May / June 2016 by Chief Executive Group

MID-MARKET COMPANIES GET POLITICAL, P. 56

MAY/JUNE 2016

2016 Best & Worst States for Business Wisconsin

“pro-business improvement”

★★★★

New York

“declining quality of life”

153 reviews

★

540 reviews

Arizona

“a hidden gem”

★★★★★ 122 reviews Pennsylvania

“legislative gridlock”

★★

339 reviews

Connecticut

“the taxes have to stop”

★

California

287 reviews

“an employer’s nightmare”

★

651 reviews

Florida Texas

“business friendly”

“an economic powerhouse”

★★★★★

470 reviews

★★★★★ 808 reviews

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CONTENTS

May/June 2016 No. 282

FEATURES 30 Cover Story

2016 Best & Worst States for Business Low Taxes and High Talent Encourage Business Leaders to Invest In our 12th annual canvas of CEO opinion, leaders favor states with fewer regulatory encumbrances and report that most remedies dangled by politicians only make things worse.

By J.P. Donlon with Warren Strugatch and Dale Buss

46 Mobile Marketing

Marketing in Milliseconds Can mobile marketing deliver on its promise?

By Russ Banham

50 Innovation

Disrupt Yourself—Before Someone Else Does How established companies can bring out new products that compete with the old.

By William J. Holstein

56 Political Landscape

Will SMEs Take on Washington? America’s small and mid-market company CEOs have had enough of being overlooked and underserved by legislators.

By Dale Buss

62 Marketing Communications

Overcoming the Urge to Overcommunicate Traditional media, social media, email, blogs, Internet sites—opportunities to share your most compelling messages abound. But how can you take advantage of them without overwhelming your customers?

“

By Dale Buss

There’s a galling mismatch between how governors and other state officials characterize their support for small businesses and what they actually spend.

02 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

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BARRIERS Fewer restrictions lead to better business in Michigan. Even on its best day, business can be a challenge. That’s why it’s important to find an environment that’s business friendly. In the last five years, Michigan has eliminated over 2,000 unnecessary regulations. That’s in addition to being in the Top 10 for best business income tax – up from 49th. And when that same environment has the world’s longest freshwater shoreline to enjoy, it’s no wonder more companies are saying hello to Pure Michigan.

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Ad Description 2016 Business Attraction “What Happens When” Chief Executive Media Type Print Unit Full Page

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CONTENTS Editor-in-Chief Emeritus J.P. Donlon Editor at Large Jennifer Pellet Creative Director Marne A. Mayer Production Director Rose Sullivan Chief Copyeditor Rebecca M. Cooper Art Director Gayle Erickson Associate Copyeditor Carl Levi Contributing Editors Dale Buss Bill Holstein C.J. Prince Joe Queenan Dr. Thomas J. Saporito Prof. Jeff Sonnenfeld Online Editor Lynn Russo Whylly

DEPARTMENTS 8 Editor’s Note 12 CEO Watch

• Cylance’s Stuart McClure on how to secure your systems • Hungry Howie’s Steve Jackson on IT ROI • CEO Confidence • Corporate Citizenship Corner: Harris Rosen on giving back

26 Making

Getting the Best Senior Hire How to prevent “organ rejection” when recruiting senior executives.

By Dr. Thomas J. Saporito

24 Mid-Market Report

Director, Business Development Lisa Cooper 203/889-4983 lcooper@chiefexecutive.net

These simple steps can help protect your business from email scams.

Director, Business Development Liz Irving 203/889-4976 lirving@chiefexecutive.net

Spotting—and Fending Off—“Spoofers”

28 Sonnenfeld

Clearing Bull from The Bully Pulpit Used judiciously, the CEO voice can be a force of change.

By Jeff Sonnenfeld

68 Executive Life

Growth Slows for Middle Market

Long anticipated, a decline in the rate of employment and revenue growth has finally materialized.

Technology Work By Heinan Landae

22 Chief Concern

Hack-Proofing Your Home How to lock down your home network and protect yourself from fraudulent tactics.

72 Flip Side

Nice Guys Finish Seventh Should the speech circuit welcome candidates who bombed?

By Joe Queenan

Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 282, May/June 2016. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group, LLC at One Sound Shore Drive, Suite 100, Greenwich, CT 06830-7251, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2014 by Chief Executive Group, LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. single-copy price is $33. Back issues are $33 each. Periodicals postage paid at Greenwich, CT and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive, P.O. Box 15306, North Hollywood, CA 91615-5306. Subscription Customer Service: p | 818.286.3119 e | cexcs@magserv.com w | chiefexecutive.net/magazine

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DAN GLASER President and Chief Executive, Marsh & McLennan FRED HASSAN Chairman, Zx Pharma Partner/Managing Director, Healthcare, Warburg Pincus TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries JIM MCNERNEY Former Chairman, Boeing, and 2015 Chief Executive of the Year ROBERT NARDELLI Chief Executive, XLR-8 WILLIAM R. NUTI Chairman and Chief Executive, NCR THOMAS J. QUINLAN III President and Chief Executive, RR Donnelley JEFFREY SONNENFELD President and Chief Executive, The Chief Executive Leadership Institute, Yale School of Management MARK WEINBERGER Chairman and Chief Executive, EY MAGGIE WILDEROTTER Executive Chairman, Frontier Communications

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EDITOR’S NOTE

Economic Injustice What low-skilled workers really need are mechanisms to help them improve their skills through education and training.

FEW SUBJECTS HAVE BEEN as exhaustively studied as the impact of minimum wage laws. California, which CEOs consistently rank as the least attractive state in which to do business [see Best & Worst States, p. 30], is not content to leave that abysmal performance alone, but intends to enact legislation raising the state’s minimum wage to $15 an hour. With 2.2 million people earning a current minimum wage of $10 per hour—the highest in the nation—the Golden State’s diverse economy extends from technology-rich San Francisco to low-wage agricultural workers in the Central Valley. Governor Brown calls the move an act of “social justice.” Not to be outdone, New York’s Governor Mario Cuomo intends to raise his state’s minimum wage to the same level. Yet, seven decades of research have been fairly uniform in suggesting that such hikes invariably reduce employment for people at the lower end of the skill range— the very people they are intended to help. Employers facing higher labor costs are forced to respond by decreasing other expenses. Some make labor-saving capital investments, decrease pay raises to employees who earn more than the minimum wage or replace the lowest-skilled individuals with more highly skilled people. Businesses, particularly small companies, cannot do so because they lack the productivity to command higher pay. The expectation that these businesses will simply take a hit in their profits while employment and prices are negligibly affected is the triumph of hope over past experience. Small businesses in competitive markets push profits as low as they can to stay open. Large corporations are also affected because they are under pressure from shareholders to keep costs low. Last

08 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

year, the California chapter of the National Federation of Independent Business projected the potential negative effects of the 2013 law that raised California’s minimum wage rate to $9 per hour in 2014 and again to $10 by 2016, estimating that it would shrink California economy by $5.7 billion over the next 10 years and result in approximately 68,000 jobs being cut. It further projected that 63 percent of the estimated 68,000 jobs lost would be from small businesses that could no longer afford to pay their employees. Economists David Neumark and William Wascher of the University of California at Irvine report that 63 percent of studies found relatively consistent evidence of negative employment effects resulting from minimum wage increases. Sacramento and Albany don’t need to look far for evidence. As implementation for Seattle’s $15 minimum wage law draws closer, the city is experiencing restaurant closures and job losses. Instead of delivering a promised “living wage” the economic realities created by the new law have reduced the hourly wage for these workers to zero. Consider also that if $15 an hour really represents “economic justice” why stop there? Why not raise it to $40 or even $50? The reason is that someone must pay for the costs associated with an increased minimum wage. Often, because a business cannot pay these costs, they are paid for by the individuals the minimum wage is intended to help—low-skilled, undereducated people. This is reverse Robin Hoodism. What low-skilled workers really need are education and training to help them improve their skills. This is something business would be willing to partner with local government to do.

I LLU ST R AT I O N BY T I M TO M K I N S O N

J.P. Donlon

The reverse Robin Hoodism of minimum wage hikes will only make the situation worse. By J.P. Donlon

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CEO WATCH

CORPORATE CITIZENSHIP / HARRIS ROSEN, FOUNDER OF ROSEN HOTELS & RESORTS

A Hotelier Offers Hope How Harris Rosen’s scholarship programs helped bring a Florida community back from the brink. By C.J. Prince

12 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

HARRIS ROSEN CONFESSES that for most of his life, he didn’t think that much about philanthropy. “It just wasn’t something I was in a position to participate in,” says the 76-year-old hotelier, who grew up the child of poor Ukrainian immigrants in an impoverished neighborhood on Manhattan’s Lower East Side. “It occurred to me when I was sitting at my desk contemplating a sixth hotel and dreaming about a resort I would build one day that I had to not forget my roots and that I had to say ‘Thank you, God’ for the success I had achieved.” For Rosen, founder of Rosen Hotels & Resorts, that meant getting serious about giving back. When a grassroots effort by the residents of a Florida community threatened by socioeconomic demographic problems came to his attention, he was ready to step in.

From the late ’80s to the early ’90s, the community of Tangelo Park, located near Orlando’s bustling International Drive tourist area, was plagued by drug problems, poor school attendance, declining test scores and high school dropout rates. In 1993, Rosen met with community leaders driving an effort to reclaim their neighborhood and began the Tangelo Park Program, which awarded scholarship assistance to local teens. “But we decided that a college scholarship was not really enough,” he recounts. “If it was going to be a meaningful and beneficial program for youngsters in underserved communities, it needed to begin when they were still very young.”

EDUCATION AFFECTS EVERYTHING The Tangelo Park Program began offering free early intervention pre-school for two-, three- and four-year-olds. That soon expanded to a feeder-school program, where Tangelo Park children receive help transitioning to the local public schools as well as college placement assistance. Finally, all children from the program are offered free tuition, room and board to a vocational school, community college or public university in the state of Florida. For local parents, the knowledge that their children will be able to not only attend college, but graduate with zero debt has changed the collective mindset from one of near-despair to one of possibility. “You have to infuse the neighborhood with hope,” says Rosen. Even Rosen has been amazed by the results. According to a study by the University of Central Florida, the crime rate in Tangelo Park has plummeted roughly 65 percent since the program was established. The high school graduation rate has increased from 50 percent to 100 percent and among those who enroll in four-year colleges, the graduation rate is 77 percent. Rosen, whose company today operates seven hotels, resorts and retreats in the Orlando metropolitan area, says

he owes his success to his parents’ encouragement. The first in his family to attend college, he earned a degree from Cornell’s School of Hotel Administration. “Not every child has that,” he says. “Those of us who grew up in those kinds of communities understand the challenges and how hard it is to move from a community like that to a different life.”

SPREADING THE GIVING GOSPEL Rosen has traveled around the country pitching the idea to foundations and individual donors in the hopes that others would be inspired to replicate it. So far he’s had no takers. But he believes fervently in private sector participation in boosting underserved communities. “We tell people, do it for selfish reasons. If you’re in the retail business, if you’re selling cars, groceries, clothes, imagine the hundreds of thousands of youngsters who heretofore did not have an opportunity to go to college; now they’re going, their earnings are improving exponentially and they’ll

WHO

Harris Rosen, Founder, president and COO of Rosen Hotels & Resorts

FOUNDATION

Tangelo Park Program

WHAT

Revitalizing a community with scholarships.

PHILOSOPHY

“To always do the right thing.”

be able to buy your product or service. That’s hundreds of thousands more potential customers for your business,” says Rosen. He acknowledges that he has an advantage many public companies do not. “I don’t have a board of directors or shareholders, so I don’t have anybody who tells me what to do. I can do the right thing if I want to.” It was for that reason that Rosen commissioned a return-on-investment study from economics professor Lance Lochner of Western University, who specializes in nonprofit ROI. The result? Every dollar invested in the program returned $7 to society in the form of reduced crime and incarcerations, increased home values and increased lifetime salaries for graduates, among other factors. “[Lochner] said it was the best return he’d ever seen.” Rosen is still holding out hope that that ROI evidence will convince other business leaders and foundations to take on underserved communities with similar programs. In the meantime, he is replicating his own work in the nearby community of Parramore, where a $41.3 million community school is currently being built—with a preschool funded by Rosen. Attending preschool graduation in Tangelo Park is one of the happiest moments each year for Rosen, whose job it is to move the children’s tassels from right to left. “The moms and dads are there, there’s a lot of emotion, and I tell them, ‘Get ready, moms and dads, because this is just the beginning of many graduation ceremonies that you’ll be attending,’” he says. “It’s such a wonderful way for a child to start a life.”

For local parents, the knowledge that their children will be able to not only attend college, but graduate with zero debt has changed the collective mindset from one of near-despair to one of possibility.

MAY/JUNE 2016

CHIEFEXECUTIVE.NET

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CEO WATCH CEO INSIGHT / STUART MCCLURE, CEO OF CYLANCE

THORNS & ROSES

Stuart McClure: In Search of Security

Trading Priorities

By Jennifer Pellet

STUART MCCLURE HAD BEEN in getting all the infrastructure built propcybersecurity for more than a decade erly,” he says. “Now, the computers that when he had an epiphany—namely that run our CylanceProtect software can the conventional methods of protecting completely protect a computer—more computers from malware simply don’t than 99 percent detection—even when work. “As global CTO of McAfee, I did a they’re disconnected from the cloud.” lot of apologizing,” he explains. “Week Hackers, however, are persistent, after week, month after says McClure, who notes month, year after year, all I that in addition to strong really did was apologize for security, software companies how we didn’t really protect need to practice vigilance computers. I thought, there with their outside vendors. had to be a better way.” “Security is only as strong Three years ago, as your weakest link,” he McClure left McAfee to says, pointing out that find it. Typical antivirus hackers who can’t get in the software, he explains, front door will turn to the relies on maintaining a windows and the chimney. database of known offendAsked what else CEOs can ers—a list of viruses and do to safeguard their comWHO malware known as virus panies, McClure offers three Stuart McClure, CEO of Cylance definitions—that it uses to suggestions: CHALLENGE YOUR CIO. “Most identify new threats. The SIZE chief security officers want trouble, of course, is that 300 employees to give the impression that the threats have to succeed ROLE MODEL they have everything under in wreaking havoc someMark Leslie, control—but they really where before they can be founder and former don’t,” says McClure. “Create added to the database. “In CEO of Veritas a culture of challenging your other words, for me to prosecurity people and asking tect your house from being BUSINESS MOTTO them, ‘What makes you burgled, someone else “Be always humble. think we’re so secure?’” has to have already been Be always kind. And never, ever FIND—AND FILL IN—YOUR BLIND burglarized by that indigive up.” SPOTS. “The biggest mistake vidual,” explains McClure. CEOs make is not knowing In fact, studies suggest that LITTLE-KNOWN their limitations and hiring traditional virus protection FACT Co-author of to fill in those blind spots,” software detects only 45 Hacking Exposed: explains McClure. “They percent of attacks. Network Security Secrets and should be hiring people who McClure’s new company, Solutions can take over their jobs.” Cylance, takes a completely MAKE SECURITY A CLEAR different approach. Using MENTOR George Clute PRIORITY. “Move the security mathematical models and function out from under IT artificial intelligence, it LEISURE and make it a direct report seeks to protect computers PASTIME to the CEO,” urges McClure. against attackers—both Cycling, tried for the U.S.Olympic “Eventually, elevate the chief known and unknown. “It cycling team in security and risk officer to took about two solid years 1984 have IT reporting to them.” of training the models and 14 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

GLOBALIZATION HAS A BAD ODOR of late. Voters are THORNS better at signaling their dissatisfaction than they are thinking clearly about solutions. So it comes as no surprise that leading contenders for both the Republican and Democratic presidential nominations are singing from a protectionist hymnal in order to attract support. But it is unclear whether a trade war with China, let alone a 45 percent tariff on Chinese imports, will do little more than revive the nightmare of Smoot-Hawley—the 1933 protectionist tariff that both lengthened and worsened the Great Depression. On the contrary, globalization and automation appear to be turfing out Chinese workers themselves. We’re still searching for a sensible conversation about how the country should be dealing with the undesirable effects of trade.

Giving Where It Counts MIKE PETTERS, president and CEO of HunROSES tington Ingalls Industries, parent of Newport News Shipbuilding, is doing something other CEOs might wish to consider. He has asked that his $950,000 base salary be cut to $1. The other $949,999 will go toward a new fund to offer educational aid to the children of company employees. The board agreed. Petters, the oldest of six and the son of a Florida orange grower, grew up knowing what it means to stretch dollars and understanding the value of an education, he told Chief Executive in an interview last year. Clearly, he is putting his money where his values are.

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CEO WATCH

CASE STUDY / STEVE JACKSON

Hungry Howie’s IT Gamble How Steve Jackson’s appetite for technology gave his pizza company a competitive edge. By Jennifer Pellet

16 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

THE CHALLENGE

THE BACKDROP

The year is 2008 and the economy is tumbling off a cliff. You’re the CEO of a pizza restaurant chain with more than 500 company- and franchise-owned stores. Pizza usually fares well in a recession, but your Michigan-based company is coping with consumer belt-tightening as the state’s auto industry falters. Instead of following suit, even as sales flatten and customer counts drop, you decide it’s time to lead the company and your franchisees through a technological transformation.

“I’m not a tech guy,” says Hungry Howie’s CEO Steve Jackson, who dropped out of college to partner with a former boss to start a pizza venture back in 1976. “When I opened my first store, we literally kept the money in a cigar box behind the counter and our barometer for profitability was our checkbook. If we had money in it at the end of the month, we were doing okay.” Hungry Howie’s expanded steadily during its first decade. In the 1980s, a push into franchising accel-

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CEO WATCH

erated the growth pace and prompted the company to open distribution centers to serve its ever-expanding network of restaurants. Still, Jackson remained enough of a Luddite that when his tech team first broached the idea of spending $1,400 to build a web site, he said no. “I said, ‘I don’t think we need that,’” he recounts. “Why would anyone sit down, turn on the computer and find a web site when they could just pick up the phone?” Despite his doubts, Jackson kept a close eye on how forays into Internet sales fared for Papa John’s and Dominos and jumped right in as soon as he felt online ordering had reached a tipping point. For the concept to work, the company had to invest in a

WHO

Steve Jackson, CEO of Hungry Howie’s

WHAT

$297 million restaurant chain

MENTOR

James Hearn, Hungry Howie’s Founder

BUSINESS MOTTO

“Always surround yourself with people who have different strengths and skills than you, and above all, have integrity in everything you do.”

RECENTLY READ

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LEISURE INTERESTS Golf and Traveling

unified POS system that would route orders to the appropriate stores. That, in turn, meant selling its network of franchisees (only 18 of its 549 restaurants are company-owned) on buying into the new system. Fortunately, the effort paid off. “The average online spend is 25 percent more than orders placed by phone,” says Jackson. “That was the preaching we gave to our franchisees, that it would be more profitable.” Little did they know; that was just the beginning.

THE HURDLE By the time the downturn hit, Hungry Howie’s had already updated its POS system twice, selling franchisees on each new iteration as a way to stay current in the marketplace. So veteran franchisees were understandably skeptical when Jackson decided to combat tough times with a reinvention of the brand and updated IT and operating procedures that would give its entire network real-time access to every aspect of the business from anywhere its owners and managers happened to be. “We had to educate [our franchisees] that technology isn’t like a pizza oven, where you buy it and it lasts for 25 years,” he says. “POS systems and computers probably have a five-year shelf life. You have to think about the fact that you probably haven’t had the same home computer or cell phone for five years.” Like many CEOs, Jackson also

struggled to decide whether to buy an off-the-shelf system or develop a proprietary system, ultimately opting to invest “six figures” to develop its own internal system using Microsoft’s SharePoint platform. The result: Howie’s Online Management Exchange—HOME—is an enterprise-wide reporting module capable of pulling data from all locations so that the company and its franchisees can look at all the data necessary to monitor performance, including the percent of its sales made online, the number of complaints received and what percent were resolved, samestore comparables, average ticket amounts, average delivery times and sales by product. “Every morning at 9 a.m., I get a full report, and we send individualized reports to all franchisees so they can see exactly what took place,” says Jackson. “It’s a unified platform for information storage and communication. Our franchisees can go right in and place orders for their stores on their smart phones and tap into a central library to access training videos and store inspection reports—anything they need.”

THE RESOLUTION Hungry Howie’s IT investment “enabled us to literally change our regional brand into a national brand overnight,” asserts Jackson, who explains that access to consistent data across its network of stores has changed everything from

“We had to educate [our franchisees] that technology isn’t like a pizza oven, where you buy it and it lasts for 25 years.” 18 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

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how franchisees find and develop territories to how they procure ingredients. “HOME has become a growing, living and breathing part of our business. It’s to the point where we rely on it the way we rely on our hearts as human beings because it controls everything and helps keep the organization in contact with every department and every aspect of our business.”

THE LESSON While taking the technology plunge has paid off handsomely for Hungry Howie’s, the ride was not always smooth. “Like any big business decision—distribution, trucking

or whatever it might be—the final decision is always a gamble,” points out Jackson. “You have to understand that you might not get it right; and when that happens, it’s important to be able to cut bait quickly.” He urges CEOs considering an IT initiative to be open-minded and to surround themselves with “smart people” in every category of the business when weighing options and designing a system. Because the possibilities that technology can offer are endless, it’s also critical to be strategic about your IT investment, says Jackson, who has seen his technology spend climb from 2 percent of sales seven years ago to

close to 7 percent today. “It opens the door to ask, ‘If you can do that, can you do this?’ And usually, you can, but you need to prioritize and focus on what’s worth doing.” Finally, while HOME is at the heart of everything Hungry Howie’s does, Jackson is also quick to point out that his is not entirely a technology story. “We could not have delivered the 24 quarters of same-store sales increases that we’ve had without it, but our profits are as good as they are for a lot of reasons,” he says. “Technology gives you the ability to measure the things that drive your business, but you still need to know what do with that information.”

CEO CONFIDENCE INDEX

CEO Confidence Hinges on Election Outcome THE PRESIDENTIAL RACE has dwindled down to a handful of

candidates and the election is just a half-year away. But when CEOs look at business conditions 12 months into the future, their expectations largely hinge on who will be sworn in on January 20, 2017. Some CEOs feel strongly that a Republican candidate is needed to reverse the negative business climate they feel we are currently under. “If we get a Republican president, my 12-month ‘good’ forecast holds. With Hillary, I’d change that to ‘weak,’” one respondent said. Another feels that “When Trump gets in, the business climate will start to improve overnight.” PHARMA/MED. PROD. TRANSPORTATION (AIR/RAIL) ENERGY/UTILITY RETAIL TRADE PROFESSIONAL SERVICES FINANCE REAL ESTATE MFG. INDUST. GOODS TRAVEL/LEISURE ADV./MKTG./PR/MEDIA/ENT. HIGH TECH MFG. CONSUMER GOODS WHOLESALE/DISTRIBUTION HEALTHCARE CONSTR./ENG./MINING GOV’T/NONPROFIT

20 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

However, not everyone agrees. “I see a significant economic ravine ahead if Trump is our leader,” one respondent said. Still another said the current market for his business “was good.” In March, CEO respondents rated their expectations of future business conditions (12 months out) a 6.04 out of 10, with 10 being the highest—relatively flat against the last five months. However, there were significant variations in outlook by industry. Organizations in the government/nonprofit sector had the best future outlook, with a 7.33 rating, while those in the pharma/medical products industry had the worst future outlook, with a rating of 5.33.

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CHIEF CONCERN

Getting the Best Senior Hire How to prevent “organ rejection”when recruiting senior executives. By Dr. Thomas J. Saporito

SUPPOSE YOU ARE a CEO of a mid-sized manufacturing company and you’re looking for a new CFO. You would probably look for somebody with excellent financial skills and training—preferably in the same, or a similar, industry. But picking senior staff depends on more than vetting skills and track record. The right candidate must be able to meet today’s business challenges—and also mesh with the company’s vision for its future strategy, culture and leadership structure. The savviest CEOs remember that “Fit Is It” when it comes to senior hires. “If you’re a €5 billion company and you want to be a €10 billion company, you need to hire €10 billion people,” says Pierre Laubies, CEO of Jacobs Douwe Egberts, a global coffee and tea company based in Amsterdam. “CEOs need to constantly challenge

their teams to recruit for the future of the business—not just the one they already have.” We know many CEOs who grapple with hiring direct reports. Some situations go very smoothly; others don’t. At one large distribution company, the CEO envisioned a new direction for the business and had someone in mind who she thought would help move the company in that direction. However, some of the incumbent top executives were not on board, infighting resulted and the transition backfired. The CEO of another company—a consumer goods firm whose core business was threatened—took a different tack. He made a powerful effort to seek the input and engagement of his senior team on the future of the company. When the CEO brought on a new executive, that person joined

a united team instead of a group of warring factions. These examples highlight a couple of big questions that CEOs should ask before making a senior hire. The first: Is the candidate ready to meet tomorrow’s strategic challenges? Companies run into trouble when CEOs choose someone who’s right for today’s business but not tomorrow’s. The second question: Will the new hire fit and evolve with the culture of the company? When a company moves in a new strategic direction, the leadership model and culture of the firm evolve too. That means a new algebra for who makes a “good fit”—a changing equation that CEOs must always keep in mind. For most CEOs, these lessons make all the sense in the world. Nevertheless, leaders often slip up in a few places. Many fail to take the forward-looking, strategic conversation to the next level and define what tomorrow’s business needs really mean for the company’s leadership model and culture. When this is the case, new hires don’t truly represent tomorrow’s organizational model. Another mistake is failing to engage the senior team on what tomorrow’s strategy means for tomorrow’s leadership structure. The CEO must force a certain level of dialogue and debate. Failure to engage the senior team may lead to unproductive infighting—and even “organ rejection.” If the senior team is not on board, they may reject the new hire, even if he or she is a candidate for the future. It’s essential for CEOs to actively urge incumbents in their companies to understand and accept the new strategy and leadership model they are working to develop. When that happens, it’s much easier to successfully implement a “Fit Is It” hiring approach.

DR. THOMAS J. SAPORITO (tsaporito@rhrinternational.com) is chairman and CEO of RHR International, a global firm committed to the

development of top management leadership.

22 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

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MID-MARKET REPORT

Growth Slows for Middle Market Long anticipated, a decline in the rate of employment and revenue growth has finally materialized.

WHILE MID-MARKET COMPANIES continue to fare better than their larger peers in the U.S., year-over-year growth rates slowed in the final quarter of 2015, according to a report by the National Center for the Middle Market. Overall, midmarket companies reported revenue growth of 6.1 percent in Q4 2015 as compared with 7.2 percent in Q4 2014. What’s more, the smallest mid-market firms saw the biggest slowdown, reporting a 4.7 percent rate of growth In view of this dampening, it’s not surprising that for Q4 2015 compared with 6.3 percent at the end of 2014. mid-market employment growth is also slowing. While nearly one-third of mid-market company survey participants expected to add jobs in 2016, that number is well below the 52 percent of companies that planned to hire at the end Business leaders are also not optimistic about the pace of growth picking up. On average, companies of 2014. report foreseeing future revenue growth of just 3.7 percent over the next 12 months. A year ago, expectations were an optimistic 6 percent—and actual growth exceeded those expectations. The tables and charts below offer a look at how 2015 played out for mid-market companies and what they expect from the year to come.

Dampened Expectations for Revenue Growth

Job Growth Slows

The middle market saw a revenue growth rate of 6.1 percent in 2015—but anticipates a drop to 3.7 percent in 2016. Past 12 Months

Next 12 Months 8%

Following the Money

Where mid-market companies intend to put their capital in 2016.

Employment growth dropped from 5 percent in Q4 2014 to 3.6 percent for Q4 2015.

Past 12 Months

Next 12 Months 8%

4Q'14 3Q'15 4Q'15

Hold Cash

14%

Hold It for Investing

13%

Information Technology

16%

Capital Expenditures (Plant or Equipment)

10%

Acquisitions

10%

Capital Expenditures (Facilities)

HR (More Personnel)

HR (Training & Development)

Other

4Q'14 3Q'15

25%

4Q'15

Size Does Matter

Smaller mid-market firms had the lowest growth rates in 2015—and are the least optimistic about 2016. Mean Revenue Growth 2015

Projected Revenue Growth 2016

Mean Employee Growth 2015

Projected Revenue Growth 2016

$10-$50M

$50M-$100M

$100M-$1B

24 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

“Fireman’s Fund… a brand name that has

been in existence for more than 150 years will fade away.”

- Insurance Journal January 12, 2015

“Chubb to be acquired… for $28.3 billion.”

- Investor’s Business Daily

The high net worth insurance market is undergoing massive change. There’s no better time to explore PURE. Founded in 2006 with a unique membership model for the most responsible owners of the finest-built homes, PURE has sustained annual growth of 40% or more every year and maintains a remarkable 96% annual member retention rate.i Today, our membership spans nearly 50,000 successful individuals and families from across the U.S., including many former Fireman’s Fund and Chubb policyholders. Our growth is fueled by our commitment to alignment of interests, the support of an elite network of the finest independent brokers, and the unique combination of superior service and significant savings.

S U PERIOR SERVICE

SI G NI FI CANT SAVIN GS

Our exceptional member experience starts with licensed adjusters receiving claims, not call center reps as is customary, so you’ll tell your story once and begin the settlement process immediately. PURE Member Advocates® provide conciergelevel support to help members prevent losses and then make life easier when one occurs. They’ll even research claims and pay to prevent them from recurring. These are just a few reasons why we have the highest member retention in the category.

We’re designed to have highly competitive rates. For starters, our member-owned model affords a lower cost of capital, which is reflected in our premiums. Further, we restrict membership to those less likely to submit frequent or frivolous claims. What’s more, our Risk Managers offer personalized advice to help keep members safe and reduce risk to their property. For these reasons and more, members report average annual savings of more than 25% on their homeowners insurance.ii

Annual Member Retention Ratei

Average Annual Savings on Homeowners Insuranceii

$2,701

$2,232

AFTER SWITCHING FROM

CHUBB

FIREMAN’S FUND

If you insure your home for $1 million or more, you should explore PURE. Contact a PURE-appointed independent insurance broker Visit explorepure.com Call 888.815.PURE Annual member retention rate as of Sep ‘15. iiAverage annual savings on homeowners insurance for members nationwide who reported prior carrier premiums from Jan ‘11 through Sep ‘15. Actual savings, if any, may vary. PURE® refers to Privilege Underwriters Reciprocal Exchange, a Florida-domiciled reciprocal insurer & member of PURE Group of Insurance Companies. PURE Risk Management, LLC, a for proﬁt entity, (PRM) serves as PURE’s Attorney-In-Fact for a fee. PURE membership requires Subscriber’s Agreement. Coverage is subject to insurance policies issued & may not be available in all jurisdictions. Visit pureinsurance.com for details. Trademarks are property of PRM & used with permission. ©2015 PURE. PURE HNW Insurance Services, CA Lic. 0I78980. i

MAKING TECHNOLOGY WORK

Spotting—and Fending Off—“Spoofers” These simple steps can help protect your business from costly email scams. By Heinan Landa

ACCORDING TO THE FBI, business email compromise scams—also known as “email spoofing”—cost U.S. businesses $747 million between October 2013 and August 2015. More than 7,000 companies fell victim to email spoofing during that timeframe, and the frequency and sophistication of these malicious emails is only increasing. SPYING A SPOOF Email spoofing is essentially forgery; it’s a message that is sent from one address, but appears to come from another. The most prominent—and costly—scam comes in the form of a fraudulent request for a wire transfer. The email will appear to come from the organization’s CEO (sometimes with a slightly altered email address, sometimes not) requesting a wire transfer for any number of reasons and providing instructions for where the payment should be directed. These emails can appear authentic. In fact, often the target recipient has seemingly looped into the tail end of an email chain where top executives have already discussed and approved the transfer amongst themselves. Such a chain might, for example, ap-

pear to be a back-and-forth between the CEO and top executives about an acquisition, with the final message to the accounting department with instructions to conduct a confidential transaction. However, the entire string of emails is phony—all are actually the work of hackers who took the time to do their homework on the organization they’re targeting. FENDING OFF ATTACKERS To protect your company from spoofing emails, you’ll need a high-quality spam filter and a strong firewall. Filters can prevent spoofing of an organization’s own domain by blocking emails with that domain name in the “From” field that are sent from outside the organization. And firewalls can prevent hackers from bypassing spam filters and sending emails directly through your email server. Unfortunately, these methods are not sufficient because most spoof emails are too sophisticated to have the red flags that a spam filter would catch. Plus, many email clients make it far too easy for users to mask their email with another. Therefore, the next critical step is to educate your staff on potential threats.

Train your staff to be highly suspicious of any emails asking for money or personal information. Your employees should be alerted to: Read email message headers and domain names carefully. Many scammers will use a domain name very similar to the company’s web address. For instance, if your CEO’s email address is ceo@businessname.com, they’ll send an email from the address ceo@bussinessname.com (with an extra “s” in ‘business’). Verify that emails are legitimate. Before replying to an email with sensitive information or taking any financial action on behalf of the company, call or start a separate email dialogue with the supposed sender to ask whether he or she did, in fact, send the email in question. Don’t wait until you’ve been victimized—and paid for the experience—to take precautions. Since there is no foolproof method of “blocking” these emails from reaching your inbox, you and your staff are your organization’s best defenses.

HEINAN LANDA is the CEO of Optimal Networks (www.optimalnetworks.com), a Rockville, Maryland-based IT company that offers IT support,

management and consulting services. 26 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

The world’s spotlight is on Ohio. Last year, Ohio added over 82,000 new private sector jobs. Our large metropolitan areas are ranked among the hottest cities for growth. We even have 19 of the Top 100 micropolitan cities—more than the next two states combined. If your business is looking to expand and grow, it’s time to take a closer look at Ohio. Find out what Ohio can do for your business at jobs-ohio.com.

Welcome to Ohio. It’s on.

JO10_It’s On_Chief Executive_8x10.75.indd 1

4/17/16 8:33 PM

SONNENFELD

Clearing Bull from The Bully Pulpit Jeffrey Sonnenfeld

We are seeing a return of the CEO voice— CEOs standing up to the public podium for comments beyond deals and products.

WHILE SILENCE and delayed CEO responses have hurt the brand image, profits and public trust in firms ranging from Chipotle and Carnival Cruise Lines to BP, Toyota and Tekata, we are seeing a return of the CEO voice—CEOs standing up to the public podium for comments beyond deals and products, embracing a larger societal mission. President Theodore Roosevelt famously labeled such a voice from the top, the “Bully Pulpit.” Ralph Waldo Emerson referred to an institution’s leadership as the extended shadow of a single person. For decades, management scholars have highlighted how leaders work as spokespersons to craft meaning and trust. Many CEOs have departed from the traditional anonymity of trade-group statements, lobbyists and PR flacks. Our research on CEO impact shows 75 percent of leaders find that lobbying is not working for them. Apple’s Tim Cook went to ABC TV prime time airwaves to attack the U.S. Justice Department’s request to suspend privacy protections on the iPhone used by a terrorist. Cook labeled this the most important executive action, charging that the government’s request is “the software equivalent of cancer.” He added, “I don’t know where this stops. But I do know that this is not what should be happening in this country.” GE’s Jeff Immelt also challenged government in his recent annual shareholders report. He complained that the current business cycle is the “worst” he has ever seen due to the difficult relationship between business and government. “Technology, productivity and globalization have been the driving forces during my business career. In business, if you don’t lead these changes, you get fired; in politics if you don’t fight them, you can’t get elected. As a result, most government policy is anti-growth.” Jamie Dimon’s latest JP Morgan shareholder letter, much like his candid, constructive, Congressional committee appearances, echoes such concerns. Dimon, like Immelt, is not new to bold

public discourse. He and Immelt prophetically warned the business world about risky financial practices a decade ago. In his 2006 annual shareholder letter, he wrote of wide-ranging mispricing of risk: “We do not yet know the ultimate impact of recent industry excesses and mismanagement in the subprime market. Bad underwriting practices probably extended into many mortgage categories.” Starbucks CEO Howard Schultz, who has spoken out and acted on societal issues ranging from unemployment and gun control to race relations and nutrition, recently lamented to his 200,000-person global workforce that the current election climate has “turned into something none of us has ever seen before, which I would label as almost a circus of yelling bombastic attacks, of a lack of respect, of a lack of dignity.” Campbell Soup CEO Denise Morrison has bolted from defensive industry positions to champion transparency in food labeling and genetically modified ingredients. Last year, Walmart CEO Doug McMillon urged other business leaders to help revise or repeal societally divisive “religious freedom laws” in states such as Arkansas and Indiana. McMillon stated, “It all starts with our core basic belief of respect for the individual. Today’s passage of HB 1228 threatens to undermine the spirit of inclusion present throughout the state of Arkansas and does not reflect the values we proudly uphold.” Sure, there are dangers when CEOs assume such inspired statesmanship. Some bold CEOs like Dimon appear to have become prosecutorial targets for speaking out. Also, a CEO must be careful not to make his or her image and positions barriers to successful problem solving of resolvable underlying conflict. Still, these times—with massive disruption in politics, diplomacy, trade and technology—are not business-as-usual. CEOs cannot hide behind the protective shields of platoons of PR flacks, legions of lawyers and bland generic clichés.

JEFFREY SONNENFELD is senior associate dean for leadership studies and Lester Crown professor in

management practice at Yale University, and president of the Yale Chief Executive Leadership Institute.

28 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

I LLU ST R AT I O N BY T I M TO M K I N S O N

Used judiciously, the CEO voice can be a force of change. By Jeffrey Sonnenfeld

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2016 Best & Worst States for Business

Low Taxes and High Talent Encourage Business Leaders to Invest

In our 12th annual canvas of CEO opinion, leaders favor states with fewer regulatory encumbrances and report that most remedies dangled by politicians only make things worse. By J.P. Donlon

The Five Best States ★★★★★

310 reviews

The Five Worst States ★

287 reviews

Key Takeaways

Talent Trumps Tax Climate

For many CEOs, workforce quality, particularly technical talent, is becoming a top priority

Iffy on Incentives

Tough compliance requirements are souring some CEOs on financial incentives for creating jobs

Reducing Regs

Pro-growth policy reforms that minimize red tape can swing the site selection needle

Add to map

MAY/JUNE 2014

CHIEFEXECUTIVE.NET

32 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

reduced taxes by $4.8 billion, which The Washington Post says puts Ohio among the top four tax-cutting states in the U.S. In this year’s survey, we also asked CEOs who operate directly from a state whether they view it as better or worse than leaders with indirect experience. For the most part, the perceptions of CEOs with firsthand experience do not differ widely from overall perceptions of CEOs. There are some exceptions: Hawaii-, Alabamaand Mississippi-based leaders tend to rank their states as more friendly than do CEOs overall. Minnesota, Utah and Pennsylvania, on the other hand, get

STATE

2015

2016

BIGGEST GAINS IN 2016

CHANGE

+12

10 22

OHIO

+10

23 33

ARKANSAS

13 20

DELAWARE

19 23

SOUTH DAKOTA

20 24

ALABAMA

24 28

KENTUCKY

25 29

MONTANA

30 34

ALASKA

32 36

NEW MEXICO

-30

STATE

2015

BIGGEST LOSSES IN 2016

2016

Even allowing for geographic location and weather patterns that are immutable, state economic conditions vary widely. The evidence suggests that progrowth policies influence perceptions of competitiveness, particularly in the eyes of business leaders. Earlier this year, Chief Executive asked 513 CEOs to rank states they are familiar with on the friendliness of their tax and regulatory regime, workforce quality and living environment. (This latter category includes not just the cost of living but the education system and the state and local attitudes toward business). Texas and Florida top the list, as they have every year for the past 12 years that we have conducted this survey. Despite having been hit hard by the shale energy bust, Texas is still held in high esteem by CEOs for its favorable economic reforms. But each year, Florida steadily edges up in the qualitative measures. The Sunshine State added one million private-sector jobs over the last five years, cut taxes 50 times and got rid of 4,200 burdensome regulations. In 2014, it surpassed New York as the third-biggest state for companies to flourish. North Carolina and Tennessee held onto their third and fourth places from last year, while Indiana moved up to fifth place and Arizona leapfrogged from ninth to sixth. South Carolina secured seventh place (up from 10th last year) while Georgia, Nevada and Ohio ranked eighth, ninth and tenth respectively. The fact that the Buckeye State surged from 22nd place to 10th this year may have something to do with the fact that Ohio has added 350,000 jobs since 2011, and Governor John Kasich

CHANGE

Best & Worst States for Business

Why do some areas of the country thrive while others see businesses atrophy and people flee at alarming rates?

LOUISIANA

-7

28 21

NEW HAMPSHIRE

-4

15 11

COLORADO

-4

17 13

IOWA

-4

41 37

RHODE ISLAND

lower marks from CEOs with firsthand knowledge than from those without direct experience. Louisiana, which once ranked among the top 10, dropped to 37th place, no doubt owing to its current $940 million budget disaster. Last January, John Bel Edwards, Louisiana’s new Democratic governor, said he learned of various “devastating facts” and decried sales of state assets to plug a $2 billion budget gap.

MOVING ON UP As important as taxes and regulation are, they aren’t the only factor influencing a region’s attractiveness. Migration between states illustrates favorable intrinsic conditions, as well as wise policy decisions. From 1992 to 2011, some 62 million taxpayers changed their state of residence, according to IRS records. Estimates suggest this figure is more than the total populations of New York, Illinois and Florida combined. This trend of people voting with their feet has benefited North Carolina, Florida and Texas—all three of which are among the top 10 best states this year—as well as states like Utah and Wyoming. The population losers tend to be the Rust Belt and Northeastern states like New York, Connecticut and New Jersey. Having said this, states such as Indiana, Ohio, Wisconsin and Michigan deserve credit for pro-growth policy reforms in the wake of years of poor policy decisions. CEOs indicate that the quality of workforce is just as important—in some cases more important than the tax environment. (Utah and Nebraska score highest in workforce quality among all the states.) At $117 billion GE, CEO Jeff Immelt moved the industrial giant’s headquarters from Fairfield, Connecticut to Boston because he felt that the

STATE

Another predictor of a state’s ability to compete successfully is whether it has passed a right-to-work law. Such laws secure the right of employees to decide for themselves whether to join or financially support a union. West Virginia is the 26th state to do so, making RTW a majority among all the states. Nearly all the states in the top 10 ranking are RTW states. All of the leading 10 worst states at the bottom of the ranking are not. States that wish to improve the perception of their competitiveness in the minds of business leaders should also consider rolling back the expansion of red tape and regulation that particularly hampers small businesses and, in turn, depresses job creation. Having limited working capital and fewer resources, smaller companies struggle with forms, permitting requirements and red tape. This is a major reason that small-company creation in the U.S. is running at its lowest level since the 1970s. Even the center-left Economist noted that such concerns should not be “dismissed as the mad rambling of anti-government Tea Partiers. The burden placed on small firms by laws like Obamacare has been material. The rules shackling banks have led them to cut back on serving less profitable small customers. The pernicious spread of occupational licensing has stifled startups. Some 29 percent of professions, including hairstylists and most medial workers, require permits, up from 5 percent in the 1950s.”

CHANGE FROM 2015

RIGHT TO WORK RUNUP

THE 2016 RANKINGS

2015 RANK

divestment events for this period. Even this number may be low since the cost and compliance burdens of California’s taxes and regulations fall disproportionately on smaller companies that are less able to afford the teams of attorneys and accountants that mega-corporations can employ. Google, Apple, Intel and Cisco will likely continue to grace the Silicon Valley corridor, but notice that their server farms and fab plants are located elsewhere.

2016 RANK

city would give GE access to the advanced thinking and talent afforded by an area with many top universities and colleges offering technical training. “I would say in the life sciences, Boston is among the best,” Immelt told the Boston Business Journal. “Our bet is we can be a part of that, work with universities and make it happen in this town.” Immelt said that GE, which already has 5,000 workers in Massachusetts, will make 4,000 new jobs available in the state. Similarly Scott Tariff, CEO of midsize Eagle Pharmaceuticals, a Woodcliff Lake, New Jersey maker of injectable medicines, said the primary reason for locating his nine-year-old company in the Garden State (aside from living nearby) was the state’s broad array of pharma talent. The tax and regulatory climate, although improved, is not where he would like it to be. Revealingly, Eagle does not make any of its products in New Jersey. But a state’s talent pool can only take it so far. Few states are blessed with as benevolent a climate and a firstrate university system as California, yet it is consistently ranked last each year by CEOs. In 2014, it topped New York for the largest out-migration of people. Much of the reason lies with the perception that Sacramento has a hostile attitude toward business. Joseph Vranich, president of Spectrum Locations Solutions, a site-selection consultancy based in Irvine, California, has tracked what he calls “California divestment events”—business decisions to avoid the state. These come in three types: companies that left the state entirely, companies that opted to expand in states other than California and companies that planned to grow in the Golden State but changed their minds. Vranich has identified 1,510 divestment events occurring in California between 2008 and 2014. He thinks this understates the complete total because for every incident that becomes public knowledge five go unreported. He estimates that the real total is probably closer to 9,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

1 2 3 4 6 9 10 5 8 22 12 14 20 17 11 15 13 16 23 24 18 19 33 28 29 27 25 21 26 34 32 36 30 31 38 35 7 41 42 43 37 39 40 44 46 45 47 48 49 50

0 0 0 0 1 3 3 -3 -1 12 1 2 7 3 -4 -1 -4 -2 4 4 -3 -3 10 4 4 1 -2 -7 -3 4 1 4 -3 -3 3 -1 -30 3 3 3 -4 -3 -3 0 1 -1 0 0 0 0

TEXAS FLORIDA NORTH CAROLINA TENNESSEE INDIANA ARIZONA SOUTH CAROLINA GEORGIA NEVADA OHIO WISCONSIN VIRGINIA DELAWARE WYOMING COLORADO UTAH IOWA OKLAHOMA SOUTH DAKOTA ALABAMA IDAHO NORTH DAKOTA ARKANSAS KENTUCKY MONTANA KANSAS NEBRASKA NEW HAMPSHIRE MISSOURI ALASKA WASHINGTON NEW MEXICO MAINE MINNESOTA WEST VIRGINIA PENNSYLVANIA LOUISIANA VERMONT OREGON MICHIGAN RHODE ISLAND MISSISSIPPI MARYLAND HAWAII MASSACHUSETTS CONNECTICUT NEW JERSEY ILLINOIS NEW YORK CALIFORNIA

MAY/JUNE 2016

CHIEFEXECUTIVE.NET

RATINGS1

STATES AND RANK

2016 rank

Best & Worst States for Business

STATES

ALABAMA ALASKA ARIZONA ARKANSAS CALIFORNIA COLORADO CONNECTICUT DELAWARE FLORIDA GEORGIA HAWAII IDAHO ILLINOIS INDIANA IOWA KANSAS KENTUCKY LOUISIANA MAINE MARYLAND MASSACHUSETTS MICHIGAN MINNESOTA MISSISSIPPI MISSOURI MONTANA NEBRASKA NEVADA NEW HAMPSHIRE NEW JERSEY NEW MEXICO NEW YORK NORTH CAROLINA NORTH DAKOTA OHIO OKLAHOMA OREGON PENNSYLVANIA RHODE ISLAND SOUTH CAROLINA SOUTH DAKOTA TENNESSEE TEXAS UTAH VERMONT VIRGINIA WASHINGTON WEST VIRGINIA WISCONSIN WYOMING 1Source:

20 30 6 23 50 15 46 13 2 8 44 21 48 5 17 26 24 37 33 43 45 40 34 42 29 25 27 9 28 47 32 49 3 22 10 18 39 36 41 7 19 4 1 16 38 12 31 35 11 14

Taxation and Regulation

Workforce Quality

6.36 6.10 7.13 5.92 1.88 5.74 2.05 7.10 7.72 6.87 3.08 8.15 2.82 7.16 6.16 6.14 6.30 5.41 3.50 2.83 2.75 4.79 4.11 4.72 5.47 6.14 6.25 8.11 5.81 3.11 4.55 2.04 6.87 7.56 5.98 6.67 3.96 4.22 2.88 7.13 7.70 7.95 7.72 7.78 3.94 5.59 4.17 4.06 5.41 8.88

6.20 6.15 7.24 6.32 6.14 6.81 6.13 6.87 6.81 7.38 4.28 8.15 5.44 7.72 7.55 6.36 5.60 5.23 6.25 5.39 7.06 6.03 6.94 4.48 5.84 7.32 8.00 6.84 7.00 5.98 5.09 6.06 7.36 6.74 7.53 6.41 6.38 6.41 6.13 6.92 6.76 7.46 7.67 8.22 5.94 7.24 7.34 4.13 7.22 6.84

STATE POLICY Living Environment

6.24 6.55 7.60 6.88 6.81 8.25 6.15 6.87 7.77 7.83 8.20 8.62 5.42 7.25 7.06 6.23 6.63 5.38 5.50 5.59 6.02 5.85 6.33 4.48 6.37 7.55 7.25 7.05 7.13 5.10 5.45 5.13 8.24 5.56 6.93 6.41 7.41 6.23 6.00 7.83 6.20 7.81 7.68 7.88 6.76 6.98 7.54 4.88 7.07 7.48

Right to Work

EDUCATION AND TRAINING Education (K-12 Reform Effort)

YES NO YES YES NO NO NO NO YES YES NO YES NO NO YES YES NO YES NO NO NO YES NO YES NO NO YES YES NO NO NO NO YES YES NO YES NO NO NO YES YES YES YES YES NO YES NO YES YES YES

D+ CBD+ CC+ CC B C+ CC C B+ CD+ CBC D+ C C+ C+ CBD+ D+ C C C+ C C C+ D C BCCC C+ D+ C+ C BD+ CC CC C-

Comm College performance (2yr prgm)

A A C F B F C C C C B F C C C C D C B A C A C A C F C C F C F D C D C C D D C B B C B C B C D D C D

GDP Q3 %GROWTH

VS. U.S. 1.9

2.2 -1.2 2.2 1.9 2.1 2.4 1.6 1.0 2.0 2.0 3.8 3.9 1.6 3.7 6.4 6.5 2.3 1.6 2.5 2.4 2.2 2.9 2.9 1.9 2.8 3.5 5.4 0.7 1.7 1.5 0.5 0.7 2.8 -3.4 2.3 0.1 2.2 2.5 2.1 2.6 9.2 2.1 0.1 2.9 2.1 1.2 0.8 -2.0 3.1 0.3

Chief Executive Magazine. (Rated on a scale of 1 to 10, with 10 = excellent and 1 = poor). States in RED denote the 10 best States for business.

34 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

The Technical Talent Factor

MASSACHUSETTS HAS BEEN sive marketplace like Silicon Valley TRYING to tell everyone something. or [Washington] DC,” explains Rose, For eight of the last nine years, it has finished No. 1 in the Beacon Hill Institute’s State Competitiveness Index despite being ranked only No. 25 in the Tax Foundation’s 2016 State Business Tax Climate Index and an abysmal No. 46 in Chief Executive’s Best & Worst States for Business. Indeed, Greater Boston is luring companies these days almost solely on the strength of its human capital. CEO Jeffrey Immel’s stunning decision to move GE’s headquarters from hightax Connecticut to high-tax Massachusetts because of this factor ratified the growing notion that having access to a high-tech workforce has become the most important factor in corporate siting decisions in the digital era. “Everybody is becoming a ‘software company,’” says Apu Gupta, CEO of Curalate, an e-commerce software outfit based in Philadelphia. “Everyone will be fighting over talent.” In fact, because of a relative paucity of digital talent in his city, Gupta has also opened offices in Seattle and New York, “where you’ve got pools of [tech] talent looking to leave boring corporate jobs in search of something far more meaningful.” Andrew Rose chose Richmond, Virginia as a base for his online insurance-shopping startup, Compare. com, over a handful of major cities, including Chicago, Dallas and Los Angeles, because of the city’s ideal geographic location, its strong base of colleges and universities, and its overall lifestyle appeal—which, in turn, has nurtured an ample base of digital cognoscenti. “Plus, we didn’t have to go to a really expen-

over the background din of some employees playing Nerf darts outside a conference room. “In Richmond we can get great talent at a cheaper cost and give them an exceptionally good work-life balance.”

SWINGS IN SUPPLY However, trying to land good tech talent at a reasonable price can be challenging these days as geographic disparities in both the cost and availability of in-demand Millennials even out. San Jose, California-based Xactly, for example, a sales-management software company, opened a second office three years ago in Denver and now employs about 120 of its total 450 staffers there. But in Xactly’s last few hires, reports CEO Christopher Cabrera, “our pendulum seems to be swinging back toward Silicon Valley because costs in Denver are exploding. Where we used to get someone there for $60,000 a year, it’s now $80,000. And you can hire people for that at our headquarters.” This factor raises alarms even in Boston, where the presence of dozens of colleges and universities including tech icon MIT isn’t enough to erase concerns about supply of the coveted techie. “There are simply not enough digitally experienced employees in Boston for all of the companies who want to hire them,” says David Hayes, president of HireMinds, a Cambridge, Massachusetts-based recruiter. “Therefore some companies are winning the war on talent and others are losing.” —Dale Buss

WHAT CEOS ARE SAYING

We asked survey respondents to tell us what makes for a good or bad state in which to do business ARIZONA

“Arizona is a hidden gem. It’s a great place to live and there’s been a change to government that is business friendly.” “Arizona is attempting to draw business out of California with tax incentives and much lower cost of living.”

CALIFORNIA

“California is outrageously overpriced—it seems people have a hard time owning a home there.” “California is an employers’ nightmare. But it is one of the nicest places to live!” “California has been running businesses out of the state for years, and in fact, their policies are getting worse. Class-action lawsuits abound, and it’s a crazy environment for small business.”

COLORADO

“Colorado used to be one of the best states to do business in, but the regulatory environment has continually gotten worse for employers. Also the cost of living has risen much faster than the national average for the last five to seven years.”

CONNECTICUT

“Connecticut is far better than reported, with high-quality people, great schools and low expenses relative to Boston or New York City on either side of it.” MAY/JUNE 2016

CHIEFEXECUTIVE.NET

THE FIVE BEST

TAXATION & REGULATION* “Connecticut taxes have to stop, and a good start would be a 5-percent reduction in state spending and an honest look at not only the government but also at all the NGOs that wouldn’t exist without state sponsorship.”

Idaho

Wyoming

8.15

8.88

2 3

“Connecticut… overplayed their hand with GE and lost—and those losses will continue.”

1 5 4

Best & Worst States for Business

FLORIDA

“Conditions for businesses in Florida continue to improve. Statewide actions and investments have been strategic and far-ranging. The state has aggressively moved ahead on key issues like rebuilding ports without waiting on federal support. They have also chipped away at nagging impediments to expansion and investment that were piled on through the years.” “Florida is changing and has become an economic powerhouse beyond just Disney and tourism. Incomes are up but the cost of living is low.”

GEORGIA

Utah 7.78

Nevada 8.11

Tennessee 7.95

*(Rated on a scale of 1 to 10, with 10 = excellent and 1 = poor)

The Ins and Outs of Incentives

“Georgia is quickly advancing in its ability to host and keep business as well as allow for small-business growth.” “My top pick is Georgia; it is growing so fast and the cost of living is very reasonable.”

ILLINOIS

“Illinois has a terrible pensiondeficit situation on its hands… and horrible violence issues in Chicago.” “Illinois has a long way to go relative to making the state more attractive to business. They must get a grip on unfunded pension issues and high taxation and unions.” “Illinois continues to tax heavily and politicians continue to destroy opportunities for employees and businesses. It’s a terrible combination which leads to the exodus we see in both families and businesses.” 36 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

WHEN IT COMES TO SITING DECISIONS, CEOs will tell you that the most important lures by far are intrinsic things like the location fitting their business model geographically, low taxes, adequate local infrastructure and ample talent that fits their specific needs. However, inducements and incentives can also attract companies to a state or locality. These days, the most effective hooks are

typically built around the jobs and workers themselves, including bounties for reaching certain levels of employment and help with funds and instruction for training workers for certain types of jobs. When Stephen Kezirian was CEO of the call center company IBEX Global Solutions, for instance, he chose places such as Spring Hill, Tennesee, and Hampton, Virginia, which offered packages of cash payments

and training funds worth several thousand dollars apiece for the hundreds of workers at a call center. “We liked it when states would train people in basic technical skills and phone etiquette for one to five days, so when they joined our company they would be off to the races a bit,” he explains. Last year, when Kezirian became CEO of Goji, an online auto-insurance agency based in Boston, his focus

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INDIANA

“Indiana has its act together, and is impressive.”

LOUISIANA

“Louisiana’s quality of life, culture and workforce are fantastic.”

MASSACHUSETTS

“Massachusetts needs a major highway overhaul; traffic into and out of Boston is terrible and there have been no road upgrades in more than 20 years.”

“State regulators and political incentives are ultimately a con game, and business leaders should stay away from the political gravy train.” —Don Hicks, CEO, Llamasoft Ann Arbor, Michigan

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Best & Worst States for Business

MICHIGAN

“Michigan has done more to improve the climate for business in the last few years than any other state in the nation.”

MINNESOTA

“Other than the taxes and weather, Minnesota is a nice place.”

MISSOURI

“We are in Missouri, and all in all, they pretty much leave us alone, so that is good. The unfortunate thing is that we don’t have a Right to Work law.”

MONTANA

“Montana’s tax and regulation situation could be better, but the quality of living, people, education system, etc. make this state very attractive for new businesses, especially in the high-tech area.”

NEVADA

“Nevada has a great balance of government involvement and the private sector.”

NEW HAMPSHIRE

“New Hampshire has terrible transportation options (no train, availability of flights in serious decline). The business profit tax is high.”

NEW JERSEY

“New Jersey is dying. The infrastructure is crumbling, smart young people go out of state for college and don’t return, taxes are out of control. Chris Christie turned out to be completely incompetent.” 38 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

shifted from incentives to the most important criterion for a business built on digital-tech specialists: making sure there are enough of them. In that regard, he says, unlikely places such as Tulsa, Oklahoma, and Kansas City can compete with big tech-industry enclaves by offering “a cool lifestyle. Only if you get down to the level of a Tier 3 or Tier 4 city do you need to come up with incentives to lure tech companies.” The downside of employment-based incentives, of course, is what happens when companies end up not hiring as many workers as specified in the state’s largesse. “The compliance [requirements] that go along with some of these incentives can be brutal,” notes Sharon Wel-

house, practice leader for Ryan’s Credits and Incentives consulting firm in Dallas. “They sound good, but in reality they can’t always be utilized.” CRUSHED BY COMPLIANCE This is one reason some CEOs steer clear. They “are actually terrible distractions from business,” argues Don Hicks, CEO of Llamasoft, a supply-chain consulting firm that opened offices in Shanghai, Paris, Cape Town and Sao Paulo but kept its headquarters in Ann Arbor, Michigan because its employees’ roots are there. “State regulators and political incentives are ultimately a con game, and business leaders should stay away from the political gravy train.” Increasingly, tech-

nical talent trumps financial incentives as a factor in location decisions. “Both New York City and California, for instance, perform poorly from a taxation perspective and don’t have incentive programs,” points out David Providenti, a partner at Savills Studley real estate advisors. “But companies go there because Millennial talent—the best and brightest engineers, programmers and financial talent... want to live there. Companies have thrown out the historical variables for comparing locations, such as tax climate, and turned it into a war for talent, because the productivity from getting the best and brightest talent exceeds traditional measurement goals for jurisdictions.”—DB

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THE FIVE BEST

WORKFORCE QUALITY* “New Jersey is ridiculous. The infrastructure is crumbling around you, and the taxes are ludicrous.”

8.00

8.15

NEW MEXICO

“New Mexico expanded its use of Medicaid, which was very beneficial.”

NEW YORK

“We left New York after more than 30 years because of declining quality of life and heavy taxes.”

Indiana 7.72

“New York is the worst. I’ve been here 65 years. I’m retiring and moving anywhere.”

Best & Worst States for Business

Nebraska

Idaho

Utah 8.22

“New York has improved under the leadership of Gov. Cuomo.”

Texas 7.67

NORTH CAROLINA

“North Carolina has a strong technical talent and university support for industry. It also has great quality of life aspects for work and home life.”

*(Rated on a scale of 1 to 10, with 10 = excellent and 1 = poor)

OREGON

“Oregon is planning on adding a VAT tax for C corps and a 15.5-percent tax rate for personal and pass-through small business. This will clearly make them the worst in the country.”

PENNSYLVANIA

“The legislative gridlock is unacceptable for businesses.” “Pennsylvania is a train wreck. Its obsession with local control has created gridlock at the local and county levels. The dysfunction in Harrisburg is well-chronicled.”

SOUTH DAKOTA

“South Dakota gets it! They are one of the best states in the union to do business… a conservative state that is mandated by their constitution to have a balanced budget… There is no red tape in South Dakota. They want to get out of the way and let us do what we do best: create jobs!”

40 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

Three Regions, Three Strategies

GREATER SEATTLE, WASHINGTON GDP GROWTH 3.4% 2013-2014 RANK 58 / 361

HOME BASE FOR MICROSOFT, AMAZON AND BOEING, Greater Seattle has enjoyed a balmy economy for decades. To defend marquee employers against corporate poaching, regional business, government and academic leaders united to devised a growth strategy over 10 years ago to leverage its major employers’ economic mojo, tap the brainpower at University of Washington and Washington State to catalyze R&D initiatives and train a technically savvy work force. Evidence suggests the plan’s working. The region added 54,300 jobs last year. To keep pulling in Millennials and other educated workers, leaders tout Seattle’s famous sense of place. Sites like the Pike Street Market, the iconic coffeehouses and the maritime heritage continue to attract newcomers— and growth depends on workforce expansion.

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LAS VEGAS, NEVADA

GDP GROWTH 2% 2013-2014 RANK 137 / 361 HAMMERED BY THE GREAT RECESSION, Las Vegas has continued

TENNESSEE

“Tennessee has stable leadership and a ‘can do’ attitude toward recruiting and retaining major business.” “Tennessee is a great place with a high sales tax but no income tax, K-12 education challenges and infrastructure needs. We have an excellent credit rating and a great governor.”

Best & Worst States for Business

TEXAS

“We recently relocated the majority of our Connecticut office to Texas because of the obscene difficulty in doing business in the state.” “Texas has their act together, their government workers go out of their way to assist businesses [to] comply and follow the laws. The taxation and regulatory environment is business-friendly and allows a small-business owner to make ends meet without having to indenture your future and work 70 to 80 hours a week to make a living.”

to shrivel as entertainment spending evaporated. To rebuild the economic base, city leaders and their statehouse counterparts jumpstarted growth through incentive recruitment. First, cross-state rival Reno wooed Tesla with a jaw-dropping billion-dollar incentive deal. Las Vegas countered by signing Tesla’s arch-rival Faraday Future to build a billion-dollar plant in North Las Vegas. Cost to the city: $216 million in incentives. This past winter, members of the Site Selectors Guild honored Nevada for Excellence in Economic Development. The guild cited three projects, facilities for Barclaycard, eBay and Faraday Future. All involved Vegas.

MIDLAND, TEXAS

GDP GROWTH 24.1% 2013-2014 RANKING 1 / 361 FOR MORE THAN A DECADE, the towns dotting the Permian Basin below

west Texas and southeast New Mexico gushed black gold. Among them, Midland, the oil-rich, home-of-George-W-Bush community, led all U.S. metro regions in GDP growth six of the past 10 years. During the boom, officials shrugged off the need to diversify. Why mess with your goose when it’s laying golden eggs? Now that the bottom’s fallen out of the oil and gas sector—Midland lost some 14,500 jobs in 2015—the answer is clear. The Midland Development Corporation is talking up diversification and pursuing companies in the field of commercial space exploration. Most local businesses, though, are waiting out the cycle. Expect Midland to pump black gold again when prices reach 50 cents a barrel, says local oilman Kirk Edwards. —Warren Strugatch

THE FIVE BEST

UTAH

“Utah is becoming a desired business location due to affordable housing, good workforce and a less cumbersome regulatory environment.”

LIVING ENVIRONMENT* Idaho 8.62

VERMONT

“We find Vermont to be very flexible with companies in our field of business. They are better than the other New England states, although Maine is a close second.”

1 5

North Carolina 8.24

Utah

7.88

“Vermont’s principal export is children and executive jobs are drying up as businesses leave.”

WISCONSIN

Colorado 8.25

“Wisconsin has had significant pro-business improvement under Gov. Walker.” “Wisconsin has a great workforce and expenses are about onethird of the East Coast. Taxes are fair to moderate in impact.”

Hawaii 8.20

*(Rated on a scale of 1 to 10, with 10 = excellent and 1 = poor)

42 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

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MOBILE MARKETING

MARKETING IN MILLISECONDS

Can mobile marketing deliver on its promise? By Russ Banham

46 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

FIVE YEARS AGO, “mobile” sounded like the coolest thing that could ever happen to marketing, sort of like when television was invented. You’re driving down the road and hungry for a burger when your iPhone beeps, “20 percent off at Burger King one block east from next exit ramp.” Or you’re thinking about a vacation in Hawaii, when hotels on Maui seem to be competing for you to book a reservation. The power of this instant messaging seems undeniable. What better way to sell something to consumers (or businesses) than to know what it is they need before they express it? This is not a coffee commercial seen by people who don’t drink coffee. This is marketing to people who are in the market for what you’ve got. Right this minute. The hitch? As it turns out, “pushing” a carefully curated marketing message to a consumer on a mobile device is not quite as straightforward as it sounds. This is not to say that this ubiquitous and fast-growing business-to-consumer (B2C) mode of marketing isn’t capable of cost-effectively increasing sales revenue. It is. The problem is picking from a vast and ever-evolving assortment of tools promising to effectively reach consumers on the go. The first mobile marketing tools were designed to analyze the buying behaviors of current customers to determine their intent to purchase something else or the same thing again. “The goal is to understand the consumer’s preferences to develop a profile of this person,” says Mike Rooney, senior vice president and general manager at BPMonline, a provider of customer relationship management (CRM) solutions. “People leave a breadcrumb trail— their social media interactions, Web browsing, search histories, online shopping cart patterns and other behaviors.” Following these breadcrumbs tells marketers a lot about the person.

Knowing the person’s behaviors, marketers can create timely messages that are likely to appeal to the individual’s purchasing interests. Since other non-customers’ behaviors are likely similar, analyzing their search, browsing and transactional behaviors gives marketers the opportunity to target these consumers with the same compelling messages on their mobile devices. Fast, Furious Growth Last year, U.S. companies spent nearly $29 billion to reach consumers on their smartphones, tablets and laptops, a more than 50 percent increase from what they forked over in 2014. With that kind of marketing spend, small wonder that mobile marketing startups sprouted like mushrooms to serve the burgeoning interest. Some are a marvelous utopia of marketing, well-tested tools that will turn the needle on the sales meter. Others promise far more than they can deliver. “The primary risk of investing in mobile marketing technology or any kind of data analytics is the ‘shelfware effect’—something so complicated, complex and with so many wrinkles that marketers can’t put it into action,” says Andrew Moravick, senior research associate, marketing effectiveness and strategy, at Aberdeen Group. More than half (56 percent) of marketing organizations currently use predictive analytics in their current marketing efforts, says Moravick. However many of them are “kind of doing stuff just to do stuff,” he adds. Not that he and other marketing experts don’t see tremendous value in the predictive analytics at the heart of these tools. A survey by Lattice Engine of 308 CMOs and business unit directors whose companies have invested in predictive analytics credits the technology with increasing the respondents’ marketing ROI by more than 25 percent. Says Moravick, “Mobile marketing

KEY TAKEAWAYS 1 Do Your Homework

Vet the tools you choose diligently

2 Use Discretion

Your efforts can backfire if you overstep

3 Earn by Learning

Collecting information is as important as messaging

makes tremendous sense.” Here’s why: By accumulating a vast storehouse of information on each of us—scraping our social media musings, recording our Internet browses, staying abreast of our changing demographics, compiling lists of our recent purchases and accumulating other personal details we’re willing to share, algorithms embedded in the tools can accurately posit what we’re in the market for. Armed with this intelligence, a seller that swoops in with a persuasive message to a consumer at the opportune time already knows it has the person’s interest and attention. There’s a dark side to all this spit and polish. If the marketing message is late or even slightly off, if the tool has dug too deeply into our personal lives or if there are just too many messages barraging the consumer one after another ad nauseum, the strategy can be worse than ineffective. It can blacken a company’s brand, making consumers hate you. Really, really hate you—and spread their disgust like a malevolent Johnny Appleseed.

The Right Stuff Turned off by mobile marketing now? Don’t be. Any CEO or CMO would be a fool not to invest in it. The question is how to go about it. YP.com, the company known best for the cinder block-sized Yellow Pages it still publishes, undertook extensive due diligence to figure that out. Today, YP.Com is a consumer-facing web site and mobile app in the digital space, linking more than 70 million people to more than 20 million business listings each year. To assist businesses in paring marketing costs and beefing up sales, YP.com uses Kahuna’s mobile marketing automation software. “We wanted to drive more engagements through ‘push’ marketing, mining the data that our consumers allow us to mine, and then using predictive analytics to help companies target their messages more accurately and personally,” says John Webster, YP.com senior marketing manager. YP.com’s marketing sciences analytics team uses Kahuna to track the data it amasses on each individual signed up to use its mobile app. “We know things,” Webster says. “For example, after someone spends money at an auto repair shop, their next search is often for food delivery because they can’t drive somewhere to pick up food. If the same person booked a table at a restaurant that evening, there’s a greater chance that they’ll need Uber or some other means of travel. Advertisers capture these insights to push personalized messages to the person.” Julie Ginches, CMO of Kahuna, says such insights are derived from “the digital body language of a customer.” She adds, “The old way of marketing was to blast a message to many people in a particularized segment—soccer moms who like fast food. You then guessed what you think they wanted. If you’re wrong, that’s the perfect way to lose the prospect’s interest or alienate them.” Kahuna, conversely, analyzes MAY/JUNE 2016 /

CHIEFEXECUTIVE.NET

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MOBILE MARKETING

56%

“individualized” data, actions you or I take this moment that, when added to other recent actions in our digital journey, trigger a seller to send a mobile marketing message precisely crafted to sell us what we seem to want or need. The strategy is paying off at YP.com. “Once we started sending personalized push messages, it increased the engagement between our app users and our advertisers by 180 percent,” Webster says. By “engagement,” he means the handing over of money from a consumer to a listed company. Rather than someone logging onto a web site with the intent of buying something and leaving the shopping cart empty, the cash register rings.

Reading Minds The register is also ringing at other companies deploying automated marketing technologies. UPS Battery Center, a Toronto-based manufacturer and supplier of sealed lead acid batteries for medical devices, alarm systems and industrial battery applications, wanted to learn how customers searched for products on its web site to improve their experiences and its product selection. “We thought customers would search for a battery based on the specifications, dimensions and terminal type,” says Anton Khramov, CEO and founder of the company. “Turns out we were wrong.” UPS Battery Center turned to Swiftype, a predictive analytics tool for corporate search engines, for the answers. Search boxes on a web site are a powerful but underutilized marketing tool, says Matt Riley, Swiftype’s cofounder and CEO. “Whatever the consumer types in that box becomes an incident navigation menu,” he explains. “Each click from that moment forward tells you what this person is specifically looking for.” Riley and his co-founding partner are software engineers who previously built search engines for businesses. “The marketing people 48 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

More than half (56 percent) of marketing organizations currently use predictive analytics in their current marketing.

were always interested in what we were doing; they wanted to know what the relevant search results were and fast,” he says. “That got us thinking about a tool that collected the search data and applied algorithms to this information to learn as much as you can about the visitors.” UPS Battery Center learned quite a bit. “Using information from the search analytics, we created landing pages for products we didn’t have in stock,” Khramov says. “We found the products from other vendors, priced them properly and listed them on the site. If they started attracting more attention, we’d stock it or manufacture it ourselves.” The company also found out that buyers were interested in options like a longer battery run time or stronger performance, information that changed marketing content. It also learned why some products had an unusually high return rate. Customers were searching the site for installation instructions. “We’ve since adjusted the web site to include the instructions, which reduced the rate of returns—a huge win for us,” Khramov says. “The more we derive from the analytics, the less we throw at marketing, buying keywords and

spending money on research. Our orders have increased by 140 percent, revenues are up by 125 percent, and our conversion rates have improved by 116 percent.” HotelTonight, the popular mobile app providing discount hotel rates, is leveraging a very different marketing tool, Apptimize, to optimize the app’s conversion rate. Apptimize is installed inside HotelTonight’s mobile app to analyze “customers’ experiences inside the app,” says Nancy Hua, CEO and founder of Apptimize. When someone engages the app, “they have different reasons for doing this at different times,” Hua explains. “You don’t know if they’re just browsing or looking to get more information or ready to click and book. The time of day and their location can be indicators of intent, alerting marketing which (promotional) deals will work better at which times.” Since users of HotelTonight’s app are booking a hotel room for that evening, this rapid intelligence can be very valuable to marketers, helping them adjust their messages to optimize conversion. For instance, as the day wears on, hotels that have not yet booked guests for that evening typically lower their prices. “Our inventory changes a lot on a day-to-day, market-to-market basis,” says Audrey Tsang, HotelTonight’s director of product. To be sure Apptimize worked, HotelTonight tested it against a control group, using so-called A/B testing technology, in which two apps are going at the same time to determine which one performs better. The app with Apptimize inside it increased conversion rates by more than 26 percent, Tsang says. While many marketing tools emphasize the predictive analytics, others highlight their messaging. SundaySky, for example, creates personalized consumer video messages based on a data-generated profile.

Learn how Xactly uses mobile marketing at ChiefExecutive.net/J16B2BMarketing

“We sit down with a client and do the typical analytics to understand their customers,” says Jeff Hirsch, SundaySky CMO. “Then, we design a scene library—dozens of different scenes that tell its story. Each scene has a different look, feel and purpose. Once we know a customer’s profile, we stitch together the scenes in a compelling narrative for that consumer.” Atlantis Resorts uses SundaySky’s unique video platform to boost sales in its guest pre-arrival program. “The tool initiated a strategic way for us to think about personalized communications throughout the guest lifecycle,” explains Adam Darnell, Atlantis Resorts director of CRM. “We quickly saw a 13 percent lift in pre-arrival guest spend and a 9 percent increase in overall trip spend.”

Too Good to be True? By no means are these varied examples a stamp of approval for mobile marketing. Quick wins are rare. “The average marketer has the same chance of converting a net-new visitor into a closed-won deal as an average golfer has of hitting a hole-inone,” says Aberdeen’s Moravick. Nevertheless, by carefully cultivating a relationship with a consumer on an individualized basis, mobile marketing has a good chance of turning the person into a long-term customer. “Historically, marketers would try to influence a sale with a visually appealing logo or a jingle you can’t get out of your head—the predator-prey dynamic,” Moravick says. “With mobile marketing, this dynamic transforms into a relationship, an ongoing exchange of information between brands and consumers. Instead of feeling exploited—marketers always trying to swindle them out of their money—consumers feel served.” RUSS BANHAM is a Pulitzer-nominated

journalist and author of more than two-dozen corporate histories, including Higher, a history of Boeing.

FIVE THINGS CEOS NEED TO KNOW BEFORE BUYING WHEN INVESTING IN MOBILE MARKETING, it’s critical to

conduct the same type of rigorous due diligence that you would for an M&A transaction. In other words, don’t let a shiny new tech toy blind you into making a bad decision. “Sure, all marketers can eventually benefit from data and analytics solutions, but not all marketing organizations are ready for them yet,” says Andrew Moravick, senior research associate, marketing effectiveness and strategy, at Aberdeen Group. Before taking the plunge, consider these five issues:

1 2 3 4 5

A “BIG BROTHER” BACKLASH. Consumer privacy is a big deal; once breached, it can result in painful litigation and reputational damage. “Predictive analytics is based on analyzing consumer data, but there are very strict rules in terms of how markets get this data and what they do with it,” says Pat Spenner, strategic initiatives leader at CEB, a best practice insights and technology company. What to do? Ask the mobile marketing vendor for all documents related to consumer privacy and permissible use of data, and have a corporate attorney vet the small print for financial exposures. BEWARE VENDORS KNOWN FOR NON-STOP INSTA-MESSAGING.

Ever watch a TV movie and see the same commercial over and over? The same thing can happen with mobile marketing messages, to the point of abusing a consumer. “What’s even worse is that in 70 percent of cases, the analytics is simply making a guess you’re interested in a product,” says Spenner, who co-authored the book, The Challenger Customer: Selling to the HIdden Influencer Who Can Multiply Your Results. “If the tool keeps blasting the same message, all that does is make a consumer determined never to buy from you.” The solution? Have the vendor sign off on how frequently a message will be broadcast. Three strikes, you’re out.

CONSUMERS AREN’T STUPID. Just because a marketing tool has

done all the legwork targeting consumers that fit your customer profile doesn’t mean you should send them a mobile marketing message. A case in point is someone looking to buy an automobile. “If the tool indicates Joe appears to be in the market for a car, make sure the messaging takes into account that Joe has probably done all the necessary research online and knows what he’s looking for,” says Spenner. “The model may tell you to hit him up on price, when he’s really interested in quality. Hammering him with discounts will make him look elsewhere.” The solution? Know where someone is in the buying cycle before sending a message.

TOO DEEP, TOO FAR, TOO SOON. Nobody jumps into an ocean’s wild waves without first learning to swim. The same applies to using a marketing tool promising increased revenue at reduced cost. “Rather than slowly learning about a tool, marketers often jump in too deep too fast,” says Aberdeen’s Moravick. “Bad marketing habits emerge, but they’ve now become muscle memory.” The solution? Test the waters. Leverage A/B testing principles, comparing the current mobile app to another incorporating the marketing tool. If it does what it claims to do, then roll it out slowly with one product or in one region. DON’T BE AFRAID. While you want to allow time for proper due diligence, wait too long and you’ll miss your window. “Many companies don’t know where to start and then don’t try,” Moravick says. “You don’t want to wait so long that you miss out altogether. Sure, there are vendors with silver bullet solutions you should avid. But, there are many others interested in real and informed conversations with you. They’re eager to show you exactly how their products work and how they can help you succeed.” The solution? Due diligence followed by diligent selection.

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INNOVATION

DISRUPT YOURSELF— BEFORE SOMEONE ELSE DOES How established companies can bring out new products that compete with the old. By William J. Holstein

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Matco Tools had a problem. The toolboxes that it sold to auto mechanics across North America—the flagship of its business— were becoming dated as manufacturers loaded more and more technology into their automobiles. Mechanics needed more sophisticated tools like vehicle diagnostic kits and recharging stations, and their needs varied from model to model. So, starting about two years ago, Matco, a $450 million subsidiary of Danaher, based in Stow, Ohio, launched an innovation project with an outside business-innovation firm, Cleveland-based Nottingham Spirk, to disrupt its biggest line of business. Matco assigned some of its best and brightest to an innovation team that also included representatives from Nottingham. Why work with an outside partner? “Sometimes you can have a view of what your products or markets are, but having outside eyes come in, people who challenge what we think, is really is a critical thing,” says Tim Gilmore, Matco’s president. “They challenge us. And our team will challenge them. That helps us to push the envelope as to what the customer is looking for.” The end result was a brand new type of toolbox, starting at about $4,000 and ranging as high as $40,000, that provides room for laptops and iPads, plus charging systems for anything that needs power, and a newer way of organizing tools for easier access and therefore, enhanced productivity. These Revel and RevelX boxes were unveiled in February and Gilmore expects they will cannibalize the sale of existing toolboxes when they go on sale this autumn. “Our approach is, how do you

cannibalize yourself so that you’re out in front with the innovation?” Gilmore asks. “Disruption has to happen. For example, what you might have used to jumpstart a vehicle years ago might have been large and heavy. Now, with the advent of lithium ion batteries, that device can fit in the glove compartment. That will obviously cannibalize the sales of the older product; but if it is designed right, it will drive incremental sales.” CEOs across many different traditional sectors of the American economy are realizing that they must disrupt themselves and that technological disruption, a term famously created by Harvard’s Clayton Christensen in his 1997 book The Innovator’s Dilemma, does not apply only to Silicon Valley. Leaders of companies of all sizes, in every sector of the U.S. economy, must overcome inertia and sometimes outright resistance from inside their organizations to not only allow, but encourage disruption, particularly in view of intensified global competition. The key question is how to do it. Vijay Govindarajan, a professor at Dartmouth and Harvard universities and author of a new book entitled The Three Box Solution, argues that CEOs have to think of their current business as representing Box 1, old products that are fading as Box 2 and future products as Box 3. The

Our approach is, how do you cannibalize yourself so that you’re out in front with the innovation?” —Tim Gilmore, Matco’s president.

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INNOVATION

Solving The Disruption Dilemma The best CEOs are always trying to disrupt their own existing lines of business. As the saying goes, “if you don’t do it, someone else will.” Let’s face it, while chief innovation officers or chief scientific officers are useful for keeping the issue of innovation on everyone’s radar screen, only a CEO can force disruptive change to happen. The best minds on the subject argue that a CEO has to create a separate team of people, apart from those working existing products, and that they have to operate at arm’s length from the existing business unit. Experts, such as Dartmouth’s Vijay Govindarajan argue that these teams need to be considered as separate “boxes,” one dedicated to the present and the other to the future. The innovation team will need resources and expertise to create a multifunctional team capable of not only developing a technology but also deciding how to manufacture, market and finance it. The business innovation firm Nottingham Spirk calls these “vertically integrated” teams. The innovation team will certainly wish to “borrow” capital or expertise from the existing business team. There may be inertia or outright resistance that only a CEO can overcome. The system the CEO uses to evaluate individuals’ performance and therefore compensation is critically important. Large and small companies have different advantages and should play to those advantages. Bigger companies have global scale, large resources and highly specialized experts. Smaller companies have smaller bureaucracies and can be much nimbler.

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most difficult thing to manage is the gap between the present (Box 1) and the future (Box 3). “They require different capabilities and different metrics,” Govindarajan says. “This is the central strategic challenge.” Govindarajan is skeptical of turning to outsiders for product design help. He argues that transferring any new product ideas from an outside team back into the heart of the business is too difficult. Instead, a CEO has to create a separate internal innovation team by borrowing people, technology and resources from his existing business unit in Box 1. The Box 3 team should be physically separated from people running the existing business, he says. In this process of cross-fertilization, there are bound to be clashes between the teams, and only a CEO can manage those. A chief innovation officer may be able to act as a champion for disruption, but only a CEO can control the necessary resources to make it happen. “The reason this is so hard to do is that you, as CEO, have two jobs,” he adds. “There are inherent tensions between them.” Not everyone agrees with Govindarajan. Bill Nottingham, a principal at Nottingham Spirk, argues that there is great logic in a CEO’s working with outside experts. “A part-

INNOVATION One of fastest-growing brands within Hasbro, ironically, is Play-Doh, which has existed for 60 years.

nership mentality makes business sense,” he says. “The market keeps changing and, if you as a CEO have to keep creating new teams and paying for them, that gets expensive.” Why not, he asks, bring in specialized brain power, a kind of a SWAT team, and use them on a case-by-case basis? His firm says it has helped companies create new products that have reached a total of $50 billion in sales. From the Inside Out Nottingham does agree that working at a full arm’s length from an outside design firm can create difficulties. Many firms want to create cool designs that win industry awards, but they have scant ideas on how to turn them into businesses. That’s why it is important to include manufacturing, engineering and sourcing mavens in any design team, and that’s why Nottingham Spirk calls itself a “business innovation firm.” “If you want to scale a new idea, you have to build in a business mindset,” he argues. Of course, CEOs use many other strategies and they all have their strengths and weaknesses. Some argue that mergers and acquisitions can lead to the absorption of new technology that disrupts, but others say that the burden of integrating two organizations can actually interfere with innovation. Other CEOs are fans of internal innovation labs, crowd

CEOs across many different traditional sectors of the American economy are realizing that they must disrupt themselves. sourcing and open innovation with other companies. None of these are perfect. The Value of Varying Approaches It may be that a CEO should use a variety of these tools—depending on the nature of the enterprise and scale of the attempted disruption. Matco Tools, for example, does not rely on any outside partner when it works with a supplier to improve a particular finished good that it, in turn, resells to auto technicians. That approach is considered an open innovation model of collaboration. How does the company decide on which disruptive innovation model to use and when? “The key thing is the complexity of what we’re looking at and the overall impact on the business,” Gilmore explains. Improving a

specific tool might yield only incremental gains. But toolboxes are the major money-makers. “We decided we want to spend more resources on that,” he says. One of the industries that, perhaps surprisingly, relies on a constant stream of disruption is the toy and game industry. Hasbro, based in Pawtucket, Rhode Island, makes everything from the Monopoly board game to Star Wars paraphernalia. With $4.4 billion a year in sales, CEO Brian Goldner says that 75 to 80 percent of its products are new each year, meaning there is a constant flow of new items replacing the old. “I am re-inventing and re-imagining our brands all the time,” says Goldner. His philosophy of disruption is a twist upon Govindarajan’s three-box theory. Hasbro builds teams that

manage each brand globally, including household names like Nerf and Play-Doh. They conduct their own research with customers and potential customers. But the company also has its own future-focused innovation groups, including one called the i-Play team, that conduct research on how to take physical toys or games and make them digital or how to adapt them to social media. It’s up to the teams managing each brand to recognize and embrace a disruptive idea. “I think of the three-box strategy as being more like the Matryoshka Russian dolls that nestle together,” Goldner explains. “You are managing the present and selectively forgetting the past. But you also may find a new truth that changes current beliefs. That is the future. You have to think

You are managing the present and selectively forgetting the past. But you also may find a new truth that changes current beliefs. That is the future.” —Brian Goldner, CEO, Hasbro

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INNOVATION about all of these at once. They inform each other. I don’t think they are separate processes but rather nestled within each other. The core brand team needs to have a sense of all three boxes at once.” One of fastest-growing brands within Hasbro, ironically, is PlayDoh, which has existed for 60 years. “We looked at the present, selectively forgot the past and imagined the future,” Goldner says. “You look around the world and people are very focused on helping their children to concentrate on achieving development milestones.” So Hasbro developed playsets and figurines to sell with the Play-Doh itself, allowing children to do things such as build a village or an imaginary scene. That enhances their creativity and story-telling capabilities, encouraging parents to buy more. In short, the company re-imagined how Play-Doh could be used. As a result, Play-Doh sales grew more than 30 percent last year and have doubled in size over the past three years. In summary, there are many different disruption models and CEOs can decide when to use a particular example. Large companies have the benefit of bigger budgets, more specialized expertise and global scale. But smaller companies can use less formal methods of disruption and can act faster than their larger peers. It seems every CEO needs a toolbox of disruption strategies that everyone in the company understands and embraces. These strategies must be accompanied by the right mindsets and culture, as well as the compensation systems that support the most collaborative and inventive behaviors. The effort is necessary to maintain a competitive edge. Any CEO who is not thinking about disrupting his or her business is exposed to the possibility that someone else will. WILLIAM HOLSTEIN is a New York-based business journalist and author. For more of his work, visit www.williamjholstein.com

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HALO: Disrupting at a Disruptor Chuck Dorsey, CEO of HALO Innovations, disrupted the baby bassinet industry— and now he may have to disrupt his own company. HALO Innovations’ chief scientific officer, Bill Schmid, founded the company, which makes products geared toward keeping newborns safe from things like suffocating in their cribs. Schmid and his wife lost an infant daughter to the Sudden Infant Death Syndrome. The $40 million company, based in the Minneapolis suburb of Minnetonka, launched in the early 2000s with a sleeping sack for infants and a wearable blanket, both designed to keep infants warm but not allow them to come entangled in bedding. A few years ago, the company decided it needed to create a bassinet that would serve its goals of safe sleep for infants. It turned to business innovation firm Nottingham Spirk to co-create the product. “We have some experience in bringing new products to market but being a small company we didn’t have the R&D staff to do the kind of innovation we were hoping to grow the company with,” Dorsey explains. Both Dorsey and Schmid sat on the joint innovation team established with Nottingham. Young mothers were part of it, as were engineers and other specialists. The fact that both the CEO and CSO sat on the team was key because it meant that the right combination of capital, personnel and creativity could be injected into the process. “We had to get it right so we both had to be involved in it,” Dorsey recalls. The team knew that more parents were seeking to have newborns spend time with mothers in their hospital rooms and also to have the infants sleep with them at home. However positive that trend was emotionally, it increased the risks that the child could be hurt, particularly if the parents fell asleep and rolled over on the child. At first, the innovation team developed models of bassinets that could be placed in the adult bed. But the HALO board of directors objected, saying the approach was all wrong—HALO would be encouraging the very trend that was dangerous to the infants. It was back to the drawing board. Then the team heard about a labor and delivery nurse in California who had filed for a patent on a bassinet in which one sidewall could be lowered in a way that a mother could easily touch the child during the night while she was lying in bed. It had the additional advantage that it could swivel on its base. “That was the Aha moment,” Dorsey says. They sought and received an exclusive license for the idea. They introduced the product in 2014 and have seized market share from other bassinet makers. However, the primary price point of $249 is high for a product that lasts only a few months. “We’re now thinking about how to do something about that,” Dorsey explains. “Providing a similar experience at a lower price point would be disrupting ourselves.” A decision to self-disrupt could come this fall. In the baby business, as in all others these days, there is nowhere to hide.

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POLITICAL LANDSCAPE

WILL SMBs TAKE ON WASHINGTON? Americaâ&#x20AC;&#x2122;s small and mid-market company CEOs have had enough of being overlooked and underserved by legislators. By Dale Buss

Sources for statistic boxes: Surveys by Sage, Good Jobs First, LevelFunded Health and CFO Magazine.

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DURING CAMPAIGN SEASON, America’s small and mid-market businesses (SMBs) often serve as poster children for politicians, who embrace them and talk up their roles as job creators and engines of economic growth. However, shortly after the votes are counted, these companies become punching bags as legislators and regulators revert to catering to the demands of big-bucks corporations and quickly forget the needs of the legions of smaller businesses. Now there is a growing movement among mid-sized and small businesses to highlight this problem in Washington and in state capitols across the country and to bring lawmakers and government agencies to heel. More CEOs, company owners and their advocates say they’re mad as hell and aren’t going to take it anymore. “Politicians talk a lot about small businesses being the backbone of the economy, but a lot of the policies they create are geared toward much larger businesses,” says Elliot Richardson, founder and CEO of the Small Business Advocacy Council, which represents more than 800 companies in greater Chicago. “For the small-business community, that creates an un-level playing field. It’s frustrating for them and makes it more difficult for them to succeed.” Privately held SMBs “face an increasingly un-level playing field

when competing against large publicly held businesses,” echoes Derrick Handwerk, managing partner of the Handwerk Multi Family Office, a private-business consultant based in Lansdale, Pennsylvania. Handwerk, who spent several months studying the imbalance and reporting to his clients, points to regulations that “benefit large corporations but can

61%

of SMB owners are “disgusted” with what is happening in Washington, DC

hurt” SMBs as the chief culprits. In fact, nationwide, SMB owners believe that government considers big business, minorities and government employees as the most important special-interest groups, according to a recent poll of nearly 400 company owners by Sage, a payroll-services provider. They also believe that government considers small businesses, the middle class and religious groups the least important. “Small-business owners, regardless of political affiliation, are dissatisfied with government leadership,” concludes Connie Certusi, executive vice president and managing director of Sage USA. The Small Pay Big SMB owners have ample reason to feel put upon. Of the $1.75-trillion cost of federal regulations to the U.S.

economy as compiled by a Small Business Administration report in 2010, companies with fewer than 20 employees paid considerably more per employee than firms with more than 500 workers—$10,585 apiece versus $7,755 apiece. The federal government’s tendency to regulate SMBs has also accelerated under President Obama’s stewardship. The average number of new rules affecting small business increased to 406 a year under the Obama administration from 377 a year under President George W. Bush, according to an analysis by the Competitive Enterprise Institute. What’s more, the inequitable treatment of large companies and SMBs may be greater on the state level, where economic-development philosophies tend to slant heavily in favor of big business. More than 90 percent of dollars and 70 percent of awards went to big businesses, according to a study of more than 4,200 individual subsidy awards in 14 states released last fall by Good Jobs First, a not-for-profit outfit in Washington, D.C. A followup study of three diverse states—Florida, Missouri and New Mexico—found that at least two-thirds of their economic-development spending primarily benefits large businesses, while less than one-fifth clearly benefits small businesses. “There’s a galling mismatch be-

KEY TAKEAWAYS 1

Small is Vulnerable

Four Big Issues

Moving the Needle

SMEs feel overlooked by Washington and state capitols

Taxation, Obamacare, regulation and economic development are top complaints

Greater attention by presidential candidates may highlight S Corporation tax reform

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POLITICAL LANDSCAPE

Harmed by Healthcare Policies It’s easy to make the case that the president’s sweeping overhaul of one-sixth of the U.S. economy has disadvantaged SMBs more than large companies, which can more easily absorb higher healthinsurance costs. In fact, many small companies have had to cancel their healthinsurance benefits completely as costs have risen under Obamacare. As a result, 56 percent of 2,500 businesses polled by LevelFunded Health said they’re losing quality employee candidates. There are other ways Obamacare fails to address the health-coverage concerns of SMBs. For instance, only 181,000 small businesses claimed the Small Employer Health Insurance Tax Credit in 2014, according to the Government Accountability Office, just a fraction of the up to four million small companies estimated to be eligible for the tax break that covers a portion of their contributions to their workers’ health-insurance premiums. It turns out that the credit is too small and complicated for many SMBs to bother figuring out. Also, as the administration’s reworking of the healthcare economy continues to unfold, new ways in which its breadth, intrusiveness and foundational philosophy is disadvantaging SMBs continue to emerge. Take the electronic-records business, which is among the many slices of the medical economy that are being thrashed, in this case by legislation that predated Obamacare. Companies were offered $24 billion in potential incentives for adopting “meaningful use” of digital records—and most of the money went to big organizations. The entire exercise has hurt an Austin, Texas-based patient-access, -engagement and –online-scheduling platform for health systems co-founded by CEO Puneet Maheshwari. “Now large organizations are becoming blockers of innovation because they consistently aren’t looking to share information, and this is keeping smaller companies like ours from rolling out impactful solutions—because we can’t integrate with underlying electronic health records,” Maheshwari complains. “The structure of the incentives only benefited large organizations, and it’s made it more and more difficult to find clients who want to drive adoption of our platform.”

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tween how governors and other state officials characterize their support for small businesses and what they actually spend,” says Greg LeRoy, executive director of Good Jobs First. “States have the same problem” as the feds in this regard.

92%

of SMB leaders believe the spending balance on incentives between small and large businesses in their state is biased toward big business.

Politicians favor big companies, of course, because they can provide the most campaign cash and often represent the interests of thousands of constituents in one handy package. A network of trade associations, lobbyists and other interests weave webs of support for large interests around politicians’ predisposition. Meanwhile, the wants and needs of small and mid-sized businesses languish. The bias toward large companies is insinuated into the fabric of legislative and regulatory approaches to issue after issue in Washington, D.C., as well as in state capitols across the land. It afflicts smaller companies disproportionately in a number of broad areas. SMBs, for instance, typically have far less at stake than major corporations in the two business issues that have loomed large in the presidential campaign: free trade and immigration policy. Obamacare, a huge issue in the 2012 presidential campaign, has gone on to retard the growth of small companies that are disadvantaged because of its cost penalties and other ways that it has transformed the American healthcare sector (see sidebar, left).

79%

of SMB leaders believe their state is overspending on big incentive deals, hurting state finances.

Overreach by regulators under the Obama administration also has rocked small companies that don’t have legions of lobbyists to protect them. Tax policy and debate continues to skew toward the interests of C corporations instead of S corporations, even though the latter designation covers about three-quarters of small companies. And state-level economic-development efforts tend to focus on landing bigfish manufacturing prizes while ignoring the needs of small businesses that have been providing jobs all along. Sector by sector, the system also skews against SMBs. Take manufacturing, for example. The Export-Import Bank, championed by some as an export enabler for small American factories, was mourned mainly by large companies when Congress put it out of commission for a while last year. What’s more, Obama administration’s war on the coal industry, while certainly targeting multi-billion-dollar coal producers and electrical utilities, is also ravaging the ranks of hundreds of suppliers that are the very definition of smalland mid-market business.

Examples of Inequities The beer business is an example of how government policy can affect a growing SMB sector. Craft brewers, who have been taking market share from the traditional big breweries, believe they’re getting short shrift from a Washington establishment that continues to protect the big guys on two issues. First, the merger of Anheuser-Busch InBev and SABMiller would give one company too much control over the U.S. distributor network, disadvantaging craft brewers. Second, excise taxes on the industry are particularly punishing to small companies, so they want Congress to overhaul them. “Small brewers are the economic engine in this industry, and recalibrating excise taxes will give small brewers additional capital to grow and hire more workers,” explains Sam Calagione, CEO and founder of Dogfish Head Craft Brewery in Milton, Delaware.

87%

of leaders say that small business interests in economic development issues are not effectively represented in their state’s capital.

Brick-and-mortar retailers are another example. Betsy Burton, co-owner of the King’s English Bookstore in Salt Lake City, is leading the charge on leveling sales taxes on Internet transactions, one of the most onerous issues these retailers face. Already struggling from the big-box-store phenomenon that has transformed their industry over the last quarter-century, they have been fighting big business and government discrimination over ecommerce sales tax. “Initially, the politicians wanted to give e-commerce a break,” says Burton, who testified in Washington on the issue. “But this allows big companies like Amazon to get bigger, which also has all kinds of antitrust implications in addition to putting an extra sales-tax burden of about 5 percent, depending on the state, on brick-and-mortar companies and those that don’t have huge online sales.” The nature of SMB advocacy contributes to the imbalance and to its persistence. “High costs put effective lobbying of

85%

of SMB CEOs believe that economic development incentives in their states are not effectively addressing the current needs of small businesses seeking to grow.

federal and state legislatures out of range” for these businesses, says Handwerk, the family-business consultant, “while large corporations can readily afford it.” Advocating for Change There are a number of highly active groups lobbying on behalf of small businesses, including the National Federation of Independent Businesses, which counts 325,000 small-business members. But mid-market companies especially can lack clout “because they tend to be simpler businesses that

Fighting Back in Nevada A microcosm of the inequities in government treatment of large and small businesses may be developing in Nevada, where the state, led by Gov. Brian Sandoval, is doling out more than $1.6 billion in inducements for two speculative auto-manufacturing startups, at the same time slapping $1.4 billion in new taxes on SMBs and the rest of the state’s taxpayers. Some small-company owners are standing up to an imbalance that they now see as outrageous. “The gaming and mining businesses were hit hard here, so we have to figure out a way to diversify the economy,” says Dusty Wunderlich, CEO of Bristlecone Holdings, a financial-tech firm in Reno. “But that’s done locally, through entrepreneurship. The governor thought he was getting new industries in through big subsidies. While I admire what he’s trying to do, I don’t agree with the approach.” Specifically, in the last couple of years, the Republican governor has punched through the legislature more than $1.3 billion in financial incentives for Tesla, which is constructing an electric-car battery “gigafactory” near Reno. Another $335 million more in inducements went to Faraday Future, a Chinese-owned EV company that plans a car-assembly plant in North Las Vegas. The companies have pledged to create a total of as many as 11,000 well-paying, “permanent” manufacturing jobs in the next several years. But the risks are obvious. Even sales of coveted Tesla EVs aren’t exactly skyrocketing amid $2-a-gallon gasoline, and Faraday Future remains the completely unproven brainchild of its Chinese billionaire owner’s imagination. Wunderlich is pushing back. “Nevada’s ‘subsidies-on-steroids’ approach is imprudent from a risk perspective and unfair to the state’s residents,” he opined recently in the Reno Gazette-Journal. “When companies like Tesla and Faraday receive massive government handouts while placing a heavier burden on our public infrastructure and services, it’s the citizens and small business owners who pay the price.” Wunderlich has also met with Sandoval on the issue, arguing that the “cost of living will get so high, and so will the tax burden put on small businesses, that there will be a negative impact on our companies long-term.” While conceding that it’s difficult to punish politically a state legislature that has term limits, he says he hopes that “we can push the next generation of entrepreneurs and CEOs to take a pledge not to accept government subsidies. That’s the only way you change this long-term. MAY/JUNE 2016 /

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POLITICAL LANDSCAPE may not have complex issues with government and may not feel it’s particularly worth their while to invest in a large lobbying effort,” says Thomas Stewart, executive director of the National Center for the Middle Market. “Maybe they

26%

of CFOs believe that “regulation” is the top issue in this year’s election, with 21 percent naming “taxation” as the top issue.

just delegate that to trade associations.” However, there are some encouraging signs for SMB owners and CEOs who would finally like to overturn the imbalance in treatment. In Washington, for instance, Stewart’s outfit along with the Association for Corporate Growth formed a Congressional Caucus for Middle Market Growth two years ago. It’s up to 17 members and expanding. In Florida, meanwhile, small-business interests, along with the Americans for Prosperity advocacy group, defeated an effort by Governor Rick Scott to use $250 million in state funds for a new pot to lure out-of-state com-

87%

who offer group health care saw insurance premiums rise by 25 percent since 2014, with 12 percent seeing premium increases of 50 percent.

panies to the state or to convince in-state companies to expand, a clear corporate-welfare gambit, according to foes. And in this election season, SMB advocates have noted that more presidential candidates have focused on cutting taxes for S Corporations as well as corporate taxes when they talk about tax reform. Maybe small and midsized companies can be more than props in this campaign. 60 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

Bring Back Community Banks IT’S BECOME AXIOMATIC AMONG SMALL- AND MID-MARKET CEOS and their advocates that the Dodd-Frank financial reforms of 2010 disproportionately hampered the community banks on which these companies so rely for capital, while another piece of legislation made it more difficult for startups to use credit-card financing to bootstrap their way through infancy. It’s pretty clear that small banks are the lifeblood for many startups and mid-market companies. They provide about half of small-business loans and more than three-quarters of agricultural loans, according to a 2015 Harvard study. Community banks are also just about the only place where a company owner can go for an old-fashioned “character loan.” Dodd-Frank’s provisions “made bank credit both more expensive and less available,” Goldman Sachs concluded in 2015, affecting small firms disproportionately “because they largely lack alternative sources of finance, whereas large firms have been able to shift to less-expensive public market financing.” The legislation actually reduces the number of community banks by more than 800, according to the Independent Community Bankers of America (ICBA), although low interest rates also punished small banks. “Because of all the new costs and rules and regulations imposed by Washington on the community-banking sector, the rate of new bank formation is virtually zero, where it used to average over 100 new banks a year,” says Paul Merski, ICBA’s chief economist. Also, the consumer-minded Credit Card Accountability, Responsibility and Disclosure Act of 2009 imposed restrictions on consumer-credit card terms, including limits on what issuers can charge in late fees and higher interest. But business credit cards weren’t included in the law’s protections, giving card-issuing banks freedom to make up their consumer-card losses with business-card rate increases and fee hikes—which crimped small, capital-poor companies more than any others. Now the question is: What can CEOs do about it? Here are a few ideas: SUPPORT BANKING-REFORM LEGISLATION: Business owners and CEOs “must pressure Congress to enact common-sense legislation exempting small community banks from the onerous requirements supposedly enacted to keep larger financial institutions in check,” says Elliot Richardson, president of the Small Business Advocacy Council in Illinois. He suggests backing a bill that would relieve banks whose assets fall under a certain threshold “from complying with costly regulations which impact their ability to efficiently operate and provide capital to businesses.” LISTEN TO WHAT THIS YEAR’S CANDIDATES SAY: Dodd-Frank has already been a whipping boy for several presidential candidates, almost an epithet that serves as shorthand for all manner of economic woes under the Obama administration. But there’s been so much smoke created by the campaign’s big issues—terrorism, immigration and income inequality among them—that ideas for fixing the law haven’t gotten a lot of attention. That’s likely to change as the pool of presidential candidates narrows and Senate and House contests shape up, giving CEOs more clarity about all candidates’ views on this issue. CULTIVATE LONG-TERM RELATIONSHIPS WITH LAWMAKERS: ICBA’s Merski believes that business owners should visit their congressional representatives and senators yearly in person to build on those “critical” relationships. “When a policy issue hits that may adversely impact your credit availability or business model, you want to have an established relationship to ask and not be starting from scratch,” he says. “[Otherwise] it may be too late.” LET THE MARKET TAKE CARE OF IT: Ironically enough, rising interest rates that give banks higher profit margins may help community banks more than anything. Among other things, some banks could use their own increased capital to compete more effectively in a developing online-lending environment that has been dominated by big banks. So while business borrowers don’t like to pay higher rates, they may see it as a worthwhile price for getting back their local banker.

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MARKETING COMMUNICATIONS

OVERCOMING THE URGE TO OVER-COMMUNICATE

Traditional media, social media, email, blogs, Internet sitesâ&#x20AC;&#x201D;opportunities to share your most compelling messages abound. But how can you take advantage of them without overwhelming your customers?

BY DALE BUSS

FOR A GOOD HALF-CENTURY, companies had well-defined ways of communicating with consumers, B2B customers, employees and shareholders. For marketing, there were television, radio and print advertising. Employees got newsletters. Investors received quarterly reports. But the digital era has exploded the number of alternatives for marketing and internal communications, which now include e-mail, blogs and an alphabet soup of social media, such as Facebook, Twitter, YouTube, Instagram and Snapchat. What’s more, every utterance can be put out there in real time. It’s now possible to pepper business constituencies with messages continuously. This has created tremendous opportunity but also a new problem: Companies now can— and do—over-communicate. They overwhelm target audiences with a plethora of messages. At the same time, they risk seeing crucial communications get lost in the clutter. A growing number of C-suites are not only aware of

this danger but also are doing something about it. “One of the single biggest fears we have is to overextend our welcome,” says Ram Krishnan, who was CMO of Frito-Lay before a recent promotion charged him with handling all of PepsiCo’s business with Walmart. “Digital enables one-on-one real-time conversation, but consumers don’t want to talk with you every waking minute of every waking hour. The last thing you want is for people to opt out of your brand because you interrupt their lives. Just because you can do it doesn’t mean you should do it.” In fact, commanding the new techniques and integrating them into an overall philosophy of marketing and communications may be the most important thing business leaders can do with digital technology these days. The proliferation and power of digital channels alone dictate that C-suite executives adopt a revolutionary new form of strategic communications rather than regard new media as merely evolutionary. And making judicious use of the

new capabilities is a crucial part of succeeding with them. When it comes to consumers, the threat of over-communicating with them “keeps me awake every night,” confesses Raja Rajamannar, CMO of MasterCard. So the financial-services brand takes a three-pronged approach to ensuring that MasterCard doesn’t realize his worst fears. First, Rajamannar says, every piece of communication by the brand “has to be about the consumer and what is most interesting or relevant for them— something that touches their passions—otherwise we get lost in the background noise.” Second, he notes, MasterCard takes advantage of the precise targeting that is made possible by social media to “really only push content to [consumers] that matters to them and resonates with them.” Third, MasterCard’s philosophy is to communicate economically as well as continuously, given that every day creates the opportunity to make fresh marketing outlays to demonstrate the brand’s relevance

KEY TAKEAWAYS 1

STRATEGY FIRST

MANAGE YOUR MESSAGING

INCLUDE THE INTERNAL

A plethora of digital technologies demands a well-honed approach

Resist the temptation to over-communicate

Don’t neglect to develop a strategy for communicating with internal stakeholders

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Communication Rules from Real Life

What Mosquito Squad learned from its Zika virus campaign. THE RECENT SPREAD OF WORLDWIDE CONCERN over the mosquito-borne Zika virus created a huge marketing opportunity for a franchised pest-control brand called Mosquito Squad. As spring—and mosquito season—broke, fears rose across the United States about mosquito bites of pregnant mothers leading to a skull-misshaping birth defect called microcephaly. It was up to Chris Grandpre, CEO of Outdoor Living Brands, which owns the Mosquito Squad franchise, to decide how to monetize the opportunity. “Clearly, mosquito-borne diseases were in the public consciousness,” Grandpre says. “So how would we and our franchisees add to this public discussion without being seen as exploiting the issue for business gain, or as fear-mongering?” After all, Mosquito Squad’s team members were “not medical or global-health experts or governmental-response agencies.” The company decided on education rather than marketing per se, “on saying that, whether or not you

hire Mosquito Squad, there are a bunch of things that you can do—on the residential side or in commercial properties—that lessen the chances of attracting mosquitos.” Instead of a sensationalistic approach, Grandpre says, “We focused on being the experts at reducing breeding grounds” in blog posts and other information on franchisees’ web sites. The Zika plan was a primary example of the kind of strategic communications strategy pursued by Grandpre in part to avoid the temptation to over-communicate for the Richmond, Virginia-based concern, whose other brands include exterior maintenance, lighting and furniture franchises. “The proliferation of communications tools that now exist forces me, as the leader of the organization, to think more consciously about how to communicate with all of our constituencies,” he says. So Grandpre put together three rules “that we try to

follow, and ask our team to follow, in communicating with customers, internally, with lenders, investors and franchisees—whomever we might be talking to.” They are: 1. Clarity trumps frequency. While some experts maintain that companies can never communicate too much, externally or internally, “I would argue that lack of clarity is the biggest problem,” Grandpre says. The company has dramatically reduced the quantity of its communications “and emphasized packaging our messages thoughtfully, constantly scaling them back to fewer—but more substantive.” 2. There must be a reason. He stresses tying each internal outgoing message to some aspect of Outdoor Living’s mission and strategic plan, which helps motivate employees,

and, in the case of franchisees, helps them improve operations. “If we do that, communicating the ‘why’ behind everything we do, everyone’s listening and adoption rates tend to be much higher,” Grandpre explains. 3. Depth is a crucial dimension. Each target audience and each message demands the right depth. “If I communicate at too surface a level, it automatically lacks clarity and I can run the risk of being misunderstood,” Grandpre explains. “But I don’t want to communicate too much or too frequently or I might get into things I don’t need to.” “I have to consciously think about what the right level of depth is, and as the company has grown I’ve had to adjust my style,” he adds. “Sometimes less of the right communications is actually more.”

“I have to consciously think about what the right level of depth is, and as the company has grown I’ve had to adjust my style. Sometimes less of the right communications is actually more.”

CHRIS GRANDPRE, CEO, OUTDOOR LIVING BRANDS

“Our clients and prospects want to hear from us, but we want to make sure we’re not flooding them with noise.” TIM HEBERT, CEO, ATRION

to some new development in culture or the news. “How do you stay top of mind?” Rajamannar asks. “You have to do it continuously and constantly, staying relevant while also economic.” COMMUNICATION CONSENSUS As at MasterCard, the power and immediacy of digital media demand that everyone in the C-suite get on the same page when it comes to marketing and communications strategy. However, there are obstacles to doing so. For example, more than 60 percent of marketing and IT executives don’t see eye to eye on important areas such as incentives and metrics, according to a recent survey by CMO Digital Benchmark Study. In fact, marketing leaders aren’t even sure about the benefits of digital messaging; 97 percent of them said that social-media spending made only an “average” or “below average” contribution to their company’s performance, in a recent report by CMO Survey. All of this uncertainty underscores the importance of

a CEO’s attention to the issue. “CEOs obviously have a lot of responsibility for the top and bottom lines and operations as a whole, so when the CMO comes into the room and says we’ve got a great opportunity to drive awareness and top-line revenue, it needs to align strategically with what the CEO is doing—and he needs to have the same passion for it,” says Sean Blankenship, CMO for Coldwell Banker realtors. That is what happened at Atrion after the CEO himself became a victim of marketing over-communication from a major supplier to the Warwick, Rhode Island-based, mid-market IT-services firm. “I would get 15 e-mails from them each day, in various forms, and many of them personalized,” Tim Hebert recalls. “Their marketing team would send out one message; the people who work with me day to day would send out slightly different ones and the people who supported our account would send out another slightly different one. So then I asked our team: ‘Are we doing this to our clients too?’” Yes, it turned out that Atrion was creating “organizational spam” with its own marketing. So Hebert ordered a complete consolidation and rationalization of communications to clients, winnowing the occasions, themes and numbers of messages. For

example, to promote the many client events that Atrion holds, Hebert ordered the integration of what used to be separate direct mail, email and telephone campaigns. Atrion’s new philosophy even applies to making sure that the subject line of emails is very specific, to help recipients quickly identify its worth. “Our clients and prospects want to hear from us, but we want to make sure we’re not flooding them with noise and that we’re only giving them the most pertinent information that’s easy for them to consume,” he explains. The spare approach at Atrion also carries over to internal communication. For example, Atrion set up a site on Yammer—a sort of internal Facebook—where it posts company messages ranging from Hebert’s financial outlook to client praise of an Atrion salesperson. When any employee comments on such reports, the thought stays on Yammer instead of being automatically repeated in an allhands email. “Before, if I put out something saying what we’re looking forward to as a company this year, about 10 percent of our employees would respond to it, meaning that there would be 30 more e-mails to everyone in addition to what I put out,” Hebert says. “Now we keep the comments off the normal communications path.” At Coldwell Banker, avoiding MAY/JUNE 2016 /

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over-communication internally is a challenge because the company must cast a broad net. It must keep in touch with about 3,000 independently owned and operated, franchised broker offices in 44 countries and territories with more than 88,000 affiliated sales professionals, as well as the employees at its home base in Madison, New Jersey. To come up with a handful of strategic objectives every internal communication must meet,

Blankenship enlisted the support of CEO Budge Huskey. “Each [message] has to be reviewed and go through those filters,” Blankenship explained. “This makes everyone more mindful of whether they’re just coming to work each day and hitting ‘send’ or whether they really need to be asking someone to do something.” Coldwell Banker is also making more new training materials and other background information available to agents for discovery

via an app, rather than proactively pushing it out to them. But the app also provides the CEO with a way to break through any time he chooses: It tags any message from Huskey. MANDATORY MESSAGING The savviest CEOs realize that sometimes the risk of overcommunicating simply calls for them to send out a message that can’t be overlooked. Last fall, for example, Danone CEO Emmanuel Faber

Handling the Communication Conundrum

CEOs offer 12 insights on managing your message in the digital age. COMMUNICATING EFFECTIVELY IN THE DIGITAL ERA requires a strategic approach for each target constituency, say CEOs we spoke with for this article. Here are their thoughts on how to do it: 1 / DIVE IN; EVERYONE ELSE HAS. Companies are compelled to stake a place in the endless marketing conversation these days simply because everyone else is, some CEOs believe. “More is better,” argues John Foraker, president of the Berkeley, California-based Annie’s Homegrown unit of General Mills. “People want to know what’s going on in the hearts and heads of the companies they’re doing business with. A lot of transparency is out of the control of companies anyway, so they can participate in the conversation or not. People will have conversations about what

you’re doing and what they care about.” 2 / CONSIDER CONTINUOUS MESSAGING. Some companies believe it’s almost impossible to over-communicate. One making a case for “always on” marketing is Honda, notable for the types, frequency and topics of its social-media marketing competing for sales in a robust but competitive U.S. market. “There’s tremendous fragmentation in the marketing world, so we have to reach out to a variety of demographic and media-consumption profiles,” says Tom Peyton, assistant vice president of marketing for Torrance, California-based American Honda. “We’ve got a lot of news to talk about, and more in the pipeline.” 3 / …BUT ESTABLISH SOME TENTPOLES. Audi of America takes a more restrained

66 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

approach to marketing communications in a luxury-car segment that is, if anything, even more competitive than the mainstream. “If you talk about every little thing with every product launch, then you don’t have a chance to have real news or unique information for social channels,” says Loren Angelo, brand director for the Herndon, Virginia-based arm of Audi AG. “So we plan our outward-facing communications a year in advance, decide when to drop our core assets to make sure they’re heard and then reinforce them as need be.” 4 / WRITE A STORY. Storytelling remains one of the most effective approaches in marketing. “In a world where everyone is bombarded, you have to use an emotional element,” says Kathy Bloomgarden, CEO of Ruder Finn, a New York-based mar-

keting-communications firm. “Sometimes senior management has a bit of a hard time with that.” 5 / …BUT PROVIDE AN ENDING. Strong narratives made the “Doritos Crash the Super Bowl” campaign one of the most popular annual advertising extravaganzas in the history of the Big Game, but Ram Krishnan and Dallas-based Frito-Lay decided that 2016 was its last year. “You need times of silence, too,” he says. 6 / LOOK TO THE SCOREBOARD. One of the happy results of the digitization of marketing is that it’s much easier to track ROI, and CEOs should make sure to take advantage. “We’ve stepped up our monitoring of the different media,” says John Dillon, CMO of Denny’s, the Spartanburg, South Carolina-based

ground operations of the global dairy giant almost to a halt so he could hold a 90-minute all-company meeting. The session at Danone headquarters in Paris was attended in person or via video by about 75,000 of the company’s roughly 100,000 employees worldwide. At the New York headquarters of Dannon USA, 300-plus employees gathered around video screens to watch. In plants, the company stopped production and set up viewings. Danone employees who were on the road or otherwise unavailable watched the meeting on their own laptops or smart phones.

restaurant chain, “so we are closer to data-driven marketing than ever before.” Many marketers swear by Klout, which uses social-media analytics to rank online popularity and “influence.” 7 / TRY SOME FUN. “Gamification” can incentivize consumption of marketing messages by introducing an element of fun and even material reward. Reltio, a data-management company in Palo Alto, California, provides target audiences access to a “portal with fun ‘challenges’ that educate and inform, while allowing them to be rewarded through points that can be exchanged for various prizes,” says CMO Ramon Chen. 8 / TALK THROUGH THICK AND THIN. Especially in an era when consumers, employees and other constituencies have come to expect regular mes-

The savviest CEOs realize that sometimes the risk of overcommunicating simply calls for them to send out a message that can’t be overlooked. Faber was a new CEO, and Danone faces huge challenges, so he didn’t make a major announcement. He simply wanted to underscore the importance of Danone’s twofold mission—ensuring growth for Danone and boosting “health for

saging from companies, they must be careful to communicate through rough times as well as good. “Sometimes companies tend to communicate more openly and often when things are going well, and then when sales are down or they’re having an issue or a crisis, they shut down,” says Fred Cook, CEO of the Golin Harris PR firm. “But the level should be at least consistent regardless of the situation, and when things are going badly you should maybe be communicating more.” 9 / DON’T SACRIFICE TRANSPARENCY. Constituents don’t want to be overwhelmed with messages, yet they want to know more than ever about the companies they deal with as consumers, employees or investors. It’s difficult to be too transparent. So even though its products are considered

mankind” through its products—and to remind everyone of the importance of their roles in achieving it. But to employees who had never before taken a forced break just to listen to the big boss, it was a message that no doubt got through.

junk food, Mars has led the way in voluntarily publishing important nutrition information, such as calories, in a graphic on the front of its candy products. “Transparency,” says Allison Miazga-Bedrick, Snickers brand director, “is that important.” 10 / PUT YOURSELF IN THE PICTURE. The new era of communications means that CEOs almost have to get more personally involved; and some see running their own Twitter stream, for example, as a great outlet. “Then you really see the CEO as an individual, and people want to see that,” Bloomgarden says. “There’s something positive for the company about feeling like you ‘know’ that person.” 11 / BRING EMPLOYEES INTO THE MIX. Allowing employees to enter social media can help even the odds that a company can

get positive consideration in the public conversation. “Our research shows that half of employees are already talking about their company online,” says Andy Polansky, CEO of Weber Shandwick, a PR firm. “To the extent that you can train them and so give them license to speak on behalf of the company in some measure, that could help cut over-communication from the top and get the kind of attention that’s most valued by the company.” 12 / KEEP THE PERSONAL TOUCH. No electronic means of internal communication can top the old-fashioned, occasional staff meeting. “People still like to look the head person in the eyes and hear their inflection or passion or the seriousness of what they’re saying,” says Jack Deschauer, senior vice president of Levick, a Washington, DCbased communications firm.

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HACK-PROOFING YOUR HOME CYBERCRIMINALS ARE MAKING A MINT IMPERSONATING CEOS. FIND OUT HOW TO LOCK DOWN YOUR HOME NETWORK AND PROTECT YOURSELF FROM FRAUD.

BY MICHAEL GELFAND AT WORK, you likely have a sophisticated IT team that constantly monitors and safeguards your company’s technology infrastructure and the data flowing in and out of your network. But if that same team of IT professionals isn’t providing security oversight for your home network, you’re putting yourself and your company in grave danger. Cybercriminals constantly troll for targets and, as far as targets go, CEOs sit at the center of the proverbial bulls-eye. Your title, your deal-making authority and the fact that your regular travel schedule makes it easier for others to fall prey to schemes where crooks impersonate you and instruct an employee at your company 68 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

to transfer funds on your behalf all factor into that appeal. Think this type of cybercrime only happens to the other guys? Think again. According to the Internet Crime Complaint Center, an intelligence and investigative group within the FBI that tracks computer crimes, more than 12,000 businesses worldwide

were targeted between October 2013 and February 2016 by fraudulent CEO email scams (generally via hacking, phishing emails or email spoofing). The reported cost to affected companies totaled roughly $2 billion—and that figure didn’t include unreported scams or the additional harm caused by theft of personal identities, intellectual prop-

erty and confidential information. It also doesn’t encompass the irreparable damages caused to affected individuals, families or corporate brands.

CYBERSECURITY EVERYWHERE, ALL THE TIME Your IT department most likely has dedicated personnel and a complex layer of products designed to look for hackers, perform behavioral analysis and content control and prevent leaks of confidential information, among other equally important tasks. But each facet of that corporate security regimen requires your company to “acquire technology, then implement, integrate, operationalize, manage,

troubleshoot and refresh it across branches, clouds, SaaS applications, mobile devices and remote users,” explains Babak Pasdar, CEO and founder of Bat Blue, a leading cloud security company based in Clifton, New Jersey. “The CEO and other C-suite executives, as privileged, remote users at home, are part of this unsustainable exercise at the office, which is the equivalent of changing the wheels on your car while you’re driving at 100 mph,” Pasdar explains. In other words, the vast majority of companies are struggling to keep up with security across their own networks, meaning the home networks of busy CEOs who

probably aren’t vigilant about changing their Wi-Fi passwords once a year are often unguarded. Those home networks, in turn, become the gateways through which cyberthieves infiltrate companies. “There’s an enormous incentive to break into an executive’s home network,” says Roderick Jones, CEO of Concentric Advisors, a Kirkland, Washington-based global provider of comprehensive risk analysis and customized security strategies for large corporations, international brands and high net worth individuals. “The typical executive’s home network—including desktops, laptops, printers, smart phones, gaming MAY/JUNE 2016

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devices, smart TVs and various other electronics—makes for a wider attack surface that provides multiple ways in. To a hacker, an executive’s home looks like a small business, which is why institutions need to think about extending the perimeter of their cyber defense for the safety of the company, its executives and its investors.” One way to fend off would-be infiltrators is to bring the same security vigilance you practice in the office to the homefront. “CEOs, COOs, CFOs, general counsel and the board of directors should have the company’s IT department set up their home networks,” advises Casey Fleming, CEO of Black Ops, a Washington, DC-based full-spectrum information security advisor to senior executives and corporate boards. “There should be one network for work-only, and a completely separate one to be used for the family. That’s how you start to protect corporate information.” Once you’ve called in IT expertise, it’s also important to heed their advice. In other words, don’t pull out your CEO card when the experts tell you that an application isn’t sanc-

tioned for enterprise usage. “C-level folks are part of the problem in that they’re the first ones to break standards,” explains Pasdar. “They’ll say, ‘Look, I know this is against our standard, but I really want this app, phone, laptop or whatever.’ Don’t make exceptions for yourself.”

BEYOND THE USUAL SUSPECTS Personal computers, printers, smart phones and tablets are all obvious points of vulnerability—but the pervasiveness of technology is creating new home security gaps of which CEOs need to be aware. “You may have an alarm system that requires the use of your home Wi-Fi, or you may have Wi-Fi-enabled home automation, such as a thermostat, controlled doorlock or a sensor-equipped refrigerator that tells you when you need to go shopping for more milk or eggs,” says Bat Blue’s Pasdar. “All of this is manifesting itself in the homes of executives where a Wi-Fi controlled doorlock ends up on a network with VPN access to confidential corporate

data. Those devices aren’t designed for MacAfee or Symantec. That’s a real challenge,” he says. In theory, the threat doesn’t even stop at the devices that you overtly or tacitly connect to the Internet. “If you don’t have your router locked down, any device that you leave plugged in 24/7, such as a refrigerator or a coffee machine, can have a $1.57 communications chip in it that routes all of your Internet traffic somewhere else—including email, web searches and photos,” points out Black Ops’ Casey Fleming. “When the Internet of Things advances and all those devices become even smarter, something as seemingly benign as a Smart TV, a wireless baby monitor or a Wi-Fi camera [can] record everything the camera sees and send that info back to China, Russia, India or anywhere else in the world.” While that level of technological espionage may sound like something out of Will Smith’s next action film rather than your reality, there’s no denying that cybersecurity in the home is a huge and growing issue—and one that CEOs would do well to take seriously.

SAFEGUARDING YOUR HOME SYSTEMS HACKERS, SCAM ARTISTS

and other coordinated cybercriminals look for the low-hanging fruit, so taking steps to protect your digital identity at home can help lower your appeal as a target. Casey Fleming of Black Ops Partners suggests CEOs start by adopting these practices: PRACTICE PASSWORD VIGILANCE. Use unique username and password combinations for different accounts and create secure, intelligent passwords for key devices, such as your router. If necessary, a password manager can help you manage these. Also, be sure to change passwords annually, if not quarterly.

LOCK DOWN YOUR DEVICES. Set up passcode protection on every personal device you use—your computer, tablets and phone—preferably by using two-factor authentication that requires not only a password and username, but also a physical token or piece of information that only you would know. MAKE THE MOST OF SECURITY FEATURES. Turn on built-in security and encryption features in your equipped devices. BEWARE OF EMAIL ENTRY POINTS. Vet unexpected email attachments—even from known senders—before you open them. Update

70 / CHIEFEXECUTIVE.NET / MAY/JUNE 2016

your anti-virus software regularly and never let family members or friends use your business computer so they can’t unwittingly infect your computer with malware. BE SMART ABOUT EMAIL SECURITY. Avoid sending personal email from your business email account and vice versa. It’s a good idea to take this a step further by setting up a separate router at home with VPN and a strong password for businessonly communication and online banking activities. WALL OFF YOUR HOME NETWORK. Use separate guest networks for your visitors and employees in your home. Make

a point of checking regularly to make sure that every device hooked up to your Wi-Fi network is yours, particularly if you live in an apartment building or have neighbors in close proximity. BE A LITTLE PARANOID. Assume your computer camera is always on, avoid social media sites and understand that when you use Bluetooth anyone can listen in on your conversations and see your data. KNOW YOUR WI-FI LIMITATIONS. Avoid using public “free” WiFi available in retail stores, restaurants, cafes, commercial airplanes or hotels to access business emails or conduct financial transactions.

The Power of the Network Effect Allow your team to benefit from the experience of peer senior executives with comparable roles and responsibilities at noncompetitive companies. Let your them find solutions in Senior Executive Network (SEN) group sessions designed to explore issues and clarify options and actions steps, including: • Benchmarks for projects and outcomes • Clarifying what’s working (and what’s not) • Developing individual skills, and management methods, learning from shared experience Imagine a more effective and motivated team with enhanced skills and new relationships, focused on driving your bottom line.

We have networks for the following key executives in your company: • Finance • Operations • Marketing • Controllers • Sales • Product Development • Engineering & Technology

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Tap into the Power of the Network Effect >> Visit www.SrExec.com Or call Rob Grabill at: 785-832-0303

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Joe Queenan

Should the speech circuit welcome candidates who bombed? By Joe Queenan

A FEW HOURS AFTER Carly Fiorina dropped her presidential bid in February, a major speaker’s bureau announced that she was “available for speaking engagements around the world.” Fiorina, deposed as CEO and chair of Hewlett-Packard in 2005, then thumped in her 2010 California Senate race against Barbara Boxer, finished seventh in both the Iowa and New Hampshire primaries. This was a whole lot better than Rick Santorum, Lincoln Chafee and Bobby Jindal, but it doesn’t change the fact that she finished seventh. So what exactly was it that she was going to speak about? Woefully unsuccessful presidential candidates often use their thrashings at the polls as launchpads to more lucrative careers. Losing badly didn’t hurt Rudy Giuliani, Howard Dean or Mike Huckabee. Going back a few years, it didn’t hurt Jesse Jackson, Jerry Brown or Franklin Delano Roosevelt, who ran for vice president in 1920 and got walloped. And it certainly didn’t hurt Al Gore. But none of those candidates finished seventh. So again, what is it that a seventh-place finisher talks about? Last year, the Washington Nationals finished seventh in the National League. Widely considered a favorite to win the World Series, this enormously talented team finished with a pathetic 83-79 record, did not reach the playoffs and made national news late in the year when relief pitcher Jonathan Papelbon and slugger Bryce Harper got into a fistfight in the dugout. The team’s meltdown got skipper Matt Williams fired one year after he was named Manager of the Year. This had never happened before. It would be like Elizabeth I getting fired one year after the Spanish Armada sank. So what would Williams have to say on a speaking tour? “I was Manager of the Year one year and I got fired the next,” he might tell enthralled audiences. “Take it

from me, guys: Don’t rest on your laurels.” The Minnesota Vikings finished with the seventh-best record in the National Football League last year. Then, they lost a playoff game against the Seattle Seahawks (10-9) on a botched 27-yard field goal with 26 seconds left. Does anyone want to hear the Vikings kicker give a speech? Hmm? There is no disgrace in finishing seventh. But when you do fare that poorly, shouldn’t you go into lockdown mode and try to figure out what went wrong? Maybe you should have factored in the wind and kicked the ball more to the left. Maybe you shouldn’t have demoted your closer halfway through the season in favor of the guy who would punch out your best player. Maybe your presidential campaign would have worked out better if you’d only laid off 20,000 employees, not 30,000. How did we get to the point where failure is not only allowed but rewarded? I blame it on school sports. Early in life, dismally uncoordinated children are told that it’s okay to go out and make fools of themselves on the soccer field as long as they play hard. There’s nothing wrong with that. What is wrong is when the kids finish seventh in a league that only has six teams and then get big, shiny trophies just like everyone else. Woody Allen once said that 80 percent of success in life is just showing up. This figure is way too low. In soccer leagues or running for the White House, just showing up is 100 percent of success. Winning seems to be extraneous. There’s nothing wrong with finishing seventh, like Italy did in the First World War. There’s nothing wrong with finishing seventh, like Keen Ice did at the Kentucky Derby. There’s nothing wrong with finishing seventh, like Abi Maria-Gomes did on Survivor. But if you do finish seventh, you shouldn’t go out and give speeches about it. You should go home and shut up.

Q U E E N A N I LLU ST R AT I O N BY T I M TO M K I N S O N

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