Inc Magazine - January 2014 USA

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Contents
PG.54
“Thrill seekers are
drawn to this place.
Once you get out here,
you want the ultimate
thrill in business, too.”
—ALEX BOGUSKY, co-founder of
CrispinPorter + Bogusky, an
advertising agency with a 700-person
ofce in Boulder, Colorado
PHOTOGRAPH BY MATT NAGER
DECEMBER 2013/J ANUARY 2014 - INC. - 7

CONTENTS

54
108
Ŧ
INNOVATE
You Can Buy
Employee Happiness.
But Should You?
Companies that ofer lavish ben-
eﬁts believe there is a return on
their investment. The challenge:
ﬁguring out how to calculate it.
By Scott Leibs
—
30
Ŧ
TECH
Now Comes
the Hard Part
In just a couple of years,
Chad Dickerson has turned
the famously troubled Etsy into a fast-growing,
valuable company full of satisﬁed people. Mission
accomplished, right? Wrong. He’s only begun to
take on the make-or-break stuf.
By Tom Foster
—
ON THE COVER AARON LEVIE, CEO AND CO-FOUNDER OF BOX, PHOTOGRAPHED IN SAN FRANCISCO BY EMILY SHUR
Ŧ
LAUNCH
Don’t Bet Against
Aaron Levie
He sees what’s coming,
he takes risks, and he
wins. Aaron Levie, CEO
of the cloud-computing
company Box, is our
Entrepreneur of the Year.
By Eric Markowitz
—
Ŧ
LEAD
Start-up Country
Nestled in the shadow of
the Rocky Mountains,
Boulder, Colorado, attracts
people who love to bike,
climb—and launch start-
ups. A close look at the
most entrepreneurial city
in America and how it got
that way. By Burt Helm
—
Features
88
•
MADE IN
BROOKLYN
Etsy employees
at company
headquarters
8 - INC. - DECEMBER 2013/J ANUARY 2014
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CONTENTS
100
Departments
16 Editor’s Letter
The unnecessarily precarious state of
small business
156 Founders Forum
Neil Blumenthal of Warby Parker
—
1
9
Ŧ
LAUNCH
—
20 Tip Sheet Why start-ups shouldn’t
be scared of the Afordable Care Act
22 Inc. 5000 Insights Tips on generating users
from a company with 50 million of them
24 How I Got Funded Seth Bannon wanted
to change the way nonproﬁts raise funds.
First, he had to raise funds of his own.
28 Checked Out Why your online shoppers
abandon their carts—and how to stop them
38 Book Review What Malcolm Gladwell’s
new book does—and doesn’t—understand
about entrepreneurs
—
43
Ŧ
LEAD: STATE OF SMALL BUSINESS
—
44 Small-Business Outlook Inc. 5000
entrepreneurs are upbeat, but economic
concerns linger.
46 The Big Survey A deep dive into our
exclusive survey of Inc. 5000 founders
50 Washington How Uncle Sam could help
entrepreneurs in 2014
66 Obamacare Your eight-point checklist
78 Norm Brodsky Why new small-business
owners want to remain, well, small
—
81
Ŧ
TECH
—
82 Tip Sheet Rising cybersecurity threats—
and why you may be the perfect target
84 Arm Yourself A primer on ﬁve common hacks
86 Tech Support Leadership ideas from coders
94 Brad Feld The ultimate productivity trick
—
97
Ŧ
INNOVATE
—
98 Tip Sheet Data-driven product development
100 7 Questions For Innovation guru
Vivek Wadhwa
102 How I Did It eBay’s Pierre Omidyar on
leadership and philanthropy
106 Boom Industry A snapshot of the
fast-moving wearable tech market, from
brainwave readers to smart socks
116 Jason Fried Learning to delegate
—
84
98
156
10 - INC. - DECEMBER 2013/J ANUARY 2014
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CONTENTS
TOP VIDEOS
on Inc.com
—
Steve Case
CEO of investment firm
Revolution; co-founder of AOL
ON THE IMPORTANCE OF
A STRONG NETWORK
“Entrepreneurship
is a team sport.
Having a big idea
is important,
but it’s equally
important to have
a great team.”
I NC. COM/I NC- LI VE
Lauren Bush Lauren
Co-founder of FEED
ONSTRATEGIC PARTNERSHIPS
“Not every business
is a bleeding heart.
The businesses we
partner with want
to do good but also
worry about the
bottom line.”
I NC. COM/I DEALAB
You’ll ﬁnd the icon at the left on selected pages throughout
the issue. That’s your signal to grab your smartphone or tablet
and go deeper with the content on the page. Here’s how:
1. Download the free Layar app from the Apple or Android store or at layar.com.
2. Launch the app and scan any page carrying the icon.
3. Enjoy bonus videos and other content on your mobile device.
Go Beyond the Page
4 Questions to Help Build a
Purpose-Driven Team
Inc.com columnist Lee Colan explains the beneﬁts
of providing your team with a larger purpose.
I NC. COM/PEOPLE
Inc.com
Without a compelling purpose, employees are just putting in time. Their
minds might be engaged, but their hearts won’t be. If you want your
team members to make every minute count, give them something to be
passionate about. To do so, you need to answer these four fundamental
questions that all employees ask, whether or not they ask them aloud:
Where are we going? (Goals)
What are we doing to get there? (Plans)
How can I contribute? (Roles)
What’s in it for me? (Rewards)
12 - INC. - DECEMBER 2013/J ANUARY 2014
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EDITOR’S LETTER
WELCOME
economy 0.7 percentage points a year
in growth since 2010. Uncertainty—in
large part a product of our legislators’
inability to pass a budget or much of
anything else, not to mention their
habit of threatening default every
few months—has trimmed an esti-
mated 0.3 points a year from GDP.
What could possibly justify
throwing such obstacles in the path
of small businesses? The radicals say
federal spending is out of control and
must be reined in right now. But that
far overstates reality. Discretionary
spending is falling as a share of GDP;
the Congressional Budget Ofce
says by 2023, it will be lower than
it has been in more than 50 years.
Meanwhile, the deﬁcit has fallen
60 percent since 2010. “Deﬁcits
become a problem when they drive
up interest rates,” University of
Oregon economist Mark Thoma
told me, “but there isn’t a shred of
evidence this is happening.”
The far more urgent problem
for your business in 2014 is lack of
demand. But when members of
Congress threaten to devastate your
customers’ life savings and paralyze
the global economy by defaulting on
U.S. debt, are your customers more
eager to spend or less?
Inc. has no interest in taking
political sides, but we care about
small business. And this much is
clear: Because of Congress, the state
of small business is far more precari-
ous than it needs to be. Another
debt-ceiling deadline comes up the
month after this issue leaves the
newsstand. If Congress chooses to
bring the economy to the brink of
disaster again, whose interests would
be served? Certainly not yours.
IN THIS ISSUE WE NAME Aaron Levie,
co-founder of Box, our Entrepre-
neur of the Year (see page 30). Levie
is every inch a founder for our times:
He’s 28. He launched out of his
dorm room. And he got where he is
by seeing technology trends sooner
and more clearly than anyone else.
He also got where he is by working
harder than anyone else, and he is
beating the skinny jeans of giant
rivals in the process. At Inc., we like
to see that.
A
T THE HEART OF THIS MONTH’S special report, the State of Small Business (see page 44), is a
survey: We ask Inc. 5000 CEOs about their outlook, then add our own reporting on the
economy. You quickly come to two conclusions: The state of small business is strong;
entrepreneurs are as resilient, creative, and unstoppable as ever. But the economy in
which they operate is under siege by morons.
That is obvious to any business owner who lived through this fall, when congressional
radicals threatened to default on U.S. debt. But in fact, Congress has been a drag on the econo-
my ever since it began its ﬁtful recovery in 2009. Even the ﬁscally conservative Peter G. Peterson Foundation is
dismayed: According to a study commissioned by Peterson, Congress’s obsession with ﬁscal austerity has cost the
DAVID VS. THE HOUSE
OF REPRESENTATIVES
Eric Schurenberg [email protected]
16 - INC. - DECEMBER 2013/J ANUARY 2014
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“I was living in a
stairwell in New
Haven. I literally
had 37 cents in my
bank account.”
—SETH BANNON,
founder of Amicus,
which went on to raise
$3.78 million
PG.24
Start-up
Success.
ŦŦŦŦ
What Obamacare means for start-ups PG.20 Entrepreneur of the Year PG.30
PHOTOGRAPHBYSTEPHANIE NORITZ
DECEMBER 2013/J ANUARY 2014 - INC. - 19

Land of Confusion
FOR MONTHS NOW, THE DEBATE has raged
over the impact that the Afordable
Care Act, a.k.a. Obamacare, will have
on businesses. A number of the law’s
provisions are only beginning to take
efect (see “Obamacare Is Upon Us,”
page 66), so the jury is out. But one
thing seems clear: For start-ups, the
law’s impact is almost entirely positive.
Unlike your larger peers with 50
or more employees, you won’t have to
pay penalties if your start-up doesn’t
ofer health insurance starting in 2015.
That alone could be an advantage as
larger competitors struggle to ensure
they are in compliance. Moreover, your
start-up is likely to qualify for a sizable
federal subsidy if you do decide to ofer
health beneﬁts.
Companies with 25 or fewer em-
ployees making an average annual
salary of less than $50,000 are eligible
under the new law to receive a refund
up to 50 percent of their outlay on
health insurance in 2014, provided they
purchase through the federal Small
Business Health Options Program, or
SHOP, exchanges.
A major beneﬁt of the SHOP exchang-
Confused about Obamacare? You’re not
alone. A recent poll of small-business
owners with fewer than 50 employees
demonstrates just how much misunder-
standing still exists about Obamacare.
If the new health care
law has a winner, it has
to be start-ups
ŦŦŦŦ

32%
believe they will be required to
provide health insurance
to their employees. (They
won’t be.)
es is that
the plans
ofered are
speciﬁcally aimed
at businesses and
typically cost less than
comparable plans on the open
market. If your employees’ pay
averages more than $50,000, you can
still purchase through SHOP, although
you won’t qualify for the tax beneﬁts.
The beneﬁt of being able to ofer
employees health insurance shouldn’t
be underestimated for start-up founders.
Your business is now in the running for
talent that might have shied away from
working at a start-up for fear of not
having health coverage. Beyond that,
having access to health insurance will
Insurance for entrepreneurs by entrepreneurs
For start-ups that choose to ofer their employees health
insurance, here are some entrepreneur-run private insurance
operators designed with small businesses in mind.
—
OSCAR A health insurance company launched by entrepreneurs-turned-
ﬁnanciers Josh Kushner and Mario Schlosser and backed by $40 million in
venture capital. Currently licensed to operate in New York, Oscar promises
greater transparency on costs as well as techy perks, such as unlimited
access to telemedicine.
STARTUP INSURANCE Launched by Scott Gerber, founder of the Young
Entrepreneurs Council (and an Inc.com columnist), Startup Insurance isn’t
an exchange so much as a broker for insurance options tailored speciﬁcally
to entrepreneurs and small-business owners. Time-strapped business
owners can get a quote on the website in just a few minutes or talk to
professional brokers about plans by phone.
LIAZON A deﬁned beneﬁt exchange backed by $35 million in
venture funding, Liazon ofers products that cater to small
employers who give workers a ﬁxed amount of money
each year toward health coverage. Liazon is set up like
an online store that lets buyers mix and match
elements of the plans they want.
20 - INC. - DECEMBER 2013/J ANUARY 2014

LAUNCH
• •
24%
said they trust the
government for
reliable health
insurance
information.
18%
can conﬁdently deﬁne
or explain what a
health insurance
exchange is.
24% believe they will be
required to pay a penalty if
they fail to provide health
insurance to their employees.
(They won’t be.)
NORM’S TAKE
HEALTH CARE REFORM’S BIGGEST
CHALLENGE: YOUNG INVINCIBLES
—
I’ve always believed that, in our society, every
citizen should have access to good health care. For
that reason, I began providing my employees with
health insurance as soon as I could aford it. Then,
one day, I learned that an employee had gone to
a hospital emergency room. I was concerned, but
when I saw him the next day, he said he’d just had
a cough and wanted it checked out. “But we give
you health insurance,” I said.
“Nah,” he answered. “We don’t use that. We just
go to the emergency room.”
I did some investigating and discovered that many
of my employees weren’t using their health insur-
ance. I thought maybe it was because they didn’t help
pay for it. So I announced a new policy: The company
would cover 80 percent of the health insurance cost
for any employee who wanted it. The employee
would have to pay the rest—about $5 per week.
Eighty percent opted out. I couldn’t believe it. When
I questioned people, they told me they didn’t need
the insurance. They already had free health care at
the emergency room.
For Obamacare to succeed, it will need to induce
young, healthy people to buy insurance. My
experience shows just how hard it’s going to be to
get any healthy, uninsured people—young or old—to
sign up. Meanwhile, the law will at least relieve
start-ups of responsibility for employees’ health
coverage. That’s one less thing you’ll have to think
about in launching a business. Moreover, to the
extent that Obamacare complicates life for your
larger competitors, it may even give you a slight
edge. You may also ﬁnd it a little easier to attract
talent, because providing health insurance will no
longer be a competitive advantage. It all helps.
—
Start-up thoughts from senior contributing editor and
veteran entrepreneur Norm Brodsky. Got a question for Norm?
Send it to [email protected].
• FAILURE TO CONNECT Persuading young, healthy
people to buy insurance won’t be easy.
Source: eHealth Small Employer Health Insurance Survey
presumably keep existing employ-
ees healthier as well.
Afordable health
insurance also holds
the promise that
aspiring entrepre-
neurs will be able
to take the
plunge and pur-
sue their busi-
ness ideas. You
have to be com-
fortable with
risk to start a
business, but lack
of health insurance
has long been one
gamble too far. If you
are a sole proprietor,
you can purchase
health insurance from
your state exchange or
the federal exchange—
once the technical bugs
are worked out. If you’re just
starting out and have little or
no income coming in, you will
also probably be eligible
for a tax subsidy.
Craig Garthwaite, an assistant
professor of management and strat-
egy at Northwestern University, has
studied the phenomenon of “job lock”—
in which employees hold on to their
jobs purely for health care beneﬁts.
He estimates close to a million people
could leave their jobs as a result of the
ACA—a number of whom will go on to
start companies.
“This will allow people to be
entrepreneurial, because it lessens the
risk that you will go without health
insurance until the business is a
certain size,” Garthwaite says.
—JEREMY QUITTNER
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LAUNCH
INC. 5000 INSIGHTS
From Research Lab to
Market Leader in Nothing Flat
How a maker of brain-training games
went from zero to 50 million users
“WE THINK OF IT AS a gym for the brain,” says Kunal Sarkar, CEO of
San Francisco–based Lumosity. The company’s online games chal-
lenge users in ﬁve cognitive-skill areas—speed, memory, attention,
ﬂexibility, and problem solving. Getting to 50 million users has meant
convincing people of the efectiveness of the games, which are based
on the theory of neuroplasticity—the ability of the adult brain to
grow new neurons and connections with the proper stimuli. In 2005,
Sarkar teamed up with his college friend Michael Scanlon, a Ph.D.
candidate in neuroscience at Stanford University, and David Dre-
scher to found Lumos Labs. After two years of development, they
launched Lumosity.com. Basic membership is free, but premium
subscription plans start at $79.95 per year. With
$23.7 million in revenue last year, Lumosity
earned the No. 403 spot on the 2013 Inc. 5000.
Here, Sarkar shares some tips on how to build
your user base. —ROBIN D. SCHATZ
1 2 3 4
—
CONVINCE DOUBTERS
People have challenged
themselves with cross-
word puzzles, Sudoku,
and Rubik’s Cubes for
years. Lumosity had to
prove to potential cus-
tomers that its pro-
gram of consistent
brain training was a
better way to improve
cognition. The com-
pany made its case to
consumers by stressing
the underlying research
and letting users judge
the results for them-
selves. “We help users
track their performance
over time so they can
actually see how
they’re making prog-
ress,” says Sarkar.
—
TEST YOUR ASSUMPTIONS
Lumosity’s founders
originally assumed
that their market was
aging baby boomers.
But when the team
began to test the
games on the public
and analyze the user
data, it found they
were appealing to
twenty- and thirty-
somethings as well.
“Understanding who
wanted this and why
was a big part of get-
ting to the scale we
have,” says Sarkar.
Research on how peo-
ple use the games also
led Lumosity to revamp
and relaunch its mobile
app earlier this year.
—
MAKE USERS YOUR MARKETERS
Scientiﬁc data is one
thing, but testimoni-
als from actual cus-
tomers go a long way
in winning over new
users. Lumosity en-
courages its users to
contribute photos
and stories of how
the product has
helped them. A page
on the website shares
fan letters from
customers, including
athletes, engineers,
ﬁreﬁghters, and stay-
at-home moms, as
well as an airline pilot
from England who
credits Lumosity for
helping him pass his
pilot’s aptitude test.
—
GO GLOBAL
Lumosity is looking
beyond the U.S.
It has subscribers
from more than 180
countries. Many users
come from English-
speaking nations,
such as the United
Kingdom and Austra-
lia, but Sarkar has
plans to reach a
broader audience.
The company recently
launched its German-
language site and
plans to roll out in
several more languag-
es next year. “We
don’t want language
to be a barrier to
using the product,”
Sarkar says.
•
THINK FAST
Lumosity uses
research from
neuroscientists to
help create its games.
C
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22 - INC. - DECEMBER 2013/J ANUARY 2014

LAUNCH
SETH BANNON ALWAYS
loved politics, and in
2010, the 26-year-old
Harvard junior spent
the summer working
on the Connecticut
gubernatorial cam-
paign of Ned Lamont.
It wasn’t Bannon’s ﬁrst
campaign, and it
wasn’t the ﬁrst time he
was shocked by the
shoddy technology
used to organize
supporters and raise
funds. So rather than
returning to school in
the fall, he founded a
company, Amicus, with
an ambitious goal: to
overhaul the way non-
•
BRIDGE FUNDING
Seth Bannon on the
Williamsburg Bridge.
When the power went
out after Hurricane
Sandy, the bridge was
the only place a key
investor could get
cell service.
HOW I GOT FUNDED
Raising Funds to Help People Raise Funds
Seth Bannon wants to reinvent the way nonprofits do
business. His first job: getting investors to chip in
S
By CHRISTINE LAGORIO-CHAFKIN Photograph by STEPHANIE NORITZ
24 - INC. - DECEMBER 2013/J ANUARY 2014

LAUNCH
JUNE 2011
Bannon wins a
prize. But prizes do
not pay the rent.
—
CASH ON HAND 37 CENTS
Bannon founds his company,
then called BlueFusion, and
recruits developers from Yale
University to build it. He does
everything he can to save
money. “I was basically living
in a stairwell in New Haven and
using college meal plans to eat,”
he says. Nonetheless, he burns
through his meager savings.
Bannon gets a break when Blue-
Fusion wins the Yale Venture
Challenge. Now he needs cash:
“I literally had 37 cents in my
bank account.”
JUNE 2011
A backer makes
a (small) bet.
—
CASH ON HAND $20,000
One of Bannon’s mentors is
Miles Lasater, founder of Higher
One, a New Haven, Connecti-
cut–based ﬁnancial services
ﬁrm for universities and a
ﬁxture at Yale entrepreneurship
events. After hearing
Bannon’s pitch, Lasater
commits $20,000.
JUNE 2011
A futurist
is intrigued.
—
Bannon moves to New York
City. He’s attending a tech
conference when he sees
investor and thinker Esther
Dyson. He approaches her by
saying, “Hello, Esther; nice to
meet you”—in Russian. “She
perked up, because she’s a big
Russophile,” Bannon says. He
doesn’t pitch his venture but in-
cludes its name and URL in the
signature of a follow-up email.
Before long, Dyson emails back
asking: “What’s BlueFusion?”
JULY 2011
Another well-placed
ally signs on.
—
In July 2011, Bannon lists the
company on the networking
site AngelList and connects
with Pedro Torres Picón,
founder of Quotidian, which
invests in service companies
that aim to improve stodgy
industries. Says Picón: “You
could tell this was a guy who
would not stop until he changed
the world.” Bannon tells Picón
he’s traveling to Silicon Valley to
look for investment. Picón tells
him to keep in touch.
JULY 2011
Sand Hill Road is
not impressed.
—
Silicon Valley is not hospitable.
Bannon takes six meetings a
day for a week, but the only nib-
bles he gets are from investors
he doesn’t care to work with. He
returns home empty-handed.
AUGUST 2011–JANUARY 2012
That intrigued
futurist? Now she’s
an investor.
—
CASH ON HAND $580,000
Unbowed, Bannon persuades
Dyson to meet with him. “She
was without shoes, on the
couch, and I was so excited,”
Bannon says. “Then she said,
‘I think you’re solving the
entirely wrong problem.’ My
heart sank.” Instead of leaving,
he sits up straight, makes his
case again—and persuades
her to invest. Soon, thanks to
Dyson’s eforts, David S. Rose,
the former chairman of New
York Angels, and Jim Robin-
son at RRE Ventures join the
round. So does Picón, who chips
in $100,000. Not long after,
Bannon changes the company’s
name to Amicus.
JUNE–JULY 2012
Bannon challenges
Peter Thiel to a game
of chess. And wins.
—
Bannon is accepted to Paul
Graham’s Silicon Valley–
based start-up incubator,
Y Combinator, and moves for
the summer to the Palo Alto
house where Facebook once set
up shop. At a networking event,
Bannon introduces himself to
Founders Fund’s Peter Thiel—
and promptly challenges the
PayPal founder to a blitz game
of chess. Thiel, a former U.S.-
rated chess master, concedes
the ﬁrst game. Bannon has his
attention.
AUGUST 2012
The Thiel connection
comes through.
—
By Y Combinator’s Demo Day,
Amicus is proﬁtable. It also has
a new strategy for pitching,
ditching an intensive 12-slide
PowerPoint for a single piece
of paper. Within weeks of the
event, several venture ﬁrms
commit $3.2 million. Bannon
ﬁgures he’s done but agrees
to meet with Luke Nosek, one
of Thiel’s colleagues. “It was
just love,” says Bannon. “Luke
more than anyone probably
got my vision for Amicus.”
Founders Fund is added to
the round. Thiel friends Bannon
on Facebook.
OCTOBER 2012
A VC signs a
$3.2 million ofer,
surrounded
by drunks.
—
Bannon is working on a
second round of funding when
Hurricane Sandy hits New
York. Before the proposed
$3.2 million round can close,
Bannon needs a signature from
Brad Gillespie, a partner at IA
Ventures. Unfortunately, the
storm knocked out the power
in Gillespie’s Lower East Side
neighborhood. So the investor
sets out on foot to ﬁnd a cell
signal. Finally, halfway across
the Williamsburg Bridge, he
gets a signal. “I downloaded
the papers Seth sent and used
DocuSign to sign it while on
the bridge,” Gillespie says,
“surrounded by all these people
hanging out and drinking.”
NOVEMBER 2012
Final tally:
$3.78 million
—
Amicus has 14
employees, an ofce
in SoHo, and clients
such as Human Rights
Campaign and the
AFL-CIO. Bannon never
returns to Harvard.
But he says he got
quite an education in
fundraising. The most
important lesson, he
says: “Make sure your
revenue is growing,
rather than putting
so much time into a
PowerPoint.”

proﬁts raise aware-
ness and funding.
But ﬁrst, he had to
do some fundraising
himself.
26 - INC. - DECEMBER 2013/J ANUARY 2014
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Prototype shown with options. Production model will vary. ©2013 Toyota Motor Sales, U.S.A., Inc.
A

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· CONTEMPORARY STYLING · HIGH-TECH AMENITIES · RENOWNED DURABILITY

LAUNCH
CHECKED OUT
Their Carts Are Full. So Why Won’t They Buy?
Don’t you hate it when your online customers abandon their shopping carts before
checkout? Well, you and everyone else: Only a third of online shoppers make it through
checkout without abandoning items. The problem may lie in how you move people
through checkout. The good news is, that’s easier to ﬁx than you think. —KASEY WEHRUM
67%
of all online shoppers
will abandon items in
their shopping cart.
That number
jumps to
97%
if those shoppers
are using a
mobile device.
Don’t give
up on the
ones who
got away
An abandoned cart
doesn’t necessarily
mean your customer is
no longer interested.
Here are two ways to
lure shoppers back to
complete their purchases:
Send a reminder
email: When done right,
personalized, retargeted
email reminders can
generate an average of
$17.90
per email sent.
Ofer free shipping:
77%
of consumers say they
would come back if
ofered free shipping.
1. Your Checkout
button is hard
to find.
The Fix: Don’t
be subtle with your
call-to-action but-
tons—that is, the
Add to Cart and Start
Checkout buttons.
Boost their size,
and make their color
stand out. Shopping-
cart abandonment
drops 33 percent with
large and direct call-
to-action buttons.
2. Shoppers question
the safety of their
personal info.
The Fix: Make
sure the info about
your site’s security
is easily visible—if
possible, include the
icons of your security
suppliers. The value
of a shopper’s cart
increases 16 percent
when shoppers know
their personal infor-
mation is secure.
3. Getting through
the checkout process
takes multiple clicks.
The Fix: Stream-
line the checkout pro-
cess by eliminating
links and exit points
during the ﬁnal steps
of the sale. There is a
12 percent increase in
conversion rate with
reduced navigation
on checkout pages.
4. Shoppers are
required to create
an account before
checking out.
The Fix: Allow
users to check out as
a guest at the begin-
ning of the process.
You can always ask
them to create an
account after the
sale. Conversion rates
increase 45 percent
when guest checkout
is available.
5. Your return
policy is buried in
the fine print.
The Fix: Set up
an afxed or pop-up
window with a run-
down of your return
information. Sixty-
three percent of
customers view the
return policy before
making a purchase.
Here’s where things go
wrong (and how to fix them)
Source:Data compiled by Ripen eCommerce of Princeton, New Jersey
28 - INC. - DECEMBER 2013/J ANUARY 2014
C
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What are you thinking about?
We’re thinking about your security.
/ 1.800.2.TYCO.IS Safer. Smarter. Tyco.
™
80 percent of the world’s Top 100 retailers, many of the nation’s largest airports, 8 of the Top 10 banking institutions and
every U.S. Federal Courthouse has Tyco Integrated Security thinking about the safety of their enterprise. And every one
of those relationships started exactly the same way: with us listening. It’s why we’re more than a security company.
We’re your Tyco Team.
To learn how to better protect your business, visit TycoIS.com
License information available at www.tycois.com. © 2013 Tyco. All rights reserved.
Tyco is a registered trademark. Unauthorized use is strictly prohibited.

DON’T BET AGAINST AARON LEVIE
BY ERIC MARKOWITZ
PHOTOGRAPH BY EMILY SHUR
ARON LEVIE IS pacing onstage, a micro-
phone in one hand and a cofee in the other. His Kramer-like
hair bobs above his head. We’re in the lunchroom of Box’s
97,000-square-foot Los Altos, California, headquarters, and a
group of about 50 new Box employees, mostly in their 20s, sit
on steel picnic tables facing Levie.
“There are phases in technology,” Levie announces, mid-
way through a presentation that sounds more like a TED talk
than a welcome speech. “Mainframe to PC, PC to cloud, to
cloud and mobile. These things come around every 10 to 15
2013
Entrepreneur
of the Year
30 - INC. - DECEMBER 2013/J ANUARY 2014

LAUNCH
•
GOING SOMEWHERE
Aaron Levie usually has
a cup of cofee about
him, and sometimes
two. He literally runs
to meetings.

years, and we’re in one right now.”
He pivots and changes direction.
“And what that means,” Levie continues, “is that it’s a
catalyst for IT buyers to implement the next generation of
technologies that they’re going to run their businesses of of.
This opportunity did not exist in ’03 or ’05 or ’07 or ’08 or
’09. It is happening right now.”
Levie leaves no room for doubt: The hard drive is ﬁnally
dead. The PC is on life support. The ofce worker of today
has gone rogue—most likely, you and your employees are
accessing your ﬁles from iPhones or Android phones or
maybe tablets. All the trends we’ve been hearing about for
years—the consumerization of IT, BYOD (Bring Your Own
Device), software as a service—are now fully upon us. The
research company Gartner predicts that by 2015, at least 60
percent of information workers will be accessing their con-
tent on mobile devices.
For IT departments, the convergence of these trends pres-
ents an extraordinary challenge: How do you manage so much
information on so many diferent platforms?
“You have iPads, Android devices; you have iPhones; you
have Macs,” Levie tells his new recruits. “It’s changing the IT
landscape fundamentally. And we have to make sure that
we’re growing as aggressively as possible, selling to all the
CIOs as the solution to run their business on.”
Box has about 20 million users, spread out among 180,000
businesses, who use the platform to upload ﬁles, collaborate,
and share content online. Box has custom-
ers at 97 percent of the companies on the
Fortune 500.
“We have to build the best brand,”
Levie says, “and we have to develop our
site around the enterprise. If you don’t
become the company that rallies develop-
ers in the ecosystem, you don’t get to have
the network efects.”
His speech is winding down. He clicks
to the last slide.
“What we’re relying on is that we can
build enough traction, get enough of the
industry, that we become the de facto
platform in enterprise,” he says. “That
gives us a launch-of point into a bunch of other services. It
will be determined in the next year and a half to two years,
because the market is adopting this right now.”
Levie asks for questions, and an awkward pause ensues. He
stands there sipping his cofee, eyeing the room, when, ﬁnally,
an employee raises a hand.
“Is it possible for a company to last forever?” the employee
asks.
Levie laughs, a sort of nerdish chortle that echoes through
the room.
“Well, um, ha ha, yeah,” Levie says. “I appreciate you think
I know the answer to that. So that’s good. And…the answer is
yes. It is possible. And we will be
that company!”
The recruits laugh as Levie
takes a moment to actually con-
sider the question.
“I mean, it’s possible we won’t
even have capitalism in 200 years.
Maybe the Internet even
won’t exist. The idea is
that you’re always
talking about disrupt-
ing, always talking
about what’s next.”
OX, WHICH Levie launched
out of his dorm room
at the University of
Southern California
in 2005, is a golden
child among Silicon
Valley tech compa-
nies. The company has
more than doubled its revenue every year and is on pace to
reach $100 million by the end of 2013. Box has more than 900
employees, spread out in ofces in Los Altos, San Francisco,
London, Paris, and Munich. Next year, Levie and his co-found-
er and chief ﬁnancial ofcer (and boyhood friend), Dylan
Smith, plan to take the company public.
Investors, who have poured $300 million into the start-up,
are valuing the business at $1.2 billion—a sign both of their
belief in Box and their conﬁdence that cloud computing has
ﬁnally matured. In one recent survey of IT buyers, researchers
noted a “whopping 65.6% of respondents indicated cloud as a
top investment area for 2013.”
Even these numbers, however, don’t explain why Aaron
Levie is Inc.’s Entrepreneur of the Year. That has more to do
with his anticipation of change and his boldness in doing
INSIDE THE BOX
THE COMPANY AT A GLANCE
Employees:
900
2013 revenue (projected):
$100 million
Outside funding:
$300 million
Valuation:
$1.2 billion
Companies using Box:
180,000
Individual licenses at those
companies: 20 million
Largest number of licenses
at a single company: 50,000
•
•
•
•
•
•
•
SCAN THE PAGE TO SEE AARON LEVIE AT FULL SPEED IN A NEW
“TREP LIFE” VIDEO. (See page 12 for details.)
32 - INC. - DECEMBER 2013/J ANUARY 2014

what looks crazy in the short term but in time looks revolu-
tionary. Cloud storage is basically a commodity. Levie recog-
nized this early on and changed Box’s orientation from
consumers to enterprise customers, where his relentless
focus on great design was particularly striking—and thus he
put some distance between Box and the pressures of the
commodity marketplace. He moved quickly into mobile. He
got out in front of fears about security. He was, and is, unen-
cumbered by legacy ideas and models, and he keeps making
good decisions.
Levie likes to say that fundamental shifts in technology
come around only every 10 to 15 years, and much the same
could be said about an entrepreneur like him. He possesses
the sort of wisdom and focus you’d expect of an industry
guru, but he acts with the 24/7 obsession of a scrappy start-
up founder. Give him 10 minutes, and he will make you a
believer. Scott Weiss, a partner at Andreessen Horowitz, one
of the venture ﬁrms that have invested in Box, describes
Levie as a “glow-in-the-dark” entrepreneur. “He’s unmistak-
able,” Weiss says. “You talk with him for ﬁve minutes, and he
says something funny and something smart and something
insightful. He’s a larger-than-life character.”
He’s also only 28. Levie stands a little under 6 feet tall and
has a slim, wiry frame. His hair sprouts in a graying forest
above his forehead. His eyes, deep-set and bluish-gray, are
each covered by a thin wisp of a brow. Like a lot of young
tech entrepreneurs, he has a uniform; his is a slim-cut J. Crew
suit, a pressed button-down shirt, and red sneakers.
Levie’s routine over the past several years has been strin-
gent. He wakes at around 10. He showers quickly, and arrives
“TIP: TAKE THE STODGIEST,
OLDEST, SLOWEST MOVING
INDUSTRY YOU CAN FIND,”
LEVIE RECENTLY TWEETED.
“AND BUILD AMAZING
SOFTWARE FOR IT.”
LAUNCH
• IN THE THICK OF IT Levie is a hands-on CEO who rarely sees his desk.
M
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LAUNCH
at the ofce by 11 a.m. He downs two
cofees, sometimes holding two cups
at once. He rarely eats breakfast or, for
that matter, lunch. He spends 90 per-
cent of his daylight hours in meetings
or interviews, to which he walks very
quickly or even runs. He is almost never
at his desk. At around 7:30 p.m., he takes a nap for about an
hour, and when he wakes up, he gets really, really productive.
Each night, he probably sends a couple of hundred emails,
and by 2 a.m. or 3 a.m., he’s ﬁnally done. Levie does not take
weekends of, and, in the last handful of years, he has taken
one vacation, a three-day trip to Mexico with his girlfriend.
For all his decisiveness, he is a somewhat uneasy man—
self-deprecating, certainly less cocksure than your average
28-year-old centimillionaire—and as he talks about Box’s
competitors in a crowded market, I begin to understand why
he drives himself so hard.
“My hair’s gotten grayer,” says Levie. “I was gray before
Obama was.”
Box’s daily battles are with Accellion, Citrix, Huddle,
Google, Hightail, IBM, and Oracle—and the biggest of them,
Microsoft. Microsoft’s SharePoint collaboration tool is a
behemoth that generates nearly $2 billion in revenue from
65,000 companies, which manage a total of 125 million
SharePoint licenses.
SharePoint was built in 2001 and was originally focused
on sharing ﬁles within a company’s intranet system. Micro-
soft has made eforts to keep the platform up to date, but
there is a broad sense that it is falling behind. As a Forrester
report put it recently, SharePoint is experiencing its “awk-
ward teenage years.” The report went on to note that Share-
Point’s “uninspired user experiences mean that business
management isn’t satisﬁed.”
At Box, the user experience trumps all. Levie’s big insight,
in 2010, was that successful enterprise platforms of the future
would be driven by mobility and design—the ethos that has
propelled the consumerization of IT. Consumerization means
people are rejecting clunky business-speciﬁc hardware even
for work purposes; they insist on cool consumer devices. This
had been talked about for years, but it really hit an inﬂection
point in 2011, when smartphone shipments outpaced PC ship-
ments for the ﬁrst time in history. Then, tablet sales began to
explode. The research company IDC predicts that in 2013, for
the ﬁrst time, more tablets will be shipped than laptops. The
efect of this proliferation of mobile hardware has been a shift
in expectations around the software that runs on them.
“People aren’t going to put up with crappy software any-
more,” says Ben Haines, the chief information ofcer of Box.
“You have to have a fast, good user experience. And people
expect to have their information everywhere. If you’re build-
ing an application that takes four weeks of training, you’re
doing something wrong.”
If you’ve ever used an old-school collaboration tool like
SharePoint, using Box is a pleasure by comparison. Let’s say
you have a large document you’d like to share with colleagues.
It could be a Word document, an Excel spreadsheet, or even a
large movie ﬁle. You log in to Box and quickly upload the ﬁle,
tagging it with any relevant information. Other users within
IT’S A POWERFUL LESSON ABOUT THE
ENTERPRISE SOFTWARE BUSINESS: BUILD
SOMETHING EMPLOYEES AREN’T TOLD TO
USE BUT SOMETHING THEY WANT TO USE.
THE BIG DISRUPTION
WHAT BOX GETS RIGHT ABOUT DESIGN
ŦŦŦŦ

THE EASY CHOICE Box is a powerful
business tool that looks and feels like
a consumer product. Employees prefer it.
Simple as that.
BOX EMPLOYS A brand
design team of 11 and
a user interface/user
experience design
team of seven. This
reﬂects CEO Aaron
Levie’s obsession
with design (he did
the ﬁrst few Box
logos himself) and
also his belief in its
power in business. “I
think we’re uniquely
positioned as a
company that can
take a lot of the
design focus that
you’d see in a
consumer company
and bring it to
enterprise,” he says.
And that’s the big
disruption.
Perhaps the most
obvious mark of a
consumer-facing
design approach is
the company’s choice
in typefaces. Box
uses a handful of
fonts—Helvetica,
Proxima Nova, and
Gotham Rounded—
that, according to the
design team, were
chosen for their
“legibility and open
geometric style that
work well in text, on
mobile devices, and
on the Web.” To
reinforce and
diferentiate the Box
brand, the team uses
varying combina-
tions of what the
company calls Box
Blue colors, a mix
that includes cyan,
navy, and royal blue.
The net efect of
this approach is
meant to be comfort.
Maneuvering
through the platform
is intuitive. It’s easy.
Levie pushes the idea
that good design
isn’t just about
looking good on the
screen—it’s a tool for
more-efcient
working. —E.M.
34 - INC. - DECEMBER 2013/J ANUARY 2014

Vegas: Making the Unexpected Happen
“Zivelo is the future of how humans
will interact with machines.” That’s
Ziver Birg, founder and CEO of
Zivelo, a manufacturer of interactive
touch-screen kiosks for more than
35 industries, speaking. Nonetheless,
he continues, selling his machines
still requires people interacting with
people, and nowhere does a better
job of making that connection hap-
pen than Las Vegas.
“Las Vegas is a global hot spot,” says
Birg. “Foreign buyers who have the
opportunity to attend 10 trade shows
will choose the one in Las Vegas. I
have seen trade shows move from
Las Vegas to other cities and be-
come less successful.”
Zivelo is headquartered in Marion,
Indiana, and employs 200 people.
The company is expected to hit $10
million in sales this year—earning it
the #697 position on the Inc. 5000—
and it works hard to stand out from
the competition. Its products are
made in the U.S. from brushed alumi-
num, yet they carry a lower price tag
than those manufactured from steel
in Asia by their competitors. Image is
important, and Las Vegas helps Zivelo
FRQQHFW ZLWK KLJKSURÀOH FXVWRPHUV
Exhibiting at the KioskCom trade
show there, Zivelo played on that ca-
chet and gave buyers the unexpect-
HG ,QVWHDG RI ÀOOLQJ WKH ERRWK ZLWK LWV
machines, the company rolled in a
Bentley Continental GT—a $225,000
automobile—and placed one kiosk,
which enabled attendees to explore
information about Bentley automo-
biles, beside it.
Buyers clamored for a chance to sit
in the car, to explore the informa-
tion provided in the kiosk, and to
pick up invitations to Zivelo’s suite,
where a number of additional kiosks
could be viewed in a more relaxed
atmosphere. “We ended up landing
four Fortune 500 contracts among
many other customers from that
trade show, which was a major boost
for us at the time,” says Birg. “It was
GHÀQLWHO\ D ZRUWKZKLOH H[SHULHQFH
that helped us grow our business.”
Las Vegas: Helping
you connect with
high-proﬁle clients.
Ziver Birg, founder and CEO of Zivelo
Vegas means business.
The average Las Vegas trade show
delegate spends more time on the
ﬂoor. To be exact, 11 hours here vs.
5.9 to 9.5 hours in other cities. With
world-class meeting facilities, an
extensive range of hotel rooms,
and a city unrivaled in event and
conventi on experi ence, here,
business as usual is better than usual.
Find out all the reasons why so many
FORTUNE 500
®
companies choose
Las Vegas.
FORTUNE 500
®
is a registered trademark of Time Inc.
Used with permission.

your Box network can then log in to their own accounts,
download the ﬁle, or share it with others as they please. The
Box platform also integrates with other enterprise software
providers (including Salesforce, NetSuite, Zen-Desk, and
others), which means you never really have to click of screen.
The site is designed with light-blue accents and a news feed;
until recently, it had a Like button—it’s a bit like using a work
version of Facebook.
And, as with Facebook, many of Box’s early users were
driven to the platform because their friends or colleagues
were using it. It had a viral network efect because it was
diferent, better. Using Box makes sending ﬁles easier and
makes collaborating with co-workers faster. In some small
way, it makes work more fun.
“Tip: Take the stodgiest, oldest, slowest mov-
ing industry you can ﬁnd,” Levie recently tweeted.
“And build amazing software for it.”
Over the past few years, employees disen-
chanted with SharePoint’s stodgy user interface
or simply frustrated by the difculty in sending
large ﬁles over email began migrating to Box. It
was easy enough to do: Box is free to the basic
user. And as users signed up in droves, IT manag-
ers—who wanted a better way to secure the sensitive com-
pany ﬁles being trafcked through Box—began to take notice
and started buying up Box “seats,” the industry term for
subscriptions.
It was a Trojan horse strategy—sneak inside the enterprise
and then expand from within. Today, Box’s revenue growth
comes through viral adoption within its enterprise customers—
at each renewal cycle, IT managers are adding more and more
seats. For businesses, the service costs $15 per month per seat,
while enterprise customers pay around $35 per seat.
This story represents a powerful lesson to entrepreneurs
entering the enterprise software business: Build something
employees aren’t told to use but something they want to use.
Levie didn’t start of by selling to IT department buyers; he
started of by creating a great, free product that would attract
early adopters. Once these employees got hooked, they want-
ed more, and IT buyers were forced to purchase. Today, Box
has a sales team of more than 300 people, responding to
inbound sales calls from around the world.
N THE SECOND ﬂoor of Box headquarters,
the company has set up what it calls the
Genius Bar/IT Desk, an area in which about
a dozen mobile devices, ranging from
Android smartphones to Apple tablets, sit
on wooden stands.
In 2010, when Apple unveiled the iPad, most of Box’s
largest competitors seemed to treat the tablet as if it were a
peripheral device that most people would just use in their
personal lives—a consumer play. Some tech bloggers were
enthusiastic, but the more mainstream audience seemed to
fail to grasp the oncoming signiﬁcance of tablets. Stephen
Elop, then the president of Microsoft’s business division,
said in an April 2010 interview that the company planned
to take a “wait and see” strategy to launching any software
for the iPad. Not surprisingly, IT departments, which tend
to take their cues from Microsoft, followed suit.
“When the iPad ﬁrst came out, the initial reaction of IT
was like, ‘We don’t support that,’ ” says Josh Stein, a manag-
ing director at the VC ﬁrm Draper Fisher Jurvetson. “But
end users said, ‘Well, tough. We’re going to use these. I want
to use my iPad for work, and I’m going to use it whether you
let me or not.’ ”
Levie was way ahead of the curve. In January 2010, when
Steve Jobs stood onstage and announced the iPad, Levie knew
this tablet would change everything. (“I commit to spending
10% of my annual income on ipads,” he joked on Twitter.) In
the winter of 2010, Levie called his developers into a confer-
ence room and ordered them to have a Box iPad app ready as
soon as the tablet became available in stores.
“Aaron just walked into the board meeting and said, ‘We’re
betting the company on this thing,’ ” Stein says. “And it was a
great bet.”
On March 24, 2010—a week before the iPad was released
and two months after he ﬁrst ordered his developers to create
the Box iPad app, Levie took to Twitter again.
“I’ve just seen the future... and there’s no longer any paper
in it. #boxipadapp.”
Technically speaking, building a mobile platform on
which to send company ﬁles isn’t all that challenging. The
real difculty is proving that the information will be secure.
The idea of being able to share any ﬁle with anyone at any
time is alluring, but it also introduces a massive security risk,
especially for businesses dealing with sensitive customer
information such as credit card numbers and health care
records. Among IT professionals and their employers, there
is tremendous unease. Levie saw that as an opportunity.
“The idea is, ‘How do we make Box become the enabler for
them to be able to move to the cloud—the solution for their
security in the cloud,’ ” Levie says. “So not that it’s a check box
that allows them to adopt Box; it’s actually the reason they put
documents in the cloud.”
The promise of superior security is why the start-up
drchrono became a partner of Box. Drchrono provides a
medical platform for doctors and patients. At a recent
health-tech conference in Silicon Valley, drchrono’s
co-founder and chief operating ofcer, Daniel Kivatinos,
demonstrated how doctors use the drchrono iPad app to
quickly pull up a patient’s medical history, along with any
relevant images, such as sonograms or chest X-rays. The
company isn’t pulling any of that data
from its own servers—it uses Box as the
LAUNCH
“AARON JUST WALKED INTO THE BOARD
MEETING AND SAID, ‘WE’RE BETTING
THE COMPANY ON THIS THING.’
AND IT WAS A GREAT BET.”
CONTI NUED
ON PAGE 142 •
36 - INC. - DECEMBER 2013/J ANUARY 2014

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LAUNCH
ŦŦŦŦ
Let’s Hear It for the Underdogs
Malcolm Gladwell’s new book celebrates
a group entrepreneurs can relate to
By LEIGH BUCHANAN
BOOK REVI EW
developed performing on the
streets to support their im-
poverished families.
That sounds as if I’m
mocking the book, and I don’t
mean to. As always, Gladwell
spins a great yarn. He makes a
smart case for the paradoxi-
cally ﬁerce power of nonvio-
lent resistance, like that of the
civil rights movement. His
questioning of the presumed
superiority of prestigious
schools—students may fare
better at less-elite institutions
where their self-esteem takes
less of a beating—adds a pro-
vocative wrinkle to the hot
debate over education. The
association of childhood
bereavement with success (a
disproportionate number of
accomplished people lost
parents early) is a bit of an
eyebrow raiser, but the theme
of personal compensation for
adversity rings true.
Although Gladwell barely
touches on business, David
and Goliath is full of ego
boosts for the entrepreneurial
crowd, who are told, for
example, that innovators are
open, conscientious, and
willing to court disapproval.
Readers will smile with
recognition at the tale of
Lawrence of Arabia leading
his ragtag band of Bedouins
600 miles through the desert
to take the Turks by surprise.
“The Turks simply had not
thought that their opponent
would be crazy enough to
come from the desert,” writes
Gladwell. Crazy is high praise
for an entrepreneur. Half the
fun of making it is proving
someone wrong.
Two of Gladwell’s insights
deserve more sober analysis.
The ﬁrst involves the “in-
verted U curve,” which mod-
els the inﬂection point at
which the addition of units—
of efort, of people, of mon-
ey—stops making something
better; and the further point
at which adding units actu-
ally makes something worse.
Gladwell uses this device to
discuss optimal classroom
size and family wealth, but it
is also a useful conceptual
tool for scaling companies.
The second insight con-
cerns remote misses. During
the Blitz, Gladwell tells us,
Londoners grew largely in-
ured to the bombing. In fact,
many were emboldened.
Gladwell explains that people
who experience the thing
they fear most but emerge
unscathed feel invulnerable.
It’s a phenomenon entrepre-
neurs should guard against.
Just because you’ve escaped
a few hurtling boulders and
snake-ﬁlled pits doesn’t make
you Indiana Jones.
Each section of David and
Goliath begins with a passage
from Scripture attesting to the
ennobling power of weakness
or the illusory boon of strength.
The Bible’s most notable
quotable on that subject
(“Blessed are the meek, for
they shall inherit the earth”)
does not appear. Meek, out-
side of the Gospel, suggests a
failure of spirit. Weak, in the
Gladwellian context, means
starting from adverse circum-
stances, then using spirit,
guile, and everything else in
your quiver to triumph.
In his opening chapter,
Gladwell writes that “the act
of facing overwhelming odds
produces greatness and
beauty.” That, of course, is
what entrepreneurs do best.
They survey the battleﬁeld.
They scrabble for weapons.
They summon courage. They
change the rules.
M
ALCOLM GLADWELL’S NEW BOOK, David and Goliath: Underdogs,
Misﬁts, and the Art of Battling Giants, argues that in a contest
between mismatched adversaries, perceived weaknesses can
be strengths, particularly when ﬂexed in unexpected ways. In
a post-9/11, dot-com, Barack Obama world where institution
topplers emerge out of nowhere, this is not exactly news.
It’s certainly not news for entrepreneurs, who are devo-
tees of against-the-odds victories. With that crowd, Gladwell
is preaching to the choir. But not the Mormon Tabernacle
Choir. In Gladwell’s narrative framework, entrepreneurs would be congregants from a humble
church in Iowa who take down the Mormon Tabernacle Choir in a sing-of thanks to skills they
Although
Gladwell barely
touches on
business,
David and
Goliath is full
of ego boosts
for the
entrepreneurial
crowd.
38 - INC. - DECEMBER 2013/J ANUARY 2014
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Our business is all fun and games,
but The UPS Store takes us seriously.
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Check out Stacey and Gail’s video and learn how The UPS Store
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Copyright © 2013 The UPS Store, Inc.
SMALL BUSINESS: YOU’RE NOT ALONE OUT THERE. Stacey and Gail, co-owners of Toys with Love, Inc., share
a passion for making kids happy. So when they need to spread the love, be it shipping a gift nationally or printing event mailers for
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solutions for their unique needs. At The UPS Store, we love small businesses. We love logistics.

J
eff Cutler trains clients on the
best ways to harness the power of
social tools and content market-
ing in brand-building strategies for
their products and services. Despite
the current dominance of digital
technology in those disciplines, Cutler
ﬁnds face-to-face interaction the best
tool for building his own business,
and he relies on United Airlines to
help him use it most eﬀectively.
“Tere is nothing more valuable than
being able to shake a customer’s hand,
smile with them, and share a genuine
connection,” he says. “It’s the way busi-
ness has been done for years, and no
technology advances are going to replace
the value of face-to-face connections.”
Cutler is on the road about 25 times a
year, conducting training sessions for
businesses and organizations all over
the world and attending conferences
and networking events to meet pro-
spective clients. He views travel time
more as an opportunity than a chore.
“Even a long ﬂight is time well-spent if
at the end of it I can shake hands with
new connections and establish posi-
tive relationships with potential cli-
ents. I get energized being around
smart folks and learning what they’re
doing to succeed.”
United Airlines makes Cutler’s travel
easier and supports his business goals
CASE STUDY: JEFF CUTLER
Jeff Cutler: There Is No
Substitute for a Handshake
Air on the Side of Success:
The Art of Connecting
in many ways. “United has routes
practically everywhere I need to go,
and United staﬀ seem to like what
they do and care about their custom-
ers,” he says. “Te in-ﬂight services
and options United oﬀers help me get
work done while I’m in the air. Wi-Fi,
upgrades, clear communication from
the staﬀ—it all helps make it possible
for me to focus on my work, even
while in transit.”
Tose amenities are nice to have on
any trip, but sometimes they lead to
concrete business opportunities,
Cutler adds. On a recent ﬂight to San
Antonio to give a presentation, he was
online checking email and connecting
with attendees prior to arrival. While
he was on social media, someone
reached out to hire him for another
engagement in Los Angeles.
Cutler believes that face-to-face inter-
action provides a level of insight
unattainable through electronic
communications, and he relies on
United to get him where he needs to
be. An added bonus is how United
does that. “To be able to ﬁne-tune my
product while sitting at 30,000 feet
makes me feel like United is my oﬃce
in the air,” he says. “Tis functionality
enables me to keep my business run-
ning no matter where I am.”
PARTNER PERSPECTI VE / UNI TED AI RLI NES
“It’s the way business
has been done for
years, and no
technology advances
are going to replace
the value of face-to-
face connections.”

ŦŦŦŦ
PG.44
Outlook 2014
The sky’s the limit, but
some clouds are looming.
-
PG.50
Washington
Small business–related
legislation—real
and imagined
-
PG.54
Start-up Country
How Boulder, Colorado,
became a mecca for
entrepreneurs
-
PG.66
Obamacare
The skinny on
the Afordable
Care Act
Special
Report
The State
of Small
Business
DECEMBER 2013/J ANUARY 2014 - INC. - 43
L
I
S
A
S
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Y

I
n the face of squabbling
lawmakers, a government
that seems to close for busi-
ness every month or so, and
an on-edge economy, two
guys at our recent Inc. 5000
Conference are telling a
diferent story: optimism
and opportunity!
Both dressed like the
cartoon character Green Lantern, they
are spreading the gospel of the power of
small business to grow in the face of evil
economic forces. And they are perfectly
positioned to so do: Their company,
Ramsey, New Jersey’s Re:think, an
Internet marketer, has grown a super-
powered 1,186 percent over the past
three years. Co-founder Tom McVey
doesn’t see any reason such success
should be limited to the hundreds of
companies represented at the confer-
ence. His forecast for 2014? “The sky’s
the limit!” he says. “We believe any
business has a chance to stand out.”
It’s not just the Green Lantern guys
who feel this way. Their peers, the
CEOs of the 5000 fastest-growing
companies in the country, are hugely
bullish, too. In an exclusive survey of
recent Inc. 5000 founders and CEOs
(see page 46), 37 percent characterized
their business prospects as “excellent.”
Another 45 percent said their prospects
were “good.” (Not bad for a country
that, only recently, was on the edge of
economic Armageddon.)
In addition, these CEOs are count-
ing on expansion—big time. Eighty
percent said they planned to boost head
count, and the same share said they
would increase the number of products
and services they ofer. “I think it’s
unbelievable,” says Tom Gimbel, founder
of Chicago stafer LaSalle Network. “I
think the economy’s really good.”
The likes of McVey and Gimbel, of
course, aren’t your average joes. (The
typical Inc. 5000 company has grown
468 percent over the past three years.)
They always seem to be upbeat in the
face of adversity. Unlike many in the
business community, they feel they can
grow in good times and bad.
Despite the optimism, our all-stars
have concerns. That’s what makes this
year’s look at our Inc. 5000 growth
companies so interesting. In a normal
recovery, these CEOs would be 100
percent upbeat. But there are clouds of
doubt because of factors beyond their
control—doubts they share with busi-
ness owners across the board. Simply
put: If Andy Grove started an only-the-
paranoid-survive club, they would be
charter members.
Why so worried? Gridlock in Wash-
ington, the Afordable Care Act, and
weak-kneed consumers top the list.
THE OUTLOOK FOR SMALL
BIZ IN 2014? THE SKY’S
THE LIMIT. SORT OF
As usual, our Inc. 5000 folks are upbeat. But only, they say, if Washington
cleans up its circus act BY KIMBERLY WEISUL ILLUSTRATION BY OLIVER MUNDAY
44 - INC. -DECEMBER 2013/J ANUARY 2014

LEAD • THE STATE OF SMALL BUSINESS
Those things are all related, and togeth-
er they produce high-water levels of
uncertainty. After all, who wants to take a
chance on a big new investment when the
stock market could plummet 1,000 points
because of gamesmanship in Washing-
ton? Sure, some in Congress do a great
job talking up the impor-
tance of small business. But
when it comes to providing
a stable legislative environ-
ment so that growing
companies can thrive?
Nah, that’s so German.
No wonder, then, that
among a broader spectrum
of businesses, pessimism
reigns. In a recent survey
from the National Federa-
tion of Independent Busi-
ness, 62 percent of CEOs
said now is not a good time
to expand. “In the past,
when we got into a strong
hiring pattern, it would go
18 months or two years,”
says Dean Le, of SoloPoint
Solutions in Santa Clara,
California, which places
engineers. “Since 2008,
we’ll have a couple of
strong months and then a
couple of weak months.”
Given all that, how will
things play out in 2014?
Well, look at the good news and the bad
news. And once you do, you’ll see that
barring any midterm election-year
suicide missions—or a curve ball or
two—the new year is going to look
pretty good compared with the most
recent stretch of economic activity.
We’ll start with the
good news.
One of the most impor-
tant factors: The housing
crisis is in the rearview
mirror. Housing has been
rebounding for more than
a year, with the S&P Case/
Shiller index of housing
prices up 11 percent in the
12-month period ended
last June. And there are
few things better than a
robust housing sector to
get an economy rocking.
First of all, about one-
sixth of small private
companies are in housing-
related ﬁelds, according to
U.S. Census data (home-
builders, lumberyards,
plumbers, and on and on).
And when home values
rise, that turns on the
cash-ﬂow spigot. After all,
about a quarter of small-
business owners use the
equity in their homes for
business purposes, reckons Minneapo-
lis’s Barlow Research Associates.
Access to credit, a sore point among
fast-growth companies, is also getting
better—or at least it was. The ﬁnal 2013
numbers will probably be depressed by
the government shutdown, but a Small
Business Administration report issued
before the closure showed year-to-date
loan volume up 15 percent compared
with 2012. Delinquency rates are also
at all-time lows, says William Phelan,
president of PayNet, which collects
data for commercial loans and leases:
Just 1.19 percent of small-business
loans are 31 days to 90 days overdue,
and only 0.29 percent are more than
90 days past due. “Small business is in
great ﬁscal shape,” he says. It helps that
big companies—often the customers of
smaller ones—are posting record prof-
its. Five years ago, putting the screws to
smaller vendors was a nifty way for big
companies to improve cash ﬂow. Now,
there’s less incentive to do that.
That’s the sunshine. And in a perfect
world, or even a sort-of-perfect one,
the path would be clear. But in a
uniquely unproductive political environ-
ment, the path is anything but. To be
fair, mild political inertia can have a
bizarre silver lining for business: no big
surprises out of Washington. But when
the country’s elected representatives
shut down the government and only
INC. 5000
OWNERS FEEL
LOVED BUT
MISUNDERSTOOD
59%
agree or strongly agree
that entrepreneurial
popularity is at an
all-time high. But they
also feel misunderstood.
62%
agree or strongly agree
that the popular press
gloriﬁes tech start-ups
at the expense of other
types of companies.
95
%
agree or strongly agree
that most Americans
don’t really understand
how hard it is to start
and build a successful
company.

INSIDE THE MINDS
OF ENTREPRENEURS
How are entrepreneurs feeling about the state of
small business? To ﬁnd out, Inc. surveyed Inc. 5000
winners from the past decade about a range of
business, political, and cultural issues. One key
takeaway: These scrappy business owners aren’t
letting Washington slow them down.
SEE THE FULL SURVEY RESULTS AT WWW.INC.COM/STATEOFSMALLBIZ.
•
The past ﬁve years have
been rough, but most Inc. 5000
entrepreneurs report a sunny
business outlook.
Ţ What would you say your business is worth
today versus ﬁve years ago?
Ţ If you made sacriﬁces to support your business in
the past ﬁve years, what steps did you take?
60%
POSTPONED
VACATIONS
48%
SLASHED
PERSONAL
PURCHASES
27%
SOLD
PROPERTY AND
VALUABLES
60%
TAPPED
SAVINGS
63%
CUT BACK
MY SALARY
Ţ How concerned are you
about the following: VERY SOMEWHAT NOT
The value of
your business
Your annual salary,
total compensation
Being able to maintain your
current lifestyle in retirement
•
Their view of the U.S.
economy? Not so optimistic.
46%
SOMEWHAT
POSITIVE 46%
The worst is over,
and slow growth
will continue.
NEUTRAL 16%
Neither positive
nor negative.
SOMEWHAT
NEGATIVE 26%
Serious problems
persist, and the
economy will see
a downturn.
VERY NEGATIVE 3%
The country is going
to face another
recession very soon.
Ŧ
Ŧ
Ŧ
Ŧ
later realize that the families of soldiers
killed in action will be denied death
beneﬁts, you’ve got more than garden-
variety inﬁghting.
Bo Bothe, co-founder of Houston
marketing agency BrandExtract, says
the turmoil is tough on him. “My clients
don’t know what the impact of the health
care legislation is going to be,” he says.
“They don’t know what the impact of the
deﬁcit will be. And when they don’t
know, they hold back.”
The Afordable Care Act promises
to make health insurance easier to buy
and more afordable for millions. But
for certain business owners, it just
mucks everything up. Tim Guenther,
CEO of Clickstop, in Urbana, Iowa, is
one. He’s got 64 full-timers and pays
100 percent of their health insurance.
Clickstop sells ratchet straps. After ﬁve
years of buying straps from China,
Guenther started assembling them
here. That allowed him to be more
ﬂexible and customize orders.
But Guenther’s costs are higher than
his Chinese competitors.’ His team
includes 24 part-timers, and Guenther
wants the ﬂexibility to add to their hours
as needed. But he needs to manage their
hours more closely: He is keeping them
under 30 a week so he doesn’t have to
ofer health insurance. “It costs us about
$7,500 to insure a family,” he says. “The
workers in China aren’t making that
much in wages in an entire year.”
That said, Guenther, like many in our
survey, is continuing to expand—he’s
just doing it with an eye on the Beltway.
For him, the glass is still half full. He’s
right. Fundamentally, the outlook is
pretty darn good. Economic growth is
supposed to pick up. (Mark Zandi, chief
economist for Moody’s Analytics, ex-
pects 2013 GDP growth to be just under
2 percent, but it should hit a relatively
robust 3 percent in 2014.)
And even if it doesn’t, businesses
will beneﬁt from the housing rebound,
better access to credit, and more bullish
customers.
For companies focused on growth,
the forecast for 2014 is clear: mostly
sunny, with a chance of Washington.
—

KIMBERLY WEISUL is an Inc.
editor-at-large.
MUCH MORE 63% MORE 26%
SAME 4% LESS 6%
MUCH LESS 2%
Ţ What are your business
plans for the next year?
Increase head count
80%
80%
Expand products and services
58%
Make capital improvements
91%
Seek new U.S. customers
39%
Seek new international customers
29%
Borrow money
17%
Take on equity investors
Ţ How would you rate your
business prospects for the
next 12 months?
EXCELLENT
37%
GOOD
45%
AVERAGE 14%
POOR 1%
DON’T KNOW 2%
Ţ How would you rate
the country’s economic
prospects for the next year?
Ţ What is preventing a
strong economic recovery?
Unemployment
18%
Consumer conﬁdence
32%
Higher taxes
52%
Gridlock in Washington
51%
Federal, state, and local regulations
42%
Reluctance by banks to lend
31%
Health care reform
41%
of entrepreneurs have
a SLIGHTLY BETTER
view of the economy
compared with one
year ago.
VERY POSITIVE 9%
Looking forward
to a sustained
period of growth.
THE BIG SURVEY
12%
Immigration policy
46 - INC. - DECEMBER 2013/J ANUARY 2014
I
L
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U
S
T
R
A
T
I
O
N
S
:
O
L
I
V
E
R
M
U
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D
A
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LEAD THE STATE OF SMALL BUSINESS

Most Inc. 5000 entrepreneurs we surveyed voted for Mitt Romney.
Their top picks for President in 2016 might surprise you.
CHRIS
CHRISTIE
HILLARY
CLINTON
PAUL
RYAN
RAND
PAUL
ANDREW
CUOMO
JOE
BIDEN
34% 21% 9% 7%
Ţ Which presidential
candidates would you
consider supporting
in 2016?
DEMOCRATIC 18%
REPUBLICAN 42%
NEITHER PARTY 40%
Ţ Which party is
best equipped to
improve the
economy?

Banks are the lender of choice. But the
prospects of landing a bank loan are ify.
BANKS 47%
MORE
WILLING 20%
SAME 15% WORSE 23% DON’T
KNOW 11%
SLIGHTLY BETTER, BUT
WITH CONDITIONS 31%
ANGEL
INVESTORS
14%
CROWDFUNDING 5%
IPO 3% VENTURE
CAPITAL
20%
FRIENDS AND FAMILY 10%
NO PLANS TO RAISE
MONEY 42%

Up with universal health
coverage; down with Obamacare!
Income gap? No problem.
67% of respondents who had
an opinion are comfortable with
the income gap, because it reﬂects
each person’s contribution to
the economy.
90% of respondents who had an
opinion did not think the govern-
ment should try to narrow the in-
come gap in the name of fairness.
Ţ How will the Affordable Care
Act affect your business?
Increase
costs
Force us to
drop employee
health insurance
Allow us to
ofer health
insurance for
the ﬁrst time
Force cutbacks Make it easier
to recruit
employees
Force
us to lay of
workers
AGREE
that all
citizens
should have
health care
coverage.
ARE NOT in
favor of the
Afordable
Care Act.
63%
61%
AGREE DON’T KNOW DISAGREE
LIBERAL 10%
CONSERVATIVE 31%
MODERATE 59%
DIDN’T VOTE 3%
DEMOCRATIC 16%
SPLIT TICKET 35%
REPUBLICAN 46%
DIDN’T VOTE 6%
OBAMA 31%
ROMNEY 63%
DEMOCRATIC 17%
INDEPENDENT 36%
REPUBLICAN 47%
Ţ Party
Afliation
Ţ Political
Ideology
Ţ 2012
Presidential
Picks
Ţ State and
Local Voting
Habits
LIBERAL
DEMOCRATS
3%
CONGRESSIONAL
DEMOCRATS 3%
CONGRESSIONAL
REPUBLICANS
9%
TEA PARTY
14%
PRESIDENT
OBAMA
23%
Ţ Who’s to blame for political gridlock?

Teach entrepreneurship? Great!
Just don’t expect it to work.
68%agree or strongly agree
that the boom in entrepreneurial
programs at colleges and
universities is a good thing.
But only 41% think the
characteristics necessary to
succeed as an entrepreneur
can be taught.
24%
are willing
to pay more
taxes if they
are used to
address the
nation’s most
urgent
problems.
38%
might be
willing to pay
more taxes,
depending
on the
problem.
Ţ Which funding sources will you
consider if you plan to raise money?
Ţ How willing are traditional banks to
lend to businesses like yours right now?
THEY ARE ALL
TO BLAME
48%
37% 47%
F
R
O
M
L
E
F
T
:
G
E
T
T
Y
;
JO
H
N
P
H
I
L
L
I
P
S
/
G
E
T
T
Y
;
C
A
R
O
L
Y
N
K
A
S
T
E
R
/
C
O
R
B
I
S
;
S
C
O
T
T
O
L
S
O
N
/
G
E
T
T
Y
;

D
A
V
I
D
M
c
G
L
Y
N
N
/
N
E
W
S
C
O
M
;
G
E
T
T
Y

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LEAD • THE STATE OF SMALL BUSINESS
• UP WITH START-UPS
Small-business owners are often the stars at State of the Union speeches. In 2013, it was
Deb Carey of Milwaukee’s New Glarus Brewing (third from left in the second row).
NEARLY DONE DEALS
Legislation covering two key issues
afecting smaller companies has already
been signed into law. The catch: Impor-
tant details remain unresolved.
The Afordable Care Act—a.k.a.
Obamacare—became law in 2010. But it
remains a kludge in progress: In April,
the administration delayed until 2015
the rollout of the state-run exchanges
that will allow employees a wider choice
of coverage options, and in July it pushed
back, also until 2015, the launch of the
employer mandate (forcing businesses
with 50 or more employees to buy cover-
I
t has become a ritual during the State of the Union address
each January: As President Obama talks about small business
as “the foundation of our economy,” the cameras pan to
Michelle Obama. Sitting nearby will be a smiling entrepreneur,
chosen to illustrate the administration’s commitment to
young companies. In 2009, the guest was the owner of a
solar panel installation ﬁrm in Colorado. In 2010, it was the
CEO of a chain of supermarkets. In 2011, there was Zachary
Davis, who had launched an ice cream shop in California,
thanks to the American Recovery and Reinvestment Act.
But even though Davis follows politics more closely than
most entrepreneurs, he still works too many hours to pay
much attention to Washington policy debates.
With business owners like Davis in mind, Inc. looked at the major
policy issues afecting small-business owners in 2014—and whether real
change has any chance of happening:
UNCLE SAM COULD ACTUALLY
HELP BUSINESS OWNERS IN
2014. NO, REALLY
Some promising proposals might just come to pass.
Others will wait for that cold day in hell BY DANIEL McGINN
B
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L
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L
A
R
K
/
G
E
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T
Y

50 - INC. - DECEMBER 2013/J ANUARY 2014

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LEAD • THE STATE OF SMALL BUSINESS
age or pay a penalty). Republicans still
talk of repealing it, and although that
seems beyond unlikely, there are key
details of the law that could change.
(See story on page 66.)
The second almost-done deal is the
JOBS Act. The ﬁrst piece of the law,
which relaxes Depression-era rules that
ban companies from advertising invest-
ment opportunities to the public, went
into efect in September. The second
piece, which allows companies to sell
equity via crowdfunding, should be in
place by late 2014. Issues remain, such
as: What kind of disclosures must
companies make to investors? Michael
McGeary, political director at Engine, a
tech advocacy group, says the JOBS Act
“could be a real boon for young compa-
nies,” particularly those located outside
VC-dense areas such as New York and
Silicon Valley.
THESE COULD ACTUALLY
HAPPEN (SOMEDAY)
In early 2013, there was hope Congress
would make progress on two other
issues that small-business owners care
about: immigration and tax reform.
Momentum disappeared as Congress
became ﬁxated on the debt ceiling and
Obamacare. But odds are good that we
will see new laws on each before this
Congress checks out in early 2015.
Immigration reform would afect
small-business owners in two ways. For
the majority, the big concern is making
it easier to verify a worker’s legal sta-
tus. The Feds ofer a voluntary online
system called E-Verify, and the immi-
gration reform bill passed by the Senate
last spring would make this system
mandatory. That broad bill also would
require noncitizen workers to show ID
with fraud-resistant “biometric mark-
ers” when applying for jobs.
Other businesses—particularly in tech
industries—care more about expanding
the inﬂow of high-skill immigrants.
These companies hope to see an expand-
ed H-1B visa program, the creation of
visas for immigrants who show proof of
VC backing, and a clearer path to citizen-
ship for high-skilled workers who are
here illegally. Political oddsmakers are
somewhat optimistic about reform pass-
ing in 2014, primarily because the 2013
Senate bill gained bipartisan backing
before stalling out in the House.
Tax reform is another key 2014 issue.
In late 2012, the Bush-era tax cuts ex-
pired, resulting in a tax increase (to 39.6
percent) on the highest earners. In Au-
gust, Obama un-
veiled a plan to
lower corporate
tax rates from a
maximum of 35
percent to 28
percent. This
one-two punch
seems unfair to small businesses, given
that a ﬁler’s rate could vary more than
10 percent depending on what kind of
corporate structure he or she has chosen.
Senator Max Baucus and Represen-
tative David Camp, who lead their re-
spective congressional committees on
taxation issues, have been working on a
bill that they say would be fairer
to small businesses, but both men will
be leaving those posts in early 2015, so
it’s unclear how much success they
will have.
DREAM ON
There are perennial issues that small-
business advocates love to promote and
that members of Congress will periodi-
cally peddle—but never go anywhere.
One example: The Kaufman Foundation
has pushed to make it easier for students
and professors to take innovations cre-
ated inside universities and launch pri-
vate companies. That’s a shift from the
current system, in which agonizingly
slow university bureaucracies must
approve such deals. It sounds like a rea-
sonable ﬁx, but “universities hate the
idea,” says Kaufman’s Dane Stangler. In
July, House members discussed draft
legislation aimed at providing grants to
universities to promote innovative ap-
proaches to technology transfer. Similar
legislation has been introduced, unsuc-
cessfully, over the years.
Politicians also love to show love for
small business by attempting to reduce
regulation. Last summer, Senators Angus
King and Roy Blunt tried with the Regu-
latory Improvement Act of 2013, which
calls for a committee to come up with a
plan to review, simplify, and cut federal
regulations. Good luck. Why? What
business owners see as “red tape” are
often things that safety or environmental
advocates see as needed protections.
—
DANIEL McGINN is a senior editor at
Harvard Business Review.
• ID NATION: Immigration reform would help employers verify an employee’s legal status via an
online system. Pictured: An immigration reform demonstration in Washington, D.C., in April.
Odds are good that we will see new laws
on immigration and tax reform before
this Congress checks out in early 2015.
52 - INC. - DECEMBER 2013/J ANUARY 2014
R
E
D
U
X

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How do you turn a mountain backwater into a hub for fast-growing
businesses? Ask the people of Boulder, Colorado, the most
entrepreneurial city in America BY BURT HELM PHOTOGRAPHS BY MATT NAGER
START-UP COUNTRY
SAN JOSE-SUNNYVALE, CA
3
2
SALT LAKE CITY
SAN FRANCISCO
BOULDER, CO
1990
Numbers are multiples
of national average.
2010
2
ANN ARBOR, MI
CAMBRIDGE-NEWTON, MA
HUNTSVILLE, AL
•
Boulder, per
capita, has
more high-tech
start-ups than
any city in
the country.
A sampler:
SOURCES: KAUFFMAN FOUNDATION;
U.S. CENSUS BUREAU BUSINESS DYNAMICS
2.6
2.4
2.1
1.6
1.7
1.9
2.4
1.4
2.6
4
6.3
54 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD • THE STATE OF SMALL BUSINESS

e had barely started our
tour of the Chautauqua,
Boulder’s verdant 19th-
century park, when my
guide for the morning,
local historian Carol Taylor,
handed me the packet
with the “cautionary tales.”
They were photocopied
news articles, all from
national publications, all
featuring Boulder and
all written—in Taylor’s mind, anyway—by superﬁcial
out-of-towner nincompoops. “Namaste and Pass the
Naan,” read one’s subhead. “You will be hard-pressed
to ﬁnd one person here, including your 85-year-old
grandmother, without a six-pack,” read another. Over
four decades, as Taylor’s packet meant to show, writ-
ers had missed the town for the lovely trees (and bike
paths and mountain views)—unfairly reducing Boulder
to a playground where smug eco-liberals pufed legal-
ized marijuana and compared triathlon times.
“We’re so much more complex than that,”
Taylor said. She gave me a gentle, pleading
look. “Don’t just go back and write that every-
one rides their bikes everywhere.”
Out from the gleaming sunlight, a Lycra-
clad cyclist whizzed majestically by.
Let me just say, it’s hard to keep a straight
face when touring this idyllic mountain
city—and interviewing its start-up founders
and venture capitalists, its cofee-shop deni-
zens and microbrew cognoscenti. It’s so
tempting to linger on the glorious hippie
mane of the organic peanut butter CEO, or
quote the impossibly outdoorsy venture
capitalist (“I only invest in companies I can
ride my mountain bike to!”). But I don’t want
to be unfair or stoop to caricature. It’s not as
if they were handing out free joints to every-
body on Pearl Street, the city’s main drag,
on the day I arrived. (No, that was two days
earlier. The event was called the Boulder
Flood Relief Joint Giveaway.)
But easy as Boulder may be to mock, the
city is impossible to dismiss. Boulder is an
entrepreneurial powerhouse like no other. In
2010, the city had six times more high-tech
start-ups per capita than the nation’s average,
according to an August 2013 study by the
Kaufman Foundation—and twice as many
per capita as runner-up San Jose–Sunnyvale
in California. This vibrant culture has given
Boulder a prosperous economy: Without the
help of oil, natural gas, or any monolithic in-
dustry, Boulder County (population 300,000)
ranks among the top 20 most productive metro
areas in terms of GDP. Unemployment is 5.4
percent—almost two points below the national
average and a full point below the Federal
Reserve’s goal for the nation. It is the home to
a start-up incubator, Techstars, and a healthy
venture capitalist community.
Boulder as start-up haven is not a new
development, either. Since 1960, it has quietly
nurtured nascent industries, including natural
56 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD • THE STATE OF SMALL BUSINESS
WALL
STREET
TO MAIN
STREET
When the Wall Street
day-trading ﬁrm where
Kate Maloney worked
opened a location in
Boulder in 2001, she
jumped at the chance to
move. “We’d wake up
at 5:30 in the morning,
tackle the market, and
then go hiking up
Sanitas, or rock climb in
the Chautauqua,” she
recalls. In 2007, Maloney
founded TherapySites, a
website design company
that now sells Web
templates to a wide
variety of health care
practices. Maloney has
34 employees, a handful
of whom work out of her
downtown Boulder loft.

foods, computer storage, biotech, and now
Internet companies. It’s the original home
of Ball Aerospace (one of the ﬁrst NASA
contractors), herbal tea pioneer Celestial
Seasonings, StorageTek (later acquired by
Sun Microsystems for $4.1 billion), and the
biochemistry lab that led to Amgen.
But Boulder wasn’t always so afuent, so
collegiate, so pretty. The history of Boulder,
the start-up haven, is a fascinating story of
a community that built itself from scratch
through a combination of individual efort,
shared sacriﬁce, and counterintuitive choices
(not to mention a near-constant urge to skip
out of the ofce and get outdoors). Its success
is a very speciﬁc, and in some ways limited,
way of fostering a local economy. But it ofers
an unexpected solution to how cities all over
the U.S. could make themselves a welcoming
spot for start-ups.
W
hen city fathers ﬁrst laid
out Boulder, the city was
dry, barren, and unre-
markable—a two-mile
stretch of road at the
mouth of Boulder Canyon that served as one
of several mining-supply depots following the
1859 Colorado gold rush. Wrote Isabella Bird,
a British travel writer, in an 1879 book: “Boul-
der is a hideous collection of framed houses
on the burning plain.”
But a streak of exceptionalism ran through
Boulderites. They displayed a deep commit-
ment to city beautiﬁcation and education. In
1877, just six years after Boulder ofcially
incorporated, citizens persuaded the state
legislature to make it home to Colorado’s ﬁrst
public university; 104 families donated land
and money to build the campus. In 1889, the
citizens voted to issue a $20,000 bond to
build the Chautauqua, a place where visiting
Texas schoolteachers could hike, picnic, and
listen to lectures—a sort of bucolic TED Con-
ference of the time.
In 1908, citizens hired landscape archi-
tect Frederick Law Olmsted Jr. (the son of
the legendary creator of New York City’s
Central Park) to consult with them on how
best to plan the city—a precocious move for a
town of 10,000. His recommendations in-
cluded putting wires underground and keep-
ing streetlights beneath tree level, and he
cautioned them about suburban developers,
“dirty industries,” and pandering to tourists.
Above all, he said, Boulder must be beauti-
ful—a prosperous town where people would
spend their lives, not just make their money
and get out. “As with the food we eat and the
air we breathe, so the sights habitually be-
fore our eyes play an immense part of deter-
mining whether we feel cheerful, efcient,
and ﬁt for life,” Olmsted wrote in his report.
Boulder might have remained a sleepy
pretty college town, were it not for the com-
munists. In 1949, fearful of a Soviet nuclear
attack, President Harry Truman issued an
order to stop the clustering of major build-
ings in Washington, D.C. The nation’s basic
research labs had to expand elsewhere.
Boulder citizens, sensing an opportunity,
bought up 217 acres of land and beat out 11
other cities to make that site the home of
the National Bureau of Standards’s new
Radio Propagation Laboratory.
At ﬁrst, the D.C.-based scientists bristled,
considered it an exile. “They would say,
‘Where do we go to see the Indians?’ ” says
R.C. (“Merc”) Mercure, one of the founding
employees of Ball Aerospace, who was a
physics graduate student at the University
of Colorado at the time.
But the move put Boulder on the U.S. gov-
ernment’s map. In 1952, the federal govern-
ment made greater Boulder the site of Rocky
Flats, a 27-building nuclear weapons manufac-
turing facility. After the Department of Defense
ordered sophisticated rocket pointing controls
from CU’s labs, researchers, including Mercure,
left to form Ball Aerospace, which ﬁlled those
contracts and others. Eventually, the govern-
ment made Boulder the site of the National
Center for Atmospheric Research, and IBM
moved its tape drive manufacturing division
out there, which later led to the founding of
storage start-ups StorageTek, Exabyte, and
McData. On the backs of these technology jobs,
Boulder’s population doubled from 1950 to
1960 and then jumped to 67,000 10 years later.
By the late ’60s, scientists weren’t the only
new people moving in. Across the country,
the hippie movement was under way, and as
suburban teens and twentysomethings started
migrating to beautiful places across the coun-
try, many chose Boulder. (In the ﬁrst half of
1968, drug arrests in the city doubled.) To Mo
Siegel, a Colorado boy who had grown up on
a ranch 80 miles away in Palmer Lake, the
assembled ﬂower children were his kind of
people—and, in 1969, a potential market. A
health nut already, the 19-year-old began gath-
ering herbs in the foothills surrounding Boul-
der, ﬁlling up gunnysacks with chamomile and
red clover blossoms, sewing them into little
58 - INC. - DECEMBER 2013/J ANUARY 2014

CIRCLE
OF LIFE
Alabama native Dale
Katechis settled in
Boulder in 2004 after
he ran out of money on
the way to Montana.
He knew he was in love
when he spotted the
Flatirons mountains
rising up behind the
city, he says. Since
then, he has started a
brewery, restaurants,
and a boutique bike
company in Boulder.
He has also developed
his own take on
vertical integration: His
brewery’s spent grain
feeds the cattle on his
ranch, which is located
outside the city. The
cattle, in turn, provide
the beef used in his
restaurants’ burgers.
LEAD • THE STATE OF SMALL BUSINESS

1859 GOLD RUSH
Thanks to gold, Boulder booms.
The ﬁrst entrepreneur? Prospector
A.A. Brookﬁeld starts the Boulder
City Town Company, selling lots for
$1,000 apiece.
1877 SCHOOL’S IN
The University of Colorado, Boulder,
opens with two teachers and
44 students.
1910 GOING GREEN
Frederick Law Olmsted
Jr., whose father was the
landscape
architect of
Central Park
in New York
City, is hired
as a con-
sultant. His
advice: Embrace beauty, and
prosperity will follow.
1949 BIG SCIENCE
Boulder, in competition with 11 other
cities, gets the National Bureau of
Standards’s Radio Propagation Labora-
tory, which, among other things, ana-
lyzed radio waves on Earth and from
space. Its employees weren’t thrilled
with their new exotic home.
1952 THE BOOM
The federal government builds Rocky
Flats, a nuclear weapons manufactur-
ing plant; in 1950, the city had 20,000
residents; in 1960, 42,000.

1956 GOING INTO ORBIT
Ball Aerospace & Technolo-
gies Corporation arrives, a
wholly owned subsidiary of
Ball Corporation (yes, those
glass Mason jars!).
1965 BIG BLUE
IBM constructs an 85,000-square-foot
facility to manufacture tape drives.
1969 TEAMAN
Mo Siegel, a Colorado entrepreneur,
co-founds his tea company, Celestial
Seasonings—creating one of the world’s
most famous brands in the process.
Boulder County’s population grows 78
percent from 1960 to 1970, and another
44 percent from 1970 to 1980. Today,
it’s home to 305,318 people.
1980 UP WITH BIO
Biotech pharmaceutical manufacturer
Amgen opens two locations near Boul-
der to make the anemia drug Epogen.
1989 AND THE
WINNER IS…
Tom Cech, professor
at the University of
Colorado, Boulder,
and Sidney Altman, a
CU graduate and Yale
professor, jointly win
the Nobel Prize in chemistry for their
discovery of catalytic properties of RNA.
1990 WE’RE NO. 1
Believe it or not, Boulder has the most
high-tech start-ups per capita in the
nation, thanks to a long history of
high-tech institutions such as IBM, the
National Institute of Standards and
Technology, the National Center for
Atmospheric Research, Ball Aerospace,
and CU.
2006 WELCOME TO
THE START-UP CULTURE
Brad Feld and David Cohen
co-found Techstars to help
fund budding companies.
The next year, Feld co-founds
the VC ﬁrm Foundry
Group with $225 million;
it has invested in 68
companies, including
Zynga and Fitbit.
2009 POT SHOP
Helping Hands Herbals
opens as one of Boulder’s
ﬁrst medical marijuana
dispensaries. Boulder now
has 32 dispensaries and
37 cultivation facilities
licensed to do business in
the city.
2013 THE FUTURE
Hoping to meet
stafng demands at
start-ups, CU’s depart-
ment of computer science
develops a new degree
for liberal arts students.
muslin tea bags, and selling them, in 1969, as
Mo’s 36 Herb tea. It would become the ﬁrst year
of business of Celestial Seasonings, the brand
that became known for teas such as Sleepytime
and Red Zinger. (Siegel eventually sold the
company to Kraft, bought it back, and then sold
it again to Hain Foods for $336 million.)
Celestial Seasonings was among the ﬁrst of
many natural-foods companies, including
White Wave, maker of Silk-brand soy milk;
Horizon Organic Dairy; and Alfalfa’s, a specialty
market akin to Whole Foods. For these sorts of
entrepreneurs, Boulder was an ideal test mar-
ket. Given its population of afuent, outdoorsy
types, brands could test new ideas with a
friendly group of consumers in the local mar-
kets, work out the kinks at low risk, and then
take the successes to a more general market in
Denver and beyond.
“I just got so much support. Everybody
believed,” says Siegel.
W
ith industry picking up and
the population booming,
the city could have stoked
the growth, welcoming
developers in to build out
new housing and ofces. Instead, it did the
opposite. In 1959, the city drew a line across
the surrounding mountains, above which it
would not provide water or sewer services—
purely in order to protect the view. In 1967,
residents instituted a special 0.4 percent sales
tax to purchase “green space” around the city,
stymieing developers, heading of major road-
ways, and preserving nature. Next, the city
limited new housing starts to just 2 percent a
year. Now the county manages more than
97,000 acres of open space. Boulder is in a
bucolic bubble, with the Rocky Mountains on
one side and parkland on the other.
Encircling the city with green space has had
several implications for Boulder, some expected
and some not. Though never exactly cheap
before, the limited space has resulted in sky-
high real estate prices—with a median price of
$431,200, single family homes are 1.5 times as
expensive as in Denver. Meanwhile, as the
preserved space ﬂourished, so did the deer
population—and the hungry mountain lions,
which commuted in to eat the deer and, occa-
sionally, attack citizens of Boulder.
The green border, paired with the city’s
conservative zoning and development laws, has
also meant that national retailers—or any
monolithic competitor—have trouble ﬁnding
good spaces to open in Boulder. Meanwhile, the
LEAD • THE STATE OF SMALL BUSINESS
BOULDER: THE MAKING OF A CITY
The Colorado college town was meticulously planned to
make it one of the more livable cities out west. The unexpected
result? A start-up Shangri-la. —WILL YAKOWICZ
Ŧ
Ŧ
Ŧ
Ŧ
C
L
O
C
K
W
I
S
E
F
R
O
M
T
O
P
R
I
G
H
T
:
G
A
L
L
E
R
Y
S
T
O
C
K
;
N
E
A
L
H
A
M
B
E
R
G
/
C
O
R
B
I
S
;
S
T
E
V
E
W
I
S
B
A
U
E
R
/
G
E
T
T
Y
;
N
E
W
S
C
O
M
;
C
O
R
B
I
S
60 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD • THE STATE OF SMALL BUSINESS
city’s hard line against expansion doesn’t really
allow its own start-ups to grow much past a
certain size. The result? The town has made
itself a physical incubator for small businesses.
“After companies reach 500 employees, they
either have to move out to the other side of the
open space or sell,” says Kyle Lefof, a general
partner with Boulder Ventures since 1995.
But for those who can aford the housing,
steer clear of the mountain lions, and squeeze
into its limited ofce space, Boulder afords an
incredible quality of life—along with a place to
do business. The planning strategy, which at
ﬁrst seems antibusiness, simply favors those
who are in it for the long haul—those who are
thinking about raising families and living in
Boulder until old age, and weeds out those that
would dive in because of a juicy tax incentive.
There are entrepreneurs like Phil Anson,
who came out after graduating from college
purely to bum around and climb. A onetime
line cook, he started selling premade burritos
out of a cooler to support himself. In time, he
found he liked scaling that business better
than scaling rocks, and Evol Burritos, his
73-employee company, now distributes to
supermarkets nationwide and rang up $12.4
million last year.
There were those who arrived in Boulder
by accident and fell in love. Matt Larson,
founder of Conﬁo Software, moved there
because his biggest investor told him he had
to as a condition to getting funded (the man
lived in Boulder and wanted to be chairman
but didn’t want to move). Alabama native
Dale Katechis ended up in Lyons, the town
just north of Boulder, after he and his wife ran
out of money on the way to Montana. Kat-
echis started waiting tables. Then he opened
his own restaurant, Oskar Blues Brewery, and
started brewing beer as a way to get his eat-
ery’s name out, and found the beer sold better
than the food. (His brewery, which sells
Dale’s Pale Ale, made $33 million in sales last
year.) Little Lyons “was like Mayberry in the
mountains,” Katechis says, his voice tinged
with the last remnants of an Alabama drawl.
There are those entrepreneurs who moved
to Boulder when they were older, when they
already had money, almost as a reward to
themselves. In 2001, the Wall Street day-trad-
ing ﬁrm where Kate Maloney worked opened
an ofce in Boulder, simply because she and
some co-workers thought it would be more
fun. Six years later, she started TherapySites, a
Web company she runs out of a loft apartment
downtown. In 2006, adman Alex Bogusky
moved a chunk of Crispin Porter + Bogusky,
the advertising agency he co-founded, from
Miami to ofces in Gunbarrel, a town eight
miles northeast of Boulder. To Bogusky, out-
door sports lovers and entrepreneurs share a
common DNA: “Thrill seekers are drawn to
this place,” he says. “Once you get out here, you
want the ultimate thrill in business, too, and
that’s start-ups.” By the time Bogusky retired
from the agency, the Boulder ofce of Crispin
Porter + Bogusky had swelled to more than
700 employees—many of whom had moved
from Miami.
And ﬁnally, there are those who came out
of the University of Colorado and couldn’t
imagine going anywhere else. The most
famous is probably Marvin Caruthers, who,
as a biochemistry professor in 1980, helped
start the biotech ﬁrm Amgen. His co-found-
ers decided to put company headquarters in
Thousand Oaks, California, but Caruthers
HEALTH
NUT
Mo Siegel started
Celestial Seasonings in
1969. Back then, he
sold his tea in health-
food stores in Boulder
(at the time, there
were only three such
shops). “Boulder was
really conducive to
the natural-foods
industry,” says Siegel.
“Everybody’s so
healthy. If you don’t run
or bike or ski—or hike or
climb—you really can’t
live here.” Now, of
course, natural food is
as ubiquitous nation-
wide as Celestial’s
Sleepytime tea.
62 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD • THE STATE OF SMALL BUSINESS
PIONEER
After earning three
degrees from the
University of Colorado
in Boulder, R.C. (“Merc”)
Mercure became a
founding employee at
Ball Aerospace in 1956.
“Ed Ball took us aside
and asked us if we
would consider getting
into the electronics
business,” Mercure
recalls. “A few of us
said, ‘Why not?’ ” Ball
went on to land a
contract with NASA
and helped put a solar
observatory into orbit.
kept a lab in Boulder. Since then, the Univer-
sity of Colorado has become a destination
for DNA and RNA research. Veterans of his
department, of Amgen, and of the univer-
sity’s biology departments would go on
to start biotech ﬁrms, including Applied
Biosystems, Dharmacon, Myogen, and
Pharmion, companies that sold for more
than $6 billion altogether.
I wish I could point to some municipal
entrepreneurship program or other business
initiative that enticed these people to start
companies in Boulder. But the thing is, entre-
preneurs claim the city stymies them more
than it helps. Mundane parking regulations
hindered business early on, says Niel Robert-
son, CEO of $12.6 million-a-year Internet
advertising start-up Trada. The city, in its
eforts to reduce congestion, gave Robertson’s
17-employee company just three parking
permits. (The company, which now has 100
employees, has since moved to a building
with a parking garage.)
Anson, the burrito maker, says it took
eight weeks just to get a permit to install a
new refrigeration unit at his plant. “They’re
so conditioned to say no to everything,” he
says. “It’s a massive pain in the ass.” But leave
town? No way. “It’s a dual-edged sword,”
says Anson. “It’s harder for me to run my
plant, but it’s also why people can’t build
mansions and block each other’s views, so
we have a balanced city.”
O
f course, Boulder’s not perfect.
Many businesses would struggle
to exist there, especially those
that require heavy equipment or
a low-wage work force. Its regu-
lations, and its constricted land area, heavily
favor small companies. In fact, several start-
ups, including Internet security ﬁrm Web-
root and StorageTek, grew out of the town,
choosing to move out to a sprawling ofce
across the green space in neighboring
Broomﬁeld. But many other entrepreneurs
decided to sell out and stay—and join Boul-
der’s growing number of angel investors and
venture capitalists, the next step in the city’s
development. Mo Siegel now invests in other
natural-foods companies. Caruthers helped
start Boulder Ventures, which invests almost
exclusively in Boulder entrepreneurs. All
together, venture capital ﬁrms invested
$587 million in Colorado in 2012—a far cry
from major venture hubs such as Silicon
Valley and New York City ($11 billion and
$2.3 billion, respectively) but signiﬁcant.
They would rather do that than move to
some tony retirement place—because in
their minds, Boulder beats ’em all. That’s the
thing. Pretty much every entrepreneur told
me he or she started up in Boulder or stayed
in Boulder for that same reason: It’s a beau-
tiful place to live. And it’s beautiful not
because the city forefathers had some nifty
pro-start-up policy—but because they had
the foresight to plant lots of trees, welcome
a university and federal science labs, buy up
lots of parkland, and then stay disciplined
about preserving the beauty they had cre-
ated. The idea was simple: Make a city a
great place to live, and people ﬁgure out how
to make a living there.
—
BURT HELM is an Inc. senior writer.
64 - INC. - DECEMBER 2013/J ANUARY 2014

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LEAD THE STATE OF SMALL BUSINESS
HE WAITING IS OVER. It is time to get
serious about Obamacare.
Though the much-feared employer
mandate has been postponed until 2015,
several other provisions of the Aford-
able Care Act take efect in January. One
beneﬁt of the long lead-up to the full
implementation of the ACA is that em-
ployers, policy wonks, beneﬁts advisers,
and lawyers have had a lot of time to pick
apart the law’s dense tangle of rules. In the process, these ex-
perts have come up with a number of strategies and work-
arounds to help you comply with the letter of the new law—and
in some cases recalibrate your health care strategy in ways that
can beneﬁt both your employees and your bottom line.
How much of a headache will this phase of Obamacare be?
Good question. “At least in concept, it raises the cost of hiring,”
says Dane Stangler, director of research and policy at the
Kaufman Foundation. “On the other hand, remember that 95
percent of American businesses have fewer than 25 employ-
ees”—meaning they are exempt from most of the ACA’s provi-
sions. In fact, many of those small businesses could qualify for
tax breaks.
What follows are eight steps to consider. Some are sim-
ple, some are complicated; some pose problems, others op-
portunities. To help you prioritize, we’ve ranked each of
them—on a scale of one to ﬁve aspirins—in terms of hassle
and urgency.
None of this will be particularly fun. And we won’t blame
you if you keep complaining. But the time to act is now.
OBAMACARE IS UPON US
Are you ready? Our checklist will make sure you capture every
subsidy and avoid every pitfall BY ADAM BLUESTEIN ILLUSTRATIONS BY ED NACIONAL
66 - INC. - DECEMBER 2013/J ANUARY 2014

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registered trademarks of Fujitsu Ltd. All other trademarks are the property of their respective owners. Visit http://Ez.com/incfcpa
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NOTIFY YOUR
EMPLOYEES
HASSLE URGENCY
BY OCTOBER 1, 2013, every
business with at least one
employee and $500,000 in
yearly revenue should have
given employees a written
Fair Labor Standards Act, or
FLSA, Exchange Notice,
informing them that: 1.
health exchanges are open,
and 2. even if they have cov-
erage through work, they
may be able to get insurance
more cheaply on the ex-
change, thanks to potential
premium and cost-sharing
subsidies. (You can download
a sample notice at the Depart-
ment of Labor’s website.)
If you missed the dead-
line, don’t worry. In Septem-
ber, the Labor Department
announced that laggards will
not be penalized. But do it
anyway, says Sheldon Blum-
ling, an employment beneﬁts
attorney at Fisher & Phillips
in Irvine, California. “The
exchange notice does two
things,” Blumling says. “It
informs employees about the
exchange and where to get
information, but it also pro-
vides information about any
coverage the employer of-
fers.” You might be perfectly
happy for employees to go
out and get coverage on an
exchange. “But if you are
ofering what the ACA con-
siders afordable, minimum-
value coverage,” says
Blumling, “it behooves you
to make sure your employees
understand that they’re not
eligible for a subsidy. It’s an
employee relations issue.”
GET AN ACCURATE
HEAD COUNT
HASSLE URGENCY
THE EMPLOYER MANDATE is a
year away, but that doesn’t
mean you can ignore it. You
need to determine now
whether you will be afected
by it later. Doing so isn’t as
simple as it sounds. There
are really two questions here:
1. Are you a large employer,
as deﬁned by the law? And
2. If you are, to which em-
ployees do you have to ofer
health coverage?
Under the ACA, compa-
nies with 50 or more full-
time equivalent, or FTE,
employees are considered
large employers and are
required to ofer health cov-
erage or potentially face
penalties starting in 2015. To
calculate how many FTEs
you have, you need to count
both full-time workers (those
LARGE EMPLOYER (50 OR MORE EMPLOYEES)
PINPOINT YOUR OBAMACARE STRATEGY
How will Obamacare afect your business? The answer depends on the
size of your payroll and the health of your employees. Find where your
company falls along the two axes on the chart below. The horizontal
axis measures wages; the vertical axis gauges your work force’s
health. Find your quadrant, and you will find the strategies
explored in this story that are best for your business. —A.B.
LEAD THE STATE OF SMALL BUSINESS
Use expanded
wellness incentives
to ofset higher
premiums for
less-healthy
workers.
—
SEE: 7
SMALL EMPLOYER (49 OR FEWER EMPLOYEES)
Consider a private
exchange, which
lets workers customize
their coverage and
contribution levels.
—
SEE: 3, 4
Try a group plan
in the SHOP
exchange if you meet
the criteria for
a small-business
tax credit.
—
SEE: 4, 6
HEALTHIER
EMPLOYEES
SICKER
EMPLOYEES
If you can’t get a tax
credit with a SHOP plan,
send employees to a
public exchange.
—
SEE: 3, 8
Self-funding
is also a good option
if your company’s
health claims
have been low.
—
SEE: 5
If you have less-
healthy employees and
want to ofer coverage,
try a SHOP or nonex-
change plan.
—
SEE: 3, 8
Consider no
coverage or a
skinny plan and let
workers buy on an
exchange.
—
SEE: 3, 6
If you ofer coverage,
consider self-funding
to avoid a community-
rating “penalty.”
—
SEE: 5
LOWER
EMPLOYEE
WAGES
HIGHER EMPLOYEE
WAGES
68 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD THE STATE OF SMALL BUSINESS
who work an average of at
least 30 hours a week) and
part-timers. For example, if
you have 30 full-timers plus
60 people who put in an
average of 15 hours per week,
you have 60 FTEs—and could
face penalties if you don’t
ofer health coverage in 2015.
Keep in mind that you don’t
actually have to ofer insur-
ance to the part-timers—only
to your full-time workers.
Also, understand that if you
own or have a substantial
ownership interest in more
than one company, those
companies are considered a
single entity under the law,
and the total number of
FTEs across all those busi-
nesses will determine large-
employer status.
For many businesses,
employees come and go
throughout the year, which
further complicates the
question of who is a full-time
equivalent employee. For that
reason, the law asks employ-
ers to pick a given measure-
ment, or look-back, period to
determine whether workers
are full time. This period can
be anywhere from three to
12 months—choosing the
time frame is up to you. Just
remember that the shorter
the period, the more often
you will have to count. A
12-month look-back period is
most convenient, says Paul
Ashley, an adviser with First-
Person, an Indianapolis
beneﬁts and HR ﬁrm. It also
means that if your policy
renews on January 1, you
should already be counting,
so you know who’s eligible
for the company plan when
open enrollment for 2015
starts next October.
CONSIDER
WHETHER YOU
WILL OFFER
COVERAGE AT ALL
HASSLE URGENCY
ONCE YOU’RE FAIRLY conﬁdent
which boat you are in—small
or large employer—you can
start making some decisions.
First and foremost: Will you
ofer employee coverage?
If you’re a small employer,
you don’t have to; the law
doesn’t require it. And now
that public health exchanges
make guaranteed, “afordable”
coverage available to indi-
viduals and families, employ-
ees of small companies are not
as dependent on work-based
health plans as they have been
in the past. “You have to ask
whether employer-sponsored
coverage is an important part
of employee retention and
attraction,” says Michael
Bodack, a broker with York
International in Harrison,
New York. “For some small
companies, there’s no down-
side to dropping coverage,
paying people a couple of
extra bucks, and sending them
to the exchange.”
If you’re a large employer
thinking of adding or expand-
ing coverage in 2014, you
might want to wait. A 2013
study by researchers at the
Stanford School of Medicine
found that roughly 37 million
people now getting employer-
sponsored insurance would
be ﬁnancially better of get-
ting coverage through public
exchanges. Largely this is
because they could qualify for
credits and subsidies available
to individuals and families
earning up to 400 percent of
the federal poverty level.
Although the ACA limits how
much you can ask workers to
pay for self-only coverage,
there is no requirement that
you subsidize their family
members as generously. As a
result, the cost for family
coverage through an employ-
er could be double or triple
what it would be through
an exchange.
In 2013, covered workers
contributed an average 29
percent of the premium for
family coverage, or $4,565,
according to the Kaiser Fam-
ily Foundation. Say one of
your workers makes $35,000
a year and has a nonworking
spouse and two kids.
Average-priced employer
coverage for the family would
cost about 12 percent of
household income. If this
same family went to a public
“For some small companies,
there’s no downside to dropping
coverage, paying people a couple
of extra bucks, and sending
them to the exchange.”
70 - INC. - DECEMBER 2013/J ANUARY 2014

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exchange, it would qualify for
subsidies on the basis of
household, not individual,
income. As a result, the em-
ployee could buy a silver-
level family plan for just
$1,373 per year, or about
3.9 percent of household
income after subsidies.
The catch: Neither em-
ployees nor their family
members can claim ex-
change subsidies if self-only
afordable coverage is avail-
able through their work. The
only way to make sure they
can get the subsidies is to
not ofer that coverage. That
will open you up to a $2,000
per-person annual penalty,
after your ﬁrst 30 workers,
in 2015. (Unless you try a
skinny plan approach; see
No. 6.) But, Blumling says,
“it could make more sense to
pay the penalty for your
employees’ beneﬁt.”
DECIDE WHERE
TO SHOP
HASSLE URGENCY
FOR SMALL COMPANIES that
want to ofer insurance, one of
the biggest changes in 2014 is
that there are a lot more ways
to shop for it. If you have 49
or fewer employees, you can
use the new Small Business
Health Options Program, or
SHOP, exchanges run by
states or the federal govern-
ment. These exchanges were
designed to give employees of
small businesses an easy way
to choose from an array of
plans, from diferent carriers,
at a given metal level
(bronze, silver, gold, plati-
num) chosen by their em-
ployer. But under transitional
rules meant to ease adminis-
trative burdens, in 2014 the
36 exchanges administered
by the federal government
will ask employers to pick a
single health plan to ofer
employees. (The multiple-
choice functionality should
be available in 2015.) State-
run SHOPs can use either
approach, but the reality is
that in many states, there are
just one or two providers of
small-business coverage
anyway. What’s more, em-
ployers and beneﬁts experts
around the country are ﬁnd-
ing that many plans ofered
through exchanges ofer
narrower networks of doc-
tors and hospitals. Insurers
say these narrower networks
help them control costs and
thus keep premiums down.
But it can mean that employ-
ees lose access to favorite
doctors and other specialists.
Private health-insurance
exchanges, if they’re available
in your state, are another
option. In private exchanges,
the employer selects a menu
of plan options from one or
more insurance carriers and
decides on a dollar amount it
will contribute toward em-
ployee health beneﬁts. Em-
ployees then use the funds,
plus any additional amount
they want to contribute, to
buy a plan as rich or stingy as
they choose. Some private
exchanges ofer as many as 20
coverage options.
Private exchanges ofer
employees more choices than
the SHOPs—not to mention
being easier to use than many
state exchanges—and may
also ofer one-stop shopping
for ancillary beneﬁts such as
vision, dental, life, and dis-
ability insurance, which are
not available in the public
exchanges. For large em-
ployers, human resources
consultancies such as Aon
Hewitt, Towers Watson, and
Mercer have established
private exchanges. Small
businesses and sole propri-
etors can look to exchanges
such as Minnesota-based
Bloom Health (which has
plans in multiple states)
and HealthPass in New
York State, as well as single-
carrier private exchanges
run by regional insurers.
EXPLORE
A SELF-FUNDED
PLAN
HASSLE URGENCY
STARTING IN JANUARY 2014,
insurers will be required to
use “adjusted community
rating” when setting premi-
ums for individual and small-
group plans sold on the
exchanges and the private
market. This means that
insurers can’t consider
health history (or factors
such as occupation or gen-
der) in determining premi-
ums; instead, carriers must
ofer all small employers
(generally, those with 49 or
fewer employees) in a given
geographic region essen-
tially the same deal. Limited
adjustments are allowed
only for age, family size (i.e.,
individual or family), and
tobacco use.
This is great for small
companies with a history of
large health claims that have
driven up premiums. But
community rating will fall
hard on younger, healthy
companies. “Small groups
LEAD THE STATE OF SMALL BUSINESS
Some companies will
“have no other choice than
looking at self-funding.”
72 - INC. - DECEMBER 2013/J ANUARY 2014

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LEAD THE STATE OF SMALL BUSINESS
could see premiums dou-
bling, depending on their
age and other factors,” says
Blumling. As a result,
healthy companies that meet
their state’s small-group
deﬁnition and want to ofer
coverage “almost have no
other choice than looking at
self-funding or partial self-
funding for their ﬁrst renew-
al in 2014,” says Ashley, of
FirstPerson.
In self-funded plans, an
employer sets aside funds to
cover employee health
claims, rather than paying
per-employee premiums to
an insurance company.
These plans are not subject
to the ACA’s community-
rating requirements. Compa-
nies with fewer than 250
employees typically combine
self-funded health plans
with stop-loss insurance,
which protects them against
losses from higher-than-
expected claims in a given
plan year. If actual claims
are less than the amount that
has been funded, you’re
refunded the diference.
Once limited mainly
to large companies, self-fund-
ing is now becoming acces-
sible to ever-smaller groups.
Says Ashley: “More and more
carriers are ofering modiﬁed
self-funding products speciﬁ-
cally designed for groups as
small as 10 employees.”
PONDER THE
SKINNY STRATEGY
HASSLE URGENCY
IT’S NO SURPRISE that a law as
complex as the ACA would
come with some unintended
consequences and perverse
incentives. The so-called
skinny plan strategy is one of
those consequences. It’s
hard to understand, regula-
tors hate it, and you might
ﬁnd it a tad unsavory. But a
good number of employers
are considering it nonethe-
less, so it’s not a bad idea to
understand how it works.
Say you own a large busi-
ness—a restaurant, retailer,
or manufacturer—with lots
of low-wage workers. Start-
ing in 2015, if you don’t ofer
them “minimum essential”
health coverage and any
employee gets a subsidy on a
public exchange, you’ll be hit
with a penalty: $2,000 times
your number of full-time
equivalent employees, minus
30. If the coverage you pro-
vide is unafordable or
doesn’t meet the ACA’s mini-
mum-value test, the penalty
seems higher: $3,000 times
the number of employees
who get subsidized coverage
through a public exchange.
The skinny plan strategy
works like this: An employer
ofers employees health
coverage, but in a really
watered-down, really cheap
version that ﬂunks the ACA’s
minimum-value test. As a
result, the employer faces the
$3,000 per-employee penalty.
But here’s the catch: The
total penalty depends on the
number of employees who
actually claim subsidies and
purchase coverage on an
exchange. Those using the
skinny strategy, essentially,
are betting that ofering lousy
coverage will result in a
lower total penalty than not
ofering coverage at all. “It’s
an unintended consequence
of the law,” says Blumling.
“Regulators really don’t like
it. But they don’t seem to
have a way to stop it.”
A skinny strategy will not
earn you any PR points. And,
Blumling warns, “you’ve got
to make sure it’s executed
properly to weave through
competing regulatory guid-
ance.” But some employees,
especially those who are not
currently insured through
work, may actually appreci-
ate skinny plans.
That’s because low-wage
workers are highly likely to
forgo health care coverage
altogether—just 37 percent
of single employees earning
$15,000 to $20,000 per year
participate in employer-
sponsored health plans,
according to a 2013 survey
by beneﬁts consulting ﬁrm
ADP. And even with federal
subsidies, a single person
making $20,000 a year
would still have to pay an
average of at least $587 a
year in premiums for an
exchange-based plan. A
more limited, even lower-
cost option might be attrac-
tive to that worker; it also
would let him avoid the
individual mandate pen-
alty—$95, or 1 percent of
taxable income, in 2014.
And if this employee
Those using the skinny strategy, essentially, are
betting that ofering lousy coverage will result in a
lower total penalty than not ofering coverage at all.
74 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD THE STATE OF SMALL BUSINESS
decides he wants more ro-
bust coverage, he can get it
through an exchange—and
qualify for subsidies, to boot.
LAUNCH A
WELLNESS
PROGRAM
HASSLE URGENCY
GENERALLY, IF YOU SUBSIDIZE
employees’ health-insurance
premiums, you have to do so
equitably. The exception: Since
2006, employers have been
permitted to vary premiums
on the basis of participation in
wellness programs—charging
less for those who take part or
more for those who don’t.
Starting in 2014, the ACA
will increase the incentives
that you can ofer, from 20
percent to 30 percent of the
total cost of coverage for
participation in “health-con-
tingent” wellness programs—
which require participation in
a physical activity, for exam-
ple, or meeting certain health
standards, such as a desired
cholesterol or blood sugar
level or body mass. To encour-
age smokers to quit, you can
charge them premiums up to
50 percent higher than those
for nonsmokers. And if you
don’t already have a wellness
program in place, there are
$200 million in federal grants
available to help you start one.
Let’s say your group health
plan has an annual premium
for employee-only coverage of
$6,000, of which the employ-
ee pays $1,500. You ofer
employees a chance to un-
dergo a health-risk assess-
ment to see if they meet blood
pressure, cholesterol, and
body mass targets, along with
a program to help those who
don’t meet the targets to work
toward them. You can give
those who participate an
annual premium rebate of up
to 30 percent of the total
annual cost of employee-only
coverage. In this case, the
maximum rebate would be
$1,800; but you can pay any
amount you choose. If you
ofer a smoking cessation
program, you can charge
smokers who don’t enroll in
it a surcharge up to 50 percent
of the total cost of cover-
age—$3,000 in this case.
A surcharge on smokers’
premiums can have an imme-
diate ﬁnancial payback: A
smoker’s premium is higher
than a nonsmoker’s and there-
fore drives up your company’s
average premium. Having
them contribute more helps
ofset those additional costs.
The impact of other kinds
of wellness initiatives is hard-
er to gauge in dollars and
cents. In large-group plans
that aren’t afected by com-
munity rating, encouraging
employees to be healthier can
help keep long-term health
costs down by reducing over-
all medical claims and corre-
sponding rate increases. A
2010 study by Harvard, for
example, showed an average
return on investment of $3.27
per $1 for wellness programs
when considering health care
costs alone.
In smaller companies, the
return on investment comes
mostly through reduced
disability and workers’ comp
claims and soft savings, such
as reduced absenteeism and
higher productivity. “If you
have a company with 10
people, it’s a huge issue when
someone is in poor health
and not coming in to work—
or coming in and not per-
forming,” says Thomas Parry,
president of the Integrated
Beneﬁts Institute, a nonproﬁt
membership organization
that provides health and
productivity research to
companies of all sizes.
CLAIM YOUR
TAX CREDIT
HASSLE URGENCY
IF YOU HAVE 25 OR FEWER full-
time equivalent employees,
pay average annual wages
below $50,000, and pay at
least half of the premium cost
for employee-only health
insurance, the government
wants to help you. Really.
The Small Business Health
Care Tax Credit has been
available since 2010, but in
2014, the maximum credit is
increasing, from 35 percent
of employer-paid premiums
to 50 percent. Qualifying
businesses will be able to
claim the expanded credit for
up to two consecutive years.
The amount of the tax
credit varies on the basis of
the size and wages of your
work force. The credit can
be used only to ofset taxable
income, so if you have no net
corporate income in the
current year, you can carry
the credit forward or apply it
up to one year back.
If your plan starts in Janu-
ary 2014 or later, you will
have to buy coverage through
your state’s SHOP exchange
to qualify for the credit.
Under a transitional rule,
though, plans purchased
outside the exchange that
have a 2013 start date but roll
over into 2014 will also be eli-
gible for the credit in the
2014 tax year, as long as you
buy through the exchange on
your next renewal.
—
ADAM BLUESTEIN, a Burlington,
Vermont–based journalist,
covers Obamacare for Inc.
If you have 25 or fewer
employees, the government
wants to help. Really.
76 - INC. - DECEMBER 2013/J ANUARY 2014

LEAD • THE STATE OF SMALL BUSINESS
STREET SMARTS
Norm Brodsky
Ŧ Ŧ Ŧ Ŧ
The New
Entrepreneurial
Status Quo
Business owners aren’t creating
as many jobs as they used to.
Why? They don’t want to
Norm Brodsky is a veteran entre-
preneur. His co-author is editor-at-
large Bo Burlingham. They also are
co-authors of Street Smarts: An
All-Purpose Tool Kit for Entrepre-
neurs. Follow them on Twitter at
@normbrodsky and @boburlingham.
been practicing for many years.
Not until the mid-1980s did entrepreneurship
become cool, thanks partly to Inc., but even more
to people such as Steve Jobs and Bill Gates. They
had built big companies from scratch, and most of
us wanted to do the same. Back then, $100 million
in annual revenue was big. That became my goal,
and I reached it, creating thousands of jobs in the
process. Then I made some bad mistakes, landed
in Chapter 11, and wound up destroying almost as
many jobs as I’d created. Fortunately, other entre-
preneurs weren’t so reckless. They turned the U.S.
economy into a job-generating wonder.
For at least two decades, I seldom ran into any
entrepreneur whose notion of success did not
include building a business that would one day
have a lot of employees. But that changed in the
mid-2000s. I began seeing more entrepreneurs
with a diferent mindset and a diferent goal. Many
didn’t want employees at all. What they did want
was the ability to support themselves and their
families without having to report to a boss—in a
word, independence. Thanks to the Internet, more-
over, they had an increasing number of avenues to
pursue their independence.
Now, I’m not saying there aren’t any entrepre-
neurs who want to build big companies. Obviously,
many do, and some succeed. Witness Twitter,
Facebook, and Zappos, among others. But I believe
entrepreneurs with such aspirations are a minority
these days. As I’ve noted, most of the would-be
entrepreneurs I meet are starting Web-based businesses on the side while continuing to hold
full-time jobs. Their goal is to be independent rather than to build something big.
I expect this trend to accelerate, with one diference. Members of the post-Millennial
generation won’t wait until they already have jobs before starting businesses. They’ll be
planning for their independence from the get-go. That will pose new challenges for compa-
nies that want to attract and keep the best people. Smart companies are already ofering
employees a degree of independence unthinkable 20 years ago, including paid sabbaticals
and ﬂexible hours. They realize that they’re competing for talent, not just against other em-
ployers but also against the opportunity for employees to go out on their own. You can expect
this competition to become increasingly intense. Now is the time to start preparing for it.
W
HEN YOU GET to be my age, you
realize that, in business at least,
climate change is real. The envi-
ronment for starting companies
is constantly evolving. I believe
that, overall, it’s easier to start a
business now than at any other
point in my lifetime. I also
believe more people are trying to start businesses than ever before.
So you might think we’d be seeing new companies generating more
jobs than ever, but we’re not. The reason says a lot about where we’re
going—and where we’ve been.
A little history here. Young entrepreneurs today tend to take for
granted the encouragement they get from family, friends, and soci-
ety at large. That wasn’t the case when I started my ﬁrst business in
1979. Entrepreneurs were generally regarded as either eccentrics or
losers. My mother was ashamed to tell people what I was doing.
She would introduce me as her son the lawyer, although I hadn’t
SCAN THE PAGE TO SEE NORM ANSWER A QUESTION FROM AN ENTREPRENEUR. (See page 12 for details.)
Do you have a question for Norm? Write to him at [email protected].
78 - INC. - DECEMBER 2013/J ANUARY 2014
E
V
A
N
K
A
F
K
A

“We actually
trust people.”
—CHADDICKERSON,
CEO of Etsy. The
question is, Does the
Etsy community trust
Dickerson? See “Now
Comes the Hard Part.”
PG.88

CRAFTY
Etsy employees,
surrounded by
Etsiness, at company
headquarters in
Brooklyn, New York
What
Works. What’s
Next.
ŦŦŦŦ
Smart ideas stolen from coders PG.86 Now the hackers are coming after youPG.82
DECEMBER 2013/J ANUARY 2014 - INC. - 81
PHOTOGRAPHBY REEDYOUNG

HIGH
ALERT
5 Stats
You Should
Know About
Cyberthreats
•
FOR MANY YEARS, the average American
small business was an unlikely target
for a sophisticated cyberattack. Fewer
ﬁnancial resources and a relatively
unknown brand worked in your favor
to ward of hackers. Not anymore.
The dam has broken for small compa-
nies when it comes to security. Jeremy
Grant, an adviser at the Department of
Commerce’s National Institute of Stan-
dards and Technology, says in the past
two years he has seen “a relatively sharp
increase in hackers and adversaries
targeting small businesses.” According
to the security company Symantec,
cyberattacks on small businesses rose 300
percent in 2012 from the previous year.
Smaller companies are attractive
because they tend to have weaker online
security. They’re also doing more busi-
ness than ever online via cloud services
that don’t use strong encryption tech-
nology. To a hacker, that translates into
reams of sensitive data behind a door
with an easy lock to pick. If you have
any Fortune 500 companies as customers,
you’re an even more enticing target—
you’re an entry point.
Worse, the laws safeguarding com-
mercial bank accounts aren’t as strong as
those for personal accounts. Banks won’t
always reimburse businesses whose
accounts get hacked, especially if a bank
can prove its security meets federal
guidelines, but the business’s isn’t up
to snuf. (Individuals aren’t expected
to have strong security in place.) Patco
Construction, based in Sanford, Maine,
learned this the hard way when hackers
siphoned $588,000 from its bank ac-
count in 2009 and its bank refused to
reimburse the full amount. Patco sued
the bank and ﬁnally won after two
appeals. The court ruled that despite the
bank’s security, it should have caught
the suspicious transactions.
So what can you do about the growing
threat of hackers? First, put in place the
best tech barriers you can aford, like a
cloud-based security app. Then patch
your biggest vulnerability: your people,
says Chris Hadnagy, founder of security
training ﬁrm Social-Engineer. Teach
employees not just to devise smarter
passwords and spot sketchy emails but
also to think critically about their online
actions. “If you just want people to
follow the rules—don’t think, just do—
you create an easy environment for
[hackers],” he says. —JOHN BRANDON
Once every
3 minutes
How often, on
average, companies
come into contact
with viruses and
malware
•
Top 5 ﬁlenames
used as bait in
phishing scams
•
Details.zip
•
UPS_document.zip
•
DCIM.zip
•
Report.zip
•
Scan.zip
Tip Sheet
ŦŦŦŦ

Think you’re too small to catch a hacker’s eye?
Big mistake. You’re probably the perfect target
•
AN ENTRY POINT AT EVERY DESK
Hackers can get into your company
through a single email attachment or
innocent click on a bad link. Even the
strongest ﬁrewall is no substitute
for educating employees about how
security breaches happen and what
they can do to protect themselves
and your brand.
SPECIAL
CYBERSECURITY
REPORT
82 - INC. - DECEMBER 2013/J ANUARY 2014
S
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A
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;
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3 things hackers
want most
g
1. Customer data
2. Intellectual property
3. Bank account
information
1 in
every
291
emails
contains
a virus.
1. OVERSHARE
“I’m on Facebook, Twitter,
and LinkedIn, but you won’t
ﬁnd information about my
family, hobbies, likes,
dislikes. You won’t see
pictures of me and my kids
on vacation or check-ins
from where I buy cofee.”
2. TRUST MY INBOX
“I follow a meticulous
process when I receive
emails from companies like
Amazon. I hover over links
to verify + source, and I
don’t click on links. I open
a browser, type in the URL,
and log in to my account.”
3. REUSEA PASSWORD
“This isn’t about your bank
getting hacked. It’s about
someone hacking your
Facebook account and then
trying the same password
on your bank account. The
chances of running into a
scam like that are very high.”
BEYOND THE PASSWORD
Entrepreneurs don’t let other entre-
preneurs get hacked. Here are three
start-ups working on high-tech, and
highly secure, alternatives to the
traditional password. —J.B.
1. Bionym
Toronto-based Bionym has developed the
Nymi, a wristband with two electrodes
that read your heart’s unique—and difcult
to copy—electrocardiogram signal. You
can use the band to unlock computers,
tablets, phones, and other smart devices.
Available in early 2014 for $99.
2. Clef
The three twentysomethings behind San
Francisco–based Clef wanted to develop
a more secure way to log in to a website.
They came up with Clef Wave, a free app
that generates a unique image on your
iOS or Android smartphone. You point
your phone at your webcam, which reads
the image. The image cannot be stolen,
because it stays on your screen for only
a few seconds. About 250 websites,
including some WordPress sites, have
enabled the service.
3. Illiri
Illiri is a New York City start-up that’s
trying to replace the password with audio
waves. The app emits a unique sound on
your smartphone that can be used to
unlock another device, log you in to a
website, or process a payment. The sound
lasts for 10 seconds and can be heard
within 1 foot of your device. For now, it’s
available only in a free business-card app
called CardXChange for iOS and Android.
3 THINGS ONE SECURITYPRO WON’T DO ONLINE:

TECH
$188,242
Average annual
cost of a cyberattack
on a small or
medium-size
business
—CHRIS HADNAGY, founder of security training ﬁrm Social-Engineer
SOURCES: SYMANTEC, FIREEYE, FCC

TECH
WEAK
PASSWORDS
With a $300 graphics
card, a hacker can run
420 billion simple, low-
ercase, eight-character
password combina-
tions a minute.
80% of
cyberattacks involve
weak passwords.
55% of people
use one password
for all logins.
In 2012, hackers
cracked 6.4 million
LinkedIn passwords
and 1.5 million
eHarmony passwords
in two separate
attacks.
• Use a unique
password for each
account.
• Aim for at least
20 characters and
preferably gibberish,
not real words.
• Insert special
characters: @#$*&
• Try a password
manager such as Last-
Pass or Dashlane.
The best way to build stronger defenses is to identify your company’s weak spots

F
IRST THINGS FIRST: There are way more than ﬁve
ways that cyberthieves can break into your busi-
ness. (They’re surely thinking up new methods as
you read this.) Often they use more than one ap-
proach in a single attack. Even so, small-business
hacks tend to fall into a few categories. We turned to security
professionals and “ethical” hackers—they help businesses
identify their vulnerabilities—to ﬁnd out the most common
methods used and what you can do to protect yourself and
your brand. —JOHN BRANDON
SOCIAL
ENGINEERING
Think 21st-century
con artist tactics,
e.g., hackers pretend
to be you to reset
your passwords.
29% of all
security breaches
involve some form of
social engineering.
Average loss:
$25,000 to $100,000
per incident
In 2009, social
engineers posed as
Coca-Cola’s CEO,
persuading an exec
to open an email
with software that
inﬁltrated the
network.
• Rethink what
you reveal on social
media—it’s all fodder
for social engineers.
• Develop poli-
cies for handling
sensitive requests
like password resets
over the phone.
• Have a security
audit done.
MALWARE
ATTACKS
An infected website,
USB drive, or ap-
plication delivers
software that can
capture keystrokes,
passwords, and data.
8% increase in
malware attacks
against small busi-
nesses since 2012
Average loss from
a targeted attack:
$92,000
In February, hackers
attacked about 40
companies, including
Apple, Facebook,
and Twitter, by ﬁrst
infecting a mobile
developer’s site.
• Run robust
malware-detection
software like
Norton Toolbar.
• Keep existing
software updated.
• Use an iPhone—
Android phones
are targeted more
than any other
mobile OS.
RANSOMWARE
Hackers hold your
website hostage,
often posting em-
barrassing content
like porn, until you
pay a ransom.
$5 million
is extorted each year.
The real cost is the
data loss—paying
the ransom doesn’t
mean you get your
ﬁles back.
Hackers locked
the network at an
Alabama ABC TV
station, demanding
a ransom to remove
a red screen on every
computer.
• As with mal-
ware, don’t click on
suspicious links or
unknown websites.
• Regularly back up
your data.
• Use software,
such as Kaspersky
Internet Security
2014, that speciﬁ-
cally checks for
new exploits.
HOW
IT WORKS
RISKS/COSTS
NOTABLE
SCAMS
YOUR
BEST
DEFENSE
Illustrations by MATTHEW HOLLISTER
PHISHING
EMAILS
Bogus but ofcial-
looking emails
prompt you to enter
your password or
click links to infected
websites.
125%
rise in social-media
phishing attacks
since 2012
Phishers stole
$1 billion from small
businesses in 2012.
Scads of small
businesses were
targeted in 2012
with phishing emails
designed to look
like Better Business
Bureau warnings.
• Keep existing
software, operating
systems, and
browsers updated
with the latest
patches.
• Don’t automati-
cally click on links
in emails to external
sites—retype the
URL in your
browser.
SPECIAL
CYBERSECURITY
REPORT
Sources: Symantec, Kaspersky, Verizon, CSO, LastPass, abcnews.com, Osterman Research, Neohapsis Security Services
84 - INC. - DECEMBER 2013/J ANUARY 2014

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TECH
TECH SUPPORT
The Essential Management
Book You’re Not Reading
A coding handbook gains a cult
status for its simple leadership ideas
EXTREME PROGRAMMING EXPLAINED: Embrace Change, Second Edition,
lacks the alliterative punch of Good to Great or The Efective Execu-
tive. But the book—written for coders—has become a kind of man-
agement bible. Kent Beck, who created extreme programming, or
XP, as a team-based methodology for producing high-quality
software, was surprised to ﬁnd his ideas embraced by nontechnical
managers as well. “People would tell me that their salespeople
started to pair up,” says Beck, referring to the XP practice of two
coders sharing a single computer. The book’s proﬁle among non-
programmers began to surge after a 2005 New Yorker article fea-
tured a food company’s attempt to develop a healthful, delicious
cookie using XP principles. Want to try it? Here are three XP ideas
any start-up can steal. —LEIGH BUCHANAN
1 2 3
—
NO-TECH COMMUNICATION
XP prizes simple communica-
tion, which in practice means
“the least technology possible,”
says Beck. At Menlo Innova-
tions, a custom software ﬁrm
in Ann Arbor, Michigan, every
employee in every department
communicates with paper,
pushpins, yarn, and sticky dots,
which they plaster across walls
to chart the course of their
work. “In companies, there is
so much pain between the
business side and the technical
side or the front ofce and pro-
duction, or management and
the line staf,” says Richard
Sheridan, Menlo’s co-founder
and CEO. “Beck showed us how
to break down barriers by creat-
ing a common language with
the simplest possible tools. Yes,
there are technology-based
ways to do all this. But this way
works better for the humans.”
—
INFORMATIVE EAVESDROPPING
Beck writes that an observer
should be able to walk into an
XP workplace and suss out
what’s going on in 15 seconds.
Luxr, a San Francisco–based
company that makes coaching
products for start-ups, has an
open ofce where almost
everything happens in public.
“Eavesdropping and overhear-
ing are encouraged and how
we keep informed about
things,” says founder Janice
Fraser. Employees make
decisions among themselves
and pin relevant notes to the
wall. Everyone is expected to
absorb what’s going on and
to ask questions if he or she
misses something. As a result,
meetings are virtually nonexis-
tent. “Anytime you have to pull
30 people into a room to get
them up to speed, that is pro-
foundly wasteful,” says Fraser.
—
PERSONAL FEEDBACK ON DEMAND
Continuous improvement is
impossible unless you know
what works and what doesn’t.
That requires feedback. XP
stipulates regular feedback on
code quality, but of course the
practice also beneﬁts process-
es and employee performance.
At Menlo Innovations, for ex-
ample, any employee at any
time can convene a lunch
meeting at which colleagues
ofer input on her strengths
and weaknesses. At Luxr,
Fraser solicits team feedback
after every 60-day planning
session. She has winnowed
by 75 percent the time those
sessions take and improved
the accuracy of the company’s
estimates. “By building in
feedback,” she says, “we’ve
been able to take this big hair-
ball and reduce it to some-
thing manageable.”
•
CRACK THE CODE
Smart management
tactics lurk in a
manual for
programmers.
86 - INC. - DECEMBER 2013/J ANUARY 2014
C
O
R
B
I
S

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IN HIS FIRST week as chief technology ofcer of the e-commerce company Etsy, Chad Dickerson took
a promising engineering candidate to a café near the company’s ofce in the Dumbo section of
Brooklyn, New York, to conduct an interview. While the two were sitting at the bar, the new CTO
got a text message from Etsy’s founder, Rob Kalin, saying the site was down and nobody knew why.
Trying to remain calm and not give away the bush-league crisis, Dickerson excused himself and
headed to the restroom to respond. In a series of texts and calls, while his candidate sat nursing a
drink in the other room, he learned to his horror that the site didn’t even have a way to tell visitors it
was experiencing technical difculties. “You’d go to Etsy.com, and it was like dead air,” Dickerson
says. In the scramble that ensued, someone remembered, “Oh, yeah; we used to have this blog. Let’s
Now
Comes
the
Hard
Part
Photographs by REED YOUNG
by TOM FOSTER
What do you call a company
that is growing rapidly, has hundreds
of happy employees, and is worth
hundreds of millions of dollars—
but is still deeply troubled? You call it
Etsy. The story of a distinctly 21st-
century management challenge
88 - INC. - DECEMBER 2013/J ANUARY 2014

TECH
• IT’S QUIET IN HERE
Chad Dickerson has done
wonders within this building.
Out in the Etsy community,
not everyone is sold.

get that going again, so we can at least
redirect people there.”
Etsy had launched in 2005 as a
marketplace of handmade goods, and by
the time Dickerson arrived, in 2008, the
craze for artisanal products was well
established in popular culture. Kalin’s
company was perfectly positioned at
the center of it all (and Kalin himself
would be on the cover of Inc. twice).
Individual crafters would crochet
beanies and whittle baby toys in their
garages, and Etsy would provide them
online storefronts and access to a vast
customer base. Kalin had recruited
Dickerson to join Etsy with a passion-
ate narrative about how the site was
trying to change the world through the
sheer power of craftsmanship. Dicker-
son had long harbored something of a
hippie streak, and he was restless in his
job running the advanced-products
team at Yahoo, so he took a chance and
moved with his wife across the country
from Silicon Valley to Brooklyn.
Now, just a few days into his job, he
began to wonder if he had made a
terrible mistake.
It wasn’t just the technology that
was a disaster. Kalin had started the
company, along with two friends, when
he was a 24-year-old recent graduate
armed with a classics major and a pas-
sion for furniture making but little to no
technology or business acumen. His
lack of experience didn’t limit the com-
pany at ﬁrst, but as Etsy grew and took
on tens of millions of dollars in venture
capital ﬁnancing, it began buckling
under the weight of its success. Cus-
tomer service was a joke, for instance;
sellers who had problems often waited a
week to get a response to an email.
Kalin’s co-founders left the company in
2008 and said the experience had been
like “an abusive relationship.”
That’s the company Dickerson took
responsibility for in 2011, when Etsy’s
board removed Kalin and named Dickerson CEO. Since then,
head count has more than doubled, to more than 450. Gross
merchandise sales have roughly tripled and are on track to
approach $1.5 billion this year. There are more than a million
shops on Etsy, 18 million items for sale, and 60 million monthly
unique visitors, up from 25 million when Dickerson took over.
Not only is Etsy moving fast, but under the hood, things are
running smoothly. The site is stable and fast, mobile trafc has
surged, and a custom payment platform has streamlined the
buying process and added a new rev-
enue stream. Transactions happen in
nine languages across more than 200
countries. Within the company, Dicker-
son has created a culture in which
employees have a high degree of cre-
ative freedom and, when things go
wrong, accountability without blame.
“We actually trust people,” Dickerson
says. He calls the approach a “radical
decentralization of authority.”
It’s a remarkable success story: A
leader takes over a troubled operation
intimately tied to its founder and earns
the trust and admiration of his staf
members by, in large part, trusting them.
Spend a few days hanging around Etsy
headquarters, lunching at picnic tables
and tearing up paper plates so they’ll
break down more easily in a compost
pile, and you come away with the im-
pression of a conﬁdent and enlightened
company. An IPO is widely anticipated.
And yet, spend just a few minutes
scanning the Etsy forums, where sellers
trade tips and discuss Etsy-related
issues, and another story quickly emerg-
es, one in which Etsy faces nothing
short of an existential crisis. On the
forums, a highly vocal faction of mem-
bers accuses Dickerson of selling out the
company’s mission. In this narrative,
Dickerson was brought on as a tool of
the investors, who want the company to
grow at all costs. Etsy is just a step away
from becoming eBay, these people say.
At issue is what belongs in the Etsy
marketplace. The individual artisans
who helped build the company from
scratch believe handmade goods
should be just that, nothing more. This
sounds reasonable enough—until a
successful seller ﬁnds herself unable to
meet demand and has no choice but to
leave Etsy if she wants to expand her
business. There are countless examples
of exactly that happening.
Etsy, which makes most of its money
by charging a 20-cent listing fee for each product and taking a
3.5 percent commission on each sale, clearly needs to keep its
best sellers around. At the same time, the company can’t aford
to alienate its passionate core. It adds up to a distinctly 21st-
century dilemma for Dickerson. It’s not enough for the CEO of
Etsy to build great shopping technology, post big sales num-
bers, and inspire his work force. He’s the leader of a commu-
nity as much as a company, and that means balancing wildly
divergent priorities. That his particular community includes a
Ŧ
Ŧ
Ŧ
Ŧ
WALKING THE TALK
As the replacement for a company
founder, Chad Dickerson had to win
the trust of his team. Here he talks
about translating tactics into action.
BE TRANSPARENT ABOUT CHANGE:
“Nine months in as CTO, I’d made
about 15 personnel changes on a
team of 20. People were demanding
answers: Why are you doing this? I
said, ‘I’m doing it for the good of the
company and the community. Six
months from now, if the company is
worse for it, I’m a jerk. But if six
months from now the company is
better for it, you’ll know I did it for the
right reasons.’ I took a lot of risk, told
people I was taking the risk, but told
them it was going to get better.”
FIND TIME FOR THE FUTURE:
“By the summer of 2009, we were
losing our minds; the site was blow-
ing up every day. I started a small
group of the best engineers, and I
called it the Breakfast Club. I said, ‘I
know you don’t like to get up early,
but I want you to come here for break-
fast three days a week, and we’re
going to talk about the future only,
nothing about what’s going on. We’re
going to build the Etsy future.’ ”
DO WHATEVER’S NECESSARY:
“One year, right before the kickof for
holiday shopping, we discovered we
needed a new server. We literally
needed it the next day, so I pulled out
my Amex and ordered the server. It
was delivered to a FedEx center in
Moonachie, New Jersey. I ran out of
the ofce in Brooklyn and drove to
Moonachie. I pulled the car up into
the loading dock at our data center
and carried it over to the guys who
would install it.”
TECH
90 - INC. - DECEMBER 2013/J ANUARY 2014

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TECH
• THE WRITING IS ON THE WALL Etsy employees are surrounded by Etsy products and Etsy thinking.
million-plus artist types with, in many cases, anticommercial
tendencies, makes it all the harder. Only if he can earn the
community’s trust, as he earned the trust of his staf, can he
prove himself a visionary CEO.
T
O UNDERSTAND THE CONFLICT that’s roiling Etsy’s
community and the challenge facing Dickerson,
consider the case of Tielor McBride. A bearded
28-year-old Brooklyn-based leather-goods maker,
McBride joined Etsy in 2010. He was designing
window displays and interiors for Ralph Lauren stores, but
after he got promoted into the advertising department and the
work left him creatively unfulﬁlled, he decided to turn his
hobby of making rugged leather and canvas bags into a profes-
sion. He made his ﬁrst sale on Etsy in late 2010, under the
shop name TM1985, and business took of a few months later
when he was highlighted on Etsy’s homepage as a Featured
Seller; he had 200 orders in one day.
As sales picked up on Etsy, McBride’s connections in the
fashion world also started paying of, and he began selling bags
to independent boutiques in Brooklyn and beyond. His busi-
ness quickly exceeded his capacity to turn out bags in his
workshop, so he decided to expand his production operations,
as any budding entrepreneur would.
Today, 12 skilled workers make TM1985 bags and wallets
and other accessories in a small family-owned leather-goods
factory in New Jersey. McBride visits the factory two or three
times a week to make sure the foreman knows what’s coming
down the line, to keep an eye on quality, and occasionally to
help punch out leather or rivet pieces. He designs all his prod-
ucts himself and still makes prototypes in his own workshop,
but increasingly, he spends time on operational matters. He
will sell half a million dollars’ worth of bags this year, about
90 percent of that through his wholesale channels and just
a few percent through Etsy.
“I’ve beneﬁted a lot from Etsy—I got my start there,”
McBride says. On one level, his success is a testament to the
cultural movement that made Etsy possible. His brand’s
entire reason for being is a rebuke to big business and a re-
turn to personal attention to detail. And yet, as he’s grown,
the amount that his hands touch any individual piece has
shrunk to nearly zero.
For Dickerson, supporting successful shops like TM1985 has
been a high priority. Historically, the company has done this by
amending the guidelines for what does and
doesn’t belong in the marketplace. What
CONTI NUED
ON PAGE 144 •
92 - INC. - DECEMBER 2013/J ANUARY 2014

“Her success at the American Dream
is a real triumph.” —THE NEW YORK POST
Born on the eve of China’s Cultural Revolution,
Ping Fu was separated from her family at
age eight. After a traumatic childhood, she
found her way to the United States; her only
resources were $80 and a few phrases of
English. Yet Ping persevered and eventually
started a pioneering 3D printing company,
Geomagic, that changed the world.
“She tells her story with intelligence,
verve, and a candor that is often
heartrending. . . . Her life story is
moving and inspiring.”
—THE WALL STREET JOURNAL
“This is an utterly unique memoir,
a fascinating look at one woman’s
journey from Mao’s China to the top
of the American tech world.”
—TONY HSIEH, CEO OF ZAPPOS.COM,
AUTHOR OF DELIVERING HAPPINESS
“Not only has she triumphed over
adversity most of us can scarcely
imagine, but she has managed to
draw out of her experience a wealth
of practical business lessons.”
—BO BURLINGHAM,
AUTHOR OF SMALL GIANTS
NOW IN PAPERBACK.
For a free excerpt, visit www.bendnotbreak.com.

TECH
Ŧ Ŧ Ŧ Ŧ
The Simple Change That’s
Completely Transformed
How I Get Things Done
No app, checklist, or special
process required
the United States. Techstars, which I co-founded,
has programs throughout the country and has
recently expanded overseas. My writing on start-
up communities (Startup Communities: Building an
Entrepreneurial Ecosystem in Your City) and with
organizations like the nonproﬁt UP Global takes
me around the world. So I felt compelled to travel.
Sometimes I enjoyed it, but as an introvert, mostly
I found it exhausting. I wondered, Could I really
be as efective at this work without traveling?
Part of the reason I was able to travel as much
as I did was that I set up my systems to be able to
work from anywhere. If I had to be in New York
for a few days, I was just as connected to Boulder
(my home base) as I would have been from any-
where else. My epiphany was that because I
could work from anywhere, why not make that
place Boulder?
There were only two things I had to do to make
this work. The ﬁrst was decide to stop traveling
completely. I’m not good at doing things moder-
ately, so it had to be all or nothing.
The other key was really mastering videocon-
ferencing. It’s not a new technology—I’ve been
using it for many years—but the vast majority of
companies I work with have unique, inadequate
setups. Usually this means you wind up with the
least-common denominator: a crappy Skype call.
At the Foundry Group ofce in Boulder, we
installed Oblong’s Mezzanine system, which we
believe is the future technology for collaborative, distributed work. (Full disclosure: Foundry
is an investor.) We rolled out LifeSize videoconferencing in every Techstars ofce. We made
sure each conference room had high-quality audio and video for any Web-based videoconfer-
ence call. We ﬁgured out how to deal with multiparty calls and learned the magic trick of
separating audio and video streams. I tried every videoconferencing software program I could
ﬁnd and practiced relentlessly, driving as many calls to videoconferencing as possible. And I
learned that when I am on a videoconference, I can’t have anything else going on, or else I pay
almost no attention. So I’ve learned to give the task at hand my sole focus.
It has been transformative for me. Since June, I feel as if I’ve been doing the best work of
my life. I’m as creative as I’ve ever been. I’m in the moment completely when I’m working.
I’m no longer shredded from the exhausting and dehumanizing process of trying to get
from one place to another by air travel, and I’m getting all my work done at the same time.
The real bonus? Walking my dog every morning is a special joy, and going to bed each night
with my wife is magniﬁcent.
I
THINK I’VE DISCOVERED the ultimate productivity trick (and
sanity saver). After 25 years of traveling 50 percent to 75
percent of the time for business, I’ve stopped. Completely.
I returned home from my last trip on May 17 and haven’t
taken a business trip since.
I initially cut out business travel for self-preservation
reasons. If you read my last Inc. column, you know that I
struggled through a depressive episode in the ﬁrst half of
2013. Depression wasn’t new to me, but this time I slammed into a
wall. After months of traveling almost nonstop and binge sleeping
on the weekends to recover, I woke up one day in January and
realized I couldn’t—and didn’t want to—do it anymore.
So I stopped. As part of a series of tactical life changes, I elimi-
nated business travel the rest of the year to see how it worked out.
The result? It has been incredible—so incredible that I’ve decided
not to travel for business at all in 2014.
In case you’re wondering, my work is international. Foundry
Group, the VC ﬁrm where I’m a partner, has investments all around
START- UP SCHOOL
Brad Feld
Brad Feld is an entrepreneur and
the managing director of VC ﬁrm
Foundry Group in Boulder, Colorado.
He co-authored with his wife, Amy
Batchelor, Startup Life: Surviving
and Thriving in a Relationship With
an Entrepreneur.
94 - INC. - DECEMBER 2013/J ANUARY 2014
E
V
A
N
K
A
F
K
A

ŦŦŦŦ
PG.102
“My goal has been to
expand opportunity
to as many people
as possible.”
—PIERRE OMIDYAR, founder and
chairman of eBay, shown near his
home in Hawaii
Ideas.
Breakthroughs.
Disruption.
Data-driven product design PG.98 The wearable tech boom PG.106
DECEMBER 2013/J ANUARY 2014 - INC. - 97
PHOTOGRAPHBY MICHAEL LEWIS

Tip Sheet
A/B Tests
uSell, an online marketplace for used electronics,
wanted to see whether it should expand into items such
as used textbooks, clothing, and video games. Using
Optimizely, an online A/B testing tool, uSell created two
versions of its homepage, the regular one and one that
included the new items. The test showed customer
interest in new items—and a negligible drop in electronics
sales, so uSell went ahead with the expansion.
•
Testing
the Waters
Three ways
to put data
in product
development
DESIGNING AN INNOVATIVE product requires
impeccable taste, sharp instincts—and, of
course, good data.
Taking a page from the tech industry,
product makers and retailers are em-
ploying A/B testing, a technique fre-
quently used to reﬁne websites.
Traditionally, that involves showing
users two slightly diferent versions of a
webpage to see which one drives more
sales. For example, Version A might
have a button that says Buy Now, while
Version B says Get More Information.
For online developers and marketers,
these sorts of experiments have become
the industry standard. A survey from
MarketingSherpa ﬁnds that, of the
online marketers who measured return
on their A/B testing, 81 percent reported
a positive return on investment.
Now, companies that make physical
stuf are using these tests to determine
what customers want and how best to get
them to buy. Crowdery, a Y Combinator–
backed start-up based in San Francisco, is
working on a widget that would let retail-
ers collect data on which potential prod-
ucts customers prefer. Crowdery’s
technology is still in beta testing, but the
process can be as explicit as asking con-
sumers to vote on a favorite shirt style in
hopes of scoring a presale discount if the
item ultimately gets made. Or Crowdery’s
code can lurk silently in the background,
walking users through a typical transac-
tion before informing the cus-
tomer that the item is not yet
available.
Founder Maran Nelson came
up with the idea after working
with a company that makes and
sells backpacks. At the time, the
founder of that business was
worried about investing time and
money into manufacturing de-
signs that might prove to be un-
popular with customers. “We
started seeing that there was this
pain point for retailers,” says
Nelson. “Ultimately, you have an
industry making huge ﬁnancial
decisions in a very inelegant way.”
Unlike traditional focus group
participants, customers in these
sorts of A/B tests often believe
they are about to purchase a
product, which makes the feed-
back more valuable. For instance,
Julep, a Seattle-based cosmetics
start-up, tested demand for a new
nail-polish wand by taking out several
ads on Google. One ad presented the new
IDEO-designed wand as a tool for so-
phisticated color mixing. The other
promised results similar to those at a
professional nail salon. Overwhelmingly,
people clicked on the ad touting the
professional-salon quality, says founder
and CEO Jane Park. She expects to start
shipping the gadget in May. Because of
the results, she’s now considering ofer-
ing the wand’s color-mixing attachment
as a separate product.
In addition to ads, Julep regularly taps
customers for input, including polling its
Idea Lab, a group of 5,000 customers who
weigh in on early prototypes. These sorts
of tests help speed up the development
cycle and validate demand for an item
before it hits the market, says Park. Even
Want to develop a product that customers will
love? Take a cue from Internet companies
PUTTING DATA IN
ŦŦŦŦ
•
98 - INC. - DECEMBER 2013/J ANUARY 2014
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:
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:
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A
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D
M
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;
C
L
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W
I
S
E
F
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T
O
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F
T
:

N
A
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V
I
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/
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T
Y
;
C
O
U
R
T
E
S
Y
C
O
M
P
A
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Y
(
3
)

INNOVATE
HOW JULEP GAUGES
CUSTOMERDEMAND
Cosmetics company Julep launches
50 products a year. Here’s how it
makes sure customers will buy them.
IDEA LAB
About 5,000 customers have joined Julep’s Idea Lab.
Once a week, the product development team sends
them an email survey, asking what they want in, say,
a mascara. “For instance, do they want lengthening,
curling, thickness?” says founder Jane Park. “A lot of
times, there are compromises we have to make.”
ONLINEADVERTISEMENTS
Julep frequently places text ads on Google for not-
yet-available products to see which marketing
message gets the most clicks.
SOCIAL-MEDIA SURVEYS
Every month, Julep asks its fans on Facebook and
Instagram to vote on which products they prefer. The
results aren’t always a reliable indicator of sales, says
Park, but customers like being involved in decisions.
TESTINGPARLORS
In the Seattle area, Julep operates four nail parlors
in which it tests products in development on
paying customers. “You can get a lot of great data
online, but sometimes it’s nice to get ﬁrsthand
feedback,” says Park. After salon customers raved
about a new skin-repair serum, Julep marketed the
product online. It quickly became one of the
brand’s top sellers.
DESIGN
ASKTHE RIGHT QUESTION
Don’t waste your time
testing small tweaks. The
choices you’re asking cus-
tomers to make in an A/B
test should be diferent
enough for your audience to
notice. The bigger the
diference, says Robert
Moore, a statistician and the
CEO of RJMetrics, the fewer
people you need to poll to
produce statistically mean-
ingful results.
SIMULATE REAL LIFE
There’s a big diference
between paying people to
participate in a focus group
and having them actually
think they’re about to spend
money on something. You’ll
get a more accurate reﬂec-
tion of customer demand
when people believe they
are being asked to open
their wallets.
DON’T BECOME A SLAVE
TOTHE NUMBERS
In the same way that politi-
cians shouldn’t govern by
opinion polls alone, leaders
should avoid making deci-
sions on data alone, says
Jane Park of Julep. Just
because something does
well in an A/B test does not
guarantee it will be a hit in
the marketplace.

MANI METRICS
JulepCEOJane Park at
one of her testing nail
parlors in Seattle
small tweaks made with feedback from cus-
tomers—whether it’s a slightly diferent nail-
polish formula or an improved package
design—can make a big diference in sales. So
that input is invaluable, says Park, even if it
occasionally proves her wrong. “I have a dis-
agreement with my creative director almost
every day,” she says cheerfully. “But there’s a
simple way to settle any argument: We take it
to the people.” —RYAN UNDERWOOD

Surveys
The men’s apparel company Bonobos is obsessed with
helping customers ﬁnd the right ﬁt, so much so that
ﬁrst-time customers are encouraged to buy and return
several pairs of pants to ﬁnd the perfect match. By
surveying customers making returns, the company
discovered that one of its shirts was “pooﬁng” in an
unﬂattering way. Bonobos responded quickly and
slimmed down the item, which boosted sales.

INNOVATE
Why this topic?
After coming to Silicon Valley
from North Carolina a few
years ago, my wife made me
realize something strange.
You don’t see women here at
tech conferences. You don’t
see women on the boards of
tech companies. You don’t see
women CTOs. When it comes
to the workplace, women
aren’t there. It’s like the Twi-
light Zone. So I started re-
searching the causes of the
problem and speaking out
about it. And the more I
spoke, the more attacks I
endured from the Silicon
Valley elite. I said, Aha! This is
the root of the problem.
Why did you decide to
crowdsource the book?
I started a major research
project at Stanford [on wom-
en and technology], which
we are wrapping up right
now. But academic papers
have to be boring. I said, Let’s
do a book about this issue
where I can express all the
opinions I want. But it
doesn’t make sense for a guy
to tell women how to ﬁx their
problems. I used my private
mailing list, hoping I would
get women to help me spread
the word. My goal was to get
30 to 50 women to tell their
stories. I ended up with more
than 500. I also crowdfunded
this, so it wouldn’t be just my
project. I wanted to raise
$40,000. I got $96,000.
Which stories, in particular,
impressed you?
The stories are all amazing.
You see how from the time
they are young, women are
not encouraged to take on
hard mathematical tasks or
to do world-changing inno-
vation. They are discouraged
in school and then in college
and then they join the work
force and ﬁnd they are the
only female engineer in the
department or the whole
company. And they get treat-
ed diferently. Every woman
who contributed told us
about a hardship and how
she got over it.
In your experience, do men and
women innovate diferently?
Women are more sensible in
the businesses they start.
They are not going to ask for a
gazillion dollars from a ven-
ture capitalist for some hare-
brained scheme to do yet
another photo-sharing app.
They focus on the practical.
Which also means their com-
panies are initially smaller
than the guys’ companies.
Which is OK. They have
lower failure rates. I like those
companies better.
Much of innovation involves
teamwork. Does that help
women—because they are
naturally more collaborative—
or hurt them, because the
men in the group may be
more assertive?
Women beneﬁt from being
more collaborative. They
generally talk a lot more
about their partners and the
support that they got and
mentorship. They value
teamwork more than the
guys do. But the guys can
hold them back.
What do you hope female
readers will take from
these stories?
Women face the same prob-
lems everywhere, but they
think they are alone. Reading
the stories of how other wom-
en surmounted their difcul-
ties is going to provide
inspiration. I have no doubt
about that.
What about male readers?
I think the majority of readers
will be women.
7 QUESTI ONS FOR
WHERE ARE
THE WOMEN
INNOVATORS?
Male academics don’t inspire female innovators.
Female innovators inspire female innovators.
So when Vivek Wadhwa sought to highlight
women’s struggles and achievements in the
innovation economy, he teamed with journalist
Farai Chideya to solicit stories from women
around the world. Wadhwa, whose CV includes
Stanford, Duke, and Singularity University,
took a break from editing the book to discuss
the project with editor-at-large Leigh Buchanan.
Q
Photograph by IAN ALLEN
SCAN THE PAGE TO SEE WADHWA DISCUSS HIS RESEARCH. (See page 12 for details.)
100 - INC. - DECEMBER 2013/J ANUARY 2014

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•
BLUE-SKY THINKING
Pierre Omidyar, shown
near one of his homes in
Hawaii, is plotting his next
move: media mogul.
102 - INC. - DECEMBER 2013/J ANUARY 2014

—
On Labor Day weekend in 1995, a 28-year-old Pierre Omidyar sat down
at his computer to write the code for what would become the business
known as eBay. Today, the San Jose, California–based company has
31,500 employees and $14 billion in revenue and has made Omidyar, now
eBay’s chairman, one of the richest people in the world. He has lately
focused his energies on philanthropy. Through the Omidyar Group, he has
donated and invested more than $1 billion in both non- and for-proﬁt
organizations focused on economic, social, and political progress. But
Omidyar is not interested in random acts of charity. Instead, he is inspired
by something he discovered about leadership in the early days of eBay:
If you empower others to do good, they will.
HEN I FIRST STARTED working as a
software engineer, I had really high
standards, and I often felt other
people weren’t meeting them. But
over time, I realized that even if
others on the team weren’t doing
everything as perfectly as I wanted
them to, if they got 80 percent of
the way there, then that’s awesome. Because there are
ﬁve of them, and ﬁve times 80 percent is much larger
than 100 percent of me. That led me into this idea of
leveraging other people. Let them bring their own
skills and talents to the table. They’ll solve problems
in a diferent way than you would yourself.
IN 1991, I CO-FOUNDED my ﬁrst start-up, Ink Development,
which made software for an early tablet computer.
The company, which was later renamed eShop, was
acquired by Microsoft in 1996. It wasn’t a huge acquisi-
tion, but it deﬁnitely gave me a larger appetite for risk.
AROUND THE SUMMER OF 1995, I started thinking about
the idea of building an online marketplace. I had
always been interested in markets—speciﬁcally, the
theory that in ﬁnancial markets, goods will trade at a
fair value only when everyone has access to the same
information. That’s a pretty cool theory. But the prac-
tice of it hit me when I had a little bit of extra money,
As told to
ISSIE
LAPOWSKY
Photograph by
MICHAEL LEWIS
•
“Inspiration is
much more
effective than
delegation.”
Pierre Omidyar, eBay
INNOVATE
Ŧ
Ŧ
Ŧ
Ŧ
How
I Did It
W

INNOVATE
and I wanted to invest in an IPO for a gam-
ing company. The company went public at
$15 a share. My broker calls me and says,
“Well, you got the stock at $24.” I’m like,
“How come?” He said, “Well, $15 was the
ideal price, not the price that people like
you can get.” I was like, “What do you
mean, ‘people like me?’ ” The takeaway was
that the theory of efcient markets is really
great—in theory. In practice, regular people
are locked out.
I STARTED THINKING, This Internet thing—
maybe I can use it to help bring the power
of ﬁnancial markets to regular people. Of
course, regular people aren’t selling stocks
in their households. They’re selling stuf.
I thought, There’s a real opportunity to
create a marketplace that could bring the
power of efcient markets to regular people.
So that’s what I did that Labor Day in 1995.
IN FEBRUARY OF 1996, about six months after I
created eBay, I started receiving a spate of
complaints. Everyone was complaining
about each other. I felt very much like I was
a parent who had to adjudicate the brothers
beating each other up. It was like, “He start-
ed it!” “No, he started it.” I realized this was
going to be a big problem if it kept going this
way. So I wrote the community a letter and
posted it on the site. I said, “I’m giving you a
tool, a feedback forum. If you have an hon-
estly bad experience with someone, post it
publicly. And if you can take the time to give
positive praise when someone does some-
thing good, please do that.”
IT WAS A REAL EXPERIMENT, and I didn’t know what to expect.
But in the days and weeks that followed, I was enormously
gratiﬁed to see that the vast majority of the comments coming
in highlighted the good things people were doing that went
above and beyond the transaction itself.
THAT EXPERIENCE LED ME to believe that this is what we had to do
internally at eBay, too. Instead of telling my executives what to
do, I should try to inspire them with a vision of where we’re
going and let them translate that in their own terms, based on
their own experience, their own expertise. Inspiration is much
more efective than delegation.
BY AUGUST OF THAT YEAR, I started talking to my friend Jef Skoll
and persuaded him to leave a wonderful job at Knight Ridder
and help me build eBay. But I was never the founder-CEO type
like Bill Gates or Steve Jobs. Even in those early days, my feeling
was Jef and I would build the company to a certain point, and
if we were successful, we’d bring in professional management.
My skills were innovation and creation, but
in order for all that to thrive, I knew we
would need real managers, people who
knew how to build big organizations.
IT WAS MY IDEA TO BRING in Meg Whitman
as CEO in 1998, and I have to say, I really
believe we set an example of how that
transition should be done. What often
happens is a founder grudgingly brings on
a more experienced CEO and sticks around
and still tries to run the company. That
wasn’t the case with us. I stayed at eBay for
a year to help with the transition, but from
the very ﬁrst day I said, “I’m just going to
advise Meg behind the scenes. She’s run-
ning the show.”
THE YEAR AFTER I LEFT eBay, for example,
the site was down for about 22 hours. It
was a disaster. What Meg decided, and it
was really a key moment in her leader-
ship, was that we were going to call every
one of our top 10,000 sellers and apolo-
gize. She wanted to make sure the com-
pany internalized that we’re here to serve
real human beings, and when we make
mistakes, there are consequences.
WE WENT PUBLIC IN 1998. I had not in my
wildest imagination expected the IPO to
be so successful. We priced the shares at
$18 and closed on the ﬁrst day at about
$47. It was more money than I could ever
use. I really felt this immediate sense of
responsibility. All I could think was, I’m
now the steward of a fortune. How do I
make sure this gets put to good use?
AS A NEW PHILANTHROPIST, the literature tells you you have to
work through the nonproﬁt sector. We did that through 2002
and 2003, until I started feeling frustrated. I couldn’t tell you
exactly what it was, but I felt like we weren’t meeting our
potential. That led to the formation of Omidyar Network,
which was built on the insight that in order to have large-scale
positive change in the world, you can’t limit yourself to work-
ing in the nonproﬁt sector.
MY ENTIRE APPROACH to philanthropy is rooted in what I wit-
nessed at eBay, the way millions of people used it to create their
own businesses. As a philanthropist, I try to help people take
ownership. Everything I’ve done is rooted in the notion that
every human being is born equally capable. What people lack is
equal opportunity. My goal has been to expand opportunity to
as many people as possible so they can reach their potential.
That’s the approach we took with eBay. It’s kind of hard to
make bad decisions when that’s in the top of your mind.
Ŧ
Ŧ
Ŧ
Ŧ
OMIDYAR’S
NEXT ACT:
MEDIA MOGUL
—
Pierre Omidyar
describes his
life’s mission as
helping people
realize their
potential. Next
up: a digital-
media venture,
launched with
journalist Glenn
Greenwald, who
ﬁrst broke the
news about the
NSA surveillance
scandal in The
Guardian last
summer. The
as-yet-unnamed
site will special-
ize in investiga-
tive journalism
designed to
“convert main-
stream readers
into engaged
citizens,”
Omidyar wrote
in a blog post in
October. The ex-
pected price tag
for the venture:
as much as
$250 million.
104 - INC. - DECEMBER 2013/J ANUARY 2014

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A vacation slideshow on a knee. A badge of honor under your chin.
Some are funny. Some are not. But all are evidence that you survived
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Stronger because of them. Maybe that’s why they stick around.
To remind you.
While society may see a scar as an imperfection to cover up, we see
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•
ABOVE AND
BEYOND
Veronica Rose,
founder of Aurora
Electric, specializes in
big, complex projects,
such as the
construction of One
World Trade Center in
Lower Manhattan.
Most of her workers
are union electricians,
whose contracts
mandate decent
beneﬁts. But she
provides gold-plated
perks. Why? “It
creates a much better
work environment,”
Rose says.
108 - INC. - DECEMBER 2013/J ANUARY 2014

INNOVATE
EMPLOYEES DON’T pay a dime for health
insurance. A registered dietitian is on
hand to help workers create nutrition
plans. If employees require time of to
handle a family emergency, they get it,
no questions asked. They get bonuses
and proﬁt sharing.
What kind of employer are we talk-
ing about? Some perk-laden tech start-
up embroiled in a perpetual war for
talent? Nope.
In fact, the company in question is
Diamond Pet Foods, a manufacturer of,
yes, pet food based in Meta, Missouri.
The company, founded in 1970, has 535
employees at facilities in three states.
Most of them are the kinds of factory
workers and manual laborers who
would be happy to have the most mod-
est of beneﬁts packages, let alone the
lavish one supplied by Diamond.
Why go to such lengths when many
of its peers do precisely the opposite?
The answer: a substantial ROB, or re-
turn on beneﬁts.
Wages at Diamond are no higher
than those at similar manufacturers. But
voluntary turnover is at a mere 3 per-
cent, compared with an industry average
of almost 11 percent. And people don’t
just stick around—they produce. “When
employees don’t have to worry about
health care or ﬁnancial issues, they can
focus on success and growing our busi-
You Can Buy
Employee Happiness.
(But Should You?)
Companies that ofer
lavish beneﬁts believe
there is a return on
their investment. The
challenge: ﬁguring out
how to calculate it
—
By SCOTT LEIBS PHOTOGRAPH BY ALESSANDRA PETLIN

INNOVATE
ness,” says Andrew Brondel, the com-
pany’s director of administration. “They
have the mental clarity to see areas for
improvement and to take the initiative
to ofer and implement new ideas.”
In an age of outsourcing, declining
real wages, and ever-rising contributions
for health care (assuming insurance is
ofered at all), you don’t hear about this
kind of thing very often. But some com-
panies still go to extraordinary lengths
and expense to attract, develop, and
retain their employees. They treat ben-
eﬁts less as a cost of doing business than
as an investment in their most important
resource. More entrepreneurs would be
wise to adopt such practices, says Kevin
Lynch, leadership executive-in-residence
at St. Benedictine University’s Center for
Values-Driven Leadership. “When I was
a CFO, I tended to regard beneﬁts as a
burden,” Lynch says. “I’m now conﬁdent
that they do pay of—in the form of at-
tracting good employees, retaining them,
and making them more productive.
When you have happy, satisﬁed employ-
ees, that creates value that does ﬁnd its
way into traditionally calculated ROI.”
That’s the thinking at Diamond.
Beneﬁts at the company account for
about 35 percent of total compensation
costs, compared with about 30 percent
for a typical private employer, according
to the Bureau of Labor Statistics. Many
managers might see the greater expense
as a threat to margins. But not Brondel.
Robust beneﬁts, he says, boost morale
and well-being, and that translates into
higher productivity. Diamond’s workers,
Brondel says, are willing to dig in when
demand spikes, which gives Diamond a
competitive advantage. Pet food is a
cyclical business: Demand rises in win-
ter as animals consume more food.
So everyone needs to step it up as tem-
peratures drop. “I’ve literally heard
people say, ‘I know the company has my
back,’ ” Brondel says, “ ‘so I’m giving
them everything I’ve got.’ ”
That logic is taken to another level at
Aurora Electric, a Jamaica, New York–
based electrical contractor that works on
large, complicated projects, including the
World Trade Center in Lower Manhat-
tan. At its core, the company has just four
employees, but that number rises to as
many as 50 depending on how many
projects the company has under way.
And all of them get lavish beneﬁts—even
though many are union electricians who
join the work force on a project basis.
(Under union contracts, employers pro-
vide coverage; they are required to meet
certain minimum requirements but free
to go above and beyond.) Aurora’s perks
include complete funding of what found-
er Veronica Rose describes as a “Cadillac
health plan that covers everything, in-
cluding wellness programs and even a
30-day drug or alcohol rehab program.”
The company also ofers a tuition-
reimbursement program that employees
can use to build skills in any ﬁeld, not just
construction or electronics.
Rose’s union electricians are not
payrolled employees. So why invest in
the kinds of beneﬁts that most compa-
nies justify in large part for the impact
such perks have on retention? “It creates
a much better work environment,” Rose
says. “Everyone is much more engaged.
Instead of running to me with every
little thing, they help each other.”
Rose admits that she views treating
workers well as an end in itself. But the
practice also has a serious business
rationale. “We only do very speciﬁc
kinds of electrical work,” she says. “We
need electricians who have the highest
security clearances, who have years of
training in ﬁber optics and related tech-
Ŧ
Ŧ
Ŧ
Ŧ
HOW TO GET A BETTER
RETURN ON BENEFITS
—
• TAILOR YOUR OFFERINGS TO
YOUR SPECIFIC WORK FORCE.
Survey your workers about what
they want, whether it’s ﬂex-
time, ﬁnancial planning, or
training and development.
“Smaller companies have a big
advantage here, because the
decision makers are closer to
the employees,”says Kevin
Lynch, of St. Benedictine Uni-
versity. “Plus, it’s easier for
small companies to be ﬂexible
in accommodating diferent
preferences.” When Integrated
Project Management Company
of Burr Ridge, Illinois, surveyed
its employees, for example, it
found they were indiferent to a
long-term-care policy it had
been planning to ofer. But they
were very keen on training pro-
grams, so the company focused
its eforts in that direction.
• COMMUNICATE THE VALUE
OF WHAT YOU OFFER.
Diamond Pet Foods makes sure
that every new employee un-
derstands the inner workings of
its self-insured health plan. As
a result, says Andrew Brondel,
the director of administration,
employees understand that
every insurance claim is being
paid for with, in essence, the
same pool of “Diamond dollars”
that also funds the company’s
401(k) matching contribution.
That makes employees unusu-
ally disciplined about the medi-
cal services they use. Along
those lines, entrepreneur Paul
Spiegelman advises that you
create an internal team that
understands your beneﬁts and
educates employees about
them continuously; an internal
PR campaign ensures that
employees don’t lose sight of
what they have.
• ONCE YOU OFFER A BENEFIT,
DON’T RESCIND IT.
If employees see beneﬁts taken
away at the ﬁrst sign of trouble,
they will assume that the com-
pany simply ofers them as
gravy during good times but has
no real commitment to them.
• GET THE RIGHT HELP.
“Employee beneﬁts are complex
and getting more so,” Lynch
says. “There are many legal and
ﬁnancial issues that require
technical competence from a
dedicated expert. The key is to
ﬁnd one who understands your
business and can apply his or
her technical competence in a
way that provides value to your
company.” If the person is not
willing to take the time to truly
get to know your organization,
move on. —S.L.
110 - INC. - DECEMBER 2013/J ANUARY 2014

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driver for successful collaborations
Mindjet CMO
Jascha Kaykas-Wolff
.
Try it free for 30 days
gotomeeting.com

INNOVATE
nologies, and have pursued credentials
on their own time. I need the cream of
the crop, and they are hard to ﬁnd. So I
create an environment in which every-
one wants to come and work for me.”
Rose’s instincts—that a well-designed
beneﬁts package can yield real, bottom-
line results—are echoed by a number of
business leaders. “Not enough company
leaders try to quantify the results of
providing both a good company culture
and a good beneﬁts package,” says Paul
Spiegelman, founder of BerylHealth and
The Beryl Institute and chief culture
ofcer of Stericycle, a medical services
company with 13,000 employees.
“Historically, companies have relied on
their ﬁnancials as leading indicators.
But employee satisfaction, customer
satisfaction, attrition rates, and similar
metrics should serve as your leading
indicators, with ﬁnancials becoming
your lagging indicators.”
When managers begin correlating one
metric to another, Spiegelman says, they
“begin to see the relationship between
investing in your employees and ﬁnancial
results.” Spiegelman’s own experience
provides a case in point. A few years ago,
his companies began ofering a new
health beneﬁt—the opportunity to see a
registered nurse within two hours, either
at work or at home. There was an almost
immediate payback: In just four months
at Beryl, for example, 71 insurance claims
were avoided and 246 work hours were
saved (equating to an estimated $18,000
in wages) as employees got immediate
care rather than having to visit a doctor.
St. Benedictine University’s Kevin
Lynch believes smart leaders are evolving
toward a broader view of what consti-
tutes compensation. To some degree, he
says, they may have no choice. Younger
workers increasingly regard work as
being about something more than just a
paycheck. “They expect to be treated
with more respect,” he says, “and that
includes accommodating their external
commitments, career goals, and other
factors. All beneﬁts programs are expen-
sive propositions, but you can maximize
the impact by ofering the beneﬁts that
matter most to your workers.”
—

ILAN MOCHARI and ADAM VACCARO
contributed reporting to this story.
Ŧ
Ŧ
Ŧ
Ŧ
LEADERS OF THE PACK
HOW THE WINNERS WERE CHOSEN: More than 240 applicants were judged on a weighted
scale that encompassed health care (35 percent), retirement (25 percent), insurance (15
percent), and company culture (25 percent). To qualify, applicants were required to have
been in business for at least ﬁve years, employ from ﬁve to 1,000 people, and be based in
the U.S. Winners were chosen by a panel of judges consisting of Paul Spiegelman, found-
er of BerylHealth and chief culture ofcer of Stericycle; Dallas Salisbury, president and
CEO of the Employee Beneﬁts Research Institute; Lisa Kottler, senior vice president of
NFP Retirement Services; Kevin Lynch, executive-in-residence at St. Benedictine Univer-
sity; and George Gendron, the former editor in chief of Inc.
The organizations proﬁled on these pages are
among this year’s winners of The Principal 10 Best
Companies for Employee Financial Security contest.
The competition, sponsored by Principal Financial
Group and The Build Network, honors companies for
their commitment to employee beneﬁts, creating
cultures that support work-life balance, and ofering
career advancement through training programs.
Below, the 10 winners and what makes them stand
out from the pack. —S.L.
COMPANY INDUSTRY EMPLOYEES NOTABLE
The American Institute Nonproﬁt 660 A health and wellness program
of Certiﬁed Public that includes biometric screening
Accountants and cooking classes
Durham, NC
Aurora Electric Contracting Varies Pays tuition for nearly
Jamaica, NY any degree program
Capital District Health insurer 700 Offers monthly one-on-one
Physicians’ Health Plan ﬁnancial-planning workshops
Albany, NY
CORE Engineering Construction 28 Since 2004, only two employees
and Construction have left voluntarily.
Winter Park, FL
Diamond Pet Foods Manufacturing 523 Offers free annual wellness exams;
Meta, MO a registered dietitian helps employees
create nutrition plans

Groupware Technology IT services 80 Offers free gym memberships to
Campbell, CA employees and family members

Integrated Project Risk mitigation 115 Provides mentoring and a $10,000
Management tuition-reimbursement program
Burr Ridge, IL
Medicus Solutions IT services 10 Offers resources to help workers
Alpharetta, GA with parenting, elder care, and work-
life balance issues
Nyhart Consulting 100 Uses its actuarial expertise to help
Indianapolis employees set and achieve
retirement-savings targets
The Starr Conspiracy Marketing 32 Offers unlimited vacation time
Fort Worth
—
—
112 - INC. - DECEMBER 2013/J ANUARY 2014

INNOVATE
L
IKE MANY an entrepreneur,
Daniel Lubetzky saw a
problem and decided to
ﬁx it. Most snack and
energy bars, he thought,
looked (and tasted) like
heavily processed slabs
of unrecognizable ingre-
dients. It didn’t have to be that way.
Instead of letting assumptions steer
him into making compromises (“or”
decisions), he set out to accomplish a
number of “and” goals with his products:
healthful, tasty, convenient, proﬁtable, and
purpose driven. Following Lubetzky’s
“and” philosophy, sales of Kind’s fruit and
nut bars have gone from $1 million in 2004
to more than $125 million in 2012. He says
the bars’ tag line (“Do the kind thing”)
has inspired customers to log more than
340,000 acts of unexpected “kindness”
on the company’s website. Lubetzky calls
it a product line without compromises.
Well, good for him, you say. It doesn’t
work so conveniently for entrepreneurs
in the real world, right? Well, sticking to
his principles wasn’t so easy for Lubetz-
ky in the beginning, either.
Or rather than and is an easy trap to fall
into because of the way the brain relies on
mental shortcuts to make quick deci-
sions—what psychologists call heuristics.
Sometimes the assumptions built into
those shortcuts are valid, and sometimes
they’re not. (When they’re not, they can
create opportunities for entrepreneurs.)
When Lubetzky decided to create
low-sugar bars, he assumed he would
have to make compromises—either use
sugar alcohols, which can cause diges-
tive discomfort, or artiﬁcial sweeteners.
“Our goal had always been to make
all-natural foods with ingredients you can
see and pronounce,” Lubetzky says, “and
I realized months into the project that we
simply weren’t doing the right thing.”
So Kind experimented with spices
such as ginger, cinnamon, and chili, and
ﬁnally found its low-sugar ﬂavor combi-
nations. “It took us an extra year,” he
says, “but it was deﬁnitely worth it: Dark
Chocolate Nuts & Sea Salt bar is the
fastest-turning SKU in the category.”
That bar has only 5 grams of sugar.
A year ago, Lubetzky’s team had a
diferent challenge: how to make
chewy and crunchy granola bars, a
seemingly contradictory goal. They
solved the problem with better and
more expensive packaging to seal in the
precise texture.
Every founder at some point believes
he or she faces an impossible balancing
act—a choice between quality and proﬁt,
or business goals and social impact. But
if you focus on the long-term impact of
a decision, you may ﬁnd it doesn’t have
to be an either/or choice. “When a social
objective and a business objective are
built into your business model,” Lubetzky
says, “those goals don’t conﬂict; they
strengthen each other.”
OWNER’ S MANUAL
MY PRODUCT
STRATEGY? ZERO
COMPROMISES
Even for entrepreneurs with plenty of
resources, tradeofs are usually a way of
life: What’s great for the bottom line isn’t
good for the environment. Aim for ultra-
healthful and you’ll rarely get delicious,
too. At some point, you must make com-
promises—this or that, because rarely can
you do both. Daniel Lubetzky founded
Kind Healthy Snacks using a diferent
approach: He replaced the word or with
the word and.—JEFF HADEN
Bake your goals
into your business model.
Even if some of your aims
are in tension, a goal you
don’t set is a goal you
cannot achieve.
Identify every assumption.
The innovation process
starts with recognizing
the usual thinking and
methodologies so that
you can then ﬁnd ways
to challenge them.
Ask the right questions.
Repeatedly asking, “Why?”
and “Why not?” is the
antidote to incorrect
assumptions, especially if
an assumption that was
once valid is no longer today.
Focus on the future.
Shortcuts are tempting
when you manage for
short-term results.
Instead, let long-term
goals guide you.
View compromise
as the last resort.
“Or” decisions are the easy
way out. Challenge your
employees to ﬁnd a way—
they will be better for it.
ŦŦŦŦ
Photograph by POON WATCHARA-AMPHAIWAN
114 - INC. - DECEMBER 2013/J ANUARY 2014
LUBETZKY’S RULES FOR NO-COMPROMISE PRODUCTS:

*Source: 2013 Aﬂac WorkForces Report Z130889A 9/13
How will you make the right decisions?
Call your local Aﬂac of ce or download our Employer’s Guide:
aﬂac.com/HCRGuide
Health care
reform is
confusing.
Only 5% of employers
say they understand
health care reform
really well.
*

INNOVATE
Ŧ Ŧ Ŧ Ŧ
Marketing
Without
Marketing
Rather than spending
money to snag new
customers, lavish some
love on your current ones
far more people know about Basecamp? So we
decided to talk to some marketing execs about
what they would do if they were charged with
spreading the word about Basecamp.
It was an interesting exercise. Not because we
hired someone. We didn’t. But I learned a lot about
marketing in the process.
When I hire a designer or a programmer or an
ofce administrator, I know what I’m getting. But
marketing is diferent. The very deﬁnition of the
term changes depending on whom you’re talking to.
To some, it’s all about search-engine optimization.
To others, marketing means advertising. This
one speaks in terms of public relations. That one
approaches marketing through the lens of analytics.
But what was interesting to me was that no
matter the speciﬁc orientation, every marketer
we met with was focused on one thing: customer
acquisition. To the marketers—to most people,
I guess—the goal of marketing is to expand your
market by picking up business that you didn’t have
from people you didn’t know.
I understand that. You market to increase
awareness, attract customers, and spark sales.
It makes perfect sense.
But the more I spoke with all of these talented
and passionate marketers, the more I realized that
I wasn’t interested in what they had to ofer. In
fact, I found myself thinking less about new cus-
tomers than about our existing ones.
So we made a decision: 37signals will begin
spending money on marketing. But rather than targeting new customers, we’re going to focus our
energy and resources on helping current customers get more out of the Basecamp they have.
You’re probably thinking, Say what? If you already made the sale, why bother selling it again?
That’s the thing. If my crash course in marketing taught me anything, it’s that I don’t want
to market to boost sales in the short term. Instead, our marketing eforts will be about expanding
our current customers’ awareness of what’s possible with our product. I want today’s custom-
ers to know more about how Basecamp can help turn them into heroes of progress at work.
The way I see it, I can spend a lot of time and money trying to persuade a bunch of newcomers
to try Basecamp. Or I can spend a lot less efort helping current customers get more out of some-
thing they’ve already purchased and enjoy using. As I said at the outset, sales take care of
themselves when you put out a great product and treat your customers with the ultimate respect.
Or, to put it another way: If you take care of your existing customers, they will take care of
your new customers.
LOVE SELLING. But I’ve always been suspicious of marketing, at
least the way it seems to be practiced by most companies. It
seems to me that a lot of marketing is often deployed to
cover up a product’s deﬁciencies rather than point out what
makes it great, to confuse as much as to illuminate.
So there is no marketing department or chief marketing
ofcer at 37signals. Instead, we behave as if everything we do
is marketing. Customer service is marketing. So is product
quality. The phrasing of that error message, what you call
that button, how you greet your customers—it’s all market-
ing. And so far, so good: Our ﬂagship product, Basecamp, has
earned the business of tens of thousands of businesses almost entirely
on the basis of word of mouth.
But I’ve recently begun wondering: What would our business be
like if we put some efort into formal marketing? How many more
people could we reach? How many more Basecamps could we sell if
GET REAL
Jason Fried
Jason Fried is co-founder of
37signals, a Chicago-based
software company, and co-author,
with David Heinemeier Hansson, of
Remote: Ofce Not Required.
I
116 - INC. - DECEMBER 2013/J ANUARY 2014
JE
F
F
S
C
I
O
R
T
I
N
O

OUR LATEST
RESEARCH
ﬁnds that talent
management is
a core strength—
maybe the core
strength—of the
most successful
growth companies.
ILLUSTRATION BY BEN WISEMAN
STAR
POWER
HOW TO RECRUIT,
REWARD & RETAIN
TOP TALENT
THEBUILDNETWORK.COM - 1
Should you give employees an allowance? IDEA #03 No noobs, please: Get new hires up to speed fast IDEA #07 Intrapreneurship 2.0 IDEA #08
Management
insights for leaders
of high-growth
companies.

IDEA 01
BUILD
QUARTERLY
The Build Quarterly Report On:
Talent Management
{INTRODUCTION}
As mentioned above, the companies proﬁled in this section are part of the inaugural Build 100 Index, a groundbreaking research project that has
identiﬁed the country's leading sustained-growth companies. We will announce the list in these pages in March 2014. For more information, see
TeBuildNetwork.com/about/Build-100.
The strongest, most adaptable U.S. companies don’t look much alike. They don’t coalesce around
predictable industries or locations. They don’t serve the same customer segments. And they’re no
more likely to be well-established organizations than companies founded after the dot-com bust.
But as Build continues to research the few remarkable companies that grow consistently, year after
year, handily outpacing their peers, we are seeing one common, dominant theme emerge: a focus on tal-
ent. The most successful organizations tend to appreciate, invest in, and value their employees.
When we conducted initial research for our upcoming Build 100 Index (appearing in the March is-
sue), we asked senior executives at 146 high-performing companies nationwide to identify their greatest
strength. The majority said that people are their biggest drivers of growth, specifcally in regard to:
Customer service (64 percent)
innovation (52 percent)
We don’t want to be overly reductive. Answers ranged widely over the 10 choices ofered, as shown
at right. In the end, however, what matters most is how your employees work together. In fact, employee
collaboration is critical to a company’s long-term success. When we asked, “Where do your company’s
most valuable and actionable ideas originate?” we expected companies to cite the importance of indi-
vidual employees—after all, aren’t most brainstorming sessions designed to extract the best insights
from each person?—but the emphasis on the value of internal teams was striking.
And when we asked, “What might derail your company’s growth or even threaten its survival?” a
majority of respondents (81 percent) cited “Sudden loss of a key employee” as a concern.
Talent concerns emerged in another way as well: Te only major obstacle to growth shared by
a majority of respondents was training future supervisors and managers. What’s more, the survey
results show that training and development challenges are highly correlated with those related to
acquiring and retaining employees and customers. In other words, talent development is important and
tough—even for the most successful companies.
The numbers do point to some best practices, though. Survey data suggest that companies with
the highest levels of sustained growth are more likely than others to provide workplace incentives for
superior performance. Those with the highest revenue were also more likely to believe in the power of
sharing fnancial success with employees.
In fact, 82 percent of sustained-growth leaders recognize that sharing ﬁnancial success,
employee diversity, and transparency help a company grow. Yet only about half of them say they make
these talent-retention polices a “vital part of their business.” There is a notable disconnect between what
companies believe and what they actually do.
On the following pages, we explore key steps that top-performing companies take to recruit, de-
velop, and retain the best talent, and recommend additional resources that address each challenge.
2 - BUILD - DECEMBER 2013 / JANUARY 2014

CONSISTENTLY GROWING COMPANIES DON’T ALL HAVE
THE SAME DNA, BUT THEY DO APPEAR TO SHARE ONE
CRITICAL GENETIC TRAIT: A FOCUS ON TALENT.
Customer service
D. - Informal personal networks
E. - Board members
F. - External professional advisers
G. - Suppliers
H. - Other
A
.

C
u
s
t
o
m
e
r

s
e
r
v
i
c
e
B
.

H
i
r
i
n
g

i
n
n
o
v
a
t
o
r
s
D
.
E
.
F
.
G
.
H
.
I
.
J
.
K
.
C
.
66%
53%
39%
27%
24%
23%
19% 19%
16%
15%
14%
C. - Consistency & ef ciency
D. - Product development
E. - Design & marketing
F. - Selling
G. - Convenience/product selection
H. - Lifestyle/product quality
I. - Market dominance
J. - Low prices/cost control
K. - Other
Hiring innovators
Identify your greatest strength
Where do your company’s most valuable
and actionable ideas originate?
What are your biggest drivers of growth?
What might derail your company’s
growth or even threaten its survival?
81%
Sudden loss of a key employee
64% 52%
HIRING
1
ENGAGEMENT
DEVELOPMENT
RETENTION
ONBOARDING
3
4
5
2
Decoding
Talent
A. Individual employees 87%
B. Teams within the company 80%
C. Customers 67%
D. 25%
E. 24%
F. 20%
G. 9%
H. 2%
THEBUILDNETWORK.COM - 3
SOURCE: Build Network survey of 146 growth companies

BUILD
QUARTERLY IDEA 02
{HIRING}
Big Ass Fans is serious about
linking its hiring process to
its culture and values.
To make the best possible hires, it’s critical to know what traits you’re looking for in job
candidates—and to be sure that whoever you think you want can deliver what your company
actually needs.
One company that gets this right is Big Ass Fans, a $125 million manufacturer of residential,
commercial, and industrial fans. Founded in 1999, the company now employs 445 people. Founder
Carey Smith still oversees operations.
In his (completely serious) role as Chief Big Ass, Smith is large and in charge: He acts as both
the company’s CEO and culture czar. He works hard to hire people who are in line with BAF’s value
system, which we’ll describe as fun-but-don’t-mess-with-us.
Smith is particularly interested in employing people who possess two specifc personality traits:
curiosity and positivity. Don't all companies want those traits? you ask. Maybe. But what separates BAF
from the pack is its ability to screen for them, reinforce them via training and culture, and maximize
their impact. Perhaps as a result, the company is experiencing breakneck growth—its revenues have
more than doubled in the past three years.
Smith recently shared a few insights into his screening and retention strategies.
1 Screen for curiosity. Just because his organization reveres engineering and hands-on skills
(making, testing, fxing) doesn’t mean that college time spent studying the classics is irrel-
evant. Quite the opposite. “Some of our best people are English majors,” he says. “A liberal
arts degree is a good thing. You’re looking for people [who] are naturally curious, who want
to know why. I love engineers; they’re great. But with liberal arts majors, if they’re really
engaged and they really studied, they’re curious.”
2 Screen for positivity. Job candidates usually wear a smile, but Smith strives to pierce the
veil. “I will say, ‘It’s not going to be a conventional interview,’” he explains. “I try to make
them uncomfortable. I try to make sure we push the boundaries. I might ask, ‘Why did you
leave that place? That’s a good company. What the heck were you thinking?’” The impres-
sion Smith most wants to make is that BAF, for all its cheeky nicknames and self-mocking
YouTube videos (posted under the username Fanny the Donkey), is a serious place to work
and slackers will not be tolerated.
3 Reinforce values via training. Most new hires start on the industrial rather than the commer-
cial/residential side, because the primary contacts tend to be maintenance supervisors who
know what they want and aren't shy about demanding it. Learn to make them happy and you
are well on your way to becoming a strong contributor.
4 Reinforce values via culture. Watch the YouTube video “Because Not Everyone Is a Big Ass
Fan” and you'll see what we mean. It underscores Smith’s belief in pushing boundaries, and
also illustrates the “play hard” side of the company’s “work hard, play hard” mantra.
Photograph by
Jörg Meyer
THE BUSNESS:
Big Ass Fans
designs,
engineers, and
manufactures
fans for homes,
schools, hotels,
stadiums, and
many other
commercial
and industrial
facilities.
EMPLOYEES: 445
ANNUAL SALES:
$125 million
LOCATION: Based
in Lexington, KY
OTHER VITALS:
A team of 40
engineers drives
innovation; the
company holds
93 patents, with
another 144 pend-
ing. It also has
the world's only
R&D lab devoted
to testing large-
diameter fans.
BAF is hardly the ﬁrst or only company to tout a work-hard, play-hard culture. But it’s not easy to foster this type of atmosphere, especially if key
employees work remotely. For some useful advice, read the August blog post “How to Foster a Work-Hard, Play-Hard Culture With Blended Teams”
at oDesk.com. For more on smart hiring practices, search #buildrecruiting on TeBuildNetwork.com.
4 - BUILD - DECEMBER 2013 / JANUARY 2014

BUILD
—CAREY SMITH,
Founder and Chief Big Ass, 61
“It’s been
quite a
while since
I made a job
candidate
cry.”
C. Jason Hollan,
Systems Engineering
Manager, 36
Jay Fizer,
Research &
Development
Laboratory
Manager, 40
Ed Quinn, Director
of New Business
Development, 41
THEBUILDNETWORK.COM - 5

GE Capital
At GE Capital, we’re not just bankers, we’re builders. So, in addition to smart financing, we also bring
expertise from across GE. For the Blommer Chocolate company, Paul and his team from GE Capital
held an intensive three-day energy audit. They identiﬁed 90 improvements to save energy, cut costs
and support Blommer’s long-term sustainability program. Chances are we have someone like Paul
with the know-how to help your business grow. Stop just banking. And start building. GE works.
GECapital.com
LIKE A BANK:
WE CAN LOAN YOU MONEY.
UNLIKE A BANK:
WE CAN ALSO LOAN YOU PAUL.
Paul Baisley
GE Capital Food, Beverage
and Agribusiness Specialist

BUILD
QUARTERLY IDEA 03
{ONBOARDING}
You can shorten the distance
between making a great hire
and achieving optimum
performance. Here’s how.
Online marketplace Etsy takes a diferent approach to its onboarding “boot camp”: New hires spend four to six weeks rotating through all of its
internal teams. Tis not only provides great training but also gives rookies an instant network of co-workers, which helps them feel welcome and
enables them to tap into the company’s collective expertise far more readily than a slower acclimatization process would. Does your company
see onboarding as an opportunity rather than a chore? To share your story, search #ﬁrstdays on TeBuildNetwork.com.
Studies show a strong connection between three critical talent metrics—productivity, retention,
and engagement—and how well a company addresses “onboarding,” the orientation and social-
ization that employees receive during their frst 90 days on the job.
At Texas Instruments, for example, employees who participated in an improved onboarding pro-
gram became fully productive two months faster than employees in a traditional program, according to a
Society for Human Resource Management report.
Drexel Building Supply ofers an ideal case study. The company has nearly doubled its work force
since 2008, its growth powered by customer service, product expertise, and teamwork. Its approach to
onboarding stresses those values:
1. Te Yard Every new hire starts in the lumberyard, getting to know “the heart of Drexel’s busi-
ness,” explains Stacey Stofel, the company’s marketing director. During “team boot camp,”
new hires heft the products, handle custom orders, and work alongside frontline employees.
2. Te Card Also on Day One, every new employee is handed a two-sided business card bearing
Drexel’s 10 core values—ethics, respect, balance, winning attitude, communication, devel-
opment, teamwork, change, have fun, and accountability.
3. Te Hotline Following boot camp, new hires spend time answering the customer-service hot-
line to get a clear understanding of the company’s challenges and opportunities.
4. Te Hot Dogs Owner Joel Fleischman regularly hitches a Weenie Wagon to his truck and
delivers lunch to customer job sites. He brings along Drexel employees, including new hires,
so they can master customer service. That helps drive referrals. —ANNI RODGERS
THEBUILDNETWORK.COM - 7
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BUILD
QUARTERLY IDEA 04
In an increasingly collaborative
and connected world, success
depends more than ever on the
subtle art of inﬂuence.
{PARTNER PERSPECTIVES}
A CFO persuades a highly regarded controller to leave a comfortable job and join her company. A
department head inspires his team to put in the extra efort needed to make a seemingly impossible
deadline. A company strikes a deal with a key supplier to jointly expand into an emerging market.
In these examples and scores like them, the factor that often spells the diference between suc-
cess and failure is “strategic infuence.” It’s a concept that originated in the military, to describe one
country’s ability to shape another country’s actions and policies. In that sphere, infuence largely
equates to power. As the term has migrated into the business world, however, its defnition has altered.
Today, an executive’s strategic infuence is not nearly as dependent on authority as it is on integrity,
and on the strong ties forged with people inside and outside the organization who respect that execu-
tive’s knowledge and point of view and respond positively to them.
Strategic infuence is quickly becoming a critical skill because the nature of work is changing:
success now depends on the ability to collaborate with all parts of the organization and to manage a
web of connections that spans the broader business community. It begins with networking, progresses
to relationship building, and culminates in a strong bond characterized by a high level of trust and
respect, to the point where the person values your opinion over most others.
Strategic infuence is, in a sense, the tangible outcome of many behaviors that senior business
leaders are routinely encouraged to practice, from fostering a culture of transparency and account-
ability to developing their top talent and recognizing outstanding performance.
77 percent of
employees prefer
a leader who
gives them the
resources they
need to get things
done, rather than
one who simply
strives to be
“inspirational.”
77%
Connect Communicate Build Trust
A COLLABORATION WITH
STAY CONNECTED
The frst step in growing your strategic infuence is to make time for it, which is not easy. Build-
ing relationships and cultivating networks is an important activity, but usually not one that people
tend to prioritize. Even a brief amount of time devoted to it each day, however, whether spent making I
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8 - BUILD - DECEMBER 2013 / JANUARY 2014

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Tis article is adapted from "Te Art of Strategic Inﬂuence," part of the Action Resource Series produced by GE Capital in conjunction
with Te Build Network. For more, download the free Access GE app, available at http://app.accessge.com.
of global CEOs
plan to drive suc-
cess by “partner-
ing extensively”
with other com-
panies, including
competitors.
70%
a quick phone call, sending a friendly email, or having unhurried face time with a colleague you don’t
talk to very often can make a huge diference.
You can’t network with everyone, of course, and some contacts are more important to nurture
than others—even if you can’t always be sure which ones those will prove to be. Think strategically
about whom you’d like to forge stronger ties with and why. Consider what their concerns and priorities
might be, and where you have common ground, a shared interest, or the opportunity to help each other.
It’s also important to think beyond the boundaries of your own company. Attend conferences,
meetings of professional associations, or other events with an eye toward making contacts that can
progress to strong relationships and ultimately to an expanded sphere of infuence.
IT’S NOT (ALWAYS) ABOUT YOU
Whether it’s a hallway chat with a co-worker or a meeting of fellow CEOs, face time is an es-
sential component of building stronger connections to the people you need to infuence. To elevate
the relationship to that level, focus on three activities: listening, ofering help, and building trust.
Try to see things from their point of view, and look for common ground and opportunities to share
each other’s expertise.
The strongest bond you can forge with a colleague, client, or any business contact is respect, which
is borne of trust. And that often hinges on how reliably you deliver on what you promise. One consultant
dubs it the “say/do ratio”: the more often you deliver on a promise, the more strategic infuence you will
accrue. In other words, strategic infuence is not a measure of your popularity but of your credibility,
your authority, your reputation, and your ability to inspire others.
Making those traits known to others often depends on strong communications skills, a fact that
senior executives sometimes overlook. Many senior executives mistakenly believe that if they com-
municate a message once, that should suf ce. In fact, there is tremendous value in repeating important
messages through a variety of channels, to make sure all employees truly hear it and understand it. The
more readily people within your company—and outside it, as well—know what you’re doing and why,
and how that squares with your past statements and actions, the more likely you will gain infuence.
Communication goes both ways. It is also critical to listen carefully and to keep an open mind. Dis-
agreements are inevitable, but they present an opportunity to ask another person to explain his or her
point of view or decision in more detail. You may ultimately be convinced. Even if you aren’t, by having a
dialogue you have seized an opportunity to strengthen your relationship.
Not all of your eforts at relationship building will result in greater strategic infuence, but the
important thing is to focus on it more than you’re probably doing now. The margin for error in today's
ever-more-interconnected business world is small. The diference between good and great is small.
Developing a greater level of strategic infuence and encouraging the rest of the organization to do the
same can make all the diference.
THEBUILDNETWORK.COM - 9

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Insurance products are underwritten by the subsidiaries of Unum Group. NS13-204

BUILD
QUARTERLY IDEA 05
For many bosses and employees, cash is still king. But when is the best time to give it? Most ofen it is doled
out at the end of something (a ﬁscal year, a big project, etc.). But some argue that bonuses pack more punch
when you give them in advance. Yes, there is a catch: If bonus recipients don't deliver, they have to give the
money back. To learn more, search #buildincentives on TeBuildNetwork.com.
{INCENTIVES}
What motivates employees
to perform at their best?
Rewards, yes, but perhaps
not the kind you’d expect.
You know that employees perform best when they are rewarded not
only with a suitable paycheck and benefts package but also with
additional incentives. Performance and proft-sharing bonuses are
common (even to the point of being taken for granted). Although employ-
ees rarely give back a check, when it comes to getting them to really lean
in, there may be a better way to go.
Recent studies show that employees respond better to noncash re-
wards and other incentives than they do to an extra injection of moolah.
It is, however, a fne line. According to the Journal of Economic Psychol-
ogy, employees do choose cash over noncash rewards when given the
choice in the abstract. But they change their minds when presented with
a specifc noncash reward. More important, other research suggests that
noncash incentives produce a greater measurable boost in productivity
than cash does.
Efective Environmental, a Texas-based environmental services
company, subscribes to this theory. Every year, Efective Environmental
doles out an all-inclusive family vacation to fve employees. Managers in
each of the company's divisions submit nominees, and the senior leader-
ship team chooses the winners based primarily on who is deemed to have
given maximum efort day in and day out.
Why vacations? Travel, it turns out, may be the most efective
incentive of all. According to a study by Site International Foundation
and the Incentive Travel Council, 96 percent of employees say they are
motivated by travel incentives, and 72 percent who earn the reward say
they feel increased loyalty to the company.
Ofering travel incentives may also be good for your bottom line—
even before accounting for its efects on productivity. Te U.S. Travel
Association notes that “in order to achieve the same efect of incentive
travel, an employee’s total base compensation would need to be increased
by 8.5 percent.”
Efective Environmental also treats its employees to a generous
benefts package, which includes higher-education tuition assistance for
employees’ dependents. The company also covers 100 percent of work-
ers’ health care costs. Studies have shown that health insurance not only
motivates employees but also plays the single biggest role in attracting
new talent. —ADAM VACCARO
96 PERCENT of employees
say they are motivated by
travel incentives, and 72
percent who earn the reward
say they feel increased loyalty
to the company.
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THEBUILDNETWORK.COM - 11
96%

BUILD
QUARTERLY IDEA 06
When it comes to helping
employees prepare for
retirement, inertia can
be a positive force.
{PARTNER PERSPECTIVES}
Since the early 1980s, 401(k) plans have made a steady march from obscure tax provision to
retirement-planning mainstay for tens of millions of American workers.
It has not been an easy journey. For three decades companies have invested substan-
tial amounts of time and money to both encourage workers to participate and to guide them in the
basics of managing their accounts.
Yet, despite ofering on-site seminars, web-based tools, one-on-one counseling sessions,
and virtually every other form of education imaginable, a typical 401(k) participant today has an
account balance of just $79,000. As a result, many will face a very rude awakening as retirement
draws near. Employees readily admit that they simply don’t think about how (or how much) to save
for retirement because they are focused on current worries, or because, for younger workers, retire-
ment seems so far of. In short, they fall victim to inertia, and to date eforts to jolt them out of it
have been mixed, at best.
Companies wish it were otherwise, because most truly want their workers to enter retire-
ment in good financial shape. And, from a bottom-line point of view, they’d prefer to not have
workers distracted by financial stress, which has been shown to impact everything from sick days
to on-the-job performance.
Employers can take heart, however: A raft of new research is shedding much-needed light on
why educational eforts so often fall short, and, more important, is revealing alternative approach-
es to plan design that may be far more efective.
ACTIONS SPEAK LOUDER THAN BROCHURES
This research comes not from the worlds of retirement planning or investor education, but
from behavioral fnance and cognitive science. In fact, the work of one researcher, Yale’s Laurie
Santos (recently cited by Time as a leading campus celebrity for her class “Sex, Evolution, and
Human Behavior,” or “Sexy Psych” as Yale students refer to it) has inspired important develop-
ments far outside the laboratory. As Jerry Patterson, Senior Vice President of Retirement Investor
Services for The Principal Financial Group, explains, “Science is helping us to understand the gap
between what people say they do and what they actually do. When it comes to retirement planning,
it turns out that knowledge is just 20% of the equation. Behavior accounts for 80%.”
Employers have been relentlessly hammering away at the knowledge part of the equation
when they would be better served to focus on the behavioral component. “If you ask both compa-
nies and employees whether they are happy with their 401(k) plans,” Patterson continues, “most
will say yes. They feel they have the right tools, a good mix of investment options, etc. But when
you look at whether the plans are succeeding, based on participation rates, deferral rates, and other
criteria, very often they are not.”
The answer may lie not in education, therefore, but in plan design. By adopting a few simple

Auto-enrollment
alone has been
shown to propel
participation
rates to 90% from
less than 40%
among employees
with less than six
months’ tenure.
90%
A COLLABORATION WITH
12 - BUILD - DECEMBER 2013 / JANUARY 2014

BUILD
CHART DATA: Plan Sponsor Council of America
but critical plan features, employers can make huge leaps in all the success factors cited by Patter-
son. Four in particular are worth noting:
Auto-enrollment transforms inertia from a problem into a solution by automatically putting
employees into the plan while giving them the option to opt out. Tat’s a complete reversal of
the far more common approach: coaxing employees to participate by schooling them on the
ﬁnancial realities of retirement, the value of an employer match, and all the other beneﬁts
that so ofen fail to move them to join.
Auto-escalation increases an employee’s deferral percentage each year, helping them save
more without having to take any overt action.
Sweeping current employees into the plan at least one time, which is a sort of Big Bang ap-
proach to boosting participation.
Using an asset-allocation choice such as a lifestyle fund as the default investment option,
rather than a money-market fund or similar cash equivalent.
These features can be augmented with other plan design
elements, such as stretching the match formula to encourage
higher employee deferral rates (at no additional cost to the
employer) and providing online account access so that partici-
pants can adjust their deferral rates. Auto-enrollment alone
has been shown to propel participation rates to 90% from less
than 40% among employees with less than six months’ tenure.
Some companies opt instead for “active-choice enrollment,”
which doesn’t automatically put people into the plan but does
require every employee to fll out a form indicating whether
they will or won’t participate. “This is another example of be-
havioral science in action,” Patterson says. “When you require
people to tell you that they are opting out, many won’t, perhaps
because they don’t want to be seen as being irresponsible.”
This option also boosts participation rates.
One criticism of auto-enrollment programs is that companies often set the initial deferral rate
so low that it won’t put employees on a path to true retirement readiness. Patterson suggests a plan
designed around a “6+1+1+1+1” approach: employees defer 6% of income the frst year, and it is automati-
cally bumped up 1% in four successive years until it reaches the 10% annual rate often recommended.
“If you can get 90% of your workforce participating, at an average 10% deferral rate, and with 90%
of them allocating a portion of their accounts into stocks or other non-cash-equivalent investments,”
Patterson says, “you will have a plan that really works.” Thank you, science.
50-199 200-999 1,000-4,999 5,000+ All Plans 1-49
$131,199
$75,556
$69,447
$67,058
$71,358
$78,854
Plan Size by Number of Participants
AVERAGE 401K ACCOUNT BALANCES
THEBUILDNETWORK.COM - 13

BUILD
QUARTERLY IDEA 07
At this company, employees
get an annual allowance of
$1,500 that they can spend to
learn about (almost) anything.
{TRAINING & DEVELOPMENT}
Hiring new talent is both costly and time-consuming. According to a 2012 survey of 500 human
resources professionals, the average cost to fll a position is nearly $11,000, and it generally takes
new employees eight months to become fully productive.
But wait, it gets worse: Companies typically lose 23 percent of new employees during their frst
year on the job. So the time and efort managers spend to hire and train new talent is often wasted.
Think of all the resources you could save if you simply worked harder to retain existing staf.
What more could you do? Projectline Services, a $27 million marketing consultancy, has a
simple (and replicable) answer. The company helps its people stay engaged by helping them grow.
Each full-time employee—there are currently 175—gets a $1,500 annual allowance to spend on pro-
fessional development.
“We encourage everyone to think about personal development and personal education,” says
CEO and co-founder Mike Kichline. “It could be buying a book. It could be taking a class. It could be
getting a degree or a certifcation. . . . The intent is that people will use this to develop or strengthen
skills needed for their current role, or it can be used to prepare them for their next role based on per-
sonal or professional goals.”
Here’s how it works:
Each staf member meets regularly with his or her manager to talk about professional
development. Te employee may propose a plan for spending the allowance.
Te manager may suggest alternatives.
Following the discussion, the employee submits a formal request.
Assuming the request is approved, the funds are released.
When the employee’s efort is complete, results are reviewed with the manager. Sometimes staf
members share their pursuits with the rest of the company. For example, a small group recently presented
what it learned in a class about infographics during a brown-bag lunch.
Projectline tends to give people plenty of latitude. One employee took a flmmaking class, Kichline
says, after demonstrating that “even though this wasn’t necessarily in direct line of sight for his current
role, it would be something he could apply to many areas within the company.” Since taking the class, the
employee has produced multiple videos for the company.
Helping employees achieve their goals has become a defning trait of Projectline’s culture. Last
year, for example, the company introduced the International Employee Volunteer Travel Grant, which
allows employees to travel abroad to help charitable causes. Through the grant, one employee went to
Tanzania to help a nonproft group address the HIV/AIDS epidemic.
Perhaps as valuable as the professional development is the dialogue it fosters between employees and
managers. By seeing how staf members spend their allowances, Projectline management gets a window
into what empoyees really value—both inside and outside the ofce. —ilan mochari
Tere are other ways to ofer fresh yet afordable employee development programs. In an article in CFO, Michael Lehman, former chief ﬁnancial
ofcer of Sun Microsystems, lays out a seven-step plan that “helped propel at least eight of his former stafers into their own CFO roles.” And on
the Mindﬂash blog, author Bill Cushard ofers three simple steps for making development a “two-way street” where employees have a say in the
opportunities they pursue. To read more about training and development, search #builddevelopment on TeBuildNetwork.com.

On average,
23 percent of
new employees
leave during
their ﬁrst year
on the job.
23%
14 - BUILD - DECEMBER 2013 / JANUARY 2014

PROFESSIONAL DEVELOPMENT REQUEST FORM
Projectline Ser vices believes in keeping things simple. Thi s i s the form employees
f ill out to tap into their $1,500 annual training & development allowance.
Request Title
Employee Name
Approving Manager
Use
Activity Date
Location
Cost
Payment
Link to Additional
Information
Client Coverage Plan
Personal Development
Alignment
How the funds are to be used.
Insert link to any additional information about this activity.
Will this use of funds require missed time during workday hours? (If so, what is
the coverage plan and how long will it need to be in place?)
How does this align with your personal development plan?
I will register/order myself and will pay this out of pocket and submit
this item to accounting for expense reimbursement
I would like HR to register/order and pay for this on my behalf

“Te best
recruiting is
the recruiting
you don’t
have to do,
because
you’ve kept
people for a
long time.”
—MIKE KICHLINE, CEO,
Projectline Services
THEBUILDNETWORK.COM - 15

Riding a Proﬁt Rocket
For CRS Technology Consultants, migrating to the
cloud has been a game-changer—in every respect
BROUGHT TO YOU BY
16 - BUILD - DECEMBER 2013/JANUARY 2014
BUILD
QUARTERLY
BUILD
PARTNER PERSPECTIVE
“It has been a game changer,” says Jordi Tejero of his decision to migrate his company, CRS
Technology Consultants, entirely to cloud-based solutions for everything from mission-
critical software to voice communication. “Since we started down this path about three and a
half years ago—really looking for efficiencies, looking for ways to make our guys more productive
and more available—we have tripled our profitability.”
A BEVY OF BENEFITS
Based in Southwest Florida, CRS offers IT consulting and support services for companies as far
f lung as Mexico City, acting as a fully outsourced IT department for many of its small and medium
customers. Here are some of the ways that Tejero sees cloud technology boosting his company’s
productivity—and its bottom line:
t Proactive engagement. Through its cloud-based remote monitoring and management tool
(AVG’s Level Platform), CRS engineers can monitor their clients’ networks and connected
devices. “If one of their workstations has, say, a bad block on its hard drive or a server seems
about to fail, the system alerts us, and we can run diagnostics and repairs remotely,” Tejero
explains. “If that doesn’t work, we’ll go on site and swap out the equipment before it ever
takes the client down.”
t No downtime. Thanks to Comcast’s unified communications (UC) platform, Business
VoiceEdge, coupled with a cloud-based line-of-business solution, ConnectWise, CRS
engineers can do their job wherever they are—and on just about any device they prefer.
Just recently, a member of Tejero’s team was stuck at an auto dealer while his car was being
repaired. “In our old world it would have been, ‘Okay now he’s out of pocket for three or four
hours.’ Instead, he fired up his laptop and used the Comcast smart-phone app to continue
handling customer service tickets seamlessly.”
t Employee satisfaction. Productivity for CRS also means being able to attract and retain the
best staff. “Since we need fewer people to do the same amount of work, I can pay our good
people more money,” Tejero explains. And since they can work anywhere, when two valued
employees moved away from the area—one as far as Wisconsin—CRS was able to hold onto
them. “We opted to use the technology and keep good employees versus just sending them
on their way,” Tejero says.
t Open communication. Having software in the cloud and available throughout the
organization—and even to customers—means everyone is on the same page all the time.
“Now if we have an issue that goes on for multiple days or involves multiple engineers, it’s all
being worked from one ticket, one central place,” he explains. “Everybody has access to that
information without having to hunt it down. Even if that saves every employee ten minutes a
day, the numbers add up really quickly.”

THEBUILDNETWORK.COM - 17
t Interoperability. Not only can people communicate more easily, but CRS’s cloud-based
solutions can as well. “We’ve chosen cloud providers that fully integrate with each other,”
Tejero says. For example, when Level Platform detects an issue with a client network, it
automatically generates a service ticket in ConnectWise. The system can then close the loop
by informing the client that an issue has occurred, and keep them informed until it’s resolved.
For Tejero, it’s all about liberating his clients from worry and getting on with their business.
“Working in the cloud has freed us up to help our clients move their business forward,” he says.
“Since they don’t have to spend the dollars on fixing stuff, they’re able to spend those dollars on
truly forward-thinking items that can grow their business.”
SERIOUS FUNCTIONALITY
Comcast Business VoiceEdge is a critical
component of that strategy. VoiceEdge
offers CRS greater efficiency by delivering
a UC solution that allows users to call from
their desk or mobile phones and have it
appear as if they’re called from the office.
CRS can enjoy constant connectivity
without the capital investment and
hardware management that typically come
with traditional private branch exchange
(PBX) phone systems.
“We had been dealing with basic
telecommunications products for years,” Tejero says. “When we got serious and looked at the
features, functions, and benefits of Business VoiceEdge, it was an easy choice.”
To learn more about how Comcast Business VoiceEdge can improve communication for your
organization, visit business.comcast.com/smb/services/phone/managed. For more information about
how mobility is enabling the workforce and improving productivity, download the free white paper,
Empowering the Mobile Workforce: Hosted Voice Solutions Help Boost Productivity and
Customer Service, at business.comcast.com/empowering-mobile-workforce.

BUILD
QUARTERLY IDEA 08
So a key employee wants to
strike out on her own? Show
her how she can do it without
leaving the company.
Alas, employee retention is a major challenge for many growth companies. Shai Bernstein, an assistant professor of ﬁnance at Stanford Universi-
ty, published research in late 2012 that shows that innovators tend to leave their jobs at an increased rate afer companies go public. One way to
combat this is to separate the roles of CEO and board chair. “When CEOs are more protected from market pressures, they are more likely to take
on more innovative or risky projects” that satisfy the needs of inventive employees, Bernstein tells Build. To learn more, search #buildretention
on TeBuildNetwork.com.
When Web strategist Cara Olson returned to digital marketing company DEG following
a four-month maternity leave, she had big news: She planned to resign and start her own
company. CEO Neal Sharma heard Olson out and made a counterproposal: Why not launch it
within DEG? The division, he told Olson, would be hers to lead and direct.
Eight years later, Olson—now director of direct marketing and e-customer relationship
marketing for DEG—heads a unit that employs more than 30 people and generates one of the com-
pany’s largest revenue streams.
This was no one-of decision for Sharma. He has tapped many DEG employees to oversee
projects that let them pursue their passions while meeting the company’s business needs. In fact,
about half of the employees who have been with DEG for more than a year hold diferent positions
from those they were hired for. Te result: a 92 percent retention rate. Sharma ofers three strategies
for fostering the kind of “intrapreneurship” that can help you retain top talent:
1. Tink like a VC. Even though
Sharma is predisposed to let-
ting employees embark on new
projects, he assesses the risks
and potential returns in much
the same way that a venture
capitalist would. The chance to
retain a key employee should be
regarded as “an opportunity to
invest,” he explains.
2. Crowdsource the company’s
values. Rather than craft a
mission statement, company
leaders posed this question
to everyone: “What does this
company stand for?” The an-
swers inspired new mission and
value statements, which helped
map the job paths that employ-
ees can travel.
3. Insist on solutions. Employees
are free to criticize and complain,
as long as they also pitch solu-
tions. When they are required
to fnd answers to the problems
they see, they are already think-
ing about their next project
within the company, whether
they realize it or not.
—ADAM VACCARO
{RETENTION}
18 - BUILD - DECEMBER 2013 / JANUARY 2014
I
L
L
U
S
T
R
A
T
I
O
N

B
Y

T
O
D
D

D
E
T
W
I
L
E
R

BUILD
QUARTERLY IDEA 09
{ENGAGEMENT}
This list of questions may
help you get a fast read on
whether your employees
are equipped to succeed.
In a 2009 interview in Forbes, Douglas Conant, who was CEO of Campbell Soup at the time, described how the company had, as part of develop-
ing a “continuous loop for closing the engagement gap,” adopted a system in which the top criterion for leaders’ evaluations was “their ability to
inspire trust in those around them.” Conant said that as part of his own eforts in that regard, he “send[s] out about 20 thank-you notes a day to
stafers, on all levels. And every six weeks I have lunch with a group of a dozen or so employees, to get their perspective on the business, and to
address problems and get feedback.” To learn more about engagement, search #buildengagement on TeBuildNetwork.com.
“Employee engagement” is, admittedly, a catchall term, not to mention an endlessly marketable
consulting concept. So if you’re skeptical, we understand.
But earlier this year, when Gallup released its annual report on employee engagement, it in-
cluded a simple tool that may help you quickly determine where your work force stands. When properly
measured (Gallup argues), engagement extends beyond an assessment of how happy your employees are
on the job—it also reveals whether that happiness manifests itself in superior performance.
Gallup’s report is based on the results of a survey, administered to more than 25 million employees
in 189 countries, in which respondents answer “true” or “false” to a dozen statements. These questions,
Gallup says, constitute “the best predictors of employee and workgroup performance.” Here goes:
12 INDICATORS OF ENGAGED EMPLOYEES
Ideall y, employees al ways check "True," but the "Fal se" answers are more revealing.
The frst two criteria are critical; they address employees' primary needs. The others address three
stages: how workers contribute to the whole and are valued; organizational ft; and development.
1 I know what is expected of me at work.
2 I have the materials and equipment I need to do my work right.
3 At work, I have the opportunity to do what I do best every day.
4 In the past seven days, I have received recognition or praise for good work.
5 My supervisor, or someone at work, seems to care about me as a person.
6 Tere is someone at work who encourages my development.
7 At work, my opinions seem to count.
8 Te mission or purpose of my company makes me feel my job is important.
9 My associates or fellow employees are committed to doing quality work.
10 I have a best friend at work.
11 In the past six months, someone at work has talked to me about my progress.
12 In the past year, I have had opportunities at work to learn and grow.
T F
20 - BUILD - DECEMBER 2013 / JANUARY 2014

A more efficient supply chain
makes me happy.
UPS makes me happy.
–Jack Roush
Chairman, Roush Enterprises
When Jack Roush wanted to take the kind of performance
engineering he puts into his engines and build it into his entire
company he only made one call—to UPS. By consolidating
all of his freight, package, air, tracking, billing and reporting,
Jack saved a tremendous amount of time and money.
How does he manage it all? With UPS WorldShip®—the carrier-
supplied software that lets companies process and track their
package, air freight and LTL shipments in a single system.
Find out how logistics solutions from UPS make CEOs like
Jack Roush happy at ups.com/happy.
Copyright © 2013 United Parcel Service of America, Inc.

TeBuildNetwork.com
Anyone who has ever read a mutual
fund prospectus or scrutinized the
ﬁne print in investment-company
ads knows the old saw about the
value (or lack thereof) of “past
performance.”
When it comes to driving your com-
pany’s growth strategy, however, it
turns out that the opposite is true:
Past performance is virtually the
only guarantee of future results.
In studying the performance of
1.4 million U.S. companies from
2005 to 2010, Build has found that
an elite group—just 1% —created
72% of all net new jobs during
that period.
Te correlation between job
creation and ongoing success is
far more predictive of future
results, says Build economist-
in-residence Gary Kunkle, than
revenue or any other single perfor-
mance metric. In short, companies
that add jobs year afer year are
far more likely to continue growing.
Job growth is the X factor.
Armed with these insights, Build is
putting together a new index, the
Build 100, to celebrate the best
of the best. More important, we’ll
work with these A-list companies to
examine what they do (and don’t do)
to spur growth over the long haul.
Why does “sustained growth” mat-
ter? If your company exhibits sus-
tained job growth one year, it is 50%
more likely to grow again. Repeat
that over two years and the odds of
growing again hit 67%, and so on,
creating a straight line from steady
growth to exceptional growth.
Sustained-growth companies are
found in every industry across the
country. No matter what, where
or to whom you sell, exceptional
growth is within reach.
We will unveil the Build 100 in the
March issue of Inc. Troughout
2014, we will bring you a host of
insights from this elite group.
WHAT’S THE SECRET TO STEADY,
SUSTAINED GROWTH?
WE PLAN TO FIND OUT.
BUT WAIT! THERE’S MORE.
We’ll also give you a way to benchmark your company’s management practices, corporate culture, and other
facets of your business against the Build 100 companies. For details, search #Build100 on TeBuildNetwork.com.
“PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.”
22 - BUILD - DECEMBER 2013 / JANUARY 2014

Who insures you doesn’t matter. Until it does.
Financial Strength and Exceptional Claim Service
Cyber Security | D&O | E&O | Employment Practices Liability
Crime | Kidnap/Ransom | Property & Casualty
Chubb Group of Insurance Companies (“Chubb”) is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation.
For a list of these subsidiaries,please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued.
Chubb, Box 1615, Warren, NJ 07061-1615. ©2013 Chubb & Son, a division of Federal Insurance Company
www.chubb.com/inc5000

back-end content-management system
to secure its ﬁles.
Box is able to provide this service
to companies like drchrono because,
as of April 2013, Box was certiﬁed as
Health Insurance Portability and
Accountability Act, or HIPAA, compliant,
the industry standard for protecting
electronic health records. Getting
HIPAA certiﬁcation is the ofcial way
to assure patients a provider is taking
all the right steps to protect their medi-
cal information online. But becoming
HIPAA compliant is a notoriously
lengthy and expensive process. (Share-
Point is HIPAA compliant; some other
Box competitors are not.) HIPAA com-
pliance is proving valuable: In 2013,
Box’s sales in the health care industry
grew more than 81 percent.
Today, about 30,000 third-party
developers use Box’s application pro-
gramming interface, or API, a set of
functions that allows a third-party
company to access Box’s internal data
and to layer its information onto Box’s
servers. Box is recording about 700
million API calls per month from third-
party developers—a measure of how
often users are pulling information
from Box on an app.
Nonetheless, fears about data
breaches are a drag on Box’s growth.
Enterprise companies are not yet con-
vinced that putting sensitive company
documents into the cloud, let alone on
the servers of an eight-year-old start-
up, is worth the risk. Many of the com-
panies that use Box—especially Fortune
500 companies—have not fully inte-
grated their systems within Box’s serv-
ers. They use the platform to upload
and share ﬁles, but that doesn’t mean
their employees are allowed to post and
share just any company documents.
“The market is not mature yet,” says
the analyst and writer Krishnan Subra-
manian. Because of these fears, Subra-
manian believes Box’s $1.2 billion
valuation might be a bit exaggerated.
He puts it at closer to $1 billion. It’s not
just Box or even cloud content-man-
agement services that face concerns
about security, either. It’s the entire
software-as-a-service industry.
Levie knows this, and when you
spend enough time around him, you
begin to notice something peculiar.
Despite Box’s meteoric growth, and
despite the company’s valuation, and
despite the fact that Levie himself is
worth north of $100 million, he genu-
inely seems to view himself as the
underdog, and not merely in the mar-
ketplace. It’s more a cosmic, even philo-
sophical view of himself.
One of Levie’s favorite writers,
Malcolm Gladwell—whom Levie
recently brought in to speak at a
customer conference—once said that
underdogs are “capable of things the
rest of us can’t do [because] they look
at things in diferent ways.” In his most
recent book, David and Goliath, Gladwell
asks, “And what does it take to be that
person who doesn’t accept the conven-
tional order of things as a given...?” (See a
review of the book on page 38.)
When Levie ﬁrst announced that he
was building an enterprise software
company for the modern age, he was 23.
He had no idea what the conventions of
the game were. He had never used any
of the software he hoped to disrupt. But
to Gladwell’s point, not knowing the
conventions—or simply refusing to
acknowledge them—appears to have
become Levie’s best asset. And the fact
that he feels the odds are against him
and against Box—that isn’t a reason to
stop; it’s a reason to continue.
“We are the forefront of a really
transformative industry,” Levie told his
group of new recruits. “So make sure
you’re working as hard as possible to
make sure we win.”
“And that’s mostly,” he said, “my last
word.”
—
ERIC MARKOWITZ is a reporter for
Vocativ.com.

ENTREPRENEUR OF THE YEAR
CONTI NUED FROM PAGE 36
STATEMENT OF OWNERSHIP,
MANAGEMENT, AND CIRCULATION
1. Publication title: Inc.
2. Publication number: 0162-8968
3. Filing date: September 30, 2013
4. Issue frequency: Monthly, except for combined
December/January and July/August issues
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7. Known office of publication: 7 World Trade
Center FL 29, New York, NY 10007-2195
8. General business office of publisher:
7 World Trade Center FL 29 , New York, NY
10007-2195
9. Publisher: John Tebeau, 7 World Trade
Center FL 29, New York, NY 10007-2195
Editor: Eric Schurenberg, 7 World Trade
Center FL 29, New York, NY 10007-2195
Managing Editor: Alexandra Brez, 7 World
Trade Center FL 29, New York, NY 10007-2195
10. Owner: Mansueto Ventures, LLC, 7 World
Trade Center FL 29, New York, NY 10007-2195
11. Known bondholders, mortgagees, and other
security holders owning or holding 1% or
more of total amount of bonds, mortgages,
or other securities: None
12. N/A
13. Publication title: Inc.
14. Issue date for circulation data below:
September 2013
15. Extent and nature of circulation
Average no. of copies No. of copies of
each issue during single issue published
preceding 12 months nearest to filing date
A. Total number of copies............804,765..................843,598
B. Paid circulation
1. Outside-county paid
subscriptions......................548,416.................548,964
2. In-county paid
subscriptions.................................0............................0
3. Sales through dealers and carriers, street
vendors, counter sales, and other non-USPS
paid distribution....................30,387....................40,956
4. Other classes mailed
through the USPS...........................0.............................0
C. Total paid distribution..............578,803..................589,920
D. Free or nominal rate distribution
1. Outside-county....................148,495..................149,544
2. In-county.........................................0............................0
3. Other classes mailed
through the USPS...........................0.............................0
4. Outside the mail.......................3,464...................10,649
E. Total free or nominal
rate distribution.......................151,959.................160,193
F. Total distribution.....................730,762..................750,113
G. Copies not distributed................74,003...................93,485
H. Total.........................................804,765..................843,598
I. Percent paid circulation..............79.2%....................78.6%
I certify that the statements made by me above
are correct and complete.
—Mark Rosenberg, CFO
142 - INC. - DECEMBER 2013/J ANUARY 2014

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began as a 4,000-word rules document
ballooned to 14,000 words by 2012, as
various exceptions and ﬁne distinctions
were accounted for. McBride was able to
continue on Etsy because his manufac-
turing partner qualiﬁed as “partial pro-
duction assistance” under the rules.
The problem was, nobody was quite
sure what partial production meant, and
many of the other rules were similarly
unclear. Rather than settle debates, the
complex thicket of regulations created
new debates and an ever-larger enforce-
ment burden for the company. If a
wedding-dress maker enlisted her sister
to work with her in her studio, that would
be an acceptable labor arrangement, but
if her sister worked in another state, it
would not. Why? Technology changes
have complicated matters further:
What if someone designed a toy on
a computer and produced it with a
3-D printer? Would that be hand-
made? Why is it any better or worse
than Tielor McBride’s bag factory?
Just as important as ﬁnding
ways to keep sellers like McBride
within the rules is providing them
with a diferent class of customers.
Rather than letting McBride make
90 percent of his sales to other
retailers, for instance, Dickerson
has created a wholesale market on Etsy.
It allows Etsy members to connect with
retailer partners such as West Elm and
Nordstrom, as well as independent bou-
tiques around the country.
The wholesale program is one step in
a wider efort to professionalize Etsy’s
sellers. A tool called Shop Stats provides
a dashboard of store-performance met-
rics. A Seller Education Program teaches
members business skills such as how to
merchandise for the holidays and how to
generate trafc through social media.
One goal of the professionalization of
Etsy, Dickerson says, is to give sellers
more time to focus on designing and
making their products. The other goal, of
course, is to increase sales for everybody.
D
ICKERSON, 41, IS AN unlikely tech
CEO, a former English major
at Duke who started his career
as a ponytailed aspiring jour-
nalist and fell into Internet technology
somewhat by accident. Eventually, he
became a pioneer of modern Silicon
Valley–style tech culture, the man who
made the hack day a staple of the start-up
world when he was at Yahoo. A little bit
round and rumpled, with salt-and-pep-
per hair, he radiates a basic decency that
makes it entirely believable when he
talks about his underlying idealism.
It’s a proﬁle that doesn’t ﬁt the
craven-capitalist picture you’d get of
Dickerson if all you knew of him was
what appears on Etsy’s user forums. The
disconnect comes down to trust. Dicker-
son has earned it among staf members
because he delivered them from a de-
moralizing situation and because of the
open, honest culture he created. Oddly,
those same core cultural principles have
been absent in much of Etsy’s manage-
ment of its community. When Dickerson
talks about creating opportunity for
sellers, many interpret that as code for
him wanting to court big business and
move away from the craft movement.
They call Dickerson’s company Etsy-bay.
Nowhere has the lack of trust played
out more clearly than in the debate
around so-called resellers, distributors
of mass-produced goods that masquer-
ade as handmade on Etsy. Nobody de-
nies that resellers exist—because Etsy is
an open platform, anyone can sign up, so
a certain level of spam is inevitable—but
many Etsy members suspect the com-
pany of quietly tolerating them to collect
the revenue they generate.
In early 2013, Dickerson sat down
with Heather Jassy, Etsy’s vice president
of member operations, and gave her the
task of reimagining the company’s mar-
ketplace guidelines. “I want you to write
a new set of policies,” he said to her,
“and my only requirement is that you do
it in a sensory deprivation chamber,
without referring to the current ones.”
The project became known inter-
nally by the code name Humanscale.
“We wanted to emphasize the idea that
this was about people,” Dickerson says.
The previous rules centered on trying to
deﬁne what is handmade and what is
not. The new rules wouldn’t even bother
to deﬁne handmade, and instead took
shape around three broad principles
that Dickerson has encoded throughout
the company’s culture: authorship,
responsibility, and transparency. Now he
would try to encode those cultural val-
ues in the selling community.
In Dickerson’s words, authorship
means that “the items you sell begin with
you; Etsy is not a place to sell items that
you had no role in making.” Responsibil-
ity means “you take responsibility
for the way your items are made
from beginning to end.” And
transparency means “you should
be open and honest about all the
people and partners involved in
what you are selling on Etsy.”
More practically, the new
guidelines allow sellers to hire as
many people as they want, in any
place they want. Sellers can enlist
manufacturing partners to pro-
duce all or part of the goods
they’ve designed. “Partial production
assistance” is gone, as are other, similarly
complicated conceptions. The only re-
quirements are that sellers submit appli-
cations to use mass production—an
in-house team will review them—and
that approved manufacturing partners be
disclosed on the shops’ About pages.
It’s a radical departure from the past,
and for the ﬁrst time a decentralization
of authority when it comes to the com-
munity. “We are trusting the sellers to

NOW COMES THE HARD PART
CONTI NUED FROM PAGE 92
Nowhere has the lack
of trust played out
more clearly than in
the debate around
so-called resellers.
144 - INC. - DECEMBER 2013/J ANUARY 2014

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make the right decisions,” Dickerson
says, “and do it in a marketplace that’s
open and honest.”
A
FEW DOZEN Etsy sellers have
gathered at Etsy headquarters
for a town hall meeting in
which Dickerson will an-
nounce the new production guidelines.
Around the world, more than 5,000 Etsy
members are tuning in via webcast.
“The sellers here and those of you on
the webcast are really who helped build
this company, and as we grow, I want
Etsy to commit to getting closer to the
community, not growing apart,” Dicker-
son begins, pacing in front of the audi-
ence with a vintage sewing machine and
a few spools of fabric arrayed on a table
behind him. “We all know that Etsy can
only do well when our seller community
does well—when you do well.” He an-
nounces that the company plans to
launch a new era of transparency and
open communication with sellers.
From now on, Dickerson says, Etsy
will release a detailed quarterly summary
of its performance and strategic goals, so
sellers can have a better understanding of
why the company makes the decisions it
does. Beginning today, the company will
unveil a new section of its website that
ofers much more detail than previously
available about its market-integrity ef-
forts. The new section will detail how
many shops are being ﬂagged as potential
violators, how many investigations are
opened by the company, and how many
shops end up getting booted. A few peo-
ple applaud when he announces that
Etsy will now ofer phone support for its
sellers, something the community has
long begged for.
Things are going well so far, and the
audience remains polite as Dickerson
launches into the real reason for the
meeting—the Humanscale production
guidelines, which are now 900 words,
down from the previous 14,000. When
he opens the ﬂoor for questions, some
are easily dismissed (Is Etsy selling out?
No. Why are there so many resellers?
We’re constantly ﬁghting it), but others
prove trickier.
One seller in the room points out
that, under the new rules, it’s possible
that Ikea could qualify to sell on Etsy.
As long as there were a person at Ikea
designing a product and vouching for
the sustainability of its production
process, why couldn’t that product now
qualify? Dickerson’s response: “If Ikea
called today and said they want to
be on Etsy, I’d hang up. They should
buy from Etsy.” It’s not an entirely satis-
fying answer, because there’s nothing
in the rules that explicitly prevents
established brands from listing their
products, other than a subjective appli-
cation-approval process. Saying no to
Ikea is an easy call, but what about a
smaller but established company that’s
serious about sustainable production?
How big is too big? Etsy doesn’t have
clear answers to those questions yet.
The most important aspect of the Ikea
question is simply that it was asked. To
Dickerson, of course Ikea would never be
able to sell on Etsy. But to a community
that doesn’t yet trust him, that’s not
obvious. The risk of knocking down the
confusing old rules is that people can
interpret it as a ﬂinging open of the doors
to bad actors. Which is exactly what
happens on the Etsy forums as people
watch the town hall webcast.
“Oh noooooo... this is not sounding
good AT ALL :(”
“Well handmade just died. Etsy just
voluntarily self-imploded.”
Dickerson and every other Etsy
executive I spoke to said the company
ran no ﬁnancial projections when devel-
oping the Humanscale project; every
decision was just about responsibility,
transparency, and authorship. That’s
a highly principled move for an
e-commerce company that’s normally
driven by data. But the fact remains that
empowering sellers to grow more easily
can only help Etsy continue to grow—
which is, of course, the point.
Dickerson sees the Etsy of the future
as a market not of handmade goods but of
what he calls “person-to-person” com-
merce. “It’s all about creative people
building businesses, connecting people
through commerce, and making items
that have stories behind them,” he says.
He envisions Etsy sellers mobilizing
skilled workers in struggling former
industrial communities like Detroit.
Manufacturing isn’t a bad word in this
vision of Etsy; it’s essential. If Etsy is
going to change the world, it’s going to do
it by opening a vast market of humanely
and sustainably produced goods dreamed
up by real people who really care about
quality. It’s no less soulful a vision than
Rob Kalin’s ideal of individual crafters
crafting for a living. And Dickerson sees
no reason handmade goods can’t coexist
in a person-to-person market with goods
made in small factories.
In the days and weeks after the town
hall, a few supportive threads in the
forums vie for attention with the
doomsday predictions. Dickerson hopes
that time will prove him right, as the
company approves the right kind of
manufacturers, drives out the wrong
ones, and devises new tools to help
everyone sell. “At the risk of sounding
quite self-aggrandizing, I just have like a
really deep sense of responsibility,” he
says. “I know that there’s a lot of conﬂict
and protest in the community, but I
really want the community to be suc-
cessful. When I think about the changes
we’ve made, it’s always been in the name
of that.” If only the community would
believe him.
TOM FOSTER is an editor-at-large for Inc.
The risk of knocking down the
confusing old rules is that people
can interpret it as a ﬂinging open
of the doors to bad actors.
DECEMBER 2013/J ANUARY 2014 - INC. - 145

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FRANCHISE SPECI AL ADVERTI SI NG SECTI ON
As 2013 drew to a close, the International Franchising
Association expected U.S. franchisers to end the year on
a positive note, with the hope of signiﬁcantly better things
to come in 2014. “We expect the number of franchise
establishments in the United States to increase by 1.4
percent in 2013, near the pace of 2012,” says Alisa
Harrison, spokesperson for the Washington, D.C.-based
trade group for the franchise industry.
Whether measured by employment in franchise
establishments or sales growth, the franchising story in
2013 was about the same: Not as well as 2012, and not
as well as several years ago, but better than it’s been
most of the time since the last economic downturn.
“We are growing but not at the pace we saw before the
recession,” Harrison said. “We do expect to see the pace
pick up once the economy gets to a full recovery.” But
even if the restoration of pre-recession vigor to franchising
as a whole awaits the return of a revitalized overall
economy, individual franchisers are forging ahead with
plans for expansion and innovation in 2014.
Fit Body Boot Camp has perfected a way to give ﬁtness-
seeking consumers all of the beneﬁts of having a personal
trainer, without most of the costs. And the Chino Hills,
California-based company delivers that service in indoor
boot camp business franchises that provide ﬁtness
entrepreneurs with turnkey systems, marketing strategies
and ongoing support.
Founder Bedros Keuilian calls Fit Body Boot Camp the
“anti-franchise franchise” because of its level monthly
franchise fee that isn’t based on a percentage of sales.
Another reason is their “done-for-you” marketing systems
that create and manage advertising through campaigns
on platforms such as Facebook, Google and Groupon.
“We’ve made it so turnkey that franchise owners practically
don’t have to lift a ﬁnger for marketing,” says Keuilian.
Fit Body Boot Camp currently has 218 open locations.
Most are in the United States, and mainly in the coastal
states, although Fit Body Boot Camp also has operations
in several countries on four continents. By the end of
2014, Keuilian says that number may have more than
doubled. “At the rate we’re going we’ll easily add 200
more location in 12 months,” he says. “But each month
we keep adding more. So it’s very likely we may add
another 400 locations within a year.”
For Seniors Helping Seniors, 2014 looks to be an
additional year of positive developments for the Reading,
by Mark Henricks

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Pennsylvania-based franchiser of non-medical in-home
care businesses. “Our franchise partner councils are all
working together to continually reinvent and to constantly
improve our franchise system to help us be the best we
can become as leaders of our industry,” says co-founder
and CEO Philip Yocom.
There are almost 250 Seniors Helping Seniors operating
right now. During 2014, Yocom plans to open 100 more.
Among challenges they’ll address are expanding the
company’s entry into the United Kingdom, its ﬁrst foray
into international franchising.
One of the challenges at Daycare Cleaning Services is to
find ways to deal with the inquiries from potential
customers that are too far distant for the Cherry Hill, New
Jersey, company to serve. “We’re seeing a lot of interest,”
says President Rob Nestore. “We get calls each and every
day from potential customers throughout the country.”
Daycare Cleaning Services specializes in providing
cleaning services for childcare businesses, including
daycare facilities and preschools and public and private
elementary schools. “Customers are starting to realize the
importance of how a clean and healthy building with shiny
ﬂoors can increase their enrollment, which in turn increases
their revenue,” Nestore says.
The unmet opportunity to satisfy customers beyond
Daycare Cleaning Services’ service area led Nestore to
begin offering franchises. At this point, the company has
one location serving New Jersey, Pennsylvania, Delaware
and New York.
Challenges in growing the Daycare Cleaning Services
system relate primarily to identifying suitable franchisee
prospects. “Getting the customers isn’t the problem,”
Nestore says. “It’s ﬁnding the right candidates to replicate
the area that I personally built up in New Jersey.”
Until those candidates are identiﬁed, Nestore will continue
ﬁelding calls from prospects he can’t serve from his existing
location. “Unfortunately, it’s difﬁcult for us to provide services
when the customers are that far away,” he says. “That’s why
we’re currently looking for area developers.”
Daycare Cleaning Services recently hired a national sales
manager to work with prospects for cleaning services as
well as franchises. “In 2014, we’ll continue to grow strongly
throughout the mid-Atlantic area picking up contracts with
new childcare chains as well as individual schools,”
Nestore says. “We continue to look for new prospects and
candidates that are going to ﬁt our model.”
Our Town America’s model is about connecting the new
people in town with existing businesses. Franchisees of
the Pinellas Park, Florida-based company provides people
who have just moved into a home with bundles of gift
certiﬁcates and coupons for area retailers. The Welcome
Packages help newcomers feel welcome while helping the
sponsor businesses that pay for the packages gain loyal,
long-term customers.
We’re an opportunity that lets you feel good about what
you do,” says founder and CEO Michael Plummer. “You’re
building relationships from new families moving into the
area to businesses that desperately need them.” In

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addition, Plummer says, Our Town franchises appeal to
people who want solid income potential while working
from home and enjoying ﬂexible hours. “You don’t have
to open a business and be a slave to it.”
There are 47 existing Our Town franchises, concentrated on
the East Coast and Midwest but as far west as Phoenix. By
this time next year, the company anticipates having a
minimum of 60 locations, and they could be located almost
anywhere. “I’d like to get more on the West Coast and a
couple more in Texas,” Plummer says. “But if somebody
called from Seattle, I’d be ﬁne with it.”
If a mobile phone caller needs a case or other accessory for
a wireless device, he or she will do ﬁne to look for the nearest
Cellairis location. Franchisees of the Alpharetta, Georgia-
based company offer a wide range of stylish accessories,
as well as specialty services such as phone repair, from mall
kiosks and inline stores.
“Cellairis is a simple, clean retail concept with a minimal
investment and no virtually national franchise competitors,”
says Marty Welch, vice president of franchise sales. “We are
young, cutting-edge, and in tune with all the latest changes
in the mobile marketplace.”
One of the biggest new initiatives at Cellairis is the expansion
of its full retail store franchise model. The company has also
added a number of innovative new products that are
proprietary to Cellairis. “2014 will be a banner year for the
Cellairis brand,” Welch says.
The company has more than 800 locations in the U.S. and in
Canada, Mexico, Chile, Dubai, the United Kingdom and the
Caribbean. Over the next year, Cellairis anticipates opening
100 new locations. Target markets include major cities in
existing markets such as the U.S., Canada and Mexico, as
well as new markets in Colombia, Brazil, the United Kingdom
and other European countries. “The USA is our primary market,
but growth through international expansion will double our size
in just a few years,” Welch says.
The primary objective of Kahala is to become the world’s
biggest and best franchise company, but not in that order.
The Scottsdale, Arizona-based franchiser of 15 different
quick-serve food concepts operates on the premise that
being the best franchise will naturally lead to growth, both by
growing existing concepts as well as by developing and
acquiring new ones.
Under such well-known brands as Cold Stone Creamery and
Blimpie, Kahala has more than 3,000 locations in 26 countries.
The company lately has been emphasizing growth in America’s
Taco Shop, which features food prepared according to recipes
from the founder’s Mexican-born mother. Over the next year,
Kahala expects to grow in all U.S. markets and, eventually,
every country where it already has outlets. America’s Taco
Shop is planned to be expanded from its current markets in
Arizona and Maryland to California and Texas.
For FirstLight HomeCare, succeeding in 2014 starts with
taking care to choose the right franchisees and to work with
them effectively. “We are extremely selective on who we bring
into the family to make sure we bring in people who are going
to be successful in the long term. It’s a true partnership
mentality,” says Bill McPherson, executive director of
franchise development for Cincinnati franchiser of non-
medical in-home care businesses.
Another key to FirstLight HomeCare’s prospects is the fact that
it addresses a large and pressing need. “In-home senior care
is the number one or two fastest growing industry in the U.S.,”
McPherson says. The fact that FirstLight HomeCare provides
non-medical companion and personal care, as opposed to
skilled care, is also a plus. “There are signiﬁcant changes taking
place with the Affordable Care Act and changes to overtime
laws that are going to affect skilled care concepts and
independent providers very signiﬁcantly,” McPherson says.
Presently, FirstLight HomeCare has 73 territories in 27 states.
In another year or so, McPherson expects to add 40 or 45
more territories to that total. “We’re very close to bringing on
our ﬁrst Canadian master franchise agreements in British
Columbia and Ontario,” he adds.
Franchising overall is very close to being in position for a robust
expansion. Harrison said much depends on how the federal
government addresses healthcare, job growth and regulation.
If those moves are positive, faster growth in franchising could
be in the ofﬁng. “But if the uncertainty in the economy remains,
we will see modest growth,” Harrison said.

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FOUNDERS FORUM
How do you measure success?
By the number of lives we’ve
positively impacted.
What’s one mistake
you made early on?
To build our ﬁrst website, we hired
a ﬁrm whose quotes were half the
price of everybody else’s.
What was the hardest lesson in
your ﬁrst year of business?
That lack of sleep really does
impede productivity.
What’s the toughest part
of being in charge?
The fact that only hard decisions
reach your desk.
What’s the best motivator
for employees?
Feedback.
What’s your proudest accom-
plishment in your business?
We’ve distributed more than
500,000 pairs of glasses to people
in need across the globe.
Gut instinct versus expertise:
Which is more important and why?
Both are extremely important, and
you need to understand the
strengths and limitations of both.
We like to question our gut in-
stincts but also approach problems
with a beginner’s mindset.
What’s the biggest
myth in business?
That widgets are made in a sys-
tematic way. If you peek behind the
curtain at any type of company,
you’ll see that things are far less
organized than you’d expect.
What have you learned about
yourself running your business?
I’m not as smart as I think I am.
What have you sacriﬁced
for success?
Beer.
Whom do you admire most
as a business leader?
Florence Nightingale. She is
one of the most dynamic social
entrepreneurs in history.
Neil Blumenthal
Fast growth and an ever-more-valuable
brand are gratifying, but for Neil Blumenthal,
co-CEO of the innovative retailer Warby
Parker, nothing trumps mission
By ISSIE LAPOWSKY Photograph by STEVEN BRAHMS
EXI T I NTERVI EW
SCAN THE PAGE TO SEE NEIL BLUMENTHAL TALK
ABOUT BUILDING A BRAND TO LAST. (See page
12 for details.) For the Founders Forum
video interview with Inc.’s Scott Gerber, go
to www.inc.com/founders-forum.
•
VISIONARY
Neil Blumenthal has developed
a signature combination of
technology, design, customer
service, and doing the right thing.
156 - INC. - DECEMBER 2013/J ANUARY 2014

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