Discover more from The 21 Hats Morning Report
Bootstrapped to $100 Million
After two venture-backed startups, a Silicon Valley entrepreneur decided there’s a better way.
Here are today’s highlights:
Employees would rather forfeit a raise than go back to the office.
Visa and Mastercard are hiking credit-card fees on merchants.
The war is has created the biggest global supply shock since the ‘70s OPEC oil embargo.
THE RUSSIAN INVASION
The war in Ukraine is endangering sailors and further disrupting supply chains: “Dozens of cargo ships are stranded at the Ukrainian port of Mykolaiv, shipping trackers said. An estimated 3,500 sailors have been stuck on some 200 ships at Ukrainian ports, according to London-based shipping tracker Windward Ltd. More ships are stranded around the globe than at any point since World War II, maritime historians said. The result is a shutdown of the world’s second-largest grain exporting region.”
“Making matters worse for global shippers, thousands of Ukrainian and Russian seafarers are stuck in ports around the world, leaving shipowners scrambling to find replacement crews to keep strained supply chains rolling.”
“‘This shock to global grain supply is the biggest supply shock since the OPEC oil cuts in the 1970s,’ said Salvatore Mercogliano, a professor at Campbell University in North Carolina and former merchant mariner. ‘It will mean food shortages in the Middle East and Africa, and inflation across the world.’” READ MORE
Once a list of companies still doing business in Russia circulated, McDonald’s, Coca-Cola, and Starbucks pulled out: “The spreadsheet, compiled by Yale University professor Jeffrey Sonnenfeld and his research team, has become a naughty-or-nice list of sorts, with CEOs trying their best to avoid being placed on the roster of ‘Companies That Remain in Russia With Significant Exposure.’ READ MORE
The latest from José Andrés and World Central Kitchen:
Spring is almost here, but many retailers are still awaiting the arrival of warm-weather gear: “The board shorts that Manhattan Beach, Calif., apparel retailer Old Bull Lee hoped to showcase on its website by mid-February are still en route from China and won’t arrive at the Port of Los Angeles until mid-March. Nearly half the spring line that New York clothing chain Untuckit planned to feature in its March catalog hasn’t arrived from Vietnam. Under Armour said in February that cancellations related to spring and summer orders as a result of supply-chain capacity constraints would dent revenue in the current quarter by about 10 percentage points.”
“Dr. Sheng Lu, a professor at the University of Delaware who analyzes global trade data, estimates that retailers will see average delays of one to two months on shipments this spring.”
“Exacerbating the crunch is strong consumer spending that is pitting surging demand against limited supplies.”
“Many chains are placing orders with overseas factories earlier, and paying hefty sums to fly the goods to the U.S. But that isn’t necessarily solving the problem, and it ties up capital in inventory.” READ MORE
Despite being in Silicon Valley and having obtained venture backing for two startups, Brian de Haaf chose to bootstrap his third startup: “Aha!, a remote product development software company primarily based in Menlo Park, Calif., is de Haaff’s third business—and the first one he and his co-founder, Chris Waters, bootstrapped themselves. After nine years, it has swelled to around 120 people, and it surpassed $100 million in annual recurring revenue in the fourth quarter of 2021—up from $40 million ARR at the second half of 2018. It’s been profitable on a net income basis since approximately 2014, though de Haaff declined to get any more specific with me about the company’s financials.”
“The venture capital model was ‘really hard on people,’ says de Haaff, who is CEO. It incentivized them to make promises during fundraising that were ‘quite optimistic,’ and then pressure the team to meet those goals. Then there was the matter of scaling really fast.”
“As a company the size of two, de Haaff and Waters developed a beta version, then rolled out an initial product for 125 enterprise customers at a profit. They then began to hire employees and scale.”
“The underlying belief in all of this is that organic growth gives you the best chance for healthy growth, and definitely gives you the best chance for building a lasting sustainable company,’ de Haaff says.”
“That’s part of the reason that Aha! has launched an online community [the Bootstrap Movement] for founders who have bootstrapped their own businesses, where founders can connect, and companies can list job openings.” READ MORE
A startup raised venture capital by explaining why investors shouldn’t invest: “This approach led the software firm to weed out the skeptics and find the right investors sooner, Tim Flannery, a cofounder of Passthrough, said. In February, Passthrough closed a $5 million seed round led by Positive Sum. ‘This does not look like a business that anybody should have given us money for,’ Flannery told Insider. Passthrough builds software for private-equity firms to process ‘subscription agreements,’ which are contracts that allow an investor to enter a limited partnership — a legal entity that binds a fund and its outside backers.”
“Passthrough works by having investors create a profile, fill out a form once, and reuse their answers the next time they invest in a fund. Flannery likens it to TurboTax for subscription agreements.”
“When it came time to pitch, Passthrough wanted to get ahead of any skepticism. So its pitch document included a page titled ‘Why You Shouldn't Invest’ that addressed investors' concerns around the total addressable market.”
“‘Fund-closing software appears to be a tiny market ...” READ MORE
Employees would rather forfeit a raise than give up working from home: “A survey of 3,019 employees conducted by Blind, an anonymous employee community app, found 64 percent of workers at employers including Amazon, Microsoft, and Google would rather work from home than receive a $30,000 raise. ‘For high-earning tech employees, $30,000 does not substitute for the benefits of having flexibility,’ Kyum Kim, co-founder and head of operations at Blind, told Insider. ‘Companies simply cannot force people back to the office especially when there are other remote jobs available elsewhere.’”
“For many employees, flexible work may now feel as vital as their internet connection or morning coffee, which no amount of extra money could replace.”
“Research from jobs site FlexJobs shows that remote work significantly improves worker engagement, which leads to fewer missed days, less turnover, and greater career longevity.”
“It can also be a boon for diversity and inclusion, giving more options to disabled workers, parents, and those who may live outside of major cities.” READ MORE
A Twitter account called out companies that tweeted about International Women’s Day despite having a pay gap: “When Francesca Lawson and Ali Fensome, both 27, woke up in their Manchester, England, home on Tuesday morning — International Women’s Day — their Twitter account @PayGapApp had just over 2,000 followers, they said. The pair, who are a couple, created the account last year to use government data on British companies’ gender pay gaps to call out companies tweeting about International Women’s Day. Fensome, a software developer, built the account as a bot, writing code that leads it to perform the function listed in its Twitter bio: ‘Employers, if you tweet about International Women’s Day, I’ll retweet your gender pay gap,’ it warns.”
“By the end of the day on Tuesday, @PayGapApp had gone viral, with more than 120,000 followers. It had also sent out hundreds of tweets calling out companies with information about their hourly median gender pay gaps.” READ MORE
Uber, Lyft, and others are launching a PR campaign to block efforts to reclassify gig workers as employees: “The companies, which also include DoorDash, Grubhub, and several others, plan to run TV and internet ads in the Washington area featuring workers who say they prefer the flexibility of the independent-contractor model over that of a company employee. ‘If I want to work 20 minutes a week, or 30 hours, I can do that,’ says one worker in the ad. ‘When I need a day off to study for a big exam, I can do that,’ says another.”
“The new advocacy effort by the app-based companies comes as some lawmakers in Congress and in statehouses push measures to reclassify their part-time workers from independent contractors to employees who would be eligible for additional company benefits and be permitted to join labor unions.” READ MORE
Visa and Mastercard are raising the credit card fees they charge merchants: “The fee increases—delayed during the past two years because of the pandemic—are scheduled to kick in next month, according to people familiar with the matter and a document viewed by The Wall Street Journal. Interchange fees account for most of the increase. Merchants pay these fees, which are set by the card networks, when shoppers use their cards. The fees go to the bank that issued the card. Though invisible to shoppers, interchange fees are a constant source of aggravation for merchants.”
“Visa is lowering fees for online and in-store purchases at some small merchants with $250,000 or less in annual consumer credit-card volume, according to the document.”
“Some retail categories, like convenience or grocery stores, restaurants and gas stations, will be excluded, according to people familiar with the matter.”
Visa last week said this change will lower fees by 10 percent for more than 90 percent of American businesses.” READ MORE
In New York City, Russian restaurants are feeling a backlash—even if they aren’t entirely Russian: “‘People have kicked in our door at night,’ said Vlada Von Shats, the matron of Russian Samovar, a family-owned Russian piano bar in Midtown known for its flavored vodkas, caviar and red chandeliers. ‘We have people on the telephone calling us Nazis.’ Ms. Von Shats is Russian, and her husband is Ukrainian. Their three adult children, who are all involved in the restaurant, identify as both. Most of Samovar’s staff is from Ukraine; one of the musicians had a niece who died in the violence last weekend. Russian employees are vocal about their opposition to the invasion.”
“The restaurant is hosting a fund-raiser for Ukraine this week. It posted a blue and yellow flag on the door and a sign that says, ‘Stand by Ukraine. No War.’”
“Still, last Friday night, while the sidewalks outside were jammed with people going to Broadway plays, it only had a handful of customers.” READ MORE
THE 21 HATS PODCAST
We Tried That Brand Thing. It Didn't Work: This week, Shawn Busse, Paul Downs, and Jay Goltz talk about the tendency of many businesses to obsess about their logo, their website, and the need to drive more leads. To which Shawn suggests concentrating first on customer experience. And Jay agrees: “It's better business,” he says, “to make your customers happier than to keep trying to find new customers.” But Paul has his doubts: “You can have your internal house in order, as I do,” he says. “And you can have a great website, as I do. But it's not driving new business to us at the moment.” Plus: Shawn, Paul, and Jay react to recently publicized strategies to address the labor shortage, such as giving out raises more than once a year and encouraging new employees to take a vacation before they start work.
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