Start Up, Throw Up, and Grow Up
In our latest podcast episode, Dana White explains the painful realizations she’s reached about her hair-salon brand, Paralee Boyd.
Good Morning!
Here are today’s highlights:
Celebrating 15 years in businesses, Dan Kahn shares 15 lessons learned the hard way.
The Wall Street Journal reports that rising rates are forcing small businesses to give up on growth.
When a manufacturer converted to a four-day workweek, profits fell. At first.
The founder of Chipotle is back with robots, commissary kitchens, and plant-based meals.
THE 21 HATS PODCAST
Start Up, Throw Up, and Grow Up: This week, Dana White drops a few surprises. When we began this podcast in 2020, Dana had two promising hair salons in Detroit that she’d named after her grandmother, Paralee Boyd. She had an innovative business model designed specifically for women with thick and curly hair. And she was on her way to winning a prestigious business plan competition. All of which presented her with a wide array of opportunities to consider. Would she continue to bootstrap? Would she franchise? Would she take on an investor? Would she open salons on military bases? But the pandemic hit her hard. Struggling to find both employees and customers, she eventually decided to close her Detroit locations and open a new one in Dallas, Texas, where she hoped the greater population density would help her make a fresh start. But in this episode, Dana tells Jay Goltz and Laura Zander that she’s come to a painful realization: “Paralee Boyd is not working.”
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
MANAGEMENT
As Kahn Media celebrates its 15th anniversary, Dan Kahn shares 15 lessons, including, Never stop pitching: “Leaders eat last. Once I started scaling, I needed things like a payroll company, HR consultants, insurance providers, and benefits like 401k plans. Those are important for attracting the right people but they’re expensive. Think of it as an investment not a cost, and pay yourself with whatever is left over, even if that means forgoing a salary for a while.”
“Have an accountant you can trust and a bookkeeper you can count on. We made this mistake early on and it’s a common one. Make sure your books are clean and you have a clear P&L to use as a road map for growth starting on day one.”
“Don’t hire employees until you absolutely have to, then hire the very best people you can afford. Hiring too fast or too soon will put a business in a cash crunch. But—like all things in life—you get what you pay for. So as you scale, hire the best people you can, not the cheapest.”
“Always be closing. I learned this one years ago, when I stopped pitching new business for a beat when we had a healthy client roster and the staff was solid. Then we lost one client and another went Chapter 11, and I ended up not getting paid for a year. Lesson learned—never stop pitching, cultivating leads, and closing deals.” READ MORE
FINANCE
The Wall Street Journal says small businesses are slamming the brakes: “Tom Rauen, owner of 1-800-Tshirts, said he had to delay the purchase of a $50,000 digital printing machine for his Dubuque, Iowa, company. The new equipment would allow the 35-person screen printing, embroidery, and promotional products business to bring more production in-house, adding flexibility and cutting turnaround time. Rauen said he worries the 18-year-old company would struggle to make loan payments in January and February when sales normally slow. He plans to put off the purchase until spring while he accumulates enough cash to cover the expense. ‘It slows down our growth,’ said Rauen. ‘When the cost of capital was lower, it was a little easier to take on a bigger risk and bite off a little more.’”
“The average interest rate small businesses paid on short-term loans has stood at 9 percent or higher over the past three months, according to the National Federation of Independent Business, up from 6.7 percent a year earlier and 4.6 percent in August 2021.”
“Small businesses spent roughly 6 percent of revenue on interest payments in 2021, before the recent round of rate increases, according to Goldman Sachs, versus 2 percent for larger companies. The difference reflects higher rates on small-business debt and higher debt-to-output, Goldman said.”
“Becker Aviation, a distributor of aviation fueling equipment and accessories, is stepping up collection efforts in an attempt to reduce interest expenses. The interest rate on the East Dundee, Ill., company’s line of credit now stands at 9.75 percent, up from 4.5 percent in February 2022.”
“Becker’s accounts receivable manager now spends as many as 35 hours a week managing receivables, nearly twice as much as a year ago. ‘We’re not letting anybody get late,’ said Kerkman. ‘We really need to concentrate on cash flow,’ he said. ‘Digging into the line of credit is expensive.’” READ MORE
MANUFACTURING
This manufacturer decided to try a four-day workweek: “Advanced RV builds custom, luxury motorhomes out of Mercedes-Benz cargo vans in Willoughby, Ohio. It is one of more than 200 companies and only a handful of manufacturers that have taken part in an ongoing global trial led by the organization 4 Day Week Global. For six months, businesses agree to reduce working hours while maintaining the same pay. The goal is not to do less with less but to maintain 100 percent productivity by bringing more energy and efficiency to the workplace, while lessening fatigue and burnout. The success stories coming out of the trial have offered a work-weary public hope that a better work-life balance is achievable. Of the 41 American and Canadian companies that began the trial in 2022, none has reported going back to working 40 hours a week.”
“‘Think about it. What more impact could a person have on a number of people that work for them than giving them 50 holiday days a year, a three-day weekend every weekend?’ says [CEO Mike] Neundorfer. ‘It just seemed like the most significant thing I could do as a business owner and manager.’”
“Neundorfer knew it was a gamble, one he thought had a 50/50 chance of success. The vast majority of other companies in the four-day workweek trial employ office workers. Many of them are nonprofits. Still, as a small business, he says it was easy for him to experiment. Advanced RV has 50 employees, no shareholders other than Neundorfer and his wife, and no formal board.”
“He asked every department whether there were tools or equipment that could speed up tasks. His upholsterers asked for an industrial sewing machine that would allow them to bind carpets in a quarter of the time. ‘This was a no-brainer,’ he says.”
“Neundorfer says Advanced RV did see a dip in output as a result of moving to a 32-hour workweek. ‘You lose productivity,’ he says. ‘And when you lose productivity, you lose some volume, and you lose profit.’ Now a year and a half into this experiment, he says the company has nearly recovered those productivity losses.” READ MORE
HUMAN RESOURCES
An increasing number of Americans say they’re experiencing brain fog, and the increase is greatest among young people: “The sharp increase captures the effects of long Covid for a small but significant portion of younger adults, researchers say, most likely in addition to other effects of the pandemic, including psychological distress. But they also say it’s not yet possible to fully dissect all the reasons behind the increase. Richard Deitz, an economist at the Federal Reserve Bank of New York, analyzed the data and attributed much of the increase to long Covid. ‘These numbers don’t do this — they don’t just start suddenly increasing sharply like this,’ he said.”
“At the start of 2020, the survey estimated there were fewer than 15 million Americans ages 18 to 64 with any kind of disability. That rose to about 16.5 million by September 2023.”
“Studies estimate some 20 percent to 30 percent of people who get Covid have some cognitive impairment several months later, including people with symptoms ranging from mild to debilitating. Research has also shown clear biological changes from the virus related to cognition, including, in some long Covid patients, lower levels of serotonin.”
“The number of working-age Americans with a disability who are unemployed or out of the labor force, like Ms. Carr, has roughly held steady during the pandemic. But the number of working-age Americans with a disability who are employed has increased by an estimated 1.5 million people, census data show.” READ MORE
The surge in low-wage pay is over: “Low-wage workers were the labor market’s surprise winners of the past few years. As employers clamored to hire from a limited pool of workers, Americans in lower-paying industries gained leverage to obtain some of the largest pay raises and perks. Government relief during the pandemic padded those workers’ finances. Now, that leverage is weakening. More workers are seeking jobs, and the economy is feeling the impact of the Federal Reserve’s campaign to combat inflation. That has resulted in slower wage growth overall, but particularly at the lower end of the pay scale.”
“Average hourly wages in leisure and hospitality, often viewed by economists as a proxy for lower-wage work, were up 7 percent from a year earlier at the start of 2023, according to Labor Department data. That had eased to 4.5 percent by last month. Wage growth for private-sector workers overall slowed by a much smaller 0.3 percentage point over the same period.” READ MORE
THE ECONOMY
Inflation didn’t rise in October: “Inflation was flat in October from the previous month, providing a hopeful sign that stubbornly high prices are easing their grip on the U.S. economy. The consumer price index, which measures a broad basket of commonly used goods and services, increased 3.2 percent from a year ago despite being unchanged for the month, according to seasonally adjusted numbers from the Labor Department on Tuesday. Economists surveyed by Dow Jones had been looking for respective readings of 0.1 percent and 3.3 percent. Headline CPI had increased 0.4 percent in September.”
“Excluding volatile food and energy prices, core CPI increased 0.2 percent and 4 percent, against the forecast of 0.3 percent and 4.1 percent. The annual level was the lowest in two years.” READ MORE
STARTUPS
Steve Ells, the founder of Chipotle, is trying a competitive concept: “Ells early next year will open in Manhattan the first location of Kernel, serving meat-free sandwiches, salads and sides made to order. A skeleton crew will run the restaurants alongside robots, making faux chicken sandwiches and sides such as cucumbers with wild rice. Customers’ orders are beamed to the kitchen, where a robotic arm puts food-laden pans into the oven. A programmed toaster flips a bun into the oven for warming, while conveyor belts move dishes through the kitchen. Workers finish off the dishes, package the food and slot it into cubbies for pickup. ‘We’ve taken a lot of human interaction out of the process and left just enough,’ Ells said.”
“Ells assembled a small team to figure out how to use a commissary kitchen and robotics to squeeze into spaces around 1,000 square feet or smaller and churn out to-go orders. Kernel locations need three workers, rather than the dozen that many fast-casual eateries have working.”
“Kernel’s menu will be priced to compete with Chipotle and other fast-casual players. To keep employees loyal, Ells said the company will invest savings from its lean staff into higher salaries and better benefits than other chains offer.”
“Ells, who eats meat but tries to limit it, said few to-go restaurants serve tasty plant-based meals. Sketching out the Kernel concept, he tapped Andrew Black, a former chef at high-end Eleven Madison Park, to draw up some plant-based sandwiches and sides. Kernel’s menu leans on legumes and vegetables rather than newer plant-based meat alternatives.” READ MORE
OBITUARY
Jim Toole, former owner of Capitol Hill Books: “Jim Toole, a Navy rear admiral who commanded cruisers, destroyers and Mekong River patrol boats before taking charge of Capitol Hill Books, the Washington bookstore that became as well known for his endearingly grumpy presence at the front desk as for its stock of used and rare books, died Nov. 11 — Veterans Day — in the District. He was 86. Adm. Toole owned the shop for more than two decades before selling it to a group of longtime employees in 2018. He was still working there until his death and had attended its monthly Second Saturday wine and cheese party before having a fatal heart attack later that evening, according to his daughter, Laura Torres.”
“‘When you walked into the bookstore, to him you were walking onto his ship,’ Burk said. ‘The front desk was the conn’ — or conning tower, where an officer controls the ship’s movements — ‘and he was piloting the store from the conn. When he would leave his ship, he’d say, Okay, lad, you take the conn. If you asked him, Hey, Jim, I’ve got a question, he’d reply, You may fire when ready, Gridley, which was [George] Dewey’s famous command from the Battle of Manila Bay.”
“Adm. Toole’s system of ‘controlled disorganization,’ as he called it, seemed unlikely to pass Navy muster. ‘The store is anything but shipshape,’ Naval History Magazine once observed in an otherwise admiring article. Some books were arranged in precarious Jenga-like stacks, including a ‘Tolkien Tower’ and a ‘Wacko Stacko,’ home to books by Sarah Palin and Glenn Beck.”
“At the front of the store, he hung a sign listing trite and overused words that were banned from conversation. That meant no use of ‘perfect,’ ‘awesome,’ ‘like,’ and ‘totally.’ For good measure, he also banned the words ‘Amazon’ and ‘Kindle.’” READ MORE
Thanks for reading, everyone. — Loren