That Would Put Me Out of Business

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Mel Gravely Liz picarazzi and Jackie Russo talk about how they set prices Jackie explains why she refuses to respond to request for proposal we have not participated in a single RFP in 15 years she says and we won't under my watch Mill explains how his Construction Company manages to get work despite always being among the highest pric biders which is why he never gets government jobs and Liz tells us what happened when she was forced to raise prices because of the tariffs placed on goods manufactured in China but first she tells us what she's thinking now that there's a possibility those tariffs could go to 60% plus we review how the three owners handle employee reviews even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by a principal sponsor the great game of business will let owners know they are not alone and facing challenges same thing with our daily newsletter the 21 hats Morning Report wiic magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast are regulars Mel Gravely CEO of triversity construction a construction business based in Cincinnati Liz picarazzi who CEO of City bin which is based in Brooklyn New York and makes trash enclosures and package bins and Jackie Russo CEO of brand Russo a marketing agency based in Lafayette Louisiana the episode is titled that would put me out of [Music] business welcome Mel Liz and Jackie it's great to have you here Liz I want to start with you today because the topic of manufacturing in China has been in the news of late um as president Donald Trump imposed a tariff of as much as 25% on trade from China he's now saying uh if he's elected in November he plans to raise that to 60% I'm wondering what would that mean for you if that actually happens well a 60% would put me out of business um and I'm hopeful that that doesn't happen and frankly I'm hopeful that Trump isn't elected but regardless of who wins the presidency kind of the threat of China to Taiwan right now seems to be heating up since the election um and even if Biden wins if there was tension there he could raise tariffs again so it's been a little bit scary when I woke up on Monday morning that's the first thing I focused on so we already have the wheels in motion to look into what we're calling a China plus one strategy so to probably still have China as our main um manufacturer but but now we're looking as well at Vietnam and Mexico and then in a tertiary way I should say we're looking again at at Manufacturing in the us but as I shared in here before um I have never been able to affordably manufacture in the US despite trying many times to reshore my work um most recently was in 2021 when I spent you know two to three months of my time with an RFP getting bids from various American factories and on average the quotes that I was getting were 67% more that I'm paying um in China and that's even inclusive of the tariffs so for me it is a really big deal um the geopolitical risk regardless of who wins the presidency is something I need to take seriously and um you know it's we're waking up to it you've had a great relationship with the supplier you use in in China tell us a little bit about how that relationship has evolved sure so um I moved my manufacturing over there in 2017 after having produced in the US for about three years in literally five different states so you can see how diligent I was about trying to keep my manufacturing here there's a huge stigma about producing in China so I'm always very careful about it how I talk about it and uh I know that you like to ask me about it so I do sometimes choose my words carefully but wait tell tell me about this the stigma uh I know that a lot of Brands love to um promote the fact that they are made in the USA but are you saying there's actually a penalty for manufacturing in China in the minds of Americans yeah oh absolutely we all know that there's an assumption that I'm manufacturing there because of price and that's actually one part of it I'm actually producing there also because of quality about the level kind of of trust I've built over the years my relationship with my factory as well as the the middle contract manufacturer that I work with they're based in Shanghai that's actually partially an American company and so all of the conversations with the factory the negotiations the translation the tariffs everything that we go with we're not doing that in our office in New York we have kind of our satellite office in Shanghai that's doing all of this so over the years I've probably gone there like five or six times and most recently in December and I would say the relationship has been good not just because I'm getting kind of the the price and the quality that's better but you know for me as an entrepreneur I like it when people are excited about my ideas and want to move my ideas forward and want to kind of get creative in the weeds side by side when I go to China we sit for hours and hours right on the factory floor um looking at things that could be improved testing things out for me the quality control making sure everything is being done right but I think there's an understanding of the Chinese that they're kind of just drones or robots you know maybe not that creative and I found exactly the opposite I mean it's such a delight for someone to be excited about what I'm doing you know I'm I'm an entrepreneur I have that ego involved I didn't find that level of excitement at any of the three factories I produced that in the US I hate to say it but there was a bit of a a feeling I had of you know who is this person with her trash bins you know what does she know about this or there's no way this is going to go anywhere we were're not going to be able to give her the price she wants because she's never going to sell many of them okay whether or not that was in their heads I don't know they certainly wouldn't have said that but when I went over to China and there was this sort of I Want You to Want Me Okay as is in the song we feel good with that we were in the New York Post a couple of years ago with some filthy um City bins in Time Square where you know we looked really bad and a couple of the things we needed to re-engineer on the bins we moved that ahead so fast and we made adjustments to doors and various Hardware that we had air shipped from the factory that we were able to get into Time Square and installed within three weeks whoa unheard of unheard of with anything I had done in the US so for me okay and this is a sample of one me American company and my factory I haven't worked at other factories I have had a really good situation and one could say you know it is just the factory it's not China as a whole but whether I'm in the US or China or Vietnam or Mexico there's a lot of expense involved with changing your supply chain in any way and so I'm not going to make any jerky you know quick decisions I'm going to be very methodical about it and I will be very sad if the tariffs go up to a point where I can't continue to work with this Factory that I have built built a very good relationship with both professionally and personally wow Liz we have talked here previously about your uh attempts to kind of have a plan B um nothing has has panned out the way you hoped it might at this point are you thinking something has to pan out here you have to have a a plan B I have to yeah this is the very first time if you had asked me that even two weeks ago I wouldn't have said that but with what's going on in the Red Sea you know with hijacked you know cargo ships by Pirates and um you know anything with my supply chain being disrupted we have a large order that's being manufactured right now that's going to be shipped over here in like three to four weeks and I know that that could affect it um it's definitely affecting our rates um shipping rates so there's volatility you know and with the tariffs I I did look it up in advance of our taping today when I first started producing over there my Tariff was 3.4% then when Trump was in office it went up to 18% our tariff bills for 2020 were crazy high to the point of we probably were operating at a loss and then since 2021 I've been at 11% so if it were to go up more than that that would be a huge impact on the business so yeah I do take it very seriously this time time and you know I have my list of five or six objectives for 2024 and the China plus one strategy was number two on the list what happened when the tariffs first uh went up during the Trump Administration how did you react to that uh I just paid them and HED for them to go away I mean did you change your pricing we did raise our pricing um probably not proportionate to the amount of increase in the Tariff we appealed it there was an appe heal process and I think for most companies unless you had like a lobbyist or a lawyer or something involved we're not going to get um an exclusion and we didn't either so that's what I did back then and um I'm just glad I wasn't raised to 25% because that could have happened easily our classification on our goods were kind of in a gray zone between the 18% and the 25% tariff and we were able to get it to 18 so it's sounds easy to say well we're going to check out Vietnam and Mexico what is that process like well so on the Vietnam front it's actually fairly straightforward for us because the contract manufacturer we use in China set up an operation in Vietnam in 2020 when all of this tariff nonsense started so they've had four years to establish a presence and to have relationships with factories around Vietnam so um you know I reached out to them and said this is something we've briefly discussed in the past this is something I'm very serious about so from the time of asking for that quote a couple of weeks ago to now it was seven working days I got pricing from Vietnam I know what it is um I know that it is going to be less I don't know by how much less because we still need to kind of figure out the tariffs and so forth but um that is moving along really fast and we're actually having a meeting next week with the head of the whole V Vietnam division of my contract manufacturer who's in New York so that's looking very promising um I would not be surprised if I got a on a plane in a month or so and went to hoochi Min I've never been to Vietnam before and you know for me I love to travel so there's a little bit of an excitement about this uh diversification opportunity so and then on the Mexico side um we've never really looked into it that seriously but I do have a personal assistant who's incredible with research and literally just yesterday I assigned him to start looking into Mexico so you know looking for metal fabricators that make similar Goods whether or not they're trash related it could be safes metal cabinets any sort of goods related to Bent Metal Manufacturing so those are the two countries we're looking at right now and um you know stuff like tooling like I haven't figured that out yet you know if we have a we've spent a lot of money on tooling for all of our products with our Factory in China does it mean that I need to retool everything in Vietnam or does the tooling get moved over do we have Tooling in both places those are the sorts of details that we need to work through but like I said changing anything in your supply chain involves a lot of thought and time and and work and um but we need to do the work now before we are kind of Ling it but I gotta say after that Trump 60% number it's been on the top of my mind I got to tell you there there is so much to unpack in um everything you said Liz I've got like 72 questions but I've been forced into a moratorium so I'll just ask one oh my god I've never gotten a moratorium you're new to the podcast how do you have one already bad behavior in the previous podcast it's a long story so Liz I got to ask this feels like it's got elements of cost you mentioned cost and quality but it also feels a little bit like you've been disrespected domestically like not appreciated not um I don't know what other words to use um is that does that feel that way did I capture some of that accurately I don't want to say it's disrespect even though it might be but I would say not taken seriously so the example that I often use is Sarah Blakeley the founder of spanks Who Sold her company for $1 billion dollar because she was a 100% owner when she first started her company and she was working with a couple of factories in the US they didn't really respect her they didn't really think you know cutting up panty hose and making them into shape where like what is this she created an entirely new category and she has still I think she still manufactures in the US but she talks heard her speak many times about being a woman going into manufacturing into something admittedly you don't know a lot about which means you're relying on the factory to help you advance your idea so for me as an entrepreneur I'm always looking for people to advance what I want to do in any area but in manufacturing if someone takes me so seriously that they're going to create prototypes quickly and they're going to iterate and they're gonna work on pricing to make sure that this product will work in the market that it's sellable so to answer your question I I don't want to say it's disrespect because the other thing is I really liked the people I met with at the factories in the US I don't think that they were necessarily chauvinists but I think that they hadn't really encountered someone like me before and I found in China like that was never an issue cuz I'm an American already they're not really going to understand me so it doesn't really matter if I'm a man or a woman if they can do what I need and I pay them for it it's transactional primarily the other thing I would say to the credit of American manufacturers is they've probably seen a lot of people like me that work with them for a bit Advance the design and then Outsource it and so they're leery of of you taking you know their work and doing it elsewhere I didn't do that that because I was still somewhat of an infant but in 2021 when I attempted to reshore manufacturing I could tell in their pricing that they was probably built in like if we do one production with Liz and it doesn't work out well at least we haven't lost money on it right so I guess if you boil it down you know it takes a factory they have to take a risk or a chance on you or on me so one I'm a woman who has a undergraduate degree in Russian like what do I know about manufacturing aluminum trash closures so from their perspective you know what they probably are like what is going on here who is this person and why should we put any efforts into something that could likely fail in addition to which if they're already really successful metal you know Fabricators and they're doing stuff for the government or for the military or for elevators in and hat and skyscrapers like they have a consistent flow of really good orders in business that they might think that they can't get from me yeah I just think there's a and Lauren maybe there's a whole another podcast on this but there's a cultural element of how we do business that um is more than than numbers and um I think the combination of small and different often come together in ways that don't serve certain kinds of businesses and I'm disappointed that Liz hasn't found a place in the US because I think that we can either get close very very close to closing the Gap in pricing in the US on most things many things in manufacturing particularly metal especially if you consider risk so if risk is at all a a factor I think we can close the gap what I don't know that we're positioned to do is to close that Gap at the intersection of smaller than huge and um different presenting differently and I don't know that our culture here the US is ready for it and so anyway I'm just intrigued by what you're experiencing I'm no expert on manufacturing but I have spoken with other startup manufacturers who have described to me a a similar uh struggle to find a um a manufacturing operation that would take that chance on it's a business decision for them like any other business they're looking at a a new product probably the majority of new products that they're asked to manufacture do end up failing I suspect so under the best of circumstances it's easy to imagine that there are a lot of uh factories that would rather just not deal with with something new yeah and and it's understandable right they've got to have their own business models and if like Liz said if they're flush with you know very large contracts um why should they take a one off for something that even at its height is not going to be as big as some of the other things they have yep well the other thing is China if you want to manufacture there a lot of people before I went there was like oh you're never going to meet their mq their minimum order quantity yeah and I've actually found that not to be true the mqs were more they were higher in the US than they were in China and again I'm a sample size of one I don't know how common I've had a seven relationship with them but they really wanted my business and so if I was only ordering 40 in the beginning there was no like huge price increase on that it was like let's run these 40 see if it works see what we need to tweak and then we'll extend it out further so it wasn't just about the pricing it was making sure we get the product right before we Mass manufacture it and I think most Americans think that the only way you would want to go over to China is if you were ready to huge mass manufacture it whereas I've found that China has helped me innovate my product so that I feel safer with mass manufacturing and um you know I love I just love the process of being side by side on the factory floor you know we have something we're working on with our doors and our opening mechanisms that we're still trying to get right and when I was there in December we tried like 10 different locks and doors and I never had that experience in the US it was more like I told them what I needed and then I would come up and look at a sample or when it was all done I wouldn't be right there and saying can we try this can we try this can we get a different loot can we try the door a different way it can re redesign the door American factories they don't really have a lot of patience for that unless like I don't know you're Boe or something where it's going to be some huge contract but I really feel that I've been able to innovate and Advance my product because of the side by side nature you know that is very similar to Agile software development Liz if we could I'd like to go back to the discussion about pricing a little bit and what you learned from the experience of having to raise your prices when the tariffs came into effect uh I guess first of all I'm curious what your philosophy of pricing is when you think about pricing your trash bins are you focusing more on covering your costs or what the market will bear so I think it's mostly what the market will bear often times when we've increased prices it will be at a time that many other products are increasing prices so to say you know we're raising prices 12% as we did a couple of years ago because of difficulties in the supply chain and cost of goods coming up occasionally we'll get some push back but we're also we're not a commodity we're a pretty specialized product so if someone is having a trash and rat problem and the only product out there to really deal with it is City bin which is true in a lot of cases they're not going to be as sensitive to a 12% increase because they're going to be able to solve their trash and rra problems and have to pay 12% more otherwise they're still going to be dealing with that and was that your experience when you raised your prices yes you know we did not get a huge amount of push back we may lose a little bit of business but often times you know people like let's say they think it's too high and they shop around they still come back in most cases because they have their requirements of what they need and they're not going to find it somewhere else you know we got to be careful with it we don't definitely wouldn't want to gouge you know we we can't we can't we wouldn't and we can't but I think one thing with philosophy on pricing is I'm probably a little slow to raise prices and um I know if Jay's listening to this he's not going to like it but um every time I see him or talk to him he wants to talk to me about my pricing too well you learned an interesting lesson and I wonder if it encouraged you to think about you know how much further you might be able to push meaning with my pricing how much further I could go up yeah having had the experience of being forced to do it and finding little push back yeah well I think that the place where um I have a little more flexibility with pricing is if it's a more of a volume order so with cities where they make bigger orders now it's not going to be as high as an increase as it's going to be with you know a residential client for The Brownstone I'll probably put the increase on them and not really lower it because it's low volume so that's one thing that I've I've noticed that we do with the pricing Jackie I'd like to get you involved here um what's your philosophy of of pricing oh no Lauren I'm just sitting over here being real quiet thankful for Professional Services that don't require any manufacturing to I'm so jealous complete control of my cost I just want to be real quiet and have no one pay attention to me in the corner I empathize I do I can't even imagine having all of those factors outside of my control being in the middle of a political battle uh I will pray for you daily because God that suck but I think about you know we've got some clients in the agricultural space and they're singing the same song but their um Battlefield is immigration they need workers and the thought of ending immigration and when it was shut down in 20 was crippling to their industry there are farmers who went out of business because they just couldn't find enough people to work on their Farm there's a lot of times it feels like where the people who are making the rules have never actually done the work of the people that the rules will affect that's always true right and so I will sit here quietly grateful for my Professional Services business that um I I get to be the king of you know I or queen I get to you know I get to the side a lot I I don't have nearly the same kind of external factors that affect my business and I am forever grateful for that Jackie you do have a maybe even a bigger challenge in pricing though right I mean in lizz's business there's comparison set there's some cost on the bottom side she can kind of she can navigate to find a a space she can justify Professional Services is more difficult true it is both more difficult and more um opportunity so we look at a lot of factors with pricing and it's kind of a complicated situation that I think we've I've tried to make easier because I'm not a financially minded that's not my background and you know we joke all the time that there's a lot of aners that QuickBooks could give us that I don't know how to understand so I have an Excel spreadsheet for that like I just live by Excel because I that's clear and I understand those columns and that makes sense to me and I've taking classes on how to read my p&l and it still feels like Greek so I just go to my Excel spreadsheet and at least it's not pen and paper I feel like I'm at least one step ahead of that but so when it comes to pricing when we started the agency in 2001 there were 84,000 other ad agencies and I would say 99% of them were hourly the agencies I had worked in both in Los Angeles and in Lafayette were hourly and so it really was pretty plain and simple and what I I didn't like that model and I really wanted to evolve us into a project and retainer based model so then it was an even stickier way to go forward so I didn't understand the that there was an established concept called value pricing but I know now that's what I was doing and so we I think really kind of perfected our value pricing and over the years we realized there are a lot of factors that go into it part of it is who's going to work on it how long it's going to take the volume of the work but then we get into some of the trickier things around the value to the client because I can do the exact same logo project and to a brand new startup it has a very different value than to an established Fortune 500 company so we modulate based on that list of factors so that gives me a lot of freedom but also a lot of really trying to find that sweet spot and making sure we're always checking ourselves and doing the best we can to make the decision of our clients not based on price that we've earned our way in and they appreciate that price may be a consideration but it's maybe fourth or fifth on the list when they're deciding how much do you think about uh where you stand uh next to competitive offers we left the RFP Rat Race about 10 or 15 years ago and that really freed me up to not worry about what other people people were charging rfps are designed to put apples next to Apples and it's a very price centered approach to choosing an agency and I think again that should be maybe the fifth consideration because choosing an agency you're dating and you're getting engaged and you're getting married and you should not do that just because they're the cheapest available option on the corner so it's a lot about trust it's a lot about chemistry it's a lot about expertise and we want people who think those are more important than pricing so then if there is a slight fluctuation between this price or that price we're still going to get the gig and we used to go from being the least expensive um company in the room and not winning to now most of the time being the most expensive company in the room and winning and I like that version better Jackie when you say you left the rat race of rfps does that mean that when somebody who came to you with an RFP you refused to play along I say things like thank you so much for considering us but at this time which is for the past 15 years and will continue to be for the rest of my life we don't participate in the request for proposal process if you want to meet with us and have us do a discovery and put together proposal we're happy to do that but I'm not filling out your RFP I'm not playing your game I believe that you already know who you want to hire and I think you should go hire them and don't waste my time to so that you have somebody to say no to to justify the decision of who you want to hire I don't always say that last half but I think it and my creative team is happier I am happier we are happier we have not participated in a single RFP in 15 years and we won't under my watch why do you assume that somebody who's doing an RFP process already knows who they want to hire because most of the people that I've talked to that have conducted RFP processes say we really know we want to hire this agency but we need to have five uh to just justify the decision I'm like okay good good luck and sometimes they say it's me we really want to hire you but I'm like we're not going to be a part of a decision by committee we're not going to um look as good on paper as we do when we get to actually have conversations and talk so if we're just filling out this piece of paper and we're going to be judged Apples to Apples on the paper what we're bringing to the table is not going to come through I'm not doing spec work and I'm actually Pleasant that makes me sound like I'm very unpleasant but I'm very pleasant to work with I just we've been able to sort of narrow down and figure out where we Excel and that's where we spend our time Mel I'm guessing you do play the RFP game am I right we do in a select way uh we will RFP if the if it is a qualifications to driven RFP so we're not afraid of the pricing part but there must be a qualifications part of it so we don't hard bid and hard bid would be basically here's the draw here are the drawings we're a construction company here are the drawings what's the price that's a hard bid we don't do that at all zero none because we don't want to be low but we're not afraid of competing if price is a factor amongst others so we do qualitative um including rfps Lauren I hope that I hope I made that clear tell us about your overall philosophy of of pricing where do you want to be in the market and and and how do you think about I mean it must be enormously complicated in construction because you're the timeline and Supply chains and all kinds of things you have to think about yeah um I I think what we want to make sure is we have a combination of factors that make us the best answer for the customers so we really don't go after customers where we think we're not going to be the best answer so for example if a customer wants a 12-month pro project done in six months we're not going to go after that because either we'll have to break ourselves or break break our subs to make a 12-month process a six-month process so we'll pass will tell the customer the truth we think six months is too aggressive to be safe and to to be uh to have a good product and so we invite you to make it a 12 month project maybe 11 months will go after so we we want to have the the parameters uh around it all so in our buildup of costs are our subcontractors their materials any self-performing work we're doing our margin so we built it up from the bottom um and uh we want to finish in the top 10% of price because we think in the places we compete we are either the best or amongst the best and so we want to price should in our opinion should be an indicator of where you think you are in the market so we tend to be High um and for those customers who want the total package they'll pick us 67% of the time and for those who don't um they'll never pick us and so we try to we try to make sure we don't compete with you know for those kind of customer do you have software that spits out a number for you uh sure yes we do we do have estimating software um that takes square footage and takes drawings and loads in all of our subcontracting costs and and spits out a number but that's usually not the number so that's the that's a number and then our folks manage to look at that they think about what we ought to get as profit based on size of the project and market conditions and how bad we want it and they'll put a little art to the to the uh to the science I don't think it's a coincidence that none of you are Commodities none of you want to be the the the cheapest number uh in the conversation but Lauren that's a good that's a good business there's a lot of folks who um particularly in a Government Contracting space who are very good at being the low bidder and then very good at change ordering their way to significant Pro well you laugh but if that's how the customer wants to buy they've set the terms this is how we want to buy they are also accepting that you know when we look at drawings we're trying to tell the customer you're missing this you're missing that when low bid contractors look at drawings they're so happy that the architect left this out or left it gray because that's where they're going to be able to make money in the future so the customer set that up that uh Dynamic and I think there's some people who are really really good at it and I envy them for their skill set in um ordering their way to significant profitability probably beyond what what we're seeing well you probably don't envy them that much or you would follow the same process yeah well our customer sets different so we don't do any government work and if we did most of the government agencies in our area must take the low responsible bit I see and so we we're never low we're always responsible but we're never low so we don't get a chance to participate in a lot of government work but those same contractors that do that well you go to a private company like a Proctor and Gamble or Fifth Third Bank and and you try to change order your way to profitability that'll be your last project because you're not going to get referrals either no so I did a home renovation last year and I was change ordered Way Beyond what I should have been I do agree that I had left out some items that were overlooked but because he change ordered me in he just was crazy about how much he did it I would not rec recommend him to anybody and that sort of you know the word of mouth word of mouth will get around about a business if they're change ordering like that and that sounds like you're able to avoid that Mel because you're already on the higher end absolutely and you and you want customers that understand that too it's not in your interest to have an uneducated customer that doesn't understand how if you don't get it kind of right from the beginning you're going to change order it through and then the price is going to be double what you know the first proposal said and that's what happened to me I learned my lesson whoa yeah you know our customers are very sophisticated around everything in their in their procurement process including construction and so they often know as much as we do they know what they're getting and here's what they say to us if we say well that was missing on the drawings they will say to us well you knew what we wanted and and and we should have known what they wanted they're right and so they don't accept uh change now if they change scope and say let's add a room that's different but if you know if if there's a toilet there they didn't have a a uh a a toilet paper rack I'm making a very silly example well you know a toilet needs a toilet paper rack so we should have made sure that was in our bid because who doesn't want a toilet with a toilet paper to it right so Mel were you able to take this approach uh early uh in your time with the company or is this something that evolved over time as you figured it out no we were blessed enough to to start in this position if you remember remember Lauren I bought this company and it only had one customer but it was the most sophisticated buyer of construction in the city it was a it was our children's hospital here in Cincinnati and so we started at the high-end our people understood how to work there and that's how I learned that business my background is selling to Big complex customers we combine those two ideas and that's how we grew Jackie in our uh emails um leading up to this recording you expressed an interest in talking about employee reviews what kind of uh guidance are you looking for well I always want to know you know what's the new thing what are the best practices where are we leaning towards now and we've we've done it all we've done peer reviews we've just ignored them we've done them once a year we've tied them to raises we've separated them from raises and I'm always wondering there's got to be a better way and when I sent the email it's because it had really been on my mind and we had just scheduled our whole round of them and maybe because I really been giving it a lot of thought or because this particular team that we've assembled and we're in about our second or third year of this group really kind of jelling and working together best group we've had and best round of reviews everybody came prepared with feedback I set some clear expectations so I'll I'll take a little bit of credit on that but I give them the credit of really participating in it bringing solid uh self- review and agency review with some great feedback Michael and I did it together which we try not to take any meeting together ever because running the business together and and being married to each other is enough we don't also need to be in the room together all times well yeah right I mean it's a it's a whole thing that there's a whole series that could be just dedicated to working with famili spouses and I think what we are settling on right now is we're going to continue to do self Agency Reviews and doing it twice a year January and July and separating it from raises even if somebody's do it for we're not going to talk about it in the review we're going to focus on performance and technology and uh what's going great what we could do better and then you know a week or two later have that because we just want to not tie those two things together and I thought well maybe that's wrong maybe we should tie them together so I just was curious about the thoughts from the others is is that a new policy for you Jackie separating the conversations over comp having policies is new Lauren I mean this whole accidental entrepreneur thing I mean we're just figuring it out every day day by day Liz what's U Been your approach so I mean I'm still a small business so I sometimes compare what I do to how it was in corporate when I worked at American Express and we did two reviews a year and the 360 review process where you you know give reviews of your colleagues and they have you those are helpful in some ways but they also can cause trouble in other ways so as long as I've been a small company and as I am I'm trying to keep it really simple so we just do reviews once a year um it's usually no more than like two pages of actual review which um I write um we do handle compensation at the same time to kind of keep it simple um one thing that I've found part of keeping it simple is like really having a framework of three things what should you continue doing um which is the biggest bucket what should you start doing which is usually an opportunity area where you're behind or weak and then you know what should you stop doing and um so the stop doing is usually the more difficult part of the conversation and I don't need to have those very often but that's kind of to show them when we next time get around to this and we do the review you need to be moving the stuff that's in the start doing into the continue doing bucket sometimes when I see someone who has that same opportunity area year after year I've had to learn that it's on me to actually not expect that of them like just talking to them about once a year is not going to change it so like as an example I had a designer that worked for me a few years ago um he's a German architect and he was very instrumental in some of the early design of City bin he wasn't actually a very out-of-the-box thinker he was a German architect so he was very um he was he was narrower with what he could do he was very very good so in one year kind of spontaneously right before his review I was like you know what maybe if I give him a new title he'll be more Innovative and that'll get him around to where I need him to be so I made him the director of innovation thinking that that conversation and that title in his performance review was going to make him Innovative and it didn't and that was like my fault like don't use performance reviews to try to push someone into a role that they're actually not really meant for um and I've done that to several people over the years but I I try not to do that anymore and then one other thing I can say that has come up for me a bit in reviews especially in the last few years is you know because the inflation rate has you know been so volatile you know if I do a review at the point when the inflation rate is like 8% as it was in 2022 if I give someone a raise that doesn't correspond with that they're not going to like it most people wouldn't like it but Lauren I know you sent around an article back in 2022 that said you can't Peg the raise to inflation because inflation is variable and so I've had to have a couple of tough conversations where we're in New York City the cost of living here is already very high if I'm not giving them a raise at the rate of inflation they're going to feel like they're losing money but then when the inflation rate comes down it normalizes so that's the sort of conversation I've had to kind of get used to having you know I'm informal about it as we get bigger I'm probably going to have to hire some HR consultant to help me with my whole review process but as it is now it's been very straightforward the criticism that I've heard of linking the conversation of the performance review with compensation is that the employees tend to only hear the compensation part of the conversation and everything else gets forgotten what's your approach Mel yeah um and I don't know the the sizes of our various businesses but about five years ago I um had an opportunity to hire a new VP of HR leader and uh and I hired her because I wanted a performance um management culture and to me the performance conversation is only a part of it and so we have a pretty uh maybe it's on steroids to be honest with you maybe too much but um we have quarterly conversations everyone's uh direct uh boss talks to them once a quarter about and it's that simple conversation Liz outline which you have over a 100 employees right yeah we've probably got 110 or so at this point but it's it's the conversation Liz outlined it's you know um in general how are things going but what what do what do we want you to continue doing what do we want you to stop so it's at a pretty high level once a year there is an actual rating where you know you go through and you are actually scoring on uh predetermined items and they're all tied to our values and our and our goals for the year and then each individual has a set of um development items they've picked and work with their managers to develop and so we're reviewing that you gone through various trainings you said you'd commit to have you gotten the exposure you needed on your job to take that next step as have we moved you closer to your career aspirations whether they're inside or outside of our organization so it there's a lot of steps to it it's you run it on a software platform that everybody hates but you know it's a way to keep it all collected and um so so Lauren we are I just believe that um one day we're going to be a billion doll business and um and if we don't build it the intentionally it's going to get really raggedy one day and I didn't know when that day was um so we just decided to invest pretty heavily in this performance um you know uh development culture Jackie any questions no those are two amazing perspectives and I find myself kind of squarely positioned in the middle not by Dollar volume because I'm definitely not half a billion but uh by process and so Mel's not at a billion today I don't think I'm not a want to be clear but he's going to be you hear it in his voice he's going to be but no I I love the feedback because it really helps me see the things we're doing right I particularly like the keep start stop because I want to simplify ours I went overboard I'll admit it it's eight pages it's out of control so looking for ways to kind of get down to the root of the matter that helps a lot yeah I I I'll just throw one other thing in there and I don't know how it applies is we we also layer on top of this a secession planning conversation at various levels so that we lower the likelihood we just got a huge gap over time so if we don't identify young Talent that's going to be our next level of project managers and going to be our next level of senior managers and then we end up getting a little jammed up on succession so um that's layered on top of this as well as someone who has spent most of my career as an employee one thing about employee reviews that always annoyed me was being hit by something unexpected in an annual uh conversation I always felt like you know if if you had this concern why did you wait till now I would have been happy to deal with this uh when it first came up how do you guys think about that issue it should never happen correct 100% you got to have feedback in the moment don't wait doesn't the annual review system though kind of encourage that well this is why we like quarterly meetings because um um we tell leaders now if you tell someone in a if if we get feedback from an employee that they were shocked I should be able to look back in that software system and see where you've told them two or three times there's a challenge and if you haven't then shame on you now I've got to evaluate you differently as a leader because no one should walk in that room and be surprised that's that you just don't treat people that way and Lauren I'm not saying it's you but I am saying that we met with an employee eight times in a two-month span new employee testing them out did not work out let me assure you but eight different times I was personally involved in not formal reviews but feedback like listen you know you're you're struggling with deadlines let's talk about how we can better help you be successful in that area you lots of typos what's your review process how do we get that fixed you know lot of discussion of how can we help you what tools do you need what let me let me show you this person's um step-by-step guide and here's how this person does their step-by-step with does either one of these work for you so on the meeting in a two Monon span so it was once a week I said this isn't working out stunned she was stunned she was like what no I said oh yeah no it's really it's not working out here's the list of all the things that you keep making the same mistake over and over again make new ones sure but you can't keep making the same ones this was a Thursday well if you give me till Monday I can fix it I was like in two business days you can fix the thing you haven't able fix eight weeks we're done she was stunned so I'm not saying that maybe sometimes the employee doesn't hear it but sometimes they get told and they just don't retain it I feel seen Jackie thanks for calling well and it it's a two-way street so Lauren when you heard something surprising in any Past reviews did you ever think well maybe if I had talked to them ahead of time or had more regular meetings even if you initiated it that there wouldn't be any surprises and you know in my own experiences in corporate that happened a bit and sometimes I do have employees that don't bring things up with me and then I'm the one that's surprised in the review so that sort of having regular communication isn't just from the employer to the employee it's the other way around as well I think that's a fair point and I and I honestly think I probably could have done better on that uh on occasion we're all going to end up in timeout with Mel just for calling him out well I was going to say we're just about out of time but Mel you you've been you've been very careful and cautious do do you have any questions that you really wanted to ask no sir no sir wait but Mel you said you had 74 questions for me and I think I only heard one or two we may have to talk offline about it I love the idea of manufacturing and I love the challenge of figuring that out uh and I'm not in manufacturing so listening to you um I I I think you and Lauren ought to have a one-on-one podcast we ought to talk about manufacturing because I I I think it's fascina and I think it's such a big opportunity for our nation to figure it out that um my goodness yeah and I also hope that um Trump Is Not Elected I'll go on the record to say that and I hope if he is elected that he doesn't do what he promised although he's pretty good at doing what he said he's going to do there's other reasons I think Trump's problematic but I I just think Liz that your supply chain and and its resilience might even become a competitive Advantage at one point that's how difficult it is out there in the world right no absolutely and to for me right now to only have one country one Factory even if I had stayed in just China I should have had two or three different factories you know even though I love the one I'm with there's a risk in having all of your eggs in that basket so it would be a competitive Advantage for me if I could choose between three countries to produce in based on geopolitics based on costs I mean with Mexico with NAFTA or whatever they're calling it now I wouldn't have any tariffs and I wouldn't have any ocean involved it would just be probably trucks um so I'll be very curious we've never gotten pricing from Mexico but when we do um I'm hoping it's really low but who knows all right my thanks to Mel Gravely Liz picarazzi and Jackie Russo and to our sponsor the great game of business which helps businesses use an open book management system to build healthier companies you can learn more at Great game.com thanks everybody wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's l r n21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess tharon founder of blank word Productions okay now you can leave thanks for listening everyone [Music]