I Think We’re Ready for the Tariffs

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Liz picarazzi tells Paul DS and Sarah seagull that after a year of anxiety she's eager to find out what Donald Trump is really going to do about tariffs whatever it is she thinks she's prepared enough options to survive if your tax rate went from 11% to 60% she says I think most of us would be pretty freaked out and I am but I'm a little less so because of this work that we've done to be ready Paul meanwhile thinks there's some chance his business could benefit from the tariffs although he's far more focused on his very slow start to 2025 it's a little bit scary frankly he tells us and Sarah has been dealing with the pain of having to let one staffer go and the disappointment of having one of her senior people choose to go even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will let owners know they are not alone and facing challenges in fact that's the whole idea behind the 21 hats Community engaging with other owners to get the kinds of insights only another owner can offer if you're interested in learning more step one is to sign up for a free trial of the Morning Report which highlights the most important news of the day for business owners so you don't have to go looking for it step two is to get on our select Channel where you can ask questions questions get vendor recommendations and tap the wisdom of a very impressive crowd just search for the 21 hats Morning Report to sign up for a free trial joining me this week on the podcast are regulars Paul DS CEO of Paul Downs cabinet makers which is based outside of Philadelphia and makes custom conference tables Liz picarazzi CEO of City bin which makes trash enclosures and package bins and is based in Brooklyn New York and Sarah seagull CEO of seagull Communications a public relations firm based in San Francisco the episode is titled I think we're ready for the tariffs welcome Paul Liz and Sarah it's great to have you here I want to start with you Liz for for quite some time we've been tracking your growing concerns about the possibility of having to pay increased tariffs on the manufacturing you do in China uh Without Really knowing where this is going to end up uh we still don't know but the the signs certainly seem ominous at least to me where do things stand for you now so I still feel it's ominous but I also feel that we have protected ourselves in a number of ways and it didn't happen overnight it really took the entirety of 2024 and a little bit of 2023 kind of seeing on the writing in the wall then as the Trump you know presidency became more real we really accelerated our what we call our China plus one strategy meaning we're going to diversify our manufacturing outside of China and then throughout 2024 we've really enabled Vietnam and we're already producing some there um we have visited Thailand uh which is a possibility Canada I had a a really I would say a a little love affair that lasted about a month in October with Canada and that ended up falling apart for two reasons one was that the Canadian government put a 25% tariff on aluminum and steel coming in from China so the Canadian government took an action that would adversely affect that but then as we know in late November uh Trump announced that there will be a 25% tariff on Goods coming in from can Ada and from Mexico so the uh the excitement I had with Canada went away very quickly more recently racing toward this January 20th you know inauguration needing to figure out what's going to happen um my family went to Vietnam in December and a little little bit into January I was there for actually 18 days part of it was vacation that was the Thailand leg of it when you say your family lizes you should remind people that that includes your uh Chief Operating Officer correct yes so my Chief Operating Officer Frank is also my husband and our daughter Lydia who is kind sort of become the travel planner for the business shortly after the election when we realized that the Tariff increase was a very strong possibility I said we've got to go over there we've got to enable Vietnam to be ready to basically take all of our production order over can't afford a 60 % tariff so we took this trip over to Vietnam and literally we um on the makon Delta on the River on December 25th Christmas recently our families were not very happy that we weren't in the US with family for Christmas but we had a very short time frame to enable Vietnam and the visit over there was really worthwhile what was your goal in going what were you hoping to accomplish so there were two really two goals the first one was to give them a very formal presentation at the factory of our entire product line so right now they're just manufacturing kind of one and a half of our products and if we're to move everything over I realize they don't have a familiarity at the level that I would want them to have with all of our other products so not just our residential trash enclosures but also our Municipal um our bare resistant enclosures which are still in development so I realized I'm not going to just you know make a purchase order to Vietnam that otherwise would have gone to China for all of these products which some of which are sold out of now I wanted to make sure that they understood the full product line and the differences between the various enclosures so the first one was to sort of acclimate them to the full product line and then the second objective was to review samples and so you know one of the things that we've learned and Paul probably appreciates this is that it's really important to adjust and sometimes create drawings from actual production pieces so actually you know essentially our golden sample rather than have Vietnam try to produce from existing drawings because sometimes those aren't updated you know sometimes there's a lot of tweaks that we've done over the years so one thing that we identified was that there needs to be tighter knowledge transfer between China and Vietnam and I don't mean to badmouth anybody we have you know we have a very strong us China team that now includes Vietnam and the three of us need to be working very closely remind us there's a connection between your Chinese manufacturer and the company in Vietnam that you're now working with yeah so I work with one agent SLC contract manufacturer that has been with me in in China and set me up in China eight years ago and they also have operations now in Vietnam so they've set us up with a factory in Vietnam and they have one Central sort of project management office over all of it where the quality assurance the engineering all of it goes through essentially Shanghai a lot of it through base camp in in Practical terms but I just realized there's a huge risk you know even if I was Manufacturing in the US and I moved manufacturing from one Factory to another one state to another and I have done that in the past there's a lot of risk things can fall between the cracks so the trip was about not only being ready but feeling ready you know it's very um I'll just say it it feels really scary to not know where we're going to be producing and how much we're going to be paying and the uncertainty of that all of us pay income taxes to the federal government if your tax rate went from 11% to 60% I think most of us would be pretty freaked out and I am but I am a little bit less so because of this work that we've done to be ready and I feel really good about our Readiness but I also did see some things that made me realize that there is risk in making this move and that there's some gaps that need to be filled to make sure we're protected um in the case of a 60% tariff where we're not going to produce in China anymore if it's 60 if it goes from 11 to 25 we're probably going to stay there you know and then we'll have Vietnam as an option maybe we'll split split production between the two there is some advantage in having several factories involved because if there's a backlog in one then we can produce in the other that's one benefit out of this sort of search for our next our developing our new supply chain that has been one benefit is that we've Diversified our production capabilities did you think it went well do you have confidence in the Vietnam uh facility's ability to handle your needs I do but I am I'm still cautious because we've had a couple of products that need a lot of fine-tuning along the line particularly as you may remember a few years ago when we made the the leap from just making residential bins to also doing bins for cities and for parks and for public spaces it's a lot more complex you know the opening mechanisms the locks the latches all of the hardware and so we don't have Vietnam producing those yet and I'm just going to be really Vigilant in the sampling process to make sure that goes well we've developed a budget for more travel to Vietnam this year I'm probably not going to be the one doing it um Frank may not be the one doing it because actually neither of us are the very best at inspections of product but we do have an employee who has a very good eye for it but he just had a baby his first child and so he's on paternity leave so you know I am going to definitely tap him when he comes back to do a trip or two to Vietnam this year Liz I mean this is obviously super stressful you're essentially starting your business from scratch in terms of product but is there a a a bright side to this at all where like there are some things that you're you're going to reinvent and do better because you're you're kind of looking at it from the the beginning again are there any positives to so I think there's probably two positives one is that we've expanded capacity so if we have a really big order and our Chinese Factory let's say we continue with them they're completely busy with that order and then we have another one come in that's high priority we now have another Factory that can produce and can fulfill on that order and that feels good because you know we do have a bit of a history when our supply chain is not tight enough to make clients wait a long time and we've got some really high-profile really strategic clients that are coming on board I don't want them to wait so that's a positive the second positive I would say is that I enjoy traveling so you know for the picarazzi to spend 18 days in Southeast Asia because of work and having a portion of that paid for by the business is is sort of a it is a privilege and our daughter Lydia really really really enjoys it so she's sort of psyched that the business is diversifying into these places where she wants to travel and that's just been very enriching it's been kind of cool for our family and definitely for her as a learning exercise I really like Thailand I did not like Vietnam as much I shouldn't be saying that but you know when I was sitting on the beach in Thailand a couple of weeks ago I weirdly um found myself thinking for his policy that got me over there and it's the only thing I will thank him for but it wasn't it was a sort of a benefit that I never would have expected so you're basically telling me that I should find some overseas clients for myself that require me to have inperson meetings um in something Wonder wonderful place sure good advice you still got to get the money into the company to pay for all this but you're basically doing a lot of the experience on a pre-tax basis which makes it cheaper Liz how has your business been holding up uh through all this stress of the past year or so so we had a very strong 2024 we haven't raised prices yet and our business so far in January has been very strong we have some City clients that you know if you're in a city like New York City and there are a lot of public parks if a couple of public parks get City bins then other public parks want City bins so we had some installations last year with with parks that then have led to more work with parks and some of those requests have come in in December and January so those are bigger orders those are sort of high profile orders there's definitely a fomo effect there which businesses of course love but the risk is that once we know what the Tariff is in almost any case there is going to be an increase in price and we don't know where that's going to be at we have it sort of worked through we're working with a consultant on various scenarios for pricing and you know if it's a 60% increase in China and in the unlikely case we keep it 100% in China with that 60% increase there's going to be a gigantic price increase that probably could put us out of business hence the diversification but I haven't had any loss of business due to pricing or due to General economic instability so so far so good can I ask you how this is for Paul as well like you mentioned new orders coming in in January like when businesses get their you know budget um allocated to them do you find do you get a surge of people coming to you to place orders for you know um these big ticket items um or does that tend to materialize a little later in the year we tend to get big orders not as much when budgets are replenished but when they're about to when a budget year is going to close so in New York it's usually June 30th and there's this sort of I call it a Soviet effect I used to study like Soviet economics and politics where you had to spend what was in your budget otherwise you're going to lose it for the next year so there's this rush and we've experienced it for two three years now particularly working in cities that it'll be you know four to eight weeks from the end of their their um fiscal year and they're placing orders that's been you know a pretty awesome effect I have to say what do you call it you call the Soviet effect it's just very Soviet where there's not a lot of economic logic to how money is spent it's all about spending the money you have so you get the same budget or and they increase the following year and and it does happen in American capitalism as well yeah I mean to call it strictly Soviet is is not correct I mean we get a version of that in the in August and September with Federal buyers trying to spend down budgets but I would say that we don't get any particular bump any other time of the year that the projects sort of sort of arrive when they arrive CU I think that for my product it's people when they're planning a whole move or a new building buing it's just one of the things they have to do and unlike Liz we are experiencing which is a very very slow start this year which is the complete opposite of what happened last year and I don't really have a sense of why because we're doing all the same things but my sales are way below where they should be and it's a little bit scary frankly coming off a very good year yeah coming off an incredible year and uh the previous year having been not so great and then you an incredible year and then all of a sudden the air goes out of the balloon uh we saw the collapse really looking back at the data it happened after the election that the last two months last year were pretty bad but I didn't care so much because I'd already beat all my targets for the year and then what I wasn't focusing on was how fast the backlog could disappear because we built a machine to do 6 million a year and it's churning through $100,000 a week of production so whatever's on the books right now we're we're busy through more or less the end of February and then after that I don't know but uh I need to see some orders start coming in and they're just not happening right now Paul do you expect any impact from the tariffs on on your business obviously you you manufacture here in this country but you do have to buy some raw materials perhaps from overseas yeah we we buy materials from a lot of them come from overseas and and my material costs tend to be about 20% of My overall cost so even if you double them it would not be okay I mean it would be significant but it would not be like I have to double my prices I just have to double the material portion of my prices I mean the tariffs are incredibly stupid idea but we're going to see how it plays out and uh it would be hard for me to identify like a single thing that we buy in its entirety that's going to move my needle all that much because most of the materials we get come from a variety of places around the world and the things we buy that I know come from China are mostly like nuts and bolts that just aren't hugely expensive so if you pay $2 as opposed to $1 it doesn't move the needle that much I'm just going to wait and see how it all happens Liz you were talking about kind of the the various pricing scenarios especially if you kept your prod in China and the Tariff went to 60% is there a scenario under which it starts to make sense for you to manufacture in this country um well that's not one thing I didn't me mention but I've also been looking again in the US and yeah this is my fourth round since I moved over to China you know seven eight years ago and it's completely cost prohibitive it still is because let's not forget my primary material for my trash enclosures is sheet aluminum and worldwide most of that comes from China so even if I work with you know a metal fabricator in New Jersey or Long Island and I've gotten some quotes from them and I have like a desire to work with them if they're still getting their aluminum from China I can't really Escape it because then not only do I have the huge price on aluminum but I've got American labor rates so um you know we are looking at one component and one component only that we're thinking of producing in the US and that's because it's sort of less complex doesn't involve any of the bamboo boards that we use on our other products and it's something that we're sold out of and we sell out of a lot so being able to quickly produce that locally or relatively locally is something we're looking into but that com component which currently we basically produce at cost for a number of reasons that I won't go into that would need to increase and that could piss off customers so I don't know if that's the best answer to your question but I am remain incredibly discouraged by my possibilities in the US and I would say pretty irritated with people that just don't understand that I have hard numbers that show on average it's like two to two and a half times more expensive to produce in the US and I know that not just from getting a couple of quotes but doing it over and over over four years and thinking I'm going to get a different result it's like insanity getting these quotes somehow thinking I'm going to get a different result I'm not going to I'm just not I mean not unless I was like subsidized by the government and like New York State decided to like set up a big you know metal fabricator that they funded and all sorts of you know New York City makers could produce out of it I mean yes you can tell been daydreaming about something like that for a while but I've also given up on that and part of it is that I really don't think it financially or mathematically make sense to produce my product in the US because it can so much more affordably be produced in Southeast Asia or China well I think that one of the one of the things that everybody who's excited about tariffs just doesn't understand is that even if you went to I mean Liz is a pretty good example she's got two options she can find a US maker and there's a certain number of them they have a certain capacity that's built on the existing configuration of imports and exports and so no matter what she does there's going to be some huge time lag as those people increase their capacity like assume the tariffs work exactly as designed everything becomes more expensive but lizz's reaction is I'm either going to get us producers or I'm going to set up my own us production which is their second option it just takes a lot of time to do that and plus there's significant barriers to either the existing producers increasing their plant their their labor their Machinery or Liz trying to set up her own plant labor and Machinery it takes a lot of time to do that which presents a lot of Risk by the way enormous risk because the next Administration right may take it away and then you're we saw this exact same thing play out in Co when people switched mask production from China to Texas or whatever and two years later all those people are broke so it's such a bad idea to use tariffs to try to promote American manufacturing I think that there's better ways to do it and most of it being let's figure out how we can make it easier for people to manufacture just without the tariffs like make it easier to get permits make it easier to wire up a factory find more electricians that's a huge shortage right now we can barely get an electrician in to do anything there's all kinds of things that are that are structural impediments that are built into the American economy that are going to make any kind of manufacturing Renaissance very very difficult the cost of health insurance is a huge one it just is incredibly expensive to add people to your payroll and particular if they if they have families and they need health insurance and uh so I don't know I'm not super super happy about this it's not affecting me the same way it affects Liz but you can see just what the problem is going to be for anybody who's trying to make or sell something here Paul could could there be a silver lining for you in that do you have competitors who manufacture overseas who will face the problems Liz is facing possibly I I would say that that it's possible we have a number of competitors in Canada who are you know perfectly good operations and they just enjoy the advantage of being uh 30% cheaper on a dollar to-dollar basis so they I mean I don't really know the nuts and bolts of the numbers in running a Canadian Factory but I know that I have I have competitors up there so suddenly they were 25% more expensive yeah that' probably be good for me I could go get a couple of jobs from that but uh if we took all their business would be difficult for me to actually do it just because it's not easy for me to expand that fast well and also the the trade workers which you know Paul you were mostly addressing with the example of the electricians why doesn't this tariff money go to support you know the revitalization of manufacturing and trade education in the US I think I may have said it on here once before I would gladly pay tariffs not at the rate Trump's proposing but I would feel better about the tariffs that I've been paying if I knew that it went to help trade education and it would help the manufacturing sector it's not going there I don't think it's ever going to go there so me paying tariffs to help Manufacturing in the US isn't doing that it's just hurting me trade education is such a big topic because there is a stigma against Blue Collar work and that's the probably the biggest thing that's hurting our manufacturing sector is that it's viewed as something you end up doing like oh well I didn't succeed in life or in school and therefore I had to become an electrician even though the economy needs electricians there's still a view that if you end up as an electrician somehow you failed and that's going to hurt American manufacturer like me that if I wanted to set up in the US it would be hard for me to find employees and I'm also a service business because I do installations and it is hard for me to find installers for that very reason Paul do you see that stigma as well I think it's it's lessening because a lot of people are realizing oh I don't need to go to college for four years I could just sign up with a plumber and be making 80 grand a year two years later the thing that doesn't get talked about is how quickly these trades wear out your body and so that if you have let's say you get 20 people who enter the the electric carpentry Plumbing any of those if you enter those trades in your 20s by the time you're 45 I would say a good 2third of them will have serious long-term Health consequences of it and so I'm fortunate in that being in the shop environment that we're in we're better able to control conditions so that we're not destroying people quite as quickly but being in the trades is hard on your body you you have to move around and lift stuff and work in uncomfortable places and it's just it's not easy a lot of people lose you know like their knees their shoulders I've got a couple of injuries that aren't too bad for me but I'm very concerned about some of my workers and we do everything we can to give them what they need to work safely but even so it's just hard work it wears you out and our our current Financial systems in no way reflect that reality so the cost of health insurance and then the push to push retirement ages higher and higher those things just don't really work if you're in the trades because you need health care you're not going to be able to do the same amount of work you you could at age 60 as you did at age 20 you're just not going to be able to I know nothing about manufacturing it's not my area of expertise at all but my family we own a farm in the middle in the Midwest and you know there are Farm subsidies that that help farmers um not only to you know produce but also not to produce you know and I'm wondering whether or not you know instead of tariffs like whether there are manufacturing subsidies like would that you know solve Liz's problem in terms of you know somebody creating that aluminum in the US to make it more affordable to you like is that another route that would be considered well as much as I would love to get a subsidy as a taxpayer I also don't think that we should be investing in the sort of manufacturing that I do because it's very manual um it's not super complex if we want to invest in manufacturing that's going to just really make the us more healthy it should be in green energy should be in Tech which we have over the past few years they have and I think that's correct and maybe because they've done that they're going to be less likely to invest in Sheet Metal Manufacturing like I do but we do not do subsidies like that I mean yeah Farmers is a good example but I I don't see any sort of effort to try to help manufacturers like me I just I don't see it I've kind of been looking for it I've been hoping for it not going to spend my time lobbying for it because I know that the efforts are going toward sectors like green energy and Tech I uh I somewhat disagree with you Liz I think that that America could desperately use less uh sophisticated manufacturing and the idea that the total output of of the manufacturing sector is going up but the total employment has gone down highlights a problem which is what do you do with people who are well suited to making trash enclosures or kitchen cabinets which are not rocket science but can't handle highly automated robot factories I mean that's one of the main reasons why that manufacturing sector continues to grow in dollar volume without adding people because there's huge incentives for a manufacturer to buy a machine as opposed to hire a person if I buy a table cell I can write off the entire cost of it usually in the first year maybe depreciate it turn it on run it for as long as I want I pay no further taxes on it if I hire a person I get taxed from day one until they retire and it's a heavy tax load on me so to say it's it's almost like there's a an the opposite of support for manufacturing employment there's support for manufacturing but there's not support for manufacturing employment it's just the opposite I get that you that's pretty disgusting given that we're at a point now where it looks like robotics is really going to start wiping out enormous numbers of jobs like what is the point of an economy if we can't give people something decent to do all day what are they going to do no but but you're saying it's going to wipe it out but you're also saying there's not enough people so is it really wiping it out or is it finding a solution for the lack of um people interested in that vocation I think that there would be plenty of people interested in the vocation if manufacturing looked the way it used to 40 years ago in other words if you grew up in a in a manufacturing town in Ohio or Pennsylvania you saw your neighbors parents go to the factory every day come home and they were able to support a stay-at-home parent they were able to buy a second home they lived a decent life the factory owner lived in the same town there weren't these huge gaps and you also just had the experience of seeing people who knew how to do stuff that was your scoutm your football coach your neighbor there'd be all these things going on aside from just in the factory that made the idea of making things seem much more you know not like some weird thing that happens overseas by robots but just like oh yeah my uncle was a metal worker was a steel worker was a cabinet maker and you would have seen that shop and that person doing side projects and it just would have been it's not hard to get people to be interested in manufacturing as long as it's not some weird thing that happens out of sight way over across the ocean if it's happening in your own town you would be like yeah let's do that people love that that's one of the main reasons why so many people are so angry now is because that basic decent way to have a nice life has been taken away Away by the decisions of certain Elites and people who benefit greatly from it but it was just taken away and so here we are now we're trying to sort of put it back together in the dumbest way possible because the people who we were told to trust have made decisions that really over a huge number of us sorry about the the swearing but no other way to put it well we will obviously have reason to come back to these topics we we're having this conversation right now just as Donald Trump is returning to the White House obviously we don't know yet what his policies will actually be despite lots and lots of discussion over the past year um so we we will definitely come back to this I would like to hit a couple of other topics today Sarah you've had some challenges lately with uh with your people starting with having to fire somebody in December could you tell us a little bit what's going on with you yeah um so you know I try to create an office environment that is welcoming and very supportive of each other and you know I I have a a general problem of wanting to make everybody happy and not disappoint people um but you know sometimes you have to look at your deck of cards and make sure that all of the the pieces are are really running on all cylinders you know so like I think somebody on this podcast once um probably Paul if not Liz um um said that you know your your business you can't be a charity and if somebody's hired to do a particular job and they're only doing a portion of that job you have to fish or cut bait and so I cut bait in December and it was a bummer because I me I liked the person personally like I thought like this person was genuine and a good team member and just really just a a nice human being on all counts but um they just weren't delivering to the level that I needed specifically in support of one of my um my the members of my leadership team that I love and want to make sure that she stays um so I had to switch gears because I knew that if I kept this person on my leadership member would you know be frustrated by that because they weren't getting the help that they they were that they deserved on this account Sarah it sounds like you you struggled with this is is this among the first times that you've had to fire somebody for not performing I had to lay people off because of money when I was owned by another a larger company um for that two years I did have to let go of somebody but it was I think the person was going through some personal issues but with that situation they had a general counsel for the company and so the layoff was this person was expecting it because they had asked me for Second Chances over and over and over again but then I had this HR um general counsel person basically do all the dirty work for me like I just had to have in the initial conversation but so that's what I did this time I invested in uh starting to work with a fractional HR person um at close to the end of the year last year and one of the first things that she did was was should help me you know offboard this person and it was very clean and I I listened to a lot of podcasts on how to to fire somebody but basically it was like bring a box of tissues in your office be very clear on this is why we're we've decided to part ways and then pass the Baton to the the HR person to get all the paperwork done and it felt really shitty I'm going to swear just like Paul but I was able to hire somebody couple weeks later who's amazing and we're so excited about and um the person that I Let Go got a job like immediately um weirdly enough at a place where a former employee used to work and I I think is in a better situation so it all ended up okay um but now I just found out that um one of my senior team members got a job offer and is leaving I'm going to be going working for an AI health care company of some sort and and she has big shoes that I need to fill and I posted the job and the applicants are few and far between and very underqualified so I'm trying to stop the bleed right now so that's my that's my show uh firing people just is terrible it's it's just the worst day you can have for whatever reason whether they deserve it or not and it's it's a very very difficult humano human interaction yeah I don't have anything to say other than there's really nothing that's going to make it any fun for anybody involved how much relief did you feel after you terminated him or her that's a good question I don't know that I was relieved um because they weren't like a Troublesome person they just weren't generating what I needed them to generate um I think the relief came when I hired somebody that was able to do all aspects of the job and I knew that they were a good hire and they jumped in and were able to like they've already kind of dazzled us so that's when the relief came not the relief and letting somebody go but in terms of like your mind space when this person was still in the company and wasn't performing at the level like did you take that home and thinking about it while you were making dinner or thinking about it when you were in the shower like I find that when there are those sorts of difficult HR situations it's very preoccupying and that once it's like the Band-Aid is ripped off it can feel a lot better 100% I mean you know as many sleepless nights just kind of going through the process of like is there a way to fix this like how do I go about doing this you know even the stuff that's like what am I not supposed to do legally you know what what are the things I need to watch out for are there things in in terms of like them being in a a minority class that I need to think about like all of those things were circulating and I was fortunate to be able to have somebody an HR person that like knows the rules of the book really really well but certainly a lot of sleepless nights and I think that like if you're if you don't have sleepless nights about letting somebody go that's wrong I mean like you should I mean because you're disrupting somebody's livelihood and their paycheck you're flipping a switch is is not something to take lightly well I think one of the things is is not so much how do you feel and how do they feel is how do the rest of the team feel and I don't think I've ever fired someone where there wasn't sort of like an immediate oh this is great from all the other employees who see the need for it long before you're willing to do something or that's pretty common so look and see what everybody else in the building is thinking because when you take that hard action and have that bad hour and do the terrible thing you got to do what you're doing is demonstrating to the rest of your company that you have standards and the people who who take pride in their own work they really hate it to see somebody else skating by with a substandard effort and so one of the best things you can do for your company is get rid of people who aren't performing because it makes everybody else feel so much better no I agree totally I fired a couple of people in the spring and it was because we found very solid evidence of theft um by using the company credit card to purchase personal items at Home Depot and it was actually discovered by an employee that was friends with these two employees and that was a difficult thing for him because he revealed he had to share the evidence with us that this theft was happening I was very decisive about it it was literally within like 8 hours of finding out about it that we terminated them but it was very clearcut so you would think and then we got a letter from a lawyer a couple of months after that that you know they're threatening to sui now for not paying them time and a half on Saturdays which I have like tons of evidence that I was doing so even then we produced that information to their lawyers so we say their claim of not getting paid time and a half is false here's the paperwork but they're still at it because there are um I would say sort of predatory attorneys that find people in vulnerable situations and know that from you know legal perspective they can point to things that you wouldn't even think of as an employer so I even have text messages where these two people admitted to the stealing admitted to the theft I put together a huge PDF with all the receipts of the theft with their admission of guilt in text messages and yet this legal thing is still hanging over me they're looking for a go away payment yeah it may be because the legal bills are really high they're outrageous well you know shitty employees who steal from you have friends who are shitty lawyers and yeah it's it's bad and in a way whether they're stealing from you or not would not be Germain to the issue of whether you were paying them correctly now you say you were let's assume you were you still got to deal with fighting it but there's a lot of bosses who do steal from their employees that way and then the employees feel justified in stealing back and then you know like nobody wins in that situation but I would say the question of whether you've correctly paid everybody is to remain to every business owner and so even whether your people are stealing from you or not you should be trying very hard to make sure you're paying them for what you owe them legally for what anybody that you guys have fired to let go um do you look back and in hindsight go I knew it the first week like I I I felt like that that this person was not going to be the right fit or that they were going to do something back the company like were there signs or like things that you're like you learned along the way like what's the litness test for not you know hiring similar people in the future Sarah before they answer are you asking this question because that's the case for you that when you look back you see signs well I mean I every every employee I have if whether or not they stay or they go I learn something about the kind of people that do well in my business right and the biggest thing for my business is that anybody that I hire and because we have interns that come and go and you know and they're fantastic and they're they're lovely human beings but like in PR like you start out working you know at your entry level position but the eventual job is being a vice president running your own business and you have to be you know articulate confident like when you get on a call with a client they're not asking you to be their doer they're asking you to be their advisor there's a certain kind of trait that needs to exist exist for anybody to go into our industry you have to have a level of confidence have to have an ability to go all right I will fake it till I make it and like you can tell that pretty quickly you know I've learned more of that along the way if they don't have that they're just going to be an independent contributor the entire time and I can't promote them and that's going to frustrate them and that's not going to make make for a good work environment for them so I look for these little qualities um in terms of personality in terms of skill set all that that kind of stuff so I can make sure I'm hiring somebody that I will be able to promote I sort of think the opposite for a lot of the jobs in my factory I just need someone to do that job and there's no obvious path to becoming me or or management or anything getting back to the discussion about manufacturing factories are full of jobs like that where you could come in do something for eight hours help move the needle for everybody else and then just go home and forget about it you don't have to worry so much that's a job not a career I'm offering a career you know right but a lot of people want a job and uh and a lot of companies need to just give people jobs not careers careers are like a whole different problem yeah no I agree completely but like I only offer careers period I don't offer jobs okay that's that's your choice and that's what I've learned over time like I can't I mean I I don't offer jobs because it's just not the way my industry works well different Industries work different ways when the things I mean just the last thing on the on the rise of manufacturing and the and the fall of manufacturing employment there used to be a lot of things that happened in factories that were put in the bucket of manufacturing employment that just aren't anymore for instance I don't have someone on staff who cleans my bathrooms I hire an outside service to do that so that's taken a job that 50 years ago would have been done by a janitor marked down as manufacturing employment and now becomes a service position position so that's part of what's taken out a lot of uh the headcount in manufacturing Sarah we only have a couple minutes left but I wanted to go back you you mentioned that you hired a fractional HR person I think you might also have a fractional CFO is that right I know I'm in like the fractional zone right now is that strategy working for you yes it is because those are you know subject matter experts they know what they do and they they have a bunch of other clients whatever I also have a um a law firm that I use I mean they're I mean they're essentially a fractional for us as well and it's a great way for me to kind of get from you know my current size to a larger size I've messed up my books many times so I know no better than that and the HR stuff as I get bigger and dealing with more people and personalities and needs and this and that like I kind of worry about screwing things up right where I'm not offering people the right number of vacation days or I'm not there's a lot of emplo employee protections here right and so as an employer if you say or do the wrong thing you can make yourself um exposed to litigation right so for me it's just really important that I have somebody looking at how I'm doing things making sure that people are signing you know non-disclosure agreements and not taking you know stealing my clients all that kind kind of stuff and I just need somebody else to to be my quarterback on on all of that can you give us a sense of what you're paying for these services and whether you find it comfortable so the CFO person I'm paying a flat fee monthly of $2,100 a month and this is for bookkeeping and it's not really hourly based but the agreement was that there's going to be an EB and flow of of the work obviously January is a really big month for find bookkeeping and all that kind of good stuff um but it will go up and down um with the HR person I basically said she has an hourly of like a couple hundred an hour she's not cheap and I say listen uh I'm going to use you um off and on throughout the month but if you get anywhere near the 2,000 Mark you need to call me and let me know that so there's a cap on it and the law firm is the same way and I don't have those expenses all the time like it will go down it will go back up but um it's the the cfo's already saved found found money for me he went through and audited my books and found like two missing payments from for from clients and was able to bring that money so he like literally paid for himself in the first three months Liz or Paul have either of you tried similar relationships well I have a I have a part-time marketing person marketingsales but in terms of CFO or HR no so I've been working with simple numbers for I don't know say three or so months and I I don't think that's necessarily a fractional CFO but definitely play some of that role of a CFO and they've really just they have this huge spreadsheet template where they put all of your numbers into it it's probably like 20 tabs and then there are two three-hour consultations where they literally walk you through your own numbers in every single Tab and explain all sorts of you know numbers and metrics that something like the the labor utilization rate which I know is something that Paul you look at in terms of Revenue per employee you know that's enabled me to look at it that way um so that's been really worthwhile for me you know Frank and I together attend those sessions and we're probably going to keep them on um to have an hour every month as a consultation to go over our numbers and talk about things such as the likely price increase that we're going to have you know for us for me in particular I'm glad that we have that because price increases can be very emotional and they can suddenly become not objective mathematical decisions which I tend to be you know more about Frank thinks because he does sales I don't want to have to raise prices but if you look at it in terms of the actual mat you see we do need to raise prices and then you dig in deeper and this is how much we need to raise it and this is why that's not a discussion I want to have just between me and Frank I want an outsider to come in and help us with that so for me that this transition with our whole supply chain there's a lot of tough things that we're going to have to look at and make some decisions about and having that Outsider is incredible all right my thanks to Paul DS Liz picarazzi and Sarah seagull have a good week everybody one thing before you go everything we do at 21 hats is created by entrepreneurs for entrepreneurs to help us all learn together if you get something out of listening to these podcast episodes consider joining the conversation you can do that by joining the 21 hats sounding board a slack Channel where you can tap the wisdom of a very smart crowd or by becoming a founding member and joining our monthly Zoom Forum where you can part of conversations much like the ones we have on the podcast you can sign up for both by subscribing to the morning report if you have any questions you can email me at Lauren 21h hats.com and if you get something out of this podcast or out of the morning report please tell a friend tell an enemy tell every business owner you know your word of mouth owner to owner will always be the most effective way to build this community for all of us thank you it means a lot this episode was produced by another another entrepreneur Jess steron founder of blank word Productions thanks for listening everyone [Music]