Turning Employees Into Millionaires

Six years after the second-generation owner of a business-insurance agency sold to an ESOP, the agency has been sold again. "It is mind-blowing."

Good Morning!

Here are today’s highlights:            

• When it comes to work-life balance, employees are choosing life.

• An HBS tech guru says business owners should be experimenting with ChatGPT.

• In this housing project, residents will pay for neither heating nor cooling.

• Business meals are back, and that’s creating some awkward moments. (Skip the cherry tomatoes!)

EMPLOYEE OWNERSHIP

The sale of an ESOP-owned insurance company is turning employees into millionaires: “Six years after workers acquired their company from second-generation owner William A. Graham IV through an employee stock ownership plan, the 215 people who now work at Graham Co. are selling the Philadelphia-based business-insurance agency to national broker Marsh & McLennan Agency. Graham leaders confirmed Tuesday that their board has agreed to sell. The buyer, part of global insurance giant Marsh McLennan Cos. Inc., which is based in New York City, won’t say how much it’s paying, but industry observers say recent transactions suggest that Marsh McLennan agreed to pay five times Graham’s expected yearly sales, which works out to about $375 million.”

• “Filtered into a retirement plan that makes the sale tax-free, the total adds up to more than $1 million per worker, even after discounting a slice that will be used to pay down debt.”

• “The millions won’t be split evenly. Staffers, including Graham, who is still the board chairman, are assigned shares prorated based on their responsibilities and years of service. But no one executive owns as much as 10 percent, according to Mitchell and Ken Ewell, 65, Graham’s president and chief operating officer.”

• “‘It is mind-blowing,’ said Sara Kurtz, a Graham production specialist who joined the firm in 1990 and helps producers put together complex, data-rich sales pitches.”

• “She was floored to learn at a company meeting last month that she and her colleagues would be paid four times more than the most recent estimate of their shares’ value when the company changes hands later this year.” READ MORE

HUMAN RESOURCES

When it comes to work-life balance, employees are demanding more life: “Early on, remote work looked like a win-win: Employees got to work where and when they pleased, and employers got more productivity. It turns out only the first part of that bargain came true. Employees still love remote work, but recent studies find no boost to productivity and a decline for fully remote work. And yet most employers have given up on prodding staff to return to the office full time. According to the Society for Human Resource Management, 62 percent of employers offer the option to work remotely at least some time. The Census Bureau finds that 39 percent of workers are teleworking from home, half of them five days a week.”

• “Despite a historically tight labor market, pay until recently wasn’t growing much faster than inflation. One reason is workers aren’t just bargaining over money. They are also demanding more non-monetary compensation, such as paid leave and flexible hours.”

• “This seems to have made for a happier workforce. The Conference Board in May reported that worker satisfaction rose sharply in 2022 from 2021 and reached its highest since the survey began in 1987. This isn’t because workers find their jobs more fulfilling, but because their jobs are consuming less of their life.”

• “Among the 18 components of the survey, ‘interest in work’ made the smallest contribution to this year’s increased satisfaction; work-life balance made the largest. (Wages were somewhere near the middle.)” READ MORE

Ami Kassar writes about a pool contractor who is turning away business because he can’t find enough employees: “David runs a company with about eight employees and $1.5 million in sales. He subs out as much work as he can. During the busy season, David bounces between serving as chief bottle washer, project manager, estimator, salesman, etc. He’s pretty much on 24/7 with little respite. Sometimes, he wishes he could clone himself, but he has yet to crack that code.David wants to expand his business. But he constantly turns down work, primarily because he needs more skilled labor to help him. And these days, those kinds of workers are hard to come by.”

• “One strategic approach would be to acquire a competitor that has solid technical skills but might not be good at marketing. With such a move, David would essentially acquire the team he has been struggling to hire. And if this worked, he could better leverage his current marketing engine and accept some of the business he’s been turning away.”

• “David should explore all functions in the pool-contracting process that could be effectively outsourced. By partnering with reputable vendors for specific tasks, David can focus on their core competencies while maintaining quality and meeting increasing demand.” READ MORE

SMALLBIZ TECHNOLOGY

Karim Lakhani, a Harvard Business School tech guru, says even the smallest businesses should start using ChatGPT: “For small business owners, Lakhani said, the AI journey should begin by looking across three platforms: OpenAI’s ChatGPT+ (which can be purchased for $20 a month), Microsoft’s Bing Chat (which is free) and Poe, which offers access to a variety of gen AI tools. Starting to experiment with these tools will quickly show small business owners the power that AI offers to their core tasks.”

• “One example: a venture capitalist in California who was working with immigrant owners of lawn-care and fencing businesses. The owners did not have great English skills, and it could be costly to use translation services for customer communication campaigns, from email to text. ‘Now these entrepreneurs can put their ‘broken English’ into ChatGPT and get perfect Harvard or Oxford English, any English you want. Now they had this superpower,’ he said.”

• “The same business logic is true for an e-commerce vendor on a platform like Shopify looking to translate a website into multiple languages for other markets, which could be costly with traditional translation services.”

• “The place to start, according to Lakhani, is YouTube: ‘YouTube is your friend. I can’t tell you how much I’ve benefited as this revolution has happened. ... I have been spending so much time on YouTube. There are great creators who spend all their time and effort thinking about problems and solutions through ChaGPT and gen AI. Start to build a crash course on YouTube. It has a great AI algo to guide you along the way.’”

• “‘Machines won’t replace humans, but humans with machines will replace humans without machines,’ Lakhani said at CNBC’s Small Business Playbook virtual event on Wednesday.” READ MORE

Gene Marks offers examples of Pennsylvania businesses finding ways to use artificial intelligence: “Maybe you’ve already tried ChatGPT, the conversational artificial intelligence chatbot that is already helping people plan vacations, translate foreign languages and answer complicated math questions. But ChatGPT is just the start of the coming AI revolution. As Microsoft, Google, Apple, Facebook parent company Meta and other software companies ramp up their AI plans, many local IT consultants are preparing their small business clients for a tidal wave of added functionality that will soon have a dramatic impact on how they operate.”

• “Michael Franzyshen, president of Ascendant Technologies in Somerset N.J., sees automation having its biggest impact on customer service, with chatbots having conversations with customers and answering their questions while also performing tasks like automatically sending emails to update service reps. ‘There are so many labor-intensive customer service tasks that often require one-on-one assistance with the customer,’ he said. ‘An AI-based solution will allow more customers to be helped simultaneously and allow businesses to scale their customer service departments more efficiently.’”

• “Another big impact on businesses will be improved data security. [Michael J. Davey, the CEO of I.T. Services Group in Media] predicts that new security tools will be better at looking for patterns of known virus activity and smarter about identifying fake emails or other ‘phishing’ tactics that oftentimes dupes users into clicking on suspicious links or downloading malicious files. Future software will also be trained to look at content and files before being sent to outside parties so that a company’s internal information can be protected.”

• “‘We are starting to see accounting and reporting packages that small businesses use become AI-enabled,’ he said. ‘They’re getting better at analyzing financial data to look for patterns of fraud or other bookkeeping irregularities.’” READ MORE

ECOMMERCE

Etsy is trying to avoid a sellers strike: “An Etsy boycott initiated by U.K.-based sellers over its payment system has gotten the American company’s attention. Etsy addressed criticism of its policy in a blog post on Aug. 1, and promised to ‘substantially’ decrease the amount of funds held in reserve. Vendors have complained that the platform’s policy, which can freeze up to 75 percent of earnings in reserve for as long as 45 to 90 days, is destroying businesses and placing sellers in dire financial straits. Etsy also takes fees out of the remaining 25 percent of funds, stripping shops of even more earnings.”

• “‘I have been on Etsy since they really got going, around 2007. You would think the reserve plague wouldn’t hurt sellers like me but I had it done to my shop a few months ago. I can’t buy supplies (ceramic) or pay bills now,’ wrote one seller on the Etsy Sellers Support Community Facebook group.”

• “Vendors have begun switching their shops into ‘holiday mode’ in protest of the payments policy and are leaving for rival sites like Shopify.” READ MORE

CONSTRUCTION

A housing complex in Massachusetts is being built so that residents will have no heating or cooling expenses: “An 800-unit apartment complex getting underway in Newton Upper Falls will be one of a kind. The project on 22 acres along Needham Street, known as Northland Newton Development, will be a 13-building, all-electric housing project built under the ‘passive house’ building standard — using construction methods to maximize energy efficiency to the point where tenants pay no heating or cooling bills. Experts say passive house represents a massive step forward in green building. And according to the developers, there is no other passive house project this big in the country.”

• “Here’s what that looks like: sophisticated insulation mechanisms to make sure the indoor space stays cool when it’s hot outside, and warm when it’s cold outside — without a traditional HVAC system. And specific types of windows and ventilation systems to make sure indoor spaces maintain good air quality and don’t heat up from the sun.”

• “‘The biggest obstacle to building like this is the inertia of the industry,’ said Ken Levenson from the Passive House Network, an education advocacy group. “Even if they may intellectually understand this is a better way to go, it’s hard to change. Projects like this demonstrate what the possibilities are and will help build the momentum we need desperately to get past this inertia.’” READ MORE

RETAIL

Business meals are back (and not everyone is happy about it): “The formal business lunch has made a comeback in 2023, with office occupancy rates during the workweek breaking through 50 percent for the first time since the pandemic. Lunch reservations on weekdays at restaurants in some big cities, including New York, Chicago, Washington, D.C., and Philadelphia, rose by double-digit percentages in some months this year compared with 2022, according to data from OpenTable, the online reservations platform. That leaves more hosts and guests trying to impress each other with their proficiency in both banter and table manners. It’s a delicate dance of when to listen intently and make eye contact, and when it’s acceptable to take a bite.”

• “In the era of hybrid work, with relaxed dress codes at the office and work-from-home days spent in isolation, the business meal has become one of the most ‘on’ stretches of an employee’s day.”

• “At sit-down meals, all eyes are on what everybody is ordering. For many people, that means picking at a dry salad when what they really wanted was a rib-eye steak, a relic of yesteryear’s three-martini lunches.”

• “Many young professionals who missed out on networking during their college years now must learn the soft skills of how to behave in professional settings. Students at several colleges, including Texas Tech University, can get dining-etiquette sessions. ‘Cherry tomatoes will always spray the person sitting next to you—skip it when eating your salad,’ recommends its online guide.” READ MORE

STARTUPS

An innovative business model was supposed to disrupt the housing industry by making rent-to-own deals easy: “Divvy, which launched six years ago with financial backing from high-profile investors like Andreessen Horowitz, Caffeinated Capital, and Tiger Global, is one of the newer players in the rent-to-own market. It is an unregulated corner of the housing industry long dominated by small firms that buy up foreclosed or run-down homes, and peddle them to those with shaky credit histories as an accessible way to achieve the American dream. Like many start-ups that want to ‘disrupt’ an industry, Divvy promised to ‘rewrite the rules of real estate for the better’ by making homeownership easy for everyone. Billing itself as a consumer-friendly, tech-savvy company, Divvy put a fresh spin on the rent-to-own market by making it mandatory for customers to put away a portion of their paycheck toward a down payment.”

• “The company, which owns 7,000 homes in 19 metropolitan areas, grew rapidly, but with that came growing pains, including the failure to make timely repairs. Its innovative model also stuck renters with higher-than-average monthly bills. Given rapid inflation, more renters are struggling to pay, forcing Divvy to file more eviction notices.”

• “Almost from the moment the Fretts moved into the 30-year-old house in Lithonia, Ga., it was plagued by problems. Rainwater often seeped in. The electrical system was faulty. Some appliances didn’t work. And mold was spreading on some walls, they said. ‘When it floods, you can feel the water squishing under the floor tiles,’ said Ms. Wheatley-Frett, 41, who works for the Department of Homeland Security.”

• “In the Atlanta area, where it owns about 1,100 homes, Divvy has filed 190 eviction actions so far this year, according to a data analysis by the Private Equity Stakeholder Project. In 2022, the company filed 184 evictions in the Atlanta area.” READ MORE

THE 21 HATS PODCAST

What’s Going to Happen to My Business? This week, Jay Goltz tells us that, on second thought, he did learn something important watching HBO’s “Succession.” He still wants to work as long as he can—even if that means dying at his desk—but he now realizes, thanks in part to Logan Roy, that he needs to put a plan in place in case he were to get hit by that proverbial bus. This realization was also furthered by hearing the sad story of a 51-year-old entrepreneur who died in his sleep recently, leaving his wife to figure out how to keep their bank from calling its loans.

• As part of his hit-by-a-bus plan, Jay says he’s crossing streets very carefully, but also considering creating a board of advisors that will be able to offer advice to his survivors. But that’s a little tricky because, as you may have noticed, Jay’s not exactly a board-of-advisors kind of guy.

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

Thanks for reading, everyone. — Loren