I Took My Eye Off the Numbers

“If you don't keep track of the numbers,” Jay Goltz tells us in our latest podcast episode, “the numbers will track you down and beat you to a bloody pulp.”

Good Morning!

Here are today’s highlights:            

• There’s a lot of hype about AI and manufacturing. Don’t believe it, says Gene Marks.

• The founders of Nourish + Bloom couldn’t get a deal on ‘Shark Tank,’ but they’re finding other ways to raise money.

• One of America’s leading dollar stores is opening hundreds of stores; the other is closing hundreds of stores. Why?

• Are search funds an embarrassing example of “bro culture” or a potential solution to the Silver Tsunami? Or both?

THE 21 HATS PODCAST

This week, in episode 190, Jay Goltz tells Shawn Busse and Jaci Russo that, while he’s always been good with numbers, he’s never really enjoyed tracking his finances. It’s not what drove him to start a business, and over time, he stopped paying close attention. But now, after seeing his inventory levels and some big expenses get out of control, he’s diving back into the numbers and pretty much serving as his own chief financial officer, something he says he should have been doing all along.

• Plus: Shawn explains how one book and a specialized accounting firm and a monthly routine have gotten him comfortable with his numbers. And Jaci says it took years for her to learn to ignore the accountants who always gave her the same advice: Cut expenses. Instead, she tells us, “We've spent the past probably eight years really right-sizing what we charge. And now I feel like I can breathe.”

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

ARTIFICIAL INTELLIGENCE

Gene Marks reports that the talk about AI having an impact on manufacturing is mostly hype: “Here’s what I found: there’s a lot of hype and a lot of rosy predictions right now. A writer at TechTarget lists ‘10 AI Use Cases in Manufacturing.’ Another blog talks generally about ‘The Increasing Use of Technology in the Manufacturing Industry.’ Research firm Forrester paints a picture of the ‘future’ for manufacturing AI. A manufacturing group’s site lists the ‘manufacturing technologies that’s shaping the industry.’ It’s all very general and it can be exciting. But it’s not now. What about now? What about the next 12 months?”

• “While small businesses are using simple Generative AI products to write blogs or create policies, big companies like Klarna are spending millions of dollars building AI chatbots that are replacing hundreds of customer service reps. BMW and Amazon plan to introduce ‘humanoid’ robots powered by AI brains to ‘free up’ workers and Tesla is almost halving its production time to build cars using AI-powered 3D printers.”

• “AI isn’t creating anything new right now on the plant floor. Instead it’s being used to upgrade existing software and hardware. A quoting solution that’s been around for decades is using AI to construct better queries on its existing architecture. A robot that’s been used for sorting and palletizing items on a production line is now getting an AI upgrade to better identify and adapt to those products.”

• “It’s still early days for manufacturing AI. But hardware companies, software companies, and equipment makers are investing heavily. And for manufacturers the best place to find out what’s coming is to talk to your vendors…and go on the road. Visit conferences ... Go to your industry trade show this year.” READ MORE

FINANCE

The founders of Nourish + Bloom failed to get a deal on “Shark Tank” but still think they can solve the problem of food deserts: “The first Black-owned and operated autonomous grocery store in the U.S. — and the first of its kind in the U.S. South — is some kind of Southern bodega. Nourish + Bloom, located outside of Atlanta, shares much in common with the kind of corner store you can find on almost every block in New York City: There is a small market where customers can buy their essentials — produce, canned goods, frozen dinners, beverages, toiletries — and a deli where they can pick up prepared foods. All that’s missing is the cat — and the cashiers. There is, however, a digital tablet-based AI assistant named Rosie at the entrance who can interact with customers — along with co-owners Jilea and Jamie Hemmings, who are typically at the market greeting, cooking, and serving.”

• “The Hemmings believe that their grocery tech business can be profitable, even in low-income neighborhoods where larger grocery store chains have been reluctant to open. Besides their flagship store, which they opened in January 2022, the Hemmings have three more automated checkout stores opening in the city of Atlanta this year, funded largely by the city and civic organizations.”

• “Their upcoming locations in Atlanta are planned for areas that have been undergoing new waves of economic growth after starving for investment for decades, including along the Atlanta BeltLine, a massive civic project that is converting abandoned railroad lines into a continuous walkable and bikeable trail circling the city. They plan for the new stores to operate 24/7, and to accept EBT funds, joining them with Amazon Go as the only autonomous grocery stores that accept the government-subsidized currency.”

• “In just the few days since the episode aired, Jilea says they’ve been contacted by funders and investors looking to capitalize on what the ‘Shark Tank’ investors passed on. But their experience on the show helped them realize that to fulfill the mission of alleviating food deserts, they will likely have more success getting support from the public sector than from private capital.” READ MORE

ECOMMERCE

TikTok Shop is raising seller fees: “Starting [Monday], the fees TikTok charges sellers increase[d] from 2 percent to 6 percent of the price of each order. They will creep up to 8 percent in July. The changes may mark a crucial moment for people who shop on TikTok and for the platform itself, potentially forcing up prices and testing shopper’s loyalty to the social app’s ecommerce play.”

• “TikTok Shop launched in the U.S. in September with strikingly low prices compared to other online stores, thanks to its subsidies to sellers and shoppers. Influencers and entrepreneurs embraced the opportunity: TikTok saw a surge of sellers that outpaced growth in vendors at competitors like Shopify and Amazon, according to a March report from Similarweb, which tracks web traffic.”

• “After a successful holiday-shopping season, TikTok Shop’s fee increases see the platform trying to prove it can become a sustainable, habit-forming mainstay in ecommerce. ‘The true test for [TikTok Shop’s] longevity and its sustainability will be as these incentives start to roll back,’ says Jasmine Enberg, principal analyst for social media at Insider Intelligence, a market research firm. ‘A lot of the sellers that have found success on TikTok Shop are smaller businesses that really benefited from the incentives.’”

• “While many people turn to Amazon to search for necessities, on TikTok Shop buyers often find products they didn’t know they wanted through influencers and algorithmic discovery—more similar to Temu or Shein. TikTok sellers face the additional challenge of needing their pitches to stand out from the parade of loud, viral video content the app services up.” READ MORE

RETAIL

Dollar General is opening 800 new stores this year; Family Dollar is closing 600: America’s two leading dollar-store chains are heading in opposite directions. One discounter is expanding aggressively while its rival contracts. The difference comes down largely to the choice of real estate. Dollar General said last month it plans to add about 800 new stores this year, bringing its total to nearly 21,000. As the largest dollar-store operator in the country, its stores are located predominantly in rural areas where they usually face little competition. Dollar Tree, by contrast, recently said it would close 600 of its Family Dollar stores by early August. That discount chain, which Dollar Tree acquired in 2015, offers similar products at roughly similar prices to its main competitor. But its stores are concentrated in more expensive urban and suburban areas, where a variety of discounters compete for market share.”

• “Dollar General’s largely rural footprint also brings it tremendous property-related savings. The company’s real-estate occupancy cost is nearly a third lower than at Family Dollar, said Mark Sigal, chief executive officer of Datex Property Solutions, which tracks rent payments from shopping centers and retailers nationwide.”

• “Occupancy cost refers to how much of a store’s sales is eaten up by real-estate expenses such as rent, taxes, insurance and maintenance. The lower the occupancy cost, the higher the store’s profit. ‘Family Dollar is losing the competitive battle,’ Sigal said.” READ MORE

SMALLBIZ TECH

In many ways, it has never been easier to start a business: “Luke Lintz was at the gym in 2016 when his headphone wires got in the way of his bench press. It wasn't the first time it had happened, and the 16-year-old had had enough. At the time, wireless headphones were just emerging, and Lintz couldn't find many on the market in North America. He decided it was the perfect business opportunity. He found a product in China, compiled $10,000 of his and his older brother's savings, and together they purchased their first batch of wireless earbuds later that year — the same year Apple released the AirPods. The only marketing they did was on Instagram.”

• “Shipping costs were covered by the customers, so Lintz had to pay only for camera equipment for filming promo videos and a small monthly warehousing fee. He was able to scale the business to more than $600,000 in revenue by 2018, when he graduated from high school.”

• “Twenty years ago, Lintz's business would have been an impossible dream. Before social media, online access to Chinese products, and services like Shopify, setting up a similar business would have taken months of work and a lot of cash to get off the ground.”

• “Bernhard Schroeder, a lecturer for the Fowler College of Business at San Diego State University, remembers when running an e-commerce site required $50,000 to $100,000 worth of software. ‘Now you can rent Shopify as an e-commerce solution in the cloud for $50,’ he told me. ‘The access-to-technology barrier has come way down.’” READ MORE

BUYING A BUSINESS

A few weeks ago, The New York Times discovered search funds. Now Kai Rhyssdal of Marketplace has made the same discovery, interviewing the author of The Times article: “When the producer on this piece, Sarah, brought this up in our morning editorial meeting a week or two ago, my gut reaction was, ‘Man, this sounds really bro-y.’ Right? Because business schools are kind of bro-y and that sort of is what this smacks of. So what you have is a bunch of young, mostly male, masters-of-the-universe business school students going out and convincing people to give them money to let them buy companies, right? That’s what this is.”

• Nell Gallogly: “Yeah, I mean, you’re not wrong that it takes a certain amount of kind of confidence and perhaps a bit of ‘bro’-iness, to be able to say, ‘Hey, I don’t have a lot of experience running a business; maybe I’ve spent a few years doing some work before my MBA, but I believe I have the capacity to be a real leader. So, hey, investors, pick me to do this.’”

• Ryssdal: “And in some cases, they do. What kinds of companies are usually the target of acquisition, as it were?”

• Gallogly: “Yeah. So the companies they’re looking for are already profitable, have recurring revenue, often in sort of the $5 to $10 million range. So you can think about the landscaping business or waste management business or HVAC, in not necessarily a big city. It could be, you know, Toledo, Ohio as an example. So that’s sort of the typical acquisition target.”

• Ryssdal: “I don’t want to falsely romanticize this, but it does seem a little bit like not wanting to do the work of entrepreneurship, right? They just want to run something, and, as you said early on, are sort of taking a shortcut.”

• Gallogly: “You know, I think that the shortcut is certainly a shortcut to the CEO seat. But I will say, we have, at this point, a sort of generation of, quote-unquote, Baby Boomers who are nearing retirement or already at the stage of retirement, many of whom might not have a next of kin or an heir for their company. And so what these searchers are doing is saying, ‘Hey, we want to promote that longevity of those companies, and give those owners a chance to retire with a good sum of money that they can exit with.’ ” READ MORE

HUMAN RESOURCES

At least 16 states are trying to weaken child-labor laws: “As child-labor violations soar across the country, dozens of states are ramping up efforts to update child labor laws — with widespread efforts to weaken laws, but some to bolster them as well. The push for changes to child labor laws arrives as employers — particularly in restaurants and other service-providing industries — have grappled with labor shortages since the beginning of the pandemic, and hired more teenagers whose wages are typically lower than adults’.”

• “Labor experts attribute the spike in child-labor violations, which have tripled over the past 10 years according to a Post analysis, to a tight labor market that has prompted employers to hire more teens, as well as migrant children arriving from Latin America. In 2023, teens aged 16 to 19 were working or looking for work at the highest annual rate since 2009, according to Labor Department data.”

• “Federal law forbids all minors from working in jobs deemed hazardous, including those in manufacturing, roofing, meatpacking and demolition. Fourteen and 15-year-olds are not allowed to work past 7 p.m. on school nights or 9 p.m. on weekends. Most states have laws that are tougher than federal rules, although there is an effort underway led by Republican lawmakers, to undo those restrictions, supported by restaurant associations, liquor associations, and home builders associations.”

• “​​Republican lawmakers often say they are trying to increase opportunities or bring requirements in line with federal standards when they push to loosen child labor laws. They say that lowering restrictions helps employers fill labor shortages, while improving teenagers’ work ethic and reducing their screen time. Another common refrain is that permitting later work hours allows high school students opportunities similar to varsity athletes whose games often go later than state law allows teens to work.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

Gene Marks Is Happy to Pay Swipe Fees: In the aftermath of the big credit-card fee settlement, Gene addresses Visa and MasterCard’s agreement to cap the fees they charge merchants for five years. Gene explains both why many merchants are disappointed in the settlement and why he’s perfectly happy to pay those swipe fees when his big-ticket clients pay with a credit card. Plus: Gene discusses the new IRS rules you should know about and how the bankruptcy code has made Chapter 11 less of a defeat and more of a strategic tool for small businesses.

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

Thanks for reading, everyone. — Loren