I Should Be Able to Get That Multiple

Today’s Highlights: Elon Musk just defies regulators. Ami Kassar re-learns an important management lesson. And Basecamp offers severance packages to employees who want to flee.

MANAGEMENT

As business collapsed last year, Liz Picarazzi decided to Google the word bankruptcy: “Revenue had dropped 77 percent and clients were canceling or putting projects on hold. I had laid off my whole team in early April, some of whom were recovering from Covid. At the height of pandemic in NYC, it wasn’t uncommon for someone to get Covid and a pink slip at the same time. I didn’t want to be that employer. I had just made a large inventory purchase, which tied up cash and created debt to suppliers that I wouldn’t be able to pay with no sales. CitiBin sells large, heavy aluminum enclosures to conceal trash and recycling cans, so if inventory doesn’t move, warehouse costs are high and eat into margin. I’ve been in business 10 years, but didn’t fully understand or appreciate cash flow until the pandemic.”

  • Liz will be writing regularly for 21 Hats about her entrepreneurial journey. READ MORE

Focused on his family for two weeks because of his father-in-law’s passing, Ami Kassar, loan expert and founder of Multifunding, (re-)learns an important lesson: “Here is the excellent news: our company has run without a hitch while I was out.  Everything that I think my team needs me for: they don't. All the ‘stuff’ I spend so much time worrying about and detail I put my nose into is a waste of my brain space and, in some respects, probably annoying to my team. The truth of the matter is that I am free to focus my efforts and energy on the areas that I should be: the company's future, my writing, my speaking, and my next book. And yet, it is so easy to fall back into old habits and be ‘busy’ with stuff that I had to be busy with five years ago but don't have to be anymore.”

  • “I remember having the same revelation after returning to work after my father's passing just over two years ago. It didn’t take me long to slip into my old habits then. Hopefully, I can learn this time.” READ MORE

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SELLING THE BUSINESS

Stories about the sale of big businesses can give the wrong impression to owners of small businesses: “If ‘business A’ owns three manufacturing plants located around the country, that might mean something strategically special to ‘business B.’  It might be so special that business B pays a premium for business A. Perhaps business B knows that the acquisition cuts 3 years, and 50 percent of costs off their current national expansion plans. So, the deal, even at a premium price, might make good business sense – even if business A is unprofitable. Location, brand identity, distribution networks ... all sorts of more intangible, ‘fuzzy,’ strategic elements can create value in a big business. ... Small business owners are understandably attracted to the fuzzy value complexities of the big business world. We want to believe ...”

  • “When you see high multiple valuations as you read about M&A deals, you think, ‘I should be able to get that kind of multiple when I sell my small business.’ Let’s be clear: you will not.”

  • “If you are doing multiple math on your own, 2-2.5 is where you should be starting.” READ MORE

REGULATION

Elon Musk routinely defies regulators—and gets away with it: “Elon Musk has emerged a winner in a series of run-ins with a range of regulatory agencies that have watched as he sidestepped rules or ignored enforcement attempts. He has overmatched an alphabet-soup of agencies that oversee financial markets and safety in the workplace, on highways and in space flight. Most chief executives try to avoid regulators—or at least stay in their good graces.” 

  • “Rather than engaging in a give-and-take with government authorities, Mr. Musk’s default response includes making public, sometimes crude, remarks via Twitter disparaging them.”

  • “After the Securities and Exchange Commission asked for information on whether Tesla was monitoring Mr. Musk’s public messages—as required under an amendment to a 2018 consent decree—the billionaire last summer tweeted an apparent reference to a sex act: ‘SEC, three letter acronym, middle word is Elon’s.’” READ MORE

HUMAN RESOURCES

Basecamp is offering severance packages to employees who want out after this week’s controversies: “Cofounder and chief technology officer David Heinemeier Hansson announced the move in a blog post on Wednesday. Employees who have been at Basecamp for more than three years would receive up to six months' salary, while those with shorter tenures would receive three months' salary. ‘No hard feelings, no questions asked,’ Hansson wrote. ‘For those who cannot see a future at Basecamp under this new direction, we'll help them in every which way we can to land somewhere else." READ MORE

Amazon is raising wages for its hourly workers: “The company said Wednesday that more than 500,000 of its employees would see pay increases of between 50 cents and $3 an hour. Amazon, which offers a starting wage of $15 an hour and employs roughly 950,000 people in the U.S., said the raises represented an investment of more than $1 billion. The pay increase covers a variety of workers and schedules, but averaged over the total number of employees Amazon said would be affected, it would amount to about $40 a week per worker.”

  • “Amazon said its starting wage is still $15 an hour.”

  • “Amazon said it is now hiring for tens of thousands of jobs across the U.S.”

  • “Walmart, the nation’s largest employer, in February said it would lift its average hourly pay above $15, while keeping its minimum pay at $11.” READ MORE

PRICING

Consumer goods companies are passing along their increased expenses: “These price increases reflect what some economists are calling a major shift in the way companies have responded to demand during the pandemic. Before the virus hit, retailers often absorbed the cost when suppliers raised prices on goods, because stiff competition forced retailers to keep prices stable. The pandemic changed that. It created chaos and confusion in global shipping markets, leading to shortages and price increases that have cascaded from factories to ports to stores to consumers.”

  • “The Consumer Price Index, the measure of the average change in the prices paid by U.S. shoppers for consumer goods, increased 0.6 percent in March, the largest rise since August 2012 ...”

  • “‘When the pandemic first struck paper, toilet paper was like gold,’ Mr. Portell said. ‘The optics of trying to take a price increase during that time just weren’t going to be good.’” 

  • “‘This isn’t an opportunistic profit-taking by companies,’ Mr. Portell said. ‘This is a reset of the market.’” READ MORE

REOPENING

New York City Mayor Bill de Blasio says the city will be fully reopened on July 1: “Restaurants, gyms, hair salons and arenas will open at full capacity. Meanwhile, smaller theaters could reopen over the summer and Broadway is on track for opening by September. ‘This is going to be the summer of New York City,’ the mayor said. ‘I think people are going to flock to New York City because they want to live again.’” READ MORE

GDP growth accelerated in the first quarter: “The economy picked up speed last quarter, shaking off some of the lingering effects of the pandemic as consumer spending grew, bolstered by government stimulus checks and an easing of restrictions in many parts of the country. The Commerce Department reported Thursday that the economy expanded 1.6 percent in the first three months of 2021, compared with 1.1 percent in the final quarter last year. On an annualized basis, the first-quarter growth rate was 6.4 percent.”

  • “‘We’re running on all cylinders in terms of economic activity,’ said Scott Anderson, chief economist at Bank of the West in San Francisco.

  • “‘It doesn’t hurt that the stock market is at a record high and the housing market is strong,’ he added. ‘Consumers have built up roughly $2 trillion in excess savings.’” READ MORE

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THE 21 HATS PODCAST

Episode 59: I’ve Had a Love-Hate Relationship With PR: This week’s conversation with Paul Downs, Jay Goltz, and William Vanderbloemen was supposed to be about how the pandemic has affected sales strategies—and for a while it was. But it seemed Paul, Jay, and William really wanted to talk public relations. They talked about how to get PR and how to assess the results. They compared the merits of public relations to those of advertising. And they discussed whether you need to hire a firm or whether you can do it yourself. One concern all three shared is the cost. This is how Jay put it: “You hire an accountant, you're going to get some accounting. You hire a lawyer, they’ll do some legal work. PR's one of the few things you can pay money for and get absolutely nothing.”

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