The Alarm Bells Are Ringing

Suddenly, evidence that the planet is dangerously warm is everywhere.

Good Morning!

Here are today’s highlights:            

• Gene Marks says Microsoft’s soon-to-be-released Copilot is “ChatGPT on steroids.”

• Private equity firms are looking for recession-proof smaller businesses to roll up.

• The oldest craft brewer in the U.S. is closing after 127 years.

• “I want to force people who don’t look like me to come to the South Side if they want my pies.”

CLIMATE

Floods, fire, deadly heat: “The world is hotter than it’s been in thousands of years, and it’s as if every alarm bell on Earth were ringing. The warnings are echoing through the drenched mountains of Vermont, where two months of rain just fell in only two days. India and Japan were deluged by extreme flooding. They’re shrilling from the scorching streets of Texas, Florida, Spain and China, with a severe heat wave also building in Phoenix and the Southwest in coming days. They’re burbling up from the oceans, where temperatures have surged to levels considered ‘beyond extreme.’ And they’re showing up in unprecedented, still-burning wildfires in Canada that have sent plumes of dangerous smoke into the United States.”

• “‘This is not the new normal,’ said Friederike Otto, a climate scientist at the Imperial College London. ‘We don’t know what the new normal is. The new normal will be what it is once we do stop burning fossil fuels … and we’re nowhere near doing that.’”

• “‘We’re seeing temperatures exceed those that can support life,’ said Jennifer Francis, a senior scientist at the Woodwell Climate Research Center. ‘Certain places are becoming uninhabitable. All of these records are being broken left and right, and my hope is people will start to put this together in their heads,”

• “Then smoke from Canada’s wildfires descended on her hometown of Ithaca, N.Y., staining the skies orange, and [Rachel] Bezner Kerr’s friends and colleagues started asking her for help processing their fear. Maybe, she thought, this would be a turning point. Maybe people are finally realizing: The alarm bells are ringing for us.” READ MORE

The price of insurance is the canary in the coal mine: “In May, State Farm, California’s largest home-insurance provider, retreated from the market altogether, citing the cost of ‘rapidly growing catastrophe exposure.’ Gallagher Re, a broker, estimates that the price of reinsurance in America has increased 50 percent this year after disasters in California and Florida. Few firms mention climate change specifically—perhaps a legacy of Republican attacks on ‘woke capitalism’—but it lurks behind the rising cost of insuring homeowners against fires, floods and hurricanes.”

• “Insurance is a tool of climate adaptation. Indeed, actuaries have as big a role to play as activists in the fight against climate change. Without insurance, those whose homes burn in a wildfire or are destroyed by a flood will lose everything. The destitute may become refugees.”

• “Insurance can also be a spur for corrective action. Higher premiums, which accurately reflect risk, provide an incentive to adapt sooner, whether by discouraging building in risky areas or encouraging people to move away from fire-prone land.”

• “Politicians considering subsidies for home insurance on flood plains ought to take note.” READ MORE

ARTIFICIAL INTELLIGENCE

Gene Marks says Microsoft is getting close to fully releasing Copilot, which he says will be “ChatGPT on steroids:” “Once it’s released with Microsoft applications you won’t have to look very far to find the Copilot functionality. You’re going to see it everywhere. In the demos I’ve attended, just about every screen will have a Copilot button to ‘help’ do more. Once selected a panel will open within the application that looks like a chat box and you’re off to the races. Copilot is going to be everywhere in every Microsoft product. Although the company will be focusing on its Office 365 applications, you’ll also be seeing it in Windows, Bing, and most of its developer tools and platforms.”

• “In Word, it will create a proposal based on the notes you took in OneNote, customize it to look like your previous proposals and add in artwork or visuals that you request. It can turn a proposal — or any document — into a PowerPoint presentation, add new slides based on your needs and create speaker notes.”

• “Excel users will be able to ask Copilot to list trends based on data in a spreadsheet, add new spreadsheets by diving into existing data, generate graphs and charts, apply color coding and perform what-if scenarios. Teams and Dynamics users can have Copilot ‘listen’ to meetings, write up a summary, create tasks and email next actions to participants.”

• “AI is not something for your tech people. Copilot is not just a product. It is a way to reduce costs, increase revenues and grow profits. If you’re running a business, you need to understand it. Otherwise you’re going to be outsmarted by others — particularly your competitors — who do.” READ MORE

SELLING THE BUSINESS

Private equity firms are chasing plumbers and lumber yards: “Local plumbers and lumber-yard owners across the U.S. are feeling a bit like tech entrepreneurs of late — juggling multiple offers from private equity-backed firms that increasingly are targeting mom-and-pop businesses. Wall Street has been buying into fragmented Main Street industries for years, with dental and veterinary practices among the favorite targets. It’s known as the roll-up strategy – and it’s catching a tailwind right now, and expanding rapidly in household services and building materials.”

• “Private equity’s enthusiasm for small firms is spreading into industries like plumbing and other trades — which have shown they’re recession-proof, even in the Covid slump, and have room for consolidation because markets are typically divided up among many businesses.”

• “Especially prized are firms with steady revenue, subscription models, and electronic billing, says John Wagner, a New Mexico-based investment banker who helps small and midsize companies find buyers. Better yet, he says, is a locally owned firm with strong revenue but high expenses — an opportunity to cut costs, increase efficiency and quickly boost the firm’s value.”

• “John Loud gets as many as 30 solicitations a month for his Kennesaw, Georgia-based alarm-installation firm, Loud Security Systems, which has about 60 employees and more than $7 million in annual revenue. ‘It’s a non-stop barrage,’ Loud says, and it’s been going on for years.”

• “Nowadays, though, Loud is entertaining offers. His two kids aren’t interested in running the family business, and at 56 he feels closer to the end of his career than the start.” READ MORE

CLOSING THE BUSINESS

Anchor Brewing, the oldest craft brewery in the U.S. and one of Bo Burlingham’s original Small Giants, is shutting down: “Anchor got its start in 1896 in San Francisco, becoming the nation’s first-ever craft brewery. Fritz Maytag, a descendent of the Maytag Corporation, bought Anchor in 1965 when it was on the verge of bankruptcy and helped usher in the craft beer industry in the U.S. Its most notable brew was Steam Beer, a pale ale."

• “The San Francisco-based company announced Wednesday it’s ceasing operations and liquidating the beloved business ‘following a combination of challenging economic factors and declining sales since 2016,’ a press release said. Craft brewers, in particular, have been struggling for a variety of reasons including changing consumer habits, rising costs and lingering supply-chain challenges.”

• “Another problem has been Sapporo, the Japanese beer company that bought the brand in 2017. Employees complained to VinePair last month about Sapporo’s alleged mismanagement and lack of understanding of craft beer in the US. In addition, a 2021 rebrand of Anchor was also criticized for pivoting too far away from the brand’s classic look.”

• “Sapporo has made ‘repeated efforts’ over the last year to sell the business, Anchor said. But those efforts have failed, though Anchor did say it’s ‘possible that a buyer will step forward for the brewery as part of the liquidation process.’” READ MORE

HUMAN RESOURCES

Americans are increasingly unlikely to move for a new job: “In the first quarter of 2023, 1.6 percent of job seekers relocated for their new job, the lowest level of any quarter on record dating back to 1986, according to data from the outplacement firm Challenger, Gray, and Christmas. The figure is the culmination of a decades-long decline in the share of U.S. workers moving for a new job. From 1986 to 1997, an average of roughly 29 percent of job seekers relocated for a new role. This fell to 18 percent from 1998 to 2007, 11 percent from 2008 to 2017, and 7 percent from 2018 to 2020. The relocation rate sank all the way to 4.6 percent in the first quarter of 2022.”

• “Experts told Insider that several factors have driven the decline, including high housing costs, the concentration of jobs in a handful of metro areas, and the growth of remote work — which has allowed some workers to change jobs without moving.”

• “‘In the 1980's and 90's, nearly a third of job seekers would move for new positions,’ Andrew Challenger, a senior vice president at the survey firm, said in a release. ‘That has fallen steadily since, as housing costs have risen and companies have moved to where talent pools are located. Now, remote and hybrid positions are keeping workers at home.’” READ MORE

GOVERNMENT CONTRACTING

It can be challenging for smaller businesses to compete for government work: “Adam and Bethany White decided three years ago to pivot their [California]-based cabinetry business from residential clients to more ambitious projects, such as large, government-funded affordable housing developments. They soon discovered, however, that public works contracting wasn’t like private contracting. In particular, there were financial hurdles that seemed insurmountable to a small business like theirs, which has only three to eight full-time employees. ‘We knew we had the skills,’ Bethany White said. ‘It really came down to having enough money to float the jobs.’”

• “The solution for the Whites and many other small businesses in Los Angeles County is the L.A. Regional Contractor Development and Bonding Program, which provides financial tools and guidance to help small and disadvantaged companies compete for government contracts. The program made it possible for the Whites’ business, Fixed Dimensions, to win the first of these contracts; Bethany White said it has since landed three more.”

• “The city and county of Los Angeles and the L.A. County Metropolitan Transportation Authority fund the program to help companies compete for the construction work they put up for bid. It’s administered by Merriwether & Williams Insurance Services, which has been running similar efforts in the Bay Area since 1997.”

• “And now is a good time for small businesses and those owned by women or minorities to compete for federal contracts — the 2021 Infrastructure Investment and Jobs Act provided $1.2 trillion for multiple years’ worth of transportation, clean energy, climate and communications projects. So far, the federal government has directed more than $20 billion of that pot to nearly 1,000 projects in California.” READ MORE

PROFILE

At her pie shop in Chicago’s South Side, Maya-Camille Broussard is serving more than pie: “The shop, in a former dentist’s office in Avalon Park, one of the South Side’s many historic, predominantly African American neighborhoods, serves Ms. Broussard’s inventive pies and pastries, such as her calling cards — a blue cheese praline pear pie and a strawberry basil Key lime pie — along with unorthodox items like her salted caramel peach pie and a deep-dish chilaquiles quiche. Ms. Broussard, who lost 75 percent of her hearing in a childhood accident, may be the industry’s most prominent hard-of-hearing Black pastry chef. She has gained a following for her pies through social media, pop-ups, and appearances on the Netflix competition show ‘Bake Squad.’”

• “Ms. Broussard chose her bakery’s location in hopes of encouraging other chefs and entrepreneurs to join her. ‘I want to force people who don’t look like me to come to the South Side if they want my pies,’ she said.”

• “Several of the shop’s counters are 32 inches high, meeting the height standards of the American Disabilities Act and making them accessible for wheelchair users. Each section of the shop has a different floor tile texture, which helps patrons with limited sight who use a walking cane navigate the store. ‘How can I be an ambassador for people living with disabilities and have a space that isn’t accessible?’ she said.”

• “She is eager to push the boundaries with her new menu, which will debut in full in September. She talks about including items beyond her pies to round it out — like the lunchroom cookie, her play on a buttery sugar cookie once served in the city’s public schools. She’s tinkering with a tuna melt with sun-dried tomatoes, fig jam, olives, and Manchego.” READ MORE

THE 21 HATS PODCAST

‘You’re in the Valley of Death:’ This week, Shawn Busse, Jay Goltz, and Jennifer Kerhin talk about that difficult transition when the owner of a growing business can no longer handle all of the most important tasks herself but also can’t quite afford to hire the people she needs to lighten her load. It’s part of the reason Jennifer, as she’s told us in previous episodes, has been working 12-hour days, six days a week. It’s a challenging transition, and it has a name: It’s the “valley of death,” says Shawn, who compares it to crossing a desert. We also discuss how big the owners want their businesses to get, why important tools and processes seem to break with every $500,000 of revenue growth, and what constitutes the proper care and feeding of salespeople.

• Plus: Jay has an idea for owners who are having a hard time selling their businesses. The idea involves selling the business to a key employee in a transaction Jay is calling a WE-SOP. Get it? It’s kind of like an ESOP, but it’s a lease-to-own version of an ESOP. A WE-SOP.

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

Thanks for reading, everyone. — Loren