Discover more from The 21 Hats Morning Report
Can’t Get Employees Back to the Office?
Try feeding them. That's what a lot of businesses are doing, which is also helping restaurants and caterers.
Here are today’s highlights:
The many joys of adding marriage risk to startup risk.
Carey Smith makes the case against outsourcing manufacturing.
More people are choosing to buy their second home first.
And more hotel brands are offering vacation rentals with hotel services.
THE ENTREPRENEURIAL LIFE
Starting a business is hard enough even if you’re not married to your co-founder: “For married co-founders, their partnership can be both a safe space and a minefield. Business becomes an extension of family, but that can get complicated and sometimes leaves employees negotiating between ‘Mom’ and ‘Dad’ to get things done. It also adds marriage risk—and we know the ugly data on that--to business risk. For successful married business partners, the very things that draw them together emotionally and intellectually tend to augment their business acumen—although granted, no couple ever spent a passionate weekend doing quarterly planning.”
“Tiff's Treats started after Tiffany accidentally stood up Leon for a date. She then delivered an apology in the form of some cookies she'd just baked, still warm from the oven.”
“Leon had grown up with entrepreneurial parents from Taiwan—his mom sold Christmas trees, real estate, you name it, and his dad worked in telecom—so chasing business opportunities practically ran in his blood. He smelled an opportunity in his future wife's warm cookies.”
“Over the years, Tiffany has learned to see the value in her partner's willingness to blurt out brainstorms—they conceived their company on the basis of one of those moments, after all—but she and Leon both admit to many clashes that started that way, too, sometimes even in front of their staff.”
“The same sense of intimacy that allows spouses to speak and act freely, or persevere through floods together, can also lower the barrier to arguments.” READ MORE
Carey Smith, founder of Big Ass Fans and Unorthodox Ventures, warns against outsourcing: “Too many founders remain convinced that manufacturing overseas is the only way to go, as central to launching a business as all the other mistakes they've been told are part of the modern business model: landing a big valuation, spending gobs on Facebook advertising, selling on Amazon, and hiring an agency to build a brand. The main appeal of all of these moves is that they appear to be easier than the alternatives. Founders assume their product and brand will be in the hands of people much more experienced than they are and that, by ceding control, they'll have less to worry about. Meanwhile, I argue that if something's easy, it's almost certainly not the right thing to do, and that if founders are not in control, they're being controlled.”
“I've heard all the arguments for outsourcing, but they really boil down to three words: cheaper labor costs. There's no denying that people in the Far East put in longer hours for far less pay than American workers, and if your goal is to make something as cheaply as possible, that can be hard to resist.”
“But, in the long term, outsourcing doesn't come cheap, and if your goal is to create a product and business you can be proud of, then long-term should be the only consideration.”
“At Big Ass Fans, our focus was always on good, not cheap. We charged more for our product and found that our customers were always willing to pay more when they understood why.” READ MORE
One way to get employees back into the office? Feed them: “As employees return to office towers in Boston, many are being welcomed with breakfasts, lunches, and happy hours that employers hope will make the trip in just a bit more bearable. It’s breathed new life into the corporate catering sector, which has always relied on regular sales to white-collar companies during the work week. With many employers announcing plans to return by May, there’s hope that orders will continue to pour in, especially as employers — at least initially — play up the perks of working in-person.”
“The sudden boom in business is reassuring to restaurateurs like Steve DiFillippo, owner of Davio’s. A longtime staple of office workers in Back Bay, his restaurant on Arlington Street has seen catering orders multiply five- or tenfold since the Omicron surge subsided.”
“According to data from ezCater, a Boston-based tech firm that connects companies with catering options, orders in the city were up 58 percent in February compared to January, with law firms leading the way.”
“Legal offices are ordering nearly 20 percent more food than before the pandemic, whereas other industries are still below 2020 levels.”
“Fridays used to be ‘killer’ for Davio’s, but now they are ‘terrible,’ said DiFillippo. ‘We’re starting to see three days a week — Tuesday, Wednesday, Thursday.’” READ MORE
Mortgage rates topped 4 percent for the first time since 2019: “The average rate for a 30-year fixed mortgage topped 4 percent for the first time since May 2019, Freddie Mac said Thursday. At the beginning of the year, the average rate on America’s most popular home loan was 3.22 percent. It hit a record low of 2.65 percent in January 2021 and spent more than half the year under 3 percent. Home-lending costs had been rising ahead of the Federal Reserve’s decision Wednesday to raise rates for the first time since 2018. And while the Fed’s quarter-point move didn’t affect Freddie Mac’s weekly average of 4.16 percent, recorded before the central bank’s announcement, it is likely to send rates even higher.”
“Rising borrowing costs pose another challenge for would-be homeowners already facing soaring home prices. An average rate around 4 percent, while still historically low, is sharply higher than the sub-3 percent rates that were available for much of last year.”
“And the last time the 30-year mortgage rate topped 4 percent, the median home price was $277,000—26 percent lower than it is today.”
“The monthly payment on a $375,000 home with an interest rate of 4 percent is $220 higher than the payment on a similarly priced home would have been in December 2020, ...” READ MORE
Some people are buying their second home first: “A growing number of first-time buyers are doing what the Dudleys did — purchasing a second home while renting their main residence. Though there isn’t data to track this trend, real estate agents and industry observers say a combination of rapidly rising home prices and pandemic work-from-home flexibility has prompted some hopeful homeowners to skip the first step — owning a primary home — and go straight to buying a second home in a more affordable location.”
“Vacation home purchases in general boomed during the pandemic. In 2020, loan applications for vacation homes were up 30 percent from 2019, according to the most recently available data from the Home Mortgage Disclosure Act.”
“‘Even if you’re being paid really well, accumulating a down payment for a million-dollar house is really hard,’ Mr. Green said. ‘But you want to own somewhere, you want to get into the market.’” READ MORE
Hotels are offering vacation rentals with hotel services: “The home-hotel hybrid trend emerged pre-pandemic, but the boom in demand for free-standing houses has accelerated development and options. According to the property management platform Guesty, interest is now 129 percent higher than 2020 and 30 percent higher than 2019.”
“Renting a fancy four-bedroom ski lodge in the Rockies or an expansive estate with its own pool and outdoor kitchen in the French countryside—an established tradition among the well-heeled—has suddenly caught on with a broader swath of Americans.”
“Analysts credit the pandemic, which inspired more people to experiment with types of vacation accommodation. It motivated them to seek more space, privacy or even proximity to a nature preserve.”
“‘The fundamental flaw in the sharing economy is trust,’ said Thomas Bennett, co-founder and CEO of StayOne. He said he was inspired to start his exclusive membership company after a bad experience years ago: When he rented his family’s country house in Spain to strangers, they trashed it.” READ MORE
THE 21 HATS CONVERSATION
About 10 years ago, I attended a breakout session that remains one of the most memorable presentations I’ve ever seen: The speaker was the owner of a pool-building business, Marcus Sheridan, who had thought he was going to lose the business during the Great Recession until he tried some unconventional marketing tactics. He started writing blog posts in which he dared to answer the questions that his customers always asked but that he’d been taught to avoid—questions about pricing, about the disadvantages of the fiberglass pools he built, and even about the other pool builders in the area. Those posts generated enough traffic, credibility, and ultimately orders to save the pool business. (In 2013, I assigned an interview with Marcus for The Times.)
On Tuesday, March 22, at 3 ET, he’ll join me for a 21 Hats webinar conversation. Bring your own questions!
Ghost kitchens are adopting the move-fast-and-break-things ethos, and it’s not working: “Online food delivery has been a lifesaver for people and for restaurants adapting to lockdown life over the past two years. By working with major chains like Wendy's and TGI Fridays and with smaller local restaurants, ghost kitchens have helped meet a booming demand for home-delivered meals, usually without the consumer knowing — or caring — about their dinner's provenance. But the emergence of ghost kitchens has been accompanied by problems from the water issues that Martinez faced to run-ins with local regulators and communities. Another former Reef manager, who worked in operations, said the company's goal was to always ‘get the right permits.’ But, he said, if a permit wasn't coming fast enough, the orders were to ‘open it up, and then work on the permits behind the scenes.’”
“The incidents echo the spread of services like Uber and Airbnb, whose novel convenience came with serious side effects that cities are still struggling with.”
“Local health departments, including those in Miami and Houston, have found food-preparation issues, and some restaurants have cut ties with Reef and CloudKitchens.”
“But the bigger challenge facing ghost kitchens is whether the Silicon Valley playbook that has consistently minted money for app and software startups can work in a restaurant industry grounded in physical real estate and low profit margins.” READ MORE
Domenico De Marco opened a pizzeria called Di Fara in Brooklyn that attracted legions of fans: “Called ‘the holy grail of classic New York–style pizza’ by New York’s Underground Gourmet, Di Fara was, for much of its run, a one-man show, so much so that the shop would close if De Marco was unable to work. Until recently, he produced every pizza himself, a fact that was woven deeply into the shop’s mythology. It gave the pizzeria an aura of craftsmanship just as the food world’s attention was shifting to artisans and producers. For decades, Di Fara was mostly known as a neighborhood slice shop, but eventually it was turned up by people like Jim Leff, the founder of Chowhound, and Adam Kuban, who started the pizza blog Slice. Over time, a cult of fans developed around the pizzeria and even more so De Marco himself, turning the small store into a destination that food-obsessed New Yorkers were practically required to visit.”
“In 2009, the Times covered the hoopla around the pizzeria’s $5 price tag for a single slice, quoting then-Mayor Bloomberg as saying, ‘If you’ve ever had a really great slice of pizza, you know there are worse deals.’”
“Over the years, De Marco’s monk-like commitment and his insistence on finishing his pies with fresh basil became a signature, and he helped to inspire a new generation of pizza-makers.”
“‘It’s hard — maybe impossible — to think of another pizza-maker of his stature, stamina, and significance.’” READ MORE
THE 21 HATS PODCAST
We Are Survivors: This week, two years after the pandemic first hit, Shawn Busse, Jay Goltz, and Liz Picarazzi talk about what they’ve learned, what they’re doing differently, and whether their businesses have gotten weaker or stronger. Leading up to the pandemic, Shawn—still carrying scars from the Great Recession—did a series of workshops on how to prepare for the next recession. Plus: public companies are increasing prices aggressively and then bragging on earnings calls about the extra profits those increases are generating. Is there a lesson in this for privately owned businesses?
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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