Is Now the Time to Start a Business?

Today’s Highlights: Cheaper rents may fuel the recovery. Retailers and landlords disagree on what constitutes a sale. And can Google be the anti-Amazon?

MARKETING

Google is trying, but struggling, to attract independent sellers by being the anti-Amazon: “Christina Stang, 33, opened Fritzy’s Roller Skate Shop near Pacific Beach in San Diego last March. Shelter-in-place orders forced her to set up an online storefront on Shopify. She got lucky. She was sitting on a huge supply of skates when demand surged as skating videos became popular on TikTok during the pandemic. She linked her Shopify account to Google’s retail software and started buying so-called smart shopping ads. Working within an allotted budget, Google’s algorithms pick where to place ads and what products to feature. In 2020, she spent $1,800 on the ads, which were viewed 3.6 million times and led to $247,000 in sales, she said.”

• “She considered selling her products on Amazon’s marketplace, but she worried what Amazon’s fees would mean for her already-thin profit margins.”

• “She also liked that Google redirected people to her carefully curated website rather than keeping them inside its own store, as Amazon does.”

• “Recently however ... her shop has been unable to list any products since January because Google suspended her account. It said her shipping costs appeared more expensive on Google than on her Shopify-powered website, even though they were no different.”

• “Shopify told her that it was a Google issue. Google’s customer service representatives recommended that she hire a web designer.”

• “This has completely cut me off at the knees,’ she said. ‘I’m a small business, and I don’t have hundreds or thousands of dollars to resolve this.’” READ MORE

Advertisers are spending more on podcasts: “The research, based on interviews with 205 advertisers last October, shows 56 percent agree the pandemic has made podcast advertising more important, and 63 percent listen to podcasts themselves at least once a week. The interest in the medium is largely due to familiarity, brand safety and target audience potential, said Sarah Bolton, EVP of business intelligence at Advertiser Perceptions ...

• “Yet while advertisers are comfortable with podcasts, according to the report, metrics are an area of concern, as podcast advertising does not deliver as much campaign measurement and reporting.”

• “The latter issue is expected to be exacerbated by the phasing out of third-party cookies and identifiers for advertisers through Apple’s iOS14.”  READ MORE

COMMERCIAL REAL ESTATE

Retailers and landlords are clashing over what constitutes a sale and how to calculate the rent: “Landlords are increasingly offering deals in which retailers pay a percentage of their monthly sales in rent, rather than a fixed amount. Percentage-rent leases give retailers breathing room when sales decline and allow landlords to reap the upside when sales recover. But there is a sticking point. With e-commerce soaring, some landlords want to include a portion of online sales in the new leases, arguing that physical stores play an important role in many of these transactions. Retailers are pushing back, according to landlords, real-estate brokers and retail executives.”

• “If an order is placed online, but picked up at a store, should that count as an e-commerce sale or a store sale?”

• “Or if an item bought online is returned to a store? If online sales increase after a store opens, are landlords entitled to a portion of e-commerce sales within that store’s ZIP Code?”

• “There are no commonly accepted formulas, making these types of leases tricky to negotiate, according to the industry executives.” READ MORE

Covid devastated Manhattan, but cheaper rents could fuel the recovery: “Yamoni Bari, a product manager in New York City, lost his job at a financial tech company near the beginning of the pandemic. So with his wife and brother, he decided to try his hand at starting a business. The three of them set out to launch a food-delivery service, a booming industry at a time when restaurants were closed. They looked at sites around Queens and Brooklyn. To their amazement, the best deals were to be found across the river, in Manhattan. They spotted a location in the trendy Lower East Side neighborhood, where a ramen place operated before it closed early in the Covid-19 pandemic. The rent was so low that the Baris decided they could afford to run a sit-down restaurant rather than just delivery. They opened Meat & Bread in January, serving American fare influenced by New York’s diverse cuisines.”

• “They still can’t believe the deal they struck with their landlord: a five-year lease with a monthly rent of $5,500. That was barely half what the previous tenant paid, and four months were free.”

• “Many new retail leases include annual increases that will bring rents close to 2019 levels after a couple of years, brokers say. “

• “Some landlords are signing short-term leases or keeping space off the market, betting that they can find new tenants at higher rents after the economy recovers.” READ MORE

STARTUPS

Scott Galloway says now is the time to start a business: “I’ve started nine businesses. The best predictive signal for their success has turned out to be the phase of the economic cycle in which they were started. Put simply, the best time to start a business is on the heels of a recession. And while pandemic economics haven’t resulted in a garden-variety recession — in either its duration (short) or its recovery (K-shaped) — there are factors that make this the best time to start a business in over a decade:”

• “Unprecedented stimulus and savings resulting in a Nazaré-like wave of consumer spending.”

• “A gestalt among consumers and enterprises to question the status quo, and be open to new products and services.”

• “The emergence of new fields and the capital to disrupt traditional industries as immunities kick in and monopoles are broken up.” READ MORE

Pilot wants to supplant QuickBooks as the go-to accounting software for startups and small businesses: “Pilot’s pitch is about more than just software. The company combines its software with accountants to do things such as provide ‘CFO Services’ to SMBs without a full-stack finance team. It also provides monthly variance analysis for all its bookkeeping customers, essentially serving as a controller for those companies, so they can make better budgeting and spending decisions. It also helps companies access small business tax credits they may not have otherwise known about.”

• “Last year, Pilot completed more than $3 billion in bookkeeping transactions for its customers, which range from pre-revenue startups to larger companies with more than $30M of revenue a year.”

• “Customers include Bolt, r2c and Pathrise, among others.” READ MORE

REOPENING

In Houston, neighboring restaurants respond differently to the relaxation of restrictions: “When [Gov.] Abbott lifted pandemic restrictions on businesses March 10, he said Texans knew the ‘right thing to do’ and urged continued mask-wearing but left to shop owners and restaurateurs the decision of how or whether to continue to take COVID-19 precautions. While D’Amico’s continues to limit seating and require face coverings in its dining room, Roma has opened at full capacity and is saying arrivederci to mask mandates. Although their decisions are different, their reasons are the same: the owners of both restaurants justify their choices as in the best interests of their employees after an emotionally and economically taxing year.”

• “‘I’m not the mask police,” [Roma ower Shanon] Scott said. “I’m in the food business, the hospitality business; I’m not here to have people arrested.”

• “‘We knew we were going to upset some, but we felt like we were going to upset more people by removing the mask mandate,’ [Brina] D’Amico said. ‘And ultimately, we wanted to make sure that we kept everybody safe.’”

• “D’Amico’s has begun hitting numbers it hasn’t seen since before COVID. And Scott said Roma is getting closer to its pre-COVID numbers as well, now serving about 75 percent of the total diners it used to see on the weekends.” READ MORE

HUMAN RESOURCES

The hot new job title in tech? Head of remote work: “That person spearheads keeping remote workers engaged, encouraging them to collaborate, while designing perks and flexibility tailored to their needs. Another goal: replicate the spontaneous connections that happen at in-person offices — in other words, create a virtual water cooler. ‘Having someone in this role is critical,’ said Darren Murph, who pioneered being head of remote in 2019 at GitLab, an all-remote software company. He wrote a guide on what it entails and has had companies flocking to ask him about it. He describes his job like this: ‘I work at the intersection of culture, operations, people, talent branding, marketing and communication.’”

• “Behaviors and etiquette might change. Even when Twitter reopens its office (it hasn’t given a timetable for that), meetings might still occur by videoconferencing to create a level playing field.”

• “‘Words matter, so we will think of how to refer to folks not in an office. Calling them ‘remote’ doesn’t play into that feeling of equality.’”

• “Meanwhile, Hawkins and her 100-person team implemented a bevy of ways to help folks working from home, including special training for managers, tips on self-care and ergonomics, wellness benefits such as remote yoga and meditation classes, counseling and coaching, and day care reimbursements.”

• “Okta uses a Slack add-on called Donut to foster serendipitous meetups between co-workers. The Donut feature selects teammates and encourages them to get together.”

• “An online ‘work from home store’ lets employees order technology and furniture for their home offices.” READ MORE

LOGISTICS

On Saturday, we asked 21 Hats subscribers how their businesses are doing and got several interesting responses—including this one, from Eve Schefer of David Schefer Design, offering further proof that business owners have to be ready for anything: "Thanks for asking! So far so good for our small design company. Our biggest win this quarter is the amount of proposals we are writing. We expect some will turn into new work shortly. The challenges right now have really been centered around work practices, and what we can and can not do as some COVID restrictions lift. Oh, and we are also trying to figure out how many pieces of our client's furniture are stuck on the Suez Canal : )" JOIN THE CONVERSATION

FRANCHISING

A Culver’s burger franchise costs at least $2.4 million to open and produces, on average, $2.5 million in revenue: “The upfront costs of opening a Culver's location are at the higher-end of what's normal for quick-service restaurants, but its time-tested model and consistent performance could make it an attractive franchising opportunity for entrepreneurs seeking an alternative to more prominent national brands. The total initial investment ranges from $2.4 million to $5.4 million, which includes a franchise fee of $55,000. That's roughly double what it costs to open a McDonald's, which comes in at $1.3 million to $2.3 million, with a $45,000 franchise fee.”

• “One reason the cost is so much higher is Culver's typically requires locations to be single-purpose buildings with drive-thru services and capacity for 88 to 120 guests.”

• “That rules out other real estate options that would otherwise lead to considerably lower startup costs, since property-related expenses make up about 90 percent of the investment.”

• “On the other hand, this approach means Culver's franchisees actually own their land and buildings and don't have to pay rent back to the franchisor, as is the case with operators with brands including Chick-fil-A and McDonald's.” READ MORE

STARTUPS

Black-owned distilleries are confronting barriers in the Kentucky bourbon industry: “Brough Brothers Distillery — and another Black-owned bourbon brand, Fresh Bourbon, that is planning a distillery in Lexington — are challenging a history of enslavement and exclusion surrounding the most quintessentially American spirit in its Kentucky birthplace. Their entry comes at a time when the American distilling world is under increasing pressure to diversify and to acknowledge the role of enslaved people in developing the industry. While the number of craft distillers in the country jumped from fewer than 200 in 2010 to more than 2,200 in 2020, there are still ‘only a handful’ owned by African Americans, said Margie Lehrman, chief executive officer of the American Craft Spirits Association.”

• “After emancipation, bourbon brands regularly used racist tropes in advertising. Rebel Yell, named after the battle cry of Confederate soldiers, rebranded quietly only last year simply as Rebel.”

• “Its bottles featured Confederate imagery until almost a decade ago and previously referenced the Confederacy’s ‘great victory at Chickamauga’ in the Civil War.”

• “For now, the 2,200-square-foot Brough Brothers distillery — which is located on a road still called Dixie Highway — is a modest endeavor. Plastic drums holding bubbling yellow fermenting mash are tucked behind a tarp, with a space heater on the floor helping keep their temperature high.” READ MORE

THE 21 HATS PODCAST

Episode 54: Should Small Businesses Have Boards? This week, Stephanie Stuckey tells Paul Downs and Jay Goltz about seeking the guidance and perspective that a board of advisers could bring to Stuckey’s. But does a business have to be a certain size to warrant having a board? How do you recruit board members? How should they be compensated? And is a peer group, like Vistage, a better alternative? Plus: Uncovering a $140,000 cyber crime. Coping with the nightmare of shipping furniture. And Jay tells us why, if you listen to either just the artists or just the accountants in your business, you’re likely to go broke.

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