Are You Hoping for a Profit?
That’s no way to run a business, says Lou Mosca in this week’s video. You should be planning for a profit.
Good Morning!
Here are today’s highlights:
Are annual performance reviews becoming obsolete?
Restaurants are still searching for a business model that works.
The arrival of new freighters may hold down shipping rates.
Why wealthy shoppers are shopping increasingly at Walmart.
MANAGEMENT
Lou Mosca has some advice on turning a profit: Most business owners, he says, budget their expenses and then see what’s left at the end of the year. Whatever’s left, that’s their profit. As Lou, who runs American Management Services, explains in the video above, there’s a better way.
HUMAN RESOURCES
Some big companies are choosing sticky notes and artificial intelligence over annual performance reviews: “Many employees now have to wait a year for feedback, often given in a stiff and rushed meeting. Workers aren’t always able to respond to the evaluation or offer their own to their boss. Even though many employers agree there are more effective ways to deliver feedback, the system has largely stayed the same while companies focus on bigger priorities such as increasing revenue and reducing costs, executives say.”
“At the startup Fountain, the company often hands out sticky notes in the middle of meetings involving two teams. Each group evaluates the other by scoring them from one to 10, ranking how helpful the other team has been during their collaboration, says Sean Behr, chief executive of Fountain, which creates software to hire and manage retail, grocery and delivery workers.”
“A facilitator then collects the scores and shares them aloud before leading a discussion about each team’s overall effectiveness, Behr says. He adds that teams are sometimes surprised to get a low average score when they thought they were doing a good job. ‘It is a very eye-opening process,’ he says. ‘When you show them five versus eight, immediate changes happen.’”
“Oakland-based e.l.f. trains its more than 300 employees on how to give feedback by hosting workshops and offering sessions with a performance coach on retainer, he says. The company doesn’t conduct annual performance reviews but instead wants people to receive feedback every day, so it hires workers that will be receptive to criticism. Teams are expected to train each new hire on the company’s constant-feedback model.”
“Some tech companies are already experimenting with AI software built into virtual meeting systems and videoconferencing, says Keith Ferrazzi, chairman and chief executive of Ferrazzi Greenlight, which coaches teams and is working with companies developing the software. ... ‘I want my videoconferencing system to tell me at the end of that meeting, Keith, you cut off Jane twice,’ he says, ‘or, You dominated that conversation 70 percent.’” READ MORE
BUSINESS MODELS
Restaurants are still in crisis: “The main problem is that restaurants have been struggling to find enough qualified workers, an issue that predates, but was dramatically made worse by, the pandemic. At the start of 2023, the National Restaurant Association found that there were 400,000 fewer people employed in hospitality industries than in 2020, and an estimated 87 percent of restaurants were operating with insufficient staff. By the end of last year, employment in restaurants finally surpassed pre-pandemic levels, according to the Bureau of Labor Statistics, but there were still nearly 1 million job openings.”
“A 2023 survey by Toast found the No. 1 reason for staff turnover in restaurants was bad managers, followed by low pay, work schedules, bad culture, and lack of growth opportunities. With these entrenched issues in mind, some have begun to innovate their business to attract talent and turn things around.”
“To stave off oblivion, many restaurants have begun experimenting with removing tipping, reducing waitstaff, and adjusting the price of menu items based on demand. The challenge, however, is that if they’re not done carefully, customers will hate these changes.”
“Tipping has long been a problem for American restaurants. Unlike most in rich countries, American restaurant servers depend primarily on tips for their income. (The federal minimum wage for waitstaff in 2024 is just $2.13 an hour.) But this model enables abuse from both customers and managers, who have the power to withhold the most lucrative shifts.”
“To solve these issues, more restaurants are ditching tips for a mandatory service fee or food prices that cover the cost of wages. But service fees can evoke powerful, if irrational, feelings from customers. A pair of 2018 studies by the researchers Michael Lynn and Zachary Brewster found that restaurants that replaced tipping with service charges or service-included pricing received lower online customer ratings, particularly in lower-priced restaurants.” READ MORE
This chef is using a supper club to start a restaurant: “When Liz Grothe cooked for a few friends at her Northern Liberties apartment in 2022, she didn’t know it would be the start of Philly’s favorite supper club. Now, whenever Grothe, 29, posts to her Instagram a new menu for a themed dinner at Couch Cafe, strangers race to get a reservation (typically, gone within minutes) for a seat in the chef’s living room. But soon, Grothe is looking to move Couch Cafe out of her home — and into her own restaurant [called Scampi], which she hopes to open this fall or winter. It feels like a natural next step for Grothe who has taken her whimsical dinner party on the road with pop-ups around the city in recent weeks.”
“So, why Scampi? ‘It’s an homage to what American food is now,’ Grothe says. ‘Shrimp scampi is a little bit of a ridiculous and misguided thing we’ve done,’ she adds, pointing to how scampi isn’t really a shrimp dish, as it’s become known in the U.S.; it’s actually a langoustine indigenous to Europe. But when Italians moved to English-speaking areas, Grothe says — giving me a mini food-history lesson like the ones she shares between courses at Couch Cafe — ‘things got lost in translation.’”
“Grothe’s food-history anecdotes are part of her charm, Oloroso’s executive chef Jason Peabody tells me. ‘Say Liz was behind the curtains and you didn’t see her and you didn’t talk to her,’ he says, the food ‘would be good. But when she comes out and then kind of takes the experience over the top, that makes it great.’ He says it’s why he goes to Couch Cafe.”
“The chef has her own playbook for Scampi, where she plans to adopt a similar model to Couch Cafe by taking prepaid reservations for themed dinners and hopes to give back to the Philly community by supporting other cooks.” READ MORE
LOGISTICS
New freighters are expected to ease cargo disruptions and reduce shipping costs: “After the Houthi militia started attacking container ships in the Red Sea last year, the cost of shipping goods from Asia soared by over 300 percent, prompting fears that supply chain disruptions might once again roil the global economy. The Houthis, who are backed by Iran and control northern Yemen, continue to threaten ships, forcing many to take a much longer route around Africa’s southern tip. But there are signs that the world will probably avoid a drawn-out shipping crisis.”
“One reason for the optimism is that a huge number of container ships, ordered two to three years ago, are entering service. Those extra vessels are expected to help shipping companies maintain regular service as their ships travel longer distances.”
“The companies ordered the ships when the extraordinary surge in world trade that occurred during the pandemic created enormous demand for their services. ‘There’s a lot of available capacity out there, in ports and ships and containers,’ said Brian Whitlock, a senior director and analyst at Gartner, a research firm.”
“That said, the spike in shipping rates is causing real pain for smaller businesses that lack long-term contracts with shipping companies, leaving them more vulnerable to a sudden surge in rates for transporting containers.”
“LSM Consumer & Office Products, a company based in central England, imports office supplies from China and India. Marcel Landau, its managing director, said his cost of shipping one container had jumped to $3,000 from about $1,000 before the Red Sea attacks.” READ MORE
RETAIL
A San Francisco hardware store is now escorting every shopper individually: “For the first time in 128 years, shoppers entering the Fredericksen Hardware store in San Francisco’s upscale Cow Hollow neighborhood are being met with an unusual sight: a table blocking the entrance with a sign explaining the store is dealing with ‘rampant shoplifting.’ Manager Sam Black said the store was forced to implement a ‘one-on-one shopping experience’ about three weeks ago after repeated thefts. Customers must wait at the table to be escorted through the aisles, unable to browse freely. ‘We have no choice,’ Black said of the decision. Shoplifters became more brazen during the pandemic, he added, sometimes coming in groups to rip items from pegboards.”
“On Wednesday, Black walked a Standard reporter to the place in the store where $80 cookware items are displayed. The pans, he says, are favored by thieves. ‘We have Lodge pans, Tramontina, RSVP—like, really high-quality stuff,’ Black said. ‘Six pans in a week. That sucks. We have cameras all over.’” READ MORE
Wealthy consumers are turning increasingly to Walmart: “This includes products like apparel, electronics, and homeware. ‘In the quarter we gained share in virtually every category,’ [CFO John David Rainey] said. ‘But notably, one of the biggest contributors in the quarter was in this income demographic from households that make more than $100,000 a year.’”
“Walmart executives have previously said that wealthier shoppers turned to the retailer in recent years as part of a bid to save money amid high inflation and that the company was retaining these customers.”
“[Neil Saunders, managing director of GlobalData Retail,] noted that lower levels of inflation would make it harder for Walmart to acquire new customers. ‘This essentially puts Walmart in the position of having to work far harder and more creatively to generate growth,’ he wrote.” READ MORE
CYBERSECURITY
Small businesses are at greater risk than big businesses: “Users at small businesses encountered 21 threats per user in the fourth quarter of 2023, compared to users at large companies that saw about 15 threats per user in the same three-month period, according to email and collaboration security firm Mimecast. Medium-sized businesses saw about 32 threats per user in the fourth quarter. Small-business owners are at a bigger risk for cyberattacks because their employees are more likely to share in critical roles, and those businesses are much more likely to rely on credential-based cloud services for their operations.”
“Travel, hospitality, and catering companies were most heavily targeted in cyberattacks in the fourth quarter. The hospitality industry has become the second most-targeted industry, second only to the banking sector. The third-most targeted is human resources and recruitment services.”
“Generative artificial intelligence is helping those involved in cyberattacks create more convincing phishing attacks, including being able to translate attacks into other languages.
“The rate at which companies have paid hackers to get back data stolen in ransomware attacks fell to a low of 34 percent in the second quarter of 2023, down from 85 percent in 2019. New laws have kicked in that make payments to hackers illegal and more companies have lost trust that hackers can or will return stolen data.” READ MORE
THE 21 HATS PODCAST
That Would Put Me Out of Business: This week, Mel Gravely, Liz Picarazzi, and Jaci Russo talk about how they set prices. Jaci explains why she refuses to respond to requests for proposal. “We have not participated in a single RFP in 15 years,” she says, “and we won’t under my watch.” Mel explains how his construction company manages to get work despite always being among the highest-priced bidders (which is why he never gets government jobs). And Liz tells us what happened when she was forced to raise prices because of the tariffs placed on goods manufactured in China. But first, she tells us what she’s thinking now that there’s a possibility those tariffs could go to 60 percent. Plus: we review how the three owners handle employee reviews.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren
Another good one... hope its not a plan!