The Balancing Act: Addressing Employee Needs in Times of Marketplace Uncertainty
Michael Mendenhall: I'm very excited to have two of our customers here. Michael Hong, I'll introduce you first from Taycor Financial and Walter Faustroh from HUM Nutrition. These two are customers. They're awesome customers, I think. And they've done some really innovative things, both of them, president and CEO, co-founder and CEO as well of HUM.
And there's a lot to discuss. I think we've seen a tremendous amount of change in two years. Change in behaviors that shifted very rapidly. I mean, we know that, you know, behavior within consumers and business moves much faster and changes faster when there's a big event.
So, when 9/11 happened, massive changes very quickly in behavior, we saw very much the same thing. So, not only did we see 15 million people exit the workforce, but we saw a leap of seven to 10 years in technology advances that had to take place. We now have a different workspace, different work environment. You know, most people, I think it's pretty close to 70% of small businesses are hybrid now.
So, some people come in for a couple days, they stay away. So, there's a lot of, you know, friction in all this. We're going to talk about that, but we're also going to talk about where we are economically because that's going to be a big impact on small businesses. I spent time with the chief investment officer of Morgan Stanley in New York and he has a very different opinion.
He really follows trends and data. And he absolutely believes that we moved into recession in September. He believes two years from now, when people look back, they're going to acknowledge that. And it's not that, "Oh, hey, we're in a recession with two quarters." He's like, "You have to look at all these other trends." He looked at the dollar being close to 20%, 25% higher in the international monetary market.
He showed patterns of behavior there. When you look at that, there's just a whole pattern where it's going to spike down. It's going to go quick. He believes that we are close to the end of inflation and that equity is not the market to be playing in right now, because he thinks many companies are going to have a margin crush that's going to happen next year.
So, with all these things sort of happening, you look at your workforce and I'll start with you, Walter. I mean, you employ, what, is it 70 some employees?
Walter Faulstroh: You should know, Michael.
Michael M: I know I should, 72.
Walter: That's it.
Walter: Correct.
Michael M: Oh my god. Thank god. I've pulled out. Where was that?
So, 72 and you've weathered through this to where, you know, you went remote. Talk to us about what you did during COVID—where you are now. Because what you're seeing with what's happened in the labor force and sort of wage inflation and, you know, what we're seeing in labor, everyone's looking for sort of the same type of person with the same skill sets, but the competition has become pretty intense.
And so, how are you working through that and what are you doing? And talk a little bit about the importance of purpose and culture in your company as you go through this.
Walter: Great. Okay, lots of questions.
Michael M: Yes.
Walter: Lots to talk about. It is a very dynamic time, no question. And the last three years, I would say have been something I've never witnessed my entire life. And I'm not so keen of seeing it again, to be honest, because it has a bit of a rollercoaster. For those of you who don't know HUM Nutrition, we make supplements with a focus on beauty from within. And we also distribute directly to consumers. So 80% of our business is online and during COVID while a lot of the jobs in marketing, etc., would work from home, we also have a distribution center where people actually have to come in to work.
So, we had to really deal with like a dual crisis here of people working from home and getting used to that, but then also trying to get the operations fixed and worked out during COVID. So, it was a really challenging time and I think the importance for us was to really focus on culture. We all share the same values and I think the team is very much good at adapting because we have this culture of curiosity.
And even during challenging times, we always say like, "You know, let's solve for a problem." And I think having that ingrained in your team, like always solving for a problem as opposed to focusing on the problem, if that makes sense, was critical for us to navigate the last two, three years. It has really helped us, you know, I would say ride the wave.
We've grown quite a lot during COVID. It's been very, very strong with the last couple of years. But also I would say we're really also now navigating inflationary pressures. Our cost of goods obviously are rising very quickly. You can imagine we have components that we're sourcing all over the world, so there's a lot of pressure on the cost of goods. But again, we navigate that with the team that really knows how to adapt really quickly.
So, this is to that point, but I do think ultimately comes down to having a workforce that shares your values, that knows what your purpose is. And even now, even for like working from home, for example, I think communication is so key, right? Having clear goals, clear KPIs, and especially in times of uncertainty, if you as a leader are uncertain with your communication or not clear to your team, I think you create extra uncertainty that's difficult for them to navigate.
So, I think putting that all together, focusing on a strong culture, having a strong communication within the organization, adapting to changes, and having curiosity built into your workforce, in general, to solve for problems, that really helped us navigate the space.
Michael M: Are you more productive working remote? I mean, do you feel you have better work-life balance with your employees?
Walter: So, we actually, in the beginning, I felt people are burning out too quickly. So, we made mandatory breaks where people do not work basic. Because I just saw everybody working, working, working, and we have a no email policy after 6:00 p.m. including the weekend. So, if you want to send an email to someone...
Michael M: I want to work there.
Walter: Yeah. We are recruiting, so let me know. Anybody good on TikTok here?
But I think it's important to respect those boundaries because when you work from home, you're bringing work home obviously. And I want people to be 100% on while they work from home. But when they also like have time off, I want them to really take advantage of that, so they come back to the office re-energized.
Michael M: You see a national trend in the need for mental health.
Walter: Yeah.
Michael M: Based on this idea of working remote, working hybrid. The idea that you have a lot of responsibilities at home, trying to really figure out how to balance that. Have you seen any of that? Have you seen any upticks where you think this is important that we provide? And when I say that, that doesn't mean, you know, you're going to a clinical place, but like just the ability to, you know, decompress, to separate, to begin to manage your own mental health. Do you see that as important?
Walter: I think it's very important, especially with all the uncertainty that we're dealing with. And let's face it, we all have been through a lot in the last couple of years. I think it has been challenging times, now it's inflation. Suddenly your paycheck doesn't, you know, get you as much as it used to last month, etc. When you go the petrol pump, it's like 100-something dollars now, unless you drive an electric car. You know, but then you're stuck with charging it all the time.
So, it's like... but there's a lot of things that are happening basically, but what I'm trying to say is like I think mental health is so critical and to really have that understanding for your workforce because they have been through a lot, they really have. And I think everybody's coming from a place where they want to perform, they want to be productive. But I think they have taken a big hit there.
Michael M: Have you had to add benefits to your package that sort of supplement your current sort of the physical health piece and/or programs that are helping to do that?
Walter: Yeah and we have open also like conversations about this, for example, what people are doing for mental health. So, making sure the topic is acknowledged openly and being open as a leader as well. Saying like, "Look, today, you know, I'm feeling as well of the stress of the world." I think that's important. But thankfully we have TriNet who help us, you know, incorporate these things and make it easy for us as leaders to navigate this space.
Both from a sort of like leadership but also from as a management perspective. Without TriNet, we would've been, I think, much worse off, to be honest.
Michael M: Yeah. So, I want to come over because we talked a lot and we'll come back to sort of the people piece, but Michael, I want to talk about investments, capital, capital deployment. You know, from what we have heard is, you know, VCs have pulled back. It's not that the banks and the VCs don't have cash, they're holding the cash back.
They're investing still currently in life sciences and in those programs. Do you see this like you're helping just like trying to small businesses in financing and many other things by the way, and you can talk about, you know, your programs. But what are you seeing and where are you looking to deploy capital?
Michael Hong: So, our business, our core function is to provide financing mostly for capital equipment purchases to small and medium-sized businesses. And when I started at the company, we were a company of three people. So, we were part of the community that we were trying to help serve. And we've grown quite a bit over the last several years, but we realized that access to capital was such a challenge.
And in the beginning, we were a broker selling other people's money, but losing so much insight and control and how the customer was ultimately being serviced. So, becoming an actual lender over the last year and a half has allowed us to control that experience so much more. And now, we've gotten to pick and choose how we deploy that capital.
And for us, a lot of it is essential use business to small businesses. So, we do a lot in the trucking space. We've seen a huge boom there of moving the things around from port to place. We also do a lot in the janitorial sanitation space. I think the old maybe outdated saying was a man and a van, but we now call it a person, a plan and a van—far less gender-specific.
And what we've seen is these customers, small businesses, they're not maybe early adopters of certain technology, but they're the innovators. They're creatively using what they have available to grow their business and to serve their community. So, even in the restaurant space, it's not the large restaurant chains that are innovating their menus.
It's really the small businesses that are creating creative experiences. And those are the ones that are thriving. And so, those are the ones that we're investing in because when we finance equipment, we're not taking equity in the business, but we're taking a chance and we're investing in the fact that they will...
**Michael M: **So, you brought up supply chain. That's been a huge issue. You heard it, you know, from Walter. Wow, okay. Whether it's a global supply chain or even a domestic or nearshore supply chain, you know, that's been a huge hurdle. You know, you find it from luxury goods all the way, you know, down to what you're talking about in sort of mass transit. Have you seen any improvement there? And were these companies now having to quickly innovate because one, you know, a lack of drivers, right?
I mean, that was an issue, a lack of goods or goods being held up that couldn't be unloaded, that are, you know, in cargo ships. Have you seen any improvement in that? Because the guy from Morgan Stanley said, "We're going to see more issues there, in supply chain," and I just would be curious to know what you've at least seen, I mean, on a smaller scale, but...
Michael H: There are some improvements, but what we've seen is people placing orders for equipment, they're not waiting the 30, 60, 90 days, they're now waiting 6, 7, 8 months. So, we, in turn, have had to become very creative in how we pay the sellers of the equipment, knowing that the equipment is not going to be manufactured for 6, 7, 8, 9 months.
And small businesses cannot absorb those payments when the asset is not earning them money. So, we've had to come up with creative financing solutions where maybe our margin suffers, but we're able to deploy more and capture more of the market share.
Michael M: And then are you looking at then lifetime value of the customer when you...? Yeah.
Michael H: Yes.
Michael M: And so, you're looking at, you know, retention, low attrition of your customer base by doing something, by shrinking the margin and...
Michael H: Ultimately serving our customer.
Michael M: Now are you struggling too with like your own attrition and, you know, seeing that where now, you know, things have shifted from the employer to the employee, and now the employees are making some demands about how they want to work, what environment they want to work in. Are you... I'm going to ask you the same thing. Are you seeing any of that within your organization where you've had to adapt and be a lot more flexible so that you can maintain and retain your employees?
Michael H: We went from about a dozen employees to about 140 and 50 inside of about six years. We had maybe a handful of people leave during that time. And I think, one is I've been on the other side of the fence where I didn't feel like I was taken care of. So, the first thing, because I am not a well-experienced CEO, president, I just made the decisions thinking how would I want to be treated?
What would my family benefit from? And you can't say team and family, team and family out loud and at the first sign of trouble start laying people off. And I think people during the good times, they hear and receive this message, but it's during the challenging times that they sit and look and wait for the shoe to drop. During COVID, we laid nobody off.
We didn't furlough anyone. We didn't change anyone's compensation, we kept the family together. And I think making those decisions during the hard times made it so that they continue to commit to us as the company commits to them. And...
Michael M: You know, when I was interviewing Bob Iger, he brought up something I thought was very important in leadership and it was transparency with your employees. And he said, "You can't sugarcoat things." And when COVID happened, he wasn't going out to the employee base saying, "Everything's going to be okay, we're all going to be all right." He was very upfront about, you know, "This is what we're seeing. We're going to give you, you know, the facts and the information as we see them, as they come out, as we have to absorb them and operationalize them."
And he was just completely transparent about that because they certainly had to furlough people. They did have to lay some people off. And through that, it did not damage employee morale, which was interesting and it didn't damage employee satisfaction. And I think a lot of it does have to do with communication and transparency and honesty about what you're dealing with.
And I think, you know, that's also important. So, I want to come to you and I want you to answer that same question.
Walter: Yeah. To us, similar story, very little employee turnover. But we always prioritize the individual in the sense of like we understand them. And one of our brand pillars is understanding, actually, it's understanding the consumer, what they go through, but really how can you understand the consumer if you don't even understand your own team? So, we have very open conversations around what's going on.
And then when we form plans for the year, for the quarter ahead, I really involve everyone in that and really share what the goals are, but also make sure that people are aware of the challenges very clearly. So, for example, cost pressure that we are facing right now, and obviously, inflation plays a big role, especially when it comes to salary raises, etc. But we just set clear goals for those who made, you know, explained where we are as a business and where we can go with it.
To be honest, sure, I think salary is important to employees, but they don't stay for salary. I think it's more of a hygiene factor. And if they like the culture, they like the work-life balance and they like the purpose of the organization, that is more important. It's a package than just the paycheck, I would argue.
Michael M: And have you seen now a shift behaviorally in your employee population through this whole thing? Like now there's different behaviors that have come about being hybrid or being, you know...
Walter: Yeah, I mean...
Michael M: ...work from home.
Walter: ...we're still transitioning a little bit into that direction. Like I would say one day a week, most people come into the office, but in the beginning, people just wanted to stay working from home, to be honest. But I made it clear to the team that although it's great to be productive and be working from home, I think collaboration, again, another value of organization doesn't happen when you're all at home online, in front of a Zoom call. You have to be in a room, you have to bounce back ideas back and forth.
You have to be able to feel the energy of the room and you also have to have that sort of like water cooler chat, I would say. These random ideas that you suddenly get when you overhear a conversation you're not part of really. So, I think that element of randomness is really missing if you just work from home. So, I think that's why you make, it's important to make a case for coming in. But I think people have to understand why you want them to come in.
It's not about control. It's not about like babysitting people or making sure they actually do the work. If that's the case, then they shouldn't be with the organization, to begin with. It's about coming up with ideas that really solve for future problems. And I think we have this problem-solving culture and in order to solve problems, which are really challenging these days. You have to just come together...
Michael M: Did you have to do, both of you, you can answer this as well. Did you have to do any of that online and have to figure out how to do that online when we were in the throes of COVID?
Walter: We did, yeah. And we did like team events, like, you know, escape rooms online and things like that, which are not really fun. I wouldn't recommend those, but I like them in real life. I think those are great fun. But we did a lot of activities or exercise together actually, or, you know, meditation, or yoga together. So, we did a lot of that online as well, which was great in the beginning.
But as I said, those idea-generating sessions, I think it's really better in person and bringing them together. So, I think having an opportunity together in one room, you know, is key.
Michael M: How about with your organization like...?
Michael H: I think in the beginning, the novelty of teams and escape rooms and different quiz nights and delivering wine or beer, whatever your beverage of choice was, it worked for a little bit. But I think people were aching for the camaraderie and breaking of bread and sitting across from each other and just saying hello. So, we did notice a little bit more misunderstandings from email communication where the tone was just not interpreted the right way, but that quickly got resolved with just adapting to the culture.
So, the new culture is, you know, everything online. So, we've found productivity return back to normal and some people are producing better, but what we've had challenges with is growing the people to the next level, mentoring them into being the next level of leaders. So, our desire to continue to grow is now being challenged by who can now take over team leadership for these growing teams and responsibilities.
That's still a struggle that we have today.
Michael M: So, in the research we did with Harris polling, there's optimism that most small businesses believe, you know, we're in or we're going into a recession, they think it will be short. They have started operationally, you know, pulling back and cutting costs and reserving cash, but they're optimistic.
Are you feeling optimistic about where we're going in 2023? You both can...
Michael H: I'm cautiously optimistic. Always hopeful.
Michael M: Yeah.
Walter: Honestly, we are playing it safe at the moment. You know, we're not focusing on like we want to preserve cash for next year. I think it's important to do that. Access to capital is going to be trickier, I would say over the next 12 months, I would argue. Just came back from New York. You see, like there's this different mood I would say on the street there in general. Having said that, look, I've learned not to expect too much, to be honest.
You just play it by the day almost, but prepare for the times ahead. I would say next year it's going to be rough in my opinion, but it's going to be all right after. It's always going to be all right, eventually. And if you have the right people to navigate the storms, you know, you can enjoy the calm afterwards.
Michael M: That's awesome. I think we only have a half hour, but, you know, normally I get an hour to grill people. But anyhow, I want to thank you both for being here.
