

Discover more from The 21 Hats Morning Report
‘I’ve Never Seen It This Frenzied’
Today’s Highlights: A business owner succumbs to city bureaucracy. How to pick and manage the right CRM system. And why car washes are the hottest investment in commercial real estate.
REGULATION
After spending $200,000 trying to open an ice cream shop in San Francisco and confront the city bureaucracy, Jason Yu has given up: “Yu’s plans sounded sweet back in late 2018 when he decided to open a shop serving green-tea-flavored soft serve ice cream. He spent several months searching for the perfect space and landed on the 20th Street site in June 2019, signing a lease for $7,300 a month. He hired an architect to draw up plans to upgrade the electrical and plumbing systems, build a front counter and install kitchen equipment. He planned no structural changes or modifications to the building’s exterior. Sounds pretty simple, right? Nope. Nothing’s simple in San Francisco.
“‘This became a nightmare project,’ Yu told me recently, saying he might open a business elsewhere someday. ‘For sure I will not try to do anything in San Francisco. It just doesn’t make sense.’”
“‘That just broke my heart,’ said Sharky Laguana, president of the city’s small business commission, when I told him of Yu’s decision. ‘There’s absolutely no reason it should cost that much to open a business in a place that’s been vacant for that long. It’s outrageous.’” READ MORE
SMALL BUSINESS TECHNOLOGY
Picking the right CRM system can seem daunting but the real challenge is implementing it: “CRMs vary widely in terms of price. Entrepreneurs can take advantage of free CRM software or spend thousands of dollars a year on a system. Functionality varies just as much, but the cost of a system doesn’t necessarily correlate to the features it offers—or the ones a particular company needs. ‘You’ll never get fired for buying Salesforce. It’s the BMW of CRMs,’ says Gene Marks of the Marks Group, a consulting firm. ‘However, for most small businesses, it’s overkill.’”
“One of his clients flew 50 sales people in from around the world for training on a new system. ‘But then everybody went home and just kept sending in reports manually, with excuses like, ‘This is harder than I thought.’ or ‘I don’t have the time to learn this.’”
“Greg Wood of the CFO Alliance skipped Salesforce in favor of Zoho, which he says offers comparable functionality to Salesforce at about a quarter of the cost.”
“Marks says it typically costs $10 to $25 per user per month for a CRM on the low end and $50 to $125 per user per month on the upper end.” READ MORE
VENTURE CAPITAL
Deals have gone virtual in Silicon Valley, as a wave of cheap cash chases tech startups: “In the first quarter this year, U.S. startups raised $69 billion from investors—41 percent more than the previous record, set in the fourth quarter of 2018, according to data firm PitchBook Data Inc. The average valuation for startups at all stages also reached a new high, and more than tripled from last year to $1.6 billion for late-stage companies. ‘I’ve never seen it this frenzied,’ said Larry Albukerk, who started his investment fund EB Exchange, which gives investors access to purchase stock in startups, in 1999. ‘It’s lightning-fast rounds with a lot of cash.’”
“Investors are offering startups five times—or more—the amount of money they are asking, and deals that used to take months now sometimes close in days.”
“Virtual fundraising has accelerated deal-making, as investors and entrepreneurs meet over Zoom rather than getting on an airplane, and investors are sending offers to startups even before meeting them online.”
“Many of these new social apps use video, audio and text features to connect strangers and friends, fans and celebrities, including the chat service Discord Inc. and Stationhead Inc., where users can effectively host their own radio show. “ READ MORE
CYBERSECURITY
Are you backing everything up? Last year was the worst year ever for ransomware attacks against businesses: “The Justice Department has formed a task force to curtail the proliferation of ransomware cyberattacks, in a bid to make the popular extortion schemes less lucrative by targeting the entire digital ecosystem that supports them. In an internal memorandum issued this week, Acting Deputy Attorney General John Carlin said ransomware poses not just an economic threat to businesses but ‘jeopardizes the safety and health of Americans.’”
“Ransomware attacks, in which hackers cripple a software system until they receive a bounty, surged last year during the pandemic.”
“In October, for example, a wave of ransomware attacks—which landed during the start of a rise in coronavirus hospitalizations—disrupted operations and patient care at several hospitals.”
“Mr. Carlin, who before returning to the Justice Depart focused on cybersecurity as a partner at the Morrison & Foerster law firm, said he has seen ransomware payments over $20 million.” READ MORE
OPPORTUNITIES
The hottest investment right now in commercial real estate? Car washes: “Real estate investors looking for a safe place to park money coming out of Covid might consider the humble car wash. The sudsy byproduct of the automotive age has, in just a few short years, become an unusually durable commercial real estate asset. It is largely immune to the encroachment of the internet — unlike so much brick-and-mortar retail — and its leases run to the long side: 15 to 20 years usually, with rent coverage ratios at least two times EBITDA. These fundamentals, too, appear to be recession-proof, even when it comes to a downturn spawned largely by a pandemic that kept Americans off the road in record numbers.”
“At the start of the past decade, small, independently owned chains and individual sites dominated the industry. Over the last few years, though, private equity money has poured in and the ownership structure for car washes has evolved into a readily scalable — and salable — pattern identical to one often found behind dollar stores, fast-food restaurants, big-box outlets and other free-standing, single-tenant properties.”
“As more institutional money settled on car washes, fee-simple, triple-net leases became the preferred ownership structure and a big reason for the industry’s durability as an investment. In a fee-simple, triple-net lease, an owner has total ownership with the tenant responsible for all costs, including maintenance.” READ MORE
MANUFACTURING
A startup says it has found a cheaper way to build vehicles in small factories: “A small electric vehicle company backed by UPS wants to replace the assembly lines automakers have used for more than a century with something radically different — small factories employing a few hundred workers. The company, Arrival, is creating highly automated ‘microfactories’ where its delivery vans and buses will be assembled by multitasking robots, breaking from the approach pioneered by Henry Ford and used by most of the world’s automakers. The plants would produce tens of thousands of vehicles a year. That’s far fewer than traditional auto plants ...”
“The advantage, according to Arrival, is that its microfactories will cost about $50 million rather than the $1 billion or more required to build a traditional factory.”
“The company hopes its electric vehicles will disrupt the normally sleepy market for delivery vans.”
The company’s success hinges to a large extent on the viability of its microfactories — in Rock Hill, S.C.; Charlotte, N.C.; and Bicester, England.” READ MORE
CLIMATE
The Biden administration is ending the legal dispute over auto emissions between the U.S. and California: “The administration officials could announce their first steps as early as Friday, these people said, as President Biden concludes a two-day international summit via videoconference to address climate change. It would be the latest in a series of efforts to unwind Trump administration policies that eased environmental rules. California, the nation’s biggest car market, has long set emissions standards that exceed requirements set by the federal government …”
“Auto companies like General Motors, Toyota, and Stellantis N.V. initially sided with the Trump administration in the lawsuit, arguing that the standards should be set by federal regulators.”
“Those companies withdrew their support in the wake of Mr. Biden’s election.” READ MORE
TAXES
The Biden administration is debating how to overhaul the opportunity zone tax break: “The most comprehensive study of investment in the zones to date, released by a pair of University of California, Berkeley, researchers last week, contradicts Mr. Trump’s assessment of the zones’ early performance. … The study suggests that in 2019, only about 16 percent of the 8,000 census tracts nationwide that were designated by state officials as opportunity zones using criteria set under the Trump administration received any investment at all. Rural areas received almost no investment. Most of the capital was concentrated in a small slice of zones.”
“Investors mostly flocked to real estate, construction and finance businesses in areas ‘with pre-existing upward trends in population, income and home values’ that predated the creation of the zones ...”
“A collection of business groups, investor organizations and others involved in the zones — including the U.S. Chamber of Commerce and the Economic Innovation Group, the Washington think thank that first proposed the opportunity zone concept — suggested detailed changes to the administration last month.”
“Supporters and critics alike have pushed Mr. Biden’s team to act unilaterally, and to urge Congress to pass new legislation, in order to improve the zones and try to drive a higher share of investment to projects that will benefit people and businesses in impoverished rural, urban and suburban swaths of the country.” READ MORE
THE 21 HATS PODCAST
Episode 58: How the Sausage Is Made: In this week’s conversation with Karen Clark Cole, Jay Goltz, and Stephanie Stuckey, we once again unearth more questions than answers—mostly because there are rarely one-size-fits-all answers to the questions we discuss. This week, those questions include: Can you be friends with your employees? Can you work with your family? How are you coping with price increases in your supply chain? How do you handle shipping—especially given the example set by Amazon? Are refrigerated trucks really called “reefer” trucks? And what happens when employees question whether you should be doing business with a particular person or company? Plus: Jay turns 65 without a succession plan.
You can subscribe to The 21 Hats Podcast wherever you get podcasts.
If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren