Increase someones costs too much and they’ll pay attention – you might not like it

This writeup is in response to an article I just read about the “walk outs” at the fast food restaurants in NY and Chicago recently. In the articles I read there is so much glee about how these people are standing up for themselves and how it heartening to see these people as for what they “deserve”. Here’s another report on it. I will bet you that 90% of these people have no idea what actually goes in to running the company. They don’t care if the owner / operator had to take a second mortgage to make payroll last month due to a mad cow scare. They don’t care if a competing restaurant / shop opened next door and revenue just dropped 10%. They don’t see it and they don’t care. They just want “what they deserve” and they’re free to make up whatever value suits them. They think that what they say they “need” (which is typically how much they “want”… because we American’s are forgetful sometimes that there is a difference) is what they actually “deserve”. It’s simply not true.

If you’ve read my blog for any length of time you’ll quickly find that I’m all for making money and that I want people to do well. I want employees (people who work for other people) to be treated well, and I want business owners, the risk takers, to get as much return on their investment, yes, profit, as possible. If the risk takers can’t be profitable, then their incentive to actually take a risk disappears so its really in everyone’s best interest that profit, even “obscene profits”, continue to be possible.

So what about the employees? Should they get a cut of the profits? If someone works at Wendy’s should they be paid a percentage of what the restaurant makes instead of minimum wage? Should they be paid $15 an hour just because they feel like that is a living wage? I’m not saying that the don’t need to have a certain amount of income to pay their bills. They very well might, but that’s not their employer’s problem, that’s their problem.

As someone who is trying to pull his own business up by the boot straps I am well aware that an employee is often necessary. If I need a job done (or commonly several jobs done but I can only do one) it makes sense for me to find out who can do the other job(s). I’ll interview several candidates and determine which one I think can do the job the best, which one can do the job for the least money, which one will require the least “management”, which one I feel like I can trust, etc.  Then I try to hire the person that is the intersection of those items – or, more accurately, the best mix.

My job as the business owner is to make sure that my hire is profitable, right? I mean, it’s got to at least break even or it’s just throwing money away. Hell, breaking even isn’t all that great unless I build a nice salary in for myself rather than taking the profits home and living off of them. If I believe that hiring you will cause me to be more profitable then that’s what I’ll do. If you’re up against someone else and I believe that hiring them would make me more profitable than if I hired you then guess who I’m going to hire? Seriously, if YOU were running the business which one would you hire? The one that helped you make payroll and put a little aside for reserves for the lean months or the one that made it possible to keep treading water? (As an aside, this is why many people have jobs created FOR them by simply approaching the interview process the right way. If you can walk in the door and, instead of saying you need a job, say that you can help make me more profitable… you’ve got my ear… the same is true for any business owner)

For the sake of argument, let’s say the employees involved in these strikes do know something about the business and ownership financials. Let’s say they understand and all they really want is what they think will allow the company to “break even” and the owner to a “reasonable profit”. Well, as an investor, as a risk taker, I’ll tell you to take a hike if you make me an offer where I take risk and only you get the guaranteed reward. If I have to deal with people who take no risk, but who want to tell me the right way or make demands of me then then that actually ups the required profit incentive needed to get me to take a risk myself. The bigger the PITA (pain the the arse) the bigger the need for a bigger profit.

If we assume I’m in  business to make a profit then we’ve got a problem when my labor costs go up. That dips into profits, right? Well, then I’ve only got a few options – assuming eating the loss is not an option. Obviously I’d just close shop before I keep eating a loss if I saw no way to turn it around.

But how might I try to turn it around? I can lay off some workers and require the others to be more efficient so that labor costs go back to where they were. I can cut some other expense, maybe close earlier (so I won’t pay as much electricity and I won’t have to pay as many labor hours). None of those are good for my employees or my customers so maybe I need to find some to new revenue instead. Let’s see… I either need to add a new revenue stream (find something to sell that I wasn’t already selling) or I need to increase my prices on my existing product. Customers don’t usually like that, but they might put up with it up to a point, but eventually, they will not, and business will suffer.

There is another solution though. Robots. Laugh if you want, but I’m serious. Utilizing robots a business can keep prices where they are, and maybe even lower them! They can actually increase their hours of operation – in fact it would make sense to do so. The customers will be happy! But guess who won’t… that’s right, the employees that were so ecstatic about getting their raise. Guess who else won’t be happy, the tax collector who doesn’t get the income tax money, the social security tax money, the unemployment tax money, etc. They’d be wise to stay out of business… not make it more difficult.

Let me ask you this: Did you ever get a cable bill and go “WTF? Why did it go up another 10%? I’m not getting any more value so why are they charging me more?” This may result in “I’m switching to satellite!” or “I’m dropping my cable and I’ll just spend more time reading”.

Well, that’s how an employee that can be replaced with a robot looks eventually. The employer may not want to do it. It may actually be painful for the employer to make that change on a number of levels. But the labor is a significant cost that just got significant raised and that could be lowered. It’s a cost that in an ideal world would never have been allowed to get that high. The cost probably can’t be walked back down. There’d be too many hard feelings and too much animosity in the work place among people who were to immature to see what problems they were causing. You probably can’t just lower the cost… you have to get rid of it and then replace it.

The sad thing is that when the employee was making a lesser amount it wasn’t even worth the employers time to think about a costly and cumbersome replacement that would have major effects on the way the day to day business is operated. But when the employee demanded (and used pressure) to receive a raise that was too large it gave the business owner a kick in the rear. It woke the employer up and demanded of them to find a “better”, sustainable, affordable solution.

That’s where we’re heading I think. There are robots that make chinese noodles. There is increasingly good voice recognition software and apps that be can used to order at a drive through. There are robots that can fill drink cups. There are robots can make fries and burgers. All of these things will only become better AND cheaper. All the while, many of the people who currently do these jobs are becoming more demanding of higher wages and benefits. It might not have been worth it for some of these operations to look into robotic employees while wages were in line with costs, but when a significant change in costs takes place employers will shift their attention to finding cost savings.

These workers have done nothing but started the process of signing their own termination of employment letters. The bright side is that at least they will have helped create jobs for robotic techs and the slew of other jobs this growing industry will create! Here’s hoping that with the extra money these workers are demanding from their employers they are buying training (investing in themselves) to work in the field that takes over their own jobs that they caused to disappear.

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