A Federal Judge Rules Against Support for Minority Businesses
The ruling imperils dozens of programs that presume racial minorities are inherently disadvantaged.
Good Morning!
Here are today’s highlights:
Businesses are making the case for increased immigration.
The SBA is going after delinquent Covid loans.
The tough times continue for craft breweries.
Subway is telling its franchisees to remodel or else.
POLICY
A federal judge has ordered a minority business agency to support owners of all races: “A federal judge in Texas has ordered a 55-year-old federal agency created to help minority-owned businesses to open its doors to all races, a ruling that potentially imperils dozens of government programs that also presume racial minorities are inherently disadvantaged. In a 93-page opinion rendered Tuesday, U.S. District Judge Mark T. Pittman ruled that the Minority Business Development Agency’s presumption that businesses owned by Blacks, Latinos and other minorities are disadvantaged violated the Constitution’s guarantee of equal protection. He permanently enjoined the agency’s business centers, which have assisted minority-owned businesses in accessing capital and government contracts, from extending services based on an applicant’s race.”
“‘If this holding withstands appeal, it would immediately disqualify any federal program that operates on a presumption that people of color are socially disadvantaged,’ said Noah Feldman, a constitutional scholar at Harvard Law School.”
“The MBDA was established by executive order in 1969 by President Richard M. Nixon and made permanent in 2021 under the Infrastructure Investment and Jobs Act, which greatly increased its funding to $550 million over five years. It runs more than three dozen centers across the country that help minority-owned businesses secure financing and navigate the federal contracting process.”
“In fiscal 2022, MBDA clients secured $1.6 billion in private and government contracts, agency data show. The agency also helped businesses raise $1.2 billion in capital, as well as create or retain roughly 16,000 jobs. Black-owned businesses received $680 million in contracts, the most of any group, followed by Hispanic-owned businesses at $526 million.” READ MORE
HUMAN RESOURCES
Businesses are starting to push harder for more immigrants (just don’t call them immigrants): “So as migrants poured over the southern border during pandemic-era upheaval, the influx might have seemed like a potential solution to a problem that by the end of this decade could lead to $1.75 trillion in unrealized economic output. All of a sudden big cities were filled with large numbers of people eager to work and start on building their own version of the American dream. That’s not how it’s played out. The newcomers who qualify for work permits have often struggled to secure them, because the government bureaucracy has been overwhelmed. Business groups say the process is broken and are ramping up calls for changes to bring in more workers through legal channels.”
“‘I can’t have a conversation with any business owner that doesn’t revolve around the fact that they simply cannot find the skilled workforce they need,’ says Jay Timmons, chief executive officer of the National Association of Manufacturers.”
“A trade group for companies in the construction industry is buying digital ads to push for immigration reform. An association that represents makers of heavy equipment is flying members to Washington from such places as North Dakota to beg lawmakers for help. A small-business group is receiving record funding to lobby on immigration.”
“Representatives of nursing homes are telling lawmakers that without more immigrants to make meals and empty bedpans, their industry is headed for an all-out crisis. The Critical Labor Coalition, which includes Chipotle Mexican Grill and Yum Brands, advises its members to avoid the word ‘immigration’ and talk about ‘workforce solutions’ instead.” READ MORE
FINANCE
The SBA is looking to collect $20 billion in delinquent Covid loans with balances of $100,000 or less: “Another 10,000 delinquent Covid loans involving larger sums have already been sent to the Treasury. The referrals highlight the continued challenges for the Covid loan program, which provided financing to nearly four million small businesses and nonprofits. The SBA says it has charged off roughly 20 percent of its $390 billion Covid disaster loan portfolio, an accounting figure that includes Treasury referrals and other circumstances such as bankruptcy, fraud or the death of the borrower.”
“Mitra Ryndak’s restaurant, Cafe Aroma in Winnetka, Ill., was evicted by her landlord a few months after she took out a $136,000 Covid loan in 2020. Ryndak said she used the money to pay back taxes and wages, repay loans from family and friends, and cover other expenses. The landlord began looking for another tenant after she fell behind on rent.”
“Ryndak said the agency allowed her to make reduced loan payments for two hardship periods, but rejected her request to settle the debt for less than the amount owed. She said she paid the SBA $2,500 from the sale of her restaurant equipment. In February, she received an email notifying her that the loan was more than 100 days past due and could be sent to the Treasury unless she pays nearly $4,000 to bring the loan current and requests another hardship accommodation.”
“‘I walked out with nothing in my hands,’ said Ryndak.” READ MORE
FOOD & BEVERAGE
The craft beer shakeout continues: “For Oregon brewers, 2023 was one of the worst years since the start of the craft beer boom, as more than two dozen pubs, taprooms and other beer businesses shut down. For the survivors, the downturn means finding new ways to make up for lost sales as consumers' tastes and habits change and fewer are spending time raising pints at their neighborhood pub. ‘We're 30 percent below where draft beer sales were before Covid,’ Sam Pecoraro, brewmaster for Von Ebert Brewing, said last week.”
“The factors to blame for declining beer sales include several suspects: increased popularity of hard seltzers and other new beverages, legal cannabis, the popularity of nonalcoholic drinks and a trend toward reduced alcohol consumption and more. According to the Brewers Association, national beer sales fell 3.1 percent in 2022 and craft beer sales rose by only 0.1 percent.”
“Von Ebert's solution to consumers' change in habit is to meet them where they are spending. The company this month revealed it would purchase Ecliptic Brewing's flagship production facility in North Portland for an undisclosed price. Ecliptic was acquired in November by Great Frontier Holdings, which will take over its brewing.”
“With its acquisition, Von Ebert will be able to increase its production from about 4,000 barrels a year to 20,000 and reach new markets in Washington, California and Idaho. It will also allow it to package beer in six-packs of 12-ounce cans and bottles, the preferred unit for beer buyers, Pecoraro said. ‘Where the real volume is is the 12-ounce bottle,’ he said.” READ MORE
FRANCHISING
Subway is telling its franchisees to remodel their stores or lose them: “At a company convention this week, Subway CEO John Chidsey told operators slow on remodels to either fix up their stores or get out of the system, according to several franchisees who attended the event. He also told franchisees who have remodeled their stores to pressure those who haven’t to do so, arguing that operators who have dated restaurants are hurting the entire system. ‘His message was clear,’ one operator said. ‘Get on board with their plan or go away.’”
“Other operators defended Chidsey’s comments, however, and argued that the company is simply trying to get franchisees to share the benefits of remodels with those who haven’t remodeled their stores. And they said that the company is trying to fix what many see as a difficult problem: Getting more franchisees to invest in the brand.”
“The cost of a remodel runs $60,000 to $80,000 or above, which is substantial for a Subway, whose unit volumes average less than $500,000 per location. NAASF asked Subway to give franchisees with just a few years left on their franchise agreements an extension to their franchise agreements so those operators could get bank loans, pay them off and get a return on investment before those agreements run out.”
“Subway would not comment for this story.” READ MORE
REGULATION
New regulation is catching up with Big Tech: “By Thursday, Google will have changed how it displays certain search results. Microsoft will no longer have Windows customers use its Bing internet search tool by default. And Apple will give iPhone and iPad users access to rival app stores and payment systems for the first time. The tech giants have been preparing ahead of a Wednesday deadline to comply with a new European Union law intended to increase competition in the digital economy. The law, called the Digital Markets Act, requires the biggest tech companies to overhaul how some of their products work so smaller rivals can gain more access to their users.”
“The E.U. law was passed in 2022 to bar the biggest tech companies from using their interlocking services and deep pockets to box in users and squash rivals. The law affects everything from online advertising to messaging apps to app payment methods. Violators could face penalties of up to 20 percent of their global revenue.”
“The tech industry is essentially maturing and becoming more like banking, automobiles and health care, with companies tailoring their products and services to local laws and regulations, said Greg Taylor, an Oxford University professor focused on competition in technology markets.” READ MORE
OFFICE SPACE
Law offices are reconfiguring and doing away with the corner office: “In January, the law firm Crowell & Moring traded its New York offices in an early 1980s building in Midtown Manhattan for a newly built space on the West Side, with sweeping views of the Hudson River and New York Harbor. But the move was not just about gaining a better view. The law firm’s previous office layout was ‘essentially wasted space,’ said Philip T. Inglima, the firm’s chairman. Crowell & Moring makes better use of the square footage in its new location, which includes features like sit-to-stand desks, video technology for hybrid meetings and double-pane glass for soundproofing, Mr. Inglima said.”
“The rule of thumb used to be 1,000 square feet per lawyer, but the new benchmark is closer to 600 square feet, said Thomas Fulcher, a vice chairman at Savills, the real estate services firm. As a result, law firms are doing more with less.”
“Capacious corner offices, epitomized by shows like ‘Suits’ and the 1980s hit ‘L.A. Law,’ are rare, replaced with collaborative spaces and multimedia-equipped conference rooms. Lawyers of all seniority, including the so-called rainmakers, now sit in offices of similar size with uniform furniture.”
“There’s an impressionistic view that new offices with ample light will entice employees to return to the office more frequently without rigid enforcement of a back-to-work policy. At Venable’s new offices in New York, the theory holds up, Mr. Ingis said. Before the move, lawyers were in the office only one day a week despite a three-day-a-week policy. Now, they are coming in more often.” READ MORE
People who work remotely are moving away from the office: “Many Americans now live roughly twice as far from their offices as they did pre-pandemic. That’s according to a new study, set to be released this week, from economists at Stanford and Gusto, a payroll provider, using data from Gusto. The economists studied employee and employer address data from nearly 6,000 employers across the country and found that the average distance between people’s homes and workplaces rose to 27 miles in 2023 from 10 miles in 2019, more than doubling. The share of people who live 50 or more miles from where they work rose sevenfold during the pandemic, climbing to 5.5 percent in 2023 from 0.8 percent in 2019. These trends have proved resilient even as employees return to the office, according to the researchers.”
“A small portion of the workforce (around 12 percent now, compared with roughly 50 percent at the peak of Covid lockdowns) is still able to work entirely remotely. Some chose to leave pricey housing markets like San Francisco or New York in favor of new hometowns, sometimes called ‘Zoom towns.’”
“Others who are working in hybrid environments, in which they have to go to the office only two or three days a week, moved and accepted lengthier ‘super commutes’ in exchange for cheaper housing and more space.”
“Noah Lang, chief executive of a benefits platform called Stride, took remote work as a prompt to cut his company’s San Francisco office lease and move his own family out of the city to a house in Marin County.”
“Being able to hire employees in cities all over the country has been helpful to his business, he said, because Stride provides benefits to gig workers all over America and needs to understand customer experiences far beyond the Bay Area.” READ MORE
THE 21 HATS PODCAST
Can Jimmy Beans Wool Sell Yarn on LinkedIn? This week, Shawn Busse and Laura Zander discuss what exactly Laura’s job should be. She’s CEO, of course, and she’s been focused on acquisitions and growing the business, but she’s never really found someone to take over the big role she used to play, which leads to these questions: Should she go back to being her own chief marketing officer? Or does she need to go out and spend real money to hire one? And then, toward the end of the conversation, Laura actually devises a plan on the spot to sell yarn in a surprising and creative way, which perhaps answers the very question we’d been discussing. Plus: Shawn explains how having the right partner can make or break a business as he celebrates having made his final payout to his own former partner.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren