I Decided to Slow Our Growth
In our latest podcast episode, the owners talk about when it makes sense to take your foot off the gas.
Good Morning!
Here are today’s highlights:
Why would a restaurant ban diners who are under 30?
Michael Girdley analyzes a business listing with a profit margin of 83 percent.
You need a good reason to start a business. For Omar Aceves, it was a cancer diagnosis.
Half of small businesses rely on holiday shopping for at least a quarter of their annual revenue.
THE 21 HATS PODCAST
This week, Jennifer Kerhin tells Shawn Busse and Jay Goltz that she finally managed to take her first real vacation since starting her business almost 20 years ago. The vacation is part of a decision she made last year to regroup a bit, in part by backing off on sales and marketing. The goal is to give her team and herself a bit of a respite while they catch their breath and while Jennifer institutes processes that will improve operations. Of course, that raises an obvious question: Will she be able to turn the growth back on when the time comes?
Plus: Shawn and Jay explain how they’ve eliminated negotiation from their hiring regimens. And all three owners debate who’s really responsible when owners pay for a marketing plan that doesn’t work: Is it the salesperson who pitched the plan? Or the owner who fell for the pitch?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
BUSINESS MODELS
A Missouri restaurant decides to ban diners under 30: “When Marvin Pate and his wife opened Bliss, their Caribbean restaurant outside St. Louis, they were aiming for an upscale, luxe vibe. They put jollof rice and tropical cocktails on the menu, offered hookahs for patrons to enjoy — and they banned diners under the age of 30. Since opening its doors in May, the restaurant has operated with an unusual age restriction, allowing in only women at least 30 and men at least 35, rules that the owners have been defending as necessary to maintain the kind of ‘grown and sexy’ atmosphere they’re aiming for. ‘This policy is in place to ensure a mature, sophisticated, and safe dining environment for everyone,’ the restaurant said in a Facebook post.”
“The age restriction has polarized customers, but Pate and his team have defended them as needed to keep out a rowdy younger crowd. ‘It’s just something for the older people to come do and have a happy hour, come get some good food and not have to worry about some of the young folks who bring some of that drama,’ assistant manager Erica Rhodes told local news outlet KSDK News.”
“Some people wondered whether the rules would hurt Bliss’s bottom line at a time when many restaurants are struggling with rising costs and tighter-than-ever margins. Others, though, just seemed to be having fun with the idea. ‘If u can’t eat broccoli without cheese u ain’t old enough to get in Bliss,’ one wrote.”
“Legally, restaurants have the right to impose age limits because age is not a protected class in that context. Controversies around age restrictions usually have cropped up when restaurants ban children. Last year, Nettie’s House of Spaghetti in New Jersey drew both rebuke and praise when it banned kids under 10, citing the noise and ‘crazy messes’ they brought.” READ MORE
BUSINESS FOR SALE
This week, Michael Girdley looks at a one-person, Polish-based, SaaS company that makes conversion-rate optimization tools for e-commerce websites. It has an asking price just under $1 million and boasts $388,000 in revenue and $324,000 in profit: “I like how ridiculously profitable this business is. I mean, 83 percent profit margins are pretty great, even for SaaS. I also like high-ticket businesses. With only 13 customers, that means they’re collecting over $20,000 per customer. If cash is tight, I’d always rather hustle to close one contract than 50. Then there’s 70 percent YoY growth.”
“Anytime you see a one-person company, I ask questions. I’d bet this was originally supposed to be a fully self-serve SaaS, but over time became a one-person consulting shop with a bunch of widgets. Chances are high this is buying yourself a job. Another danger is customer concentration. As nice as it is to have high-ticket customers, it means it hurts more when you lose one.”
“I’d want to really nail down whether this is a SaaS company or a consultancy. Because that tells you what the customers want: are they paying for software, or for access to the owner?”
“What IP are you buying? I’d need to know what I get for the money, aside from the client list. If this is what I think it is (mostly a consulting shop) then you might not actually be buying that much.” SUBSCRIBE HERE
PROFILE
Omar Aceves found unusual inspiration to start a business: “What would you do if a doctor said you were about to die? Faced with a devastating cancer diagnosis, Omar Aceves quit his cleaning business and opened Dos Tacos. Despite being open for less than a month, this new Katy [Texas] taco place often has a line of customers outside, driven by word of mouth and a strategic social media post.”
“Owner and chef Aceves, 38, said an oncologist told him three years ago that he was dying of throat cancer and to start getting his affairs in order. The father of two found the terrible news gave him newfound clarity. ‘When somebody tells you that you have no future, you’re not afraid anymore,’ said Aceves. ‘I thought, on my last day, I don’t want to think I didn’t do what I wanted to do — which is show the world what is a real street taco.’”
“In addition to serving authentic street tacos, the way they’re made in Aceves’ native Guanajuato, Mexico, Aceves and his wife, Cindy Rivera, also serve a variety of vegetarian and vegan tacos. Crafted from recipes they’d perfected themselves, these dishes reflect Aceves' commitment to his battle against cancer, which included a decision to adopt a fully vegetarian diet.”
“Aceves is not out of the woods yet, he said; he’s still battling cancer and going for regular check-ups. However, he said he finds immense joy in the work he’s doing at Dos Tacos and is grateful for the support and positive feedback from the community. ‘I do believe in the law of attraction,’ Aceves said. ‘If you dream it, feel it, you taste it, you smell it. Close your eyes and see yourself doing it. It will happen.’” READ MORE
MANAGEMENT
Christa Pitts, founder of the company behind The Elf on the Shelf, talks about surviving as a seasonal business: “According to a recent survey by Constant Contact, half of small businesses rely on holiday shopping for at least one quarter of their annual revenue. In my experience as an executive of a seasonal business, I’ve seen that number rise to 90 percent of annual revenue. Business sprints along at a frantic pace, with a need for ‘all hands on deck.’ But then, as the season draws to a close, business slows to a crawl and receivables dry up. This makes management of cash flow the biggest challenge for a seasonal business — and that is just the start.”
“During the supply chain crisis of 2021, despite delays at ports across the globe, shortages of trucks, containers, chassis, and drivers, it was our personal relationships, built over the years and across the supply chain, which helped us move our goods off shipping vessels and into warehouses weeks faster than other businesses. Had that not happened, we would have missed the entire Christmas season.”
“Success depends on the ability to accumulate a loyal following. There is no better (or less expensive) way to do it than for a seasonal business to achieve what I affectionately call the ‘IWOM’ status: Iconic Word-of-Mouth. If you have a great offering, so what? A lot of other companies do, too. But if you have top-notch customer service, you will be set apart. According to research by McKinsey & Company, improving the customer experience increases sales revenues by 2 to 7 percent and profitability by 1 to 2 percent.”
“Perhaps one of the best strategies I’ve seen in recent years occurred during the 2020 pandemic lockdown, when thousands of businesses offered gift cards and gift certificates at a discount. For instance, you could receive a $100 restaurant or spa gift card, but only pay $75 for it at the time of purchase. Again, the customer gets a value, and the business gets cash immediately.” READ MORE
ARTIFICIAL INTELLIGENCE
Apple takes the AI leap: “The company is injecting AI tools throughout coming versions of its biggest platforms: iOS 18, iPadOS 18 and MacOS Sequoia. There’s a new and improved Siri you can even text with. There’s a new partnership with OpenAI that will bring ChatGPT into Apple apps. There are ways to generate new images and emojis on the fly. The company says we’ll start seeing the features this fall, but some of the more ambitious ones might not debut until 2025.”
“In one demo, Apple showed Siri helping to fill out a PDF form. The assistant was also able to find a photo of the user’s driver’s license, extract the number and type it into the form. In another, Siri was able to search across Messages and Mail for a recipe sent by a friend.”
“The thing that really elevates Siri is its new friend, ChatGPT. When you ask Siri to do some things it doesn’t know how to—say, come up with dinner ideas based on your recent grocery haul—it asks your permission to check with an integrated version of OpenAI’s bot.”
“All of this requires new—or at least very recent—hardware, and not the lower-end stuff. You’d need an iPhone 15 Pro or Pro Max, or an iPad or Mac with an M chip. That excludes several iPhone and iPad models that Apple currently markets. AI might change the way we interact with our devices. But it will also force us to buy new ones.” READ MORE
FROM OUR SPONSOR: The Great Game of Business
Game changer: In a recent conversation, Steve Baker, a vice president with the Great Game of Business, talks about what the Great Game does and what he’s seeing out there as he works with businesses around the country. Along the way he acknowledges that the term “open book management” rallies people who are familiar with the Great Game but repels some people who aren’t. He explains how Great Game companies use the wisdom of the crowd to look five years into the future. And he discusses how Great Game companies are preparing for tough times next decade when they expect the labor shortage to be even more acute.
“It’s like, we want to be that good, where we develop talents so well that people want to steal them. But we train them so well, we treat them so well, that they want to stay. Like that’s pretty powerful.”
“Was it Drucker that said, ‘The best way to predict the future is to create it’? So, we think of it more like that. You know, we have to plan ahead. There’s just no two ways around it because life is going to happen, business is going to happen, economies are going to cycle, industries will flatten and boom. That’s just the way that it is.”
“We learned something in the last recession. It was, hey, let’s do this: let’s set aside a war chest. And this war chest is not to be covering payroll. It’s not to be covering the bills, so to speak. It is for opportunities that will present themselves during the next recession. We’re approaching the depression the same way, because guess what: if we walk into the depression with 150 million in cash equivalent, well, if it doesn’t happen, we’re just rich. But if it does happen, this is how we grow the next 40 years.” READ MORE
LITIGATION
A federal judge has halted a disaster-aid program for minority farmers, finding it discriminates against white males: “In an order filed Friday in the Northern District of Texas, Judge Matthew J. Kacsmaryk found that the program probably violated the plaintiffs’ equal-protection rights under the Constitution. Kacsmaryk, appointed by President Donald Trump, wrote that the Department of Agriculture is enjoined from providing relief to farmers based on its ‘socially disadvantaged farmer or rancher’ designation, which he said funneled a greater share of aid to farmers identifying as Black, American Indian, Latino, Asian or Pacific Islander, as well as women.”
“‘America’s farmers have been mistreated by this Administration for years now with one discriminatory scheme after another,’ said Braden Boucek, vice president of litigation at the Southeastern Legal Foundation, which is representing the plaintiffs. ‘This ruling is a win for equality across the country, and we are proud to stand beside these farmers in holding the government accountable.’”
“In court filings, the Justice Department countered that the Agriculture Department’s preferences are justified because ‘remedial action is firmly rooted in the evidence showing lingering effects of historical discrimination against minority and women farmers in USDA programs.’ It cited past instances when government relief failed to reach farmers because of ‘structural biases in federal farm programs.’”
“Race-neutral means to remedy past and ongoing discrimination against minority and female farmers in relief efforts have largely failed, the government added, necessitating the preferences for farmers of color and women.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Can You DIY a Business Acquisition? This week, Tracy Bech, who is co-author of the “60 Minute CFO” and who has bought and sold businesses herself, offers some guidelines on how to approach an acquisition. Some of it is looking at the numbers, of course. Some of it is understanding the story behind those numbers. And some of it is psychological, controlling your emotions and maintaining a willingness to walk away from the deal if something doesn’t break right. And by the way, Tracy says, it’s never a bad idea to use the same lens to analyze the performance of your own business.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren