Hiring for happiness.
A human resources plan for Happy, Inc. Happy is a company with a simple goal: to make people happier. This includes its customers, partners, suppliers and employees. This abstract and lofty goal is going to be executed through a number of companies that will each have their own focus but still contribute to the larger mission. We are starting two companies initially: Happy Music – This Company is focused on becoming the most successful freemium1 music label in existence. All of our artists’ music will be freely available to download online and they will make money through offering premium services and products. These will include licenses to their songs; merchandise sales, gig tickets and sponsorship deals; small collections of premium CDs, fan-only access to premium online content and private performances. We believe that music wants to be free and should be allowed to spread freely. We believe that this will create a larger, more loyal fan-base that can then be monetized ensuring that the artist is able to make a fantastic living and lots of people are made happier because they get to enjoy their music. Happy Events – This Company aims to architect the most incredible and unique parties, gigs and festivals possible. We believe that when “it comes to spending disposable income, experiential purchases tend to make people happier than material purchases” 2. In order for us to make our customers happy, it’s essential that our employees are happy too. This paper will outline 4 strategies that we intend to implement from the outset to ensure that we can deliver on our ambitious goals. Each strategy will contain the following: • • • • • • 1. 2. 3. 4. A concise outline of the strategy and how it will affect the Company. An analysis of how it will affect the employees and impact on them. A cost-benefit analysis. An appropriate Human Resources Metric. How this will influence our relationships with our customers and suppliers. Any relevant history or background on the strategies outlined Recruitment – Dreams with deadlines are important. Remuneration – Debt makes people unhappy. Responsibility – If you think it’s a good idea, go for it. Relationships – The Company can be a family.
After outlining each strategy in detail the paper will conclude by looking at:
This paper will available on our Company blog. The four sections will be as follows:
Dreams with deadlines are important. Outline of the strategy Think and Grow Rich, a motivational text by Napoleon Hill, emphasized the need for “mental deadlines” for every goal you set3. His belief is that many people say to themselves ‘I want to be rich some day’ whereas as very few people say to themselves ‘I want to have a million dollars in my savings account by 31st December 2015’. Napoleon argued that having a defined goal with a definite due date forces the sub-conscious to find solutions and avenues to turn that dream into reality. Dreams with deadlines are therefore very important to our company culture at Happy. We want to do two things for our employees:
The Freemium Business Model, Fred Wilson -http://www.avc.com/a_vc/2006/03/the_freemium_bu.html The Relative Relativity of Material and Experiential Purchases, Travis J. Carter & Thomas Gilovich 3 Think and Grow Rich, Napoleon Hill
1. Help them achieve their own personal dreams. This applies even if they might not be the primary focus of the company. For example: want to learn to kitesurf? Awesome, that might not be the focus of Happy Music but we’d love to help an employee achieve that goal in their free time if it’s going to make them happier. 2. Ask them which of our company dreams they can help us achieve. Our hope is that all our employees want to help us in our mission to make people happier. We have a responsibility to help them do that. How will it affect our applicants and impact on them once they’re with us? The strategy must be implemented in the hiring and monitoring processes. When we hire someone we need to fully understand what their personal goals are and when they want to achieve those by. Similarly, we want to make sure our employees understand the specific goals of the company and when we want these to be achieved by. The monitoring side is dealt with in more detail in section 3, which focuses on projects and Responsibility. Therefore here I will focus on the hiring process: • • No more CVs, Resumes or Cover Letters – Everyone hates writing them. Everyone hates reading them. We don’t want these to be part of our hiring process. Small set of personal questions aimed to elicit unique responses – Each applicant will be asked the following: o Outside of your “work”, what else are you passionate about? o What do you dream about achieving some day? (Not work-related) o What date would you like to achieve that dream by? o How can Happy help you do that? o When have you been happiest? Small set of company-related questions aimed at eliciting unique responses – The questions will be relevant to the department. Each question also aims to get them to think carefully about whether their education or life-experience can help them in their job. We’re more interested in people’s problem-solving skills than the letters after their name. For example: o At the moment it takes an average attendee to Happy Fest 35 minutes to get from their car to their camping spot. How can we reduce this to 15 minutes for Happy Fest 2012? o We’re hoping to have all our invoice checking and supplier-payments happen 90% faster than it currently does by June 20th 2012; can you help us achieve this goal o We’re trying to get 5 of our artists on the top 5 Japanese radio-stations by May 5th 2015; what would you do to try and make this happen? As you can each dream can be measured and has a deadline. This ensures there’s no vagueness about what needs solving on when we think it’s possible to do that by. • Quick video about themselves – Applicants will be asked to upload a short, 5minute clip about themselves. We’re interested in where they’re from, what they like to get up to, the people they care most about and their vision for their future. No interviews - Thirty-minute slots put both the interviewee and interviewer into an abnormal environment unlike anything in the real world. We don’t think it’s fair on us and we certainly don’t think it’s fair on the applicant. Paid training month – We will carefully sift through the applicants’ responses to the questions and the videos they submit to find the best batch of people we can. We will then invite them to come and join us for a month so we can be certain that they’re going to fit in with the culture and the team. We feel that it’s easy for people to put on a front for 30 minutes but much harder to do so over 30 days.
Our hope is that by focusing on our applicants’ dreams and on how our applicants can help us realize the companies’ dreams, we’re setting some fair expectations and doing our absolute best to make sure our employees are happier. Cost-benefit analysis The hiring process we’re outlining is hopefully no more costly than a normal process. It still involves sifting through a lot of information even if we do away with the covering letters and résumés. However, our hope is that by focusing on the applicants’ personal goals and how their skill-set can help us achieve the company’s goals from the outset we will be able to: • • • Attract & select the best candidates Improve employee satisfaction Increase employee retention
If we hire 100 people in a year with an average effective salary of $25,000 and we assume it costs $10,000 to make a new hire; in this scenario an increase in the retention rate from 85% to 95% would save us $100,000 in further hiring costs and we would gain at least another $250,000 in productivity because there would be fewer gaps in the workforce throughout the year. Human Resources Metric: Candidate Acceptance Rate Once the paid training month is over it is likely that the people in charge of the potential new employees won’t want to offer everyone a job. I would hope that at least 9 out of every 10 applicants who reach the training month stage are a good fit for Happy so I would like to keep the candidate acceptance rate up above 90%.
Debt makes people unhappy. Outline of the strategy
“Money and financial problems rank as the No. 1 cause of stress.”4
American Psychological Association's (APA) 2009 Stress in America Report Both the founders of Happy are students and we know how ominous debt can feel. “College seniors who graduated in 2009 had an average of $24,000 in student loan debt, up 6 percent from 2008”5. We want to help our employees get out of bad debt like credit-cards and sharkloans as fast as possible so they can enjoy financial freedom and start saving for their future. Therefore, once we have a strong balance sheet and a good financial outlook we are going to offer our employees the option of selling their debt to us. We would then reduce their salary and accelerate the rate at which they can pay everything off by cutting out the horrific interest-rates. Once we have 20 employees on this program we will be able to approach a debt-management agency and negotiate even better rates for our employees.
http://ebn.benefitnews.com/news/employees-need-help-dealing-with-financial-stress-26828501.html 5 http://www.nytimes.com/2010/10/22/education/22debt.html
How will it affect our employees? Once this strategy is in place new and existing employees will notice a few differences: • Access to financial advisors – All our employees will have access to a financial advisor with whom they can confidentially share the state of their personal affairs. Then this advisor can use this information to put together a custom remuneration package that isn’t just a regular wage. Replace wages with timelines – All employees who want to sign up to the program will have a percentage of their debt paid off each fortnight. So instead of getting $70,000/year they might get $23,000/ year and be debt-free in the next 4 years. Higher real wage if they opt for debt-management - Our goal is to make the debt-repayment option way more attractive to our employees. Therefore we will top up their debt repayments by 5% if they stick with the program, increasing their effective real income. Mandatory Mint.com account – Each employee will be asked to set up an account with Mint.com, a free personal-finance monitoring system, that will help them get a much better insight into what they are spending their money on.
Ultimately we want our employees to be as happy as possible and we believe that by taking proactive steps to help them be financially free our employees can focus on their work more and make even greater contributions to the company. Cost-benefit analysis Dr. E. Thomas Garman, President of the Personal Finance Employee Education Foundation and professor emeritus and fellow at Virginia Tech University puts it simply: “Poor employee financial literacy costs employers at least $750 in cash—for each employee— every year”6 This number is Dr. Garman’s attempt to quantify the inefficiencies that arise from employees managing their personal affairs poorly. A report from Financial Literacy Partners, LLC puts the cost of debt-related employee stress much higher: “$15,000 per year per affected employee.”7 What concerns us at Happy is how stress, unhappiness and depression can make it difficult or impossible for someone to focus on their job. If an employee is constantly worried about paying their bills and knows in the back of their mind that their credit-cards and short-term loans are spiraling hopelessly out of control then they’ll be performing at 50% of their potential or worse. The cost-benefit analysis is simple: Stressed-out, indebted employee on salary of $35,000 $35,000 salary * 50% productivity = $17,500 in value Happy employee on salary of $20,000 + debt-management of $15,000 $20,000 salar + $15,000 debt repayments + $750 top-up on repayments + $250 extra admin cost * 90 productivity = $32,400 in value. The productivity ratios are obviously arbitrary but they demonstrate the difference between an employee who is happy and an employee who is nervous and scared. It only costs the company the company an extra $1000 to reap an extra $15,000 in value. Human Resources Metric: Employee Liquidity & Loyalty
“In a recent survey of over 45,000 American workers, 71 percent of respondents said they'd find
it difficult to meet their financial obligations if their paycheck were delayed for just one week” 8.
We would prefer our employees’ cash runway to be around a month and for them to feel far more confident about their personal financial situation. Our financial advisors would have to be readily available to help our employees plan budgets and make better decisions with their money. Our hope is that all this care is going to increase employee loyalty: "If you help with debt… the payback employers get in terms of employee loyalty can be immeasurable" James Bradley, information services manager at Accor9 We hope that all our employees will be grateful for the lengths we’re going to when it comes to their personal wellbeing. We want our monthly anonymous surveys to show that people feel loyal to Happy and we want our retention rates to stay in the high 90s as we expand.
If you think it’s a good idea, go for it. Outline of the strategy Micro-management and unnecessary layers of control creep into most organizations as they grow. We want to maintain the fast-paced feel of a startup even if we grow our headcount to the point where we would be classed as a medium-sized business. Therefore I’d like our staff to fill their days working on one of three things: 1. Core stuff – Employees will spend the bulk of their time working on the areas where they feel they can contribute the most. Our number crunchers will be analyzing all the stats and our biz-dev people will be opening up new revenue opportunities. 2. Projects – We will shamelessly copy Google here with 20% of an employees’ time 10 to be used working on smaller projects that could help make more people happier. These projects will all be shared on our internal project-management system (www.basecamphq.com) and other employees can chip-in, join the project or add feedback. These projects should be in keeping with our philosophy of having dreams with deadlines. That way a team manager can check in on all the projects and see which ones are going great and which might need some extra help or thought. Typical projects might include trying out new versions of the website or coming up with a system to make our PR blasts more effective. 3. Pitches – If a project needs serious budget and company-wide support then an employee can focus on turning it into a pitch for the whole company and effectively create a new startup within the company. A big project might be something like a new club in Ibiza for the Happy brand or a chain of bars. If a pitch gets the green light that employee will have their core stuff taken care of by someone else so that they can focus down on making this new idea happen. How will it affect our employees? My hope is that our employees never, ever feel patronized, belittled or small. I want them to feel like they can take control of their project and make a real difference in the company. If employees feel like they can pitch a new concept to the company and make it happen then my hope is we’ll constantly be getting great ideas and suggestions from everyone. The culture should feel exciting and be built upon the idea that trying stuff fast matters most. IDEO, one of
the most sought-after design consultancies in the world puts a real emphasis on rapid prototyping of ideas11. Our employees should feel like they have the opportunity to go and prototype something all the time. Whether it’s putting a question on a whiteboard for other people to look at or coding up a new interface for one of our systems; if they think it’s a good idea, they should go for it. Cost-benefit analysis The greatest cost of this strategy is effectively allowing employees to take one day a week to focus on something that they think will benefit the company. This “cost” is actually an investment. It’s an investment in innovation. If we look at it that way and make some assumptions about the hit-rates of our employees’ personal projects the outlook is fantastic. 100 employees @ $30,000/ year average effective salary = $3,000,000 payroll 20% time allocated to new projects = $600,000 cost Assuming the following: • • • • 5% of these projects become new business avenues generating >$10,000,000 5% of these projects become failed avenues costing $1,000,000 40% of these projects just cost the time used to explore them 50% add at least 20% more value to our operations
Based on these arbitrary numbers we’re looking at massive returns that are many multiples of the money invested in giving employees free time to explore new things. Paul Bucheit, the founder of GMail makes an important point about Google’s 20% time policy: The real value of "20%" is not the time, but rather the "license" it gives to work on things that "aren't important".12 In this way it is hard to quantify the value of having an innovative culture that makes employees feel it’s acceptable to try lots of ideas out until they find something that works. This is not to say that it doesn’t have quantifiable results, as you can see from Google’s stock price over the last few years:
Human Resources Metric: Employee Motivation Each month we’ll be popping a survey into our employees’ inboxes to try and take the pulse of the company. Our hope is that when people are asked to rate how motivated they feel from 1 to 10 the vast majority of them drag the slider up towards 10. If we can keep the average about 9 on a month-to-month basis it means we’re doing something right. We want our employees to feel like they’re part of something and that things are moving faster because of their actions. If they have control of their own part of the company, however large or small, it will give them a direct
The Art of Innovation, Tom Kelley with Jonathan Littman http://paulbuchheit.blogspot.com/2009/01/communicating-with-code.html
line of sight to something they’re able to improve. All this should create a much more motivated workforce.
The Company can be a family. Outline of the strategy We want to encourage all of our employees to feel like they’re part of something more fun and significant than just a “workplace”. We have a few ideas for how to make Happy a very different kind of company: • • • • • Joint living space Cook and eat meals together Go on holidays together Enjoy Happy Events together Learn new skills together
If groups of employees live, work and party together our hope is that they will love their entire lifestyle, not just their work. Happy is starting in two inherently social markets: music and events. Therefore it will be really helpful if we have very social culture from the outset where the company is as much a group of mates as it is a collection of colleagues. How will it affect our employees? I imagine new employees partying with us and working on cool projects with lots of different people during their first month with the team. If they’re offered a contract they can move into one of our open-plan communes where all our artists and team-members work and play. If one of our artists has a gig in the evening then all the team are invited to come and check them out and enjoy their performance. At the weekends we’ll put on fun activities and pay for employees to learn new sports like kitesurfing or go on a trip to explore a potential new venue. To get a break from the laptops & iPhones, Happy will sponsor company-wide holidays where we all take off to a lodge in the hills or beach-hut somewhere beautiful without any form of connection to the outside world. Although it’s corny, we’re trying to be a Happy Family. Cost-benefit analysis As a company we’re planning to subsidize much of our employees’ day-to-day expenses because they’ll be living in company-owned properties and eating free company meals. Providing all these benefits won’t be insignificant line items on the income statement initially but if they have the desired effect of bringing the team together then hopefully these expenses will pale in comparison to profits the Company will go on to generate. Human Resources Metric: Voluntary Turnover Rate The voluntary turnover rate describes the number of people who decide to leave the company without being asked to. I obviously don’t want to have to let anyone go but I am not naïve to the fact that recruitment is an extremely difficult thing to get right. What would really worry me is if lots of people wanted to the leave the company. If people develop lots of strong relationships in the work place and are in love with what they’re doing then my hope is that we could keep voluntary turnover to less than 2% of the workforce on an annualized basis.
How this will influence our relationships with our customers and suppliers? Happy is on a mission. We want to make everyone happier. This will not be possible to do for every person all of the time. Instead we want to maximize people’s happiness as much as we can. If our employees love their work, feel they are making progress and know how best they can help the customers and suppliers then this can only be a net win for the company. If our call
center staff are fired-up and enjoying their day then that will come across in the way they deal with customers’ concerns. If the lovely people in our accounts department feel they are running a tight ship and are working on a side-project that could really go far then the way they will our suppliers will undoubtedly be better as a result. How long has this obsession with happiness been around? Tony Hsieh, the founder of Zappos.com, is the inspiration behind Happy. He wrote a book called Delivering Happiness13 where he outlines his favorite theory for improving employee satisfaction. He argued that the following 4 things were paramount:
• • • •
Perceived Control Perceived Progress Connectedness Vision / Meaning (Being part of something bigger than yourself)
Our first two strategies focus on setting the expectations of new recruits and remunerating them in such a way that gives them better control over their personal finances. Our second strategy, which focuses on giving employees responsibility, aims to give our employees the feeling of progress when they succeed and control of some function within the company. Our focus on relationships in the final strategy is purely about helping our employees finding connectedness with others at the company. Finally, we feel that the goal of the company: to make others happier, is what keeps every single person feel like they are part of something that matters. As Guy Kawasaki would say, we want to “make meaning” in our company14. Happy is making a sincere commitment to helping people work out something that they’re usually terrible at: finding out what makes them happier.
Delivering Happiness, Tony Hsieh How to Change the World, Guy Kawasaki http://www.youtube.com/watch?v=lQs6IpJQWXc