Seriously attacking real money laundering; A simple solution to a complicated problem

Testimony in the ongoing New York federal trial of “El Chapo” Guzman offered a repeat of facts heard in hundreds of similar trials since the prosecution of Al Capone.

Despite that blaring reminder, governments, including the one now prosecuting El Chapo, appear to turn a deaf ear to the screaming need for a meaningful proactive global plan that will routinely identify and attack the world’s mega money launderers that enable criminal enterprises to corrode the free world.

For those who feel what we’ve been doing on the money laundering front is a success, please refer to the United Nations on Drugs & Crime estimate that annual revenue from global sales of illegal drugs is thought to be in the range of $400 billion.

Compare that to statistics concerning the annual forfeiture of drug proceeds by law enforcement and you’ll discover that more than 95% of annual illegal drug proceeds flow freely under the noses of law enforcement, regulators and compliance professionals into the world’s economy.

That’s not success.

Beyond that, let’s not forget that the greatest number of meaningful achievements on the money laundering front have come through gifts handed to governments by whistle-blowers. The world has been lucky in that regard, but we can’t count on that alone, especially since whistleblowing is shunned in many nations.

We need to develop an effective global initiative to attack this problem on a continuing basis. Evidence provided in the criminal trial of “El Chapo” Guzman underscores a major problem he and other leaders of criminal enterprises face – what to do with mountains of currency?

A lot of the cash, yes hard cold greenbacks – not cryptocurrency, was smuggled out of the U.S. to Tijuana where Guzman would send his three private jets each month, fill them with tens of millions in U.S. dollars, and then have his workers drag the cash to banks in Mexico.

Hopefully the world hasn’t forgotten that those banks weren’t just Mexican banks, they included banks whose home offices were in many countries, including the U.S. and UK. According to the first witness called by the government in the El Chapo trial, bankers were bribed to launder El Chapo’s dirty U.S. dollars.

Yes, individuals were bribed, and individuals did it. The bankers didn’t launder because of some corporate legal concept that led to a non-human phenomenon where somehow the institution, not people, “intentionally failed to maintain an anti-money laundering program”.

This wasn’t a software glitch; it was an integrity glitch.

The testimony suggests a different story than the Deferred Prosecution Agreement HSBC bought for $1.9 billion. The U.S. and other nations repeatedly fail to grasp the simple solution to thugs like El Chapo who create hordes of addicts and corrupted politicians in every corner of the world.

What’s desperately needed is an Occam’s Razor approach – the best solution is the simplest one. This simple approach could be launched tomorrow if governments and the international banking community had the will to meaningfully attack the heart of real laundering.

We can’t rely on a mosaic of dozens of agencies in every nation to focus on the big picture. Yes, each agency does some good, prosecuting the money laundering cases that fall into their laps through investigations of crimes within their jurisdiction, but solving the true underlying problem requires a laser sharp and well-coordinated hunt in certain places where significant evidence exists to find the mega-launderers.

That undertaking needs to be done by one initiative or taskforce comprised of a few personnel from very specific law enforcement and regulatory agencies.

We don’t have 24 agencies in one nation independently sifting through everything related to terrorism.

In the U.S. it is done by one body, the Joint Terrorism Task Force (JTTF). As the FBI proudly notes, “When it comes to investigating terrorism, the JTTF does it all: chase down leads, gather evidence, make arrests, provide security for special events, conduct training, collect and share intelligence, and respond to threats and incidents at a moment’s notice.”

The JTTF is comprised of officers from 500 state and local agencies and 55 federal agencies that are positioned in 104 U.S. cities.

Money laundering is no less of a threat than terrorism. It is the lifeblood of all major criminal enterprises. The unique thing about real money laundering is that it is interwoven within those enterprises that facilitate terrorism, global drug trafficking, illegal arms dealing, corruption, and more.

If we ever hope to liberate the suppression of the rule of law, freedom and hope in countries like Guatemala, Honduras, EL Salvador, Venezuela and far too many others, we have to see money laundering as a crime and not an “add-on” offense to cases brought by different agencies focused on their respective jurisdictions.

We absolutely must improve our game plan to identify, prosecute and imprison those that enable the river of dirty money for the endless number of El Chapo’s of the world. People that are morally bankrupt and launder for big time drug dealers don’t shun dirty money from other corners of crime.

I learned that first hand when I worked undercover as a money launderer for Colombian cartels and sat across the boardroom table from dirty professionals who I witnessed also welcome the opportunity to launder for corrupt politicians that pilfered the treasuries of impoverished African nations, illegal arms dealers, terrorists, tax evaders, sanction busters, and more.

If you think that was an anomaly, study the facts about the recent prosecution of Altaf Khanani here. He laundered billions for felons from every walk of crime.

If you think Khanani was an aberration and had an exclusive franchise to mega laundering, you’re wrong.

Copyright Robert Mazur. All rights reserved.

A Plan to End Global Money Laundering Whitepaper

More than 95% of annual illegal drug proceeds flow freely under the noses of law enforcement, regulators and compliance professionals into the world’s economy.

The greatest number of meaningful achievements on the money laundering front have come through gifts handed to governments by whistleblowers. The world has been lucky in that regard, but we can’t count on that alone, especially since whistleblowing is shunned in many nations. We need to develop an effective global initiative to attack this problem on a continuing basis. Here is the plan:

The goal of the JMLTF is to establish a blueprint for a highly effective anti-money laundering program that will serve as a model for any nation seeking to dramatically reduce the laundering of illicit funds and corruption in their countries. This proposal is intended to offer a specific course of action – not theory.

Many nations have independently established task forces that were designed, at least in name, to identify and attack the money laundering threat in their corner of the world.

The problem is that they failed to include critical fundamental elements that would have otherwise created a unified global working group, and they fail to focus on the biggest of the big-time money launderers. Those elements are the lifeblood of a global JMLTF initiative. At its core the JMLTF searches for laundered funds and mega-launderers, not criminals (i.e., drug dealers, etc.) who get tagged with an additional charge for laundering because they bought a house with illicit funds in the name of a nominee. Whereas those criminals are primary targets of other task forces, they are more valuable to the JMLTF as witnesses. Real money launderers ricochet transactions through multiple countries, institutions, businesses and schemes. Absent a well-coordinated global JMLTF, with collocated personnel, a shared global plan, and the responsibility for continually prosecuting the real money launderers on this planet, criminal organizations will continue to successfully launder and hide more than 95% of their treasuries.

A nation must undertake both short-term and long-term initiatives in order to build an effective proactive JMLTF. The primary goal of this plan is to identify the top ten (10) active money laundering organizations in a given country, to gather actionable information about those organizations, to prosecute the leaders/members of those laundering organizations, to identify the beneficial owners of the laundered funds, to prosecute the beneficial owners, and to seize assets acquired with illicit funds. As prosecutions are accomplished, the “top 10 list” should be updated to ensure that resources continue to be focused on the most meaningful potential prosecutions.

By way of an example for any nation, I’m offering details about the development of an initial bilateral JMLTF initiative between the U.S. and Ecuador. This prototype example presumes that U.S. authorities will lead the JMLTF initiative and embrace this formula to attack the core of money laundering, thus becoming the key lead partner with Ecuador or any nation willing to adopt the program. The positioning of the U.S. as the lead partner with other nations evolves from primarily two facts:

  1. The U.S. dollar is global currency in both the legitimate and illegitimate markets.
  2. The insatiable appetite within the U.S. for illegal drugs causes traffickers globally to often conduct business in U.S. dollars.

Ecuador, whose currency is the U.S. dollar, is a good model for the initial launch of this plan. The plan can be just as effective in countries that don’t use the U.S. dollar as their local currency. After Ecuador, this plan could quickly be enacted in Panama (which also uses U.S. currency), Colombia, Mexico, Peru, Canada and virtually any nation.

Many Colombian based trafficking and terrorist organizations, especially FARC, are well known to have used Ecuador as a safe haven for deposits of tens of billions in drug proceeds. Furthermore, Ecuador’s U.S. dollar-based banking and business sector is attractive to traffickers and money launders because of the ease of integrating U.S. dollar narco-profits into Ecuador’s legitimate markets. Ecuador’s contiguous borders with both Colombia and Peru dramatically enhances its money laundering risk, since Colombia and Peru are two of the three countries in South America that produce massive quantities of cocaine and other illegal drugs marketed globally. Those illegal drugs are, for the most part, sold for U.S. dollars. It is a well-established fact that the majority of the estimated $65 billion in U.S. currency generated from the sale of illegal drugs in America annually is physically smuggled out of the U.S. for initial placement in dollar accounts outside the United States. Ecuador is a very attractive landing spot for that cash.

Ecuador’s use of US currency also creates an enhanced money laundering risk in that nation from Black Money Markets, such as the Black-Market Peso Exchange and other traditional informal banking systems. Although there is no need for importers in Ecuador to buy U.S. dollars generated from drug trafficking because they naturally possess U.S. dollars, “legitimate importers” in neighboring countries, such as Colombia, that buy dollars on the black market have an interest in acquiring U.S. dollar checks and wire transfers drawn on banks in Ecuador. In addition to other factors, this stimulates interest within black money market operators to deposit illicit U.S. dollars in accounts maintained in Ecuador.

To identify the specific business sectors and individuals in Ecuador, or any nation, engaged in money laundering it is essential to address this undertaking from both a short-term and long-term perspective.

1) Resources Needed Within Ecuador:
An effective Ecuadorian Joint Money Laundering Task Force (JMLTF) requires a collaborative initiative by criminal investigators, regulators, intelligence analysts and prosecutors drawn from the relevant agencies in Ecuador. These personnel must be banded together through a close-knit task force with the objective of identifying and prosecuting money launderers and seizing assets acquired with illicit funds. The criminal investigators must include not only those with expertise in narcotics investigations, but also those with expertise in conducting paper intense fraud, customs and tax type investigations. The regulators should include those involved in traditional AML/compliance examinations in banking and other financial markets. Intelligence analyst assistance is needed from both intelligence analysts within departments that investigate drug trafficking and those involved in Ecuador’s Financial Intelligence Unit (FIU). Getting a firm commitment “up-front” from authorities in Ecuador to establish this multi-agency/multi-capability JMLTF is essential to drawing support from outside Ecuador to garner necessary training, intelligence and investigative support from ally nations that will be critical to the success of the Ecuador initiative. Ecuador must demonstrate that it is committed to devoting resources and personnel to this initiative before they can reasonably expect the U.S. or other nations to participate in this operation.

The investigators, regulators, intelligence analysts and prosecutors assigned by their respective agencies to the JMLTF should be collocated in an office dedicated to the mission of this group. Supervision of this group should be separately established within the JMLTF, meaning that supervision would be provided by personnel trained in the expertise of investigating/prosecuting money laundering cases. There are local task forces of this nature in the U.S. that offer a model for personnel structure in a money laundering task force. One such task force based in NYC is the “EL DORADO TASKFORCE”, which is led by the Homeland Security Investigations (HSI) unit of Immigration Customs & Enforcement at the U.S. Department of Homeland Security. Although HSI leads this task force, it is comprised of officers from numerous federal, state and local law enforcement and regulatory agencies. The El Dorado Taskforce
could potentially serve as a New York City office for what should become a nationwide U.S. JMLTF that has a presence in many other U.S. cities, including Miami, Los Angeles, Houston, Chicago, Detroit, Philadelphia, Atlanta, and Boston.

2) Support from Ally Nations:
An effective JMLTF initiative within Ecuador will initially require reliable support from the U.S. government. This support must be mandated by the U.S. government to require various U.S. law enforcement and regulatory agencies to support the JMLTF concept. Simply said, leadership of the U.S. government must ensure the full support of this operation by organizing a national “Joint Money Laundering Task Force” (JMLTF) comprised of experienced representatives from its agencies, especially the Drug Enforcement Administration (DEA), Homeland Security Investigations (HSI), the Internal Revenue Service (IRS), Financial Crimes Enforcement Network (FinCEN), Department of Defense (DOD), and the Money Laundering Section at the Department of Justice. In order to attract this critical support, it is essential for authorities in Ecuador to propose their JMLTF as a joint effort by the governments of Ecuador and the U.S.

The nature of the assistance needed from the U.S. will be addressed below. Bilateral cooperation is the lifeblood for the success of this operation. Therefore, it is recommended that, in order to attract this U.S. support, Ecuador consider offering a 50/50 asset sharing proposal with the U.S. for all illicit proceeds forfeited pursuant to this operation, regardless of the country in which the forfeiture occurs. In return for this asset forfeiture sharing, the U.S. government will need to provide training, law enforcement and regulatory support, as well as prosecutorial support in the U.S.

As this operation realizes success and expands its need to attract the support of other ally nations in a manner similar to the initial bilateral relationship between the U.S. and Ecuador, the asset forfeiture sharing percentage of each additional ally nation added to the operation would be funded by a donation
of an equal amount of asset forfeiture proceeds from the two initial partners of the operation, Ecuador and the U.S. For example, if Ecuador and the U.S. felt it necessary to solicit participation in this cooperative initiative from the nation of Colombia in a particular case, Colombia’s share of asset forfeiture proceeds would be realized from an equal contribution of asset forfeiture revenue by the
JMLTFs seeking Colombia’s assistance. In this hypothetical example of Colombia’s joining the operation, their sharing of assets forfeited would be limited to cases in which they specifically provided material assistance. As the success of the operation progresses, it is likely that consideration will need to be given to inviting additional countries to participate on a case by case basis.

Before launching a significant undertaking of identifying and prosecuting money laundering related cases in Ecuador, it is critical that the U.S. commit to providing meaningful training relative to traditional money laundering investigative techniques, conducting undercover money laundering operations, the use of informants in money laundering related investigations, asset forfeiture, the effective uses of narcotics and financial intelligence to develop targets of money laundering investigations, and effective methods of prosecuting money laundering cases. It would also be critical for U.S. and Ecuadorian authorities to agree to mutually share narcotics and financial intelligence gathered within their respective agencies relative to potential targets of investigation in Ecuador and in the U.S., when the intelligence relates to Ecuador.

All personnel from the U.S., Ecuador or any other nation participating in this taskforce must attain the equivalent of Top-Secret Clearance through a vetting process that is universally applied to all members of the taskforce, regardless of the country they represent. It would be essential to update the personnel vetting process through annual security clearance reviews and polygraphs.

3) Research:
Once an agreement is reached by authorities in Ecuador and the U.S. that they have jointly committed to a JMLTF relationship, it is critically important for both nations to undertake research that will arm the personnel of the operation with short-term actionable intelligence:

  • U.S. agencies participating in this taskforce should have analysts and agents review their intelligence databases, speak with informants, and canvas agents in their respective field offices to identify any and all information they possess relative to money laundering related activities in Ecuador, the names of individuals and businesses alleged to have provided money laundering services in Ecuador or to members of criminal organizations operating in Ecuador, and assets in Ecuador acquired with illicit funds or used to facilitate illicit activity.

Likewise, the relevant Ecuadorian agencies participating in the taskforce should glean information from their intelligence databases, speak with informants, and canvas officers in field offices to identify any and all information relative to money laundering related activities in Ecuador or the U.S. that impacts Ecuador.

The relevant information garnered through the U.S. and Ecuadorian review of databases, informants and investigators should be shared and jointly reviewed by U.S. and Ecuadorian members of the taskforce to compile an initial list of individuals, companies and assets that appear to be related to the highest level of money laundering risk faced by Ecuador. From this list and future steps noted below, this information would be part of the intelligence needed to identify what appears to be the top 10 money laundering threats faced by Ecuador. Follow-up investigative steps relative to the top 10 threats should be given short-term priority.

  • Major traffickers, organized crime figures, and money launderers incarcerated in the U.S. that were formerly active in Ecuador, or that appear to have worked closely with criminal organizations in Ecuador, are an important source of additional actionable information relative to current money launderers operating in Ecuador. Under U.S. law, after a trafficker or money launderer is convicted and their appeals have been exhausted, U.S. authorities have the ability to transfer that convicted trafficker or money launderer to a jurisdiction and have them appear before a grand jury that is impaneled for the purpose of investigating other crimes, such as laundering related to Ecuador through U.S. dollar transactions. In cases where high-level traffickers plead guilty, this process can be initiated within a short time after the trafficker is sentenced. These traffickers could either voluntarily provide information about money laundering in or related to Ecuador, or they could be immunized and forced to testify before a grand jury about money laundering related activity in Ecuador. If, after being immunized, they choose to refuse to answer questions before that grand jury, they could be found in contempt and their existing lengthy prison sentences could be extended for the remaining life of the grand jury they appeared before, generally 18 months. This procedure could be repeated after the termination of the life of the initial grand jury and could result in the trafficker or money launderer being brought before a succeeding grand jury, thus causing them to have their sentence extended for an additional 18 months. Historically in the U.S., this process has extended prison sentences of individuals by at least several years.

If a similar process of facilitating cooperation from incarcerated traffickers, organized crime figures, terrorists, and money launderers exists in Ecuador, that process should be followed and the results should be shared with all taskforce members.

4) Funding:
Although government funding for the JMLTF initiative will be needed during the first and possibly second year of the JMLTF’s operation, it is highly likely that JMLTF funding subsequent to its second year of operation can be provided through the allocation of JMLTF asset forfeitures to the budgets of JMLTFs. Funding of the JMLTFs should not only be self-sufficient by the third year of their operation, they should become revenue generating for each participating nation. Initial funding will have to be provided by allocating portions of existing budgets of participating agencies within a given JMLTF, or shared asset forfeiture budgets from each participating agency.

5) Whistleblower Reward System:
With respect to the forfeiture of assets derived from violations of certain criminal offenses in the U.S., whistleblowers/informants can be entitled to as much as 30% of the value of assets seized by U.S. authorities if their information is significant. This substantial rate of reward is applied in income tax cases, healthcare fraud, defense contractor fraud, and other crimes. For example, in the case that led to the prosecution of the Union Bank of Switzerland (UBS) for criminal tax offenses, the whistleblower in that matter received an initial reward from U.S. authorities of $104 million.

Currently, this accelerated rate of reward is not generally offered by U.S. authorities in drug/money laundering cases. In most drug money laundering cases, U.S. agencies tend to cap rewards at a maximum of $250,000 per matter. This has proven to be an obstacle to gaining cooperation from insiders with knowledge about massive drug money laundering activity and the location of significant drug proceeds. It is impossible to motivate a whistleblower to provide information that endangers their lives and the lives of their family members when their potential maximum reward is $250,000 and they are providing the critical evidence that leads to the forfeiture of $500 million. With regard to the JMLTF, it is likely that some individual cases could involve the potential seizure of hundreds of millions in drug proceeds. U.S. and other nations should expand the Whistleblower reward system to include drug and money laundering cases, thus enabling informants that provide information in drug and money laundering cases to earn a reward as high as 30% of the value of the assets seized in a drug or money laundering case. An enhanced reward system is critical to the success of this taskforce and efforts should be made to put it in place at/near the time that a country commits to participating in this initiative.

6) Analyze Repatriated Currency:
According to the U.S. Department of State, “There is no reliable way to judge the magnitude of money laundering activity in Ecuador because only major banks have active money laundering controls and a large number of transactions take place through loosely-regulated money exchange and financial cooperatives. There is evidence that money laundering occurs through trade and commercial activity, as well as through cash couriers. Large amounts of undeclared currency entering and leaving Ecuador indicate that transit of illicit cash is a significant activity.”

Despite the U.S. State Department’s view that there is no reliable way to judge the magnitude of money laundering activity in Ecuador, there is information available in Ecuador and the U.S. that could significantly aide in making that determination. With the help of the central banks of Ecuador and the U.S., as well as several other sources of information, data is available to back track the amount and source of U.S. currency repatriated to the Federal Reserve from Ecuador’s Central Bank and other banks and businesses within Ecuador.

The Central Bank in Ecuador can identify the various banks within Ecuador that provided them with large amounts of U.S. currency. This can also be done by any major institutions that repatriated dollars to the U.S. without the aid of Ecuador’s Central Bank. Each of the banks in Ecuador that either provided their Central Bank or the U.S. Federal Reserve with extraordinary amounts of U.S. currency can be examined by bank regulators who can determine which accounts at a respective bank deposited unusual amounts of currency in their accounts.

Research should be conducted relative to those account holders to determine the nature of their business, the extent to which they are linked to criminal activity, the source of funds provided to them by their clients, etc. If these businesses are thought to likely be accepting and transferring illicit funds, further investigative steps, including the use of compliance examinations, informants, communication intercepts or undercover operations should be considered to document the account holder’s involvement in money laundering.

An analysis should be conducted to also determine the extent of U.S. currency movements beyond those amounts that are repatriated to the U.S. through Ecuador’s Central Bank and/or certain of its larger financial institutions. Cash is moved out of Ecuador via legitimate courier services (i.e., armored car services, commercial flights, foreign exchange businesses, etc.). U.S. currency is also sold to non-U.S. banks in various countries starved for U.S. dollars. Efforts should be made to identify movements of large amounts of U.S. currency across Ecuador’s border by any and all means. Information about these movements can come from reporting requirements, regulatory reviews, industry sources, informants, etc.

7) High Risk Business Analysis
Traditionally, there are businesses in all countries that carry greater amounts of money laundering risk than others. Those businesses include:

  • Foreign Exchange Services
  • Casas de Cambio / Money Service Businesses
  • Check cashing businesses
  • Precious metals dealers
  • Precious stones and jewelry businesses
  • Free Trade Zone businesses
  • Seafood Businesses
  • Import/Export businesses
  • Factoring companies
  • Trade Based Finance Companies
  • Businesses with significant transfers to China
  • Car brokers exporting large numbers of cars to nations in Africa

Efforts should be made to conduct outreach programs with members of these business sectors that are thought to be credible and honest in an effort to develop rapport and garner information about possible “bad actors” in these various business sectors that might be involved in money laundering.

A macro analysis of some of the above referenced industries, such as the precious metals industry, should be conducted in some nations. For example, in most years, Colombian gold mining produces roughly 17 tons of gold. But, in some of the years when that rate of production has been confirmed, businesses in Colombia have exported more than 75 tons of gold. This type of illogical imbalance of trade data makes it obvious that significant amounts of drug proceeds are being laundered and repatriated to Colombia through over invoiced gold exports. Another likely contributor to this imbalance is the smuggling of gold into Colombia in exchange for cash stockpiled in Colombia. There are several gold mining operations in Colombia that are owned by individuals with known prior convictions and involvement in large scale drug trafficking organizations. Some of these industry leaders conduct their banking activities in Ecuador. This is an example of why high money laundering risk industry analysis is critical.

In addition, informants can make surreptitious contact with representatives of these business sectors in an attempt to develop information about businesses that appear to be involved in laundering illicit funds. Informants have proven to be the most valuable resource in the development of U.S. based drug money laundering cases.

8) Analysis & Enforcement of Reporting Requirements:
It is critical for Ecuador’s Financial Intelligence Unit (FIU) to collect and analyze all reports received from financial institutions, businesses, and individuals. In instances where certain reporting requirements don’t currently exist, regulations need to be enacted to require such reporting. Routine analysis of this type of data should be focused on identifying abnormal reporting, ensuring that relevant agencies are made aware of the abnormalities, and that an investigative plan is undertaken to determine if the abnormal reporting is linked to criminal activity. At the same time, it is important for representatives of the FIU or other agencies to ensure that notice of reporting requirements by institutions, businesses, and individuals is broadly known in the private sector. Compliance audits within the banking and business sector should be conducted to ensure that reporting requirements are met and actively enforced. At a minimum, fines should be imposed on those banks and businesses that fail to comply with reporting requirements. If compliance failures are linked to an attempt to facilitate criminal conduct, a criminal prosecution should be pursued.

Although it is important for each JMLTF to establish the above noted protocols, it is equally important that the JMLTFs establish a multinational committee to conduct annual reviews to ensure that a given JMLTF is meaningfully applying personnel and resources, identifying their top ten targets, and delivering results.

The information provided above is offered as a general outline concerning effective short-term and long-term steps that could be jointly undertaken by the governments of Ecuador and the U.S. to develop a highly effective bilateral anti-money laundering taskforce that would eventually enable Ecuador to become self-sufficient in its identification and prosecution of significant money launderers. This plan should be considered as a roadmap for any nation that has a genuine interest in attacking money laundering and corruption threat.

Copyright Robert Mazur. All rights reserved.

3 Reasons Why Subscription Businesses Fail

Subscriptions are hot (and not).

Companies and investors love subscription business models since they generate recurring revenue that translates to predictable cash flow. The more money a company is likely to make in perpetuity, the higher its share price.

From 2012 to 2019, the subscription economy grew more than 300%, and 75% of companies selling directly to consumers said they would offer subscription services by the following year.

However, with so many companies hopping on the subscription bandwagon, competition is fierce, and some big players are having trouble keeping their customers. According to Gartner, “only 20% [of subscription businesses] will succeed in increasing customer retention.”

What’s causing the subscriber boom and bust? What makes an otherwise promising subscription business bleed customers? And how can companies engender loyalty to hold on to their subscribers?

Before we answer that, we have to pinpoint what a subscription business is.

More Than Recurring Revenue
A subscription is not defined by recurring revenue alone. Rentals, leases, and memberships generate recurring revenue, but none are subscription business models. So, what’s the difference? A subscription is when the customer pays for the future delivery of a good or service involving a degree of variability.

If you’re asked to name a subscription business off the top of your head, you might think of a magazine subscription. Subscribers pay an annual fee without knowing what articles they’ll read in the latest editions of Time or Harvard Business Review.

Many businesses call themselves subscriptions but aren’t exactly. Amazon’s “Subscribe & Save” makes for great alliteration, but shipping a predetermined item on a fixed schedule is a delivery service, not a subscription. Similarly, financing, leases, rentals, and monthly fees give customers access to a predictable good — a car, a home, or a tuxedo — so they’re not subscriptions either.

Fundamentally, a successful subscription business’s economic value is a function of the strength of the habits they create. Over the past decade, I’ve studied the fundamental attributes of habit-forming products to identify how companies hook consumers. I identified four steps successful companies build into their customer experience — what I call the “Hooked model”:

  • Trigger (which prompts customers to use the product)
  • Action (the habitual behavior)
  • Variable Reward (which satisfies users’ need for the service)
  • Investment (which makes the product more valuable to the user with use)

A closer look at the Hooked model reveals common errors companies make launching and running subscriptions:

1. Too Many Steps to Psychological Relief
Have you ever decided not to use Netflix because you know it’ll take too long to find something good to watch? I often waste more time searching than watching.

The endless scroll of options on today’s Netflix is a far cry from the mailed DVDs that originally made the company a success. The red envelope–wrapped disc simply needed to be opened and put into your player. No choices, no thinking—just watch what you previously picked. Netflix stole Blockbuster’s customers by busting the incumbent’s habit through ease of use.

When the habitual action of your product becomes more difficult to use than other options for satisfying the same need, your subscription business is in trouble. You’re at risk of losing consumers at the action phase of the Hooked model.

Today, it’s Netflix on the defensive. With so many entertainment options offering frighteningly swift dopamine boosts (think YouTube, TikTok, Instagram), Netflix can’t go back to the days when subscribers would play whatever came in the mail—but the endless choices came at the cost of simplicity.

Netflix is aware of this problem and is trying to simplify selecting a movie or TV show. The streaming service is experimenting with a “Play Something” function, quickly picking what to watch for viewers. However, this doesn’t quite hit the mark.

People don’t want to watch just anything. They’ve come to expect something good to watch. It’s telling that viewers are hacking their own solutions to fix this problem by using Chrome extensions to add critics’ scores to the site to make picking what to watch easier.

2. Not Offering Enough Novelty
Here’s the thing about humans: We’re not wired to feel satisfied for very long.

Our brains come pre-installed with a piece of mental software that makes us tire of the old and seeks out the new. It’s called “hedonic adaptation,” and it’s the reason lottery winners and paraplegics tend to eventually revert to the same levels of happiness they felt before their respective life-changing events.

Our tendency to quickly return to a baseline level of satisfaction leaves us vulnerable to the one supernormal stimuli we find hardest to resist: surprise!

Variable rewards make gambling engaging, television interesting, sports exciting, and social media habit-forming. People are insatiably curious and constantly looking for the new and better thing. On the flip side of the coin, they will stop paying for subscriptions that don’t offer perpetual novelty.

Consider the current “anything in a box” trend. From lingerie to bones to slime, you can pay to receive a box filled with just about anything these days. Some of these services, like the classic “book of the month club,” have been around for centuries. But many come and go quicker than you can say, “Why would anyone want to subscribe to bones in a box?”

A key reason customers churn out of subscription services is declining variability. After a few months, box subscription companies struggle to keep up the element of surprise for each delivery of socks or protein bars. When the ratio of interesting to mundane is too low, customers lose interest and find (usually cheaper) alternatives.

Thankfully, there is a way to boost the ratio of variability and sustain interest in the subscription service: getting users to improve the service with use, AKA the investment phase of the Hooked model.

3. Lack of Stored Value
Software as a service can be a very profitable subscription business. The gross margins on SaaS products are legendary, and companies selling habit-forming software for a monthly fee are rewarded with high valuation multiples.

Since their products are often free to try, SaaS companies have a competitive advantage over software requiring a high upfront cost. Acquiring new users is relatively easier with less friction in the way.

Keeping customers, however, is another story. Ask anyone working in SaaS to name their most important metric, the one that keeps them up at night, and they’ll tell you it’s customer churn. If you can’t keep your customers hooked, they’ll stop using and stop paying.

Many subscription services neglect the critical fourth step of the Hooked model, the investment phase. Here, the user puts something into the product that makes it better (and stickier) with use. I call this principle “stored value.”

Stored value can take many forms, depending on the type of service. Contributing data, adding content, accruing followers, making connections, and building a reputation are just a few examples of how subscribers can make the product more valuable over time. Many companies use the Hooked model to improve their subscription services with use.

Take Clockwise, one of my portfolio companies. The SaaS calendaring tool is used by big names like Airtable, Asana, and Atlassian — and that’s just working down the alphabetical list of the company’s 15,000 corporate accounts. Clockwise raised $45 million earlier this year and claimed its tool has “unlocked two million hours of focused work time.”

When used individually, the software learns the best times to recommend future engagements and time boxes. Francis Larkin, vice president of marketing at Clockwise, told me the tool adapts to the user’s energy levels and finds time for focused work. He also said, “We have a setting to help with Zoom fatigue, where we’ll automatically give you a break after two or three hours of back-to-back meetings.”

But the service really shines when it is used throughout the enterprise. “We absolutely see the most benefit when used across an organization because time is a shared resource,” Larkin said.

The more users invest in the service by inviting their colleagues and booking time on their schedules, the more visibility and flexibility each user has. Clockwise can seemingly make time by synchronizing schedules in ways not previously possible. It’s a classic network effect that stores value the more it is utilized, making the product more habit-forming and stickier with each pass through its Hooked model.

Better than Boxes
Subscription services are also making inroads into categories previously rife with failure.

Consider your morning cup of joe. If you subscribed to a coffee-bean delivery service, you’d likely enjoy it for a while, but as the novelty wore off, you’d probably cancel it—as many have with countless failed coffee-in-a-box subscription services.

Subscription services don’t win on unit price or quality alone. It’s almost impossible for subscription services to compete once shipping is factored in and you realize those beans cost more than the ones you could buy during your regular trip to the grocery store or are no better than those on sale at the third-wave coffee shop down the street.

But if the coffee subscription service had something unique to offer beyond price, you might stick around. For customers, stored value can justify paying a higher price and can keep them coming back.

Consider Bottomless Coffee. When customers sign up for a subscription, they receive a small, super-accurate Wi-Fi–enabled scale. The customer keeps the coffee on the scale, so the company “learns from your consumption and reorders for you at just the right time,” according to Bottomless.

In the case of Bottomless Coffee, the service ensures customers never run out of fresh beans. Instead of having to remember to buy or receive too much or too little or wait for delivery on a fixed schedule, Bottomless customers get precisely what they need, when they need it, as long as they keep subscribing.

Getting just-in-time coffee ensures it never gets stale. But collecting consumption data also helps Bottomless tailor future deliveries to customers’ tastes, thus storing value.

For instance, if Bottomless sees a particular coffee roast is being consumed quickly, it can infer that the customer enjoys it more and send a similar variety with the next shipment, giving the customer a variable reward from the novelty of a new roast and ensuring the selection is not too outside the customer’s taste preferences.

Bottomless plans to expand into all sorts of household products sent to consumers on their schedules and according to their preferences, not the company’s. By getting customers to store value in the service with use, Bottomless can potentially disrupt its industry by offering something non-subscription services can’t provide: personalization at scale.

By making the most of the Hooked model, subscription businesses can avoid the common pitfalls that cause customers to churn and build the kind of service customers enjoy for life.

Copyright Nir Eyal. All rights reserved.

4 Mental Traps That Kill Productivity

Productivity has many enemies: too many meetings, external triggers like interruptions from coworkers, and multitasking the wrong way, to name a few.

But more often than not, it’s mental traps that trip us up.

“Mental traps are habitual modes of thinking that disturb our ease, take up enormous amounts of our time, and deplete our energy without accomplishing anything of value,” psychology professor André Kukla wrote in his book, Mental Traps: The Overthinker’s Guide to a Happier Life.

Learning to recognize these mental traps disarms them, enabling us to move past their threat to our productivity.

Here are some common mental traps, accompanied by a solution to set you free.

Mental Trap: The Planning Fallacy
According to the American Psychology Association, the planning fallacy, is “the tendency to underestimate the amount of time needed to complete a future task, due in part to the reliance on overly optimistic performance scenarios.”

Underestimating the time you need for certain tasks means that you’re constantly unable to stick to a timeline. If you’re a freelancer whose clients have strict deadlines or part of a team that depends on you to complete a project as expected, meeting deadlines is crucial to your professional success.

Misjudging how much time you need to tackle tasks also means you’ll try to accomplish more than is possible in one day, which will cause an imbalance in your life. If you take on too much at your job, you might have to reallocate hours reserved for other domains of life—yourself and your relationships—to finishing those tasks.

Those high expectations, plus the low control you have in meeting them, are a guaranteed formula for burnout. After sacrificing hours previously meant for fun, self-care, or sleep, you’re likely to enter a state of emotional, mental, and often physical exhaustion brought on by prolonged or repeated stress.

Solution: Don’t Use a To-Do List Without Timeboxing
On their own, to-do lists are a trap. With no constraints, they don’t show force prioritization trade-offs nor help you stick to a realistic schedule.

Timeboxing, on the other hand, is a time management technique by which you reserve a specific period of time in your calendar for each activity. It’s a great way to beat the planning fallacy because it enables you to visualize your time. (If you’re new to timeboxing, try this schedule maker template to get started.)

You can use time tracker applications to monitor how much time you usually need to complete a work project, a recipe, a workout session, and more. Once you have a good idea of how long something might take you, plot it in your timeboxed calendar. This should give you a good idea of what you can realistically do in one day.

Be liberal with assigning time to your tasks. Don’t limit yourself to the minutes you need for the best-case scenario of productivity—timebox for your worst-case scenario. If you finish early, then you have breathing room to take a break.

Mental Trap: Liminal Moments
Liminal moments are transitions from one thing to another throughout our days. Have you ever opened a tab in your web browser, got annoyed by how long it’s taking to load, and opened up another page while you waited? Or looked at a social media app while walking from one meeting to the next, only to keep scrolling when you got back to your desk?

By doing these actions for “just a second” or “five minutes tops,” we’re likely to do things we later regret, like getting off track for half an hour.

Solution: The 10-Minute Rule
Next time you feel the urge to check your phone in a moment of boredom or distraction, tell yourself to wait just 10 minutes. It’s likely that once the 10 minutes are over, your urge will be over.

The 10-minute rule, also known as “surfing the urge,” is when you take a breath to notice your sensations and ride them like a wave, which helps you cope until the feelings subside.

Surfing the urge is effective at helping me deal with all sorts of potential distractions, like googling something rather than writing, eating something unhealthy when I’m bored, or watching another episode on Netflix when I’m “too tired to go to bed.”

Mental Trap: The Mere Urgency Effect
The mere urgency effect is the “tendency to pursue urgency over importance,” as defined by this recent study. It says, “People may choose to perform urgent tasks with short completion windows instead of important tasks with larger outcomes.”

In other words, we tend to prioritize the completion of the five-minute menial task rather than the important project that will take us hours of work.

Email is a perfect example. It’s the curse of the modern worker. The average office-dwelling worker receives 100 messages per day. Even if you can tap out a reply in just two minutes for each one, that adds up to more than three hours daily. It will consume all the time you need for more important tasks if you let it.

Solution: Plan Focused Work Sessions
Timeboxing can protect us from the siren call of menial tasks. In your calendar, reserve a period for focused work, and let your family, coworkers, boss—anyone who might try to approach you in that time—know that you’ll be unavailable.

This will eliminate the guilt or anxiety you feel over not responding to emails every 30 seconds because your boss and coworkers will know you’re not slacking–you’re Indistractable.

Planning focused work time will also let you know that any other task you do in that time is a distraction. You might be tempted to recheck your inbox or, if you’re working from home, quickly throw some laundry in the wash—but that’s off-limits during your focused work time.

Mental Trap: Shame for Not Getting Everything Done
Humans aren’t machines, so we’re going to have moments of low productivity, even if we’re proactive about managing our time and attention. Making yourself feel shame about your lack of productivity isn’t going to do you any good.

Maybe you’ve made yourself feel shame for sleeping in instead of getting up for your early morning workout. Or maybe distraction was able to steal your attention more than usual today.

Don’t give in to self-blame. That toxic guilt will only make you feel even worse and can, ironically, lead you to seek even more distraction in order to escape the pain of shame.

Solution: Self-Compassion
Everyone struggles with distractions from time to time. The important thing is to take responsibility for our actions without toxic shame.

Self-compassion makes people more resilient to letdowns by breaking the vicious cycle of stress that often accompanies failure.

If you find yourself listening to the little voice in your head that sometimes bullies you around, it’s important to know how to respond. Instead of accepting what the voice says or arguing with it, remind yourself that obstacles are part of the process of growth.

Talk to yourself the way you would to a friend. We tend to be our own worst critics, but if we talk to ourselves the way we’d help a friend, we can see the situation for what it really is. Telling yourself things like, “This is what it’s like to get better at something,” and “You’re on our way” are healthier ways to handle self-doubt.

Feelings of guilt are yet another reason to use a schedule builder over to-do lists, which perpetuate harmful self-stereotypes because they act as a constant reminder that you didn’t do what you said you’d do.

Copyright Nir Eyal. All rights reserved.

One Question to Ask Yourself to Know Your Future

And to change it too.
The German writer and philosopher Goethe believed he could predict someone’s future based on one simple fact. “If I know how you spend your time,” he wrote, “then I know what might become of you.”

Seeing how you spend your time reveals your values and, thus, shows where your investment of time, attention, and effort will lead you. The trouble is that too many of us spend too much time distracted rather than focused on the things that matter. Wasting time on distractions, which we’ll later regret, leads to a life filled with missed opportunities.

Using a few of the concepts I discuss in my book, Indistractable, you can become the person you want to be without letting distractions lead you astray.

Who Do You Want to Be Tomorrow?
Either way, the best way to draw up a draft of who you want to be is to home in on the characteristics you want to embody—also known as your values.

According to Russ Harris, author of The Happiness Trap, values are “how we want to be, what we want to stand for, and how we want to relate to the world around us.” People make time for what they want. For example, one of my values is to be a caring, fun, and involved father to my daughter.

These values then act as a roadmap to becoming your ideal future self. You can use them to guide you toward the activities that help you fulfill those values.

To support my value of being the father I want to be, I created a system with my daughter: Every week, we randomly select from a jar containing pieces of paper with a fun activity scribbled on each, and then we do that activity.

By consistently putting in this time to be fully present with my daughter, I feel confident that I’m becoming the kind of father I hope to be.

Listing your values and the activities that push you to meet them reveals any gaps between how you spend your time and who you want to become.

Let’s say you want to be an author. Unless you’re spending time writing regularly, it’s all but guaranteed that you won’t publish much. You have to make time for it or it won’t happen.

Dedicate Time to Your Future Self
Too often, people don’t make time for their values.

They let outside influences like external triggers bulldoze how they intended to spend their time or allow internal triggers to drive them to distraction.

But here’s the thing: Your life in the future isn’t going to look the way you want it to unless you take control of your time and attention.

The best way to make our ideal future come to fruition is to turn values into time.

Timeboxing, a well-studied time and attention management technique, facilitates that. It involves reserving specific periods in your calendar for traction, the activities you planned to do in advance to live out your values.

Knowing exactly what we should be doing each day and when we plan to do it helps us fight distractions and create a timeline for achieving goals.

Unlike checking something off a to-do list, using a timeboxed calendar enables us to learn how long different tasks take us. That, in turn, informs a feedback loop for our progress.

So, if you have a goal to write a book, putting that on a to-do list is a recipe for never getting it done. But if you timebox 30 minutes a day for writing, you can track how much progress you make in that time and do some simple math to get an estimate of when you might complete the first draft.

Once you’ve realized that you generally write 200 words in an hour, for example, you can calculate that it would take you about 200 hours to write a 40,000-word manuscript.

That’s actually not much considering the average American spends nearly five hours per day watching videos!

When it comes to living the life—and the future—you want, making sure you allocate time to living your values is the best thing to focus on. Plan your time and your future is in sight!

Copyright Nir Eyal. All rights reserved.

5 Productivity Myths Ruining Your Life

Busting these myths will set you free from productivity woes
Every time I hear a productivity myth described as fact, I cringe as if listening to a snake oil salesman peddle his cures.

Let me tell you, when I was writing my second book, Indistractable, I endlessly researched productivity and time management. I tried a lot of recommended methods and techniques myself.

Some of them can be so incredibly helpful in controlling your attention and managing your time.

But productivity myths hold you back. They aren’t just inaccurate—they have the potential to hinder your productivity rather than help.

By letting them go, you can make room for productivity methods that actually work. Here are five myths you should stop believing now.

Myth: Motivate Yourself to Focus with a Reward
Do you tell yourself that if you just finish that one project, if you just focus for one hour, if you just buckle down for today, then you can treat yourself to something? You can go out for a nice dinner or get a cappuccino at a café or buy yourself something.

How has that been working for you?

For hundreds of years, we’ve believed that motivation is driven by reward and punishment. But the truth is, the root cause of human behavior is to relieve discomfort. All motivation is a desire to escape discomfort. Even when we think we’re seeking pleasure, we’re actually driven by the desire to free ourselves from the pain of wanting. And when we feel that discomfort, we are prone to distraction.

If you feel discomfort, also known as an internal trigger, such as anxiousness or restlessness, when you try to accomplish a certain task, then an arbitrary external reward is not going to motivate you to overcome that discomfort.

Instead, add a bit of play to the task itself.

Ian Bogost, a professor of interactive computing at the Georgia Institute of Technology, says that fun and play can be a part of any difficult task. They can even be used as tools to keep us focused.

The idea is to pay such close attention to your task that you find new challenges you didn’t see before. Those new challenges provide the novelty to engage our attention and maintain focus when tempted by distraction.

For example, if you’re struggling to sit down and write an article, give yourself a time limit, or try to write it as fast as you can. Operating under a constraint adds a fun element.

Myth: The “Best” Productivity Apps Will Help You Focus
Don’t fool yourself into thinking that, when you’re struggling to accomplish the task at hand, perusing the internet for the app that will help you focus is productive.

Searching for the holy grail of productivity apps is just another distraction. Spending hours searching for and trying out the best productivity apps is wasting time.

Productivity apps are not one-size-fits-all. You have to be intentional about finding the right productivity for you.

That means using this fail-safe trick in your search for the right productivity apps: First diagnose the problem, then search for the solution.
If you’re having trouble sticking to tasks, then you might try an app or software that facilitates a precommitment pact, like FocusMate.

Myth: Multitasking Destroys Productivity
It’s true that most forms of multitasking aren’t effective. We can’t tinker on our phone and be fully present with our friends at the same time. We can’t simultaneously absorb information shared during a meeting and write a report.

People not only commit more errors when juggling many tasks but also take longer—sometimes double the time—to complete the tasks.

But there is one brand of multitasking that does effectively help you save time: multichannel multitasking, the concept of pairing one complex task with a lower-level task that uses a different sensory input.

Multichannel multitasking is a way to navigate the two limitations of the human brain: one, its limited processing power—the more concentration a task requires, the less room the brain has for anything else—and two, its limited number of attention channels, meaning it can only concentrate on one sensory output at a time.

As long as we’re not required to concentrate too much on any one channel, we’re able to do more than one thing at once.

We can make calls while walking, listen to podcasts while cleaning, and cook meals with friends and family.

We can even use temptation bundling—which involves multitasking with one task you enjoy and one you don’t—to motivate us. For example, you might exercise while watching your favorite TV shows.

Myth: You Have to Be Ready to Successfully Pursue a Goal
Do you have a goal, aspiration, or milestone so big that you keep putting off until you’re “ready”? This could be writing a book, going back to school to advance your career, opening a business, running a marathon… Whatever it is, you dream of it happening but keep saving it for someday because you’re “just not in the right place” to do it now.

Well, what exactly do you need to be ready for? Sure, with certain ventures like opening a business, you need to be financially prepared. But you can start working towards your dream now, no matter what your current financial situation. The myth of readiness is actually a detriment to your productive pursuit of a goal or dream.

Declaring yourself “ready” or not means thinking you have to have a quality output standard. It focuses too hard on the destination and outcomes and not enough on the journey, so getting started seems overwhelming.

We have to redefine what being “ready” means. In reality, you’re ready to pursue a goal when you can put in the time to work toward your goal for as long as you said you would.

As long as you schedule time for working toward this goal in your timeboxed calendar and stick to it, you’re doing everything you need to be doing.

Stop thinking of your goal or dream as something to finish. Just because you haven’t finished something doesn’t mean you haven’t made progress. You just have to work on it without distraction.

Myth: A To-Do List is all You Need
When we need to manage all of our tasks, a common approach is to make a to-do list. We write down all the things we want to do and hope we’ll find the time throughout the day to do them. But often these tasks get pushed from one day to the next. It’s not an effective way to manage our time. To-do lists aren’t useful for productivity for the same reason the myth of readiness isn’t.

Being productive, or making good use of your time, and finishing tasks are not the same thing. Output isn’t the only measurement of accomplishment. Treating it that way doesn’t take into account the journey of long-term goals and thus discourages people from pursuing those goals.

Yet to-do lists measure productivity based on output.

Stop making yourself feel like you’re not doing anything just because you didn’t check off a box today. If your task is an important project, it’s going to take time. It’s not something that can be done in a day.

Supplement your to-do with a timeboxed calendar and see how your productivity mindset changes as a result. You can use this free schedule maker to get started.

Ready to become even more productive? Learn how to create new habits and measure your progress using my free habit tracker.

Copyright Nir Eyal. All rights reserved.

Role of Humans in a Digitalized Society

While robots which vacuum the carpet, mow the lawn or deliver lunch are cute time savers, their possible entry into the workplace can be scary. Employees who have spent years performing a routine task can be threatened by the idea of technology taking over their job. People in customer facing roles (cashiers, bank tellers, check-in agents) may argue that use of self service or remote interfaces ‘dehumanizes’ the company.

Business leaders today know they must digitalize to compete, survive and grow in today’s world. However, success is often contingent on employee support. A recent Forbes study of 2000 global companies found that 80% considered their digitalization effort a failure – due to lack of management support or employee adoption. By investing the resources and time needed to gain employee commitment, companies can avoid the disappointment, cost and lost opportunity that comes with a failed project.

Technology: Greater Employee Freedom and Value
Gaining support starts with understanding why and how technology can enhance the employees’ worklife. This can be greater ease of completing projects, the ability to work from home occasionally or opportunities to learn new skills, possibly leading to higher salaries.

In many companies, use of technology frees people from performing mundane tasks such as data entry or manual production line work. They are then able to ‘move up the chain’ so their contributions are valued more highly. Consider the accountant who used to simply log expenses and transactions into the bookkeeping system. By encouraging clients to electronically transmit and store this data, he or she now has time to analyze expense patterns and provide the client with valuable advice on ways to reduce expenses.

The high cost and limited availability of employees, combined with the need for competitive growth, has led to wide-spread use of technology from self-service check-in to online banking services. However, digitalization remains a challenge for many traditional, retail and professional service businesses.

For success, digital initiative needs to:

  1. Involve and engage managers and employees in discussions and workshops to understand the positive impacts of digitalization.
  2. Provide training or resources for employees to learn the new skills required for future success
  3. Be integrated into all employee development and reward programs
  4. Demonstrate ways in which employees can benefit from technology

Ultimately, digitalization, whether it is through introduction of robotics or new systems to streamline operations, will lead to more interesting work, greater employee engagement and company value.

European Supermarket Leverages Digitalization to Increase Revenue and Employee Satisfaction
With new online competition, success in the retail grocery market is increasingly challenging. When tasked with implementation of technology to reduce the cost and increase efficiency of customer checkout, one supermarket leadership team took a creative approach.

As they piloted new self-serve checkout stations, they found customers were both unsure of how to use the kiosks to scan and pay and concerned that adoption would cause the local cashiers to lose their job. To address these issues, a few cashiers were trained to help customers use the kiosks while welcoming back customers and encouraging shoppers to visit again for specials.

This led to faster checkouts via the kiosks and more return visits, while the employees found they enjoyed the customer interaction. Therefore, the store manager created a new training program for employees to gain in-depth knowledge in a particular product area. They were then assigned departments (meat, produce, household items) of the store in which they would be available to answer customer questions, provide advice or guide shoppers to new or promotional items.

The result was higher store revenues, increased customer loyalty and differentiation as ‘the store where I like to shop’. However, the real benefit was to the employees who were freed from repetitively scanning items, accepting payments and offering receipts to delivering real value to customers and their company.

Technology, whether robotics, self-service kiosks, artificial intelligence and online systems are coming in all industries. By committing to digitalization, then facilitating employee adoption and training in new skills, business leaders can increase their company’s results, while enhancing employee satisfaction and value.

Copyright Jennifer Vessels. All rights reserved.

Millennials Demand Top-notch Management

The (digital) natives are restless
During the Oslo Business Forum in March, there were many discussions on characteristics of and how to work with the digital native talent of millennials and GenZers. To help companies and leaders challenged with gaining the greatest productivity and loyalty from young workers, Jennifer Vessels published an article for OBF on this topic. It originally appeared at talent.

You’ve just hired a newly educated employee full of energy and promise. You believe they will contribute to your company’s growth. But how can you as a leader develop their talent?

Digitalization is a key imperative for 2019—with many companies investing in the recruitment of millennials and Generation Zers to gain digital competence and new ideas. While they bring innovative approaches, the latest generation also comes with high expectations.

From Next Step’s Silicon Valley perspective, we see that millennials and Generation Z (Gen Z) play a key role for businesses to grow in the digital era.

Knowing their skills are coveted by startups, corporations, and consulting firms, millennials often approach new jobs asking, “How is this going to help me achieve my goals?” They expect self-fulfillment, challenge, and appreciation from managers and co-workers. Without these, they will leave. A recent Harvard Business Review study showed that over 30% of millennials quit within six months of hire and over 50 percent after 18 months.

Managers need to do the following to develop and retain millennial and Gen Z employees:

Recognize their value by understanding each employee’s goals, showing appreciation, and rewarding their successes
Engagement starts with a warm welcome by leadership and co-workers—with lots of fun digital swag to say, “we are delighted you are here.” From day one, managers play a critical role in development. They must understand the employee’s career and personal goals and recognize progress.

Feeling valued by management and co-workers with small rewards for achievements is the most critical factor in any employee’s decision to stay or leave a company—with digital native talent this is more important, as they have many options available.

Challenge them with interesting opportunities to have an impact
Millennials and GenZers are known for their desire to make a difference and for their impatience. They want to have an impact and grow immediately—otherwise, they will move on to alternative career options.

To gain commitment, work assignments must be aligned with their personal interests and passions. When they fully understand the company and department objectives and how achievement of these will impact the world AND their objectives, anything is possible.

Empower them through clear goals, milestones, and check-ins
Digital natives have a lot of energy and high ambitions. They want flexibility and freedom in their work. However, they often lack the experience and context of situations to be successful if left on their own.

Effective empowerment means setting very clear, specific goals, outlining recommended approaches, planning key milestones, and regularly checking in on progress. In addition, regular meetings provide the manager with opportunities to recognize and reward accomplishments.

Coach and mentor growth
To achieve their high ambitions, digital natives want to learn, get feedback, and explore ideas with their managers, peers, and mentors. Mentorship programs and coaching sessions create lasting value.

When engaged, millennial and Gen Z talent can accelerate digitalization and innovation.

However, to gain return on investment in these digital natives, managers must listen, develop, challenge, empower, and coach them. While this may require new leadership approaches, it pays off as all employees perform at higher levels when they feel valued, empowered, coached, and developed.

Copyright Jennifer Vessels. All rights reserved.

Human Centric Leadership Pays Off

Leadership during periods of uncertainty, and change is never easy. Today, the task is even more daunting due to ‘pandemic fatigue’, the distance of working from home, new digital tools and employees’ fear of illness and personal economic impact.

Traditional management techniques such as setting challenging goals, tying incentives to results, and measuring KPIs can lead to resistance or burnout as employees struggle to meet expectations.

Today’s environment requires a new ‘human-centric’ leadership approach. By shifting the focus from the results to the people, future-ready leaders are experiencing increased employee engagement.

Human-centric leadership starts with understanding each employee’s feelings, needs, and goals – prior to consideration of the company objectives, strengthens commitment and long-term results. Keys to success are:

Building Trust
By showing employees you care, are willing to listen and committed to supporting them, you lay a foundation of trust.

Asking team members how they are feeling; inquiring (appropriately) about their family depends on the relationship. Being transparent, balancing confidence with vulnerability, then creates a culture of trust and a safe haven for employees.

Embracing Diversity
Each person on your team (irrespective of cultural background, generation, or gender) is unique. By getting to know each employee through open one-to-one meetings (video or, if possible, in person), human-centric leaders build deep relationships while gaining valuable insight into each person’s motivators.

Adaptation of management approach to meet each person ‘where he or she is’ creates commitment. Recently, leaders have found that some people need short, frequent 1-1s; or crave human connection, so monthly outdoor walking meetings are important, while others what the challenge to learn new tools.

Longer term, knowledge of key motivators can be used to define personalized incentive programs (extra vacation days, gift cards for favorite online stores, access to company cabins) to reward achievements.

Empowering Success
Global leaders, including Amazon, Google, and Ritz Carlton, attribute their success to empowerment. Their employees go beyond ‘the day job’ to innovate, define new solutions, deliver outstanding customer experiences, and move the company forward through uncertainty.

The keys to successful empowerment are to:

  1.  Assign people to teams and initiatives which align with their personal goals and motivators
  2. Set clear direction of what needs to be achieved, allowing the employees to determine how to reach the goal.
  3. Allow the team the time, space, and creativity to explore, experiment, and then move toward agreed-upon milestones – without restrictive time pressures or reporting demands
  4. Acknowledge that failures can and often will occur
  5. Leverage one to one’s as coaching opportunities

Team Building
As humans, we all have a desire to belong to a community. While social distancing requirements make historical team development activities difficult, there are alternatives for getting people together.

Some of the techniques used by human-centric leaders to build a sustainable team culture include:

  • Weekly video lunches; happy hours; quiz time or drum circles (using kitchen utensils) • Walk and talk sessions outdoors instead of video 1/1s
  • Open office time – a couple hours/week when the manager is available on video for anyone who wants to talk
  • Group picnics to celebrate milestones
  • Best recipe; garden; cool picture contests

Wondering what is right for your team? Just ask a few people what would make them feel connected and supported and give a bit of levity to the workweek.

The time has come for human-centric leadership. COVID-19 has disrupted all aspects of business, creating many opportunities for innovation as societies, companies, and people define the new future. By building trust with your employees; embracing diversity of goals and motivations; empowering success, and building a committed team, human-centric leaders are ready for success now and in the future.

Copyright Jennifer Vessels. All rights reserved.

Power of Collaboration

As President John F. Kennedy once said, “Change is part of life—those who look only to the past or present are certain to miss the future.”

In today’s world of rapidly increasing customer expectations, global competition, and technology acceleration, leaders’ ability to deal with change can be the difference between future growth and disruption.

Future-readiness requires new approaches to leadership, innovation, and customer engagement to minimize disruption. However, many corporate leaders continue looking to traditional methods to innovate, address competition, transform culture, and gain customer loyalty.

These include:

  1. Gaining knowledge and skills that could help deal with the future:
    Through investment in leadership development programs or enrolling in executive education university courses, some companies anticipate their managers will “learn how to innovate.” While one can gain knowledge and case examples from academia, real future-readiness requires experience and application of the knowledge to real-world challenges.
  2. Hearing about the future:
    Many executives attend conferences to gain information and connections to share experiences as they grapple with concerns about the future. While this can provide a broad perspective of what’s possible, over 95% of the benefit is lost within one day of the conference as attendees return to work.
  3. Outsourcing the future:
    By engagement, a management consulting company defines an “innovation strategy.” Or to build new digital solutions, some leaders believe they have a “safe solution” to future needs. However, after a significant investment in time and money, they are often left with data, statistics, and guidance of what they should do, but are often lacking understanding and experience in how to move forward.
  4. Delegation of the future:
    Many leaders see recruitment of a Chief Digital Officer, Innovation Leader, or other executive to drive change and digitalization as the solution. While having a change leader and champion for innovation can be valuable, real future-readiness starts with the executive team and must be embraced throughout the organization, not via a single department.

Each of these approaches can provide knowledge, skills, tools, and momentum to support the company’s success in the “unknown future.” However, 70%of innovation initiatives still fail. This is often due to leadership, people, or execution flaws.

There is another way. The Executive Growth Alliance accelerates future readiness for Fortune 500 companies, leaders, and communities by addressing complex global challenges across ecosystems (Transportation, Environment, Health, Industry, Consumer) through peer collaboration.

Forward-thinking leaders in Global 500 companies join the Executive Growth Alliance to enhance and extend the benefits of leadership development, conference participation, strategy development, and digital team investments.

By collaborating with peers from other multinational corporations on common challenges related to innovation, transformation, and future-ready leadership approaches, members such as Schneider Electric, Merck, Nordic Choice, BCW, and FMC have achieved tangible results, including co-development of digital solutions: design to launch < than 9 months; corporate to SME joint venture collaboration; increased innovation team productivity; enhanced productivity of innovation team; streamlined customer data access; and future ready distribution value network.

By collaborating with peer business leaders who bring diverse perspectives on specific real world innovation and leadership challenges, Executive Growth Alliance members and their organizations achieve true Future-Readiness. Participation in the Executive Growth Alliance is by invitation only for business leaders who share a commitment to future readiness, achieving tangible results, and making a difference in the world.

Copyright Jennifer Vessels. All rights reserved.