I’ve Never Had to Lay Off Anyone Before

In our latest podcast, the owners talk about the challenge of stabilizing a business after layoffs.

Good Morning!

Here are today’s highlights:            

• Teamshares, which buys businesses and gradually turns them over to their employees, is getting more press attention.

• A new report finds wages have continued to rise this year and will rise more than 4 percent next year.

• The owner of an airport restaurant criticized by a New York Times columnist won a lot of online support.

• Do you know what your gross profit margin is? Tracy Bech talks about reviewing how your business is performing.

THE 21 HATS PODCAST

This week, Sarah Segal tells Shawn Busse that the other shoe has dropped: A couple of months ago, as she’s shared here previously, Sarah lost two big clients in one week. Now she takes us through her decision to lay off three of her employees, including what it means for the business and what it means for Sarah’s own role in the business. Before the layoffs, she had gotten to the point where she was working on the business—but now that’s changed. “I'm not working on the business,” she says. “I am working for clients. I am getting the job done. I am making sure that we're successful with our clients, and that is my priority right now.”

• “Plus: We also discuss how to choose a CRM, why Sarah and Shawn’s home cities of San Francisco and Portland have been getting such bad PR, and whether former business owners are employable. “I wouldn’t hire me,” says Sarah.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

SELLING THE BUSINESS

So far, Teamshares, who we interviewed earlier this year,  has bought 84 small businesses. It wants to buy a thousand by 2030: “Joe Noblit was stunned. Gobsmacked, actually. It was 2021 and Noblit was looking to sell his mattress business. Over the previous 20 years, Noblit had built Yankee Mattress in Agawam into a chain of four stores across Western Massachusetts, with a staff of 14. Now he wanted to retire and enjoy the fruits of his labor. But Noblit didn’t know if anyone would bite, well aware that small businesses in the United States often fail to find buyers and simply fold. Then his broker called: Teamshares, a new kind of private equity firm backed by some of the biggest names in venture capital, very much wanted to buy Yankee Mattress. Not only was Teamshares’ offer ‘very, very generous,’ Noblit said, but the company also wanted to keep Yankee Mattress independent and eventually give the business back to the employees.”

• “‘The current version of capitalism is not working,’ said Michael Brown, co-founder and CEO of Teamshares. ‘It’s not too inclusive.’ But Teamshares’ motives are not completely altruistic. The company, which has raised $245 million from investors, sees plenty of opportunity to make money. How? In part by selling business products such as credit cards and insurance to the small businesses it owns.”

• “It has a longer game, too. Over 20 years, Teamshares will grant dividend payments and stock to the employees, which the company hopes will motivate those workers to boost sales and profits.”

• “Teamshares isn’t your average private equity firm. The company looks for small businesses that are relatively healthy, with $400,000 to $2 million-plus in annual profits and owners compensation in two of the past three years. And it has a very different long-term plan.” READ MORE

PRICING

As you may have heard, New York Times columnist David Brooks almost broke the internet with a tweet complaining about the cost of a $78 airport meal: “While Brooks did not name the restaurant, internet sleuths figured out that he was dining at 1911 Smoke House Barbeque, a Trenton-based restaurant that opened a location in Terminal A of the airport earlier this year. The restaurant — whose slogan is ‘You can’t beat our meat’ — confirmed on Facebook that Brooks had eaten at the Newark Airport location, saying that the journalist had misled his more than 253,000 X followers by not pointing out how his drink was most of his bill.”

• “Maurice Hallett, the owner of 1911 Smoke House Barbeque, told The Washington Post that his corporate partners at SSP America, a food travel company, had advised him to not talk about the situation and he ‘agreed not to say any more about the Newark location.’ But Hallett said the response to the post and defense of his restaurant has been ‘incredible.’”

• “The restaurant has capitalized on the attention of the viral post, boasting on Facebook: ‘We’re the topic of America right now!’ Hallett has also made a new meal available to customers: the ‘D Brooks Special.’ Instead of paying $78, customers can get a burger, fries and a double shot of whiskey for $17.78.” READ MORE

HUMAN RESOURCES

Wages continued to rise in 2023: “Despite early signs of a cooling job market, and a greater emphasis by employers on retaining talent through benefits rather than pay, wages are still set to rise at a rate higher than the pre-pandemic average. The new WorldatWork Salary Budget survey, now in its 50th year, found American company salary budgets grew, on average, 4.4 percent in 2023. That was slightly higher than expected and represents the biggest average increase since 2001.”

• “Meanwhile, companies are anticipating a 4.1 percent increase in salary budgets for 2024, which would be a slight easing of recent gains. But that would still be higher than the average of about 3 percent that was typical between the Great Recession and the pandemic.”

• “More employees saw promotions over the past couple of years, with the average pay increase for a promotion growing from 9.4 percent to 9.8 percent.”

• “Worker expectations are still high. The annual expected salary of a job offer jumped to $67,416 in July 2023, up from $60,310 in July 2022, according to the Federal Reserve Bank of New York’s SCE Labor Market Survey, the highest the survey had recorded.” READ MORE

More companies are trying a four-day workweek: “At ThredUp, an Oakland, Calif.-based online clothing reseller, moving its nearly 300 salaried employees to a Monday-to-Thursday week meant culling meetings, focusing on the most important work and curtailing lengthy email exchanges. The shorter week can get hectic, and work sometimes spills into Fridays, but employees say having more time to recharge is worth it. ‘It’s not for everybody,’ said ThredUp’s chief people officer, Natalie Breece, who helped lead the transition. ‘It requires a constant evaluation of your own behaviors and your organization’s behaviors to move faster.’”

• “Meeting bloat was one of ThredUp’s biggest targets as it gave the four-day week a test run before making it official early last year. Department heads cut meetings by roughly 20 percent after reviewing which were really necessary and which served mostly as progress reports.” 

• “Managers and workers were trained on running more efficient huddles and volleying fewer emails. (One tip: Pick up the phone after three rounds of replies without a resolution.) Tuesdays were deemed ‘maker days,’ devoted mostly to uninterrupted focus work.”

• “Learning to say no was an adjustment, Breece said. Some employees fretted whether they could get ruthless with their time. But with the whole staff tasked to be more disciplined, ‘it gives everybody space to say, I am not going to join that,’ she said. Or, they can ask to trade updates or ideas as they happen, via Slack, email, or other tools.”

• “Voluntary turnover among corporate employees fell to 4 percent last year, less than half of what it was in 2020. More than half of new hires who were surveyed said the shorter workweek tipped the scale in their decision to join. And over 90 percent of employees, who the company says are meeting the same goals as before, said the four-day workweek has boosted their productivity.” READ MORE

SUCCESSION

Do you have a plan in case you get hit by that proverbial bus? Here’s what Michael Girdley suggests: 

READ THE THREAD

FINANCE

As American Rescue Plan support runs out, day-care owners are fighting for survival: “Childcare program owners said that staffing has been their greatest challenge, even when they had ARPA funding. Now that they’re nearing the funding cliff, they expect it to be even more difficult to hire enough high-quality, college-educated staff to maintain required teacher-to-child ratios. ‘You can make $18 an hour at Costco versus working $18 an hour in a room with 10 kids, half of them are having behavior problems,’ said Joanne Drinkard, the owner of Aardvark Child Care for nearly 40 years.”

• “Drinkard was forced to close one of Aardvark’s two Delaware County [Pennsylvania] locations largely because of the ARPA funding cliff. She said before the pandemic, Aardvark’s location in Primos had a staff of 33 employees. When it closed last month, it was down to just three.”

• “‘That’s the only way I stayed afloat,’ she said about the ARPA funding. Drinkard explained that staffing challenges go beyond pay. More and more children in her programs have behavioral issues that they developed because of the pandemic, making the job even more challenging and less desirable.” READ MORE

REPUTATION MANAGEMENT

Yelp is looking to shame businesses that post fake reviews: “Since 2012, Yelp has caught nearly 5,000 businesses engaging in shady tactics, like paying customers for favorable ratings or hiring people to write phony reviews. Now, the company has a new tool to help people — and maybe the feds — track businesses that have tried to manipulate their standing on the review platform. Yelp is releasing a new index that tracks every U.S establishment it’s ever caught engaging in ‘suspicious’ activity to influence its reviews. The company has made some of this information available in the past. Yelp places temporary alerts on businesses’ pages when it discovers fake reviews, and regularly releases transparency reports detailing its moderation efforts.”

• “But the index is the first time the company has offered a single place where users can find a historical record of every business that’s ever been subject to such a warning as well as a current list of businesses with active alerts on their pages.”

• “For Yelp, the index is both its latest move in a long-running war on fake reviews, as well as a nod to a changing regulatory environment in which fake reviews are attracting increasing scrutiny from regulators. The FTC recently proposed a formal ban on fake reviews with penalties of up to $50,000 for businesses caught buying, selling or manipulating online reviews.” READ MORE

COMMERCIAL REAL ESTATE

As building incomes and values decline, commercial property owners face exploding insurance costs: “Natural disasters, inflation, and a shrinking reinsurance market have pushed insurance premiums to record levels, echoing the surge in home insurance rates for much of the U.S. That leaves many landlords in a bind. Their building values and rental income are down, yet expenses keep rising. Commercial real-estate insurance costs have risen 7.6 percent annually on average since 2017, according to Moody’s Analytics. Those increases can result in hundreds of thousands of dollars or more in additional annual costs, depending on location and size of the property. They can be steep enough to wipe away a year’s worth of profits.”

• “Some cities have been particularly hard hit, especially for multifamily buildings. Costs to insure rental-apartment buildings rose 14.4 percent annually on average in Dallas, 13 percent in Los Angeles and 12.6 percent in Houston. Some owners struggle to find anyone willing to insure their buildings, Moody’s said.”

• “‘I have never seen such a significant and rapid change in insurance capacity as well as spikes in pricing,’ said Alexandra Glickman, leader of the real estate and hospitality practice at insurance consulting firm Gallagher.” READ MORE

CRYPTO

NFTs may be dead: “A report by dappGambl based on data provided by NFT Scan and CoinMarketCap showed that out of 73,257 NFT collections the researchers looked at, 69,795 of them, or slightly over 95 percent, had a market cap of zero ether. By their estimates, almost 23 million people hold these worthless assets.”

• “In 2021 and 2022, the NFT market saw a huge bull run, at one point leading to $2.8 billion in monthly trading volume. During that time, popular collections such as Bored Apes and CryptoPunks were selling for millions of dollars, and celebrities such as Stephen Curry and Snoop Dogg participated in the hype.”

• “The boom coincided with cryptocurrency's peak when bitcoin was trading close to $70,000. On Wednesday, the price of the crypto hovered just above $27,000.”

• “Even filtering out the lower-value, less significant projects, most collections have little value today. Out of the top 8,850 collections by market cap, 18 percent are worthless, and 41 percent are priced at $5-$100. Fewer than 1 percent have a price tag above $6,000 — a far cry from the regular million-dollar deals of two years ago.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

Do You Know What Your Margins Are? This week, Tracy Bech talks about why it’s important, from time to time, to review your margins, to compare them with those of others in your industry, and to look for ways they might be improved. You might even find ways to adjust your business model. The first step, of course, is to make sure you know what those margins are. Plus: When is it time to start thinking about next year?

Thanks for reading, everyone. — Loren