Counting Pennies

If you want to make a profit, Lou Mosca says you really do have to track those pennies.

Good Morning!

Here are today’s highlights:            

• Carey Smith says CEOs shouldn’t sit on their own boards.

• Bo Burlingham and Paul Spiegelman are celebrating 15 years of Small Giants with a free, virtual conversation.

• The self-storage boom is very much over.

MANAGEMENT

In this week’s video, Lou Mosca talks about making sure you make a profit: “At American Management Services, we’re firm believers in counting pennies, especially the pennies out of every dollar in revenue that are set aside for profit. If you’re a seven percent net business, you should bank seven pennies for every dollar you earn. It’s not just profit, either. Break a dollar down into labor, cost of goods sold, overhead, salaries, equipment, etc. Breaking down operating costs into their simplest form—pennies—can help owners—and employees—visualize and manage profits and expenses. CONNECT WITH LOU

Carey Smith says CEOs shouldn’t be allowed to sit on their own boards: “At Unorthodox Ventures, we always ask for a board seat when we invest. At one company we advised, the board structure was so ambiguous that while the CEO wasn’t technically on the board, he sat in on every meeting, making it uncomfortable for anyone to raise concerns about him. So nobody did. It was only in private conversations with the chairman, a top investor, that others eventually learned of gnawing problems made worse because the CEO’s presence at meetings had effectively shut down genuine discussions and feedback. The CEO never sought the board’s help, because, like many CEOs, he thought he knew everything there is to know.”

• “We saw this at another company whose founder and CEO was also the chair. When one director had the audacity to clash with the CEO’s thinking, he was canned and replaced with a cheerleader who would back bad strategies: Selling on Amazon is a great idea. (It’s not.) Lowering prices is a great idea. (It’s not.) Every­thing is wonderful. (It’s not.)”

• “In a perfect world, the board would be filled with interested, knowledgeable people who make a commitment to truly understand a business and bring expertise to the table that company leadership may lack. Ideally, the board should hear and discuss a report from the CEO. That discussion should include detailed questions by board members to ensure the CEO is thinking through all potential consequences of major decisions. The CEO should then be excused ...”

• “Everyon­e knows you would never hire a fox to guard a henhouse. The fox has an appetite for chicken and the instinct to hunt, which is a clear conflict of interest. Yet plenty of otherwise intelligent people seem to think it’s just fine for the CEO of a company to have a seat on its board of directors. And often not just any seat, but the one at the head of the table. That’s the equivalent of a dictatorship, and as crazy as, say, letting the chairman and CEO at Boeing decide the safety standards of the company’s airplanes—oh, wait.” READ MORE

EVENTS

The Small Giants Community is celebrating its 15th anniversary with a free virtual conversation between co-founders Paul Spiegelman and Bo Burlingham: It was Bo, of course, who wrote “Small Giants: Companies That Choose to Be Great Instead of Big.” The book hit a nerve. Spurred by Paul, the organization took off. And the rest is history. During the conversation, Paul and Bo will reflect on that history and take questions from the audience. REGISTER HERE

REGULATION

The FTC wants to bring back net-neutrality: “The Federal Communications Commission voted on Thursday to restore regulations that expand government oversight of broadband providers and aim to protect consumer access to the internet, a move that will reignite a long-running battle over the open internet. Known as net neutrality, the regulations were first put in place nearly a decade ago under the Obama administration and are aimed at preventing internet service providers like Verizon or Comcast from blocking or degrading the delivery of services from competitors like Netflix and YouTube. The rules were repealed under President Donald J. Trump, and have proved to be a contentious partisan issue over the years while pitting tech giants against broadband providers.”

• “In a 3-to-2 vote along party lines, the five-member commission appointed by President Biden revived the rules that declare broadband a utility-like service regulated like phones and water. The rules also give the F.C.C. the ability to demand broadband providers report and respond to outages, as well as expand the agency’s oversight of the providers’ security issues.”

• “Broadband providers are expected to sue to try to overturn the reinstated rules. ‘This is a nonissue for broadband consumers, who have enjoyed an open internet for decades,’ said Jonathan Spalter, the president of a broadband lobbying group, USTelecom. The organization said it would ‘pursue all available options, including in the courts.’”

• “​​There have been few examples of blocking or slowing of sites, which proponents of net neutrality say is largely because of fear that the companies would invite scrutiny if they did so. And opponents say the rules could lead to more and unnecessary government oversight of the industry. ‘The internet in America has thrived in the absence of 1930s command-and-control regulation by the government,’ said Brendan Carr, a Republican commissioner.” READ MORE

DEVELOPMENT

The self-storage boom is over: “Many developers, spurred by the pandemic to invest money in new self-storage facilities, have been caught short by this drop in demand. In Sun Belt markets, where much of the self-storage spaces have been built over the past couple of years, falling rental rates combined with climbing construction and financing costs have prompted some developers to walk away from projects entirely. According to SpareFoot, an online platform where people can search for storage units, the average monthly rent for a unit in the United States was $85.14 as of March, down from $108.58 two years earlier. Last year, 245 self-storage construction projects were abandoned, more than double the number from the year before, according to Yardi Matrix.”

• “One of the reasons for the drop in demand is that people aren’t relocating as much. During the pandemic, a wave of city dwellers fled their homes as offices closed, many searching for more outdoor space and residences closer to family. As people moved from apartments and condominiums, they often needed a place to put their stuff — and storage businesses raced to meet that demand.”

• “According to the Self Storage Association, a trade group, around 11 percent of U.S. households have a self-storage unit, but there isn’t enough new demand to make up for the many new facilities that have popped up around the country. Over the next two years, millions of square feet of self-storage projects are expected to open up.” READ MORE

THE ECONOMY

Inflation stayed up in March: “The Federal Reserve’s most closely watched inflation measure remained stubborn in March, the latest evidence that price increases are not fading as quickly as policymakers would like, and another reason that interest rates may stay higher for longer. Investors came into 2024 hopeful that Fed officials would cut rates substantially this year, but those hopes have been fading as inflation has shown much more staying power than expected. Wall Street increasingly sees lower rates coming much later in the year, if the Fed manages to cut them at all. The latest Personal Consumption Expenditures index reading could keep the Fed on a cautious path as it considers when to lower borrowing costs.”

• “The overall inflation index rose by 2.7 percent in the year through March, up from 2.5 percent in February and slightly more than economists had expected.”

• “Inflation was coming down steadily in late 2023, but in recent months progress has stalled. That has left policymakers reassessing how soon and how much they might be able to cut borrowing costs.” READ MORE

STARTUPS

Petlibro, a pet-tech startup, launched a refrigerated smart feeder on Thursday that lets cat owners leave home for as long as 72 hours: “The company’s new ‘Polar Wet Food Feeder’ aims to solve a widely known problem among pet owners: how to keep their cat’s wet food fresh while they’re away. While dry cat food can stay out for longer, scientists have theorized that cats favor wet food because it’s similar to their natural diets. Also, some pet parents stray from dry kibble due to the high carbohydrates. Leaving wet food out while out of town, however, can lead to bacterial growth and spoilage. Owners can now ditch the ice packs and be assured that their pampered cats are being given fresh food that won’t make them sick.”

• “The accompanying mobile app allows owners to control the Wi-Fi-enabled smart feeder via iOS and Android devices. They can customize their pet’s feeding schedule and be notified when the cat starts eating, thanks to motion-detection technology. It should also be noted that if a user’s Wi-Fi ever goes out while they’re out of town, the app will notify them that the device is offline. If there’s a power outage, Polar will keep the food cold for 12 hours.” READ MORE

THE 21 HATS PODCAST

You Need to Accept That You’re the Boss: This week, in episode 193, Sarah Segal takes Paul Downs and Jay Goltz through her recent QuickBooks nightmare. Right before tax season, Sarah ran her P&L, and it showed a profit of $250,000—but she knew right away that that couldn’t be right. It then took a bookkeeping SWAT team to figure out what exactly had gone wrong. “I was literally on the verge of tears,” Sarah tells us. “How am I going to do this and not be late on filing my taxes? And credit to this woman, who, I swear to God, was like my therapist and my bookkeeper. She was like, ‘Don't worry, Sarah. We're going to figure it out.’” Which they did—and which brings an important reminder: Not every dollar that comes in the door should be counted as revenue.

• Plus: What do you do when a new employee isn’t working out? When is the right time to intervene? Do performance improvement plans actually work? Are grace periods a good idea?

• Also: Jay emphasizes a little understood reason why it can be important to fire fast. And Paul explains what he likes about the AI search engine Perplexity.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren