Introduction to Motivation

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Introduction to Motivation At one time, employees were considered just another input into the production of goods and services What perhaps changed this way of thinking about employees was research, referred to as the Hawthorne Studies, conducted by Elton Mayo from 1924 to 1932 (Dickson, 1973) This study found employees are not motivated solely by money and employee behavior is linked to their attitudes (Dickson, 1973) The Hawthorne Studies began the human relations approach to management, whereby the needs and motivation of employees become the primary focus of managers (Bedeian, 1993) Motivation Theories Understanding what motivated employees and how they were motivated was the focus of many researchers following the publication of the Hawthorne Study results (Terpstra, 1979) Five major approaches that have led to our understanding of motivation are Maslow's need-hierarchy theory, Herzberg's two- factor theory, Vroom's expectancy theory, Adams' equity theory, and Skinner's reinforcement theory According to Maslow, employees have five levels of needs (Maslow, 1943): physiological, safety, social, ego, and self- actualizing Maslow argued that lower level needs had to be satisfied before the next higher level need would motivate employees Herzberg's work categorized motivation into two factors: motivators and hygienes (Herzberg, Mausner, & Snyderman, 1959) Motivator or intrinsic factors, such as achievement and recognition, produce job satisfaction Hygiene or extrinsic factors, such as pay and job security, produce job dissatisfaction Vroom's theory is based on the belief that employee effort will lead to performance and performance will lead to rewards (Vroom, 1964) Rewards may be either positive or negative The more positive the reward the more likely the employee will be highly motivated Conversely, the more negative the reward the less likely the employee will be motivated Adams' theory states that employees strive for equity between themselves and other workers Equity is achieved when the ratio of employee outcomes over inputs is equal to other employee outcomes over inputs (Adams, 1965) Skinner's theory simply states those employees' behaviors that lead to positive outcomes will be repeated and behaviors that lead to negative outcomes will not be repeated (Skinner, 1953) Managers should positively reinforce employee behaviors that lead to positive outcomes Managers should negatively reinforce employee behavior that leads to negative outcomes Motivation Defined Many contemporary authors have also defined the concept of motivation Motivation has been defined as: the psychological process that gives behavior purpose and direction (Kreitner, 1995); a predisposition to behave in a purposive manner to achieve specific, unmet needs (Buford, Bedeian, & Lindner, 1995); an internal drive to satisfy an unsatisfied need (Higgins, 1994); and the will to achieve (Bedeian, 1993) For this paper, motivation is operationally defined as the inner force that drives individuals to accomplish personal and organizational goals The Role of Motivation Why we need motivated employees? The answer is survival (Smith, 1994) Motivated employees are needed in our rapidly changing workplaces Motivated employees help organizations survive Motivated employees are more productive To be effective, managers need to understand what motivates employees within the context of the roles they perform Of all the functions a manager performs, motivating employees is arguably the most complex This is due, in part, to the fact that what motivates employees changes constantly (Bowen & Radhakrishna, 1991) For example, research suggests that as employees' income increases, money becomes less of a motivator (Kovach, 1987) Also, as employees get older, interesting work becomes more of a motivator Purpose The purpose of this study was to describe the importance of certain factors in motivating employees at the Piketon Research and Extension Center and Enterprise Center Specifically, the study sought to describe the ranked importance of the following ten motivating factors: (a) job security, (b) sympathetic help with personal problems, (c) personal loyalty to employees, (d) interesting work, (e) good working conditions, (f) tactful discipline, (g) good wages, (h) promotions and growth in the organization, (i) feeling of being in on things, and (j) full appreciation of work done A secondary purpose of the study was to compare the results of this study with the study results from other populations Methodology The research design for this study employed a descriptive survey method The target population of this study included employees at the Piketon Research and Extension Center and Enterprise Center (centers) The sample size included all 25 employees of the target population Twenty-three of the 25 employees participated in the survey for a participation rate of 92% The centers are in Piketon, Ohio The mission of the Enterprise Center is to facilitate individual and community leader awareness and provide assistance in preparing and accessing economic opportunities in southern Ohio The Enterprise Center has three programs: alternatives in agriculture, small business development, and women's business development The mission of the Piketon Research and Extension Center is to conduct research and educational programs designed to enhance economic development in southern Ohio The Piketon Research and Extension Center has five programs: aquaculture, community economic development, horticulture, forestry, and soil and water resources From a review of literature, a survey questionnaire was developed to collect data for the study (Bowen & Radhakrishna, 1991; Harpaz, 1990; Kovach, 1987) Data was collected through use of a written questionnaire hand-delivered to participants Questionnaires were filled out by participants and returned to an intra-departmental mailbox The questionnaire asked participants to rank the importance of ten factors that motivated them in doing their work: 1=most important 10=least important Face and content validity for the instrument were established using two administrative and professional employees at The Ohio State University The instrument was pilot tested with three similarly situated employees within the university As a result of the pilot test, minor changes in word selection and instructions were made to the questionnaire Results and Discussion The ranked order of motivating factors were: (a) interesting work, (b) good wages, (c) full appreciation of work done, (d) job security, (e) good working conditions, (f) promotions and growth in the organization, (g) feeling of being in on things, (h) personal loyalty to employees, (i) tactful discipline, and (j) sympathetic help with personal problems A comparison of these results to Maslow's need-hierarchy theory provides some interesting insight into employee motivation The number one ranked motivator, interesting work, is a self-actualizing factor The number two ranked motivator, good wages, is a physiological factor The number three ranked motivator, full appreciation of work done, is an esteem factor The number four ranked motivator, job security, is a safety factor Therefore, according to Maslow (1943), if managers wish to address the most important motivational factor of Centers' employees, interesting work, physiological, safety, social, and esteem factors must first be satisfied If managers wished to address the second most important motivational factor of centers' employees, good pay, increased pay would suffice Contrary to what Maslow's theory suggests, the range of motivational factors are mixed in this study Maslow's conclusions that lower level motivational factors must be met before ascending to the next level were not confirmed by this study The following example compares the highest ranked motivational factor (interesting work) to Vroom's expectancy theory Assume that a Centers employee just attended a staff meeting where he/she learned a major emphasis would be placed on seeking additional external program funds Additionally, employees who are successful in securing funds will be given more opportunities to explore their own research and extension interests (interesting work) Employees who not secure additional funds will be required to work on research and extension programs identified by the director The employee realizes that the more research he/she does regarding funding sources and the more proposals he/she writes, the greater the likelihood he/she will receive external funding Because the state legislature has not increased appropriations to the centers for the next two years (funds for independent research and extension projects will be scaled back), the employee sees a direct relationship between performance (obtaining external funds) and rewards (independent research and Extension projects) Further, the employee went to work for the centers, in part, because of the opportunity to conduct independent research and extension projects The employee will be motivated if he/she is successful in obtaining external funds and given the opportunity to conduct independent research and extension projects On the other hand, motivation will be diminished if the employee is successful in obtaining external funds and the director denies the request to conduct independent research and Extension projects The following example compares the third highest ranked motivational factor (full appreciation of work done) to Adams's equity theory If an employee at the centers feels that there is a lack of appreciation for work done, as being too low relative to another employee, an inequity may exist and the employee will be dis-motivated Further, if all the employees at the centers feel that there is a lack of appreciation for work done, inequity may exist Adams (1965) stated employees will attempt to restore equity through various means, some of which may be counter- productive to organizational goals and objectives For instance, employees who feel their work is not being appreciated may work less or undervalue the work of other employees This final example compares the two highest motivational factors to Herzberg's twofactor theory The highest ranked motivator, interesting work, is a motivator factor The second ranked motivator, good wages is a hygiene factor Herzberg, Mausner, & Snyderman (1959) stated that to the degree that motivators are present in a job, motivation will occur The absence of motivators does not lead to dissatisfaction Further, they stated that to the degree that hygienes are absent from a job, dissatisfaction will occur When present, hygienes prevent dissatisfaction, but not lead to satisfaction In our example, the lack of interesting work (motivator) for the centers' employees would not lead to dissatisfaction Paying centers' employees lower wages (hygiene) than what they believe to be fair may lead to job dissatisfaction Conversely, employees will be motivated when they are doing interesting work and but will not necessarily be motivated by higher pay The discussion above, about the ranked importance of motivational factors as related to motivational theory, is only part of the picture The other part is how these rankings compare with related research A study of industrial employees, conducted by Kovach (1987), yielded the following ranked order of motivational factors: (a) interesting work, (b) full appreciation of work done, and (c) feeling of being in on things Another study of employees, conducted by Harpaz (1990), yielded the following ranked order of motivational factors: (a) interesting work, (b) good wages, and (c) job security In this study and the two cited above, interesting work ranked as the most important motivational factor Pay was not ranked as one of the most important motivational factors by Kovach (1987), but was ranked second in this research and by Harpaz (1990) Full appreciation of work done was not ranked as one of the most important motivational factors by Harpaz (1990), but was ranked second in this research and by Kovach (1987) The discrepancies in these research findings supports the idea that what motivates employees differs given the context in which the employee works What is clear, however, is that employees rank interesting work as the most important motivational factor Implications for Centers and Extension The ranked importance of motivational factors of employees at the centers provides useful information for the centers' director and employees Knowing how to use this information in motivating centers' employees is complex The strategy for motivating centers' employees depends on which motivation theories are used as a reference point If Hertzberg's theory is followed, management should begin by focusing on pay and job security (hygiene factors) before focusing on interesting work and full appreciation of work done (motivator factors) If Adams' equity theory is followed, management should begin by focusing on areas where there may be perceived inequities (pay and full appreciation of work done) before focusing on interesting work and job security If Vroom's theory is followed, management should begin by focusing on rewarding (pay and interesting work) employee effort in achieving organizational goals and objectives Regardless of which theory is followed, interesting work and employee pay appear to be important links to higher motivation of centers' employees Options such as job enlargement, job enrichment, promotions, internal and external stipends, monetary, and non-monetary compensation should be considered Job enlargement can be used (by managers) to make work more interesting (for employees) by increasing the number and variety of activities performed Job enrichment can used to make work more interesting and increase pay by adding higher level responsibilities to a job and providing monetary compensation (raise or stipend) to employees for accepting this responsibility These are just two examples of an infinite number of methods to increase motivation of employees at the centers The key to motivating centers' employees is to know what motivates them and designing a motivation program based on those needs The results presented in this paper also have implications for the entire Cooperative Extension Sysyem The effectiveness of Extension is dependent upon the motivation of its employees (Chesney, 1992; Buford, 1990; Smith, 1990) Knowing what motivates employees and incorporating this knowledge into the reward system will help Extension identify, recruit, employ, train, and retain a productive workforce Motivating Extension employees requires both managers and employees working together (Buford, 1993) Extension employees must be willing to let managers know what motivates them, and managers must be willing to design reward systems that motivate employees Survey results, like those presented here, are useful in helping Extension managers determine what motivates employees (Bowen & Radhakrishna, 1991) If properly designed reward systems are not implemented, however, employees will not be motivated References Adams, J S (1965) Inequity in social exchange In L Berkowitz (ed.), Advances in experimental social psychology New York: Academic Press Bedeian, A G (1993) Management (3rd ed.) New York: Dryden Press Bowen, B E., & Radhakrishna, R B (1991) Job satisfaction of agricultural education faculty: A constant phenomena Journal of Agricultural Education, 32 (2) 16-22 Buford, J A., Jr., Bedeian, A G., & Lindner, J R (1995) Management in Extension (3rd ed.) Columbus, Ohio: Ohio State University Extension Buford, J A., Jr (1990) Extension management in the information age Journal of Extension, 28 (1) Buford, J A., Jr (1993) Be your own boss Journal of Extension, 31 (1) Chesney, C E (1992) Work force 2000: is Extension agriculture ready? Journal of Extension, 30 (2) Dickson, W J (1973) Hawthorne experiments In C Heyel (ed.), The encyclopedia of management, 2nd ed (pp 298-302) New York: Van Nostrand Reinhold Harpaz, I (1990) The importance of work goals: an international perspective Journal of International Business Studies, 21 75-93 Herzberg, F., Mausner, B., & Snyderman, B B (1959) The motivation to work New York: John Wiley & Sons Higgins, J M (1994) The management challenge (2nd ed.) New York: Macmillan Kovach, K A (1987) What motivates employees? Workers and supervisors give different answers Business Horizons, 30 58-65 Kreitner, R (1995) Management (6th ed.) Boston: Houghton Mifflin Company Maslow, A H (1943) A theory of human motivation Psychological Review, July 1943 370-396 Skinner, B F (1953) Science and Human Behavior New York: Free Press Smith, G P (1994) Motivation In W Tracey (ed.), Human resources management and development handbook (2nd ed.) Smith, K L (1990) The future of leaders in Extension Journal of Extension, 28 (1) Terpstra, D E (1979) Theories of motivation: borrowing the best Personnel Journal, 58 376 Vroom, V H (1964) Work and motivation New York: Wiley ten tips for questionnaires on employee motivation What is the 'primary aim' of your company? Your employees may be more motivated if they understand the primary aim of your business Ask questions to establish how clear they are about your company's principles, priorities and mission What obstacles stop employees performing to best effect? Questionnaires on employee motivation should include questions about what employees are tolerating in their work and home lives The company can eliminate practices that zap motivation What really motivates your staff? It is often assumed that all people are motivated by the same things Actually we are motivated by a whole range of factors Include questions to elicit what really motivates employees, including learning about their values Are they motivated by financial rewards, status, praise and acknowledgment, competition, job security, public recognition, fear, perfectionism, results Do employees feel empowered? Do your employees feel they have job descriptions that give them some autonomy and allow them to find their own solutions or are they given a list of tasks to perform and simply told what to do? Are there any recent changes in the company that might have affected motivation? If your company has made redundancies, imposed a recruitment freeze or lost a number of key people this will have an effect on motivation Collect information from employees about their fears, thoughts and concerns relating to these events Even if they are unfounded, treat them with respect and honesty What are the patterns of motivation in your company? Who is most motivated and why? What lessons can you learn from patches of high and low motivation in your company? Are employee goals and company goals aligned? First, the company needs to establish how it wants individuals to spend their time based on what is most valuable Secondly this needs to be compared with how individuals actually spend their time You may find employees are highly motivated but about the "wrong" priorities How employees feel about the company? Do they feel safe, loyal, valued and taken care of? Or they feel taken advantage of, dispensable and invisible? Ask them what would improve their loyalty and commitment How involved are employees in company development? Do they feel listened to and heard? Are they consulted? And, if they are consulted, are their opinions taken seriously? Are there regular opportunities for them to give feedback? 10 Is the company's internal image consistent with its external one? Your company may present itself to the world as the 'caring airline', 'the forward thinking technology company' or the 'family hotel chain' Your employees would have been influenced, and their expectations set, to this image when they joined your company If you not mirror this image within your company in the way you treat employees you may notice motivation problems Find out what the disparity is between the employees image of the company from the outside and from the inside The success of any business depends largely on the motivation of the employees Human resources are essential to the prosperity, productivity and performance of any company Motivation is the key to creating an environment where optimal performance is possible So how you ensure that individual motivation is at its peak within your workplace? Every person has their own set of motivations and personal incentives to work hard or not as the case may be Some are motivated by recognition whilst others are motivated by cash incentives Whatever the employees motivation, the key to promoting that motivation as an employer is understanding and incentive Employee incentive programs go a long way towards ensuring employees feel appreciated and worthwhile This alone can help with employee motivation across the board The great thing about these programs is they are very individualized That is you tailor your programs to suit the needs and wants of your employees Incentive programs increase motivation because they are not only encouraging productive performance but also show employees the company cares Employee Motivation 1996 TEN article by Ed Zimmer, 734-663-8000, The Entrepreneur Network, Ann Arbor, MI This article is in response to Edd Tury's questioning in last month's Growing Pains column of how to motivate employees The classic paper on this subject is one by Frederick Herzberg, O " ne More Time: How Do You Motivate Employees?", published sometime in the '70s in the Harvard Business Review (I don't remember the issue, but if you want a copy, I'm sure a librarian can find it for you.) Herzberg was (and maybe still is) Professor and Chairman of the Psychology Department at Case Western Reserve He's the father of the "job enrichment" approach to employee motivation, coining that term in that paper (and if still living, I'm sure quite distraught with the gross caricature others have made of that term in the intervening years) The essential insight that he added to the subject is that job satisfaction is NOT the opposite of job dissatisfaction Rather the opposite of job satisfaction is no job satisfaction and, likewise, the opposite of job dissatisfaction is no job dissatisfaction And he went on to show that the factors that influence job satisfaction are different from — and largely independent of — those that affect job dissatisfaction Herzberg's paper, when I discovered it in the late '70s, caused a paradigm shift in my understanding of employee motivation It resulted in a total reorganization of my company and in the way I viewed (and continue to view) employees and my responsibilities to them Following are some of the rules that evolved from my understanding of Herzberg Be decisive in hiring Every company has a personality — a culture If new hires fit into that culture, they'll adapt to what's required and learn to the job If they don't fit into that culture, they'll never learn and will be a continual problem to you and your employees Under expanding employee-rights law, you have like 90 days to make that determination If they're not fitting in — or even if you have reservations about their fitting in — let them go! Once they've passed that initial trial period, you have an obligation — moral if not legal — to help that person become the best employee that he or she can be If you let them go, make it clear that the problem is in the fit They may well be a great employee for another company Give them the chance to find out! Every person can eventually find a "fit" When they do, both they and the company will be happy You'll not be doing either them or your company any favors by letting mis-fits stay Treat employees as adults — not children Work rules are important As in society, rules are important to protect the safety, comfort and serenity of individuals from each other But they should be adult rules Physical and verbal abuse are clearly verboten — because they affect the safety and comfort of others But so are unplanned absences and tardiness These cause unnecessary stress for those who have to pick up their workload and cover for them Whatever the rules, they should be clear, precise — and minimum They must be uniformly administered — applied as equally to your star engineer as to the new-hire on the assembly line They should be documented in an "employee handbook" (which need be no more than a few sheets stapled together) which should be given to each employee and all new hires And each rule should include not only the rule but the "why" Keep in mind that the primary purpose of these rules is to protect the safety and comfort of your employees — only secondarily to protect your company Before freezing the handbook, talk over the rules with your employees If they have trouble with some of the "whys", either convince them or let them convince you Avoid paternalism Almost every beginning entrepreneur falls into the paternalism trap Your company's growing You're starting to build up some extra cash — and you want to share your success with your employees That's cool They've contributed to that success and they should share in it What's not cool is then starting to believe that since you shared with them, they "owe you" All an employee owes you is a good day's work for a good day's pay Nothing more Nothing less You can't "buy" warm-fuzzies like loyalty and devotion — even at 20 times the going wage! If you want to share the company's success with your employees, so with random bonuses when you have extra cash And be certain that that extra cash cannot better be spent in "growing" your business You'll be doing your employees a much greater favor by expanding your business — creating more challenges and opportunities for them — than by simply doling out cash — if the business can be reasonably and safely expanded Avoid timed bonuses All "Christmas" bonuses after the first will become not "bonuses" but "expecteds" And distribute the bonuses in equal amounts or, at worst, proportionate to pay Any taint of favoritism will not only obviate any good-will you intended — but drive it firmly negative Avoid incentive pay Incentive pay can be used to influence employee behavior However, it is certain that any benefits gained in the short-term will be more than lost in the long-term It is people's nature to look at what you are doing for them today What you did for them in the past is quickly forgotten That may not be the way it should be — but that's the way it really is You can use incentives to trigger a short-term burst of output But be assured that the next time such a burst is required, the reward will no longer be looked at as an "incentive" — but as an "expected" Worse, if such a burst becomes not required in the normal course of events, your employees will — wholly unconsciously — see that such a burst does become required Pay to get out extra product at the end of an accounting period, and you'll get out extra at the end of every accounting period That's what you're telling them you want Of course, if you look at the numbers, you'll find that you're shipping a bit less during the accounting period! There are strong believers in incentive pay — especially in sales I've enjoyed over the years listening to sales managers extol their incentive systems But listening closely, year to year, what I really hear is what was wrong with their last system and why their new system will be the greatest thing since sliced bread Sure it will! Avoid long-term employees Conventional wisdom admires companies who have retained employees for many years That wisdom is wrong! A good employee is a good employee only so long as he is stimulated, challenged — and learning Trying to retain employees after they've stopped learning is bad for the employee and bad for the company Bad for the employee because they've stopped "growing" — stopped improving their unique value in the job market Bad for the company because it stifles the flow of new ideas, new insights, new views of the changing business environment Why is it done? Because it's easier on the manager — I want to hold onto this guy or go through the hassle of trying to hire and train someone new? And it's easier on the employee — there's equal hassle in looking for and starting a new job Both parties are inherently oriented toward choosing the "easy" way — to the very real detriment of both Your star employee, once a dynamo, once willing, able and eager to tackle any task, no longer shows that drive The problem may be outside personal problems — whereupon you have the obligation to help him through that period However, it's more likely that he's simply no longer learning at the rate he was He's no longer stimulated and challenged — he's bored It's time for him to move on — and instead of trying to hold him with pay and benefits — you should try to help him find a new job where he can continue to grow Cross-train People enjoy best doing what they best A born salesman will not be happy doing account audits — despite the fact he may have spent many years getting an accounting education Everyone is good at some things — and lousy at others But most people don't get the chance to find out what it is they're good at Give them that chance! Say you hire someone in to assembly In time, they're doing that job competently — maybe very well — but they've stopped learning They may or may not become a problem — but they're certainly not stimulated, motivated You can raise their pay and benefits, but as we've said before, that's a short-term fix — with long-term consequences Instead, try moving them on — into, say, incoming inspection And once they're doing that competently, let them run your machinery or work in the paint room or in final test, or final inspection, or shipping Forget any notion that there are men jobs and women jobs And question any notions you may hold about skilled jobs Yes you may need a skilled machinist to produce custom parts — but not routine parts You may need a skilled technician to generalized testing — but not routine testing If your needs are routine, hire a moonlighting machinist or technician to come in to show your employees how to make those parts or how to run those tests When an employee has all the jobs involved in building the product down pat, let them plan, schedule and manage the whole production operation for awhile When they're doing that competently, move them into purchasing and let them some buying And then into sales and service, letting them handle some sales and service calls for awhile And then into accounting, letting them maintain the books, file the required government reports, etc Even payroll There are no secrets in a small company Everyone knows how the company's doing, what everyone else is making And that "knowledge" is always better based on real data than hearsay — simply because, regardless of the situation, the real data is always better than the hearsay Where I've used "let" in the past few paragraphs — replace that with "expect" Set the expectation that your employees will be moving among the jobs in your company A few employees will look forward to the prospect Many employees will feel threatened by it Some will bide their time and learn to enjoy it Others will feel overly threatened — and leave Let them! Those are the one's that are so fearful of change that they will become unyielding obstacles when change you must Not all employees will like all jobs — or become competent in them From my experience, they'll realize it about the same time you realize it Don't leave them there Move them on Just chalk it up as one job they can't But don't look at it — or let them look at it — as "failure" There's nothing written in the heavens that says everyone should like and be good at everything What you're trying to is to let people find out what they like and what they're good at — and you're trying to find that out too So who's going to all this "training"? Why the employees themselves of course Who knows the job better than the person who's been doing it? Another expectation — that the employees doing a job are responsible for writing up and maintaining a written description of that job! You'll be amazed at how good these descriptions become as each employee "improves" the writeup they've been given And you'll find that not only the writeups improve — but the manner of doing the job itself The writeups give the employee a direct way to improve the way the job is done Now all this cross-training does good things for your employees You can take great pride when one of your assemblers discovers he's very good at purchasing, loves dealing with vendors — and finds a job with a bigger company at significantly better pay Or better yet, if he's a superstar, spins out on his own and, with your help, convinces a group of companies — maybe including your own — to let him the buying for the whole group But it's also done good things for your company You no longer have employees so "key" that their absence — or their leaving — causes major disruptions in your operations And you've gained a climate of change so necessary in today's business world Every employee is continuously looking at how to improve the job they're doing — not because of dictum, but because it's built into the job itself You haven't "empowered" your employees — you simply haven't taken away the power they came with! You've also gained a basis for a fair and objective pay system For example, weight the jobs by their "worth" to the company A job that only a couple of employees can competently, and none "very well", would get a top weighting One that most everyone can and is quick to learn would get a weighting near the bottom Then weight each employee according to their ability to each job (e.g., from "can't do" to does "very well") The product-sum of those weightings gives you a pretty good measure of each employee's "worth" to the company — and one that can be explained and justified to them — and their pay should obviously bear some relationship to that "worth" What about the superstar — the super salesman or super purchasing agent or superstar engineer If he's really a superstar and you're really concerned that you'll go under if you lose him, make him an equal partner (After all, you've just defined that you don't have a business without him.) If you decide that he's just not quite that much of a superstar, then what we alluded to earlier Face up to the fact that you're not going to be able to keep him Money will, at best, keep him only a short time Unless you can keep him stimulated and challenged — which is unlikely unless you have a very fast growing company — it's just a matter of time until you lose him So help him make it as an entrepreneur Encourage him and help him to spin out on his own, doing what he's doing so well for you, for a group of companies — hopefully still including yours That way you're likely to retain access to his talent Otherwise, he's gone — possibly to both your and his detriment One caution in all of this: This system encourages employees to make their own decisions But you can't ask people to make their own decisions — and then come down hard on them when they make a bad decision They're going to make mistakes In a sense, you want them to make mistakes — people learn from their mistakes, not from their successes But you're going to have to live with and clean up after their mistakes But the alternative is you making all the decisions — and you don't have time for that (and there's the legitimate question whether all your decisions really would be "better") In any event, your "job" is figuring out what the company should be doing in the future — both internally and externally — not in handling all the day-to-day details It's awfully hard to see the forest when you're in the middle of it Conclusion Maintaining employee motivation is just not that difficult if 1) you recognize that you can't "buy" it, and 2) you think about your employee's needs at least as much as your own Would that more companies recognized these simple truths! In a recent article, The Provisional Application, we outlined a cost-effective strategy to get a product to market via Licensing The downsides to Licensing are 1) the initial costs (which the provisional application can minimize), and 2) a limited prospect set (There are only a limited number of product-line manufacturers selling into any given market — many, many, many fewer than there are potential customers in that market Obviously, the fewer the customers you have to sell to, the lower your probability of making a sale.) Since the alternative to Licensing is Venturing, the obvious next question is "Is there a cost-effective strategy for getting a product to market via Venturing?" The answer is definitely "yes" — for those willing and able to get out and hustle Venturing has its downsides too, the primary ones being 1) capital (which this article will suggest means for minimizing), and 2) the time, energy and ability to get out and sell Most entrepreneurs consider the former to be their main problem, whereas it's almost always the latter Even if you have the capital, you're not going to be able to hire someone to your selling for you You can't hire someone to sell something you've never sold before simply because you don't know what to expect If the product sells less than expected (which is likely), you'll have no idea whether you have a product or pricing problem — or an incompetent salesman (Keep in mind that the one thing every salesman sells best is himself.) Venturing vs Licensing So which is better — Licensing or Venturing? It depends Licensing is always an option Venturing may not be If the product's complicated and expensive or if its market is dominated by a few big companies — a new automobile, airplane, washing machine, disposable diaper, etc — successful Venturing isn't very likely, even with a world-beater product and the best of credentials Licensing is easy to test Following the strategy outlined in The Provisional Application article, you can know within a few months whether Licensing's a viable path With Venturing, it's likely to take several years to know whether you have a viable business For suitable products, it's likely you'll make more money Venturing than Licensing — provided you make no serious mistakes With Licensing, you're passing 2/3 to 3/4 of the potential profits from the product to the licensee in return for their investing their knowledge, effort and money — and taking the risks — to bring that product to market If you can successfully bring the product to market yourself, you'll not only capture all of those earnings — but you may well be able to turn around and sell your company to that same licensee for a substantial multiple of those earnings — but don't underestimate the risks in doing so — or the time, work — and luck — required Venturing Decisions If you choose the Venturing route, the first decision you'll have to make is whether or not to seek equity investment Unless you're an experienced entrepreneur — and understand very clearly what you're getting into when you accept other people's money — my recommendation is that you not Anything you can accomplish with money, you can accomplish in other ways — with time, imagination, and chutzpah If you decide to seek an investor, look for one with an established record of entrepreneurial success — and be prepared to turn control of the company over to them (or their assignees) if/when they think it's necessary (If you falter, it's going to happen anyway — better you accept it on the front end and plan for it.) If you choose to bootstrap (i.e., proceed without investors), the next decision you'll have to make is whether or not to seek patent protection Unless you're sitting on some basic (i.e., clearly licensable) technology, my recommendation is that you not — on the basis that most small businesses simply cannot afford to defend their patents Any product that sells very well is going to get copied whether it's patented or not All a patent is is a license to sue And a typical patent infringement suit starts at like $250,000 And the better the product is selling, the more infringers you'll have to sue If you find this decision difficult, try to find a patent attorney who'll give you a written guarantee that he'll defend his work against all infringers — on spec (i.e., without fees, but with a major portion of any proceeds resulting from such suits) If you can find a patent attorney who's willing to take that bet on your technology, it's likely worth betting on If you can't, it's likely not — and the decision is made for you So for purposes of this article, we've decided no investors, no patents What we're going to is try to get the product into the market as inexpensively as possible, try to make some money — and worry about competition if and when it comes Contract Manufacturing The essence of this strategy is to use contract manufacturers to make the product You don't want to spend money to duplicate facility and equipment they already have And even if you did, where your time really needs to be spent is out on the road selling Every moment you're not in front of a potential customer incrementally increases your odds of failing And recall that, early on, you can't hire someone to this selling for you To find contract manufacturers, start with a good Industrial Directory Thomas Register is the bible, listing all manufacturers in the U.S in 20-plus volumes However, you'd like one specializing in your State, and there are several publishers of such directories (e.g., Harris Publishing, in Twinsburg, OH, 800-888-5900) If you know (or can find access to) someone who works in a Purchasing Dept., you can probably get them to loan you one (or even give you one that's a duplicate, last year's, etc.) And if you can get them to mentor you, so much the better Recognize that what you're doing in this phase is what purchasing agents for a living A good purchasing mentor can save you many hours, many mistakes, and much frustration The state directories are typically organized by city, listing all manufacturers in that city with address, phone number, names of people, data on company size (sales, employees, sq-ft, etc.) — and typically a short description of the kind of work they Look first at the manufacturers in your own city If there's someone listed there who looks like they might the kind of work you want done, call them If they that kind of work, make an appointment to go in to meet with them If they don't, ask if they know of anyone in the area who does Bouncing back and forth between referrals and the directory — and spiraling outward from your city — you can find as many as you wish Always approach contract manufacturers "looking for a quote" on tooling and piece-price at various quantity levels, e.g., 100, 1,000, 10,000 pcs You can, and should, approach them as early as possible — even if all you have is a rough sketch Recognize that every contract manufacturer was started (and most are still run) by a skilled tradesperson who had enough on the ball to start his own business These people know their particular manufacturing process(es) better than most engineers When you meet with them, be prepared to "pick their brain": Is there a better approach (or process, or material) for making this? What are possible manufacturing problems? What tradeoffs between piece-price and tooling costs are available? Etc Pin them down on what data (drawings and/or specs) they need to give you a good quote If there are parts of generating that data that you don't feel competent to do, ask if they know of anyone who can those parts Every contract manufacturer has a network of outside tradespeople and professionals that they can call on when they need related work that they don't in-house If you're inexperienced with juggling the trade-offs between design and manufacturing processes — or working with contract manufacturers — you should try to get at least a dozen quotes You'll learn something new from each one And be prepared to cycle through them several times as you pin down your design and specs But be sensitive to their time They're busy trying to make a living and can't afford to spend hours with you in rambling discussions Prepare for your meetings — with written materials you can leave them, with questions you want to ask —— and try to conduct those meetings as efficiently (and professionally) as you can If you're worried about disclosing proprietary data to them, most contract manufacturers will sign a non-disclosure agreement Such an agreement basically says, "In return for my showing this to you, you promise to treat it as confidential material, not disclose it to others, not to use it yourself" With such an agreement, you are as protected under contract law (at least with that party) as you are with a patent under intellectual property law Suitable forms can be found in most inventor books If you're going to ask that such an agreement be signed, be sure to verify that they will before setting up a meeting My own personal opinion is that such agreements are generally an unnecessary hassle and impediment to doing business with contract manufacturers Of all the risks facing a new venture, having a product copied by a contract manufacturer — especially a product whose sales have yet to be proven — has to rank way down near the bottom Contract manufacturers sell manufacturing services They're comfortable selling those services — and are very aware that selling products is a whole different bag Once you have your quotes — if you have the money to pay for the tooling and initial inventory — so Then take that inventory out, sell it, and use your proceeds to go back and buy more However, if you don't have the money to pay for the tooling and initial inventory, then cycle back through the contract manufacturers who quoted — and try to work a deal I've seen inventors talk contract manufacturers into doing their tooling and initial inventory on nothing more than a promise to buy from them for a couple of years I've seen others go into 50-50 partnerships with them — "you the manufacturing and I'll the selling" And everywhere in between Recognize that contract manufacturing is a service business Like all service businesses, they have minimal control over their workload — everybody wants everything at once and then nobody wants anything But they're a very high-overhead service business — during a downswing, they still have to pay rent on their facility, still have to make lease payments on their machines, still have to pay their utilities, still have to keep their key people employed During a downswing, it literally costs them nothing more than raw materials to your tooling and initial inventory Otherwise their machines would be sitting idle and their people would be sweeping floors and cleaning shelves However, recognize that you have to sell them on doing this for you They've all been burned by "deals" in the past — or know someone who has And selling at marginal costs sets a bad precedent for their other business But a part of them really wants to be sold A stable product-line can be a godsend to their service business — during downswings they can simply build product into inventory to smooth out and buffer their workload Bottom line — you have to convince them that — if they invest in making you your first batch — it's 100% that you'll sell them — and quickly And if you have trouble convincing them, that just means you're not ready to get out and sell that product You still have some serious homework (or soul-searching) to Selling That was the easy part Now comes the hard part First decision in selling is pricing — because that determines the distribution channels that are available to you The product's retail price (i.e., price to end-user) obviously has to be greater than your manufacturing costs If your product must retail at or below 2x your manufacturing costs, you're stuck selling directly to the end-user — in which case your product better be a high-ticket item (several thousand dollar price) to cover the costs of individual one-on-one selling, or a product for a very narrow niche market in which you can reach those end-users very cheaply (e.g., with a small classified in a trade magazine) If your product can retail at 4x your manufacturing costs, you can sell through retail stores and some catalogs You'll sell to the stores at 2x your cost and they'll sell to the end-user at 2x their cost If your product can retail at 6x your manufacturing costs, you can sell through wholesale and all catalogs There's enough margin there to fairly cover all intermediaries in most distribution channels These numbers are rules-of-thumb They can vary considerably in different markets To refine them, get out and talk with a few of the people you expect to sell to and find out what markups they operate on For your own markup, project your expected operating costs (selling costs, engineering costs, general & administrative costs) and desired pre-tax profit And be conservative — these costs are almost always underestimated by the inexperienced With price established, now get out and sell Most entrepreneurs initially target the major accounts in their market, e.g., the mass merchandisers (Wal-Mart, K-Mart, etc.) for a consumer product That's generally a mistake First, it's very unlikely they'll buy Their business strategy is to sell the 5-10 best-selling lines in each of their product categories They have many proven lines available to them — it's unlikely they'll choose yours before it's "proven" Second, even if they have interest, they'll prove to be impossible to negotiate with They'll look at what they could make that product at in one of the developing nations, add a couple of percent, and tell you to take it or leave it Third, by initially targeting those who could be high-volume users, you're collapsing your "proving" phase It is almost certain there are bugs in your product, in your packaging, in your promotion materials, in your business systems The greater your volume, the greater the probability those bugs will prove fatal If you want to follow this strategy (i.e., bootstrapping), you might as well face up to the fact that you're going to start at the bottom and work your way up With a consumer product, the place to start is with a few local (i.e., within driving distance) owneroperated stores Sell your product into those stores if you can Put it in on consignment if you have to Then help those stores sell your product off the shelf By doing time in the store if they'll let you By getting the local paper to a PR piece on you (with mention of where your product's available) By placing an ad in the local paper, radio station, cable TV, etc Getting your product into the store is only 10% of the problem Getting it out (at a profit) is 90% Once you have several local stores making money on your product, they'll point you to the sales rep or distributor who sells them that type of product You can now likely get their attention In sales, what sells is success Until you've "proven" that stores can make money on your product, the people selling to those stores won't have much interest in your product Like the mass merchandisers, they want the 5-10 best-selling lines in the market they're servicing They have plenty of proven lines available to them And they're going to spend 90% of their time selling the 10% of the lines that are making them 90% of their income Once you have their attention, then you'll work with that rep or distributor helping them sell more stores Once you have them making money on your product, they'll point you ... highest motivational factors to Herzberg''s twofactor theory The highest ranked motivator, interesting work, is a motivator factor The second ranked motivator, good wages is a hygiene factor Herzberg,... money to pay for the tooling and initial inventory — so Then take that inventory out, sell it, and use your proceeds to go back and buy more However, if you don''t have the money to pay for the tooling... motivator, full appreciation of work done, is an esteem factor The number four ranked motivator, job security, is a safety factor Therefore, according to Maslow (1943), if managers wish to address