Good morning!

Here are today’s highlights:

A recession is likely to bring more bankruptcies, but the laws are now more favorable for businesses.
Will employees come back to the office if we cover lunch, parking, and gym memberships?
The rising price of haircuts suggests that inflation may be here to stay a while.
Some good news: shipping rates from China have fallen by a third.

SELLING THE BUSINESS

More than two decades ago, as recounted in Bo Burlingham’s “Small Giants,” Gary Erickson, founder of Clif Bar, turned down an offer of $120 million for his business from Quaker Oats at the last possible minute: “This week, Clif Bar decided the time—and the price—were finally right. Snack food giant Mondelez International announced a deal to buy the snack bar brand for $2.9 billion, marking a handsome 2,300 percent premium to the bid from Quaker that Clif Bar rebuffed back in 2000. In the years since, the company has remained private and grown its business to a reported $1 billion in annual sales without the benefit of any significant outside funding. It hasn’t raised capital since 2002, according to PitchBook. Erickson stepped down as co-CEO in 2020. He remains on the company’s board.” READ MORE

BANKRUPTCY

If there is a recession on the way, it’s likely that there will be more small business bankruptcies—but Gene Marks says new legislation — called Subchapter 5 — streamlines the reorganization process: “For example, it allows a financially troubled business owner to propose a plan of reorganization to an appointed trustee without having to obtain approval or solicit votes from its unsecured creditors, which is the case under Chapter 11. The legislation also sets the filing deadline for a reorganization plan at 90 days, which helps business owners get back on their feet quicker, instead of letting the process drag on without firm deadlines.”

“Rather than requiring a business owner to come up with more capital in order to retain their stake — a condition that creditors often impose — the legislation only asks that the reorganization plan is ‘fair and equitable’ and ensures that the business owner’s projected payments or the value of property to be distributed under the plan is not less than the owner’s projected disposable income.”
“In many cases the business owner’s personal residence may also be protected. An extended period is also allowed to pay for administrative expenses, and a business owner can potentially be discharged from bankruptcy faster than under Chapter 11.” READ MORE

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OFFICE SPACE

Companies with signed leases are trying to figure out what will bring employees back to the office: “Cambridge-based CarGurus is asking people to come into the office two days a week beginning this month. Employees who come in get a $15 lunch stipend. Parking fees are also covered, and the company offers membership to a local gym nearby. So far, the commute has been the biggest impediment to bringing employees back, but the perks help, said chief executive Jason Trevisan. In-person work will only help with mentorship, employee engagement, and efficiency, he said. Indeed the company is bullish enough on in-person work that it stuck with a pre-pandemic lease for more than 225,000 square feet at a headquarters building under construction in Back Bay.”

“‘So many things that are currently 30-minute Zooms can be handled in a five-minute conversation, and you can do that if you walk by someone’s desk,’ Trevisan said.”
“Of course, some executives still question whether it’s worth paying for underutilized office space. ... ‘It’s easy for people to say, come back to the office, or don’t come back, or do hybrid,’said [Matt Carroll, chief executive of Boston-based software company Immuta]. ‘But I think the future of offices … is every employee has an individual plan.’”
“Immuta grew during Covid from about 15 employees in Boston to more than 60 and has leased a 16,000-square-foot office in the Seaport District. While employees are not required to come in, many do.” READ MORE

PRICING

The rising price of a haircut suggests inflation is here to stay: “Donna Homann has been cutting some of the same people’s hair since 1970, back when she charged just a dollar a head. In January, she did something she hadn’t done in four years: She raised prices at her Side Door Beauty Salon from $18 to $20 for a unisex wash and cut and from $14 to $16 for a styling, which includes blow-drying and straightening. Her cost of living is going up, as is the cost of doing business. The price of a haircut has to rise, too, she says.”

“A haircut is a purchase that no American consumer can source from overseas. When haircut prices climb, economists say it’s a sign that inflation is becoming deeply embedded in the domestic economy.”
“In May, haircut prices were up 6.2 percent from a year earlier, according to the Bureau of Labor Statistics, the largest annual increase since 1982.”
“In San Francisco, Shorty Maniace raised prices at J.P. Kempt Barber Social from $55 to $65 in May and is considering another increase. When the barbershop opened in 2013, a standard cut was $45. He says people regularly walk out of the salon in a huff after hearing the price.”
“Mr. Maniace’s rent for the salon went up by $800 a month in June. San Francisco’s minimum wage, the starting salary for front desk staff, goes up to $16.99 an hour in July. He also says he’s spending more on employee health plans and fees for customers who pay with credit cards.” READ MORE

But freight rates from China have fallen by a third: “Freight rates from China to the U.S. West Coast stood at $9,585 a box last week, down 34 percent from the start of the year and 50 percent from a year earlier, according to the Freightos Baltic Index. Those rates, however, are more than four times higher than in June 2020, and industry observers expect them to remain above pre-pandemic levels through at least 2023. Business is brisk at U.S. ports, as container shippers handle orders from retailers bringing in merchandise for the back-to-school selling season and late-year holidays.”

“Inbound container volumes across the 10 largest U.S. ports have fallen by an average of 25 percent since May, according to liners and terminal operators.”
“Port operators are gradually clearing up their container depots, and the line of ships waiting to dock outside Los Angeles and Long Beach was down to 22 ships last week from 109 in January, according to the Marine Exchange of Southern California.”
“‘The test for freight rates will come in a few weeks when the peak season is in full swing,’ said Lars Jensen, CEO of Denmark-based Vespucci Maritime. ‘If spot rates don’t go up in the summer, it will be a strong sign that demand is falling. This means lower rates going forward but not falling off a cliff.’” READ MORE

THE ECONOMY

Drivers are cutting back at the pump: “In the first full week of June, gasoline sales at U.S. stations were down about 8.2 percent compared with the same week last year—the 14th consecutive week that sales have lagged behind 2021 levels, according to surveys by energy-data provider OPIS. ... Drivers have begun consolidating trips or filling up their tanks with only as much fuel as they need to get by for a few days. Some are carpooling or taking mass transit, while others are working from the office for fewer days each week, analysts said.”

“Some companies have begun gasoline stipends to help employees cope. First Interstate BancSystem is giving gas stipends of $130 a month to employees making $65,000 or less.
“‘I don’t want them to think about looking for other employment closer to home because it’s too costly to travel to work,’ said Kevin Riley, the Montana-based company’s CEO.” READ MORE

TRADE

Companies are bracing for the impact of a new forced labor law: “A sweeping new law aimed at cracking down on Chinese forced labor could have significant — and unanticipated — ramifications for American companies and consumers. The law, which went into effect on Tuesday, bars products from entering the United States if they have any links to Xinjiang, the far-western region where the Chinese authorities have carried out an extensive crackdown on Uyghur Muslims and other ethnic minorities. That could affect a wide range of products, including those using any raw materials from Xinjiang or with a connection to the type of Chinese labor and poverty alleviation programs the U.S. government has deemed coercive — even if the finished product used just a tiny amount of material from Xinjiang somewhere along its journey.”

“Evan Smith, the chief executive at the supply chain technology company Altana AI, said his company calculated that roughly a million companies globally would be subject to enforcement action under the full letter of the law, out of about 10 million businesses worldwide that are buying, selling or manufacturing physical things.”
“‘This is not like a ‘picking needles out of a haystack’ problem,’ he said. ‘This is touching a meaningful percentage of all of the world’s everyday goods.’”
“‘The public is not prepared for what’s going to happen,’ said Alan Bersin, a former commissioner of U.S. Customs and Border Protection who is now the executive chairman at Altana AI. ‘The impact of this on the global economy, and on the U.S. economy, is measured in the many billions of dollars, not in the millions of dollars.’” READ MORE

THE 21 HATS PODCAST

Do Core Values Matter? This week, Sarah Segal tells Shawn Busse and Paul Downs why she’s never articulated a set of core values for her business and why she’s thinking about doing it now. But she’s wondering whether establishing her values will really make a difference. Do employees care? Do clients care? Both Shawn and Paul say they do. In fact, Paul says his core values have been extremely helpful when it comes to recruiting. And Shawn says he thinks sharing values can be the best competitive advantage smaller businesses have. Plus: We get an update on how Paul’s big marketing initiative is going, and we follow up on why Sarah feels compelled to participate in almost all of her firm’s client calls.

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If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren

The 21 Hats Morning Report

A Small Giant Goes Big