The Early Warning Signs
Introduction:
“I see it, and I feel it,” Liz Picarazzi tells Shawn Busse and Jay Goltz this week in a conversation about the looming recession many are predicting. But Liz is not hunkering down. In fact, she has launched an ambitious marketing campaign that relies not on Google AdWords but on Google Alerts. She’s also taking some advice from Carey Smith, the founder of Big Ass Fans, that she didn’t want to hear when it was first proffered. Plus: How some owners trap themselves in miserable businesses. And Shawn, Jay, and Liz suggest regulations that need to die—with Jay going off on the way businesses are compelled to pay for unemployment insurance.
— Loren Feldman
Guests:
Jay Goltz is founder and CEO of The Goltz Group.
Shawn Busse is co-founder and CEO of Kinesis.
Liz Picarazzi is founder and CEO of Citibin.
Producer:
Jess Thoubboron is founder of Blank Word Productions.
Full Episode Transcript:
Loren Feldman:
Welcome Shawn, Jay, and Liz. Great to have you here. Today, I want to talk about something that’s been in the air lately. All of a sudden, we’re hearing a lot about a possible recession on the horizon. Let me start with you, Shawn. Are you seeing a change in the direction of the economy based on your own business?
Shawn Busse:
In terms of market interest, and do people want to hire us, and activity, I’m not really seeing anything on the ground. I’m seeing a lot of news stories, like you, and they seem to be sort of centered around the tech sector. And I think you’ve just had a bubble in that space for a long time, and that’s kind of bursting. And then I think you’ll see large corporations probably follow suit, because they’ve probably wanted to have layoffs for a while, but for various PR reasons, couldn’t do it.
I don’t know, I’m not really sure. I’ve been looking at the past recessions and inflationary periods, and the Fed raises rates .5—half of a point, quarter of a point—and people freak out. It took them almost a decade to get inflation under control back in the 70’s and early 80’s. And they had to jack rates up to 18-19 percent. So I think there’s a lot of hand-waving and panicking. But in terms of being right around the corner, I don’t know that I see it.
Loren Feldman:
How about you, Liz?
Liz Picarazzi:
So I see it, and I feel it. It came on pretty suddenly. I think our April was down 27 percent to last year, and we were down 57 percent to our 2022 plan. April 2022 was the first down month that we’ve had in 15 months. So we’re definitely feeling it.
Loren Feldman:
And that’s based on demand, not on any supply chain issues that I know you’ve had from time to time.
Liz Picarazzi:
It really is just based on demand. There may be a little bit of a spillover effect, because if people see on the website that they need to wait eight to 12 weeks for something, and they’re on the fence about the purchase, that could make them decide not to. I don’t have any anecdotal evidence other than myself as a consumer and how I might react.
So yeah, I mean, we can see it in actual sales. As I said, 27 percent down to last year. Being ghosted. No one likes that. We feel like we’re being ghosted more. That’s noticeable. So we have to think about: How do we deal with being ghosted? We don’t normally get rejected as much, I guess is what I’m saying.
Jay Goltz:
What does that mean, exactly, when you say you’re being ghosted? What does that mean, in practical terms?
Liz Picarazzi:
Someone who you may have a really great rapport with, and you think that they’re gonna buy, and you’re just waiting for it to happen, just suddenly stops talking to you. Kind of like in a romantic relationship. I don’t know how old you are. But nowadays—
Jay Goltz:
I’ve been married 42 years. [Laughter] I don’t know what you’re talking about.
Shawn Busse:
He had one date, and he was never ghosted.
Liz Picarazzi:
So we’ve been feeling a bit that we’re getting ghosted. But then we can also see things like website visits are down. So I did a quick search and saw that we’re 20 percent down on web traffic from last year, at this very time. So those are all numbers, and then they’re just kind of the relational differences. I think we’ve probably gotten more price objections than in previous times, which is related to being ghosted. I’m making it sound all really bad. The other side of it, which I’m sure we’ll talk about later, is that I’ve been able to offset the reduction in my consumer business with the government and B2B work.
Shawn Busse:
Hey, Liz, I’m kind of curious. You’re comparing to a time period that was really bizarro, right? Because last year, people were locked at home, they were spending a ton of money on their homes—just obscene amounts to fix things up because they were there all the time. And what I’m seeing now is, especially Oregon was really slow to remove the mask mandate and to allow gatherings, and we’ve done that now. And people are like, “I don’t want to be anywhere near my house.” I’m just seeing folks don’t want to be home. And I’m curious, maybe that’s what you’re feeling, as opposed to a systemic, economic, kind of nationwide recession.
Liz Picarazzi:
Yes. However, it is the first down month we’ve had in 15 months. So that kind of takes the seasonality out of it.
Jay Goltz:
Did you use to spend more on advertising, and you stopped? Has anything else changed in the last year?
Liz Picarazzi:
No, I don’t think there are any other things.
Loren Feldman:
I want to come back to what’s going well for Liz and how she’s adjusting to the situation. But first, Jay, what are you seeing? Do you sense any softening in your business?
Jay Goltz:
It’s a little soft. But after reading all the stuff that’s out there in the world, we’re living in a new world these days. Not that new, in that there are these companies that are extremely well-known that everybody thinks they’re making money. They’ve never made money. They do nothing but lose money, and then all of a sudden, somebody wakes up and says, “Oh, wait, we shouldn’t be losing money like this.” So I don’t think you can look at all that stuff and get a whole lot of information on it, other than that the insanity is starting to stop.
Loren Feldman:
That’s a small piece of this. I mean, as Shawn pointed out, I mentioned that there have been these waves of layoffs. That’s concentrated primarily in tech. And I think a lot of what you’re talking about is a certain segment of the economy. But you said you have seen some softening—
Jay Goltz:
Just a little but it’s always hard.
Loren Feldman:
Is that current business, or is that looking out—
Jay Goltz:
I don’t have future business. I have just current business.
Shawn Busse:
Jay makes a really good point, Loren, in that tech is now such a disproportional component of the S&P. Many of us have stocks now that are in index funds of which tech is a disproportionately oversized piece of that. And so we’re watching our stocks go down, our retirements go down. And this is a classic case of like the stock market isn’t the economy, but the psychology of the stock market going down ripples throughout the economy.
And I think that’s what his point is about tech. These are businesses that we put too much faith in. Many of them are not that viable, in terms of their long term durability, and now they’re getting hammered. But that has a psychological ripple effect. And maybe to people, like Liz, where people are like, “This is a discretionary thing, my 401k is down, I’m hearing about recession,” even though the fundamentals in the market don’t say that.
Jay Goltz:
Well, here’s a newsflash. So all these companies that went out there that are doing e-commerce, and they’ve been banging on, “Oh, we don’t have the burden of brick and mortar and blah, blah, blah.” Well, what’s happened is freight costs have gone up so substantially, that if a company is giving free shipping, it’s probably costing them 15 percent on sales, and rent is 10 percent. So all of a sudden, having brick and mortar is not such a crazy idea. And I think you’re starting to see some adjustments to that—that and the cost of marketing online has gone up dramatically.
Loren Feldman:
So let’s stick with our businesses. I think it’s clear that it’s early, and to whatever extent there is something going on, it’s hitting people differently. I emailed with Paul Downs about this, and his reaction was, “I don’t see a recession on the horizon at all.” And he said that his inquiries are up, I think he said 25 percent over last year. And his sales pace is really strong. He just hired a couple of people. His only problem is getting raw materials, which is a real problem, of course. But I’m just focusing on your businesses. Jay, you said, you’re seeing some softening. Are you doing anything differently?
Jay Goltz:
Keep in mind, how many recessions have there been since 1978? Five, six, seven? So I’ve seen this movie numerous times, and I’m not making any big changes. I will tell you that this is about fear, and fear is not a good thing in business. And you can talk yourself into a frenzy, and like, I keep my head down and pay attention to what I’m doing.
Loren Feldman:
Well, they don’t have to be big changes. You can make smaller adjustments. You might decide that you have some openings that you haven’t been able to fill during the labor shortage, and you might decide, “Maybe we don’t need to fill those right now.”
Jay Goltz:
Perhaps. I’m not opening a new store now—not that I was going to anyway. I wouldn’t be opening new stores right now, certainly. But I would still say 90 percent of what I do on a daily basis isn’t going to be changed any, but you’re right. Maybe if I have a bad month or two in a row, or three, maybe I won’t hire another inside salesperson. That’s possible. But I’ve made some of my best advances during recessions. Everybody else was hiding, and I kept forging ahead. In 2008, I bought a big cheap building, and it was a game changer. So I think that going into defense isn’t necessarily the best idea, if you’ve still got some gas in the tank.
Loren Feldman:
So what are you thinking, Liz? You mentioned before that there is some business that’s compensating for the consumer business that is weakening.
Liz Picarazzi:
We are working on a couple of government projects now that literally came in right as the recession seemed to be hitting. So the government projects, in terms of revenue, there’s a little bit of a delay on that. The numbers that I gave for April don’t really reflect the fact that we are working on the project without being paid yet, which happens later. So the government work has also been good because the success that we had in New York in Times Square, and the great publicity we got when the mayor really unveiled our trash enclosures in front of 20 cameras, it was all over the media. We’re going to be marketing that moment forever, probably.
Loren Feldman:
It’s a nice moment.
Liz Picarazzi:
We’re shifting our marketing to go into more B2B and more B2G. So that trash enclosure was purchased by the Times Square Business Improvement District, which is called Times Square Alliance. And there are hundreds of B.I.D.s all over the country, and so we’re basically taking that image, taking that before and after, the basic endorsement of the mayor of New York, in Times Square—it couldn’t be anything better—and we’re marketing that to B.I.D.s all over the place. So we’re starting to get interest from people in Philadelphia and in Boston, and a couple other places immediately, based on the news that just happened last month.
So we’re kind of viewing this as, “Strike while the iron is hot.” And it does mean that I have to shift my attention away from some projects that I really, really loved. So as we’ve talked about before, our bear-proof enclosure I now am putting on hold, and I hated that. We’re in spring and summer. Normally we market our pool boxes, our sheds, and our new planters, all of those outdoor living projects, which are passion projects for me. They haven’t ever been profitable. I have to put that down. Even though we are in the outdoor living time of the year, I have to focus just on trash enclosures and to a particular couple of segments. It’s really requiring a lot more discipline than I normally have.
Loren Feldman:
It sounds like that might have been something that you needed to do regardless of the—
Jay Goltz:
I think she brings up a good point, that these are the times where you need to start paying attention to what makes money. And those other things, put them on hold. I think that’s smart. And I certainly am in that same situation.
Liz Picarazzi:
You guys have been listening to Carey Smith a little bit too much if you ask me.
Jay Goltz:
Not me.
Loren Feldman:
How so?
Shawn Busse:
I don’t know Carey Smith.
Liz Picarazzi:
Well, when I talked to him last year—
Loren Feldman:
Wait, wait, wait. Carey Smith is the founder of Big Ass Fans. He bootstrapped it and then sold it for half a billion dollars a few years ago, and now has a business, an investment business where he invests in other small businesses. Interesting guy with very strong opinions. What were you referring to, Liz?
Liz Picarazzi:
So I had a couple of really great consultations with Carey Smith last summer—at the introduction of Loren, thank you. But it was positive. It was good and bad.
Loren Feldman:
He hates the idea of making anything in China. I suspect that probably came up with you.
Liz Picarazzi:
That’s one thing. That came up quite a lot. It was actually hard to talk about anything but that. No, I take that back. He gave me some really good advice. And basically one of them was, “Put down the package locker, put down the planters, the sheds, the pool boxes”—all the things that I was really lit up about—”and focus on trash enclosures. And stay focused on the market you’re in,” which is higher-end outdoor living, B2B, “and don’t try to go downstream.” I was thinking of going into Costco.
So in just a couple of conversations with him, he delivered a lot of messages I didn’t like to hear. But I must admit, I heard them, and some of my behavior right now is actually a result of him saying, “Put down anything but the trash enclosures. Get really, really, really good at those.”
Loren Feldman:
Liz, you mentioned that you’re planning on marketing the moment you had in Times Square with the mayor all over the place. Are you saying that you’re going to be spending more on marketing? Or are you just shifting the type of marketing you were doing to reflect that experience?
Liz Picarazzi:
I’m shifting to more direct sales or prospecting. I hired an outbound salesperson to contact all the B.I.D.s. in the U.S. We’re starting city by state. That moment in directly marketing to the very same people who we know have trash in their downtown areas and want a solution for it, that’s not something that I did two weeks ago. But I implemented that really fast, because we’re getting traction with business improvement directors and executive directors who saw the news and know that they need it, too.
Shawn Busse:
Hey, Liz, can you clarify what you mean when you say “B.I.D.s”?
Liz Picarazzi:
Sure, so business improvement district, at least on the East Coast—so in New York City, there are 80 business improvement districts. Times Square is just one of them. So I’ve marketed to the rest of them as well. And I got a lot of purchases from them, just actually in the last two weeks. And that was a direct result of us marketing that moment in Times Square to all the other B.I.D.s who are kind of understandably, “Me too. I want those as well. Why can Times Square get those but my neighborhood can’t?”
So that has been a very good talking point for us. And so executive directors are typically essentially the CEOs of each business improvement district, and they have them all over the country. So that’s a decision maker, and it’s someone who we know is dealing a lot with trash and rats. So our message is, “Trash, rats, trash, rats.”
Shawn Busse:
So not procurement. Not the bottom of the chain, the procurement people, but actually the people who are sort of politically and organizationally motivated to bring about change?
Liz Picarazzi:
Yes.
Loren Feldman:
So Liz, I was asking about marketing because when people fear there’s a recession coming on, often the first thing they cut is marketing. It sounds like you might actually be spending more.
Liz Picarazzi:
I’m spending more on business development, and specifically in this area, but I am not spending a dime on Google AdWords. I cut that back a while ago. But recently, I had a really amazing insight. I’ve been using Google Alerts where I set it up for “business improvement district,” “trash,” and “rats,” and I’m getting all these articles, all over the country, that are saying where this is an issue. And then we’re just picking up the phone and calling them.
Shawn Busse:
Ah, that is so good!
Liz Picarazzi:
That is a really, really great benefit of Google that has far exceeded any of the thousands of dollars I’ve spent over the years on Google AdWords. So I suddenly had a very warm, fuzzy feeling about Google. [Laughter] It was literally, I felt like I had an adoration. I had this feeling I haven’t had about Google in a really long time.
Loren Feldman:
You’ll get over it.
Liz Picarazzi:
And I realized they didn’t have to charge me to use that Google Alert. It just comes with it. And look at the way I used their tool. Unlike AdWords, it actually brought me business.
Shawn Busse:
Liz, your strategy here is genius. Oh my gosh, I’m so happy for you.
Jay Goltz:
You know, I have to tell you, you’re calling it a business improvement district. That’s what they call it in New York, but that’s not what they’re calling it in Chicago, I don’t think, and I’m sure it’s the same concept. But you should look into what the terminology in every city is, because that’s not a Chicago phrase.
Shawn Busse:
Yeah, because I didn’t know what she meant.
Loren Feldman:
I think you’re exactly right, and that would just be more alerts for you.
Jay Goltz:
I mean, the point is, during a recession—which like I said, I’ve been through many—yes, there are less people maybe looking for your product, but then your competition is almost going away. So it could actually be more effective to continue to market and advertise. I’ve just learned the competition hides under the table. And I’ve just learned hiding under the table is never a good thing. But that’s what people do. They get it in their head, and they convince themselves they should stop spending money. And it’s an opportunity to go out there and get more market share, if you can afford to.
Loren Feldman:
So Shawn, speaking of marketing, I know we’ve had conversations about this. You do not see yourself as a marketing guy or your business as explicitly a marketing business. But you have told us that a lot of your initial conversations start there. People come to you looking for marketing help. Are you seeing any softening in inquiries? Are you concerned going forward that you might get that typical drop-off, where people stop making those calls during a slow period?
Shawn Busse:
Yeah, I mean, I guess I’m just not seeing it. And again, I have some geographic bias here. So because we were locked down for so long, everybody is just desperate to meet and connect and go to conferences. And I’m seeing a lot of energy and enthusiasm for just doing business. But I’m in the B2B space. The impact of recessions hits us later than most, if it does.
Loren Feldman:
I’m surprised, I would have thought you would get hit early.
Shawn Busse:
Yeah, I think it’s because a lot of our clients are B2B and not B2C. Most marketing agencies service B2C. And so they get hit first and worst. So we get hit later, if at all. We’re just not cyclical, in the same way. Most marketing shops though are. They’re the first to go.
Jay Goltz:
I can kind of tell you how it works. When things are good, the CEO or marketing person’s driving things. And when all of a sudden things get tight, everyone runs into the CFO’s office, and the CFO grabs the wheel and says, “Okay, we’ve got to cut all non-necessary expenses,” and everybody just lays down and plays dead. That’s what I’ve seen, and I think that’s why the first thing to cut is, there’s nothing to show for the marketing expense. And obviously there is, but it’s not on the paper. So, okay, cut the marketing expenses.
Loren Feldman:
Did you see that in your business, Jay, or in other businesses?
Jay Goltz:
No, because I’m a marketing guy, and I wouldn’t allow that to happen.
Shawn Busse:
Jay’s a total marketing guy. I mean, look at Liz, for example. What she just described is a business transformation. And that’s the space we’re in now, whereas most marketers are in the activity business, right? So they’re in the, “Oh, we posted 30 posts on Facebook.” Or, “We ran these Google campaigns.” But they can’t connect it to actual results, which is why Liz is like, “I’m not spending any more money on digital,” right?
So most marketers are not in a place where they can actually demonstrate their value to business problems, and so they get fired. When times get hard, they get fired. Like, that’s how it works.
Jay Goltz:
Return on investment.
Shawn Busse:
What Liz just described, if Liz were the marketer within her company, and she had done those results, holy cow! They’re not going to fire her, ever. Like, she’s like the best. So I think that’s the problem with most marketing, is it’s not connected to business strategy, business results. And so, thus, when times get hard, they’re the first to go.
Loren Feldman:
All right, let’s move to another topic. I asked each of you to think about the regulations that drive you crazy and that, if you were king of the world, you would do something about. Liz, let me start with you. Is there something that you would love to flip a switch and change?
Liz Picarazzi:
Tariffs. Stop them.
Loren Feldman:
That’s been ongoing since…
Liz Picarazzi:
August 2018. I will never forget. That was one of Trump’s first and very famous decisions.
Loren Feldman:
That’s four years. How big an impact has that had on you?
Liz Picarazzi:
So it has had a very big impact. When I first started manufacturing in China, my tariff rate was 2.9 percent. That kind of hurt. And then for a while after the Trump tariffs, it was close to 20 percent. And then it shifted down, and now it’s at 11 percent. But I have to compare that 11 percent to the 2.9 I had before. It’s almost quadrupled.
And that has really decreased profits. We’ve had to increase prices, as a result. There are really not a lot of alternatives to offsetting that, other than raising prices. And so it really does all trickle down. If someone were to say, “Well, just produce in the U.S.,” as I’ve discussed here before, even without the tariffs, it’s so much more to produce in the U.S. So for me, my motivation or my ability to bring manufacturing back, it’s not going to offset the price of the tariff. It’s just such a big difference.
Jay Goltz:
So here’s the question, though: It’s a level playing field. Everybody’s paying the tariffs. Why is that really hurting your profits, given that everybody has to pay the tariff? Everyone’s got the same cost structure. Why can’t you just pass it along? Because at the end of the day, people don’t want rats running into their garbage.
Liz Picarazzi:
Actually, I misspoke. It doesn’t necessarily impact our profit. It may feel like it, because I do pass it right on. So I pass that right all along, when we have freight increases, as we have had during the pandemic, all that has passed on to the consumer. We’ve had two price raises, actually three price raises in two years.
Loren Feldman:
Do you follow the politics of it? Do you have any sense where this is headed?
Liz Picarazzi:
So I have to say, I was pretty surprised that when Biden took office that he didn’t reduce or end the incremental tariffs. That was a pretty big disappointment. I mean, my position on this is: Most Americans don’t understand tariffs. If they hear, “Oh, there are tariffs being put on Chinese goods,” I mean, I have a family member who thought that China was paying the tariffs.
Loren Feldman:
I think that’s how Donald Trump sold the tariffs, when he introduced them.
Liz Picarazzi:
Well, this family member voted for Trump once and probably twice. I’m not sure about the second one, but I know about the first. And you can see where my politics are on this. But I think there are a lot of Americans that are, “Oh, we’re going to screw China. We’re gonna put a tariff on them.” No, it’s putting a tariff on an American, small, family-owned company, who happened to produce in three U.S. states before making the decision to go to China.
So I really gave it my all before I made the decision to go over there. So that also really does bother me that the average American doesn’t know that I’m the one paying the tariffs. They think China is paying my tariff, I think. And so we’ve had to really educate certain family members about how that works. [Laughter]
Shawn Busse:
That’s a fun holiday!
Loren Feldman:
Shawn, how about you? Is there a regulation that you focus on?
Shawn Busse:
I think that for me, my crusade right now is the cost of housing and the impact of high housing prices on businesses. And what I mean by that is, it’s getting more and more—let’s just say almost impossible, depending on where you live, for you to have the promise of your employees to buy a home.
And I’ve been thinking about it because I’m building a house right now. I’m watching the impact of regulation on homebuilding and the cost that I’m incurring from that, and sort of thinking about how that ripples through their economy. And I would encourage especially municipalities and county governments to think about the cost of regulation that they impose on building, because you’re seeing just more and more the impossibility of being able to live in a community. And I think that impacts businesses dramatically.
Loren Feldman:
What’s the impact you’re thinking of, Shawn? Does it make it harder to hire? How does it affect the business?
Shawn Busse:
Yeah, so unless you are in one of these obscene tech sector businesses that can afford to pay six-figure salaries to every employee, how can you even run your business if the employees can’t afford to live in your community? That’s really what I’m talking about: access to talent, the ability for young people to move to communities and to be able to live at a reasonable price point.
We’re just creating that disparity in our urban environments, and it’s really concerning. You think about manufacturing, most manufacturing jobs historically have paid in the $40,000 to $60,000 range. In the Portland metro right now, our median house price is $550,000. That’s—gosh, I almost can’t do the math—eight times the median salary right now.
Jay Goltz:
Well, that wasn’t so bad when interest was 3 percent. Now that interest is 5 percent, that’s a whole ‘nother animal.
Shawn Busse:
Yeah, I mean, even at 3 percent, it’s really tough. We have to remember, as business owners, our compensation and our personal wealth is really different than—I mean, you understand this, Jay. You have folks who make probably $17 an hour, right?
I know you care about your employees a lot, and I care about my employees a lot. And I want them to have the promise of prosperity and wealth creation, and that usually is through home-buying. And it’s just getting really tough. If you look in The New York Times, for example, Washington Post, they’ve done an analysis on this, and I hate to say it, but the more progressive cities are the worst for this, because of their regulation and cost of construction.
Loren Feldman:
Do you think that’s the primary factor? I mean, there clearly is a housing shortage in this country, and it’s affecting communities all over the country. Is it regulation that explains that shortage?
Jay Goltz:
I’m told it’s the 2008 crash that’s never recovered from—
Shawn Busse:
Yeah, I mean, the 2008 crash crushed home construction. But the problem is that the cities didn’t adapt to that shortage in any way. So in many cases, like in Portland, for example, I’ll just give you an example. The city, through best of intentions, said, “20 percent of multi-family housing now has to be dedicated to low-income folks,” which sounds really great, except that now they’ve broken the financial model of construction for developers. And so now, what do you do? Basically, developers, because of that requirement, they’re moving out of Portland. They’re not building in Portland anymore. And so less and less stock, more and more people moving here from San Francisco driving up price. It’s just out of control.
Loren Feldman:
How about you, Jay? What regulation gets under your skin?
Jay Goltz:
Okay, I won’t call it a regulation—it’s just the way the law works—but this is fixable in three minutes, if somebody would pay attention. And here’s something that I think it’d be fair to say: Every business owner is paying for this. Do you know how unemployment compensation works in your state? I’ll ask the two of you. Liz? Shawn? Do you know how it works? How many days does someone have to work before you’re liable for all of their unemployment insurance?
Liz Picarazzi:
One.
Shawn Busse:
I think it’s one.
Jay Goltz:
One day?
Shawn Busse:
Yeah, I think immediately.
Jay Goltz:
Do you think that if you hire someone and you fire them four days later, you’re responsible for all of their unemployment?
Liz Picarazzi:
You shouldn’t be.
Jay Goltz:
I got the “shouldn’t be.”
Liz Picarazzi:
But you may be. At least for those four days. I don’t think their prior employment necessarily should be covered. But I used to run a business where I fired people a lot, and they always filed for unemployment.
Jay Goltz:
Yes. So here’s an example where the end of the story is, neither of you really do know, and that’s what I’m telling you. So here’s how it works, in Illinois at least.
Loren Feldman:
It varies by state, I’m guessing.
Jay Goltz:
Yes, yes. Okay, but here’s how it works in Illinois, just as a baseline. In Illinois, somebody could work for Sears Roebuck and Co. for 30 years. And they come to you, and you think, “All right, they need a job. I’ll give them a chance,” and you work with them. And at 30 days, you have bought the farm. You are responsible for all of the unemployment at days. And my argument is—
Loren Feldman:
You need to explain that, Jay.
Jay Goltz:
Okay, so someone works for you for 26 days, and you say, “You know what? This just isn’t working out.”
Loren Feldman:
When you say you’re responsible for all of the unemployment, the business doesn’t fund all of the unemployment compensation collected by an employee.
Jay Goltz:
Yes! Absolutely! That’s my point. Absolutely! I’m going to tell you exactly how it works. And I’m sure of this. The person works for you for 23 days, you decide, “You know what? This is a bad fit, they can’t do this job.” You fire him. Okay. There’s no unemployment exposure. They can go to unemployment. They’re not going to pay. Now, they worked for you for 35 days—anything over 30—you are responsible for all of their unemployment.
Loren Feldman:
Jay, you’re saying that you pay every cent of the unemployment compensation that an employee collects?
Jay Goltz:
Every cent plus 30 percent. Yes. It’s the big secret. I’ve never met anyone who understood this. I’ve done speeches to probably 10 or 20 groups. Not one person has ever raised their hand and went, “Yeah, I’ve got a handle on it.” No one understands this.
And here’s how it works. Now, so you hire this person. They end up getting 13 weeks or 26 weeks of unemployment. Now, that’s probably going to be something in the neighborhood of $5,000 or $10,000. Here’s the problem. You don’t get a bill in the mail that says, “Oh, Liz, here’s a $10,000 bill for that guy.” Remember, Bob, the one you did a favor for? You thought it was gonna work out, and you fired him? “Here’s a bill for $10,000.” That’s not how it works.
It goes into your rate. And then your rate might go up .2 percent, but how many business owners are paying attention to their unemployment rate? From my experience, next to none. I’ve never met anyone who knew what their unemployment rate was. So your unemployment rate goes up from 3.2 to 3.6 on every single employee, and you are paying every single dollar of that unemployment, plus a 30 percent markup. And that is how it works. And most people do not understand that. Like I said, I don’t think I’ve met anyone who did. That’s an expensive thing.
So my argument is, would it be so terrible if it were 90 days? In some states, it is 90 days. I’ve gotta tell you, this is shocking, but absolutely true. I went to a seminar on unemployment rates that a lawyer from the Department of Labor Illinois was running. And some guy was complaining about some unemployment he had to pay for some guy he fired legitimately—that he didn’t think should get it. And the lawyer goes, “Well, it’s not like you’re paying all the unemployment.” I had to correct the lawyer. I go, “Excuse me!” And he didn’t argue with me. He didn’t know how it works himself.
It’s real simple. You get the paperwork. It says right on there in black and white: Here’s what you paid out. Here’s the markup. We divide that by the first $12,000 or something,” and that’s the rate. It’s right there in black and white, but most people don’t look at it. And when I say most, I don’t mean 53 percent. I mean 90-something percent of people have no idea how that works. And all it’s doing is putting a burden on us. Instead of Sears paying down unemployment, we’re paying it—except Sears is out of business. So the government figured out, “Oh, better to stick it on the employer that’s still in business than someone who went out of business.” It’s really not right, and it’s certainly not helpful to people that are looking for a job.
Loren Feldman:
Let me ask you this, Jay. You’re running a business for 20 years, and no one ever filed for unemployment. For whatever reason, it never happens. So you’ve been paying a rate that whole period. You’ve been kicking into the system a significant amount of money. After 20 years of that, an employee leaves your business for whatever reason and collects unemployment. Is that going to drive your rate up, even though you’ve gone 20 years?
Jay Goltz:
Absolutely. No, here’s how it works. Back in the day, when I was hiring and firing, when I didn’t know what I was doing thirty years ago, my rate got to the maximum 7.2. Now, I didn’t have one claim for three years. So my rate’s at the rock bottom. It’s like 1.8 or something.
Loren Feldman:
It’s 1.8 percent of total—
Jay Goltz:
No, not total. The first $12,000 or $13,000 of labor. The point is, look at me with 130 employees. The difference in paying 1.8 versus 7.2. Let’s just say round numbers, 5 percent, we’re talking about… Here, I have a calculator: 130 people, it’s about $12,000 times 130. That’s $1.5 million. We’re talking about $75,000 for unemployment. We’re talking about paying $75,000 a year for unemployment insurance that, if you’re running a good business, shouldn’t be that high. And it’s about being more careful who you hire. It’s about making sure that you figure out whether they’re going to work out, if you can, by 30 days. And it’s about contesting them if it’s not legitimate.
Liz Picarazzi:
Yeah. contesting them takes so much time, though.
Jay Goltz:
And you’ll usually lose. I mean, the better answer is: Be more careful when you hire. Frankly, that was the most important part of that. But I will tell you, at 28 days, we ask the manager: “How is Bob working out?” “Yeah, not great.” “Okay, we should move on, because it’s very expensive.”
Liz Picarazzi:
Well, it also depends on the business you’re in. So one of the things I like about my current business is that I don’t have much turnover. I have a very consistent staff. Whereas my previous business, which was a handyman company, it was like a revolving door. And some of those guys knew how to work the system. So they would come in and work for like 30 days, and then they would stop responding to job orders. And they would file for unemployment, saying that there wasn’t enough work. There are all sorts of situations. But my costs related to unemployment, when I first started, the business may have been about 2 percent. But by the end of it, because all these guys had either been fired for cause, or left on their own, my rate was close to 8 percent.
Jay Goltz:
That’s a lot of money.
Liz Picarazzi:
It was a crazy amount. I was aware it was happening, and because of that, I tried to fight a lot of them. But then I realized that was a big suck on my time. And I figured, “You know what? This is just the cost of doing business.” And then, yet again, it gets built into your price to your customers.
Jay Goltz:
There are companies that will fight those for you. I used to use one. I don’t use them anymore, because we have very few cases that need them. But there are companies that will fight them. But the problem is, if it turns into he-said-she said, like in that case, “Oh, well, no, I didn’t get that thing.” I could see where you didn’t win some of them, because they’re going to go to the poor guy who needs unemployment. Whereas at least if you’re in a retail business like mine, “They didn’t show up for three days. They didn’t call in. They violated our policy.” I do win them sometimes. But I don’t have a lot of them to begin with.
Loren Feldman:
So Jay, you said you could make this change in three minutes, the change being—
Jay Goltz:
Somebody in government needs to say, “Yeah, let’s move the 30 days to 90.” Done.
Loren Feldman:
But where does that money come from then?
Jay Goltz:
Then it would have to go to their previous employer, perhaps. But they changed that rule about 20 years ago. That’s how it used to be. Somebody said, “Oh, wait, instead of going after companies that went out of business, let’s just go after the new sucker and let them pay it.”
Loren Feldman:
That’s what I was gonna say. Your example was Sears. It might be hard to get that money from Sears.
Jay Goltz:
Exactly.
Loren Feldman:
So what would happen if this change that you’re suggesting was made?
Jay Goltz:
The government should take the bazillions of dollars that Sears paid in and pay it out of that. I mean, they just shifted the responsibility from government to employers. It’s not right. It’s just not right. Here’s the problem: It’s really not fair to the employees, because you’re more hesitant to give them a chance, because you know you’re gonna get stuck. It could cost you $10,000 of unemployment.
Shawn Busse:
But how does that work, Jay, if, let’s say somebody worked for me for 10 years. They quit, and they go work for you for 33 days, and they didn’t work out for you. But why am I having to pay for their unemployment?
Jay Goltz:
You’re not. That’s the point. If I fired them because they couldn’t do the job.
Shawn Busse:
But you’re sort of arguing that I should be paying for their unemployment, right?
Jay Goltz:
No, no, no, no. If they quit your job, maybe they don’t get unemployment. I mean, I’m not trying to fix all social ills. I don’t know how they could work. But the point is, I should pay it? I mean, who should pay the 10 grand? Let’s figure this out. Should Shawn pay it? He quit the job on you. You had nothing to do with it. Okay. Should I pay it? I gave the guy a chance, and it didn’t work out for 30 days. Or should the employee take the hit? Which one of us should take the hit on that? That’s the question.
Liz Picarazzi:
The government.
Jay Goltz:
Okay, maybe.
Loren Feldman:
Well, somebody’s gotta pay for it, at some level. That money’s got to come from somewhere.
Shawn Busse:
This is a whole ‘nother conversation around how much we put on the business to care for societal needs.
Loren Feldman:
So it’s funny, I had a listener question all teed up to ask you guys from Anne Merrow, who runs Long Thread Media in Colorado, and it was about how unemployment rates work for businesses and how to manage that. So you’ve kind of answered that question. Anne did have one follow-up question, which is what Liz was getting at, which is: I think everybody assumes that it’s impossible to contest these things in most cases. When is it worth trying?
Jay Goltz:
I just had one. I win them. I don’t do a lot anymore, but here was the situation. I had a receptionist. She was not doing a good job. She was a management problem. My managers were throwing up their hands and said, “This isn’t working.” She stormed up to me one time, and I was a little friendly with her, I talked to her here and there. And she goes, “I can’t report to so and so anymore.” So I said to her, “You know what? She’s the manager. I’m told that you come in late regularly. That’s really a problem. And I have to tell you, I’m not going to apologize for them for holding the standard of the company. I have to tell you, if this job isn’t right for you, just tell her you’re going to be looking for a job, and she will be happy to work with you so you can go get a new job. And it doesn’t have to be adversarial.”
That’s exactly what I said to her. She didn’t show up to work the next day. She doesn’t show up at all. She goes down to unemployment, and she actually tells the unemployment adjudicator—I think they’re called—what happened. She calls us and she goes, “What’s the story?” So my HR person repeated exactly: The owner of the company told her, just tell us you’re looking for a job, and we’ll work with you. And you know what the adjudicator said? “Perfect. That’s what I wanted to hear.” She was aggravated with it. Where do you come off just storming off the job? I mean, she didn’t get unemployment. Oops!
Loren Feldman:
What defines that situation?
Jay Goltz:
You have to have rules. You need to have the rules in place. “Here’s what our attendance policy is. Here’s what our late policy is.” And you’ve got to follow the rules. If they’re just quote-unquote, not doing a good job, you can’t win. You just can’t. It has to be something that they have control over, like coming to work on time. But if you just go, “You know what? They were sloppy. They had an attitude problem.” You’re not going to win. You’re just not. It has to be something they have control over.
I would add a fourth piece of the puzzle. First is: Be careful who you hire. Second is: the 30th day. Before that, figure out if you think it’s gonna work. Third one is: Contest it. Here’s a fourth one: Tell them to their face: “You know what? I’m concerned this isn’t the right job for you. You keep making the same error over and over. I’ve talked to you six times about it.” And then they go on their own. They figure out this is the wrong job. Good for you. Good for them. Everybody wins. But you have to have an honest conversation.
Loren Feldman:
All right, we’re just about out of time. I want to hit one more thing, which is, The New York Times recently ran a story, which pointed out that a lot of people don’t realize how wealth tends to get generated in this country. And that a tremendous percentage of it comes from people who build unsexy small businesses, which is kind of intriguing. They were talking about things like car dealers or HVAC companies.
Jay Goltz:
Did they mention picture framing?
Loren Feldman:
They did not.
Jay Goltz:
Wow, once again, getting no respect.
Shawn Busse:
Is that a sexy business?
Jay Goltz:
It is a sexy business. That’s why they didn’t mention it.
Loren Feldman:
There you go. But it was based on studies. The story also pointed out that studies indicate that, as we all kind of know, money doesn’t necessarily buy happiness. And based on these studies, the things that do generate happiness are sex, exercise, and gardening. So the obvious question for the three of you is, are you getting enough sex, exercise, and gardening? Anybody?
Jay Goltz:
I don’t do two of those things. [Laughter]
Loren Feldman:
I’m not sure we want to know, Jay.
Liz Picarazzi:
Well, I will say, gardening is a great activity, if you’re into it. So for me, anything having to do with home improvement or gardening puts me in that sort of state of flow that you lose if you’re just too stressed out a lot. So I mean, I am not a great gardener. But I know that when I turn off my devices, and I get my hands doing something—and I know Shawn is a lot like this as well—that can make me really happy. And when I don’t do it, it’s pretty noticeable. Like if I work too much, and I don’t do something that turns off my head, it’s going to show up somewhere else in my life. So I definitely think that’s true.
And for me, it was the same when I was in corporate. I mean, part of the reason my first business started was that I was doing a lot of home renovations to soothe the pain from working in a large corporation where there were too many meetings. So when I had the chance on the weekend to do gardening or home improvement, that was really cathartic, and that led to my first company. So again, I think what makes you happy, sometimes it is the most simple things. I think often, it’s something where your device is off that can bring you that happiness.
Jay Goltz:
My cousin Neil, who runs my home store, said to me one day, “It’s too bad you don’t have hobbies.” And I said, “Are you serious? My business is my hobby. I like going to work every day. I like writing advertising copy. I like figuring stuff out.” So I don’t need a distraction. I like what I do every day. And the extent of my gardening is pulling weeds, which is cathartic. I feel like I’ve gotten rid of the invaders. But other than that…
Loren Feldman:
I feel the same way. I like mowing the lawn.
Shawn Busse:
It’s a great article. I thought there was a lot to think about there, especially around businesses. I wrote down “unsexy monopolies,” like these businesses where they kind of own a geographic region and are doing something not that remarkable, but there’s just no competition.
Jay Goltz:
I also have to say, there’s a lot of joy in just making customers happy. There’s joy in doing a good job, in having employees who are happy and having customers who are happy.
Shawn Busse:
Yeah, I think a lot of people build miserable businesses because they think that’s what they have to do to make money.
Loren Feldman:
Miserable in what sense, Shawn?
Shawn Busse:
Well, they just start from a P&L spreadsheet perspective, as opposed to: How do they build something where they show up for work and are happy about showing up at work? And I think Jay is a good example. He’s happy to go to work. And I think Liz is happy to go to work. Even though we have hard things we face, we get joy in going to work. And I think so much of the mentality is around: Are you growing fast? Are you making enough money? And it’s just like: Well, what about joy? How do you create that with your work? And I find that a lot of folks don’t ask that question.
Jay Goltz:
They just hate their customers. I mean, if you talk to a company, there are a lot of people who just hate their customers. They complain about their customers all the time.
Loren Feldman:
And their employees.
Jay Goltz:
And their employees. Absolutely. Yeah, all the time, I see that. That’s unfortunate. And unnecessary, I might add.
Shawn Busse:
Yeah, it’s totally unnecessary. Folks get trapped. They get these golden handcuffs on where they’ve built a business that’s a certain size, and they’ve built it on customers that they hate. And then they’re screwed. Because that flows into the culture. They get turnover. I mean, it’s just brutal. So I think you’ve got to start from a position of: What’s going to give you joy? What’s going to make you happy? And then folks will feel that.
Jay Goltz:
So what you’re saying is, here’s my thing: You want to build a virtuous cycle instead of a vicious cycle.
Shawn Busse:
Yes, yes, yes. Amen. Let’s end on that.
Loren Feldman:
All right, my thanks to Shawn Busse, Jay Goltz, and Liz Picarazzi. As always, thanks for sharing, guys.
