Discover more from The 21 Hats Morning Report
Indeed’s Surprise Bills
The employment platform changed the way it charges and the results are infuriating a lot of businesses.
Here are today’s highlights:
Business owners are incorporating more of their personal challenges into their marketing.
A new book argues that private equity is gutting America.
How many doughnut shops can Los Angeles support?
Would you pay $21 for a bread basket?
Today’s Dashboard podcast with Gene Marks will be published just a tad later than usual today. In the meantime, if you can’t wait to hear my voice, check out this Small Business Edge podcast, in which host Brian Moran turns the tables on me and asks what I’m trying to do with 21 Hats. Better yet, listen to some of Brian’s other podcast episodes. His standards are usually much higher. YOU CAN LISTEN HERE
THE 21 HATS PODCAST: DASHBOARD
Where’s the money? This week, Gene Marks takes Loren Feldman through a case study of how easy it is even for profitable businesses to get caught in a cash crunch. The problem, Gene explains, is that business owners often have to pay taxes on earnings that have yet to reach the owners. Where does the money go? To inventory, to capital expenditures, to accounts receivable among other places. How can owners avoid the crunch? Step one is to stay on top of your finances.
You can find the 21 Hats Podcast wherever you get podcasts.
Indeed changed the way it charges businesses, and the businesses are not happy: “Indeed.com began changing how it charged employers for connecting them with job seekers, pitching the shift as better for small businesses because they could choose which applications to review and pay only for the ones they liked. Instead it created confusion and unexpected costs for many business owners, and now the company is trying to minimize the fallout. Bonanno Concepts, a Denver-based restaurant group, said it cut spending on Indeed by roughly 90 percent, largely because of the new pricing strategy. One pain point: Indeed gives employers 72 hours to reject applications they don’t like—or incur a fee for each application. For some employers, those charges have added up to hundreds or thousands of dollars.”
“‘I don’t have someone who is checking that inbox seven days a week,’ said Jennifer Frye-Brunner, who leads the two-person human-resources team at Bonanno, which has nine restaurants and about 250 employees. A chef or general manager who posts a job Friday morning may not have time to review applications until the following Tuesday, she said. ‘It’s really terrible if you need one line cook and get 500 applicants overnight.’”
“Buckeye Innovation, a software engineering and design firm in New Albany, Ohio, said it was hit by more than $1,000 in credit-card charges when an employee missed the fine print explaining Indeed made pay-per-application the default option.”
“After customers complained, the company changed course, and next month it will begin a test of the new and old models side by side instead of making pay-per-application the default choice.” READ MORE
Business owners are choosing to share more of their personal stories, even the less flattering parts: “Company founders telling their personal back stories is not a new phenomenon. These stories are often straightforward, rosy accounts of a determined person who sets out to solve a problem. But a new generation of founders are distinguishing themselves with narratives that aren’t clean-cut, easily digestible stories of how their businesses came to be, experts say. They include tales of homelessness, addiction, incarceration, mental illness, and physical health. Many small-business owners say they are choosing to be transparent about a difficult period in their lives and, in turn, build deeper relationships with their consumers. But what happens when companies reveal some of the darkest moments of their founders’ lives? Will consumers relate or be turned off by too much information?”
“The ‘About Us’ section on a business website is used to set a company apart by explaining what it does better than competitors, said David Gaz, the founder of the Bureau of Small Projects, a branding agency that also creates websites for small businesses. The agency found that the ‘about’ page was the second-most-visited section on a business’s site, after the home page, Mr. Gaz said.”
“George Haymaker, the founder of ReThink Ice Cream, is one of these business owners. Mr. Haymaker, 62, described a period of drug addiction in his life as ‘circling down a toilet drain.’ Eating large amounts of ice cream played a significant role in Mr. Haymaker’s early sobriety, he said, and it helped him stay away from drugs and alcohol.”
“This experience is integral to his company’s identity: ‘ReThink Ice Cream was born out of my addiction to alcohol and pain pills,’ reads the first line of the ‘The Story’ section of the company’s website. He had gained more than 30 pounds when he first got sober, so he developed a healthier ice cream recipe with reduced sugar.”
“He said his message of recovery had especially resonated with colleges looking to address the mental health of students. He now sells ice cream at 30 colleges in California and one in Oregon, as well as in stores, and he has given talks on campuses about recovery and entrepreneurship.” READ MORE
Is private equity gutting America? “Companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t. Over the last decade, private equity firms were responsible for nearly 600,000 job losses in the retail sector alone. In nursing homes, where the firms have been particularly active, private equity ownership is responsible for an estimated — and astounding — 20,000 premature deaths over a 12-year period, according to a recent working paper from the National Bureau of Economic Research. Similar tales of woe abound in mobile homes, prison health care, emergency medicine, ambulances, apartment buildings and elsewhere. Yet private equity and its leaders continue to prosper, and executives of the top firms are billionaires many times over.”
“Consider the case of the Carlyle Group and the nursing home chain HCR ManorCare. In 2007, Carlyle — a private equity firm now with $373 billion in assets under management — bought HCR ManorCare for a little over $6 billion, most of which was borrowed money that ManorCare, not Carlyle, would have to pay back.”
“As the new owner, Carlyle sold nearly all of ManorCare’s real estate and quickly recovered its initial investment. This meant, however, that ManorCare was forced to pay nearly half a billion dollars a year in rent to occupy buildings it once owned. Carlyle also extracted over $80 million in transaction and advisory fees from the company it had just bought, draining ManorCare of money.”
“In 2018, ManorCare filed for bankruptcy, with over $7 billion in debt. But that was, in a sense, immaterial to Carlyle, which had already recovered the money it invested and made millions more in fees.” READ MORE
Los Angeles has been saturated with doughnut shops for decades, but new shops keep opening: “Southern California is rich in small, local chains and independent shops, including many owned by first- and second-generation Cambodian immigrants, like the 24-hour California Donuts, which fries custom, bubbly-letter-shaped doughnuts that can spell a phrase — a consistently delightful item to bring to a party, depending on the message you choose. The 2020 documentary ‘The Donut King,’ by the filmmaker Alice Gu, told the story of Southern California’s distinctive doughnut industry through Ted Ngoy, a Cambodian refugee who arrived here in 1975 and went on to build an empire — becoming a multimillionaire in the process.”
“Mr. Ngoy, who signed up for a training program through Winchell’s Donut House in 1975, bought his first shop just a year later. By 1980, he owned 20, and started sponsoring visas for Cambodian immigrants, creating a pipeline for them directly into the booming doughnut business of the 1980s and ’90s.”
“Despite the concentration of the market, new shops still find cult followings. The Hawaiian company Holey Grail Donuts sells taro doughnuts fried in coconut oil, and opened its first Los Angeles-area location in December, followed by a second one last month. Run by the siblings Nile and Hana Dreiling, who grew up eating potato doughnuts in Eugene, Ore., Holey Grail started in 2018 as a small truck in Hanalei, a town on Kauai.” READ MORE
Gene Marks is sharing a venture capital firm’s list of 50 hot software applications for businesses: “I have not tested or dug deep into most of these applications. But they do look interesting and some have been around for a while. Given their financial backing, I would likely be recommending that clients with needs that can be addressed by these tools give them a deeper look. I’m not sure how many of these are really suited to ‘small’ or even ‘mid-sized’ businesses. Some are really geared towards larger organizations with teams or specialized needs. Many of them list big brands as their customers which should tell you something. But that’s for you to decide.”
“Some of these companies are really, really niche and that always concerns me. Get plenty of referrals and investigate their cash situation. We all know about the financing troubles happening right now in the tech industry and you don’t want to wake up one morning to find a platform that you heavily rely on to have disappeared.”
“I’m always on the lookout for hot technologies that can help our clients be more productive and profitable. To that end, I want to share GGV’s list, which I’ve further summarized and categorized. So are any of these software applications worth considering for your company? It’s very possible.” READ MORE
John Arensmeyer, founder of the Small Business Majority advocacy organization, makes the business case against non-compete agreements: “As a former small business owner, I know firsthand that these agreements are unnecessary to protect proprietary assets. Before starting Small Business Majority, I founded and ran my business for 12 years in California. California is one of three states–the other two being Oklahoma and North Dakota–that prohibit the enforcement of non-compete agreements. It was exciting to be part of the new and growing interactive communications field and be free to hire whomever I wanted. I still have close ties to many small businesses in California, and their entrepreneurial spirit has never suffered from California’s ban on non-competes.”
“‘A market without competition is without growth, innovation, or economic moderators. A non-compete clause is a tool that, when enforced, can create stagnation. Not a great way to grow a vibrant economy,’ Colorado small business owner Tracy duCharme recently testified at a listening session with Federal Trade Commission Chair Lina Khan hosted by Small Business Majority.”
“The FTC comment period on the proposed rule to ban non-competes closed on Apr. 19. Before the comment period ended, more than 400 small businesses and small business organizations urged the FTC to enact this rule. We hope the FTC listens to the true voices of small business owners and removes restrictions that unfairly trap this community in a state of immobility.” READ MORE
A Boston entrepreneur is building “a Waze for accessibility”: “Great ideas sometimes come to people in the shower or while stuck in traffic. For Jake Haendel, lightning struck when he was accidentally locked in a bathroom stall at a nightclub near North Station. Haendel, 34, suffers from a rare neurological disorder, has trouble with fine motor control, and needs an electric scooter to get around. After being unable to grasp and unlock the stall door, he had to text his friends at their table in the restaurant next door, Guy Fieri’s Tequila Cocina, to come help.”
“One of his friends at the table that night was Justin Robinson, who learned quite a bit about app development when he co-founded liquor delivery service Drizly back in 2012. ‘We were asking why there’s no Waze for this,’ Robinson, 33, said. ‘This clearly was an experience that an app with user-generated data could solve, and no one had set out to solve it yet.’ At Drizly, which he left after selling to Uber for $1 billion in 2021, Robinson had worked on expanding the service and adding new software features.”
“Robinson started bouncing ideas off developers and designers he knew through Drizly. Scott Slagsvol, former design lead at IDEO, the famous global design firm, came on as a third cofounder. The trio recruited a couple more software engineers and bootstrapped the company with their own money, building an app in about nine months and launching it in early 2023.”
“Dubbed Ahoi, the app collects ratings and photos crowdsourced from users who file accessibility reports at the level of detail needed to guide people with a variety of physical disabilities. It also lets users input their own needs and returns personalized scores for the accessibility of venues.” READ MORE
Since the pandemic, Americans have become more appreciative of bread, and restaurants are taking notice: “At a certain tier of restaurants, the bread has been good for decades. But now it has emerged as a course of its own. ‘Our Breads,’ declares the menu at Marcus Samuelsson’s Hav & Mar, in the Chelsea neighborhood of Manhattan. At Le Fantastique, in San Francisco, the ‘Bread & Butter’ gets equal billing with the mains: $12 for a baguette with smoked-peppercorn-and-yuzu-kosho-infused butter. Hav & Mar’s basket with Ethiopian-influenced teff buttermilk biscuits and sweet blue cornbread is $19, Nura’s basket is $21 and both offerings come with an assortment of dips. ‘In the beginning, I was very worried about what the perceived value would be, because it isn’t cheap, obviously,’ said Sam Short, who runs the bread and pastry program at Nura. Customers would ask, ‘$21 for a bread basket?’ But, Ms. Short said, that’s always followed by, ‘It was totally worth it.’”
“During the lockdowns of 2020, amateur bakers obsessed over their hydration levels; Instagram became a slideshow of comparative boules. And while the mass passion (or mania) for home baking may have waned, our collective connoisseurship has not.”
“‘Yes, flour is cheap,’ said the chef and restaurateur Greg Baxtrom, whose Rockefeller Center restaurant, Five Acres, serves a laminated carrot curry milk bread accompanied by a copper ring of fresh pea butter for $14, ‘but labor is expensive.’” READ MORE
THE 21 HATS PODCAST
When CEOs Behave Badly: This week, our conversation starts with Shawn Busse and Jay Goltz trying to understand why CEOs keep going viral for their misguided attempts to rally the troops. Shawn suspects CEO screeds have always existed—they just haven’t been recorded. He also thinks they tend to come more from public company CEOs who are beholden to shareholders. Jay thinks they’re just morons. “I really don't understand how someone could be smart enough to run a big company like that,” he says, “and be so completely ignorant. It's shocking to me.” Of course, CEOs of both publicly owned companies and privately owned companies do have to do unpleasant things sometimes, but Shawn and Jay say they’ve learned from their own experiences handling layoffs and recessions. “Do we have to go out of our way to be callous about it?” Jay asks. “I don't think so.” Plus: the very different ways Shawn and Jay manage their hiring processes.
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Thanks for reading, everyone. — Loren