Flnu a Dalr llnk at th slt.
BUILD YOUR OWN
MERCEDES-BENZ
SPRINTER SUCCESS
Brand Building at the Farmers Market
Fron lts unusual nan to lts unlqu rouuct to lts cratlv
narktlng, Whn Flgs Fly ls a Lranu thats all aLout
uscal anu sllghtly oLat. Brothrs anu co-ownrs
Anurw anu Ron Slgl ut a lot o ocus on Lullulng anu
nalntalnlng that Lranu, anu thlr t o Mrcus-Bnz
Srlntrs gurs ronlnntly ln thlr orts. W nak
hlgh-quallty artlsan Lrau thats unllk anythlng ls ln th
narktlac, Anurw says, anu w ullvr our Lrau ln
a Mrcus-Bnz. W thlnk thats klnu o cool, anu lt gos
hanu-ln-hanu wlth our Lranulng.
Fart o Whn Flgs Flys narktlng stratgy ls to cultlvat
the type of upscale consumer attracted to the natural
anu halthy oous novnnt. Farnrs narkts ar a
grat way to connct wlth thn, so th Slgl Lrothrs
sll sclal llns o Lraus to arnrs narkts that thy
uont sll to surnarkts. Farnrs narkts ar a grat
way to nt ol anu lntrouuc thn to our Lranu,
Ron says. t ronots th arn-to-taLl novnnt along
wlth our own Lranu, lt glvs us an oortunlty to lntract
wlth ol, anu lts un. Whn Flgs Fly also sonsors
th York Gatway Farnrs Markt, hlu ln th conanys
hontown o York, Maln, ron Jun through CctoLr.
Mercedes-Benz Sprinter: My Sprinter, My Way
Th conany has Lox trucks anu othr vhlcls ln lts
t, Lut lts slx Srlntrs ar th vhlcls o cholc or
crltlcal ullvrls anu vntsanu sclally to ronot
th Whn Flgs Fly Lranu at arnrs narkts. ts nwst
Srlntr ls a 2012 Moul 2500 Cargo Van wlth 144-lnch
whlLas, anu thy Lought lt Lcaus o th rllaLlllty
anu low nalntnanc costs thy hav xrlncu wlth
thlr othr Srlntrs, on o whlch has gon wll ovr
220,000 nlls wlth no na|or ralrs rqulru.
The Sprinter easily accommodates all of the gear we
nu or arnrs narktsnultll racks o Lrau, a
Llg tnt to k vrythlng out o th sun, anu all our
othr sulls, Anurw says. Th Srlntrs BluTEC
ulsl ngln rovlus ul conony that ls 50 rcnt
Lttr than th conanys othr vhlcls, anu th van
ls hlghly nanuvraLl anu unuaLl ln all klnus o
wathr conultlons, h says. Thrs a sns o rlu
that cons wlth urlvlng a Mrcus-Bnz Srlntr. t
turns haus whn you urlv uown th strt, anu thats
grat or our Lranu.
BLUE-SKY THINKING
Pierre Omidyar, shown
near one of his homes in
Hawaii, is plotting his next
move: media mogul.
102 - INC. - DECEMBER 2013/J ANUARY 2014
Inspiration is
much more
effective than
delegation.
Pierre Omidyar, eBay
INNOVATE
How
I Did It
W
INNOVATE
and I wanted to invest in an IPO for a gam-
ing company. The company went public at
$15 a share. My broker calls me and says,
Well, you got the stock at $24. Im like,
How come? He said, Well, $15 was the
ideal price, not the price that people like
you can get. I was like, What do you
mean, people like me? The takeaway was
that the theory of efcient markets is really
greatin theory. In practice, regular people
are locked out.
I STARTED THINKING, This Internet thing
maybe I can use it to help bring the power
of nancial markets to regular people. Of
course, regular people arent selling stocks
in their households. Theyre selling stuf.
I thought, Theres a real opportunity to
create a marketplace that could bring the
power of efcient markets to regular people.
So thats what I did that Labor Day in 1995.
IN FEBRUARY OF 1996, about six months after I
created eBay, I started receiving a spate of
complaints. Everyone was complaining
about each other. I felt very much like I was
a parent who had to adjudicate the brothers
beating each other up. It was like, He start-
ed it! No, he started it. I realized this was
going to be a big problem if it kept going this
way. So I wrote the community a letter and
posted it on the site. I said, Im giving you a
tool, a feedback forum. If you have an hon-
estly bad experience with someone, post it
publicly. And if you can take the time to give
positive praise when someone does some-
thing good, please do that.
IT WAS A REAL EXPERIMENT, and I didnt know what to expect.
But in the days and weeks that followed, I was enormously
gratied to see that the vast majority of the comments coming
in highlighted the good things people were doing that went
above and beyond the transaction itself.
THAT EXPERIENCE LED ME to believe that this is what we had to do
internally at eBay, too. Instead of telling my executives what to
do, I should try to inspire them with a vision of where were
going and let them translate that in their own terms, based on
their own experience, their own expertise. Inspiration is much
more efective than delegation.
BY AUGUST OF THAT YEAR, I started talking to my friend Jef Skoll
and persuaded him to leave a wonderful job at Knight Ridder
and help me build eBay. But I was never the founder-CEO type
like Bill Gates or Steve Jobs. Even in those early days, my feeling
was Jef and I would build the company to a certain point, and
if we were successful, wed bring in professional management.
My skills were innovation and creation, but
in order for all that to thrive, I knew we
would need real managers, people who
knew how to build big organizations.
IT WAS MY IDEA TO BRING in Meg Whitman
as CEO in 1998, and I have to say, I really
believe we set an example of how that
transition should be done. What often
happens is a founder grudgingly brings on
a more experienced CEO and sticks around
and still tries to run the company. That
wasnt the case with us. I stayed at eBay for
a year to help with the transition, but from
the very rst day I said, Im just going to
advise Meg behind the scenes. Shes run-
ning the show.
THE YEAR AFTER I LEFT eBay, for example,
the site was down for about 22 hours. It
was a disaster. What Meg decided, and it
was really a key moment in her leader-
ship, was that we were going to call every
one of our top 10,000 sellers and apolo-
gize. She wanted to make sure the com-
pany internalized that were here to serve
real human beings, and when we make
mistakes, there are consequences.
WE WENT PUBLIC IN 1998. I had not in my
wildest imagination expected the IPO to
be so successful. We priced the shares at
$18 and closed on the rst day at about
$47. It was more money than I could ever
use. I really felt this immediate sense of
responsibility. All I could think was, Im
now the steward of a fortune. How do I
make sure this gets put to good use?
AS A NEW PHILANTHROPIST, the literature tells you you have to
work through the nonprot sector. We did that through 2002
and 2003, until I started feeling frustrated. I couldnt tell you
exactly what it was, but I felt like we werent meeting our
potential. That led to the formation of Omidyar Network,
which was built on the insight that in order to have large-scale
positive change in the world, you cant limit yourself to work-
ing in the nonprot sector.
MY ENTIRE APPROACH to philanthropy is rooted in what I wit-
nessed at eBay, the way millions of people used it to create their
own businesses. As a philanthropist, I try to help people take
ownership. Everything Ive done is rooted in the notion that
every human being is born equally capable. What people lack is
equal opportunity. My goal has been to expand opportunity to
as many people as possible so they can reach their potential.
Thats the approach we took with eBay. Its kind of hard to
make bad decisions when thats in the top of your mind.
OMIDYARS
NEXT ACT:
MEDIA MOGUL
Pierre Omidyar
describes his
lifes mission as
helping people
realize their
potential. Next
up: a digital-
media venture,
launched with
journalist Glenn
Greenwald, who
rst broke the
news about the
NSA surveillance
scandal in The
Guardian last
summer. The
as-yet-unnamed
site will special-
ize in investiga-
tive journalism
designed to
convert main-
stream readers
into engaged
citizens,
Omidyar wrote
in a blog post in
October. The ex-
pected price tag
for the venture:
as much as
$250 million.
104 - INC. - DECEMBER 2013/J ANUARY 2014
Every scar on your body is a story. A history book on a knuckle.
A vacation slideshow on a knee. A badge of honor under your chin.
Some are funny. Some are not. But all are evidence that you survived
to tell the tale. You did something someone else didnt. You made a
mistake and learned from it. In a way, youre smarter because of them.
Stronger because of them. Maybe thats why they stick around.
To remind you.
While society may see a scar as an imperfection to cover up, we see
what you should embrace. Its just one of the many things that make you
an amazingly, wonderfully unique creature. And being true to who you
are is the rst step in being truly healthy.
Always remember youre one of a kind. And at Cigna, we want to help
you stay that way.
SAVE THE
SCARS
Save all the things that make you unique.
This ad was inspired by unique individuals like you.
Join us at cigna.com/goyou
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ABOVE AND
BEYOND
Veronica Rose,
founder of Aurora
Electric, specializes in
big, complex projects,
such as the
construction of One
World Trade Center in
Lower Manhattan.
Most of her workers
are union electricians,
whose contracts
mandate decent
benets. But she
provides gold-plated
perks. Why? It
creates a much better
work environment,
Rose says.
108 - INC. - DECEMBER 2013/J ANUARY 2014
INNOVATE
EMPLOYEES DONT pay a dime for health
insurance. A registered dietitian is on
hand to help workers create nutrition
plans. If employees require time of to
handle a family emergency, they get it,
no questions asked. They get bonuses
and prot sharing.
What kind of employer are we talk-
ing about? Some perk-laden tech start-
up embroiled in a perpetual war for
talent? Nope.
In fact, the company in question is
Diamond Pet Foods, a manufacturer of,
yes, pet food based in Meta, Missouri.
The company, founded in 1970, has 535
employees at facilities in three states.
Most of them are the kinds of factory
workers and manual laborers who
would be happy to have the most mod-
est of benets packages, let alone the
lavish one supplied by Diamond.
Why go to such lengths when many
of its peers do precisely the opposite?
The answer: a substantial ROB, or re-
turn on benets.
Wages at Diamond are no higher
than those at similar manufacturers. But
voluntary turnover is at a mere 3 per-
cent, compared with an industry average
of almost 11 percent. And people dont
just stick aroundthey produce. When
employees dont have to worry about
health care or nancial issues, they can
focus on success and growing our busi-
You Can Buy
Employee Happiness.
(But Should You?)
Companies that ofer
lavish benets believe
there is a return on
their investment. The
challenge: guring out
how to calculate it
By SCOTT LEIBS PHOTOGRAPH BY ALESSANDRA PETLIN
INNOVATE
ness, says Andrew Brondel, the com-
panys director of administration. They
have the mental clarity to see areas for
improvement and to take the initiative
to ofer and implement new ideas.
In an age of outsourcing, declining
real wages, and ever-rising contributions
for health care (assuming insurance is
ofered at all), you dont hear about this
kind of thing very often. But some com-
panies still go to extraordinary lengths
and expense to attract, develop, and
retain their employees. They treat ben-
ets less as a cost of doing business than
as an investment in their most important
resource. More entrepreneurs would be
wise to adopt such practices, says Kevin
Lynch, leadership executive-in-residence
at St. Benedictine Universitys Center for
Values-Driven Leadership. When I was
a CFO, I tended to regard benets as a
burden, Lynch says. Im now condent
that they do pay ofin the form of at-
tracting good employees, retaining them,
and making them more productive.
When you have happy, satised employ-
ees, that creates value that does nd its
way into traditionally calculated ROI.
Thats the thinking at Diamond.
Benets at the company account for
about 35 percent of total compensation
costs, compared with about 30 percent
for a typical private employer, according
to the Bureau of Labor Statistics. Many
managers might see the greater expense
as a threat to margins. But not Brondel.
Robust benets, he says, boost morale
and well-being, and that translates into
higher productivity. Diamonds workers,
Brondel says, are willing to dig in when
demand spikes, which gives Diamond a
competitive advantage. Pet food is a
cyclical business: Demand rises in win-
ter as animals consume more food.
So everyone needs to step it up as tem-
peratures drop. Ive literally heard
people say, I know the company has my
back, Brondel says, so Im giving
them everything Ive got.
That logic is taken to another level at
Aurora Electric, a Jamaica, New York
based electrical contractor that works on
large, complicated projects, including the
World Trade Center in Lower Manhat-
tan. At its core, the company has just four
employees, but that number rises to as
many as 50 depending on how many
projects the company has under way.
And all of them get lavish benetseven
though many are union electricians who
join the work force on a project basis.
(Under union contracts, employers pro-
vide coverage; they are required to meet
certain minimum requirements but free
to go above and beyond.) Auroras perks
include complete funding of what found-
er Veronica Rose describes as a Cadillac
health plan that covers everything, in-
cluding wellness programs and even a
30-day drug or alcohol rehab program.
The company also ofers a tuition-
reimbursement program that employees
can use to build skills in any eld, not just
construction or electronics.
Roses union electricians are not
payrolled employees. So why invest in
the kinds of benets that most compa-
nies justify in large part for the impact
such perks have on retention? It creates
a much better work environment, Rose
says. Everyone is much more engaged.
Instead of running to me with every
little thing, they help each other.
Rose admits that she views treating
workers well as an end in itself. But the
practice also has a serious business
rationale. We only do very specic
kinds of electrical work, she says. We
need electricians who have the highest
security clearances, who have years of
training in ber optics and related tech-
ILAN MOCHARI and ADAM VACCARO
contributed reporting to this story.
LI FE
ACCI DENT
Te best
recruiting is
the recruiting
you dont
have to do,
because
youve kept
people for a
long time.
MIKE KICHLINE, CEO,
Projectline Services
THEBUILDNETWORK.COM - 15
Riding a Prot Rocket
For CRS Technology Consultants, migrating to the
cloud has been a game-changerin every respect
BROUGHT TO YOU BY
16 - BUILD - DECEMBER 2013/JANUARY 2014
BUILD
QUARTERLY
BUILD
PARTNER PERSPECTIVE
It has been a game changer, says Jordi Tejero of his decision to migrate his company, CRS
Technology Consultants, entirely to cloud-based solutions for everything from mission-
critical software to voice communication. Since we started down this path about three and a
half years agoreally looking for efficiencies, looking for ways to make our guys more productive
and more availablewe have tripled our profitability.
A BEVY OF BENEFITS
Based in Southwest Florida, CRS offers IT consulting and support services for companies as far
f lung as Mexico City, acting as a fully outsourced IT department for many of its small and medium
customers. Here are some of the ways that Tejero sees cloud technology boosting his companys
productivityand its bottom line:
t Proactive engagement. Through its cloud-based remote monitoring and management tool
(AVGs Level Platform), CRS engineers can monitor their clients networks and connected
devices. If one of their workstations has, say, a bad block on its hard drive or a server seems
about to fail, the system alerts us, and we can run diagnostics and repairs remotely, Tejero
explains. If that doesnt work, well go on site and swap out the equipment before it ever
takes the client down.
t No downtime. Thanks to Comcasts unified communications (UC) platform, Business
VoiceEdge, coupled with a cloud-based line-of-business solution, ConnectWise, CRS
engineers can do their job wherever they areand on just about any device they prefer.
Just recently, a member of Tejeros team was stuck at an auto dealer while his car was being
repaired. In our old world it would have been, Okay now hes out of pocket for three or four
hours. Instead, he fired up his laptop and used the Comcast smart-phone app to continue
handling customer service tickets seamlessly.
t Employee satisfaction. Productivity for CRS also means being able to attract and retain the
best staff. Since we need fewer people to do the same amount of work, I can pay our good
people more money, Tejero explains. And since they can work anywhere, when two valued
employees moved away from the areaone as far as WisconsinCRS was able to hold onto
them. We opted to use the technology and keep good employees versus just sending them
on their way, Tejero says.
t Open communication. Having software in the cloud and available throughout the
organizationand even to customersmeans everyone is on the same page all the time.
Now if we have an issue that goes on for multiple days or involves multiple engineers, its all
being worked from one ticket, one central place, he explains. Everybody has access to that
information without having to hunt it down. Even if that saves every employee ten minutes a
day, the numbers add up really quickly.
THEBUILDNETWORK.COM - 17
t Interoperability. Not only can people communicate more easily, but CRSs cloud-based
solutions can as well. Weve chosen cloud providers that fully integrate with each other,
Tejero says. For example, when Level Platform detects an issue with a client network, it
automatically generates a service ticket in ConnectWise. The system can then close the loop
by informing the client that an issue has occurred, and keep them informed until its resolved.
For Tejero, its all about liberating his clients from worry and getting on with their business.
Working in the cloud has freed us up to help our clients move their business forward, he says.
Since they dont have to spend the dollars on fixing stuff, theyre able to spend those dollars on
truly forward-thinking items that can grow their business.
SERIOUS FUNCTIONALITY
Comcast Business VoiceEdge is a critical
component of that strategy. VoiceEdge
offers CRS greater efficiency by delivering
a UC solution that allows users to call from
their desk or mobile phones and have it
appear as if theyre called from the office.
CRS can enjoy constant connectivity
without the capital investment and
hardware management that typically come
with traditional private branch exchange
(PBX) phone systems.
We had been dealing with basic
telecommunications products for years, Tejero says. When we got serious and looked at the
features, functions, and benefits of Business VoiceEdge, it was an easy choice.
To learn more about how Comcast Business VoiceEdge can improve communication for your
organization, visit business.comcast.com/smb/services/phone/managed. For more information about
how mobility is enabling the workforce and improving productivity, download the free white paper,
Empowering the Mobile Workforce: Hosted Voice Solutions Help Boost Productivity and
Customer Service, at business.comcast.com/empowering-mobile-workforce.
BUILD
QUARTERLY IDEA 08
So a key employee wants to
strike out on her own? Show
her how she can do it without
leaving the company.
Alas, employee retention is a major challenge for many growth companies. Shai Bernstein, an assistant professor of nance at Stanford Universi-
ty, published research in late 2012 that shows that innovators tend to leave their jobs at an increased rate afer companies go public. One way to
combat this is to separate the roles of CEO and board chair. When CEOs are more protected from market pressures, they are more likely to take
on more innovative or risky projects that satisfy the needs of inventive employees, Bernstein tells Build. To learn more, search #buildretention
on TeBuildNetwork.com.
When Web strategist Cara Olson returned to digital marketing company DEG following
a four-month maternity leave, she had big news: She planned to resign and start her own
company. CEO Neal Sharma heard Olson out and made a counterproposal: Why not launch it
within DEG? The division, he told Olson, would be hers to lead and direct.
Eight years later, Olsonnow director of direct marketing and e-customer relationship
marketing for DEGheads a unit that employs more than 30 people and generates one of the com-
panys largest revenue streams.
This was no one-of decision for Sharma. He has tapped many DEG employees to oversee
projects that let them pursue their passions while meeting the companys business needs. In fact,
about half of the employees who have been with DEG for more than a year hold diferent positions
from those they were hired for. Te result: a 92 percent retention rate. Sharma ofers three strategies
for fostering the kind of intrapreneurship that can help you retain top talent:
1. Tink like a VC. Even though
Sharma is predisposed to let-
ting employees embark on new
projects, he assesses the risks
and potential returns in much
the same way that a venture
capitalist would. The chance to
retain a key employee should be
regarded as an opportunity to
invest, he explains.
2. Crowdsource the companys
values. Rather than craft a
mission statement, company
leaders posed this question
to everyone: What does this
company stand for? The an-
swers inspired new mission and
value statements, which helped
map the job paths that employ-
ees can travel.
3. Insist on solutions. Employees
are free to criticize and complain,
as long as they also pitch solu-
tions. When they are required
to fnd answers to the problems
they see, they are already think-
ing about their next project
within the company, whether
they realize it or not.
ADAM VACCARO
{RETENTION}
18 - BUILD - DECEMBER 2013 / JANUARY 2014
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BUILD
QUARTERLY IDEA 09
{ENGAGEMENT}
This list of questions may
help you get a fast read on
whether your employees
are equipped to succeed.
In a 2009 interview in Forbes, Douglas Conant, who was CEO of Campbell Soup at the time, described how the company had, as part of develop-
ing a continuous loop for closing the engagement gap, adopted a system in which the top criterion for leaders evaluations was their ability to
inspire trust in those around them. Conant said that as part of his own eforts in that regard, he send[s] out about 20 thank-you notes a day to
stafers, on all levels. And every six weeks I have lunch with a group of a dozen or so employees, to get their perspective on the business, and to
address problems and get feedback. To learn more about engagement, search #buildengagement on TeBuildNetwork.com.
Employee engagement is, admittedly, a catchall term, not to mention an endlessly marketable
consulting concept. So if youre skeptical, we understand.
But earlier this year, when Gallup released its annual report on employee engagement, it in-
cluded a simple tool that may help you quickly determine where your work force stands. When properly
measured (Gallup argues), engagement extends beyond an assessment of how happy your employees are
on the jobit also reveals whether that happiness manifests itself in superior performance.
Gallups report is based on the results of a survey, administered to more than 25 million employees
in 189 countries, in which respondents answer true or false to a dozen statements. These questions,
Gallup says, constitute the best predictors of employee and workgroup performance. Here goes:
12 INDICATORS OF ENGAGED EMPLOYEES
Ideall y, employees al ways check "True," but the "Fal se" answers are more revealing.
The frst two criteria are critical; they address employees' primary needs. The others address three
stages: how workers contribute to the whole and are valued; organizational ft; and development.
1 I know what is expected of me at work.
2 I have the materials and equipment I need to do my work right.
3 At work, I have the opportunity to do what I do best every day.
4 In the past seven days, I have received recognition or praise for good work.
5 My supervisor, or someone at work, seems to care about me as a person.
6 Tere is someone at work who encourages my development.
7 At work, my opinions seem to count.
8 Te mission or purpose of my company makes me feel my job is important.
9 My associates or fellow employees are committed to doing quality work.
10 I have a best friend at work.
11 In the past six months, someone at work has talked to me about my progress.
12 In the past year, I have had opportunities at work to learn and grow.
T F
20 - BUILD - DECEMBER 2013 / JANUARY 2014
A more efficient supply chain
makes me happy.
UPS makes me happy.
Jack Roush
Chairman, Roush Enterprises
When Jack Roush wanted to take the kind of performance
engineering he puts into his engines and build it into his entire
company he only made one callto UPS. By consolidating
all of his freight, package, air, tracking, billing and reporting,
Jack saved a tremendous amount of time and money.
How does he manage it all? With UPS WorldShipthe carrier-
supplied software that lets companies process and track their
package, air freight and LTL shipments in a single system.
Find out how logistics solutions from UPS make CEOs like
Jack Roush happy at ups.com/happy.
Copyright 2013 United Parcel Service of America, Inc.
TeBuildNetwork.com
Anyone who has ever read a mutual
fund prospectus or scrutinized the
ne print in investment-company
ads knows the old saw about the
value (or lack thereof) of past
performance.
When it comes to driving your com-
panys growth strategy, however, it
turns out that the opposite is true:
Past performance is virtually the
only guarantee of future results.
In studying the performance of
1.4 million U.S. companies from
2005 to 2010, Build has found that
an elite groupjust 1% created
72% of all net new jobs during
that period.
Te correlation between job
creation and ongoing success is
far more predictive of future
results, says Build economist-
in-residence Gary Kunkle, than
revenue or any other single perfor-
mance metric. In short, companies
that add jobs year afer year are
far more likely to continue growing.
Job growth is the X factor.
Armed with these insights, Build is
putting together a new index, the
Build 100, to celebrate the best
of the best. More important, well
work with these A-list companies to
examine what they do (and dont do)
to spur growth over the long haul.
Why does sustained growth mat-
ter? If your company exhibits sus-
tained job growth one year, it is 50%
more likely to grow again. Repeat
that over two years and the odds of
growing again hit 67%, and so on,
creating a straight line from steady
growth to exceptional growth.
Sustained-growth companies are
found in every industry across the
country. No matter what, where
or to whom you sell, exceptional
growth is within reach.
We will unveil the Build 100 in the
March issue of Inc. Troughout
2014, we will bring you a host of
insights from this elite group.
WHATS THE SECRET TO STEADY,
SUSTAINED GROWTH?
WE PLAN TO FIND OUT.
BUT WAIT! THERES MORE.
Well also give you a way to benchmark your companys management practices, corporate culture, and other
facets of your business against the Build 100 companies. For details, search #Build100 on TeBuildNetwork.com.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
22 - BUILD - DECEMBER 2013 / JANUARY 2014
Who insures you doesnt matter. Until it does.
Financial Strength and Exceptional Claim Service
Cyber Security | D&O | E&O | Employment Practices Liability
Crime | Kidnap/Ransom | Property & Casualty
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For a list of these subsidiaries,please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued.
Chubb, Box 1615, Warren, NJ 07061-1615. 2013 Chubb & Son, a division of Federal Insurance Company
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back-end content-management system
to secure its les.
Box is able to provide this service
to companies like drchrono because,
as of April 2013, Box was certied as
Health Insurance Portability and
Accountability Act, or HIPAA, compliant,
the industry standard for protecting
electronic health records. Getting
HIPAA certication is the ofcial way
to assure patients a provider is taking
all the right steps to protect their medi-
cal information online. But becoming
HIPAA compliant is a notoriously
lengthy and expensive process. (Share-
Point is HIPAA compliant; some other
Box competitors are not.) HIPAA com-
pliance is proving valuable: In 2013,
Boxs sales in the health care industry
grew more than 81 percent.
Today, about 30,000 third-party
developers use Boxs application pro-
gramming interface, or API, a set of
functions that allows a third-party
company to access Boxs internal data
and to layer its information onto Boxs
servers. Box is recording about 700
million API calls per month from third-
party developersa measure of how
often users are pulling information
from Box on an app.
Nonetheless, fears about data
breaches are a drag on Boxs growth.
Enterprise companies are not yet con-
vinced that putting sensitive company
documents into the cloud, let alone on
the servers of an eight-year-old start-
up, is worth the risk. Many of the com-
panies that use Boxespecially Fortune
500 companieshave not fully inte-
grated their systems within Boxs serv-
ers. They use the platform to upload
and share les, but that doesnt mean
their employees are allowed to post and
share just any company documents.
The market is not mature yet, says
the analyst and writer Krishnan Subra-
manian. Because of these fears, Subra-
manian believes Boxs $1.2 billion
valuation might be a bit exaggerated.
He puts it at closer to $1 billion. Its not
just Box or even cloud content-man-
agement services that face concerns
about security, either. Its the entire
software-as-a-service industry.
Levie knows this, and when you
spend enough time around him, you
begin to notice something peculiar.
Despite Boxs meteoric growth, and
despite the companys valuation, and
despite the fact that Levie himself is
worth north of $100 million, he genu-
inely seems to view himself as the
underdog, and not merely in the mar-
ketplace. Its more a cosmic, even philo-
sophical view of himself.
One of Levies favorite writers,
Malcolm Gladwellwhom Levie
recently brought in to speak at a
customer conferenceonce said that
underdogs are capable of things the
rest of us cant do [because] they look
at things in diferent ways. In his most
recent book, David and Goliath, Gladwell
asks, And what does it take to be that
person who doesnt accept the conven-
tional order of things as a given...? (See a
review of the book on page 38.)
When Levie rst announced that he
was building an enterprise software
company for the modern age, he was 23.
He had no idea what the conventions of
the game were. He had never used any
of the software he hoped to disrupt. But
to Gladwells point, not knowing the
conventionsor simply refusing to
acknowledge themappears to have
become Levies best asset. And the fact
that he feels the odds are against him
and against Boxthat isnt a reason to
stop; its a reason to continue.
We are the forefront of a really
transformative industry, Levie told his
group of new recruits. So make sure
youre working as hard as possible to
make sure we win.
And thats mostly, he said, my last
word.
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How do you measure success?
By the number of lives weve
positively impacted.
Whats one mistake
you made early on?
To build our rst website, we hired
a rm whose quotes were half the
price of everybody elses.
What was the hardest lesson in
your rst year of business?
That lack of sleep really does
impede productivity.
Whats the toughest part
of being in charge?
The fact that only hard decisions
reach your desk.
Whats the best motivator
for employees?
Feedback.
Whats your proudest accom-
plishment in your business?
Weve distributed more than
500,000 pairs of glasses to people
in need across the globe.
Gut instinct versus expertise:
Which is more important and why?
Both are extremely important, and
you need to understand the
strengths and limitations of both.
We like to question our gut in-
stincts but also approach problems
with a beginners mindset.
Whats the biggest
myth in business?
That widgets are made in a sys-
tematic way. If you peek behind the
curtain at any type of company,
youll see that things are far less
organized than youd expect.
What have you learned about
yourself running your business?
Im not as smart as I think I am.
What have you sacriced
for success?
Beer.
Whom do you admire most
as a business leader?
Florence Nightingale. She is
one of the most dynamic social
entrepreneurs in history.
Neil Blumenthal
Fast growth and an ever-more-valuable
brand are gratifying, but for Neil Blumenthal,
co-CEO of the innovative retailer Warby
Parker, nothing trumps mission
By ISSIE LAPOWSKY Photograph by STEVEN BRAHMS
EXI T I NTERVI EW
SCAN THE PAGE TO SEE NEIL BLUMENTHAL TALK
ABOUT BUILDING A BRAND TO LAST. (See page
12 for details.) For the Founders Forum
video interview with Inc.s Scott Gerber, go
to www.inc.com/founders-forum.
VISIONARY
Neil Blumenthal has developed
a signature combination of
technology, design, customer
service, and doing the right thing.
156 - INC. - DECEMBER 2013/J ANUARY 2014
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