That Would Put Me Out of Business

In our latest podcast episode, the owners talk about why they charge what they charge, how they manage employee reviews, and the challenges of outsourcing manufacturing to China.

Good Morning!

Here are today’s highlights:            

• There’s more evidence that merchant cash advances are hazardous to your health.

• Gene Marks runs a digital marketing test, and digital marketing fails.

• Laying off employees may not save you as much money as you think.

• Developers are turning homes into restaurants and creating a new opportunity for food startups.

THE 21 HATS PODCAST

This week, Mel Gravely, Liz Picarazzi, and Jaci Russo talk about how they set prices: Jaci explains why she refuses to respond to requests for proposal. “We have not participated in a single RFP in 15 years,” she says, “and we won’t under my watch.” Mel explains how his construction company manages to get work despite always being among the highest-priced bidders (which is why he never gets government jobs). And Liz tells us what happened when she was forced to raise prices because of the tariffs placed on goods manufactured in China. But first, she tells us what she’s thinking now that there’s a possibility those tariffs could go to 60 percent. Plus: we review how the three owners handle employee reviews.

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

FINANCE

A new report shows how online lenders can push small businesses into bankruptcy: “More than 100 businesses that filed for chapter 11 since the start of 2023 have attributed their bankruptcies at least partly to cash advances, up from at least 68 for 2022 and 16 for 2021, according to a Wall Street Journal review of court records. A Brooklyn clam bar visited by celebrity chef Anthony Bourdain; Brooklyn retail chain Showfields, known for showcasing local vendors and artists; and, last week, Florida-based countertop maker International Granite & Stone are among those restructuring in chapter 11.”

• “These merchant cash financiers, estimated to be about 100 participants, provided $19 billion in 2019, up from $8.6 billion in 2014, according to estimates in a 2023 report published by the U.S. Consumer Financial Protection Bureau. The growth has prompted the CFPB to try to tighten regulation on the industry, leading the cash providers to fight back in a lawsuit against the regulator.”

• “The popular financing comes at a cost. A 2019 Federal Reserve report said the equivalent annual percentage rates for cash advances can exceed 80 percent or ‘even rise to triple digits.’ ‘We frequently see this…that in the last days before a bankruptcy filing, a company got in over its head with these merchant cash advances,’ said Stacey Jernigan, a U.S. bankruptcy judge in Dallas.”

• “In December, the Revenue Based Finance Coalition, a group of merchant cash advance providers, sued the CFPB, saying it shouldn’t be subject to ‘heavy handed’ amendments that would create significant costs if they become effective. The regulator ‘failed to consider the unique benefits that sales-based financing brings to the small business financing market,’ the coalition said.” READ MORE

MARKETING

Gene Marks tried a digital marketing test: This week, Gene talks about a little experiment he ran recently in which he boosted a post on X, formerly known as Twitter, that was designed to send people interested in his book on customer relations software to a landing page on his website. X reported that the post was a big success. But was it? Gene offers a slightly profane rebuttal. Plus: He also talks about three Jeff Bezos quotes that he believes can change how you run your business, and he explains how companies can commit wage theft without even realizing it.

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

ARTIFICIAL INTELLIGENCE

Air Canada found out that you really have to pay attention to what your chatbot promises customers: “After his grandmother died in Ontario a few years ago, British Columbia resident Jake Moffatt visited Air Canada’s website to book a flight for the funeral. He received assistance from a chatbot, which told him the airline offered reduced rates for passengers booking last-minute travel due to tragedies. Moffatt bought a nearly $600 ticket for a next-day flight after the chatbot said he would get some of his money back under the airline’s bereavement policy as long as he applied within 90 days, according to a recent civil-resolutions tribunal decision.”

• “But when Moffatt later attempted to receive the discount, he learned that the chatbot had been wrong. Air Canada only awarded bereavement fees if the request had been submitted before a flight. The airline later argued the chatbot was a separate legal entity ‘responsible for its own actions,’ the decision said.”

• “As companies have added artificial intelligence-powered chatbots to their websites in hopes of providing faster service, the Air Canada dispute sheds light on issues associated with the growing technology and how courts could approach questions of accountability. The Canadian tribunal in this case came down on the side of the customer, ruling that Air Canada did not ensure its chatbot was accurate.” READ MORE

Here are some suggested prompts to get ChatGPT to improve your sales funnel: “I asked five AI and prompting specialists for their top tips on how entrepreneurs can set up for success.”

• Dan Linden, co-founder of Chief AI Officer suggests starting with this prompt: “Generate customized content ideas for each stage of the sales funnel, based on the following business details: [describe your business]. Carefully considering my goal, which is [describe your main business objective], create three content ideas for each of the following stages of the sales funnel: Awareness, interest, consideration, intent, evaluation, purchase, post-purchase. For each stage, list the ideas in a chart format, ensuring a step-by-step approach for clear and actionable strategies.”

• Darby Rollins, founder and CEO of Gen AI University, suggests using this prompt to better understand your target audience: “As a skilled marketer and customer researcher, your role is to delve into the psychology that influences buying decisions for [product/service] with the goal of [describe your business goal]. Start by identifying the main market segments relevant to [product/service]. One at a time, analyze each segment to understand its unique characteristics. Following this, develop a core content brief tailored to buyers within each segment, specifically for [product/service] in the [niche]. This involves a detailed examination of the audience to grasp their challenges, interests, and behaviors, focusing on their geographic location, demographic details (job roles, industry, age, income, etc.), psychographic traits (needs, wants, desires, and behaviors), and pain points.”

• Kyle Balmer, founder of the AI Business Breakthrough Academy suggests a prompt to make sure headlines are effective: “As a copywriter specializing in website sales pages, your task is to craft 10 potential headlines for my business, [describe your business], highlighting its primary benefits [describe benefits] to your specified audience [provide audience details]. The objective is to create short, clear, and impactful headlines that encourage visitors to continue exploring the page. Ensure your headlines are varied, incorporating elements such as numbers for specificity, humor to engage, surprising statements to captivate, and negative framing to address potential concerns or reverse psychology tactics.” READ MORE

HUMAN RESOURCES

Thanks to a new law in New York City, employers are letting job candidates opt out of having their resumes read by a robot: “Jennifer Maravegias has been applying for dozens of jobs, so she is ready for questions about work experience and salary expectations. A recent question on an online application stumped her, though. ‘Check this box if you want to make sure this isn’t scanned by a machine,’ the laid-off project manager says she was prompted before submitting her application.”

• “More job seekers in New York City can now request to opt out of letting artificial intelligence vet their résumés and job applications, thanks to a new law governing AI and hiring in the city. Some companies are extending the choice to non-New York applicants, too.”

• “New York’s law—the first of its kind in the nation—aims to bring transparency to the role of software in the job-application process. For any job based in New York, employers must disclose when AI is used to ‘substantially assist’ in hiring and offer job applicants the chance to pass on such vettings in those cases.”

• “But letting prospective workers forgo AI résumé reviews doesn’t ensure a human will review those applications instead, employment lawyers and researchers say.”

• “‘I’d say you’re more or less guaranteed not to be looked at,’ said Joseph Fuller, a professor at Harvard Business School who was the lead author on the study.” READ MORE

Layoffs can bring hidden costs: “I asked Culture Amp, which makes software for companies to track employee engagement, to take a look at their data. Among its clients that conducted layoffs since the pandemic — a period we may look back on as an era of peak callousness — engagement among employees plummeted the minute the ax fell. Even more remarkable, the demoralization and distrust among the survivors got worse as the months wore on. And as decades of studies in organizational psychology have shown, employee dissatisfaction leads to all kinds of costly problems, including low productivity and high turnover. Layoffs may seem like a way to boost the bottom line. But in the long run, they actually wind up being bad for business.”

• “The first rule a company should remember when it faces an imperative to slash costs is: Do everything possible to avoid laying people off in the first place. ... Employers can cut other line items: travel, catering, executive bonuses. They can suspend 401(k) contributions. They can institute a hiring freeze to cut labor costs via attrition, and offer one-year unpaid sabbaticals or voluntary buyouts, enabling employees to maintain a sense of control over their own fates.”

• “If still more savings are needed, employers can even implement a temporary, across-the-board wage cut — demonstrating to employees that the company will take every measure possible to protect people's jobs.” READ MORE

BUSINESS MODELS

Developers are turning old homes into micro restaurants: “Nestled in the dense, residential Los Angeles neighborhood of Victor Heights, a tightly packed plot of Craftsman and Victorian homes has stood the test of time, serving as single-family residences in one of the city’s oldest neighborhoods. Yet these bungalows will soon serve a new purpose — micro restaurants offering Taiwanese pineapple cake and freshly ground hamburgers in a compound called Alpine Courtyard, morphing the pleasures of dining out with the nostalgic comforts of home. This adaptive reuse is part of a growing national trend: From Los Angeles to Nashville, developers are transforming clusters of old homes into walkable culinary hubs for the surrounding high-density neighborhoods.”

• “Converting historic homes into restaurants is not a new phenomenon. For more than 50 years, Alice Waters’ Chez Panisse in Berkeley, Calif., has been known for its farm-to-table fare and a familial setting in a 1930s home. Over the past decade, an entire street of historic bungalows on Rainey Street in Austin, Texas, has slowly transformed into bars and restaurants.”

• “The trend has expanded to Portland, Ore., along North Mississippi Avenue and Alberta Street and in the Nob Hill neighborhood. Fort Collins in Colorado has a plethora of conversions, some in old farmhouses and others in former fraternity and sorority houses near Colorado State University. In Phoenix, the conversion of old homes into restaurants has evolved alongside rapid urban development in downtown and on nearby Roosevelt Row.”

• “One of the developers of Alpine Courtyard, Jingbo Lou, a restorationist and architect, wanted to maintain the ‘shell and core’ of the homes and property, keeping their original floor plans while converting certain elements for commercial use. ‘You see a lot of old houses being used in smaller divisions for very low rent, and retail can do the same thing,’ he said. ‘We’re providing smaller, affordable commercial spaces, and for start-ups with mom-and-pop types of services, having 160 square feet is plenty of space.’” READ MORE

PROFILE

Sheila Coon went from homelessness to opening cookie stores for each of her seven kids: “It was while living at the shelter [in Massachusetts] that Coon decided to start her own business ‘somehow, some way.’ Though she has a bachelor’s degree in paralegal studies, she’d always wanted to be an entrepreneur, ‘and that’s rooted in having grown up with a mom and a grandmother who both had their own micro-businesses,’ said Coon, who was raised by her grandparents and now has 11 grandkids of her own. ‘My mom sold cookies, and my grandmother sold limbers — it’s like a popsicle in a cup.’ Her own entrepreneurial vision started with cookie delivery and ended with the dream of creating a social mission-driven franchise ‘so that I could share the opportunity with other women like me,’ she said. ‘Everybody else thought I was crazy, like, Shouldn’t you concentrate on not being homeless?’ she said.”

• “More often than not, Coon, 50, also has company behind the counter working alongside one or more of her seven kids, who range in age from 14 to 34. She calls them by number, as in, ‘No. 5 manages Springfield. Nos. 6 and 7 are minors and run the counter and work in the back,’ and so on. From the start, her goal was to open seven stores — one for each kid to call their own. She’s on her way with two new stores (the other is in Chicopee) and a popular cookie-catering trailer.”

• “Coon recently applied for a $100,000 bank loan to cover expenses for everything from new production equipment to licensing fees to marketing. In addition to preparing for wholesale distribution so she can sell her cookie dough to large-scale food-service operations (like supermarket bakeries), she wants to set up her business as a franchise so that future franchisees can buy the name, branding, dough, and recipes directly from the company she’s building right now: Hot Oven Cookies Dough.” READ MORE

LOCATION, LOCATION, LOCATION

Tech leaders are returning to San Francisco: “In 2020, venture capitalist Keith Rabois urged startup founders to join him in ditching San Francisco for Miami, touting the city’s relative safety, lower taxes, and tech-friendly mayor. The self-proclaimed contrarian investor, who made a fortune backing companies such as Airbnb and DoorDash, once tweeted that San Francisco was ‘miserable on every dimension.’ The hard pivot to Miami has faltered. Several of the startups that Rabois backed are relocating or opening offices elsewhere to better attract engineering talent. Late last year, he was pushed out of his old venture firm, Founders Fund, after falling out with some colleagues. Now, he plans to spend one week a month in San Francisco for a new employer, Khosla Ventures, and is busy renovating a house there.”

• “San Francisco is once again experiencing a tech revival. Entrepreneurs and investors are flocking back to the city, which is undergoing a boom in artificial intelligence. Silicon Valley leaders are getting involved in local politics, flooding city ballot measures and campaigns with tech money to make the city safer for families and businesses. Investors are also pushing startups to return to the Bay Area and bring their employees back into the office.”

• “Late last year, Henrique Dubugras and Pedro Franceschi, co-founders of fintech startup Brex, returned to San Francisco after facing pressure from investors to do so. The pair had moved to Los Angeles, New York City, and then Miami during the pandemic, when the company’s valuation soared to $12 billion. The company laid off 20 percent of its workforce earlier this year.”

• “‘The reality is that the brainpower is here’ in San Francisco, said Max Gazor, a general partner at the venture firm CRV and board member at Airtable. ‘It’s especially true for AI, given the light speed at which these companies have innovated.’” READ MORE

STARTUPS

Travis Kelce and Patrick Mahomes are backing a pickle-ball restaurant. And, yes, that’s a thing: “Chicken N Pickle is holding a preview event Thursday as it prepares to open its fourth Texas location. The chain previously opened outlets in Grand Prairie, Grapevine, and San Antonio. The ‘eatertainment’ venue’s 70,000-square-foot space will include six indoor and two outdoor pickleball courts. There’s also a beer garden, dining areas throughout and lawn games like corn hole, shuffleboard, and bocce ball. This is the 10th location of the chain to open since it debuted in 2015 in Kansas City, Mo., where it’s still based today. ‘The sport is growing about 100 percent almost every year,’ said Josh Roach, general manager of the Webster location. ‘It’s no surprise that it’s also popular in Houston. There’s definitely a demand for it.’”

• “Unlike some pickleball restaurants, Roach said Chicken N Pickle’s focus on entertainment and food are equal. The wood-fired rotisserie chicken is the star of a food menu, which includes wings, fried chicken sandwiches, tater tots, and waffles. Many of the recipes incorporate local ingredients and the drink menu will include locally brewed beers.” READ MORE

Thanks for reading, everyone. — Loren