Starting Up: A Benefits Package Can Reel In Talent

By DIANA RANSOM

When Chris Larsen and John Witchel, co-founders of Prosper, a peer-to-peer online lender in San Francisco, sat down with three employees around Larsen's kitchen table to build the now year-and-half-old web site, benefits were the last thing on their minds. The staffers were all working for stock options at the time.

"At that point, it was a very risky venture," says Larsen of the start-up. "We weren't really paying salaries let alone benefits." But once Prosper started to, well, prosper, he says, the company "started attracting a bigger variety of folks." New employees, he found, "want to take a risk and hit a homerun like everyone else, but they needed to not also have to worry about their livelihood."

So about six months before the site's launch in February 2006, Larsen began offering his employees, who then numbered about 15, the option to participate in a group health plan. Today, at just under 50 employees, Larsen now offers a 401(k) plan, two weeks of paid vacation and maternity leave in addition to stock options. "It's definitely a process," says Larsen. But, he adds: "It's also about being frugal and communicating that we're in this together."

For small-business owners just starting up and looking to add staff, benefits such as medical and dental coverage may be just the edge you need to attract and retain stellar employees. While you want to supply the best benefits, it's a smart idea to be selective and sparing when possible.

Here are a few questions to ask yourself as you weigh the costs of offering benefits:

Do you really need to offer benefits?

By law, you're obligated to withhold income tax and half the load of Social Security and Medicare taxes from your nonhousehold employees' paychecks. You're also required to pay the other half in addition to both federal and state unemployment tax, when applicable. Additionally, you must provide worker's compensation insurance. If you have more than 50 employees, under the Family and Medical Leave Act, you're obliged to provide up to 12 weeks of unpaid, job-protected leave to eligible employees for the birth or adoption of a child or if a serious illness befalls an employee or a family member.

But offering employees health, retirement, dental, vision and life insurance coverage generally isn't required. "It's a judgment call," says John Foley, a partner at the Benefit Consulting Group in Northfield, Ill. "An employer's job is not to supply everything, but in order to get the people you need, you need the benefits."

Some smaller firms have been able to get by covering the brunt of employees' individual health-care plans rather than getting a group policy. Until recently, Phillip J. Ryan of law firm Ryan, Ryan & Landa went this route. But the first question he'd always hear during interviews with prospective hires was: Do you offer health insurance? "If it is someone who you want to come with you," he says, "it's hard to say 'find a plan first and then we'll help.'" With nine employees, the Waukegan, Ill.-based law firm is set to begin a group health plan this month complete with dental and vision coverage.

What's the competition doing?

Figuring out how your business measures up to competitors especially if you are worried about attracting and retaining quality employees is critical, say human-resources and benefits consultants. Knowing what the competition is doing allows you to set benchmarks and "prevents offering a benefit level that is too costly," says Kerry Finnegan, head of the small-business health benefits segment at Mercer in Chicago. Otherwise, "you may be wasting money," he says.

If you're in a situation where top-tier employees are few and far between, consider offering inexpensive benefits such as flexible work schedules or continuing education classes, suggests Marie Schram, director of human resources at LMI Consulting, a government consulting firm in McLean, Va. Little rewards such as Monday morning bagels and donuts as well as pumping in fresh coffee everyday could help perk up employees, she says.

How much are you willing to pay?

You will, undoubtedly, want to offer your employees the gamut of benefits. But realistically, "when you are just starting out, a brand new company has to be judicious and conservative," Schram says.

Health care, alone, is a huge expense. According to a recent employer benefits survey from the Kaiser Family Foundation and Health Research and Educational Trust, the average premiums for health insurance coverage at smaller firms in 2007 rose 5.5% to $4,553 for singles and $11,835 for families. And the employer portion for smaller firms, on average, amounts to $3,992 and $7,599, respectively.

Take a conscientious look at how much you are really willing to pay for employee benefits. To get clients thinking about the costs, Foley presents an example: If you have a company with 50 employees in Chicago you are probably spending in the neighborhood of $350,000. Of that $350,000, he asks: "How much do you want to shoulder?"

Also, keep in mind that the costs will be recurring, says Finnegan from Mercer. If you have a bad year or if premiums skyrocket, will it still be affordable? "You don't want to offer a plan that you'll have to change dramatically in the future," he says.

What type of plan should you provide?

Jerry Ripperger, director of consumer health at the Principal Financial Group in Des Moines, Iowa, recommends protecting employees against catastrophes that may result in a loss of income or worse. Focus on health, long-term disability and life insurance. A growing number of small employers are setting up health-savings accounts or HSAs, which allow individuals with high-deductible health-insurance plans to pay for routine medical costs with their own pretax dollars.

Ripperger also suggests tapping the services of a benefits consultant or an insurance broker. This person can help you parse through the minutiae of health-care plans and bring to light benefits and even cost savings that you haven't considered. Be sure to ask around and get referrals, however, as no two brokers are alike.

How can you save?

To keep costs low, you might ask employees to share part of the health-care premium burden. Or, you can opt to provide so-called "voluntary" benefits, which employees pay for themselves. Figure out what's important to your staff, suggests Holly Lifkey, vice president of human resources at Society Insurance, a workers compensation firm in Fond du Lac, Wis. "Understanding what your employees want will help you target what you offer" and possibly limit the expenses you take on, she says.

Another way to control costs is by providing a minimum amount of coverage and allow employees to, say, "buy up" to richer plans. "It is a way to get benefits to employees without the employer paying for all of it," says LMI 's Schram. With life insurance, for example, many employers will cover two times a person's salary. If you want more, you then have the option to buy up to a certain amount of coverage on your own for yourself or a spouse.

But no matter which iteration of employee-benefit package you choose and there are many every business owner will want to do some soul-searching and thoughtful analysis before and during the benefits process. But at the end of the day, says Ripperger, the thing to keep in mind is "benefit plans are investments in employees." Choose wisely.

In Search of Traffic

A Web site is only as valuable as the number of people who see it. Here's how to make sure customers can find you online.

By KELLY K. SPORS
April 30, 2007

For small companies, just having a Web site isn't enough anymore. To be successful online, they must learn to harness one of the Web's most powerful tools: search engines.

After all, search engines like Google Inc., Yahoo Inc. and Microsoft Corp.'s MSN are often shoppers' first stops when they're looking for a product on the Web. So it's crucial for small businesses to show up prominently in search-engine results -- and that's a complicated job.

THE JOURNAL REPORT

Guerrilla marketing is a great way for a small business to get attention. But it's a tactic that can easily backfire. Plus, ads on cellphones can be annoying, but they can also be a terrific marketing tool.

" See the complete Small Business report.

Search engines don't disclose their ranking formulas, making it tough for small companies to figure out how to boost their site's results. Even worse, big competitors can afford to pour lots of resources into that same effort -- putting small companies at a bigger disadvantage.

The good news? While the exact ranking formulas are a mystery, there are plenty of clues about how to improve a site's position. Add lots of relevant descriptions to the site's text, including the search phrases for which you want a high ranking. Have other sites link to it. Offer a blog or other informational content for customers. And if these efforts prove too complicated for a business to handle, not to worry: A whole industry has sprung up to help companies improve their rankings.

Small businesses are discovering other search strategies, as well. They're getting smarter about ads, for instance. Pay-per-click ads that pop up for general search terms (such as "clothing") tend to be very expensive -- so companies are buying ads for much more specific terms to cut costs. Many businesses are also focusing their efforts on search-engine pages devoted to their own geographic area, instead of trying to compete against businesses world-wide.

Here's a guide to the best ways for small businesses to nab better search results.

DESCRIBE YOURSELF

Placing high in search results for common search phrases -- known as natural, or organic, results, to differentiate them from paid ads -- is getting ever more crucial. Studies show that Web users predominantly click on the top four results for any particular search, and then move on, says Shar VanBoskirk, senior analyst for Forrester Research Inc. in Cambridge, Mass. Very few dig more than three pages into results.

SELECTING KEYWORDS

PODCAST: WSJ's Kelly Spors talks with author and search-marketing consultant Aaron Wall for advice on selecting keywords to make your site more prominent in search-engine results.

One basic way to secure a better search-engine ranking is peppering a site's text with carefully chosen keywords -- the kinds of phrases people would use to find the site with a search engine. The search engines like it best when the keywords appear naturally in the site's text, such as product descriptions, says Aaron Wall, a search-marketing consultant in Oakland, Calif. So a good strategy is to add a generous amount of useful content that uses the keywords frequently, such as beefier descriptions or informational articles.

The keywords on each page should also appear in that page's title tag -- the blue bar that appears at the top of each page. Less important, though still helpful, the keywords should appear in the metatags, the invisible text that gives information about the contents of a page. Some Webmasters try to game the system by hiding keywords in text that blends into the background, but many search engines now penalize such practices with lower rankings.

Smarter use of keywords was one of the first strategies Allan Dick employed to boost business at Vintage Tub & Bath, a Hazleton, Pa., company that sells reproductions of old-fashioned bathtubs online. A few years ago, Mr. Dick, who helps run the 30-employee company with his brother, found he could increase traffic by using certain words in the product descriptions on Vintage's Web site.

For instance, adding more content and product descriptions that used common search terms -- words like "tubs" and "vintage tubs" -- frequently seemed to boost its ranking on search engines. "It was dawning on me that if you were wording things in a certain way, people would find us," says Mr. Dick. "It was, 'Aha, there's a certain method to this.' "

But that was just a first step. Mr. Dick bolstered his efforts by attending search-marketing conferences to learn about search rankings and new optimization techniques. And the work seems to have paid off: Last year, his company had sales of $10.4 million, up from about $8 million in 2005, and well above its $1.4 million or so of revenue in 2001. It recently surfaced as the No. 2 site in a Google search on "tub," out of 35.4 million results.

THINK MORE NARROWLY

The big choice for small businesses is which search phrases to focus on. Some companies concentrate on just a few phrases, while others tackle 20 or more. The best number depends on factors such as how many different products are sold on the site, the number of pages on the site (each page can usually hold only a few keywords) and how much time or money a company is willing to spend redesigning its site to attract search engines' attention.

It's also important to weigh how competitive the search phrases are. Instead of focusing on generic search words, such as "books" or "mortgages," that already have hundreds of businesses wrangling over them, small businesses often fare better focusing on longer, specific phrases, says Mr. Wall.

For instance, he suggests that a used-book dealer who has a book signed by Mark Twain might try optimizing its Web site around terms like "rare used books" or "autographed Mark Twain," instead of just "books." Another advantage of this approach is that more-specific search terms generally elicit higher customer-conversion rates -- turning visits into sales -- since shoppers are more likely to find what they're looking for.

There are other wording tricks small businesses can use to get better results. Businesses aiming to attract a high-end clientele might add the word "professional" to the search phrases highlighted on their site. Or a business might try to boost the search ranking for its top-selling brand name instead of just the generic product type. But "the focus should always be on coming up with terms that customers actually use to find your business online," Mr. Wall says.

Many online forums and free tools can help businesses learn to optimize their sites on their own. Yahoo's Keyword Selector Tool lets users see which terms are typed into search engines most often. Other free tools, such as Google's Analytics software, keep track of a Web site's visitor numbers, keywords used to find the site, and customer-conversion rates. Other free tools available online can track which other Web sites link to a business's site, make content suggestions and scan the site for keyword density, or the percentage of the text in which the keyword is used.

One final wording tip: A business's domain name also plays into search rankings. If the domain is "couch.com," the site will probably rank much better for the keyword "couch" than if the domain name is "tomsfurniturestore.com."

BE THE EXPERT

Loading up on search terms isn't the only way to improve a site's search rankings. Search engines are getting more sophisticated, experts say, and increasingly they're rewarding sites that offer high-quality, useful consumer content. For instance, becoming an "evangelist" on your industry and posting helpful consumer information on your site is likely to boost its popularity and ranking.

Take Ice.com, an online jewelry business based in Montreal. Besides selling jewelry, the site includes a diamond-buying guide, a checklist with steps that couples should take before their wedding, a blog and a feature where readers can ask questions about jewelry. The site recently showed up 11th in a search for "jewelry" on Google, and seventh for "diamond jewelry."

GET LOTS OF LINKS

Another big factor in search-engine results is the number of Web sites that link to a company's site that are highly ranked by the search engines. The more such sites, the better. Many Web sites that do well in search rankings spend time "link-building," or trying to coax related sites to post links to them. Sometimes companies contact Webmasters directly and try to forge relationships, or they get a link in an online search directory such as Yahoo Directory, which costs $299 a year. Having interesting or informative content such as a blog also boosts the chance of getting links from another site.

The words used by other sites in links also factor highly into search results. Let's say another site links to tomsfurniturestore.com, which specializes in couches. If the other site uses the word "couch" in its link, it can help boost "tom's" ranking for the keyword "couch."

Keep in mind, though, that no two search engines are the same. "Google's algorithm tends to place more weight on the authority and trust of the site," such as the number of links, Mr. Wall says. "Yahoo and MSN place more weight on the page content."

Vanessa Fox, a product manager for Google, says the search engines "all have different things that we're looking for in our page results."

GET SOME HELP

For many small-business people, optimizing and asking for links can get technical and time-consuming. So an industry has sprung up in recent years to help businesses with their search results. These companies -- called search-engine optimizers, or SEOs -- come in many flavors. Some are full service, handling everything from redesigning a Web site to writing content to determining which keywords are best to persuading other Web sites to post links.

Others are more like consultants. They provide Web-site audits with recommendations on how to better optimize the site, but the client's Webmaster must implement the changes. Some focus on specific aspects of search optimization, such as writing "search friendly" text or link-building.

But businesses should be careful when hiring an SEO, because not every company offers the same expertise, says Ryan Allis, chief executive of Virante, a Durham, N.C., search-marketing consulting firm. And the results can never be guaranteed, given the changing and sometimes mysterious nature of search-engine rankings.

So businesses should take bids from several SEOs and ask to see the work they've done for previous clients, Mr. Allis suggests. An SEO should also be willing to give regular reports showing how its efforts have affected the business's search rankings for various search phrases.

Then there are fees. The prices for SEOs can be bewildering to many small-business owners. Costs can range from $500 a month to several thousand -- for what often seem to be almost identical services.

Submit Express Inc., an Oakland, Calif., SEO, charges a "setup" fee of $2,500 to $10,000, which includes keyword research, optimization and link-building, says Chief Executive Pierre Zarokian. Then clients can pay a monthly fee ranging from $750 to $5,000 for continuing optimization efforts -- mostly link-building, he says.

The fees vary depending on how much work a site needs and how competitive it is already, says Mr. Zarokian. For instance, propelling a site from No. 10 to No. 1 in the search rankings may be a lot easier than moving it from No. 10,000 to No. 10.

BUY ADS

Ads are another consideration. Marketing experts advise that most businesses are best served by complementing optimization with some paid ads on search engines. It also can be a faster route to getting good exposure in search engines.

Most major search engines now offer paid ads, such as pay-per-click ads, where the Web site pays a set fee every time someone clicks on its ad. Google and Yahoo let businesses bid on their per-click fee for particular search phrases to garner a better ranking for their ad.

Paid results appear right next to natural search-engine results, usually under a "sponsored ads" heading. As with search results, businesses should try to end up in the top few paid ads for common search terms. If the per-click fee is too high for popular phrases, they should focus on more-specific search phrases, which usually cost less -- and convert to business more. For example, the average suggested per-click fee for ranking in the top three paid results for "tennis rackets" recently was $1.38, according to Google's AdWords Keyword Tool. But "graphite tennis rackets" cost only about 43 cents.

For some small-business owners, paid ads aren't a complement to an optimization strategy; they're an alternative to it. They don't want the headache of learning about search-engine optimization or hiring a firm to do it, so they rely exclusively on ads.

That's the case with Geoffrey Searles, owner of Apollo Piano Co., a piano refurbishing and tuning business in Grafton, Mass. Last September, he began running pay-per-click ads through Google's AdWords program. He bid on about 25 keywords such as "piano repair" and "antique player pianos," and capped his monthly expenditure at $200.

Since then, his site has had an average of 270 hits a month, compared with about five a month before he started using ad words. The ads have cost him about $575 total, and he estimates he has received at least $20,000 extra in work. He likes the ability to control his monthly spending and stop the ads when he has enough business. "It's just been so successful that I haven't gone any further," Mr. Searles says.

THINK LOCALLY

Small businesses should also consider focusing their efforts on one corner of the Web. Many small, locally based businesses, such as dry cleaners and restaurants, don't need Web traffic from around the globe. Instead, they want people in their area to find them easily online.

The solution: local search. These listings pop up, sometimes with a map or customer reviews, when somebody searches online for a business type in a particular geographic region.

Type in "Olympia, Wa., pet groomer," at Google, for instance, and you'll get the option to see "Local search results." This calls up a map of Olympia and a list of local pet businesses, with their locations marked on the map.

Google, like other search engines, draws these local listings from third-party directories and other sources.

For companies that want to buy ads accompanying these local listings, the competition is much more limited than with general searches, so the price is lower. Local search also can be particularly useful to small businesses without Web sites. Some specialized local search engines -- such as CitySearch.com, YellowPages.com and Superpages.com -- even provide a free, basic page for businesses that can include basic information about the company, like phone number, hours of operation and address.

A good way to get started in local search is to make sure all the local search directories include a listing for the business and that all the information, such as phone number and address, is accurate. Most local search directories also let businesses embellish their local search listings. Google's Local Business Center, for one, recently began letting businesses post photos, and many local search directories let them post hours of operation, services provided and coupons. Businesses can also buy pay-per-click ads in local search results.

Another consideration: If a local business has a Web site, the owners should be sure all the information there is clear and accurate. Search engines extract some of their local search listings from location information found on Web sites. So it's important for a business to include its address prominently on its home page -- with the state name spelled out, since many search users spell it out when searching. Businesspeople should also include the city and state in the site's title tag to increase the odds search engines will find it.

Danny Sullivan, editor of SearchEngineLand.com, an online forum on search-engine marketing practices, says focusing on local search is easy and can pay off for many businesses.

"Local search is still kind of open, and many businesses don't realize it's an option," Mr. Sullivan says. "So there's a lot of opportunity for that right now."

--Ms. Spors is a staff reporter for The Wall Street Journal in South Brunswick, N.J.

Write to Kelly K. Spors at kelly.spors@wsj.com

Corporate Connections

Companies find social networks can get people talking -- about their products

By ELLEN SHENG January 29, 2007

The social-networking bandwagon is getting awfully crowded.

For companies looking to better connect with consumers and build brand loyalty, social networks are increasingly looking like the ideal tool. Users get a forum in which to share information, pictures and videos about themselves and their likes and dislikes -- and, companies hope, talk up a product. Companies, in turn, get real-time feedback on trends and products. And they can even bounce off ideas still in the works.

The incentive is obvious: People are flocking to social-networking sites like MySpace and Facebook, according to Web-tracking service Nielsen/NetRatings. MySpace, which is owned by News Corp., got more than 53 million unique visitors in November, making it the seventh most popular site on the Internet, while privately held Facebook got about 11.6 million visitors.

Social networking is "even more targeted than online advertising," says Rachel Hoenig, co-founder of New York marketing firm Digital Power & Light. Banner ads gave companies the chance to change ads quickly and direct them a bit better, "but banner ads are still one-way communication," she says. By contrast, social networking is more of a dialogue between the user and the company, she adds.

One natural area for social networking seems to be sports. After all, sports and the hottest sports apparel and equipment always get people talking.

The National Hockey League, for instance, has set up a social-networking site, NHL Connect, where hockey fans can create personal profiles, add friends, upload photos, post videos from YouTube, make comments and join chat groups. The site also has NHL news, game schedules and the ability for users to look up other fans based on their favorite teams and players. In addition, the site links to blogs by contributors as well as team blogs for the New York Islanders, Anaheim Ducks and others.

"Our fans have, for years, expressed their points of view on our game through message boards, chat rooms and blogs," says Keith Ritter, a spokesman for the NHL. "If we didn't provide the tools that our fans want, they would migrate to a place that did." He adds that the NHL doesn't have traffic or membership numbers for the site.

Over the summer, sports-apparel maker Nike Inc. set up a social-networking site, Joga.com, for soccer enthusiasts. The site, built with some technical help from search engine Google Inc., encourages local soccer groups to sign up and create profile pages. Fans can blog, create communities around particular teams or players and organize local games. The site also includes pictures and exclusive video, profiles of famous players and articles about various styles of play. Nike says that by the end of the World Cup games last July, Joga.com had attracted one million users, the most recent data the company would disclose.

Even a maker of gym equipment is getting in on the action. LifeFitness, which makes treadmills, weight machines and other fitness equipment, allows individual gyms to set up a LifeFitness site to create a sense of community around that gym -- and, of course, make exercisers more aware of its wares.

LET'S TALK

What's New: A variety of companies are using social-networking sites as their newest marketing tool.

What's at Stake: Companies hope to build brand loyalty by giving people a place to share likes and dislikes -- including about the products themselves -- with others.

The Bottom Line: The move takes advantage of the social-networking craze and gives companies a targeted way to advertise.

Raj Rao, divisional vice president at LifeFitness, says gyms have a big problem with customer attrition -- typically losing about a third of their clientele each year -- because people feel "they don't have any relationship with other members."

LifeFitness, a subsidiary of Brunswick Corp., based in Schiller Park, Ill., aims to change that by allowing users of its sites to create their own profiles and list fitness goals, workout regimes and other personal information. Like-minded users can then find each other on the site to swap workout tips and challenge one another, among other things. Users also can share workout information -- duration of workout, weight lifted, calories burned, heart rate -- with a sports club's trainers to make sure their workout habits are right for their fitness level and targets.

People also love to talk about where they've traveled or get others' insights on where to go and what to do next. So some airlines are creating social-networking sites to help users give -- and get -- feedback and advice to manage their travel time wisely.

Franco-Dutch airline Air France-KLM launched a social-networking site earlier this year aimed at business travelers to China, called Club China. The site offers members tips on doing business in China as well as assistance on tasks like finding a translator or car service. Members also get perks, such as admission to China Club, a country club with locations in Hong Kong, Shanghai and Beijing.

Once users set up their profiles on the site, they can search for prospective business contacts based on industry, home country or company size. They also can find other club members who are traveling at the same time, attending a particular conference or trade fair. One Club China member is Arie Herweijer, regional sales and marketing manager at HITT Traffic, a Dutch maker of traffic management and navigation systems, who travels between the Netherlands and China about 11 times a year. Mr. Herweijer says he finds the site useful for finding contacts he might not otherwise come across.

"China is hot," says Vikram Singh, director of customer relationship management at KLM. "KLM has its own ambitions to serve China....We thought it would be good to step in and facilitate in whichever way we could to connect customers." Club China boasts about 3,000 members, with about 40% of members logging on every month.

PERSONAL BUSINESS Some of the social-networking sites created by big corporate sponsors

Mr. Singh says the Club China site was initially set up as a value-added feature for members, but the company finds that it's increasingly getting valuable feedback about its own services. Customers might make suggestions about, say, putting in more-comfortable chairs at a certain airport lounge or adding a better selection of magazines. Mr. Singh says Club China users "can ask for virtually anything" on the site's open format forum.

A frequent flier in economy class, Mr. Herweijer often makes comments on the site. He hopes that with his frequent patronage and activity on Club China, he might get an occasional perk like a small glass of wine or upgrade. It hasn't happened yet for Mr. Herweijer, but "I keep pushing that," he says.

KLM also recently launched other sites with similar features: one targeting golf aficionados, Club Golf, and another for frequent travelers to Africa, called Club Africa.

To make a social-networking site succeed, marketing is essential, says Ms. Honig of Digital Power & Light.

When Nike first launched Joga.com, it simultaneously launched an ad campaign promoting the site. For instance, tags on Nike merchandise had Joga.com inscribed on them and invited people to join the site. Since then, the company has relied on online word of mouth, a Nike spokeswoman says.

Yet even with publicity, not all social-networking experiments are sure bets. Some say retail giant Wal-Mart Stores Inc. made some missteps when it set up a site, called The Hub, for middle- and high-school kids to promote last fall's back-to-school season.

Peter Cashmore, editor of Mashable.com, a blog about social networking, says that starting with the tag line "School, my way," the site didn't come off as believable and sounded like a company trying too hard to be cool. He adds that some profiles seemed more like ads for the company.

Another thing, he says, is that the site tried too hard to control its user base. For instance, the site would ask kids that signed up for their parents' email to get the parents' permission. While some sites targeting younger kids do this, larger and more popular sites such as MySpace and Facebook do not explicitly ask for parental permission.

Mr. Cashmore says Wal-Mart's move "was a little too much" and seriously limited the number of users it could sign up. While seeking parental consent has value since exposing your online identity is risky for anyone, a closed network is unlikely to experience the viral growth of MySpace or YouTube, he says.

A Wal-Mart spokeswoman declined to comment on the site, saying only that it was intended to be temporary for the back-to-school season. The site closed down after 10 weeks on the Web.

Experts who have set up social-networking sites say sometimes the biggest obstacle for companies is overcoming corporate arrogance. Many companies underestimate the amount of work needed to maintain the site once it's up.

Unlike a traditional site, which can be set up and then updated from time to time, the content on a social-networking site is constantly changing to stay current and to deal with customer feedback. A site that stays static is a problem, since users will get bored and stop visiting. What's more, if any criticism isn't dealt with quickly, it can put a dent into a company's image. And if customer chatter turns nasty, the company needs to be prepared to react quickly. On the other hand, a company that tries too hard to control its image on a site can come across as fake.

Companies also shouldn't read too much into things. Feedback from a site isn't a substitute for true market research, says Scott Gilbertson, the former interim chief executive of retailer J.Crew, who has since started his own firm, Ludi Labs of Mountain View, Calif., which focuses on social networking. The online audience may not be representative of a company's entire customer base, so data are likely to be statistically skewed, he says.

--Ms. Sheng is a reporter for Dow Jones Newswires in Jersey City, N.J.

Write to Ellen Sheng at ellen.sheng@dowjones.com

Rules of Engagement - Creating a Great Workplace

Why Employers should  and increasingly do  care about creating a great workplace

By SUE SHELLENBARGER - October 1, 2007

When I first started writing a column on workplace issues for this newspaper 16 years ago, the company executives who spent much time thinking about workplace quality could have met in a phone booth.

Who cares? That was the private response of many managers -- at companies big and small -- to the idea of engaging workers' hearts and minds. Most saw little relationship between employee attitudes and the bottom line.

JOURNAL REPORT PODCAST

WSJ's Sue Shellenbarger talks with Jeff Jeffery, CEO of Irmco, on how engaging employees and sharing financial information with them helped turn around the small maker of industrial lubricants.

" See a slideshow of this year's top small workplaces.

" See the complete Small Business report.

Now, that viewpoint is almost as out-of-date as the phone booth. Executives vie for positions on best-workplace lists -- as was apparent in the number of nominations this paper received for its Top Small Workplace awards. They lure new recruits by pledging their devotion to work-family balance. And they boast to Wall Street investors and analysts about their "employee engagement" -- the buzz phrase for a level of worker commitment so strong that employees voluntarily invest extra effort on the job.

What's more, a growing body of research is finally proving what advocates of workplace quality have known for decades: that the human beings who execute the goals of business are more than just cogs in a wheel. Truly engaging them can have an almost magical effect on the bottom line.

The Wall Falls

I've seen this time and time again in my coverage of work-life issues. When I started the Work & Family column in 1991, the Chinese wall between work and personal life loomed large in most workplaces. Workers were expected to leave their personal lives, family issues and feelings at home. The concept of making workers motivated and satisfied seemed almost quaint.

But the few pioneering employers that bucked this pattern quickly saw that paying attention to workers' well-being bore business benefits. By the mid-1990s, Xerox Corp. was already trying to engage workers in some units through flexible scheduling. In a radical move, an executive in Xerox's Dallas operations announced all 300 of his employees would be allowed to set their own hours. Freed to better balance their lives, employees delivered improved customer service and a one-third reduction in costly absences.

(It's no accident that Anne Mulcahy, who led many workplace-quality initiatives as Xerox's former chief staff officer, was elevated to CEO at Xerox in 2001 and subsequently oversaw one of the most remarkable corporate turnarounds in recent history. "My priorities," she said in an interview last year, "were always customer and employee priorities.")

How It Works

The mechanism at work is simple: The rigid, controlling workplaces of the past left employees no flexibility to manage family or personal problems or the day-to-day demands of running a household. Over time, those unmet personal needs erode concentration, commitment and creativity on the job. Good workplace policies, on the other hand, enable employees to manage their larger lives, freeing them to apply more brainpower to complex Information Age jobs. Satisfied employees treat customers better, creating loyal customers. Beyond that, good policies also foster the kind of on-the-job relationships with bosses and co-workers that inspire employees to soar.

This isn't just touchy-feely, feel-good fluff. Over the years, I've seen it happen repeatedly: Real change in the workplace leads to real satisfaction among employees leads to real money for the company.

Swimming against the tide in 1995, for instance, First Horizon National Corp. (formerly First Tennessee National) saw this dynamic at work when it offered some employees who produce bank statements an occasional day off for doctor's appointments and other needs. In return, the company asked them to work longer days during the busiest times of the month. Employees responded by halving the total time needed to produce the statements, to four days from eight. And customer satisfaction "went through the roof," a First Tennessee executive said. Ralph Horn, the company's CEO at the time, called such work-life initiatives a "driving force" behind the company's quality-improvement efforts.

Employees who feel respected tend to enrich the lives of all those around them. Acuity, an 850-employee property-casualty insurer in Sheboygan, Wis., set about overhauling its rigid, factory-like workplace policies in 1999. In a conscious effort to "build an environment that was just a wonderful place to work," a new CEO, Ben Salzmann, added flextime and a fitness facility and improved training, benefits and merit raises. Executives stepped up face time with the rank-and-file, meeting workers at the door quarterly to hand out free breakfast and holding town hall meetings and small-group lunches. Acuity also began publicly rewarding performance standouts and e-mailing periodic audio files by Mr. Salzmann, sharing industry gossip and insights.

Personal Commitment

That wholehearted management support for employees was one reason Tom McDermott, a Brookfield, Wis., claims representative, returned to Acuity in 2001 after quitting the company years earlier to work for a competitor. It's also one reason he went the extra mile last year when he encountered two clients, an elderly couple and their two grandchildren, "sitting on a curb with 25 cents in their pocket" one Saturday morning after their house, with all their possessions, burned down, he says. Instead of making them wait for processing of their claim the next week, Mr. McDermott walked to a nearby ATM and took $300 out of his personal savings account, "to get you through" the weekend, he told the couple. The gesture drew grateful mail from the clients that became bulletin-board fodder at Acuity's headquarters.

This year's top small workplaces offer good benefits, focus on employee growth and create family-like atmospheres. WSJ.com's Kelly Spors reports.

Where's the real money in all this? Acuity's voluntary turnover plunged, and sales per employee soared after the company abandoned its rigid, factory-like workplace.

Does One Lead to the Other?

Amid mounting anecdotal evidence of the bottom-line benefits of employee well-being, researchers undertook systematic attempts to show a linkage between employee engagement and above-average customer service, sales and profit. After all, critics said, correlation isn't the same as causality; employees at more profitable companies would naturally be happier and more engaged.

So in 2004, Hewitt Associates, Lincolnshire, Ill., tracked about 300 companies over five years, and found that increases in employee engagement clearly preceded improvements in financial performance. Even among companies with below-average profit, an upturn in employee attitudes tended to precede a profit turnaround.

Separately, a three-year study of 41 employers by Towers Perrin-ISR, a unit of Towers Perrin, Stamford, Conn., found companies that worked consistently on engaging their employees posted a 3.74% increase in operating profit over a three-year period, while companies with poorly engaged employees saw a 2% decline, says Patrick Kulesa, Towers Perrin-ISR's global research director; the results show "the remarkable ability of an engaged work force to impact a company's bottom line."

Wrapping up these and other studies, the Conference Board, New York, a nonprofit business-research group, said in a study last year that there's "clear and mounting evidence that employee engagement is strongly correlated to" productivity, profit and revenue growth. The Hewitt study in particular, the Conference Board said, "gives credence to the assumption that employee engagement actually causes an increase in a company's overall financial performance."

Of course, Anne Mulcahy, Ralph Horn, Ben Salzmann and other CEOs like them didn't need a study to see that. The evidence was all around them.

--Ms. Shellenbarger is The Wall Street Journal's Work & Family columnist.