Russ Roberts

Abdallah on Hair and Running a Small Business

EconTalk Episode with Wafaya Abdallah
Hosted by Russ Roberts
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Wafaya Abdallah of Oasis Hair Salon in Rockville, Maryland talks with EconTalk host Russ Roberts about the challenges and rewards of running a small business. Abdallah discusses her career path from would-be lawyer to owning her own salon with many employees and a management style that is different from the traditional one in her business. She discusses the economics of hair-cutting, how she motivates her employees to be part of the team, the openness of the salon's financial situation, the educational training she offers, and the ways she works with employees to motivate and inspire. You'll also learn how much her scissors cost.

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0:36Intro. [Recording date: December 7, 2010.] Series occasionally talking to people in business, their lives, and the challenges they face, and the economics along the way. How did you get started in the hair business? I was at the University of Maryland, going for a degree in political science. Thought I wanted to go to law school. Was supporting myself; thought: I've got to have a job that makes the money and that I enjoy because law school can be so stressful. Looked at what I might enjoy being and realized I'm always in my head making people over: make-up, hair. Looked into cosmetology school--I was in my sophomore year, second semester--and realized I could be done with cosmetology school and a career to support myself before I was done with my bachelor's degree. And then you wouldn't have to be a lawyer--another plus! Just kidding. I thought I was still going to go to law school, but once I was in the beauty industry and I saw what successful hairdressers could make, I thought: No way! I'm staying right here. So, after you went to cosmetology school, you started off I assume working in a salon? Yes. While I was in cosmetology school and going to the U. of Maryland, I needed a part-time job, so I worked in a hair salon. Once I completed my license, I continued in that hair salon. After that, went to another hair salon, and moved around a little bit. There's a lot of turnover in the business? Yes. Don't know what we're looking for--some magic pill. When you are first in the business, no guidance after school. They really only prepare you to pass the state board exam. Like many other things in life--just get you through the test. How did you get to where you are? How did you move from somebody cutting hair for somebody else to somebody running your own salon? Kind of kept moving from salon to salon, lasted about two years; got real with myself, noticed the people who stay where they are end up being busier and make a little more. But the circumstances of the salons where I'd worked felt unbearable to me. Thought: I need to find a salon where I can really grow and learn how to be an owner, because ultimately if I don't like the atmosphere of working for other people, I've got to figure out a way to create my own. That's how I landed at Oasis Salon; gentleman there named Jeff Menard, who owned it. He seemed easy-going and willing to teach his ability to manage and was supportive more or less. He was older than me and I kind of thought in the back of my head: maybe one day he'll be ready to sell and I'll be ready to buy. In the interview he asked me what are my long-term goals. Owning your business!
4:42How long have you owned it? It'll be five years soon. What do you do differently with your employees? For those of us who go in to get a haircut, we get a haircut, we pay; various types of salons but usually we leave a tip. We don't have any idea usually about the people who work there about what their hours are, how often they come in, what their pay is, what their opportunities are when they leave. What do you try to do differently to make the environment more pleasant and more productive? One of the things I learned from being in the business is because it is traditionally a commission-based business, what you are rewarding is individual behavior. It's whatever you do in your chair. As much as you want to preach team and positive attitudes, the compensation doesn't really allow for that. Did you make what--why don't you give us an idea for a typical salon, where a haircut is in the $50-range, say, for women? Your prices are I think $60 and up for women, and I think $40 and up for men. In that kind of salon--not yours--but in a typical salon in that market, how are the haircutters compensated? Usually it's 50% commission and then somehow the owner will figure out a way to take money back for supplies and other things. So it might be 50% commission with maybe anywhere from 8-10% off the top for--I guess they call it product fees and whatnot. So, if I'm in one of those salons and I'm cutting hair, I have an incentive to cut quickly so I can get more and more customers, more commissions per day, per hour; but of course no one's going to come back to me if I do a bad job. So that motivates me to do a good job as quickly as I can, while still maintaining quality. As you say, it tends to encourage people looking out for themselves. Why would that be a problem in a hair salon? In my view, the person cuts my hair. What's the team aspect that's important? It's about quality of your work atmosphere. When it's all about the individual, let's say your haircutter isn't available that day or called in sick and you really need to get your hair cut that day because you have an important business meeting. Then you're going to have to figure out who else you can go to. A lot of these operators want to take the contract out on you: how dare you sit in someone else's chair. Not very customer-service oriented and not going to promote a team environment. How do you pay your employees differently to promote the team environment? Salary and team bonus. In 2004, I went to a seminar, always trying to learn the business aspect; and a man named Neil Dukoff (sp?) who owns Strategies, a salon and spa consulting company, came up with this team-based structure. I went as a stylist, not as an owner. It was a four-day event; everything he said sounded good--but not the pay thing. Remember, I'm going as a stylist. You like the commission thing as a stylist, most of the time. Just read an inspiration, don't know who it was by: If you want to make a lot of people angry, change something. Part is just fear of change. The next day heard many great things--team, positive, celebrating wins, motivating, coaching--I said, wonderful, we need this; but not the pay thing. Day 3 we break it down and get into the pay thing, as I called it; I listened and thought wow. As a busy stylist, he guaranteed my salary, that then enabled the business owner to give benefits such as health insurance, vacation pay, maybe a little bit of sick leave; and it guarantees my income. I don't have to break my back doing so many different people or so many different procedures on one person. What it also enabled a busy stylist who has been in the business a while to do is to mentor the stylists who are coming up in the business. Have the potential to make the same or more money but you don't have to physically work as hard and you get to be recognized as a senior in the business. But that sounds like a bad deal for the owner now. It's true that when you get paid by commission, it's a little cut-throat; you are jealous of people stealing your customers within the salon, which is very destructive. Customers are very aware of that; they know how zealously the stylists want to keep their core group. But then you are saying it's great because people don't have to work as hard. As the owner, how do you make sure people don't take advantage of the fact that they are not on commission any more. Really good question. First, you create a culture where not working hard is not acceptable. But also, you don't have to physically work as hard. In other words, I'm able to start giving some of my business out to people who have been training with me who I think will do a good job. It becomes less about me squeezing everybody in and more about guaranteeing the quality of the service of the clients. But I don't have to worry about my compensation any more. As an owner, what happens now is you may have 10 operators. Your productivity, hours you are selling your service, is maybe on average 50%--old saying: 20% of you're your people are making 80% of your business, and vice versa. Now you are able to spread the business out a little bit and are able to raise your productivity. So, if you only have 50% productivity, that means out of the 10 only 2 or 3 are really producing. Who everybody wants, overbooked, everybody's asking for a favor to have them to have their hair look nice. And then you've got about 7 stylists who are about 40% busy, sometimes not. Those stylists who are sitting around doing nothing--idle hands aren't a good thing. So they are kind of just talking. As an owner under the salary structure, we have them doing a lot of other things. They might be working on promotions for the salon; might be redecorating, putting some retail sales together. A lot of things the owner does that everyone can do. More heads are better than one. Greater ideas.
13:04One of the advantages of this strategy in general--and of course there are a lot of businesses that work on commission, not salary--one of the advantages you have is you tend to be in a pretty small space so if someone is literally loafing, doing something they are not supposed to be doing that's destructive, like talking and distracting people, you see it and can observe that. Talk about the bonus. The bonus is that we have a financial goal every month, and each time we meet that financial goal, everybody is going to get a bonus. Based on if you are part time or full time. That way, everybody's in on it--the shampoo assistants, the front desk receptionist. Not fair when only the stylists are getting some kind of compensation and everyone else, who is really helping sales and promoting services, aren't really getting a whole lot. This puts the whole team on the same page. The bonus is a percentage of salary? Bonus is a percentage of total sales for the month. Does everybody get the same bonus? No. If you full time you get the same bonus; and if you are part time you get a lower one. But if you are more productive--book more clients--you don't get a bigger bonus than somebody who is not as effective. Absolutely, because in our business, everybody is contributing significantly. Does everybody get the same salary? Absolutely not. The best stylists, you pay a little more to compensate them for what they are producing. So they are not literally on commission, but there is an incentive, if you are more productive you get a little more money. Absolutely; and we have a broadband (?) that tells you how you get from Level 1 to Level 2, and it's not all about what you are producing in your chair. A lot of it is, what's your productivity rate, what's your pre-booking rate--those are the critical numbers we look at; but also, what's your attitude? What's your contribution to the team? Are you available? We have no gossip--we have to direct-talk. Being available means when someone has an issue that they bring to your attention, are you available to hear it. How do you do that? How do you as an owner give that feedback to your employees and how do they give it to each other, if someone feels someone else acted inappropriately or destructively or selfishly or hurt someone, unintentionally we hope. How does that communication take place? We work on it. It's not an easy thing. We know--the accountability piece is the hardest thing to implement. It shows in your attitude, your posture, if you are disturbed by something, most people will come and tell the owner. It's about leadership. I have to make sure that I walk the walk and I'm able to be held accountable when people bring things to my attention. But also when they bring things to my attention about someone else, when I immediately say: Have you talked to them? Have you held them accountable. We work on these things over and over again until it's just part of our culture. Is it formal or informal? Do you have weekly sessions where you talk things out? It's informal. But we do have daily huddles, which are kind of pre-day meetings, inspiration, rah rah, cheerleading, here's our goal, how are we going to get there, here's what everyone needs to know; and then we have monthly meetings. How long does the daily meeting last? Maybe 5 minutes? So that's basically where you are, trying to inspire them a little bit. Do you talk numbers, dollars in those meetings? We do. We talk about what we did the day before and what our goal is for that day. How do the people you employ know to trust you, so that when you say we didn't make our numbers this month--how do they know you are telling the truth rather than just trying to keep them from getting their bonus? Those numbers are available to everyone. In what format? They are on our computer. Most days, I'm not the one doing huddle--it's someone else who is preparing it. They have access to what the sales are from six years ago when we first brought in a computer. They can just look it up. One issue in this kind of setting--it sounds great, and I'm sure when you heard it discussed by a consultant telling you how great it is, all that team spirit, gets you inspired as a potential owner and then as an actual owner. I'm sure there are days when it's not so great--someone had a fight with their spouse or their kids are late for school and they rush in. Any one day, I'm sure there are challenges. One of the hardest parts of your job is probably to hire people who can handle that. So, when you make a hire, what's the process, and does it often work out? Always work out? There are always going to be people who don't handle that type of environment. Absolutely. I ask a lot of business owners and people who are head of their own practices and everyone comes to the same conclusion: It is a total crapshoot. Very difficult thing. Sometimes people present themselves fabulously, and first day on the job you are thinking: who is this person? We are able to address that immediately. We don't waste time. Our hiring practices, again, because we are a team structure, one of the things I put on people's broadbands, which is the thing we use to grow in your levels in the business, is that the people in the beginning--Level 1 and Level 2--are required to do secondary interviews. We script it, talk about. What does that mean? When someone's coming in to our salon, we don't just do one interview. We do, possibly three. They have to do a second interview. We script it--we prepare them. Talk about what else do we notice: if their appointment is at 3:00, what time to they come in? How are they dressed? Eye contact? Was their cell-phone on during the interview? When you say "we"--who is doing those interviews? The team. So you all interview the person? Not all of us but 2-3 of us will. I have found that to be much better than just me interviewing. Because they have to come in and work with us; different personalities. We have a script, but you can go off script if you have a better question. I've had people ask questions that blew my mind--why didn't I think of that? What a great question that is! Or I've had some of the team make observations I've completely missed. By getting more of the team involved in the interviewing process, we have greater success.
21:30What role do references play in that process? Some of these people are coming from another salon. How do you find out what they were like in their previous job? Almost can't do that. If they are getting ready to leave a salon, they are not telling their owner. The way our business is structured, we really don't appeal to people who are well-established in the business. We are going to appeal to people who move to the area, who are licensed and have experience; to people who are just out of beauty schools--and in that case, we can call for references. So, you are very popular as a stylist yourself. How many hours a week are you cutting hair, still? About 32. The rest of the time you are keeping track of everything else, keeping the business organized, dealing with the thousands of issues that come up unexpectedly. One of the things you talked to me about before and alluded to earlier is you like to mentor new people. Talk to me about what that involves. As a man, not too concerned about his hair--obviously, there's one I like, but it's not so hard. Enormous range of demands for women's hair in terms of the skills that are necessary. When you are mentoring a new person or someone relatively inexperienced, what proportion of that is things like eye contact and professionalism? How much is technique? And as you point out, other people want to mentor them also to help create a better team. Tell me about that process and what it involves. When we bring in a new stylist, the first thing we have to do--our salon specializes in curly hair. We have to start teaching them about that. We do have a structure for mentoring and the steps we have to go through. Let me back up a little bit. First we teach them the business, about the desk, answering phones, making appointments, how to get the numbers, looking at the critical numbers, understanding those numbers. We then teach them about shampooing--even though we have assistants we all have to pitch in when we are busy. What kind of head massage we are looking for, how to help people relax, what we do in the winter like using warm towels versus in the summer where we don't have to do that. We talk about guest relations, making sure we greet people as they come in, offering refreshments--communication piece very important. Then we get into the skills. We start by teaching them what we do with curly hair; how to assist people, because immediately you can assist the busier stylists. From there we go through the motions. How much of that is technique? I'd say 80%. It's 100% for everything--you've got to give everything your all. Really isn't that difficult when you do it; sometimes giving things your all takes less effort than giving 50%. In our business, there is no other option. What happens when one of your long-time customers comes in, you're busy; you ask her if she can go to this new person, and that person doesn't do the job you expect from them? First, you have to know where your people stand. It has happened, but it hasn't been a total disaster. Might be, if we take a curly head and we have to blow it straight and maybe it's still a little frizzy--I'll step in and finish it. We make sure when people leave, their needs are met and they are completely satisfied. Also have a service guarantee--sometimes you might go home and your haircut--maybe you envisioned it a little shorter or your color a little lighter--so we give a 2-week service guarantee, that you can come back free of charge for anything to be tweaked, and you can go to anybody for that. Do people do that? Not a large percentage, but it does happen. When I was asking about technique, I was asking question like how do you hold the scissors, where do you cut? Are any of those issues coming up, especially if people are cutting curly hair--may have been well-trained in hospitality school but not used to this. How many times are you teaching them tricks of the trade, things that you've learned over the years? We have bi-weekly workshops, where on Tuesdays we meet--senior and junior staff--and we have to try different techniques, work on things. Constantly developing our skills, all of us. Interestingly enough, as a stylist who has been in the business 21 years now, I have improved my skills tremendously by holding these workshops. When we've worked on what we need to and don't have anything on the agenda, we have to try something new--new color scheme, new technique. Keeps us fresh and out of the box. After being in the business 21 years, I don't feel it. Awesome. Keeps things fresh. When you have these workshops, are you cutting each other's hair? Who are the guinea pigs? Manikin heads. Whose hair are they wearing? Human hair, but have no idea. Seen Chris Rock's (sp.) movie, something about hair; women in India go and sacrifice their hair in temples, and from the back door, people go and sell the hair. Guessing maybe something like that. Human hair wigs are very expensive--you guys are chopping up wigs every week? Some wigs can be very expensive; these manikins come with long hair and they cost about $30-40. What about technology? In the last 20 years there have certainly been innovations in the range of products that are available. Free of animal testing, more organic stuff. How about actual technique of hair-cutting? Tools or devices or other things that have changed that you have to keep up-to-date on? Yes, things are always changing. Yes and no. The shears are going to be the shears. Do they make better quality ones? Absolutely. But it's more technique, really. Sometimes there might a cool highlighting comb, but it's not going to be a whole lot different. Sometimes instead of using foil for highlights they have a have a plastic paper--more environmental than that. Little things like that. Not a big part of your 20-year change. I know they have something you can take home and cut your own hair, but it didn't take off. We are so fortunate that our business really can't be automated. Going to keep the human aspect, where people still come together and communicate, have their hair done by a human being. That's the greatest thing about our business.
30:37Have you had to fire people? Yes. I don't like it. How do you handle that? How do you make that decision. Some obvious things, like stealing, or bad customer service, bad attitude. Those things are easy--just say: Thanks for everything, it's not a good fit; good luck. But then sometimes it might be some bad attitude, underlying issues; you feel it, sense it, but you can't put your finger on it. As an owner what I've been taught, and as a person what I do anyways, is you realize this stinks from the head down. So you first look at: what conversations am I not having with that person? What mentoring and coaching am I not doing? If I focus on them a little more and find ways to communicate with them, have regular meetings with them, can I turn them around? You kind of try that first. If it's just futile, you just tell them: Thanks for everything. I love what Neil says: what you are giving them is a career opportunity to work somewhere else. Give me an idea of what a stylist can make generally? You have to go to cosmetology school because you have to be licensed. How long typically is cosmetology school? About a year, a little less. What does an average stylist make in a shop of about your range of quality--not literally yours, but that range of customer, say, the $50-75 range; and what does a superstar make? The average traditionally under commission is about $30,000-$35,000. Kind of stuck there for a long time. A superstar could make anywhere from $80,000 up. Obviously if you are really in demand you can cut hair in Hollywood or for politicians; but just a very good stylist in a good salon can make $80,000 and up? Yes; keep in mind when I say that, I don't include gratuities. With gratuities, definitely more. So, what do you think makes a great one? Two things. One is the ability to continue growing in your education. Never stop learning, always keep working on your skill. Two, your attitude. If you have a good attitude and are giving really good customer service, people want to come to you. If you are negative and have a bad attitude, people don't want to be around that energy. When you talk about your skills, you were better than you were 10 or 5 years ago; but you were in high demand 10 years ago, I assume. So, you were doing something right; some intangible that made clients comfortable and eager to come to your chair. Thank you! I think from Day 1, there has not been a year that goes by when I am not at least getting to 6 educational events. Sometimes in the form of hair shows, sometimes form of classes and workshops you attend. When I became busy, 101-12 years ago, really my numbers soared. Once I went to Vidal Sassoon in London, and I knew that was something successful stylists had done--and now I understand why--then to continue to always do that. We've brought it even further in our salon. Not only is it required that you attend education, we actually bring education into the salon. Right now, every six weeks we have somebody coming in. But also bi-weekly we are practicing. We compare ourselves to athletes or anyone else who is successful. You are not going to be successful unless you practice. Something else we do: when all our projects are done and you don't have appointments for a couple of hours, you do something on a manikin. Do the people do it? Absolutely. They want to. Let's talk about that Vidal Sassoon experience. Asked you about technology; one of the things that does change is style. One thing that pops into my head is Farrah Fawcett. A little before your time as a hair cutter. Obviously there are looks that come into fashion; there are looks that are dreadfully out of fashion. How many times has a client come in and said: Make me look good; versus with a picture and saying: I want this haircut. Most clients don't come with a picture. Most come and know what they like or don't like about their hair. Part of staying in tune with your skill, perfecting your skill, learning new things, is that--the number 1 reason clients leave stylists is boredom. Want something new and not able to get it with their stylist. You've got to keep fresh, be ready to lead your people into different things. How many times have you given a haircut, done it the way the person wanted it; and when you were done the person burst into tears. Once. That's good! That was plenty of times. What happened? It was too short. Nothing you can do. Whose idea to make it short? I thought hers. That's something we script and really work on: consultations. We take a lot of time to do consultations with our client. Really communication. We practice that, we role-play. What is active listening? Repeating back what they say and all of that. If you have a consultation you have increased your chance for success by 99%. So, a new look comes into or goes out of fashion, and you may have a stylist who is really good at the old one. One way you get to the new ones is you use the manikins, you practice. But sometimes you go to London or wherever you go to learn new techniques, new styles. Is that what you got out of the experience of going to Vidal Sassoon or was it something else? Really wasn't so much style as much as technique. Your shears are a tool and you can do all kinds of things. It's an art form. How you hold it, how you cut, how you slice through the hair, how you cut into the hair, make the hair do different things--have more volume, less volume; for women's bangs whether it kind of sways over to the side. All of what we do now is because we understand fashion goes with what's happening in life. Women don't have time. The days of going to your stylist every week and getting a set are gone. The Farrah Fawcett days where you want everything to be in place and spraying it are gone. Much more natural now; they don't want to work hard on their hair. The techniques we're learning are how to cut and create a look so that they have to do very little and their hair looks good.
40:11You mentioned the shears--which laypeople call scissors. How much do you pay for those? What's a good pair cost? How many do you have? Do you own your own? Does the shop own them? You have to own your own. That's such a personal tool--important. I've got about three--I just bought a new pair. Good ones, about $500-600. Yow! You can go to Staples and get a good pair of scissors for twenty bucks! A lot better. Do they have a microwave oven attached or maybe an iPod? That's a lot of money. No, but you can go through hair like butter, slice right through. Who makes the best? I like Hikari. Your other stylists, do they own that level of shears or something less expensive. They do own that level of shears--very important. You can't do a good haircut with bad shears. You can, but it won't be the same. How often do you sharpen them? Maybe once or twice a year, if that. Does someone come in, or do you send them out? We used to have someone come in. Have had someone sharpen my shears who wasn't as good. Now I send them back to California, to Hikari, and they mail it back. Let's talk about pricing. I notice on your website: Women's haircuts "from" $65. What does that mean? At least $65. How do you decide how much to charge? Obviously you are in competition with cheaper salons who have an advantage. You are in competition with more upscale salons who might have more amenities but are more expensive. How do you decide what level of amenities and pricing you want; how did you get there? For an individual customer, it says $65--depends on what you do besides cut the hair? Is there more than that? First question: deciding prices. We actually researched our area, looked at salons comparable to ours and decided to stay about $5 less than that. Amenities--if you listen to clients, they lead you. We offer teas; we use the Tazo teas. Sometimes a client will ask if you have tried something; ask what you like about it; they'll tell you; you get it and everyone loves it. We want to love being at work--drink the teas, eat the food, listen to the music, be in a friendly atmosphere, too. Translates to our clients. Everyone who walks in the door says our energy is great. Russ, I invite you to come and see it. For a particular client, it will be $65, but we have to cover our bases. Sometimes someone will come in and they've got hair that is going to take 3 hours to do. We've got to be able to charge a little more. What kind of hair is that? Might be really thick, maybe tightly curled, they want it blown straight and flat-ironed--whatever else might come with it. If we say the price is absolutely $65 we are misrepresenting the facts. Consultation. Not a surprise, tell people ahead of time. How do you get that casual feedback besides moving around in the shop, see people smiling or not? When people come in for the first time, we give them a small survey and a letter about our salon and a brochure. Ask name, address, phone, email; if they choose to do promotions for birthdays--which we haven't done that but it's on the agenda. And then we ask them: What do you look for in a salon? How do you rate your first impression of this place? And: Why did you leave your last stylist? Every meeting we go over these surveys. In the monthly meetings. How long are they? An hour and a half to two. What else are you doing in them? Talk about the critical numbers, goal for next month, what's working and what isn't. Swats (?) and threats. Communication; almost part therapy. Might go over the five team functions again: Trust, accountability, conflict, buy-in, and measure. If we do have any kind of challenges, talk about it as a team. Everyone gets to put in. What percentage of that is Wafaya talking versus somebody else talking? Thank you for asking. In the beginning it was mostly me talking. Each month I promised myself I was going to talk less. Now maybe 50-50. What kind of threats? For example, in our little shopping center, really small shopping center, we are one of three hair salons. I throw it out to the team--might be what they envision as threats. Might be not only hair salons in our shopping center but those across the parkway another two, or across another road.
48:51Any one day, month, year, things are happening that are your responsibility but also things happening out in the world--right now in the middle of tougher economic times; as usual, the Washington, D.C. area is not affected as much as some areas, but I assume you see some effect. Maybe getting more business from upper-end salons but losing business to lower-end salons. Do you notice those kinds of changes happening? Not really. The economy for about six months affected what we call up-sales. So if a woman comes in for a haircut, and her hair is really dry and we recommend a $15-20 conditioning treatment, they might turn it down. Instead of buying the large size bottle of shampoo they buy a smaller one. We were so blessed because we were growing as a salon. 2008--the worst economic year--we grew 20%. We watch our numbers; open-book management. Do your employees ever ask for something to make the place nicer--better food, better tea and you've got to decide? All the time. But they are usually cheaper than I am. You are what we call in economics the residual claimant. The bottom line does all flow to you. Even though they have a stake, it's not as big as your stake. Talk about some of the education you give the team: training sessions; don't you also do some reading with them? We do. We have books; part of the requirement for working in our salon is you have to read certain books. That's another thing they can do with downtime. One of my favorite books is The Alchemist; another is The Five Disfunctions of the Team, which we made the Five Functions of the Team, kind of our foundation; more. Lots of books. Every meeting we ask what are you reading, what have you gotten out of it. Unusual practice for salon. Do they like it? They love it. Keeps us motivated. Somebody comes in, may have had a difficult time at home. That does happen, but it lasts about five minutes. Once you are at work--and at huddle we throw out an inspiration; after that, working on positive attitude, on being grateful, on the power of positive thinking. One of the things we did when the latest salon opened up in our shopping center is we weren't allowed to say negative things about it. We had to wish them well. Our success does not depend on their failure. Why should we send out negative energy--what happens is, you get it back. Big world. People will come in and say: What about that other salon; and I say: What other salon? That's what the reading does, keeps us in a positive place. What about taxes and regulations? What role do they play in your life as a small business person? You have to be licensed to be in your business--that's one regulation. All the licenses have to be up-to-date. Sanitation is a huge one in our business. First, it makes sense; but if the state board does come in--and they do, just check around, make sure everything is up to par--what they really look for is that you are not spreading any kind of disease, bacteria, fungus. But we don't want to either--once you do that, it's all over. Recently, one of the things I inherited was a tanning business; there are about four tanning rooms, which are not going to be there for much longer. As of July 1st, there was a 10% tanning tax that we had to implement. We pass it on to the client; not great, but we had to do it. Make sure the i's are dotted and the t's are crossed. All taxes are paid; we have a payroll company. We try to look for opportunities where the government can help us. Example: right now we signed up with a company that is wind-powered, so our electrical is wind. There is a Montgomery County incentive for that. We are with a company that sells wind-powered--we are 100% wind-powered. Couldn't really figure out what that means--how do you get wind into the grid? Sounds like a sham, a fad. The way they explained it--they are not just a fly-by-night company--whatever we use in electricity, they equally buy the wind power for it; so it offsets. Montgomery County gives a tax break for that. Don't know if it's good for the world, but it's an interesting idea.
56:19I know you have a business to run--two more questions and we'll be done. Licensing: imagine a world in which there were no licensing, didn't have to pass that exam. Do you think in your salon it would be any different? Good question. Maybe. Being able to get through a difficult test and passing will set people apart, those who can and can't. Requires some drive and education. Level of educational ability, also. If you asked the Board why they require licensing, they would say it's to keep people from getting a ghastly haircut? Mostly, but a lot more to do with disease and sanitation. Cosmetology school. What are some of the things you learn there that have to do with that? How to identify different skin infections on the scalp or nail infections; what is spreadable, what isn't, how to identify lice. Yow! What to do if a mistake is made, if anything gets on your implements, how to prevent disease from spreading. A lot about that. Valuable. You are originally from Egypt, correct? Yes. You've got people from Kenya, Ethiopia, Colombia, Yemen, and a couple from the great state of Maryland. Advantages and disadvantages for someone who comes to the United States from somewhere else, doesn't speak the language; and why are your employees so international? Quick story about my Dad. Well-educated Egyptian man. Two classes in Egypt: the poor and the rich. If you are poor no opportunity no matter how educated you are. He came to North Carolina in 1970; didn't have a lot of English. Worked at a Hardy's; served as a janitor at a community hospital. Got another Master's while he was here. Five years later he was the head administrator for Charlotte Community Hospital. That can only happen here. As far as my team being from around the world--we live in the Washington, D.C. area and everyone is from somewhere else. In Montgomery Mall a lot; walk by different groups of people, everyone speaking a different language. Love that. Grew up in Charlotte in the 1970s. So nice to be in a place where people celebrate different holidays, speak different languages. Our salon is just a symbol of our area. So much fun to learn about all the different cultures and also how the same we are.

COMMENTS (30 to date)
xian writes:

podcasts with market participants r always very interesting...bravo econtalk!

Jim writes:

What a great podcast! Really informative and nice micro-econ lesson.

Floccina writes:

Great podcast! It reminded me of one my pet subjects; schooling is not equal to education. All that ongoing education is not in k-12 or university schooling.

Eric writes:

Great podcast! I really enjoyed hearing about how someone discovered market truths for themselves, as well as learning to be a true leader virtually by herself.

I can't wait to hear the next in this series! What were the earlier ones? Are they still on iTunes?

John S. writes:

Great podcast. She sounds like a wonderful person. I learned a lot.

Joachim writes:

Great podcast! It's a great idea to interview a small business owner with 5-50 employees about their experiences. How they hire, motivate and fire? Pricing strategy? Vision? Financing, etc.

Mark writes:

I very much enjoyed this podcast, and hope you have many more similar podcasts in the future.

$500 scissors!!! wow!!! I would have guessed a good pair of shears cost $50-75. I guess I was a bit off.

Robert Kennedy writes:

Several questions I would have liked to have asked Ms. Abdallah:

What are the differences between a $15 haircut at a barber, a $30 cut from a low end salon, and a $65 cut from a better salon? Is it just the amenities? Music, refreshments, etc? Or is there any difference in the actual hair cut? As a male, I've tried them all. A better salon is a nice experience but the cut seems about the same to my low standard eyes.

Why is a $500 pair of shears better than a $20 pair of scissors from Staples? Is it just how sharp the blades are? or are there other factors? weight? how long the blade stays sharp? the action of the pivot or something?

Ms. Abdallah obviously puts a lot of energy into creating a good working environment with compensation, daily huddles, biweekly readings, regular education, hiring practices, other communications, etc., etc. And she seems quite committed to nurturing that environment. But not every manager or business owner has that perspective. What would happen in that situation with a different kind of person managing/running the shop but yet still operating under that same business model? what is more important: the business model or the temperament of the owner/operator? does it inherently fail? if so, why? does it fail because of staff turnover? does it fail because of dissatisfied customers? or something else? or will it succeed because of the business model, regardless?

I was also struck by how unstructured she was about hiring and compensation and retention. she admitted that she made many of her decisions by "feel" and not necessarily by any particularly rigorous measurements. That works for me because I do think employee performance in most environments outside of pure sales is hard to measure. But I just imagine how a unionized employee would react to that perspective. "That's giving the manager too much power!" or something.

What a great podcast! Thank you.

And what a great lesson about structuring of executive compensation!

Russ Roberts writes:

Eric,

Try this interview with Gary Belsky on what it's like to be an editor at a major magazine and this one with Steve Cole about being a car salesman. More coming in the future.

Steve Bacharach writes:

Excellent podcast. Reminded me of when you interviewed the local car dealer. You provide a wonderful variety of economic topics from the Fed all the way down to Oasis Hair Salon.

I find it extremely interesting to hear about the compensation of employees. I'm always curious about what people make - not a jealous thing, I'm just interested, but it's basically a taboo subject in polite conversation.

Stephan writes:

Great podcast! Very informative! It's very impressive to hear how she managed to combine the salary pay-structure with individual motivation.

Two things that were mentioned in this podcast probably would make great future podcast topics:

First, there is this whole new(-ish) idea that companies provide additional "benefits" to the employee, which at first sight only benefit the employee and not the employer.
Here it was the additionally provided education, whereas before the employee had to acquire new business-related skills on his own. Things like the "book club" in the saloon, where books can be read in during work hours (really??) have less tangible effects.
Bigger companies seem to start to provide things like a 2h lunch break and a fitness room while encouraging the worker to exercise more or access to nutritional advice, counselors etc., to prevent sick-days due to work related issues.
It would be interesting to hear some opinions and numbers on that.

Secondly, the skepticism towards regenerative energies and how signing up with such a company has any effect.
Would be great to hear, say a manager of such a company and his spin on this and/or a scholar who is in favor of such schemes.
Being from Germany, this would be very interesting to me as our parties are fighting over exactly this issue (sadly, more in terms of ideology and less in terms of viability).

Lauren writes:

Robert Kennedy asked some really good questions from a male perspective. I'd like to second them and ask more from a female perspective. I don't think that the higher prices mostly stem from amenities.

What is the percentage of males to females amongst Oasis's clientele? I'm assuming from Abdallah's answers and from the Oasis website that it is heavily oriented toward females.

Most men have relatively simple hair-cutting concerns, as compared to women. Men's hair is usually short; their haircuts are often less influenced by trends; and the competition for a $15 haircut at a barber shop abounds. Women's hair is typically longer; dated styles are usually more quickly noticed and possibly judged the less in business environments; and a $15 haircut is not an option unless a woman wears a short men's style haircut. Does Oasis do a lot of hair cuttings for men? At what price? Is cutting curly hair a specialty desired by men as well as women? Do men's haircuts take the same amount of time as women's? Do some stylists specialize in short cuts or men's cuts?

Oasis's specialization in curly hair is a terrific idea when it comes to women's hair, or for men's hair that is longer than a few inches. There is no doubt that it is more time-consuming to handle curly or wavy hair, be it a more complex cut to bring the best out of the natural curl or wave, or extra steps to relax or straighten the hair or just when blow-drying the hair. No salons where I live suggest they have a specialty like that.

Nothing in the podcast got into the additional question of hair coloring--a jointly-supplied service. A lot of women, even young women, enjoy changing their hair color--at least based on the behavior of my daughter starting from when she was in her teens, when she started buying over-the-counter hair color and did it herself till she could afford going to a salon. Coloring is a separate price, at Oasis and at any salon I've ever been to. But for a female, the ability to schedule a color and cut jointly--back-to-back so as to not take even more time--is par for the course. So an important coordination question for Abdallah's salary system would be: does a salary system improve the turnaround times for clients who want multiple services over a commission system, and if so, how? Is any improvement reflected in lower prices for your services?

On the subject of how open Abdallah's books are: I have to guess that it might not be so easy if her own remuneration were much more than that of her employees. I might have asked her if her comfort with keeping the books open is because her own bottom line as residual income claimant, after property and payroll taxes and rent and utilities and licenses and other matters her employees know she has to pay, is somewhat in line with her employees. Perhaps that's partly because she herself is based on her being still a stylist, working at the shop, or that her work is easily comparable to working as a stylist?

I wonder, though, as a general business model question: If Abdallah were to make double or three times what her employees made, even if it were after paying good salaries and the monthly bonuses, and were completely justifiable because of the extra hours, hard work, creative effort, and business risks she engaged in beyond the duties she shares with her employees, would she still keep her books open? In other words, is the open-book business model still feasible if one moves beyond doing work whose compensation is analogous with one's employees?

Wish I lived in the D.C. area so I could try them out!

Eric writes:

@Russ

I remember both of those podcasts... just didn't associate them as anything out of the ordinary from your normal stuff. Frankly, I wouldn't have noticed that this podcast with Abdallah was something out-of-the-ordinary either if you hadn't identified it as part of an occasional series. As with the previous two, I just associated it with real life examples of the theory that is discussed here on a weekly basis. If this is a series, I'm enjoying it! More please!

Marty Sullivan writes:

Russ,
I look forward to hearing your podcast each week, no matter what topic will be discussed. I was particularly impressed with this one because of the opportunity if affords the listener to hear of the challenges that arise when theory is put to practice in a small business setting.
Your discussion made plain the requirement for a successful business person to incorporate the philosophy of life-long learning into their daily habits. Only by exercising your mental muscles (like listening to Econ Talk) will you have the tools available to adapt and overcome the friction that always builds when initiative meets reality.
Thanks for your effort and keep up the good work.
Semper Fi,
Marty Sullivan

Barry writes:

Good interview, very interesting.

Just one criticism of what Abdallah says,

Towards the end, there is an 'only in America' passage about her father coming to the US and making it in a way that is sadly not currently possible in Egypt.

It really is time to leave behind the idea that the US is exceptional in absorbing immigration and giving chances, unavailable in the most badly governed counties, to have upward social mobility. Europe is absorbing immigrants at a very high rate and will continue to do so, as in the US, despite populist reactions. I'm not an expert in immigration stats and I don't have time to look them up now, but I do know that about one third of the population of London is foreign born, and that most major European cities show many visible marks of immigration, and the resulting diversity When travelling in Germany I sometimes feel I'm in Turkey (where I live as British ex-pat). There are increasing numbers of prominent politicians, business people, writers, professionals and so on, across Europe, who are of recent immigrant stock.

Grant Gould writes:

Bravo -- a wonderful grounding in reality for the often more weighty topics. It's clear that there's at least another hour of fascinating material to be found in an interview like that.

One question -- how did you pick Ms. Abdallah for interviewing? Does she cut the hair of someone you know? Is she particularly well known in the community? Not being from the DC area, I don't know if Oasis is a landmark I should know by name or just a typical small business muddling through.

Russ Roberts writes:

Grant Gould,

I contacted Wafaya because one of her clients told me she had some interesting ideas about how to run her business. While it seems Oasis is a fine place to get your hair cut, I don't think it's a household name in the DC area...

Chris Jones writes:

I have listened to the podcast for a long time but never commented before. I really enjoyed this podcast, and hope you will do more like this from time-to-time (I have already downloaded the two you mentioned above).

I've talked to several small business owners in the past, and I always learn a lot from it. With a small business, the owner usually needs to have a very clear, practical understanding of what makes the business successful. At a large successful business, there is often room for conventions/beliefs/people who don't contribute much, and it can be difficult to separate out what matters from what doesn't. The typical small business owner knows what matters because they get direct feedback, and they have direct incentives to focus on the areas that can move the needle.

Anyway, thanks for the excellent podcast.

Brian writes:

Russ,

When I saw the title of this podcast as I downloaded it, I was deflated. I so look forward to your podcasts and this title was a let down for me, especially after Selgin last week. So I procrastinated listening to it until today, as I was forced to shovel 4 inches of snow from my driveway. Well, as I am fond of saying about your EconTalk interviews, "this was pure gold".

Sure, this was a nice microecon lesson and small business primer, but for me the real meat of this interview is Wafaya's philosophical approach to life and business. It really is a "can't lose" approach, at least in the business she provides, but I believe in life generally.

I am left wondering three things:

- How much of Wafaya's approach to this business can be attributed to her parents/upbringing? Did she experience elements of this through her parents, or did this approach evolve within her independently?

- Could she do this with a staff of women from families who have been here for generations - your run-of-the-mill American? I just wonder if the type of people Wafaya is employing are more apt to buy into this non-traditional approach to life and work.

- Finally, how long does a pair of $500 shears last?

Thanks, Russ, you get my vote for MVP.

David C writes:

I'm interested in the reading requirements. My first impression is that it is a way to control the culture without being seen as discriminatory. Those people who are more impressionable or more willing to be indoctrinated into that culture will read the books, those who are not will leave. It's a way of dodging the whole equal opportunity issue.

Jeff Y writes:

Been listening to EconTalk for a while now, enjoying the academic and "current events" nature of the guests and topics. However, this the interview with Ms Abdullah was really extraordinary.

I loved hearing about a small business person's perspective on everything from education to pricing strategy to motivation & leadership. Quite amazing how she described her transition from an aspiring lawyer to becoming a beautician, small business owner and IMHO a fine leader.

It might not be obvious, but I think her comments about salary vs commission and benefits like education and inspiration are informative. It's easy to talk about "self-interest" and easy to quantify in terms of pay. However, the Oasis salon demonstrates that at least some people get a lot of value out of non-financial benefits (teamwork, "book club").

Hope you continue to do an occasional podcast involving business owners/leaders that are putting theory into practice.

Russ & EconTalk - Thanks for the truly great educational service you provide!

shawn reed writes:

Professor Roberts:

I'd add at least half of the "Allison on Strategy" podcast as part of this "real life business" series, no? (The "book club" reminded me of it).

And, after years of going to Hair Cuttery, I'm actually going to a pricey salon (though, only here in Orlando, so it's not really a big-city cut) this week to check out the difference, largely as a result of this podcast. That said, my hair is not the typical 'male' cut: it's pretty long, so I'm betting I'm going to be above the "from" price for men.

As M(?r?)s. Abdallah mentioned, I'm going somewhere else because I just don't think my current stylist can switch it up much for me.

Seth writes:

I enjoyed the podcast as well.

I was pleased that she mentioned Lencioni's "Five Dysfunctions of a Team" as one of the books they read. I enjoyed that book as well and believe it had a good message. Like Russ's book, "The Price of Everything", it uses fiction to tell the make the point. Lencioni's, "Three Signs of a Miserable Job" is also good.

Studying for the licensing exam may signal discipline and dedication or it may not. It may weed out people from the profession based on something that has little correlation to success in that profession. I don't believe professional football and basketball players are licensed are they?

Scott G writes:

Dr. Roberts,

This is one of the top five Econtalk podcasts of the 65 I've now heard.

I was amazed by the thought and care that Ms. Abdallah put into making her business an enjoyable place for herself, her employees and her customers. I can see why people would pay $65 to get their hair done there.

I especially enjoyed your question about licensing and cosmetology school. Here it was that you had had a natural, casual and interesting conversation, and then without changing the overall atmosphere of the conversation you asked a somewhat personal and tricky question, (personal because it involved politics and tricky because the licensing obviously has some good effects), and her response was very innocent and honest. I could appreciate the complexity of the matter you had raised (trying to bring attention to the seen and unseen costs and benefits of regulation via markets vs government), but what was more helpful to me was the way in which you raised the question and conducted the conversation.

Thanks for teaching me how to better discuss economics.

Scott


David writes:

Absolutely loved this podcast. While EconTalk is always guaranteed to satisfy - this ranks as one of the best! Would love to hear a similar episode on the MD/DC/VA taxi & limo market - I used to fly out there regularly and the politics + economics behind the regional monopolies were very intriguing, and every cabbie was an amateur economic theorist.

Pierre Dowing writes:

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Richard Taylor writes:

Great discussion. My daughter recently graduated from a name brand cosmetology school and I can attest to all you discussed. Hairdressing is a craft profession, and good scissors are a major craftsman tool. Thus spending $500 on the tool is quite reasonable. A dropped pair of scissors can cost $100 to repair and resharpen. A full kit including scissors will cost $3500 or more.

The business model of a salon paying a salary is very unusual. Most salons work on either split commission as you discussed or chair rental which can run to $1000 a month or more at the higher end. As Lauren notes, you did not discuss color, which is where a lot of the money is.

At the end you posed the question of regulation, and Ms Abdallah correctly answered that the regulations, testing and accreditation are mostly about ensuring good sanitation, which is very important. A few years ago, around here nail salons were offering pedicures and managed to pass on some debilitating foot disease through bad sanitation. I prefer to pay a bit more for a professionally trained hair cutter who will not give me an infection.

Andromeda writes:

@Robert:

"What are the differences between a $15 haircut at a barber, a $30 cut from a low end salon, and a $65 cut from a better salon? Is it just the amenities? Music, refreshments, etc? Or is there any difference in the actual hair cut?"

As a woman with curly hair (not trained in cosmetology in any way) I can say: I have never found anyone who knows how to cut my hair for under $45, and I'm lucky at that price. By this I mean I have literally had the people with the scissors ask me how to cut curly hair: not as in the style I want, but as in the technique. Curly hair requires different training from straight hair and it seems that a lot of stylists just don't have this (I presume this is why Oasis trains its new stylists in curly hair techniques).

In terms of how the cut comes out, one major factor is length; if stylists cut wet hair (which is the norm usually, although not necessarily best practices for curly hair) it's very unpredictable how long the hair will be when dry, if it's curly, so there's training and judgment that go into that and yes, it's easy to screw up dramatically, ending with a haircut several inches shorter than hoped for. There's also taste and judgment in understanding how the individual hairs are going to curl, and cutting them at points that let them curl together instead of fighting against one another. See, e.g., these before & after pictures: http://www.livecurlylivefree.com/curl%20gallery.htm Pretty dramatic difference in hair texture.

I presume there are also potentially differences in the hairstylist's repertoire -- if you want something outside the box do they know how to do it? do they have the taste to pull it off? But I never want anything outside the box, except insofar as I am automatically weird by virtue of my curly hair.

(And this is not even getting into color, where the quality of materials can vary a lot and the potential for screwing up dramatically is high.)

So, yeah. Personally I pay the $45 almost entirely for the benefit of being able to trust the person with the shears. And if I hadn't found him I'd probably be paying twice that. And not getting enough haircuts.

Andrew writes:

Hi Russ,

Just listened to this episode and I love the format.

After listening to tons of your former podcasts its great to get info from these real life examples. Can't wait to see what other businesses and owners you talk to.

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