INC.: What do you tell people when you put them in charge of such a decentralized situation?
McGOVERN: First of all, we make it absolutely clear what the situation is. We tell them they're going to have a lot of autonomy but also a lot of responsibility. They'll be in a high at-risk position, with most of their rewards varying according to their performance. Besides that, we explain the company culture. It's a culture that puts a premium on people, innovation, and growth. They'll have to put a lot of time and energy into training and developing people. They'll have to be open to testing new things as soon as they look feasible. And they'll have to aim at a growth of 30% plus per year, and maintain a 10% aftertax profit.
INC.: OK, let's pretend I head one of your entrepreneurial units, and, knowing those ground rules, I see a need for a new publication, Brookline Info World. What do you say?
McGOVERN: First we say, "How much money do you need?" And you say, "Oh, about $10 million." We say, "Where did you find that figure?" Whereupon it gets down to questions like, "What's the size of the market you're going to serve in Brookline? How many subscribers will you have? How much advertising do you think you can get? What are your start-up losses going to be?" and so on. So you draw up a plan and a projection, and then we come back to you and say, "It looks like you're going to need $3.5 million. Go ahead and give it your best shot.'
INC.: And what if I come back for another $2 million?
McGOVERN: We'll ask you to explain what went wrong, and then if we think you went off track somewhere, we'll ask you what you're going to do to reduce the risk for the next $2 million. So we come up with a revised plan. And there will be no problem with your accepting it, because you're going to be a little more humble this time.
INC.: And if I come back again?
McGOVERN: Now, we're going to take a real close look at you, to see if you are the right person for this market. You're obviously talented, or we wouldn't have gotten together in the first place. But maybe you're just not good at sensing market opportunities. Maybe you're a great salesperson. So we would try to find something else for you to do.
INC.: Are you saying you always blame the jockey, never the horse?
McGOVERN: I think we've only had about 4 publications out of 100 that we've ever scrubbed. So, yes, in most cases we've believed in the market opportunity, and where we've had to change, we've changed the manager and kept on with the project.
INC.: All right, but let's suppose I come in well within my budget on this project, what do I do then? Serve my market and grow 30% a year? Is that all I have to worry about?
McGOVERN: Well, the growth rate of 30% is IDG's total growth rate. If you're just starting a business, we would assume a much faster growth rate -- 50% to 100% a year for the first year or so.
INC.: What about profit goals? Would I have to observe them, too?
McGOVERN: Yes, but they would depend on return-on-investment guidelines, and these are a function of how long the particular product or job you're providing information about is likely to exist. For example, if you have information service for a given type of job, and that job is expected to be around for 20 years or so, then we can wait 3 to 5 years to get our investment back.
But if your publication is designed to serve a particular product, like we're doing with a Commodore magazine or the Apple magazines, then we'd probably have to assume that the life expectancy of the product is going to be no more than seven years. And in that event, of course, we would have to have a two-year payback on our initial investment, because the magazine will only be viable for five of the seven years. We'd have to get our money back in two years in order to make some returns on the next three.
INC.: What about pay scales, performance compensation, and the like?
McGOVERN: That's the responsibility of the local manager. He should have control over all the expenses and all the income in the business. So if he wants to give people bonuses of four times salary, based on their performances, that's fine.
INC.: What if I don't want to give bonuses, except to myself and my buddy, and treat everyone else like peons?
McGOVERN: Well, there are some people who are so mesmeric or charismatic that people will pay to work for them. Maybe you're one of them. It may also be a start-up situation, in which people have much lower expectations of what they should be paid. So rather than trying to enforce one rule on everyone, which in the end would fit no one perfectly, we think all these questions should be worked out by the local manager operating within the constraints of competitive salaries in the area. Obviously, though, if there's a compensation structure that's producing a 40% turnover in personnel, then something's wrong.
INC.: So then you'll step in and fix the problem?
McGOVERN: Probably not, because the chances are that things would never have gotten that bad in the first place. We ask every employee in every unit to fill out an evaluation of how well a manager is doing his or her job. How open are managers to discuss problems, how well do they run meetings, how well do they set job goals and do appraisals -- all the things that good managers are supposed to do.
So we would get a report card on this guy at Brookline Info World, and we would be able to ask him about this problem with turnover. Perhaps it has something to do with the way he's been paying people. Of course, he might have good reasons for wanting a 40% turnover, but at least he, and we, will know how his employees are evaluating him.
