Is $15 The New $25? Coping With the Labor Shortage

The Big Trends in Small Business newsletter on LinkedIn touched on a subject that is vexing many entrepreneurs, the labor shortage. The article featured a pair of San Francisco-based family restaurant owners who have had to close their pizzeria from time to time because of labor shortages. Their problems aren’t unique to their industry, they are systemic, including recyclers.

The entrepreneurs have adopted a variety of strategies to cope. They have revisited their tipping policies and raised wages for servers and cooks. They have implemented QR codes and other labor-saving tactics and reduced staff, basically they have found ways to work with fewer people.

The posting spurred a lot of thoughtful comments about the labor shortage in and out of the hospitality industry. Paula Merrell, owner of Chef Point Bar and Restaurant in Colleyville and Watauga, pointed out the tightening of the labor market is partly driven by the loss of life due to Covid and by baby boomer’s retiring. In other words, a shrinking population is part of the underlying problem.

The Stolls, the couple featured in the piece on LinkedIn, mentioned having four interviews scheduled for a day and having only a single person show up. I think for the hospitality industry that’s part of the problem. Servers have found other more regular work that pays more and allows them to be at home with their families more.

They aren’t coming back.

There is simply too much competition for labor for $2.13 per hour (it’s the federal minimum wage, unless your state has a different requirement) plus tips to keep people on the job. Last month, I wrote a syndicated article entitled, “$15 is the new $25” that pointed out the opportunity that exists for forward-thinking restaurant owners.

Owners need to be willing to think differently about compensation so that they can have a stable, happy workforce. Consider raising the pay of your servers to $10 or more per hour and guarantee them at least $25 per hour with tips. Raise menu prices and you will have the trifecta: great food, fabulous servers who aren’t going anywhere, and loyal customers who get well taken care of. (This assumes you can have great food) Also, just raising pay isn’t all the answer. If you aren’t a great boss with a great work environment, and can lead and train employees (yes, they do need training) and remodel your hiring practices to only hire the best employees, you are in trouble. I am not proposing that you can just pay everyone more without requiring more.

Many detractors will say that I don’t understand, and they can’t raise prices. If you can’t raise prices, then your product offering isn’t as good as it should be, and the sole arbiter of that is the customer, not you. Or maybe you don’t manage expenses well enough. It seems no matter how fast we adapt, the battle never stops. Either embrace the battle and smile as you learn to compete, or sell out, because it’s never going to stop and its never going to be “like it used to be”. Recyclers that are on their game have been able to raise prices significantly, by looking at supply and demand, and their average tickets are up. Why sell that one hot engine 3 days after its inventoried for $2,750, when if you wait until the 20th day, and say no 8 times, you can sell for $3,750. Supply chain issues with the OEM’s are also causing some used parts to be worth as much as new, but you’ve got to really pay attention to find these items.

All of these comments are applicable to recyclers. You know that parts puller that left a few months ago “because he was moving?” He’s working at one of your competitors with a $7/raise. And the driver you thought took a job with his uncle, He’s working at your competitor with a noticeable raise also. If you are paying based on performance, the top performers are likely making enough that they wont leave, but if you are paying hourly or salary, don’t think others aren’t trying to poach your employees. Consider reviewing the entire employees list for this potential problem. Also, it makes a perfect opportunity to do written performance reviews and give raises if warranted, and to have an arm around the shoulder talk about how they are valued. Really senior staff members may need a raise, or a bonus or spiff based on some future criteria, and execute an employment agreement. I recently did that with my most senior employees, for 5 years forward. It gave us a chance to talk about their valued contributions, and future raises and responsibilities, as we grow.

When I think back on my business successes, this isn’t really such a new problem, 20 years ago we were paying more than most of our competitors and offering signing bonuses for the right people. As a result, we had the best of the best and grew like a weed. My competitors used to say “Sturgeon, how can you have 150 employees when I can’t hire 10?” I told them, or wanted to tell them, to look in the mirror.

That is certainly a better outcome than continuing to slug it out with other restaurant owners for an inadequate supply of labor at $2.13 plus tips, while talking up your establishment as the best place to work.

You certainly can’t solve the labor shortage at all businesses, but you can start to solve it at yours.

Ron Sturgeon, Mr. Mission Possible, has been a successful business owner for more than 35 years. As a small business consultant, he can deliver wisdom and advice gleaned from an enviable business career that started when he opened a VW repair business as a homeless 17-year-old and culminated in the sale of several businesses he built to Fortune 500 companies.

Ron has helped bankers, lawyers, insurance agents, restaurant owners, and body shop owners, as well as countless salvage yard owners to become more successful business people. He is an expert in helping small business owners set the right business strategies, implement pay-for- performance, and find new customers on the web.

As a consultant, Ron shares his expertise in strategic planning, capitalization, compensation, growing market share, and more in his signature plainspoken style, providing field-proven, and high-profit best practices well ahead of the business news curve. Ron is the author of nine books, including How to Salvage More Millions from Your Small Business.

To inquire about consulting or keynote speaking, contact Ron at 817-834-3625, ext. 232, rons@MrMissionPossible.com5940 Eden, Haltom City, TX 76117.