Surviving Bad Clients and Bad Partners

Both can be hard to avoid, but our latest podcast episode offers lots of takeaways on how to cope with them.

Good morning!

Here are today’s highlights:

• Business owners continue to confront mixed economic messages.

• More employers are tracking employee productivity.

• When the pandemic relief checks went out, thousands of people stole billions of dollars.

• “Box fatigue” has hit the apparel industry.

THE 21 HATS PODCAST

This week, Shawn Busse and Paul Downs talk about what they’ve learned from their worst client experiences. Shawn, for example, tells us that he’s come to think about taking on a client much the way he thinks about hiring an employee. And Paul stresses the importance of watching what he says about difficult clients to his employees, because he doesn’t want to encourage a cynical attitude. From bad clients, our conversation shifts to bad partnerships. Even though their own partnerships ended poorly, both Shawn and Paul emphasize that having a partner can be invaluable in getting a business off the ground. In fact, Paul says he might even consider taking on a partner again. Plus, both Shawn and Paul explain why all the talk of recession is not giving them second thoughts about their ambitious marketing plans.

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

THE ECONOMY

Business owners continue to confront mixed economic messages: “Construction crews in Montclair, N.J., are working overtime on a $150,000 expansion of Paper Plane Coffee Co. that will double the shop’s size to accommodate booming demand and create a new tasting room and events space. But if the economy sours, owner Jonathan Echeverry already has a plan B. He’ll pause hiring and trade down to cheaper varieties of coffee beans and local milk that’s a little less creamy. ‘It’s one big question mark: We’re growing so fast that we need bigger machines and a bigger manufacturing facility, but what are things going to look like a year from now?’ he said. ‘I’d be lying if I said I wasn’t worried about a recession.’”

• “Two and a half years into the pandemic, small-business owners say they’re just beginning to recover from the sudden blow that hobbled many of them during the early 2020 pandemic restrictions.”

• “Since then, owners have dealt with surging costs, labor shortages and large swings in consumer demand often influenced by area cases of the coronavirus.”

• “Now they’re being barraged by diverging economic messages that have many wondering what to do next.” READ MORE

Manufacturing activity in New York state has fallen dramatically: “The New York Federal Reserve said its Empire State Manufacturing Survey plunged by 42 points in August to -31.3. That marks the second-largest monthly decline on record for this closely watched gauge of economic activity. The biggest drop was recorded in April 2020, when the economy was ravaged by the onset of the Covid-19 pandemic. The August reading leaves the Empire State survey at its lowest point since May 2020 and at among the lowest levels since the survey launched in April 2002. Any reading below zero indicates a contraction.”

• “‘Startlingly terrible,’ Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note on Monday. ‘Momentum in the manufacturing sector certainly has slowed, but this is a collapse.’”

• “It's worth noting that N.Y. manufacturing represents just a small portion of America's broader manufacturing base. Investors and economists will be on alert for similar declines in the coming days and weeks from other regional and national manufacturing gauges.” READ MORE

HUMAN RESOURCES

The performance of more workers—even highly paid workers—is being tracked, recorded, and ranked: “Architects, academic administrators, doctors, nursing home workers, and lawyers described growing electronic surveillance over every minute of their workday. They echoed complaints that employees in many lower-paid positions have voiced for years: that their jobs are relentless, that they don’t have control — and in some cases, that they don’t even have enough time to use the bathroom. In interviews and in hundreds of written submissions to The Times, white-collar workers described being tracked as ‘demoralizing,’ ‘humiliating’ and ‘toxic.’ Micromanagement is becoming standard, they said.”

• “But the most urgent complaint, spanning industries and incomes, is that the working world’s new clocks are just wrong: inept at capturing offline activity, unreliable at assessing hard-to-quantify tasks and prone to undermining the work itself.”

• “TikTok videos offer tips on outsmarting the systems, including with a ‘mouse jiggler,’ a device that creates the appearance of activity. (One popular model is called Liberty.)”

• “Some employers are making a trade: ‘If we’re going to give up on bringing people back to the office, we’re not going to give up on managing productivity,’ said Paul Wartenberg, who installs monitoring systems for clients including accounting firms and hospitals.” READ MORE

Apple wants employees back in the office on September 5: “The company will require employees to work from the office on Tuesdays, Thursdays, and a regular third day that will be determined by individual teams. That is a shift from Apple’s original plan, which called for in-person work on Mondays, Tuesdays, and Thursdays. The company notified employees of the new approach on Monday. The Cupertino, California-based tech giant has been working toward getting its employees back in the office since at least June 2021, when it first announced the three-day policy. But virus flare-ups forced the company to push back deadlines, leaving workers on a two-day-a-week schedule. The new policy will first take effect in Silicon Valley and then spread to other offices.” READ MORE

POLICY

In the restaurant industry, pandemic relief created two classes of business: “‘We were basically floating out in the middle of the ocean trying to make ends meet,’ [Mayes Oyster House owner Matt] Corvi said, who bought out his business partners shortly before the pandemic. ‘When we saw the Restaurant Revitalization Fund was coming we figured our ship was going to be able to come in and weather all of Covid. It was a depressing let down not to get it.’ The $28.6 billion of grant money was meant to help the industry after months of government-mandated closures. The funds dried up in just three weeks—with promises from lawmakers it would eventually be replenished. That never happened.”

