‘It’s a Ticking Time Bomb’
In our latest podcast, the owners discuss if and when it makes sense to take money from outside investors.
Here are today’s highlights:
Teamshares is looking for business owners who want to sell their companies for between $1 million and $5 million.
Business owners in Florida say they would love to put those asylum-seekers to work.
More consumers are adopting a YOLO mentality.
Bill Gurley thinks this could be the best time in the past decade to start a business.
THE 21 HATS PODCAST
‘It’s a ticking time bomb’: This week, Shawn Busse, Liz Picarazzi, and Hans Schrei debate the merits and risks of taking outside capital. Clearly, it makes sense for some businesses. But what are the right circumstances? What are the alternatives? And what do you need to understand before going to the dance? For example, what are the dynamics of the entrepreneur-investor relationship? Are the entrepreneurs hoping the investors will bestow an opportunity upon them? Or is it actually the entrepreneurs who have an opportunity to offer? And who pays for the coffee? Plus: What do you do on those days when no one seems to be following your lead and the entrepreneurial loneliness sets in?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
SELLING THE BUSINESS
A venture-backed company specializes in buying small businesses from retiring owners—and turning their employees into owners: “Days and nights of anxiety took hold of Roger Newman in December 2020. His business partner revealed he wanted to retire, and they both decided the time had come to sell Stahl Plumbing, Heating & Air Conditioning. ... While waiting for a buyer, Mr. Newman, 63, and his partner, Joe Scarfone, 67, lost sleep until a deal came through that not only allowed the owners to sell the Swissvale, [Pa.]-based company but also paved the way for its 30 employees to keep their jobs and eventually own a majority of the business.”
“Stahl was purchased in June by a financial technology company called Teamshares, which so far has helped about 70 businesses across the country become partially employee-owned. Teamshares gave the 30 employees at Stahl a 10 percent ownership stake at closing and an opportunity to own up to 80 percent of the company over 15 to 20 years.”
“With the sale of Stahl complete, Teamshares put its own manager in place and will use a portion of the profits to transfer the remaining 70 percent of the business to the workers over time. Teamshares will keep a perpetual 20 percent ownership stake in the 72-year-old company.”
“Teamshares, which receives its funding from venture capitalists, did not disclose how much it paid for Stahl Plumbing. The owners were paid cash.”
“With tens of thousands of businesses listed for sale each year, Teamshares focuses on buying those in the $1 million to $5 million valuation range.” READ MORE
There are a lot of open jobs in Florida: “For the past two years Jan Gautam has been filling in sporadically as a housekeeper at hotels in Orlando, Florida, run by Interessant Hotels & Resort Management, or IHRMC. When he’s not making beds, he’s busy running the company. He’s the President and CEO of IHRMC — which is based in Orlando, Florida. ‘I was making beds a couple of days ago. It’s very tough to find employees,’ said Gautam.”
“IHRMC says 60 percent of their 4,500 employees left the company during the pandemic, many to work from home. Now Gautam and other managers are picking up the slack — in housekeeping, the kitchen, and at the front desk.”
“Which is why some business owners in Florida were perplexed when Florida Governor Ron DeSantis sent legal asylum-seekers from San Antonio, Texas, to Martha’s Vineyard on two flights earlier this month. ‘Why are they sending them there when we need the people here. We could utilize them,’ said Gautam.”
“‘We have a massive labor shortage in Florida in basically every industry here. It’s hard to watch willing workers leave your state with tax dollars,’ said Jessica Cooper, owner of Sugar Top Farms just outside of Orlando.”
“Cooper runs a small farm operation with her husband Jordan. They grow produce and edible flowers and sell to local restaurants around Orlando and to Disney World. They need just a handful of farm workers to pick and plant crops, but even those roles are hard to fill.” READ MORE
The pandemic has changed the way people think about money and experiences. For example: “Before the pandemic, around 5 percent of the roughly 25,000 annual customers of Three Kings Tattoo were ages 50 or older. Owner Matthew Marcus estimated that the 50-plus crowd now make up about 15 percent of the clients at his seven locations, which include New York, Los Angeles, Denver, and London. Many of them arrive with grown children or grandchildren for matching tats. ‘The pandemic created more of a YOLO mentality in people,’ said Mr. Marcus, using the you-only-live-once acronym.”
