Inside the Sale of a Business
This week, on the 21 Hats Podcast, we relive the moment when Karen Clark Cole, after an especially difficult stretch, managed to sell her business.
Good Morning!
Here are today’s highlights:
The biggest impact of the U.A.W.’s big win may be on workers who are not represented by the U.A.W.
In case anyone needs it, here’s another cautionary tale about depending on any one platform.
Direct-to-consumer startups are finding there can be value in collaborating with other DTC startups.
There are warning signs that the “airbnbust" has arrived.
THE 21 HATS PODCAST
Sometimes, Dreams Do Come True: If you’ve been listening to this podcast, you know we spend a lot of time talking about all of the things that can go wrong for a business owner. And yes, in part because we started recording these conversations just a couple of months before the pandemic hit, we’ve had plenty to talk about. Even this year, with the worst of the pandemic behind us, we’ve been talking about everything from excess inventory to lost clients to layoffs to ineffective marketing to surviving the valley of death. So, with that in mind, this week, I’ve chosen to replay an episode both because it offers an inspirational message and because, well, we here at the home office need a little break. It’s the episode we recorded two years ago when Karen Clark Cole sold her business.
“Especially given that Karen had only recently been through a tough period that prompted her to take time away from the business, the conversation is a nice reminder that sometimes things do come together. It’s also full of great advice for anyone who thinks they may want to sell their business one day.
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HUMAN RESOURCES
It’s pretty clear who won the U.A.W. strike: “On Monday, General Motors and the United Automobile Workers reached a deal that mirrored agreements the union had reached in recent days with Ford Motor and Stellantis, the parent company of Ram, Jeep and Chrysler. The terms will be costly for the automakers as they undertake a switch to electric vehicles, while setting the stage for labor strife and demands for higher pay at non-union automakers like Tesla and Toyota. The tentative agreements, which still require ratification by union members, also appeared to be a win for President Biden, who had risked political capital by picketing with striking workers at a G.M. facility in Michigan last month.”
“‘The near-term impact of this strike will be relatively minor,’ said Karl Brauer, executive analyst at iSeeCars.com, an online auto sales site. But Mr. Brauer warned that, in the long term, Ford, G.M. and Stellantis would have to raise car prices to maintain their profits. Their competitors will follow suit to take advantage of the opportunity to earn more money, he said.”
“Potentially the most far-reaching effect of the strike could be on manufacturing workers not represented by the U.A.W. The contracts the union negotiated are the latest in a series of prominent victories for organized labor, including Hollywood writers, UPS workers, and even some university employees.”
“[Shawn Fain, the U.A.W. president] has portrayed the tentative agreements as a signal for the union to begin organizing drives at Tesla, which dominates the fast-growing electric car business, and foreign-owned companies like Toyota, Honda, and BMW that have large nonunion operations in the United States. The union will ‘organize like we’ve never organized before,’ Mr. Fain said Sunday.” READ MORE
MARKETING
In case anyone needs it, here’s a reminder that you do not want to be dependent on any one platform: “From the day LittleThings launched as a spinoff of a pet food company [Joe] Speiser had co-founded, Facebook spread the company's videos far and wide, directing a fire hose of traffic to the startup's website. Soon, the site was bringing in more than 50 million unique visitors a month and over $50 million in annual revenue. It wasn't lost on Speiser that all this attention from the world's biggest social-media platform might be a curse. Facebook was, by then, well-known to be a capricious partner, prone to changing course and kneecapping even the most successful companies that relied on it. Speiser, a serial entrepreneur with two successful exits on his résumé, sometimes lost sleep wondering if LittleThings would be next.”
“During one on-air interview at Nasdaq headquarters, he encouraged entrepreneurs not to spread themselves too thinly across major platforms, but to ‘go all-in’ on one. ‘That's what we did with Facebook,’ he said. ‘It's like a marriage -- you're gonna have good days. You're gonna have bad days.’”
“LittleThings' utter dependence on Facebook did nag at Speiser. But his advisers reminded him that phenomenal growth even on a single platform was a wildly good problem to have. ‘It's very, very difficult to grow in five different ways at a time,’ says [Jeremy Liew at Lightspeed Venture Partners], who became a LittleThings board member. ‘One of them has to be the best way. So, you put all your time and effort and talent into that best way.’”
“Less than a year later, there had been too many bad days. In early 2018, organic traffic to the LittleThings website had tanked in the aftermath of a major Facebook algorithm change -- and despite Speiser's best efforts, it showed no signs of returning. By late February, it was clear to Speiser that the marriage was crumbling.” READ MORE
ECOMMERCE
Direct-to-consumer brands are trying collaboration: “Over the past few years, ecommerce brands have started to collaborate in order to save on customer acquisition costs and cross-promote to each other’s audiences. These collaborations can entail everything from giveaways to co-branded products. But with the holiday season fast approaching, more startups see an opportunity to drive up AOV by launching curated marketplaces on their own websites, that sell not online their products, but products from other brands that they think would be ideal for gift-giving. The idea is that by tapping these brands’ existing audiences, companies with marketplaces can attract more visitors to websites. With the holiday season already underway for some proactive shoppers, these companies say early figures show customers are gravitating toward bundles on these marketplaces – resulting in larger traffic and cart sizes.”
“At the end of September, Piecework Puzzles rolled out a curated marketplace of 150 products from other brands that the company purchased at wholesale cost. Piecework Puzzles opted to buy the products on a wholesale basis in order to offer more streamlined fulfillment so that customers can receive products from all the different brands in one Piecework order.”
“Meanwhile, baby monitor brand Nanit is doubling down on a multi-brand marketplace that it launched at the beginning of this year. Brands like baby skincare company EllaOla and DTC diaper startup Coterie are some of the popular brands in Nanit’s marketplace.”
“Marketplace sales have grown 108 percent compared to last year, when the company began to pilot test it. ‘And we expect the biggest lift still yet to come in Q4,’ said Quynh Dang, Nanit’s VP of brand, and confirmed the third-party brands marketplace is now a permanent feature on the site.” READ MORE
THE PET INDUSTRY
And what will your dog be going as this year? “This Halloween, American shoppers are expected to spend $700 million on pet costumes, according to the National Retail Federation. Altogether, Halloween spending in the U.S. will likely top $12 billion, a new record. A National Retail Federation survey estimated that an average shopper would spend $108 on candy, costumes and decorations. The survey found top pet outfit choices are pumpkin, hot dog, bat, bumblebee, and spider.”
“Before the Covid-19 pandemic, Halloween spending was actually on a decline in the United States. But the lockdowns got more people into decking out homes for the holidays, and we haven't stopped.” READ MORE
OPPORTUNITIES
The Biden administration has offered office-to-residence conversion guidance that could unlock billions: “The White House on Oct. 27 unveiled the series of measures aimed at making it easier for building owners to convert their properties, with a special emphasis on projects that reduce a building's carbon emissions. Some of those guidelines could give developers the ability to leverage billions of federal dollars to make conversion projects a reality in downtowns, rural main streets, and other areas across the nation.”
“The federal government also is releasing a guidebook with information on how 20-plus federal programs can be used to support conversions. The White House says it plans to host workshops this fall for local and state governments, real estate developers, owners, builders, and lenders on how to use federal programs for commercial-to-residential conversions.”
“But converting office buildings into other uses, such as residential units, is a tricky, expensive and complicated endeavor. A working paper by the National Bureau of Economic Research estimates about 15 percent of office buildings in commercial districts of the 105 largest U.S. cities are physically suitable for conversions.” READ MORE
REAL ESTATE
Has the “airbnbust” arrived? “The enthusiasm for short-term rentals — on full display on TikTok and other social media in recent years — tapped into the growing popularity of platforms like Airbnb and Expedia Group’s Vrbo that allow investors to more easily compete with hotels in offering accommodations. Such marketplaces for short-term rentals is a relatively new phenomenon, so their impact on the next housing market downturn is a big unknown. ‘Over the last three years in the world of real estate investing, short-term rentals have been sort of a gold rush,’ Tony Robinson, co-host of the Real Estate Rookie podcast, told NerdWallet last month. ‘I think a lot of people who jumped in looking to make a quick buck will back out.’”
“Owners of short-term rentals may be already looking for the exits. ‘In Boise, we’ve already seen some of that turnaround,’ said Lisa Kohl, a real estate agent with We Know Boise Real Estate, an affiliate of Keller Williams. ‘We’ve already seen some of that inventory start to hit and frankly, it’s been welcomed. It usually gets absorbed when you’re sitting at about two months of inventory.’”
“Airbnb CEO Brian Chesky this month urged Airbnb hosts to lower their prices. ‘We want prices to move and to be more competitive vis-å-vis hotels — that is really important,’ Chesky recently told Business Insider, which cited fears of an airbnbust plaguing the company since last year, with hosts complaining of a bookings slowdown, increased competition for guests and falling revenue.” READ MORE
FINANCE
Banks have pretty much stopped making commercial real estate loans: “Commercial real-estate lending is shrinking to historically low levels, threatening a rise in defaults on expiring debt and a sharp decline in new construction of warehouses, apartments, and other property types. Banks, insurance companies and other commercial property lenders have been cutting back since the first half of 2022 when the Federal Reserve began increasing interest rates and recession concerns intensified. But creditors have been even more reluctant to make new loans as Treasury bond yields have soared since early August.”
“The biggest victims have been office owners that had to refinance expiring loans at much higher rates. But the dearth of financing is also infecting other commercial borrowers like those for apartment buildings and warehouses, which have been favored by investors for years.”
“The decline in construction loans has been particularly severe. Dodge Construction Network, a data and analytics firm, is forecasting that commercial-property construction starts will fall to 935 million square feet this year, a 17 percent decline from last year. That would be the largest annual decline since 2009, Dodge said.” READ MORE
REGULATION
Joe Biden issued an executive order creating A.I. safeguards: “The order is an effort by the president to demonstrate that the United States, considered the leading power in fast-moving artificial intelligence technology, will also take the lead in its regulation. Already, Europe is moving ahead with rules of its own, and Vice President Kamala Harris is traveling to Britain this week to represent the United States at an international conference organized by that country’s prime minister, Rishi Sunak.”
“But the order issued by Mr. Biden, the result of more than a year of work by several government departments, is limited in its scope. While Mr. Biden has broad powers to regulate how the federal government uses artificial intelligence, he is less able to reach into the private sector. Though he said that his order ‘represents bold action,’ he acknowledged that ‘we still need Congress to act.’”
“While businesses often chafe at new federal regulation, executives at companies like Microsoft, Google, OpenAI and Meta have all said that they fully expect the United States to regulate the technology — and some executives, surprisingly, have seemed a bit relieved.”
“Companies say they are worried about corporate liability if the more powerful systems they use are abused. And they are hoping that putting a government imprimatur on some of their A.I.-based products may alleviate concerns among consumers.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
It’ll Change Everything: This week, Shawn Busse explains why he’s long been skeptical of big data, especially the data many businesses collect from their customers. What’s the alternative? Shawn suggests doing something radical and having actual conversations with customers, especially your best customers. Shawn also talks about why it seems so many businesses are struggling even as the economy is surging, at least according to the latest GDP figures. Plus: What exactly is wrong with the titans of Silicon Valley?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren