I’m Not a Real CEO
This week in our latest podcast, three founder/CEOs talk about the different skill sets required to be a founder or a CEO and whether someone else might do a better job as CEO.
Here are today’s highlights:
Have the ecommerce giants killed off enough of their brick-and-mortar competitors that they can stop giving away free returns?
One thing you should know about the employee retention tax credit: The IRS is watching.
Jason Fried says this is the key question to ask about an employee after a year: Would you hire this person again?
Is the Metaverse already dead?
THE 21 HATS PODCAST
I’m Not a Real CEO: This week, Jay Goltz, Liz Picarazzi, and Sarah Segal talk about the inherent conflicts between being an entrepreneur and being a CEO—and the different skill sets each role requires. Does it make sense for the same person to do both jobs? Is being CEO even a full-time job? And when does it make sense to replace yourself as CEO? Liz says she’s thought about it. Jay, not so much: “Could I have found somebody 10, 15, 20 years ago that was a better manager? Sure. But it just wasn't worth it.” Why not? “It's gonna cost you $250,000 a year,” Jay says. “Is it worth paying that?” Plus: Liz and Sarah talk about positioning a company to be acquired. And Sarah proposes a PR campaign for Liz’s package bins right on the spot.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Businesses that take the Employee Retention Tax Credit may be exposing themselves to a greater risk of an audit: “The documents show the IRS will be looking closely at business owners to ensure the credit was priorly applied for and suggest businesses that made errors or can’t fully document the justification for the credit could open themselves up to wider scrutiny, according to experts who reviewed the documents. Justin Elanjian, a partner at accounting firm Aprio LLP who has worked extensively on the ERC, said while the examination of the ERC itself might be a limited scope audit, the training materials do not state that any examination of the income tax returns would be limited in scope — potentially opening up businesses to much wider examinations.”
“While business owners are supposed to go back and amend their returns to adjust payroll taxes to claim the credit, businesses that decided to simply amend later years could end up running afoul of the IRS, he said.”
“‘If they examine the credit and say that you didn’t do it in 2020 or 2021, you may open your client or business to an income tax exam — and who knows where that goes,’ Elanjian said. ‘It suggests they are going to look beyond the wage deduction.’”
“While business owners have time to claim the credit, an audit or examination might not end up being complete until after the statute of limitations on claiming the credit or correcting the returns ends — which means business owners found ineligible are exposed with returns that cannot be changed, Elanjian said.”
“Those businesses that qualify for the credit end up getting, on average, $74,000 from the ERC, according to data from Lendio. Businesses with 25 or more qualified employees average about $302,000. Ultimately, business owners end up, on average, getting about $7,000 per employee.” READ MORE
Are free returns becoming a thing of the past? “Quietly, and largely unnoticed by many buyers, the returns landscape is shifting. All kinds of retailers have begun to tweak their policies: Kohl’s, the suburban mecca of affordably priced clothes and housewares, now charges for return shipping, as does REI, the yuppie mecca of camping and hiking gear. Neiman Marcus won’t charge you for shipping as long as the product is back in their hands within 15 days of when you received it, but after that, you’re out $10. Even Amazon has made some tiny adjustments in its famously returns-friendly policies, charging customers $1 for dropping off packages at a UPS store if they forgo drop-off at a Whole Foods or Amazon Fresh location closer to them.”
“In a 2022 analysis of 200 retailers’ return policies, the post-purchase-logistics company Narvar found that 41 percent charge some kind of return-shipping fee—up from 33 percent in 2021. Amit Sharma, Narvar’s CEO, told me that that number is still rising; now it’s more like 44 percent.”
“Most kinds of brick-and-mortar stores have a return rate in the single digits, but for online purchases, the average is from 15 to 30 percent; for goods where the physical, tactile experience really matters, as much as half of sales might come back.”
“Some retailers, including the footwear discounter DSW, promise free returns in exchange for joining a loyalty program, which pays off by collecting valuable data about consumers’ habits and targeting them for future promotions.”
“Many retailers now encourage people to return things to their own stores to avoid shipping fees, or to third-party retailers that serve as drop-off locations for returns-aggregation services such as HappyReturns, which don’t require buyers to repackage anything or print their own label.” READ MORE
Shoppers are growing increasingly annoyed by “tip creep”: “Prompts to leave 20 percent at self-checkout machines at airports, stadiums, cookie shops and cafes across the country are rankling consumers already inundated by the proliferation of tip screens. Business owners say the automated cues can significantly increase gratuities and boost staff pay. But the unmanned prompts are leading more customers to question what, exactly, the tips are for. ‘They’re cutting labor costs by doing self-checkout. So what’s the point of asking for a tip? And where is it going?’ says Ishita Jamar, a senior at American University in Washington, D.C., who has noticed more self-serve tip cues at restaurants she frequents.”
“Businesses ‘are taking advantage of an opportunity,’ says William Michael Lynn, who studies consumer behavior and tip culture as a professor at Cornell University’s Nolan School of Hotel Administration. ‘Who wouldn’t want to get extra money at very little cost if you could?’”
“Square, whose technology powers many iPad point-of-sale machines, says tipped transactions were up 17 percent year-over-year at full-service restaurants and 16 percent at quick-service restaurants in the fourth quarter of 2022.” READ MORE
Jason Fried believes in hiring every employee twice: “Hiring is typically thought of as something you do once per person. Once someone’s hired, training, growing, and retaining are the next things you do. You may keep training someone, you may keep growing someone, you may keep promoting someone, but you surely don’t keep hiring someone. It’s on that point I disagree. I’ve found that, actually, you hire someone at least twice. You hire someone initially, and then, if all goes well, you hire them again 12 months later. That second hire is the crucial hire, even though it wouldn’t be a stretch to say you continually hire someone throughout their career.”
“Rather than go through an extensive, artificial 12-month performance analysis process to statistically determine how someone’s doing at the end of that crucial first year, we blow all that abstract blurriness away with one simple clarifying question. The manager simply asks themselves: ‘With a full year behind me, knowing what I know now, would I hire this person again?’”
“With a single insight you’ve answered a dozen questions and eliminated a dozen more. Plus it annihilates all sorts of procedural acrobatics companies typically use to measure someone’s performance. Instead the question is simple, and the answer is pure and true. Yes, I would hire them again. Or no, I would not. That is everything.”
“A year is enough time to know. And if you don’t know, the answer is almost certainly no.” READ MORE
Our periodic reminder: American businesses need more immigration: “The United States is already running low on critical positions such as nurses, home-health aides, farmworkers, and truckers. And there are fewer young people on the way to make up the difference: The National Bureau of Economic Research found that birth rates in the U.S. have declined by nearly 20 percent since 2007, while the fertility rate has been below the replacement level for decades. That means that unless people start having a lot more kids, the U.S. population could eventually start to shrink — just like China's population has. The problem, though, isn't just a smaller population, but an aging one. With fewer people to pay into Social Security to support the growing number of retirees and fewer workers in critical industries, including healthcare and agriculture, a declining population would have devastating consequences for the American economy.”
“The labor imbalance is already here, and the economy needs more workers now. That's why a growing number of demographers, economists, and business executives support letting more immigrants into the U.S. as a more immediate way to fill in the gaps.”
“And while immigration is a politically touchy solution, the quickly aging U.S. economy is running out of options to keep itself afloat.”
“Immigrants are 80 percent more likely to start a business than people born in the U.S., and recent data shows that they've started more than 25 percent of businesses in seven of the eight fastest-growing sectors of the U.S. economy.”
“Because of that, research has found that immigrants actually create more jobs than they take. Plus, across the U.S., several key industries — including agriculture, meatpacking, manufacturing, and healthcare — depend on immigrant labor.” READ MORE
Firstbancorp says it’s getting harder to make small-business loans: “The bank performs a significant amount of small-business lending through both regular commercial loans and various SBA programs. And while it’s still in the market to offer those services, credit requirements have tightened. Currie told CBJ the credit quality of small businesses it will assist must be exceptional. ‘I think what we're focused on is higher-quality businesses, higher-quality credit, and the overall full relationship of that small business,’ he said. ‘It is getting tougher to lend money, and it's getting tougher to borrow money. And I think that will continue to be the case throughout the second half of this year.’ Currie said he’s seen resilience in small businesses, but rising interest rates have cut back demand for capital to finance growth.”
“‘This is not a matter of a bunch of small businesses coming in and wanting loans and not getting them,’ he said. ‘I think it's more just that everybody's pulling back, particularly since the two bank failures. It seems to have really rattled the markets. It just seems like overall demand is down.’” READ MORE
The backlash against the $3 trillion clean-energy push is building: “County-by-county battles are raging as wind and solar projects balloon in size, edge closer to cities and encounter mounting pushback in communities from Niagara Falls to the Great Plains and beyond. Projects have slowed. Even in states with a long history of building renewables, developers don’t know if they can get local permits or how long it might take.”
“Potential private investment over the next decade spurred by federal tax incentives and loans could include $900 billion in renewable-energy projects and $100 billion in battery storage, according to Goldman Sachs. Adding investments in such areas as carbon capture and electric vehicles, total spending could reach $3 trillion, the firm estimates.”
“The U.S., though, is a patchwork of state and local governments with different rules on development, and opposition to projects has mounted for myriad reasons. Increasingly, many communities are concerned that the rapidly expanding size of wind and solar farms will irreparably alter the complexion of where they live.”
“In Kansas, wind power grew rapidly for two decades and supplies around 45 percent of the electricity generated in-state, ranking it third in the nation. But at least five counties in more-populous eastern Kansas have recently placed moratoriums or bans on new wind or solar projects, joining 18 others that already restricted wind development to preserve the tallgrass prairie ecosystem.” READ MORE
COMMERCIAL REAL ESTATE
For many businesses in New York City, the rent really is too damn high: “Three years after the pandemic flattened the Manhattan office market and the commercial ecosystem that depended on it, small businesses in the other boroughs are facing the biggest rent increases in the city, as storefront rents in Manhattan are falling. The burden is landing mostly on store owners in predominantly Black, Latino, and Asian neighborhoods, according to a new analysis of Department of Finance data. Now, the owners of many of those small businesses, many of whom did not qualify for pandemic-era public loans and grants, worry that sharp rent increases and a lack of protections for commercial tenants could shut down their stores, just as the economy is gaining momentum. These businesses helped fuel the city’s recovery while the rest of the economy faltered, and many store owners say they fear they will be left out of the resurgence.”
“At risk, they say, is the soul of the city: the minority- and immigrant-owned businesses that create a path to the middle class and provide hard-to-find goods and services in ethnic enclaves.”
“From 2019 to 2021, the latest year for which data was available, the median storefront rent per square foot jumped 23 percent in Brooklyn, 14 percent in the Bronx, and 9 percent in Queens; rent was flat on Staten Island and down 11 percent in Manhattan ...”
“‘The pandemic really unleashed this wave of entrepreneurship,’ Mr. Bowles said, in part because so many workers in industries like retail and hospitality lost their jobs and saw an opportunity to be their own bosses. ‘But it’s far from a given that most of these new businesses will be able to survive and grow.’” READ MORE
Less than three years old, the Metaverse may already be dead: “The capital-M Metaverse, a descendant of the 1982 movie ‘Tron’ and the 2003 video game ‘Second Life,’ was born in 2021 when Facebook founder Mark Zuckerberg changed the name of his trillion-dollar company to Meta. After a much-heralded debut, the Metaverse became the obsession of the tech world and a quick hack to win over Wall Street investors. The hype could not save the Metaverse, however, and a lack of coherent vision for the product ultimately led to its decline. Once the tech industry turned to a new, more promising trend — generative AI — the fate of the Metaverse was sealed. The Metaverse is now headed to the tech industry's graveyard of failed ideas. But the short life and ignominious death of the Metaverse offers a glaring indictment of the tech industry that birthed it.”
“From the moment of its delivery, Zuckerberg claimed that the Metaverse would be the future of the internet. The glitzy, spurious, promotional video that accompanied Zuckerberg's name-change announcement described a future where we'd be able to interact seamlessly in virtual worlds: Users would ‘make eye contact’ and ‘feel like you're right in the room together.’”
“A functional business proposition requires a few things to thrive and grow: a clear use case, a target audience, and the willingness of customers to adopt the product. Zuckerberg waxed poetic about the Metaverse as ‘a vision that spans many companies’ and ‘the successor to the mobile internet,’ but he failed to articulate the basic business problems that the Metaverse would address.”
“The consulting firm Gartner claimed that 25 percent of people would spend at least one hour a day in the Metaverse by 2026. The Wall Street Journal said the Metaverse would change the way we work forever. The global consulting firm McKinsey predicted that the Metaverse could generate up to ‘$5 trillion in value,’ adding that around 95 percent of business leaders expected the Metaverse to ‘positively impact their industry’ within five to 10 years.”
“I do not believe that Mark Zuckerberg ever had any real interest in ‘the Metaverse,’ because he never seemed to define it beyond a slightly tweaked Facebook with avatars and cumbersome hardware. It was the means to an increased share price, rather than any real vision for the future of human interaction.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Solving Monopolies, Immigration, Tipped Wages, and the Debt Ceiling: This week, John Arensmeyer, CEO of the Small Business Majority advocacy group, talks about some of the most intractable problems confronting business owners. And John offers some reason for hope -- mostly, he says, because there’s a growing, bipartisan effort to level the playing field for smaller businesses. The debt ceiling, of course, is another matter.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren