Make Family Members Earn It

There is a price to be paid, Lou Mosca says, when business owners are too generous in bestowing titles and compensation upon family members.

Good Morning!

Here are today’s highlights:            

• Asking customers to fill out surveys may not be the best way to get to know them.

• Politicians all seem to agree that everyone else’s tariffs are bad. But their own? Well, that’s different.

• This continues to be a very good time to negotiate office space—even if your lease isn’t up.

MANAGEMENT

In today’s video, Lou Mosca talks about the temptation many owners feel to be overly generous with titles and compensation: “Bestowing titles and money on family members when they haven’t proved their mettle is a recipe for disaster for your business and the family members you bring on. Suppose you bring on a son or daughter, sibling, uncle—whoever. Think about military ranking. In the military, you don’t start from scratch as a sergeant or lieutenant; you begin as a private, and through years and years of training, you work your way up the ranks.”

• “The same should go for your family. I’m a firm believer in having family work elsewhere. Have them learn what it’s like working at another company, allowing them to work, learn, and grow on someone else’s dime.”

• “Bringing in someone green with a grandiose title and an exorbitant salary is a slap in the face for existing employees. Your family members won’t be respected, and you risk your company’s culture.” CONNECT WITH LOU

MARKETING

Bill Fotsch says a company called World Pantry shows there’s a better way to do market research: “Its customer service team doesn't settle for automated responses to poor reviews. Instead, they pick up the phone. Employees initiate personal conversations with dissatisfied customers, listening to understand the specifics of the issues. They are empowered to use their discretion to resolve the problem on the spot. This proactive economic engagement approach not only keeps customers satisfied but also provides invaluable insights that empower WP's customer service partners to make autonomous and real-time decisions for the company. It works. World Pantry's success story doesn't stop at customer satisfaction; it boasts a world-class net promoter score consistently around 90, a remarkable feat when compared with industry averages struggling to reach 50.”

• “Part of this is because World Pantry doesn't just talk to the problem customers. It begins with the most profitable customers, who yield the highest-value relationships. But employees call everyone, asking them the tried-and-true NPS question, ‘Given the work we have done for you in the past, how willing would you be to recommend us to a friend?’ The second question, ‘Why?’ seeks to understand why the customer provided the score that they did.”

• “The key here is to probe to understand the operational implications behind the response. If the customer says the ‘why’ is quality, World Pantry asks what in particular determined their view of quality—was it being on time, without errors? Was it being available to fix any problems that arose?” READ MORE

POLICY

Here’s the problem with tariffs: “​​Tariffs are kind of funny. Politicians sometimes acknowledge that they raise prices and kill jobs. But they seem to realize this only when the other team proposes them. On Wednesday, President Biden called for tripling the tariffs on steel and aluminum from China, an announcement he coincidentally made while visiting the United Steelworkers union headquarters in Pittsburgh. This isn’t pandering ahead of an election, the White House insists; it’s about protecting U.S. manufacturing from ‘unfair trade practices’ overseas. Because it apparently bears repeating: No, steel and aluminum tariffs are not good for the U.S. manufacturing sector or its workers. That’s because many fewer workers are employed by firms that make these metals than they are by firms that use these metals as a product input (e.g., for cars or kitchen appliances). The ratio of steel-using jobs to steelmaking jobs is about 75 or 80 to 1.”

• “Raising input costs puts those downstream firms and workers at a competitive disadvantage. We saw this happen when then-President Donald Trump imposed worldwide steel tariffs in 2018. U.S. prices for steel predictably rocketed upward, far above prices in other countries.”

• “Within two years, these tariffs resulted in about 75,000 fewer jobs across downstream manufacturers, according to calculations from researchers Kadee Russ and Lydia Cox. And by the way, that number doesn’t even include the additional job losses among U.S. exporters that faced painful counter-tariffs levied by other countries.” READ MORE

COMMERCIAL REAL ESTATE

Business owners looking for space have a lot of leverage right now: “A combination of record-high vacancy rates and an enormous glut of commercial real estate debt coming due have landlords keen to secure steady income from their lease rolls, even if they charge tenants less. New and renegotiated leases reflect the buyers' market and the tightening financial pinch on property owners. Bad news has piled up across the CRE sector over the past year, with the latest woes on display in figures showing total U.S. office space with a 19.8 percent first-quarter vacancy rate, according to Moody's Analytics. That was ‘up from 19.6 percent in the prior quarter, and beating two historic peaks of 19.3 percent in 1986 and 1991. That mark is likely to be pushed higher, experts say, with the total expected to surpass 20 percent later in 2024, and stay there for some time.”

• “That's great news for business owners who want to renew their leases, as market weakness opens the door to negotiating significant decreases in rent. Other companies may not even wait until renewal time, and now insist on lower monthly rates, knowing the financial bind most landlords are in.” READ MORE

THE ECONOMY

Sales of existing homes fell 4.3 percent in March, and mortgage rates just topped 7 percent: “The housing market’s recent turbulence is cutting short a positive start to the year. Sales tumbled to their lowest level in nearly 30 years in 2023. But they rose during the first two months of this year as a number of buyers took advantage of a decline in mortgage rates to resume their home search. Active listings ticked higher and real-estate showings picked up in January. Mortgage rates started to rise again in February, weighing on March sales. The recent spike in borrowing costs could drag affordability back to the historic lows it reached last year. Home prices are near record highs. Other costs to own a home, such as insurance premiums, property taxes and maintenance, have skyrocketed, too.”

• “Home buyers are also confused about coming changes to the rules governing how real-estate agents get paid, and whether those changes could increase or decrease their overall costs. NAR reached a historic settlement of claims last month that the industry conspired to keep agent commissions high.”

• “The new rules are expected to make it easier for home buyers to negotiate fees with their own agents. That could prompt some home shoppers and sellers to pause until there is more clarity when the new rules go into effect in July. “ READ MORE

THE 21 HATS PODCAST

The Art of Building a Real Estate Boutique: This week, in episode 192, special guest Jenelle Etzel, who majored in weaving, tells Shawn Busse, who majored in ceramics, why she believes attending art school and managing a punk rock band were perfect preparation for building a thriving real estate business. Her agency, Living Room Realty, has 130 brokers, roughly $5 million in revenue, and a market position that stands out among the big boys. While she once considered business a dirty word, she has embraced entrepreneurship and learned lots of important lessons, mostly through trial and error. For one, she figured out that there was a segment of the housing market—or the potential housing market—that more traditional brokers were ignoring.”

• “She also figured out, somewhat counterintuitively, that her real customers aren’t the people who buy and sell homes. Her real customers, she says, are her own brokers, who happen to be independent contractors: “I can't tell anybody what to do,” Jenelle tells us. “So it's like being a politician, in a way. I've got a lot of responsibility with very little authority, and that's an interesting leadership challenge.”

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

Thanks for reading, everyone. — Loren