Hiring Remains a Challenge
For many businesses, that labor shortage is still with us, and those salaries are still rising.
Good Morning!
Here are today’s highlights:
Gene Marks says that if you hate your HR software, the problem is probably you.
The Harvard Business Review has some tips on giving employees feedback.
Is Silicon Valley inflating an AI bubble?
The insurance crisis is not just about home insurance.
SMALLBIZ TECHNOLOGY
Do you hate your HR software? Gene Marks says the problem isn’t the software: “This past week it was Workday’s turn. The HR and productivity platform that many large — and not-so-large — companies use to help facilitate everything from onboarding new employees to benefits management and performance reviews ‘has been making a mint creating misery where painless processes could be,’ according to a Business Insider article titled: Everyone hates Workday.’ But as the piece points out — it’s not all Workday’s fault. And as the owner of a company that sells customer relationship management software to small- and mid-sized businesses, I can tell you something that most software vendors are thinking but don’t want to say publicly: If you don’t like the software, don’t blame the software. Blame yourself.”
“Workday isn’t perfect. It’s a big, complicated system and like any big, complicated system it requires big, complicated grownups to run it. The problem is that most organizations don’t have big, complicated grownups running them.”
“The managers assigned to implement products like Workday (and the CRM systems we sell) tend to be lower-level drones who step aside from challenges and avoid the extra effort required to really make products like this work the way they’re supposed to.”
“So what do these systems require? The same that’s required of all business investments: time and money. Time needs to be spent properly planning out the implementation of these systems in the short term and then more time needs to be devoted over the long term to improve how the system is used. Software applications like Workday aren’t a one-and-done investment, they’re a long-term relationship.”
“Money needs to be spent on the right licenses and modules but also on hiring the right outside consultants to properly implement, integrate, migrate data, and — and this cannot be stressed enough — train.” READ MORE
HUMAN RESOURCES
For many businesses, the labor shortage has never gone away: “Businesses are struggling to hire workers, and pay is one of their primary challenges. According to a survey of more than 1,600 owners and executives by The Business Journals Intelligence, almost 28 percent of respondents said it was ‘extremely’ or ‘significantly’ difficult to hire talent in the last 12 months. An additional 26 percent said it was ‘somewhat’ difficult. More than 40 percent said a shortage of qualified labor was affecting their ability to hire or retain employees over the past year. Given the nation's demographic shifts, that's hardly a surprise.”
“But close behind was current market-rate salaries at 31 percent of respondents, and there are some early signals that employers' pay problems could get more challenging after several months of salary offers falling back to earth. New data from Paychex found hourly earnings growth at small businesses came in at 3.34 percent in April, the first time in two years it has increased instead of slowly going down from post-pandemic highs.”
“Dawn Fay, operational president at staffing and consulting firm Robert Half International, said the pandemic raised the bar on hiring, as workers now screen employers just as much as employers screen them. It’s not just pay, but also how supportive a workplace will be and what it offers a worker over the long term — along with the right mix of benefits.” READ MORE
Here are some thoughts on giving feedback to underperforming employees: “As a leadership and team coach, I frequently encounter situations where managers feel ill-equipped to give their team members negative performance feedback. These conversations can be particularly challenging because the stakes are high for both sides. Unfavorable performance reviews and ratings come with tangible consequences for an employee’s compensation and career progression. Further, if the negative feedback is a surprise to them, it might prompt them to start looking for a new job. However, these challenging moments also present opportunities to strengthen the manager-employee relationship. Here’s how to treat difficult performance conversations not as fault-finding missions, but instead as opportunities to work collaboratively to define a shared commitment to growth and development.”
“When there’s misalignment between what you expect of an employee and the work they’re delivering, start by defining what success looks like and who will be involved in turning around their performance. This must be a shared goal between you and your employee for them to feel valued and supported.”
“During the conversation, take a moment to look back and understand the situation. You can kick this off by asking them to self-reflect and assess their own performance. For example: ‘Let’s take a moment to understand how we arrived here and what factors influenced our path. I’d like to invite you to self-reflect and assess your own performance. Did you accomplish all your goals and meet the expectations set?’”
“Deliver feedback with clarity and specificity. Provide clear examples, not hypotheticals, to ensure the employee understands exactly how the work they’re delivering isn’t aligning with what’s expected of them. Avoid ambiguity.” READ MORE
MANUFACTURING
Small businesses are likely to get caught in the trade-war crossfire: “The Biden administration is smacking China with an $18 billion tariff increase to protect industry segments such as electric cars and solar energy. But those tariffs could also shock supply chains for small American companies, raising their cost of doing business. President Biden announced the suite of tariff increases on Tuesday, which include quadrupling tariffs on imported electric vehicles, tripling tariffs on steel and aluminum items, and doubling tariffs on semiconductors. The White House said the tariff increase is needed to ‘protect American workers and businesses.’”
“But American entrepreneurs who work with businesses in China or source goods there may suffer some whiplash from the decision. China could retaliate by levying tariffs of its own, making it more expensive for the U.S. companies to conduct trade. Such was the case when China exacted a 25 percent tariff in 2018 that targeted U.S. goods including soybeans and salmon.”
“And if your company is sourcing from China in one of the sectors affected by the tariff hikes, it will increase the cost of doing business—at least temporarily. That can leave businesses with the prospect of passing rising costs on to customers in the form of higher prices, if they can.”
“Even if supply-chain disruption does become a longer-term challenge for entrepreneurs, it could also prompt them to look to their home turf and source new suppliers domestically. A common refrain from the Biden administration is its intent to expand U.S. manufacturing and innovation.”
“That helps explain the increase in subsidies to American companies. Just last week Vice President Kamala Harris unveiled a fresh $100 million funding round for small auto-parts firms as the U.S. tries to catch up with China's competitive advantage in EV production.” READ MORE
ARTIFICIAL INTELLIGENCE
The Economist thinks the overhyping of AI is inflating a bubble that will inevitably burst: “With the rise of generative artificial intelligence, history is repeating itself. In recent weeks four tech giants—Alphabet, Amazon, Meta, and Microsoft—have pledged to spend close to a total of $200 billion this year, mostly on data centers, chips and other gear for building, training and deploying generative-ai models. That is 45 percent more than last year’s blowout. Tech barons such as Meta’s Mark Zuckerberg admit that it may be years before this investment generates returns. It is an AI arms race. The tech firms are not only buying infrastructure. In the past few years they have joined a stampede to put venture capital into OpenAI, Anthropic, and other makers of foundational models.”
“Traditional VC firms belly-ache that they have not seen such corporate big-footing since the dotcom boom. The tech giants are flush with cash—they can afford to splash out. But, if the past is any guide, a bust is coming and the firms carry such weight in the stock market that, should their overexcitement lead to overcapacity, the consequences would be huge.”
“All the signs are that big tech has succumbed to irrational exuberance. Runaway spending is one of the risks. Wall Street is already penciling in expectations that the four firms’ capex could come to an eye-popping $1 trillion over the next five years. Revenues may rise as a result, but so will costs. These include juicy salaries for brilliant engineers and mammoth electricity bills for data centers that can handle the heavy demands of generative AI.”
“As in any arms race, the driving force behind the spending is as much defensive as offensive. None of the four wants to be left behind, lest it fall victim to disruption. Fortunately, the damage to society at large is likely to be limited. As with railway tracks and telecoms cables, overcapacity makes things cheaper. In many infrastructure booms, the benefits accrue to the users more than to those who lay the foundations.” READ MORE
REGULATION
Did Florida and Alabama ban the wrong kind of meat? “Cell-cultivated meat is one of several meat alternatives that has the potential to be part of a humane, healthful and environmentally sustainable future food system. And in the kind of democracy that our leaders claim to admire, you don’t go around banning what you don’t like, much less understand. New agricultural industries should be free to compete against the status quo. Talk of bans is akin to the buggy whip industry trying to ban cars in a fit of Luddite protectionism.”
“Forget for a moment the horrific suffering that animals endure before they wind up as packaged bits in your grocery store. Just consider the environmental toll that it takes to feed the ribeye coalition. Raising cows and other animals for food consumes a huge amount of scarce land and water; an estimated 80 percent of agricultural land is used for animal grazing and animal feed production.”
“It also produces a huge amount of waste, pollution, and greenhouse gas emissions, making it a leading contributor to deforestation, biodiversity loss, and climate change. This is the industry DeSantis, Ivey, and Fetterman want to defend from disruption?”
“There is no reason to ban cell-cultivated meat at this early stage in its development. Far from it — there are only reasons to aggressively explore all options for building industries that can produce nutritious, delicious food while improving animal welfare, disease control, and environmental protection.” READ MORE
REAL ESTATE
Here’s why real estate agents are switching brokerages: “The biggest reasons cited by agents about why they would want to switch brokers include more referrals and leads, better training and education, and a better commission structure. More agents showed an increased interest in brokerages' luxury expertise, at 66 percent in this year's survey compared to 51 percent in 2023, as well as whether they had a strong global presence, at 65 percent this year compared to 50 percent in 2023. The shift in real estate agent sentiment comes amid months of legal wrangling and class-action lawsuits over buyer commissions that many believe could reshape the industry.”
“Maureen McDermut, a Realtor at Sotheby's International-Montecito in California, said brand trust and marketing help are among the top desired things agents want from a brokerage, and after the recent NAR settlement, brands with prominent reputations will attract more agents.”
“‘Smaller brokerages may or may not have the capital to market effectively, and many agents need help with the new commission ecosystem that is going into effect,’ McDermut said.” READ MORE
INSURANCE
The crisis is not just about home insurance: “Car insurers are still raising prices steeply: The price of motor vehicle insurance rose more than 22 percent in the year through April, the fastest pace since the 1970s, according to a report from the Bureau of Labor Statistics on Wednesday. According to calculations by the Insurance Information Institute, a trade group, the average 12-month premium for car insurance was $1,280 in 2023, the industry’s most recent figures. That has made car insurance a prominent factor preventing overall inflation from cooling more quickly, which could force the Federal Reserve to keep interest rates higher for longer even as the prices for many other essential goods and services have slowed.”
“When the pandemic shut down most economic activity, it messed up insurers’ ability to use the past to predict the future. For months, they were frozen. They did not submit new rate filings to regulators for a spell — until they did, all at once, in the second half of 2021. The prices of cars and parts were jumping and drivers were back on the roads and crashing left and right after a hiatus behind the wheel.”
“In California, the most populous U.S. state, insurers were getting creamed by expensive claims. But the state’s regulator did not start approving insurers’ requests to raise rates until near the end of 2022. The backlog grew so large that the average wait time for approvals was longer — by several months — than the six-month policies that insurers wanted to sell.”
“‘Inefficient regulatory environments in states like California, New Jersey, and New York, combined with inflation and increased catastrophic losses, have left consumers with fewer choices of insurers and higher costs,’ [said Neil Alldredge, the president of the National Association of Mutual Insurance Companies].” READ MORE
THE 21 HATS PODCAST
Yeah, I Can Hold Myself Accountable: This week, in episode 195, Mel Gravely tells Jay Goltz and Liz Picarazzi about his recently executed succession plan, including what’s worked and what could have gone better. The main thing that could have gone better, Mel says, is his purchase of another small business where he says he misdiagnosed the challenges the business is confronting: “I thought they just had a bad model and they weren't managing it well. It was worse.” All of which leads to a discussion of the role that a board of advisors can play in helping an owner build a business. While Mel has said he wouldn’t run a lemonade stand without a board, Liz and Jay—like most business owners—have taken a different approach. The notion of having a board of advisors, Jay tells us, is something he struggles to get his head around.
Plus: with the talk of tariffs getting louder, Liz updates us on her search for an alternative to manufacturing her trash enclosures in China. “We really have to have a Plan B,” she says. “We'd be stupid not to have a Plan B.”
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren