I Think We’re Ready for the Tariffs
Introduction:
This week, Liz Picarazzi tells Paul Downs and Sarah Segal that after a year of anxiety, she’s eager to find out what Donald Trump is really going to do about tariffs. Whatever it is, she thinks she’s prepared enough options to survive. “If your tax rate went from 11 percent to 60 percent,” she says, “I think most of us would be pretty freaked out, and I am, but I’m a little bit less so because of this work that we’ve done to be ready.” Paul, meanwhile, thinks there’s some chance his business could benefit from the tariffs—although he’s far more focused on his business’ very slow start to 2025. “It’s a little bit scary, frankly,” he tells us. And Sarah has been dealing with the pain of having to let one staffer go and the disappointment of having one of her senior people choose to go.
— Loren Feldman
Guests:
Paul Downs is CEO of Paul Downs Cabinetmakers.
Liz Picarazzi is CEO of Citibin.
Sarah Segal is CEO of Segal Communications.
Producer:
Jess Thoubboron is founder of Blank Word.
Full Episode Transcript:
Loren Feldman:
Welcome, Paul, Liz, and Sarah. It’s great to have you here. I want to start with you, Liz. For quite some time, we’ve been tracking your growing concerns about the possibility of having to pay increased tariffs on the manufacturing you do in China, without really knowing where this is going to end up. We still don’t know, but the signs certainly seem ominous, at least to me. Where do things stand for you now?
Liz Picarazzi:
So I still feel it’s ominous, but I also feel that we have protected ourselves in a number of ways, and it didn’t happen overnight. It really took the entirety of 2024 and a little bit of 2023, kind of seeing the writing on the wall. Then, as the Trump presidency became more real, we really accelerated what we call our China-plus-one strategy, meaning we’re going to diversify our manufacturing outside of China. And then, throughout 2024, we’ve really enabled Vietnam, and we’re already producing some there. We have visited Thailand, which is a possibility.
Canada, I had a, I would say, a little love affair that lasted about a month in October with Canada, and that ended up falling apart for two reasons. One was that the Canadian government put a 25-percent tariff on aluminum and steel coming in from China. So the Canadian government took an action that would adversely affect that. But then, as we know, in late November, Trump announced that there will be a 25-percent tariff on goods coming in from Canada and from Mexico. So, the excitement I had with Canada went away very quickly.
More recently, racing toward this January 20 inauguration, needing to figure out what’s going to happen, my family went to Vietnam in December and a little bit into January. I was there for 18 days. Part of it was vacation. That was the Thailand leg of it.
Loren Feldman:
When you say your family, Liz, you should remind people that that includes your chief operating officer, correct?
Liz Picarazzi:
Yes, so my chief operating officer, Frank, is also my husband, and our daughter, Lydia, who has kind of sort of become the travel planner for the business. Shortly after the election, when we realized that the tariff increase was a very strong possibility, I said: We’ve got to go over there. We’ve got to enable Vietnam to be ready to basically take all of our production over. We can’t afford a 60-percent tariff.
So we took this trip over to Vietnam, and literally were on the Mekong Delta, on the river, on December 25, Christmas, recently. Our families were not very happy that we weren’t in the U.S. with family for Christmas, but we had a very short time frame to enable Vietnam. And the visit over there was really worthwhile.
Loren Feldman:
What was your goal in going? What were you hoping to accomplish?
Liz Picarazzi:
So there were really two goals. The first one was to give them a very formal presentation at the factory of our entire product line. So right now, they’re just manufacturing one and a half of our products. And if we’re to move everything over, I realize they don’t have a familiarity at the level that I would want them to have with all of our other products. So not just our residential trash enclosures, but also our municipal, our bear-resistant enclosures, which are still in development. I realized I’m not going to just make a purchase order to Vietnam that otherwise would have gone to China for all these products—some of which we’re sold out of now. I wanted to make sure that they understood the full product line and the differences between the various enclosures.
So the first one was to sort of acclimate them to the full product line, and then the second second objective was to review samples. And so, one of the things that we’ve learned—and Paul probably appreciates this—is that it’s really important to adjust and sometimes create drawings from actual production pieces, so essentially, our golden sample—rather than have Vietnam try to produce from existing drawings. Because sometimes those aren’t updated. Sometimes there’s a lot of tweaks that we’ve done over the years.
So one thing that we identified was that there needs to be tighter knowledge transfer between China and Vietnam. And I don’t mean to bad-mouth anybody. We have a very strong U.S. China team that now includes Vietnam, and the three of us need to be working very closely.
Loren Feldman:
Remind us, there’s a connection between your Chinese manufacturers and the company in Vietnam that you’re now working with.
Liz Picarazzi:
Yeah, so I work with one agent slash contract manufacturer that has been with me in China and set me up in China eight years ago. And they also have operations now in Vietnam. So they’ve set us up with a factory in Vietnam, and they have one central sort of project management office over all of it, where the quality assurance, the engineering, all of it goes through essentially Shanghai, a lot of it through Basecamp, in practical terms.
But I just realized there’s a huge risk. Even if I was manufacturing in the U.S., and I moved manufacturing from one factory to another, one state to another—and I have done that in the past. There’s a lot of risk. Things can fall between the cracks. So the trip was about not only being ready, but feeling ready.
You know, it’s very—I’ll just say it. It feels really scary to not know where we’re going to be producing and how much we’re going to be paying and the uncertainty of that. All of us pay income taxes to the federal government. If your tax rate went from 11 percent to 60 percent, I think most of us would be pretty freaked out, and I am, but I’m a little bit less so because of this work that we’ve done to be ready. And I feel really good about our readiness. But I also did see some things that made me realize that there is risk in making this move and that there are some gaps that need to be filled to make sure we’re protected.
In the case of a 60-percent tariff, we’re not going to produce in China anymore if it’s 60. If it goes from 11 to 25, we’re probably going to stay there. And then we’ll have Vietnam as an option. Maybe we’ll split production between the two. There is some advantage in having several factories involved, because if there’s a backlog in one, then we can produce in the other. That’s one benefit out of this sort of search for our next—of developing our new supply chain. That has been one benefit, that we’ve diversified our production capabilities.
Loren Feldman:
Did you think it went well? Do you have confidence in the Vietnam facility’s ability to handle your needs?
Liz Picarazzi:
I do, but I’m still cautious, because we’ve had a couple of products that need a lot of fine-tuning along the line, particularly, as you may remember, a few years ago when we made the leap from just making residential bins to also doing bins for cities and for parks and for public spaces. It’s a lot more complex: the opening mechanisms, the locks, the latches, all of the hardware.
And so, we don’t have Vietnam producing those yet, and I’m just going to be really vigilant in the sampling process to make sure that goes well. We’ve developed a budget for more travel to Vietnam this year. I’m probably not going to be the one doing it. Frank may not be the one doing it, because actually, neither of us are the very best at inspections of product. But we do have an employee who has a very good eye for it, but he just had a baby, his first child, and so he’s on paternity leave. So, I am going to definitely tap him when he comes back to do a trip or two to Vietnam this year.
Sarah Segal:
Liz, I mean, this is obviously super stressful. You’re essentially starting your business from scratch, in terms of product. But is there a bright side to this at all, where there are some things that you’re gonna reinvent and do better because you’re kind of looking at it from the beginning again? Are there any positives to it?
Liz Picarazzi:
I think there’s probably two positives. One is that we’ve expanded capacity. So if we have a really big order, and our Chinese factory—let’s say we continue with them—they’re completely busy with that order, and then we have another one come in that’s high priority, we now have another factory that can produce and can fulfill that order. And that feels good, because we do have a bit of a history, when our supply chain is not tight enough, to make clients wait a long time. And we’ve got some really high-profile, really strategic clients that are coming on board. I don’t want them to wait. So, that’s a positive.
The second positive, I would say, is that I enjoy traveling. So, for the Picarazzis to spend 18 days in Southeast Asia because of work, and having a portion of that paid for by the business is a privilege. And our daughter, Lydia, really, really enjoys it. So she’s sort of psyched that the business is diversifying into these places where she wants to travel. And that’s just been very enriching. It’s been kind of cool for our family, and definitely for her as a learning exercise.
I really liked Thailand. I did not like Vietnam as much. I shouldn’t be saying that, but when I was sitting on the beach in Thailand a couple weeks ago, I weirdly found myself thanking Trump for his policy that got me over there. [Laughter] And it’s the only thing I will thank him for, but it was a sort of a benefit that I never would have expected.
Sarah Segal:
So you’re basically telling me that I should find some overseas clients for myself that require me to have in-person meetings.
Liz Picarazzi:
Sure.
Paul Downs:
You still gotta get the money into the company to pay for all this, but you’re basically doing a lot of the experience on a pre-tax basis, which makes it cheaper.
Loren Feldman:
Liz, how has your business been holding up through all this stress of the past year or so?
Liz Picarazzi:
We had a very strong 2024. We haven’t raised prices yet, and our business so far in January has been very strong. We have some city clients that, if you’re in a city like New York City and there are a lot of public parks, if a couple of public parks get Citibins, then other public parks want Citibins. So, we had some installations last year with parks that then have led to more work with parks. And some of those requests have come in December and January. So those are bigger orders. Those are sort of high-profile orders. There’s definitely a FOMO effect there, which businesses, of course, love.
But the risk is that, once we know what the tariff is, in almost any case, there is going to be an increase in price. And we don’t know where that’s going to be yet. We have it sort of worked through. We’re working with a consultant on various scenarios for pricing. And if it’s a 60-percent increase in China, and in the unlikely case that we keep it 100 percent in China with that 60-percent increase, there’s going to be a gigantic price increase that probably could put us out of business. Hence the diversification. But I haven’t had any loss of business due to pricing or due to general economic instability. So, so far, so good.
Sarah Segal:
Can I ask you—this is for Paul as well—you mentioned new orders coming in in January. When businesses get their budget allocated to them, do you find you get a surge of people coming to you to place orders for these big-ticket items? Or does that tend to materialize a little later in the year?
Liz Picarazzi:
We tend to get big orders not as much when budgets are replenished, but when a budget year is going to close. So in New York, it’s usually June 30, and there’s this sort of, I call it a Soviet effect. I used to study Soviet economics and politics, where you had to spend what was in your budget. Otherwise you’re going to lose it for the next year, so there’s this rush. And we’ve experienced it for two or three years now, particularly working in cities, that it’ll be four to eight weeks from the end of the year, their fiscal year, and they’re placing orders. That’s been a pretty awesome effect.
Sarah Segal:
What do you call it? You call it the Soviet effect?
Liz Picarazzi:
It’s just very Soviet, where there’s not a lot of economic logic to how money is spent. It’s all about spending the money you have so you get the same budget or an increase the following year.
Loren Feldman:
And it does happen in American capitalism, as well.
Paul Downs:
Yeah, I mean, to call it strictly Soviet is not correct. I mean, we get a version of that in August and September with federal buyers trying to spend down budgets. But I would say that we don’t get any particular bump any other time of the year, that the projects sort of arrive when they arrive. Because I think that for my product, it’s people when they’re planning a whole move or a new building, it’s just one of the things they have to do.
And unlike Liz, we are experiencing a very, very slow start this year, which is the complete opposite of what happened last year. And I don’t really have a sense of why, because we’re doing all the same things, but my sales are way below where they should be. And it’s a little bit scary, frankly.
Loren Feldman:
Coming off a very good year.
Paul Downs:
Yeah, coming off an incredible year, and the previous year having been not so great. And then you have an incredible year, and then all of a sudden, the air goes out of the balloon. We saw the collapse really, looking back at the data, it happened after the election. The last two months of last year were pretty bad, but I didn’t care so much because I’d already beat all my targets for the year. And then, what I wasn’t focusing on was how fast the backlog could disappear, because we built a machine to do $6 million a year, and it’s churning through $100,000 a week of production. So whatever’s on the books right now, we’re busy through more or less the end of February. And then after that, I don’t know, but I need to see some orders start coming in, and they’re just not happening right now.
Loren Feldman:
Paul, do you expect any impact from the tariffs on your business? Obviously, you manufacture here in this country, but you do have to buy some raw materials, perhaps from overseas?
Paul Downs:
Yeah, we buy materials, and a lot of them come from overseas, and my material costs tend to be about 20 percent of my overall costs. So even if you doubled them, it would not be—okay, I mean, it would be significant, but it would not be like I have to double my prices. I’d just have to double the material portion of my prices. And I mean, the tariffs are an incredibly stupid idea, but we’re going to see how it plays out.
And it would be hard for me to identify like a single thing that we buy in its entirety that’s going to move my needle all that much, because most of the materials we get come from a variety of places around the world, and the things we buy that I know come from China are mostly like nuts and bolts that just aren’t hugely expensive. So if you paid $2 as opposed to $1, it doesn’t move the needle that much. I’m just going to wait and see how it all happens.
Loren Feldman:
Liz, you were talking about the various pricing scenarios, especially if you kept your production in China and the tariff went to 60 percent. Is there a scenario under which it starts to make sense for you to manufacture in this country?
Liz Picarazzi:
Well, that’s one thing I didn’t mention, but I’ve also been looking again in the U.S. And this is my fourth round since I moved over to China, seven to eight years ago, and it’s completely cost-prohibitive. It still is. Because, let’s not forget, my primary material for my trash enclosures is sheet aluminum, and worldwide, most of that comes from China. So even if I work with a metal fabricator in New Jersey or Long Island—and I’ve gotten some quotes from them, and I have a desire to work with them—if they’re still getting their aluminum from China, I can’t really escape it. Because then not only do I have the huge price on aluminum, but I’ve got American labor rates.
So, we are looking at one component and one component only that we’re thinking of producing in the U.S., and that’s because it’s sort of less complex. It doesn’t involve any of the bamboo boards that we use on our other products, and it’s something that we’re sold out of, and we sell out of a lot. So being able to quickly produce that locally, or relatively locally, is something we’re looking into. But that component, which currently we basically produce at cost for a number of reasons that I won’t go into, that would need to increase, and that could piss off customers. So I don’t know if that’s the best answer to your question, but I remain incredibly discouraged by my possibilities in the U.S., and, I would say, pretty irritated with people who just don’t understand that. I have hard numbers that show, on average, it’s two to two-and-a-half times more expensive to produce in the U.S.
And I know that not just from getting a couple of quotes, but doing it over and over, over four years, and thinking I’m going to get a different result. It’s like insanity, getting these quotes and somehow thinking I’m gonna get a different result. I’m not going to. I’m just not. I mean, not unless I was subsidized by the government and, like, New York State decided to set up a big metal fabricator that they funded, and all sorts of New York City makers could produce out of it. I mean, yes, you can tell I’ve been daydreaming about something like that for a while, but I’ve also given up on that. And part of it is that I really don’t think it financially or mathematically makes sense to produce my product in the U.S., because it can so much more affordably be produced in Southeast Asia or China.
Paul Downs:
Well, I think that one of the things that everybody who’s excited about tariffs just doesn’t understand is that even if you went to—I mean, Liz is a pretty good example. She’s got two options. She can find a U.S. maker, and there’s a certain number of them. They have a certain capacity that’s built on the existing configuration of imports and exports. And so, no matter what she does, there’s going to be some huge time lag as those people increase their capacity.
Like, assume the tariffs work exactly as designed. Everything becomes more expensive. But Liz’s reaction is: I’m either going to get U.S. producers, or I’m going to set up my own U.S. production, which is her second option. It just takes a lot of time to do that. And plus, there are significant barriers to either the existing producers increasing their plant, their labor, their machinery, or Liz trying to set up her own plant, labor, and machinery. It takes a lot of time to do that.
Loren Feldman:
Which presents a lot of risk, by the way.
Paul Downs:
Enormous risk. Because the next administration may take it away. We saw this exact same thing play out in Covid, when people switched mask production from China to Texas or wherever. And two years later, all those people are broke. It’s such a bad idea to use tariffs to try to promote American manufacturing. I think there are better ways to do it, and most of it being: Let’s figure out how we can make it easier for people to manufacture—just without the tariffs. Make it easier to get permits. Make it easier to wire up a factory. Find more electricians. That’s a huge shortage right now. We can barely get an electrician in to do anything.
There’s all kinds of things that are structural impediments that are built into the American economy that are going to make any kind of manufacturing renaissance very, very difficult. The cost of health insurance is a huge one. It just is incredibly expensive to add people to your payroll, and particularly if they have families and they need health insurance. And so, I don’t know. I mean, I’m not super happy about this. It’s not affecting me the same way it affects Liz, but you can see just what the problem is going to be for anybody who’s trying to make or sell something here.
Loren Feldman:
Paul, could there be a silver lining for you, in that you have competitors who manufacture overseas, who will face the problems Liz is facing?
Paul Downs:
Possibly. I would say that it’s possible. We have a number of competitors in Canada who are perfectly good operations. And they just enjoy the advantage of being 30 percent cheaper on a dollar-to-dollar basis. I mean, I don’t really know the nuts and bolts of the numbers in running a Canadian factory. But I know that I have competitors up there, so suddenly they were 25 percent more expensive. Yeah, that probably would be good for me. I could go get a couple of jobs from that. But if we took all their business, it would be difficult for me to actually do it, just because it’s not easy for me to expand that fast.
Liz Picarazzi:
Well, and also the trade workers, which, you know, Paul, you were mostly addressing with the example of the electricians. Why doesn’t this tariff money go to support the revitalization of manufacturing and trade education in the U.S.? I think I may have said it on here once before: I would gladly pay tariffs, not at the rate Trump’s proposing, but I would feel better about the tariffs that I’ve been paying if I knew that it went to help trade education and it would help the manufacturing sector. It’s not going there. I don’t think it’s ever going to go there. So me paying tariffs to help manufacturing in the U.S. isn’t doing that. It’s just hurting me.
Trade education is such a big topic because there is a stigma against blue collar work, and that’s probably the biggest thing that’s hurting our manufacturing sector is that it’s viewed as something you end up doing. Like, “Oh, well, I didn’t succeed in life or in school, and therefore I had to become an electrician.” Even though the economy needs electricians, there’s still a view that if you end up as an electrician, somehow you failed. And that’s going to hurt American manufacturers like me, that if I wanted to set up in the U.S, it would be hard for me to find employees. And I’m also a service business, because I do installations, and it is hard for me to find installers for that very reason.
Loren Feldman:
Paul, do you see that stigma as well?
Paul Downs:
I think it’s lessening, because a lot of people are realizing, “Oh, I don’t need to go to college for four years. I could just sign up with a plumber and be making 80 grand a year two years later.” The thing that doesn’t get talked about is how quickly these trades wear out your body. And so that, let’s say you get 20 people who enter electric, plumbing, any of those, carpentry—if you enter those trades in your 20s, by the time you’re 45, I would say, a good two-thirds of them will have serious, long-term health consequences. And so I’m fortunate, in that being in the shop environment that we’re in, we’re better able to control conditions so that we’re not destroying people quite as quickly.
But being in the trades is hard on your body. You have to move around and lift stuff and work in uncomfortable places, and it’s just not easy. A lot of people lose their knees, their shoulders. I’ve got a couple of injuries that aren’t too bad for me, but I’m very concerned about some of my workers, and we do everything we can to give them what they need to work safely. But even so, it’s just hard work. It wears you out.
And our current financial systems in no way reflect that reality. So the cost of health insurance, and then the push to push retirement ages higher and higher, those things just don’t really work if you’re in the trades. Because you need health care, and you’re not going to be able to do the same amount of work you could at age 60 as you did at age 20. You’re just not going to be able to.
Sarah Segal:
I know nothing about manufacturing. It’s not my area of expertise at all. But my family, we own a farm in the Midwest, and you know, there are farm subsidies that help farmers not only to produce, but also not to produce. And I’m wondering whether or not, instead of tariffs, whether there are manufacturing subsidies. Would that solve Liz’s problem, in terms of somebody creating that aluminum in the U.S. to make it more affordable to you? Is that another route that would be considered?
Liz Picarazzi:
Well, as much as I would love to get a subsidy as a taxpayer, I also don’t think that we should be investing in the sort of manufacturing that I do, because it’s very manual. It’s not super complex. If we want to invest in manufacturing that’s going to really make the U.S. more healthy, it should be in green energy. It should be in tech.
Loren Feldman:
Which we have over the past few years.
Liz Picarazzi:
They have, and I think that’s correct. And maybe because they’ve done that, they’re going to be less likely to invest in sheet metal manufacturing like I do. But we do not do subsidies like that. Farmers are a good example. But I don’t see any sort of effort to try to help manufacturers like me. I just don’t see it. I’ve kind of been looking for it. I’ve been hoping for it, but I’m not going to spend my time lobbying for it, because I know that the efforts are going toward sectors like green energy and tech.
Paul Downs:
I somewhat disagree with you, Liz. I think that America could desperately use less sophisticated manufacturing. And the idea that the total output of the manufacturing sector has gone up but the total employment has gone down highlights a problem, which is: What do you do with people who are well-suited to making trash enclosures or kitchen cabinets, which are not rocket science, but can’t handle highly-automated robot factories? I mean, that’s one of the main reasons why the manufacturing sector continues to grow in dollar volume without adding people, because there’s huge incentives for a manufacturer to buy a machine, as opposed to hiring a person.
If I buy a table saw, I can write off the entire cost of it, usually in the first year, maybe depreciate it, turn it on, run it for as long as I want. I pay no further taxes on it. If I hire a person, I get taxed from day one until they retire, and it’s a heavy tax load on me. So it’s almost like there’s the opposite of support for manufacturing employment. There’s support for manufacturing, but there’s not support for manufacturing employment. It’s just the opposite.
Liz Picarazzi:
I get that.
Paul Downs:
And that’s pretty disgusting. Given that we’re at a point now where it looks like robotics is really going to start wiping out enormous numbers of jobs, what is the point of an economy if we can’t give people something decent to do all day? What are they going to do?
Sarah Segal:
No, but you’re saying it’s going to wipe it out, but you’re also saying there’s not enough people. So is it really wiping it out? Or is it finding a solution for the lack of people interested in that vocation?
Paul Downs:
I think that there would be plenty of people interested in the vocation if manufacturing looked the way it used to 40 years ago. In other words, if you grew up in a manufacturing town in Ohio or Pennsylvania, you saw your neighbor’s parents go to the factory every day, come home, and they were able to support a stay-at-home parent. They were able to buy a second home. They lived a decent life. The factory owner lived in the same town. There weren’t these huge gaps. And you also just had the experience of seeing people who knew how to do stuff. That was your scout master, your football coach, your neighbor. There’d be all these things going on aside from just in the factory that made the idea of making things seem much more—not like some weird thing that happens overseas by robots, but just like, “Oh yeah, my uncle was a metal worker, was a steel worker, was a cabinet maker.” And you would have seen that shop and that person doing side projects.
It’s not hard to get people to be interested in manufacturing, as long as it’s not some weird thing that happens out of sight, way over across the ocean. If it’s happening in your own town, you would be like, “Yeah, let’s do that.” People love that. That’s one of the main reasons why so many people are so angry now. It’s because that basic, decent way to have a nice life has been taken away by the decisions of certain elites and people who benefit greatly from it. But it was just taken away. And so, here we are. Now we’re trying to sort of put it back together in the dumbest way possible, because the people who we were told to trust have made decisions that really fucked over a huge number of us. Sorry about the swearing, but no other way to put it.
Loren Feldman:
Well, we will obviously have reason to come back to these topics. We’re having this conversation right now, just as Donald Trump is returning to the White House. Obviously, we don’t know yet what his policies will actually be, despite lots and lots of discussion over the past year. So we will definitely come back to this. I would like to hit a couple of other topics today. Sarah, you’ve had some challenges lately with your people, I think, starting with having to fire somebody in December. Could you tell us what’s going on with you?
Sarah Segal:
Yeah, so I try to create an office environment that is welcoming and very supportive of each other. And I have a general problem of wanting to make everybody happy and not disappoint people. But sometimes you have to look at your deck of cards, and make sure that all of the pieces are running on all cylinders. I think somebody on this podcast once—probably Paul, if not Liz—said that your business, you can’t be a charity. And if somebody is hired to do a particular job, and they’re only doing a portion of that job, you have to fish or cut bait.
And so I cut bait in December, and it was a bummer, because I liked the person, personally. I thought this person was genuine and a good team member, and really, just a nice human being on all counts. But they just weren’t delivering to the level that I needed—specifically, in support of one of the members of my leadership team that I love and want to make sure that she stays. So I had to switch gears, because I knew that if I kept this person on, my leadership member would be frustrated by that, because they weren’t getting the help that they deserved on this account.
Loren Feldman:
Sarah, it sounds like you struggled with this. Is this among the first times that you’ve had to fire somebody for not performing?
Sarah Segal:
I had to lay people off because of money. When I was owned by a larger company for two years, I did have to let go of somebody, but it was, I think the person was going through some personal issues. But with that situation, they had a general counsel for the company, and so the layoff was—this person was expecting it. Because they had asked me for second chances over and over and over again. But then I had this HR general counsel person basically do all the dirty work for me. I just had to have the initial conversation.
But that’s what I did this time. I invested in starting to work with a fractional HR person close to the end of the year last year, and one of the first things that she did was to help me off-board this person. And it was very clean. I listened to a lot of podcasts on how to fire somebody, but basically it was like: Bring a box of tissues in your office. Be very clear on, “This is why we’ve decided to part ways,” and then pass the baton to the HR person to get all the paperwork done.
And it felt really shitty. I’m gonna swear just like Paul, but I was able to hire somebody a couple weeks later who’s amazing and we’re so excited about. And the person that I let go got a job immediately, weirdly enough, at a place where a former employee used to work, and I think is in a better situation. So it all ended up okay, but now I just found out that one of my senior team members got a job offer and is leaving, going to be working for an AI health care company of some sort. And she has big shoes that I need to fill. And I posted the job, and the applicants are few and far between and very underqualified. I’m trying to stop the bleed right now. So that’s my shit show.
Paul Downs:
Firing people just is terrible. It’s just the worst day you can have, for whatever reason, whether they deserve it or not. And it’s a very, very difficult human-to-human interaction. Yeah, I don’t have anything to say other than there’s really nothing that’s going to make it any fun for anybody involved.
Liz Picarazzi:
How much relief did you feel after you terminated him or her?
Sarah Segal:
That’s a good question. I don’t know that I was relieved, because they weren’t a troublesome person. They just weren’t generating what I needed them to generate. I think the relief came when I hired somebody who was able to do all aspects of the job, and I knew that they were a good hire, and they jumped in and were able to—like, they’ve already kind of dazzled us. So that’s when the relief came, not the relief in letting somebody go.
Liz Picarazzi:
But in terms of your mind space, when this person was still in the company and wasn’t performing at the level, did you take that home in thinking about it while you were making dinner, or thinking about it when you were in the shower? I find that when there are those sorts of difficult HR situations, it’s very preoccupying, and once it’s like the Band-Aid is ripped off, it can feel a lot better.
Sarah Segal:
100 percent. I mean, many sleepless nights just kind of going through the process of: Is there a way to fix this? How do I go about doing this? Even the stuff that’s like: What am I not supposed to do legally? What are the things I need to watch out for? Are there things, in terms of them being in a minority class that I need to think about? All of those things were circulating.
And, I mean, I was fortunate to be able to have somebody, an HR person that, like, knows the rules of the book really, really well, but certainly a lot of sleepless nights. And I think that if you don’t have sleepless nights about letting somebody go, that’s wrong. I mean, you should. Because you’re disrupting somebody’s livelihood and their paycheck, and you’re flipping a switch. It’s not something to take lightly.
Paul Downs:
Well, I think one of the things is, it’s not so much how do you feel and how do they feel, it’s: How does the rest of the team feel? And I don’t think I’ve ever fired someone where there wasn’t sort of an immediate, “Oh, this is great,” from all the other employees who see the need for it long before you’re willing to do something. That’s pretty common.
So look and see what everybody else in the building is thinking, because when you take that hard action and have that bad hour and do the terrible thing you’ve got to do, what you’re doing is demonstrating to the rest of your company that you have standards. And the people who take pride in their own work, they really hate to see somebody else skating by with a substandard effort. And so one of the best things you can do for your company is get rid of people who aren’t performing, because it makes everybody else feel so much better.
Sarah Segal:
Yeah, I agree totally.
Liz Picarazzi:
I fired a couple of people in the spring, and it was because we found very solid evidence of theft by using the company credit card to purchase personal items at Home Depot. And it was actually discovered by an employee who was friends with these two employees. And that was a difficult thing for him, because he revealed—and he had to share the evidence with us—that this stuff was happening. I was very decisive about it. It was literally within eight hours of finding out about it that we terminated them.
But it was very clear cut, so you would think. And then we got a letter from a lawyer a couple of months after that. They’re threatening to sue me now for not paying them time and a half on Saturdays, which I have tons of evidence that I was doing. So even then we produce that information to their lawyers, so we say, “Their claim of not getting paid time and a half is false. Here’s the paperwork.” But they’re still at it, because there are, I would say, sort of predatory attorneys who find people in vulnerable situations and know that from a legal perspective, they can point to things that you wouldn’t even think of as an employer. So I even have text messages where these two people admitted to the stealing, admitted to the theft. I put together a huge PDF with all the receipts of the theft, with their admission of guilt in text messages, and yet this legal thing is still hanging over me.
Paul Downs:
They’re looking for a go-away payment.
Liz Picarazzi:
Yeah, it may be, because the legal bills are really high. They’re outrageous.
Paul Downs:
Well, you know, shitty employees who steal from you have friends who are shitty lawyers. And, yeah, it’s bad. And in a way, whether they’re stealing from you or not would not be germane to the issue of whether you were paying them correctly. Now, you say you were, let’s assume you were. You’ve still got to deal with fighting it, but there are a lot of bosses who do steal from their employees that way, and then the employees feel justified in stealing back. And then, nobody wins in that situation. But I would say the question of whether you’ve correctly paid everybody is germane to every business owner. And so whether people are stealing from you or not, you should be trying very hard to make sure you’re paying them for what you owe them legally.
Sarah Segal:
For anybody who you guys have fired or let go, do you look back and in hindsight go, “I knew it the first week”? Or, “I felt like that this person was not going to be the right fit,” or that they were going to do something bad for the company? Were there signs or things that you learned along the way? You know, what’s the litmus test for not hiring similar people in the future?
Loren Feldman:
Sarah, before they answer, are you asking this question because that’s the case for you, that when you look back, you see signs?
Sarah Segal:
Well, I mean, every employee I have, whether or not they stay or they go, I learn something about the kind of people who do well in my business, right? And the biggest thing for my business is that anybody who I hire—because we have interns who come and go and they’re fantastic, and they’re lovely human beings, but in PR, you start out working at your entry-level position, but the eventual job is being a vice president or running your own business. And you have to be articulate, confident. When you get on a call with a client, they’re not asking you to be their doer. They’re asking you to be their advisor.
There’s a certain kind of trait that needs to exist for anybody to go into our industry. You have to have a level of confidence. You have to have an ability to go, “All right, I will fake it till I make it.” And you can tell that pretty quickly. I’ve learned more of that along the way. If they don’t have that, they’re just going to be an independent contributor the entire time, and I can’t promote them. And that’s going to frustrate them, and that’s not going to make for a good work environment for them. So I look for these little qualities, in terms of personality, in terms of skill-set, all that kind of stuff, so I can make sure I’m hiring somebody who I will be able to promote.
Paul Downs:
I sort of think the opposite for a lot of the jobs in my factory. I just need someone to do that job. And there’s no obvious path to becoming me or management or anything. And getting back to the discussion about manufacturing, factories are full of jobs like that, where you could come in, do something for eight hours, help move the needle for everybody else, and then just go home and forget about it.
Sarah Segal:
But that’s a job, not a career. I’m offering a career.
Paul Downs:
Right. But a lot of people want a job, and a lot of companies need to just give people jobs, not careers. Careers are a whole different problem.
Sarah Segal:
No, I agree completely. But I only offer careers, period. I don’t offer jobs.
Paul Downs:
Okay, that’s your choice.
Sarah Segal:
And that’s what I’ve learned over time. I mean, I don’t offer jobs because it’s just not the way my industry works.
Paul Downs:
Well, different industries work different ways. One of the things, I mean, just the last thing on the rise of manufacturing and the fall of manufacturing employment, there used to be a lot of things that happened in factories that were put in the bucket of manufacturing employment that just aren’t anymore. For instance, I don’t have someone on staff who cleans my bathrooms. I hire an outside service to do that. So that’s taking a job that 50 years ago would have been done by a janitor marked down as manufacturing employment and now becomes a service position. So that’s part of what’s taken out a lot of the head count in manufacturing.
Loren Feldman:
Sarah, we only have a couple minutes left, but I wanted to go back. You mentioned that you hired a fractional HR person. I think you might also have a fractional CFO. Is that right?
Sarah Segal:
I know, I’m in the fractional zone right now.
Loren Feldman:
Is that strategy working for you?
Sarah Segal:
Yes, it is, because those are subject matter experts. They know what they do, and they have a bunch of other clients, or whatever. I also have a law firm that I use. I mean, they’re essentially a fractional for us as well. And it’s a great way for me to kind of get from my current size to a larger size. I’ve messed up my books many times, so I know better than that. And the HR stuff, as I get bigger and dealing with more people and personalities and needs and this and that, I kind of worry about screwing things up, where I’m not offering people the right number of vacation days—there’s a lot of employee protections here.
And so as an employer, if you say or do the wrong thing, you can make yourself exposed to litigation. So for me, it’s just really important that I have somebody looking at how I’m doing things, making sure that people are signing non-disclosure agreements and not stealing my clients, all that kind of stuff. And I just need somebody else to be my quarterback on all of that.
Loren Feldman:
Can you give us a sense of what you’re paying for these services and whether you find it comfortable?
Sarah Segal:
So the CFO person, I’m paying a flat fee monthly of $2,100 a month. And this is for bookkeeping. And it’s not really hourly based, but the agreement was that there’s going to be an ebb and flow of the work. Obviously, January is a really big month for bookkeeping and all that kind of good stuff, but it will go up and down. With the HR person, she has an hourly rate of a couple hundred bucks an hour. She’s not cheap. And I say, “Listen, I’m going to use you off and on throughout the month, but if you get anywhere near the $2,000 mark, you need to call me and let me know that.” So there’s a cap on it.
And the law firm is the same way. And I don’t have those expenses all the time, like it will go down, and we’ll go back up. But the CFO’s already saved found money for me. He went through and audited my books and found two missing payments from clients and was able to bring that money. So, he literally paid for himself in the first three months.
Loren Feldman:
Liz or Paul, have either of you tried similar relationships?
Paul Downs:
Well, I have a part-time marketing person, marketing slash sales. But in terms of CFO or HR? No.
Liz Picarazzi:
So I’ve been working with Simple Numbers for, I don’t know, say, three or so months. And I don’t think that’s necessarily a fractional CFO, but definitely play some of that role of a CFO. And they have this huge spreadsheet template where they put all of your numbers into it. It’s probably like 20 tabs. And then there are two three-hour consultations, where they literally walk you through your own numbers in every single tab and explain all sorts of numbers and metrics—something like the labor-utilization rate, which I know is something that, Paul, you look at, in terms of revenue per employee. That’s enabled me to look at it that way.
So, that’s been really worthwhile for me. Frank and I together attend those sessions, and we’re probably going to keep them on to have an hour every month as a consultation to go over our numbers and talk about things such as the likely price increase that we’re going to have. You know, for us, for me in particular, I’m glad that we have that, because price increases can be very emotional, and they can suddenly become not objective, mathematical decisions, which I tend to be more about.
Frank thinks, because he does sales: I don’t want to have to raise prices. But if you look at it, in terms of the actual math, you see we do need to raise prices. And then you dig in deeper, and this is how much we need to raise it. And this is why. That’s not a discussion I want to have just between me and Frank. I want an outsider to come in and help us with that. So for me, this transition with our whole supply chain, there’s a lot of tough things that we’re going to have to look at and make some decisions about, and having that outsider is incredible.
Loren Feldman:
All right, my thanks to Paul Downs, Liz Picarazzi, and Sarah Segal. Have a good week, everybody.
