The Business Case for Higher Wages
With specific examples, a new book argues that paying employees more makes businesses more successful.
Good Morning!
Here are today’s highlights:
In San Francisco, “friendship clubs” try to ease the loneliness of remote work.
Global brands seem more bullish on the U.S. economy than American brands.
It’s only merchandise: Two Lululemon employees who attempted to confront shoplifters were fired for taking action.
Paul Downs has a new website. Tell us what you think!
MANAGEMENT
A new book makes the business case for paying employees well: “When talented people walk out the door, they take a wealth of knowledge with them. And hiring is an energy-sapping, time-consuming pain. But the workers-are-expendable approach is now ‘very common,’ according to Zeynep Ton, a professor at MIT Sloan School of Management. Leaders, she says, ‘underestimate the cost of low pay and turnover ... And part of it is that you’re so disconnected from people’s lives at that level that you don’t even know what low pay does to people.’”
“Jim Sinegal, the cofounder and former chief executive of Costco, became famous (and a billionaire) by treating his workers very differently than many other retailers, sometimes offering hourly wages nearly double the median retail wage. He also offered the vast majority of employees health insurance and tried to create jobs that were both engaging and predictable.”
“Dewey Hasbrouck ― the owner of two franchises of Moe’s Original BBQ in Maine ― says he always admired the Costco approach. But when Hasbrouck found his business battered by the financial disaster of the pandemic, he didn’t know how to move forward. And then he stumbled on Ton’s first book and sought out help from the Good Jobs Institute, a nonprofit that she co-founded with [Roger] Martin.”
“Hasbrouck said he followed Ton’s strategy, raising pay and cross-training employees so they understood the different roles in the restaurant. He focused on core menu items, instead of having employees scramble to assemble daily specials. And he offered health insurance.”
“‘It was so scary,’ Hasbrouck said, largely because he had to make upfront investments that might not have worked out. ‘It looked like last year was going to be a disaster. And it ended up being a really profitable year for us. ... We really made up for the increased wages with revenues.’” READ MORE
OPPORTUNITIES
In San Francisco, “friendship clubs” offer a respite from the loneliness of remote work: “Creating a clubhouse specifically to foster friendship was not the primary intention behind establishing the Commons, said co-founder Patricia Mou. But just as enduring bonds are often forged on a college campus, the Commons offers a chance for interactions that may have long-lasting effects. The concept for the space, inspired by the European Enlightenment cafes of yore, was born out of a brainstorming session hosted by Mou about a year ago, where people with an interest in shared spaces discussed what they would want their ideal ‘third place’ to look and feel like. Mou teamed up with Adi Melamed, launched a GoFundMe campaign and, by September 2022, opened the for-profit member space.”
“Mou was shy about sharing the Commons’ membership rates but said that dues are based on a sliding scale depending on applicants’ financial situations and that the organization offers scholarships for people who can’t afford the full fees. Mou said the Commons isn’t financed by venture capital and uses the funds primarily to pay rent and keep the lights on.”
“Jamie Snedden, the CEO and co-founder of the friendship-focused gathering space Groundfloor, is less bullish on the idea that venues like his will save beleaguered centers of commerce like Downtown, but he does think they have their part to play in the revitalization of San Francisco’s neighborhoods post-pandemic—namely by getting people out of their pajamas and into the world.”
“The membership-based community, which charges $200 per month and is currently capped out at about 1,000 members across its Mission and Oakland locations, hosts several events each week—many of them member-led—and even offers fitness classes, health and wellness workshops, movie nights, supper clubs, book discussion groups and game nights.” READ MORE
THE ECONOMY
Global brands increasingly see America as the place to be: “Once wary of America, foreign fashion brands such as Mango, Uniqlo, and Zara are joining retail giants including Lego and IKEA in pursuing major U.S. expansions. Executives say they are encouraged by the country’s upbeat economic prospects relative to other parts of the world, and a growing sense that American shoppers have become more receptive to new brands. ‘The scale of it and the wealth of the consumer—the U.S. clearly has an appeal,’ said John Bason, chairman of Primark’s strategic advisory board. Total U.S. retail spending came in at $7.1 trillion last year, according to the Census Bureau, more than any other country. Primark, the Irish fashion retailer, plans to open dozens of new U.S. stores in the coming years.”
“The U.S., with its own cherished brands, used to be a tricky prospect for some foreign entrants, but today ‘the market is eager to have newcomers, companies that can bring something different,’ said Daniel López, expansion director at Spanish fashion retailer Mango. And in contrast with some other regions, ‘it’s a stable market,’ he said.”
“For Mango, the U.S. was until recently a frontier. The brand, known primarily for women’s fashion, opened one store in New York in 2011 to test the waters, but with no great expectations, López said. Yet company executives were surprised to see online sales in the U.S. surge in recent years, making the country Mango’s fifth-largest e-commerce market despite its tiny physical presence. In comparison, it has hundreds of stores in core European markets such as Spain, Germany and France.”
“The rise of social media, providing channels for brands like Mango to market themselves to a U.S. audience without the need for a large physical presence, has underpinned the shift, he said.” READ MORE
HUMAN RESOURCES
A new CEO reversed a decision to let employees work remotely, and it didn’t go well: “After insurance-industry company Farmers Group told employees last year that most of them would be remote workers, many made significant lifestyle changes in response to the policy. Some sold their cars, others expanded home offices or moved their families to new cities. Then last month, Raul Vargas, who recently took over as chief executive, said he was reversing the approach. He would require the majority of Farmers employees to be in the office three days a week. That decision sparked worker outrage. More than 2,000 comments have been posted on Farmers employees’ internal social-media platform, most of which were negative or crying and angry emojis, according to postings viewed by The Wall Street Journal and interviews with employees.”
“In an email to employees viewed by the Journal, Vargas explained his decision, saying he believed in the importance of in-office work for ‘collaboration, creativity and innovation.’ The company will have ‘the opportunity to combine the best of both worlds—all that we’ve gained from flexible and virtual work with all the teamwork and collaboration we get when we work together in the office,’ Vargas said.”
“A Farmers spokeswoman said the new system will include about 60 percent of the company’s U.S. workforce of about 22,000 employees. She pointed out that the announced policy wouldn’t go into effect until September, giving workers three months to adjust and make arrangements.” READ MORE
Lululemon fired employees for confronting shoplifters: “Last week the former members of staff at the Peachtree Corners Lululemon store in Atlanta, Georgia had their employment terminated for confronting three masked robbers and video recording the incident. The two women, Jennifer Ferguson and Rachel Rogers, told news outlets they were aware of the policy and had been let go without severance. Despite outrage online from fans and critics of the brand alike—who suggested the staffers should have been given a warning instead of losing their jobs—Lululemon CEO Calvin McDonald has doubled down on the policy.”
“Speaking to CNBC, McDonald denied the employees had been fired because they called the police to report the incident. ‘We have a zero-tolerance policy that we train our educators on around engaging during a theft,’ McDonald said. ‘Educators' are what Lululemon calls its store workers.’”
“Why? Because we put the safety of our team and of our guests front and center. It's only merchandise at the end. They're trained to step back, let the theft occur, know that there's technology and cameras and we're working with law enforcement.” READ MORE
States continue to loosen their child labor laws: “More states in recent months have pushed to relax laws related to hiring minors. Many of these laws date to the early 20th century, a time when children were still employed and exploited in dangerous industries such as mining and manufacturing. Today, labor shortages plaguing industries anywhere from retail to transportation explain some of the push to ease restrictions. While giving young talent the chance to experience what it means to hold a job and earn money is important, the harsher truth is that some employers simply see minors as cheap labor.”
“At least eight different state bills have sought to weaken child labor laws as of early March, by the count of the Economic Policy Institute, a Washington, D.C.-based nonprofit. Much of this push has been at the behest of Republican-led states or think tanks.”
“Take Iowa as an example: earlier in May, Iowa governor Kim Reynolds, a Republican, agreed to sign into law a measure that allows kids as young as 14 to work in construction and demolition (though they're not permitted to operate machinery). The Iowa law also increases the hours that 14- and 15-year-olds are allowed to work: Now those children can work six-hour days during the school year, up from four.”
“Rather than offer better working conditions to attract adult labor, some businesses are turning to a more vulnerable and exploitable workforce, says Terri Gerstein, a director at the Harvard Center for Labor and a Just Economy.”
“‘What the states who are creating new child labor laws would say is that they have some challenges from a labor perspective and they're filling that by expanding the ability of certain minors to work,’ says Catherine Barbieri, the co-chair of Fox Rothschild's Labor & Employment Department.” READ MORE
And now, believe it or not, helicopter parents are showing up in the workplace: “Anxious parents have shepherded their kids through high school, college and a pandemic. Now, they’re entering the workplace. Recruiters and hiring managers say they are seeing an uptick in parents inserting themselves into their children’s’ professional lives, calling up hiring managers, applying for jobs on their behalf and even showing up on the job to help mediate conflicts.”
“‘Parents are really interested in their kids applying,’ says Kate Gebo, executive vice president of human resources and labor relations for United Airlines, who recently has seen parents sending her their children’s résumés. ‘I need the kid interested.’”
“At Smugglers’ Notch Resort in Jeffersonville, Vt., parents haven’t only applied for summer jobs on behalf of their children, they frequently try and sit in on their interviews, too, says human-resources coordinator Sam McDowell.”
“‘They generally come in the door first, and their children come behind,’ McDowell says. ‘Sometimes it’s a little bit confusing about who’s actually there to interview.’”
“Some parents go further still. The mother of a teenage lifeguard at the resort recently confronted McDowell to argue that her son deserved a bigger raise.” READ MORE
STARTUPS
Crunchbase has published a list of the universities that produce the most startups: “Every year or so at Crunchbase News, we tally up which U.S. universities graduate the highest number of recently funded startup founders. And each time, we see mostly predictable results, with a few surprises in the mix. This time around, we saw minimal flux at the top of the list. The leading universities for funded founders are Stanford, MIT, UC Berkeley, and Harvard. The top business schools are Harvard, Stanford and Wharton.” READ MORE
MARKETING
As you may know from listening to the 21 Hats Podcast, Paul Downs has been investing quite a bit of time and money in a marketing campaign that has led him to create a new website. He’s written a quick explanation of his thinking for Morning Report readers—and requested your feedback:
“Paul Downs Cabinetmakers has been selling custom conference tables over the internet since 2003. We lucked into very favorable organic positioning in that year, and have relied on Google to send us customers ever since. We get inquiries from a VERY wide variety of customers. Anyone who thinks they need a custom table will end up on our main website, which has been designed to accomplish two goals: 1) provide an introduction to a non-expert audience about the range of work we do, along with explanations of how tables can be customized; and 2) to be attractive to Google's search algorithms. Most of the clients we attract with that site end up being one-and-done transactions. After all, a huge table is generally a once-in-a-lifetime purchase.
“Selling complex and expensive tables directly to clients over the internet is an unusual business model. Our competition sells differently: a table manufacturer is chosen by an architect or interior designer, and the purchase is generally part of a package of furniture that is sold through furniture dealers. The number of projects sold in this way vastly outnumbers the sales we make via the internet. In order to grow our business, we want to become top-of-mind whenever an architect decides they need a cool table. We want to establish ourselves as a well-known brand.
“In 2021, we initiated a marketing effort to reach the architects and designers. We started with research and interviews of architects to see how they thought about custom tables. That revealed that the architects had a different set of concerns than the rest of our clients. They were laser focused on the need to make sure that whomever they chose for their projects was trustworthy and competent, and would be a team player. In order to get their attention, we decided that we needed a different website. Our first website emphasized that we could do everything required for a project, including all of the design work. Architects don't want anyone else to modify their design vision, and they are worried that an unknown vendor might not be capable of doing the highest level work.
“So our new website highlights our experience and value to the design professionals leading the project. It also has a very different look and feel, reflecting the aesthetic choices that architects make on their own sites. And we decided that instead of writing the text to appeal to Google, we would use language that an ordinary human might use. We launched the new site last week. We would love to hear your thoughts.”
THE 21 HATS PODCAST
“What Doesn’t Keep Me Up at Night?” This week, we did something different. We recorded this session in Chicago at our very first 21 Hats in-person event. In May, some 20 impressive entrepreneurs from around the country, from different industries, with businesses of different sizes and stages, gathered to talk shop for three days. The last thing we did was to record this episode in which we gave the participants the opportunity to ask the podcast regulars anything they wanted. Those regulars included Jay Goltz, Sarah Segal, and Dana White, and the questions addressed everything from hiring to motivating to delegating to pricing to coping with stress to what they wished they’d figured out sooner and to what still keeps them up at night. And when there were no more questions, I asked those who attended the Chicago event what I could have done to make it better. That I would invite criticism in a conversation being recorded for a podcast audience, took some of the participants by surprise. But, as you’ll hear, it worked out pretty much the way I hoped.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren