Okay, Boomer, What’s Your Succession Plan?

In today’s Dashboard, Gene Marks talks about preparing for the inevitable, managing supplier relationships, and rampant PPP fraud.

Good morning!

Here are today’s highlights:

• Vermont’s dairy farmers are being forced to find new opportunities.

• The evidence is growing that inflation is losing its grip.

• Even Apple is looking for alternatives to manufacturing in China.

• The Supreme Court will assess a Colorado law that says businesses can choose what they sell but they can’t choose to whom they sell it.

DASHBOARD

Gene Marks says he’s concerned that too few business owners are preparing for succession: Which leads to an obvious question: Does Gene have a succession plan? Hmmm. Plus: Gene has some suggestions for how businesses can better manage their relationships with vendors and suppliers. And what lessons should we take from the rampant fraud a Congressional report revealed in the PPP program?

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

STARTUPS

Driven by climate change, Vermont’s iconic dairy farms are giving way to an array of new entrepreneurial ideas: “Even as time-honored crops become trickier, a new generation of ‘agripreneurs’—often young, sometimes first-time farmers, many women or people of color—are swooping in to try something completely different. And in time, these new crops, and new farmers, have the power to alter the identity of a state that has for generations defined itself by its land and land stewardship. Here are some of the new foods and agricultural ventures changing the face of Vermont.”

• “In an old milking barn in Charlotte, John Brawley tends to something much tinier than the cows that once lived there. At Vermont’s first shrimp aquaculture outfit, Sweet Sound Aquaculture, he harvests 100 pounds of Pacific white-leg shrimp each week from indoor, aboveground recirculating saltwater pools.”

• “Brawley’s goal was to produce local shrimp, the second-most popular seafood in the United States, in a landlocked state far from oceans but in an environmentally sustainable way. ‘This is efficient, sustainable and healthful, and supports the local economy,’ Brawley said.”

• “The United States imports about $16 million of the prized little red crocus pistils each year that flavor and color foods from bouillabaisse to risotto. The world’s most expensive spice is traditionally grown in Iran and Spain, but now roughly 200 farmers are growing it in Vermont.” READ MORE

HUMAN RESOURCES

Employees continue to hold leverage when it comes to wages: “Average wage growth had, by some measures, begun to cool since the summer. But Friday’s November jobs report showed annual growth in hourly earnings accelerating to 5.1 percent from 4.9 percent in October. Workers continue to win significant pay bumps, in part because help remains hard to find: Unemployment in November remained at 3.7 percent, near a half-century low. The labor force also shrank in November and is smaller than before the pandemic.”

• “‘The feeding frenzy of companies poaching each other’s workers has abated somewhat, but the trend of pay hikes remains quite high and is not slowing down by much,’ said Stephen Stanley, chief economist at Amherst Pierpont, a broker-dealer.”

• “Higher wages are generally good for workers, but wage growth that persistently exceeds growth in worker productivity can lead companies to raise prices more.” READ MORE

THE ECONOMY

Inflation may be losing its grip: “The price of gasoline is dropping like a rock. Chicken wings are suddenly a bargain. And retailers drowning in excess inventory are looking to make a deal. After more than a year of high inflation, many consumers are finally starting to catch a break. Even apartment rents and car prices, two items that hammered millions of household budgets this year, are no longer spiraling out of control. Global supply chains are finally operating normally, as more consumers spend more on in-person services like restaurant meals and less on goods like furniture and computers that come from an ocean away. The cost of sending a standard 40-foot container from China to the U.S.West Coast is $1,935—down more than 90 percent from its September 2021 peak of $20,586, according to the online freight marketplace Freightos.”

• “Improving conditions in the new car market also are drawing buyers away from the used car market, which contributes to lower demand and falling prices on those lots.”

• “But as goods prices begin cooling, pressure is building on services. Rising demand and limited supply — think short-staffed restaurants — has services inflation running at an annual 6.7 percent rate, more than twice the year-ago figure.” READ MORE

PRICING

Inflation may be abating, but this restaurant is getting $65 for a sandwich: “Its mere arrival stops conversation. Two pounds of short ribs encased in seemingly a loaf of ciabatta, stabbed in the center with a knife, has that effect on a table. Open wide, like a python, if you treat it like a regular-size sandwich, which this definitely isn’t, starting with its $65 price tag. Before it’s packed into the ciabatta slathered with plantain butter, the beef is cured for a day and cooked to succulence in a water bath (sous-vide) for 16 hours. Black plastic gloves accompany the spectacle, amenities that allow recipients to tackle the dish, served with rich veal demiglace, however they want with a minimum of mess — at least on themselves.”

• “The two-fisted sandwich can easily feed three or four, although executive chef Jose Ignacio Useche says he’s seen individuals dispatch the whole enchilada, so to speak.”

• “Even if you decide to use a knife, the substantial filling of smoked cheddar cheese, pickled onion and fried shallots rushes out from the house-baked bread, creating a debris field on the plate.” READ MORE

BUSINESS MODELS

McDonald’s is testing a new format in Texas: “The new restaurant, which opened Dec. 1 in White Settlement, is designed around mobile orders and has a drive-through lane for customers who place their orders through the McDonald’s app. Mobile orders come out on a conveyor belt for quick grab-and-go service. The inside of the restaurant is smaller than typical McDonald’s restaurants because it, too, is designed for grab-and-go service, not dining in. There are kiosks where customers can place to-go orders, as well as a delivery pick-up room for third party delivery drivers to pick up orders.” READ MORE

MANUFACTURING

Demand for Chinese manufacturing has collapsed: “U.S. manufacturing orders in China are down 40 percent, according to the latest CNBC Supply Chain Heat Map data. As a result of the decrease in orders, Worldwide Logistics tells CNBC it is expecting Chinese factories to shut down two weeks earlier than usual for the Chinese Lunar New Year — Chinese New Year’s Eve falls on Jan. 21 next year. The seven days after the holiday are considered a national holiday.”

• “The global trading map is being rapidly redrawn, with E.U.-U.S. trade and investment in the U.S. rising sharply as economic ties between the West and China are subjected to critical scrutiny. This year, the U.S. has imported more goods from Europe than China—a big shift from the 2010s, according to Project 44.”

• “Germany’s exports to the U.S. were almost 50 percent higher in September year over year. Germany’s mechanical engineering sector has boosted its exports to the U.S. by almost 20 percent in a year over year comparison of the first nine months of 2022, according to Project 44.” READ MORE

Even Apple is moving some production out of China: “It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn Technology Group. Turmoil at a place called iPhone City helped propel Apple’s shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85 percent of the Pro lineup of iPhones, according to market-research firm Counterpoint Research.”

• “‘In the past, people didn’t pay attention to concentration risks,’ said Alan Yeung, a former U.S. executive for Foxconn. ‘Free trade was the norm and things were very predictable. Now we’ve entered a new world.’”

• “China’s Covid-19 policy ‘has been an absolute gut punch to Apple’s supply chain,’ said Wedbush Securities analyst Daniel Ives. ‘This last month in China has been the straw that broke the camel’s back for Apple in China.’” READ MORE

LITIGATION

The Supreme Court is hearing a case about a website designer who wants to create wedding websites—but not for same-sex couples: “303 Creative is a sequel to another high-profile Supreme Court case brought by ADF lawyers, Masterpiece Cakeshop v. Colorado Civil Rights Commission (2018), which claimed that the First Amendment permitted a Colorado baker to refuse to bake a wedding cake for a same-sex couple because the baker’s cakes were a form of ‘artistic expression.’ But if certain businesses are exempt from civil rights laws because they make products that require a spark of creativity, then it is far from clear which businesses should still be required to follow the law — after all, lots of jobs require at least some artistry. As Justice Elena Kagan noted during oral arguments in Masterpiece Cakeshop, if cake bakers qualify as ‘artists’ who can defy civil rights laws, then what about jewelers? Or hairstylists? Or makeup artists?”

• “The Masterpiece Cakeshop decision didn’t really engage with these questions — although ADF prevailed in that case, it did so on narrow grounds that have few implications for future cases.”

• “Colorado’s law threads this needle, because it guarantees ‘equal access to goods and services’ without requiring Smith to actually produce a website she finds objectionable.”

• “As Colorado explains in its brief, this law ‘does not turn on what a business chooses to sell. It simply requires that, once a business offers a product or service to the public, the business sells it to all without regard to a customer’s protected characteristic.’”

• “That is, Smith has an absolute right to say that she is not in the business of making websites that celebrate same-sex marriage. What she cannot do is sell a particular website to straight customers and then refuse to sell it to queer customers.” READ MORE

The Supreme Court is also taking up a case between Jack Daniel’s and a dog-toy company: “One of the categories on MyDogToy.com is ‘Silly Squeakers,’ a variety of vinyl squeak toys, many of which have one thing in common: They are corny, pun-filled riffs on familiar brands. There’s one that looks like a bottle of Corona, dubbed Cataroma. A can-shaped Mr. Slobber resembles Dr. Pepper. And one called Bad Spaniels echoes the familiar graphic design of a bottle of the flagship Jack Daniel’s Old No. 7 Tennessee Whiskey. ‘The Old No. 2,’ the toy version reads, under a drawing of a guilty-looking pooch, ‘on your Tennessee carpet.’”

• “The core of Jack Daniel’s argument, as summarized in its petition to the court, is pretty straightforward. Its trademarks and trade dress, right down to the ‘distinctive square shape of its whiskey bottle’ have been associated with the brand for over a century.”

• “VIP’s Bad Spaniels blatantly ‘imitates a Jack Daniel’s whiskey bottle, while adding poop humor,’ and is ‘likely to confuse consumers and tarnish Jack Daniel’s marks.’”

• “VIP’s argument, in turn, is that its ‘pun-filled parody’ is operating well within the bounds of First Amendment-protected speech, and no reasonable consumer is being fooled or harmed.”

• “Its products are part of a ‘playful parodic tradition,’ ranging from Topps’s Wacky Packages trading cards to the music of ‘Weird Al’ Yankovic; it has neither sold liquor nor actually used the Jack Daniel’s name.” READ MORE

THE 21 HATS PODCAST

This week, in episode 134, Shawn Busse, Jay Goltz, and Laura Zander talk about buying and selling businesses: Laura thinks her recent purchase of a small distribution business could change the trajectory of her whole company, helping her finesse the challenge of selling wholesale products to retail competitors. Jay, meanwhile, has been trying to help an aging business owner sell the kind of business that too often just fades away. Underlying both discussions is an intriguing question: While it’s common practice for owners trying to sell a business to keep the potential sale a secret, is that really the best approach? Or is it actually a betrayal?

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

Thanks for reading, everyone. — Loren