Taking Partners and Raising Capital: What Could Go Wrong?
Today’s news brings two more cautionary tales, one involving a craft brewer in Massachusetts, the other an ice cream brand in Brooklyn, N.Y.
Good Morning!
Here are today’s highlights:
The investigation into an American Express product designed to help business owners avoid taxes seems to be heating up.
Should business owners celebrate that most men don’t take paternity leave?
The NLRB has put off implementation of its new joint-employer rule pending litigation.
Sales expert Lance Tyson responds to a podcast listener who asks, Sure, everyone wants to hire coachable employees, but how do you identify them?
FINANCE
Remember that Brooklyn couple that built a wildly successful ice cream brand, over-reached, lost the business, and tried again? They just got fired by their investors: “Brian Smith and Jackie Cuscuna, the Brooklyn couple who founded Ample Hills Creamery, have been fired by the same investors who came to the rescue of the popular ice cream brand in June. Norm Brodsky, the angel investor who put together nearly $1 million to help them reopen four stores and a production center last summer, confirmed the firings on Wednesday; they were first reported by Inc., where Mr. Brodsky is a columnist. Mr. Smith said in an interview that he and Ms. Cuscuna had lost everything. ‘We have no equity, no contract and no jobs,’ and were denied severance, he said.”
“But Mr. Brodsky said the terms of the couple’s departure have yet to be negotiated. ‘They are lovely people who have creativity and talent,’ he said. ‘That talent does not extend to running a business.’”
“He and the couple agreed that Mr. Smith and Ms. Cuscuna had quickly clashed with the company’s new chief executive: Lisa Teach, a longtime adjunct professor at the business school endowed by Mr. Brodsky at his alma mater, Rider University, in New Jersey.”
“Mr. Smith and Ms. Cuscuna opened a modest scoop shop near their Prospect Heights apartment in 2011 and spent a decade building Ample Hills into a national brand with 17 stores, Disney tie-ins, endorsements by celebrities like Oprah Winfrey, and packaged pints sold in supermarkets.”
“[Mr. Smith] acknowledged that he and Ms. Cuscuna once again got caught up in the creative challenges of the business; and, trusting Mr. Brodsky, they neglected to secure the contracts and documentation that would have made firing them impossible.” READ MORE
PARTNERSHIP
There’s an unusual partnership dispute brewing in Massachusetts: “Combine water, hops, and barley, and, under the right circumstances, you may wind up with a delicious and profitable beer. But combine business, ambition, and alcohol, and you could get a potentially toxic brew of acrimony and legal trouble. A lawsuit among the shareholders of craft beer standout Tree House Brewing Co. is shaping up to be a classic (albeit, slightly boozier) power struggle over the rights of a minority owner in a private company. A civil complaint filed this month in Hampden Superior Court accuses the two controlling owners of Tree House of placing their own interests over those of people who own smaller stakes in the Charlton-based business.”
“Since launching in 2011, Tree House has garnered wide acclaim from its five locations in Massachusetts and Connecticut. The company exclusively sells its brews on-site, making it ‘unique in its scale and success with the direct-to-consumer model’ and the envy of small breweries in the region, said Adam Romanow, president of the Massachusetts Brewers Guild and founder of Castle Island Brewing Co.”
“Eric Granger, a 2 percent owner and Tree House’s last remaining minority shareholder, alleges that chief executive Nathan P. Lanier and president Damien L. Goudreau paid themselves excessively and concealed pricey real estate purchases while withholding dividends.”
“Geoffrey Farrington, an attorney representing Granger, said the suit shows a ‘larger pattern and practice’ of mistreating minority shareholders. Four other small shareholders have left in recent years — leaving the executives with a combined 98 percent stake.”
“Among the decisions described in the lawsuit are Lanier and Goudreau’s creation of two LLCs that they used to buy $13 million in real estate without Granger’s knowledge — namely land in Charlton and a beachfront home in Sandwich. The lawsuit alleges that the holdings were only disclosed after Granger sent a demand letter in September 2022.” READ MORE
MARKETING
Prosecutors are investigating American Express’s marketing of a product designed to help business owners avoid taxes: “Amex offered the Premium Wire product between 2018 and September 2021. In November that year, the company said some people in its global commercial-services division ‘had failed to uphold our values and had positioned certain products inappropriately, specifically with respect to tax benefits.’ Premium Wire allowed and encouraged customers to use the points they got from having Amex pay their corporate payroll on personal or business travel, or convert them into cash in what one presentation described as a ‘personal tax free benefit.’”
“Brooklyn prosecutors have spoken or attempted to speak with former Amex employees who worked in the business division that served small and midsize companies, where Premium Wire was sold, one of the people with direct knowledge of the investigation said.”
“The investigations are taking a toll on Amex's results-driven culture, current and former sales employees told BI, because compliance staff have gotten more involved in the sales process. That's resulted, they said, in a ratcheting down of employees' opportunities to bring in new business.”
“One of the client segments that Amex sales people targeted for the Premium Wire product were the owners of McDonald's franchises, former employees told BI. In the wake of the government investigations, Amex has made it harder for field sales staff to work with those owners, who are typically large users of corporate cards, the current employee said.” READ MORE
HUMAN RESOURCES
Real wages have risen in the U.S. (but workers are miserable): “Not much unites the world these days. Yet there is one sentiment shared by many people, regardless of nationality: pessimism about the economy. Just one in ten Americans thinks they are better off than a year ago, according to a recent poll conducted for The Economist by YouGov. Similar negativity shows up in surveys elsewhere. Such glumness persists in America despite the remarkable feat performed by its economy: workers’ real wages are significantly higher than before the covid-19 pandemic—even after controlling for inflation. Those on low incomes have done particularly well, benefiting from tight labor markets since 2021. Average weekly earnings for the country’s workers reached nearly $1,170 in October, up by around 3 percent in real terms since the end of 2019.”
“The lowest quartile of earners has seen average annual nominal pay rises of 5.6 percent per year since the beginning of 2020, compared with 3.8 percent for the highest quartile, according to figures compiled by the Federal Reserve Bank of Atlanta.” READ MORE
Most men don’t take paternity leave. Is that good for businesses? “While this may seem like a benefit to employers -- of course you want your employees to be working instead of taking extended leave -- there are some downsides to men not taking paternity leave. Example? Men often don't take paternity leave because they fear it will hurt their careers, reinforcing harmful workplace stereotypes and impacting company culture. As Thekla Morgenroth, a research fellow in social and organizational psychology at the University of Exeter, told the BBC, ‘Men who do take parental leave can face backlash and be seen as weak, lacking work commitment.’”
“You want great paternity leave available to men for the same reason you want great maternity leave available to women -- because it's a great benefit that attracts good employees. But the benefit is only valuable if it's attractive.”
“Fortunately, there's a straightforward way to make paternity leave -- and maternity leave -- more attractive to your employees, and less of a burden on your business: intermittent FMLA. Intermittent FMLA is already an option for employees who become sick: If they qualify for leave under the Family Medical Leave Act, they can take all 12 weeks off at once (as they would need to do for surgery) or take it in small chunks as needed (as would be helpful for physical therapy).” READ MORE
Enforcement of the NLRB’s new joint-employer rule has been put off from December until February because of lawsuits opposing the rule: “Under the ruling, employees who work for a company that has a joint-employer relationship with another company — particularly a larger one that’s not exempt from certain mandates, like having to provide paid sick time, workers compensation insurance, or paid time off — may be entitled to more benefits, compensation, a change of work hours, and the ability to join a union or join collective bargaining efforts with other workers at the joint employer. ‘This rule impacts many small businesses,’ said Tracy Armstrong, a New Jersey-based employment attorney. ‘It’s not just about the control that you exert, but the control that you may be able to exert.’”
“If you own and operate a franchise then there’s a good chance you’re in a joint-employer relationship with your franchisor. If your franchise business owns other stores that are independent and separately operated locations, you’re probably still the joint employer of all the employees.”
“If you’re a subcontractor to another company and that company has some control over the hours and duties of some of your employees then it’s possible you have a joint relationship with them. If your IT firm has one of their employees on your site on a regular basis, you could be a joint employer. Or if you use a staffing company for some or all of your workers — even temporary workers performing administrative work — then you may be in a joint-employer relationship.”
“The U.S. Chamber of Commerce also expressed concern over how the rule will be put into practice. ‘Many companies could find themselves facing liability for workers they don’t employ and workplaces they don’t actually control,’ the Chamber said in a statement. ‘Worse yet, if a non-union employer is found to be a joint employer with a unionized company, the non-union company now has to sit at the bargaining table.’” READ MORE
FINANCE
Owners Bank says it is designed specifically to serve the needs of small business owners: “Beginning now, small business owners in Pennsylvania – alongside owners in Rhode Island, Massachusetts and Connecticut – can sign up for business checking, interest checking and savings accounts, and take advantage of digital apps that help make financial tasks such as invoicing and payment faster and easier. ‘Big banks are built for big businesses. So, at a time when small businesses represent a massive and incredibly impactful portion of the state’s business landscape, workforce and economy, we thought it was about time there was a bank in Pennsylvania that caters directly to the needs of its small businesses,’ said David Mitchell, founder and CEO of Owners Bank, a division of Liberty Bank.”
“Owners Bank’s small business loans were developed to promote the financial well-being and success of businesses that are often left behind by big banks. While most banks request two years of tax returns to apply for a loan or line of credit, Owners Bank asks that businesses be in business for a minimum of six months, creating more opportunities for startups or new businesses seeking options.”
“In addition, Owners Bank can share an application decision within three days for well-prepared borrowers along with no auto-decline — even if a borrower isn’t automatically approved, Owners Bank representatives will reach out for an individualized consultation to understand the business’s unique needs and identify a solution.” READ MORE
THE ECONOMY
U.S. GDP grew even faster than we thought in the third quarter: “Gross domestic product, a measure of all goods and services produced during the three-month period, accelerated at a 5.2 percent annualized pace, the department’s second estimate showed. The acceleration topped the initial 4.9 percent reading and was better than the 5 percent forecast from economists polled by Dow Jones. Primarily, the upward revision came from increases in nonresidential fixed investment, which includes structures, equipment and intellectual property. The category showed a rise of 1.3 percent, which still marked a sharp downward shift from previous quarters.” READ MORE
INSURANCE
The rising cost of insurance is sucking $74 billion out of the economy: “The cost to insure major investments like homes and cars has over the past few years been skyrocketing, hitting owners' pocketbooks and trickling down to renters. Because this insurance is often essential, the increased prices are putting a vice on consumers' ability to spend elsewhere. Economists worry that rising property-insurance costs — on top of pressures like student-loan repayment and dwindling savings — could cause many Americans' household budgets to finally crack and hamstring the driving force behind the US economy's sustained strength.”
“The reasons for the jump in insurance prices are varied, but the most obvious is the climate crisis. The number and intensity of destructive weather events are on the rise, causing greater damage to homes and cars. Inflation has made the work and materials necessary for repairs more expensive.”
“‘You might get mad at the insurance company for raising your premiums,’ said Mark Pauly of the University of Pennsylvania's Wharton School of Business, ‘but they're doing that either because they already have suffered substantial losses in their homeowners business or they're trying to protect against having that happen in the future.’”
“The biggest threat, economists said, is to three groups: people on fixed incomes, people in older homes, and people in high-risk areas.” READ MORE
SUSTAINABILITY
Should we give up on recycling? “Lately, a number of reports have cast doubt on the very idea of recycling, a habit ingrained in many of us since childhood. Recycling has been called a myth and beyond fixing as we’ve learned that recyclables are being shipped overseas and dumped (true), are leaching toxic chemicals and microplastics (true), and are being used by Big Oil to mislead consumers about the problems with plastics. Packaging companies have used the promise of recyclability to flood the world with disposable and often toxic plastic trash. The consequences are now clear — in the trash, in our rivers and oceans, in the microplastics in our bloodstreams and in the plastic quite literally falling from the sky.”
“For the past four years, I’ve traveled the world writing a book about the waste industry, visiting paper mills and e-waste shredders and bottle plants. I’ve visited all kinds of plastics recycling facilities, from gleaming new factories in Britain to smoky, flake-filled shredding operations in India.”
“While I’ve seen how recycling has become inseparable from corporate greenwashing, we shouldn’t be so quick to cast it aside. In the short term, at least, it might be the best option we have against our growing waste crisis.”
“Companies should be phasing out products that can’t be recycled and designing more products that are easier to recycle and reuse rather than leaving sustainability to their marketing departments. Lawmakers can help by passing new laws, as cities like Seattle and San Francisco have done, to help increase recycling rates and drive investment into the sector.” READ MORE
HIRING
In response to this week’s podcast with sales expert Lance Tyson, Great Game of Business coach Larry Chase asked the following: “Lance Tyson shared that he wants to hire people who are coachable. The stories about his sons were fun to hear as an example of being coachable. Certainly curious how Lance identifies people in the hiring process who are likely coachable. What kinds of questions? What kinds of characteristics? What else?”
Here’s Lance’s response: “In our hiring process, we employ several methods to gain a comprehensive understanding of a candidate's abilities and attitudes. First, we inquire about their approach to coaching others, particularly in situations involving mistakes or attitude problems. This reveals not only their coaching style but also how they might receive coaching and feedback themselves.”
“Additionally, we discuss their preferred leadership and management styles. During the interview, we occasionally interrupt for clarifications to observe their reaction to such interruptions. In final interviews, we often ask candidates to make presentations, after which we provide feedback to assess their responsiveness. These strategies collectively help us form a well-rounded view of each potential new hire.”
THE 21 HATS PODCAST
Are Salespeople Built or Born? It used to be that best practices in sales were pretty standard across the board. But since the pandemic and with the advent of artificial intelligence, says Lance Tyson, founder of the Tyson Group sales consultancy, it’s like the Wild West out there. Suddenly, everyone’s playing by different rules, and the best sales approach can vary, depending on the seller, the target, the industry, the region of the country. The keys, Tyson says in this week’s bonus episode, are to pay attention and stay flexible.
“Along the way, he addresses a host of hot-button topics: How important is it to see a prospect face-to-face? Is cold-calling dead? Will A.I. replace sales trainers? What’s the right balance between base and commission? How do you handle the salesperson who can’t or won’t be a team player? How do you get salespeople to take maintaining their CRM seriously?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren