Episode 62: We’re Raising Wages for Everybody

Episode 62: We’re Raising Wages for Everybody

Introduction:

This week, Paul Downs, Jay Goltz, and Dana White talk about confronting inflation, raising their prices, what businesses owe their employees, and the venture-backed competitor who’s opening a store in Jay’s backyard. Among the questions we discuss are: Would you take back a rebound employee? Are unemployment payments the main reason owners are struggling to fill jobs? Is there anything wrong with taking business from another business? How many companies are truly disruptive? And do owners take all of the risk? Or are there risks for employees, too?

— Loren Feldman

Guests:

Dana White is founder and CEO of Paralee Boyd hair salons.

Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.

Paul Downs is founder of Paul Downs Cabinetmakers.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Full Episode Transcript:

Loren Feldman:
Welcome, Paul, Jay, and Dana. Great to have you here. Thanks so much for joining me. Last week, we did a sort of a recap of where we stand with COVID. And now, at least from what I’m reading, the topic of the moment seems to be inflation. Concerns have shifted from COVID to inflation, and I guess that’s progress of a sort. But I’m wondering if it’s affecting your businesses.

Paul, let me start with you. One of the things that everybody’s talking about is the price of lumber. You make custom conference tables out of wood. Is this a problem for you?

Paul Downs:
No.

Loren Feldman:
Why not?

Paul Downs:
Because the particular kinds of wood that we use have not changed. As a matter of fact, some of them have gone down. A couple weeks ago, hearing all this inflation talk and wood talk, I decided to pull out my pricing spreadsheet and check the default prices we use against recent invoices, and I found to my surprise that most of the major sheet goods—these are things like MDF, and plywood that is not used in home construction (this is furniture-grade)—the price had actually gone down by 10-to-15 percent since the beginning of the year. Now, when we’re buying two-by-fours and oriented strand board, which we use to make crates, that is used in home construction, and those prices have gone way up. But that’s a pretty small percentage of our material costs. I would have to say it’s more or less a wash for us.

Jay Goltz:
Wait, why did it go down?

Paul Downs:
Good question. Probably because a new factory came online, or who knows? Or because furniture factories were running slower than they may have anticipated, and there was plenty of supply. Lumber prices go up and down, and they don’t always go up. Sometimes they go down. That’s the best guess I can give you.

Loren Feldman:
What else do you buy a lot of? Are you seeing inflation in any other areas?

Paul Downs:
Labor, to a certain extent. Freight costs. Freight’s going through the roof. But most of the things that we buy? No, I haven’t actually seen much change.

Loren Feldman:
How about you, Dana, are you seeing any inflationary pressure?

Dana White:
No, not at all. I’m noticing I’m a little higher on shipping, but that’s about it.

Loren Feldman:
How about for labor? Are you having trouble keeping people, finding people?

Dana White:
Oh, man… I’m really fortunate to have the operations manager that I do. Her background is recruitment. In her work, recruitment is 24/7, so she’s constantly doing it. She said, “I do it throughout the day, with the list of other things that we have to do for the business.” Recruitment is key. We did just have a manager resign, and we’re okay with that. She said, “Nope, we’re okay. I’m ready for that,” and we’re not going to replace her. We’re going to operate with the operations manager and the manager. We are fully staffed. We’ve had low staffing numbers, but not to the point where it’s been a concern, where it affects our operations.

Loren Feldman:
Jay, how about you? Are you facing any inflation issues?

Jay Goltz:
Yes, all over the place. Cardboard has skyrocketed because of all these at-home shipments. We just got notice—8 percent—and my wholesale business ships out frames every day and packages, and they’re all in cardboard boxes. So, that’s a huge hit. The containers I get from Europe with molding—the container prices have gone up dramatically. Plexi has gone up dramatically. Glass has gone up some. Labor—I’m in Chicago—so every year for the last four or five years, they’ve gone up $1, the minimum wage. This year, it topped out at $15. Going forward, it’s going to be a cost-of-living increase. But that has caused compression in my pay, because it used to be that the people who were here for years made $4 an hour more, and now it’s less. So it’s not running all the way through the place—everyone’s not getting a $1 raise—but it certainly is affecting the labor. And we’re raising wages on everybody.

Loren Feldman:
Do you have openings?

Jay Goltz:
Well, I just had a very unusual event. I just had someone quit after 15 years. He worked in the frame-cutting department, and he says he’s getting $1 an hour more. And he didn’t get his raise review yet—it was going to be in June. We would have come close to that. He didn’t say where he was going. There’s not a whole lot of competitors in Chicago that are cutting frames to hire someone like that. So I have a good guess where he’s going, and my guess is, he’s going to a place that another guy had left a while ago. He wanted to come back. We didn’t want him back because he wasn’t worth bringing back, and we suspect he called him and recruited him. And we’re sitting tight because we think there’s better than a 50/50 he’s going to call us in two weeks and want back because this is the part they never ask.

Yeah, you can pay someone $1 an hour more. The question is: Are you gonna give him 40 hours a week? Because the game is when they leave, they’re there for a week or two when they start cutting their hours back. This has happened before. This happened to this guy. So we think there’s a 50/50 he’s coming back, and I would take him back. He left, he gave notice.

Loren Feldman:
You said his raise review hadn’t come up yet. Did you offer to match?

Jay Goltz:
Well, that’s a good question, because I just asked the manager that. He didn’t, and I said, “Maybe we should have,” and he agreed it would have been smart to say, “Just so you know, this is what your raise is going to be.” But we’re gonna sit tight for a couple of weeks and then call him and let him see what goes on there. Because there are three things that you don’t know at this level that he didn’t really check out.

The first thing is: Are you going to get full hours? Two: What kind of environment? I have a nice big, bright, clean factory with a nice, big cafeteria room and nice bathrooms, lockers. I have a nice place. A lot of these places they go to work [for] are very dark and dingy places, maybe in a basement, and it’s not a great environment. So that’s two, and three is: What’s the management like over there? Is someone coming down and screaming at you every couple days? I mean, we treat people well. And I think that people, especially the people who have been in for 16 years, probably haven’t had a lot of other jobs.

Loren Feldman:
But after 15 or 16 years, why do you think he left for $1 an hour?

Jay Goltz:
Because I think that this guy did a sales job on him. I don’t think it was great for us not to say, “Just so you know, you were going to get a raise.” On the other hand, what about his side? Why didn’t he ask, “Listen, I know my review is coming up next month. Do you know what I’m going to get?” He should have asked. I think that he got sold a bill of goods from this other guy, and who knows what goes on in his head.

And I have to say, he’s on the lower end of… he’s not one of the best people. If he were one of the best people, I’m sure the manager would have worked harder to try to keep him. He was barely acceptable, barely reliable. So he was right at the bottom of the tier. So if he doesn’t come back, can we do better? In this market, I would have tried to keep him probably, because it’s kind of tough to hire right now. But so we’re gonna wait to see what happens.

Loren Feldman:
Have you done this before—hired somebody back?

Jay Goltz:
Yeah, not a lot. I had one case where I had a great delivery guy. He wasn’t happy with his raise, but the reality is, people frequently aren’t happy with their raise. And he stops by the office, because he brings me stuff once a while, and he tells me he’s leaving. I go, “What do you mean, you’re leaving?” “Well, I asked for a raise, and they didn’t give it to me.” “Why didn’t you say something?” I’m sure that my manager said, “If you’re not happy, go talk to the next guy in charge.” He didn’t bother. He left. I did have a conversation with my manager saying, in most jobs, “Listen, if someone quits, you can always say, ‘Oh, we should have paid him more.’” Well, you can lose control of your payroll that way. I mean, you can’t just go paying everyone more, just in case someone wants to quit. But in this particular case, he’s a truck driver and there’s a demand for truck drivers.

So we waited a few weeks, and we called him. He was happy to come back. We paid him more, but he found out the world’s not such a kind place. He was driving a refrigerated truck that was breaking half the time. They were sending him out in the mid-afternoon to sit in rush hour. He was getting home late. It was a brutal, bad job, and he was thrilled to come back, and we were thrilled to have him. So I would never say I would never take somebody back if they quit. Sometimes you’ve got to let people go check out some other options.

Loren Feldman:
Paul, Dana: have you guys done this?

Dana White:
Yes.

Paul Downs:
I don’t have any objection, theoretically, to taking someone back.

Dana White:
Wow…

Loren Feldman:
Some people do.

Paul Downs:
Yeah, my old partner was adamant about it. No, I did take a guy back once. No, I’ve done it twice. And both times it didn’t work out in the long-term, but it could have. My partner hated it, though. He hated the idea. He always wanted to make an example out of anybody who left.

Loren Feldman:
What did that mean?

Paul Downs:
Well, if someone quit, and they wanted to come back, his thought was: You then tell the rest of the employees like, “See? He quit. And I’m not taking him back. He made his bed, and he can lie in it.” I think that that’s debatable, because in both cases, when I had people come back, they brought news similar to what Jay said about what the rest of the world was like. The desire to come back was a strong endorsement that we were a good place to work. And those guys ultimately left mostly not because of something we did, but because they had problems that caused me to not want to have them around.

Jay Goltz:
Right, I mean, how great do we look that the truck driver guy came back? And we were happy, and we treated him right.

Loren Feldman:
And it worked out?

Jay Goltz:
It worked out great. He’s there. I took a little responsibility. I said we probably should have paid him a little more, just because it was a truck driver thing, but we were happy to have him back. He’s happy to be back and all’s good. I just think, why would you not? In this particular case, the one who just left, I’m sure someone sold him a bill of goods. God knows what they told him. Are you going to blame somebody for trying to make a little more money?

Loren Feldman:
Dana?

Dana White:
It depends on why they left. I’ve hired people back. And again, I’m in a business that is different for the people who work for me. The people who work for me are used to having a lot of autonomy, wearing what they want, coming and going as they please, giving whatever level of customer service that they feel like. And so they come, even though we communicate to them, saying, “Hey, this is what this is.” But they come to the salon, they nod, they put on the best performance to get the job, and then when they get in there, even though it’s everything we told them it was, everything the video said it was, they’re still finding it an adjustment.

And then they leave and realize it’s harder out here, because when I’m not at Paralee Boyd, I have to pay for everything. I have to pay for my booth. I have to pay for my flat irons. I have to pay for all my product, and I still need to get people in the salon. So at Paralee Boyd, everything is provided for you. And so we’ve had girls leave and come back, because it was really hard. We encourage them. We don’t necessarily not want you to go. We want you to grow as a stylist, but we still think you should eat while you’re doing it.

I’ve had stylists come back and tell me, “Yeah, I thought I wasn’t getting enough money here. Then I went and had booth rent, and I had four clients for the week, because I’m not a good marketer. I haven’t put myself out there. And my booth rent was $150, and I made $200 that week, and I still had to buy product, put gas in my car, pay for my life with only $50. And market myself.” So a lot of stylists don’t really realize the business side of it. Or when there’s a dry spell, or for some when you switch salons and not everybody came with you, when money is tight, they like having a reliable check.

I actually received a resume last week. She said, “Hey, has she worked here before?” I have a list of do-not-hires. And when we are recruiting, we see a resume we like, and they go through that list of do-not-hires. Those are the people who it was just a lot of drama [with], we had to call the police on them. It was just bad.

Jay Goltz:
That’s probably a good policy, not to rehire someone that you had to call the police on. That sounds solid.

Loren Feldman:
Jay, we got into this talking about inflation, and you were saying that it’s significant for you kind of across the board. What are you doing about it?

Jay Goltz:
I’m trying to keep expenses under control. But we’re having to put through some price increases. It is what it is. I’ve learned one of the biggest mistakes business owners make is just absorbing and absorbing and absorbing it, and you can’t.

When I was doing business speeches, actually a hair salon company hired me to do a speech to their customers. And I asked the people in the audience, “Who has raised your prices in the last three years?” And they’re the worst at it, because they’re right there with the customer. They’re afraid to raise it. They’re charging $32 now, and they think if they go to $33, the salon people are all worried about the clients are gonna get mad at them. And I would say, unlike businesses like mine, when you get an increase on a raw material, and you’ve got a multiple, you mark it up. In a salon, it’s trickier because it’s not like Dana got a big increase on her cardboard prices this week. There’s not as much of a trigger to say, “Oh my God, we’ve got to raise prices.” Places that are all service, I think, are more vulnerable to not raising their prices along with the cost of doing business, because they don’t have the material costs.

Loren Feldman:
Well, it’s also harder for Dana because she’s got a list price. Everybody knows what it costs for her service.

Jay Goltz:
Yeah, exactly. That’s true.

Dana White:
And you factor in the frequency with which my guests come to the salon, it’s a monthly bill. If you’re coming twice a month and you’re paying $80, and now you’re paying $100, that can be a challenge for some people. That’s an extra $20. For most, it’s okay, but I think the best thing I ever did was raise my prices because I hadn’t done it.

Loren Feldman:
We talked about that a little bit here.

Dana White:
Yeah, I needed to do it.

Jay Goltz:
I think people who are in business need to do the math. Will that extra dollar lose a customer? Yeah, maybe. I’m not saying it won’t. But you make up for it with the other 99 who pay the dollar, or the other 97 or 96 who pay the dollar. It’s price elasticity.

Loren Feldman:
Let me ask you this. Is there a silver lining in all this talk about inflation? Does that make it easier for all of you to raise your prices—even if you don’t really need to? Paul, if you told a potential customer that you had to raise prices because of the cost of lumber, I don’t think anybody would argue with you, even though you’ve told us it’s not really a problem.

Paul Downs:
Well, I mean, I forgot about cardboard. We actually buy a lot of cardboard, so some of my prices have gone up. But the nature of my product is, it’s not something that has a normal price. Every job we do is custom. And we always adjust our pricing to suit the customer. We don’t even make the same thing and sell it to two people at different prices. We just always make a different thing. So it’s a little bit harder to just post a counterfactual where there was some other price that was unaffected in this transaction.

Loren Feldman:
Dana, how about you? Is this an opportunity for you to raise your prices a little bit more?

Dana White:
No, no, we’re not gonna raise our prices, but we’ve added treatments. We’ve added more services. I raised my prices less than a year ago. I don’t want to do that again. I’d rather upsell. What are some things we can put in place that are useful for our guests? And we brought those treatments in, and we upsell those treatments, and they’re treatments that people want. The ticket prices are higher.

Also, we have retail, and we include some of our retail in our treatments, which allows for them to have a discount, if you will. So no, we’re not going to raise it due to inflation. We’re just adding treatments and then selling those treatments, and that, in turn, raises our prices.

Jay Goltz:
I would say this: I bought real estate along the way to house my businesses. And if you own real estate, inflation’s a good thing. I mean, you’re leveraged on the real estate. You’ve got, whatever, 20 percent into it. If your real estate goes up 2 percent, that’s a 10 percent return on your money right there. This is another reason to own real estate. Inflation over a long period of time makes a lot of money versus your rent just going up.

Loren Feldman:
Something else I wanted to talk about today—and maybe it’s a factor in your employee situation, Jay—I’m wondering if any of you are dealing with employee burnout. There’s been a lot in the news about that lately, as well.

Jay Goltz:
Yes.

Dana White:
Yes.

Jay Goltz:
I have two salespeople. One of them was here for 15 years. Again, I don’t turn [over] a lot of people. Part of this is COVID, no question about it. The anxiety level for everyone has been higher. They’re dealing with the public. They’ve got Plexi in front of them. They’re wearing masks, the whole thing.

People need to realize that people who are dealing with customers all day long, it’s very different than someone who’s working in an insurance office and doesn’t see anybody or they’re working out of their house. This is far harder on people who are out there all day long dealing with 20, 30 customers a day. And I would say that it is related to the two people who have just quit, that that really just pushed it over the top.

Loren Feldman:
Did you see that coming?

Jay Goltz:
You know, I kept saying, I’ve said it on this podcast: Everyone seems like they’re okay. They’re not okay. So, a little bit. It hasn’t been horrible. I’ve got 130 employees, I’ve lost three. It’s not terrible, but absolutely related to COVID. They already had some anxiety. This just pushed it over the top. And in one case, the spouse got a big job promotion—the money wasn’t as critical—and the other one broke up with the boyfriend, so didn’t have someone paying half the rent. So there was some money stuff involved. It’s not all COVID, I would say, but it’s a mix. I’ve got some new people starting, and they’re very excited.

Loren Feldman:
Was it hard to find them?

Jay Goltz:
Not really. We put the same ad out we always put, and we got a really good applicant. Now, if I wouldn’t have gotten this one really good applicant, it would have been [bad]. I didn’t get three great applicants. I got one great applicant, so it’s definitely a little harder. I saw President Biden the other day saying something [how] this unemployment extra money is not affecting people looking for jobs, because if they get offered a job, they have to take it. What fantasy world is he living in? How would the government know if somebody offered someone a job and they didn’t take it? I absolutely know for a fact it’s not helping any. I’m not saying it’s the entire problem, but it is absolutely a factor that there are people that are getting more money in unemployment than they’re getting going to work. I’m not saying it’s huge. I don’t know how big it is, but it’s certainly a factor.

Loren Feldman:
How do you know it for a fact?

Jay Goltz:
Because I know from personal experience people who are doing it. I know from putting ads out. We’re getting way less people. I mean, how could that not be having an effect, that someone can sit home and make more money sitting at home? How could that not be a factor? You’re going to say no one in the world is gonna say, Oh, no, I don’t want to go out and get a job.

Loren Feldman:
I agree with you. I think it is a factor. I think there are other factors as well, and I think it’s hard to know what’s the more important factor.

Jay Goltz:
But the president said it wasn’t a factor because if they get offered a job, they have to take it. And that’s just not true. How would the government know if they got offered a job? I just think he overstated that one a little bit. That’s supposed to be over, I believe, by September. Does anyone know?

Loren Feldman:
I think that’s right.

Paul Downs:
Loren, what are the other factors?

Loren Feldman:
Well, for one thing, in the most recent jobs report, female employees have not been coming back. And that raises an obvious question, is childcare possibly a factor in this?

Dana White:
Absolutely.

Jay Goltz:
I don’t think that’s a question. Of course that’s a factor, yes.

Loren Feldman:
So which one is more important? I have no idea.

Jay Goltz:
I’m not having a competition about which one is most important. I’m saying these are all factors. That’s all. These are all factors. There’s some people who do not want to expose themselves because of either someone in their household or themselves. That’s a factor. I’m guessing that that’s probably the bulk of it: unemployment, taking care of children, and worrying about their personal safety or someone in the house. I would say those three factors have absolutely made it harder to hire right now.

Dana White:
I’m frustrated with the blame. I’m seeing a lot of blame on business owners: “Well, if your staff members can make more money on unemployment than they do in your business, then you’re a bad business owner.” I’ve had staff come to me, and not need a raise because of their output or what they’re contributing at work, but they want a raise based on what’s happened in their life. She came to us and said, “Hey, I need $2 more an hour because of what’s going on in my personal life,” versus, “Hey, I deserve a raise because of what I’m contributing.” And so when we tried to have that conversation with her, the response to us was, “Well, if you pay me more, I’ll perform better.”

That’s not how I knew it to work. I was under the impression of, if you perform, you show your value and the company pays you. That’s not the culture of the people who work with me. That’s not it. “If you want me to do better, you’ll pay me more and then I’ll do better.” I’m of the mind that you have to go find a job that meets your lifestyle. And then her response to me was, “Well, what can I do? I graduated high school. I’ve got a cosmetology license. That’s it. And I’ve got two kids I need to feed. I need you to help me.” And I said, “Yes, but then I need you to perform so I can pay you.”

Jay Goltz:
That’s a very sad story, because this woman has not figured it out, and she’s going to struggle now. It’s unfortunate that she hasn’t figured out that she’s supposed to work hard at a job, and that’s how you make more money.

Loren Feldman:
Were you able to convince her, Dana?

Dana White:
No, no, she took it to the customers.

Loren Feldman:
That’s a problem.

Dana White:
Yeah, it was a problem. She said, “Well, what did you expect me to do?” And right in the middle of telling her, I stopped, because I realized she just didn’t get it. She said, “Give me the raise, and I’ll stop telling the customers that you don’t know how to pay.” I said, “No, you’ll have to go to another salon.”

Loren Feldman:
Dana, have you had successes as well? Have there been people who came in with similar attitudes who you’ve been able to talk to and explain how it actually is supposed to work?

Dana White:
Yes, and they left. One girl left, which was great. Which is like, okay, you have to go do what’s best for you. But the mentality of some of the people that have worked for me is, “Dana, no, you’re rich. You own a business. Your job is to make sure I’m okay. And I’m supposed to do what I feel like doing.”

Jay Goltz:
The moral of the story is: There are some people in the world who don’t get it. There are people in this world who think they should do just what’s barely, barely acceptable in their job, and that’s a lot of the population.

Loren Feldman:
I will say, a lot of the population has worked for really terrible bosses and really terrible companies, and that has bred some of that. Not your companies, of course. Paul, what’s going on with your employees? I know you’ve told us in the past that they tend to be quite stoic. It might be harder for you to know, but do you think you have burnout issues at your shop?

Paul Downs:
I haven’t seen evidence of it, so who knows? But they show up, they work hard, the team gets along. It’s probably easier, because what we do has an inherent satisfaction to it. It’s just cool to make cool things. It’s a good team. And I think I’m a really good boss, so I haven’t really had anybody who’s said anything to me.

I think we’ve also tried to be very flexible in our response to the situation. And the statement you made, Dana—like, “You’re rich, you have a business, you should take care of me.” I actually don’t disagree with that, as long as they hold up their end of the bargain, which is: I’m rich because you do your job. And if we can make a prosperous company together, then the prosperity should go to everybody, to the extent that it’s reasonable.

Loren Feldman:
Jay, did I hear you choke there for a second? [Laughter]

Paul Downs:
Yeah, Jay probably just vomited all over his keyboard.

Jay Goltz:
I think people should be paid well. I think people should make market wages. I think people should get rewards if things are going well. But there is a line there between the one who owns the company, who has all the risk, who has had to fuel the company, and who has mortgaged their house. This isn’t socialism. There is a line there. So I hear what you’re saying. I don’t know that I disagree. I just think that there is a line there where the owner of the company who took all the risk, who continues to take the risk, and has all the exposure should be compensated for that. And that’s all.

Paul Downs:
Well, let me just challenge you on that. Who’s taking all the risk? When someone comes to work for you, they’re foregoing all other opportunities. And so that’s a risk, right?

Jay Goltz:
Not really.

Dana White:
Not really.

Paul Downs:
I disagree. I think that people who come and dedicate… I mean, my employees put a ton of energy into making this place succeed. All of us have to be pointing in the same direction. Now, I’ve had a good experience with employees on the whole, and I can certainly see that, Jay, you’ve had a lot more employees than I have. And Dana, it sounds like your employees are just different from mine. Or some of them, anyway. That would certainly change my opinion, if I’d gone the last 30 years in a different atmosphere. But based on my experience, it’s been a partnership between me and my employees, and when we all got clear on what we were doing and what was the result of doing a good job, then the company worked much better.

Dana White:
But it sounds like you’re saying it’s a risk for the person who goes to the casino, because they chose to go to that casino and put their money all on black—you know what I mean? They take a risk by foregoing other opportunities through their choice. The second that they choose not to take that risk, they apply and go somewhere else. I don’t know if the word “risk” applies.

Loren Feldman:
But there are different kinds of risks.

Dana White:
It’s a different kind of risk, but yeah.

Jay Goltz:
Paul, you’re making a lot more money than they make. Yes?

Paul Downs:
So?

Jay Goltz:
Right, you did exactly what I’m talking about. The reason why you’re making a lot more—

Paul Downs:
I’m not making as much as I could make, though.

Loren Feldman:
If what?

Paul Downs:
If I were less generous to the employees.

Jay Goltz:
I don’t think this has anything to do with “generous.” You’re not doing it just because you’re a good guy, you’re doing it because—well, partially—but partially, it’s because they’re working hard and you want to keep good and valuable employees, and you’re paying them well. But if you totally subscribed to your whole thing with they’re taking all this risk also, then you would say, “Well, I don’t want to make too much money. I’m gonna make sure I share with everyone.” But you’re making what you probably should be making running that company, taking all the risk that you’re taking. You are working in the capitalistic model of the owner who took the risk, who put the money in, who signed the leases, who takes all the legal exposure, you’re being compensated for that. You could have said, “Well, I think I’m going to just pay everybody another $10,000 this year and take a pay cut.” But you haven’t done that, because you’re paying them well enough.

Paul Downs:
There have been occasions when I did that. Well, how about this form of risk? What if I dropped dead tomorrow? This company would not survive that. And some of them have been with me for many, many years and their resume has been, or their whole work experience has been tailored to exactly what we do and what I want us to do.

Jay Goltz:
Yeah, that’s a risk on them.

Paul Downs:
This company would not survive that. Some of them have been with me many many years, and their whole work experience has been tailored to exactly what we do and what I want us to do.

Jay Goltz:
Yes, yes.

Paul Downs:
And so they’re not as well-prepared to ride out an event like that. They’ve given up other opportunities. I think to say that the owner takes all the risk and the employees take none of the risk, that doesn’t strike me as right, that there are various risks spread all around. Now, the financial risk? Sure, that’s mine.

Loren Feldman:
The capital risk. I mean, it’s a financial risk for an employee too. As someone who has spent most of his career as an employee, I’ve gotta side with Paul a little bit on this one.

Jay Goltz:
Wait, wait, wait. There’s no siding here. I’m not saying that it’s wrong to make sure that your employees make enough money that if you drop dead, they’re okay. There’s no argument here. It’s about the words. My guess is Paul is running his company very similarly to the way I’m running my company. My turnover is less than 10 percent. I have lots of employees who have been here 25 years. I am concerned about their long-term welfare. I’m guessing that we’re running the businesses exactly the same.

Loren Feldman:
I think you’re right that it’s a semantic issue, Jay, and it’s something that you often point out. I think it’s a question of absolutes. Is it all the risk or most of the risk, or all the risk of involving capital? But there is some risk for an employee who chooses to forego other possibilities and could be hurt if something went wrong at the place they do choose to work at.

Jay Goltz:
But my whole point with the risk is the owner has every right, and it’s only fair—and I really avoid using that word—it’s only fair and right that the owner gets compensated for the financial and the hours and everything else that goes along with owning a business. I’m here to say: There’s nothing wrong with the owner of a company making a really, really good living because they own the company. That’s all I’m saying. This idea that, “Oh wait, all these people worked hard, I should share”—yeah, you should share, to a degree. I’m not arguing that.

And the proof’s in the pudding in this case, because I know what the numbers are with Paul. We talked about it. You’re not one of those guys, who goes, “No, no. I’m just gonna pull… I’m not gonna make any more than 25 percent more than my top person.” You haven’t done that, because that would be silly and not necessary. I think you’re treating your people well. You’re making a nice living from it. You’re making what somebody running a size business of yours should be making, so I think you have a healthy situation there.

Paul Downs:
Thank you.

Jay Goltz:
So I don’t think there’s a debate here at all. It’s the words we’re using. I just don’t want to make it sound like… it’s capitalism, sorry. I hate to use the ugly word.

Loren Feldman:
Let’s move on to another topic. One more thing I want to cover today, which is—Jay, this involves you—I saw a note the other day, that Framebridge—the online framing service—has plans to open a brick-and-mortar store in Chicago. I’m wondering what you think of that?

Jay Goltz:
You know, I’m not their accountant. Everything is private. All I know is the person who started it just—

Loren Feldman:
This is a venture-backed company that raised a lot of money and suggested they were going to disrupt the industry…

Jay Goltz:
I think it was $90 million or something, and keeps talking about disrupting. All I know is, it’s seven years later. It’s still being called a startup. I don’t know what it’s disrupting. I’m sure they’re doing some business, no question. I’m sure they have some happy customers. But the person who took it over is with a big holding company and has some money. I don’t know what to think. All I know is, I haven’t seen the disruption. It’s been seven years.

Loren Feldman:
Wasn’t part of the idea that they could charge less because they wouldn’t have brick-and-mortar stores?

Jay Goltz:
Yes. Very good, Loren. You’re a good student. Yes, that was part of their spiel. So now they have stores. Like I said, I’m not on their board. I don’t have access to their numbers. But where did that $90 million go? It had to be funding losses. Where else would it go? They didn’t invent synthetic water or something. $90 million is gone, and it’s seven years later, and now someone took it over for the famous, undisclosed amount. And you know what? You’ve seen it, I’ve seen it. I have no idea how it’s working.

Loren Feldman:
Their original idea was that everything would be done by shipping, I guess. They wouldn’t have stores. In your experience, are people willing to ship expensive artwork?

Jay Goltz:
Clearly some people are, because they’re doing some business, I’m not arguing. There are some people who are doing business with them. My guess is half of that business would have never gone into a brick-and-mortar store in the first place. And then, I believe it is a fact they’ve gone through about $90 million. When you’re losing money, you can charge whatever ,because you’re getting funded. So at some point, the business has to make money, and the word that’s never been associated with any of the articles I’ve read, or anything I’ve heard is, no one’s ever used the “P” word. That would be “profitable.” So I’m assuming they’re still not profitable.

Loren Feldman:
Are you concerned about the impact on you?

Jay Goltz:
No, because my customer base wants beautiful custom framing properly done with a professional behind a counter who knows what they’re doing. I don’t think that this business model of—first of all, calling it “custom framing” when you’ve got a very limited selection, then you really don’t understand custom framing. It’s semi-custom framing. My customers enjoy, appreciate, and want to pay for the experience of having a tremendous selection to make that picture look perfect. Everybody isn’t just looking for a plain, simple frame around their thing. For that market, I’m sure they’re doing some business, and I’m sure there’s some people who are happy with it. I don’t see how it’s going to disrupt the industry, and it’s been seven years. Let the disruption begin.

I’m guessing—but I don’t think I’m off on this—they probably have 1 percent of the market. Maybe two, but that’s not disrupting. This isn’t Uber. I’m not a taxi company and Uber came along. I’m not losing any sleep over it. I’m sure they’ve got some happy customers, but customers who want beautiful framing and a selection and service, it’s a very different model. And then shipping your artwork, by definition—if you’ve ever framed anything—when you have better artwork, it’s got to be hinged so that it’s basically just hanging in the frame. You can’t really ship that properly, because the jostling and the shipping is going to release. There’s some stuff you can’t ship, and then once again, cardboard has gotten more expensive, shipping costs have gone up. There’s not any great efficiencies to go into shipping everything from a warehouse. I don’t know. Like I said, I don’t have access to their books. Yes, they’re opening some stores. Who knows how that’s gonna go? I have no idea. And yeah, it is what it is.

Loren Feldman:
Dana, do you feel that you’ve been in competition with venture-backed businesses?

Dana White:
No. Not at all. I’m waiting for the next walk-in only hair salon to open. We’ll see. I know there’s a young lady in San Francisco who’s backed by Serena Williams’ husband.

Loren Feldman:
That’d be the founder of Reddit, right?

Dana White:
Yep. Alexis Ohanian. Yeah, there’s that. But I look at my business as a disrupter. When we franchise and have locations across the country, there are going to be copycats that have learned and gotten up to speed on how to operate a walk-in only hair salon for a market of people whose hair has wrongfully been deemed to be challenging. I’ve done it, and I’m already almost nine years ahead of where they’re starting. And so to me, [for] a venture-backed company, as soon as I see that you take appointments, I’m like, “Okay, on to the next.” Because it’s not the same.

Jay Goltz:
How many companies truly are disruptive? How many industries can you think of? Okay, did Uber disrupt the taxi cab business? Absolutely. There’s no question on that one. They keep losing money, but I assume it’ll work long-term in some fashion. That certainly was a disrupter. Is Chewy a disruptor in the pet-supply business that you can go online and buy from Chewy and it’s cheap and free shipping? Has that hurt the pet stores? Maybe. They’re doing billions of dollars. There’s just not that many disruptors in the world, is my point.

Dana White:
I don’t want to be a disrupter.

Jay Goltz:
Really?

Loren Feldman:
I thought you just said you were a disrupter.

Dana White:
I am, but it doesn’t mean I want to be. I don’t necessarily want to be a disrupter. I want to offer an alternative.

Jay Goltz:
Well, that’s being disruptive if it gets popular enough.

Dana White:
It’ll get popular but it still won’t… I don’t want it to take away from the traditional hair salon. I still want you to go get your haircut. I still want you to go get your hair colored. I still want you to go get your hair braided, and you will. Those services are things that we don’t offer. And there are businesses that thrive off of doing those services in addition to the services that I do.

Jay Goltz:
So the person coming to see you is doing it at home by themselves now. Is that what you’re saying?

Dana White:
The person who’s coming to see me is coming to get their hair treated and to get in and out because they don’t have the schedule or the time to find a stylist or sit in the salon all day.

Jay Goltz:
All right, well, I hate to say this, but this is why we do this. That’s a rather naive thing. You just finished telling us: You don’t want to take away from any salons. Now you’re telling us you’re taking away from the salons. Is there something wrong with taking some business?

Loren Feldman:
I think she’s saying she wants to supplement what salons offer.

Dana White:
Supplement what salons are doing, right.

Paul Downs:
Can I jump in here? Maybe the problem is the word “disrupt.”

Jay Goltz:
Yes, maybe.

Dana White:
Uber is disrupting. You’re not hailing a cab anymore. You’re going on your phone and getting a taxi. At Paralee Boyd, I still go to my hairstylist. And then I also, for maintenance, go to Paralee Boyd.

Jay Goltz:
But they’re going less is the point. Clearly.

Dana White:
Yes.

Jay Goltz:
So it is going to take some market share from that. And all I’m saying is, there’s nothing wrong with that. You’re providing another solution. I’m certainly not suggesting it’s putting everyone out of business. It can’t. But it is taking some market share. Let’s not call it disruption, because it’s not true. I think we’re all on the same page once again.

Dana White:
Once again!

Loren Feldman:
I hate it when that happens.

Paul Downs:
I’m not!

Loren Feldman:
Oh, good. Go ahead, Paul.

Paul Downs:
I’m not on the same page. I think this is a discussion about how poorly bullshit Silicon Valley terminology maps onto real life.

Jay Goltz:
Yes, we’re on the same page on that one, too.

Dana White:
All on the same page!

Loren Feldman:
What do you mean, Paul?

Paul Downs:
Well, this whole thing of you trying to claim that your business is a disrupter in order to get some attention, get some money, get whatever. Every entrant into a market has some potential to take business from others, and some new approaches to business have potential to make others’ work less attractive. I mean, I’ve probably been as disruptive to the high-end conference table business as anybody, just because we got in with Google and people started buying this product a whole different way. I just had never really thought about it as a disruption until—

Loren Feldman:
We should explain. When you say you got in with Google, you mean—

Paul Downs:
Well, Google just chose me one day, but the idea that you would go buy—

Loren Feldman:
It’s not like they were your partner. I just want to be clear, you started showing up in Google searches. Right?

Paul Downs:
Right. It was nothing that anybody in my company did. It just happened one day, because we had some—

Loren Feldman:
Early on in the evolution of the internet.

Paul Downs:
Very early on, and none of my competitors really thought that someone would buy a $100,000 boardroom table from some guy they saw on the internet. It just wasn’t a business model. And now it is.

Jay Goltz:
To Paul’s point, the word “disruption” is thrown around way too much. It seldom is accurate. There are very few cases that there’s truly been a disruptive company out there. So once again, Paul, I know you’re uncomfortable being on the same page with both Dana and I, but we are on the same page once again.

Paul Downs:
So long as I write the page, I’m fine with it.

Loren Feldman:
My thanks to Paul Downs, Jay Goltz, and Dana White. As always, thanks for sharing, guys. Just don’t agree too much, all right?

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