21 Hats Podcast, Episode 10: Everything I Learn, I Have to Learn the Hard Way

[Music] hello everyone welcome to the 21 hats podcast I'm Lauren Feldman your host every week I sit down with three business owners to talk about the challenges they're facing it's the kind of conversation you don't often hear in public our panelists address difficult topics like why their business isn't making as much money as they think it should why their digital marketing isn't working or why exactly they hired their brother-in-law owning a business can be a lonely and isolating pursuit but at least you'll know that you're not the only one facing these issues got a question you'd like us to address send it to us and follow us on twitter at 21:00 underscore hats or on our website 21 hats calm welcome to another 21 hats podcast let's meet this week's lineup back with us today are J Galt who has several businesses in Chicago including a picture framing shop artists frame service and a home furnishing store Jason home William Vander blue moon who is CEO of Vander blue moons Search Group a recruiting firm in Houston that specializes in working with churches and other faith-based organizations and Dana White who's founder of perrolli Boyd a chain of hair salons based in Detroit heading into 2020 I want to talk about how you guys are thinking about the new year what you're expecting out of it are you concerned about the economy are you planning to grow or you expecting to hire what has to happen in the coming year for it to to be a successful year for you we started our firm in the fall of 2008 I quit a secure job to start a business which it's a brilliant move right well it seems to have worked out for you we started in the greatest recession and had good growth so I'm hopeful we would be able to do well somebody told me one time I don't know if it's true or not but they're like man I like your business but why is that well if the economy is doing well people are hiring and if the economy is doing badly everybody needs religion so how do you lose I've actually spoken to a lot of people who think starting in a recession is a great thing it was great for us it's harder but if you survive it gets easier when the economy gets better oh that's a good lesson so I'd add one that I think was true so we tapped into a felt need but very few people had the money to try this new thing in 2008 I think if we were not in that recession when we started we would have oversold what we could deliver and would have just imploded because everybody would have said sign me up sign me up and I being a sales sort of guy I would have said yes yes yes yes yes and then not been able to deliver but it's almost like I don't know if you guys have watched the old Karate Kid movie but but 2008 910 were wax on wax off you know learn the craft are you expecting a recession going into 2020 I'm just a preacher Lauren he's trying to learn how to run business I really don't know I know that I think that whatever the economy does for us we've said the future in our business and I think it probably translates to other sectors the future belongs to the agile so like if opportunities for growth pop up we need to have cash and reserve and systems ready to go ready to move if the bottom falls out we don't need to be tethered to long term overhead costs that we can't shed quickly so so we've been focusing over the last year on increasing our agility rather than worrying about what the economy is going to do so that if we surge forward we're ready and if it if it shrinks back then we can make those contractions and not and not be caught in some long-term mess what does that mean to you what what how do you increase your agility for us agility means that we're trying to be financially agile and for us and I know this isn't true for everybody that means we just don't take on debt that way we don't have a note we have to pay and we also don't take on investors so we don't have to answer to the Wyatt in the return here here here if we choose to take a down year because we want to try and expand while the economy is contracting that's our call now smart friends of mine have very different approaches on this but for us agility is cash agility and then it's also space agility and we've done this recently we made a move over the last year we've tried for a number of different reasons to have our systems and our process to be much more of a thing that's taught then caught I'm a horrible manager I'm terrible you know the way how do you learn search well the answer used to be hang out with William for a few months like that was the onboarding process that that doesn't scale so so now we have systems that can be taught well enough that we can say well you don't have to be in Houston you can we could have regional offices where we're closer to our customers not all virtual but regional and and that means we have less central office space which means we have a lower lease that we're responsible for and if for some reason we needed to expand we could open more regional offices and if we need to contract we can just close them down and I'd use the the word we work but I think we work has become a four-letter word so something like something like we can start small with worth our model with the no debt no investor we can get a shared office space in Atlanta and start with two or three people and build it up and then when it's shown enough legs that we're ready to buy a building that we own rather than leasing we can do that and and we have agility so we've done a few things we've tightened up our systems so we can make them more portable we've tightened our office space here to lower our commitment to a lease which I don't think I'll ever do again and then we have made sure that we're cash positive so that we have the agility that expand or contract as circumstances dictate I think the future belongs to the agile Dana how about you what are your expectations heading in the 2020 you know I have this you know pie in the sky oh my goodness this will this will be a great year if we do this but you know over the past couple of weeks after spending time with my mentor I'm talking to you know business owners that I really truly value their feedback the pie in the sky may come but this year for me and for purely boys it's just about buckling down and getting even more into the weeds of the business right you know I am a very process driven person paranoid runs on process you know we have an onboarding process that we track we have so many processes that we track I think a processes aside I really want to focus on the culture I've done that a little bit but I want to start kicking it up to the point where the processes and the culture run hand-in-hand because it's the culture that makes the processes applicable if that makes any sense for because of the people and it's really about getting my hand deeper into every aspect of perrolli Boyd like William said hey I'm a horrible manager I am NOT a great manager because I'm a former labor organizer so for me it's you know what does this feel good right and even if it might hurt the business as long as it feels good that's that can't be my managing style anymore I have help with that but I've also grown as a manager in the past year so my goal for you know 2020 as far as management it's just being able to put my hands deeper into every aspect of my business and really managing the finances I think when we talk about getting your hands dirty in the business really coming I have a very good sense of my numbers but having a better handle touching my my numbers every day three or four times a week just to kind of manage that better and then lastly just growing the business you know my challenge has always been getting the word out marketing marketing marketing marketing and so I've already begun putting the team together giving me low-cost options to just do the social media and digital marketing that I can do before I pay to hand it off and by the time I'm ready to pay to hand it off I will hopefully yield results with butts and seeds from what I've done already so I love your self-awareness that if it felt good that was good management I think for me the younger age and maybe some other entrepreneurs can relate it was if it's shiny it must be good it was like a garden hose nobody was holding with water spewing everywhere yeah our analogy was it shine for us it was if it like you use food right so oh my gosh it's this you know beautiful Grenache chocolate layered cake with all this you know but we can't live off of that we need protein right we need carbs and vegetables and fruit and so even though you know green beans aren't sexy it's what you need to live well you're in the hair salon business right yes yeah you're not opening your restaurant on the side are you no no I'm a diner you know I love to dine it's like my hobby but that's how we kind of say you know marshmallows are great but marshal you can't sustain off of marshmallows so for 2020 it's really about getting most meat potatoes vegetables and fruits and setting up our buffet and then you know towards in the buffet oh my goodness we have this artisanal cheese whoo the pie in the sky for me is potentially franchising or opening up another location you know I'm still kind of back and forth on the franchise bit because it's a huge commitment but yeah that's that's my 2020 what are you J I've been through I don't know I've lost count I probably lived through seven recessions and I've learned that you just can't predict anything and we're living in such volatile times that yeah you need to stay flexible so my main thing is given that my business is fairly mature I have to continually keep my eye on evolution and keep changing it because the markets changing dramatically so I'm working on that and I'm working on making sure I have cash and I just want to defend something that's got a terrible reputation debt every but most people that are rich anywhere have used debt to get rich and most people that go broke have used that to go broke so that is not good or bad and William in your case you don't have inventory right I don't think you have inventory not you don't hae out yes you don't have equipment that's of any made you're not buying a hundred thousand dollar printing presses or something for someone like you it probably makes sense not to take on debt because it begs the question why would you need to get so you don't ask me Auto Spa would like me I have to tell you taking on debt could be the safest thing you could do because when things go bad you can't borrow money so for someone like me it might make great sense to go take out a mortgage on a property that there's no mortgage on get a pile of cash sticking into an account and have it there if you need it because if the economy goes bad the bank's call hiding under the table and in so having debt actually gives you cash in some cases what are you thinking heading into 2020 jr. are you concerned about the economy and and how dependent on the economy do you do you think your businesses are I'm concerned about the country I can't turn the TV I for the first time ever I work out every morning on the elliptical and I always put on you know one of the news stations I've had to stop doing it cuz I can't deal with it a lot yeah in the car drivin I swear this is the case thank God for Sirius radio because I can listen to the Frank Sinatra station to pretend like everything's okay because if I turn the news things on by timing it to work I'm already anxious and depressed so yeah I am concerned while where things are going yes I'm watching cash for sure I'm absolutely watching long-term commitments I'm staying flexible I do agree with William and this is a general comment the no partner thing I think that's a good plan no partner no investor I think that's always a good plan now I recognize that some people need to do that and I'm not criticizing it but I think it's a true statement to say if you can avoid having investors or partners gets a good idea I just remember when we first started out and it was just me staff meetings were awesome yeah you know like everybody got along and then all votes flew through and then right done on time and nobody felt like it went too long and it's kind of and so now it's like my investor meetings are awesome I will tell you something gave me some good advice the guy was in a 60s 70s by time he told me this he said something very poignant he said you three the long-term you have three potential enemies in business your landlord true I own most of my properties makes my life easier to partners don't have any three the bank okay the banks I'm not painting the banks as bad guys but they're your partner's on some degree they look at your books and they can control you and I am very close to getting rid of the bank because I just had the revelation of here's there's two sides of the bank there's the real estate side and there's the business side when you do business loans credit lines they crawl near they you know they crawl into your what they're in your business they're looking at everything and you basically have to answer to the bank and you know what I don't want to answer to anybody so I've just figured out lately I've had this this revelation all I need to do is go take a mortgage on a property that I have no mortgage on take the cash and use that as my credit line quote unquote in the bank the real estate side is completely care about is what's your depth equity on the building they're not coming in and asking you about your sales projections I encourage people to think about if you can buy the property that you're in not a bad thing because most of the risks to real estate is having a tenant that pays rent every month if you're your own tenant it's a no-brainer if you talk to attorneys and a counsel tell you there's plenty of people that end up retiring off of their building they sold when they were done because the business was worth so little and so I did with one of the greatest things that the government does is the SBA loans you can buy a building for 10% down which is what I did so those are all long-term strategies that can be extremely powerful and as far as the moment what am I looking to for next year yeah that's the question I asked possible volatility election coming making sure that I have enough cash to withstand whatever it comes along and at the same time keeping an eye open for new opportunities because the internet is still wrecking havoc with the business world and there's opportunities be had from it and and the world's changing very quickly and you need to you need to keep your eye on it forty years ago I watched my father's dime-store if anyone still knows what that is I walked this slowly die over you know 20 years I watched my father-in-law had a closed door slowly done I'm very aware of the fact that you can't just put you head in the sand and say yeah Pewterschmidt azar gonna be gone in a few years yeah I mean data how about you do you think your business is sensitive to the the ups and downs of the economy yes and no I think you know it depends on where you are financially I think my business is priced at a point that is is you know I've been told it's somewhat recession-proof I do believe we'll see a downturn I mean if the economy tanks however I'm providing a service that is needed we provide a service of just basic service we might start losing people because they do it at home but we're also it helps in recession similar to alcohol you know you can pour a drink at home but it just feels better when you're at a bar for some people with other people so it's the same thing with a hair salon like it's just done better you might save some money but it's just it's a whole experience so I think prepare Lee Boyd if the economy were to take we would see you know a little back beat if you will but I do think that we're one of those businesses that if if we wouldn't tank completely because of the economy I think your business is recession resistant to a decline clearly but I read an article years ago that was really a sight 'fl it talked about guys to go to country clubs to play play golf and looking for the ball and they found out that when the economy got bad people will spend more time looking for their ball than when the economy is good because they can't do anything about their car lease they can't do anything about their mortgage payment they can't do anything with their health insurance but they can spend five more minutes looking for the ball and and I think the haircuts are similar I think there are some people that'll think you know what I said again my haircut every four weeks I think I'll stretch to six that would be some of that for sure some absolutely I'd have to look on the interwebs to find it but I read study not too long ago Dana that you know Revlon's biggest boost was in an economic downturn women wanted something to make him look good when everything else was bad they wanted to feel good that's exactly it so if the kite isn't doing good we have a lot of factors that bode well for us that's why the experience is very important that's why the price point is very you're higher in salons they do see it a downturn because women aren't paying $200 to go get their hair done you know I've only been open for seven years and there were some you know jobs aren't as great right now but we saw you know women who had appointment-based higher in salons they started coming and we gained new customers because hey you do my hair just as well why am i spending $100 more and then a lot of it was a social status thing sometimes women go because they want to be known to go to that salon I'm not really seeing where the economy is is affecting it was too bad okay next topic also I think relevant for this end of one year beginning him a new year time period I'm curious how all of you handle performance reviews and and also bonuses a compensation and when do you tie them together is it a once-a-year thing William when we start with you well this is a new thing for us we've always been as a start-up I was and still am to some extent but but was highly allergic to overhead and you know causes rashes and things and oh so we would pay people a fair wage as a base salary but like hey trust in us and when we grow will share the growth and we had to learn to not call it profit sharing because then you got to issue you know K ones and all kinds of things so we actually okay so bad preacher joke but we named it profit PR o pH and it was basically if we grow we all grow together and we didn't know to the end of the year we're an S corp so the books closed on December 31st and there's all this get all the cash in that you can buy December 31 so we can share all we can and we had big fun and most fun meetings of the year where the end of December go have a beer with William and and get your bonus check it was awesome now we're paying better based salaries we have benefits we're like a real business we still want to share the growth and we do but but we're moving toward a different model where it's not so much of the compensation tied to the bonus and you don't have people running around a year and wondering what's going to happen we're actually moving toward intermittent bonuses and rewards tied to particular performances throughout the year and if there is an annual bonus it will no longer happen in December because we you know it's like who wants to be the Grinch at Christmas we first started out where a meteoric growth it's like well that's fun but when you have a year of eight nine ten percent growth and it's not fifty and the checks not as fat as it was well you know then you're talking to Clark Griswold and Christmas vacation and he's like well where's my bonus I need to build the pool or whatever it was he wanted and and so we've tried to remove it from the holiday season just so we don't run the risk of messing up holidays or mixing the message and then we've also moved to lower percentage bonuses just to a healthier more predictable workplace and then we've also said let's not make it all one annual bonus but let's do some that are intermittent I jokingly said you know we probably ought to study how slot machines get people coming back like how often do you pay out come back and I don't mean that crudely because I love our people and I want to reward them but but we think that a combination of an annual reward that's not tied to Christmas and some seemingly random but tied to performance rewards throughout the year will actually create a happier and more fulfilling experience for the employees what do you see is the real goal with these bonuses is is it a are you trying to motivate people or is it a thank you is it an incentive so for me we're still small enough I mean we're a micro niche business right and we've been 45 full-time employees I would love have the upside of people feeling some ownership stake in the company now we've not done like ESOP kind of program and I don't know that we'll ever do that but the I think the value proposition in an esop is everyone feels like an owner and they pick up a piece of trash in the hall when they see it or they take care of something that's quote not in the job description there's more of a all-in mentality so so the the best days for us are when we're all working together irrespective of whether it's not what my team does or what my job description says and and I may be you know living some utopian dream thinking that can keep happening maybe it's as you grow as a business that gets harder but but we're gonna try and maintain it and and one of the ways we're trying to maintain it is through basically saying if we if the company grows we all grow how about you data well you know in our last podcast we you know shared about me hiring a new operations manager and that's working out very well so now that we have more structure in regards to performance reviews with this new operations coordinator we gave everybody a raise and we've been very deliberate about incentivizing people financially through performance right so it's for us no bonuses no you know we have a younger group and this is not a salary based position and so definitely not profit sharing but what we do do is you know based on your performance here is $100 giftcard or based on you know your review we don't really incentivize for their review but we you know are starting to say thank you next Friday is the gift exchange we do these little things that kind of go a long way with the staff we're gonna start doing pb bucks purely Boyd bucks and the managers will start giving those out to staff members during you know shifts as well as reading the kudos we have a kudos box and they leave notes to each other and we read those out loud and given to them and then when somebody performs well we give you a parody Boyd buck and then you add those up and if you get up to $100 or whatever denomination you want to get to you can read deem those for a gift card of your choice for that amount so we don't really based off performance as far as you know an incentive bias we don't say hey good review here's you know 500 bucks no but through our key performance indicators you've been performing well so we incentivize you with a reward of some sort do you do annual performance reviews we do quarterly and is that working for you yeah it is because we measure your consistency and speed right so we understand that there's a person behind that flatiron so we want to check in when we notice you know hey the the timing is going down or any variance we bring it up at that next quarterly review and then they're not punitive at all that's just not our culture it's a check in with you so you can let us know how we're doing and we check in with you to praise you and recommend any areas of improvement and if we see areas of improvement it's based on what the connection we have with you as your employer how are you doing because we're noticing in your work that's talking about what's going on with them and how we can help not so much in your personal life but how can we refocus you to come back and perform and a lot of times that conversation is all that's needed it's no added training needed because we're watching that we just kind of connect with them and say hey what's going on how are you doing you know and then they kind of turn it around because they know they're being watched because you work for an employer that cares and we want to help get you to perform at your best and then we've also had reviews where you know they've cut out on the position so now we're looking to transition you out but it's all aboveboard it's never nasty some people would like to make it nasty but I have a really strong management team that keeps it even keel you tie compensation discussions to the performance reviews annually you do so when we get to that fourth performance review we try to leave for the most part give you a raise for your time in we raise or a promotion right so or both so you people have an expectation that at the end of the year they're likely to get a raise based on their performance right and they known over the year this is how you've been doing and we also give them time to correct whatever going on and they may for the most part they do we have not not given somebody a raise I think with training it's about communicating clearly to your staff what the what they need to do in order to perform well at this position and either they want to do it or they don't for those that don't want to do it we have a way of transitioning them out for way they do do it we have a way of working with them to get them you know just to where they need to be and they're not hard tasks they're not you know hey we need you to stand on your foot for 18 hours a day no they're just you know okay it's taking you 40 minutes to curl one head we need that done between 15 and 25 why don't we set if you like to go to these following trainings to get you there and there's all the encouragement that we give them along the way we really kind of clap for them along the way so then when they our review comes up hey you're not surprised because you've been performing like a rock star do you worry about creating an expectation for an annual race that you may not be able to meet in coming years I would if we didn't communicate clearly our races aren't huge they're incremental they're like we need 25 cents 50 cents a lot of times the raises commonly promote them so if we take you from stylists to lead stylist your commission goes up right so they're still based on you know the amount of heads that you do and your hourly salary so your hourly salary may go up 25% but you're actually up for a promotional lead stylist where the more money comes in that's where you want to make your money but we are very clear that if you're not performing I don't care if you've been here for five years you're not going to get a raise but we want where we're going to do everything we can to help get you there how - J I've been all over on this thing I used to give everyone bonuses and then what I've learned the hard way is because everything I learned I you have to learn the hard way when things are great everybody's happy but as I said I've been through several recessions the last one and oh wait was brutal and you can explain it all you want at the end of the day people are really unhappy that they didn't get their bonus and I've come to the conclusion they're not my partners because of what I learned is when things go bad and I lose $300,000 and I take out a second mortgage on my house no one comes into my office to say hey boss can I give you some money you know you gave it to me on the upside I want to be there for you on the downside you know I've recognized they're not my partner's a B it's a lot one we're making 30 40 50 they really need the money so in my and this is just my opinion at this point but it's a well educated opinion because I've got everything from sales people to production workers to guys working on the dock I would not want your a big percentage of their income to be based upon this because they just can't afford that and so this is what happened to me I was giving out bonuses every year oh it happened I'm lucky to be a business still I'm in the home furnishing sector between the home starts and the picture framing is absolutely a luxury item unlike haircuts you could stop picture framing for a year and nothing's going to happen to you I mean your life will be a little less happy but you can just stop so my business literally took a 30% hit overnight and I was in no position to be giving out bonuses so every year I thought okay this is gonna be the year I'm gonna start again and then every holiday season I have to stand there in front of everybody with this albatross say listen guys sorry but we're still not where we need to be I can't give it and every year I would dread this OP this thing so I finally figured out I went back to my old thing for production people in particular I've got like 50 people we give out like 25 bucks a year so it's just something to say thanks for hanging around so yeah the new employee gets lunch but the person that's been with me for 20 years gets $500 now I I just did that right before I came here to get on this podcast I just had the handout I got one guy my top I spent 33 years he got a nice big check I've got lots of people to move 20 years and you know what the 5 or 10 grand that I ended up giving out it's not never gonna make that big a difference in the scale the size of my company I got rid of this huge albatross on me now and I can't tell you how much happier I am what's the difference Jay why is the albatross gone you're still giving out this hey I was just a stall because I don't have to worry about how much money did I make how much am I gonna split up that even no matter how much money I make there's years where I make you know a good amount of money and there's years that I lose money and there's years that I make 50 grand so that albatross is off because the 5 or 10 grand that I'm giving out in bonuses is just not gonna make a big difference so you're always going to give that amount yeah unless it's really bad and if it's really bad everybody's gonna be happy to have a job so you know I would never say I'll always give it out but if the economy really goes bad everyone will understand we can't do it but but I just I I can't tell you how much better I feel that I don't have to worry about it every year I know this sounds preposterous to people that are in business like mine I have such a huge inventory and so much costs to go so I really don't know how much money I make until I take inventory I'm not selling televisions where they're all askew we cook we can just you know barcode them I'm using material I'm using framing material I'm selling things at different prices their sales there could be a huge swing depending on what the inventory is so I don't even know how much money I made in December so I just feel so much more relieved now that it's just clean and simple and people are happy and the first time I went to it I had a one working for me that you know he's only been there for a year and I gave her the check ago sorry it's not much it's good no no that's okay and she appreciated the fact they've been there for that long and they were getting there two three four or five hundred dollars and there was no resentment whatsoever it's just a clean simple hundred percent fair everyone knows what the formulas versus you start giving it out based on oh he really worked hard this year and all of a sudden the race review and the bonus is like mush together and I think that's a huge mistake and it also helps you when I give the race reviews now how long you've been here is out of the formula because I will tell you what I've seen companies do they give their three four five raise this every year because well you can't give the guy a quarter and next thing you know 20 years later one person's making $20 an hour standing next to someone who's doing the exact same job making $15 an hour and that's how you go broke slowly so it's really helped me to keep that out of the formula we do once a year raise your views but we do reviews every day I mean if somebody's doing something well hopefully we notice and say something if they're doing if there's a problem so we don't store it up and have one dumping out and once a year once a quart and I feel very comfortable you know it took me 41 years to get to this place you know Dana I'm glad you said I've only been in seventh business seven years you're right seven years isn't a long time it really isn't um people need to understand in business this is not this takes years to figure out so I'm very comfortable what we're doing now I know this open book management thing a lot of people swear by it I'm not criticizing it I just know that you've got three choices no bonuses I wouldn't I argued in some good places that works a badly done bought bonus program where people feel like they didn't get their fair share is worse than no bonus and then there's my approach which is just the yearly thing no harm no foul clean simple I'm sure not as good as a well-tuned performance bonus thing but better than nothing so I'm comfortable with where I've landed and I continually try to figure out is there some way I can do more of this this whole participate eight or you know thing but it's very very tricky and I got all different kinds of positions and jobs and it's just not worth the great damage to me at this point William I'm curious do you think your employees compare notes on how much they make or what they get in a bonus and do you worry about that is there a company where people don't compare notes on what they make by the way that's how they do it I used to have a party they go in the bathroom and open up the envelopes they didn't do it in front of you so good they're doing it there's this word in the in the that's used throughout the the New Testament and there was murmuring and I think that's describing most businesses there's murmuring you try to manage the murmuring no no I mean we don't do nothing punitive I don't I don't even know if we have anything prescriptive do not talk to each other about what you make I I think it's gonna happen I don't you certainly don't post it you know I don't think that's helpful but I just don't know how you governed that and maybe I'll be back on this podcast in a year or two talking about oh man did I learn the hard way but but but for now it's it's it's just not something that that we published nor try and protect now what happens with the bonuses that used to be a bigger conversation than it is now we did finally put our sales people on a form of commission mainly because they came to me and said I think we all even if you paid us the very same amount of money we are all gonna perform better if we have a number on our head which was really interesting so we did finally say okay we all are no longer part of bonus let's just put you on straight you know here's what happens if you sell this and if you sell that so I guess people know sales numbers there's just nothing argue what they know how much they sold they know the percentage that's clean it's your hand review I think we all have a mutual acquaintance in Cliff Oxford on cliff wrote of article I think for you Lauren years ago what what do you do with the brilliant jerk I guess the idea at least what I took away from it was what do you do with the sales guy who's hitting all the numbers but is a total rear-end around the office and ruins your culture so in our annual review we've we've now for years we've codified what our nine cultural values are what it means to lift those out and the employee gives their version of how they review themselves and the manager or a direct report says here's how I view you and your compensation is directly tied to how well you're living out the cultural values so it's not all of your merit pay but it's certainly part of it so the sales guy could make all the sales but if he's a rear end he's not gonna get all his commission I can tell you that's an ongoing problem with sick with outside salespeople it's common that the person that brings in all the big business comes in and dump stuff on the desk he releases by Thursday and the rest of the people are aggravated at them and they know they make way more money it is an ongoing regular problems for many businesses which is why some people don't pay sales commissions and even put salespeople on straight salary but that's a conversation for a different day and the time we have left kind of the biggest story in entrepreneurial compensation I think over the last five or six years is this guy Dan price from a company in Seattle called gravity payments who got a ton of publicity when he decided a few years ago to give all of his employees raises so that everybody was making a minimum of seventy thousand dollars a year it was in the news again recently we had it in the morning report because he has bought a subsidiary and he did the same thing there all along this has created all kinds of publicity for him I think there's been a Harvard Business School case study about him he's become a kind of a brand name and I'm really curious what other business owners think of him there was a another side to this story he had some employees who would made more than $70,000 who quit when this happened he had some vendors business owners who felt that this sent a very bad message and stopped doing business with him there was a story in Bloomberg that he had some litigation with his brother who was a partner and that they raised the question of whether he cut his own salary because he he didn't want to be liable for a larger payment to his brother if he lost the litigation I'm curious what you guys think how about you William well I'm all for innovative ideas and I love giving away things I love being generous and then with all those things I love let me just put a caveat in and I don't have an MBA so I don't know you know all the cool business rules whether this is right or not but something in me feels like this is a little bit of an idealistic chasing of a windmill and and it'll come back to earth Bloomberg called in a capitalist fairy tale that's kind of what I'd call that I just don't see the the I don't see this as a universally applicable rule maybe it's cost of living in Seattle's going through the roof I mean real estate values are up like 15 percent year every year ever since Amazon and a lot of tech so maybe to keep good people up there you have to do unusual things so maybe there's a contextualization and maybe there are all these other things to fight with the Brotherhood but for universal application I I can't see it I have a I'm just a struggling preacher trying to build a business so you know day no any thoughts yeah you know I just purpose in part I think he got the publicity he needed I think it was a very you know I think was a not a PR stunt but I think that was more to it than just making sure that his ploidies employees were all paid compensated at $70,000 it's just not a model that would work for my business and I wanna caution business owners who you know once you pay a salary you want to make sure that the output that the work that they're doing I know that you know I've heard had conversations with people about salary raises and they're like well this is what's going on in my life so this company should compensate me for that and my you know thing has been well the company had no choice in no hand in the decisions that you made in your life if I'm in a certain situation or I have a gambling issue or whatever I owe you know five hundred thousand dollars well the company I have a job I'm working here you should help me with that have you actually had somebody come in to say that to you I've had I've had people in my company who have felt that you know I have made these choices and I'm here at this point in my life I need a job that will help me compensate for that and then I said this is not this job you know this job you know this is the out this is what you do and this is what I believe is a fair compensation based on my research in in this industry right and based on how I feel comfortable putting my head down at night when I see your check I'm like okay that's that that's fair and so I just think we're getting into this period Lawrence where we're you know with the the business owner is the bad guy we're back in the day you know when you look at old movies It's a Wonderful Life with business owner had the opportunity to be the hero and it wasn't you know you know oh you're making money oh you're awful so when I read that article I said hmm I think he got me to read the article but it's just not something that I would do at perrolli Boyd is hey everybody $20 an hour to make the statement of equitable wage and apparently Boyd everybody knows what everybody makes it interesting yeah everybody knows where they fall in the commission they know what the lead starting Commission is they know what they have to do if they want to make more absolutely yeah everybody knows you know it's already the beauty business it's already can be very competitive maybe a little drama is there's all the beauty and so let's just remove all that you know she just started and this is where she's starting at yes she has 20 years experience but she doesn't have 20 years experience at perrolli Boyd imperiling Boyd is different so I just thought it was I don't say a PR stunt but I just say it could be though you can call it a PR stunt they're gonna be unfair okay not Dana you said something that I think you're right with paying market wages but you said they made choices they might not have made a choice maybe they've got a sick kid at home that mean if someone has a horrible bad luck in life get the business owner now it's their responsibility I mean that's a slippery slope and yeah the problem with this guy's story and Loren I believe you left the most important part out their original story he cashed in all of his money he funded this business as though it was a non-for-profit he decided that it wasn't important that he made money and he's giving all the way and the problem with that hopefully yeah read the original story he went ahead and he was cashing out all this stuff so he could fund this that's what the story was I don't think that's right his original salary himself was more than a million dollars and he cut his own salary to $70,000 but I think the company remained a for-profit business no no I under but I'm saying cutting your salary from a million to $70,000 is basically saying I don't have any rights or expectations or needs as a business owner to make money I'm just gonna give it all away wait he still owned the company and he kind of does what to what benefit he just gave away the profits of the company to the employees I don't think we know that for sure I mean he retained equity in the business but what good is equity if you don't have profits he's giving the profits away I don't think we know that I think very the point we don't know anything that's right he has no idea how much money he's making we have no idea whether he's actually paying all these people that the newest article I read about that ratio people used with how much does the CEO make compared to the average employee that is preposterous in a privately owned subject or S company because what that means is if you want a 50 million dollar company and you're making 2% which would not be anything to brag about and you made a million dollars and you say oh that's terrible this guy's making a million dollars in this average employees only making 40 they're dangerously close to going on a business because all the way to have to happen is a hiccup and now the company doesn't make money at all that whole ratio should not apply to people that own the business there supposed to be a return on investment and you need a return on investment for the longevity of the company to stay healthy and business you know it's interesting Jay what you're just talking about now is one of the strongest arguments I think for doing open book management which you raised before the people who do it tend to make the argument that they decided to open their books because they knew that their employees just assumed the owners were making even more money than they really were or way more money than they really were we're losing money sure by opening the books they changed that and they they allowed employees to see how the business really does well Lauren Lauren I'm going to push back on you there because I so we're in industry where we have a very clear margin I don't want to go into those margins but we need to clear a certain evitable fee business that if we ever wanted to take on investors they'd look at our books and say you're healthy you're clearing the right amounts so if I had a hundred stock owners and I were distributing our profits among a hundred stock owners nobody would have a problem with that but because there's one stock owner they'll look at the number and say oh that's too much and so I don't know how to get around that and I think it's a Pandora's Box to open that you want talking about water-cooler talk and see the value and I push way hard against you Lauren for as a guy who's the sole owner of his business for the record I don't mean to be selling open book management I just think it's a really interesting debate no it shouldn't be a debate some people it works for and they're happy with it and other people are not the most misused word lately is the word transparency it's good for government apply to a privately owned business since why is it Oh William you need to tell everybody how much money you're making you wouldn't need to be transparent where did that come from who says it's our responsibility to chill transparency to everybody it's it's really not right it's not capitalism it's not even healthy for the business I don't know but it's not capitalism I what see I don't to be in the position of selling open book management but one of the things that does happen at companies where this works is if employees know that the company's not doing well they often come up with ideas that wouldn't even occur to the owners own argument capitalism does not mean that you have to be transparent with everything you do in your internal business that's all I'm saying we don't owe it to the population or to our employees I'm just objecting to it's not capitalism I think there are different ways to be a cat I do think it's a one-way street I don't know how you open the books and then ever close them again yeah okay I'm saying government should include transparency that's what government supposed to be it's our government included and capitalism should not be the notion that is business owners we have a responsibility to be transparent that's a crock it's just not true it's nobody's business we're losing money it's nobody the bank both the employees business isn't it they sign the lease are they the one that's gonna lose their house if things go bad how is it the employees business explain that to me they have a job but you know people change jobs too that's certainly something that they might consider if they have a job offer somewhere else is that our responsibility to tell every applicant oh by the way before you take this job I just want you to know I got a business in two years it was brought up during the small Giants forum and I looked around like okay am I the only one here who thinks this is a little much I would not do open oh no we are out of time my thanks to Jay Gould's William Vander blue man and Dana white for another lively conversation on the 21 Hatt's podcast thank you all thank you all for listening yeah thanks Mike thanks for listening everybody this episode was produced by Jess Stuber on founder of blank word productions remember if you liked what you heard tell your friends tell your enemies subscribe like us and best of all connect with us follow us on Twitter at 21 to underscore hats and visit us at 21 hats calm well it's not what questions or issues you'd like to hear our panel of fearless business owners address see you next time