Sex, Exercise, and Gardening

A study sheds light on who actually gets wealthy in America (the owners of unsexy businesses!), but it’s important to remember what really makes people happy.

Good morning!

Here are today’s highlights:

• When Warren Buffett bought a small candy maker, he chose price increases over rapid growth.

• Companies are starting to charge for online returns.

• Walmart is concerned that it won’t be able to find enough $200,000-a-year store managers.

• Is it the boss’s job to make employees happy?

ENTREPRENEURSHIP

A study of who gets wealthy in America may surprise some people—but not business owners: “A groundbreaking 2019 study by four economists, ‘Capitalists in the Twenty-First Century,’ analyzed de-identified data of the complete universe of American taxpayers to determine who dominated the top 0.1 percent of earners. The study didn’t tell us about the small number of well-known tech and shopping billionaires but instead about the more than 140,000 Americans who earn more than $1.58 million per year. The researchers found that the typical rich American is, in their words, the owner of a ‘regional business,’ such as an ‘auto dealer’ or a ‘beverage distributor.’”

• “First, rich people own. Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage.”

• “Second, rich people tend to own unsexy businesses. ... These include auto repair shops, gas stations, and business equipment contractors.”

• “The third important factor in gaining wealth is some way to avoid ruthless price competition, to build a local monopoly. The prevalence of owners of auto dealerships among the top 0.1 percent gives a clue to what it takes to get rich.”

• But of course, as we all know, money doesn’t necessarily buy happiness: “The activities that make people happiest include sex, exercise, and gardening.” READ MORE

GROWTH

Here’s what Warren Buffett saw years ago in a relatively small candy maker: “As Buffett researched See’s, he realized that the value of the company’s intangibles — things like its brand and customer loyalty — far exceeded the numbers on paper. So, the usually shrewd investor did something extremely out of character: He bought See’s for $25m — more than 6x its earnings, and 3x its book value. It was Buffett’s biggest purchase up to that point, and one of the first companies Berkshire Hathaway bought outright. It also represented a major shift in his approach to investing, setting him on a path of ‘paying higher prices for better businesses.’”

• “In a letter, Buffett cautioned [chief executive] Huggins to never sacrifice quality for profit. He warned that the company shouldn’t try to scale too quickly, and should instead continue to produce the chocolates locally, in ‘limited quantities.’”

• “‘There is a certain mystique attached to products with geographical uniqueness,’ he wrote, harping on the value of branding.”

• “While stores and volume grew only 2 percent and 3 percent respectively, See’s raised its effective price per pound by 10 percent per year — far above the rate of inflation.”

• “On paper, See’s growth didn’t look very fruitful. But fueled by price hikes, total sales volume and profit over the same time period tell a different story.” READ MORE

ECOMMERCE

Companies are finally starting to charge for online returns: “Fashion giant Zara has become the latest retailer to charge shoppers who return items bought online. Customers now must pay £1.95 to return clothes, with the cost taken from their refund. Items bought online can still be returned for free in stores. High Street firms such as Uniqlo and Next already charge for online returns. Online shopping boomed in the pandemic, but customers are more likely to return items bought online than in store, raising costs for retailers. Analysts said other retailers were likely to follow Zara in charging for returns.”

• “Zara's decision to stop free postal returns has been criticized by some customers online. One person wrote on Twitter: ‘Zara making changes to your free returns which now cost your customers and making no announcement about it? Not cool.’”

• “But another praised the decision for its environmental impact, saying it was a ‘great measure to help stop C02 emissions.’” READ MORE

“Buy with Prime” could be a game-changer for small and mid-size retailers: “Amazon’s announcement that it would be allowing Prime members to shop on external brand websites using their saved checkout details, while still accessing Prime benefits like free, fast delivery and free returns, was met with hesitation within the direct-to-consumer community late last month. As the program rolls out, it will be available on an invite-only basis to Amazon marketplace sellers using Fulfillment by Amazon. Many small, medium, and large merchants that use FBA are already being invited to add the Buy with Prime button to their websites.”

• “Retailers that choose to participate by adding a Buy with Prime button on their websites would be responsible for paying service fees, payment processing fees, and fulfillment and storage fees.”

• “In exchange, smaller retailers get access to Amazon’s Prime membership base and they are able to improve their delivery offerings — a major pain point for physical retailers with online stores.”

• “‘The big winners here, besides Amazon, are D2C business owners, who are now able to retain all Amazon shopper and contact information on their websites—customer data that Amazon has previously been very guarded about,’ Palmer says.” READ MORE

MARKETING

As online advertising continues to evolve, alternatives to Google and Facebook emerge: “Retailers such as Macy's, Kroger, and Michaels have started their own advertising businesses as online shopping booms, realizing their first-party shopper data is a gold mine for brands looking to reach consumers as third-party targeting cookies are phased out. Their businesses pale in comparison to Amazon, which is now the third-largest digital-advertising company behind Google and Facebook, raking in $31 billion in 2021 ad revenue. To compare, Walmart, Amazon's biggest competitor in the retail-media space, brought in $2.1 billion in advertising revenue last year. Still, there's money to be made.”

• “‘When advertising was dominated by social and search, advertisers mainly had Facebook and Google to figure out,’ said Zach Morrison, the CEO of the performance ad agency Tinuiti.”

• “‘But the retail-media ecosystem is much more splintered. A brand like Kraft, for example, has figured out ways to advertise in all the places it sells snacks and cookies, which extends far beyond Amazon, and now to Walmart, Kroger, Target, Instacart, and many more.’" READ MORE

HUMAN RESOURCES

Is it the boss’s job to make employees happy? “Garry Ridge, who runs the chemical company WD-40, has a leadership style guided by two sources — Aristotle, and the BlackRock chief executive Larry Fink. ‘Pleasure in the job puts perfection in the work,’ Mr. Ridge said first, quoting the Greek philosopher. Then he picked up a recent BlackRock memo. ‘Companies who forged strong bonds with their employees have seen lower levels of turnover and higher returns throughout the pandemic,’ Mr. Ridge read aloud. This he punctuated with his own commentary: ‘Well, duh!’”

• “WD-40 has no managers, only coaches. Workers can receive ‘Mother Teresa’ awards for giving their ‘time, talents and treasures’ to the community. They might remind their colleagues during meetings to create ‘positive lasting memories’ together.”

• “‘Your boss is not there to provide you with happiness,’ said Sarah Jaffe, author of ‘Work Won’t Love You Back.’ ‘No matter how much they say they’re focusing on happiness, they’re focusing on profits.’”

• “Another workplace assessment firm, Culture Amp, which works with about 4,500 companies, doesn’t believe in measuring happiness at all, favoring instead metrics like engagement and well-being.”

• “Its leaders view happiness as something unstable that differs from person to person and is largely beyond employer control.” READ MORE

Triggered by rising inflation, California’s minimum wage will rise to $15.50 an hour: “The state’s minimum wage for large employers is currently $15 an hour, with employers that have fewer than 26 workers paying $14 an hour. Both pay levels went up in January, the presumed final step envisioned by a 2016 state law that gradually increased wages — in most years, by one dollar an hour. Small businesses were given more time to raise their pay.”

• “Bosler said all businesses, regardless of size, will be required to raise their base salaries based on the state’s projection that the consumer price index will have risen by 7.6 percent over a two-year period that ends in July.”

• “The 2016 wage law signed by then-Gov. Jerry Brown requires that any inflation growth above 7 percent triggers an even higher minimum wage.”

• “California’s current $15 minimum hourly wage for large businesses is the nation’s highest, according to federal data. ... In Los Angeles, the minimum wage will rise to $16.04 an hour in July.” READ MORE

Walmart is preparing for a shortage of store managers, a job that can pay more than $200,000 a year: “It is a key position for the retail giant, one that requires long hours and in big stores overseeing an operation with roughly $100 million in annual sales and a team of 300. Many managers leading the company’s roughly 4,700 U.S. stores have been in their roles for at least a decade, and Walmart executives say they need to find a new generation to replace them. The tight labor market and competition for workers create another challenge—even for a job that often pays more than $200,000 a year.”

• “‘My talent pool for store manager three years from now was not going to be what I needed it to be,’ said Brandy Jordan, a longtime Walmart human-resources executive.”

• “Those worries led Walmart to create a program to recruit and train college graduates to become store managers, promising a starting wage of at least $65,000 a year and an accelerated two-year track into the top store job.”

• “‘If you offer something that is a specialized opportunity, it’s highly retentive,’ said Ms. Morris. That means a company needs to “commit to a person’s life beyond what they would expect from an employer,” she said, with growth such as education that leads to promotions or immigration support.” READ MORE

THE ECONOMY

There are warning signs that a recession could be on the way: “The American economy isn’t looking great right now. U.S. GDP shrank last quarter, despite a hearty showing from American consumers. Inflation is high; markets are down; both wages and personal-savings rates show some troubling statistical signals.”

• “‘The stock market is not the economy’ is a thing that some people like to say. But it’s not a very useful mode of analysis. Health care isn’t the economy either, and neither is the gross metropolitan product of Los Angeles. But if either of those things crashed by 30 percent in a quarter, we would all agree that was important.”

• “By one estimate, more than $200 billion of stock-market wealth has been destroyed within crypto alone, in just a matter of days. The bursting of the crypto bubble seems quite reminiscent of the dot-com bubble of 2000, when the Nasdaq crashed and the effects reverberated throughout the economy ...”

• “Several months ago, some economists offered succor to worried consumers by pointing out that inflation was overwhelmingly about a handful of weird categories, such as used cars. Well, that’s no longer true.” READ MORE

THE 21 HATS PODCAST

Dashboard: The Marketing Crapshoot: This week, Gene Marks tells Loren Feldman why he thinks most small-business marketing is a lot like going to Vegas or Atlantic City—especially if you don’t have good data. But, he says, there are things you can do to improve your odds. Gene and Loren also discuss why Gene is rethinking the CRM systems he recommends, why business travel is coming back stronger than many expected, and why we’re experiencing both a labor shortage and a wave of layoffs at the same time.

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

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