Outsource the Rest
As employees celebrate with “QuitToks,” Gene Marks says one way to cope with higher labor costs is to focus on what you do best.
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Here are today’s highlights:
How one company is testing price increases.
The increase in business starts is not all good news.
Why 1st Pet Veterinary Centers will pay no federal or state taxes going forward.
And on today’s Dashboard, we talk, among other things, about why businesses should be collecting their own data and why time is running out to get SBA disaster relief.
The Great Resignation does not appear to be slowing down: “America’s quitting rate — the percentage of workers voluntarily leaving their jobs — is historically high, reaching 3 percent this fall. It is also exceptionally visible. People are celebrating their resignations in Instagram reels or ‘QuitToks.’ They’re turning to the Reddit forum R/antiwork, where subscriptions ballooned this year, to gloat about being free from their 9-to-5 jobs. They’re tweeting screenshots of texts to their bosses declaring they have quit.”
“‘People have told me, Sis, I quit my job. Let’s go get drinks,’ Ms. Knighten, a 28-year-old Black woman, said. She said she faced persistent microaggressions in her previous workplace and left to run her own communications agency called Brand Curators.”
“‘People are frustrated, exhausted, triggered,’ J.T. O’Donnell, founder of the career coaching platform Work It Daily, said. ‘When people are triggered, you see fight or flight responses. This is a fight response.’”
“‘I’ve been doing this for 25 years, and it’s the tightest labor market I’ve ever seen,’ Tom Gimbel, head of LaSalle Network, a national staffing firm, said. ‘I have clients that are in such need of people that if they weren’t looking at people who had résumé gaps before, now they are.’” READ MORE
Gene Marks has some advice for business owners facing increased labor costs: “Investing in technology is probably the most important. As I’ve written ... many employers – and a rising number of small employers – are doubling down on artificial intelligence, robotics, self-service kiosks, drones, and autonomous carriers technologies to replace lower-skilled workers. Eliminating the equivalent of one person by automating tasks can save a small business tens of thousands of dollars a year.”
“Trading lifestyle benefits for cash is another strategy. According to a report issued earlier this year, over half of employees in the U.K. said that job flexibility is more important to them than salary when making job choices. In the U.S., 55 percent of workers have expressed their desire to work remotely most of the week.”
“Employers can leverage this trend. Want to work from home or from another state with a lower cost of living? Want flexible work hours to meet your personal life? All of that is fine, but those benefits can be offered in lieu of compensation increases. Then both employer and employee will win.”
“Many of my clients are stepping up their use of freelancers and outsourced services. While often requiring a higher rate, the longer-term costs are much less than hiring employees when you consider payroll taxes, benefits and insurance coverages required. There are rules to be followed, and they may change, but it’s a good strategy for keeping payrolls at a minimum.”
“Focus on what you do best. Outsource the rest.” READ MORE
The Noodles & Co. chain is experimenting with how much it can charge for cheese-stuffed pasta: “Carl Lukach, the 450-unit chain’s chief financial officer, pored over customer surveys before pricing Noodles’ new Tortelloni dish at $8 when it was introduced in June. That made it more expensive than core dishes on the menu, but Noodles’ costs were rapidly rising, and Mr. Lukach wagered that customers would keep splurging on indulgent entrees. The dish sold well. Now, as wages and ingredient costs rise further, Noodles plans to lift the price by another 25 cents, and Mr. Lukach will closely monitor diners’ reactions.”
“Noodles ran experiments in core markets like Chicago and Denver, and newer ones such as Phoenix, charging a 15 percent premium for app delivery. Mr. Lukach said the pricier delivery didn’t noticeably slow orders, so Noodles gradually increased prices by 20 percent compared with dining in.”
“Noodles said it would raise prices again in December by 2 percent, given continued inflation. Mr. Lukach said he hopes the increases will taper off next year, but he doesn’t see prices going lower. ‘There’s no benefit to that,’ he said.” READ MORE
SELLING THE BUSINESS
The owner of a veterinary practice explains why he decided to sell the business to his employees instead of to the highest bidder: “I chose an ESOP over selling my Phoenix-area clinics for several reasons. One was legacy. We created a great hospital culture and didn’t want to lose it to a corporation. Another reason was to reward the people who helped build the practice over many years. I wanted to provide an excellent retirement opportunity to all long-term employees, now and in the future, regardless of their position — from the top-producing veterinary specialist to everyone in maintenance. At the same time, I, the seller, got a fair market price for my company’s value, and 1st Pet received significant tax benefits, which can be used to pay off the seller note and finance future growth.”
“ESOPs are the most tax-advantaged companies in the United States. Whatever percentage the S-corp has sold to an ESOP is the percentage of taxes the company does not pay federally and in most states. As a result, 1st Pet Veterinary Centers Inc. will pay no federal or state taxes going forward.”
“For me, at age 62, the ESOP means I will remain a part of 1st Pet and lead it for as long as I want, probably for at least the next seven to 10 years.” READ MORE
Victor Hwang says the surge in business starts isn’t all good news: “It's attributable not to an improved landscape for startups but to the pandemic. It's the equivalent of running faster due to an adrenaline rush, not a healthier body. The pandemic has shaped behavior in entrepreneurial ways. I've talked with countless entrepreneurs in recent months. Many people lost jobs and had no alternative but to start their own businesses.”
“Through it all, however, the system's barriers have remained in full force. People just got hungrier. But we shouldn't mistake people's hunger for thinking the food is better.”
“Right to Start's organizer in South Florida, Jeanine Suah, reports that even in Miami, which the website Biz2Credit ranked No. 1 among U.S. cities for small business growth in 2019, lack of access to capital remains by far the greatest challenge for startup founders, small businesses, and emerging nonprofits.” READ MORE
21 HATS DASHBOARD
Dashboard: Collect Your Own Data. This week, Loren Feldman and Gene Marks talk about how businesses that engage in digital marketing are adjusting to the new rules that make it harder to track customers. They also discuss how businesses are replacing employees with chatbots and what businesses should do while the vaccine-mandate battle plays out in court. Plus: the SBA has $100 billion in disaster relief funds that are about to expire—and it’s not too late to apply.
You can find Dashboard in your 21 Hats Podcast feed.
This has not been a good year to supply automakers: “Peter Anthony, the head of a Chicago-area auto supplier, has spent much of this year feeling left on the sidelines in an industry delivering solid profits to car makers and dealers. Raw-material prices and labor costs have soared for his firm, UGN Inc., which makes insulation products for vehicles. Hiring had become such a challenge that the company eased its drug-screening policy and recruited former inmates to fill factory vacancies, he said. All the while, car companies keep canceling orders last minute due to their own challenges with a computer-chip shortage, denting revenue. ‘We’re being hit from all sides,’ Mr. Anthony said.”
“With tight inventories, car buyers are paying record sums for new vehicles, and that has led both auto makers and dealerships to post healthy earnings this year, despite disruptions caused by the computer-chip shortage.”
“Suppliers typically do business with the car companies under fixed contracts that set prices for the length of a vehicle program—which can run longer than five years—and are difficult to renegotiate ...”
“Auto-parts makers also rely on a steady flow of work orders and efficient, just-in-time supply chains to contain costs.” READ MORE
In New York City, the supply-chain crisis just got real: “Zabar’s is running low. Tompkins Square Bagels is down to sticks. Pick-a-Bagel has only a few days’ supply left. All over New York City, bagel makers say, a schmear shortage is threatening one of the most treasured local delicacies: a fresh bagel with cream cheese. ‘This is bad. This is very bad,’ said Pedro Aguilar, a manager at the Pick-a-Bagel chain, which has several Manhattan locations.”
“Scott Goldshine, the general manager at Zabar’s, estimated on Friday that he had enough to last 10 days.”
“‘Begging is one of my plans, which I have done, and it’s helped,’ Mr. Goldshine said, adding that he had called about eight distributors in recent days.” READ MORE
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