A Successful Owner Chooses an Innovative Exit
Market price? Check. Culture preserved? Check. Financing? A Little Tricky.
Good Morning!
Here are today’s highlights:
The person you are interviewing for a job could be getting answers from AI.
The shortage of accountants is generating dozens of AI-based accounting startups.
Is it a bad sign that businesses are hiring fewer temporary workers?
Started with $16,000 in savings, a tiny maker of tiny jewelry is becoming a retail “monster.”
THE 21 HATS PODCAST
A Successful Owner Chooses an Innovative Exit: This week, special guests Laura Anderson, founder of Local Ocean, and Peter Koehler, her succession-planning advisor, explain why Laura decided to sell her thriving seafood business in a transaction that created a business model that is neither widely known nor widely understood. It’s called an employee-ownership trust, and there are only about 50 of them in the United States. But their numbers are growing here and abroad, and for good reason. The trust model offers owners something of a choose-your-own-adventure option that can allow them to sell for a market rate in a relatively uncomplicated transaction that makes it far more likely the business will remain true to its established mission—especially when compared to selling to private equity or even to an employee stock ownership plan.
Of course, there are challenges, including getting a bank to consider financing one of these deals. But in this episode, Laura explains why, with Peter’s help, she decided to trust the trust.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
ARTIFICIAL INTELLIGENCE
Are you interviewing a job candidate or a bot? “Michael Guan wants [job candidates] to use AI to bluff [their] way through that job interview. Just don't call it cheating. He's the co-founder and CEO of Final Round AI, a startup building artificial intelligence-powered tools for job seekers. There's an AI résumé builder, a cover letter writing service, and a mock interview tool. And — more provocatively — there's Copilot, an app that listens in on job interviews and quietly feeds the interviewee with answers they can read out. ‘It can prompt the candidates with the right thing to say at the right time,’ he told me. ‘Like a magical teleprompter, using AI.’”
“AI mania has engulfed the business world, and recruiting isn't immune. There are now AI-drafted messages to reach out to potential candidates, AI tools for identifying more diverse talent, and even entire job interviews conducted by AI systems capable of deciding who to hire.”
“Otter isn't intended for proxy interviews; it's a service for transcribing conversations and meeting minutes. But proxy interview providers have embraced its real-time transcripts to secretly feed candidates the answers to tough questions. A proxy can listen in to the call and speak convincing answers into a mic, and their words will appear on the candidate's screen near-instantaneously. Then, the candidate reads out these answers.”
“There's a debate in Silicon Valley about the appropriateness of candidates using AI in job interviews. Some believe it's the inevitable future; others think it undermines the entire point of the recruitment process — finding someone who can actually do the work. Guan shrugged off the concern.”
“‘If they can use AI to crush an interview, they can for sure continue using AI to become the top performer in their daily jobs,’ he said.” READ MORE
ACCOUNTING
Believe it or not, we need more accountants: “With fewer young people entering the profession and an increasing number of Baby Boomers, who account for three-quarters of CPAs, heading for retirement, a Bloomberg analysis of data from the Bureau of Labor Statistics found that there are 340,000 fewer accountants than there were five years ago. The drought of talent has prompted a crisis in the industry, which has put the blame on stiff education requirements, sluggish pay, and tough competition from glitzier business school paths like investment banking and management consulting. This specialized labor shortage is not just a problem for the accounting firms struggling to fill out their entry-level recruiting classes. This dearth of number crunchers is having a downstream impact on the clients they serve—namely businesses.”
“For many early-stage and smaller companies, accountants serve as de-facto financial advisers in place of a CFO, and right now, in a tricky environment of higher interest rates, elevated costs, and tighter margins, entrepreneurs could really use some professional guidance. But with depleted ranks, accounting firms are struggling to keep up with demand, and founders say they are struggling to get the answers they need.”
“‘Small businesses are out there going: I need this help. It's a tougher economy today,’ says Ben Richmond, a certified public accountant who manages the U.S. client base for the small-business accounting software platform Xero. ‘The challenge is a lot of the firms aren't either resourced with the right technology or enough people to get to that.’”
“A new generation of startups has made this problem their business. Dozens of companies have come to market in the past few years with software solutions designed to fill the accountant gap with artificial intelligence. Investors are latching onto the idea. The venture capital giant Andreessen Horowitz is betting on it, declaring the talent-strapped industry ripe for technological disruption.”
"‘This shouldn't come as a surprise to anyone,’ wrote firm partners Marc Andrusko and Seema Amble in a report, which was published in June. ‘Bookkeeping, accounting, tax preparation, and auditing are fields full of largely formulaic and repetitive exercises that would immensely benefit from generative AI's gift of efficiency and time savings.’” READ MORE
HUMAN RESOURCES
Businesses are hiring fewer temps: “Temporary workers were hit with 49,000 job losses in June, more than any other industry, and a possible sign the labor market is poised to cool significantly in the months ahead. The decline, highlighted in the June employment report released Friday, caps a stunning two-year streak of job losses in a sector that traditionally has served as a bellwether for hiring across the U.S. Last month's drop was the largest since April 2021. Temporary staffing agencies serve a variety of industries but especially manufacturing, warehousing, retail, health care, technology, and administrative office work.”
“Neema Hospitality, which owns 11 hotel franchises in the mid-Atlantic region, hired lots of temporary housekeepers from staffing agencies as the company struggled to find long-term staffers after COVID, says company President Sandeep Thakrar. But he has dramatically scaled back his use of temps. ‘Over time, we were able to find more permanent employees,’ he says.”
“But another reason he has pared back temp hiring is that hotel occupancy is down 1 percent to 3 percent this year. Many low- to middle-income households are coping with near-record credit card debt and rising delinquencies. ‘People are running out of money,’ he says.” READ MORE
A four-day work week? Greece is going for six: “[Last week], a law came into effect that allows some companies to enforce a six-day workweek, a shift that is intended to prop up the country’s aging workforce and compensate strapped workers, while respecting workers’ rights. The law applies to private sector workers in certain industrial and manufacturing sectors, or to those who work in a business that operates continuous shifts 24 hours a day, seven days a week, with some exceptions. And it would be allowed only ‘in exceptional circumstances,’ like an unexpectedly increased workload.”
“Greece is dealing with a shortage of skilled labor, as are its peers in the European Union. Conservative lawmakers in the country have billed the law as a way to provide more resources for employers, while providing additional income for workers. ... According to the law, workers get an extra 40 percent on their sixth day. This rises to 115 percent if that day falls on a Sunday or a public holiday.”
“Greece has struggled to deal with a huge influx of migrants in recent years, but it is now offering some more established migrants residency and work permits, as well as signing deals with other countries to bring in more workers for certain sectors like agriculture.” READ MORE
RETAIL
Catbird, which started as a tiny Brooklyn jewelry shop, is spreading its “trash and treasure” brand throughout the country: “The idea for Catbird came to [Rony Elka] Vardi in the early 2000s, not long after she moved to Brooklyn in 1999. She was working at the cosmetics company Bliss and had about $16,000 in savings. Williamsburg’s much cheaper rents back then made the neighborhood a good place for pursuing ‘personal projects,’ as she put it. Hers would be a boutique selling jewelry, clothes, paper goods, and homewares from various small brands.”
“Catbird also uses its jewelry’s scale as a selling point, sometimes promoting its baubles as ‘the tiniest.’ The Dewdrop stud ($128 each), one of its most popular styles, juxtaposes a two-millimeter-wide pearl beside an even smaller diamond, both of which are held in place by 14-karat-gold prongs not much larger than grains of sand.”
“Joel Weiss, an owner of Carrera Casting in Manhattan’s Diamond District, which develops jewelry with Catbird and other brands like David Yurman, Judith Ripka and Costco, called Catbird a ‘monster.’ He said that he couldn’t think of another company that produces a higher amount of pieces in New York City.”
“The nationwide expansion of Catbird, which has some 234 employees and makes almost 60 percent of its annual sales online, has been partly led by a relatively new chief executive, Motoko Sakurai, who joined the company about two years ago. Ms. Vardi has wound down her day-to-day involvement in the business; she now mostly handles creative work alongside Ms. Batnick Plessner.” READ MORE
THE ECONOMY
Bankruptcies are surging: “According to a Monday report, June notched the highest level of monthly bankruptcies since 2020, when pandemic chaos drove a number of firms out of business. Tacking on last month's 75 filings, this year's total number of bankruptcies rose to 346. While company-specific issues will often lend a hand towards a business' closure, S&P Global cited high interest rates, supply chain issues, and a consumer spending slowdown as today's major culprits.”
‘Bankruptcies started spiking to stand-out levels in April, the ratings agency reported, as it began to dawn on businesses that monetary policy would remain elevated for a while. As the Federal Reserve has held interest rates at the 5.25 percent to 5.50 percent level for nearly a year now, some analysts have called the central bank out for risking unnecessary damage to the economy.”
“‘If I were on the Fed, I would have argued for rate cuts at the end of last year,’ Moody's chief economist Mark Zandi told CNBC on Monday. ‘I think they're taking an increasing risk of putting too much pressure on the economy, financial system, and ultimately, potentially breaking something.’” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Is It Time to Panic About Deficits? No, says Gene Marks, who — it may surprise you to hear — offers three main reasons he doesn’t believe business owners should be overly concerned about the U.S. government’s growing debt. That said, he does believe that we are likely to operate in an environment of higher inflation and higher interest rates for some time, and he says that is likely to require some adjustment in the thinking of business owners.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren