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‘I Wouldn’t Call It Transitory’
Faced with increased costs, a bicycle manufacturer sets his prices for next year. Can you guess where they’re going?
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Here are today’s highlights:
An Atlanta-based PE fund wants to buy blue-collar businesses from Boomers.
More businesses are replacing employees with chatbots.
The practice of “bracketing” continues to grow.
A Laotian refugee explains what it took to get his business off the ground.
Bicycle makers are pricing next year’s bikes now and with costs and demand still rising, it looks as if prices will, too: “Manufacturers are working on building bikes for 2022 in a continuing environment of economic uncertainty—with more questions added recently by the emergence of the Omicron variant of the coronavirus. Today’s rampant demand and strangled supply are already pushing next year’s prices higher. ‘The cost of our product is not going down,’ says Richard Thorpe, chief executive of Karbon Kinetics Ltd., which sells Gocycle electric bikes world-wide from its base in Chessington, southern England. ‘If that is inflation, I wouldn’t call it transitory.’”
“The average selling price of a new bicycle in the U.S. in September was $346, up 28 percent compared with 2020 and 54 percent higher than the average selling price of a bicycle in 2019, according to data from NPD Group., a market research agency.”
“Mr. Thorpe says that beginning January 1, he plans to increase the prices of his range of folding e-bikes by up to 25 percent. The company’s latest models will cost between $4,999 and $6,999, depending on the specification, compared with $3,999 and $5,999 in 2021.”
“The price increase is needed to cover the higher costs of components and shipping, Mr. Thorpe says, and to provide a financial cushion should supply-chain bottlenecks again hurt production, as they did this year.”
“Mr. Thorpe is still waiting for delivery of a thousand pieces of an electrical component he ordered more than a year ago, and he is competing with automakers and online ordering bots, which use software to scoop up stock, to get hold of computer chips.” READ MORE
Gene Marks says more businesses are replacing employees with chatbots: “That’s according to new research from ResearchAndMarkets, which projects a compounded annual growth rate in the conversational AI market of more than 22 percent over the next few years. Right now the market is about $6.8 billion. By 2026 it’s predicted to expand to more than $18 billion. And where’s the biggest growth? Small and mid-sized companies, which is projected to record a higher CAGR during the period. This should come as no surprise. As the cloud grows, it is becoming less expensive for even the smallest of companies to collect and analyze data. Many of the leading CRM software vendors — even the ones focused on small firms — are now incorporating chatbots into their applications.”
“The report showed that the customer service segment will ‘hold the largest market share’ because of its importance in meeting the demands of 24/7 support and that ‘chatbots provide a powerful way to conduct two-way communications by analyzing customer intents, and thus, act as an effective medium to respond to customer requests.’”
“The more you dig into your CRM system’s chatbot capabilities the more you’ll find that these conversational robots can handle basic questions from your customers and prospects quickly and accurately which is exactly what your visitors want.”
“More importantly — and bluntly — these chatbots are simply replacing people. They cut your overhead. They reduce your costs of employment — wages, benefits, administration, etc.” READ MORE
SELLING THE BUSINESS
A new Atlanta-based PE firm is looking to buy blue-collar businesses from Boomers: “Former technology executive Michael Arrieta founded Garden City and recently closed its first, $51 million fund to buy and hold small- to mid-sized businesses owned by the Baby Boomer generation, a group near retirement age. By holding those companies, Arrieta plans to innovate new software that could make their industries’ operations more efficient. Arrieta is targeting the ‘unsexy’ businesses: the pool company, the tree removal service, the janitorial business. Garden City is about continuing family businesses and improving their profits through investing in technology and company culture and connecting them with a network of advisors, he said.”
“The firm looks for companies with $10-$100 million in revenue and tends to write checks that range from $5-$20 million. Garden City has made two investments and will have two more by the end of the year, Arrieta said.”
“At each business, Arrieta hopes to build a workplace culture ‘like Chick-fil-A’ to make employees feel respected and appreciated. He’s also planning to modernize the businesses by implementing technology that could make their operations more efficient.” READ MORE
More shoppers are “bracketing” their online purchases. Call me crazy but maybe there should be a small fee for shipping? “As Insider's Áine Cain reported, ‘bracketing’ is when a customer buys multiple sizes or colors of a single item, chooses the version they like best, and sends the rest back to the retailer. It's the close cousin of another shopping habit, ‘wardrobing,’ which is when a customer buys a product — perhaps for a special occasion or holiday — and returns it after it's been used. Bracketing is especially prevalent when retailers offer free shipping and free returns because customers deem the practice low risk.”
“In a Narvar survey of 1,004 shoppers this month, 58 percent of respondents said they bracketed their online purchases.”
“In 2020 alone, shoppers sent back about $100 billion in merchandise they bought online, according to data from the National Retail Federation.”
“‘Many retailers end up throwing away over 25 percent of their returns,’ Tobin Moore, the CEO of Optoro, told CNBC in 2019. ‘Holistically, that ends up being over 5 billion pounds of goods that end up in landfills a year from returns.’”
“Giant retailers like Amazon and Walmart are now telling shoppers just to keep their unwanted item and get refunded anyway; others work with third-party companies like Roadie, which is owned by UPS, or Happy Returns, which partners with FedEx, to help ferry returns to the correct place.” READ MORE
THE PERFECT GIFT
Looking for something for an entrepreneur who has (almost) everything? Give a subscription to 21 Hats! It’s useful. It’s inspiring. Plus, it’ll help build the 21 Hats community, which is good for all of us (especially me). Act quickly while we have plenty of pixels in stock. As of now, we are experiencing no supply chain issues, but who knows how long that can last?!! -- Loren
THE COVID ECONOMY
Private payrolls grew more than expected in November: “Companies added jobs at a robust pace in November despite worries about rising inflation and the threat that the pandemic could slow growth into the winter months, according to a report Wednesday from payroll processing firm ADP. Private hiring increased by 534,000 for the month, better than the Dow Jones estimate of 506,000 in a labor market that appears to be getting tighter. The total was a decline from the October growth of 570,000, which was revised lower by 1,000.”
“The industry that includes bars, restaurants, hotels and similar businesses saw a gain of 136,000, part of the 424,000 positions added in the services sector.”
“Also posting strong gains were professional and business services with 110,000, trade, transportation and utilities with 78,000, and education and health services, which added 55,000.”
“Medium-sized firms hired 142,000 while those with fewer than 50 employees added 115,000.” READ MORE
Senate Republicans are threatening a government shutdown over the vaccine mandate: “A group of Senate Republicans is threatening to delay action on a spending bill needed to avert a lapse in federal funding on Friday unless it also bars enforcement of the Biden administration’s vaccine-and-testing mandate for large employers, heightening the threat of a government shutdown.”
“They appeared to relish the political message they could send their constituents by forcing a government shutdown, even as the nation grapples with the emergence of the Omicron variant.”
“Without unanimous agreement, the process could drag through the weekend, forcing a brief shutdown that would quickly become dire for federal workers and agencies at the beginning of the week.” READ MORE
A Laotian refugee explains how he started his restaurant business in Tulsa and how it survived 2020: “In 2009, I opened a restaurant called Thai Village with some friends. We were young — in our 20s — and each put in about $20,000. We figured that although many businesses fail, we didn't have anything to lose at that point. We found the location and really liked it — it's across from Oral Roberts University, for one, and it was previously a restaurant. It needed some repairs, but we were able to fix it up. The rent was and is a lot more expensive than other areas like midtown Tulsa, but we thought the location was worth it.”
“I thought: As long as we are able to make a little money to survive, we can make it. We would eat at the restaurant and we remained open during many holidays, but staff still left because they weren't making enough money. We were barely breaking even each day.”
“Two of the partners ended up leaving, but we bought them out. We survived the pandemic closure as well, and in fact, our clientele has increased because people were using delivery apps like DoorDash and UberEats. Now, they come in.”
“Since we spent so long locked down, I know fewer people these days — I probably only know about 60 percent of my customers, and I used to know about 80 percent or 90 percent of the people who came into the restaurant. With time, that number will get back to where it was.” READ MORE
Overturning Roe v. Wade would likely have an economic impact on women and on businesses: “Before Roe v. Wade, the 1973 Supreme Court case that established a constitutional right to abortion up to 23 weeks, ‘there was little support for women who wanted a full family life and a successful career,’ Mississippi’s attorney general, Lynn Fitch, said in a statement in July summing up the argument and announcing that she had filed a brief with the court in Dobbs v. Jackson Women’s Health Organization. ‘Maternity leave was rare. Paternity leave was unheard-of. The gold standard for professional success was a 9-to-5 with a corner office. The flexibility of the gig economy was a fairy tale. ‘In these last 50 years,’ she continued, ‘women have carved their own way to achieving a better balance for success in their professional and personal lives.’”
“While some progress has been made, the idea that the benefits that Ms. Fitch described are available to a majority of women is still a stretch.”
“Family leave is available to only 20 percent of private-sector workers and 8 percent of low-wage workers, according to figures from the Bureau of Labor Statistics.”
“Mothers lose out on tens of thousands of dollars in lifetime earnings in what is known as the ‘motherhood penalty.’ Fathers don’t face decreased wages.”
“In two-thirds of the dozens of pregnancy discrimination cases filed between 2015 and 2019, courts sided with employers, stating that they didn’t need to provide pregnant women with accommodations like additional bathroom breaks or a stool to sit on ...” READ MORE
THE 21 HATS CONVERSATION
When Buying an Unsexy Business Becomes Sexy: This week, we talk to two people who walked away from promising careers to buy blue collar businesses. Long before search funds and sweaty startups became all the rage, Bob Schwartz left a Wall Street investment banking career to buy a chain of laundromats, SuperSuds, which operates in Delaware, Maryland, Pennsylvania, and Virginia. More recently, Mills Snell left a prominent private equity firm to buy a roofing contractor, Aqua Seal Manufacturing and Roofing, which is based in Columbia, South Carolina. In this conversation, Schwartz and Snell talk about what they were thinking, what they learned about buying a business, what they’ve learned about operating a business, and whether they’re looking for an exit.
You can listen through the 21 Hats Podcast feed.
Or you can read the transcript and WATCH THE VIDEO.
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