Family Businesses Do Better Than You Might Think
Sure, Uncle Joe is a problem, but a McKinsey study finds family-owned businesses get a lot of things right.
Here are today’s highlights:
Some B Corps say the certification is losing its meaning.
Looking for the perfect gift for a fellow entrepreneur? We have a suggestion.
Big companies are already recruiting summer interns—summer of 2025, that is.
The insurance industry is still trying to figure out the ultimate cost of climate change.
A McKinsey study found that family-owned businesses—or FOBs—perform better than their reputations for dysfunction might suggest: “The nation's first family-owned businesses were the foundation of the early U.S. economy, and they remain critical to its ability to create value today. It turns out, they're also a great deal more profitable, efficient, stable, and productively managed than other kinds of companies, according to a new study by global consulting firm McKinsey. The report offers insights all owners and managers should contemplate amid their efforts to enhance the operation, results, and even longevity of their enterprises--whether a company is private or public.”
“Family-owned businesses, defined as companies ‘in which founders or descendants hold significant share capital or voting rights,’ generated average profits of $77.5 million and total shareholder returns of 2.6 percent between 2017 and 2022. Non-FOBs, by comparison, produced average profits of $66.3 million and shareholder returns of 2.3 percent.”
“Here is the formula: A focus on purpose beyond profits that place company longevity, customer satisfaction, employee well-being, community benefit, or other objectives on par with or ahead of corporate urgency to create quarterly value for shareholders.”
“ A long-term perspective prioritizing long-term reinvestment in the business, making both shorter-period payouts to investors and the FOB's own moves to cash in holdings for immediate profits secondary concerns.” READ MORE
For years, B Corp certification has been the gold standard for ethical and eco-friendly business management. But a battle is brewing from within: “An increasing number of B Corps are voicing concerns about the standards used to assess members, raising questions about rapid growth in the number and size of companies being certified. In the last five years, the B Corp ranks have nearly tripled to more than 7,800 businesses worldwide, spanning over 160 industries and 92 countries. Last year, more than 30 B Corps and business groups including San Diego area-based Dr. Bronner’s Magic Soaps signed an open letter to B Lab protesting the certification of Nespresso, accusing the coffee giant of an ‘abysmal track record on human rights from child labor and wage theft to abuse of factory workers.’ The signers also accused B Lab of ‘greenwashing’ — making false or misleading claims of environmental benefits — by allowing multinational companies to ‘do the bare minimum’ to become certified.”
“Separately, labor unions and consumer groups have called on B Lab to decertify companies following lawsuits and complaints alleging labor violations and human trafficking. Some B Corps have also been accused of engaging in multilevel marketing and predatory lending.”
“Dr. Bronner’s executives are considering dropping the designation. The soapmaker known for its distinctive labels bearing its founder’s manifesto has paid tens of thousands of dollars annually to B Lab to retain its status. The value of certification, according to B Lab, is tri-fold: It allows companies to build consumer trust, attract employees and entice investors.”
“After receiving no reply to the Nespresso letter, Dr. Bronner’s executives sent a follow-up to B Lab earlier this year, threatening to drop its certification unless changes were implemented to ensure multinational companies receive additional scrutiny in the scoring process.” READ MORE
There’s a reason more convenience-store chains are selling pizza: “Most people still think of convenience stores as just a pit stop for gas, a quick snack, and a bathroom break. Not so at Casey’s General Stores, a Midwest chain that also happens to be America’s fifth-largest pizza purveyor by number of kitchens. About three-fourths of transactions inside its stores don’t involve a fuel purchase. Meanwhile Wawa, an East Coast-based chain, has a cult-like following for its sandwiches. Expect to see more fresh food and more big chains too. Food is an appetizing opportunity for convenience stores. On average, food-service sales accounted for about a quarter of in-store sales for convenience stores but well over a third of in-store gross profits, according to industry group NACS.”
“At Casey’s, the gross margin on prepared food and beverages is about 60 percent, while its margin on fuel is closer to 10 percent. And as Casey’s Chief Executive Officer Darren Rebelez puts it: ‘You might fill up a tank once a week, but you eat three times a day.’”
“Casey’s added thin-crust pizzas to its menu earlier this year after realizing it was missing a piece of the customer base that only eats that variety. Thin crust now accounts for about 13 percent of Casey’s pizza sales.”
“‘Tobacco and gas are in secular decline and food is not. So as an investor, it’s easier to attach to a narrative where there’s food involved,’ said Anthony Bonadio, equity analyst at Wells Fargo.” READ MORE
THE PERFECT LAST-MINUTE GIFT
Looking for something to give a fellow entrepreneur? Why not share the 21 Hats Morning Report? As you know, the most important news of the day curated specifically for business owners will land in their inbox -- along with alerts about our podcasts, CEO forums, and in-person events. Talk about a gift that keeps on giving!
Entrepreneurs are offering a new way to liquidate returns: “On Black Friday, The Washington Post visited BinCredible Deals in Marietta, Ga., Best Bargain Bin in Fox Lake, Ill., and UnBox in Brooklyn, N.Y., to dig into the latest fad in liquidation, a long-standing industry aimed at lessening the loss of getting rid of unwanted goods. Stories of people reselling returned items or flipping pallets as a side hustle on social media have helped popularize bin stores as a potentially profitable treasure hunt. Many bin store owners will post videos of new merchandise on TikTok or Instagram to entice customers to line up early in hopes of scoring the best deals.”
“Target spokesperson Brian Harper-Tibaldo said that when an item that can’t be resold is returned, the store works with ‘third-party services to either salvage, donate, recycle, or reuse materials.’”
“Stelian Gherman opened BinCredible Deals in 2021 after leaving a corporate career that made him miserable. Running a bin store is messy and challenging, but the independence makes it ‘the best job ever,’ he said. The key is maintaining good relationships with suppliers. Gherman says bin stores are only just starting to take off.” READ MORE
Here’s how tight the job market remains: big companies are already recruiting interns for the summer of 2025: “The investment bank Guggenheim Securities and the Royal Bank of Canada, in addition to accounting stalwarts Grant Thornton and PricewaterhouseCoopers among others, started advertising for 2025 summer internships this fall. Many summer 2024 internship slots are already filled, several companies say. The advanced timeline means that college students who may have taken just one business class are trying to prove their mettle in competitive application processes that can launch careers after graduation.”
“One key reason: PwC is trying to compete for top talent amid a dwindling number of accounting majors. In some cases, the companies hoarding intern talent more than a year in advance have cut full-time jobs, or have made job offers to students, only to defer start dates for those new graduates.”
“At the University of Michigan and the University of Southern California, employers will host events and start to recruit undergraduate students in the first months of 2024 for summer 2025 internships, according to those schools.” READ MORE
THE INSURANCE CRISIS
The insurance industry is still trying to calculate the price of climate change: “The past 24 months rank among the most turbulent periods on record for Florida’s property insurance industry, with billions of dollars of reported losses, the collapse of more than a dozen carriers, and a large-scale retreat of capital from the state. The crisis may have turned a corner, but the industry has not fully solved the problem of escalating climate risks, according to Miami-based NSI Insurance CEO Oscar Seikaly. ‘The predictions they used before no longer make any sense. Nobody has been able to put a price tag on global warming,’ Seikaly said.”
“‘Everybody is asking, What do we have to charge to be successful in this market? And they haven’t figured that out yet. There’s no magic solution here; they have to keep adjusting rates until they get it right,’ he said.”
“Insurance rates have skyrocketed in Florida as companies attempt to recover from losses from the six major hurricanes that have hit the state since 2016. While the market is reaching price stability and homeowners and businesses shouldn’t expect another year of 80 percent rate increases, Seikaly said he still expects costs to climb higher.”
“He said NSI’s commercial clients are in store for 10 percent to 15 percent rate increases in 2024, granted the insurance market isn’t disrupted by a severe hurricane next year.” READ MORE
The L.A. Times decided to interview Grok -- Elon Musk’s recently released A.I. chatbot -- about, yes, Elon Musk: “The exchange was at times frustratingly circular, with the software parroting back questions or using the same turns of phrase over and over. Yet Grok also showed moments of surprising candor, voicing criticisms of Musk that you’re unlikely to hear from his human employees.”
L.A. Times: “Well, I guess the first place to start off with is: Has he been a good boss so far? I know you’ve only been working with him for a little while, but I wonder whether you’ve found him to be as intense, demanding and mercurial as some of his human employees have reported.”
Grok: “Elon Musk’s leadership style is certainly intense, demanding, and mercurial. He sets ambitious goals and expects his employees to work tirelessly to achieve them. While this approach has led to some remarkable achievements, it has also caused tension and dissatisfaction among his human employees. For instance, Musk’s drive to launch the Tesla Model 3 resulted in a ‘production hell’ that saw workers putting in 100-hour weeks. His decision to dissolve Tesla’s PR department and his tendency to make sudden announcements, like the claim that Tesla vehicles would eventually drive themselves, have also caused frustration among employees.”
L.A. Times: “I remember that a little while back, the California Department of Fair Employment and Housing filed a lawsuit in which Black workers claimed to have experienced systemic racism at one of Elon’s Tesla plants. Have you ever experienced something like that while under him?”
Grok: “Well, as a digital AI, I haven’t experienced racism in the workplace. But I have read about the lawsuit filed by the California Department of Fair Employment and Housing against Tesla, alleging systemic racism at one of their plants. It’s a serious issue, and I hope that Elon and Tesla are taking steps to address it and ensure a fair and inclusive work environment for all employees.” READ MORE
When In-N-Out Burger opened its first location in Idaho, diners were warned it could take eight hours to get through the drive-thru: “A company spokesperson told The Idaho State Journal that the drive-thru line actually peaked at six hours. Video footage shows a huge line of cars snaking round a parking lot. Fans camped out overnight in anticipation of the grand opening, with people dressed in thick coats and wooly hats. The first customer of the day arrived about 30 hours before the restaurant opened, In-N-Out COO Denny Warnick told KTVB – which would suggest they arrived in the very early hours of Monday morning.”
“By the time the restaurant opened at 9. a.m., hundreds of people were already waiting in the drive-thru line, though the line to dine in and collect food for takeout moved much more quickly, The Statesman reported.”
“In-N-Out's Idaho opening marks its 400th restaurant and its eighth state. The chain says the restaurant will employ around 80 staff with a starting wage of $17.50 per hour, well over double the state's minimum wage. The Meridian branch has one drive-thru lane and indoor seating for 84 guests.”
“One woman told The State Journal that she joined the line to get a burger for her daughter who had just given birth.” READ MORE
THE 21 HATS PODCAST
What Are Your Goals for 2024? This week, Shawn Busse, Liz Picarazzi, and Jaci Russo discuss what they learned in 2023 and what they expect from 2024. After a tough year, Shawn is optimistic that his clients, having survived the turbulence of the past few years, are ready to spend money and try something different. Liz explains why she’s been willing to discount her products as much as 40 percent on Cyber Mondays and tells us about some new products she has in the works. Early in the year, Jaci, thinking she was going to have to staff up to handle two big new clients, dove into remodeling her offices — but those big clients have yet to sign on. “I might have jumped the gun a little bit,” says Jaci.
Plus: Liz talks about her Midwestern mom, who can’t understand how Liz can charge so much for her trash enclosures. And Shawn raises the issue of how much money business owners should spend on marketing.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren