How Would You Spend $5,000 on Marketing?

In our latest Dashboard episode, Shawn Busse offers some guidance on how to think about the kind of question many business owners ask.

Good Morning!

Here are today’s highlights:            

• Looking to buy a business? Have you considered acquisition through apprenticeship?

• In New York City, more restaurants are going members-only (and charging an initial fee of as much as $30,000).

• As established dating sites struggle, startups are creating new models.

• An entrepreneur tries to meet demand for a bakery in Gaza.

BUYING A BUSINESS

Michael Girdley suggests a way to buy a business with no money down: “Over the past decade, a friend has gone from fresh college grad to CEO and majority owner of a $60 million-a-year business with no money. It’s a path not many people take, called entrepreneurship through apprenticeship. It’s not the easiest or fastest path, but it’s a fantastic option for the right person. Here’s how it works:”

• “Find an industry where selling a business is challenging. Take general contracting, for example. It’s tough to sell a GC business because project work is hard to forecast year after year. You could also look at businesses built on relationships — a lot of digital agencies, contracting, or consulting businesses are totally dependent on relationships with the owner, so changing hands is complicated and risky.”

• “After you've identified an exciting industry, find someone approaching retirement age without a succession plan. That's precisely what Mike did. He knew he wanted to get into construction, so he started learning stuff like project management, estimation, and other valuable things in general contracting.”

• “Mike was strategic about picking his work, but he didn’t go in saying, ‘I want to take over your business.’ For the first few years, he focused on being a great employee. He became an expert in how the business was run. He learned construction inside and out, and saw what it would take to run that kind of company.”

• “This is the delicate part. My buddy had chosen his company carefully and worked his butt off to be a great employee. So, in year 4 or 5, he sat down with the owner and told him he’d like to own the business someday. By this point, he was like a son to the owner. So they figured out a win-win scenario where my buddy would buy out the owner over time so the owner could start spending more time on his boat.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

How Would You Spend $5,000 a Month on Marketing Now? Obviously, there’s no one-size-fits all answer to that question, but this week Shawn Busse offers a slew of smart considerations and guidelines to help business owners come up with an answer that makes sense for them. A couple of Shawn’s points: If you haven’t done so already, spend the money getting to know your customers better. Plus: it’s important to understand why digital marketing works for some but not for others.

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

TAXES

The IRS is stepping up efforts to kill ERC fraud: “Since the program’s inception in 2020, a new industry of tax preparation firms has popped up just to process claims for the Employee Retention Tax Credit, which allows businesses to collect up to $26,000 for each employee on its payroll. But the program has been rife with fraud, with many of the wrongdoers being tax prep firms luring businesses to apply for tax credits that they are not qualified to receive. As a result, the program has cost the federal government billions more than originally estimated. Taxpayers can continue to apply for the tax credit through 2025, but the I.R.S. paused the program last September so that it could sift through a backlog of claims and step up audits.”

• “Lawmakers in Congress have been negotiating over tax legislation that would shut the program down early, potentially saving the federal government approximately $80 billion, but an agreement has yet to be reached.”

• “Since last September, 1,800 businesses withdrew claims totaling $251 million. The I.R.S. said that during the last six months it has also caught 12,000 businesses filing more than 22,000 claims that were improper, resulting in $572 million in penalties.”

• “Wally Adeyemo, the deputy Treasury secretary, urged lawmakers on Friday to end the tax credit program. ‘Congress must act to protect the interests of U.S. taxpayers and honest small businesses and give the I.R.S. the tools it needs to tackle fraud,’ he said.” READ MORE

BUSINESS MODELS

More New York City restaurants are going members-only: “Some diners are proving eager to pony up for the privilege of spending more money. A new dining rewards system called Blackbird, created by Ben Leventhal, one of Resy’s founders, allows users to open a ‘house account’ at certain restaurants, essentially prepaying for meals. Last year, Major Food Group, the consortium behind Carbone, opened ZZ’s Club in Hudson Yards, with memberships starting at $30,000, plus $10,000 in annual dues.”

• “‘The best reason to run a functionally private restaurant in New York is also the saddest reason,’ [Ashwin] Deshmukh told me, as we ate seafood salad and roasted sweet peppers strewn with golden raisins and pine nuts. In the face of inflation and exorbitant rents. ‘It’s easier to focus on the 600 people who can pay your bills than on serving the masses.’”

• “When your tables are reserved only by regulars, he added, ‘the number of no-shows goes to zero.’ Plus, ‘you can involve your diners in the conspiracy of it all, at a premium: This fresco olive oil? It’s just for you, because you are such a good customer. That’s fifty dollars, please!’”

• “I got myself into Rao’s a few weeks later, with the help of a young chef and restaurateur named Max Chodorow. For Chodorow, whose father is the restaurateur Jeffrey Chodorow, known for the bygone hot spots Asia de Cuba and China Grill, getting a table at Rao’s is fairly easy.”

• “He just has to check in with Carol Nelson, a family friend who has held a standing reservation for decades: every Tuesday, she has the first booth on the left, which is hung with her photograph. When she can’t use it herself, she donates it to be auctioned off for charity—it can fetch tens of thousands of dollars—or offers it to a friend.” READ MORE

THE ECONOMY

Climate-induced inflation is surging: “Imagine a future where your grocery bill climbs higher each year, not because of lavish spending or macroeconomic fluctuations, but because of the changing climate. Sounds far-fetched? A recent study conducted by German scientists suggests otherwise, indicating that as climate change escalates, so will food prices and overall inflation rates. Notably, the study reveals that inflationary pressures are more pronounced in hotter areas and seasons.”

• “Published in the reputable journal Nature, the study analyzed monthly price fluctuations of food and various commodities, alongside temperature trends and other climate factors across 121 nations since 1996. The researchers projected that weather and climate shocks could lead to a 1.5 to 1.8 percentage point annual increase in food costs within the next decade, with even steeper hikes expected in regions like the Middle East, where temperatures are already soaring.”

• “The cascading impact of climate-induced price hikes will pose notable challenges for entities like the U.S. Federal Reserve or the Reserve Bank of India, which actively combat inflation, forcing them to consider climate change as a crucial aspect of economic policy.” READ MORE

STARTUPS

In Boston, three startups are challenging established dating sites: “In recent years, share prices for the two dominant dating-app companies, Bumble and Match Group, have plummeted. Together, the two have lost more than $40 billion in market value since 2021, The New York Times reported last week. They face a challenge in boosting their numbers of paid subscribers in part because Gen Z — now the main group using dating apps — is a smaller generation with less disposable income compared to Millennials, the Times reported.”

• “Now, three new apps in the Boston area hope to disrupt the market. They are: Lola, which matches daters based on their schedules; Fourplay, which offers double dates; and PreVue, which showcases users’ short videos.”

• “The idea for Lola came about after Paul English, who cofounded Kayak and Boston Venture Studio, connected on Bumble with his now-fiancee, Rachel Cohen, who previously worked in human resources. The couple started Lola, which asks users when they can go on dates, to match people based on availability and compatibility.”

• “Another app operating in the Greater Boston area, Fourplay, seeks to set up two pairs of friends to go on double dates, say cofounders Julie Griggs and Danielle Dietzek. The app, which was launched in New York and then came to Boston last April, aims to cultivate both romantic relationships and friendships.” READ MORE

FEATURE

Why does multilevel marketing persist? “M.L.M.s as we know them originated in the early nineteen-fifties, when the eventual founders of Amway were building up a pyramid of food-supplement salesmen and a sales rep named Brownie Wise was organizing the first Tupperware parties. Despite the decades of bad press and costly litigation that ensued, pyramid schemes—or, to be precise, the ostensibly law-abiding companies that happen to be dead ringers for pyramid schemes—appear to be an immovable pillar of the American economy.”

• “In September, a federal judge in Texas, Barbara M. G. Lynn, rejected an F.T.C. lawsuit against Neora, a multilevel marketer of dietary supplements and skin-care products, despite evidence that Neora had misled consumers about the ‘lifestyle-changing income’ they could earn by hawking its products. Lynn was unimpressed by an F.T.C. witness who estimated that ninety-six per cent of Neora’s ‘Brand Partners’ lose money by participating.”

• “In 2009, [Donald Trump] licensed his name to a vitamin M.L.M., which was rebranded as the Trump Network, and appeared in promotional videos for the scheme: ‘Let’s get out of this recession right now,’ Trump told prospective sellers, ‘with cutting-edge health and wellness formulas and a system where you can develop your own financial independence.’”

• “The popular 2021 documentary ‘LuLaRich’ had a fabulous cartoon villain in DeAnne Stidham, the platinum-coiffed, spider-lashed founder of LuLaRoe, who bewitched tens of thousands of women to buy and (try to) sell phantasmagorically hideous leggings.”

• “And the podcast ‘The Dream,’ whose first season unpacked how M.L.M.s prey on women in economically disadvantaged communities, has more than twenty million downloads to date. The host of ‘The Dream,’ Jane Marie, draws on that reporting for her new book ‘Selling the Dream: The Billion-Dollar Industry Bankrupting Americans.’” READ MORE

PROFILE

A bakery grows in Gaza: “Batool Cakes, a professional bakery with three branches throughout Gaza, started baking cakes at its Rafah branch a month ago, for the first time since the Israel-Hamas war began. It's surprisingly busy with orders in a city of tent camps, shelters, and bread lines. ‘We were shocked by the huge demand,’ says Ibrahim Abu Hani, head baker and co-owner of the family business. It might sound jarring: a cake shop in Rafah, the southernmost city that has become swollen with the majority of Gaza's population, many of whom eat only one meal a day, and facing an Israeli threat to send in troops for a final battle against Hamas.”

• “Abu Hani had not planned on making cakes during this war. He had to flee his home, like most people in Gaza. As Rafah took in more than 1.5 million Palestinians fleeing the fighting, he kept the cake shop open, without cake, just to let people charge their phones for free. There's no electricity now in Gaza, and the bakery runs on solar power.”

• “A month ago, a man walked into the bakery. He told Abu Hani his son had been injured in the war, gone to the hospital, woken up from the anesthesia and said: ‘My birthday has arrived. Where is the cake you promised?’ ‘Should we work on the cake?’ Abu Hani wondered. He didn't have to think twice.”

• “He got started, using leftover ingredients in the bakery from before the war began. As he was baking that first cake, another man walked into the shop. His little daughter was scared by the war and he wanted to throw her a party. He became Abu Hani's second customer. Little by little, the baker was baking again.”

• “Batool Cakes now sells its standard ‘mini-medium’ cakes for 70 shekels, or nearly $17 — up from its pre-war price of 35 shekels, nearly $10, due to the rising cost of ingredients during the war. Abu Hani is not making a profit on his bakery.” READ MORE

THE 21 HATS PODCAST

I Need a Business Model: This episode is a taste of the 21 Hats Live event we held in Fort Worth two weeks ago. It’s a different kind of event where there are no speakers, only participants. It’s pretty much a three-day, peer-group session for business owners, where we share challenges and insights and make connections. There were 25 of us, including most of our podcast regulars. For me, the highlight was an exercise that Chris Hutchinson of the Trebuchet Group facilitates. He calls it a “Fish Bowl” because the idea is to have an owner stand up and expose everything about a specific challenge that he or she is confronting. Fortunately, we had one owner who was gracious enough to agree to reveal all, to answer any question.

• “And that owner was—well, it was me, actually. The truth is, this was a priceless opportunity for me to get some feedback from a focus group of smart entrepreneurs who were already familiar with 21 Hats.

• “It even got a little emotional, mostly because a couple of the owners were kind enough to say that, had it not been for 21 Hats, their businesses might not have survived the pandemic. We recorded the whole thing, and if you have any thoughts after listening, please send them my way.

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

Thanks for reading, everyone. — Loren