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Filing Chapter 11 When Business Is Booming
Malibu’s Burgers, an all-vegan restaurant in Oakland, represents a cautionary tale in the dangers of short-term lenders.
Here are today’s highlights:
Last year Gravity Payments received more than 20,000 résumés for 70 openings.
Amazon CEO Andy Jassy names the industry he wants to disrupt next.
Businesses are catering to returning office workers who miss their pandemic naps.
A restaurant struggles to survive: Saigon Social was supposed to open just before the city shut down.
Dan Price, who famously started paying Gravity Payments’ employees a $70,000 minimum salary seven years ago, says there’s no labor shortage: “Last year, Gravity added 70 positions. For those job openings, Price said his team received over 20,000 résumés. To kick off 2022, the company is hiring for dozens of positions in engineering, security, sales, and finance. Price added that he planned to continue hiring this year, though he did not specify a number. ‘When people were talking about a labor shortage and the Great Resignation, we didn't see any of that,’ Price said. There's not a labor shortage — there's a shortage of jobs that treat people with respect.’”
“When Price announced the minimum salary of $70,000, Gravity had 120 employees. It's nearly doubled since then, and Price said the team would continue to expand.”
“Last year, Gravity added 70 positions. For those job openings, Price said his team received over 20,000 résumés. To kick off 2022, the company is hiring for dozens of positions in engineering, security, sales, and finance.” READ MORE
Malibu’s Burgers, a popular all-vegan, fast food restaurant in Oakland is filing for bankruptcy even though it says business is booming: “‘This has nothing to do with the business as a whole,’ [said co-owner Darren Preston], attributing the filing to a decision to take out a ‘bad loan.’ The restaurant's largest outstanding liability is a claim for $81,435 owed to Retail Capital LLC, doing business as Credibly, a financing platform for small- and medium-sized businesses based in Southfield, Michigan, with offices in New York state and Tempe, Arizona. In October, Credibly sued Malibu’s, Preston and his wife and co-owner, Natasha Fernández-Preston in Maricopa County Superior Court of Arizona for breach of contract, seeking just over $80,500. An Arizona judge granted a default judgment to Credibly in late February, allowing it to begin levying the restaurant’s bank accounts.”
“Preston said he thought he was taking out a simple loan for about $85,000 last year when he and his wife were considering opening a second location.”
“But what he signed up for was what's known as a receivables purchase agreement, in which a financing agent purchases the rights to future debts owed to the business. Credibly agreed to pay Malibu's $85,000 up front in exchange for collecting $114,325 in future receivables owed to the restaurant.”
“The interest rate on paper was 9.79 percent, but Preston said its calculations show it will end up paying more than double that rate.”
“‘We got a little bit overzealous,’ Preston added. ‘We really wanted to expand — we still would like to at some point — but we should have seen the red flags.’” READ MORE
As Covid protocols are dropped, anxiety sets in: “At the law firm Paul, Weiss, a large event on March 10 was followed by multiple positive Covid test results. The firm notified attendees and conducted contact tracing. Paul, Weiss has required vaccines and boosters for everyone entering its offices and has not yet required a return to the office, though employees are encouraged to come in several days each week. Following local health guidelines, the firm no longer requires its workers to be masked in common areas in the office.”
“Across the country, office occupancy has hit a pandemic high, 40 percent, reached just once before in early December, at the same time that indoor mask mandates drop.”
“But some workers, especially those with compromised immunity or unvaccinated children, feel uncomfortable with the rush back to open floor plans.”
“Just one-quarter of U.S. workers are covered by vaccine mandates in the workplace, according to Gallup data from last month.”
“‘I understand Covid fatigue, but people don’t understand how crushing of a burden it is to try and keep everybody safe.’” READ MORE
Businesses are catering to returning employees who find they miss their pandemic naps: “The habit apparently picked up over the pandemic, as people newly working from home started sneaking them in during the day. But now, with many companies pushing for workers to return to the office, and short-lived pandemic attitudes among certain bosses around ‘rest’ and ‘self-care’ all but dissipated, those days are gone. This is where the Walker Hotel hopes its new Nap Pod service will come in, advertised for ‘customers in need of a midday rest’ and ‘for those looking for long-term relaxation.’”
“And now that leisure can be found in the middle of Tribeca, with a view of downtown Manhattan, for $75 for 90 minutes (or $149 for four sessions).”
“Earlier in the pandemic, start-ups offered ultrashort-term rentals of hotels and homes for work calls and naps.”
“New York’s Nap York, a wellness club dedicated to napping in capsules, opened in 2018.” READ MORE
Rising gas prices are taking a toll: “Fifty-two percent of small-business owners said that higher energy prices were affecting their businesses, according to a March survey of more than 780 small businesses for The Wall Street Journal by Vistage Worldwide, a business coaching and peer advisory firm. The national average price of gasoline stood at $4.27 a gallon on March 18, according to AAA, up from $3.53 a month ago and a pandemic low of $1.77 in April 2020. Diesel fuel prices now average $5.07 a gallon, up from $3.94 a month ago.”
“‘I am absolutely raising all my prices across the board and I am doing so aggressively,’ said David Hastings, chief executive of Hastings Water Works Inc., a 30-year-old swimming-pool service, maintenance and management company.”
“The Brecksville, Ohio, company increased commercial rates by about 15 percent this year and residential rates by 10 percent. Mr. Hastings also has asked some customers in the middle of three-year contracts to accept interim price increases of as much as 20 percent.”
“‘This is the first time ever that I have come back and said I need more money in the middle of an agreement,’ said Mr. Hastings, who expects revenues to increase by 12 percent this year and profits to fall by 10 percent.”
“Eighty percent of the customers have agreed to pay the higher rates; the company expects to complete agreements with the others in the next few weeks, he said.” 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.
Tomorrow, at 3 ET, he’ll join me for a 21 Hats webinar conversation. Bring your own questions!
Inside a restaurant’s struggle to survive: “Saigon Social was originally set to open March 13, 2020, just three days before Gov. Andrew Cuomo ordered all non-essential businesses to close their doors. In other words, Saigon Social’s grand opening happened at the worst possible moment. It opened too late to be eligible for the Paycheck Protection Program, a signature part of the federal relief effort. But it was too early for Ms. Nguyen to have a loyal customer base and a takeout friendly menu to help weather constantly evolving restrictions. ‘I slept at the restaurant every night that first month because I was so depressed,’ Ms. Nguyen said.”
“New York is a restaurant city, and Ms. Nguyen has been a rising star in it. She spent years working for the acclaimed chef Daniel Boulud. Saigon Social is her first restaurant on her own.”
“[The New York Times] spent three months with Ms. Nguyen this winter as the arrival of the Omicron variant threatened the survival of a restaurant that was already battered by the pandemic.”
“She had to figure out how to keep cash flowing while her dining room was closed and staff tested positive for the virus. She bartered for tests with alcohol, and reinstated masking rules inside the restaurant.”
“As spring approached, the restaurant changed drastically — one more time.” READ MORE
Amazon CEO Andy Jassy was asked which of the company’s initiatives most excites him: “Without much hesitation, Jassy mentioned Amazon Care, the company's new primary-care business, as one of his top picks, according to audio of the meeting that Insider obtained. Calling Amazon a ‘significant disruptor’ in the medical-care field, Jassy expounded on the potential benefits of Amazon Care, which connects patients with doctors over text and video — and in some locations, mails prescriptions and dispatches a nurse to people's homes for exams and labs. He said its on-demand telehealth capabilities could significantly improve the medical-care process, which relies on long wait times, unpredictable scheduling, and additional stops to pharmacies to pick up medications.”
“Ten years from now, he added, the standard experience of seeing a doctor today would look ‘crazy.’”
“‘What we're trying to do with Amazon Care and telemedicine — which we're in the process of rolling out nationally right now, which we piloted though with our own employees here in Seattle — radically changes that game.’” READ MORE
In San Francisco, business owners have been hit hard by petty crime and additional security costs: “Among the 25 largest U.S. cities, San Francisco has had the highest property-crime rate in four of the most recent six years for which data is available, bucking the long-term national decline in such crimes that began in the 1990s. Property crimes declined in San Francisco during the first year of the pandemic, but rose 13 percent in 2021. Burglaries in the city are at their highest levels since the mid-1990s. There were 20,663 thefts from vehicles last year—almost 57 a day—a 39 percent increase from the prior year, although still below the record of 31,398 in 2017, according to the police.
“Terry Asten Bennett’s family has been running Cliff’s Variety Store since 1936. In all that time, they’ve never experienced the amount of burglaries and property damage that they have recently, Ms. Bennett said.”
“Thieves smashed a display window and broke down a door to steal items as small as spray paint, and people shattered glass doors on two occasions for no apparent reason. ‘These last two years have been insane,’ she said. ‘It used to be a rare occurrence.’”
“Owners of small businesses say the costs of security and repairs are eating into profits already diminished by the Covid-19 pandemic. In the Castro, the neighborhood where Cliff’s is located, shops have recorded nearly 100 instances of smashed windows and doors that cost $170,000 to repair since the beginning of 2020, according to the neighborhood’s merchant association.” READ MORE
THE RUSSIAN INVASION
From an entrepreneur in Ukraine:
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