Discover more from The 21 Hats Morning Report
A Bottleneck Recession?
With supply-chain snarls showing no sign of abating, fears are growing, especially in Germany, that they could cause a recession.
Good morning! .
Here are today’s highlights:
Wine company valuations are soaring, and it has nothing to do with profits.
Details on the federal vaccine mandate may not be ready for weeks.
We knew being CEO can be tough. Research suggests it may even reduce your life expectancy.
Facebook’s outage was a blow (and a reminder) to advertisers: “For more than five hours on Monday, while Facebook and Instagram were dark, David Herrmann fretted about ads. Mr. Herrmann, a freelance media buyer, said that everyone he worked with relied heavily on the platforms, which soak up the bulk of the $80 million to $100 million in ad spending he manages each year. One company that advertises exclusively on Facebook watched its revenue plunge 70 percent during the outage from the same period a week earlier, Mr. Herrmann said. Sales slipped 30 percent at another company, which spends $40,000 a day on ads.”
“‘I was more or less checking Facebook consistently throughout the day, hoping it would come back,’ he said. ‘But without clear direction from Facebook, we just had to wait.’”
“The outage was an unpleasant reminder to many advertisers of Facebook’s powerful influence on their ability to do business.”
“‘The name of the game for many advertisers, if it wasn’t already, is diversification,’ he said. ‘This is a perfect example of why you can’t rely on a single channel to bring in all of your revenue.’” READ MORE
Private equity is sending wine industry valuations soaring: “Deal makers have targeted the wine industry, as investors bet on rising prices for winery acreage despite a Covid-19 hit to demand for the beverage. Deals by private-equity funds to invest in wineries, vineyards and distributors have risen 75 percent in 2021 so far, compared with last year, according to Refinitiv. There has also been a jump in mergers and acquisitions, with companies spending $8.1 billion this year to snap up wine-related firms, compared with $1.8 billion last year, Pitchbook data showed.”
“This has been a year of blockbuster deals in the wine industry,’ said Stephen Rannekleiv, a beverages strategist at Rabobank. “In the 15 years I’ve been covering wine, I have not seen anything like this.”
“‘In this segment, the profitability of the estate is absolutely not the point,’ Mr. Dubois said. ‘Even if you are absolutely stupid with your management of the estate, you are more or less sure that you will make money selling it.’” READ MORE
THE COVID ECONOMY
Fears of a bottleneck recession: “In Germany, where one in four jobs depends on exports, the crisis gumming up the world’s supply chains is weighing heavily on the economy, which is Europe’s largest and a linchpin to global commerce. Recent surveys and data point to a sharp slowdown of the German manufacturing powerhouse, and economists have begun to predict a ‘bottleneck recession.’ Almost everything that German factories need to operate is in short supply, not just computer chips but also plywood, copper, aluminum, plastics and raw materials like cobalt, lithium, nickel and graphite, which are crucial ingredients of electric car batteries.”
“‘We knew that global supply chains are risky before we had Covid,’ said Mr. Ohmayer, the Voith purchasing chief. ‘The Covid crisis is an accelerator, but it’s not a new trend.’”
“Companies are now trying to figure out what lessons they should draw and how they should revamp their supply networks so they are less susceptible to crises.” READ MORE
With materials in short supply, U.S. builders are looking for alternatives: “Construction companies are looking for replacements and new sources for everything from wood paneling to ceiling joists to pipes, saying that potentially higher costs and added complications to design and construction can be preferable to putting a project on hold for months while waiting for planned supplies. Supply shortages stem from a series of supply-chain disruptions hitting industries around the world this year, from port congestion in Asia and the U.S. to labor shortages at factories. Heavy storms in Texas and Louisiana have also slowed production of some building materials, while semiconductor shortfalls have made appliances harder to secure.”
“Parker Young, president of Straub Construction in Shawnee, Kan., said he switched to different insulation materials after storms in Texas earlier this year made it difficult to get some types of petroleum-derived roof insulation boards, adding about $20,000 to costs for two apartment building projects.”
“‘It’s unprecedented,’ Mr. Young said. ‘I’ve been in the industry for 30 years and never seen anything like this. I’ve learned more about refineries and resin plants than I ever care to know.’” READ MORE
Luxury pool builders are setting prices as high as $500,000—and are still turning away customers: “Sales of in-ground residential pools spiked 24 percent in 2020, according to the Pool & Hot Tub Alliance. But even as travel restrictions and social-distancing measures have lifted, demand is still at a fever pitch. And meeting that demand has been tough. Boutique builders such as Baumann, whose backyard projects cost $150,000 to $200,000 on average, say they are getting more inquiries than they can handle. Paying top dollar doesn't guarantee your pool will be ready by summer, as firms are booked well into 2022, with many projects expected to be completed in 2023.”
“The labor crunch is the biggest cause of the bottleneck. AquaTerra, which has 27 full-time staffers, has been trying to fill four positions for several months, and two are still open, [Kimberly] King said. Getting ahold of subcontractors for services like excavation and plastering is also a problem.”
“‘There isn't enough manpower. There isn't enough material in the pipeline,’ [Chuck] Baumann, the CEO of Creative Environments, said. ‘It's probably the most awkward moment I've ever seen in the business.’”
“‘At some point, we are expecting things to slow down, but we don't see any evidence of it right now,’ King said. ‘Eventually, everyone's going to have a pool.’” READ MORE
FROM OUR SPONSOR: BE FOUND ONLINE
Steve Krull’s Marketing Minute: Does it pay to buy leads? “Chances are, if you’ve been in business for a while, you’ve at least thought about buying leads that you can contact directly. In fact, many of you have probably done it. I spent a good part of my early business years buying leads and data. But today, buying leads doesn’t generate the results it once did. And let’s be honest: It doesn’t feel good being on the receiving end of unsolicited emails and calls. (Yes, I still get some calls, don’t you?)”
“For a start, there are always questions about the quality of the leads you’re buying. Plus, you’re relying on a third party to give you relevant, up-to-date information.”
“What if they don’t update their information regularly? You could end up buying a pile of irrelevant, outdated information and still be no closer to generating more business.” READ MORE
Details of the federal vaccine mandate may not be ready for weeks: “Almost a month after the Biden administration announced it would impose a vaccine mandate for large employers, businesses are grappling with mounting uncertainty about how it will play out. The White House said on Sept. 9 that it would require private employers with more than 100 employees to ensure their workers are vaccinated or tested weekly for COVID-19. The move came as a surprise to local employers but seemed like it could alleviate pressure on companies that had encouraged but not yet mandated vaccines. But critical questions remain to be answered. When the mandate goes into effect, exactly what it requires, whom it applies to, and how it will be enforced all hinge on a rule still being drafted by the federal Occupational Safety and Health Administration, which might not be ready for weeks.”
“‘It puts employers in a difficult position’ said Erika Todd, a litigation expert at Sullivan & Worcester. ‘We know that there are extremely important federal rules forthcoming, but we don’t know what they are, and we really don’t know much about how to prepare for compliance.’”
“For example, Todd said it is unclear whether weekly testing will be an option for all employees who choose not to get vaccinated, or be reserved for those with a medical or religious exemption.” READ MORE
Four day work week? How about three? “A shortage of technology talent has Indian companies offering sweeteners like more vacation time and gender-neutral parental leave as they compete for graduates and professionals. One Bangalore startup is trying a more dramatic solution: a three-day work week. Fintech company Slice is offering new hires a three-day week with salary at 80 percent of the going market rate. This is a win-win approach that frees the workers to pursue other passions or interests -- or other gigs -- while still locking in a steady pay and benefits from Slice, said Rajan Bajaj, the company’s founder.”
“‘This is the future of work,’ Bajaj, 28, said in a phone interview. ‘People don’t want to be tied down to a job.’” READ MORE
FROM OUR SPONSOR: WOMPLY
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Climate change is melting Russia’s permafrost—and challenging its oil economy: “Since 1976, Russia’s average temperature has risen 0.92 degree Fahrenheit per decade, or 2½ times the global pace, government data shows. Mines and plants are experiencing increasing corrosion leaks and cracks, stemming in large part from defrosting ground. In the pipeline industry, braces and other mechanisms, previously anchored into permafrost, often corrode, twist and bend when the earth below changes, according to ecologists and other researchers. Companies are pouring millions of dollars into reinforcing buildings, monitoring soil temperatures and installing high-tech cooling systems.”
“The phenomenon was a contributor to the largest ever spill in the polar Arctic in spring 2020, when damage to a diesel fuel storage tank in remote Siberia caused 20,000 tons of fuel to leak.”
“The economy stands to lose more than $68 billion by 2050, a government minister said in May. The government says that 40 percent of buildings and infrastructure facilities in permafrost-covered areas have already been damaged.” READ MORE
Want to live longer? Don’t be CEO in a stressful industry: “The researchers, whose findings were published in a National Bureau of Economic Research working paper, first examined the effect of state laws designed to protect against hostile takeovers. They compared the lifespans of roughly 1,600 executives who served as CEOs between 1970 and 1991, and found that CEOs who weren’t insulated by state law from hostile takeovers during their tenures lived an average of two years less than those who had this buffer. Next, the researchers compared the lifespans of CEOs whose industries suffered from significant downturns in stock prices during economic shocks—a decline in equity value of 30 percent or more over two years for the median firm in the industry—to those in industries that fared better during those times.”
“Here too, CEOs who faced greater stress tended to live about two years less than their counterparts, researchers found.”
“This analysis showed that CEOs whose industries experienced steep declines in share prices because of the recession appeared to age about a year more on average over the 10 years than executives in industries where share prices held up better.” READ MORE
THE 21 HATS PODCAST
‘Pardon Me. I’m So Sorry. This Is My First Pandemic:’ This week, in episode 79, we go one-on-one with William Vanderbloemen. We start off talking about how he saw The Great Resignation coming and what he thinks are the keys to coping with it. Then we step back, and—with the help of many questions suggested by listeners—we discuss his conversion from pastor to CEO, what happened to his company culture when everyone went remote, and why he still reads every single email he gets—even when he’s off on a seven-week sabbatical. Plus: how he hit upon his unconventional social media strategy and his suggestions if you’re looking for a VP of marketing. (Suggestion No. 1: Try not to lose the one you have.)
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