Why I Sold 21 Hats
Introduction:
This week, the tables are turned, as I announce that I have sold 21 Hats and then take questions from Shawn Busse, Karen Clark Cole, and Jay Goltz. The buyer is Toby Scammell, founder of Womply, which provides software services to small businesses and helped more than a million of them obtain Paycheck Protection Program loans. I will continue as editor-in-chief, but much of what the sale will mean for 21 Hats has yet to be determined—including, for example, and as we discuss here, whether we will keep the 21 Hats name. Meanwhile, Shawn, Karen, and Jay also talk about how Karen solves problems for her big tech clients and what smaller businesses can learn from her process. And Jay explains a change he’s making to his 401(k) plan that he believes will make it fairer for all of his employees.
— Loren Feldman
Guests:
Karen Clark Cole is co-founder and CEO of Blink.
Shawn Busse is co-founder and CEO of Kinesis.
Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.
Producer:
Jess Thoubboron is founder of Blank Word Productions.
Full Episode Transcript:
Loren Feldman:
Welcome Shawn, Karen, and Jay. We’re going to start today with something a little bit different. Today we’re going to talk about me. As the three of you know—and a few others do, too—I have sold 21 Hats. And I just want to start by noting that this is the second business associated with the 21 Hats Podcast to be sold in the past year. Karen, you sold Blink last September for $94 million, which means the average sale price of a 21 Hats Business—[Laughter] let me finish—is now ever so slightly more than $47 million. And I think that’s pretty darn impressive.
Shawn Busse:
Oh Loren, you should be in marketing.
Loren Feldman:
Thank you. Thank you, everybody. While I did get paid something for the business, this is really more about being paid a salary and being given a budget to build 21 Hats the way I’ve always wanted to. And even more importantly, I’ve been bought by somebody who runs a business that services small businesses and has literally more than a million customers who will be introduced to what I’ve been doing and what I’m building. And for me, that’s what makes this very exciting. Any questions?
Jay Goltz:
You left out one of the best parts. And all of us are getting our salaries doubled with no tax consequences. [Laughter]
Loren Feldman:
I was saving that big surprise.
Karen Clark Cole:
That’s great. Congratulations, Loren.
Loren Feldman:
Well, thank you.
Karen Clark Cole:
I know that that’s been a multi-year—I don’t want to say struggle, but it’s difficult, right?
Loren Feldman:
Well, “struggle” is appropriate.
Jay Goltz:
It’s been an adventure.
Loren Feldman:
It has. I’ve been consistently confident that there’s a market for what we’ve been trying to do and that when we connect with people, I get really favorable responses. I just haven’t found enough people. And it was a little hard for me to see how, doing this by myself, I was eventually going to be able to bridge that chasm and get to the point where I could start hiring employees and really try to do this right. And this does solve that problem.
Karen Clark Cole:
Does part of that budget allow you to hire a PR and marketing company to help you become famous?
Loren Feldman:
Well, I don’t know about the famous part.
Karen Clark Cole:
No, no, I mean that in the best way—like you want people to know about you. That’s the whole point. You don’t want to be the best kept secret.
Loren Feldman:
Absolutely. Well, I mean, it starts with the fact that there are all these customers in-house that I will be exposed to at very little cost. But yes, absolutely, PR and marketing are part of the deal.
Shawn Busse:
Have you had a chance to envision what the team looks like that you want to build?
Loren Feldman:
I have. I’m going to start by hiring some editors. The last couple of years, I’ve actually really enjoyed what I’ve done. I mean, it’s been great getting up every morning, knowing that I can do whatever I think I should do. And now I’m going back to being an employee, and that won’t quite be the same.
But on the other hand, I have missed working with other people. I mean, you guys have been great. It’s not like I haven’t had people to talk to, and it’s not like I haven’t had a sounding board. I have, and I’ve taken full advantage of that. But it’s not the same thing as having a team. And I’m really looking forward to hiring some editors to work with me and bring fresh thinking to what I’ve been trying to do.
Karen Clark Cole:
So is the new owner hands-on, hands-off? What does that look like?
Loren Feldman:
Well, that’s a great question, Karen. I don’t think we’re really going to know for sure for a while. I have to tell you though, he’s been great through this whole process. I feel as though he’s been very generous with me. I feel like he has made clear that he’s looking out for my interests and has wanted this to be something that I would be excited about doing, and he has voluntarily brought up what others might consider to be difficult topics, like my independence. And he has assured me that he is not a content guy, and that I will be in charge.
Now, we’ll find out where that line is actually drawn. For example, here’s a good one. I’d love to know what you guys think about this. He’s not sure that we should keep the name 21 Hats. His perspective on that is, “Look, I like what you’ve done. It’s great, you’ve got 5,000 people who are subscribing to the newsletter, but we want this to get much bigger and scale significantly. So we should pick the right name, and let’s sit down and have that conversation.” And I think it’s hard to argue with that, although I have to admit that I’m attached to the name. What were you gonna say, Karen?
Karen Clark Cole:
Well, don’t the two of you sit down and figure out a name. Make sure you do research. Make sure you get help. Make sure you get feedback from all of your listeners, etc, etc.
Loren Feldman:
Well, let’s start with you then.
Karen Clark Cole:
And I would argue, why can’t that name scale? It’s fabulous. And you can make up any name, right? It’s just what you put behind it that matters.
Jay Goltz:
I still think it works, because I think it describes what entrepreneurs do. They’ve got 21 hats to wear. I think you can go hire some branding agency and spend $100,000 and come up with something with a Z in it or that ends in an O or something—so you’re asking the wrong one. I think it’s a great name.
Loren Feldman:
This is your area, Shawn. Any thoughts?
Shawn Busse:
Yeah, I mean, we’ve renamed a number of companies, and we’ve also not renamed a number of companies. And I think Karen’s instinct is spot on, in that you really want to assess what kind of equity is in it already. And if there’s strong affinity, and there’s equity, even in 5,000 people, I’ll take 5,000 passionate fans who believe in the brand and know the brand over a million people who have no idea what it is any day. I think your customers are a great place to start, in terms of an assessment of the brand, versus kind of getting in a closet and deciding it’s great or terrible.
Karen Clark Cole:
To my mind, it’s important to have a story behind it. And you have a great story behind it. How many times do people say, “What does that mean?” I get that with Blink still. Like, “What’s the story behind it?”
Loren Feldman:
I like that aspect of it. I’m curious what you guys think. To me, most people get it pretty quickly. And the moment they do, it’s almost like they feel like they’re part of the club. You know, it’s like, “Oh, that’s cool. They understand me, I understand them.” Do you think that’s meaningful?
Shawn Busse:
Oh my gosh. That’s like the most important thing: Having a story behind the brand that people can connect to and resonate with and have an emotional response to quickly. Man, that’s gold.
Jay Goltz:
I think it’s just plain insightful that, in fact—and Loren loves to argue with me about this—that number wasn’t pulled out of thin air. I truly believe that—
Loren Feldman:
Jay, we’ve had this conversation.
Jay Goltz:
I know. There are 21 hats that you wear in business. I could give you the list. There’s not 50. There’s not 10. There’s 21 hats. Maybe there’s 23. Maybe there’s 19. But 21 is a good number. There’s 21 hats. It works. Why waste time?
Let me ask you a question. You said you’ve had difficult conversations with him, so let me ask you this. You’ve put your heart and soul into this—as I have, and everyone else who’s on here—so let me ask you: If something goes different than he thinks—maybe his business changes, maybe he sells his business, maybe this just doesn’t get the traction you think—where does that leave you, at that point?
Loren Feldman:
That’s a great question, and that’s another example of something that he brought up. And he said, “You know, you never know. Things go awry.” And he promised me that if things didn’t work out, he would just give me back all of the assets that I contributed.
Shawn Busse:
I’m so excited we’re having this conversation, because now you’ll have it documented. You know, you’ve got a piece of information where you can refer back to that. I mean, so many times, business owners get together and form a partnership of some sort. And there’s unspoken agreements, there’s confusion, but everybody’s all happy happy in the beginning. And then when things get hard or things change or desires change, these sort of early-on agreements get forgotten. And this is a great opportunity to memorialize that.
So what else have you agreed on? You mentioned editorial control. And from my understanding, one of the reasons you got out of some really high-profile publications is that you felt like they were really curtailing to larger businesses versus smaller businesses. Is that right?
Loren Feldman:
I was bought by Toby Scammell, who is the founder of a business called Womply, which is a venture-backed business that has been around for about 10 years and really did something big during the pandemic, where they figured out how to get PPP loans to very small businesses. It was at a time when those businesses were really struggling. Banks weren’t interested in doing those loans. Womply figured out a way to package those loans and make it very easy for the small businesses to apply, and for the banks to approve, and got literally more than a million small businesses loans—many of them solo entrepreneurs, but most of them are quite small. And as a result, the issues that I had with previous employers will not be an issue this time.
Shawn Busse:
Help us and the listeners understand the financial incentive in that ecosystem, and then, what’s the financial incentive that you’re going to be stepping into?
Loren Feldman:
Well, the unfortunate thing, what happens with those publications, is they traditionally have ended up chasing clicks. This is true wherever I’ve worked. The focus has been on trying to drive large digital audiences. And the way that that often is done is with clickbait stories that kind of appeal to the lowest common denominator. You get a lot of stories with headlines like “Ten Businesses You Can Start in Your Pajamas.”
Those stories bring in a lot of clicks. The problem that I believe I figured out a long time ago—not that I’m the only one—is if you appeal to the wannabes, you’re never going to get actual business owners like you guys. Whereas the reverse might be true: If you appeal to actual business owners and provide something of value to them, the wannabes may follow and you may still get the traffic that you’re hoping for. But you can’t aim for the wannabes. And that’s the dangerous thing that happens at a lot of publications, in my opinion.
Shawn Busse:
That’s a really interesting insight. Going forward now that you’ve got a boss and money at the table and folks, how do you escape that clickbait trap?
Loren Feldman:
Well, for one thing, my boss, Toby, is not envisioning what I’m doing as the main source of profit within his business—far from it. And at this point, I have a substantial budget and no pressure whatsoever in the first year to monetize.
Karen Clark Cole:
Loren, what is his main reason for buying you?
Loren Feldman:
He saw what happened with PPP. And I mean, this is an audience that he’d been targeting for some time, but it really crystallized for him that these are people who do not get the attention and support that they deserve. And he believes that this is a valuable thing to do and that if we do it well, it will also, perhaps indirectly, help the business that he’s building. But that’s not the primary goal, although I’m sure he hopes and expects that whatever success I have will rub off on whatever he does.
Shawn Busse:
What’s the offering he’s bringing, because PPP is no more, no longer there.
Loren Feldman:
Let’s hope we don’t have to do any more of those.
Shawn Busse:
It sounds like what he’s hoping for is that you’re a marketing channel and an awareness channel. So what is it that you’re creating awareness of?
Loren Feldman:
You know, that’s a little bit out of my bailiwick. And he’s in the process of introducing that, and I don’t want to overstep the bounds there. But it involves an app that will make it very easy for smaller businesses to run their financials and get paid and do all that good stuff.
Jay Goltz:
I would say that if you look at today’s Morning Report, there are two examples that illustrate what’s out there in the media. And if you read it this morning, one of the articles talked about—I’m taking the exact words out of it—the company raised prices on their t-shirts by about $20. Then sales fell and the company rolled back the price increases. There was a revolt, the chief brand officer said.
There are so many holes in that. Like, did he raise the t-shirts from $20 to $60? Or from $120 to $140? And how much did sales drop? There’s so much information missing there. And then it wasn’t written by the CEO or the CFO.
Loren Feldman:
No, no, it wasn’t written by the brand officer. He was quoted.
Jay Goltz:
He was quoted. The point is, this is feeding into the hysteria of business owners that we are all faced with of, “Oh my god, if I raise my prices, that’s going to screw up my business.” And there’s just no information there. It’s just not good information. And it’s just going to feed into people’s paranoia, so that if you did raise your prices and you rolled it back, what do you do about the fact that your stuff’s costing 30 percent more? Just live with it and go broke? I mean, it’s just crazy.
And then the second one, at the end, there’s a story about this academy that had an extremely good mission, very noble. And they started a school for underprivileged kids, and it says, quote- unquote, “Where it was hard was cash flow. This was a major disadvantage.” Huh? They didn’t have a cash flow problem. They had a profit problem. There’s a huge difference between a cash flow problem and a profit problem.
So once again, the story feeds into this narrative that everyone who has cash flow problems, that’s the problem in business. And a cash flow problem is usually you’ve got too much inventory, too much receivables, maybe you bought equipment and you paid cash. It’s not a profit problem. So, again, it’s just bad information that’s being put out there. And I believe if you had your own people working for you or writing these articles, they could have asked the right questions and actually given something that was helpful to entrepreneurs. I think this is extremely typical of what I read every day, all over the place. They never ask the right questions, and I think you will.
Loren Feldman:
Well, that is an example. People do not tend to stay on this beat long enough to get comfortable with it. And it is challenging covering privately owned businesses. You can’t go to Yahoo Finance and just get all the numbers for a company the way you can with a public company. You can’t get the opinions of a dozen analysts and see what they’re picking apart. You have to rely on who you talk to, and it’s an acquired skill. And unfortunately, people to the extent they acquire it, then tend to move on and do something else. All right, let’s just take a quick break to hear from our sponsor.
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Loren Feldman:
And we’re back. All right, enough about me. Karen, let’s talk about you. So much has changed in the last couple of years, and I’m wondering, you work with some amazing big brands, great big companies. I’m curious what they know that smaller businesses could learn from. Can you tell us what you’re doing for them? And are there lessons in it that others could take advantage of?
Karen Clark Cole:
Um, I don’t really… Honestly, I don’t really know how to answer that. So what we do for a lot of the big tech companies is really around the product innovation space. So it’s solving problems in new ways that haven’t been done before. So it’s really thinking out of the box. And so I don’t really have a good answer.
Jay Goltz:
I have a website we sell through for Jayson Home. We do millions of dollars. We sell, nationally, home accessories and home furnishings. Do you believe you do something that, if I hung out in your offices long enough, I would be able to go, “Oh, interesting, I need to do some of that”?
Karen Clark Cole:
No, totally not.
Jay Goltz:
Totally not. Wow.
Karen Clark Cole:
No, it’s not like that at all. Everything is very, very, very specific. And we don’t just randomly make stuff up for everyone just to go use. What we’re doing is, a client will come to us, typically, with a problem. And we solve it through research and design and strategy. And so it’s usually addressing something very specific. And it’s usually big and complex.
Jay, you might come and say, “I can’t access people. People are now not going into stores. They’re doing all their shopping at home. I can’t figure out how to access them.” And so we would solve that problem. And then, we all know what the answer is. Like, have an online store.
Jay Goltz:
What she’s saying is: I don’t have big enough problems for her, which is comforting.
Karen Clark Cole:
No, I’m not. I’m saying that you would just have to come in, and we would talk about what problem you’re trying to solve. And then we would solve it for you. Your problem is different than anyone else’s, and everyone else’s is different than yours. And so it’s not like there’s a magic formula that we’re working on that would help everybody. And if there were, we couldn’t tell you, because that would be top secret.
Jay Goltz:
No, no, that’s interesting, because I thought you did have somewhat of a formula. I always assumed you and everyone else who does things like that, you have some, “Oh, we come in and we look at your this, we look at that, and we figure out how to fine tune it.” And that’s interesting that people have to come to you with an issue, and you figure out how to fix it. That’s very different.
Karen Clark Cole:
We’re not fixing it. We’re inventing something.
Shawn Busse:
Creating.
Karen Clark Cole:
Creating, yeah.
Shawn Busse:
Yeah, she’s part of the creation economy, as opposed to the problem-solving economy. I mean, even though the expression might start out as a problem, my guess, Karen, is you’re creating something new that may not have ever existed before.
Karen Clark Cole:
Most of the time, that’s the case. Most of the time. I mean, you look at what Amazon’s doing—look annually at what new stuff does Amazon come up with that we never thought we needed, or it’s a totally different way to solve something that we didn’t even know was a problem. And so it’s that kind of stuff that we’re working on. Like, did you know that you needed not only your groceries delivered, but you need it delivered by a robot? And it’s all automated and etc., etc., etc. Those are the things that we’re working on. It’s like, did you know that it would be way better if you got your groceries, and there was no check-out person?
A lot of our clients are looking at how we’re doing things today and saying, “Is there a better way?” And so our job is to come up with—through research, strategy, evidence-driven design—a better way, in partnership with a client who’s thinking about it in collaboration with us. So we’re coming at it from different angles.
And so, is there a better way? Do you really need to pick up your stuff and then go to a teller and check it all out? Like, why don’t you just do it all at once, and then just walk out? Like, we have enough technology nowadays—everyone has a smartphone. Why not just scan the item, put it in your cart, and then walk out of the store? And so that’s what’s happening now. That’s the Amazon Go store.
But what we found in our research is that’s a slow path to get there. People aren’t quite ready for that, because they feel like they’re stealing, for example. And so the world has up to this new way of shopping, but I tell you, it’s there. I mean, you go into any Apple Store, and there’s no check-out place. All the salespeople in the whole room have the ability to check you out where you’re standing. And that was like, “Whoa, that’s crazy.” But that makes total sense. That’s a lot easier. There’s no line. So it’s things like that that we work on, how to sort of reshape our daily lives in a way that hopefully is better and easier and more efficient and a better user experience. That’s our goal.
Loren Feldman:
Are there things we can learn from the process that you go through to—
Karen Clark Cole:
Yes, I say it every day, Loren! What do I always say? Come on! Talk to your customers. Never make it up yourself. Always talk to your customers, get their ideas, get their input. If you’re going to design something that you want your customers or your future customers to use, you’d better understand them. And you’d better understand how they think. You need to understand their motivations. What’s their context of use? Are they using your thing while they’re driving? While they’re walking their dog? Like, what world are they in when they’re experiencing you or your product? And really know, why do they come to you? And what makes them tick? And how can you connect better with them through knowing their world and how they think? That’s what you want to do.
Jay Goltz:
Okay, that’s very helpful.
Karen Clark Cole:
Okay, good. Great.
Jay Goltz:
Before you said that, I was just in a cloud thinking, “I just frame pictures, or I sell furniture. I don’t really get what you’re talking about.” But now that you pointed that out, that was very helpful. That was good. I’m going to go talk to some customers now.
Loren Feldman:
How about the testing process? You come up with a good idea, something like what you just described with Amazon Go, where there’s some reluctance to accept it. How do you handle the testing of a product that you believe in, but that customers may not be quite ready for?
Karen Clark Cole:
Well, you’re asking about adoption, which is different. So that all comes through exposure, marketing, making the pitch to people why this is good and why they should try it. And then once they try it, they become early adopters, and then they become regular adopters. And then before you know, the whole world is doing it. And in Amazon world, that’s hyperspeed of how quickly they can get people to adopt crazy new ideas. Like, imagine in the days when you couldn’t walk into a room and ask Alexa to turn on the music. My daughter’s like, “Well, how else would you do it?” And so, you know, that’s not a very long time since that came about.
Jay Goltz:
Unless your wife’s name is Alexa. In that case, I think it would have worked.
Karen Clark Cole:
Yeah, I know. It’s problematic. Well, you can change it though. You can change it in the app to be something else. But in any event, we do a ton of testing, Loren, so we have prototypes. We did research where we followed that robot along, and then we watched the person receive the robot, take the groceries out of the robot, and then we would interview them. It’s very deep, qualitative, one-on-one research. And so we say, “What was that like? What was your experience like? How did you feel? And what did you love? What did you hate? Did it meet your needs? What are your hopes and wishes for it?”
We’re looking at Maslow’s order of needs. And we want to make sure that it meets the basic requirements. And then, what delights you about this thing? What’s gonna make you love this product? Because when people love your product, they’re going to remember it. They’re going to keep using it. They’re going to refer it—all those things.
And that’s what our research does. It fine tunes that. So they would say, “Okay, I loved everything about it, but this thing was weird.” And so then we’re like, “Okay, that’s good feedback.” And if we get that from more than a handful of people, then we know it’s a real thing. Because you start seeing patterns and behavior after about six people actually. And so, so then we go, we refine it, we refine it, we refine it. So then when they blow it out to the market, we’ve got all kinds of refinement rounds in there of getting really deep qualitative research from people on this new crazy product. And does it work?
Jay Goltz:
So if I had to cut to the chase: Basically, you’re the Wizard of Oz.
Karen Clark Cole:
Well, funny that you say that, because there is a research method called “The Wizard of Oz technique,” which is where you fake the functionality, because it’s actually not built yet. So there’s actually someone sort of behind the curtain. We did a whole study for Moen on a digital faucet for them. And so we had to have water coming out of the tap when the person gave a voice command, which wasn’t built yet. And so we had like, literally, someone on the other side of the wall, listening for when they said “Water,” and then we would put on the tap and have the water go. And they’d be like, “It’s a miracle!” But so you have to do a lot of things.
Loren Feldman:
Pay no attention to that man behind the curtain.
Karen Clark Cole:
Yeah, exactly.
Shawn Busse:
Hey, Karen, I imagine a lot of the listeners on this show are not going to be able to afford or are the right type of business for you, but if they’re curious about this methodology you’re talking about—which is kind of, I think, rooted in empathy and listening—what do you recommend that they explore outside of your business? Design thinking books?
Karen Clark Cole:
I mean, what we do is well-known. We didn’t make it up. It’s user-centered design, or originally it’s human factors design, sort of from that school. But there’s loads of books on it. There’s loads of great courses, even just quick little courses you can take. But you don’t even need to do any of that. All you need to do is something very simple—which is what Jay is gonna do—is just call up a few customers and say, “What’s your experience like in our store? Is there anything you would like to see that you’re not seeing?”
Don’t put too much pressure on them to have a big answer, but you just ask sort of small, leading questions. You know, “Is there anything that you wish was in the store? Is there anything that you wish wasn’t in the store? What did you love? Or what did you not love about your recent experience? And how can we serve you better?” Just sort of little things like that. If everybody just did that, it would be a miracle, because most companies—imagine, big clients come to us, and they have spent zero dollars actually just chatting with their customers.
Jay Goltz:
I’ve learned that I have never gotten a questionnaire from a great company. Whenever I keep getting questionnaires—”How was our service? Was our bathroom clean?”— every one of those I’ve gotten, I believe, was not a great company. Because I keep thinking to myself, “If you have to ask the customer if the bathroom is clean, you’re doing something wrong. Why don’t you go to the bathroom and see what it looks like yourself?”
And the great companies that I deal with, I can’t ever remember getting a questionnaire from them. So I think part of this is the great companies are paying attention and listening to customers. And the ones that think they’re going to fix their business by sending out a questionnaire but then do nothing about it, it’s not going to work.
Karen Clark Cole:
Well, and also, when you’re sending out a survey, you’re leading them, right? You’re asking them certain questions. When you watch them interact—and this is part of our research—we actually watch people when they receive their robot grocery delivery. We watch them, and we watch their faces, and we watch their eyes bug out of their heads. And they may tell you later, “Oh, yeah, that was cool. That was like a regular day.” But you can see that they’re totally freaked out. And their heart rates, they’re breathing heavy. We watch for all kinds of behavioral clues that help us understand.
Because often, if somebody loves a brand, for example—let’s say Starbucks—and they had a bad experience ordering—their online mobile order was terrible for some reason—they might still tell you that it was a really good experience, because they love that brand so much. They have such loyalty that they take it upon themselves. “It was my fault. I didn’t press the right button,” or “I didn’t do this or that.” And in fact, of course, it’s not their fault because it should be so dead easy that there’s no possibility for error. But then they’ll tell you, “Oh, no, it’s fine. It was great. It was all me.” And so we watch a lot of these clues just to see, “Okay, their body language is not congruent with what they’re saying. So let’s try to get at that.”
Jay Goltz:
I do that every day with customers who come in to pick up their framing, as an example. You can stand there and watch them and get a good feel for, “We doing a good job?” And they’re going, “Oh my god.” I mean, I’m doing it in a very no-tech way.
Karen Clark Cole:
No, but low-tech is the way to do it. I agree.
Shawn Busse:
So you talked about talking to customers versus surveys. Can you help us understand why you do that methodology, why you go there first versus Survey Monkey? I see this a lot.
Karen Clark Cole:
You don’t want to assume that you know what the problem is. And so what we’ll do is, we do the qualitative research first to really try to uncover: Where are the specific pain points in a process, for example? Picking up your frame, it’s a perfect example. Like, if you were to, say, send out a survey and ask three really specific questions, you already are sort of leading the witness by assuming you know what the problems are. But if you’re like Jay, and you just stand there, and you just look at their body language, you look at: Are they smiling when they’re looking at those pictures? Like, pay attention. Those things matter.
And then you go in, and you casually say, “I noticed that you didn’t look super happy when you were looking at those pictures. Could you tell me more about how you’re feeling?” And then they start saying, “Well, I was really hoping for…” And you would never know that unless you ask them. So you have to do it in a really… This is psychology. It’s real research, in that you don’t want to put words in their mouth. You want to just listen. Just ask a few questions. Ask them how they’re feeling, and then listen. And then once you start gathering that kind of data where you have a sense of, “Okay, we think it’s really in the tape that we’re using to package the frame. It looks like it’s really cheap, and it’s not put on very well.”
Let’s say that lots of people are saying that same thing. Then after that, you could send out a survey, saying, “What is your experience with the tape on our packaging?” And they would say, “Oh my God…” But you don’t want to get specific until you’ve got a broad view of the whole thing.
Shawn Busse:
That’s really helpful. I think that a lot of small businesses go to the silver bullet, and the silver bullet is sending out a survey, and it injects all these biases in it, right? It’s like, you’re surveying the people that give you the answer you want to hear.
Karen Clark Cole:
You’re validating something that you think is true, and you don’t really know.
Jay Goltz:
In my own low tech way, it’s very interesting to me, because I totally get what she does now.
Karen Clark Cole:
Yeah, Jay, you’re absolutely dead on, when you’re standing there, and you’re watching people. That’s the real deal. What you’re doing is exactly what you should be doing, because what you want is for someone to have a great user experience with your business—every aspect of it.
So when you brought in your pictures, did they handle them with the love and care that you feel for those pictures? Because I know that in your business, it’s very emotional, right? These are memories. The way people want to be treated is very specific and important in your business, I’m sure. And it’s different for how they want to be treated when they go to Target. And so, you need to understand what that looks like and what that feels like for them.
Loren Feldman:
So, Karen, I would just note that I asked you what we could learn—what smaller businesses could learn from what you guys do—and you weren’t sure how to answer the question. You ended up giving us a fabulous answer.
Karen Clark Cole:
Oh, good. [Laughter]
Jay Goltz:
The magic of 21 Hats.
Loren Feldman:
All right. We only have a little bit of time left. Jay, I wanted to talk to you about a couple of things. First of all, the last few times I’ve asked you about your interest in doing an ESOP plan—employee stock ownership—you’ve given me one of two answers. Either you say, “Why wouldn’t I do that?” Or you say, “Why would I do that?” I’m wondering where you are on that today.
Jay Goltz:
You know, my whole thing is, I need to understand things, and sometimes it takes a while to process it. I feel very good that, after a year of thinking about it, going to three or four seminars, talked to lots of people, I am very comfortable. I’m sure ESOPs work wonderfully in many situations, but it’s not for me, in this situation. I’m not leaving the business. I don’t need cash out.
And part of it is, the amount of federal tax you would save by ESOP-ing, half of that’s going to get eaten up by the fees, between the accounting and the legal fees. So I am very comfortable that, for me, at the moment, it doesn’t make any sense. And I absolutely went back and forth on it. But I did a lot of talking to a lot of people, and I’m sure there’s cases where it’s an incredible thing. But not for me at this point.
Loren Feldman:
But you’re now focusing on a slightly different strategy.
Jay Goltz:
Ah, yes. It did help, because it made me think about my employees, about the retirement, about them leaving with some money. You know, my CFO left after 22 years. He retired. I brought a new person in. So we’re looking at everything with a new set of eyes, and we looked at our 401(k) plan, and I realized, I think I can do better with my 401(k) plan.
The matching thing, I believe, is inherently unfair if you have a diverse workforce that goes everywhere from people making six figures down to 30, if you’re doing matching, you’re basically helping the people who have a lot of money, get more money. And the people at the bottom who can’t save as much, they’re not getting much. So I’m looking into restructuring my 401(k) plan and getting a safe harbor, it’s called, so that people don’t have limits on what they can put into it.
Loren Feldman:
Jay, isn’t the key, if you go the safe harbor route, that you commit to paying 3 percent for all of your employees?
Jay Goltz:
Yes, that’s one way. But this is what I had to figure out, which I had to explain to them. So I take my whole payroll, and I just basically multiply it by 3 percent. But if you’ve got a lot of highly-paid people who work for you, you could kind of deal with them and say, “Look, instead of giving you the bigger raise, I’m going to give you this 3 percent, which is better for you, because you can totally put it all into the 401(k) plan.” It’s a win-win, so it’s not really 3 percent of your whole payroll. For the highly-paid people, you could probably work out a deal with them to not take another raise, and then maybe you give a little less raise.
I think there’s some ways of mitigating that. But at the end of the day, it certainly would be a good—listen, I’ve been in business 43 years. I’m in a different place than a lot of people. I couldn’t have done this 20 years ago. But if you can do it, and you’re profitable, it would really be a great thing, if you knew that when your people retired, they were leaving with hundreds of thousands of dollars in their 401(k). That would be an ideal thing. And I think there’s ways of maneuvering that.
Loren Feldman:
I think we should just explain: The safe harbor aspect of this is that it gives you safe harbor from the government coming after you and saying that your plan is discriminatory.
Jay Goltz:
It’s not that they come after you. What the government doesn’t want is for 401(k) plans just to be for the top people. They want to make sure it’s spread around, so they go through a discrimination test, and they figure out how many people are in it, how much they’re putting into it. So by safe harboring, the government goes, “Okay, you can do whatever you like. You’re covering everyone.”
Loren Feldman:
Because in that instance, you’re paying everybody 3 percent.
Jay Goltz:
Right, or there’s other ways of doing it. Talk to your provider. It’s worth having that conversation. And what I like about it is, I’m taking a little piece of the ESOP thing and putting it into this, and I think the end result will be similar, in that I’ll be able to make sure my employees are taken care of. My average person has been here 11 years. I’ve got lots of people who’ve been here 20-some years. I would like to know that when people retire, they’re leaving with a nice nest egg.
Loren Feldman:
Shawn, I feel bad. We haven’t really gotten to you, and the clock’s been ticking.
Shawn Busse:
I got to harass Jay, so it made my day. [Laughter]
Jay Goltz:
He got his shot there.
Shawn Busse:
Hey, look, you know, I actually really loved that dialogue, because it went from like the high level of Karen talking about a methodology, which I think a lot of people listening to this show can really benefit from, in terms of thinking through the customer’s perspective and talking to customers. And then it went to like Jay’s experience and how he does it, which is like a really solid way of doing it. And what I was trying to argue against, which I see so much of, is folks sending out surveys. I just think it’s like the worst place to start from.
Jay Goltz:
It’s lame. I mean, this is what I do. I make sure every one of my employees—every single one of them—knows that if a customer ever says something to you, that they’re bothered by something or that you think, please make sure you tell us. We want to know about it. And it works. They tell us, and we know about it. And sometimes we call the customer. I went to a big department store. I bought some light bulbs. Of the six I bought, four were broken because they were packaged badly. I took it to the return department. I told her, and you could just read her. She couldn’t care less.
Shawn Busse:
She doesn’t care.
Jay Goltz:
No, she put it right back on the shelf. Someone else is gonna buy the broken bulb tomorrow. She didn’t say, “Oh, thanks for telling me.” No comment whatsoever. And that’s the way big business—not all of it—but that’s the way some big businesses are running. Make sure your employees know, “Hey, you’re on the frontline. Please tell me if you hear anything that’s valuable.”
Karen Clark Cole:
Or go one step further with those employees. And instead of just saying, “Tell me if you hear something,” ask them to ask their customers how they’re doing or how they feel or what they think.
Jay Goltz:
Yeah.
Shawn Busse:
Well, I mean, basically Jay, you’re highlighting the vicious cycle of corporate America, which is they don’t treat their employees well. So their employees don’t really care about the customer experience. So then the customers have a bad experience. So then broken lightbulbs end up on the thing. And so then they have these additional costs that are hidden within the organization. And so small businesses have a really amazing opportunity, because they can create a culture where their employees feel valued.
Jay Goltz:
And you know what we call that? Instead of the vicious cycle, we call it the virtuous circle.
Shawn Busse:
Yeah, exactly.
Jay Goltz:
And it goes the other way. Your employees feel good about taking care of customers. The customers feel good, and they feel great because we’re taking care of customers. How great is that?
Loren Feldman:
All right. My thanks to Shawn Busse, Karen Clark Cole, and Jay Goltz. As always, thanks for sharing and thanks for helping me get to this point where I think we have some exciting things ahead for 21 Hats.
Karen Clark Cole:
Don’t change the name!
Loren Feldman:
Thank you, Karen.
