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Is Equity-Based Compensation a Good Thing?

QuestionDo you think an equity-based compensation plan is a good way to motivate employees?

AnswerMy first instinct was to write, “Yes, of course.” Halfway through my third rewrite, however, I discovered it’s a wickedly complex question. Yes, equity motivates, but the question is what does it motivate? It has to motivate the right behavior for the right reason to be effective. And even when equity does what you want, its hidden gotchas can still cause a train wreck.

What do you hope equity will motivate people to do? You might find easier ways to get the same results.

One popular reason for giving equity is “We want people thinking like owners.” But think again. Most employees don’t want to think like owners; otherwise, they’d be out there starting companies. Besides, one thing owner’s think is, “I will get a huge percentage of the company’s value when it’s worth something.” I have yet to meet an owner who wants their employees thinking that.

We say, “think like an owner” when we mean, “be cost-conscious.” And equity is supposed to do that? I’ve watched company owners take a salary of $200,000 and spend a week and $10,000 worth of management time deciding whether to buy a $500 laser printer for their product development group. When even owners don’t think like owners when it comes to cutting costs, it’s foolish to ask it of employees.

Besides, owning stock doesn’t necessarily lead to frugality. Even in startups, the small expenditures are peanuts. Employees reason (often correctly) that the big expenses—rent, executive salaries, property, plant, and equipment—will make or break a company. And those decisions are big enough that cost is considered as a matter of course.

If the real goal is frugality, skip the stock. Offer people a budget and give them a percentage of any money left in their budget at year’s end. I guarantee you’ll have cost consciousness oozing from the company’s collective pores.

Perhaps “think like owners” means we want employees to get the big picture, use good judgment, and keep the company’s best interest foremost. A laudable goal, but again unrelated to stock. Lack of big-picture thinking is often a leadership void. If you want holistic thinking, share the big picture with people about ten thousand times, coach them to live it every waking minute, and add “gets the big picture and acts on it” to the yearly performance evaluation on which their bonus is based.

Of course, stock is also used to make up for being woefully underpaid and overworked. It motivates until burnout occurs, at which point nothing can rekindle motivation. Given overseas job migration and record joblessness, unemployment fears probably keep people working 100-hour weeks as well as equity could. And if you don’t like to rely on economic bad times to retain people, spark commitment by aligning the culture and work with the people’s values. Equity is optional.

When equity is justified

A closely related goal may justify equity: retaining employees and creating long-term commitment to the company’s success. Stock does this well, especially if they think it will be worth a lot of money someday. Of course, providing meaningful jobs well matched to individual strengths also keeps people around.

You might also give stock to employees so they share in the long-term value they create. If this is your motive, more power to you! You’re a rare breed. Stock is a great way to do this, and I’ve even known private companies to spread the wealth with simulated “phantom stock” granted to employees.

You want people owning stock for the right reasons—but stock motivates different people for different reasons. If someone wants stock in order to get rich in three years, will they make good long-term decisions for your company? Coming from the start-up world, high-six-figure executive motivation puzzles me. Many of these folks jump companies for higher salaries. In start-up land, executives join because they’re passionate about the opportunity and idea. They get $70,000 for thousand-hour weeks, and bend over backwards to make the company successful. It’s beyond me why a big company would pay upper execs ten times that for employment based on money and not a passionate commitment to the company.

You want people emotionally invested in the company’s success. You can get that investment by giving them meaningful work in service of a worthwhile goal. Hire people who believe in what you’re doing and match them to jobs. If you want to reward their commitment, then give them stock, but make it crystal clear you’re rewarding their innate involvement, not trying to buy it.

Although you can’t expect stock to give people an owner’s attitude, some people really do think like owners once they own stock. They take pride in the company and commit 100 percent. They save money, talk up the company, bring in great employees, and sacrifice to help it succeed. If stock motivates someone to do the Right Thing because they identify with the business, give them that stock today!

Of course, some people think equity will give them control. They believe it will give them a voice. If that’s someone’s motivation, think twice. Other than institutional investors and founders, no one will have enough stock to wield power. Besides, if someone wants control and can’t get it by presenting a lucid case through normal channels, do you really want them trying to exert control through shareholder meetings?

Avoiding the stock gotchas

So stock is a great motivator if it makes employees act like owners, rewards emotional commitment, or shares the long-term wealth. But even in those happy circumstances, granting stock is fraught with peril. In many cases, stock recipients have no idea how to value it and have expectations far out of line with reality.

Stock can stop motivating when reality sets in. We hear “stock” and think, “this is it, baby—billionaire in three months!” If you’re using stock to motivate sacrifice, you better make sure it’ll justify that sacrifice. In twelve start-ups over the last twenty-five years, I’ve seen just how worthless stock can be. If someone waits too long and sees the pot of gold evaporate as the company tanks, equity-based motivation turns to equity-fueled cynicism.

In pre-public companies, stock can be granted, but it is worthless without an IPO or acquisition. I owned stock in a private company for almost twenty years before it was finally worth one-tenth of what I’d originally hoped. Even if a private company gets acquired or reaches the IPO stage, major shareholders may make out OK, but little shareholders can get screwed. It doesn’t do wonders for morale. Resumes begin circulating.

Stock has a place in motivating employees, but check out alternatives carefully.

When the money does come through, jealousy can rear its ugly head. For some weird reason, the further people are above the “game over” amount, the more they care about who has what. Those who’ve stuck it out through thick and thin resent making far less than the founder when a company goes public.

If a company is planning an IPO or acquisition, they’ll lose the “you’ll get rich from our stock” effect once they’re on the other side. In that case, motivation based on something other than stock had better be in place.

Public company gotchas

Gotchas aren’t just for private companies. Big public companies have plenty of gotchas, too. There’s rarely a link between someone’s work and share price. Stock makes a nice bonus for people, but it doesn’t affect their performance because no one can figure out how to have an impact. So stock is a nice reward while the share price rises. When the price falls, though, the company has to resort to motivating with good old-fashioned salary.

Warren Buffett doesn’t believe in linking market price to performance. He won’t give options to top managers. He says a manager can do nothing and stock prices will still rise at a company’s return-on-equity, as long as the company can reinvest in its existing business. Executive options become worth millions, even though the recipients are just taking up space. Buffett instead gives managers ample yearly bonuses, contingent upon their producing actual results above ROE.

Even though top managers are given tons of stock, ostensibly to align their interests with the shareholders, the reality is that large and small shareholders don’t have aligned interests. The top company executive who holds ten million shares of stock would sure like the stock to be worth $10 per share, but still scores a home run even if the price drops down to $1. The smaller shareholder with 10,000 shares, however, cares a lot more about that price. Will the top manager do what it takes to make the smaller shareholder rich?

Vesting also makes people do crazy things. Companies don’t give stock all at once, they “vest” it over time to ensure people will stick around. The gotcha is that it works. They’ll grant 5,000 shares over five years, and the employee gets 1,000 shares each year. Disgruntled employees in a successful company end up with the perverse incentive to stick around until their next vesting date. They happily poison morale, radiate misery, and doom projects while waiting for their stock to vest. In this scenario stock has motivated retention too well; a little less retention would be a good thing.

So where does all this leave us? It leaves us realizing that stock is complex. It motivates, but often for bad reasons. Even when the reasons are right, hidden gotchas can turn it into a negative depending on later events. Stock has a place in motivating employees, but check out alternatives carefully. You may find other motivators work just as well and leave everyone happier in the long run.

Stever Robbins is founder and president of LeadershipDecisionworks, Inc., a national consulting firm that helps corporate companies develop far-reaching leadership and organizational strategies to sustain growth and productivity over time. You can find more of his articles at https://www.steverrobbins.com.

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Recommended Books

Click the book name for details about a book. Click buy to order a book.

The books listed here are all books I have found valuable. They have either enabled me to accomplish more in my life, or given me important ways of approaching problem solving, management, business, and life. The books are listed by topic. Books which fall into more than one topic are listed under each topic.

Highly recommended because hey, it’s a great book

Stever’s book, It Takes a Lot More than Attitude…to Lead a Stellar Organization.


Business plan writing

Communication skills

Decision making


Foundational life skills



Life balance

Management skills








Made to Stick

Made to Stick is a book about stories. Specifically, stories that are memorable, and what makes them memorable. In an amazing–and I’m sure unplanned–coincidence, their framework is memorable, as it spells “SUCCESS.” Messages that stick are simple, unexpected, concrete, credible, emotional, stories. Though each of their points seems like common sense, the power of their framework comes from having the checklist so you can make sure to bring every one of the tools to bear on crafting a memorable message. The book is easy to read, fun, and has lots of examples. It’s a real keeper.

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Positioning: The Battle for Your Mind

This is the book that introduced the concept of marketing “positioning.” It approaches brand building and marketing dominance in a powerful way. Ries and Trout look at the psychology behind product recognition, and lay out some simple principles for building strong, enduring brands.

This book is good for marketers, and probably even better for non-marketers. It’s very readable, makes a ton of sense, and sure matches what I’ve noticed about the world. I am not at all sure that traditional marketing curriculae make senses or correspond much to the real world. Many, many Internet companies need this book badly. Some of the multi-million dollar brand-building efforts out there are … scary, to say the least.

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The 22 Immutable Laws of Branding: How to Build a Product or Service into a World-Class Brand

Book about branding and how to build strong brands. Speaking of branding, the title is clearly building on the successful 22 Laws of Marketing by Ries and Trout.

This book was written after Ries and Trout ended their collaboration. It lays out succint principles about brand building and marketing in an updated format from the early Ries & Trout books. The book is in late-20th-century checklist/sound byte format. Great for traveling, when you want something you can read when you have 5 minutes free at a time.

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New Venture Creation

An excellent book which will walk you rigorously through the steps you need to turn an idea into a real business plan. The 1995 edition is a workbook which gives you the questions to ask to find out if your idea is a true business opportunity. If you do, indeed, have a business opportunity, the book then steps you through the creation of all major sections of a business plan.

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The Venture Cafe: Secrets, Strategise, and Stories from America’s High-Tech Entrepreneurs

Teresa Esser brings an engaging, funny perspective on entrepreneurship from the men and woman of Boston’s entrepreneurial community who are (and sometimes aren’t) building great companies.

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Gladwell presents many of the ways in which people do and don’t make excellent snap decisions.

Order “Blink”

Difficult Conversations: How to Discuss What Matters Most

Some conversations just aren’t easy to have. Whether it’s because you let someone down, or they let you down, or the news is unpleasant or whatever… This book lays out a framework for having the conversation and is packed with specific tips for helping things go smoothly.

For all people managers and anyone who ends up having to mediate difficult situations, this book is a must-read. It’s written in clear, concise English, and has great content that I haven’t seen presented elsewhere.

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Emotions Revealed : Recognizing Faces and Feelings to Improve Communication and Emotional Life

This is a somewhat dry book, but quite good. Ekman spent several decades studying the relationship between emotion and facial expressions. He looked across a wide range of emotions, across many different languages and cultures. With a variety of pictures, the book illustrates and distinguishes the involuntary muscle movements that accompany strong emotion.

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Frogs into Princes

Frogs into Princes presents many of the underlying concepts in neuro-linguistic programming. The sections most useful to businesspeople: establishing rapport and understanding and using communication styles.

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Hardball for Women: Winning at the Game of Business

Pat Heim lays out the rules of politics step-by-step. This book is aimed mainly at women and concentrates on how men and women are brought up differently, and those differences come out later as political behaviors in organizatons. In fact, the book is pretty good for anyone who doesn’t quite get the rules by instinct. Dr. Heim is a bit wordy in places, but the content is worth the read.

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How the Way We Talk Can Change The Way We Work

Ever complained? Ever wanted to do something but just weren’t doing it? Kegan and Laskow guide you through a process of changing the language you use to think about issues to uncover the unconscious assumptions that drive (and override!) your behavior. The techniques work, and work well! I’ve used them with clients and with my own issues, and very quickly have developed an understanding of the beliefs and assumptions I’m making about the world that are holding me back.

While the book is great at helping you uncover your Big Assumptions, it falls down a bit at telling you what to do with them. The authors’ message seems to be, “understand and appreciate your mental dynamics and eventually breakthrough insight will be achieved.” For better or worse, I’m action-oriented once mental dynamics are uncovered, and would have liked more guidance on how to address my Big Assumptions.

(That’s why I’m a fan of cognitive psychology and neuro-linguistic programming. Both are pretty good at helping you change, once you’ve found your core beliefs.)

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Learned Optimism: How to Change Your Mind and Your Life

Dr. Seligman discusses the phenomena of optimism and pessimism, and how one can explicitly adopt each attitude where it’s most needed. The book includes detailed discussions of the business, health, creativity and productivity effects of optimism and pessimism. The reading can get a bit dry at times; Seligman sometimes gives more background than needed about the politics of the scientific world, but the results are worth it. This book presented a (scientifically-validated) framework for understanding how to shape your attitude and what effects you can expect.

For business leaders, understanding optimism and pessimism is not academic. Too much pessimism and people won’t perform well, persistance will lag, and things grind to a halt. Too much optimism and a brick wall just might be headed your way at 1,000 miles per hour [Seligman says there is considerable evidence that pessimits, despite all their problems, are more accurate judges of reality than optimists]. You’ll need to master both to be able to motivate your workforce, keep them going through tough times, yet do so in a way that’s responsible and real.

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Patterns of the Hypnotic Techniques of Milton H. Erickson

The appendices that form the second half of this book present the best summary I’ve ever seen of using language for artful communication. The book itself concentrates on presenting a model of how Milton H. Erickson, widely considered one of the best medical hypnotists in history, used language to help people make powerful changes.

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Sway: The Irresistible Pull of Irrational Behavior

This book presents several common fallacies in how we make decisions, snap judgments, and let irrational forces guide us to do, well, really stupid things. Most of what’s covered in this book has been covered elsewhere as well, but I found this presentation unusually accessible. Several of the concepts were framed in a way that had instant action implications for me. For example, people care as much about fairness of process as goodness of outcome. Knowing that, I can now take care to use full transparency and participation in designing the process, as well as making actual deciisons.

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Decision Traps: Ten Barriers to Brilliant Decision-Making and How to Overcome Them

Two experts in business management show how to avoid the ten common pitfalls that trap decision makers. The book is based on research into social and coginitive psychology and managerial decision making. The authors do a superb job of translating the results into practical “how-to” information that you can use immediately to improve your decision making.

This book is a wonderful companion to Influence by Robert Cialdini.

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First, Break All the Rules: What the World’s Greatest Managers Do Differently

A real research-based book on superb management techniques! The Gallup organization looked at 80,000 managers across 400 organizations and did extensive statistical research to figure out what the truly high performing managers did differently from the merely good managers. The results are often counter-intuitive, and this book presents them all.

One of the most intriguing notions in the book is that people’s behavior patterns don’t fundamentally change, and the best managers find ways to fit employee behaviors to jobs, rather than trying to develop “weak areas.” This result is explored in depth in the sequel, “Now, Discover Your Strengths.” Check out this book. I learned a lot from it, and given that it’s actually based on extensive, statistically sound research, its advice is likely to produce results.

One warning: the book is dry in places. It was clearly written by statisticians, not by great business writers. So skim the boring parts. The gems are well worth it.

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How We Know What Isn’t So

Gilovich explores a number of ways in which humans reason incorrectly and reach faulty (though often emotionally-satisfying) conclusions. He draws examples from phenomena where people develop strong belief systems unsupported (and often contradicted) by data: ESP, UFO sightings, winning the lottery, etc.

This book, along with Influence by Cialdini and Decision Traps by Russo & Schoemaker make a great trilogy for anyone interested in understanding how we’re miswired.

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This book outlines social psychology phenomena which are responsible for all kinds of irrational behavior. This book is a must-read for marketers, to learn compliance tactics that will manipulate the masses into mindlessly buying their combination electric toothbrush / toenail clippers.

For managers and leaders, this book gives important insight into the origins of motivation, and how you and those around you might be influenced by the marketplace, the media, and your competition.

For everyone, Cialdini points out several ways in which our mental “shortcuts” interferes with our ability to make good decisions.

This book is a good companion to “Decision traps.”

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Make Your Own Luck

What a great book!

My background is in engineering and science, then business. As an engineer, I really liked that there’s a “right answer.” Or at least, there are clear wrong answers (the bridge will collapse if we make it out of tissue paper, period). In business, things aren’t so easy. Most situations have too many factors to identify, let alone consider deeply. Shareholders interact with managers who interact with technology and customer service people and engineers and operations and … it’s tough to know how to think about all this.

Make Your Own Luck lays out a 12-step process (hmm…) for taking risks. Some of the steps sound simple: Know your big goals before you begin, so when you make bets in your life, you’re betting on what you actually want. Sounds obvious? Yeah, but in my own work with executives, I’ve found that people easily lose sight of their real goals(1). The power from Shapiro and Stevenson’s approach comes from having a rigorous checklist to consider when making risky bets.

Some of their tools help evaluate risks that I’ve never known how to tackle. For example, the authors reject the conventional wisdom that “reward requires risk,” and give us “prediction maps,” a tool for identifying low-risk, high-reward opportunities. Simple, elegant, and practically useful.

Their other big new tool is “uncertainty grids.” Uncertainty grids let you quickly test your plans against combinations of uncertainties to realize whether you’ve unconsciously anchored yourself to a single scenario, or whether your plans can survive multiple uncertain events.

The writing style is fun, with thought experiments between the chapters, a final chapter of scenarios to analyze using the 12 steps, and haiku or other verse at the start of each chapter. I found it a pleasant change from the overly heavy style of most substantive business books, and it was an easy read cover-to-cover that did justice to its excellent content.

(1) Being a professional, of course, I never, ever lose sight of my own goals. *grin*

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Nudge: Improving Decisions about Health, Weath, and Happiness

Nudge is one of those books I like so much that documents all the little things that cause us to make decisions, and how to influence them without resorting to such inconvient things as, say, logic. Nudge talks about how the way we present and frame choices (our “decision architecture”) dramatically changes the way we finally decide.

The material is mostly different from the decision fallacies literature. The authors cover things like physical presentation of choices, deferred gratification, structuring complex choices, incentives, and deferred contribution plans. Examples were drawn from very real, relevant examples like helping people choose health plans wisely, organ donation, and presenting fuel estimates to make it easy for people to understand environmental impact.

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Smart Choices: A Practical Guide to Making Better Decisions

The best book I’ve ever read on rigorous decision making. As much as I like to believe I make decisions based on data, I don’t. I gather lots of data and then ignore it all and rely on my gut.

Hammond, Keeney, and Raiffa outline a structured process for making decisions that can help reduce uncertainty and increase the likelihood that you’ll make better decisions under uncertainty with incomplete data. Like anything else, you have to practice to get good at their technique. But once you’ve learned how to make a high quality decision, many of the techniques begin to become second nature.

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Sources of Power: How People Make Decisions

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The Answer to How is Yes

This half-philosophical, half-practical book does a superb job at presenting a challenging, engaging perspective on how to create community and openness in (workplace) groups. Block gives specific questions that can be used in bringing a group together and transforming a conversation into one of responsibility and accountability.

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The Brainsmart Leader

Tony Buzan has written several books bringing recent discoveries in brain science to practical application. His various books concentrate on speed reading, increasing comprehension, and improving your memory. In this book, he brings his understanding of the brain and applies it to leadership.

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Yes or No: The Guide to Better Decisions

This book lays out a simple framework for making effective decisions. The real power of this book is that it addresses the emotional side of decision making as well as the rational side. Whether you make decisions based on your head or your heart, this book will help you learn to use the other. Written by the co-author of the One Minute Manager, Yes or No is a quick read.

My recommendation is to start with Yes or No and use Johnson’s framework for a while. Then read Decision Traps to learn how to avoid common mistakes your brain makes. Then finish up with Smart Choices: A Guide to Better Decisions, which will give you very high-powered research-validated techniques for beating a decision to death.

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Never Eat Alone

Keith Ferrazzi started life as a working class child. He learned early that opportunities came as much through who he know as through what he knew. So he began cultivating relationships as one of his life cornerstones. By his 30s, he was the Chief Marketing Officer and youngest partner ever proposed at Deloitte & Touche. Shortly thereafter, he became the youngest Chief Marketing Officer at a Fortune 500 company.

Keith’s book is part autobiography, part “how to” manual for networking. I ran into Keith when we were both presenting at a conference in mid-2004. I applied a few of his principles and they worked. Well. I became such a convert that I went to work with him for several months. Watching him in action is … astonishing, to say the least. He is truly one of the most amazing networkers I’ve ever met.

Some of Never Eat Alone’s techniques can be found in lots of the networking literature. But I’ve found tremendous value in internalizing his attitudes about giving without keeping score, using my network as a tool to help my associates become more successful, and realizing that it’s possible to do business with friends and make friends with business associates. Never Eat Alone got me thinking of success as a community sport, not just a lone-wolf endeavor.

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Authentic Happiness

This book is the finest research-based discussion of what makes people happy that I’ve yet to come across. Seligman quickly moves past the fairly trite (does money even correlate with happiness at all?) into an examination of what makes for truly happy people.

Surprisingly, I was reading this almost as a business book. Happy people make for great culture and environments, which make it easier to attract and retain good people. And it turns out one of the keys to happiness is having the opportunity to contribute in a meaningful way using your best and highest skills. This is a nice complement to “Now, Discover Your Strengths,” which was purely a business book, and it shows that creating an environment where poeple can play to their strengths is not only good business, but also good for everyone as human beings.

Every chapter of the book has an associated online inventory you can take at Seligman’s web site, so it become more than just an examination of what makes happiness—it’s a self-reflective exercise as well.

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Get Everything Done and Still Have Time to Play

In this book, Mark Forster lays out reasons why the standard time management systems all fail. He debunks “quadrant 2” planning (important-but-not-urgent), prioritization, do-it-now, touch-everything-once, etc. What he presents instead is a system based on understanding why we resist things we know we have to do, and how we can start doing them while making sure that the urgent and the important all get handled.

Mark’s system is rather unusual, and I’ve found it a bit challenging to retrain myself, but every time I use it, I get more done in 2-3 hours than I would typically get done in 2-3 days.

Combine this with Getting Things Done by David Allen, and you have the best time management / inbox management combination I’ve found.

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Getting Things Done: The Art of Stress-Free Productivity

David Allen’s book is the best book I’ve ever read on dealing with the overwhelming barrage of incoming email, voice mail, faxes, etc. He lays out a system for dealing with everything in your life and keeping your inbox, desk, and mailbox clear and empty. While I found the book a bit convoluted at times, I’ve been using his system for two years now and it works like a charm. Even when I fall off the wagon occasionally, I can get my life back in order in a couple of hours with this book.

The one failing is that he gives very poor guidance for how to decide how to use your time. The book covers inbox management, but not moment-by-moment action steps. For that, check out Get Everything Done and Still Have Time to Play by Mark Forster, which deals beautifully with the moment-by-moment.

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The Power of Full Engagement

Tony Schwartz and Jim Loehr review how your energy level actually drives productivity. They present research showing that managing energy is more important than managing time in becoming productive. Of course, if you follow their advice, you’ll become much more productive… and will promptly find all that newly acquired free time filled with even more demands from daily life. But hey, at least you’ll experience a period of great productivity.

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You Can Have What You Want (UK edition)

Michael Neill’s book is a step-by-step guide to adopting an attitude of fun, enjoyment, and joy in your life. Michael puts forth a whole series of techniques and ideas that help you let go of stress and reorient to the things that cause you deeper satisfaction. He is a friend of mine, and I can attest that he is a living model of the principles, as well. Along with Are You Ready to Succeed and The Power of Now, Michael’s book has been one of the most impactful books in my own personal development. (I read it in draft form in mid-2005 and dramatically changed my life and business afterwards.)youcanhavewhatyouwant

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You Can Have What You Want (US edition)

Michael Neill’s book is a step-by-step guide to adopting an attitude of fun, enjoyment, and joy in your life. Michael puts forth a whole series of techniques and ideas that help you let go of stress and reorient to the things that cause you deeper satisfaction. He is a friend of mine, and I can attest that he is a living model of the principles, as well. Along with Are You Ready to Succeed and The Power of Now, Michael’s book has been one of the most impactful books in my own personal development. (I read it in draft form in mid-2005 and dramatically changed my life and business afterwards.)

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Your Best Year Yet: Ten Questions for Making the Next Twelve Months Your Most Successful Ever

They say that having written goals greatly increases your chances of achieving them. This book isn’t about far-reaching goals; it’s about making the next year of your life the best year you’ve ever had. Ms. Ditzler leads you through a structured goal setting process designed to help you clarify what you want, and set out a path to get there.

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Forty Five Effective Ways for Hiring Smart!

Who to hire is one of the most important decisions facing managers and entrepreneurs. Yet few know how to do it or do it well. A professional psychologist, Pierre Mornell takes a different tack to hiring altogether: he gives tips for designing behavioral tests for candidates, which give you indications of how someone will actually act on the job.

Personally, when I hire people, I do only a so-so job. I tend to be influenced far too much by whether I like the person, and not nearly enough by whether they can/will do the job. This book gave me a whole set of tools to use to make the decision a bit more rigorous.

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Recruit or Die

Chris Resto, Ian Ybarra, and Ramit Sethi have created an excellent book that helps you romance top recruits as successfully as you romance your top customer prospects (or maybe more!). Written from over 1,000 student interviews, they’ve captured the mindset of graduates at top universities and how to win over the candidates who would otherwise fall prey to the consulting firms and investment banks of the world. They cover the entire recruiting process, from pre-contact to post-hire, with specific how-to information for recruiting on top campuses, reaching top students, and doing it all on whatever budget you have available.

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Changing Belief Systems with NLP

A rather dry book that nevertheless presents several techniques for changing belief systems. The book presents material and then illustrates the material with transcripts from workshops. The emphasis is very much on teachnig therapists to assist others in changing beliefs, but I’ve found that with a bit of flexibility, you can use the techniques to change your own belief systems as well.

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Don�t Shoot the Dog

This volume is a fascinating introduction to the psychological principles underlying training and behavior shaping. Pryor is an animal trainer, and it turns out that many of the underlying attitudes and theories of animal behavior also apply to humans. Such principles as positive reinforcement, spending time building the trainer/learner relationship, and shaping behavior incrementally are all tools that can be used to build high performing human organizations. For anyone whose job includes motivating people or building culture, this book will provide an excellent set of tools.

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Hard Facts, Dangerous Half-Truths, and Utter Nonsense

This is a great management book for people serious about doing an exceptional job at business. A bit dry, the authors critique what passed for business knowledge (fads, buzzwords, etc.) and point out how much of the conventional wisdom spouted as common sense is, in fact, just plain wrong. The book discusses adopting “evidence-based management” as a way of doing better in business. To get the reader started, they address six dangeous Half-Truths:

* Work and life should be (or are) somehow separate. * Hiring the best people will lead to the best organizations. * Financial incentives drive company performance. * Strategy is destiny. * Change is an imperative! * Great leaders are in control of their companies.

In each case, the conventional wisdom just doesn’t hold. For details, proof, and other fascinating tidbits (such as why merit-based pay for teachers and schools doesn’t improve learning), grab this book!

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Leader As Coach: Strategies for Coaching & Developing Others

This book present leadership skills framed as the ability to coach employees into their best possible performance. A companion to Development First, this book is about how to help others through the professional development process.

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Mistakes Were Made (but not by me)

Two of the world’s foremost social psychologists explore how we distort our lives via cognitive dissonance, commitment and consistency, and self-justification. principles. The authors explore how these principles impact politics, law, medicine, and predjudice. If you’ve read Influence or other social psychology books, you won’t learn about new prinicples here. What you will learn (which is well worth it) is the measurable impact these have on the policies and professions that are critical to our lives.

This is a pretty scary book. There’s substantial evidence, for example, that once someone is convicted of a crime, even DNA evidence and confessions by the true perpetrator won’t change the minds of police and judges.

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Are You Ready to Succeed?

This is the book for the extraordinarily popular course Srikumar Rao teaches at Columbia Business School and London Business School. In the book, Sri examines how our mental models affect the way we approach the world and our success. He does a great job offering new ways to engage our lives that produce more satisfaction and fun. I found this book highly impactful in my own life (along with The Power of Now and You Can Have What You Want).

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Do It Tomorrow

Mark Forster’s books on time and life management are a great read. He starts by noticing that no matter how hard we try, we always seem to fall behind. Then he applies a great deal of common sense, uncommon psychology, and intriguing systems to lay out alternative ways of working that will get everything done. This book, his third, returns to the question of time management, and leads you through simple exercises to confront your limits, your demands, and balance the two so you’ll be able to catch up with your own life.

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Feel Happy Now (UK edition)

Michael Neill’s book lays out many different way to achieve happiness. This is a very tactical book in which Michael gives exercises, mental frameworks, and techniques for making yourself happy. In some ways, I find his underlying assumption most powerful of all: that we can feel happy regardless of circumstance, and much of our challenge is simply giving ourselves permission.

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Loving What Is

Loving What Is lays out a simple and effective techniques I’ve used for detaching from negative thoughts and reorienting on the positive and on what’s present in the moment by questioning the thoughts you have that keep you in pain. I’ve been training myself to use the four questions automatically, and have been happier, more peaceful, and more forgiving than I’ve been in a long time.

(Except when it comes to “helpful” automated phone trees. But by the end of the century, I will have made my Peace with those, too.)

You can view Byron Katie’s work on YouTube (seach for “Byron Katie”) and at http://www.TheWork.com.

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The Power of Now

This best-seller has just one message: the more present you are in your life, the most fulfilling and powerful your life will be. The book was transcribed from workshops in which Eckhart mainly answers questions, taking the reader through different scenarios where it would seem impossible to apply “The Power of Now.” In each case, he shows how to remain present yet still effective. I’ve found this to be one of the most personally valuable books in my own development (along with You Can Have What You Want by Michael Neill and Are You Ready To Succeed by Srikumar Rao).

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Your Money or Your Life: Transforming Your Relationship With Money and Achieving Financial Independence

Are you driven/stressed/confused about money? I am. And as much as I enjoy having money, I can’t say my relationship to it is especially healthy.

Reading this book helped, a lot. It’s more than a book to read. The authors lay out a program for figuring out exactly how to maintain your current standard of living, and save enough so you can know the specific date at which you’ll retire with no drop in your standard of living.

Not only has the program been helpful, but the attitudes and beliefs about money that the authors pointed out to me helped me untangle some of my own hang-ups about making the Big Bucks (at which time I quit my high paying job and went to pursue my dreams instead…much less lucrative, but infinitely more rewarding!)

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Development First: Strategies for Self-Development

This book helps you put together a plan and tactics for developing in your professional life. It is quite short, but packed with plain-English prescriptions for how to break self-development into small enough chunks that you can actually find time to do it. I use this book with many of my coaching clients.

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Now, Discover Your Strengths

This book is a sequel to the excellent “First, Break All the Rules.” It delves much more deeply into the principle that you’ll build much more solid organizations by developing strengths rather than concentrating on shoring up weaknesses.

Buckingham and Clifton used Gallup’s research of over a million people to identify 34 core strengths that you might have. Strengths aren’t skills. Strengths are rooted in talents developed early in life. Talents are behaviors so innate that they come effortlessly and enjoyably. You can ultimately go much farther with your natural talents than with skills you learn. The neat thing about talents is that they’re automatic and they feel good to use. So designing a life based on maximizing your talents is likely to be a lot more fun than trying to learn skills that don’t grab your interest.

The book really doesn’t stand on its own. You must take the web-based StrengthsFinder assessment to identify your strengths, and then read the latter part of the book with your strengths in mind. But be warned: you can take the assessment just once for each copy of the book you buy, and you can’t buy additional licenses without buying the book. (Perhaps the best way to think of this is as a one-time $22 skills assessment with a free book thrown in.)

The assessment was useful to me. Everything it told me, I already knew. In fact, it pointed out characteristics so pervasive in my life that everyone around me will be equally unsurprised. And therein lies the power: it gave me names for strengths that I take so much for granted that I would never have identified them as strengths. And furthermore, it let me know that those are strengths that others may not share. Not until reading this book did I consider that my ability to focus and my achievement-based motivation might be talents others may not share.

Now as for using than information… the book was weak. Very weak. Each skill gets one page of description, and one page of “how to manage someone with this skill.” There’s little to help you appreciate the richness of the model or apply the knowledge in any deep way.

That said, however, find yourself a friend strong in ideation to brainstorm uses for the material, an activator to put the ideas into motion, and a good focus person to carry the ideas out.

In short, the assessment gets five stars and the book gets two stars. The self-knowledge was useful, as was the overarching concept, “You’ll go farthest by building your strengths rather than shoring up weaknesses.” Otherwise, the assessment gave me good information that it’s now up to me to use.

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The Goal

This book is required reading at several top business schools, and for good reason. Goldratt lays out an approach for thinking about your business’s operations in terms of operational constraints and measures. He shows why traditional cost accounting skews your ability to manage well, and how many organizational problems come from a misunderstanding of how a well-balanced system operates. If you’re an operational manager, read this! If you’re not an operational manager, please, please, please read this!

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Bottom-Up Marketing

In “Bottom-Up Marketing,” Reis and Trout address the need for marketing to be driven as much by tactics as by strategy. They make the case that marketing strategy is intrinsically linked to an understanding of how tactics drive behavior.

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Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers

What a great book. Moore asks why so many companies suddenly stall just when they seem to be taking off. He lays out stages of adoption for high tech products, and notes that as a product makes its way into the mass market, the market’s buying behavior radically shifts. Companies who fail to make the shift as well… will fail.

Moore’s experience is in high tech marketing, but I suspect his concepts apply across the board.

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Focus: The Future of Your Company Depends on It

This isn’t as good as the other Ries and Trout books. Focus is too wordy (not focused enough?), and relies a bit more on simply telling stories. The logic is a bit harder to verify. That said, the basic point of the book is that Focus is good in many areas of running a business.

It took me a year of struggling against my deep desire to preserve all options and keep myself as broad as possible, but I adopted a “focus” attitude towards my own business. Within three months, the business was doing better than I’d ever dreamt. Many of the results were directly traceable to the newfound focus in the business. Now, I’ve found that the more I focus, the more, bigger opportunities arise. Yes, I have to say “No” to some things, but at the end of the day, the focus strategy has created bigger and better opportunities, faster, than anything I’ve done before.

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Marketing Warfare

This companion to Positioning presents how a marketer can think about competition. Once again, Ries and Trout manage to present sophisticated concepts clearly and simply. For example, the book opens with a concise discussin of “The Law of Force.” They show that superior numbers will win on a battlefield, even in the face of higher hit rates by the smaller force. A simple concept, yet often overlooked.

You’ll probably hear people say that Marketing Warfare is outdated, and the New Economy changes all that, yada, yada, yada. Ignore those people. While specific prescriptions may be outdated, the underlying approach to thinking about the nature of competition is right-on.

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The 22 Immutable Laws of Marketing: Violate Them at Your Own Risk

Al Ries and Jack Trout, marketing strategy consultants, lay out some of the principles of marketing—including the Law of the Mind and the Law of Hype—with many, many examples of what has and hasn’t worked in the international marketplace.

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How to Become a Rainmaker

A very easy-to-read book giving lots of guidelinens for becoming a high-performing salesperson. This won’t be the only book on sales you’ll ever need, but its short chapters make it good reading when you have a few minutes here and there. I picked up a few good ideas and mindset shifts that could be immediately applied to sales efforts.

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Brandenburger and Nalebuff’s book does a marvelous job making a new brand of corporate strategy accessible: strategy based on game theory. They examine various tactics used in business, such as the “we’ll match lowest price” strategies, and reveal how those strategies can change the industry structure in such a way as to result in the unexpected effect of higher prices. The authors also give rigorous definitions of competitors and complementors, which broadened my thinking about competition and cooperation considerably.

[This is my all-time favorite book on strategy.]

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Entrepreneurial Culture: Creating it is the CEO’s job!

Sometimes, we treat corporate culture as something that “just happens.” By the time we realize we want to influence it deliberately, it’s often too late to change it very much. An entrepreneurial CEO has no such problem, however. Culture begins to be set the moment a company gets formed, but an entrepreneurial CEO can influence it tremendously. Read how in my Harvard Business Review article on the Entrepreneurial CEO and Building Culture.

You can find the article on corporate culture and how it begins as entrepreneurial culture here: http://blogs.hbr.org/cs/2010/07/advanced_entrepreneurship_your.html

Turn problems into opportunities

One of the most important skills you can develop in life is the ability to turn problems into opportunities. Let’s face it, life throws problems at us pretty much all the time. Some philosophies say that problems are the universe’s way of helping us learn to accept reality. Or perhaps they’re tests meant to give us the chance to show our strength and fortitude.

My take is a bit different. A problem is simply an opportunity by another name. Maybe it’s the old “God moves in mysterious ways” philosophy, or maybe it’s just that no matter what happens, if you survive, you’ll find a way to persevere. Either way learning to systematically find the opportunity within a problem is a key skill to going as far as your life circumstances will allow.

This week’s Get-it-Done Guy episode is all about turning problems into opportunities and how to find the opportunity beneath the problem. You can find it at http://getitdone.quickanddirtytips.com/how-to-turn-problems-into-opportunities.aspx

The Entrepreneur CEO’s job description

Earlier this week, I began a series of articles on the Harvard Business Review blog site that will deal with the job description of the entrepreneur. The series arose because while people talk a lot about what qualities make up a good entrepreneur, the world is strangely silent on how an entrepreneur should actually spend their time. They always run around like the sky is falling, and they’re busy beyond belief. But doing … what? And how do they know what they’re doing is actually moving the company forward, versus just being whatever activity caught their eye at the moment.

Read my HBR.ORG blog post on Advanced Entrepreneurship: The Entrepreneurial Job Description.

Planning for operational growth

A key element of working less and doing more is preparing enough for the future so you have systems in place when the demands on you grow.

If your business is lucky enough to be on a growth path, you still have to deal with setting up operations before the growth happens. Otherwise, you get caught unable to deliver on the extra sales you’ve generated. If you need examples, look no further than AT&T’s inability to deliver adequate data coverage in major markets since the introduction of the iPhone, five years ago. I was interviewed by Latino Business Review on the preparing for operational growth. It’s interesting that the article characterizes me repeatedly as “conservative” in my business practices. I wouldn’t consider my advice conservative; I’d just call it common sense. If you’re growing into a country or product line you have no experience with, why in the world would you make a huge bet with no data? Far better to make a small bet that lets you collect the data, and then commit major resources.

Read the article here: http://www.latinobusinessreview.com/business-features/operations/think-medium-term-planning-operational-growth

Business has a lot to learn from theater people

We wrapped up Evil Dead: The Musical this weekend. I am sad. I miss rehearsal every night. I miss singing and dancing. I miss wondering if that is water in the makeup, or whether Zach’s drool was a bit too enthusiastic. Part of why I decided to start acting was the suspicion that it would be good for me socially and emotionally. I couldn’t have been more right.

The amazing thing about the experience was how quickly we created a feeling of community, shared goals, and closeness. We were all working together on a project much larger than any of us could possibly have done alone. Most people on the project were under 25 (and many were still in college). No one had any formal training in teamwork or group dynamics. No one was using models from Leadership 101, or Good to Great, or … or, frankly, any of the 80,000 business titles that purport to teach people to work together.

And yet, the production demonstrated teamwork that most businesses would kill to have. How could a student theater group on a shoestring budget with no  education or background in training or group process pull this off? It really gives me pause.

Perhaps good teamwork isn’t a matter of training. Perhaps there’s something structural that can produce teamwork, simply by its very nature.

I’m intrigued, and I don’t know the answer. What makes the teamwork “just happen” when flesh-eating zombies are involved, when it takes pushing, shoving, pulling, tearing, and training to do the same thing when soul-eating corporations are involved? What do you think?

Can a corporation be “entrepreneurial?”

A friend of mine posted a Facebook entry saying his 30,000+ person company is encouraging people to be entrepreneurial. I replied with a remark that I couldn’t imagine a less likely place to find entrepreneurial behavior.

Much to my surprise, he was surprised that I was surprised. But that’s not surprising. It turns out that at his consulting company, they are encouraged to come up with ideas for new products and find new customers. That fits his definition of “entrepreneurial.”

It didn’t fit mine, and I took this as an opportunity to try to define why I had my reaction. Here’s my thinking about what constitutes “entrepreneurial.” Please chime in.

I think we have different definitions of “entrepreneurial.” I hear a lot of corporations use the word “entrepreneurial” as a synonym for “we’re letting you think for yourself and propose creative solutions.” While I applaud that impulse, in my mind, it should be a standard mode of engagement in business and not considered anything to be given a special name.

For me, what you’ve described is being given license to propose new product lines. It fits my definition of “new business development,” and it may or may not be entrepreneurial.

In my definition of entrepreneurship, entrepreneurs (a) are free to change their business offerings, (b) have control over their business model, (c) must raise their own resources and enjoy a corresponding participation in the upside, (d) create an organization, organization structure, and its attendant policies and procedures.

Furthermore, often, entrepreneurs operate in unknowable or cutting-edge spaces. They are introducing new products without the knowledge of whether markets exist.

In essence, an entrepreneur’s product is an organization and business model.

If you can go out to Staples and propose a joint venture where you provide flat-rate actuarial consulting to any insurance company that buys more than $1000 worth of office supplies, with you (personally) pocketing 10% of the revenues, that would be entrepreneurial, in my mind.

If you had the ability to acquire smaller consultancies and attempt a “roll-up,” (without needing corporate approval) that would be entrepreneurial.

If you were to discover that restaurant consulting were more lucrative than actuarial consulting and decide to reposition your job to target restaurants based on your theories/dreams/data about the business model, that would be entrepreneurial.

If your business model is limited (e.g. hourly charging with X% overhead charged back to the parent company), if your ability to raise funds and build an organization is limited (e.g. hiring six people with completely different policies, procedures, dress codes, health plan, etc.), and if your upside is limited (e.g. you can’t create a multinational division and then take home the bulk of the profit as your own bonus), then I would consider you to be in a creative business development capacity, but not entrepreneurial.

Similarly, some people consider franchise owners as entrepreneurial. While they take a risk and share in the upside, I would call them “small business people” and not “entrepreneurs.” They generally don’t have control over their processes, capital structure, organizational structure, or brand/marketing/etc. so while they certainly do start a business with their own funds, they’re sufficiently constrained that they’re essentially employees who shoulder the risk and receive a bonus based on profits.

I don’t think there’s any one agreed-upon definition of entrepreneurship, but in the entrepreneurship circles where I travel, resource scarcity and control over structure, process, and business model are key elements separating entrepreneurial environments from corporate environments.

Stephen Wolfram’s “Alpha” isn’t a Google killer; they’re in different businesses.

My friend Bob Kerns blogged about Stephen Wolfram’s “Alpha” project. The project aims to take on Google by creating a web-retrieval engine that can answer specific factual questions directly. Type in, “how many angels can dance on the head of a pin?” and it will go out to the Web, retrieve the answer, and tell you. Bob doesn’t think Alpha will be able to challenge Google. I agree.

I’d never heard of Wolfram’s “alpha” before, but the sensationalistic headlines, in my humble opinion, show a total misunderstading of Google’s business model.

Google is in the advertising business, not the search business. Search is one of many distribution channels they have for that advertising. It lets them offer targeted ads, because what people search for can be used to target ads to people who might want to buy a product or service.

They’ve also figured out that if they give away products that involve high information content (mail, word processors, spreadsheets, etc.), targeted ads can be delivered unobtrusively in the margins, deduced from the information a person is working with.

It makes sense for Google to develop better programs in the information-processing space than Microsoft and give them away for free, since that drives eyeballs to Google’s ads. You’ll notice Google isn’t building the G-Box 360; there’s no information content there to be analyzed and monetized.

The Google phone gets you more deeply involved with your Google platform on mobile devices. My guess is that it’s a just-in-case move, anticipating the possibility that mobile devices will develop into a big chunk of the information processing market (and thus advertising eyeballs).

Alpha may be able to answer factual questions directly, but it’s not necessarily even in the same space as Google. Factual questions aren’t likely to be very good at generating enough context to do good ad targeting. If I ask, “what is the tensile strength of steel,” you don’t have much information to use to target ads. You don’t know why I want that information.

When I Google, however, I am typing in words associated with the actual information I need. I type in broader phrases, loaded with context. If I’m searching for “steel for skyscraper construction,” it’s easier for Google to find a host of relevant ads based on the query words and on the content of the top pages matching the query.

It’s the very fuzziness of Google’s search that makes it a good business for monetizing with ads.