“Nancy Smith, 60, of Camp Hill, Pa., persuaded her three grown children to get four dots tattooed on their wrists. It symbolized the resilience of their four-person family after the death of her husband, the children’s father.”
“She picked the design for herself and her family because she thought it would hurt less than something bigger. ‘I never thought I would get a tattoo,’ the retail-store owner said.” READ MORE
In midtown Manhattan, a multi-billion-dollar problem is coming into focus: “Blocks of decades-old office towers sit partially empty, in an awkward position: too outdated to attract tenants seeking the latest amenities, too new to be demolished or converted for another purpose. It’s a situation playing out around the world as employers adapt to flexible work after the Covid-19 pandemic and rethink how much space they need. Even as people are increasingly called back to offices for at least some of the week, vacancy rates have soared in cities from Hong Kong to London and Toronto.”
“‘There’s no part of the world that is untouched by the growth of hybrid working,’ said Richard Barkham, global chief economist for commercial real estate firm CBRE Group.”
“A study this year by professors at Columbia University and New York University estimated that lower tenant demand because of remote work may cut 28 percent or $456 billion, off the value of offices across the U.S. About 10 percent of that would be in New York City alone.”
“The implications of obsolete buildings stretch across the local economy. Empty offices have led to a cascade of shuttered restaurants and other street-level businesses that depended on daytime worker traffic. And falling building values mean less property-tax revenue for city coffers.” READ MORE
Venture capitalist Bill Gurley thinks this is a great time to start a business: “Gurley has often been a voice of reason amid Silicon Valley overexuberance and has tweeted regularly in 2022 about the need for start-ups to be realistic about the current economic environment. While many venture firms have a lot of money to invest, dealmaking has slowed considerably this year. Average valuations of some fundraising rounds have dropped as investors adjust to an economic slowdown and look warily ahead. But being realistic doesn’t necessarily mean being pessimistic: In some ways, says Gurley, this may be a great time to launch a start-up.”
“The truth is that if you’re going to build something from scratch, this might be as good a time as you’ve had in a decade. Real estate? You can get all the real estate you want. People used to fret about lease cost, but that’s all gone.”
“And while people get caught up on whether the money’s cheap or not, getting rid of the distraction of all that cheap money may be a good thing.”
“A huge thing is that your access to talent is way better. It was so hard to get, but now it’s a lot cheaper than it was. There are layoffs happening. And then hybrid has opened up the people you can get.” READ MORE
In China, the future of electric vehicles has arrived: “This year, a quarter of all new cars purchased in China will be an all-electric vehicle or a plug-in hybrid. There are, by some estimates, more than 300 Chinese companies making E.V.s, ranging from discount offerings below $5,000 to high-end models that rival Tesla and German automakers. There are roughly four million charging units in the country, double the number from a year ago, with more coming.”
“While other E.V. markets are still heavily dependent on subsidies and financial incentives, China has entered a new phase: Consumers are weighing the merits of electric vehicles against gas-powered cars based on features and price without much consideration of state support.”
“By comparison, the United States is far behind. This year, the country passed a key threshold of E.V.s accounting for 5 percent of new car sales. China passed that level in 2018.”
“The country’s seriousness about developing electric vehicles was on display when it rolled out the red carpet for Tesla to build a massive factory in Shanghai in 2018.”
“The move was seen as a way to force the domestic market to compete directly with an industry leader. ... Tesla now produces more vehicles at its Shanghai factory than anywhere else.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The (Commercial) Rent Is Too Damn High: This week, Gene Marks talks about what business owners can do to protect themselves in the current environment of rising rents and increased volatility. Plus: What explains the recent boom in startups? And will it last? And what the Fed’s rate hikes mean for businesses. Also: you can’t just set your website and forget it.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren