In This Episode: Having Uncommon Sense often means going against what “everyone” says is the right way to do something. Being a contrarian can absolutely be the correct way to succeed, as Dan Price demonstrates. He even had to fight off his own brother to take his company to the next level: it’s quite a story.
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- My sources for this episode include the New York Times (as well as here and here), BBC, and Business Insider.
- The full text of the study about pay and happiness is available here.
- A photo of Dan Price is in the transcript below.
Welcome to Uncommon Sense, I’m Randy Cassingham.
Growing up in rural Idaho 20 miles from the closest town, Dan Price’s life was shaped from the start by his parents: glory to God was “a family mission,” he said. Each morning the Price children — Dan was one of six kids, with only one sister — would get up early, because they had plenty to do. That started with reciting a proverb, a psalm, a Gospel chapter, and excerpts from both the Old and New Testaments; he was taught that the Bible was the literal truth. Then it was chores around the house. He didn’t go to a public school, but rather was home-schooled until junior high.
The Price’s home was run like a family business, Dan says: everyone had jobs and responsibilities, and there was no forgetting: it was all written down. “All my siblings hated it,” Dan remembers, “but I thought it was cool.” Values based on hard work and faith are “in my DNA,” he said. “It’s just something that’s part of me.”
He remembers as a boy that he listened to Rush Limbaugh’s radio show — as much as three hours a day — and had a recording of a speech by Russell Conwell that he listened to again and again. Conwell was a turn-of-the-20th-century Baptist minister most famous for two things: he was the founder of Temple University in Philadelphia, and well known for a speech he delivered more than 6,000 times called “Acres of Diamonds”. Here’s a sample:
“I say that you ought to get rich, and it is your duty to get rich,” he lectured. “To sympathize with a man whom God has punished for his sins,” he said of the poor, “is to do wrong. … Let us remember there is not a poor person in the United States who was not made poor by his own shortcomings.”
Dan’s father, meanwhile, is Ron Price, an internationally known business advisor, executive coach, speaker, and author on the subject of business leadership who has worked in almost every level of executive management over the past 40 years, including CEO of a multi-million-dollar international company.
So with that sort of background, you won’t be surprised that Dan had an eye for business and making his own way in the world. When one of his brothers started a business when Dan was 9, he helped him promote it, going on the radio. “Hi. I’m Dan Price,” he told whatever listeners that were tuned in before going into his pitch: “I’d like to tell you about my brother’s business, Personality Plus….”
This isn’t to say Dan was completely straight-laced. In seventh grade he played in a rock band. For one gig they played in a coffee shop in town, and it was there that he learned about the struggles of small businesses. The coffee shop’s owner felt like she was being gouged by her credit card payment processing company, which I can definitely relate to.
I remember when I first started taking credit cards for my publishing company: it cost hundreds of dollars to apply, and someone came to the house to take photos to go with my application. They charged extra because my business was online, and I wouldn’t be running the customers’ cards through a terminal. I had to buy their specific software (which cost another few hundred bucks), and type in each credit card number by hand. For that I also had to pay a monthly fee, a little over 3 percent of each amount charged, plus 30 cents, for every order.
Dan probably didn’t hear all that kind of detail, but it planted a seed, and he moved on with his life. Next step was college: he went to Seattle Pacific University, a member of the Christian College Consortium. It’s an intimate school with only about 4500 students.
During his first semester in 2004 at 19 years old, Dan got an idea for a business: a credit card processing company that served smaller, independent businesses, like that coffee shop, or my publishing company. [Full disclosure: I am not one of their customers, but I will be seeing whether they can save me money on my company’s processing.] Dan called the company Gravity Payments, and it’s still in Seattle today. I’m not sure if it was the same brother who Dan helped in his company, but older brother Lucas helped Dan fund the company with some seed capital, and in exchange Lucas got a 30-percent stake in the company.
The company did well, even though it faltered during the Great Recession of 2008, when two of his biggest clients went bankrupt, which alone reduced the company’s income by 20 percent. They got through that, and by 2015 Gravity Payments had 120 employees to support its customers, and had finished 2014 processing $3.8 billion in credit card payments for those small businesses.
Dan took around $1 million in salary as CEO, and lived in a fancy Seattle house. He didn’t throw his money around by any means, for instance still driving an old Audi rather than something flashy, but he was well on his way to doing what Baptist preacher Russell Conwell said in his Acres of Diamonds speech.
Meanwhile, helping to support that path, Dan earned the Small Business Administration’s National Young Entrepreneur of the Year Award, which was presented by President Obama in 2010. He also won GeekWire’s Young Entrepreneur of the Year in 2013, Entrepreneur Magazine’s Entrepreneur of the Year in 2014, and the Seattle Business CEO Excellence Award of 2014.
But along the way a couple of things converged that changed the course of Dan’s life. One, he read a research paper that studied 450,000 people published in 2010 titled, “High income improves evaluation of life but not emotional well-being”. Yeah, I know: a dry title, but it’s an academic paper. To clarify it, they were essentially doing a rigorous study to answer the question of whether money buys happiness. Here’s an excerpt from its abstract:
When plotted against … income, life evaluation rises steadily. Emotional well-being also rises with … income, but there is no further progress beyond an annual income of ~$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.
So the answer was money certainly alleviates pain and buys satisfaction — yet confoundingly, after peaking at that $75,000 a year level, happiness starts to go down, with the study participants reporting decreasing happiness as their incomes got higher and higher.
And two, Dan was shocked that even his friends agreed this was true, especially the under $75,000 group. “They were walking me through the math of making 40 grand a year,” he said, especially when there was an unexpected expense, like a rent increase, car repair, or emergency room visit. “I hear that every single week,” Dan said. “That just eats at me inside.”
One of those friends was a woman named Valerie. He had dated her for awhile, and she had gone on two tours of Iraq during her 11 years of service in the military. She told him that even though she was working 50 hours a week to make $40,000 a year, she was struggling to pay her student loans, and didn’t know what the heck she was going to do since her landlord just raised her rent by $200 a month.
“This is somebody who is just as smart as me, working just as hard as me,” Dan said later. “Here I am making a million dollars a year, while she’s just trying to figure out how to make ends meet. I thought, ‘I can sit here and think about it and talk about it, or I can actually do something about it’.”
Valerie, he said, “is somebody for whom service, honor and hard work just defines who she is as a person,” adding that hearing her story made him angry. “People are starving or being laid off or being taken advantage of so that somebody can have a penthouse at the top of a tower in New York with gold chairs. We’re glorifying greed all the time as a society, in our culture.” As a Christian, it irked him.
Indeed, $40,000 sounds like a lot of money to a lot of people, but Seattle is an expensive place to live. Dan looked at his own company: the average employee made $48,000 a year, yet they were struggling too. Many had to live well outside Seattle to afford rent, with some of them spending as many as 6 hours a day commuting in the notoriously bad Seattle traffic.
Magnates from the 19th century like J.P Morgan, and 20th-century management guru Peter Drucker, thought chief executives should earn about 20 times what their average employee makes, and in fact Dan Price was right in line with that — 20 times $48,000 is just short of a million bucks. But that’s not the pay gap in most large companies in the U.S., where CEOs earn about 300 times what their employees are paid on average.
Dan sat down with a calculator: he could pay everyone in the company significantly more — if he dropped his own salary. And, he realized, he could do it without raising prices on his customers, or reducing the company’s level of customer service.
“The market rate for me as a CEO compared to a regular person is ridiculous,” Dan said — “it’s absurd.” He wanted his employees to be able to buy a house, and be able to afford to have children, and send them to school.
He called a few close advisors and told them what he came up with. “I asked them if they thought I was insane,” he said. “They said yes. And then I asked them if I was making any mistakes on the math, and they said no. The math was right.”
So in July 2015, he called a company meeting to announce his decision: everyone in the company would start being paid more and more over three years until they made a minimum of $70,000 a year, and he was cutting his own salary to that amount too. There was stunned silence as the news sank in and employees realized he was serious. Two employees who were above that level quit in protest, but the news hit the business press like a ton of bricks, with ordinary people calling Dan the “world’s greatest boss” — and Dan’s childhood hero radio host Rush Limbaugh calling him “a communist” …because he wanted his employees to be able to buy a house, and be able to afford to have children, and send them to school.
Limbaugh, who has a net worth of around a half-billion dollars, didn’t stop there: “I hope this company is a case study in MBA programs on how socialism does not work, because it’s going to fail,” he said on his show. Other pundits said that customers would leave for other credit card payment processors, and even employees would quit and it would be harder to get new ones. And then his brother Lucas, the one who owned 30 percent of the company, really challenged Dan’s decision: less that two weeks after the announcement he filed suit, claiming the radical salary increase damaged the company and, therefore, his own finances, and that as a Board member he should have been part of the decision. A judge not only threw out the lawsuit, saying salary decisions were a management function, not a Board function, but also ordered Lucas to pay the company’s expenses in defending the suit. Dan bought out Lucas’s 30-percent share, and now owns 100 percent of the company.
That big to-do was in 2015: it’s just over 4-1/2 years ago, so what did happen? Business isn’t just up, it’s way up. Gravity Payments has had to hire an additional 80 employees, and they got to pick and choose the best of the best because they got more than 30,000 resumes from people wanting to fill those openings. Some even took pay cuts to move to Gravity from previous jobs because that’s the kind of company they wanted to work for, such as former Yahoo executive Tammi Kroll, who joined Gravity as chief operating officer at an 80 percent reduction from her Yahoo salary.
Remember that in 2014, before the announcement, Gravity Payments processed $3.8 billion of credit card payments. Last year it exceeded $10 billion worth of transactions for more than 12,000 businesses.
Remember, that $70,000 is the minimum salary: with incentives and bonuses they can earn more. Dan is still paying himself $70,000 — and had to move into a smaller house because he couldn’t afford his fancy one anymore — but the company average is now actually $72,000 a year. He says he’ll keep his salary at $70,000 until the company’s income and profits go up enough to justify a raise.
The story doesn’t end there, though. Remember, Dan was paying himself almost a million, and the academic research said that happiness went down the more above $75,000 people made. Now, Dan says, “My life is so much better.”
And what about the raising children part? “Before the $70,000 minimum wage,” he says, “we were having between zero and two babies born per year among the team.” But “since the announcement — and it’s been only about four-and-a-half years — we’ve had more than 40 babies” among the staff. Home ownership among the staff has gone from less than 1 percent to more than 10 percent. And you know what else? The Harvard Business School flew a team to Gravity to gather data for one of their famous MBA business case studies. Or as someone might put it, “Take that, Rush Limbaugh!”
“There was a little bit of concern among pontificators out there that people would squander any gains that they would have,” Dan says, “and we’ve really seen the opposite.” How so? Employees have more than doubled the money they’re contributing to their retirement accounts, and 70 percent of them say they’ve paid off debt. Rather than act like children, as the “pontificators” thought, he treated the employees like adults, and they’re acting like adults. Who would have thought it? Well, people who have Uncommon Sense like Dan Price have faith that they will.
“When money is not at the forefront of your mind when you’re doing your job,” says Rosita Barlow, the company’s director of sales, “it allows you to be more passionate about what motivates you. You’re not thinking ‘I have to go to work because I have to make money’,” she says. “Now it’s become focused on, ‘How do I do good work?’”
Dan agrees: “We saw, every day, the effects of giving somebody freedom.” Yeah, that would contribute to feeling life is “so much better”!
Barlow herself had taken a second job — at McDonald’s — to make ends meet, but her first raise enabled her to quit that side gig and put all of her work attention toward the company. Someone with Uncommon Sense might wonder, how can that not improve her performance?
Not surprisingly, employee loyalty is way up. Not only is turnover way down, employees got together and decided that Dan’s old Audi had to go: they bought him a beautiful new Tesla Model S. Employee Alyssa O’Neal, who apparently led the effort, said that, “I feel like this is the ultimate way to say thank you for all the sacrifices he’s made and any of the negative stuff he’s had to deal with.” And there were plenty.
It used to be that companies stayed with an implicit social contract: we mere taxpayers funded the roads that companies use to do business, the airports that enable executives to fly to meetings and ship their products, and the schools that taught the kids that became the workers that made good money to drive the economy, and pay their taxes to keep the cycle going. For their work in company stewardship, CEOs made about 20 times the average employee salary.
But somewhere along the way, CEOs started being paid more and more and more at the expense of the employees, but even that wasn’t enough: companies started moving jobs and money offshore so they wouldn’t have to pay as much in salaries, or taxes. It doesn’t take Uncommon Sense to grasp that isn’t sustainable.
Now that China is the manufacturing center of the world, well, the world has a single point of failure if something happens like, well, say, maybe a pandemic virus that shuts China down. Hey, it could happen! A trillion-dollar company like Apple, for instance, could have to announce that they won’t meet their quarterly revenue projections because of it. We very well may still be just at the beginning stages of COVID-19: we have no idea how long this might last.
Speaking of which, did you know that a majority of prescription drugs are either made in China, or they’re made from ingredients that come from China? If COVID-19 lasts much longer, what do you think the odds are that there’s going to be a worldwide shortage of prescription drugs? I think the odds are high enough that last week I had my pharmacy fill a full year’s supply of the several drugs I need. No, insurance won’t cover that, so I paid it out of pocket. I’d rather do that than not be able to get them later at any price.
OK, back to Dan Price: I think he’s a beacon of Uncommon Sense. Speaking about his pay raise idea, Seattle venture capitalist Nick Hanauer says that “These individual acts can create a new kind of perception of what’s possible and what’s righteous. Who can tell what that last thing is that catalyzes big change?”
Which to me means, a big change back. Fair wages for hard work was the norm in America in the 40s, 50s, 60s, 70s, even 80s … yet according to the thoughts of “pontificators” like Rush Limbaugh, every CEO of every American company during that time was a communist? I don’t think so. I think that corporate America has largely lost its Uncommon Sense, with a few exceptions here and there.
“For Gravity, it’s worked out great,” Dan says, “and I think this type of behavior on balance would work out great for every single company in the world.”
To comment on this episode, find links to my sources, and see a photo of Mr. Price, the Show Page for this episode is thisistrue.com/podcast63.
I’m Randy Cassingham … and I’ll talk at you later.
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