• “Only around 40 percent of the program’s 250,000 total applicants received cash, leaving more than half with nothing. That unequal distribution has served to create two classes of businesses: Haves and have-nots.

• “A national survey conducted by the Independent Restaurant Coalition found 80 percent of businesses who did not receive RRF money said they were in danger of permanent closure without additional aid.” READ MORE

Massachusetts expects to get a boost from the CHIPS Act: “The CHIPS Act includes $39 billion in subsidies for construction of new chip factories, called ‘fabs,’ as well as a 25 percent tax credit for purchases of chip-making equipment. There’s also $11 billion to help pay for research in advanced manufacturing techniques and for workforce training. And there’s an $82 billion boost to federal spending on scientific research and development.”

• “It’s unlikely that Massachusetts will attract a massive new chip factory. Many of the world’s top chip makers have already committed to other U.S. locations, including Texas, Arizona, and Ohio, where semiconductor giant Intel will soon begin building two new fabs at a cost of $20 billion.”

• “Many of the state’s likely beneficiaries don’t make chips; instead, they build the intricate and costly machines used by the chip makers. For instance, Onto Innovation in Wilmington makes multimillion-dollar systems that measure the nanometer-sized features on silicon wafers, to make sure they’re being correctly manufactured.”

• “And MKS Instruments in Andover makes an array of products used in chemically treating the silicon wafers, as well as optical systems for etching the circuits onto the chips.” READ MORE

Billions of dollars were stolen by thousands of people: “In the midst of the pandemic the government gave unemployment benefits to the incarcerated, the imaginary, and the dead. It sent money to ‘farms’ that turned out to be front yards. It paid people who were on the government’s ‘Do Not Pay List.’ It gave loans to 342 people who said their name was ‘N/A.’ As the virus shuttered businesses and forced people out of work, the federal government sent a flood of relief money into programs aimed at helping the newly unemployed and boosting the economy. That included $3.1 trillion that former President Donald J. Trump approved in 2020, followed by a $1.9 trillion package signed into law in 2021 by President Biden. But those dollars came with few strings and minimal oversight. The result: one of the largest frauds in American history, with billions of dollars stolen by thousands of people.”

• “Now, prosecutors are trying to catch up. There are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the F.B.I., the Secret Service, the Postal Inspection Service, and the Internal Revenue Service.”

• “The federal government provided about $5 trillion in relief money in three separate legislative packages — an enormous sum that is credited with reducing poverty and saving the country from a prolonged, painful recession.” READ MORE

MARKETING

Rob Walker writes that Cinnabon’s risky decision to play a starring role in the story of a drug-gang lawyer has paid off: “Nearly nine years ago, as the series Breaking Bad was drawing to a close, Bob Odenkirk’s character, Saul Goodman, made his great escape from the imminent bust of the drug operation at the heart of the show. ‘If I’m lucky,’ Goodman said, ‘in a month from now, best-case scenario, I’m managing a Cinnabon in Omaha.’ The line wasn’t exactly flattering to Cinnabon; it kinda treated the familiar mall chain as a punchline. But Cinnabon evidently didn’t see it that way—or, at least, had a sense of humor about it. Either way, the company has leaned in hard to its subsequent association with the fictional, ethically dubious protagonist of Breaking Bad successor show Better Call Saul—and that attitude has proven one of the savviest brand-management decisions in recent memory.”

• “In essence, Cinnabon has simply trusted in the belief that the show won’t harm the brand, and has thus cooperated with production-related requests.”

• “In fact, Cinnabon is marking the AMC show’s final episode on Monday with a Saul-centric promotion: It’s pushing a coupon code (CALLSAUL) for a buy-one-get-one-free ‘Center of the Roll’ mini-treat offer, available via the chain’s app.” READ MORE

“Box fatigue” is hitting the apparel industry: “Not that long ago, major retailers were scrambling to get in on the subscription craze sweeping the apparel industry. But then the pandemic upended daily routines and made shopping behaviors far less predictable. Now, some analysts and investors are questioning the appeal of these types of businesses and their ability to hold onto customers, who often sign up during a big life change but eventually lose interest.”

• “After acquiring the Trunk Club in 2014, Nordstrom announced in May that it was winding down the business and focusing on its in-house personal styling services.”

• “Rockets of Awesome, which curates boxes of clothing for kids, started running low on funding early this year as it hunted for a buyer.”

• “Stitch Fix, one of the best-known services in the space, was gaining traction in the years leading up to the pandemic but is now losing money and subscribers.”

• “Over time, [Edward Yruma, a managing director and senior research analyst covering the retail industry at Piper Sandler] noted companies are also realizing the drawbacks of the subscription business model, ‘People return too much stuff with these boxes, and you just can’t drive enough profit from it.’” READ MORE

THE 21 HATS PODCAST: DASHBOARD

What the Inflation Reduction Act means for business owners: John Arensmeyer, founder and CEO of Small Business Majority, an advocacy group for entrepreneurs and businesses, talks about what business owners can expect from the legislation coming out of Washington, D.C.—not just the climate, tax, and health care bill but also the CHIPS and Science Act. In many instances, the benefits will come indirectly, he says, but they will come.

• 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