This Is What It Takes to Build a Business, Vol. 3, Part 1
Introduction:
This week, and next week, we take a look back at the conversations we had over the past year, highlighting some of our happiest, smartest, funniest, and most difficult exchanges. We discuss topics such as whether the Great Resignation prompted business owners to overreact and overpay employees, whether the anxiety of owning a business ever subsides, what young couples should ask themselves before one of them starts a business, why owners find marketing so difficult, how owners can sell a business that just won’t sell, and what keeps entrepreneurs going when the going gets really tough.
There aren’t many places where you can hear entrepreneurs talk about the real-life problems they are confronting right now, today, as they happen—with no guarantee of a happy ending. But those are the conversations I have every week with Paul Downs of Paul Downs Cabinetmakers, Shawn Busse of Kinesis, Jay Goltz of Artists Frame Service, Mel Gravely of Triversity Construction, Jennifer Kerhin of SB Expos & Events, Liz Picarazzi of Citibin, Jaci Russo of BrandRusso, Sarah Segal of Segal Communications, William Vanderbloemen of Vanderbloemen Search Group, and Laura Zander of Jimmy Beans Wool. They come from a wide range of industries and geographies and experiences, but they all share a willingness to talk about not just what they get right, but what they’ve learned from getting stuff wrong.
— Loren Feldman
Producer:
Jess Thoubboron is founder of Blank Word.
Full Episode Transcript:
The first highlight comes from the first episode of 2024, episode 179, “New Year’s Resolution? Make. Some. Money,” in which I asked Paul, Shawn, and Laura about their hopes for the year and whether they’d made any resolutions. As usual, Paul got right to the point.
Paul Downs:
I did.
Loren Feldman:
What did you resolve, Paul?
Paul Downs:
I want to make a lot more money this year. [Laughter]
Laura Zander:
Seriously. Can I piggyback on yours?
Paul Downs:
Yeah, but the context was, last year was a year when I knew I was going to be making a bunch of investments and didn’t expect to show much or any of a profit. And I absolutely nailed that goal. [Laughter] And this year, I want to see some payback on that. So I’m going to be concentrating more on cost-cutting and efficiency and making sure that we’re profitable all the way through.
Loren Feldman:
Are you thinking about achieving that more by efficiency and cost-cutting or by growth?
Paul Downs:
Growth. And the thing is that we did a bunch of expensive projects and had one change to our basic fixed costs in 2023. The change was just that my rent went up, because we renewed our lease and then took over another 15,000 square feet. So my rent bill went from about 11 grand a month to 23 grand a month. And that’s a significant jump, but it’s still much, much cheaper than trying to move into a different facility.
So whatever the difference is there, let’s call that 130,000 bucks. And then we bought a new spray booth and put it into service. And that was about a $140,000 project. And then all the marketing and the new website I did, let’s call that 100 grand. So whatever that is, almost $400,000. Now, we’re gonna show an accrued loss of about 100 grand. So we would have been in pretty good shape if I hadn’t done those things. But those are the things I needed to do to get to the next level in the next few years.
In episode 181, “Have We Been Too Generous with Employees?” Mel, Jaci, and William talked about how the balance of power has been shifting between employees and employers over the past few years – and specifically whether some owners may have gone too far in terms of compensating employees during the labor shortage.
Loren Feldman:
Jaci, you raised an intriguing question. I don’t want to put words in your mouth, but what I read into your question was this: We’ve been through this really interesting period, a challenging time with the pandemic, the Great Resignation, the labor shortage—which I’m not sure is completely over yet. But in trying to build a culture and a business through all of that, one that attracts and retains employees, how do you know if you’ve gone too far? Is that a fair reading of the question you were raising?
Jaci Russo:
That is a very fair reading. And I would add to that, I’m in Lafayette, Louisiana. From a salary perspective, we skew lower than national averages—even state averages. And so, is it enough to meet the state average? Do I need to get all the way to the national average? Where is the line for fair and equitable these days? And am I building the culture or being taken advantage of?
Loren Feldman:
Is this primarily an issue of the pay, the dollars, or is it all of the above?
Jaci Russo:
I think it’s all of the above. We’ve always had a flexible schedule, from when we started in 2001. You could work from home or work from the office. And it’s about being a mature adult and knowing what you needed and taking care of it. So there were very few rules around that. We moved into Covid, and so that became even more so. We’ve always had unlimited paid time off. And really, 23 years in, it’s worked very well. I can think of one time when I felt like that was maybe a little bit taken advantage of.
But so, then coming through Covid, we’ve now added to that a four-day work week, pretty impressive increases in pay, a paid professional development trainer who comes to us once a month, paid one-on-one coaching. And so I’m thinking, am I adding more stuff? Have I added too much? When do I know that I’ve reached the line?
Loren Feldman:
Did something trigger this thought?
Jaci Russo:
I think that I can attribute part of my success to the fact that I’m always asking the questions: Am I doing enough? How can I do more? Where’s the right balance?
Loren Feldman:
But now, it’s: Am I doing too much?
Jaci Russo:
Right now, that is the question. Have I reached the sweet spot? Or have I gone too far past the sweet spot? So, nothing’s wrong. I just sat down and analyzed the numbers from last year. And everybody did their salary wishes—you know, “This is what I would love to be making.” And I’m thinking: If I can’t afford it, do I push to it? If I can’t afford it, do I find a way to push to it? Where’s the line?
Loren Feldman:
Mel, William, have either of you thought along these lines at all?
William Vanderbloemen:
Oh, that’s the tension I think everybody that I’m working with is facing. So I don’t know if it’s helpful, or if it’s discouraging, but I would say, Jaci, that you shouldn’t feel alone. And I think particularly what we’re seeing is—as we deal with the reality that hybrid is probably here to stay, some kind of remote work, and also the tension that there’s a whole lot of productivity that happens with people in the office—I think the dilemma that I sense business owners facing is: if I’m going to ask people to be in the office, it better be the best office ever. And it better be someplace people want to come. So they focus on building culture, and they raise pay, and then they put in the Ms. Pac-Man machine or whatever the thing is that makes people feel like it’s fun. And then it’s like: When is it too much?
And I’m a huge proponent of Millennials, Gen Z, and now Gen A. I’m very bullish on our future with them. But there is that common perception I’ve heard for years that, “Well, they’re entitled.” Now, maybe that’s because they got a participation trophy for everything ever. They got titles way before they should have. But I do think it becomes a bit of a black hole. The more you feed this into the culture—“Here’s something I’m entitled to”—the more it becomes a problem. Man, I wish I had the magic formula to tell you how to figure out how far is too far, but you are not alone. And that is the tension I hear a lot of leaders managing right now.
Jaci Russo:
I loved what you said about getting them back into the office. We just invested heavily into taking what was a pretty cool ad agency office vibe—we have both Ms. Pac-Man and Galaga—and we expanded it. Our creative team was, like, “Hey, we’ve done this open-office vibe for two decades now. We want rooms. We want our own offices.” And so we built independent, individual, 10 offices, 11 offices, so that each of the graphic designers has their own space, but it’s no ceiling. And so, it’s both still open and unique and individual.
And so that seems to be making them want to be here. Retention is my word, because I want to make sure we’re retaining good people. We’ve got the greatest team we’ve ever had. How do I keep them happy? And I guess that’s why I’m asking the question: What’s far enough? What’s too far? Where’s middle?
Mel Gravely:
The way I see this, because I think we lean in pretty hard toward people first, as well, and retention is a big driver behind that. But we’ve also got other things to our culture that we want to be intentional about. So it’s not just to retain. It’s to retain and to support collaboration. It’s to retain and to support high performance. It’s to retain and to support our inclusive environment. It’s to retain and to support high levels of customer satisfaction. And so we tried to get very specific about the why of the culture, not just good culture. So people say, “I just wanna have a good culture.” Well, yeah, but like, let’s define specifically what good is.
And then to me, you take a long-term view, like you would a portfolio of investments. So you named a bunch of things, and I would call that the portfolio: pay, work conditions, office environment, flexibility, all that stuff, right? Paternity leave, maternity leave. All that stuff is the portfolio of stuff. And the question is—and I think this changes over time—which instruments in that portfolio are providing return? Because some of them don’t matter. I’ll give you an example: We’ve got a division in our business that they do not value long-term incentive at all.
Jaci Russo:
Oh.
Mel Gravely:
They just don’t care about long-term incentive.
William Vanderbloemen:
Totally agree with that.
Mel Gravely:
So the portfolio, including long-term incentive for them, they’re like, “Okay, I’ll take it. But could you give me two more bucks an hour, because that’s really what I care about?” And so, figuring out and making sure you stay contemporary around your portfolio balancing. If you see it as a portfolio, then you can kind of manage it that way. And checking in regularly: employee-engagement surveys.
And if your team is small enough, I’d just talk to them and find out, in my one-on-ones, what matters. And once they’re like, “Yeah, I’ll take it, but I don’t really care,”—because it’s all costing money, right? And so, I take away the things they don’t care about, and double down on the things they do care about.
In Episode 183, “I Had to Fire the Guy,” I talked to Paul, Jay, and Sarah about sexual harassment and where you draw the line with employees. Is it possible to define sexual harassment precisely? Does it require a zero tolerance response? Or is it better to leave room for discretion and judgment? The conversation was sparked by a situation Jay experienced with a valued employee who had been with the company for almost three decades, having started at the age of 17.
Loren Feldman:
Jay, you recently had a stressful situation with an employee, a long-time employee, who got in trouble and forced you to make some difficult decisions. Can you tell us a little bit about that?
Jay Goltz:
Not much—for his own privacy—but with me 29 years, since he was 17 years old, and falls under the category of sexual harassment. And it was just a difficult situation of which there are some lessons from this. Sexual harassment, if you think that it’s not happening at your company … maybe it isn’t, maybe it is. If you’ve got 30, 50, 100—I’ve got 130 employees—it’s a problem. And you can have all the training you want, which we do. We do the training. But it’s very difficult.
And one of the worst phrases ever made, in my mind—usually, usually—is “zero tolerance,” because it takes out judgment. And the fact is, things are not always black and white. Is it sexual harassment for someone to ask someone out for a date? Is it sexual harassment when they ask them twice? Is it sexual harassment when they close the door, and they grab their arm? It’s not black and white.
And anyone who goes, “Well, people should speak up.” I fully understand that, especially for a woman, it is very difficult to speak up. It’s embarrassing. They’re worried about getting in trouble. They’re worried about losing their job. It’s very complicated. And then they worry about, “Oh, the manager is tight with the owner, so they’re not going to do anything.” At the end of the day, I had to fire the guy. And it was very sad. Very sad. Very sad.
Sarah Segal:
You did the right thing. I mean, it’s a hard thing. But you have to, as the owner. I mean, it all comes down to you. If you hadn’t acted, then I think that the the risk of being held liable for something would have been—
Jay Goltz:
That’s part of it. Let me tell you the other part: What does it say to the rest of the employees? That’s a problem. It’s both the risk with the one employee, but then you’ve got to take a stand sometimes, because everybody’s watching this stuff. And it’s a problem. And I will also tell you—which is all part of why we do this podcast—did I sleep that night? Yeah. I gotta tell you, I’m a warrior.
I’ve had to fire people for all kinds of reasons over the years, and it was a very sad moment with him. And he was very upset—did not argue with it. But if you’re in business, and you’ve got a lot of employees, you’d better just toughen up, because this stuff happens. If it’s not this, it’s something else. And I haven’t had one in many years that was personal like this, where I knew the guy for a long time. But, like, whatever! I do what I gotta do, and I’m not whining about it.
Loren Feldman:
Jay, was it obvious to you that you had to take this action?
Jay Goltz:
Here’s why: This does make it black and white. This wasn’t the first time. Ten years ago, there was something else. And that’s why it wasn’t that hard, because it’s like: Okay, I’m big with second chances. I’m not big with third chances. And if it wouldn’t have happened before, maybe the outcome would have been different, but this is the second round, and, like, enough.
Paul Downs:
Normally, if I have an employee who is misbehaving in some way, we’d have a procedure to tell them what the problem is, what the solution is, how we’re going to help them. But they get a second chance, in many cases.
Jay Goltz:
Sure.
Paul Downs:
And I’m curious whether sexual harassment—not like an obvious grabbing someone, but just a remark or something—whether that’s something where it’s okay to give that person a second chance. Or are we in a world where you’ve basically got to get rid of them?
Jay Goltz:
No, that’s why I started out with this zero tolerance. I don’t believe that phrase. I’m sure there are some cases. I think that phrase is overused. I don’t think it’s practical. If someone makes a bad comment, yes, I absolutely believe they get one warning. It’s just not that complicated. You get one. People say stupid stuff. Men, women, it happens.
But to your point: they grab them? Okay, yeah, there’s certainly some stuff like that where, yeah, that’s it. I’ve gotta tell you, somebody calls someone a racial slur, that probably would be it. I don’t know that that’s a warnable offense, because I don’t think you can undo the damage from that. So I’m not saying there aren’t things that are zero tolerance, but not many.
In Episode 184, “That Would Put Me Out of Business,” Mel and Jaci talk about how they handle requests-for-proposals. Mel does so carefully; Jaci won’t touch them.
Jaci Russo:
We left the RFP rat race about 10 or 15 years ago, and that really freed me up to not worry about what other people were charging. RFPs are designed to put apples next to apples. And it’s a very price-centered approach to choosing an agency. And I think that should be maybe the fifth consideration, because with choosing an agency, you’re dating, and you’re getting engaged, and you’re getting married, and you should not do that just because they’re the cheapest available option on the corner.
So, it’s a lot about trust. It’s a lot about chemistry. It’s a lot about expertise. And we want people who think those are more important than pricing. So then, if there is a slight fluctuation between this price or that price, we’re still going to get the gig. We went from being the least expensive company in the room, and not winning, to now most of the time being the most expensive company in the room and winning. And I like that version better.
Loren Feldman:
Jaci, when you say you left the rat race of RFPs, does that mean that when somebody comes to you with an RFP, you refuse to play along?
Jaci Russo:
I say things like, “Thank you so much for considering us. But at this time”—which is for the past 15 years, and will continue to be for the rest of my life—“we don’t participate in the request-for-proposal process. If you want to meet with us, and have us do a discovery and put together a proposal, we’re happy to do that. But I’m not filling out your RFP. I’m not playing your game. I believe that you already know who you want to hire, and I think you should go hire them. And don’t waste my time so that you have somebody to say no to to justify the decision of who you want to hire.”
I don’t always say that last half, but I think it. And my creative team is happier, I am happier, we are happier. We have not participated in a single RFP in 15 years, and we won’t under my watch.
Loren Feldman:
Why do you assume that somebody who’s doing an RFP process already knows who they want to hire?
Jaci Russo:
Because most of the people who I’ve talked to who have conducted RFP processes say, “We really know we want to hire this agency, but we need to have five to justify the decision.” I’m like, “Okay, good luck.” And sometimes they say it’s me, “We really want to hire you, but…” I’m like, “We’re not going to be a part of a decision by committee. We’re not going to look as good on paper as we do when we get to actually have conversations and talk. So if we’re just filling out this piece of paper, and we’re going to be judged apples to apples on the paper, what we’re bringing to the table is not going to come through. I’m not doing spec work.”
That makes me sound like I’m very unpleasant, but I’m very pleasant to work with. We’ve been able to sort of narrow down and figure out where we excel. And that’s where we spend our time.
Loren Feldman:
Mel, I’m guessing you do play the RFP game. Am I right?
Mel Gravely:
We do, in a select way. We will RFP if it is a qualifications-driven RFP. So we’re not afraid of the pricing part, but there must be a qualifications part of it. So we don’t hard bid, and hard bid would be basically—we’re a construction company—“Here are the drawings. What’s the price?” That’s a hard bid. We don’t do that at all, zero, none. Because we don’t want to be low. But we’re not afraid of competing, if price is a factor amongst others. So we do qualitative-including RFPs.
In Episode 185, “Managing Your Tasks, Your Credit Cards, and Your Anxiety,” Jay, Jaci, and Sarah respond to a Reddit poster who asked whether the stress of owning a business ever subsides. The thought of a stress-free life brought a few chuckles from the owners.
Loren Feldman:
I saw an interesting post on the small business subreddit, from a business owner who had a question that I think might be relevant to a lot of our listeners. I’m going to read it to you. It’s titled, “When does the anxiety of a new business subside?” And this owner wrote, “I started my business”—we’re laughing already—“I started my business wilderness guiding and outfitting last year, and things were very slow at first. December got some business. January a little more. I was hopeful. Word started to get out. But suddenly this past week, I have been flooded with requests via calls, emails, texts, and forms submitted on my website. And it’s absolutely amazing. I’m 100 percent not complaining. Just a week ago, I was stressed about if I could even pay my bills. But the sudden influx of customers and reservations has me feeling anxious and a little overwhelmed. I’m so worried about a customer falling through the cracks as I navigate getting back to this person or that person making this or that reservation for a trip or service. It’s just that it was so sudden as if everyone all at once decided they wanted to do a trip. I am a one-person show.”
Jay Goltz:
Well, that’s an easy one. The anxiety stops at the 42-year mark. [Laughter]
Sarah Segal:
What?!!!!
Jay Goltz:
I’m just kidding. Lighten up.
Sarah Segal:
They’ve gotta hire somebody.
Jay Goltz:
I think it’s about managing customer expectations. I think if whoever is emailing, texting, whatever, you say, “I’m a one-man show. I return all correspondence between…” and just let people know when you’re gonna get back to them. I think people are perfectly happy—most will be happy with that. And just, when he/she gets home at night—you go ahead and get back to them. I’m always happy if they just tell me when I’m going to get the return. That’s all. I just would like to know where it’s at. I don’t think there’s anything embarrassing to tell someone, “I’m a one-man operation.”
Sarah Segal:
But you need to have a system in place also. I mean, whether it’s Todoist or something else, you need to get the person’s name, put it in a spreadsheet. They came in, you responded, this is pending, what’s the next step. And just making sure that you’re organized on all of those things and updating that spreadsheet every day so you can keep track of everybody.
Because the worst thing in the world is to get a Yelp review: “Oh, I tried to go on this outdoor adventure, but they never got back to me.” You want to avoid that. But you could probably, if reservations keep coming in, hire a freelancer, somebody to help manage that. There are tons of folks who are perfectly capable of just helping send out those emails: “Thanks for your inquiry. We are a one-man show. We will get back to you within the next seven days,” or whatever it is.
Jay Goltz:
I think those phone answering services make sense, too. I can’t tell you how surprised I am when I call companies—and we’re talking about things that cost thousands of dollars—and the phone machine just says, “The person you’re trying to call isn’t here.” They don’t even put their name on it, for God’s sake. Even if it just said, “Hi, this is Joe Schmo, leave your name and number.”
So I’ve learned, in my experience from being the customer, people are either really good at this, or they’re horrible at it. And there’s no reason to be horrible at it. To your point, have a system, have a person answering the phone, or have something. But it’s not brain surgery. And I’m surprised at how many companies just drop the ball on it.
Loren Feldman:
I thought this one was interesting, because it was so early in the process. I mean, he acknowledges, this is one of the lucky ones. He started his business, and it was slow for a couple of weeks, and then boom. That’s a problem a lot of people would like to have.
Sarah Segal:
I know. I want to know what the secret sauce is. How did this person do that? Like, tell me, and I will emulate it.
Jay Goltz:
You know, it starts with a website.
Jaci Russo:
And seasonal. So if he started in the beginning of the winter, then it’s gonna be slow. And now people are planning spring and summer trips. It’s gonna pick up.
Loren Feldman:
I sense he was asking a deeper question. It wasn’t just about managing the sudden inflow. It was about adjusting to life as a business owner and recognizing that even if he figures out this situation, there’s going to be more coming that he’s going to have to live with.
Jay Goltz:
Yeah, he’s gonna have to deal with the next step, which is, he’s gonna have to learn about hiring and firing and management—which is not a simple thing. And—it’s a he?
Loren Feldman:
I think it’s a he.
Jay Goltz:
Okay, if he wants to grow—you know, I deal with this in the framing business all the time. I just was at the show, and I said to everyone, “You have to make a decision. Do you really have the mindset, the stomach, for growing a business? Or do you want to be a one-person frame shop? There’s nothing wrong with that, if that’s where you’re comfortable.” Because he’s going to have to make a decision: Does he want to grow this to have a staff and be a manager?
In Episode 186, “Can Jimmy Beans Wool Sell Yarn on LinkedIn?” Laura and Shawn talk about Laura’s unsuccessful efforts to move marketing off her plate and get others to do what she’s always done. Part of what she had to learn is that marketing doesn’t come as naturally to others as it does to her.
Laura Zander:
I’ve been told that I’m a marketer and that I’m good at that. And I don’t know, I have a hard time thinking that other people can’t do it as well, or do it a lot better than I have.
So I’ve let go of that for the last few years, and I just thought she could take that on with the leader that she has. And I just don’t think their skills are there. They don’t have that same intuition. They don’t think that same way. They don’t think huge. They don’t think about getting Hugh Jackman to do a video for them. We haven’t had that for a number of years. And I think it’s just catching up to us. So that’s where I’m kind of stepping back in and going, like, “Okay, we’ve got to think big.” You know, going back to Marketing 101: It’s not just about marketing to our existing customers, which our team is really good at. It’s about: We have to grow. Literally, our customers are dying off every year. We have an older customer base, and we need to get new customers in. And we need to do it in a systematic way. And our team doesn’t think that way.
Shawn Busse:
And that’s the hardest marketing. New customer acquisition is 100 percent the hardest marketing you can do.
Laura Zander:
Oh, it is? I love that.
Shawn Busse:
One hundred percent.
Laura Zander:
Oh, I think it’s so fun!
Shawn Busse:
See, this is your unique gift. Anytime there’s something where you think it’s easy, and everybody else thinks it’s hard? It’s like, that’s the special thing. That’s your unique gift.
Laura Zander:
Yeah, it’s just door-to-door. I love going door to door.
Loren Feldman:
Along those lines, when you described it before as your team kind of lost sight of Marketing 101—
Laura Zander:
Yes.
Loren Feldman:
—I think, along the lines of what Shawn is saying, it really isn’t Marketing 101.
Shawn Busse:
No, it’s not.
Loren Feldman:
You brought a unique brand of creativity to it, and just the example you gave of bringing in Hugh Jackman to be part of a campaign. That’s not Marketing 101.
Laura Zander:
Yeah, it is. It’s easy. No, this is actually very enlightening, because that is the mistake. The oversight that we made is that I assumed that that stuff is just Marketing 101. Like, it’s not that fucking complicated. It’s not that hard. And so I let go of that. And my expectations, then, obviously, are set at the wrong level. And I’m expecting other people to just be able to do that. And it doesn’t come as naturally for them. And so we’re having to reset and reorganize and then you figure out: Do I find somebody who that is Marketing 101 for? Which is expensive. I mean, this goes back to Cliff Oxford.
Loren Feldman:
But I don’t think that’s what you’re looking for.
Laura Zander:
Well, that’s what Cliff would always say. He’s just like, “You’re never gonna find somebody to replace you.”
Shawn Busse:
Who’s Cliff Oxford? Sorry, I don’t know, Cliff.
Laura Zander:
Oh, Cliff was a blogger for The New York Times. He’s been friends with Loren forever, and he was a good mentor to me, in a lot of ways. And he was a marketing genius, if you will. But yeah, he was always like, “You’re not going to find somebody else. Like, you are marketing. You are the marketing person.” And I’ve resisted and resisted and resisted. I’m like, “I don’t want to do it. It’s too easy. It’s boring. I’m gonna do other stuff.”
But anyway, maybe the takeaway here—and I love what you said, Shawn—is that if I think something’s easy, and other people say it’s hard, then maybe that is my unique gift. And that’s something I need to lean into, as opposed to trying to outsource or farm off. And then I get frustrated, because I’m just like, “Dude, it’s not that freakin’ hard.”
In Episode 187, “Man, I’m Glad We Didn’t Do an ESOP,” special guest Matt Hoying tells Shawn and Jay how he chose to create a do-it-yourself, employee-ownership structure at Choice One Engineering in Ohio rather than creating an ESOP. We start with Jay summarizing Matt’s concerns about ESOPs.
Jay Goltz:
Okay, so as someone who has spent a lot of time looking into ESOPs, it seems to me that the issue is—there’s no question, I don’t think, that there is a tax advantage to ESOPs, but just correct me if I’m wrong. The reason why you gave up the tax advantage is because, A) you liked the fact that they have to pay money to get into it, which an ESOP isn’t that. You liked the fact that not everybody is going to be invited into it. I assume you liked the fact that you don’t have the government in your place every day, telling you what to do, because there are tons of regulations with ESOPs, because it’s a government-sponsored tax plan. So you don’t have any of that now, I assume, right? Is that true?
Matt Hoying:
That’s correct, Jay. And I mean, you hit the big topics there. But that last one is one of the ones that I look back on and say, “Man, I’m glad we didn’t do an ESOP,” because we’ve changed our plan a couple of times since 2014. You know, not having the control to be able to internally, within our own ownership group, decide what’s best for our structure, was something I just couldn’t get past. Like, I’m gonna have the government telling me what I can and cannot do with our business? That just never resonated with me.
Jay Goltz:
To be fair to the government, I understand why they do what they do. It’s just like a 401(k) plan; they don’t want somebody to be able to take this and manipulate it for the benefit of a few people. So I totally respect that the government’s got their hands in it. Your plan is far more running the business in the most efficient and effective way. And by doing an ESOP, you lose some of the tools to do that. So I totally understand why it was worth giving up the tax advantages for that.
Matt Hoying:
Yeah, and I looked at it as, there are pros and cons, and ours isn’t a perfect system by any means. But what was the way that we could best ensure the future of Choice One? And when I say the future of Choice One, I mean Choice One in the way we want Choice One to be. Could Choice One exist as an ESOP? Yes, absolutely. But there are lots of things we do that an ESOP wouldn’t necessarily encourage or support.
Loren Feldman:
Matt, when you were talking about what this would mean for the future of the business, I think you may have been referring to another aspect of ESOPs, which is that you can’t really control what a future generation of owners will do. They would have the option—and maybe even the fiduciary responsibility—to sell the business at some point. Was that a concern?
Matt Hoying:
Yeah, that was probably the last piece of it that really turned me off to the ESOP, was that we wanted to be able to say: We want to operate Choice One as we feel is best for Choice One. And if that means continue on forever, or if that means someday do we sell—I don’t ever see that in the future that I’m involved in Choice One—but my concern was that if a very enticing offer financially was on the table and we were an ESOP, that we would have to consider that. And we like the ability to take those emails or phone calls that come in way too often and just say, “Thanks, but no, thanks.”
In Episode 189, “What to Expect When You’re Expecting a Business,” Paul, Jennifer, and Liz respond to a small business subreddit post from a young woman who’s about to marry a man who’s about to birth a business and who’s thinking about how they will balance the needs of the business with the needs of the marriage. We start with Jennifer warning against focusing on the best-case scenario.
Jennifer Kerhin:
The person that asked the question is in the throes of excitement. They are about to get married. There’s nothing more exciting than the engagement and honeymoon period. The fiancé is also about to start a business. There’s nothing more exciting than the thrill of starting on your own. Those two are a recipe for disaster. The passion and excitement will meet the brick wall of reality pretty soon. And so what I would suggest to them is to talk to someone who has had a business fail and have an open, honest conversation.
Because what I’ve heard people say is, “Oh, I’ll work now. I’m going to work really hard. But you’ll have the day-to-day job with the health insurance. In a couple years, we’ll be able to figure stuff out, and then we’ll have enough money. Don’t worry, we’ll take the vacation then.” Well, that’s the best-case scenario. I want to hear the worst-case scenario.
I want them to have a conversation. Let’s say you don’t buy that house after the wedding, and you put that money in the business. And two years from now, that business goes bankrupt. How are you going to feel about your spouse? Is your marriage going to be strong enough to survive? What are you willing to do to keep your marriage alive? Don’t think of the best-case scenario, because we all want to live in the best-case scenario. Think about the worst-case scenario. So that’s my advice. Liz?
Liz Picarazzi:
Yeah, so when I started my business, I had kind of sketched it out. I had a business plan for a couple of years before I left corporate. And part of that was that I wanted my husband to see that I was prepared to launch the business, that I wasn’t just doing it impulsively. So he had a couple of years to see my passion for what I wanted to do and to see the business plan. So when the time came for me to be able to leave corporate, I had a severance. I had unemployment that I was able to get. At that point, he saw it as: This is your opportunity to go for it, because we have this runway in front of us.
So it was kind of an easier decision. If I had just decided to leave corporate to start a handyman company, which sounds insane even now when I look back on it, he would definitely not have gone along with it. We probably didn’t talk about worst-case scenarios. And I could have had that, because my first business I ended up selling and getting out of very quickly. But there still was a messiness in closing that whole operation down that was definitely a strain on the marriage. There was still some money involved, even though I had sold it, and that was a really trying period. The lucky part of it was that the reason that I sold the first business was to focus on Citibin, my current business, and that was doing well.
So the conversation wasn’t, “This thing shut down. What are you going to do now?” It was, “Oh, it’s a good thing you had this other thing going when the first one imploded.” And then, current communications, as everyone knows, my husband, Frank, is my COO. So we talk continually about this. As we grow, the stakes definitely seem higher. You know, taking on a higher line of credit, buying inventory in a much larger quantity. That’s always a big part of tension for us, because he is risk-averse. And I’m like, “We need to prepare for success. Stop having a mindset of preparing for failure, Frank.” And that’s probably a tension we’re always going to have. But I think we understand why the other has that perspective, more than we would have a couple of years ago.
Loren Feldman:
Do you think it’s a healthy tension that gets you into the right place?
Liz Picarazzi:
I think so, yeah. There’s a lot of angst. There can be a lot of angst, because you don’t want to think that your spouse is preparing for failure. And if I really boil it down, when he’s being risk-averse, in my mind, I take it sort of personally and think that’s what’s going on. But really, he’s just being protective of the life we have—you know, the house that we have, which, yes, is mortgaged against our big EIDL loan. But it’s a big tension. And I have to say, it doesn’t work for many, many couples, regardless of whether you work together. It’s a very big area where a marriage can fall apart. And it is really important for this person on Reddit to have their eyes open.
Loren Feldman:
The second part of this woman’s question is, “What do couples where the spouse’s business failed wish they would have done differently in terms of communicating with each other.” Paul, happily, your business did not fail, but you’ve been very open about how tough it was around the time of the Great Recession. You wrote about it in The New York Times, and you wrote a book that was largely about it. Can you tell us anything about how you handled that in your marriage at the time?
Paul Downs:
Sure. One thing about my marriage is that all that was really bad, but it’s not by any means the worst thing that’s ever happened to me. My wife and I have a very severely autistic son, and that’s just a constant challenge. And we’ve been able to turn that challenge into something that binds us together.
So the business failing was a distressing prospect, but it wasn’t… How can I explain this? It just never got to the point where it was actually the worst thing, because it didn’t fail. But we had over the years—we’ve been together for a long time—we just settled into a pattern of how to be married that didn’t require—how to put this—it didn’t require any continuing assurance on my part that the business was going to be this or that.
And part of that is because it started as just an effort to be a reasonably successful artisan. And it quickly grew beyond that, but Nancy’s roots and my roots in business are very humble. And she just was not so worried about—or, at least, I didn’t feel that she was worried about—a moment where income was down or whatever. Because A), she grew up in a household where that happened a bunch of times. And B), we’d had a lot of years prior to that, when I was starting the business, where it just really didn’t make much money, and we just got used to not having money. So it was tough to explain to her every little in and out of what was happening in the business, and I just didn’t do it. But we skirted disaster. So I never really had to confront the consequences of whatever I was doing at the time.
Loren Feldman:
Paul, you and I met because you sent me an email, when I was at The New York Times, saying that you would like to write for the small business blog that I was editing. And you thought you could provide a different perspective because you were running a business that was headed toward bankruptcy. At the time you wrote that email to me, did Nancy know that you felt you were headed toward bankruptcy?
Paul Downs:
I don’t know. I didn’t explicitly say it to her that way. At the time I wrote that email, which was mid-December of 2009, we’d already been through a pretty tough year. She knew it was bad. But she’s not somebody who can really listen to the minute-by-minute, “Oh, here’s how much money we have in the bank account.” And I think that that’s partially because, as I said, she grew up in a household where there were some pretty lean periods. And it would just be distressing for her.
And the other thing is, when you have a child with special needs, one of the things you learn is that something happened to you, right? It just happened, and then you deal with it. And so with the impending bankruptcy, I could see it coming. But at the end of the day, it did not happen. So I never really had to get down and deal with it as the biggest problem of the moment, because we just got out of it. And it just made it possible for me in my marriage to get through that without having that frank conversation. Now, that’s my experience, my wife, my situation. And I would never hold that out as, “Hey, if your business is failing, you should do what Paul did.” Don’t do what I did. I’m not a good role model, in this case. So I think you should ask the other podcasters.
Jennifer Kerhin:
A couple of specific questions to give this person some really specific feedback: One is, if the company fails, who’s responsible to pay back if there’s any debt? Is this an assumption that the marital couple will do it together? Or that the person who had the business, it’s their responsibility? Second is, how soon after it fails is the expectation that that person who’s a business owner would get a job? And I don’t mean, like, employment, but to bring in other cash, whether that just means taking catering gigs on the weekend to bring in cash. What’s that expectation of a time period? Is it a month? Is it two years until they get their feet on the ground to start a new business? You know, everybody’s different.
Three is, expectations of changes in lifestyle. Most businesses that fail at this level, your lifestyle is probably going to change dramatically. Are you on the same path of, “Well, we still need to take that luxury vacation on the cruise?” Or, “Do we need to cancel it?” And then the final one, I would say, is: Where’s the health insurance coming from? If the health insurance is from the spouse that’s not the business owner, and they had expectations to do something themselves—another job, staying home with children—there’s all sorts of reasons to relook at that, because health insurance is a serious aspect on the marital side when a person wants to start a company. And who’s going to provide that?
In Episode 195, “Yeah, I Can Hold Myself Accountable,” Mel tells Jay and Liz that as he was moving into an executive chairman role at his main business, Triversity Construction, he decided to buy a small business that he’d always thought had a lot of potential. Things didn’t work out the way he expected, mostly because Mel didn’t realize that the company he bought was literally losing money on every sale.
Loren Feldman:
Did you buy this business as something that you expect to really focus on, now that you’ve kicked yourself upstairs from your main business?
Mel Gravely:
Actually, I bought it because I always loved this business. I was hoping that I could convince Triversity—the company that I was exiting to—over time, to see the value in it and add it to its portfolio of companies that it owns. And so that was the motivation, right? They were not buying in. And so I decided to buy it myself, and convince them over time that it was a good idea.
Loren Feldman:
It’s a construction-related business?
Mel Gravely:
Yeah, it’s facilities management. So it’s the grunt work. Plus, you know, little patches of drywall all the way down to mowing grass and moving snow and cleaning out gutters and cleaning windows. It’s the ultimate execution business. But good companies during even bad times, they’re going to maintain their facilities well. And so to me, it was an offset to the economic kind of trends that construction can lead itself into. But it is a tough business. And the company I bought, I misdiagnosed their challenges. And now I’m in a situation where, now I understand the challenges, and they’re tough ones.
Jay Goltz:
How many employees are there all together?
Mel Gravely:
In Triversity or the new company?
Jay Goltz:
No, everything under your purview.
Mel Gravely:
One hundred fifty people, maybe, total.
Loren Feldman:
And the new company, are you managing it on a day-to-day basis?
Mel Gravely:
No, there’s a president in place. If I had five years, he’d be great. But I don’t have five years. And he’s got to giddy-up a little faster. He’s bright. He knows this business super well. So I would have to say he’s managing the day-to-day. But I’m very involved, Loren. I’m very involved. And I’m not used to being very involved. So it’s a challenge.
Loren Feldman:
Can you give us a sense of what the main challenges are? Why is it a tough business?
Mel Gravely:
Yeah, the fundamentals are, this company, when I bought it, had one customer. So that, to me, is not a problem, because they had an amazing customer—a very large customer for this kind of business. And we were performing very well for them. So I was confident that our ability to perform was going to be a base for us to grow this business. What I misdiagnosed, I thought they had a management problem. They had a structural contractual problem with the customer that is just… We were actually paying the customer to show up every day. And the team just didn’t know it. I had never seen negative gross margin before, literally never seen negative gross margin. And when I saw it, I just knew it was a mistake.
So that’s the biggest challenge. The good news is that it’s a great customer. We’re working through new contract terms, new bill rates, that will put it back to profitability. But you know, when you dig a hole as deep as we dug it, it just makes it a challenge. The second thing about this business, it is very cash intensive. When you do business with big customers, 90 days are good terms. And so you’re paying weekly, because that’s the kind of employees you have, and you’re getting paid in 120 days. So the cash that it can consume is significant. So you add the cash that it consumes to lack of profitability, and it becomes very difficult.
Jay Goltz:
Wait, wait. See, this is what’s interesting about this podcast. We’re very different. Everything you’ve been saying up till now, it’s like, “Yeah, that ain’t me.” I mean, we’re on opposite ends of the spectrum. You’ve got a bunch of partners; I have no partners. You’ve got one customer; I’ve got 40,000 customers. You finally hit on something. Okay, I got my arms on this one. What’s with 120 days? Why do you have to wait 120? And what if you say to them, “You need to start paying quicker”? Why do you have to live with 120-day payment terms?
Mel Gravely:
That’s a great question. You don’t have to, but you do have to if you do business with them.
Jay Goltz:
So you think, this particular customer, if you say, “We can no longer finance this at 120,” Do you think they’ll find someone else that will do it for 120 days?
Mel Gravely:
I guarantee it.
Jay Goltz:
Wow.
Mel Gravely:
Now here’s the nice thing. If you’re smart, though, and you’re profitable, you just build a carry into your business model. But you’ve got to build the carry into your business model. And if you don’t, then you’re going to be really hurting. Triversity, the construction company, does business with the same customer. We’ve never had a problem with the 120 days. We have some problems with our subs that can’t wait that long. But we’ve never had a problem with 120 days, because we’ve built it into our business model.
Loren Feldman:
Are you looking for other customers?
Mel Gravely:
No. Well, here’s why. I’ve got to make sure that I can cash-flow a new customer. The worst thing I could do today is get a new customer. The customer would have to pay me upfront, and at scale, those are hard to come by. When we get this model straight, though, I’m confident. The customer and I are very clear about this. We can get back to 120 days. We can continue to deliver at the A-plus level that we’ve been delivering. And then we can start to add customers.
Jay Goltz:
You say you have negative gross margins. I assume you’ve got to charge more, right?
Mel Gravely:
Oh, absolutely.
Jay Goltz:
Okay, so my question is: Are they going to find someone else if you raise your prices where they need to be? Are they going to find someone else who’s going to go ahead and do it cheaper because they don’t know the difference? Is that a question mark?
Mel Gravely:
It’s not a question for me at all, because we’ve been very clear: Please do find someone else that could do it at this price, and they can have it. You know, when you get super clear about it, the customer gets super clear, too. And they’ve been great. Because what I said is, “I’m going to show you everything, all the costs. And you tell me that you’re paying for what you’re getting.” Now, they never admitted, “We’re not paying for something that we’re getting.” What they did say is, “We’re willing to talk to you about the pay, to raise the rates.” So they’ve been great about it, to be honest with you. But it’s not their job to make sure I’m profitable. They want me to be profitable. It’s not their job.
Jay Goltz:
So, the interesting business question to me is, the people that you bought this from—I’m gonna guess they didn’t have the proper accounting people in place to recognize that they were doing it at a negative gross profit. Is that true?
Mel Gravely:
That is correct.
Jay Goltz:
It comes down to accounting.
Mel Gravely:
It does. And an idiot that would buy it without believing the pro forma because this company did not have the model change. I’m gonna try to keep it short. This company did not have financials when I bought it. It didn’t even have employees when I bought it. The two owners prior to me were loaning employees to this business and charging the business 10 percent margin for the cost of carrying those people. So they had no purview into what it was actually costing the company to do this because they didn’t care. Because they were both getting 10 percent on all their employees. Where they did care was, they couldn’t seem to cash flow. That’s why I misdiagnosed. I thought they just had a bad model and they weren’t managing it well. It was worse. They had a bad model. They weren’t managing it well. And they had no idea what it cost to deliver the service.
In Episode 196, “How to Waste Money on Marketing,” Shawn, Jaci, and William talk about the many reasons marketing can be so challenging for business owners. It all starts, Jaci says, with the marketing industry’s refusal to set standards.
Jaci Russo:
So I hear from companies all the time this frustration that: Agency XYZ, we paid them all this money, and we got nothing for it. And now we don’t have money for you. And we think you’re gonna do, actually, a really good job. And now we’re sad that we wasted the money.
So sure, maybe part of it’s just a thing to get out of saying yes to us. But they could just say no. But as I dig into it, and I see what XYZ Agency did there, they’re right. They did get paid a ton of money. And very little was done. And then I looked a little deeper. And, you know, the client should have been smarter, there were some red flags. They should have maybe not hired XYZ. But here we are.
And so I think in so many situations—and Shawn, I’d love to know your thoughts on this—we do it to ourselves as an industry. Anybody can call themselves an ad agency, or creative agency, or communications firm, or PR company, or whatever you want to call it these days. Anybody can open their Mac laptop and have a Canva account, and now they’re a designer. We have not done any licensing, or certification, or educational requirements, or testing, or ongoing continuing education. And I look around, and literally, I can’t find another industry that treats themselves so badly. Electrician, CPA, Realtor, hairdresser, nail salon tech, everybody else has some semblance of something to say, “I am a legit entity.” Except our industry. And I don’t get it.
Shawn Busse:
Oh, man. That’s such a good point, Jaci. I was on a call the other day with a company that had 300 employees. Let’s just call them an engineering firm. And they had just fired their entire marketing department. And I was just sort of digging in, and I realized their marketing team had built this Byzantine spider web of digital marketing that no one could understand. And I was digging into it, and what I realized, Jaci, is that the level of complexity that has become the marketing and advertising industry is way higher than people’s perception of its complexity. You know, this owner of this company—which is in the tens, maybe hundreds of millions of dollars—he has no idea, really. And he’s a pretty smart guy, right? He has no idea of, say, the difference between an SEO strategy and maybe account-based marketing, or thought leadership and all the different ways that plays out and what is a relevant social media strategy?
And what I realized in that moment, is that in our career—I think we have a probably similar career trajectory, Jaci—back in the day, when you and I were operating early in our careers, it was like, you didn’t actually have to track that much. Maybe four or five channels, in terms of how the message might get to the customer, and then you could just focus on being creative. And today, marketing is everything from super, super highly technical tracking users and their digital behavior to actually being really creative and innovative, and brand, and all places in between.
And I really think that the business world just fails to comprehend how complex it is. And then as an industry, we’ve done ourselves a terrible disservice by actually not creating some standards and education. And so it’s a freakin’ Wild West. And no wonder. I mean, Loren, you’ve said this before: It is the one topic where there’s massive confusion and frustration. Of all the aspects of running a business, there’s so little clarity on what to do with marketing. Why is that?
Loren Feldman:
I have said that, Shawn, and I’ve focused on it from the perspective of business owners who just struggle with figuring out where to spend their marketing dollars, who to hire, what channels to use. It hadn’t really occurred to me that it could be frustrating from the other side of the table as well. Which is one of the reasons it intrigued me when you brought this up, Jaci. Have you spoken to other agencies? You mentioned you get on your soapbox when you can. Have you gotten anybody to salute?
Jaci Russo:
I mean, everybody, whether it’s local agencies, agencies that we partnered with on clients. You know, we may share a client, each filling a different role. I’m an AMA member. I’ve brought it up to them—AdFed. It’s sort of this third rail nobody wants to touch. And I never want it to sound like I’m saying, “I’m inside now, so I want to close the door behind me and not let anyone else in.” Please, don’t hear that. What I want to do is: Let’s just go with a naming protocol. The reason why the company in Shawn’s example had all these people doing all these things, is because there’s no protocols in place.
I think about architecture. What would it be like if every architect was self-taught? [Laughter] Maybe they have a degree, maybe they don’t. Maybe they went to a two-year, maybe they went to a four-year. Maybe they worked at other companies for years, or maybe they just learned some stuff in their mom’s basement and watched some YouTube videos. And now, they’re out there selling their architecture. We would never allow that. Why would we not allow it? It’s a hazard. They could build something that could fall down. It’s an incredible expense. It’s safety. How is this any different?
Loren Feldman:
William, is this confirming your worst impressions of the marketing industry?
William Vanderbloemen:
Oh my gosh. I listened to this podcast two weeks ago. We’re rewiring our whole marketing thing, trying to figure this SEO thing out, among other things. And it’s deep, dark magic, man. It’s not Don Draper coming up with a good idea. I’m just learning how much tactical strategy is in place, and then also intuitive: I think this is right. And I should have hired you guys to come help me figure it out.
Jaci Russo:
Yeah, well, call me. We’ll talk. [Laughter]
In Episode 197, “How to Sell a Business That Won’t Sell,” we discuss what we’re calling a “We-SOP.” The term, coined by Jay, refers to a business transaction that is something of a do-it-yourself ESOP but without the expense and complication and debt of a full ESOP. It’s a transition that lets owners get money out of what has been their life’s work. It lets loyal employees, who may not have the money to buy the business right away, keep their jobs and preserve the company’s culture and—eventually—buy the business. And it’s a potential solution for the Silver Tsunami of retiring Baby Boomers because it can provide a sales path even for owners who have never managed to extricate themselves from their day-to-day operations. In this episode, Jay introduces us to Jill and Paul Choma, co-owners of a business, Gilded Moon Framing, that Jay recently guided through the We-SOP process.
Jay Goltz:
I realized that when you sell a small business, you usually get—in general, unless you’re a computer business, I don’t think anyone would argue with this—you get three and a half, four times EBITDA, which is very similar to profit. Okay, so, I realized: Boy, if you could just hold on to the company for a couple more years, if you’ve got that luxury, you could get some of your money out just by holding onto it.
Loren Feldman:
I think you need to explain that. You could get some of your money out just by holding onto it?
Jay Goltz:
For instance, if you own a business and you sell it, let’s just say you get four times earnings, okay? Well, if you could get someone to run the business, and you could go on vacation for four years, and keep it going for four more years, you’ve got the earnings. You basically got your money out, I mean, which is why—
Loren Feldman:
It’s like the sale price. You still own it, but you’re not there every day. You get to collect the profit, and that’s the sale price.
Jay Goltz:
So I said to Paul and Jill, “Can you sell to your employees?” And they said, “We’d love to, but they don’t have any money.” And I looked into an SBA loan, and that’s when the lightbulb clicked on. And I said, “You know what? It’s hard enough to take a civilian and turn them into a business person, like that takes some work. But it’s really hard to take somebody who’s a civilian and turn them into an entrepreneur, because that’s the whole definition of entrepreneurs, is taking risks.”
If they went out and got an SBA loan for hundreds of thousands of dollars—I’ve seen this happen—they’re going to be real nervous. They’re going to go to Thanksgiving dinner. They’re going to tell their Uncle Bob, and Uncle Bob’s gonna go, “Oh, no, you can’t do that. Remember what happened to my friend so and so?” People are gonna freak out. We don’t need to do that.
So that’s when I came up with—I’m calling it a “We-SOP.” It’s very similar. You sell it to the employee, except you stay around for a couple, maybe three years. And you give them a little raise. Maybe you put that money on the side. And then after two or three years, you’ve already gotten most of your money out, like I said, because you’re still getting the profits. And then you can sell it to them. And there’s no bank loan. There’s no SBA loan. No one’s got the risk. And then after two or three years, maybe it doesn’t work for them. Maybe they decide they don’t want to do this. Maybe they got divorced. Maybe their mother left them $300 million dollars. There’s lots of reasons. You’re still okay, because you still own it, and you don’t have any lawsuits. So I proposed that, and they made it work.
Paul Choma:
Yeah, it was genius. It really worked out well for us.
Loren Feldman:
So tell us about the reaction of your two key employees when you threw the We-SOP idea at them. What did they think?
Jill Choma:
They’re very smart young women, and I think it took them slightly by surprise that they hadn’t considered it. But once we kind of laid out a roadmap on what we were thinking and let them have some time to talk amongst themselves—one of them is married, and she spoke with her husband, and his comment was, “This is a gift.” Because we did give them a very attractive price.
When we bought our building, as Paul said, it was a gift to us because it was such a good price. We figured, “Okay, let’s pay it forward. And let’s give these guys a gift.” Because they’re smart, young women. They’re creative, and they’ll be able to take this business and run with it, and take it to the next decade and beyond. So once they spoke about it and came back to us and said, “Yes, we’re interested,” then it became time to really put a plan together. And we worked out a deal with them, where we would hold the note, and they would pay us for the sale of the business. We charged them a fair amount, but it was a lot less than what we were asking through the broker.
Jay Goltz:
Wait, wait, qualify that. Which you could do, because you’re getting the income for the next couple of years. So you didn’t need to get four times earnings. All you needed to get was two times earnings, because you got two more years out of it, and they were running it. That’s the key to the whole thing. You didn’t lose. This was a win-win. If there’s ever been a win-win in the world, this is a win-win. Everybody came out great.
In Episode 199, “I Decided to Slow Our Growth,” Jennifer called in from Spain, where she was finishing up her first real vacation since starting her business almost 20 years ago. The vacation, Jennifer told Shawn and Jay, is part of a decision she made to regroup a bit, in part by backing off on her sales and marketing outreach. The goal was to give her team and herself a bit of a respite while they catch their breath and while Jennifer institutes processes that will improve operations and get some day-to-day responsibilities off her own plate. I asked Jennifer how much she’d kept in touch with her office during the more than two weeks she was away.
Jennifer Kerhin:
I would say the first 10 days, not at all. Not at all. I made one person, who is basically my second in command—anything that was an emergency could go to her, and she could text me. She didn’t at all. And then we actually had an event here from a client in Barcelona the last four days, so I stopped in to see them. But no issues whatsoever. It’s been fantastic. The only thing I had to do—which I’ve got to figure out how to get off my plate—is I had to run payroll twice. But other than that, I didn’t have to work.
Jay Goltz:
You run the payroll because you don’t want everybody, because there’s no way you will be comfortable knowing what everyone else makes?
Jennifer Kerhin:
Yes, Jay, and I think this is purely—I have a person now who does finances. And she’s like, “Jen, you gotta learn to trust somebody to do payroll.” It’s exactly that, Jay. It’s the last thing I’m holding on to as a CEO. Everything else, I’ve sort of given up.
Jay Goltz:
But that’s not irrational. It is a potential problem if somebody knows. You’re not necessarily wrong to be careful who you give that to, because that is information where somebody could go, “Oh, I can’t believe she makes more than I do. I’ve been here longer.” I mean, it’s not that simple. It really isn’t that simple.
Jennifer Kerhin:
Compensation is something that is not just a skill set. It’s not just experience. It’s what the market value is for that skill-set. For us, how many times do you travel? If you only travel 5 percent versus 25 percent, right? There’s so many variables with compensation, and I’m just not ready to give it up yet.
Loren Feldman:
And you’re assuming that the word would spread?
Jennifer Kerhin:
I know. And maybe it wouldn’t, Loren. I don’t know.
Jay Goltz:
You’re not necessarily wrong. Listen, when you actually grow and you have a CFO or controller that makes more money, okay, that’s not a problem because they’re making more money. But when you’ve got someone on there who is not necessarily making more money than the other people, it’s tricky. I don’t blame you for being hesitant to give that up.
Jennifer Kerhin:
And it’s a different culture. You know, people under 30 are much more likely to share their salaries.
Loren Feldman:
That’s what I was gonna say. They all may already know.
Jennifer Kerhin:
Some of them do. Yes, definitely under 30. They’ve shared it. I don’t know if the people between 40 and 60 have shared it with the under 30s, right? And giving up? I don’t know. It’s the last vestige of me holding on. I think in probably less than a year, I’ll be ready to let it go.
Loren Feldman:
Shawn, did you worry about that at all? Was it hard for you to let that go?
Shawn Busse:
No.
Jennifer Kerhin:
[Laughter] That was quick!
Shawn Busse:
Yeah, I mean, 2008 was a really big reset for my company, kind of forced upon me by the recession. And I made a lot of really big decisions that were made easier, because I kind of had nothing to lose. And so when you’re in that kind of mind space, I think it’s liberating. And so one of the things I decided to do was to remove all the low-value activities from my life, and also outsource as much as possible. So it helped, in that we outsource things like payroll, which eliminated some of that friction back in that time.
And since then, we’ve gone to open-book management, and I’ve talked quite at length about this, in terms of my belief on compensation philosophy and making it far more transparent to eliminate a lot of those hidden frictions and backdoor conversations that are bad for culture. So for me, it’s been very liberating to not be focused on that for, I don’t know, 14 years or so. But that’s part of my just sort of ethos and mindset of A) not wanting to work on things that are low value, and B) eliminating things that are potentially troublesome for the culture. So that’s just been my approach, and I know that doesn’t work for every business.
Jennifer Kerhin:
No, Shawn, I hear you. And I’m very open-book transparent about the books of the company, you know, the financial aspects of the revenue and profit and stuff. But the last vestige, again, I know, it’s just sort of holding on to me. It’s controlling me, rather than me controlling it. And I think part of it, which I fixed, is because when we grew so fast, we had legacy employees who I had to figure out how to catch up to new employees with salaries. So that was hard.
Now I’ve fixed it. I’ve fixed it across, but I need to get to your mindset of transparency where I can justify—I don’t want to be like the government. Like, “Step one, you get this increase,” whatever, but to add the compensation to a higher level of transparency and let go of it, you’re at a higher-level plane of consciousness that I aspire to, Shawn.
Shawn Busse:
Well, I should caveat this, that the development you’re talking about took place more recently. Just like you, we went from closed-book financials to open-company financials. And then the second phase was to move to a more deliberate, transparent compensation program. That transformation happened, I think, starting around 2018. So it took a little while to get there, too. So in many ways, I think you’re on the same track that I was on. And I will say that, for me, at least in my experience, it was so liberating, especially in the hiring process, because we have absolutely eliminated negotiation as part of the hiring process.
In Episode 201, “This Is Not How This Ends,” we published one of our Entrepreneurial Fish Bowl brainstorming sessions facilitated by Chris Hutchinson of the Trebuchet Group. In this one, we tried to offer ideas to support Jaime Echt, founder and CEO of The Crafters Workshop. As Jaime made clear, her challenges are real: Her sales are down. Her customers are aging. Her lease is ending. And she really wasn’t sure what to do next, but—summoning the grit that made her an entrepreneur in the first place—she knew she wasn’t ready to give up.
Loren Feldman:
Jaime, I just wanted to ask you: You’ve told us you’ve been doing this for a while now. You’ve obviously had some ups and downs. Could you just give us a sense of where your head’s at? Are you excited? Are you eager to try to rethink aspects of the business? Are you feeling burned out? What are you feeling?
Jaime Echt:
Oh, that’s a very good question. So I’m in my mid-50s, and I am not burned out. I certainly know what that feels like. This is not that. I feel like I am baffled and perplexed. When I’m kept up at night, it’s because I’m trying to think my way through this. And I probably didn’t say it forcefully enough. I mean, I’m at the point where I am using my savings, my line of credit. I am no longer bringing in the dollars that support my monthly nut. And we are very, very scrappy. There’s not a whole lot of fat here. So for me to get to that point is very worrisome.
When I talked to my employees about this, I said, “This is where we are.” And I said, “Tell me how you feel about this.” And they were like, “We’re not ready to see this go. That would be sad after all these years of working toward this.” So they are also energized to make this happen. I’m a planner, and I believe in playing the long game, so this is not how this ends. Like, we’ve been through 9/11. We’ve been through 2008. I’ve been through a divorce, a cancer scare with my daughter. I mean, a lot of stuff. They’re all with my business and all with the people here. This is not how this ends—but I do need some help thinking my way through it.
And that’s the end of part one. Next week, we’ll be back with highlights from the second half of 2024. In the meantime, my thanks to everyone who participated in the 21 Hats Podcast and the 21 Hats community this year, including our amazing producer, Jess Thoubboron of Blank Word. Happy Holidays, everybody!
