Fetishizing Growth
From the Inc. 5000 to EO, John Warrillow says entrepreneurs are socialized to emphasize growing big over growing profits.
Good Morning!
Here are today’s highlights:
The movement toward pay transparency is changing the way jobs are posted.
Going forward, small businesses are likely to have a harder time accessing credit.
More small businesses are moving their money to bigger banks.
Is it a good idea to encourage customers to leave online reviews?
HUMAN RESOURCES
Thanks to pay transparency, there’s a big shift in job postings: “An analysis of postings on job board Indeed found the share of postings including employer-provided salary information more than doubled from February 2020 to February 2023, rising from 18.4 percent to 43.7 percent, according to data from Indeed's HiringLab. Experts have said employers need to get comfortable talking about pay in job postings because an increasing number of candidates expect it in a tight labor market. But the data suggests state laws are playing a role, as well.”
“The analysis found pay transparency is highest in the West, where pay transparency laws are most common, and lowest in the South. Colorado, Washington, and California are among the states with dedicated transparency laws. A law will take effect in New York later this year.”
“But salary transparency in postings is growing even in areas without legislation. More than 50 percent of job postings in Salt Lake City contained salary details, with Boise, Idaho; Albuquerque, New Mexico; and Madison, Wisconsin; all seeing substantial gains even without legal requirements.”
“Many candidates want to know how much a position pays but are often too concerned about asking the question too soon since it could be seen as a negative. But experts say including salary information can streamline the hiring process for employers, since it saves time, cuts down on negotiations and leads to faster hiring and onboarding.” READ MORE
A Denver startup has landed a contract to help formerly incarcerated people find jobs: “Honest Jobs, an early-stage startup that relocated in 2021 from Columbus, Ohio, to Denver, will work to implement Attorney General Phil Weiser's Fair Chance Hiring Initiative, a $1.1 million program to bolster job options for people leaving Colorado's prison system. According to Weiser's office, 8,500 people leave Colorado prisons each year, and many of them struggle to find employment.”
“Honest Jobs operates a digital hiring platform specifically for formerly incarcerated people. So far, it's used by 1,300 companies, including 150 Colorado-based businesses and well-known brands, such as Wayfair, GAP, The Coca-Cola Company, PepsiCo, Koch Industries, and Amazon.”
“The platform offers a couple of unique insights for job seekers. On each job posting, Honest Jobs publishes the number of formerly incarcerated people the company has hired in the past. Honest Jobs also asks for job seekers' criminal history and — without disclosing that information — uses an algorithm to predict how likely they are to pass each company's background check.” READ MORE
MANAGEMENT
John Warrillow believes there’s too much pressure put on entrepreneurs to grow (and too little to make money):
FINANCE
Companies large and small are likely to have a tougher time obtaining credit: “Small businesses that rely on bank loans for capital expenditures are also facing a new reality, analysts say. Easy lending standards since the Fed cut rates to near-zero at the start of the pandemic in 2020 helped fuel a boom in small-business activity that has largely continued, despite now higher interest rates. As the regional banks that have come under pressure in recent weeks adjust lending standards, some of their small-business clients may find they are offered loans under stricter terms, in smaller amounts, or not at all. Many regional banks have also faced significant deposit flights in recent days, meaning they have less capital available to lend in the first place.”
“Even though small-business owners are now paying more for short-term loans—about 8 percent interest on average, compared with 4 percent in 2020, according to National Federation of Independent Business survey data—they have generally accessed credit with ease.
“In the February NFIB small-business economic trends survey, just 3 percent of small-business owners said their borrowing needs weren’t satisfied. That figure topped 11 percent in 2010 during the global financial crisis.” READ MORE
Some small business owners are moving their money to bigger banks: “One of the questions weighing on the minds of many small business owners is whether the government will step in and save their bank if the crisis gets worse. ‘To be candid, our business has an account at a community bank, and we’re going to be opening another account at Chase, because it’s too big to fail,’ said Nate Tobik, the founder of Complete Bank Data, a company that sells market data to banks. Tobik said moving the money is a rational decision, since the Federal government saved the biggest banks after the 2008 financial crisis.”
“But the big issue at play for most small businesses is the Federal Deposit Insurance Corporation, and the $250,000 per depositor limit on its coverage. ‘[That’s] a decent amount of money, but businesses could have a $100,000-a-week payroll,’ said Spiro Pappadopoulos, CEO of Schlow Restaurant Group, which operates seven businesses in several states.”
“In the past week, Pappadopoulos opened about a dozen new accounts at different banks to spread out his money and increase his FDIC insurance coverage. He’s also opening those accounts at bigger banks. ‘We’re not leaving the smaller banks, but we’re not leaving excess of $250,000 at smaller banks,’ he said.”
“Tiffany Turner, CEO of Adrift Hospitality, which operates hotels and restaurants on the Oregon and Washington coasts, said there’s a benefit to keeping her money at her community bank. ‘It’s keeping your dollars local, where they’re going to continue to work for you, rather than shipping them off somewhere else,’ Turner said. ‘Many, many mom-and-pops, and how we got started, was banking with our local community-based bank.” READ MORE
Got a question about banking or finance? On Monday at 5 p.m. ET, Ami Kassar, CEO and founder of MultiFunding, will take questions from 21 Hats Founding Members. For years, Ami has been telling business owners that they should do their banking with smaller, regional banks. Does that advice still hold when many are moving their money to the big banks in search of stability? What other advice does Ami have for payroll or credit cards or getting a loan? Bring your own questions to this virtual discussion! This is the first in a series of 21 Hats Office Hours that will give Founding Members the opportunity to interact with the 21 Hats podcast regulars and other special guests. Click the Subscribe button to become a Founding Member (with a money-back guarantee).
REPUTATION MANAGEMENT
Is it a good idea to ask customers to write online reviews? “Online reviews have substantial value for businesses. Ninety-eight-percent of customers read reviews before they shop, making it one of the most important sources of information about products and services; for 2021, online reviews were predicted to affect $3.8 trillion revenues worldwide. As a result, businesses are constantly on the lookout for ways to improve their online reputation and rating scores. Examples include sellers asking for reviews, responding to past reviews, and posting fake reviews for their own and competitors’ products. The most common approach is to ask customers for a review via email: indeed, 80 percent of customers state that they have been asked for a review by a company. But are these solicitations actually a good idea?”
“In cooperation with a large European travel platform, we conducted a field experiment with almost 200,000 customers over a three-month time period. Our goal was to assess if and how sending review-solicitation emails to customers alters online review content such as average ratings.”
“The results showed that sending an email had two effects. First, it increased the overall number of reviews by 8 percentage points in the first four days after travel. Second, it reduced the share of extreme (very positive or very negative) rating scores by 10 percent.”
“Our theory is that people who have moderate experiences are less likely to write a review.” READ MORE
STARTUPS
Insider has a list of the 26 most promising real estate startups: “In 2022, the surging proptech industry ran headlong into a period of high interest rates and prospects of an economic slowdown, chilling growth in a sector that had fed off hot real-estate and tech markets for more than a decade. Proptech investment tumbled by nearly 40 percent in 2022 compared with 2021, from $32 billion to $19.8 billion. Startups had to reckon with lower valuations, stingier checks from venture capitalists, and greater uncertainty surrounding public offerings. This year seems to promise more of the same. But that doesn't mean all of proptech's promises have fizzled.”
“Real estate and construction remain some of the least digitized industries, creating opportunities for tech-savvy entrepreneurs no matter the state of the market. For example, an increased focus on environmental sustainability is driving climatetech to the forefront of an industry that sorely needs it.”
“Aeromine produces rooftop devices for capturing wind energy. Many companies are looking for ways to generate on-site renewable electricity to reduce their carbon footprints and find relief from high energy costs. Aeromine said its systems, which mount to the edge of flat-roof buildings like warehouses and data centers, generate up to 50 percent more power than other sustainable-energy options that cost the same or less.”
“Baselane functions like a banking platform for landlords by offering services such as bookkeeping and rent collection. A dramatic rise in investor activity in real estate helped fuel the housing boom during the pandemic. Hordes of new landlords are now looking for ways to streamline the management of their buildings, income, and expenses.”
“Dvele builds luxury prefab and modular homes. Many Americans feel that homeownership is out of reach. Homes are expensive because there aren't enough of them, and the supply shortage is made worse by how pricey it is to build. But modular- and prefab-home evangelists believe that building a whole home — or even part of one — in a factory can make homebuilding so efficient as to make a difference in an undersupplied market.” READ MORE
THE 21 HATS PODCAST
I Can’t Have a Handle on Everything: This week, Jay Goltz and Laura Zander talk about the limits of their own management. Once a business gets past a certain size, no owner can do everything or even be aware of everything. But where do you draw the line? Does the owner need to be conversant with most aspects of management, marketing, and finance to oversee the business? This came up, in part, because Jay told us recently that his framing shops routinely ask customers how they learned of the business and that a recent review indicated that his social media efforts were not having an impact. But when asked about those efforts, Jay wasn’t entirely sure what they consisted of or if they even existed. Perhaps surprisingly, it also became clear that Jay wasn’t all that interested in learning more. It was working well enough, he’d concluded, and that was all he needed to know. That’s the starting point for today’s main conversation.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren