Silicon Valley Embraces a New Age of Bossism
As layoffs mount and leverage shifts away from workers, tech companies are employing management strategies discredited decades ago by corporate America.
Good Morning!
Here are today’s highlights:
Gene Marks on why the new worker-classification rules are a disaster.
Ami Kassar on what business owners will sacrifice for growth.
Would you pay $14 million for a seasonal restaurant?
How one business is trying to help restaurants that are dependent on still scarce office workers.
HUMAN RESOURCES
Silicon Valley is firing the bottom 10 percent (somebody call Deming!): “According to multiple media outlets, Meta and Amazon use stack ranking for their employees, a controversial approach in evaluating talent. Popularized by G.E. in the 1980s (though the company later abandoned it), the process has managers rate their employees on a forced curve. Generally, only 20 percent are deemed top talent, and 10 to 15 percent must be designated as low performers. Although there are benefits, even in the best of times, the practice can create a competitive work environment that de-emphasizes employee improvement. With impending layoffs, people with the lowest ranking are typically the first to go. The layoffs are part of a new age of bossism, the notion that management has given up too much control and must wrest it back from employees.”
“After two decades of fighting for talent, chief executives are using this period to adjust for years of management indulgence that left them with a generation of entitled workers.”
“Executives across industries are leaning into their newfound bossism and ending pandemic-era work arrangements and incentives. Reed Hastings, Netflix’s co-founder and co-C.E.O., said near the start of the pandemic that he didn’t ‘see any positives’ in working from home, and the company apparently allows only some remote work.”
“TikTok reportedly told employees that it was sunsetting gym membership and Wi-Fi reimbursements as well as its $45 daily meal stipends to workers not tied to the company’s main hubs, in its own efforts at restraint. These changes are bellwethers.” READ MORE
REGULATION
Gene Marks says the new worker-classification rule from the Department of Labor will be a disaster for small businesses—primarily because the rule says services performed by contractors must be “outside the usual course of the business” of the employer: “What does outside the usual course of the hiring entity’s business mean? I read it that if a business invoices for a service performed by an independent contractor, it would fail the ‘B’ test and would have to classify that independent contractor as an employee. Countless small businesses are affected by this. Companies that provide transportation and delivery, software development, artistic, accounting, legal, media, marketing, health care, medical, training, tutoring and other professional, educational and creative services would likely be in violation of this rule as many use independent contractors to do this work and then bill their time to their clients and customers. Real estate agents and sales representatives may also fall into this category.”
“The proposed rule ‘will create confusion and uncertainty among employers and independent contractors, and will lead to fewer independent contractor opportunities,’ wrote Marc Freedman of the U.S. Chamber of Commerce in a lengthy rebuttal that lays out many detailed weaknesses in the proposed rule.”
“The costs for a small business that uses independent contractors would be substantial. Employers must pay FICA, Medicare, state, local, unemployment and worker’s compensation expenses for an employee.”
“The ruling will create even more confusion because it’s still not consistent with most of the IRS’s tax and reporting regulations, let alone the rules that individual states have in place. No one is really sure who has precedent.” READ MORE
Meanwhile, the FTC is preparing to enforce a Roosevelt-era antitrust law that protects small retailers: “When R.F. Buche buys Cheerios to stock his grocery and convenience stores in rural South Dakota, he pays $6.30 for an 18-ounce box. Walmart pays so much less that it can sell the cereal to customers for just $4.78. That’s just one example where suppliers offer lower prices to big retailers than to the wholesalers who serve small grocers like Buche, forcing his customers — many of whom are poor and lack cars to travel to the nearest Walmart — to pay more. ‘The pricing that these big box stores and chains are getting is made on the backs of us retailers who don’t have the strength to stand up and do anything about it,’ said Buche, owner of Buche Foods and Gus Stops convenience stores. ‘We have no leverage, no negotiation power whatsoever.’”
“Under the [1936] law, suppliers can give discounts for large orders, but they must extend the same offer to all retailers. They can’t selectively offer preferential terms, such as lower prices, promotional packaging, or access to scarce inventory.”
“The law hasn’t been actively enforced for decades amid debate over whether it would push up prices for consumers. The U.S. Federal Trade Commission thinks it's time to bring it back.”
“Revived enforcement could shake up industries increasingly dominated by giant retailers such as Walmart, Amazon.com, and Kroger as well as warehouse stores such as Costco.”
“For years, Robinson-Patman was a mainstay of FTC enforcement. But the law fell out of favor as antitrust experts focused on consumer prices, arguing that retailer discounts would likely be passed on to consumers.” READ MORE
MANAGEMENT
Ami Kassar on what businesses will sacrifice for growth: “A few months ago, I received a local award, ‘Titans of Industry’ or some title like that. As part of the award, there was a video interview in which I was asked, ‘Who do you consider to be a titan of industry?’ My answer: Bob, the local mechanic at Maple Glen Auto. The interviewer looked at me dumbfounded and asked why. I said, ‘Because I drop my cars there, hand him the keys, and when they’re fixed, he calls me and tells me, and I come to pick them up and whatever he says is the price, I pay. And I never think twice about it. He has built a mountain of trust over the years through his honesty and thoroughness. He likes what he does and likes that he can help.’”
“Is his business model noble? He could make more money by charging slightly more than he thought the job was worth. Few would suspect, and his relationships with customers like me would likely stay intact.”
“This is where my acquaintance was coming from. Many entrepreneurs start with integrity, but when they see an opportunity to grow faster and bigger, that integrity starts to fade and even bleed. “
“I know good people in the alternative lending industry who put the screws to small businesses by charging outrageous annual percentage rates without full disclosure.” READ MORE
SELLING THE BUSINESS
An iconic Cape Cod restaurant and building are on the market: “The original Lobster Pot restaurant and building in Provincetown, a popular eatery at the tip of Cape Cod, is up for sale for $14 million, said owner and head chef Tim McNulty. ‘We were raised in this building. I absolutely love it, always have loved it, always will love it,’ McNulty said. ‘With any luck, there’s another buyer who wants to keep it as the Lobster Pot for the next 50 years.’ The sale includes the ‘buildings, business, equipment, improvements, and brand,’ according to the listing posted Tuesday night. McNulty, 60, said he will remain in the kitchen, so long as the new owner wants to keep it that way.”
“The 8,293-square-foot waterfront property, located at 321 Commercial St., has two floors of dining rooms and bars. It features the iconic ‘Lobster Pot’ neon sign and sweeping views of Provincetown Harbor, the listing said.”
“McNulty’s family has owned the Lobster Pot since 1979, he said. He’s been a chef there since he graduated high school, and has worked alongside his mother, son, siblings, nieces, and nephews. The restaurant currently boasts 4.6 stars on Google, with nearly 3,000 reviews.”
“McNulty will still own the Lobster Pot Express, fast-food version of the restaurant down the street, as well as Lobster & Chowder House in Wellfleet.” READ MORE
FOOD & BEVERAGE
Here’s how one New Jersey business is trying to help restaurants still coping with the absence of office workers: “Lunch crowds are returning, but in far fewer numbers than before the pandemic. So in an effort to add some consistency to office-serving restaurants’ operations, Newark-based Audible has created Newark Working Kitchens Delivers, an app that redirects some of its corporate cafeteria budget to credits that workers can spend at a rotating selection of local eateries. Before 10 a.m. every day, Audible workers can select a lunch order from one of a handful of local restaurants, which is then delivered either at noon or 1:30 p.m. Each day’s participating restaurants start their day with a bulk order from Audible’s app, giving them guaranteed business and helping to keep their doors open.”
“The app is the latest evolution of Newark Working Kitchens, an effort Audible launched in April 2020, which pooled contributions from Newark’s corporate community to pay for and deliver locally cooked restaurant meals to residents hit hardest by the health and economic blows of the pandemic.”
“During the peak of the pandemic, Audible CEO Don Katz told Fast Company that locked-down companies like his had an obligation to use their substantial and unspent food and travel budgets to give back to the less fortunate.”
“Glover says it’s also a local way for restaurants to counter the high costs of participating in meal delivery apps like Grubhub and DoorDash. ‘I think this can be a great disruptive model,’ she says.” READ MORE
THE ECONOMY
Home builder confidence may be at a turning point: “Home builder sentiment climbed in January for the first time since December 2021, according to the National Association of Home Builders, a welcome bright spot for the otherwise bleak housing market ravaged by soaring mortgage rates and a potential recession.”
“The NAHB/Wells Fargo Housing Market Index released Wednesday found the closely-tracked metric rose to 35 this month, with the index tracking survey results from builders regarding current and projected single-family home sales and buyer traffic on a scale of 0 to 100.”
“That’s a four-point increase from December, but still a far-cry from the 83 reading last January as the housing market deteriorated over the course of 2022.” READ MORE
INTERNATIONAL
Entrepreneurs are fleeing China: “They went to Singapore, Dubai, Malta, London, Tokyo, and New York — anywhere but their home country of China, where they felt that their assets, and their personal safety, were increasingly at the mercy of the authoritarian government. In 2022, a year that proved extremely challenging for China, many Chinese business people moved abroad, temporarily or for good. They were part of a wave of emigration that led to one of the year’s top online catchphrases, ‘runxue,’ understood to mean running away from China. A consequential, if privileged, piece of China’s economic puzzle, these people are pulling their wealth and businesses out at a time when growth is at its lowest point in decades.”
“Many of them are still scarred by the last few years, during which China’s leadership went after the country’s biggest private enterprises, vilified its most celebrated entrepreneurs, decimated entire industries with arbitrary regulation and refused to budge on Covid policies when many businesses were struggling.”
“While the government’s tone and policies have turned more business-friendly in recent weeks, the entrepreneur class, who have lost revenue, fortunes, and most of all, confidence in the leadership, will not easily be swayed.”
“Four of the 10 wealthiest Singaporeans on Forbes’s billionaire list are recent Chinese immigrants. So many people arrived last year that a start-up founder told me he had put on weight from all the welcome dinners.” READ MORE
ARTIFICIAL INTELLIGENCE
A technology publication’s experiment with AI did not go well: “When internet sleuths discovered last week that CNET had quietly published dozens of feature articles generated entirely by artificial intelligence, the popular tech site acknowledged that it was true — but described the move as a mere experiment. Now, though, in a scenario familiar to any sci-fi fan, the experiment seems to have run amok: The bots have betrayed the humans. Specifically, it turns out the bots are no better at journalism — and perhaps a bit worse — than their would-be human masters. On Tuesday, CNET began appending lengthy correction notices to some of its AI-generated articles after Futurism, another tech site, called out the stories for containing some ‘very dumb errors.’”
“An automated article about compound interest, for example, incorrectly said a $10,000 deposit bearing 3 percent interest would earn $10,300 after the first year. Nope. Such a deposit would actually earn just $300.”
“More broadly, CNET and sister publication Bankrate, which has also published bot-written stories, have now disclosed qualms about the accuracy of the dozens of automated articles they’ve published since November.”
“Until last week, CNET had coyly attributed its machine-written stories to ‘CNET Money Staff.’ Only by clicking on the byline would a reader learn that the article was produced by ‘automation technology’ — itself a euphemism for AI.” READ MORE
THE 21 HATS PODCAST
I’ve Always Been Afraid to Raise Prices: This week, in episode 139, Jay Goltz, Dana White, and Laura Zander have a wide-ranging conversation that starts with pricing. Do you set prices based on what you think the market will bear? Or do you set prices based on your own rising costs and what you need to charge to make a profit? And how much profit should a business expect to make? Along the way, the owners also discuss why Laura wants to keep buying businesses (don’t tell her husband, Doug), what Dana needs to do to get her new salon open at Fort Bragg, and why both Dana and Laura are going all-in on influencer marketing. Jay, on the other hand, isn’t entirely convinced that social media marketing works for his picture-framing business.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren