So How’s Business?
In our latest podcast episode, we ask the owners how their year is progressing.
Good Morning!
Here are today’s highlights:
Would you pay $14 million for a Made in the USA vacuum business?
In a tight labor market, you probably can’t just wait for candidates to come to you.
An appeal court blocks a VC firm from offering grants to Black women.
It’s make-or-break for hundreds of climate startups.
THE 21 HATS PODCAST
The Year So Far? It’s Difficult Out There: This week, in episode 198, we get updates from Laura Zander, Sarah Segal, and Jay Goltz. Laura wonders whether the time she’s put into integrating her latest acquisition might have been better spent focusing on her core businesses. Sarah, who has shifted to pursuing smaller clients, asks Laura and Jay to articulate the PR pitch that would interest them. But how do you evaluate the effectiveness of a PR campaign? Does it have to generate sales? Plus: Jay explains why he views confronting his current business challenges as a matter of triage. He also says that if he could write a check for $200,000 and solve his technology problems, he would do it in a heartbeat. Any takers out there?
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BUSINESS FOR SALE
Michael Girdley analyzes a deal for a legacy vacuum brand with an asking price of $14 million and 2022 EBITDA of $2.8 million: “First, any business that’s been around for 80 years has the Lindy effect—if it’s been around a long time, it’ll probably be around a long time. Next — this company isn’t just competing for average household products. They make niche, professional products, from horse grooming to car washes. Getting a foothold in a niche is a lot stickier than being one brand of a million to the everyday consumer. Then there’s the repeat business. Once you sell a vacuum, you can keep selling replacement filters and bags, which is why you see 90 percent of revenue from repeat business. I love that. And how about that Made in the USA patriotism? Sure, some other company might undercut you with cheaper Chinese products, but with some customers you’ll get lifelong loyalty.”
“Red flags: Fundamentally, there’s a questionable moat against new competitors. There’s no reason you can’t make the best stainless steel vacuum ever in China. And that ‘Made in the USA’ branding will only take you so far if the price difference is big enough.They’re also pretty small for their age. There are a lot of competitors in the vacuum business. So how do they get bigger if they haven’t already? And honestly, I don’t want to live in New Jersey, so the location sucks.”
“What I’d ask: Are they manufacturing these vacuums here, or importing parts and assembling them? If they’re manufacturing, it’s an easy growth lever to offshore that labor. Where do the sales come from? As in, what percent of their sales are in the pet market? What percent is car wash blowers? I’d want a better sense of where the money is coming from.”
“What are the latest financials? I’m not doing a deal based on numbers from 2022. Where are things today? What direction are they trending?” SUBSCRIBE HERE
HUMAN RESOURCES
The labor shortage is expected to continue (and continue): Hiring in general continues to be a challenge for business owners, with 8.5 million job openings and only 6.5 million unemployed people in the U.S., according to the latest data from the Bureau of Labor Statistics. But in the skilled trades, the problem is particularly pressing. In the construction industry, over half a million new workers are needed in the U.S., ‘on top of the normal pace of hiring,’ to complete the work expected in 2024, according to a recent report from the Associated Builders and Contractors, a construction trade organization. In the welding sector, the U.S. will need a projected 330,000 new skilled professionals by 2028, according to the American Welding Society. And, by 2030, there's expected to be a global deficit of seven million workers in the green energy sector, according to Boston Consulting Group.”
“To start, businesses need to partner with ‘whoever it is that promotes whatever skill you're needing,’ Sizemore says. Julia Groft, vice president of specializations at ManpowerGroup—the Milwaukee, Wisconsin-based workforce solutions company—says that the smartest organizations are ‘really interconnected,’ partnering with different high schools, workforce boards, and more to build out their talent pipeline.”
“Instead of only focusing on traditionally qualified candidates, look for soft skills—or, as they call it at ManpowerGroup, a candidate's ‘overall learnability.’ For instance, during an interview, Groft says, try to figure out how and when a candidate has stepped ‘up to the plate to adapt and learn something new.’ She says these qualities will only become more important as technology continues to quickly evolve in skilled work.”
“Rogers-O'Brien Construction, a Dallas-based construction company, brings students to its job sites at least once per month. The company places an emphasis on innovation, says chief innovation officer Todd Wynne, and he believes bringing students to physical job sites--and demonstrating the company's use of drones, robotics, and other technologies—helps show them that firsthand.” READ MORE
Gene Marks encourages business owners to consider hiring people who have done time: “In these times of tight labor, one often-overlooked resource is the formerly incarcerated. These are people who have served their time in the prison system and are reentering the workforce. Many of these individuals are looking for a chance to rehabilitate their lives and this is an opportunity not only for them but for suburban businesses looking for workers. Of course, there are issues to consider: skills, transportation, transition to a business environment and potential concerns from existing staff.”
“[Illinois, for example] offers a no-cost bonding insurance service program to help protect employers from employee dishonesty, theft or embezzlement. The state also offers a number of hiring credits as well as an employer tax credit of up to $600 based on wages paid to an ex-felon.”
“Transitioning from prison life back to the real world can be difficult, which is why it’s important for any employer to work with an intermediary. Illinois’ Re-Entry Employment Service Program publishes a list of vetted nonprofit agencies that provide legal aid, education and job training for formerly incarcerated workers and businesses that hire them.”
“John Munson, who owns Anchor Realty Group, a real estate broker with operations in Cook County, is among the hundreds of businesses and workers in the area that have taken advantage of Phalanx’s resources. ‘This has been a great help for our business,’ says Munson. ‘In addition to subsidizing wages, we’ve found that working with an organization like Phalanx can assist in mentoring workers through the process.’”
“‘My advice would be to take a chance,’ says Larry Bernard, general manager of Docks seafood restaurant. Bernard says the hire ratio in the fast-food industry is challenging — out of every 10 people hired, his company may be able to keep four, and within those four maybe two for the long term. But to him, including someone out of prison helps reduce turnover. ‘If you take a chance on someone who’s been formerly incarcerated, and they’re sincere about not returning to their old environment, they’ll be a great asset to the team.’” READ MORE
POLICY
Not all restaurateurs oppose a Massachusetts ballot measure that would require tipped workers to be paid the state’s $15 minimum before tips: “Katrina Jazayeri, cofounder of Juliet, in Somerville, supports the prospect of equality for workers. ‘I think paying full wage is also an inevitable thing to do in a place like Massachusetts,’ Jazayeri said. ‘I think the tipped wage will eventually go away and the question about how quickly and under what kind of circumstances does that happen, that’s an interesting dynamic.’”
“All her employees are paid more than the state minimum, plus the 20-percent service charge that’s evenly split among everyone other than the two owners and a manager. Everybody works harder when the restaurant’s busy — the front of house and back of house, so they should be incentivized the same, she said.”
“Jazayeri opened her French restaurant eight years ago explicitly to test and figure out how a restaurant would work paying full wages to its entire staff. Yet she understands how daunting the proposed change might appear to her peers in the business. ‘I hope that however it comes about, it’s done in a way that allows all of the different stakeholders — from diners to restaurant owners and everyone in between — to have a shared understanding of why it’s happening, what it means, and how to get ready for it,’ she said.”
“One Fair Wage is working on similar ballot initiatives in Arizona, Michigan, and Ohio. In Massachusetts, the group says it has raised $2 million from an anonymous donor and plans to use most of it to raise voter awareness about subpar working conditions for service-sector workers.” READ MORE
FINANCE
An appeals court has blocked grants to Black women entrepreneurs: “A panel on the U.S. Court of Appeals for the 11th Circuit ruled Monday that an Atlanta-based venture capital firm should be temporarily blocked from issuing grants reserved for businesses owned by Black women, saying that doing so would probably discriminate against business owners of other races. The ruling comes after Fearless Fund, a VC firm dedicated to funding businesses founded by women of color, was sued last August by a group led by affirmative-action opponent Edward Blum. Blum’s cases against Harvard and the University of North Carolina culminated with the Supreme Court overturning race-conscious college admissions last summer. The federal appeals court in Atlanta reversed a lower-court decision that the fund could proceed with its grant contest amid the litigation.”
“‘This is the first court decision in the 150-plus year history of the post-Civil War civil rights law that has halted private charitable support for any racial or ethnic group,’ Jason Schwartz, a lawyer with Gibson, Dunn & Crutcher, which is representing Fearless Fund, said in a statement emailed to The Washington Post. ‘The dissenting judge, the district court and other courts have agreed with us that these types of claims should not prevail.’”
“The plaintiffs, all female entrepreneurs who are not Black, are identified as ‘Owner A,’ ‘Owner B,’ and ‘Owner C.’ Arian Simone, chief executive of Fearless Fund, called the decision ‘devastating’ in a statement emailed to The Post. ‘America is supposed to be a nation where one has the freedom to achieve, the freedom to earn, and the freedom to prosper,’ Simone said. ‘Yet, when we have attempted to level the playing field for underrepresented groups, our freedoms were stifled.’” READ MORE
LITIGATION
Meanwhile, a group of Black-owned businesses is suing over the Corporate Transparency Act: “More than 32 million small businesses nationwide must for the first time report private information about each ‘beneficial owner’ to the federal government, including their name, date of birth, address, and government ID number. Doing so, the suit alleges, would be burdensome to business owners of color who already disproportionately face hurdles and also put immigrant business owners at risk. The lawsuit, filed in federal court in Massachusetts by the Lawyers for Civil Rights, asks a judge to strike down the law as unconstitutional.”
“The regulations would deter investors from supporting small businesses, and require owners to expend significant resources to hire lawyers and submit reports, according to the lawsuit, which was filed on behalf of three Black women business owners in Massachusetts, as well as the Black Economic Council of Massachusetts and the African Community Economic Development of New England.”
“The plaintiffs took particular issue with provisions of the law that allows for the Financial Crimes Enforcement Network, which would gather the data, to share investors’ information with numerous other entities, including law enforcement agencies and foreign governments. Business owners who do not comply face thousands of dollars in fines and up to two years in prison.” READ MORE
STARTUPS
Hundreds of climate startups are racing to escape the valley of death: “At a swampy site just outside of [the Welsh city of Wrexham], Material Evolution is building a factory to make a low-carbon alternative to cement, a big contributor to global emissions. It is facing a tougher climb than the local soccer team’s highly publicized effort to get promoted. Hundreds of young climate companies like Material Evolution are burning through cash and racing to turn new technologies into big businesses. The transition period is called the ‘valley of death’ because so few startups survive it.”
“At stake are tens of billions of investor dollars and technologies aimed at reshaping swaths of the economy, such as cleaner fuels for ships and planes and longer-lasting batteries for electric cars. That is all while executives navigate uncertainty about interest rates, trade policy and government subsidies.”
“Origin Materials, which aims to make plastics and other materials out of plants, went public in 2021 hoping to fund its own factories. But after the pandemic snarled supply chains, construction costs for its first commercial plant in Ontario, Canada, rose more than 10 percent and the factory’s completion was delayed for months before production began last year. The speed bumps forced Origin to slash 30 percent of its roughly 200 employees.”
“Origin has postponed its goal of producing large amounts of plant-based chemicals at its own factories. Instead, it is finding partners that can help it build plants and products that can be mass-produced quickly, such as a recycled-plastic bottle cap. Its shares are down about 90 percent since its listing.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Gene Marks Says CEOs Will Not Be Replaced By AI: This week, Gene responds to a New York Times article suggesting that CEOs should be among those worrying about whether artificial intelligence will take their jobs. For one thing, companies could save a lot of money replacing their leaders with bots. But Gene’s not buying it—although he does see Microsoft and Google making big progress with their AI offerings, so much so that he’s adjusting the services his own business offers. He says it’s time for owners to start paying more attention to AI.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren