Outsourcing Drive Thru Jobs

Photo: LWY

Here’s something may be a shock to you: when you pull up to a fast food, you might be talking someone in a call center thousands of miles away! It turns out numerous fast food chains have been experimenting with this over the last five years. If you are at a Wendy’s you might be talking to someone in Delaware, Jack in the Box to the Phillippines or Texas, or McDonald’s to India.

These companies claim the benefits are shorter wait times and less mistakes due to a further division of labor where each person can focus on one menial task. Well, maybe they don’t say it quite like that. It is hard to tell the extent to which this system is currently deployed in the United States – after a flurry of news stories about this experiment 4-5 years ago, the fast food companies have not informed the public how it has gone. My suspicion is that they strategically expanded the program nationwide to select franchises, specifically ones with multiple drive thru lines or notoriously hard to understand operators.

Is Outsourcing Jobs Overseas Really a Problem? Depends Who You Ask

Photo: Till Krech

Thousands, if not millions of Americans have lost their job overseas. Due to the recently flattened world, companies are now able to find workers in remote countries eager to work longer hours for significantly less pay.

Why do companies outsource jobs?
It’s simple – money. Companies have the goal of making money, not employing the most Americans as possible. Sometimes these conflict. If the business can make more money by laying off unnecessary workers or outsourcing jobs overseas, we have seen time and time again that they will.

Is this wrong?
No, it is not wrong. The company is simply responding to incentives – specifically, the management of the company is responding to incentives. The more money the company makes, the more money the executives make. These executives are often extremely removed from the lowest paid individuals who see their jobs outsourced – the management sees the pros but not the cons.

What is the result?
A report by McKinsey showed for every $1 of labor outsourced overseas, the United States receives $1.12 back (in addition to 33 cents retained by the country that does the work). So by outsourcing we are able to boost our production 12% without actually working!

Overall this sounds like a win for the United States, but in reality maybe it’s not – those simple numbers do not tell the whole story. Instead of $1 being dispersed amongst the poorest, $1.12 goes into the pockets of the richest! Outsourcing is a very efficient way of redistributing wealth – the poor in the US lose $1, the poor outside the US gain 33 cents, while the rich in the US gain $1.12!

Why outsourcing will not be stopped
Corporate executives are the ones who make the decisions for the business. They are also the ones who benefit the most from outsourcing jobs. If we expect outsourcing to stop, we have to change the incentives so that the negativities of outsourcing are felt.

Of course, the people who have the ability to change economic incentives are politicians – politicians that are buddy-buddy with the corporate big wigs and the associated lobbyists. Thus, until outsourcing becomes a compelling issue, nothing will change.

Translating a Free Online Education into a College Diploma

Photo: wohnai

Over the last couple years an exciting new trend has emerged amongst universities across the country – they are providing courses online for free! Harvard, Yale, Stanford, MIT, UC Berkeley, Columbia, UCLA, and John Hopkins are just some of the schools that have lecture videos of entire courses online.

Why the heck are these schools doing this?
It is the free information movement. Just like there was a free love movement in the 1970’s, there is a similar free knowledge movement in the early part of the new century. Wikipedia is the epitome – its free information has become a part of the way we research just about everything. Another manifestation of this is the huge open source software movement providing free software to the masses. Examples are the Linux operating system, Mozilla Firefox web browser, and Android phone operating system. It is a cultural and economic phenomenon that deserves much more attention than a few sentences, but there is not room in this post so I will refrain – just be sure to take advantage of it!

What exactly are they offering?
It varies widely from school to school and even class to class. The organization OpenCourseWare currently has 200 schools with 13,000 courses offered online – some just have the lecture videos, while others also have the assignments and exams complete with solutions. Beyond what is posted you are on your own – there are no help resources such as teacher assistants or other class members to contact.

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Salary – When Minimum is Greater Than Maximum

Photo: David D. Muir

Most people think the benefit of attending a top tier school is the ability to nab a high paying job – investment banking, consulting, CEO, etc. Sure those opportunities are great, but I am going to argue that the real advantage is the ability to pursue work that the individual finds interesting. Right now you are probably thinking – can’t anyone do that? Yes, but a top tier degree enables you to do it without worrying about money – you have a great degree to fall back on if things don’t work out. It’s not the maximum salary opportunities that matter, but rather the high minimum salary that can be expected with a degree from an elite university.

The focus of students at these schools is not merely passing versus failing – all the students admitted to top tier schools are capable of doing the work, in fact thousands of capable students are rejected every year. Keeping this in mind, these students are going to have a focus other than passing and failing: grades, social life, sports, clubs, job, girls, etc. I won’t go into what their focus should be in the post, only what they should do in the meantime – get a technical degree! Not all college diplomas are equal, even if they do come from the same school. Graduating with a technical degree will prove valuable later when it comes to your career.

Many college students make the mistake of choosing a major because it is easy and they will be able to get a higher GPA while working less. A technical major is much more important for job demand than GPA. In fact, leave GPA out of the consideration – after your first job, who cares? The answer is graduate schools, but that is not a job. Who is going to have a harder time quickly finding a job, someone with a aerospace engineering degree and a 3.1 GPA or someone with a classics degree and a 3.4 GPA? These majors may be harder but it is well worth a sacrifice of a couple tenths off your GPA in exchange for job demand.

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An Alternative to Traditional Venture Funding

Photo: Wally Gobetz

Yesterday I explained the pitfalls of too much venture funding. Whenever posting about a problem I will always attempt to follow up the next day with a potential solution. My idea is a Venture Capital funded bank account to be used by the startup where every X dollars spent translates into a percentage point of equity. The beauty in this model is that the startup receives the funding they need, but are incentivized to keeps their costs under control and become profitable in a hurry.

Let’s imagine a fictitious hot new internet startup looking for series B funding to take them to the next level. The offer they receive from KPCB is $10 million in exchange for a 40% in the company. Sounds great right: a ton of money from one of the best venture firms at what the founders feel is a generous valuation. Wrong! Take that same valuation but avoid the trap of taking more money than you need. Here is a potential counter offer:

  • $2 million immediately for an 8% stake
    • This amount will certainly be needed before becoming profitable.
  • The VC firm opens a bank account / line of credit for up to $8 million more where every $25k is 0.1% of equity
    • Forces the startup to watch their expenses rather than quickly burning through money without consequences
    • Protects startup from equity dilution (an excellent explanation) by only granting equity to the VC for funding used

If things start to go downhill for the startup there must be some protection from the VCs simply closing the account. Here are some potential rules:
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Too Much Venture Funding – When More Money is a Bad Thing

Photo: Go Go Ninja

One pitfall for startups is taking on more funding than they need in exchange for a huge chunk of the company. It is obvious that the reverse is a problem — not enough funding means the young company has to be instantly profitable and will not be able to rapidly bring in new talent. Not as apparent but almost as dangerous is taking too much funding.

The examples are endless in the dot com boom. Webvan, Kozmo, RealNames, eStyle, Upromise, Priceline WebHouse Club, 800.com, Autolines, and Pets.com are some companies that had north of $100 million in funding and went out of business. After that debacle venture capitalists are more weary to hand out that kind of money. Only a handful such as Twitter, Facebook, LinkedIn, and Zenga have crossed a $100 mil. A further sign of caution is that in these latest examples the money often came well after the company had proven themselves with millions of users or by already being profitable.

Despite the regression in funding since the dot com bust, there still is too much money flying around for internet startups. Websites that are a good idea but lack a monitization strategy can raise tens of millions of dollars with good connections and a little luck. These aren’t large-scale manufacturing companies that need to purchase machinery or brick and mortar stores that need to purchase expensive inventory, they are websites that only need to buy a few servers. They have no need for tens of millions.

What happens when a startup receives more funding than they need?

  • It removes the sense of urgency to become profitable.
  • It makes it appear like the funding is a win, when really it is just a step in the process to having a profitable company, not the end goal.
  • The founders may become paper millionaires and lose focus.
  • The company loses control in the form of pressure from a VC firm with a huge vested interest.
  • The company owns less by selling equity for money they don’t need.
  • They spend the money foolishly because they can.  There were famous dot com heyday parties that cost over a quarter million.
  • They blow money on marketing. Obviously marketing is important, but cash strapped companies are forced to be creative with their marketing and still get more results than a Pets.com Super Bowl commercial.
  • Overaggressive expansion. Expanding before having a plan leads to unnecessary employees without direction.

Now that we all agree that too much venture funding is a bad thing, what can we do about it? Check back tomorrow for my idea.

Here is the second post “An Alternative to Traditional Venture Funding.”

How Would You Like Continuous Direct Deposit for Your Paycheck?

Photo: Andrew Magill

I receive a monthly paycheck. No I’m not bragging, quite the opposite, I am complaining. This sounds great to those who are unemployed, but why do I have to wait an entire month before being payed? The work that I do on March 1st I will not actually receive any compensation for until April 1st, 31 days later. To put it another way, 0.1% of my life later. Now does it seem like a bigger deal? I would much rather have the instant gratification of immediately receiving the wages of my hard day’s work.

Before big corporations came about I imagine everyone got paid at the end of the day. Today we sign agreements to give the company the right to only pay us once a week, bi-weekly, or even monthly regardless of whether you are paid by the hour or on salary. And of course there is no interest paid even though they are holding what is rightfully your money. My solution I call continuous direct deposit.

In the workplace money is never physically handed to the employee by their boss, it is all done by either check or direct deposit. Direct deposit allows for the transferring of funds from one bank account to another without dealing with cash or checks. Continuous direct deposit would transfer money from the employer’s bank account to the employee’s at infinitesimally short time periods — time periods that would make my monthly paycheck look like an eternity. Anyone with a salaried position can determine how much money they make any given minute, second, or even millisecond. This can be boiled down into an equation to be used to continuously deposit your paycheck into your account.

In theory you should be able to head to your bank’s website, repetitiously hit refresh, and watch you balance slowly tick up. Altering the equation could ensure that money is only deposited weekdays or during work hours.

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