This Is What It Takes to Build a Business, Vol. 2
Introduction:
This week, we take a look back at the conversations we had last year about the many rewards and responsibilities of business ownership, highlighting some of our happiest, smartest, funniest, and most difficult exchanges from the past year. Along the way, we discuss topics such as escalating salary demands, how much profit a business should make, a new way to sell a business, the problems with ESOPs, how to sell cookies on LinkedIn, breaking a million dollars in annual revenue, escaping the valley of death, and the pain of having to fire a long-time employee.
There aren’t many places where you can hear entrepreneurs talk about the real-life problems they are confronting right now, today, as they happen—with no guarantee of a happy ending. But those are the conversations I have every week with Paul Downs of Paul Downs Cabinetmakers, Shawn Busse of Kinesis, Jay Goltz of Artists Frame Service, Mel Gravely of Triversity Construction, Jennifer Kerhin of SB Expos & Events, Liz Picarazzi of Citibin, Jaci Russo of BrandRusso, Sarah Segal of Segal Communications, William Vanderbloemen of Vanderbloemen Search Group, Dana White of a soon-to-be-named successor to Paralee Boyd, and Laura Zander of Jimmy Beans Wool.
In this episode, we also highlight several appearances by special guests who stopped by in 2023 to discuss their journeys, including Muhammad Abdul-Hadi of Down North Pizza, Jeff Braverman of Nuts.com, Michael Brown of Teamshares, Brad Herrmann of Text-Em-All, Grayson Hogard of Grove Cookie Company, Lance Tyson of the Tyson Group, and Ari Weinzweig of Zingerman’s. If listening to one of these highlights makes you want to go back and listen to the full episode, that can be done most easily by going to 21hats.com. There you’ll find a transcript of this episode with links to all of the episodes we sample.
— Loren Feldman
Producer:
Jess Thoubboron is founder of Blank Word Productions.
Full Episode Transcript:
As you’ll hear, I introduce each exchange in this episode with a few words to set the context. In the first highlight, which comes from Episode 138, “How’s Your Compensation Plan Holding Up?” Shawn Busse and William Vanderbloemen discuss what it’s been like trying to make sense of employee compensation in a time of COVID, the Great Resignation, a labor shortage, and inflation.
William Vanderbloemen:
Well, I can tell you what we’re doing in our office, and it’s based on what we’re seeing. You know, in the pandemic, we had to reorg and reshuffle, and we—for the first time—had to do staff cuts back in March of 2020. And we lost some really good people. It wasn’t like we had fluff. But the people who stayed with us through that, we are very interested in keeping around. And retention is such a big deal right now that I authorized a percentage bonus pool. And then our managers go and figure out how they want to divvy that out. And I authorized the biggest pool, percentage-wise, that I’ve ever authorized.
Loren Feldman:
Was that based on your company’s financial performance in 2022? Or was that based on the goal of retaining employees?
William Vanderbloemen:
It was our best year ever, way better than we thought. So it was a little easier to take that step. But cost of living, I guess, is starting to come down some. But we kind of figured, just to make people whole, we’d better do 8 or 9 percent. And then we did a little better than that.
Loren Feldman:
Was it just bonuses? Or did you offer significant raises as well?
William Vanderbloemen:
No, that’s all raises. Bonus is a separate issue.
Loren Feldman:
I see.
William Vanderbloemen:
Not everybody got that number. I mean, we offered that number to our managers and said, “You might have some who deserve 11 and some only eight, or whatever. You figure that out, that’s fine.” But what we’re authorizing as a company is a significant pool of money to raise annual salaries, which is, as you know, an evergreen cost. But we think that the inflation issue is real, and the people we have with us now are some of the best people we’ve ever had. So we’re kind of paying it forward in retention.
And that’s based on what we’re seeing in other areas, that a lot of people really cut down to the bone during the pandemic. The people that are left are really pretty critical to the business. And painful as it is to raise evergreen costs, we’re just going to do it to try and show people we understand that it costs more to live than it used to, and we want you around for a long time.
Loren Feldman:
Have you had much turnover?
William Vanderbloemen:
We did about 7 or 8 percent the year before. The losses we had were not because of finance. We made some pretty significant shifts in the last 12 months, and some people didn’t feel like that was their best place to flourish, and they moved on. And that’s fine, we wish them well. I don’t think we had any really nasty departures. It was just, chemistry is seasonal, right? And as we move from one posture to another, there are some who enjoy it, and some who say, “That’s not my deal.” And we wish them well and move on. But I don’t think we lost people because we were not keeping up with the cost of living.
Loren Feldman:
Shawn, from what you’ve told us, I gather last year was not your best year ever. Tell us how you’ve been approaching employee compensation.
Shawn Busse:
Yeah, so before the pandemic, I went really hard at the idea of compensation and making it better, because I started thinking about the thing that employees and owners both dread, which are those negotiations. And it struck me as very odd that you go through all the effort to hire a really great candidate. You get this high of, “Oh my gosh, this new person, they’re so good.” And then right before they join your team, typically, you engage in this almost adversarial issue of figuring out what they get paid. And there are so many problems with that idea from a cultural perspective, but also from an equity perspective and creating gender and race wage gaps.
And so what we did is we committed to every two years doing a market-based survey of what the positions in our company pay. And then we committed to paying 75 percent of market, which is not the very top, but also pretty significant. And then on top of that, we built a bit of a formula to factor in based on experience, tenure in the organization, and what the rate of pay would be for an employee. So that system was really great. We do open-book management at the company, so there’s a real kind of clear understanding of financials and that there isn’t this giant bucket of money to raise wages.
Loren Feldman:
Are you transparent about salaries as well, Shawn?
Shawn Busse:
We are, but in a very specific way, meaning that every position that you want to go after, we’ll share that range and how that formula works. We don’t post everybody’s compensation on the wall. I think that’s problematic in lots of ways. But if somebody says, “Hey, I’m a designer, and I want to go into the strategy department. What would that look like?” we’ll talk about the compensation range and how that formula works. And then we also post it with every job description, which is now required legally, in our state anyway. So that program has helped us from a compliance perspective a lot, and also, I think, protects us a lot from a lawsuit and that kind of issue.
So, I love, love, love, love, love, love it. It’s been great. The problem that I’m finding now is, it’s time for our annual survey. We did the survey, and holy cow, the wages have gone up so much. Like I said, pre-pandemic, we were at 75 percent. Every position has gone up by anywhere from 1 percent on the small side to probably 14 percent. And then my position—which is crazy—the CEO role has gone up by 20 percent, which is just astronomical. So now I’m looking at that going, “I don’t need a 20-percent raise, but these other people really do need raises.”
And so it’s really creating some challenges to our model, partly because we weren’t hurt instantly by the pandemic. But we were really hurt from a marketing perspective over the long-term of the pandemic, and we’re just now starting to kind of recover from that. But everybody who knows marketing knows that the thing you do today will probably have an impact six months or 12 months from today. So that’s our hurdle right now, is that our financial situation is kind of eh, okay. And how do I stick to my commitments in terms of compensation with a much smaller pie than I’ve historically had? So that’s my challenge right now.
In a bonus episode, “A New Way to Sell Your Business,” I spoke with Michael Brown of Teamshares, a holding company that is buying the businesses of Boomer owners who are ready to retire but in many cases struggling to sell. Once the business is bought, Teamshares turns the employees of those businesses into employee-owners, which is intended to strengthen the businesses while also addressing income inequality. Starting in 2020 and flying largely under the radar, Teamshares has bought more than 80 businesses in more than 40 industries, most ranging between $1 million and $5 million in revenue. I asked Michael to define the difference between how Teamshares operates and how a typical private equity firm operates.
Michael Brown:
So private equity tends, first of all, to play with larger companies that generally start with at least $5 million in profits, and scale up into public companies they take private. So their model, as some of your listeners will know, is to raise money from foundations and endowments and institutions, buy businesses, and within 10 years, sell the business. And so our strategy is not to sell the businesses. It is to let the employees earn 80 percent of stock ownership through time, through service, over 20 years.
So the businesses in the design of Teamshares’ business model will never be for sale again. The business’s succession loop, the succession problem for all the businesses we are working with—basically, the succession gap is broken or filled in another way. Because you don’t ever have to sell the business again. They just end up 80 percent employee-owned and 20 percent Teamshares-owned.
Loren Feldman:
Could you walk us through an example, just to show us how this works?
Michael Brown:
Yeah, so we work with businesses that are as low as $1 million of revenue up to $10 million in revenue. And our goal, over time, is actually going to be to try and address even smaller companies. But we would buy the business from the retiring owner, and then we would do an announcement with the key employees to get them comfortable shortly before closing, and then have sort of internal champions ready before a more general announcement. And then shortly after the announcement, we would issue 10 percent of the stock, basically diluting ourselves, diluting Teamshares, and issue 10 percent of the stock to the employees across the board.
It’s not a key person program. It’s for everyone who’s there who’s an ongoing permanent employee of the business. And then we would also hire a president, and we vet them, and we put them through a one-month training program, and then support them thereafter. Because in addition to the financial transaction that needs to happen for the owner to sell their business and get some of their retirement proceeds going, they also need to transition the day-to-day leadership of the business. And so we also recruit the president. So that’s the gist of the model. And then we transition over 20 years, starting at 10 percent of employee ownership, and ending up with 80 percent employee ownership.
Loren Feldman:
And you’ve done this, I believe, with about 64 companies in 43 different industries. When did you do the first one?
Michael Brown:
The first one, I think, closed in January of 2020, and we did one a month in the first quarter. And then we all know what happened in March and April of that year. And so we decided that it was in the best interest of the company to stop doing new retirement-sale acquisitions and to support the existing companies. And at that time, it was a very small company. It was three founders and two other colleagues. And so we sort of spent the year supporting those companies to get through that very difficult economic environment and starting to build software to be ready on the back-end to start doing more of these retirement sales.
Loren Feldman:
You said your typical range is between $1 million and $5 million, I believe. A million dollars in revenue is not a lot of money. And you need to replace the owner with a president who’s going to run the business. You need to give equity to employees. You need to invest in the business to grow it, presumably. How does that work? Where does that money come from?
Michael Brown:
Yeah, there are a couple of questions in there. The ways we finance buying the businesses from the retiring owners are very similar to any sort of financing, which is a mix of equity and debt that we provide. So that the owner gets a significant amount of their cash out at close, and then some ongoing payments over time. In terms of the size question within there, we will go as low as $1 million of revenue and as high as generally $10 million in revenue. That’s just the top line sales. The profits can be as low as $100,000 to $200,000 after paying for a president, which is a real expense to the business.
But we have a couple of goals here. So one, we are trying to address as many companies as possible. And so we all know that the tail skews left, that there are many more small businesses than there are large ones. And so to your question around, “How do you make the math work and how do you afford a president?” generally, as we go and address smaller companies, a president may start to lead multiple companies, so that their cost is shared over a couple of different companies. Whereas the typical, today, medium-size business might be more like $4 to 5 million of revenue, and the president’s salary sort of fits comfortably in that cost structure. And it typically is less than what the former owner—who built the business and deserved to pay themselves whatever they want—cost was historically.
Loren Feldman:
How do you value the businesses you buy and set a price?
Michael Brown:
We value the businesses based on the cash flow of the business. So to be a little more specific, basically, the operating profit, and also considering what the CapEx capital investment needs are in the business. And then we propose a multiple, based on that number, based on our own calculations for the business’s financials.
Loren Feldman:
Is that regardless of the industry, or does that get taken into account as well?
Michael Brown:
It’s regardless of the industry. It’s really about how steady the financials are, and potentially what the growth outlook is.
Loren Feldman:
Do you think you typically come in at market value—what a business owner could get if he or she took the time to try to sell it on the market?
Michael Brown:
Well, these businesses are on the market. Of the 81 companies, including the companies that have not yet closed, I think all but four of them were for sale by business brokers. So they are on the market, and that broker is running a process to solicit multiple offers. And overall, today, historically, about 50 percent of our letters of intent are accepted.
But if you look at the ones where we are very close to the asking price, it’s about an 80 percent acceptance rate, which I think speaks to the act of choice that small business owners are making in choosing employee ownership as their legacy, but paired with transaction certainty. Where we end up having a different view on price isn’t because we’re doing anything hardball. This is maybe one of the misunderstood things about Teamshares. We actually just have a very different view of what the ongoing cash flow of the business is. That’s generally when we get turned down. It’s because we are at a lower price because we have a different view of what the cash flow is.
Loren Feldman:
Isn’t that something that’s kind of black and white?
Michael Brown:
It is to us. But I don’t think it’s black and white to everyone. I think it’s very emotional. I mean, we’re rooting for business owners everywhere. So if someone is going to pay more than what we can offer, even though we’re buying things very much with a markup, they’re trying to maximize their estate, in many cases. And generally we are very competitive.
Sometimes we’ve actually had situations where people have gone with a higher offer that was only say $200,000 higher than ours. But actually, the other party didn’t have financing lined up. It’s cheap and easy to write someone a letter of intent. But Teamshares closes 90 percent of its letters of intent, which is basically unheard of. And so we’ve had multiple companies that actually had a busted process where they had an LOI signed, and the transaction never got closed. And they came back to work with us.
In Episode 141, “How Much Profit Should Your Business Make?” Paul, Shawn, and Jay talk about the bottom line. What kind of a return should business owners expect to get on their time, energy, and capital? And what can they do to build a cushion into their annual planning that protects against unhappy surprises?
Loren Feldman:
Jay, you said you’ve raised this question in multiple business group sessions and never really gotten a satisfactory answer. I’m wondering why you haven’t gotten an answer. I mean, obviously, profit margins are going to vary across industries. But can’t you get a pretty good guideline for where you should be in any given industry?
Jay Goltz:
I’d say no. I think there are a lot of factors. First of all, what’s the highest bottom line? I’ve got a friend who owns a business. He’s got like a 30-percent bottom line.
Loren Feldman:
It’s not a picture-framing business, right?
Jay Goltz:
No, it’s not. There are businesses that have a 3-percent bottom line. I would think that most people would say, if you had a 10-percent bottom line, that’s pretty good. There are books out there that you can buy with a bunch of industries in it—of course, picture framing isn’t one of them—that you can look up what is the average profit of a printing company or whatever. And I’d say, 10 percent is probably good. Retail? If you look at the big retailers in America, they’re usually at 5 or 6 percent.
Loren Feldman:
Shawn, Paul, is this something you guys think about?
Paul Downs:
I do. I’m in a CEO group, where we have a number of different kinds of businesses. And the guy who’s got the best margins is doing about the same gross revenue as I do, but he takes home four times as much money. He’s in a $4 million business taking home a million dollars a year.
Loren Feldman:
What kind of business?
Paul Downs:
He runs a company that does business valuations, SBA valuations for banks, and he’s an extremely smart guy who really has everything buttoned down. And it’s just like, he’s my hero in terms of running a tight business, but he’s also running a business where you don’t have to buy materials. You just have to pay people.
Jay Goltz:
Well, let me ask you this, because running a tight business certainly is part of it. But from my observation of being in five or six groups over the years, people that have really big bottom lines—I’m going to give you the checklist, and tell me if this is true in any of these: They’ve got some proprietary products, or they’ve got a patent. That would certainly do it. Or they’ve got some business that’s been around for years and years, and it’s got a brand name, and everybody wants to buy that. Or they’ve got one big, or only a few customers, and they don’t do any marketing, because they sell the buns to McDonald’s or whatever. So they’ve got that advantage. Or they have got some market advantage that most people don’t have. Does this guy have a market advantage? Why isn’t there competition going and doing the same thing he’s doing and undercutting his prices?
Paul Downs:
Well, there is. He’s just winning the battle. I think that what you brought up, that different businesses are just different, is really the gist of it. And then the other thing would be, how do you define profit? Because I’m an S corporation, and I’m the major shareholder, I tend to think we’re looking for something like 8 to 10 percent profit on an accrual basis. But then if you fold in my compensation and look at something called seller’s discretionary earnings, which is all this stuff I pay money for but I don’t have to through the business.
Jay Goltz:
All those fancy clothes you wear? [Laughter]
Paul Downs:
Yeah, the fancy clothes, the heat for the office, all those fripperies. I was close to 15 percent on SDE last year, but I think you also bring up another very important point, which is that there’s a lot of times profitable businesses are profitable because they’re not actually doing something that they need to do to secure the business.
In other words, your example of someone who does no marketing but they happen to have a huge customer. It’s like, okay, if you’re not investing in the things you need to make sure it runs without you or it could survive without you or anything where you might have been spending money but you just take cash instead, and I think a lot of small business owners struggle with those decisions, particularly when they’re trying to get started. They need to support their family, and they just decide, “I can’t afford to upgrade my software,” or whatever it is that sets them up for the future.
Jay Goltz:
I think the guy you spoke of has got two things going for him. One is, that’s a lot of business for a service business. So I think like if you’re a lawyer or accountant, I think if you can get your sales up to that, and you’re doing a good job, yeah, you do have a really big bottom line. That’s one, and two is, the fact that he’s hooked up with the SBA, he probably doesn’t have any marketing expenses—
Paul Downs:
No, no, no. He does these SBA valuations for banks. He’s not directly involved with the SBA.
Jay Goltz:
Okay, but still, he’s probably got 10 banks he has relationships with.
Paul Downs:
No, he’s got more than that. He’s got significant marketing expenses. He’s just very, very good at everything he does. He runs his business using the Traction concepts, and really does it right out of the book. And he’s just a fantastically good business person.
Loren Feldman:
Paul, could you give us a quick sense of what the Traction concepts are?
Paul Downs:
The book is called Traction. I can’t remember the name of the guy who wrote it. But it’s a set of moves that anybody who’s running a small business could implement. It’s about setting goals and holding people accountable, basically, and then doing regular reviews to make sure you’re hitting those targets. And if you have no idea how to run a business, that’s a pretty good place to start.
There are a number of people who’ve implemented it in my group, and I’ve implemented a version of it. And it’s really effective. It makes you look at, “Okay, how do I actually run this business? How do I make sure everybody knows where we’re going? How do I make sure I have the right people here?” It just gives you some ways to go about that. And if you were looking for a set of ideas to guide your actions, it’s a pretty good place to start. You may not end up implementing every single thing, like I didn’t, but it certainly gave me a lot to think about.
Loren Feldman:
Shawn, how much thought do you give to what your profit margin should be?
Shawn Busse:
Yeah, so it’s a really critical number for, I think, any business. For us, we’ve tracked it every year pretty closely, for… I don’t know, well over a decade. I mean, we’ve been around for 23 years, but I really didn’t understand it probably until the last 13 or so. And that was a real eye-opener for me. And I think that the big breakthrough I had was—and we’re touching on this a little bit—the artificial ways that business owners influence profit, either from the income side or the expense side.
So examples are: Some business owners load up the business with lots of costs to make the business look not profitable, because they don’t want to pay taxes. But then that creates some artificial views of the business, which can make it difficult when you want to get a loan or if you want to sell the business. I think it also just clouds your vision of what’s going on in the business.
And then other businesses are clouded in other ways, in terms of what y’all have been talking about, which is organizational debt. So they don’t invest in things over time, like software, people development, etc, etc. So they may have really good profits, but the business itself is suffering. And that impact happens over the long-term. So for us, I use a really simple idea, since we’re a service-based business, and we don’t have a lot of product coming through us. For us, we kind of treat 10 percent as a breakeven mark. If we get below that, red lights are going off.
Loren Feldman:
What do you mean 10 percent is the breakeven point?
Shawn Busse:
The way I came about this idea was somebody talked to me about how there will always be a mistake that you make. There will always be some unexpected event. Somebody files a lawsuit against you. An employee makes a claim. You really screw something up with a client, and you end up having to refund their money. There are just so many ways that a business is vulnerable. And what the 10 percent allows you to do is to have those events happen—the things that are out of your control, maybe an economic downturn—and you can live to fight another day. You’re essentially creating enough of a buffer to build resilience into the business. And if you fall below that—at least in my world, in my professional services world—you’re just very tenuous, and you’re often having to act reactively and emotionally, which is never very good for business.
Jay Goltz:
Okay, so the question is, you use the phrase “breakeven.” Correct me if I’m wrong, that’s really not breakeven. Wouldn’t it be more accurate, entrepreneur-to-entrepreneur, to say, “That’s our loser line. If I run the business, and I have a 2-percent bottom line, I’m a loser.” Like, that’s stupid. Whereas in your case, if you get to 10 percent, okay. You’re doing okay. Could do better, but you’re doing okay. It’s the okay line. It’s not really a breakeven line, it’s your doing-okay line. Is that not true?
Shawn Busse:
Yeah, yeah. No, you’re right. I mean, technically, zero is breakeven.
In a bonus episode, “Selling Cookies on LinkedIn,” Shawn and I spoke with Grayson Hogard about how he and his wife started a side hustle, Grove Cookie Company, during the pandemic’s early days and then found themselves selling cookies to on an unexpected platform and to an unexpected market—businesses looking to build relationships with their clients.
Grayson Hogard:
I had listened to a podcast, actually, because I had never been on LinkedIn prior to the cookie adventure. I listened to a podcast in July that had a business-to-business LinkedIn video expert on, and her summary and how I took it was: If you’re a B2B company, and you’re not utilizing LinkedIn, you are missing out on the biggest opportunity ever. And so I got home that day, and I made sure my password and everything worked for my LinkedIn, updated my photo, and I put a new bio in there—you know, cookies, blah, blah, blah. And from there, I just kind of hit the ground running with LinkedIn.
Shawn Busse:
Aside from tuning up your profile—and it seems like you went after the personal brand, as opposed to making it about the Grove Cookie Company in the beginning—what are the other things you did in those early days, since you just got on the platform, and you didn’t have thousands of connections?
Grayson Hogard:
Well, Shawn, you happened to fall right in my little web of connection requests. My real strategy was a connection request, but with a message—not just rapid-fire connection requests. I just think the slightest personalization, and presenting what you’re offering, and why you’re connecting… It’s like meeting a stranger. It’s like, “Hey, why am I meeting you right now?”
That’s how I took it from that strategy of trying to build my following. And I got really lucky that there’s not a lot of cookie companies on LinkedIn. So you start posting photos of cookies, and you talk about cookies, you angle it from the client-appreciation standpoint. B2B gifting was the unlock.
Shawn Busse:
I remember you reaching out to me. I don’t remember exactly how you positioned it, but I do remember it was customized. And I get so many requests, and all of them go in the trash. Because I know that as soon as I accept the request, they’re going to start selling me something. But somehow you broke through that.
Loren Feldman:
He was selling cookies, Shawn. [Laughter]
Shawn Busse:
That helps. That helps. But it was more about what he said. And maybe if you can remember, I don’t know if your script is the same, or if you even have a script. Do you customize every one that you send out?
Grayson Hogard:
I do customize it, very minor in the customization. Really, if you have founder, CEO, VP, or any title in there, I’m gonna offer you a free sample box of cookies in that connection request.
Shawn Busse:
Got it, okay.
Grayson Hogard:
So, I’m coming in there, and my thought is—and I’ve learned this just over the two years—is I’m basically getting you reciprocating. I’m sending you a connection request, but I’m also sending you a free box of cookies, if you want it.
Loren Feldman:
That’s a good deal.
Grayson Hogard:
I think it’s a very fair deal. You just had to click a button. So, yeah, I actually have the message pulled up. I went into LinkedIn and pulled it up. Do you want me to read it?
Shawn Busse:
Yeah.
Grayson Hogard:
“Hi, Shawn. My name is Grayson. My wife and I founded Grove Cookie Company in Beaverton, Oregon. If you enjoy out-of-this-world, soft, and delicious cookies, we’d love to connect. Let me know if you’d like to try a sample box.” Then I always kind of forward people to our about page, because most people want to see that. And you responded with the funniest thing.
Shawn Busse:
I don’t remember.
Grayson Hogard:
Do you want me to read it?
Shawn Busse:
I don’t remember. [Laughter]
Loren Feldman:
Yes, please.
Grayson Hogard:
Shawn goes, “Hey, Grayson, great intro. I get a ton of connection requests and ignore 90 percent of them because they aren’t relevant. Or it’s someone looking to sell me something. But free cookies? Genius. Your timing is funny, too. I was just telling someone that the untapped opportunity is for consumer brands to use LinkedIn for marketing. Anyway, nice to meet you, Shawn.” And from there, you gave me that positive reinforcement. Like, “Oh, this is, like, smart.”
Shawn Busse:
It worked.
In Episode 144, “What It Means to Break $1 Million in Revenue,” Liz and Sarah talk about what it was like to pass a milestone that many women never reach. But having passed that goal, what’s the next one for Liz and Sarah? And is it possible that profitability is as important as revenue growth? I’m just asking!
Loren Feldman:
Today, I want to talk about your attitude toward growth and how it may have evolved over time. But first, I just want to note that you’ve both already beaten the odds. We’ve all seen the numbers that indicate how hard it is to break a million dollars in revenue. I think fewer than 5 percent of businesses—one in 20—actually do that. It’s a huge milestone. Both of you have done it. I’m curious, were you conscious of that? Was it a goal? Was it a big deal? How about you, Liz?
Liz Picarazzi:
Yeah, it definitely was a goal for me. And I remember on the day that it happened, I was really excited. But I was kind of by myself. I was working from home that day, and I felt like, “Well, who do I talk to about this?” You know, besides Frank. And so for me, it was a weirdly non-eventful day for a milestone that was so important to me.
Another reason why the million-dollar mark was significant for me is that when I worked at American Express in the small business division, we had a program to help women entrepreneurs achieve a million in revenue. And they did seminars all over the country, and I remember I took note of that: “Wow, this is a very hard thing to achieve.” Like, less than 40 percent of businesses are owned by women, and something like only 2 percent of women-owned businesses achieve a million. I mean, that was a stat from like five or six years ago, but I think it’s still pretty significant.
Loren Feldman:
Sarah, how about you? Were you conscious of it? Was it a goal? A big deal?
Sarah Segal:
No, it was never a goal. Actually, when I was acquired, the person that facilitated the acquisition basically handed me the goal. He said, “This is your revenue. You should have this goal for the end of the year.” Honestly, it gave me anxiety. It gave me stress. I had always just focused on profitability and not that million-dollar goal. But the problem since then has been meeting that goal that was handed upon me, but now working at moving beyond that goal. And so that’s kind of where I’m in a holding pattern.
Loren Feldman:
And we’ll talk some more about that. We should point out that you were acquired, but recently took your business back, and are running independently again. Liz, once you hit that goal, how did you reset after that? Did you come up with a new goal? Did you feel like you could relax a little bit? Or did it kind of rev things up for you?
Liz Picarazzi:
I think it revved things up for me, actually. I really wanted to get more millions, like most people do. So when I hit that million, I set the goal the next year to get to 2 million. And I do think it’s significant. I don’t think I reset. For me, it was less about the money, and it was more about the brand and establishing the business as the go-to in a category that, quite frankly, I’m kind of creating.
Luxury trash enclosures were really not a thing until Citibin came along. So for me, success is also to be that go-to, like Canva was for easy graphic design, or Spanx was for shapewear, or Chobani Yogurt was for Greek yogurt. Those are all gigantic companies, but part of the reason they became successful is that they were category creators. So for me, it was like, “Wow, we’ve achieved this revenue mark. We’ve got great momentum. We’re headed towards being this category-creating company. Let’s just keep going in that direction.”
Loren Feldman:
How did you pick the goal of doubling your revenue after you hit a million? Was that based on anything in particular, or did it kind of just seem like the next logical step?
Liz Picarazzi:
I mean, it looked like that’s where it was trending, and it did. Also, I saw the types of clients that we were getting, and they were bigger, and the order sizes were bigger. And we are really moving from residential to more commercial. So I really saw it as an attainable goal.
Loren Feldman:
How about you, Sarah? I think you told us at one point that your goal going into last year was to double your revenue. How did you come to think about it that way?
Sarah Segal:
I don’t know, it was just a number. It just seemed like a natural step. I mean, it was a reach number for me. And I always kind of placed that as it, because I wanted to grow in a way that I can maintain, that is not going to get me in trouble. Because as we saw during the pandemic, clients go away. And there are a lot of different factors that can cause a client to leave.
It can be VC-funding drying up, or change in the marketplace in general. So I just don’t want my growth to be dependent too much on one category. So it’s kind of, I’m trying to be a little more methodical about our growth. Of course, it’d be nice to have extra funds, but I also am not just going to take a client because it’s going to add to our bottom line.
Loren Feldman:
Are you still thinking about profit the way you did originally, Sarah?
Sarah Segal:
Yeah, 100 percent. Profitability is important to me, because of the way that I’ve set up my company. So most PR agencies are around the 20 percent profitability range. That is, they end up with a checking account with 20 percent of their revenue at the end of the year. And we give out pretty sizable bonuses when we can, when we have that nice pocket of funds. And that also helps us maintain our employees and makes people happy. And it’s a nice way to end the year.
I’ve been able to maintain that as a minimum. But it’s always nice to reach toward a 30- or 40-percent profitability, which gives us that nice bucket of cash to play with at the end of the year, either by giving it away to staffers or reinvesting in the company.
Loren Feldman:
How do you try to manage profitability? What’s the key point there?
Sarah Segal:
Ooh, that’s the million-dollar question. I have a P&L that I literally look at every single day. I’m looking at expenses. I’m looking at how much it really costs to hire a person. I only have one person on staff who’s not billable. Everybody else is billable. And literally, it’s like you’re balancing your checkbook every day. And that’s how I make sure that, at the end of the month, we’re not at zero balance in our checking account. I want to make sure that there’s a buffer.
In a bonus episode, “Turning a Failing Nut Shop into Nuts.com,” Shawn and I talked to Jeff Braverman, who was CEO of the company at the time but has since kicked himself upstairs to chairman. Jeff spoke about how he took control of the retail nut shop that his grandfather had opened in Newark, N.J. and that his father and uncle had been running. Over time, Jeff managed to turn the business into a direct-to-consumer juggernaut—without destroying his relationship with his father and uncle.
Shawn Busse:
Just stepping back a minute, I run into a lot of second-generation business owners where the parents are still involved. And it sounds like you’ve faced kind of a common situation where there’s a status quo. There’s a way of working. It was boots on the ground, retail presence. And you had a vision and a transformation you wanted to bring about. How did you navigate your big ideas and change and all that, and also manage your relationship with your family?
Jeff Braverman:
Yeah, it’s a great question. And I think I was looking at a little bit of a special situation here, because I think, often, whether it’s a strong patriarch or matriarch, there’s someone strong who’s reluctant to cede control to the next generation. I’ve had a unique relationship with my dad, where in high school, I was investing his money and managing his money. So there was something a little bit different there. I did come home my freshman year of college. I put together a little business plan—my dad or my uncle had probably never had a business plan—to try something with the Internet.
They gave me a very small budget. It did cost me more than that. But they had a strong belief in me, and like I said, when I decided to come into the business, this was exciting. I’ll speak for my dad, he was just a creature of habit. When the store was actually struggling—so when there were no customers on a Saturday—he’d be nervous. And when it was right before Christmas and really busy, he’d be equally nervous. You know, a reluctance to change and kind of set in their ways. My grandfather was the exact same way. My dad told me that, when he came into the business, he wanted to put display cases in the store. This was old-school, you had to know what to ask when you came into the store. You couldn’t even see the product.
And it took my dad years. He finally cried to his mom, and finally, she said, “Sol, listen to him and give it a shot.” And they finally put in a display case, and then sales went up. So I think he probably forgot a little bit of that once I came into the business. But he was certainly more open-minded. And one thing that uniquely they did was they gave me the keys in a much more generous way than would normally happen.
And there were challenges. At some point, I said, “Hey, we need QuickBooks.” And I remember distinctly, it was about $299 at the time. And my dad said, “Let’s wait for business to be a little bit better.” And I just said, “No.” He just had no choice, because I just bought it.
You know, we were dead on Saturdays in a retail store. I put together the case and said, “Hey, we need to close. We’re actually not making any money on Saturdays.” And their response was, “Well, Poppy Sol would never let us close.” And they wanted to start with half a day. And sometimes I just dug in, and they didn’t have the fight in them. But then what happened was, things worked. So we had a business that was not a good business, was not making much money, and then we started growing, and it becomes super exciting. That’s when we turn on that website, again, the new version, December 4th, 2003. My dad actually said, “Shut it off.” Because it was too much business, and he was scared.
Loren Feldman:
Scared he couldn’t fulfill it?
Jeff Braverman:
Just nervous, yeah. And it’s like, “We got this.” Here’s an example: We had a wholesale customer. We had to have a wholesale business, because the retail store was just going down and down each year. And I just visited them and asked them questions, “So how can we help you?” They’re like, “Well, we really love packaging. Will you package for us?” My dad and uncle said, “Nah, too much labor.” Because for them, they didn’t want to think about hiring people. And I showed them math, like, “Oh my gosh, we can make retail margins at wholesale volumes. Let’s go.” So I was the person who packed it, and just kind of dragged them along.
But then it starts getting faster, and we start hiring people, and it worked. We grew this business very quickly and profitably. And so I think that covers up a lot of stuff. But I think there was a deep love and respect that they had for me. I’m not saying that’s not in other places, but they were much more trusting. And then, to my dad’s credit, and all of his stubbornness in life—because he’s pretty dogmatic—he pledged that he wasn’t expecting to have a kid come in the business—like he had to kind of go into the business—but if he did, he would have given them a lot more latitude.
So, very quickly, that retail store of ours got bulldozed in 2005. That was 50 percent of our business. Fortunately, we had the internet.
Loren Feldman:
That’s a symbolic moment.
Jeff Braverman:
Yeah, and I was there. That saved the day. And again, we grew 50 percent a year for 10 years, or whatever it was. We got paid before we paid our suppliers. It just was a model that worked.
In Episode 146, “I Can’t Have a Handle on Everything,” I played a little game with Jay where I deliberately asked him questions that I knew were likely to trigger him. I don’t like to brag, but triggering Jay happens to be something I’m pretty good at. So eventually, I asked Jay about my perception that he’s kind of given up on keeping up with technology, especially digital marketing technology, something I think he could come to regret.
Loren Feldman:
Let me try another one. This one’s about digital marketing. And actually, it’s something that came up the last time Laura and Dana were on with you. They were both talking about how they’ve used influencer marketing, and they both expressed the opinion that it could work really well for you and your businesses. I think you do it to some extent with Jayson Home, maybe not with picture framing. And when I asked you about that, I felt like you got a little defensive that this is not something that you really want to put your energy into.
Jay Goltz:
I wouldn’t call it defensive, maybe dismissive. [Laughter]
Laura Zander:
I knew you were gonna get defensive about him saying that you get defensive.
Jay Goltz:
Yeah, right. No, I don’t, because being defensive means I feel like you’re attacking me. I don’t feel like you’re attacking me. I just am dismissive of it, because we do it. And I just have not seen any evidence that it’s working.
Laura Zander:
Point, Loren. Loren, you just scored a point—just so you know.
Jay Goltz:
What?!!!!
Loren Feldman:
You were dismissive of it. I think you were a little bit defensive, too. When I asked you, “Well, what are you doing?” Your answer was kind of a quick, “Well, we’re doing stuff.”
Jay Goltz:
Yeah, there’s no question. I would give you the same—I don’t know if defensive is the right word, but the answer is—I know we’re doing a lot of stuff for Jayson. I know it’s working well. I hear about it. I simply don’t have the day-to-day knowledge that I can sit here and tell you what we’re doing or what we’re not doing. Which gets to my point of: I just don’t know every single thing that’s going on in the company.
Laura Zander:
Same.
Jay Goltz:
And some people might go, “Oh, well, that’s terrible.” Yeah, really? It’s working okay for me. I don’t know what to tell you. I’ve got 130 employees. They’re competent. They own their job. They do a great job. I will tell you this, which to me is a litmus test: I’ve been in a business group with six other business owners. Every single month—and I’ve said this to them. At the end of the meeting, I can confidently say to all of them, “Do you know what you all have in common that I don’t? Every one of you is stressed out.”
They would say during the meeting, they’re stressed. I’m not stressed out. I’m not a micromanager. It’s like, it’s okay. I don’t have a total handle, personally, on the digital marketing, but I feel comfortable that my people do. Do I think we’re doing it as best as possible? I’m sure not. Perhaps I need to hire an outside firm or something. But I just can’t have a complete handle on everything. So that part I might be defensive about, if in fact, you were insinuating that I should. Go ahead. I just handed you a tool to use against me.
Loren Feldman:
Thank you. I appreciate that. No, I don’t expect you to be able to handle everything yourself. That doesn’t make any sense at all. And I’m certainly not encouraging you to be a micromanager. But there’s a difference between being able to do it all yourself and being conversant in it. And I don’t think you’ve made the effort to be conversant in digital marketing.
Jay Goltz:
True.
Loren Feldman:
You’re not doing your own taxes either. But you know accounting, and you know what to look for. And I’m curious if maybe it might be worth a little more of your time.
Jay Goltz:
Sure, maybe.
Loren Feldman:
Laura, you are conversant with digital marketing.
Jay Goltz:
She’s 20 years younger than me. Big difference.
Loren Feldman:
Jay, you are smart enough to figure it out. I mean, I understand—
Jay Goltz:
No, no. I have to remind everybody, when I started in business, there was no such thing as a computer on a desk. There were zero computers. She grew up with computers.
Loren Feldman:
I’m right there with you. I understand. She’s a native—certainly, more so than we are.
Laura Zander:
I remember when the microwave came out.
Loren Feldman:
He could do this if he wanted to. And I’m just raising the question.
Jay Goltz:
You’re right, I could do it if I wanted to. I have to decide what I want to do. And I’m in the—
Laura Zander:
I’m on Jay’s side.
Jay Goltz:
I’m just doing whatever makes me happy.
Laura Zander:
And I think that, especially with marketing—we see this in the software world as well—we keep using new terms. And we keep throwing new phrases around: influencer marketing, blah, blah, blah. We’ve been doing fucking influencer marketing for forever—I mean, for at least the last 50 years or 70 years. The format has changed. Maybe it was in print magazines before. And now it’s in Instagram, like—
Loren Feldman:
Wait a second, we should define that, because I—
Laura Zander:
But I just think the principle in a high-level approach is the same. You get someone popular who has an audience to help promote your product. So I think that Jay—
Loren Feldman:
That sounds like you could be referring to celebrity marketing.
Laura Zander:
Exactly.
Loren Feldman:
That is a form of it, for sure. But with social media, you can do something different. For all Jay knows, there are people posting pictures of one of his frames on Instagram, and he could be using that to his advantage. And it doesn’t matter if the person is famous or not. There’s a way to—
Laura Zander:
I just don’t think that’s Jay’s role. I think that that’s tactical.
Loren Feldman:
Not for him to do it himself. But maybe to know whether it’s happening, don’t you think?
Jay Goltz:
Well, I certainly could find out if we’re doing that. I have to tell you, I’m in a new place now. Are you ready? I’m in this phase: I’m in the whatever phase. Like, whatever. You know what? Things are going fine.
Loren Feldman:
That doesn’t sound like you.
Jay Goltz:
No, I’m paying attention to a lot of stuff. I can’t argue with you. I will follow up and find out what we’re doing, all that stuff. But at some point, it’s like, I could spend my whole day hunting around. I don’t know. I will ask. First of all, for Jayson, I feel good that we’re doing the stuff right, because I hear about it all the time. For framing, I know we’re doing stuff. I don’t know that it’s having any impact. I certainly can follow up on it.
Loren Feldman:
That’s what you always say.
Jay Goltz:
There are two pieces to this that you aren’t addressing. One is, we are doing it for Jayson. Artists Frame Service, the framing business, is a local business. It’s just not the same thing. And when you call it influencer marketing, would you include—I’ve got on my website that Architectural Digest said we were the master framing place, and Chicago Magazine named us the best framer in Chicago, so I—
Loren Feldman:
Nope.
Jay Goltz:
Okay, I don’t know that that’s the kind of thing that works on a local basis. I thought you were giving me your best shot. Is that the best you’ve got, Loren. Seriously?
Loren Feldman:
This does work on a local basis, Jay. And I think you’ve proved my point that you haven’t taken the time to really think about this in the way you would with other things involving your business.
Jay Goltz:
Perhaps.
Loren Feldman:
I’m a little surprised that I didn’t get more backup from Laura on this, but I think she’s trying to be nice to you.
Jay Goltz:
Man, I’m feeling a little sorry for you right now, Loren, because you’re not giving your best shot at this. I can think of far more things that would get me triggered than that.
In Episode 147, “I Just Cut My Pay,” Paul talks about how 2023 got off to a difficult start for him. Some of it was personal, but it was also business-related, with sales of his custom conference tables falling way below expectations (happily, things did improve as his year went on).
Loren Feldman:
First of all, Paul, you were out for a while, I believe with COVID. How are you?
Paul Downs:
COVID was just part of the fun. I started by screwing up my knee playing soccer. Then I got wicked COVID that lasted for a couple of weeks. And in the middle of that, I completely threw my back out. So it was great. It was great. It was a way to have a nice break from work and sit around feeling miserable and intense pain, which is what all bosses dream of.
Jay Goltz:
You could have done that at work. You didn’t have to be home for that.
Paul Downs:
Yeah. But I’m all better now. So thank you for asking.
Loren Feldman:
Glad to hear that. How did the business run while you were home being miserable?
Paul Downs:
It ran very well. I mean, we are having a little issue, which is that I planned my manufacturing operation for $5 million a year, and we’re off to a $3-million-a-year start. So that’s bad, because we’re running through our backlog. But I think that we’re going to pull it out right at the last moment.
We’ve been able to run the factory at full speed, and it’s just a question of the backlog shrinking, but we have some orders coming in, and people have been calling us. So it’s just one of those boss clutch moments when you have to get up in front of everybody and give them an inspiring speech about how things look terrible, but they never are as bad as they look. And I gave that speech, and the people seemed to buy it. And I think that we are going to get out of it okay.
Loren Feldman:
I seem to recall that you’ve had struggles in the early parts of the year in previous years. Is this any different than that?
Paul Downs:
Yes, in that it’s an unexpected slowdown in orders unaccompanied by any other indicator that that should be happening. So, usually, what we would be looking at would be, “Okay, how many people are calling us?” That’s the baseline metric. If X number of people call you in all other years, that’s correlated with X amount of sales. And this year, I am not quite sure what’s going on. But the best I can see is that we are heavily dependent on being the last ones into a construction project or a corporate move. And usually what happens is those projects take a couple of years to initiate and execute, and they don’t want the table until the very end. So people often don’t call us until the end of that project. And I’m thinking that it’s possible we may finally be seeing a COVID lull in my business.
Now, it should have appeared the minute people started working from home, but it just didn’t. But if there were projects that would have been initiated in 2020, and 2021, and 2022 that would have been finishing about now and just weren’t initiated, that could be part of it. That’s the external possibility. Internally, I can’t put my finger on it, because we’re doing all the same things that we did last year. And it was our best year ever.
Jay Goltz:
You know what, I could ask the reverse question. I could say, “How could that not be affecting you?” Because I got clobbered last year in my corporate art business because the offices were closed. Who’s hanging artwork in offices that are closed? And I took the hit on it. I think what you just said makes perfect sense. I don’t know how you couldn’t be suffering from some COVID backlash from two years ago. And it begs the question, as the boss, it’s not like you can just turn off everything. I’m not going to start laying people off who are good, solid people who I’ve got years invested into. At least as far as I’m concerned, sometimes you’ve just got to take the hit.
Paul Downs:
Well, I agree. I mean, that’s what I’m doing. I had planned to make a bunch of investments in marketing. And I’m going to continue to do that. And I’ve also put a lot of effort into building relationships with other companies that are in similar business with us, but maybe sell a different way. And we are getting some orders from people who are very busy just selling through other channels, and don’t have the manufacturing capacity. So it’s kind of a tight-run thing, but compared to other moments I’ve had, this is nothing. This is just a little bit, you know, the backlog’s down low, but it’s not something where I think, “Oh, I’m really dropping the ball here.”
Now, when we last had something like this—it was actually 2012, and I ended up writing a book about it. But when I was weeping in my beer to my Vistage group, “Oh, our sales are down, and I think it’s the economy,” their advice was, “It doesn’t matter what’s happening in the economy. You’ve got to look and see what you’re doing, because that’s the only thing you can control.”
In Episode 149, “We’re Still Buying Inventory,” Jay talks about how the pandemic supply-chain ended up sticking him with a lot of surplus inventory that has been soaking up his cash and greatly exceeding his warehouse space. Interestingly, Jay continued to tell his buyers to keep buying more stuff—even though he wasn’t entirely sure where he would put it.
Loren Feldman:
Jay, what kind of year are you off to?
Jay Goltz:
There’s no question that the market’s a little soft. If I was to go back over the years and chart the stock market to sales, there’s clearly a relationship. It’s a little soft. I’m suffering the end of the pandemic problem, which is, my guys were out there buying all kinds of cool, interesting things for my home store. And it was all tied up and couldn’t get over here, and then whoosh, it’s all coming in now. And I’ve just got a tremendous amount of inventory, and it’s gonna take me the rest of the year to get it back under control.
Loren Feldman:
Did you say it’s still coming in?
Jay Goltz:
Oh, yeah. I mean, it’s just, you couldn’t get stuff.
Loren Feldman:
The supply chains have been cleaned up for a while now, haven’t they?
Jay Goltz:
To a degree. But you know, my buyers literally go around the world looking for cool and interesting products, and they’ve gotta fill a container. And as you know, the containers—they were tied up. And I’m not saying it’s happening today, but just a few months ago, the stuff started coming in. And I just have a tremendous amount of inventory. And I’ve got a ton of money tied up in it. And it’s gonna take me the rest of the year to work down.
But to make anyone feel better who’s got a cash crunch, even after 45 years, it still is a problem. And I’m gonna work through it as I always have. But still, I can tell you, it just weighs on you subconsciously. It just weighs on you. And I’m not afraid of bank debt. I’ve had bank debt for many years, but using up big lines, it just wears on you a little bit.
Loren Feldman:
Lines of credit?
Jay Goltz:
Yeah, and it’s like, we’re fine. We’re paying our bills on time. It’s very easy to get inventory out of control when you’re buying the way we buy. It’s kind of like cutting Samson’s hair. I don’t want to mess with telling the buyer, “Stop buying stuff.” Because that’s the business we’re in. We’re into buying cool and interesting stuff. So I’m not going to put the hold on it. But I do have to work through the glut.
Loren Feldman:
With the inventory, Jay, what’s the bigger issue? Is it finding places to store stuff? Or is it the money that it’s tying up?
Jay Goltz:
Well, I’m lucky in that my kid does development, and he buys buildings. And then he either eventually bulldozes them and puts up the new thing, or he converts it. So my son has a couple of empty buildings that I was able to stick stuff in. But without that, I would have definitely had a problem with storage.
It’s both. It’s, where do you put the stuff? And Jayson Home has gotten to be a pretty big business. It’s very easy to have a lot of money tied up in inventory. So it’s not like I’m in the ice cream business where you just order your gallons of ice cream, and you have X amount in the back. I’ve just got a lot of interesting, cool stuff that they bought on a bunch of trips, and it comes in, and it takes a while to cycle through it.
Loren Feldman:
Is there something, looking back, that you could have done differently? Or was this just inevitable?
Jay Goltz:
You know, that’s an interesting question. Um, no. I mean, I have my son here now who comes in and says, “You know, the inventory is high and blah, blah, blah, blah, blah.” And I said, “Yeah, I’m well aware of it.” And I sat down, and I said, “Here’s what our cost of goods sold is. Here’s how much volume we should do this year.” And I showed him, “If 30 percent of what we sell comes out of inventory, it’s going to right itself.”
But going through this, I realize my son’s been here for a year and a half. I’ve been doing this for 45 years. It’s going to take some time before he gets his sea legs, because it’s not like this is the first time I’ve been through something like this. And from the outside observer, you think you can turn some dial and fix it, and it’s just not that simple. Like I said, the last thing I would do is go to my buyers and say, “Okay everyone, stop buying for the next few months.” It doesn’t work like that. I mean, there are shows, there are places they go yearly. They need to go there and buy the stuff.
And certainly, as the year goes on, there’s gonna be less of that happening, but we’re gonna have to use it up. But no, in hindsight, I don’t know what I could have or should have done. I tell them, “Be careful what you’re buying.” I mean, they’re already careful about what they’re buying. So really, you know, it just is what it is.
It gets down to something that Ami [Kassar] said to me a few years ago: Companies should have a credit line that’s probably 10 percent of your sales. And that’s good advice for everyone. If you are running a healthy business, that’s some good advice. Luckily, I had changed banks and got a bigger credit line. And I’m glad I got it now.”
In a bonus episode,“Not Sold on ESOPs? There’s a New Alternative,” Ari Weinzweig, who co-founded Zingerman’s along with Paul Saginaw, and Brad Herrmann, who co-founded Text-Em-All along with Hai Nguyen, talk about why in preparing their companies for an ownership transition, they both considered and then rejected creating an ESOP—and why they both settled on a relatively untested alternative.
Loren Feldman:
So Ari, I’m sure you considered every option. How did you land on this one?
Ari Weinzweig:
Well, like many people of my age group, when we started businesses—well, now for us, 41 years ago—we weren’t really worried about succession planning. We were happy if we stayed in business for a few years. So in a good way, not by accident, we have arrived at this point. And about 15 years ago, Paul, as he is good at doing, started asking these provocative questions about succession. So again, I’m going to attempt to explain this relatively coherently.
But we had early on arranged a buyout agreement between the two of us so that if one of us would pass away, we had life insurance that would fund the buyout of the heirs of the person who had passed. So if I had died, the life insurance would pay out to Paul. He would use that money to buy out my heirs so that they wouldn’t become owners in the business. And that was all good. And about 15 years ago, he started saying, “Well, what happens after the second one dies?” And I said, “Well, we have insurance. It’s no big deal.” And he goes, “Yeah, but where do the shares go?” I’m like, “I don’t know.”
Anyway, so that started a long, long series of conversations, and the obvious answers for what you do are the typical things: You sell the business to somebody else. I have a lot of friends who’ve done that. It’s a very good way to hit that post-cash event that people like. You can do an ESOP, which is an employee stock ownership plan, which our friends at Great Game of Business, Springfield Remanufacturing, are big fans of. I’m not a big fan of it, for a number of reasons. But one issue that we have is that because we have all these separate businesses, you can’t do it as one ESOP, even if we wanted to.
Loren Feldman:
You literally can’t do one holding company?
Ari Weinzweig:
Well, our employees work for each business. So the Zingtrain employees work for Zingtrain. The employees at Cornman Farms work for Cornman Farms. You could do an ESOP within Zingtrain, but you can’t do an ESOP for all of Zingerman’s. There are other issues with ESOPs, in my unprofessional opinion, also.
Loren Feldman:
I think Brad’s gonna raise a few of those, too, when we get to his story.
Ari Weinzweig:
Okay. So you can leave it to your heirs, which we weren’t going to do. Or you could go public, which is another version of selling it. I didn’t really like any of those. You could also sell it to your partners, and they could inherit it. But the problem with that—and I’m not saying this would have happened—is, it doesn’t eliminate the thing that you sell it to them, and then five years later, they sell it. So us giving them a deal to get it in the interest of keeping it local and in the community isn’t really that helpful if it just gets flipped to something multinational five or 10 years or 20 years later.
So, around the time we were struggling with this, I was reading E.F. Schumacher’s book, which is celebrating its anniversary. This was 1973, so whatever that adds up to: 50 years, this year. And in there, it’s not the main point of the book—which by the way, the book is fantastic—but he wrote about the Scott Bader Commonwealth in England.
Scott Bader was born in Switzerland, moved to the U.K., I think in 1923, and started his own business in the chemical business. And in 1951, having attained a fair bit of success, made the same sort of decision Brad has made and we’ve made now, which is essentially, rather than selling the company or leaving it to his kids, he wanted to preserve it to benefit the people who work there and keep it self-owned.
And so he created what he called the Commonwealth, and they are now celebrating their 100th anniversary. So it worked. I love this because it allowed the business to stay local. Because part of what happens when companies get sold is all of this great stuff—not like we’re the greatest thing in the world, but we’ve contributed a lot to the community, in terms of jobs, quality of life, contributions, etc., etc.
And all of a sudden, when headquarters shifts from Ann Arbor to Abu Dhabi or New York or San Francisco or wherever, over time, and no matter what the good intentions of the people who made the purchase were, they move on. And more and more decisions are made further afield. The power shifts away, the money shifts away, and you really lose that connection with the community and this model I love because it allowed us to prevent all those things from happening.
Loren Feldman:
So Ari, if I heard you correctly, you read a book, you heard about a company that did this 100 years ago in the U.K. What made you think you could do it? How’d you take the next step?
Ari Weinzweig:
What made me think I could do it? I guess when I have a good feeling about something, I’m not always right, but often there’s something to it. And I just do what I have typically done with so many things: start talking to other people who I respect about it. And with this one, I actually got a lot of naysaying, because it really hadn’t been done much in the U.S., and there was a lot of: “That’ll never work.” “Why would you do that?” “You’re giving away the company.” “It doesn’t make sense.” “Why wouldn’t you sell it to the existing partners?”
Loren Feldman:
Who is this coming from, Ari? Who’s the skepticism coming from?
Ari Weinzweig:
Many people.
Loren Feldman:
Business owners? Partners? Employees?
Ari Weinzweig:
Yeah. All of the above. Not from everybody. And I understand it. I mean, it was a different model. It goes against commonly held values about maximizing your value and getting your money out after decades of hard work. And in a way, it goes against the entrepreneurial mindset that we’re gonna sell it to our existing partners, and in 30 years, they’re gonna flip it for a lot of money. And it goes against the common value of extraction that, to Brad’s point, we wouldn’t just turn around after 40 years of hard work and sell it and move to Florida or whatever, with all the new money that we got. So we’re basically gifting the organization to itself, but we feel good about it. And we’re able to get paid out and make a living over time. And everybody, hopefully, can come out ahead.
But anyway, over time, I just kept asking—like, that’s what I do. I don’t force it, but I don’t give up on it, either. And Maggie from ZingTrain—Mag Bayless, one of the partners at ZingTrain—was one of the people who thought it was a good idea. And one day, I don’t know, three years ago, she called me, and she said, “Hey, I found this guy, and I think he knows something about this program who you could talk to.” So he was a guy who had worked for Organic Valley, and I called him, and he said, “Well, I’m not really the expert, but there’s this place in Oregon. Organically Grown is a large organic produce wholesaler. And they have done this, and they know about it.”
And so I called the woman who was the CEO at the time, who has since moved on, and we had a good talk, partly about why ESOPs don’t work, and then about why this can work. And then they had basically spun out a small subset of a couple of folks who were very passionate about this type of program who, essentially, I describe it as: They were like ZingTrain, but for perpetual purpose trusts. And so we worked with them, Alternative Ownership Advisors, over about two years. So they guided us on doing this work.
Loren Feldman:
Before I ask Brad to explain how he landed on this as well, Ari, I understand there are a lot of concepts involved here and a lot of goals. But any owner thinking about this is also naturally going to think, “What do I get from my many years of work?” And I just want to make sure we’re clear. It sounds like you’re not getting a payday at all. This is a gift. Am I understanding this?
Ari Weinzweig:
Well, it can be done in any way you design it within the legal construct of it. Paul, and I will get paid our salaries for a while. I don’t know what we agreed on, 20 years or whatever, so that we can keep living. I mean, I think that the idea of this is that it can be done in a way that allows the founders or owners to exit with grace and do perfectly fine. Yes, it is giving up the chance to turn around and sell 40 years of Zingerman’s for a lot more money than we’re going to get the way that we’re going to get it.
Brad Herrmann:
And that’s where ours is gonna look different. It is going to use the profits, so I mean, essentially it is giving away, at the end of the day, but they are going to use future profits to pay off a loan to founders. So there is a valuation, there is a loan, and it is going to get paid off. But we do get a lot of flexibility as to how that happens as well. And I suppose you could involve a bank, if you want, as well. There certainly is a lot of flexibility in how this is executed. You also could just write it in your will that when you die, it goes into a trust as well. And you get paid nothing, and here it is. So lots of different ways that it can be done.
Loren Feldman:
All right, Brad. How did you wind up discovering perpetual purpose trusts and deciding that that was the right option for you guys?
Brad Herrmann:
Well, I think that the genesis of it is that my business partner—Ari and I, both, by the way, are incredibly fortunate to have business partners who have become a part of our person. And I think that’s a key part, too. This whole conversation has to happen with aligned business partners.
We feel like we’ve built something that people really enjoy coming to, a place that people really enjoy working [at]. And it has a positive impact on them and their families and everybody else who we work with. And we think that’s worth preserving. So we have the big, hairy, audacious goal of being a 100-year-old software company. Now, at most software-as-a-service companies, the goal is to have the giant payday. I don’t know, like Ari, we are more than comfortable on the path less traveled. And we want to see if this thing can outlive us and last 100 years. So that inevitably starts you on the, “All right, well, how do we do this?”
Employees owning it, to us, feels like capitalism at its best, right? People getting to think, act, and feel like entrepreneurs and keeping that entrepreneurial spirit because they get to participate more than they might normally in the fruits of their labor. And I think that’s awesome. And I think it’s maybe a remedy or an alternative to capitalism as the bad guy that I had probably programmed in my brain as a young lad in business school.
Loren Feldman:
They taught you that in business school?
Brad Herrmann:
Well, you know, “Maximize shareholder return.” I think that was programmed into our brains. And I think that there’s something to be said for, “You know what? Maybe that’s off. And maybe a business does have responsibilities beyond just maximizing return for their shareholders.” But as I alluded to, I’m not getting paid nothing. We have a profitable company. I live a wonderful, spoiled-rotten life already. And we’re not going to get nothing as we transition to this trust. We’ve put a value on it and set a formula.
But the way we got the trust, though, is we looked at ESOPs. You know, it feels like it’s been 10 years; it’s probably been four. We’ve gotten to know a ton of ESOPs and asked a lot of questions about those very good friends and values-driven companies. We also explored what I call do-it-yourself employee ownership.
Loren Feldman:
Explain that.
Brad Herrmann:
There are a few folks—one who’s been super helpful is Carl Erickson at Atomic Objects in Grand Rapids, Michigan. We went up there to sit down with him and his team and say, “Tell us about this.” And essentially, he’s slowly selling the company to his employees and bringing them into the fold as partners in the S-Corp.
Okay, great. But there are a couple of things that didn’t quite work for us on that. Number one, it’s gonna cap you at 200 participants. We had some H1B non-citizens who wouldn’t have been able to participate. And it really lends itself to a more sophisticated employee. It’s going to complicate your taxes. You’re gonna be getting K-1s. You know, there’s no more 1040EZ once you go down this road.
So those are the reasons that we didn’t go for do-it-yourself employee ownership, despite it being our preferred option at the time. We ended up going down the ESOP route in the absence of better options, believe it or not. But we ended up pulling the rip cord on it about a week before we signed all the papers. It wasn’t going to work the way we wanted, and I probably, honestly, should have pulled the rip cord a lot sooner, but that’s my fault. And we spent a lot of time and money.
Loren Feldman:
Explain what happened. It must have been pretty intense to make a decision like that at the last minute.
Brad Herrmann:
Well, it starts with incompetent advisers. Being honest, they probably could have nipped this in the bud sooner for us, or said, “It doesn’t work the way you think it does.” But that kind of opens it up, and I’m sure there’s plenty written about what folks don’t care for with ESOPs.
For starters, they are complicated as all get out. I mean, I was laughing earlier. “Learner” is on my top five on StrengthsFinder, so I’m not afraid to dig into complicated things. I think I’m a pretty sharp guy, and five months into an ESOP, I was perpetually overwhelmed with complexities and having to have things explained to me over and over again. Not because I couldn’t get it, but because there’s 57 million different ways to do it.
And I think there certainly is a contingent of folks who think ESOPs are almost intentionally complicated. You’re not going to put an ESOP in without an army of advisers on the financial side, the trustee side, etc. I mean, it’s certainly an industry, in and of itself. The other thing we didn’t like is they’re inflexible. Like, if you make a mistake when you do it, it is incredibly difficult to unwind. Because the Department of Labor is your boss. And they’re going to think you’re trying to take advantage of employees.
Loren Feldman:
I would hasten to add, I’m sure all three of us know lots of owners who chose the ESOP route and are glad they did. I know a lot of people who are… They promote it with religious fervor.
Brad Herrmann:
Okay, yeah, many good friends of mine, too. Some are going to call me after this. [Laughter] But one of them is what Ari and I hit on earlier, that we love about the trust model, is risk of sale. We were only going to go to 20 percent ESOP. It was going to take us 10 years to get there. But we were absolutely not going to go above 50 percent ESOP. And the reason why is, our company is recurring revenue, Software-as-a-Service, high margin. It’s all the sexy things that private equity firms want to acquire.
And at the same time, with all ESOPs, you’re not getting a great valuation when you sell to your employees. I mean, if you’re trying to maximize your absolute every dollar you can get out of your company, no employee ownership model is going to be for you. That’s not really going to work well for you or be the best option.
So we were fearful that if we got to 51 percent ESOP, that some private equity, well-funded firm is going to come in and tempt our trustee with, “I’m gonna give your employees a 50 percent return today”—and have to do it out of their fiduciary responsibility. And then at the same time, the ESOP folks tell you, “Oh, we’re gonna put poison pills, we’re gonna do this, we’re gonna do that.” And what is it? It’s just more complicated stuff that you’ve got to figure out now to prevent something happening later. And you just don’t have any of that with the trust model. And that is like, straight away, checkbox number one that we love. And it sounds like Ari does as well. It’s in a trust. There’s nothing you can do about it.”
In Episode 155, “Being Isolated Is Just a Bad Idea,” we closed with Shawn asking Paul and me about the first 21 Hats Live event, which took place in Chicago in May, and which Shawn had not been able to attend. By the way, we still have a couple of slots open for our next 21 Hats Live event, which will take place in Fort Worth in March. If you’re at all interested, go to 21hats.com or shoot me an email to learn more.
Shawn Busse:
All right. So the real question, though, is, since Loren is a terrible self-promoter, what about Chicago? Tell us about that.
Paul Downs:
Do you want Loren to tell or me to tell?
Shawn Busse:
I want you to tell us, Paul. Like, why did you go? And what did you get out of it?
Paul Downs:
Well, why did I go? As I said at the beginning of the show, I believe there’s always value in just meeting a new group of people. And I really like a format where you actually have some time to sit down with every single person and get to know them a little bit. I also have faith in Loren that he’s going to put together an event that’s just basically valuable. I mean, he’s been to 10 million small business conferences, I believe. So you probably know what’s good about them, what’s bad about them. And it was a chance to meet some of the people I’d interacted with on the podcast, but I’ve never met face to face.
And I would say that it was a well-managed event. There was never any useless downtime. Everything that Loren planned seemed to be well thought out. Jay Goltz deserves a huge shout-out for being an extremely gracious host, and Chicago’s a nice place to visit and the weather was good. So, yeah, it was good.
And Loren has such an interesting mix of people, I’ve gotta say. We were in Jay’s boardroom, and I’m looking around the room. And there’s something really weird happening here. And what it was is that, for the first time in my entire life where I was in some kind of business situation, there were more women than men. And a huge shout-out to Loren for being able to find a diverse group of people to get together that really reflects what the future of business is going to look like.
Of all the people who were there, I know Liz Picarazzi best, because she and I have known each other for a number of years. And she would probably be the one to comment on this. But I have a feeling that, for your average founder who walks into a room of 50-plus-year-old white guys, there’s an intimidation factor. And so I was just really happy to see successful business owners in a mix of demographics that really looks like the country. And that’s so unusual. So six stars for Loren for putting that together.
Loren Feldman:
I did not pay Paul to say that. But I would have.
Shawn Busse:
What did you learn from it, Loren? What did you get out of it?
Loren Feldman:
You know, for me, I viewed it as an opportunity to kind of prove that there’s real potential to create a 21 Hats community, and that if you brought people together, they would connect. And I made some mistakes. I definitely learned some important lessons doing it, but it exceeded my expectations, in many ways. It almost felt like a family reunion. The group came together really quickly and just seemed to feel really comfortable. And we discussed some difficult issues, and people let their guard down.
And to Paul’s point, one of the things that I did decide, based on all the business conferences I’ve been to previously, is, the one thing I’ve just heard over and over again is, “I just wish there’d been more time to get to know the other people who attended the conference. There seemed to be some really great people there.” So I did go all in on that. There were no speakers. We just talked, and I felt like it worked.
Paul Downs:
I think that that’s a huge plus, honestly. We all got together for drinks, the first evening. Everybody was arriving, and there’s sort of like, “Ahh, strangers. How are we gonna get along?” But everybody there was absolutely worth knowing. There was a depth of knowledge, and then a generosity to share what people knew about their own particular business, their own particular sector that they worked in. And there was a broad range of people doing different things. And it was just super valuable to have that time without being lectured to. So kudos to Loren.
In Episode 157, “Embrace it. Leverage it. Or Die,” Laura, Sarah, and Liz talk about how they’re starting to think about how they might use artificial intelligence and what impact they think it could have on their businesses—a topic we will surely come back to in 2024.
Laura Zander:
I spent this week really talking and digging into ChatGPT. We did a presentation with our marketing teams and everybody about how—I mean for me, I feel the media is really doing a disservice and scaring so many people and so many creative people. I mean, our teams are terrified that they’re gonna lose their jobs.
And so we had an hour-long conversation. I put a presentation together about how this is just an amazing tool that, if we can all lean into it, oh my gosh. What we can accomplish is ridiculous. We just have to think a little differently and change our skill-sets. You know, learn to ask the right questions, as opposed to learning to write the right sentences.
Loren Feldman:
Give us a hint. What is the potential that you see for your business?
Laura Zander:
Oh, well, content for sure. We can be just content juggernauts and just pump out content five times faster than we’ve ever done it before.
Loren Feldman:
And are you sure it’s going to be as good as you need it to be?
Laura Zander:
Absolutely. I mean, you don’t take away the human side of it. And that was the conversation that we were having. You don’t kind of just produce this content and then blindly put it up. I mean, you still need humans with big brains to analyze it, to edit it, to curate it, to make sure you’re asking the right questions—and then the editing ability to be able to go in and say, “Hey, can you edit this paragraph?” And you just throw it up there, and it fixes all the errors and restructures some of the sentences.
I don’t know about you guys, but I get stuck on—especially when my brain’s moving too fast—even just structuring a single sentence or a single thought sometimes. So now I’ve got this best friend that I can just pop it in there, and I write, “Rephrase. Rephrase the sentence.” And maybe I have to do it three times. But then I’m like, “Ah, perfect. That’s exactly what I was looking for.”
Liz Picarazzi:
I don’t know if I’ve ever heard such a big endorsement for this from a business owner.
Laura Zander:
Oh my God. I’ll send you the presentation that I put together. I mean, it’s life-changing. I’m so excited. The content that we can put together for blog posts or social media or whatever… I mean: Give me the best place to knit in every state in the country. How much time would it take you to pull that together? Now, all of a sudden, I can come up with all these lists. I can come up with all these ideas. “Hey, I just made this sweater, and I loved it. What should I make next?” And then it’ll tell me. I mean, how cool is that?
Liz Picarazzi:
That’s really cool.
Sarah Segal:
I second her endorsement, one hundred percent. With the human touch.
Laura Zander:
Yes, absolutely.
Sarah Segal:
I’ve used it a lot for planning. For example, I was talking to a client about an awards program. And I was like, “God, I don’t want to sit there and write down the bullet list of all the things that need to happen to develop an awards program.” So I literally went to ChatGPT. I was like, “Give me a list of all the things that I would have to do to start an awards program.”
Laura Zander:
Exactly.
Sarah Segal:
And it did it. And I was like, “All right, take that one out, that one out, that one out, and that one out. Because it’s irrelevant.”
Laura Zander:
We did the same thing with, like I said, “Give me a marketing campaign for XYZ.” And then, our marketing team is relatively junior, so it would have taken them… I mean, first of all, they’d be completely intimidated. They don’t know how to put together a marketing campaign. So it’s not that it’s the end all be all, but it’s a mentor. It gave them a structure. And so then I said, “Okay, now give me the marketing plan.” So now they have a plan, so it’s a teaching tool.
Loren Feldman:
The first question was, “Structure a campaign?”
Laura Zander:
Yep, “Give me a campaign.” So it came up with slogans, and it’s just, it’s a kickstart.
Loren Feldman:
And then the next question was, “Give me the actual plan,” and that laid out how you roll it out?
Laura Zander:
Step by step, yeah. The human brain is not meant to remember; it’s meant to process. So I’m like,“This is, once again, another way for us to think at a higher level. So let this do the legwork.” And let it do the repetitive tasks, like writing product descriptions. Once we can teach it our tone and what words we do want to use and what words we don’t want to use—our team’s so sick of writing product descriptions and that copy, and then they all end up sounding exactly the same anyway: “We’re so excited to bring on this new yarn.” So this helps give them a bit of a break, so that they can focus their energy on more creative stuff and stuff that only humans can do.
Loren Feldman:
Laura, I just highlighted a story in the Morning Report—
Laura Zander:
I read it.
Loren Feldman:
—about how shoppers are starting to use ChatGPT to search and actually make purchases. Does your presentation, does your thinking, include anything along those lines?
Laura Zander:
I had not. But I sent the article that you put out this morning to our entire team before this podcast, and I was like, “This is a must read. I want everybody to read this and then let’s talk.” So no, I mean, we’re so excited about it. I mean, just the potential. It’s just a tool. And what I told the team is, “It’s a nail gun. Sometimes you need to use a hammer, because it needs to be perfect, and it needs to be exact. Sometimes you just need a damn nail gun, and you just want to pop it through. And that becomes the skill. The skill becomes: When do I use the hammer and when do I use the nail gun?”
Liz Picarazzi:
I haven’t even downloaded it—if that’s what I call it. Do I download it in the app store?
Sarah Segal:
No. You just type ChatGPT into your browser, and it will pop up, and you log in, and it lets you start doing it.
Liz Picarazzi:
Wow.
Sarah Segal:
Literally, you can type in prompts that are like, “Draft me a quote about the importance of trash enclosures in major cities, in terms of prevention of rats and mice and other things that could impact people’s health.” And it will give you a quote. I guarantee that you’ll be like, “Oh, damn, that’s good.”
In Episode 159, “You’re in the Valley of Death,” Shawn, Jay, and Jennifer talk about what it’s going to take for Jennifer to get to the point where she can hire managers who will take some chores off her plate and allow her to stop working 12 hour days, six days a week.
Shawn Busse:
So Jennifer, you’re a professional services business?
Jennifer Kerhin:
Yeah, we are convention management and trade-show sales.
Shawn Busse:
So it’s people-powered.
Jennifer Kerhin:
Yes.
Shawn Busse:
And so you’re at the $3 million mark, somewhere in that range?
Jennifer Kerhin:
Yes.
Shawn Busse:
And I think you said in the last show I was listening to around 30 people?
Jennifer Kerhin:
Yes.
Shawn Busse:
You’re in the valley of death.
Jennifer Kerhin:
I’ve heard that before, Shawn.
Loren Feldman:
What does that mean, Shawn?
Shawn Busse:
So, she’s big enough to where systems matter, and she needs talented people. And she needs to offload the work, like Jay is talking about. But not yet quite big enough—and the next number is probably $4 or $5 million—where it starts to stabilize again. Valley of death is really hard.
Jay Goltz:
And you know what? I have to tell you, that was my life for 5 to 10 years. When you’re smaller, you can do everything yourself. No problem. I don’t care, you do it all yourself. Then you start to get really busy, and then you get to where you’re starting to get a little overwhelmed. But you can’t go and buy a 10th of an employee. So now you’re overwhelmed for a while. And there’s that period, which I guess you’re calling, whatever you just called it, is going from: I can’t afford somebody but I’m overwhelmed until you finally can get over the hump of, “Okay, now it makes sense.” Yeah, and I absolutely lived through that, and it’s difficult.
Jennifer Kerhin:
My mentor said the same thing. She said the $2 to $5 million for us—
Shawn Busse:
It’s brutal.
Jennifer Kerhin:
It’s the valley of death. She said, “Once you get to $5 million”—she said even maybe four and a half million for me—“life’s gonna change a lot.” But that means I have to put the systems and structure in place now.
Jay Goltz:
Can we change the word from valley of death? That’s not real inspiring. I don’t think you’re gonna die. I think it’s a matter of: It’s the valley of being overworked. But I don’t know that it’s the valley of death.
Shawn Busse:
Here’s why I think it’s an apt metaphor. It kind of goes back to the pioneer days. If you’re going across a desert, you’ve got to have a lot of resources, a lot of water, a lot of food. Because by the time you get to the other side of that desert, you’re about out. And it’s like, if you get halfway and you turn around, that’s pretty deadly too. It’s that between zone, where you have to have a lot of resources. You’ve got to really bulk up. And I think to Jennifer’s point, you’ve got to reinvent all your systems, which costs money. I bet your margins are shrinking like crazy with all this growth.
Jennifer Kerhin:
Yes.
Shawn Busse:
You’re probably in the single-digit realm at this point, and maybe you were in double digits before all the growth. Is that true?
Jennifer Kerhin:
I’m not quite in single digits yet. But it’s a downward number. And I’m prepared for it, because I’m investing in systems and structure to be a $5 million company and to give myself not working six days a week. I like your desert metaphor.
Shawn Busse:
Well, I’ve got more bad news for you. I think your margins are artificial, because you are doing the work of two or three people. And so those salaries are not in your P&L.
Jennifer Kerhin:
Good point.
Shawn Busse:
So your margins are probably… You need more professional people at this point. So that’s the hard part. You’ve got to make those hires.
Jay Goltz:
You’re the woman in the salon who’s cutting the hair of 30-40 people a week. You’re right. You’re a profession to some degree, like he’s saying. But there are some tools here that usually you don’t hear about. One of the tools is, perhaps you just raise your prices 5 percent and put some more margin in there.
Because if you’re growing that fast, and you’ve got the demand, I believe that that is one of the number one mistakes entrepreneurs make, is they don’t charge enough. And that’s always been my number one problem. So that would take the pressure off. All of a sudden, you can go hire somebody now, because you’re going to take in another 150,000 bucks, and it works.
Loren Feldman:
Do you think you could do that, Jennifer?
Jennifer Kerhin:
Yeah, I think so. I think as we get new clients—it’s hard with legacy clients, right? But with new clients, absolutely.
In Episode 161, “Escaping the Valley of Death,” we hit several topics and have a surprisingly entertaining and enlightening conversation about, of all things, insurance. I kid you not.
Loren Feldman:
I’m wondering, how many of you have business-interruption insurance?
Jay Goltz:
I do. Because I was told 30 years ago that if you don’t have it, the insurance company’s not in a real big hurry to settle your claim. Whereas if they’re paying for your business interruption, they get in gear and get it fixed quicker. And that makes sense to me.
Loren Feldman:
Jennifer or Shawn?
Jennifer Kerhin:
I do. I have it. Could I tell you what it says and how much money I have? Absolutely not. That is yet another thing I have to put my eyes on. I have a lot of insurance. Somebody once told me I’m over-insured. And I really don’t know what my insurance does. I have something called directors insurance, and I don’t really even know what that is.
Jay Goltz:
Well, that means that anyone who works as a director, which you don’t have—I don’t even know why you would have that—if they get sued, they get covered. Or if you’re on a board, like if somebody sues 21 Hats, maybe you’re covered for giving bad advice.
Jennifer Kerhin:
Yeah, I’m gonna put that later next year. But I have to reevaluate what I have, and why I have it.
Shawn Busse:
Yeah, I found a service that I’m really bullish on last year, where you actually pay them for their expertise, and they help you evaluate your options in this arena.
Jay Goltz:
Wow.
Shawn Busse:
And what I like about that is that insurance brokers are incentivized to oversell you, because they make commissions. And so, basically, you’re paying them for their professional advice. They’re not actually selling you the policy. So I found that to be really valuable, because you’re exactly right, Jennifer. It’s hard to keep track of what you actually need. And I was underinsured in some areas very, very badly, and over-insured in some other areas.
Jay Goltz:
I will tell you, I had my cars years ago with State Farm, and I called the agent. I said, “I don’t think I have enough liability coverage.” He goes, “Well, you’ve got what’s average.” And that kind of says it all. I go, “I’m not the average client. I own a successful business, and if I get into an accident, they’re gonna go after me.”
And I changed insurance because of that, because he really didn’t get it. That was a bad answer. I shouldn’t have the average insurance. When you own a successful business, you need more insurance. And State Farm is not for someone who owns a business, usually.
Shawn Busse:
It’s a commodity.
Jay Goltz:
Yeah, right.
Jennifer Kerhin:
Well, add that to the hats that we have to wear, is understanding.
Jay Goltz:
Insurance is one of the hats, for sure.
Shawn Busse:
Yeah. Do you have an umbrella policy, Jay?
Jay Goltz:
Yeah, absolutely. And I tell everybody this. I just did a speech yesterday with a bunch of designers, and they were talking about insurance. They laughed when I said this, but it wasn’t meant as a joke. It’s legitimate: If you’ve got kids, the day that they get a driver’s license, you ought to get an umbrella policy, because your risk has gone up dramatically. When you’ve got teenage drivers driving your cars, it just makes sense.
And people laughed like it was a joke. It’s not a joke. If you’ve got more than one kid, then much more. I mean, before your kids are driving, you have a moderate amount of risk in your life. The second you stick the 16-year-old in your car, your risk goes up dramatically. So I’ve had an umbrella ever since then. And I can tell you what it costs, cause I know. I think it’s $350 a year for $2 or $3 million. It’s not expensive.
Shawn Busse:
Jay, what’s the name of the insurance you can get for when an employee sues you? Do you know the name of that?
Jay Goltz:
Yeah, there is a name for that. Here’s how you can get sued. You give health insurance to your employees, and whoever’s in charge of it forgets to sign somebody up or something happened. The person has a heart attack, goes to the hospital, rings up a $300,000 bill. And, “Oops, we didn’t have you signed up. Oh, yeah, you did tell me to sign you up. Oh, I was on vacation that week, and I forgot to do it.” I mean, that’s omissions. I think it’s called omissions.
Jennifer Kerhin:
Oh, I have that one too! [Laughter]
Jay Goltz:
There you go.
Jennifer Kerhin:
I just pulled up my list. Hey, Jay, you mentioned that you have people traveling the world as buyers, right?
Jay Goltz:
Yes.
Jennifer Kerhin:
Do you have special health insurance for health disasters?
Jay Goltz:
No.
Jennifer Kerhin:
So I bought some recently.
Jay Goltz:
There you go. It sounds like you’ve got everything.
Jennifer Kerhin:
Yeah. Well, it was super cheap. Honestly, it wasn’t that expensive.
Loren Feldman:
Jennifer, is this insurance specifically for people who have a health problem overseas?
Jennifer Kerhin:
Yes. It doesn’t mean you have a health problem. It just means if something happens overseas, it covers health expenses, and then emergency evacuation.
Shawn Busse:
Oh, wow.
Jay Goltz:
There’s only one thing I know for sure, Jennifer. You have the greatest insurance salesperson ever. [Laughter] That’s the only thing I know for sure.
Jennifer Kerhin:
Or I’m incredibly gullible.
Jay Goltz:
No, no. I think that that’s remarkable. You’ve got stuff I’ve never even heard of.
Jennifer Kerhin:
But Jay, honestly, that was a concern of mine.
Jay Goltz:
No, you’re right.
Jennifer Kerhin:
If I have an employee who’s in a foreign country, and something happens, it’s not very expensive to cover emergency evacuation and the expenses. Because you may or may not be in a country that has socialized medicine.
Shawn Busse:
I found it: employment practices liability. Everybody listening to this show needs to get that, if they have employees. It’s like, I went for years not having it.
Loren Feldman:
Jennifer, do you have it?
Jennifer Kerhin:
Yup. [Laughter]
Jay Goltz:
Of course she has it.
Jennifer Kerhin:
I have quite a bit of insurance.
In Episode 165, “The Toughest Conversation,” Paul talks about the dawning realization that he’s going to have to do something about a long-time employee who’s been spiraling downward. Not surprisingly, he’s trying to balance the needs of both the employee and the business. He’s also trying to figure out how he would replace the employee.
Paul Downs
One of my sales guys is, I think, entering some kind of doom loop, or at least in a bad patch, where pressures on his personal life are leaking into what he does all day. And that’s causing him to not be as effective a salesperson. And as he doesn’t make sales, that increases the pressure on his personal life. You know, blah, blah, blah. So that’s what’s going on.
Jay Goltz:
I want to throw in to all of us who are bosses: that’s a thin line between being supportive and doing the right thing. And where does it get to where it’s just hurting the business at some point?
Paul Downs:
I am right there. Because I just ran the numbers on this guy. We have two salespeople, and we basically distribute the jobs—for the most part, it’s just like car salesmen. One comes in, goes to this guy. The next one goes to the next guy up.
So, I just ran the numbers, and since the beginning of 2021 to 2023, one guy has gotten 366 leads, the other guy’s gotten 370 leads. And the guy who got 366 sold $3.7 million. And the guy who got 370 sold $6.5 million. So that’s a $2.7 million difference. Now, I know that in any sales team, it’s always going to be that the best one is usually not real close to the second and third, that there’s an uneven distribution. But this is starting to become serious money. And I’m like, “I’m not sure we can tolerate this much longer.”
Jay Goltz:
How long has he been with you?
Paul Downs:
Ten years.
Jay Goltz:
Yeah, no. Been there, done that.
Paul Downs:
You know, and now, here’s a guy who’s in his early 50s. I don’t know where he’s gonna go if I let him go, but…
Jay Goltz:
Well, here’s my question, which has been very helpful to me. We sat around years ago, and I said to everybody—for those who remember Jack Welch from GE, he was always driven, take no hostages, fire the bottom 10 percent. And there’s been a book written about him, how he helped destroy corporate America, because all of his lieutenants went out and screwed up the companies they went on to. So let’s just say that Jack Welch—may he rest in peace—is a 10, and Mr. Rogers is a one. So the question is: Where do we want to be as a company?
And my argument is, if you pick four or five, you’re probably gonna go out of business. We all decided, we think we should be an eight. And when stuff like this happens, when we cut people some slack—and the reality is, I’m probably a 7, 7.5, whatever. But it was very helpful, because at some point, when you cut someone some slack, somebody once said to me, “Well, Jay, we’re doing that because we’re an eight. We’re not a 10.” Which is true.
So the question is if you buy into that concept, that to be a healthy, profitable company—but not necessarily the most profitable—and you don’t want to be just that driven that you’re gonna have no compassion for human beings. I don’t want to be a 10. That’s the point. So we all agree we want to be somewhere between seven and eight, the question is: Where does the seven or eight go when a guy’s starting to cost over a million dollars worth of sales?
Paul Downs:
Yeah, in my heart, I’m probably like a four. And I have to really slap myself in the face to get up to about a six.
Laura Zander:
Jay can slap you.
Paul Downs:
But that is the toughest conversation, because there are two things: You have the conversation, and either he straightens up and starts going the other direction or you totally destroy him. And in my mind, the easy way out is just wait and see what happens.
Jay Goltz:
Which is okay, in a lot of cases. I certainly have done that. I’m not arguing with that, if it takes care of itself, to some degree.
Paul Downs:
It does, but every day, it’s costing me money, too. And it’s costing the company money. Like, if this guy was performing even as well as he did three years ago, we would be well past my goals for this year. And I mean, just today, he kind of poo-pooed a job. It’s not a 100-percent lock that it would be a sale. But it’s about 65-percent, and he just is having such a bad attitude toward things.
So I don’t know. I’m probably gonna have to do something soon. But the other piece of this is that, if I have a talk with him and he storms out and quits, then I’ve gotta do his job, because there’s nobody else who can do it. And I’m not dying to do that, although I could do it. And so I think the real solution is, I need to start hiring for this position, and just bite the bullet. And maybe have one discussion with him and say, “I’m about to do this.”
Jay Goltz:
I would tell you the word that I’ve used, which is, this is not sustainable. That is appropriate. This isn’t sustainable. And then when you say you’d destroy him, I would argue you’re not destroying him. He’s destroying himself.
Paul Downs:
No, no, my old partner used to always say that. You don’t do anything to employees. They do it to themselves. And yeah, I’m not a malevolent boss running an exploitative organization. So that is actually true, in my case, that the employees go off the rails for their own reasons.
Jay Goltz:
And our job is to help them if we can, but at some point, there’s only so much we can do. And we owe it to the company to take care of business.
Paul Downs:
That’s right. That’s right. You’re threatening the team, and then they’ve gotta go.
In Episode 171, “We Haven’t Signed a New Client in Eight Months,” Jaci tells Jay and Laura that she’s gone to a four-day workweek. And then—something Jay quickly picks up on—she also tells them that she’s now gone eight months and counting without signing a new client, the longest such stretch in the business’s history. Could those two things be related?
Loren Feldman:
Jaci, you went to a four-day workweek this year. Correct?
Jaci Russo:
We did, on April 1st, which everybody thought was a joke, but it’s still happening. So joke’s on them. And we did it as a three-month trial, and we found lots of pros and lots of cons. And it took some workarounds and figuring it out. We don’t charge by the hour, and so we have always been project-based. And as long as the project is done on time, everybody’s happy. So it’s been about managing that. So the projects stay on track, and the people are still off on Fridays.
Jay Goltz:
Wait, wait, wait. There are two key questions. Is this four days of 10-hour days to give you 40 hours?
Jaci Russo:
No.
Jay Goltz:
It’s four eight-hour days. So everybody’s working 20 percent less?
Jaci Russo:
Correct.
Jay Goltz:
Is anybody covering the business on Friday?
Jaci Russo:
Well, we have a couple of part-time people who are still college students, and we didn’t want to cut their hours. And so we gave them the option of still working on Fridays if they wanted to. And so one of them opted for that.
Jay Goltz:
Trust me when I tell you this: Maybe it’ll work out beautifully. I just find it interesting—and I’m not making any judgments. You just said this is the first time you’ve ever had such a long period without new business. And, “Oh, we went to a four-day workweek.” Hmm, how interesting.
Laura Zander:
About six months ago.
Jay Goltz:
Yeah, everybody’s working 20 percent less. Hmm, interesting.
Jaci Russo:
Yeah, I hear you. And that question has been posited before. So I have given it lots of contemplation, went back and looked at the numbers. We have had the same number of discovery meetings. We have had the same number of proposals. We just have had less yesses.
Jay Goltz:
How is that possible that people work 20 percent less, and they’re getting the exact same output out?
Jaci Russo:
Well, it’s funny you would ask, Jay. When I thought I wanted to do this, I went to every employee, one on one, and had a chat, and said, “I’m considering this. Tell me what this would be like for you.” And the two people in this company who spend every day saying things like, “My list is too long. I can’t get it all done,” they were the last two people I talked to. And when I went to them, I said, “I am most concerned about you. Because I know how busy you are. I know how much you have on your plate. We’re done at five. Everybody should go home and eat dinner with their family, and I don’t want that to change.”
One of them brings their kid to daycare, and I didn’t want them to not be able to do that anymore by leaving the house early. “So, how can we do this? You tell me.” And both of them, the people who never had enough time, always late on deadlines, said, “We can do it.” I said, “Okay, let’s do a three-month trial.” The two of them were the first two people to say, “This is working.” They have not complained once.
And when we did our three-month recap, in one of our professional development sessions, Melissa was guiding this conversation, because I’m like, “I’m out. We’re gonna talk about it. We’re gonna make a group decision.” So she had everybody go around the room and talk about pros and cons and their personal experiences. The person who had the most frustration with workload and biggest concern, who has not had a problem with any of that since we went to a four-day week, was the first person to say, “This is important. This matters. I can’t go back. It has saved my marriage.” And I was like, “Well, that’s more important than anything else. So okay, we’ll find a way to keep making it work.”
Jay Goltz:
And as an outsider, a business person, I’ll be interested to ask you in a year. I think having people work 20 percent less and having them go, “Oh no, this is working out great.” Oh my God! What a surprise! People like working 20 percent less and making the same money. Oh my God. Really? That worked? People are happy with that? Wow. [Laughter] So, I don’t know. I don’t know.
Jaci Russo:
You know what I find? I find that they work faster. They work more efficiently. They ask more questions in the beginning.
Laura Zander:
So why couldn’t they have done that for 40 hours?
Jay Goltz:
There you go.
Jaci Russo:
They probably could. And I know we’re not going to be as profitable. I have no doubt about that.
Jay Goltz:
Okay, that’s a fair statement. And I respect that.
Jaci Russo:
No doubt. I’m willing to trade some profitability for some happiness.
Jay Goltz:
You know what, I fully respect and can appreciate that. The question is the word “some.” That’s the question.
Jaci Russo:
Well, and I don’t know how much yet. I’ll give you the whole year. After a year, we’ll really have a good look at the numbers.
In Episode 173, “The I-Hate-Marketing-Approach to Marketing,” Shawn talks about his 100-day plan to get everyone in his company more involved with outreach, trying to make more connections that will attract more clients. But Shawn also shares his ambivalence about marketing, why he doesn’t like to tell people he’s a marketer and how he’s struggled to formulate an effective pitch to potential clients that fully encompasses the more holistic approach his company offers. Interestingly, it turns out Mel has recently put his construction company through a rebranding process very much along the lines of what Shawn is talking about.
Loren Feldman:
Shawn, the other piece of context that Mel may not be completely aware of is that, as you’ve explained to us previously, you’ve kind of had a love-hate relationship with marketing. And you’ve gone back and forth a bit, in terms of how you want to pitch what you do. You don’t like to sell yourself as just marketing. You like to take a more holistic approach, and look at how a company operates in total. How are you addressing that now, as you do this outreach over 100 days? What have you decided, in terms of what exactly you’re pitching?
Shawn Busse:
I mean, I’m probably a guy who knows marketing and hates marketing. I mean, just in terms of how it’s normally practiced. It just drives me crazy as a discipline. I think there’s so much snake oil and salesmanship in that discipline. And I also think that it is very complicated as a domain, meaning that if you send your kid to school and they take a class in marketing or get their degree in marketing, the kinds of stuff they’re going to learn, it does not apply to our clients. I mean, 90 percent of it.
Jay Goltz:
It doesn’t apply to small business.
Shawn Busse:
Very rarely. Yeah, exactly. So, I found that when I would go to a party and somebody would ask me what I do, if I say the word “marketing,” most people? That ends the conversation. Like, literally.
Loren Feldman:
Seriously?
Shawn Busse:
Yes, seriously.
Jay Goltz:
I totally understand what he’s saying. Absolutely. I’ve been thinking that ever since college. “Oh, you’re getting a marketing—huh, what is that?” I think you’re right.
Shawn Busse:
Well, one of two, like, maybe in your era, they didn’t know what it was. In my era, it’s a distrust. And it’s not universal. It’s probably 80/20.
Jay Goltz:
Mel, did you pick up on that subtle, passive aggressive “my era, your era?” [Laughter]
Mel Gravely:
I literally was going to call that out.
Jay Goltz:
Excellent. All right. I just, I want you to get the rules of the game here.
Shawn Busse:
Well, I mean, you were talking about how people didn’t understand you, and I would just say my experience is different, in that they actually stop the conversation because they’re not interested. And I found that really interesting. And I think that’s because there’s so much marketing going on around us—so much of which doesn’t live up to its promise—that we just have a hard time with it. So I have an inherent frustration with marketing, in that most people, especially in the B2B space—I’m in the B2B space—are even more skeptical. My clients are often engineers. You want to talk about a customer that doubts marketing more than anybody else? It’s an engineer.
Jay Goltz:
Sure. Interesting.
Shawn Busse:
So, what I’ve realized, in looking at my clients, the ones who are really winning at the end of the day—I mean, just killing it—what we’re doing—and you will like this word, Jay—is we’re helping them gain alignment across the organization.
Jay Goltz:
Oooh, you’re right.
Shawn Busse:
So that the culture believes in what they’re doing. The culture is amplifying what they’re doing. Employee retention is really high. People want to work for that company. So that’s on the inside. And on the outside, the customers are getting a great experience they can’t get anywhere else. So they become a word-of-mouth for you. So if you just say “marketing,” most people are gonna think, “Oh, do you do AdWords?” It’s like, “Oh, God, you’re killing me here.” Here’s the hidden truth: The marketing industry is designed to sell marketing services to marketers within large companies. Full stop.
Jay Goltz:
That makes perfect sense.
Shawn Busse:
It’s a silo, right? So you have an agency that does digital advertising. You have an agency that does branding. You have an agency that does content marketing. They want to sell their siloed services to an internal marketer who is siloed. That marketer probably doesn’t have a lot of influence within the leadership team, which is why they got fired in the recession. And so they’re working with silos of activities. It’s totally ineffectual. But when the economy’s good, people don’t look at it. And they just kind of keep cranking the wheel. Mel, I’m kind of curious what your perspective is on this.
Mel Gravely:
Well, I’ll tell you, Shawn. You have nailed your value proposition, and you have also nailed the dilemma of B2B. I run a construction company full of engineers, 100 percent stocked full of them. And we just went through a rebranding exercise. And when even I heard “rebranding,” I was unsure what my team meant. What it did, though, is it aligned us in the organization around our value proposition, clarity around our purpose, how we talk to prospective clients.
Jay Goltz:
Core competencies.
Mel Gravely:
All of those things came out, and it was so much more. Yes, and we changed our colors slightly, and we’ve made our logo lowercase, and it looks much nicer. But that was after we did all the other work. And it took nine months and a lot of money. But if you said to me, “Mel, would you spend twice that much to get it?” Don’t tell the consultant, but I would.
Shawn Busse:
I’m really curious about this. Why did you hire the most expensive one?
Mel Gravely:
Well, we went through an RFP process, right? Not a bid process. I want to be clear about that. They all gave us pricing, but we weren’t ever telling them we were gonna pick a lower bid. But they had the clearest process. They were able to articulate that process and why it was so important to the outcome. And they would not accept a refresh. They said, “No, we don’t want your 50K to do a refresh, because you’re going to be mad at us. So if that’s what you decide, we’ll pass.” And that made me pause.
Jay Goltz:
Wow. That’s a good story.
In a bonus episode, “Are Sales People Built or Born?” I asked sales expert Lance Tyson about the common problem of getting salespeople to take updating their CRM tools seriously. Lance doesn’t have a lot of sympathy for the miscreants.
Lance Tyson:
I think that’s an expectation problem. Let me give you an example. I was sitting down with a couple of executives with an NHL team. And it was a small sponsorship team. And I was having breakfast with, let’s say a guy named Ken and a guy named Brian. And they were talking about their culture and things like that.
And this actually came up: They were talking about, “Our people will not engage in CRM.” I go, “Why? I don’t understand why they wouldn’t. And what have you done to get them?” They’re like, “We literally talk to them about all the reasons why they should, how it’s good for business, how it’s good for them. We’ve had contests, we’ve incentivized. We rewarded them.” I said, “Okay, so what you’re telling me is you have five people or six people that are insubordinate. That’s what it sounds like. I mean, so, you know what they do on a ship with insubordination? They make people walk the plank.”
They go, “We’re not going to do that.” I go, “Why?” So they go, “What could we do?” I said, “Well, you can bring a horse to water, but you can’t make it what?” They said, “Drink.” I go, “Right, but you could put salt on the roads.” So I said, “Just make an announcement that, “Hey, here’s the expectation for CRM, that in order to have a deal, these are the absolutes. And just make an announcement that if this isn’t filled out completely—these are the parameters—that you run the risk of getting a delay in your commissions or reduction in your commission.”
And they go, “HR will never buy that.” I said, “I didn’t ask you whether HR was going to buy it or not. You should just make the frickin’ announcement.” And I said, “Just trust me. Run the test. Just put it out and put it out in an email. Make an announcement.” The next week they had 95 percent compliance. But the point is, the expectation is there.
In Episode 176, “We Need to Go Back to Marketing for Humans,” Paul, Jaci, and Jay get into a conversation about negotiating salaries with new hires. The conversation turns on this question: Is it a bad sign when job candidates get a good-faith salary offer and nevertheless ask for more money?
Jay Goltz
I’ll tell you the breakthrough I had though lately. This is really interesting. We’re hiring an assistant HR person. Now we’re doing the other thing: We’re playing by all the rules. We put the range in the ad now. Fair enough. They say that your response gets much better, so we put right in the ad, whatever it was, 45 to 55. It’s right there out in the open. Okay, we interview her. We like her. She says, “I don’t have a lot of experience.” Fair enough. We offer her the job. We give her a little more than halfway up, like, whatever, 51. And she comes back and she says, “Gee, can I get three weeks vacation?” No, we give two weeks to begin with. And then she comes back again and says, “Can I get $2,000 more?” Now we’re starting to get uncomfortable.
Like, you know what? Maybe she wants to make more money. She did answer this ad. She knows she has no experience. So since the ad said 45 to 55, she certainly shouldn’t have expected the higher of the range. But this is where it gets interesting. We thought long and hard about it. And rather than rescind the offer, we sent her an email that said, “I have to tell you, I’m starting to get uncomfortable. This might not be the right fit. We told you what the range was. We made you a good-faith offer after giving it a lot of analysis. We think this is really a good offer.”
And she comes back and she admits it. I give her credit for this. She goes, “I’m sorry. I’m sorry if you were offended. I took my advice from my mentor.” And somebody else at work says, “Jay, everybody’s being told every day, between YouTube and TikTok and everyone, ‘Always negotiate your salary.’” That isn’t good advice, because there’s some cases where that’s not going to come off well. So the answer is, from now on, we’re gonna go, “We’re gonna make you an offer. And we just want you to know, it’s non-negotiable. If that doesn’t work for you, just don’t take the job.” And that way, they don’t have the pressure of thinking they left money on the table. And we don’t have to go through this.
Loren Feldman:
Can we hear from Jaci on this? Has it been a problem for you?
Jaci Russo:
Well, it hasn’t been a problem for me. I don’t hire as often as I think y’all do. So we have a set team that we’ve kind of been set for a while. We also have an internship program. So we basically test-drive each other for three months through the internship program. And the best of that bunch makes it to a part-time paid position and then, when they graduate, a full-time position. So it’s kind of a stair step of we’re all making sure we’re on the same page the whole way through, which really helps. We also did a round of raises over the past year. And so our payroll increased by almost 100 percent. And we added in that no-work-on-Fridays thing that Jay loves so much. So we’re kind of sitting pretty. My inbox is probably hit with five times more resumes now of people looking for jobs that aren’t even open. And that’s kind of changing the negotiating seat for me for when we hire next.
Jay Goltz:
So that’s my question, though. Is there negotiation? Or do you say, Okay, give them the number, and they go, “Great, I’ll start Monday.” Is that how it goes?
Jaci Russo:
That’s exactly how it goes.
Jay Goltz:
Yeah, that’s what I want. I don’t want to negotiate starting salaries. I give them a good-faith offer that I think is worth it. We don’t try to get the cheapest. We think of their experience. And we put the range in the ad. So we were playing fair. It’s all right there and transparent. So, Paul, tell us your view on that?
Paul Downs:
Well, I don’t think you can really knock someone for trying to negotiate if it’s a moment when negotiation is not an unusual thing. I mean, when you’re working out a salary, why wouldn’t you ask for something more? I think that an employee who has the guts to ask for something, I would be like, Okay, you get some points for trying.
Jay Goltz:
And I have an answer to that. Do I want them taking the job knowing that they’re not making what they want to make?
Paul Downs:
That’s not necessarily what it works out to. Now, when I negotiate—it sort of depends on who I’m hiring for—but I often will, on hourly people, we can legally ask what they were making, and so I do. And then I ask, What do you want to make? And I get an answer. And oftentimes, if it’s someone who is attractive to me, I’ll say, I’ll pay you that, and I’ll even pay you a little more to start with. And here’s the deal. If you’re no good, I’ll fire you. And if you’re good, you’re worth it.
Jay Goltz:
But that’s very different. They’ve told you what they’re looking for. You gave it to them. That’s not negotiation. You gave them what they were asking for.
Paul Downs:
No, but I’m saying that I live in a different information environment. You’re trying to get information that you can’t just straight out ask. But you’re also making a very negative judgment on someone who’s sincerely doing their best to take care of themselves. And given the zeitgeist these days is, Oh, yeah, it turns out that a lot of people are really bad at negotiation, and maybe if you can just get your head around it for one day, you might actually get a great pay off. Maybe you should try it. Like I don’t blame someone for trying.
Jay Goltz:
Okay, the point is, you said, “You can’t.” You’re wrong. You can’t. But I can. I can do whatever I want. You can do whatever you want. Maybe you don’t want to hold it against them. I do. I put in the ad, here’s the range. I very clearly said, here’s where the number came from. You don’t have as much experience, and we lay it all out. We tell them this is what we believe the number is, and I’m gonna just—I don’t really want to negotiate it.
In a bonus episode, “The Unlikely Plan That Launched Down North Pizza,” Muhammad Adbul-Hadi talks about how he opened a pizza shop in Philadelphia that has made lots of best-of lists while also taking on a social mission. Here was the plan: First, buy a building in one of the most troubled neighborhoods in one of the poorest big cities in the country. Then, open a pizza restaurant despite having no experience in the food industry and do it during the pandemic when many restaurants are failing. And hire only people who, like Abdul-Hadi, are convicted felons.
Loren Feldman:
How did you come to the conclusion that you could hire only people who have experience being incarcerated?
Muhammad Abdul-Hadi:
Because I saw that they don’t have the space that they can claim as theirs. Every other demographic of people has something that is for them. What do they have that they can claim is theirs? We only do this for y’all. Like, this is y’all. And that was for me what I wanted to bring to light, and understanding that they are in and out of these top tier restaurants around the city. They just don’t get the light shined on them. So this is what I wanted: to be able to bring them forth and have the voice and the presence in the industry that they never were given. It was always being somewhere behind a decorated chef and never in the forefront.
Loren Feldman:
Hiring is hard, even if you aren’t trying to provide a service like this, and even if you don’t have this mission. People make mistakes hiring all the time. Nobody bats a thousand. Do you feel it’s harder when you restrict yourself to hiring people who’ve been incarcerated?
Muhammad Abdul-Hadi:
Ask me my staff turnover rate. And then I’ll answer the question after you ask me that.
Loren Feldman:
What’s your staff turnover rate, Muhammad?
Muhammad Abdul-Hadi:
The same five individuals who started have been there since we opened the doors, year one. So, to segue into the next part of the question, the original question: You said it. Hiring is hard, regardless of who it is. Master’s, PhDs, whatever. So, the fallacy that people think that, “Oh, because this person is formerly incarcerated, how do you deal with that?” Number one thing people say, “Well, what if they steal?” I’ve worked with people who weren’t formerly incarcerated, and those are the people who stole from me and did deceiving things—not the ones who had been formerly incarcerated.
So the stereotypes out there are wrong. And, yes, we had some people who came through, maybe didn’t work out here, but we also referred them to other restaurants. They’re still working in the industry in some capacity. But the thought that, just because they are formerly incarcerated, it’s not going to work is wrong—a wrong way of thinking. Because a lot of their characteristics: being resilient, having to show up, and working and making, what, less than $1 an hour, right? All of these things that they had to go through being locked up in jail, they have the work ethic. It’s just, are you going to give them a chance to show it? And are you going to give them an environment that’s conducive to growth?
Because now, when we talk about Down North Pizza, this is more of a family environment where everybody has a shared experience. So nobody’s living in no one’s shadow of who they think they are. It is what it is, and they are who they are. And they don’t have to worry about nobody judging them because of that. So when you put them in an environment like that, that’s where growth lives, where they don’t have to hide, where they can come in and be the best version of themselves.
And that’s a wrap for 2023. My thanks to the entire 21 Hats Podcast crew, especially our producer, Jess Thoubboron. And thanks also to our sponsor, the Great Game of Business, which helps businesses use an open-book management system to build healthier companies. You can learn more at greatgame.com. Thanks for listening, everyone. We’ll see you next week.
