I Would Have Been a Sub of a Sub of a Sub

In our latest 21 Hats Podcast, the owners talk about the times when it’s better to walk away from business.

Good Morning!

Here are today’s highlights:            

• Some banks really do want to lend to small businesses.

• A growing number of MBAs are choosing to buy businesses rather than work for McKinsey.

• Readers of the Wall Street Journal offer their advice for building a remote culture that works.

• Tim Wu says the Google antitrust trial is really about the future of competition.

THE 21 HATS PODCAST

This week, Shawn Busse, Paul Downs, and Liz Picarazzi talk about spotting clients who are more trouble than they’re worth: Liz, for example, is tired of dealing with bureaucracy and being at the bottom of the food chain. In one instance, she was so turned off that she actually recommended a competitor for a job she no longer wanted. Paul has a simple test: If it’s easy work for a bad client, okay, fine. But if it’s hard work for a bad client, “Just don’t do it.” Of course, there are times in the life cycle of most businesses when that’s easier said than done, when you have to accept almost any work offered. Those are the tough ones.

• “Plus: is it time for business owners to take artificial intelligence seriously? And should owners care that a well known economics firm is predicting a depression in 2030?

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

FINANCE

There are banks out there that really do want to lend to small businesses: “Denver-based InBank is gearing up to double or even triple its small business loans next year, thanks to a strategic move that will open the bank to borrowers nationwide. With the initiative comes an entirely new small business lending division branded as INTQ Financial. The division, headquartered in the bank’s Greenwood Village location, has already bolstered staff to handle the new lending business. The name ‘INTQ’ is a blend between InBank, a commercial bank under the holding company InBankshares Corp., and NOVATRAQ, a small business lending software now partnering with the bank, said Tim Romano, the division's new managing director.”

• “The new software will allow InBank loan officers to streamline the origination, underwriting, and documentation of Small Business Administration 7(a) and 504 loans, as well as U.S. Department of Agriculture loans.”

• “The new software offers one portal for borrowers and referral sources to upload information that can be viewed by all members of the lending team, from sales executives to underwriters, closers and the operations manager, he said. That will reduce dual data entry and help the bank more accurately monitor its pipeline activity.”

• “Romano said the INTQ division so far has five SBA sales executives located in Denver, Arizona, and Atlanta, and five other team members in the Denver office who specialize in underwriting, closing and operations.” READ MORE

SELLING THE BUSINESS

More MBAs are looking to buy small businesses through search funds: “Called entrepreneurship through acquisition, or ETA, it differs from the better-known, venture-backed startup model because it entails buying an existing company, not starting one from scratch, with the potential for more autonomy and ownership. ETA began at Harvard in 1984, when entrepreneur-turned-professor Irv Grousbeck helped some students develop an investment vehicle that enabled the aspiring entrepreneurs to buy and manage a company. Grousbeck soon moved to Stanford’s Graduate School of Business and took the search fund concept there.”

• “That’s where it stayed for years, limited primarily to a handful of Harvard and Stanford MBAs. But a surge in interest and investment more recently has propelled ETA to a much higher profile. That’s partly because interest in entrepreneurship picks up when job prospects dim for MBAs, as they have in 2023.”

• “First, one must decide what type of search to conduct and the kind of business to target. ETA typically happens one of two ways: It’s self-funded or done through what’s called a ‘core’ search fund. The latter requires raising money from investors in two stages.”

• “The initial capital (generally about $425,000 per person) pays for all search-related expenses, like travel and administrative costs, plus the searcher’s salary. The much larger second tranche funds the actual acquisition, typically within two years.”

• “Failure is part of the process: one out of three searches ends without an acquisition being made. Discerning the whims of small-business owners, many of them baby boomers looking to retire comfortably, can require a degree in geriatric psychology.” READ MORE

THE ECONOMY

Ford and GM could be losing $100 million a week, according to Goldman Sachs: “The bank's calculations are based on revenue estimates for Ford and GM based on weekly production of the affected plants, as well as the specific vehicle models that are manufactured at these plants. Ford's Wayne plant makes the Bronco and Ranger while GM's Wentzville plant makes models like the GMC Canyon and Colorado, according to the bank's September 17 note. Though unionized Stellantis workers are also on strike, Goldman Sachs did not estimate the potential impact on the Jeep-maker.” READ MORE

CANNABUSINESS

A Black owner of a Cannabis business explains why there aren’t more Black owners of Cannabis businesses: “As a Black man who grew up in Orange, N.J., in the 1980s and witnessed the effects of the war on drugs in my family and community, I never thought I’d be in the cannabis business. But then again, I never thought I’d be in the NBA either. I started in the cannabis industry more than 12 years ago, near the end of my 16 seasons in the NBA, with a mission to show others the healing power of the plant just as I had shown it to my grandma, Viola, for whom I named my company. Although marijuana is now legal in 23 states (and counting), I’m constantly reminded of all the people who look like me who spent year after year in prison for possessing a few grams of weed. As legalization expands, my top priority is to ensure that Black and brown people have opportunities for generational wealth in our community.”

• “But the lack of banking options available because of federal prohibition means anyone who wants to start and support a business in the market needs a generous amount of cash on hand. It takes hundreds of thousands if not millions of dollars just to start such a business — money that most people of color don’t have.”

• “This could start to change if Congress passes the Secure and Fair Enforcement (SAFE) Banking Act. Sponsored by Sen. Jeff Merkley (D-Ore.) and expected to be up for a key committee vote soon, the bill would protect banks and other financial institutions from federal sanctions for working with legal cannabis businesses.” READ MORE

HUMAN RESOURCES

Readers of the Wall Street Journal share their suggestions for building a culture in a remote or hybrid world: “A manager I worked with during the pandemic began every weekly staff meeting with a different perplexing question: Do you believe in ghosts? How often do you wash your hair? If it was the 1940s and America was in the midst of World War II, how would you contribute to the war effort? The first minutes of the meeting were spent with each of us sharing a memory or advice or a spy fantasy, often amid laughter and appreciative comments. As a newcomer to the group, it gave me a better understanding of who these colleagues were, even though everyone was joining the call from home. It’s also the only part of those meetings that I can recall today. ... So we asked Wall Street Journal readers: Which measures have worked and which haven’t? Here are some of their ideas.”

• “You have to reach out. Don’t wait for someone to call you. On many occasions, I realized it had been weeks or even months since I had spoken with someone. Make the call. I think people get hung up on ego and status issues, which lead them to think ‘Hey, l’m important—let them call me.’”

• “Without the need to hire locally, we can hire the strongest professionals regardless of where they live, which increases diversity. We limit virtual meetings but make sure the entire company meets once a week. Video is optional except for that weekly all-hands meeting, to help foster connection. Twice a year we hold in-person off-sites to ensure we don’t lose the ability to strategize and build important connections.”

• “We have intentionally offered more companywide outings during business hours to promote teamwork. They come at a cost—both the cost of the events and the lost billable hours—but we believe strongly that the connections forged between employees make our teams more efficient and able to communicate more easily.” READ MORE

Remote work is thriving in the fastest-growing parts of the U.S.: “Overall, 15 percent of the U.S. worked from home last year, according to new Census figures released last week — but the numbers are much higher on both the East and West coasts, and in other large metro areas. Boulder, Colo. had the highest share of remote workers of any metro area last year, at 32 percent. Denver wasn't far behind.”

• “San Francisco and San Jose were both in the top 10. Their main rival for tech jobs, Austin, Texas, was even higher.”

• “Just over 25 percent of the workforce in the Washington, D.C. metro area is remote — the 6th highest rate of any city, and higher than any state.” READ MORE

There’s another benefit to working remotely: “Fully remote workers could produce less than half the climate-warming emissions of people who spend their days in offices, according to a new study published Monday in the journal Proceedings of the National Academy of Sciences. In an analysis of various work scenarios, people’s behaviors and sources of emissions, researchers found that switching from working onsite to working from home full-time may reduce a person’s carbon footprint by more than 50 percent. Hybrid schedules where people work remotely for two to four days a week could also cut emissions by 11 to 29 percent, according to the study.” READ MORE

COMPETITION

Tim Wu explains why he thinks the Google antitrust trial matters: “The Google antitrust trial, which began last week, is ostensibly focused on the past — on a series of deals that Google made with other companies over the past two decades. The prosecution in the case, U.S. et al. v. Google, contends that Google illegally spent billions of dollars paying off Samsung and Apple to prevent anyone else from gaining a foothold in the market for online search. But the true focus of the trial, like that of the Federal Trade Commission’s coming trial of Facebook’s parent company, Meta, on monopolization charges, is on the future. For the verdict will effectively establish the rules governing tech competition for the next decade, including the battle over commercialized artificial intelligence, as well as newer technologies we cannot yet envision.”

• “The history of antitrust prosecutions shows this again and again: Loosening the grip of a controlling monopolist may not always solve the problem at hand (here, an online search monopoly). But it can open up closed markets, shake up the industry, and spark innovation in unexpected areas.”

• “The story of Google’s own creation is another good example. Google began as a small start-up with a great product, but it was also a beneficiary of federal government intervention. Google began its operations reliant on Microsoft’s Internet Explorer browser, which had a roughly 95 percent market share in the early 2000s. And Microsoft was running its own search engine on Internet Explorer, then called MSN Search (later renamed Bing).”

• “Fortunately for Google, Microsoft had just been put through the wringer by the Justice Department, whose antitrust lawsuit nearly led to a breakup of the company. In the end, Google beat Bing in part because it had a better product — but also because it wasn’t facing the nasty Microsoft of the 1990s, but rather a weakened and chastened Microsoft operating under federal oversight.” READ MORE

BOOK REVIEW

Here’s Kara Swisher’s mini-review of Walter Isaacson’s Elon Musk bio: “Sad and smart son slowly morphs into mentally abusive father he abhors, except with rockets, cars, and more money. Often right, sometimes wrong, petty jerk always. Might be crazy in a good way, but also a bad way. Pile O’babies. Not Steve Jobs.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

The Big Issues Looming for Small Businesses: John Arensmeyer explains what the end of pandemic-era childcare support will mean for businesses. He also talks about the Department of Labor’s proposed overtime rule and what’s at stake for business owners if the government shuts down. Plus: owners say banks are getting harder to deal with.

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

Thanks for reading, everyone. — Loren