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8:00pm EDT May 26, 2007

Joe Gatto says the secret to his company’s success can be boiled down to having a better mousetrap in a market with a lot of money and mediocre mousetraps.

Gatto is founder and CEO of StarMine, Inc., a 110-employee investment research firm that has grown 331 percent in the last three years. Since founding the company in 1998, he has expanded its client base to more than 400 firms.

Smart Business spoke with Gatto about why it’s important to have a low bozo ratio at your business.

Q: How would you describe your leadership style?

I lead on product vision by talking with customers and connecting the dots. Everyone can talk with customers, but not everyone comes up with the same conclusion of what to build.

Vision doesn’t come from a whiteboard. It’s not an abstraction. It comes from figuring out which of those gaps we have to fill.

That’s leadership, because left to its own devices, an organization will focus on enhancing products it already has in house. To step out to a totally new bit of functionality or a new product requires more active leadership.

You need to help people see the problem experienced by customers, and see the benefits of taking on something else when those people are trying to get their jobs done.

Q: What pitfalls should CEOs avoid?

A mistake I’ve seen others make is trying to sell technology without there being a problem that it’s solving. If we do this whiz-bang thing, you’ve got to think, ‘Who will buy this, will they pay extra, who’s affected, is it one or two users or hundreds of users, what are their current approaches?’

Not, ‘Wouldn’t it be neat to look at estimates this way?’ No, that’s not interesting. That’s not compelling enough from a business case.

Does this allow them to do some bit of work cheaper or faster or in some way a higher value? The biggest pitfall I see in business plans is people who have technology in search of a problem. They don’t have any real value proposition.

You need a group of people with a willingness to pay to step up and say, ‘Yeah, I’ll buy that.’ Now you may need to show them mock-ups, but if you get a bunch of yawns, you probably don’t have a product.

If you get, ‘I need that, that would save me time, how soon can I have it?’ then you have a compelling value proposition. So, you need to separate profitable from interesting and neat.

Q: How do you attract and retain quality employees?

It’s like one of our longest tenured software developers — now he’s our chief architect — told me several years ago. I sometimes ask people, ‘How are we different than other places you’ve worked?’

He said, ‘StarMine really manages to weed out any bozos before they bring down the average. It’s nice to work at a company with a low to miniscule bozo ratio.’

Having smart people who are performing well around you at an organization that doesn’t accept mediocrity and coasting, along with challenging work that focuses on developing or creating new stuff — people like that environment.

People like to create things and be part of that creative process, not just fighting fires. They like being acknowledged for what they do. They like the job to be a good fit for their talents. You don’t want to put square pegs in round holes.

If you get the right skill set and are surrounded by high-performing peers, it kind of raises the bar. If you were to lower the average performance of the rest of the team, everyone else would sink down to that level.

People do better when they’re not working with bozos and not working on bozo projects.

Q: How do you motivate your employees?

[Knowing the costs and benefits] helps you prioritize. If you’re a project manager, it’s a lot more motivating knowing you’re working on a project that — if delivered as anticipated — will deliver a half a million dollars to the company.

By being explicit about the benefits, it gets people motivated. Just the process itself is very motivating.

It makes sure you’re working on the important stuff, makes sure you’re not working on the less important stuff, with rigorous cost-value analysis backing it up.

Q: How do you communicate with your employees?

If people here haven’t heard it three times you haven’t heard it. It’s partly the logistics of a crowded room or conference call where someone gets distracted. You can’t say something once and expect that everybody gets it.

Repetition, repetition, repetition is key. In addition to those high-level company updates, then it’s shaped by working with the project team, making sure people are clear on what we’re going after, why and, to some degree, how.

HOW TO REACH: StarMine Corp., (415) 874-8100 or