I Just Cut My Pay

Paul Downs has plans to unleash a bold, new marketing campaign designed to put his business on an entirely new trajectory, but his year has not gotten off to a good start.

Good Morning!

Here are today’s highlights:            

• Could pay transparency motivate employees to work harder?

• The infrastructure for EV charging has a long way to go.

• The days of “free shipping”—if they ever existed—may be numbered.

• How one third-party seller got to $10 million in annual revenue.

21 HATS PODCAST

I Just Cut My Pay: This week, Paul Downs tells Shawn Busse and Jay Goltz that his year has not gotten off to a great start. This was supposed to be the year that Paul unleashed a bold, new marketing campaign that would put his business on an entirely new trajectory—and perhaps it still will be. But for the moment, his revenue has fallen considerably short of his expectations, which has presented him with an unwelcome choice: Should he hold-off on the marketing campaign? Or should he cut his own salary? Along with discussing Paul’s decision, we also talk about the process of rethinking a website, how best to make use of LinkedIn—it’s a gold mine for both business development and recruiting, says Shawn—and why Paul and Shawn continue to perform their own HR chores.

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HUMAN RESOURCES

Research suggests that pay transparency motivates employees to work harder: “New laws mandating that pay ranges be included on job listings have gone into effect in recent months in New York City, California, and other places. In states where there are no such laws, companies still have to contend with national job boards, such as Indeed.com, that often put their own salary estimates on job advertisements. The new laws mean more employers are weighing how much detail to share with their current workforces, according to human resources executives. Many executives say they are worried about the impact such information could have on productivity and morale. A prevailing fear: If workers know what their colleagues make, it could create tension in the ranks, undermining performance.”

• “Now, a growing body of research from scholars at Indiana University, Harvard Business School and the University of California suggests that when employees find out how their earnings stack up against peers, it can compel them to work harder.”

• “Exabeam, a cybersecurity firm in Foster City, Calif., started publishing salary ranges in January. Gianna Driver, chief human resources officer, said the move prompted an employee to ask why she was on the low end of the pay range for her role. The worker, who earned $130,000 in base compensation, saw a job posting that advertised a range of $120,000 and $180,000.”

• “Ms. Driver explained the worker was earning less than some of her peers because she had recently been promoted. It’s typical for recently promoted people to start on the lower end of a position’s pay range. Making more money, she added, requires spending time mastering the job.”

• “Despite some uncomfortable conversations, Ms. Driver said she’s seen no discernible drop-off in productivity. ‘If anything, we’ve observed higher levels of engagement,’ she said, adding that employees appear to gain motivation from understanding what they need to do to advance.” READ MORE

BANKING

Small U.S. banks lost $100 billion in deposits in a single week: “Bank customers shifted their deposits to large U.S. firms from smaller ones amid a banking crisis that led regulators to seize two regional lenders in quick succession. Weekly data collected by the Federal Reserve showed that large banks gained $120 billion in deposits while their smaller counterparts lost $109 billion, Moody’s Corp. said in a research report, citing figures released Friday. Small banks’ total deposits fell 1.5 percent in the week through March 15 from a year earlier, the first annual decline since 1986.”

• “Across U.S. lenders, deposits appear not only to have shifted from smaller banks to their larger peers, but also to have left the country’s banking system for money-market mutual funds, when foreign branches and agencies are included, according to the Moody’s report.” READ MORE

Gene Marks says many of the SVB’s customers were lazy and complacent—and lucky to dodge a bullet: “Putting all your eggs in one basket is never a good idea – that’s why there is a cliche about it. Every client I know is familiar with the $250,000 FDIC insurance coverage that protects their cash at a financial institution. And, while most small businesses have balances less than that amount in their accounts, a large number of my clients and companies hold funds in excess of this insurance limit at their respective banks. It’s estimated that 90 percent of Silicon Valley Bank’s deposits – many of them held by small businesses – were uninsured, an astounding figure when you consider the risks.”

• “The money at a small business is not only money that is owed to investors and partners but it’s also used to pay employees and suppliers, who also have employees. The owners of those businesses – like any business – have a fiduciary duty to ensure that their stewardship over the company’s cash is prudent.”

• “They should have swept their excess, non-liquid cash out of that one institution and spread it among others. They should have had these funds in government securities, certificates of deposits with other banks, and mutual funds with various investment firms. Their accountants should have been calculating how much funds were needed and how much could be tied up elsewhere.”

• “Frankly no one knows what’s going to happen next. What I do know is that millions of small businesses in this country have their cash at more than 4,000 banks. And I’m betting that many of these companies have more than $250,000 in the bank too.” READ MORE

FINANCE

SVB’s Collapse is chilling startup funding: “Jonathan Nelson had lined up commitments for $2 million in new funding for his financial technology start-up, HF.Capital, from two investors last month. He was aiming for $2.5 million and thought securing the rest would be ‘perfunctory.’ Then 67 investors turned him down. In mid-March, his initial investors backed out, too. Mr. Nelson was initially confused by the cold shoulder. But two days later, when Silicon Valley Bank, the most prominent bank for start-ups and venture capital firms, collapsed after tech investors and start-ups set off a bank run, it all made sense. ‘I was scratching my head, saying, Why did they just ghost?’ he said. ‘Then the bank run happened, and I was like, Ah, they’re terrified.’”

• “The same realization is rippling through the start-up world in the wake of SVB’s sudden failure. After a harrowing 2022, when the easy money for start-ups dried up, leading to slashed valuations, lowered ambitions and widespread layoffs, many hoped things would bounce back this year. But SVB’s collapse has stoked even more anxiety and dread, which is beginning to manifest in start-up dealmaking throughout Silicon Valley.”

• “Bijan Salehizadeh, an investor who has stakes in a dozen venture capital funds, said from a quarter to a third of the companies his funds had backed would run out of money in the next six months. He called this ‘the worst time in recent memory to raise new venture funds’ and added that he had seen many investors ‘sitting on their hands’ recently because they were nervous.”

• “SVB offered many start-ups a form of credit that other banks found too risky, since the young companies are generally unprofitable. That debt, typically secured by a start-up’s venture funding, helped companies stretch their money to their next round of funding.” READ MORE

PRICING

Electric vehicle charging is a bit of a mess right now: “To capture the current state of EV charging, the Globe did an informal survey of the pricing and performance of DC (Level 3) fast chargers around Greater Boston over the past three months. While most current EV owners charge at home overnight using slower Level 1 and 2 chargers, DC fast chargers are critical for longer trips and for people who can’t charge at home. Based on the experiences of a reporter charging four different vehicles across five charging networks, a few themes emerged.”

• “Reliability is a major issue, with chargers going offline for weeks or months at a time. Some stations charge by the minute rather than by the amount of electricity consumed, leading to unpredictable pricing.”

• “Others have multiple subscription plans or charge different rates at different times of day. Overall, there have been some significant price increases over the past few months.”

• “Electrify America, one of the largest operators of DC fast-charging stations in the state, just raised prices by 16 to 19 percent. Smaller rival EVgo made its rate plans more complicated and added a new fee. And Tesla, which raised prices at many of its chargers last year, is slowly opening its national network to other car brands but with higher prices for non-Tesla vehicles.” READ MORE

PROFILE

Deanna Slamans says her third-party-seller, Amazing Freedom, grossed more than $10 million in Amazon sales last year: “At the beginning, we sold used books from library sales and thrift stores, because that's what our friend was selling. We moved on to a lot of random items — Nerf guns, Legos, and a bunch of stuff. To resell an item on Amazon, you just walk into any store and scan an item's barcode with a feature that's in the Amazon seller app. The app displays possible profit margins and what the item is worth on Amazon. Our approach was to only buy products that could double our investment, so we could easily cover Amazon's seller fees, app subscriptions, shipping-supply costs, and more.”

• “I was convinced it'd be a viable business when the movie ‘Frozen’ came out. We lived near a bunch of outlets, and my husband paired ‘Frozen’ flip-flops with a ‘Frozen’ hooded towel — he made 200 sets and they sold like hotcakes.”

• “We decided to change our strategy and look for items with larger profit margins — tools and oversized items like furniture — and we researched more products that weren't as saturated.”

• “We took a risk and sometimes our buys didn't work out. In those cases, we had to drop our sales cost just to get rid of inventory before Amazon storage fees took the rest of our investment.”

• “In 2017, Andy started building a private-label cloth diaper brand to sell on Amazon. That product quickly ramped up and we sold that brand to a new owner in 2020, so we could put all of our energy into a lawn and garden brand that we were launching. These sales eventually allowed us to buy our dream house.” READ MORE

Free shipping isn’t as free as it used to be: “Amazon.com and other online retailers who use so-called free delivery to cultivate customer loyalty are scrambling to keep it from draining profits as costs climb and e-commerce contracts. They are adding fees for faster service, raising minimum purchase requirements and making other changes that shift more costs to consumers who are struggling with financial issues of their own. ‘The days of free delivery are numbered,’ Ken Morris, managing partner at Cambridge Retail Advisors, said of the fast-changing retail marketing tool.”

• “Retailers are beginning to look more like some airlines, which charge for better seating, transporting luggage and also restrict use of frequent-flyer points, Morris said.”

• “It is an open secret that most retailers raise product prices to subsidize free shipping. Still, product inflation and soaring shipping costs are making the service unsustainable as the prospect of recession threatens to wallop already-flagging online spending.”

• “After forcing both free and fast shipping on the e-commerce industry it dominates, Amazon's latest moves are instructive. The online retailer, which recently hiked the annual Prime subscription price by $20 to $139, is now offering ‘free’ same-day shipping for Prime members in at least a dozen U.S. cities, including Los Angeles, Chicago and Philadelphia. There are strings attached, however, as the service is free only on orders of at least $25, and costs $2.99 when orders fall below that.” READ MORE

FAMILY BUSINESS

The New York Times looks at how five family businesses are handling succession: “In 2005, Chad Weaver went to work at the Pittsburgh-area home-building business his parents had started three decades earlier, expecting to fully inherit the operation by 2015. It hasn’t quite worked out like that. ‘It was a 10-year plan that turned into a 20-year plan,’ Mr. Weaver, 49, said. Now, he is two years into a five-year schedule of buying out his parents, and his parents still hold a majority of voting shares. ‘I bite my tongue a lot. I’m respectful of the fact that for the second generation, the biggest key is patience.’”

• “This buyout plan is a common method for transferring the assets of a business from parent to child, providing a stream of retirement income for the parents and giving them a gradual off-ramp. Many times, the founding parent remains involved as an adviser or consultant.”

• “This, succession advisers say, is appealing to business owners whose adult lives have been more or less defined by their business. ‘It’s not really a job, it’s an identity,’ said Josh Baron, partner at BanyanGlobal, a business succession consulting firm. ‘It’s very unlikely you’re going to just walk out the door and start playing golf or pickleball.’”

• “In a sense, running a family business is the epitome of entrepreneurial success, with passing on that business to children the apex of that success. But a 2021 survey by the consulting firm PwC found that only about a third of family-owned businesses have a succession plan.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

Gene Marks Is Not a Fan of Mandated PTO: This week, Gene explains why he hates the new Illinois law that requires businesses of any size to offer employees up to five days a year of paid time off — even though he’s not based in Illinois and he offers his own employees quite a bit more than five PTO days a year. He also suggests six things all owners should do if they have any thought of one day selling their business. And he discusses his list of 10 tax-related numbers that he says every owner should know.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren