‘It Got Big. It Got Flabby. It Got Arrogant’
As a wave of lawsuits threatens to send real-estate agencies into bankruptcy, things keep getting worse for the National Association of Realtors.
Good Morning!
Here are today’s highlights:
Slack is rolling out a suite of AI tools.
Honeygrow, which grew too fast, is taking another crack at expansion.
Y Combinator, the startup accelerator, has announced what kinds of startups it’s looking for.
Worried about our economy? The U.K. is confronting both a recession and a tea shortage.
PROGRAMMING NOTE
On Monday, which is Presidents’ Day, the Dashboard podcast will be published as usual. The Morning Report, however, will enjoy a three-day weekend and return on Tuesday.
REAL ESTATE
A wave of lawsuits could change the way we buy homes—and also save buyers a lot of money: “The National Association of Realtors appeared to hit rock bottom in October when a Kansas City jury delivered a $1.8 billion verdict, finding that the industry kept home-sales fees artificially high. But the existential threat to the powerful trade group was about to get worse. Copycat lawsuits have been filed around the nation. Dozens of real-estate brokerages are now defendants. Federal regulators are scrutinizing the industry more closely than they have in years. Brokerage executives are pressuring NAR to settle the legal claims nationwide, worried that more large verdicts could push residential firms and local real-estate associations into bankruptcy.”
“The industry now appears headed for significant changes in how buyers’ agents are paid, a system that NAR has fought for decades to protect. One possibility is that sellers would no longer decide upfront how much buyers’ agents get paid, giving buyers more power to negotiate. More buyers might opt to buy homes without using agents at all.”
“Consumer advocates hope that changes to NAR’s rules would lower commissions, making home purchases a little more affordable. The typical commission—5 percent to 6 percent of the purchase price, split between the buyer’s and seller’s representatives—is one of the highest in the world.”
“NAR is ‘this massive hulking institution that lives on lots of teeny members’ payments. It’s like a whale that is sustained on krill, and this gave it a certain institutional durability,’ said Brian Boero, chief executive of 1000watt, a residential real-estate strategy consulting firm. ‘It got big, it got flabby, it got arrogant, and it got complacent.’” READ MORE
MANAGEMENT
In the video above, Lou Mosca talks about the difference between a sales plan and a real strategy: “Two weeks ago, I spoke about the 12 challenges every owner faces when running a business. Now, I want to delve into each challenge one at a time. The biggest misconception we see from owners is that they believe they have a strategy laid out for the year by having a sales plan. This couldn’t be further from the truth. In fact, a sales plan should be a component of an overall strategy. The very definition of ‘strategy’ is identifying long-term goals and the means to achieve them. For many, a strategy plan may include people, resources, timelines, sales, and equipment, but this could vary based on your organization. Are you looking to increase your sales by 50 percent this year? That’s great, but do you have the means and wherewithal to accomplish that?”
ARTIFICIAL INTELLIGENCE
Slack is rolling out AI tools: “Part digital office water cooler chat-substitute, part project meeting/planning tool, part direct-to-your-boss conversation tool, Slack is actually quite hard to define. Some argue it's even a distraction as much as a benefit. But a new suite of AI tools that Slack is now rolling out may fix some of that distraction by automatically summarizing chats for you. The key feature of the new Slack AI system, available to paying enterprise users of Slack, is that it can look at previous conversations in Slack and quickly summarize them for you, noting who said what and so on.”
“This also works in Slack ‘channels,’ which are more like group chats versus direct conversations. The immediate benefit of this will be obvious to anyone who's taken a week or so of vacation and returned to a seemingly endless scroll of discussions that happened while you were logged out and disconnected (As if.).”
“The AI can also answer questions about projects you've been working on too. Its summarizing system will include a sort of veracity check, where users can say if the summary was good or bad—feedback that can then be used to improve the AI model. According to tech website The Verge, Slack is also working on deeper integration into chat for its Einstein chatbot, allowing the bot to message your colleagues.”
“There's a third-party AI system that summarizes Slack chats so that management can get a sense of employee sentiment, and prepare to tackle any risks. But this capability is clearly controversial: It's analogous to having a snooping manager listening at the door of a project management meeting in a traditional office.” READ MORE
PROFILE
The founder of Honeygrow, a Philadelphia-based chain of restaurants, talks about the challenges of growth: “The concept for Honeygrow began in [Justin] Rosenberg’s home kitchen. In 2008, he turned to a plant-based diet after a doctor told him he needed to get healthy if he wanted to see his newborn daughter walk down the aisle one day. He made salads for lunch and cooked stir fries for dinner. ‘I realized that no one’s really doing this from a restaurant concept standpoint,’ he said. He was working as a financial analyst for PREIT, the real estate company behind many Philly-area malls, when he began pitching investors on his concept. He pitched 94 investors over two and a half years before he got one to commit. He recalls it as a ‘very humbling period of my life.’”
“In 2016, the company opened a location in Washington, D.C., and a test kitchen and headquarters in Fishtown. Then in 2017, the company moved into the Chicago market and brought a smaller-format ‘minigrow’ concept to New York. But in 2018, expansion came to a halt. Some Honeygrow locations were ‘dragging down profitability,’ Rosenberg told The Inquirer at the time. Outposts in Chicago, Washington, and the minigrow in New York shuttered.”
“‘Closing restaurants sucks,’ said Rosenberg. ‘Everyone’s questioning the business, they’re questioning me as a leader, they’re questioning their investment, they’re questioning, why are they working here?’ Looking back now, he attributes the closures to poor real estate, and the company growing too quickly.”
“Last year, Honeygrow opened nine new outposts, expanding its footprint to 40 locations across seven states. The company is expected to grow even more this year with over 12 new locations set to open in 2024, including in Plymouth Meeting [Pa.] in March. Rosenberg says his team has also been eyeing South Philly as a potential next stop.”
“The company has over 1,000 employees, with wages starting between $12 and $17.15 an hour. Last year, Honeygrow launched an ‘elite general manager’ role which allows workers to grow into higher-paying, more senior roles. ‘It’s so key to have great general managers. That focus over the last few years has been key to the success,’ said Rosenberg.” READ MORE
THE ECONOMY
Wholesale prices rose more than expected in January: “The producer price index, a measure of prices received by producers of domestic goods and services, rose 0.3 percent for the month. Economists surveyed by Dow Jones had been looking for an increase of just 0.1 percent. PPI fell 0.2 percent in December. Excluding food and energy, core PPI increased 0.5 percent, also against expectations for a 0.1 percent gain. PPI excluding food, energy and trade services jumped 0.6 percent, its biggest one-month advance since January 2023.”
“The report comes just days after the consumer price index showed inflation holding stubbornly higher despite Federal Reserve expectations for moderation through the year. The CPI was up 3.1 percent from a year ago, down from its December level but still well ahead of the Fed’s goal for 2 percent inflation.”
“On a 12-month basis, headline PPI increased just 0.9 percent, slightly lower than the 1 percent level in December. However, excluding food, energy and trade services, the index rose 2.6 percent after being up 1.8 percent in December.” READ MORE
INTERNATIONAL
Japan’s economy has slipped into recession: “Japan’s unexpectedly weak economy in the fourth quarter was a result of a slowdown in spending by businesses and consumers who are grappling with inflation at four-decade highs, a weak yen and climbing food prices. The end of the year also marked a moment that had been expected: Japan’s economy, now slightly smaller than Germany’s, fell one notch to become the world’s fourth largest. On an annualized basis, gross domestic product fell 0.4 percent in October through December after a revised 3.3 percent decline in the previous three months. Economists had forecast fourth-quarter growth of around 1 percent.”
“Corporate profits are at record highs, the stock market is surging and unemployment rates are low. But consumer spending and business investment — two key drivers for the economy — are lagging.”
“One sticky issue for the central bank remains the persistently weak Japanese yen. The currency’s decreased purchasing power means the cost of goods imported to Japan goes up, adding to the inflationary pressure that consumers feel. However, it tends to help the bottom line of many leading Japanese firms that sell goods abroad and bring those foreign earnings back to the country in yen.” READ MORE
The U.K. also fell into recession at the end of 2023: “Gross domestic product in October to December contracted 0.3 percent from the previous quarter, when the economy shrank 0.1 percent, the Office for National Statistics said on Thursday. Weak retail sales, a fall in restaurant and other food services, and a drop in housing construction all weighed on Britain’s economy, the statistics agency said.”
“While Thursday’s data is subject to revision as more information about the economy is collected, it paints a picture that Britain, like the eurozone, has been experiencing little or no growth for much of the past year.” READ MORE
LOGISTICS
The Red Sea attacks are causing a shortage of tea in the U.K.: “For a country of morning-and-night tea drinkers, even the suggestion of a shortage of the household staple can elicit a nervous gulp. So there might have been more than a few people spooked when signs in some Sainsbury’s grocery stores this week warned customers that supply issues had affected the ‘nationwide’ availability of black tea, as Houthi attacks on commercial vessels in the Red Sea caused shipping delays. Yorkshire Tea and Tetley Tea, two of the most popular tea companies in Britain, said in statements that they were monitoring the situation to ensure they could maintain supplies of black tea, but that orders were being fulfilled.”
“Retailers assured customers that stores currently had plentiful supplies. Sharon Hall, the chief executive of the U.K. Tea and Infusions Association, which represents tea businesses selling in the country, said that they had “good stocks of tea.”
Still, thoughts of the teatime break at risk caused a stir. ‘Brits left genuinely distraught by prospect of tea shortages, a headline in The Daily Mail read. ‘Keep calm’ scream shoppers as major supermarket warns of tea shortage,’ another in The Sun said.” READ MORE
STARTUPS
Y Combinator just released its latest request for startups: “Storied Bay Area accelerator Y Combinator, which helped nurture Reddit, Dropbox, and Airbnb, is looking for its next batch of companies to seed. It released an updated ‘request for startups’ on Wednesday, outlining 20 categories that it's particularly interested in. The list leans heavily towards artificial intelligence across many sectors including robotics, health care, enterprise software, and domestic manufacturing, as well as foundational AI models. Other sectors on the list include climate technology, space technology, and defense technology.”
“‘These are by no means the only ideas we’ll accept — many of the best ideas are the ones we would never expect — but if you aren't sure what you want to work on, these (requests) should provide a useful jumping off point to begin your ideation process,’ the accelerator wrote in an announcement.”
“Within the climate sector, Y Combinator cited the Inflation Reduction Act as something that will ‘significantly accelerate the existing market’ and lists five specific subcategories of interest: energy, science, adaptation, ‘green fintech’ and carbon emissions accounting and offsets.” READ MORE
THE 21 HATS PODCAST
‘I Had to Fire the Guy:’ This week, Paul Downs, Jay Goltz, and Sarah Segal talk about sexual harassment and where you draw the line with employees. Is it sexual harassment for one employee to ask another for a date? Is it sexual harassment to ask twice? Does it make sense to have a policy of zero tolerance? Or is it better to leave room for discretion and judgment? The conversation was sparked by a recent situation Jay experienced with an employee who had been with the company for almost three decades, having started at the age of 17. “It was a very sad thing,” Jay tells us.
Plus: Sarah Segal asks whether it’s better to build her business on a bunch of small clients or a smaller number of large clients. And is being CEO a health risk? We begin the episode by talking about an eye-catching story the Wall Street Journal recently published noting that an increasing number of CEOs have been dying on the job, presumably because of the heightened levels of stress.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren