post # 297 — January 31, 2007 — a Managing, Strategy post
I received this extensive case study from â€œNexLevelâ€ who would really like our help to save him from bankruptcy. Please offer your ideas.
Your article, “The One-Firm Firm” addresses my current situation. I own a salon and spa in Texas. I acquired the business 18 months ago and have faced resistance to new strategies almost from day one. As you may know, most stylist / technicians wield power by threatening to leave and take clients with them. They are the rainmakers. Therefore, most salons are what you call â€œwarlordsâ€ shops.
I fear I do not have much time in order to implement an employee development program. Attracting other rainmakers is difficult even though we offer full “back office” support. We provide assistants, front desk, bookkeeping, etc. They do not even sweep the hair clippings as we have a housekeeper on staff. With all of the above services, the stylists still want full commission (55%). Industry analysts show that salons cannot be profitable with payroll / commissions over 45 – 50%.
Clients are very loyal to stylists and very vocal in giving their opinions, likes and dislikes. I need to terminate one of the rainmakers for insubordination, but it will hurt cashflow so much that I would have to close.
The staffing model of the salon since the early 70’s has been to have a hair-stylist up front servicing clients at full commission. Support people were hired to work in the back, shampooing and applying color and perms, washing towels, sweeping hair, cleaning the bathrooms, etc. for hourly min wage + tips. In most salons, these tasks would be a part of the job.
The irony is that the stylist received full commission but do not have do all the work and resist contributing to the overhead cost of the assistants. They know it, the clients know it too. Until 6 yrs ago none of the stylists made a great deal of money. As others retired, they took on the clients of the retirees. Now they are making money, but have no loyalty to me.
The Company at one point was a $2.8 mil dollar business and could easily afford the overhead costs. Today, I can’t. With overhead payroll and commission, total payroll is 67% of revenues. We are in a high profile strip center and rent is $8400/mth for 3600 sf. We do $800,000 yr, but there too much going out the door.
Raising prices on the existing client base would be greatly help. However, the stylist will most likely resist as they did before. That battle started the riff leading to 2 employees leaving. We retained 100% of the clients, so we have a feather in our decision making management cap. All dissenters were proved wrong.
Stylists who are afraid that they will lose clients by raising prices do not understand supply and demand or their value to the market. They only want to work harder for the lower prices. And they do this because of the assistants that perform the time-consuming tasks that they do not pay a whole lot for.
This fear becomes arrogance if the stylist has sufficient clientele to support them going independent. They will then have to accept losing clients or work more hours because they are working all alone without assistants. If they pay an assistant they are in my boat and will not make the money they want.
Among the solutions I have considered are to budget and implement regular advertising and measure results to improve, implement aggressive recruiting and training program. With a regular flow of new clients and home grown employees, I, as the owner could always have foundation and build a firm, not just a collection of independent warlords. By the time the existing stylists begin to resist policy and process changes, I will have more stability and can manage the any insubordination or non-collaboration head on.
What advice do you have for “NexLevel?”
Dominique Hubart said:
I would transform NexLevel into a partnership (with all rainmakers becoming equity partners), in order to align the interest of all the parties (remember “Aligning the Stars”).
Of course, iit would have clear implications in terms of corporate governance, but if the alternative is closing down…
I’m in a similar process right now (although in a totally different sector). If you wish so, I can keep you posted.
posted on January 31, 2007