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Good Morning!

Here are today’s highlights:                                                          

• Entrepreneurs are thriving in Sweden—and leaving Israel.

• Restaurants are turning into factories and co-working spaces.

• Despite the war, a family-owned pet food business in Ukraine has managed to thrive.

STARTUPS

Why does Sweden have so many startups? “This is a high-tax, high-spend country, where employees receive generous social benefits and ample amounts of vacation time. Economic orthodoxy would suggest the dynamics of a welfare state like Sweden would be detrimental to entrepreneurship: Studies have found that the more a country’s government spends per capita, the smaller the number of start-ups it tends to have per worker—the idea being that high income taxes reduce entrepreneurs’ expected gains and thus their incentive to launch new companies. And yet Sweden excels in promoting the formation of ambitious new businesses ...”

• “Stockholm produces the second-highest number of billion-dollar tech companies per capita, after Silicon Valley, and in Sweden overall, there are 20 start-ups—here defined as companies of any size that have been around for at most three years—per 1,000 employees, compared to just five in the U.S. ...”

• “Sweden also gives some credence to the controversial idea that cutting corporate tax rates can help stimulate entrepreneurship. The reforms of 1991 lowered corporate income taxes from 52 percent to 30 percent.”

• “Sweden’s impressive start-up record can also be attributed to some broader aspects of how the country is set up. Its social safety net, for instance, helps entrepreneurs feel safe to take risks. In Sweden, university is free, and students can get loans for living expenses, which allows anyone to pursue higher education. Health care is free too, and childcare is heavily subsidized.” READ MORE

Meanwhile, tech founders in Israel are talking about leaving the country: “The luminaries of Start-Up Nation, as Israel has been known for decades, are eyeing the exits. Several have already announced that they are relocating or moving money out of the country, including the chief executive of Papaya Group, a payroll company valued at more than $1 billion. The reason is that a right-wing government, led by Prime Minister Benjamin Netanyahu, recently announced plans for a sweeping overhaul to the country’s judiciary that many believe will end its 75-year run as an independent institution.”

• “Eran Yashiv, a professor of economics at Tel Aviv University, sees judicial reform as a kind of resource grab. ‘It’s a redistribution from the high-tech sector to religious and nationalist minorities,’ he said. ‘And it would turn Israel into an illiberal country.’”

• “‘It’s all about risk management, and the risk is to the brand that is Israel,’ said Assaf Rappaport, the chief executive and co-founder of Wiz, a cloud security company worth $6 billion. ‘It took a lot of time to build this brand, and today every company in the world can trust Israel as a partner in their cyberdefense. These reforms will put all that in question.’”

• “‘Given the atmosphere now, it’s almost irresponsible to start a company here,’ [said Yanki Margalit, a veteran entrepreneur], ‘and that is heartbreaking.’” READ MORE                                                               

21 HATS: LIVE FROM CHICAGO

Only four spots left: If you’ve been thinking about it, now’s the time to register for this intimate, three-day event that is limited to 20 business owners/CEOs, ​including ​podcast regulars Paul Downs, Jay Goltz, Liz Picarazzi, Sarah Segal, and Dana White. It starts with dinner on Wednesday, May 17, and runs through lunch on Friday, May 19. You’ll help choose the topics for two deep-dive peer group sessions. You’ll participate in the taping of a 21 Hats Podcast.

Plus: Tour Jay Goltz’s operation. Take an architectural cruise on the Chicago River. And make connections that will last a lifetime.

Where: Chicago.

When: May 17-19.

Fee: $2,750. (All meals, activities included. Travel, hotel not included.)

RETAIL

A survey shows some restaurants are finding new revenue streams: “Prior to the pandemic, about 90 percent of full-service restaurants in the United States generated 90 percent of their revenue using just a single method: sit-down dining. But the pandemic forced a reinvention. Today, 87 percent of restaurants plan to expand their ‘non-core’ offerings — bottling sauces, selling retail goods, offering cooking classes — according to a recent survey from the payment system Square. The survey respondents also reported that 20 percent of their revenues are currently coming from products and services, instead of dining alone.”

• “During Covid, the Fenway restaurant that became Li’s mainstay was struggling. So she shut it down to build a dumpling factory with table service instead. It opened last month, with big manufacturing capacity, space for classes, and limited dine-in hours: Thursday through Saturday, noon to 6 p.m.”

• “Eli Feldman’s ‘Work From Shy Bird’ program is another pandemic innovation. As the [Boston] restaurant’s co-founder planned out its new outpost in Southie, he knew remote and hybrid work wasn’t going anywhere.”

• “So when the new Shy Bird opened last December, he created a tiered co-working concept that lets diners camp out on their laptops for the day: $23 gets you unlimited coffee and a breakfast or lunch item; $36 — the ‘All Day Affair’ — tacks on an aperitif and snacks.”

• “In a recent survey, the Boston-based point-of-sale system Toast found restaurants are now offering an average of seven service models (things like takeout, dine-in, curbside, or drive-through). Some sites reported they used as many as 11.” READ MORE

REGULATION

States are taking aim at occupational licensing: “In the 1950s, just 5 percent of the overall workforce was licensed by a state — but that has grown to about 25 percent today as manufacturing jobs gave way to service industries. That shift is increasingly the subject of debate between those who feel the expansion has resulted in better quality or health and safety protections that benefit the consumer and others who believe it increases costs, restricts consumer choices and limits economic mobility for those who can’t afford to access a profession.”

• “Recently, New Hampshire's Republican Gov. Chris Sununu said in his annual budget address that the state should recognize all licenses from other states as part of a bid to incentivize workers and business owners to move to the state.”

• “Other states have taken some action on licensing, with Ohio Gov. Mike DeWine signing into law a bill that implements universal license recognition, while new Nevada Gov. Joe Lombardo has asked Nevada's state licensing boards to report on pathways to licensure reciprocity — and has temporarily frozen new licensing.” READ MORE

Here’s the problem with non-competes: “When Karrie Williams graduated from beauty school, she went to work at a Drybar in Bethesda, Md. Drybar’s non-compete clause, she says, barred her from working at another blow-dry salon or taking conflicting one-time gigs like styling hair for weddings, which could pay as much as $250 per updo. Ms. Williams, now 32 years old, says Drybar paid minimum wage at first, but did permit her to do cut-and-color work at other hair salons. The catch: Many of those salons required their own noncompete provisos, too. ‘It hindered my growth,’ she says.”

• “The Federal Trade Commission has proposed a ban on non-compete clauses, holding that the agreements limit workers’ mobility and earnings, as well as hinder businesses from hiring the staff they need.”

• “Many salon operators say that non-competes are essential to protect their businesses. For salons like Drybar, which offers a menu of blow-dry styles, like loose curls or Hollywood waves, noncompetes could keep a stylist from going to a rival once he or she learned how to do the company’s trademark styles.”

• “Patricia Nowakowski, owner of Chicago-area salon Opulent Beauty, says a ban on non-competes would help her expand beyond the 11 stylists she employs. She typically hires workers right out of beauty school, as they aren’t governed by agreements, and avoids hiring from rival salons that use noncompetes, she says.” READ MORE

THE ECONOMY

We’re not done with inflation: “Inflation remains stubbornly elevated in America and unexpectedly picked up in January, a fresh reading of the Federal Reserve’s preferred index showed, underscoring the daunting challenge facing central bankers as they try to wrestle price increases back to a normal pace. The Personal Consumption Expenditures price measure climbed 5.4 percent in January from a year earlier, a report on Friday showed. That was more than the 5 percent economists had expected, and it is up from 5.3 percent in December, which was revised higher.” READ MORE

America is losing the battle with avian flu: “Since February of last year, the avian flu has led to the death of around 58 million farm-raised birds in the U.S., the deadliest outbreak on record. It sent the price of turkey to record highs for Thanksgiving. Weeks later, egg prices hit their own high. Avian flu outbreaks have long been a risk in the chicken, turkey, and egg businesses. In the past, though, the outbreaks subsided after a few months, easing price spikes. Some government officials, scientists, and poultry industry executives now say the avian flu is likely to stick around, potentially keeping egg and turkey prices elevated for the foreseeable future.”

• “Smaller egg producers, facing rising costs and the threat of new outbreaks, have been hesitant to restock farms at full capacity, also crimping supply, industry analysts said.” READ MORE

LITIGATION

Miyoko Schinner, founder of Miyoko’s Creamery, is being sued for stealing intellectual property from Miyoko’s Creamery: “According to the filing, the board unanimously voted to terminate Schinner from her position of CEO in June 2022, after she ‘continually demonstrated that she lacked the necessary business and operational management skills to effectively run a rapidly expanding company and recruit and maintain a high-caliber executive team.’ The company officially announced it had parted ways with Schinner and had retained an executive search firm to replace her, in a press release last week, the same day the lawsuit was filed. Schinner, who is well known in the world of plant-based cheese, started her namesake business in 2014 and wrote ‘Artisan Vegan Cheese,’ a definitive reference source for making non-dairy cheese.”

• “Once Miyoko’s Creamery’s leadership started working to remove Schinner as CEO, the lawsuit says that she ‘hatched a plot to steal the company’s property, trade secrets, and confidential information so that she could create a competing company.’”

• “Schinner responded to the litigation on her personal LinkedIn account: ‘I am shocked that certain board members have decided to file a lawsuit against me,’ she wrote. ‘There are wild untruths about me that are designed to destroy me and get me out of the way. I have been cooperative with the company since my termination.’” READ MORE 

PROFILE

How one Ukrainian company has managed to survive and even thrive during the war: “It was exactly a year ago, and the Ukrainian pet food maker Kormotech had concluded its annual meeting. The mood was buoyant. Business was booming, the factory was running 24/7, and sales were projected to grow by double digits. ‘We had a beautiful budget,’ Rostyslav Vovk, the company’s chief executive and founder, recalled almost dreamily. The next morning, air sirens sounded. Russia had invaded. Mr. Vovk called his top managers to meet at a nearby hotel, avoiding the company’s windowed seventh-floor headquarters in Lviv. They had a plan for what had been considered a very unlikely risk — Russian aggression — but it soon proved wholly inadequate.”

• “‘We were not ready,’ Mr. Vovk said. He closed the plant. Raw materials couldn’t get into the country, and deliveries headed abroad couldn’t get out. Staff from the besieged eastern part of the country needed to be evacuated. Employees were joining the military. And the company’s biggest export market, Belarus, was a close ally of Vladimir V. Putin, the Russian president.”

• “Kormotech, a family-owned business with 1,300 employees worldwide, does not produce weapons or drones. It isn’t involved in supplying critically needed electricity, transport or fresh water to ravaged cities.”

• “But it employs people, produces income, earns foreign currency from exports, and contributes tax revenue that the government in Kyiv desperately needs to pay soldiers, repair power lines, and buy medical equipment.” READ MORE

THE 21 HATS PODCAST: MARKETING WORKSHOP

Grayson Hogard Figured Out How to Sell Cookies on LinkedIn: This is the first in a series of episodes we’re calling Marketing Workshops. In an attempt to confront one of the biggest pain points business owners face, we’re offering a series of conversations with owner-operators about their marketing experiences: what’s worked and what hasn’t. We start with Grayson Hogard, co-founder of Grove Cookie Company. For Grayson and his wife, Marie, the company is a bootstrapped side hustle, but in a very short time they’ve come to some very smart conclusions about their marketing. Most importantly, they’ve figured out that the most effective sales channel for their cookies is, of all places, LinkedIn.

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

Thanks for reading, everyone. — Loren