Do Core Values Matter?
In our latest 21 Hats Podcast episode, the owners discuss the value in articulating values. Do employees care? Do clients care?
Here are today’s highlights:
Everyone’s talking about recession when there’s still a labor shortage.
And by the way, a recession can be a great time to start a business.
There are ways to increase profits without raising prices.
A study finds that female founders cut their own salaries during the pandemic. What do you think male founders did?
THE 21 HATS PODCAST
Do Core Values Matter? This week, Sarah Segal tells Shawn Busse and Paul Downs why she’s never articulated a set of core values for her business and why she’s thinking about doing it now. But she’s wondering whether establishing her values will really make a difference. Do employees care? Do clients care? Both Shawn and Paul say they do. In fact, Paul says his core values have been extremely helpful when it comes to recruiting. And Shawn says he thinks sharing values can be the best competitive advantage smaller businesses have. Plus: We get an update on how Paul’s big marketing initiative is going, and we follow up on why Sarah feels compelled to participate in almost all of her firm’s client calls.
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As inflation rises, small businesses have even more trouble hiring staffers: “At Gahlsdorf Logging, the head count is stuck at around 20, making it difficult for the Rickreall, Ore., logging contractor to keep its eight-person crews fully staffed. Owner Jim Gahlsdorf said he turns down an offer about once a month to look at or bid on a potential job because he doesn’t have the workers. Some small logging operators have dropped to one crew from two in response to labor shortages. Mr. Gahlsdorf said he worries that a slimmed-down operation wouldn’t produce enough revenue to cover overhead. He is hoping that as the number of crews operated by competitors declines, customers will pay more for his services, allowing him to pay his workers more.”
“Mr. Gahlsdorf’s logging company has raised starting pay by about $5 in the past year. A recent Facebook ad offered starting pay of $25 to $26 an hour for ‘choker setters,’ who fasten steel cables around logs.”
“Head counts at companies with fewer than 50 employees declined in three of the past four months, according to ADP payroll data, even as employment at larger firms continued to grow.”
“Sixty-three percent of small-business owners say that hiring challenges are affecting their ability to operate at full capacity, according to a June survey of more than 825 small businesses for The Wall Street Journal by Vistage Worldwide.”
“The growth of remote work has made it easier for large employers to poach workers in faraway locations where the pay scales may be lower.” READ MORE
Even if there’s a recession, Scott Galloway thinks this could be a great time to start a business: “When you start a business in a recession, it’s cheaper — everything from real estate to employees to technology is less expensive. It sounds kind of counterintuitive, but building a business during a recession stress-tests the quality of the business early. It’s like when you want soldiers who have been through combat — a business that starts in a recession, if it survives a recession, it kind of battle-tests that it’s a viable business.”
“Then you have the winds of recovery at your back. And coming out of a recession, companies and consumers re-evaluate their purchases and are much more open to new ideas and new vendors.” READ MORE
The question of what founders should pay themselves gets even trickier in times of uncertainty: “One school of thought on founder pay — call it the ramen noodle camp — errs on the side of extreme frugality. If you have only so much runway and want your company to be a success, maybe you should pay yourself a bare minimum, or even not pay yourself at all for a few years. ‘There’s sort of this game of chicken that you’re playing as a founder,’ said Ethan Mollick, an associate professor at the Wharton School of the University of Pennsylvania who studies entrepreneurship. ‘A lot of the reason why founder salaries are low is the symbolic importance of taking a low salary,’ he added. ‘It’s kind of ritualistic at this point.’”
“According to an analysis from Carta, a company that collects and analyzes data on start-ups’ financials, the median salary for a chief executive at a start-up with a valuation between $1 million and $10 million is around $162,000.”
“A 2021 survey from Pilot, an accounting firm that focuses on start-ups, showed that founders of companies that had raised $1 million to $5 million paid themselves an average of $96,700.” READ MORE
Meanwhile, another study found that male and female founders reacted very differently to the pandemic: “On average, female startup CEOs have cut their pay by 30 percent during the coronavirus outbreak (bringing salaries down to $101,000 in 2020 from $138,000 in 2019), while male CEOs have given themselves a raise (raising their salaries to $146,000 in 2020, up from $143,000 in 2019).”
“The report analyzes 250 seed and venture-funded startups in America and finds that the salary gap between female and male startup CEOs grew four times wider in 2022 from what it was in late 2019. The differential clocks in at $20,000 in 2022, up from $5,000 in 2019.” READ MORE
There are ways to increase profits without raising prices: “‘Say you're selling five or 10 different products, every product has a certain cost structure, and it has a certain margin that you are earning,’ says [Utpal M. Dholakia, a professor at Rice University’s Graduate School of Business]. ‘If you just keep all your prices unchanged, but just simply sell less of your low margin products and more of your high margin products, you're going to make more money. And the amount of money you make can be very substantial if you are smart. In my opinion, this is probably the most powerful way to increase your profits without changing prices.’”
“Look at restaurants: ‘If you go to that restaurant and listen to what the waitstaff recommends, the day's specials are always the high-margin items which they are trying to push.’”
“Dholakia cites the airlines as a good example of [itemized pricing]: ‘In the late 1990s, when the first major airline started to charge extra for checking in your luggage, there was a big uproar,’ he explains. ‘Airlines used to provide full meals on flights 20 years ago; then they started to unbundle food.’”
“‘Everyone was really upset and said they’d never fly the airline. People protested and complained a lot, but they didn’t really change their behavior.’” READ MORE
Economists see a recession as increasingly likely: “Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44 percent in the next 12 months, a level usually seen only on the brink of or during actual recessions. The likelihood of a recession has increased rapidly this year as inflationary pressures remained strong and the Federal Reserve took increasingly aggressive action to tame them. Economists on average put the probability of the economy being in recession sometime in the next 12 months at 28 percent in the Journal’s last survey in April and at 18 percent in January.”
“In December 2007, the month that the 2007-to-2009 recession began, economists assigned a 38 percent probability. In February 2020, when the last recession began, they assigned a 26 percent probability.” READ MORE
A lot of people thought Tesla was making a mistake when it decided to sell cars online: “Tesla’s approach, which has been copied by other young electric carmakers like Rivian and Lucid Motors, could eventually have major ramifications for the auto industry. Most carmakers and auto dealers are earning rich profits right now because the shortage of new cars has pushed up prices for both new and used cars. Still, car companies and dealers may have to eventually adopt some of the changes Tesla has introduced to win over buyers who have grown used to buying cars online.”
“‘Easiest big purchase of my life, crazy easy,’ Rachel Ryan, who lives near Los Angeles, said about her 2021 purchase of a Tesla Model Y. ‘I bought it while my husband was at work,’ she added. ‘When he came home, I told him he wouldn’t be driving my minivan anymore.’”
“Ms. Ryan said the only service problem she had was a flat tire from a nail. ‘Tesla came to my house to fix it,” she said. “Any questions I have, I just email, and they are on it within minutes.’”
“But in some states like Texas, where Tesla is now based and has a factory, the company has struggled to persuade lawmakers to change laws and rules that favor dealerships.”
“For example, Texas offers a $2,500 rebate to people who buy electric vehicles, but buyers of Teslas are not eligible because those cars are not sold by franchised dealerships.” READ MORE
FOOD & BEVERAGE
Craft breweries are getting a jolt from coffee: “Big Storm Brewing Co. launched its coffee operation three years ago in Clearwater, Fla. Big Storm Coffee specializes in cold-brew coffee and seasonal blends, and sells whole beans by the bag. LJ Govoni, Big Storm’s president and chief executive, says his company is finding a mix of coffee-drinkers on the go and those willing to set up in the restaurant for a few hours. He says Big Storm wants to move aggressively, expecting sales of coffee products to reach $250,000 by 2023, up from $100,000 last year, representing 2.5 percent of total revenue. It’s logical that breweries would try new beverages, he says.”
“‘We’re still a business and we have to bring in revenue. And one of the ways you do that is stop thinking so much as we’re a craft brewery as much as we’re in craft beverage,’ he says.”
“He describes the coffee-making process as similar to beer-making: ‘It’s all about times and temperatures.’
“Right now Big Storm’s coffee is sold in the brewery’s Florida taprooms, as well as one coffee-first location. Mr. Govoni hopes to open multiple Big Storm Coffee locations before 2023.
“He sees a side benefit to direct access to the coffee he likes: ‘You know, you can’t drink beer all day working in a brewery. You want to stop drinking? Start working in alcohol.’” READ MORE
THE 21 HATS PODCAST
Dashboard: Gene Marks Would Rather Not Employ Gen Z: “I don’t have the time to deal with them because my resources are limited,” says Gene. But he’s just fine hiring Millennials, and he explains why. Plus: The cheap money days may be over but there’s a silver lining to that: Venture-backed businesses may actually have to operate like real businesses. And Chewy offers lessons in both customer service and social media.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren