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Nobody plans to end up this way

 

Imagine knowing how much your staff love your company and everything it stands for, and thinking:

Cool, that’s great leverage to lower their wages!

It’s an issue that goes to the heart of what sort of working life you’ll lead, and the sort of person you’ll become. Based on one career choice you make right at the start, when you have no idea about its long-term effects.

No-one starts their career aiming to be a cheapskate exploitative boss that nobody likes. Who thinks staff and suppliers are all out to rip them off. So they live a grim adversarial life, defending every last cent from their many perceived enemies. At their funeral, people turn up just to check they’re really dead.

Plenty of people become that, and they end up thinking that’s just how business is. Some of them because that’s what their parents were. Lots more of them purely because they chose the wrong industry.

 

Book report: an enjoyable, surgical hit job

 

We’ll come back to that but first a quick book report. One of the joys of not cranking out a story each week now is time to read. Joe Aston’s Qantas book The Chairman’s Lounge is an enjoyable, surgical hit-job on what happens when senior management hasn’t heard the word “no” in years.

It’s the classic Shakespearean character development arc. A promising start, raw skill and energy leading to deserved success against the odds. The climb to the top of the ladder, an era of strong rule with worthy victories across global battlefronts. Then intoxication with power, the onset of god-complex and vengeful paranoia. And the final fall to a tarnished legacy.

At least Alan Joyce wasn’t as clownish as past Aston nemesis Alex Malley, once CEO of the Certified Practicing Accountants association and author of the worst business book I’ve ever read.

 

Remember when every airport bookstore was wall-to-wall copies of The Naked CEO? We are all in Joe’s debt for making it go away.

 

 

 

Aston performs the same valuable role in business as sharks in the ocean, cleaning up the underperformers and mutants that weaken the whole ecosystem. If that means some blood splatter, so be it.

 

Reminder: be pleasant to service staff

 

There are plenty of business lessons from the Alan Joyce saga. There’s a common belief that business buying decisions are objective and data-driven compared to consumer spending.

No.

The book reveals the supernova value distortion field created by the Qantas status program, all the way up to the Chairman’s Lounge itself. A whole nation of bosses making their people pay way over the odds for airfares year-round, so they can get family business-class upgrades for their annual Europe holiday.

But for me, maybe because I fly a lot, the number one point from the book is a reminder to be decent to service staff at all times.

Because they get paid Dickensian chimney sweep wages to be spoken down to by entitled customers all day long. As if that service person was personally receiving all the money the customer is spending.

Frontline staff get to be the public face and punching bag for all service-worsening decisions handed down from head office.

In the case of Qantas, management cancels under-filled flights or jacks up last-minute fees, without ever personally feeling the blowback. Imagine it being your job to justify things people hate all day long, face to face with irate customers who’ve spent lots of money to be disappointed.

Would you work endless nights and weekends away from home, wrangling cranky drunks waving for a fifth Beam and Coke, and resolving blocked toilet issues, all for $50,700 a year with no prospect of career advancement ever? That’s flight attendant life.

 

Shaking people down via their good nature

 

Aston’s book reminds us how service staff in so many industries have been ground into the dust by bosses who think crap wages are way too lavish. If we could force those staff to work for an outsourced labour hire company, we could pay them $3.25 an hour less and this genius will be reflected in my epic bonus!

Qantas management pulled this trick knowing how dedicated their staff were. It was more than just a job to them. They were proud of the airline’s heritage, and that’s what made the brand beloved over a century of service.

Management figured those staff liked working for Qantas so much that they’d accept bargain-bin wages, via new enterprise bargains rammed through under cover of the COVID crisis. And many did.

It feels pretty dirty. And raises the question: do you want to be a standard cost-cutting business creep, or is there a better way to live your life?

 

Are you in the wrong industry?

 

Choosing the wrong industry plays out across your whole life.

It’s no excuse for the illegal wage-slasher antics that went down in Joyce-era Qantas, but airlines are a heinous business to be in. Every asset is madly expensive. You’re at the mercy of wild swings in fuel pricing. You’re competing against plenty of airlines with massive government subsidies.

So margins are dismal, even in good years.

Here’s Warren Buffett on airlines:

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

— Warren Buffett, 2007 Berkshire Hathaway shareholder letter

I’ve written before of the perils of the Joyce method of postponing reinvestment for years to jack up profits, and executive bonuses, now. It leaves their unfortunate successor with a multi-billion capex mountain to climb, long after the bonus-getters have cashed out.

It’s good to see wiser people at the controls of Qantas, and I wish them all the luck in the world. I’m no aviation expert and could not run an airline in any way except into the ground.

But I can suggest that working in low-margin industries is really stressful.

Over time, that stress will make you a worse person.

 

Nonstop white noise in your head

 

An inescapable part of business is bad surprises. Many of them outside your control.

Market demand will drop for no clear reason. You get a fat tax bill your accountant forgot to mention until the day it’s due. Freight delays force you to beg favours from suppliers who have you over a barrel, and you pay up so you don’t let your customers down. You lose your largest client purely because your contact left, replaced by someone with a different supplier friend.

If you can’t cope with bad news calmly, you should not be in business.

Willpower and a can-do attitude can help you through most of these situations, but the best tool to sort them out is money.

If you have decent margins, you have the cash to work around most problems and live to fight another day. If you’re in a low-margin industry, each new drama can flip you into a loss-making operation.

With low margins it can take months, years to get your business out of the emergency ward after these setbacks. It’s sustained stress, nonstop white noise in your head that stops you sleeping or having a focused conversation with the people you love.

Yes, money isn’t everything etc. But it’s hard to lead an enjoyable life when an endless fight for survival is baked into your business model by net profit margins of 10% or less.

 

More money for less work is better

 

The only way to make small margins work is to make the business gigantic, which brings its own stresses.

You must do far more work than other companies for far less dollar returns. You have to hire swarms of people in compliance-y fields who do nothing but show each other PowerPoint. Your bigger overheads make you far more vulnerable when you get a few soft-demand months in a row.

Any sort of change is so much harder. The vested interests inside are so much stronger. You can’t ask an A380 to do aerobatics.

Lower turnover, higher margin businesses have so many fewer moving parts to break down and stress you out.

 

What sort of staff do you want?

 

In a business with decent margins, you can afford to hire good staff when you find them. They attract other good people.

Not so in low-margin world. You can’t pay the bit extra you need to retain people sometimes. And you have to cut back on the non-wage items that make people happy in their working lives.

Your staff must spend their time battling your outdated technology and systems. They don’t get the nice company events that make them feel valued. Your middle-managers speak the language of cost-control, not delivering customer happiness. You do pay reviews through clenched teeth.

So you can only afford the plodders, drones, grifters and journeyfolk who have done the rounds of every company in the industry. They have no choice but to put up with it. Sometimes you pick up a hard-working future star. They start keen, but sooner or later the in-house cynicism grinds them down. They’ll leave to work somewhere with better people.

 

Cheap-ass suppliers show up in your own product

 

Low-margin businesses have to use lowest-margin suppliers. The supplier who says yes to your fifth round of discount demands, after all the others have dropped out, is not a supplier who will bring you stress-free service.

They will respond slow, deliver late, staff your account with nongs, and send you wrong invoices that you must work late into the night correcting. You’re taking on twenty percent more personal stress for that one percent you saved on the purchase price.

And your cheap-ass purchasing will show up in your own product. Because you don’t get the backup you were promised, your own responses are slower. If it’s a physical product, it will feel nastier. So it’s harder to keep your customers happy. Because you haven’t had money to invest in your brand, you have to price even cheaper just to make a sale. The downward cycle continues.

 

Business Scroogery becomes a permanent part of your personality

 

The penny-pinching approach will make you tense and cranky until it becomes a permanent part of your personality. If your business is all about getting, say, a home-delivered pizza price point under $10, you’ve got no choice in this.

You do not feel the rewards of seeing promising staff develop long-term, because the turnover is relentless. You’ll never feel the pleasant tingle of doing something unexpectedly nice for people, because you can’t afford to.

With good margins, it’s a sweet feeling to indulge your staff from time to time. You still have to be firm with people on occasions, but essentially people want to do a good job because it makes them proud.

You may have fewer customers, but on most days they will be reasonable people who appreciate what you do.

“People are great,” you think. And you approach your whole life with that outlook.

I do recommend it. Pick your industry carefully. I know airlines, restaurants and craft brewing seem cool and glamorous careers. But in the long run, the low-margin grind will change you.

 

Dividends vs exit: do you want a choice?

 

And if it’s your own business, let’s not forget the main point: to make yourself some money. High margin businesses can give you regular dividends, which is sweet. Particularly if you can step back from working in the business.

Low-margins mean no dividends ever, so your only hope for the returns you dream of is to sell the business.

Exits are easy to read about in trade media. Really hard to do. You have to suck up to all kinds of jackals and tyre kickers. It’s incredibly time-consuming, on top of all the work you have to do to keep the numbers looking good for a sale. That can go for years, a rollercoaster of will-they-won’t-they offers and we-got-so-close negotiations that will drain you to your very depths.

It can put you in a dark, paranoid frame of mind. Everyone’s your enemy, out to rip you off. Over decades of this mindset, you start plotting how you can get revenge on these parasites, perhaps via a chaotic tariff war against everyone in the world.

The nicer, happier you can be just as successful. Choose your destiny wisely, grasshopper.

 

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Simon Sinek, the Andre Rieu of motivation

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