I Want Clean Hands

Today’s highlights: Debating the minimum wage and the right way to fire someone. Two tax credits you don’t want to miss. And new strategies for getting shoppers to keep what they buy.

THE 21 HATS PODCAST

Episode 48: I Want Clean Hands: This week, Paul Downs, Jay Goltz, and Dana White give quick PPP updates—and then dive into a discussion of what a $15-an-hour federal minimum wage would mean for smaller businesses. Will it lift people out of poverty? Will it put businesses out of business? Will it hurt entry-level employees? “I'm listening to you, Jay,” Dana tells us, “and I'm thinking about the coffee shop owners I know who have to close.” To which Jay responds, “They say they have to close, but did they try raising their prices 5 percent first?” We also tackle a listener-submitted question about the best way to avoid unemployment claims, which can require forceful management. “There's no way around it,” Paul tells us. “You gotta be hard at some moments, as a boss. You just have to be.”

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HUMAN RESOURCES

The CBO says hiking the minimum wage to $15 an hour by 2025 would cost jobs but lift many out of poverty: “The report is sure to animate the already heated debate whether to include raising the federal minimum wage in a budget resolution to help the sputtering economic recovery and aid vaccine distribution amid the pressures of the pandemic. On one hand, the CBO estimated that raising the minimum wage to $15 an hour would cost 1.4 million jobs by 2025 and increase the deficit by $54 billion over ten years. But it also estimated the policy change would lift But it also estimated the policy would lift 900,000 people out of poverty and raise income for 17 million people — about 1 in 10 workers.” READ MORE

TAX CREDITS

Gene Marks reminds everyone to see if you qualify for two potentially lucrative tax credits included in the recent Covid package. One is the employee retention tax credit, which can be claimed by businesses with fewer than 500 employees who were either shut down in 2020 or have revenue declines of more than 20 percent quarter over quarter. The other credit is the work opportunity tax credit, which rewards small businesses for hiring veterans, people off of welfare or out of prison and rehab, and those who have been unemployed long-term:

  • For the employee retention tax credit: “The first step will be to calculate the payroll taxes owed—like you usually do—for the quarter on your federal quarterly reporting form 941. You take 70 percent of each of your employees’ wages—whether they were working or furloughed and this includes health benefits—paid up to $10,000 that quarter. So the maximum credit for the first two quarters of 2021 is $7,000 per employee per quarter. Now, go back to your form 941 and deduct—or credit—that amount against the FICA (the 6.2 percent Social Security tax) liability your company owes. Because this is a ‘refundable’ tax credit, if you owe less money than the amount of the credit you can get the money returned to you in cash.”

  • For the work opportunity tax credit: “If you hire someone that fits those criteria, then you can get a refundable credit of anywhere between $1,200 and $9,600 (yes, $9,600) against the income taxes you owe this year. This credit is per employee so the amount may be even higher if you bring on additional people that qualify.” READ MORE

THE 21 HATS CONVERSATION

Brent Beshore likes to say of the businesses he invests in, “Boring is beautiful.” It’s one of the things that sets him and his firm, Permanent Equity, apart. He runs a private equity fund with more than $300 million in capital, but he’s not really a private equity guy. He’s actually more of a Warren Buffett, buy-and-hold guy. He invests in businesses with no timeline to sell. He doesn't force those businesses to take on debt. He's happy to keep the leadership team in place. Is your business boring enough to meet his standards? Join our 21 Hats Conversation today at 3 ET to find out. Bring your own questions.

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RETAIL

Companies are trying more tools and strategies to eliminate returns: “Some retailers are introducing virtual dressing rooms and made-to-measure clothing so that shoppers keep more of what they buy. Others are scoring shoppers based on their return rates, much the way credit-ratings firms tally consumers’ creditworthiness. Behind the push is a painful economic reality of e-commerce. The share of online purchases that are returned averages 30 percent or higher, depending on the category, three times the rate in physical stores, according to industry executives.”

  • “For a typical retailer, every $1 million reduction in returns can translate to $500,000 added to the bottom line, according to Navjit Bhasin, the chief executive of Newmine, which makes software that helps retailers understand the reason for returns.”

  • Newmine developed the KeepScore, which measures consumer returns much the way credit-ratings firms track creditworthiness.”

  • “The score is based on a sliding scale with 100 equating to average. Shoppers below 85 have high return rates, with those above 120 returning very little. Customers with a bad KeepScore might not get offered special discounts, or catalog mailings. ‘Why spend money mailing catalogs to chronic returners?’ Mr. Bhasin said.” READ MORE

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THE MARKETING

You may have missed it, but a five-second ad made in less than a week was the standout at the Super Bowl: “A mere five seconds in length, the ad flitted across TV screens so quickly that many viewers thought there must have been a glitch in the CBS game broadcast. And yet it became one of the most talked-about (and posted-about) commercials of the day. The Kellogg School Super Bowl Advertising Review, an annual ranking from Northwestern University’s business school, reported shortly after the game on Sunday that Reddit’s commercial was among the most effective commercials of the broadcast. The Kellogg School’s list measures the execution of the commercial, the quality of the attention it generates, its memorability and other factors.”

  • “The Reddit ad started out like a clichéd car commercial, with two S.U.V.s racing across the desert.”

  • “Then the signal seemed to fry, and Reddit’s orange-and-white alien-head logo commandeered the screen, followed by a lengthy printed statement that left viewers scrambling to grab a photo or screenshot.”

  • “It was among the most-searched Super Bowl commercials on Google on Sunday night and received more than 270,000 upvotes after being posted on Reddit.” READ MORE

The Dr. Squatch Super Bowl ad wasn’t the first time the company’s ads have made an impression: “Founder Jack Haldrup, a 33-year-old entrepreneur, had already built a $100 million direct-to-consumer business for Dr. Squatch’s soaps, hair care and deodorants off viral YouTube videos. Haldrup, who has a bachelor’s in finance and a master’s in information systems from Indiana University, started the company in 2013 with the basic idea of natural soap for men.”

  • “‘Our customer is not the guy who already shops at Whole Foods and uses Dr. Bronner’s soap,’ he told the newspaper then.”

  • “With videos starring comedian James Schrader, Dr. Squatch racked up more than 120 million views and 100,000 shares across YouTube and Facebook, according to a case study by Raindrop.”

  • “Sales rose thirtyfold, to more than $100 million, according to the marketing agency.” READ MORE

STARTUPS

DoorDash is buying a startup, Chowbotics, whose robots can make salads: “Chowbotics’ technology can whip up salads and poke bowls, among other things, and DoorDash is exploring how to deploy it across restaurants, a person familiar with the matter said. Ideas include using the technology to help restaurants expand their menu—such as enabling a pizzeria to offer salads—or to allow a salad bar to try out new locations—a kiosk at an airport, for instance—without the need for more manpower.” READ MORE

Getaway wasn’t designed for the pandemic, but it’s helping people get off Zoom and out of their homes: “Founded in 2015, Getaway builds ‘Outposts’ — collections of tiny cabins in rustic locations within a two-hour drive of major cities like Atlanta, Austin, Los Angeles and New York. Those cabins sound perfect for socially distanced retreats, with guests checking themselves in, each cabin built with its own fire pit and spaced 50 to 150 feet from the others, with no common areas. Staff told me that rather than promoting traditional tourist activities, Getaway emphasizes disconnecting from all the stresses and distractions of modern life. So its cabins don’t include Wi-Fi, and they also have lockboxes where visitors can hide their phones for the duration of their visits.” READ MORE

JetBlue founder David Neeleman has a new airline, Breeze Airways, ready to take off: “Breeze is the fifth airline started by Neeleman following the serial aviation entrepreneur's successful runs at Morris Air, later sold to Southwest Airlines; WestJet; JetBlue Airways; and Azul Brazilian Airlines. Each one had a focus on low fares and positive customer service while shaking up the industry. Very little has been made public about the airline but from what Neeleman has said, Breeze will have that same focus.”

  • “Neeleman plans to ride the tech wave in the same way that Uber and Amazon have by creating intricate mobile applications that will streamline the traveling experience ...”

  • “‘I prefer to say we're a high-tech company that just happens to fly airplanes,’ Neeleman told Conde Nast Traveler, referring to just how much self-serve technology will be intertwined with the airline's operations.”

  • “Breeze Airways doesn't plan to follow the hub-and-spoke route system utilized by most major airlines and will operate point-to-point routes, or routes between secondary cities, instead.” READ MORE

THE COVID ECONOMY

Here’s one reason supply chains are challenged: “U.S. trucking company failures nearly tripled in 2020 from the previous year as fallout from the pandemic deepened pressure on smaller operators while well-capitalized bigger truckers held on and found stronger financial footing as the economy reopened. Some 3,140 fleets shut down last year, a 185-percent jump from 2019, according to transportation industry data firm Broughton Capital. Roughly half of the 2020 failures came in the second quarter, when freight volumes plummeted amid widespread shutdowns aimed at limiting the spread of Covid-19.”

  • “Independent truckers and small trucking companies make up the majority of U.S. freight carriers, with 91 percent of fleets operating six or fewer trucks and 97 percent operating 20 or fewer, according to the American Trucking Associations, an industry group.”

  • Those smaller operators typically have slimmer margins than big truckers, which can use economies of scale to lower purchasing costs for items from tires to employee health insurance. Small trucking companies also tend to get more business from the spot market ...” READ MORE

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