This Is Not Your Mother’s Hair Salon

When customers returned to salons after Covid eased, there were fewer stylists than there used to be. Guess what happened to prices!

Good Morning!

Here are today’s highlights:            

• More small businesses are turning to big banks for loans. Don’t say we didn’t warn you.

• The average raise this year is coming in at 4.5 percent, just a tad lower than last year.

• New home starts are up considerably, which is good news for businesses that depend on people moving.

• Glassdoor isn’t quite as anonymous as it used to be.

BUSINESS MODELS

Hair salons are making big changes: “Women who want dimensional blond extensions, or are seeking transformational haircuts, may be in for a sticker shock when they visit the salon this year. Hair stylists are giving themselves a salary bump — one they say is long overdue. Some are doing this by adopting hourly pricing: charging at least $100 an hour for cuts, color, bleach, and balayage. Others are billing more for basic services and redefining once-included perks (blow dry, toner) as costly add-ons.”

• “‘One of the things that our industry hasn’t done in the last 50 years is give itself a raise,’ said David Bosscher, the co-founder and CEO of Destroy the Hairdresser, a coaching company he started with Cyd Charisse in 2012 with the aim of disrupting the salon business model. ‘You still have people out there charging $25 or less for a haircut in 2024,’ Bosscher said.”

• “By the time life opened up [after Covid eased], the decline in stylists was met with a glut of clientele, ready to get their roots done after a year of home haircuts and bad box dyes. And suddenly, the laws of supply and demand hit the hair industry in a way it had never seen before. Instead of being everything to everyone, a growing number are now specializing in particular services and charging a premium for them.”

• “Social media has also provided a way for stylists to share prices and techniques, creating an online community that stretches from small towns to big cities. And when they started talking to each other, they realized they could look at their business differently. They were barely making any money.” READ MORE

FINANCE

More small businesses are turning to big banks for loans: “In 2019, small businesses were only slightly more likely to apply to large banks as they were to small banks, according to a Federal Reserve survey of small businesses. About 35 percent of small businesses applied to large banks versus 33 percent who applied to small banks. By 2023, about 44 percent of small businesses applied to large banks, compared to 28 percent that applied to small banks. But experts say it isn't just the Covid-19 pandemic, which pushed businesses to apply for government relief funds, or last year's banking crisis that are solely to blame. Mike Clarke, former community bank founder and CEO and senior portfolio advisor at FJ Capital Management, said smaller loans — including lines of credit and cash advances — are simply not profitable for community banks.

• “Instead, larger banks that have mastered automating such loans are able to cater more to small businesses under the $250,000 or even $400,000 threshold. ‘With respect to small banks, they have largely ceded this market segment to the large banks with automated competency just as they ceded credit cards and low balance consumer loans long ago,’ Clarke said.”

• “And while more small businesses are applying for loans at larger banks, they are more likely to get approved by smaller banks. Small banks denied just 25 percent of small-business applications compared to 34 percent at large banks, according to the Federal Reserve study. Overall, small banks fully or partially approved 83 percent of low-credit risk small businesses, compared to 76 percent of large banks.” READ MORE

Forbes writes that bootstrapping can actually work—although they may be stretching the meaning of bootstrapping a tad: “For five years, founders Srinivas Njay and Bruce Kim have been building Interface.ai and its artificial intelligence powered virtual assistant that helps banking customers do everything from analyze their spending to fill out a mortgage application to open a new credit card. So far, they’ve signed up more than 100 credit unions and small community banks serving 16 million consumers—contracts worth tens of millions in annual revenue. With A.I. in his company name and product, CEO Njay has been fielding a stream of calls from venture capitalists—more than 40 over the past several months, he estimates. He’s happy to talk, he says, because at some point, the right investor might help scale up growth. ‘I’m just dating,’ Njay says. ‘We are in a good place, it's not like we need money.’”

• “That’s because Njay, 37, and CIO Kim, 59, have been able to get their company to this point with just $1 million of their own savings, a $3 million credit line from TMCC, an Indian credit union run by Njay’s father, careful cash and expense management—and crucially—internally generated revenue.”

• “In recent years fast growth has become popularly associated with VC backing as startups in some sectors—financial technology being a prime example—have become addicted to VC funds. Now, as funding and private company valuations contract, a good number of VC-backed startups are laying off workers and scrambling to conserve cash, while successful penny-pinching bootstrappers are getting some well-deserved respect.”

• “While food box services with big VC dollars behind them have struggled, ButcherBox has been profitable since its first year. ‘The constraints of not raising capital is actually the thing that has kept our business going and has kept us focused on the right metrics, on the right projects and on the right marketing,’ he says.” READ MORE

HUMAN RESOURCES

Employers expect to give out an average raise of 4.5 percent this year: “It's another sign that the job market is cooling but still strong — raises will likely outpace inflation in 2024. Just over 79 percent of companies plan on giving pay raises this year, the lowest since 2021 — and 6 points below 2019, according to Payscale, which has conducted this survey for the past 15 years. Payscale surveyed 5,735 HR leaders, compensation professionals and business owners from November to December 2023. About a third of respondents are in industries mostly comprised of blue-collar workers, who are seeing bigger raises.”

• “Respondents were also asked about pay transparency. It's an issue now in the spotlight as more states pass laws requiring companies to list salary ranges in job postings — a move to promote more pay equity.”

• “Many more companies are sharing these numbers now; 39 percent said they do it regardless of the law, and 21 percent said they do it only when it's required. That's up from 27 percent and 18 percent in 2023.” READ MORE

Glassdoor has decided it wants to know the names of those leaving employer reviews: “Using Glassdoor, the site famous for candid employee reviews that break through corporate facades, is less anonymous than it used to be. In July last year, the company added new social features integrated from Fishbowl, an app for work-related discussions acquired in 2021. Glassdoor has also changed its sign-up process to ask people to disclose their full name, job title, and employer; historically, it had required email addresses, but not names. In tests by Wired, returning users who didn’t previously provide a full name are prompted to enter one by an impossible-to-dismiss pop-up that says, ‘Entering your real name is required to verify your profile but other users won't see your name unless you choose to share it.’”

• “Reviews of employers posted to Glassdoor remain anonymous, and people can post in its new discussion channels with only their work titles or employer visible, but the company’s policy of collecting and verifying real names has triggered concern among some users and privacy experts.”

• “Alarm about those changes recently spread on social media, where several people described logging in to old Glassdoor accounts and allegedly finding their names had been added, they say, without their consent. Wired reviewed emails in which one user was told by a Glassdor support representative that they would not be able to remove their name, and would have to delete their account if they wanted it gone.”

• “The concerns over Glassdoor’s evolving policies on real names show how confusion can arise when a platform that many people visit only infrequently shifts its business model. Amanda Livingood, Glassdoor’s VP of corporate communications, provided a statement saying that integrating Fishbowl with Glassdoor created a broader set of services that user information is now shared across—a different model to that many people with older Glassdoor accounts signed up for.” READ MORE

Starting next month, the U.K. will fund apprenticeships in small businesses for people under 21: “The initiative forms part of a package of new funding for apprenticeships that will cost as much as £60 million ($76 million) and enable as many as 20,000 extra training places, the government said. The remarks will be [Prime Minister] Sunak’s first economic speech since the budget earlier this month. The government will also pledge to bring in measures to simplify reporting for small- and medium-sized businesses, which it says will save thousands of businesses across the U.K. around £150 million per year.” READ MORE

Dell says it will no longer promote employees who choose to work remotely: “Dell has had a hybrid working culture in place for more than a decade — long before the pandemic struck. ‘Dell cared about the work, not the location,’ a senior employee at Dell who's worked remotely for more than a decade, told Business Insider last month. ‘I would say 10 percent to 15 percent of every team was remote.’ That flexibility has enabled staff to sustain their careers in the face of major life changes, several employees told BI. It has also helped Dell to be placed on the ‘Best Place to Work for Disability Equality Index’ since 2018. But in February Dell introduced a strict return-to-office mandate, with punitive measures for those who want to stay at home.”

• “Under the new policy, staff were told that from May almost all will be classified as either ‘hybrid,’ or ‘remote.’ Hybrid workers will be required to come into an ‘approved’ office at least 39 days a quarter — the equivalent of about three days a week, internal documents seen by BI show.”

• “If they want to keep working from home, staff can opt to go fully remote. But that option has a downside: fully remote workers will not be considered for promotion, or be able to change roles.”

• “‘The entire company has been complaining about this behind closed doors,’ said one Dell staffer, who works alongside senior management. The employee asked to remain anonymous for fear of reprisals.” READ MORE

THE ECONOMY

Despite higher mortgage rates, single-home construction is booming: “We learned Monday that homebuilders are feeling pretty optimistic about the housing market. We also heard Bloomberg’s Conor Sen say: ‘We’re probably going to see the highest rate of new construction this year for single-family homes since probably the 2008 crisis.’ And Tuesday, the U.S. Census Bureau put out February’s data on housing starts, building permits and new home completions. Sure enough, all of them were up — both month over month and year over year.”

• “Typically, when interest rates go up, new home construction slows down. ‘Builders would say, OK, higher interest rates mean fewer buyers. We don’t want to continue to build,’ said Ali Wolf at the housing data and consultancy firm Zonda. But, she said, that’s not what’s been happening lately.’”

• “‘What we’ve seen is actually higher interest rates have meant that the resale inventory continues to be really tight, and builders are finding a huge opportunity today. And right now they’re building, building, building.’” READ MORE

THE 21 HATS PODCAST

I Need a Business Model: This week, we offer you a taste of the 21 Hats Live event we held in Fort Worth two weeks ago. It’s a different kind of event where there are no speakers, only participants. It’s pretty much a three-day, peer-group session for business owners, where we share challenges and insights and make connections. There were 25 of us, including most of our podcast regulars. For me, the highlight was an exercise that Chris Hutchinson of the Trebuchet Group facilitates. He calls it a “Fish Bowl” because the idea is to have an owner stand up and expose everything about a specific challenge that he or she is confronting. Fortunately, we had one owner who was gracious enough to agree to reveal all, to answer any question.

• “And that owner was—well, it was me, actually. The truth is, this was a priceless opportunity for me to get some feedback from a focus group of smart entrepreneurs who were already familiar with 21 Hats.

• “It even got a little emotional, mostly because a couple of the owners were kind enough to say that, had it not been for 21 Hats, their businesses might not have survived the pandemic. We recorded the whole thing, and if you have any thoughts after listening, please send them my way.

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

Thanks for reading, everyone. — Loren