I Should Have Settled
An inside look at how a law firm that specializes in filing web-accessibility suits targets small businesses.
Good Morning!
Here are today’s highlights:
John Arensmeyer talks about how to tap the billions of SSBCI dollars and how to improve the smallbiz tax break in the expiring Trump tax cuts.
Here’s a plan to help business owners trapped in day-to-day operations break free.
These are the biggest mistakes businesses make when hiring off-shore talent.
The FTC takes steps to protect franchisees in their eternal battle with franchisors.
LITIGATION
Meet the law firm that specializes in filing web-accessibility cases against small businesses: “The lawsuit was one of more than 1,100 web-accessibility cases brought in the U.S. last year by Mizrahi Kroub. The New York law firm, which has nine lawyers, is the largest filer of these cases, accounting for roughly one-quarter of digital ADA cases, according to UsableNet, a provider of web-accessibility services. Mizrahi Kroub often files dozens of lawsuits on behalf of a single plaintiff, against businesses that sell everything from electric bicycles to cooking kits for children. Defense lawyers criticize the firm for what they say are cut-and-paste pleadings designed to extract quick settlements and not make websites more accessible.”
“More than three-quarters of web-accessibility lawsuits are aimed at companies with less than $25 million in revenue, UsableNet estimates. ‘There are clearly enough inaccessible websites in the world to keep a lawyer very busy,’ said Eve Hill, a disability-rights lawyer in Baltimore. It would be much simpler if internet web designers included accessibility as a standard feature, she said.”
“Electric Bike Technologies was sued by Mizrahi Kroub in U.S. District Court in 2022. A day after the lawsuit was filed, the Croydon, Pa., company received an unsolicited email from a defense lawyer offering his services. ‘The lawyer for the plaintiff in this case, Edward Kroub, is one of several opportunistic lawyers in the New York City area who files these kinds of cases en masse,’ wrote the lawyer, David Stein. ‘[T]heir rampage has continued into the new year, including another 7 cases filed today! Totally insane!’”
“Electric Bike hired Stein, who brokered an agreement to settle the case for $4,950. The deal fell apart over the bicycle company’s refusal to sign a nondisclosure agreement, according to court filings. Chief Executive Jason Kraft then hired a different lawyer to handle the case as well as a second web-accessibility lawsuit.”
“The bicycle company spent roughly $46,000 in legal fees, Kraft said. Updating its websites cost another $13,000. ‘Some days, I feel like I should have settled,’ he said.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Don’t Sleep on the SSBCI: This week, John Arensmeyer, founder and CEO of Small Business Majority, reminds us that the State Small Business Credit Initiative is sending billions of dollars through the states specifically for small businesses. Because every state is handling the money differently and there is no one-stop shop for information, there is some confusion—but the money is real and John explains how to figure out if you qualify. Plus: He also explains why he’s surprised some business groups are celebrating the recent Supreme Court decisions on regulation, why his organization favors the ban on non-competes, and why he thinks the small business tax break contained in the soon-to-expire Trump tax cuts can be improved.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
TAXES
Big companies are expected to reap tax benefits from the Supreme Court’s recent regulatory rulings: “The Supreme Court’s new limits on federal agencies’ regulatory powers are rippling through the tax system, and they are poised to tilt some disputes against the government and toward large companies. Judges or lawyers in at least five pending tax lawsuits—including cases involving FedEx and 3M—have already raised the June ruling in Loper Bright Enterprises v. Raimondo, which overturned a 40-year-old framework known as the Chevron precedent for how courts evaluate regulations.”
“In the tax world alone, the ruling could threaten Internal Revenue Service regulations on cross-border transactions, electric vehicles, partnership audits, estate taxes, and stock buybacks, tax lawyers said. It is too early to know which challenges to IRS rules will succeed.”
“The opinion will also shape the Biden administration’s approach as it races to finish closely watched regulations, including rules to curb tax-dodging partnership transactions, implement a minimum tax on large corporations and outline requirements for hydrogen producers to claim tax credits.”
“No matter what Treasury does now, some older rules could still be vulnerable, particularly because of a separate Supreme Court ruling effectively widening the statute of limitations for some regulatory challenges. ‘Folks are looking at the cases that are either currently in the audit or appeals or litigation pipeline and asking themselves: Is this something I should raise, a challenge I could raise?’ Breen said.” READ MORE
MANAGEMENT
Alan Pentz on business owners who are stuck in the day-to-day: “‘It’s tragic to me how many business owners are trapped by their own companies. Here’s why it happens AND how to break out of it: Initially, you wear all the hats. But as your business grows, failing to delegate tasks and build a competent leadership team keeps you stuck in a cycle of overwork and limits your company’s potential. Here are the three things to break that cycle and get on the path of building your dream, a self-managing company—rather than a company you can’t step away from for more than a few hours.”
“Focus on Growth First: The smaller your company is, the harder it will be to make it self-managing. Having a large company gives you more resources to hire quality employees who are capable of managing the business. It’s much easier to hire administrative help to offload any tasks that you as the owner are doing that don’t directly focus on sales and growth.”
“Ruthless Pruning: As you grow, you need to realize that your management and/or leadership team is your most important asset. Do not allow substandard people to remain on it. We all do this. As companies grow, it’s inevitable that some number of your key leaders won’t be able to keep up. You need to offer feedback and training but the reality is you’ll grow faster with better people.”
“Build Systems and Processes: Once you’ve grown the business to a place where you as the owner can’t be involved in most of the day-to-day operations, you need to focus on building high-quality systems and processes. At first processes are ways to train other people to do things the way you would. Over time groups of related processes form systems.” READ MORE
ARTIFICIAL INTELLIGENCE
Doctors are turning to AI to make insurers cover treatments: “Dr. Jonathan Tward, a radiation oncologist based in Utah, said insurers often demanded so much exhaustive documentation and paperwork — even for standard cancer treatments — that he felt he was on the losing side of a ‘war of attrition.’ Doctors and their staff spend an average of 12 hours a week submitting prior-authorization requests, a process widely considered burdensome and detrimental to patient health among physicians surveyed by the American Medical Association. With the help of ChatGPT, Dr. Tward now types in a couple of sentences, describing the purpose of the letter and the types of scientific studies he wants referenced, and a draft is produced in seconds.”
“At his rehabilitation medicine practice in Illinois, Dr. Azlan Tariq typically spent seven hours a week fighting with insurance companies reluctant to pay for his patients’ treatments. He often lost. There was the 45-year-old man who spent five months in a wheelchair while his insurer denied appeal after appeal for a prosthetic leg. Or the stroke survivor who was rehospitalized following a fall after his insurer determined his rehab ‘could be done at home.’”
“Dr. Tariq said Doximity GPT, a HIPAA-compliant version of the chatbot, had halved the time he spent on prior authorizations. Maybe more important, he said, the tool — which draws from his patient’s medical records and the insurer’s coverage requirements — has made his letters more successful. Since using AI to draft prior-authorization requests, he said about 90 percent of his requests for coverage had been approved by insurers, compared with about 10 percent before.”
“Doctors are turning to the technology even as some of the country’s largest insurance companies face class-action lawsuits alleging that they used their own technology to swiftly deny large batches of claims and cut off seriously ill patients from rehabilitation treatment. Some experts fear that the prior-authorization process will soon devolve into an A.I. ‘arms race,’ in which bots battle bots over insurance coverage.” READ MORE
HUMAN RESOURCES
Michael Girdley, co-founder of an off-shore hiring business, says these are the biggest mistakes companies make when hiring offshore: “Without clear objectives, a hire doesn’t know what’s expected of them. You also won’t be able to measure their output against expectations, which leads to poor evaluations. Solve this by setting short-term goals (first week, first month, first 90 days) as well as longer-term KPIs.”
“A lot of companies treat overseas hires like faceless, cheap, disposable labor. They’re hurting their candidates and shooting themselves in the foot. Treat your global hires just like any remote worker you would hire in the USA — they’re part of your team. Treat global team members like any other first-class employee in the company, and they’ll value you in return.”
“When you talk about hiring globally, most people imagine virtual assistants and call center employees. But the level of talent you can hire is as high as anywhere else. Fortune 500 companies like Exxon Mobil have been running major accounting operations in Latin America for decades.”
“There’s no doubt that overseas labor is a lot more affordable than U.S. staff. But chasing the cheapest possible option is a big mistake. If you end up with the wrong hire, you’ve wasted a bunch of time starting your search again, rehiring, retraining. … Invest in your overseas staff, and they will be invested in you.” SUBSCRIBE HERE
FRANCHISING
The FTC is warning franchisors about how they treat franchisees: “On Friday, the Federal Trade Commission issued a policy statement and staff guidance that cautioned franchisers not to restrict their franchisees’ ability to speak to government officials or to tack on fees that weren’t disclosed in documents provided to prospective franchise buyers. In a news release, the commission said it was acting amid ‘growing concern about unfair and deceptive practices by franchisers — to ensure that the franchise business model remains a ladder of opportunity to owning a business for honest small business owners.”
“The agency has been scrutinizing the industry, which includes 800,000 business establishments, since issuing a request for information early last year that asked several questions about the franchisee-franchiser relationship.”
“Across the more than 2,200 comments posted in response to the F.T.C. request, a central theme emerged: A majority of franchisees wanted changes to the rules that governed the industry, while a majority of franchisers did not.”
“In the months leading to the F.T.C.’s announcement, the International Franchise Association released a set of principles for ‘responsible franchising,’ recommending that franchisers adopt a clearer format for presale disclosure documents. That framework didn’t go as far as the Coalition of Franchisee Associations’ ‘franchisee bill of rights’ did, which included items like the freedom to buy from any vendor that met the brand’s standards.” READ MORE
STARTUPS
There’s now an app that lets you pay to pick someone’s brain: “Thanks to the startup Intro, aspiring entrepreneurs can book a half-hour with an Andreessen Horowitz venture capitalist for $2,500. Or 90 minutes with a hypnotic coach ‘focused on breaking through root traumas quickly’ for $1,250. Or ask an interior designer for advice on how to revamp a room, at a rate of $900 for 15 minutes. Silicon Valley has long run on an ethos of pay-it-forward generosity, where people connect friends or acquaintances to others in their network who might be able to offer advice. Intro is monetizing those interactions by giving folks access to that rarefied network and the opportunity to book time and pick an expert’s brain—for a consultation fee, of course.”
“‘If you have the luxury of living in Silicon Valley where you can go to a coffee shop and strike up a serendipitous conversation, that’s amazing. But there are a lot of people who don’t live in Silicon Valley,’ said Raad Mobrem, Intro’s founder and CEO.”
“Around 1,200 experts of all stripes are on Intro, which essentially functions like the better-known celebrity-messaging app, Cameo, but for professional or life advice. Mobrem said he was inspired to start the company after running into the founder of Kinko’s, Paul Orfalea, who took the time to speak with him about entrepreneurship. Orfalea is now on Intro, too, charging $875 for a 30-minute session.”
“‘We weren’t able to get into anything meaningful,’ said Ronak Shah, the founder of Bizly, which uses AI to plan events. Shah booked a 15-minute call for $150 with a chief executive who had sold a startup before, aiming to keep things concise because of the tight window. But Shah found a bigger problem than the constrained schedule.”
“‘The whole spirit of Silicon Valley is based on free and open sharing of ideas,’ he said. ‘Turning that into a transactional model is not aligned with the ethos of what has made Silicon Valley great.’” READ MORE
PROFILE
This is what life is like in a 42-story zombie building in downtown L.A. where the only remaining tenants are three small businesses: “Don Kohan, the owner of Cleaners Depot, has seen little bounce-back in the last four years. Among his three cleaners — two downtown and one in Century City — business is off about 60 percent since peaking in 2019, he said. ‘I’m just breaking even with the stores downtown,’ he said, ‘but I can’t close them or I’ll have three families without income.’ He feels an obligation to [Santiago] Lopez, who lives with his parents and has a fiancée, as well as to another employee, Abel Nunez, and to the manager of his other downtown store.”
“Kohan opened Cleaners Depot on 6th Street in 2003 when the ground floor was bustling with a florist, a stationery store, a restaurant, and a bank. One by one they fell. The building’s last major tenant — the Social Security Administration — moved out during the pandemic.”
“‘Hello, welcome’ says the automatic greeting when a customer trips the front-door sensor. The walk-ins drift in throughout the day. One’s the owner of a security business who needs two suits cleaned. Another’s an office manager for a law firm needing table cloths cleaned. With earbuds in, most are talking on the phone, conducting business with Lopez through pantomime.”
“Through the front door, Lopez watches the coming and goings at the Subway sandwich shop across the street. He is taking classes at Pasadena City College and hopes to become a radiologist. If everything plays out, he’ll have a different job in a year, operating medical imaging machines. By noon, he has listened to a podcast hosted by entrepreneur Patrick Bet-David and is streaming ‘Peaky Blinders’ when the owner arrives.”
“Kohan, 65, is wearing a white short-sleeved shirt stitched with his first name and company logo — the city skyline — above the breast pockets. A black kippah covers his gray hair. His cellphone is holstered on his belt. Lopez meets him at the curb to help bring in new orders. Kohan, he said, is like an uncle to him. He is loyal to the point of being protective, sensitive that the business might be targeted because of Kohan’s Jewish faith.” READ MORE
THE 21 HATS PODCAST
A Successful Owner Chooses an Innovative Exit: This week, special guests Laura Anderson, founder of Local Ocean, and Peter Koehler, her financial consultant, explain why Laura decided to sell her thriving seafood business in a transaction that created a business model that is neither widely known nor widely understood. It’s called an employee-ownership trust, and there are only about 50 of them in the United States. But their numbers are growing here and abroad, and for good reason. The trust model offers owners something of a choose-your-own-adventure option that can allow them to sell for a market rate in a relatively uncomplicated transaction that makes it far more likely the business will remain true to its established mission—especially when compared to selling to private equity or even to an employee stock ownership plan.
Of course, there are challenges, including getting a bank to consider financing one of these deals. But in this episode, Laura explains why, with Peter’s help, she decided to trust the trust.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren