Fire Your Franchise Consultant
In our latest 21 Hats Podcast, finance expert Ami Kassar offers a master class in how businesses can prioritize and pursue their opportunities.
Here are today’s highlights:
Many restaurants are still struggling.
The founders of online lender Kabbage are back with a startup that aims to help businesses retain employees—by lending them money.
The four-day workweek is getting a major trial in the U.K.
We have an unfortunate update to our earlier podcast episode about how the founders of Be Found Online were managing their business after both of their wives were diagnosed with cancer.
THE 21 HATS PODCAST
Fire Your Franchise Consultant: As listeners to this podcast know, Dana White has a remarkable array of opportunities before her, including company-owned hair salons, franchised salons, salons on military bases, hair products, and POS software. But especially since the pandemic, Dana has struggled to get traction. This week, in episode 111, special guest Ami Kassar, an expert in small business finance, guides Dana through a discussion of how she might prioritize those opportunities and get them financed. They consider such questions as: Should she continue to pursue franchising, where she’s already sunk a lot of money? Or should she focus on opening company-owned salons at Fort Bragg and in Dallas? And should she be looking for an investor? If so, how important is it that she maintains control of the business? Or should she try for a bank loan? And if so, what kind of pitch is likely to impress a bank? As the conversation continues, a plan emerges.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
FOOD & BEVERAGE
Restaurants are still struggling: “Few things are more essential to El Potro Mexican Bar & Grill than guacamole. The creamy green spread comes with onions, cilantro, and a hint of lime to complement nearly every dish the restaurant chain serves, from steaming pans of fajitas to enchilada entrees. It tops tacos, garnishes burritos, and even enriches the spice rub on the Cajun burger. ‘We function on avocados,’ said Joe Carreiro, the general manager of El Potro’s four locations, scattered in Greater Boston. ‘It’s our bread and butter.’ But a case of three dozen premium avocados costs El Potro around $200 today, compared to $79 before the pandemic. The price shock trickles down to the menu, where a side of guac goes for almost $10 — double the 2019 $4.50 price.”
“On average, restaurants nationwide have seen food costs climb 17 percent from April 2021, according to David Portalatin, a food industry adviser for the market research firm NPD. But customers have only seen a 9 percent increase in menu prices, meaning eateries have swallowed half of the inflated costs.”
“Independently owned eateries are overextending themselves, Caswell said, paying for inventory with credit cards or incurring exorbitant interest on loans they thought the [Restaurant Revitalization Fund] would cover.” READ MORE
COMMERCIAL REAL ESTATE
As rates rise, commercial property sales slow: “Property sales were $39.4 billion in April, which was down 16 percent compared with the same month a year ago, according to MSCI Real Assets. The decline followed 13 consecutive months of increases. Hotels, office buildings, senior housing and industrial properties recorded big drops in sales. Sales of other property types, such as retail and apartments, rose in April, but analysts and brokers said activity may be now slowing in those sectors, too, as rising interest rates keep some investors from making competitive offers. In March, total commercial property sales had risen 57 percent from the same month a year before.”
“In certain sectors, such as smaller industrial and retail real estate, prospective buyers that wrote letters of intent to purchase properties weeks ago are now dropping their bids because the cost to borrow has risen so quickly, said Joshua Campbell, a senior vice president at Stan Johnson Co., a commercial real-estate brokerage.”
“‘That was not happening two to three years ago,’ Mr. Campbell said.” READ MORE
A sustainable construction startup is thriving: “Last year, Starbucks opened a sustainably constructed drive-through cafe in Abbotsford, British Columbia, about an hour’s drive southeast of Vancouver. The store was the first of its kind, built in six days with almost no construction waste, and its components — the walls, the floor and the roof — were manufactured so precisely that when assembled, they created an airtight seal. The design’s creators say it is expected to cut heating and cooling needs by 30 percent, reducing the store’s carbon footprint. This Starbucks store was built by Nexii Building Solutions, a construction technology start-up based in Vancouver that has become a rising star in the expanding green building industry.”
“The building system relies on advanced technology, specifically the use of 3-D modeling software, which ensures highly accurate manufacturing.”
“Ben Dombowsky, now vice president of product development for Nexii, spent 10 years trying to create an alternative to concrete. In 2017, he introduced Nexiite, the nontoxic proprietary building material now used to create Nexii’s panels.”
“‘We are scaling like a software company, but this is hardware,’ Mr. Robertson said. ‘And it takes time to put plants together, to put people in manufacturing lines and in the assembly process. We don’t want to burn out by growing too intensely. But it’s also a very hungry market.’” READ MORE
In the U.K. the four-day workweek is getting a test: “Thousands of employees across 70 companies in Britain started the first day of a four-day workweek on Monday, a pilot program that is the latest test in the decades-long quest to scale back workers’ hours while they earn the same amount of pay. The six-month trial was organized by the nonprofit groups 4 Day Week Global and 4 Day Week UK Campaign, and Autonomy, an organization that studies the impact of labor on well-being. Researchers at Cambridge University, Oxford University and Boston College will assess its effect on productivity and quality of life and will announce results in 2023, the organizers said in a statement.”
“More than 3,300 workers in banks, marketing, health care, financial services, retail, hospitality and other industries in Britain are taking part in the pilot, the organizers said.”
“‘We’ll be analyzing how employees respond to having an extra day off, in terms of stress and burnout, job and life satisfaction, health, sleep, energy use, travel and many other aspects of life,’ Juliet Schor, a sociology professor at Boston College and the lead researcher on the project, said.” READ MORE
The founders of online lender Kabbage are back with a startup that offers small businesses a way to retain employees—by lending them money: “By signing up with Keep, employers will be able to distribute a cash bonus to employees on a regular basis, so long as the employee agrees to stay at the company for a designated period of time. It takes some of the concepts that made stock options such a popular compensation vehicle for Silicon Valley while putting them within reach of smaller businesses that might never contemplate issuing shares to employees.”
“The loans are similar to employer-forgivable loans, which are offered in a variety of industries to cover tuition or ongoing education, equipment needed for a job or major life purchases like a down payment on a home.”
“Keep Financial does things differently. It’s a licensed lender in 46 states, underwrites risk and manages the loan. This way, employers don’t have to go through a financial institution and keep track of payments themselves.”
“[Rob] Frohwein offers the example of a $5,000 bonus to cover a tradesman’s initial cost of materials if they stay at a company for a year.” READ MORE
Bolt, the checkout startup, loaned employees thousands to buy stock in the company—and then laid them off: “Bolt’s founder, Ryan Breslow, had announced the program publicly in February, describing it as ‘the most employee-friendly stock option program possible.’ Bolt would let employees exercise their options early and potentially buy more equity in the startup by taking out interest-free loans from the company. At the time, Breslow said that over half of Bolt’s employees had chosen to take part in the program.”
“One of those employees, a software programmer who asked not to be named because he isn’t authorized to discuss internal company matters, took out a $100,000 loan to exercise his stock options once they vested.”
“To him, Bolt ‘looked like a rocketship,’ and he was willing to take the risk for the potential reward. Then, just months after taking the loan, he saw the ‘restructuring meeting’ appear on his calendar. He was getting laid off.”
“The software programmer with the $100,000 loan said that his options were about to vest, which left him with two choices: He could sell the options back to Bolt, or go through with the purchase. If he did that, he would need to find a way to come up with the money soon.”
“‘I have to figure out how much I can afford,’ he said. He didn’t want to give up stock that might be valuable someday, but he also wasn’t sure how he would repay the $100,000.” READ MORE
Edward Garcia, owner of Philadelphia’s Queen & Rook Game Cafe, says that if you are pro-business, you should be pro-gun control, too: “My business is located less than a block from where the shooting took place on South Street over the weekend, leaving three dead and 11 wounded. Since that time, my phone and social media have been non-stop with people wondering about my staff and asking if we were OK. Thankfully, the answer is yes: All we saw was people running and crowds. This isn’t our first brush with gun violence, either. Despite the fact that South Street is normally a happy gathering place for Philadelphians and tourists from all walks of life, in the last three years we have been in business, there have been multiple shootings in our neighborhood. Last summer, someone was shot on our block.”
“Even if one were to ignore the intrinsic value of life and assume that a business as an entity doesn’t care about lives and only thinks about the economics of the situation, the risk that gun violence poses to businesses is enormous.”
“The dozens of other businesses in my area and I may take an economic hit if customers avoid the neighborhood (especially after the city closed part of it on Sunday), if staff don’t feel safe enough to come to work, or if we have to start closing early so workers can leave during safer times.”
“It’s hard to see a business upside to easy access to weapons for 18-year-olds, or hollow point bullets or high-capacity magazines. For all sectors of the economy outside of those that profit — directly or indirectly — from the manufacture or sale of firearms, there is no argument in favor of easy access to guns.” READ MORE
In December, I spoke with Steve Krull and Dan Golden about how they had managed the digital marketing business they cofounded, Be Found Online, after both of their wives were diagnosed with Stage IV cancer. Dan recently shared the news we hoped would never come: His wife, Rachelle, mother of their three young children, has passed away.
Dan wrote about Rachelle’s passing on LinkedIn: “I experienced some of the worst and hardest moments that life has to offer, but I have also experienced an overwhelming amount of kindness and love from my community. To those that were a part of our team, I say thank you. I'm going to need my village to get through this.” READ HIS POST
In the podcast I recorded with Dan and Steve, Dan compared Rachelle’s battle with cancer to being in a knife fight in the middle of a forest fire. LISTEN TO THE PODCAST
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