In the 20 years I’ve been covering entrepreneurs and trying to better understand why some businesses succeed and others fail, few things have surprised me more than the realization that many owners routinely sign personally for loans, explicitly putting their homes at risk. I’m pretty sure I’m not the only one who didn’t know this. In fact, I’m confident there are spouses of business owners who don’t realize how widespread (or close to home) this practice may be. At Forbes and The New York Times I worked with very smart business journalists who believe that those who work on Wall Street or in venture-backed startups take great financial risk -- even though it’s generally with other people’s money -- without fully appreciating the risks taken by everyday business owners.
I’ve met owners who say that borrowing against their home is simply the uncomfortable but necessary cost of doing business. I’ve also met owners who think this is crazy talk, a line they would not cross. Which stance is more common? I really don’t know, which is why today’s 21 Hats survey is about business owners and debt. Please complete the survey, which will take less than a minute, and we will all learn something about what entrepreneurs are willing to do to build a business. I’ll report back on the results later this week. TAKE THE SURVEY
Also in this newsletter: The dangers of being dependent on Facebook, restaurants that are defying shutdown orders, and a reminder of how Tony Hsieh convinced Americans to buy shoes without trying them on.
THE 21 HATS PODCAST
In our latest episode, Jay Goltz talks about the advice he wishes he could give his younger self, specifically to raise his prices. “I was growing at 20-, 30-percent a year,” Jay tells us. “It was nonstop chaos, and so, yes, it would have slowed the growth down, but I would not have gotten into the bank thing, of borrowing from the bank.” Jay and Dana White also discuss the value of mentors and some big lessons they’ve learned about hiring. The episode is titled, “She Was a Hiring Goddess.” You can listen wherever you get podcasts, or YOU CAN LISTEN HERE
MARKETING
This is the danger of becoming too dependent on Facebook: “[Ruth] Harrigan is one of millions of small business advertisers who have come to rely on Facebook because the coronavirus has shut down many traditional retail channels. The social media giant has provided new sales opportunities for these entrepreneurs, but also exposed them to the company’s misfiring content-moderation software, limited options for customer support and lack of transparency about how to fix problems.”
“Harrigan usually sells her honey and beeswax products in souvenir shops. But with Covid-19 pausing tourism, she’s been almost entirely dependent on Facebook ads to drive online sales. On Nov. 11, this new financial lifeline was abruptly cut when the social media company blocked her HoneyGramz ad account for violating its policies.”
“She eventually got desperate enough to Google names of Facebook employees who might help. She found Rob Leathern, the company’s director of ad products, and sent him a message on Twitter. Miraculously, he responded. A few hours later, Facebook sent an email restoring her account.”
“‘They just said they turned it off in error,’ Harrigan said. ‘They didn’t give me any feedback. They just reset the whole thing as if it never happened.’” READ MORE
THE COVID ECONOMY
Some restaurants are defying shutdown orders: “Mike Coughlin is breaking an Illinois state order by doing what he has done for 26 years—serving pot-roast and fish-fry platters inside his Village Tavern and Grill. He says it is worth the risk if it keeps his restaurant in business through the coronavirus pandemic. Like tens of thousands of restaurant owners across the U.S., Mr. Coughlin closed his dining room in the village of Carol Stream, Ill., early in the pandemic, reopened at limited capacity when local rules allowed and expanded outdoor patio service over the summer. He spent thousands of dollars on seating dividers and bought a $10,000 air-purification system for his dining room this fall. Then Illinois suspended indoor dining statewide earlier this month as Covid-19 cases surged.”
“‘You pay my bills, you pay my taxes, you pay my employees, and I’ll close,’ said Mr. Coughlin, addressing Illinois Gov. J.B. Pritzker. ‘I’m not going to be the guy with a boarded-up building because I follow someone else’s science.’”
“Mr. Pritzker said at the press conference that Illinois state police are issuing citations to restaurants that remain open and that he has called on state’s attorneys to prosecute those who refuse to close.” READ MORE
As winter arrives and cases soar, outdoor heat becomes a matter of survival for restaurants, hotels, and office buildings: “‘Surviving this pandemic has become like jungle warfare,’ said Mark Barak, the chief executive of La Pecora Bianca, a restaurant that has decked out the outside areas of its three New York locations with about 70 heaters. ‘I joke with my staff that I have become an outdoor-dining general contractor. That’s how I now spend so much of my time,’ Mr. Barak said.”
“Gas-Fired Products, a North Carolina manufacturer of heating equipment, is selling three times as many heaters as it did in 2019, said Paul Horne, the vice president of the company. Its products include $1,200 versions with enclosed flames that promise to stay lit in 40-mile-per-hour winds.”
“To prepare for La Pecora’s opening late last month, Mr. Barak also added rows of mushroom-shaped free-standing heaters, powered by both natural gas and propane, along the sidewalk at his restaurant, which can accommodate 80 people outside and 40 inside.”
“All told, the heat-related extras cost a few hundred thousand dollars, he said, adding, ‘I don’t think anyone else has more heat per seat than we do.’” READ MORE
One way to assess how a city is faring is to look at its dry cleaners; nationally, one in six shops have failed: “Take J’s Cleaners, with locations dotting Midtown and Upper Manhattan. Last month, business was up to as much as 40 percent of pre-pandemic levels as a small portion of New Yorkers returned to the office, said owner Albert Lee. Some locations were even back to half of what they made before Covid-19. With new business restrictions and schools closing again, Lee expects to fall back down to the low levels he’s seen back in April.”
“‘If this thing keeps dragging, many small businesses will close. Maybe I could be one of them,’ said Lee, 63, who plans to permanently shutter four of his 15 locations. He is losing $1,000 to $2,000 monthly per store.” READ MORE
RETAIL
For retail stores, Black Friday was a bust: “U.S. shoppers went online to purchase holiday gifts and score Black Friday deals they once crowded into malls to grab, as the coronavirus pandemic accelerated the yearslong remaking of the U.S. retail landscape. Roughly half as many people visited stores on Black Friday as they did last year, according to research firms that track foot traffic. Meanwhile, online spending jumped 22 percent from a year ago, making it the second-best online shopping day ever measured by Adobe Analytics.” READ MORE
OPPORTUNITIES
Amazon is preparing to compete with UPS and FedEx: “Amazon used the crisis, when prices on everything from commercial real estate to cargo jets plummeted, to amass an empire already beginning to rival the U.S. operations of United Parcel Service and FedEx, long the most dominant logistics companies, which helped the e-commerce giant get its start. But its ambition reaches well beyond delivering parcels to its own customers, according to former Amazon executives. The company is building a logistics system to one day deliver packages for customers to compete directly against UPS and FedEx, something it’s already doing in the United Kingdom.”
“When the economy sputtered with the coronavirus pandemic‘s spread this spring, unemployment surged as employers laid off workers by the thousands.”
“Amazon took a different tack, hiring 400,000 workers to stow, sort, pick, pack and deliver goods from its warehouses across the country, and pushing its total employee count over 1.1 million people.”
“In June, Amazon placed an order with Rivian, a Detroit start-up that’s building electric vehicles, to build 100,000 delivery vans starting next year.” READ MORE
HUMAN RESOURCES
The Bay Area exodus continues to build: “‘I’m seeing an acceleration of clients — not to mention friends and neighbors — leaving California,’ Paul Bleeg, a partner with accounting firm EisnerAmper in San Francisco, told me Tuesday. ‘The destinations vary: Montana, Nevada, Tennessee, Florida, Texas, Utah and elsewhere.’ Bleeg said factors fueling the acceleration include anticipation that California taxes will move higher in the year ahead and the shift to working from home amid the pandemic.”
“Those who have left in recent weeks include Ron Suber, a prolific fintech investor who moved from San Francisco to Boulder, Colorado, in late September. Suber may be blazing a trail, given the reaction he’s receiving from his decision to leave California.”
“‘The number of calls, emails, inquiries and outreach over the past two months has been staggering,’ Suber told me Tuesday from his new hometown. ‘It’s not about why but about where. Many are currently doing their due diligence on where they might go.’” READ MORE
DEVELOPMENT
Here’s your periodic update on the star-crossed American Dream Mall, already 15 years and billions of dollars in the making: “Once Triple Five, the Canadian real estate firm behind the Mall of America in Minnesota, took over in 2011, it was determined to reignite enthusiasm for the project. It changed the name from Xanadu to American Dream, altered an exterior that then-Governor Chris Christie had called ‘the ugliest’ in the state and promised even more marvels, like an indoor water park and additional roller coasters. But only months after portions of the complex began opening, starting with its ice-skating rink and a Nickelodeon amusement park, the pandemic hit.”
“Triple Five, which also owns Canada’s West Edmonton mall, had anticipated 40 million visitors a year at American Dream, a notably ambitious figure that would put it on par with Walt Disney World in Orlando, Fla.”
“Mr. Tibone noted that the complex was already facing questions around how it would shuttle tourists between Manhattan and northern New Jersey. And beyond pandemic-forced store closures, American Dream is facing the issue that its attractions — from its ski slope and caviar bar to its roller coasters and DreamWorks-themed water park — are indoors at a time when public health officials are telling people to stay outside.” READ MORE
OBITUARY
Tony Hsieh, former CEO of Zapps, died as the result of injuries suffered in a house fire: “In the early days of Zappos, the company had to overcome deep customer doubts about buying shoes without trying them on first. Zappos cleared that hurdle in an audacious fashion—by offering free shipping and free returns. That meant customers could order half a dozen pairs of shoes, try them on at home and keep only the ones they liked. The policy was expensive for Zappos but worthwhile as a marketing tool, Mr. Hsieh said. The company he built had all the standard lures for millennial employees—nap rooms, a petting zoo, frequent costume parties—but stood out by intensively promoting friendly and reliable customer service. Rather than outsourcing call centers and warehousing, Zappos made them core in-house functions.”
“A helpful call-center employee could be far more effective than a social-media blast in cultivating loyal customers, he wrote.”
“Some of them even helped customers find shoes on rival websites when Zappos couldn’t supply the desired product. One goal was to make customers say, ‘Wow!’” READ MORE
—Loren Feldman