Episode 7: Maybe This Isn’t the Right Job for You

Nobody goes into business because they think they're going to be really good at firing people. When you read books or magazine profiles of business leaders, you rarely hear anyone say, “You know, the one thing I've really mastered is knowing when and how to fire people.” And yet it’s something that every entrepreneur has to deal with. Even at the most successful businesses, some employees are not going to make it. In this episode, regulars Karen, Jay, and Dana answer the question: how many people have you had to fire or lay off? Plus: What do you do when you find you have venture-backed competition?

Guests:

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

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

Karen Clark Cole is co-founder and CEO of Blink.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Episode Highlights:

Jay Goltz: “Because of my extremely undisciplined and ignorant hiring practices as a 22-year-old, I hired a lot of people who couldn’t do the job or didn’t want to do the job or were just not planning on doing the job. Now that we’ve gotten better at hiring, we don’t fire a lot of people.”

Jay Goltz: “The test I use, which I figured out years ago, it’s just a visceral question you ask yourself. If this person showed up tomorrow and said, ‘You know what, I’m moving to Denver,’ would you want to jump up in your chair and give yourself a high five?”

Jay Goltz: “I also want to have what I would call ‘righteous firings,’ which means I’ve got clean hands. Like when they say to you, ‘I can’t believe you’re firing me,’ I want to be able to say, ‘I can’t believe you’re surprised.’”

Jay Goltz: “What lesson is there to learn from companies that give free shipping and never make any money? What should I learn from that? That I should give free shipping and not make any money?”

Karen Clark Cole: “I think it’s important to share why, because of two things. One is, it shows people, “Oh, that’s not me,” and they can relax, and two, it sets the standard: ‘This is what we just tolerate, this is what we don’t tolerate.’”

Dana White: “The last termination, I had been strongly recommended that I get a personal protection order because after this person was terminated, they were driving by the front of the salon, sitting in front of the salon for hours. They were so angry.”

Full Episode Transcript:

Loren Feldman:
Let’s meet this week’s 21 Hats Podcast lineup. Back with us today are Karen Clark Cole, who is CEO of Blink, a user experience research and design firm based in Seattle; Jay Goltz, who has several businesses in Chicago, including a picture frame shop, Artist Frame Service, and a home furnishing store, Jayson Home; and Dana White, who’s founder of Paralee Boyd, a chain of hair salons based in Detroit.

As far as I know, nobody goes into business because they think they’re going to be really good at firing people. When you read books or magazine profiles of business leaders, you rarely hear anyone say, “You know, the one thing I’ve really mastered is knowing when and how to fire people.” And yet it’s something that every entrepreneur has to think about, has to deal with. It’s an important skill. Even at the most successful businesses, not every employee is going to make it.

So let’s talk about this. I’d like to start first with asking each of you: roughly how many people have you had to fire or lay off? Karen, how about you?

Karen Clark Cole:
In the history of the company in the 20 years, I don’t have a count. That’d be interesting to find. I was actually thinking the other day, it’d be fun to find out how many people we’ve hired over the course of 20 years, because people come and go naturally.

Loren Feldman:
Sure.

Karen Clark Cole:
But we’ve certainly gotten better at it over the years.

Loren Feldman:
Is it more than 20? More than 50?

Karen Clark Cole:
Yeah, probably 50ish?

Loren Feldman:
Okay.

Karen Clark Cole:
I’m combining firing and laying off, although they’re very different. Firing is for, in our case, people not being able to perform the work at the quality that’s expected. The expectation is very clear, which makes firing much easier. If it was unclear and vague and nobody really knew what the standard was or what was expected of them, firing is much more difficult. But for us, it’s very clear what’s expected.

We talk about it all the time. It’s no surprise and it makes it much easier if somebody’s not cutting it. It’s usually not a surprise to them because they’ve been on a performance plan. We work very hard. We want them to succeed, so we do everything possible to try to help them and get them there. And if it becomes where it’s too much stress and work for all the people around lifting the load, trying to help them, then they have to go.

Loren Feldman:
Dana, how about you? Do you know how many people you’ve fired?

Dana White:
Eight people.

Loren Feldman:
You know exactly. [Laughter]

Dana White:
Exactly. Eight people in seven years.

Loren Feldman:
Has it gotten any easier over that time?

Dana White:
Yes, it has. I know now, especially with the last termination, I have to choose Paralee Boyd over people who are making it abundantly clear that they don’t want to be at Paralee Boyd. So when I look at it from that perspective, it has become easier—not comfortable, but easier to do.

Loren Feldman:
How about you, Jay? You’ve been in business over 40 years, I believe. How many people have you fired?

Jay Goltz:
Personally, probably, I don’t know, 200? Mostly in the first 20 years. I haven’t personally fired anybody in… I can’t even think of the last person. But for those years where I was the main manager and things were growing… I have to give you perspective, though. I have 115 employees. So over 42 years, I’ve been through 1,000 employees maybe.

But in the beginning, I’d never had a job. I had no idea how to hire people. If they showed up and had a pulse, I’d hire them because I needed somebody. I thought everyone just works hard and you tell them what to do. Because of my extremely undisciplined and ignorant hiring practices as a 22-year-old, I hired a lot of people who couldn’t do the job or didn’t want to do the job or were just not planning on doing the job. Now that we’ve gotten better at hiring, we don’t fire a lot of people.

Loren Feldman:
Have you gotten better at firing? Are there aspects to how you manage this that you’ve learned through the years and through all those firings?

Jay Goltz:
Yes, the first thing I’ve learned is: better that they quit for you and for them. So the first thing is, we sit down with them, and if they’re not doing things properly, we tell them, and then after the second time, perhaps we can say, “Listen, I’m getting concerned this might not be the right job for you, because I’m telling you the same thing for the third time now.” Sometimes they figure it out on their own, and they leave, which is good for everybody. I’ve yet to meet an entrepreneur who’s been in business for years who doesn’t say, “Yeah, I’ve waited too long,” plenty of times. Karen, you with me on that? Did you ever wait too long?

Karen Clark Cole:
Yeah, but how long has changed. It’s generally always a relief, and that makes it easier to do it.

Jay Goltz:
My thinking is, when all hope has left, so should they. I don’t just hope they get better. The test I use, which I figured out years ago, it’s just a visceral question you ask yourself. If this person showed up tomorrow and said, “You know what, I’ve got some bad news. I’m moving to Denver,” would you want to jump up in your chair and give yourself a high five? You shouldn’t be relieved when people quit. I actually in my head, if I would be relieved, I know it’s time. If I wouldn’t be relieved, I know I’ve got to work on it some more.

I also want to have what I would call “righteous firings,” which means I’ve got clean hands. Like when they say to you, “I can’t believe you’re firing me,” I want to be able to say, “I can’t believe you’re surprised. I told you three weeks ago that if you did this again, you were going to get fired. What part of this would be a surprise?” I don’t think people should be surprised usually when they get fired, unless they did something that’s just egregious that you couldn’t have seen coming.

Loren Feldman:
You’re kind of talking about situations where it’s, to some extent, black and white, where somebody makes clear that they’re not really into the job, they perhaps don’t even really want to be there. It can be a lot more difficult than that. The obvious situation is when someone just doesn’t grow with the business. They might have been just fine early on, but things changed. The business evolves, they don’t. Something has to be done. Have any of you had a really tough firing that you struggled with, maybe couldn’t even sleep the night before?

Dana White:
That was me with my termination in August. You’re right. It’s not so black and white. This was somebody I cared about. This is somebody who was great when we first started. I slept really good knowing that, in the beginning, this person was on my team. But towards the end when I started walking into my businesses and seeing things not being done and seeing not what I wanted and being told, “Well, it’s okay. It’s okay. It’s okay. It’s okay.” Or, “There’s nothing we can do,” or, “This is just how it is.”

I decided to hire someone who could help me execute what I needed to be done, because at that point—and this is three years in with this person—there wasn’t really much I could do to get them to do what I needed them to do. I knew that they were going to do what they wanted to do regardless. And then if you terminated that person, you’re left holding the bag for everything, meaning you’ve now got to work triple times as hard, so I knew I would need help, if it came to that.

When I hired this operations person, I’d actually hoped that this person would step up, but they didn’t. It got worse. It was really hard, and not so much because you know their life and their family and you care about them. It was hard because I had hope, and it got even harder when you realize that that hope was misplaced, that they’re not only not stepping up, they’re getting worse, because you put structure in place.

Loren Feldman:
Did you have that kind of conversation that Jay described of just laying it out to them, “You have to change the way you’re doing this,”?

Dana White:
In the beginning, it was, “Okay, Dana is not happy, so let’s talk to Dana to make Dana happy.” But the performance wasn’t changing. Then I said in a conference call with both of my managers at the time, “These are the things that need to change. This person is coming in to put in more structure, and this will help you.” One manager was excited. The other manager was skeptical. Needless to say, the manager who was skeptical acted out when this person was hired, continued to act out once this person got their bearings, and we wound up having to terminate them. That was tough because again, this was somebody who had been such an amazing support to me in the beginning. In order for Paralee Boyd to grow, I had to choose: “Either this employee, or Paralee Boyd. It’s up to you.”

After the person left, there was a sad relief, but it was relief because they weren’t there anymore. And then the cat comes out of the bag. You’re hearing from customers and staff members all the things that were going on behind your back, so to speak, all the things that were allowed, and then you start to see the change. Now, we don’t have people calling off every week. People are coming to work, and if somebody can’t come into work, they’re taking the shifts of somebody else. “I’ll take her shift,” or “I’ll take her shift.” Before, we were having a hard time covering shifts. All of this calling off and people not being accountable. Leadership had to change, and once the leadership changed, it started to turn and we started to see that turn in October, November.

Jay Goltz:
The harsh reality is businesses outgrow people. When you start a company by yourself with three employees, it is unlikely that those three employees, when you’ve got 73 employees, are going to still fit in what you used to be. Some will grow with you, and some won’t, and will be resentful. “It used to be you and me, and now it’s all these other people.” It’s just unlikely that you’re going to keep all the people from the beginning as you grow a company.

Loren Feldman:
I’m curious about what you tell the other employees in some of these situations.

Karen Clark Cole:
I think it’s important to share why, because of two things. One is, it shows people, “Oh, that’s not me,” and they can relax, and two, it sets the standard: “This is what we just tolerate, this is what we don’t tolerate.” That’s how you have a culture that’s not toxic. Because if you’re tolerating one bad attitude or low quality, where other people have to pick up the pieces and deal with this person’s bad attitude, you’re enforcing that culture. People, you would be surprised—they’re generally sad that the person’s left, I’m sure, if they have a personal relationship, but relieved to know that this is a company that really puts their money where their mouth is. “They really value this high quality environment, which is why I’ve come here. I want to work in a high quality place. I want to be with people who are really the cream of the crop beside me.” As soon as we let that standard down, they all of a sudden lose confidence in us.

Loren Feldman:
Karen, I’m curious. Is there a legal aspect to that? Have you discussed that with your lawyers whether it’s okay to tell other employees why someone’s been fired?

Karen Clark Cole:
I have not.

Dana White:
We don’t share why they’ve been fired because we do keep that privacy. A lot of times people already know.

Karen Clark Cole:
Yeah, we don’t get into the nitty gritty details, but it would be the quality of the work is not there. Everybody understands what that means.

Jay Goltz:
The important part is that you explain, and we certainly had conversations about this with them. I one hundred percent agree with Karen. There’s some anxiety there. Let them know, “I just want you to know, we’ve been discussing some issues that were a problem, and it wasn’t going right. Unfortunately, they’re gone.” Because otherwise, people make up their own stories. And then, “Oh, I heard it’s because he wanted to bring his brother-in-law in,” and they make up their own, and then the person who left tells a story.

I think it’s critical that everyone knows I play fair, we play fair, we tried, it didn’t work. I’ve never had a problem with that. As far as asking a lawyer, if you want to call a lawyer about all this stuff, they’ll tell you, “Don’t talk to anybody. Don’t look at anybody. Don’t fire anybody. Don’t hire anybody. Don’t sign a lease.” [Laughter] Trust me, get a labor attorney on the phone and they’ll tell you, “No, you should never say anything,” and then see how they run their own business. They don’t.

Dana White:
We have a culture called “cut the cancer.” All of our people work closely together, because we’re not that big in each salon. Once we’re at the point where we terminate, you’ve already spread, so to speak, and so we remove you.

Normally when people are let go at Paralee Boyd, people have already seen it coming and unfortunately the cancer has already spread and people have already started to underperform because we’ve allowed it with this person. We don’t really have to say much. They kind of already know. When they say, “Oh my god, what happened to such and such?” they’re normally doing it because they’re still speaking to that person and they want to hear what we have to say. So we answer it as if we’re speaking to the person who was terminated by saying, “Well, they were underperforming. We trained them and they didn’t quite make the mark for training, as far as their timeliness or getting to work on time or their performance. And so in order to keep our standards up, we had to let them go,” and we leave it alone.

Loren Feldman:
Dana, you’re very process-oriented. You operate your hair salons on the principles of Lean manufacturing, as you move your customers through the salon. Do you have an actual process for letting somebody go right down to prescribing how it happens and where it happens and who’s in the room?

Dana White:
Yep. Depending on who it is, if it’s a manager, we never terminate within the salon. It’s something that’s done before we actually let them know. We start taking down permissions and access to stuff probably the night or the day before, and then when they come in, we have a conversation. The process starts with my operations manager and I understanding the relationships that this person has within the salon and trying to manage that and preparing for the fallout of this person being terminated. So if it’s a stylist and we say, “Hey, how far has the cancer spread?” If it’s like, “Well, if we terminate this stylist, we know these two are probably going to follow,” then we say, “Okay, let’s hire their replacements, and then let them go.”

But we also have reviews. We’ve let you know and we’ve asked you, “How can we help you succeed in this position?” We have a stylist now who’s struggling with her timing. It’s taking her 30 minutes to style a person per head, so now it’s on Dana and my management to supply her with everything she needs to cut that time down and give her time to flourish but also schedule her so it’s not affecting the business. Then over time, if we see she’s just not improving, then that’s a conversation. Maybe she’s moved to another position, or maybe we just keep her on days that are slow where she can perform it that way, but we’ll let her know it won’t be for long, because these days aren’t going to be slow.

We let them know, “This is coming down the pipeline. Here’s what we’re going to give you to help you improve and we’ll check back in with you on this date to see if you’ve improved with our data.” We’re watching them to see, whether they know it or not. Sometimes they know it, sometimes they don’t. We’re timing them. And then when we get back with them, we say, “Here are the days that you know we timed, here are the days that we know that you weren’t, and this is how much you’ve improved.”

We also encourage their colleagues to help them as well. We’ll have them staffed on a day where they’re working next to somebody who’s at the speed that we want them at, and kind of through osmosis, they kind of pick it up. We have had people who decided, “No, I’m not doing it that fast. You’re rushing me.” We said, “This is not the place for you. You should probably be in a suite where you have one hour and 15 minutes to spend on one person, and you can do that. How do we transition you from here to there?” “You don’t have to transition me. I’ll leave right now!” “That’s your choice. That’s not what we want, but if you’d like to leave right now, then that’s on you.”

Loren Feldman:
Maybe that is what you want.

Jay Goltz:
Dana, you know I love you, so I’m just trying to help. I would stop using the word “spreading the cancer,” because some of those people are not cancer. They just have a different view then you have or they’re slow or they’re whatever. I understand what you’re saying. I use the phrase that they “take hostages” sometimes, but some people just—

Loren Feldman:
What do you mean by that, Jay? What do you mean by “taking hostages”?

Jay Goltz:
They go and they’ll start colluding in the back. “Oh, I can’t believe she’s doing this or she’s doing that,” and they take hostages. The phrase “spreading the cancer” is suggesting they’re bad. They’re maybe not bad. They just can’t do the job.

Dana White:
I don’t think that’s the case in my situation. I think that when I refer to people “spreading the cancer,” when my operations manager and I sit down and we talk about this, these are people who are obviously messy, who don’t have the professional standards or business acumen to not be nasty. I’m saying it’s not, “Well, they’re just talking.” No, they’re ordering 50 pizzas and having them delivered to the salon.

Jay Goltz:
Wow.

Dana White:
We’re talking nasty. That’s why I probably won’t change it. And it’s not something we say to them, but we’re talking about people who are calling the state board every week to get them to come and do an inspection on our salon because they’re mad. That’s what we mean by “the cancer,” and then they have people who work in the salon who may not be in line with what they’re doing, but who provide an audience for them.

Loren Feldman:
Dana, I want to ask you about the anger you’re describing. I wasn’t sure if I was going to ask about this, but I feel like I need to, given the times that we live in. Do you—or Karen or Jay as well—worry about somebody being so angry that they come back to the shop or the office with a gun or something?

Karen Clark Cole:
Loren, Jesus!

Dana White:
No, but I mean in my world…

Loren Feldman:
It happens.

Jay Goltz:
It happened two days ago.

Dana White:
Yeah, so they haven’t come back with a gun, but they’ve come out with family members wanting to get into an altercation. That’s just not who we are or what we do. We’ve locked the door and called the police, and you can stand outside and act a fool. You can stand outside and cut up, but I’m not entertaining you.

I am working with some people who haven’t worked outside of hair salons, and in some salons, this level of behavior and drama is acceptable. So they feel that because they’re in a salon, they could come in here and do it, and we just don’t tolerate it. You’re asked to leave and we call the police. It’s as simple as that. Some have wanted to get into an altercation with me. That’s why right now we have removed me from the termination process, because it’s about getting at Dana. It’s like, no.

We’ve had to have Google contact people because they’ve gone on Google and started acting up, on Facebook and started acting up. I can’t speak for the other two people on the call, but I know at Paralee Boyd, it has gotten quite contentious and we’ve had to involve authorities. I’ve crossed my arms and, “Okay.” Police reports have been filed.

The last termination, I had been strongly recommended that I get a personal protection order because after this person was terminated, they were driving by the front of the salon, sitting in front of the salon for hours. They were so angry. Getting threatening messages to my cell phone. “Better watch your back. I’m around the corner.”

Loren Feldman:
So what did you do?

Dana White:
There’s a side to me, Loren… [Laughter]

Jay Goltz:
Don’t mess with her.

Dana White:
Do your worst. Come on!

Loren Feldman:
Wow.

Dana White:
I’m not saying it with ego or hubris, but like I said when we were on stage at Blink, what’s for me is for me. If you come in, come on. Let’s go. I can’t go through life afraid. I can’t, “Oh they’re texting me…” [Fake cries]

Jay Goltz:
I really believe that if any of us wanted to, we can make a list of 50 things to be afraid of. We could be afraid of someone leaving a hot plate plugged in at the building and it burns your building down. You could be afraid of your bank canceling your credit line. There’s 50 things that could happen. I really believe that, if you’re in business for yourself, that fear is the kryptonite of business, and you can’t be afraid, and you just have to deal with things as they come along. Could that happen? Yes, sure. But I can’t be thinking about it too much because you go crazy. It’s the nature of being in business for yourself, which is the heart of the word “entrepreneur.” It’s taking a risk.

Dana White:
My faith is also another part of it. Like I said, what’s for me is for me. I’m not saying be stupid and call this person out and say, “Hey, come meet me here.” No, I take precaution, but I won’t run Paralee Boyd and operate Paralee Boyd in fear of what somebody who wasn’t in line with what needed to be done in the first place is going to do.

Karen Clark Cole:
Dana, you said this a couple of times and I have to admit I don’t understand what you mean when you say that. “What’s for me is for me.” What do you mean by that?

Dana White:
What I mean is that it’s already written. The blessings that are due to me and the adversity and the trials and tribulations and the lessons of life? That’s already done. In my belief, in my faith, God has put me here on earth to do this thing. Only he or she knows what that is. And so my job is to be guided by my faith, walk in my faith, and do what I’m supposed to do. I’m just saying, come what may, my faith will get me through it and I’m equipped to deal with anything as long as I keep the faith. What’s for me is for me, good and bad.

Loren Feldman:
But Dana, you’re also a very thoughtful and strategic person. What you just said kind of implies that you’re prepared to accept whatever may come, and I don’t think that’s fair to you.

Dana White:
No, you do the work. You do the work. You plan and you do the work.

Jay Goltz:
I think what you’re saying is you will deal with whatever comes along.

Dana White:
Come what may and I will be fine.

Jay Goltz:
That is the credo of entrepreneurship. I will deal with whatever happens because that is what entrepreneurship is all about at its core.

Dana White:
And I will be fine. I will be okay. People say the same thing with competition. “Dana, aren’t you worried about competition?” No. If it’s meant for me to be an international brand, I will be an international brand regardless of who is out there. If it’s not meant for me to be, I won’t be, and I will be fine.

Loren Feldman:
One other thing on managing this process, especially in a situation where you think there may be real anger on the other side. One way to possibly manage that is through the payment of severance, which can give somebody a reason to behave well. I’m curious about each of your attitudes towards paying severance. How about you, Karen? How do you approach that?

Karen Clark Cole:
We pay severance, definitely. It’s adjusted. Our goal is to make sure that there is not an undue financial hardship. We’re not obligated to pay any, but we certainly always do, and we look at the tenure of the employee. If there are any unusual circumstances that we know about in their lives, we may try to do more, certainly around extending their health care benefits.

Loren Feldman:
How about you, Jay?

Jay Goltz:
If someone’s been there less than a year, I don’t know that I’d be paying any, but I’ve always paid out severance. I think if you expect someone would have given you two weeks’ notice, I think it’s right to give someone two weeks’ severance pay if they’ve been there, let’s say, more than a year. I’ve had people who were here for five or 10 years—not a lot, very seldom—but over the years, I paid out a week or two per year while they were here, and you can take the edge off.

I also have learned when you’re firing someone, you don’t have to win the argument. This isn’t an argument. You just tell them, “This isn’t the right fit. We talked about it.” They tell you, “You’re wrong.” “Maybe you’re right. I’m not arguing with you. It’s just obviously the wrong place for you.” The mistake a rookie entrepreneur makes is they argue with the person. There’s nothing to argue about, the shorter the better. Everything you say can and will be used against you.

I have to tell you, in all of these years, I’ve only had one person who really went off, but not like swinging or anything, but yelling at me, it’s all my fault. But I’ve never had anybody who got that violent or got violent at all. I think you have to get good at trying to lower the volume of the thing and do it in private for sure. You don’t go screaming to someone on the floor, “That’s it, you’re fired!” I mean, it looks good in the movies, but it’s really bad practice. I think if you do it in a respectful manner, and you offer some severance, it will be better. I’m not going to say many people are going to thank you, though I have had a couple people thank me.

Loren Feldman:
Wait, wait, wait, thank you for being fired?

Jay Goltz:
Yeah, I hired a guy to run the factory and he was so over his head. And finally I just said, “This isn’t working.” He goes, “Thank you.” So it does happen. There are people who know that it’s over and it’s fine. I’ve just found it’s usually not as bad as you think it’s going to be if you do it in a respectful manner. I have talked to entrepreneurs who say, “Oh, I don’t pay severance pay.” I think that’s a huge mistake. I just think it speaks badly about the company.

Dana White:
I don’t pay severance pay.

Loren Feldman:
Why not?

Dana White:
One, I can’t afford it. Now that I’m listening to you guys, I don’t know if I would, because of the process we have in place to get you to succeed. If you’re working and working and you’re just not going to do the job, you’ve made a decision, and hopefully you’ve made preparations behind your decision to not work here anymore, because you know it’s coming.

Jay Goltz:
But that’s probably in the first year, I would assume.

Dana White:
We had a manager who we terminated in August. They had been with me 3 years and I didn’t offer severance. And thank God. When she left, we found out all the things that they were doing. I don’t want to pay somebody to prevent crazy.

Jay Goltz:
I don’t disagree with that, if it’s a situation like that. But if you’ve been in business for 20 years, you’re going to eventually have someone who’s got a little arthritis in their hand and they’re getting older.

Dana White:
Well, that’s different.

Jay Goltz:
Right, I’m saying they can’t do the job and you will probably get to a point where you’ll say, “It’s a reasonable thing to give them some severance.”

Dana White:
We’ve repositioned people within the company. “So you’re not quite making it as a stylist. Maybe we can do a shampoo assistant.” “You’re not quite making it as a shampoo assistant. Have you thought about reception?” We’ll move you before we terminate you.

Jay Goltz:
I’m telling you a new problem is, if you’re in business for 40 years, you will end up with people who are 70 years old who should retire. It’s illegal to fire somebody for age. It’s a problem.

Dana White:
And in that situation, severance is smart. If we had a young lady who had worked with me and she’s grown old with this company, I would not want to say, “Okay, goodbye, you’re gone.” Oh no, we would have probably talked way before then about, as long as you’re getting something out of it, and as long as the company is getting something out of it, and if you’re starting to notice, “They’re not really keeping up anymore,” then try to find something else for them to do, but if it’s just not something that’s working out, let’s phase you out with a parachute. I would do that for somebody who’d been with me for a long time. Sure, sure.

Loren Feldman:
All right, next topic. I do want to talk about competition, and I would like to start with you, Dana, because we just had an item that we ran in the Morning Report and that I sent to you about a venture-backed hair salon based, I believe, in San Francisco that’s kind of going after the same market you’re going after. And I’m curious, what’s your response to that?

Dana White:
When I got the email, I was like, “Oh, no!” I was like, “Oh, man,” because I’m human. And then you think about it and go, “Wow, this is a validator.” If I ever did want to take on venture capitalist funds, it would be, hey, this is working in this market. There’s somebody who is doing it, and it’s working.

Loren Feldman:
By the way, I should point out this is a fairly high-profile thing. We’re talking about venture capital coming from Alexis Ohanian, who is a tech entrepreneur, and who happens to be married to Serena Williams. So there’s some star power there.

Dana White:
Exactly.

Loren Feldman:
So your initial thought was fear, but you came to terms with it?

Dana White:
Yes, and you also said to me in your email that it’s a validator, saying, “Hey, this is a business model that you should look at investing in.” Then you do your homework, you do your research, and you look at the differences between the businesses, and you see that there’s room for everybody, because it is a different model, just catering to the same market. You just keep going.

For some of the entrepreneurs I talked to about this, I think what scares us is our network and the fact that we don’t have the network to put us on a national platform like that. It is like, “Gosh, I’ve been doing this for seven years,” or like another girlfriend of mine, “I’ve been doing this for five years. And I have this line or I have this business, but because I’m not in the Silicon Valley venture capitalist world, I will stay at four salons or four businesses because I’m not connected. Am I realizing my potential or am I falling short of my potential because I don’t have the network?” That was the takeaway from that.

Loren Feldman:
Karen, how do you think about competition? Obviously there are other firms that do similar work to yours.

Karen Clark Cole:
There’s not a lot with the experience and the scale that we have that are really specialized like us. But anyone working in the user experience industry in general, I think it’s good, because it helps raise awareness for the industry, because it is still fairly new. I look at it as more marketing power that we can piggyback on, the more companies that know about this kind of service that you can hire. And then because we have a really long track record and really high quality work and a great reputation, it doesn’t concern me that others are going to come in and replace us.

That being said though, I have tried to get some funding so that we can buy some of the smaller companies that are around because there is a consolidation going on with some of the big companies to try to snatch everybody up and be the highest volume. That is something that concerns me, is I want to be able to play in the big leagues.

Loren Feldman:
You make an interesting point about the industry you’re in. I’m guessing you probably still have to explain to people you meet sometimes what “user experience” is.

Karen Clark Cole:
Yeah, that’s the biggest thing right now, is the more people who understand it, the bigger the industry becomes, because it is a really important function. So yes, out in the general public. Our clients though, generally, they’re coming to us. We’re not trying to educate them. They’ve already figured that out elsewhere before they come to us.

Loren Feldman:
How do they find you? Is that word of mouth or particular marketing?

Karen Clark Cole:
It’s a lot of web searching. This is why any companies that are helping to market what it is, and what it means, is good for us. Because that would put an idea into a potential client’s head. They might do a web search, and they’re going to likely come to us at some point. If it’s not through a referral, which is a big part of our business.

Loren Feldman:
How about you, Jay? I suspect that the nature of the competition that you face in both your frame shop and in your home furnishing store has changed a lot through the years.

Jay Goltz:
Well, every time you say the word “frame shop,” I cringe a little bit just because [when] people think of a frame shop, that usually means two employees. My frame business has 50 people working here. My one main location is 20 times the size of the average frame shop. I started at 22 years old and it grew like crazy and I didn’t understand why. I finally realized that I brought a business approach to an artsy business and I got the two to work together. That’s unusual. I never really looked at what everyone else is doing because I don’t care, and I view it more like, I’m playing golf versus playing basketball. You pay attention to what you’re doing, you do it better than everyone else, everything kind of takes care of itself.

In my industry, though, there have been franchises. They pretty much have failed. That’s why I have told Dana having four successful salons that make money might just be a great situation, because I see these guys who have raised money. I’m on the panel with them. Loren, you were with me. In Chicago, we did a panel thing there and the guy next to me, both of them said, “I wish I didn’t have to raise money.”

I don’t have to answer to anybody. So I always say to everyone, what’s better: not having to answer to everybody and making plenty of money that you can buy the nice car, the nice house, and blah, blah, blah, or maybe be worth five to 10 times more money, but have to take a call from some joker in wherever who’s telling you he doesn’t like this number or that number? Looking at the competition and looking at what everyone else is doing can be very dangerous because it might rob you of your happiness.

Loren Feldman:
I take your point, but don’t you have to pay attention to what others are doing? You have well-funded competitors. There is a frame service on the internet now that people can use.

Jay Goltz:
Yes, they have burned through $70-80 million, and I doubt that it’s working out like they thought.

Loren Feldman:
Well, how about home furnishings? There’s Restoration Hardware—

Jay Goltz:
I just read today Wayfair lost—in today’s news—they lost another $300 million. This free shipping everybody’s giving, when you give free shipping, it’s pretty much giving away your profits. So yeah, it’s a challenging environment with that. My home store is well-known in Chicago, and I do internet, but I don’t have any desire, ambition, or ability to go and raise. I just don’t want to do it. So I’m not paying that much attention to the competition. It’s not like I ignore them, but I’m just not learning anything from them other than, “Here’s how you lose a lot of money.” And as you know, they frequently, one day, poof, gone.

Loren Feldman:
Well, I’m certainly not trying to talk you into raising money. I’m just curious about to what extent you can get away with really not paying attention to what others in the industry are doing. When everybody else is giving away free shipping, it’s got to have an impact on you. You have to be aware of it and look for ways to deal with it.

Jay Goltz:
I think you should be conscious of your competition, but you shouldn’t be focused. You should be focused on your customers. I don’t think you should be focused on your competition, and I see people do that. Then you’re basically saying, “They’re smarter than I am. I’ll just copy what they do,” which in some cases, I guess, might be smart.

Loren Feldman:
There has got to be a middle ground there somewhere, Jay. I mean, I don’t know this business, this industry, the way you do, but I’ve read some stories about how Restoration Hardware has turned itself around and figured some things out and trying some subscription stuff. They’ve put a restaurant in some of their locations. Isn’t that worth paying attention to?

Jay Goltz:
I am, to a degree. There’s a big one in Chicago. They’re a public company. They’ve got nothing but money to burn. I have thought about maybe I should put a food element in my store, and I am thinking about it. So it’s not that I’m ignoring it, it’s just that I’m just not following what everyone else does. Because these days, the world has changed dramatically.

Thirty years ago, if you saw a company that was doing well, they actually were making a profit. Now you see these companies getting all this publicity and they’re worth $2 billion. Look at WeWork, for God’s sake. Explain how you can lose that much money. How many of these companies that you read about regularly are doing nothing but losing hundreds of millions of dollars a year? You can’t assume, “Well, they’re doing it, I should do it.” I don’t have hundreds of millions of dollars to lose, so it’s different.

Loren Feldman:
But that’s not the only choice, doing what they’re doing. The other possibility is that you just need to pay attention because it’s going to have an impact on you.

Jay Goltz:
What lesson is there to learn from companies that give free shipping and never make any money? What should I learn from that? That I should give free shipping and not make any money?

Loren Feldman:
I think it’s one thing to say you don’t want to do what they’re doing. I don’t think anybody’s going to argue with you. I think it’s another thing to say that you can just ignore it. That’s where I’m pressing you a little bit. You have to know what they’re doing.

Jay Goltz:
I would say, be conscious of it. But I’m arguing the point versus focusing on it. I’m certainly aware of it.

Loren Feldman:
Going back to Dana’s situation, we’re talking about a venture-backed company that I think has one location right now in San Francisco. I don’t think Dana should be giving up the ghost because of this possible competition that may or may not ever come. But they may do some interesting things, and it probably makes sense for her to pay attention to what they’re doing. Does that make sense to you, Dana?

Dana White:
Yeah, what I started paying attention to is the price point. It’s higher than mine. They’re at $75, for what I do. Even when I go up to $50—

Loren Feldman:
That’s good to know.

Dana White:
It’s a higher price point. They are, again, like most salons, appointment based, and so you can’t just walk in. They accept them, like most salons do, but it’s not their model. And then lastly, they’re doing more protective styles, meaning they’re doing more braiding, sewing in of hair. Again, it helps that this is somebody who is getting money to expand a business for my market. However, it’s not completely different. It’s not something new. It’s just the same model focused on this market doing it this way.

Loren Feldman:
How would you feel if they opened a store in Detroit tomorrow?

Dana White:
I would welcome it because we would be her alternative.

Loren Feldman:
To Karen’s point, they might increase awareness, but you’re providing different services at a lower price point.

Dana White:
The stylist at that salon had to cancel, something happened. You don’t want to wear braids to an event, you don’t want to wear a sew-in, you want a blow and go, or a straight or style. But I can’t get in anywhere. I just need this done. I could walk into Paralee Boyd for $40 and walk out.

Jay Goltz:
Loren, can you just verify, because you know this as well as anyone—or Karen, you might know this also—what percentage of venture capital funded businesses fail out of 10? Isn’t it like eight?

Loren Feldman:
That’s kind of the model. I don’t know the exact number, but it’s certainly… I wouldn’t be surprised if it’s seven out of 10.

Jay Goltz:
It’s not as simple as, first, get a bunch of money, and we’ll just make everything work. It doesn’t always work that way.

Dana White:
There are a lot of things that only experience can attest to. As much preparation as I did to open Paralee Boyd, there’s nothing that could have prepared me for all the knowledge that I have now outside of the seven years that it took for me to get that knowledge. There’s a lot that this owner and these venture capitalists—who are completely unfamiliar with this world—are gonna have to learn. I don’t believe that hair care products are this founder’s background. I don’t know if the actual salon is in this founder’s background, so if it’s not, there’s a lot to learn, versus making a product. The whole cultural dynamics of that system in and of itself is just a lot to learn.

Karen Clark Cole:
Maybe you should call them and offer them some advice.

Dana White:
No, actually I’m just gonna grow Paralee Boyd.

Loren Feldman:
Were you serious about that, Karen?

Karen Clark Cole:
Yeah, in a way. You can collaborate.

Loren Feldman:
What’s in it for Dana to do that?

Karen Clark Cole:
Oh, I don’t know. They might pay her a lot of money.

Loren Feldman:
Oh, I see.

Dana White:
I feel like Celie in The Color Purple. I’m just gonna sit over here and see what color the wall’s gonna turn next. I’m like, “Jay, let’s see how they do.”

Jay Goltz:
Look at what just happened with Blue Apron. I mean, that was the hottest thing you ever read and the next thing you know, they’re in the toilet.

Dana White:
Are they in the toilet? Because I get them every other week.

Jay Goltz:
I’m going to give you the core to many of these ideas that don’t work, many of them. It’s not cost-effective to ship something to one person in a UPS box. It’s just not that cheap. They always think they’re going to scale out of this, because a lot of them came from the computer industry, which, the first copy, or whatever you call a program, cost a zillion dollars, but then your margins are phenomenal. Not on food. The margins aren’t phenomenal. So as you grow, you can’t necessarily scale out your costs. You see it in a lot of things, that the math doesn’t work ultimately.

Loren Feldman:
And on that note, we are out of time. My thanks to Karen Clark Cole, Jay Goltz, and Dana White.

Dana White:
Thank you, Loren.