Measuring business success

Forbes Global 2000 is a list of the world’s biggest public companies. The way Forbes ranks each business is by adding up the scores for four equally weighted metrics—sales, profits, assets and market value—and compiling a composite score for each company.

This is an overkill and can be completely misleading.

The only metric that matters is sales. More specifically, the share of market and the share of wallet. How many people spend their money with you and how much they spend—that’s the true indicator of business success.

By the way, Fortune—the biggest competitor of Forbes in business rankings—gets it right. Their Fortune 500 list is ranked purely on the volume of sales.

At the same time, Fortune’s or Forbes’s, none of the lists matter. Not even a tiny little bit. It’s because any “pissing contest” among companies can be meaningful only if they are in the same market. There is no point comparing non-competing businesses, because the amount of money spent by customers varies widely between individual markets.

What is the purpose of a business?

The purpose of business is to make the world a better place — Miroslav Chodak

In my last post, I defined the term “business” and identified the single most important component of any successful business. Now, let’s examine more closely the question of what is the purpose of a business.

One might assume that, just like with the definition of business, there would be a consensus. However, the reality cannot be more different.

Three schools of thought

Overall, there are three different schools of thought on this subject. The starting point is the historically most accepted view that the purpose of business is to make maximum profits for its owners.

Each school of thought has a different take on this definition:

1. Yup!

The first school completely subscribes to the “maximum profits for its owners” view but also attempts to answer the how question. The resulting definitions include things like: provide goods and/or services, offer value, fill a need, solve a problem or (most famously, perhaps) create a customer.

2. Yes, but…

The second school also accepts the “maximum profits for its owners” view, but adds a second(ary) dimension. For example: create sustainable value for all stakeholders.

3. No way!

The third school takes a completely different view. They reject the profit maximization objective out of hand and instead propose an alternative purpose. For example, the purpose of a social business is to maximize improvements in human and environmental well-being.

What’s my definition?

I don’t dispute the fact that a business must be able to make money. But, I don’t consider it its purpose (a function, yes, but not a purpose). In fact, the sole focus on profit maximization is extremely harmful to the society, because it leads to inequality, unemployment and eventual collapse of the economy. Not to mention the environmental pollution, the collapse of natural ecosystems and the depletion of natural resources.

Businesses are the major driving force in our society today. More so than individual members of the public—who are employed by the businesses, and more so than governments or political parties—which are financed by the businesses.

Make the world a better place

If anybody can institute lasting change in this world, it’s the businesses. Therefore, it is my belief that the purpose of every business should be to make the world a better place.

What is business?

Define: business

The definition of the word “business” is pretty straightforward. While there are numerous versions available and their exact wording varies somewhat from case to case, their essence is basically the same.

Wikipedia’s definition is just as good as any, so let’s go with that:

A business, also known as an enterprise or a firm, is an organization involved in the trade of goods, services, or both to consumers. — Wikipedia

In short, business is an entity involved in trading.

Before you die from boredom as I beat this subject to death, let me point out one very important element that this definition contains. It is so important, in fact, that, if not taken seriously, it will spell certain demise to any business-building efforts.

What makes it a business?

By definition, for a business to even exist, a trade of goods or services must take place.

Trade is [the transfer of] the ownership of goods from one person or entity to another by getting a product or service in exchange from the buyer. — Wikipedia

If you want to trade, you must be able to sell. If you cannot sell, you don’t have a business. Simple as that.

This is why every entrepreneur’s first priority, when building a new business, must be selling. Simplified, selling is what makes or brakes a business. As soon as selling stops, the business is doomed. Period.

Average annual expenditures in 2012 (USA)

How much money are we spending per year and what are we spending it on?

Last week, I listed the top 100 occupations, along with their average hourly and annual wage. In this post, I’m going to look at our average annual expenditures.

Source: U.S. Bureau of Labor Statistics

Expenditures by category

Average annual expenditures by category (US, 2012)

Average annual expenditures by category (US, 2012)

Key takeaways:

  • More than half of our money goes to cover housing and transportation expenditures.
  • The top 5 categories combined represent over 80% of our total expenditures.
  • On average, we spend more than twice the amount on entertainment than we spend on education.
  • On average, we spend 3 times more on tobacco products and 4.5 times more on alcohol than we spend on reading.

Expenditures by age

Average total annual expenditures by age (US, 2012)

Average total annual expenditures by age (US, 2012)

The average annual expenditure per consumer unit is $51,442. As you could expect, the amount of money we spend changes with age. It starts at slightly over $30,000 and gradually increases to roughly $62,000 per year by the time we reach 50 years of age. At that point, it begins to decrease with customers older than 75 spending on average around $33,500 per year.

Breakdown: housing

Breakdown of housing expenditures (US, 2012)

Breakdown of housing expenditures (US, 2012)

Unsurprisingly, the cost of obtaining a shelter—represented mainly by mortgage interests and charges, property taxes and/or rental costs—is the single biggest item on the housing breakdown list. A distant second come the operational expenses, including utilities, fuels and services. Finally, an even more distant third on the list are the costs of furnishings and equipment.

Breakdown: transportation

Breakdown of transportation expenditures (US, 2012)

Breakdown of transportation expenditures (US, 2012)

The transportation costs are dominated by the cost of procuring the vehicles and the cost of gasoline. Together, these two items make up for around two thirds of all transportation expenditures. Interestingly, our expenditures on public transportation are almost non-existent.

Breakdown: food

Breakdown of food expenditures (US, 2012)

Breakdown of food expenditures (US, 2012)

Based on the available data, we spend more than 40% of our annual food costs on eating out. Personally, I find this fact staggering.

So, there you have it: our annual expenditures based on the latest figures from the U.S. Bureau of Labor Statistics.

Top 100 occupations in 2012 (USA)

Here are the top 100 occupations in the U.S. by number of employees as of May 2012, according to the U.S. Bureau of Labor Statistics:

Rank Occupation (SOC) Employees Wage/hr Wage/yr
1 Retail Salespersons (41-2031) 4,340,000 $12.17 $25,310
2 Cashiers (41-2011) 3,314,010 $9.79 $20,370
3 Combined Food Preparation and Serving Workers, Including Fast Food (35-3021) 2,943,810 $9.00 $18,720
4 Office Clerks, General (43-9061) 2,808,100 $14.07 $29,270
5 Registered Nurses (29-1141) 2,633,980 $32.66 $67,930
6 Waiters and Waitresses (35-3031) 2,332,020 $9.95 $20,710
7 Customer Service Representatives (43-4051) 2,299,750 $15.92 $33,110
8 Laborers and Freight, Stock, and Material Movers, Hand (53-7062) 2,143,940 $12.70 $26,410
9 Janitors and Cleaners, Except Maids and Housekeeping Cleaners (37-2011) 2,097,380 $11.95 $24,850
10 Secretaries and Administrative Assistants, Except Legal, Medical, and Executive (43-6014) 2,085,680 $16.13 $33,560
11 General and Operations Managers (11-1021) 1,899,460 $55.22 $114,850
12 Stock Clerks and Order Fillers (43-5081) 1,806,310 $11.75 $24,440
13 Bookkeeping, Accounting, and Auditing Clerks (43-3031) 1,606,260 $17.62 $36,640
14 Heavy and Tractor-Trailer Truck Drivers (53-3032) 1,556,510 $19.40 $40,360
15 Nursing Assistants (31-1014) 1,420,020 $12.32 $25,620
16 Sales Representatives, Wholesale and Manufacturing, Except Technical and Scientific Products (41-4012) 1,414,030 $30.91 $64,300
17 Elementary School Teachers, Except Special Education (25-2021) 1,360,380 n/a $56,130
18 First-Line Supervisors of Office and Administrative Support Workers (43-1011) 1,359,150 $25.40 $52,830
19 Maintenance and Repair Workers, General (49-9071) 1,230,270 $17.88 $37,190
20 First-Line Supervisors of Retail Sales Workers (41-1011) 1,214,170 $19.67 $40,910
21 Teacher Assistants (25-9041) 1,185,700 n/a $25,310
22 Accountants and Auditors (13-2011) 1,129,340 $34.15 $71,040
23 Security Guards (33-9032) 1,046,420 $13.10 $27,240
24 Team Assemblers (51-2092) 1,006,980 $14.38 $29,910
25 Cooks, Restaurant (35-2014) 1,000,710 $11.20 $23,300
26 Personal Care Aides (39-9021) 985,230 $10.01 $20,830
27 Receptionists and Information Clerks (43-4171) 966,150 $13.00 $27,050
28 Secondary School Teachers, Except Special and Career/Technical Education (25-2031) 959,770 n/a $57,770
29 Business Operations Specialists, All Other (13-1199) 931,010 $33.90 $70,520
30 Maids and Housekeeping Cleaners (37-2012) 894,920 $10.49 $21,820
31 Home Health Aides (31-1011) 839,930 $10.49 $21,830
32 Landscaping and Groundskeeping Workers (37-3011) 830,640 $12.44 $25,870
33 First-Line Supervisors of Food Preparation and Serving Workers (35-1012) 817,600 $15.30 $31,820
34 Construction Laborers (47-2061) 814,470 $16.58 $34,490
35 Executive Secretaries and Executive Administrative Assistants (43-6011) 803,040 $24.14 $50,220
36 Food Preparation Workers (35-2021) 785,370 $10.05 $20,910
37 Light Truck or Delivery Services Drivers (53-3033) 769,010 $16.32 $33,940
38 Licensed Practical and Licensed Vocational Nurses (29-2061) 718,800 $20.39 $42,400
39 Shipping, Receiving, and Traffic Clerks (43-5071) 690,780 $14.76 $30,700
40 Sales Representatives, Services, All Other (41-3099) 672,080 $29.22 $60,770
41 Packers and Packagers, Hand (53-7064) 660,670 $10.80 $22,470
42 Police and Sheriff’s Patrol Officers (33-3051) 632,000 $27.78 $57,770
43 Childcare Workers (39-9011) 624,520 $10.25 $21,310
44 Middle School Teachers, Except Special and Career/Technical Education (25-2022) 620,900 n/a $56,280
45 Substitute Teachers (25-3098) 619,700 $14.22 $29,590
46 Automotive Service Technicians and Mechanics (49-3023) 596,830 $18.78 $39,060
47 Software Developers, Applications (15-1132) 586,340 $44.85 $93,280
48 Lawyers (23-1011) 581,920 $62.93 $130,880
49 First-Line Supervisors of Production and Operating Workers (51-1011) 568,820 $27.61 $57,420
50 Carpenters (47-2031) 567,820 $21.41 $44,520
51 Medical Assistants (31-9092) 553,140 $14.69 $30,550
52 Tellers (43-3071) 541,770 $12.40 $25,790
53 Management Analysts (13-1111) 540,440 $42.34 $88,070
54 Bartenders (35-3011) 538,220 $10.40 $21,630
55 Computer User Support Specialists (15-1151) 525,630 $24.10 $50,130
56 Electricians (47-2111) 519,850 $25.50 $53,030
57 Medical Secretaries (43-6013) 509,640 $15.71 $32,670
58 Cooks, Fast Food (35-2011) 504,740 $9.03 $18,780
59 Dishwashers (35-9021) 501,910 $9.10 $18,930
60 Industrial Truck and Tractor Operators (53-7051) 496,570 $15.43 $32,090
61 Billing and Posting Clerks (43-3021) 490,850 $16.61 $34,540
62 Bus Drivers, School or Special Client (53-3022) 489,750 $14.01 $29,150
63 Financial Managers (11-3031) 484,910 $59.26 $123,260
64 Computer Systems Analysts (15-1121) 482,040 $40.29 $83,800
65 First-Line Supervisors of Construction Trades and Extraction Workers (47-1011) 456,640 $30.40 $63,230
66 Inspectors, Testers, Sorters, Samplers, and Weighers (51-9061) 454,010 $17.90 $37,240
67 Correctional Officers and Jailers (33-3012) 434,870 $20.94 $43,550
68 Counter Attendants, Cafeteria, Food Concession, and Coffee Shop (35-3022) 434,220 $9.34 $19,430
69 Counter and Rental Clerks (41-2021) 432,650 $12.93 $26,900
70 First-Line Supervisors of Mechanics, Installers, and Repairers (49-1011) 421,650 $30.07 $62,540
71 Helpers–Production Workers (51-9198) 419,840 $11.84 $24,620
72 Dining Room and Cafeteria Attendants and Bartender Helpers (35-9011) 395,750 $9.47 $19,690
73 Cooks, Institution and Cafeteria (35-2012) 395,280 $11.70 $24,340
74 Human Resources Specialists (13-1071) 394,380 $29.16 $60,660
75 Driver/Sales Workers (53-3031) 394,110 $13.33 $27,730
76 Market Research Analysts and Marketing Specialists (13-1161) 392,740 $32.39 $67,380
77 Software Developers, Systems Software (15-1133) 391,700 $49.30 $102,550
78 Machinists (51-4041) 388,370 $19.65 $40,860
79 Bill and Account Collectors (43-3011) 385,890 $16.50 $34,320
80 Packaging and Filling Machine Operators and Tenders (51-9111) 367,700 $13.54 $28,160
81 Sales Representatives, Wholesale and Manufacturing, Technical and Scientific Products (41-4011) 364,830 $41.20 $85,690
82 Hairdressers, Hairstylists, and Cosmetologists (39-5012) 355,910 $12.88 $26,790
83 Pharmacy Technicians (29-2052) 353,340 $14.63 $30,430
84 Social and Human Service Assistants (21-1093) 351,400 $14.85 $30,880
85 Network and Computer Systems Administrators (15-1142) 350,320 $36.69 $76,320
86 Sales Managers (11-2022) 344,730 $57.68 $119,980
87 Hosts and Hostesses, Restaurant, Lounge, and Coffee Shop (35-9031) 341,400 $9.41 $19,570
88 Plumbers, Pipefitters, and Steamfitters (47-2152) 340,370 $25.46 $52,950
89 Preschool Teachers, Except Special Education (25-2011) 340,350 $14.79 $30,750
90 Managers, All Other (11-9199) 338,520 $50.79 $105,650
91 Insurance Sales Agents (41-3021) 336,740 $30.48 $63,400
92 Operating Engineers and Other Construction Equipment Operators (47-2073) 335,160 $22.24 $46,270
93 Securities, Commodities, and Financial Services Sales Agents (41-3031) 330,470 $48.51 $100,910
94 Welders, Cutters, Solderers, and Brazers (51-4121) 329,710 $18.46 $38,410
95 Computer Programmers (15-1131) 316,790 $37.63 $78,260
96 Computer and Information Systems Managers (11-3021) 309,740 $62.08 $129,130
97 Recreation Workers (39-9032) 309,730 $12.22 $25,430
98 Physicians and Surgeons, All Other (29-1069) 308,410 $88.86 $184,820
99 Postal Service Mail Carriers (43-5052) 305,490 $25.11 $52,220
100 Cleaners of Vehicles and Equipment (53-7061) 302,960 $10.87 $22,620
Source: U.S. Bureau of Labor Statistics

How to genuinely fix the economy?

Problems

In my recent analysis of our current economic system, I identified two problems. They are:

  1. Limited natural resources. Our natural resources—including the renewable ones—are limited. Therefore, it is not possible to grow our economy forever without putting in danger our very ability to survive on this planet.
  2. Growing unemployment. Advances in productivity—including in technology—are causing the demand for labor to decrease. In the short run, this creates unemployment. In the long run, most (if not all) humans in the production processes will be made redundant.

Solutions

In this post, I’m going to outline priorities for dealing with these two problems.

Priority #1: stop population growth

There is no hope of our survival on Earth without halting the population growth. It is absolutely necessary that the number of people on the planet stabilizes and doesn’t growth any further.

If we don’t stop the population growth, it is certain that we will reach a point when the cumulative needs of the population will exceed the amount of resources available.

Fortunately, this priority is sufficiently recognized by mainstream policy makers throughout the world, both locally and internationally, and there are many programs addressing it.

Priority #2: use natural resources sustainably

Sustainable use of natural resources means that their availability doesn’t diminish in time. In other words, we use only as much resources as can recuperate within a given time period.

This priority is well-recognized among policy makers internationally, however, progress is slow at best. On one hand, advances in productivity help make the use of natural resources more efficient. Furthermore, since productivity gains are seen as the primary source of economic growth, both mainstream policy makers and owners invest heavily into productivity improvements.

On the other hand, equally significant investments are made into artificially inflating the demand for products and services and into increasing the production. These types of investments have a negative effect on the availability of natural resources and usually go hand-in-hand with productivity improvements.

As a result, most actual work is spearheaded by non-governmental, grassroots organizations. Luckily, it seems that more and more people are slowly turning away from consumerism and towards more environmentally friendly approaches.

Priority #3: decouple consumption from jobs and income

Increased productivity causes unemployment. When people lack jobs, their income drops and their ability to satisfy their needs through purchases diminishes. This in turn reduces the overall demand, which negatively affects production. When production decreases, more jobs are lost and the cycle repeats itself in a self-fueled downward spiral.

The only way out of this is a new economic system in which the ability of people to satisfy their needs does not depend on the level of their income. Unfortunately, for some reason, this priority remains completely unrecognized by either the mainstream policy makers or the general public. Even among independent thinkers, there are only very few who are actively concerned with this issue.

Conclusion

The problems outlined in my previous post pose a tremendous challenge to our society. It is clear that the status quo has to change. The only question is, will it happen as a guided, step-by-step process from one system to another (evolution) to the benefit of everybody? Or, will it occur in form of an uncontrolled, radical, disruptive change (revolution) that could potentially endanger our very existence on this planet? I sincerely hope it’s the former.

What’s wrong with our economy?

I think most of us can feel that something is not right with our economy. But, is that something just a temporary glitch that will straighten itself out over time? Or, are we talking about an inherent flaw in the system that will ultimately bring about its own downfall? And, if the system is flawed, how serious is the problem and what can be done about it?

In this post, I’m going to try to answers these questions.

Current economic system

Let’s begin by discussing the factors that influence our current economic system.

Current economic system

Current economic system

Factor #1: population

How population impacts the current economic system

Impact of population on the current economic system

The first factor is population. Because we all have needs, we create demand simply by being. In other words, the size of the population is the primary determinant of how many products and services are required. The relationship is positive: the more people there are, the more products and services are needed.

Where there is a demand, there is also a production. The primary role of production is to supply products and services to satisfy the demand. Once these products and services are created, they are made available for consumption.

Production also creates jobs. Increased demand for products and services increases the need for production, which in turn creates more jobs. Jobs generate income that is needed to pay for the products and services. When people have jobs, they can afford to pay (more) for more products and services.

In summary, population creates demand that is met by production. Production creates jobs that puts money into peoples’ hands. People then buy and consume whatever has been produced.

Factor #2: profit orientation

Now let’s look at the next factor: profit orientation.

Profit maximization (or accumulation of capital) is the primary driving force behind economic activity within our current economic system. Owners strive to increase the return on their capital by focusing on increasing two things: demand and productivity.

Growing demand

How advertising impacts the current economic system

Impact of advertising on the current economic system

Demand can be artificially increased in a number of ways, which I collectively—and rather incorrectly—call advertising here. The word advertising by far doesn’t encompass everything that is done to artificially increase demand, but it is a word that is readily understood and well-represents the concept. In a more broader sense, we’re talking about any kind of activity that influences how people think about their wants and needs.

When demand is raised through advertising, it has a positive correlation with everything discussed under the Population factor above, except for the size of the population. In other words, as a result of advertising, the same number of people suddenly demand more products and services. This demand is met by more production, which results in more jobs, more income and higher consumption.

Improving productivity

How productivity gains impact the economy

Impact of productivity growth on the economy

The second thing capital owners try to do to increase the return on their investment, is to increase productivity. Productivity is a function of resources utilization. The aim is to produce maximum output with minimum input. Labor is one such input and there is a negative correlation between productivity and jobs. This means that increase in labor productivity—when not coupled with increased production—results in lost jobs. Consequently, when jobs are lost, income falls and consumption decreases.

Thus, somewhat paradoxically, a more efficient production results in a lesser ability of the population to satisfy their needs through consumption because their income decreased and they cannot afford to pay for all the products and services.

Factor #3: natural resources

How the current economic system impacts natural resources

Impact of the economic system on natural resources

The final factor is resources, namely natural resources.

Production of most products and services depends on the availability of natural resources, which are being depleted in the process of production.

Whenever natural resources are scarce, it pushes us to think of better ways to reduce our dependency on them, through improved productivity. Increases in productivity make the use of natural resources more efficient, but never actually increase their stock.

What’s wrong with this picture?

Problem #1: limited natural resources

If we had an access to unlimited natural resources, or knew how to create products and services without depleting the available natural resources, we could theoretically increase production—and, consequently, satisfy the needs of any number of population—to infinity. However, that is not the case (at least, not right now).

Our natural resources are limited. Therefore, there is an upper limit to how much we can use in the production process. Yes, we’re continually discovering new sources, new and better ways to extract them and more efficient ways to utilize them. But, it doesn’t change the fact that, at any given moment, there is only so much that we can take before there is nothing left.

(By the way, even so-called renewable resources are limited. The limit is imposed by the total stock available at any given moment and by the time it takes to replenish it.)

What does this mean? It means that we cannot grow our economy for ever. There will come a time when we will hit, and begin exceeding, the limit imposed by the availability of natural resources. When that happens, we will essentially start spending our own future (and that of our children). If taken too far, the end result could easily be the extinction of humanity.

One problem is, however, that we don’t really know where that limit lies. Several studies attempted to identify it, but there is no widespread consensus. Furthermore, the situation varies from one part of the globe to another. So, the urgency of this problem is not felt everywhere to the same degree.

Problem #2: growing unemployment

This one is even trickier than natural resources.

As a result of an ever-growing productivity, less and less people are needed to produce more and more products and services. The only way there can be enough of jobs for everyone is if the job losses caused by productivity gains are balanced out with jobs created by growing demand and production.

However, if you look at the impact an ever-growing production has on natural resources—and add to it the advances in technology that, slowly but surely, make human involvement in the production process obsolete—you will find it inevitable that, in the future, productivity gains will permanently outpace production growth to the point when the economy won’t be able to offer enough of jobs to its populace.

(In fact, in my post on unemployment, I’m arguing that it’s only a matter of time before we will all be unemployed.)

In the short term, this will resemble a typical economic recession. In the long term, this will bring about a total collapse of the economy.

Conclusion

To answer the questions posed at the beginning of this post:

This is no temporary glitch. There are inherent flaws in the current economic system and it’s only a question of time before the system will collapse and stop working, altogether.

Whether we will smoothly transit into a new economic system through peaceful evolution, or face a world-shattering revolution very much depends on how fast we are able to react and what solutions we will choose to apply.

In the next post, I will try to outline the types of solutions that will be needed to ensure that we won’t kill each other in the process of transiting from one system to another.

Thoughts on unemployment

Here’s a thought: we will all be unemployed at one point in the future!

100% unemployment rate? Sounds crazy, I know. Even I was surprised by this conclusion. But, please, bear with me as I explain my thought process…

Priority #1: profit maximization

Let’s start with business owners. All business owners have one thing in common: their desire to maximize profit.

Now, simplified, profit is the difference between money collected and money spent for delivering a product or service.

Business 101: What is profit

Business 101: What is profit

And, there are only three ways how profit can be increased:

1. Sell more units

Profit Maximization #1: Sell More Units

Profit Maximization #1: Sell More Units

2. Charge more per unit sold

Profit Maximization #2: Charge More Per Unit

Profit Maximization #2: Charge More Per Unit

3. Reduce costs per unit sold

Profit Maximization #3: Reduce Costs Per Unit Sold

Profit Maximization #3: Reduce Costs Per Unit Sold

Profit maximization requires cost reduction

Now, of the three above, the last one—reducing costs—holds the biggest potential because it allows for the biggest leverage in the marketplace. If you can produce cheaper than your competitors, you can undercut their prices and, effectively, price them out of the market. Or, you can spend the extra money on branding and advertising. Or, you can use it to acquire your competition. Or, you can do all of the above.

Therefore, it is only natural that business owners will try to reduce their costs to the best of their abilities and potential. They really have no choice. If they don’t try to reduce costs, chances are that somebody else will. Then, they will undercut their prices and ultimately push them out of the market (and, potentially, out of business). It’s how cut-throat competition got its name.

Cost reduction is essential to business survival

Cost reduction is essential to business survival

Cost reduction through reducing labor costs

Labor is usually a significant cost item among business expenses and, therefore, a frequent target for cost reductions. Cost of labor can be reduced in many different ways. For example:

  • Design processes that require less work hours.
  • Design processes that require less workers.
  • Design processes where most work is done by the cheapest workforce.
  • Carry out processes more efficiently (less time wasted).
  • Create an environment where people are happy to stay and perform well even with lower pay.
  • Move business operations to places with cheaper workforce.
  • Replace humans with technology.

Whole industries were born out of the desire to reduce the labor costs. The logical consequence of those efforts is inevitable:

  • Less and less people are needed to produce more and more goods/services.
  • Jobs move geographically to areas with cheaper workforce.
  • Jobs cease to exist because they are no longer part of the process.
  • Jobs previously carried out by humans are now performed by machines.

No humans? No problem!

If work can be done cheaper without human involvement, it will be done. It’s only a matter of time before computers will think independently and have more intelligence than the brightest of humans. Consequently, it’s only a matter of time before all humans will be replaced by machines in the production process.

When that time comes, we all will find ourselves out of jobs. Unemployed and unemployable. Forever.

What that will do to our economy (and the humanity) is a topic for another post.

Is there data to support this?

I’m always looking for new data. If you come across something interesting, please let me know by leaving a comment below.

Less people are needed to produce more goods – YES

Output per employee hour, US, Non-financial corporate sector 1947 -2012.

U.S. non-financial corporate sector productivity (1947-2012). Source: Bureau of Labor Statistics

The output per hour in all non-financial businesses in the United States, increased by 453% between 1947 and 2012. It means that the same number of employees can nowadays produce 4.5 times more goods than they were able to produce 65 years ago. It also means that instead of 9 employees in 1947, only 2 were needed in 2012 to produce the same amount of goods.

The same trend can be observed internationally:

International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends

International productivity trends in manufacturing (1950-2010). Source: Bureau of Labor Statistics

Jobs move to cheaper countries

[Currently researching]

Jobs no longer part of the process

[Currently researching]

Human are replaced by machines

[Currently researching]

What do you think?

Am I going too far in my conclusions? Is my logic flawed? Please tell me by leaving a comment below!

Updates

9/25/2013

  • Added 2 charts showing the increase in productivity over time (output per employee).
  • Fixed minor spelling and grammar mistakes.

Social icons – what, where and how?

Last week, I wrote on the topic of blog comments. This week, I picked social media. Why? The reason is simple…

Everybody (and their cat) is on social media

According to research, 67.7% of all Internet users are currently using social networking sites at least once a month and the number is expected to increase to a staggering 78.7% by 2017. The right question to ask is not, who is on social media, but, who isn’t.

Additionally, of the 42+ hours average Americans spend online every week, 20% is spent on social networking. That makes it the most popular online activity worldwide.

Therefore, it is without any doubt that social media must be a part of your overall business’s strategy. Simply put, you need to be where your customers are.

Focus: social media icons

I expect to be working on my social media strategy later this year. Right now, however, my main interest is in social media icons (also called social networking icons or social sharing buttons).

You see, I want to make my blog’s content more visible to social media users. That means, I need to give them an easy way to share and talk about my content. And, that means, strategically placing social media icons throughout my site.

Specifically, what I want to know is this:

  • What social media icons should I use?
  • Where on my site should they be present?
  • What kind of design should I use for the buttons?

What do the most popular blogs do?

Just like for my previous post, I again researched the Top 100 Technorati blogs to see what the most popular sites do in practice. My hope is that they have tested the selection, placement and design of their social media icons. So, if I copy what they do, I will save myself a lot of time and effort that I would otherwise spend testing.

Without further ado, here’s how the most popular blogs use social media icons…

Btw, the below research looked only at the use of social icons for sharing/liking/tweeting individual posts, not entire sites (I might look at how social buttons for entire sites are used sometimes later).

1. All sites, except one, used social sharing buttons

Top 100 Technorati blogs: How many display social media icons?

Top 100 Technorati blogs: How many display social media icons?

I was more surprised by the one site not using social media icons than I was by the fact that all other sites have them. Social icons are a no-brainer, in my mind. No wonder that most of advice on optimizing blog posts for social media lists adding social sharing buttons as the first thing (examples here and here).

2. Placement depends on content length

Top 100 Technorati blogs: Where do they display social media icons?

Top 100 Technorati blogs: Where do they display social media icons?

After seeing this, my first thought was, “Oh my God! These sites didn’t test their placement!” The numbers were all over the place! No clear winner or looser. Upon closer examination, however, it became apparent that the main factor in placing social media icons is the length of the content. While longer content—one requiring scrolling—had usually social icons placed both, on top and at the bottom of the post, shorter content was a mixed bag with pretty much even distribution between top and bottom.

3. Horizontal design beats vertical design

There are 3 design elements that together combine into the final way how social media icons are displayed on the Top 100 Technorati blogs:

Placement:

  • Top – near the top of the document
  • Bottom – near the bottom of the document

Icon display:

  • Horizontal - icons are listed next to each other, on one (rarely, more than one) line.
  • Vertical - social icons are listed under one other, each on a separate line.

Content area:

  • Main content area – icons are displayed either above or below the post title, below the featured image, inside a box either floated to one side or placed inside its own column, below the post body, below the author’s bio.
  • Scrolling – icons are placed inside its own box that “moves with you” as you scroll down the document; in other words, the social media icons are always visible regardless of where you are within the document.
  • Sidebar – icons are placed inside the site’s sidebar, along with other sidebar content.
  • Footer – icons are placed inside the site’s footer, along with other footer content.

Based on the data collected from the Top 100 Technorati blogs, there are the following 8 design types:

  1. Top, Horizontal, Main Content Area – Example
  2. Top, Horizontal, Scrolling - Example
  3. Top, Horizontal, Sidebar - Example
  4. Top, Vertical, Main Content Area - Example
  5. Top, Vertical, Scrolling - Example
  6. Top, Vertical Sidebar - Example
  7. Bottom, Horizontal, Main Content Area - Example
  8. Bottom, Horizontal, Footer - Example

So, which of these 8 design types and their variations are most popular with the Top 100 Technorati blogs?

social-icons-11-design-popularity

Clearly, the data shows that horizontal design placed within the main content is the most popular. Furthermore, you don’t find any vertical design in bottom placement.

But, why some sites decided to place the social media icons inside the sidebar is beyond me. It doesn’t even matter whether the design is horizontal or vertical. Simply, visitors are much less likely to look at the sidebar. Thus, the likelihood that they will notice the social sharing icons is much less than when placed within the main content area. Yes, you can apply design tricks to draw more attention to your sidebar. But, this has the downside of interrupting your reader and moving them away from your main content.

Another thing that surprised me, was that there weren’t more sites using the scrolling design variation. I can only guess that it was outperformed by other variations during testing.

As a side note, I sometimes come across sites that have parts of the content obscured by the social icons. This is due to the fact that I’m browsing at a narrower screen resolution and the main content area doesn’t adjust appropriately to the screen width resulting in the social icons area overlapping the main content area. While this issue is obviously bad for usability, in theory it could in fact increase social sharing, as the icons are practically impossible to miss (since they literally get in your way). Unfortunately, I didn’t find any data or other material about this issue on the Web. If you know any worthy read or have done your own testing, please let me know.

4. 3-4 icons on top, 5 at the bottom

Top 100 Technorati blogs: Average number of social media icons

Top 100 Technorati blogs: Average number of social media icons

The average number of social media icons is similar for all 8 design types. The only exception is the scrolling variation, which averages a much higher number of displayed icons.

However, when looking at a distribution graph of how many sites display how many social icons, more differences between top and bottom placements emerge. While in the bottom placement, a disproportionate number of sites show exactly 5 social media icons, in the top placement, the number of icons are closer to 3 and 4.

Top 100 Technorati blogs: Distribution of sites by number of icons displayed

Top 100 Technorati blogs: Distribution of sites by number of icons displayed

5. Twitter is the most popular service

Top 100 Technorati blogs: Most popular icons - Top

Top 100 Technorati blogs: Most popular icons – Top

Top 100 Technorati blogs: Most popular icons - Bottom

Top 100 Technorati blogs: Most popular icons – Bottom

Twitter is the only service with its icon present every single time, regardless of placement. In other words, anytime a site offered social media icons, Twitter was among them. This is an amazing display of confidence in the 140-character microblogging service among the Top 100 Technorati blogs.

Top 100 Technorati blogs: Facebook Likes vs. Shares

Top 100 Technorati blogs: Facebook Likes vs. Shares

Top 100 Technorati blogs: Google +1s (Recommend) vs. Shares

Top 100 Technorati blogs: Google +1s (Recommend) vs. Shares

Another interesting thing is the strong dominance of Facebook Likes and Google +1′s (Recommend) over Shares in the top placement, while in the bottom placement, Shares become much more prominent and almost on par with Likes and +1′s.

Equally interesting is how rarely both, Like and Share icons (or +1 and Share, for Google+), are offered together in the same menu. It seems, that if a site has social icons in both placements, they tend to offer one icon (usually Like) in the top placement and the other one (usually Share) in the bottom placement. This trend is very strong in case of Facebook, but Google+ displays similar, although a much weaker, tendency.

Conclusions

Based on this research, my conclusions are the following:

  1. Social media icons are a must – I will definitely display them.
  2. Visibility is important – because my posts tend to be longer and require scrolling, I will display social icons both, near the top and the bottom of my posts.
  3. Variety is important – not only I should list icons for multiple services, but I should also offer a choice between Like and Share for Faceboook and Google+.

Please stay tuned for the implementation phase!

Also, a number of questions remain unanswered. For example, one set of questions concerns the actual design of individual icons:

  • Should I use the official icons as provided by the services or design my own that better fit my site’s design visually?
  • Should the icons display the actual number of shares/likes/tweets, or is it better to omit the actual figures?

I will update this page as I continue researching these and other questions. In the meantime, if you have an opinion or come across valuable material regarding social media icons, please leave me a note in the comments section below. Thank you!

Till next time!

Blog comments – YES or NO?

Should I allow blog comments on my blog? I mean, at all?!

Only 5 years ago, this might have been a stupid question to ask. But, many things happened in those 5 years. Like comment spam and social media sites.

Trends affecting blog commenting

Comment spam

  • In 2007: Just started to be a issue. Only a handful of spammers used automation tools.
  • In 2013: Automated comment spam reached enormous proportions, becoming one of the biggest issues and—if not properly handled—a time waster for webmasters.

Social media

  • In 2007: Most social media sites were non-existent or in diapers. Only a small portion of the population used them frequently.
  • In 2013: Everybody and their cat are on social sites. Most conversations are happening there, but tools emerged that allow their integration into a blog.

Of the two trends above, the latter one—proliferation of social media—has probably the biggest impact on my decision making. Just consider that in 2012 almost twice as many people blogged via social networks than via blogging websites. I can only assume that this trend is still on the rise.

The impact of social media sites is so big that, in fact, some people apparently question the very reason for having a blog in the first place, and advocate using social media, instead. So, it is no wonder that some prominent bloggers feel the need to publicly step up and defend the idea of having one’s own blog.

Anyway, I already knew I want to have my own blog. So, right now, I am concerned only about blog comments.

Should my blog accept comments?

What do the Top 100 Technorati blogs do?

I figured that in addition to trying to make sense out of all the biased opinions for and against enabling blog comments (examples here and here), I should also look at what some of the most popular sites do in practice.

So, I pulled the latest list of Top 100 Technorati blogs, visited each site and studied how they approach blog comments. Below is a summary of my research.

1. 9 out of 10 sites allow comments

Top 100 Technorati blogs: Comments ON vs OFF

Top 100 Technorati blogs: Comments ON vs OFF

90% of studied blogs allowed comments. Of those that did not, most were either arts related or political. While it would be easy to simply conclude that blogs about politics and arts should not have comments open, there were enough of these blogs allowing comments in the remaining 90% of Top 100 Technorati. So, there really isn’t any clear correlation between a blog topic and (dis)allowing comments.

Looking closer into the issue of allowing vs disallowing blog comments, I was surprised to find that some very popular marketing personas do not allow comments on their blogs. Like Seth Godin.

Also, one concern I heard from Joost de Valk, is that blog comments mess up your on-page optimization, possibly causing the page to rank lower in the search engines.

At the same time, comments help build relationship with your audience and also increase the amount of time they spend and interact on your site. Which is, I believe, the main reason why most Top 100 Technorati blogs allow comments.

2. Most sites rely on their built-in commenting system, but 3rd party comment hosting services are on the rise

Top 100 Technorati blogs: Commenting System

Top 100 Technorati blogs: Commenting System

While most blogs use the commenting system that came in with their chosen CMS (e.g. WordPress), there is a strong tendency among top blogs to use 3rd party comment hosting services. The clear winner in the hosting category is Disqus with Livefyre running a distant second. It seems that most webmasters prefer Disqus because it’s free and offers a better integration into the site.

Personally, I’m a little baffled by the popularity of 3rd party comment hosting solutions. And, it seems I’m not not alone. WP Beginner has a good write-up of reasons why they swiched back to built-in commenting. I also liked this more general comparison between 3rd party comment hosting services and the native WordPress commenting system. For me, their reasons are rather convincing.

I would sum up my main concern about 3rd party commenting systems as follows: why should I worry about integrating a foreign application into my site—and then depend on it for my comments—when the built-in solution, plus a few plugins, can do the same (if not a better) job?

3. Most sites require users to log in, but enough sites allow commenting anonymously

Top 100 Technorati blogs: Anonymous vs Login Required

Top 100 Technorati blogs: Anonymous vs Login Required

I expected a stronger tendency towards required logins. Yet, almost half of the sites still allow users to comment just by submitting a name and an email address. Technically, this is not anonymous, but since users can submit any name and/or email they want (even a fake one), in practice this amounts to an almost complete anonymity. The only give-away is their IP address, but that can be cloaked, too.

Since, obviously, anonymous commenting is the “stuff spammers’ dreams are made of,” these sites must either have (1) very good spam filters, (2) strong comment moderation policy, (3) name/email verification process, (4) lots of free time on their hands, or (5) any combination of the above. Keep in mind that we’re talking about sites each of which receives many thousands of visitors per day!

Unfortunately, I didn’t try to post comments to the Top 100 Technorati blogs, so I don’t have any insight into how they handle anonymous comments (stay tuned, though; maybe I will do it later).

4. Social accounts are the most popular login option

Top 100 Technorati blogs: Login Options

Top 100 Technorati blogs: Login Options

For me, this was another surprising finding: more sites allow users to log in via their Facebook, Twitter and/or Google+ account than via a local account.

Yes, the vast majority of their audience is already on Facebook, Twitter or Google+. But, is the audience willing to use their social accounts to log in to 3rd party websites? More so than creating a local account?

Apparently so. According to not-so-unbiased report from Gigya…

Consumers have clearly demonstrated that they want to use their social identities across the web, they also demand the ability to choose from a variety of identity providers when they register and log into sites. Gigya.com

Then, there is the question of user engagement. Already in 2011, Gigya reported that users logged in with a social network spend more time on site and view more pages than not logged-in users or users logged in locally. If true, this is an extremely important piece of information!

Overall, my guess is that sites in the Top 100 Technorati know why they offer multiple login choices and why they sometimes don’t even give people the option to create a local account.

So, where does this leave me and my blog?

It seems that, based on the above, my conclusions boil down to this:

  1. Enable comments only when I want users to interact. Otherwise keep them closed.
  2. Use the built-in WordPress system in combination with a plugin that allows users to log in with as wide a variety of their social logins as possible.
  3. Allow anonymous comments, but implement a strict comment moderation policy and a solid anti-spam solution.

In the spirit of my conclusions, I am leaving the comments on this post open, because I want your opinion and perspective (hint hint).

I will continue researching this topic further and update this post as I discover new information and facts or come to new conclusions.

Till next time!