Does Firing People Ever Get Easier?
In the latest 21 Hats Podcast, the owners compare notes on a task no one enjoys but everyone has to do.
Here are today’s highlights:
Almost half of all entrepreneurs deal with mental health issues.
A new report suggests the labor shortage could be permanent.
One often-overlooked reason for the shortage is the decline in immigration.
Companies are flooding the office space market with subleases.
THE 21 HATS PODCAST
Does Firing People Ever Get Easier? This week, Shawn Busse, Jay Goltz, and William Vanderbloemen discuss whether the old line about hiring slow and firing fast makes sense during a labor shortage. As William puts it, “What if you do have to hire fast? How do you do that? What if you do want to keep people even if you might have wanted to get rid of them before? How do you do that without ruining your culture?” Plus: How do you know it’s really time for someone to go? And what happens when employees share their salaries with each other? Anything good? And as we all binge watch the real life dramas about WeWork and Theranos, the question inevitably arises: Is it still okay to fake it until you make it? If so, where do you draw the line?
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THE ENTREPRENEURIAL LIFE
Andy Dunn, co-founder of Bonobos, talks about how he hit it big, suffered a breakdown, and is trying to make amends: “Dunn convinced himself that Bonobos, which began as a brand of better-fitting men's pants, could become the technology backbone of modern commerce—Shopify before Shopify filled the space. Dunn himself began to spread his influence on a web of companies he invested in (Warby Parker, Harry's, Oscar, Coinbase) through a venture capital firm, Red Swan, that he'd co-founded in 2011. And he figured Bonobos should start creating its own sub-brands; the first two, Maide and AYR (for golfers and women, respectively), launched in 2013 and 2014. There were a few problems with this plan: For one, the company was bleeding money. By 2013, Bonobos had raised $75 million in venture investment and was burning as much as $5 million per month.”
“Dunn didn’t know where he was. He awoke in a hospital bed in the psychiatric ER at Manhattan's Bellevue Hospital, in a room with three other patients experiencing acute mental health crises. His hands were tied. He managed to struggle free, climb out of bed, strip naked, and lie down on the floor, where he screamed for help.”
“He'd learn, over a week in the psych ward and then en route to a police station and eventually jail, that he'd spun out of control over the course of a weeklong manic episode, and that he was being charged with two counts of assault—one a misdemeanor against his girlfriend, Manuela Zoninsein, and the other a felony against her mother, a senior citizen.”
“A study by psychiatrist Michael Freeman of the University of California San Francisco found that almost half of entrepreneurs deal with mental health issues, compared with 32 percent of non-entrepreneurs.”
“According to Freeman, the link between entrepreneurship and mental health goes both ways: Bipolar people are drawn to entrepreneurship, but entrepreneurship is itself a kind of bipolar pursuit, where high highs can be followed by equally low lows.” READ MORE
With more Americans seeking therapy for mental health issues, investors see an opportunity: “Venture capitalists and private-equity firms are pouring billions of dollars into mental-health businesses, including psychology offices, psychiatric facilities, telehealth platforms for online therapy, new drugs, meditation apps and other digital tools. Nine mental-health startups have reached private valuations exceeding $1 billion last year, including Cerebral and BetterUp.”
“‘Since Covid, the need has gone through the roof,’ said Kevin Taggart, managing partner at Mertz Taggart, a mergers-and-acquisitions firm focused on the behavioral-health sector. ‘Every mental-health company we are working for is busy. A lot of them have wait lists.’”
“Venture firm General Catalyst has invested in 10 such companies recently, including SonderMind, which raised $150 million last year. General Catalyst last month led a $50 million funding round for Eleanor Health, which provides virtual and in-person mental-health and addiction care.”
“Growing interest from investors and payers has attracted more entrepreneurs, said Holly Maloney, a managing director at General Catalyst. ‘It’s a flywheel,’ she said. ‘People want to start companies where they know there’s interest in funding them.’” READ MORE
The labor shortage could be here for a while: “A new report from the research firm Gartner predicts that high levels of resignations will be a permanent fixture of the job market. Gartner estimates voluntary turnover will remain nearly 20 percent higher than it was before the pandemic. In a large company with 25,000 employees, that could translate to an additional 1,000 people quitting a year.”
“With the national quit rate surpassing pre-pandemic highs for 13 straight months now — a record 4.5 million Americans left their jobs in March, the Bureau of Labor Statistics announced last week — it's becoming clear that job hopping is here to stay.”
“‘When employees have more choice, they have more power,’ Brian Kropp, the head of human-resources research at Gartner, told me. ‘You're better off with more choices, because you can find a thing that's a better fit.’”
“It will also be a nightmare for employers, who will need to run their organizations in a whole new way — and pay higher salaries and benefits for years to come — if they want to stay competitive.” READ MORE
The decline in immigration is contributing to the labor shortage and inflation: “After immigration to the United States tapered off during the Trump administration — then ground to a near complete halt for 18 months during the coronavirus pandemic — the country is waking up to a labor shortage partly fueled by that slowdown. The U.S. has, by some estimates, 2 million fewer immigrants than it would have if the pace had stayed the same, helping power a desperate scramble for workers in many sectors, from meatpacking to homebuilding, that is also contributing to supply shortages and price increases.”
“In the Dallas area, Joshua Correa raised prices on the homes his company builds by $150,000 to cover increased costs stemming partly from a lack of immigrant labor.”
“The turn against immigration distresses some Texas business owners. ‘Immigration is very important for our workforce in the United States,’ said Correa. ‘We just need it.’”
“He's seeing delays of two to three months on his projects as he and his subcontractors — from drywallers to plumbers to electricians — struggle to field crews. Correa has raised the standard price of his houses from $500,000 to about $650,000.”
“‘At some point we either decide to become older and smaller or we change our immigration policy,’ said Douglas Holtz-Eakin, an economist and former official in President George W. Bush's administration who is president of the center-right American Action Forum.” READ MORE
Companies are flooding the market with space they want to sublease: “The amount of space listed for sublease surged in the first year of the pandemic to the highest level in decades in some cities. But it fell in the second half of 2021 as offices leased up and some companies took listings off the market. Now it is rising again. Sublease availability across the U.S. increased 3.6 percent in the first quarter to 159 million square feet, according to CBRE Group. That is still below last year’s peak of 162 million square feet, but well above pre-pandemic levels.”
“While sublease availability is low in some Sunbelt cities that are attracting more companies and jobs, it is near historic highs in New York, San Francisco and Washington, D.C.”
“Online insurance marketplace Policygenius recently put up about a third of its downtown Manhattan office for sublease. The company signed a 12-year lease for 85,000 square feet in early 2020. Since then its employee count has almost doubled from around 350 to around 650, according to chief executive Jennifer Fitzgerald. And yet the company now needs less space.”
“Many employees work remotely or only come in on some days, meaning the office is only about 20 percent occupied, Ms. Fitzgerald said. By cutting space, the company is looking to lower its real-estate bill.” READ MORE
And yet, Gene Marks believes that most employees will have to return to the office: “The reality is that workers at the nation’s small businesses — who employ about half of our workforce — have been back to the office for a while now. When I visit my clients — who are almost all small to mid-sized firms — their employees are at their desks. If you don’t believe me, take a drive around your town’s suburbs and look at the parking lots.”
“There’s no question that work-from-home arrangements are now a core benefit that businesses must provide.”
“My best clients are re-addressing their work cultures and doing their best to offer as much flexibility for their employees as they can allow. But there will be a limit.” READ MORE
Amazon is recruiting more small businesses to make deliveries: “Since at least last summer, Amazon has quietly been recruiting mom-and-pop shops in rural America to join an experimental delivery program. The company is paying participating small businesses a per-package fee to deliver Amazon orders within a 10-mile radius to their neighbors’ homes in states like Nebraska, Mississippi, and Alabama. The local businesses Amazon is recruiting range from florists to restaurants to IT shops, and none of them are required to have prior delivery experience — just a commitment to deliver Amazon packages seven days a week, around 360 days a year, and a physical location to receive parcels each morning.”
“By positioning the opportunity as a side hustle for rural businesses rather than a core money-maker, Amazon might be able to offer these businesses just enough financial incentive to keep them satisfied with the gig while making the tough economics of rural delivery work.”
“But if Amazon’s history with small businesses is predictive of future relationships, some partners will find great success with the program while others will leave disappointed or disenchanted.”
“An Amazon web page marketing the program says business owners can expect to make $1,500 to $2,000 a week if they deliver 600 to 800 packages weekly. That amounts to roughly $2.50 per package.” READ MORE
Dashboard: Gene Marks Went Remote Years Ago. He Hates It: This week, Loren Feldman and Gene Marks resume their weekly conversations about the most important stories affecting business owners, starting with why Gene was ahead of his time in taking his business remote and why he thinks it has left his company dysfunctional. Plus: What should owners take from the latest strong jobs report? And how will businesses be affected if the Supreme Court does indeed overturn Roe v. Wade?
You can find Dashboard in your 21 Hats Podcast feed.
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