‘This Isn’t Altruism’

Today’s Highlights: Costco raises its minimum wage. Now ‘ghost franchises’ are the thing. And should you consider an ESOP?

HUMAN RESOURCES

Costco is increasing its minimum wage to $16 an hour: “Costco has long paid its store workers more than most competitors, in part to reduce turnover as part of its low-cost operating model. Costco Chief Executive Craig Jelinek said at the hearing Thursday that Costco’s average wage for hourly workers is $24 an hour. Walmart’s average U.S. wage after recent increases take effect will be more than $15 an hour, the company has said. ‘Although there’s a lot of external focus on starting wages and minimums, it is important to us that Costco employees have an opportunity to make more than $15 or $16,’ he said, noting the company offers regular raises, bonuses and healthcare benefits. About 89 percent of workers are currently eligible for healthcare coverage, he said.”

• “‘This isn’t altruism,’ Mr. Jelinek said. ‘It helps in the long run by minimizing turnover, maximizing employee productivity, commitment and loyalty.’ In the U.S., employees average more than 9 years with the company, he said.”

• “Mr. Jelinek didn’t say whether he supports a $15 minimum wage. ‘I’m not here to discuss a proposal. I’m here strictly to discuss Costco,’ he said.” READ MORE

Remote work is making it harder for small companies to hire talent—and also to hang on to talent: “For small firms, hiring a remote employee can be much more complex than hiring locally. Employment requirements on health insurance, paid time off, and other benefits vary from state to state. A business based in Florida hoping to hire an employee in Alaska may find that its corporate health insurance plan won't cover them. If a remote employee lives in a state with mandatory paid sick leave, such as California or Colorado, a company based in a state without such a law will still be required to provide that benefit.”

• “Many companies that are hiring new remote employees stipulate that they must reside in certain states, or that they work in the office once it reopens.”

• “Unfortunately, as remote work takes hold long-term, it will become harder for small businesses in tech and other industries to attract and retain talent in nontraditional markets.”

• “‘Startups can't afford anywhere near what Facebook offers, even when they have reduced for location,’ Whatmoor says. ‘Now that these tech giants are embracing remote work, every employer in every city is competing with them.’” READ MORE

Based in New York City, Elephant Ventures is trying out a four-day work week: “The software and data engineering company, headquartered in New York City, started testing a four-day workweek in August to help prevent employee burnout and maintain work-life balance during the pandemic. The company went full remote in March 2020, and will likely stay that way for the foreseeable future. The plan was to try out 10-hour days Monday through Thursday for two months.”

• “It took employees about three to four weeks to adjust, he said. After the first three-day weekend, workers returned feeling rested and excited, but at the end of that week they felt the toll of the longer days and the readjustment to their normal routines.”

• "By the third week, it was more routine. People were really starting to have adventures and plan ahead and leveraging to make use of the three-day weekend."

• “Employees can make up hours on Fridays or the weekend if they aren't able to get in their hours in four days. ‘We trust people to fill in the gaps if they missed hours,’ Shectman said. READ MORE

In his latest podcast, Paul Spiegelman, founder of the Small Giants community, talks to Khalilah Olokunola, of Tru Colors, a start up brewery owned and operated by gang members with a social mission to unify and decrease gang violence across the country. Olokunola was born and raised in Brooklyn, New York, and spent much of her teens active on the streets of Brooklyn and Troy, New York with street gangs. She eventually spent four years in prison. She tells Paul that she uses an eight-week onboarding program to train cohorts of gang members and second-chance hires in the life, social, business and beer skills they'll need to be successful. LISTEN HERE

THE 21 HATS CONVERSATION

Does an ESOP make sense for your business? Jim Kalb has implemented an ESOP at Triad Components Group. Jeff Taylor implemented an ESOP at Crafts Technology. And Jay Goltz of the Goltz Group is interested but has lots of questions. Join us for a no-holds-barred webinar conversation about the pluses and minuses of employee ownership. I’ll be hosting it on Tuesday, March 2, at 3 ET. Bring your own questions!

FINANCE

A new study looks at the impact of private equity on nursing homes, and it ain’t pretty for reason that will sound familiar to many business owners: “Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10 percent, implying 20,150 lives lost due to PE ownership over our 12-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11 percent.”

• “We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards.”

• “Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.” READ MORE

BUSINESS MODELS

You’ve heard of ghost kitchens. Now, ‘ghost franchises’ are the future of restaurants: “MrBeast Burger is not quite what most of us think of as a chain, or even a restaurant. In exchange for a cut of sales revenue, the brand supplies the name, logo, menu, recipes and publicity images to any restaurant owner with the space and staff to make burgers as a side hustle. When a customer orders from the MrBeast Burger in Midvale, Utah, the food is prepared at a location of the red-sauce chain Buca di Beppo, following a standardized MrBeast recipe. In Manhattan, a MrBeast Burger is prepared at the neighborhood bar Handcraft Kitchen & Cocktails.”

• “In the delivery app era, the ghost franchise can be a lifeline for the independent restaurateur, a way to make thousands of dollars a month in a devastating time.”

• “It can also be a liability, exploding the marketplace in ways that serve big brands more than small businesses.”

• “In New York City, this is already happening. If you’ve noticed the torrent of perplexing restaurant names on delivery apps, many of them confusingly similar, this too is a manifestation of the ghost franchise.” READ MORE

STARTUPS

There’s a startup ecosystem springing up around Clubhouse: “In the past two months, the invite-only app has exploded in popularity and now has over 10 million users according to the researcher Vajresh Balaji. Many of those new users are arriving on the platform with ideas about how to make it better, or how to maximize functionality with existing features. Clubpad offers a free soundboard for use in Clubhouse rooms: a drumroll, a sad trombone, the timer from Jeopardy!, a DJ horn. Host Notes gives moderators a space for links, meeting agendas, and discussion summaries. Clubhouse Recorder is a Telegram bot that lets people record audio from a room. ClubLink, Clubhype, and shorten.club each shorten links to Clubhouse rooms to make them easier to share on social media.”

• “YoYo Club—advertised as the ‘Eventbrite for Clubhouse’—gives moderators a way to plan and promote future Clubhouse rooms, cutting through the noise of Clubhouse’s notifications.”

• “Direcon, the so-called ‘Tweetdeck for Clubhouse,’ is already monetizing its suite of tools, by charging users a $50 monthly subscription fee. It can measure the total number of listeners in a room, average time listened, number of hands raised, and the average ‘stickiness’ of the room.” READ MORE

PRICING

Carey Smith, who founded and sold Big Ass Fans, doesn’t believe in discounting: “I never have understood the whole Black Friday phenomenon, just like I’ve never felt the point of rushing out to buy a mattress on Memorial Day or a car over Labor Day weekend, even though ‘experts’ advise doing both. I don’t believe in chasing discounts, and, back when I ran a fan company, I opposed slashing prices for Black Friday or any other day. So it should come as no surprise that when our partner companies want to offer special pricing — as they invariably do — we try to talk them out of it.”

• “Any time you discount your product, you’re stealing from yourself, assuming your ‘regular prices’ are an accurate reflection of value, which they damn well should be.”

• “Slashing prices for a ‘limited time’ deal communicates to customers that they’re being cheated the rest of the year. Any product that’s offered at 40 percent, 50 percent or 60 percent off is a product that’s probably not worth more than that discounted price any other day.”

• “Discount prices attract discount customers. You might as well go peddle your product in the parking lot of the nearest Dollar General.” READ MORE

THE ECONOMY

Unemployment claims fell sharply last week: “The jobs market appears to be returning to growth, with new applications for unemployment benefits falling to the lowest level since November amid other signs hiring is picking up. Initial weekly unemployment claims decreased by 111,000 to a seasonally adjusted 730,000 last week, the Labor Department said Thursday. It was also the biggest drop in new applications for regular state programs since last summer. The latest figures came as storms disrupted business in parts of the country and at least one state is adjusting for attempted fraud filings, factors that could have affected the totals.”

• “Still, weekly claims have dropped significantly since an early January peak above 900,000 and the four-week moving average, which smooths out volatility in the weekly figures, dropped to 807,750.” READ MORE

THE MORNING REPORT PODCAST

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THE 21 HATS PODCAST

Episode 50: So You Bet the House? This week, Stephanie Stuckey talks about her decision to buy a manufacturing plant and bring production of Stuckey’s snacks in-house. We discuss her conflicted concerns about a minimum wage hike, what it takes to build a strong culture in a repetitive-task environment, why she paid above book value for the company she bought, and how she managed to finance the purchase of a business that is four times the size of Stuckey’s: “I had to take out an additional life insurance policy and list the bank. I was just waiting for them to call me and tell me my firstborn son has to be collateral as well.”

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