The Art of Building a Real Estate Boutique
Jenelle Etzel went to art school and managed a punk-rock band called Spread Eagle—which taught her, she says, what she needed to know to build Living Room Realty.
Good Morning!
Here are today’s highlights:
Michael Girdley analyzes a business for sale where the owner works 10 hours a week and takes home a 75-percent profit margin.
Gene Marks doesn’t care if his employees get high at work.
New Jersey is the coming epicenter of artificial intelligence—at least according to a billboard.
Has the death of malls been greatly exaggerated?
THE 21 HATS PODCAST
The Art of Building a Real Estate Boutique: This week, in episode 192, special guest Jenelle Etzel, who majored in weaving, tells Shawn Busse, who majored in ceramics, why she believes attending art school and managing a punk rock band were perfect preparation for building a thriving real estate business. Her agency, Living Room Realty, has 130 brokers, roughly $5 million in revenue, and a market position that stands out among the big boys. While she once considered business a dirty word, she has embraced entrepreneurship and learned lots of important lessons, mostly through trial and error. For one, she figured out that there was a segment of the housing market—or the potential housing market—that more traditional brokers were ignoring. She also figured out, somewhat counterintuitively, that her real customers aren’t the people who buy and sell homes. Her real customers, she says, are her own brokers, who happen to be independent contractors: “I can't tell anybody what to do,” Jenelle tells us. “So it's like being a politician, in a way. I've got a lot of responsibility with very little authority, and that's an interesting leadership challenge.”
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BUYING A BUSINESS
In his deal breakdown this week, Michael Girdley looks at a startup incubator that claims to be making $4.3 million in ebitda on $5.8 million in revenue: “This is a pretty unique business. They deploy their team to work for clients, probably doing stuff like online marketing, strategy, data analysis, that kind of thing. One great thing: when you’re taking a cut of profit, your upside is unlimited. The more you grow a customer’s business, the more you win. I like it when incentives are aligned like that. And if it doesn’t go well, the downside can’t get any lower than zero. Another benefit: you don't have to invest capital. It’s basically a sweat equity model, where your investment is time and expertise. So it’s a pretty low-risk scenario. And the potential upside is nuts. These folks list a client who grew from $2 million to $68 million/year. if they’re taking 5 or 10 percent of that growth, they’re doing great. That’s probably why they’re walking away with a 75-percent profit margin. In old-school businesses, you’re maybe squeaking by with 5 percent profits. Fifteen percent if you’re lucky. But wait, there's more … the current owner works less than 10 hours a week.”
“Red flags: Obviously the money is great. But that can attract some bad people to businesses like this — the people who say they want to invest in your business, but they’re actually proposing some kind of royalty scheme and being shady about it. So it’s possible you look under the cover at the CIM (Confidential Information Memorandum) and discover it’s a bunch of porn sites, sketchy supplements, or something else you wouldn’t want to talk about at a cocktail party.”
“The other red flag is the seller's story. You want to see something that makes sense: retiring, or relocating, or changes in situation of some sort. But why is someone selling when they’re making this much on 10 hours a week? They also don’t list an asking price. That makes me wonder if they want a ridiculous amount for it.”
“Finally, there’s a too-good-to-be-true aspect to this. Something just smells … funny. I can’t put my finger on it but my Spidey Sense is tingling. I’ve learned to listen to it!” SUBSCRIBE HERE
HUMAN RESOURCES
Gene Marks doesn’t care if his employees are high at work: “A recent piece by Ella Glover in Dazed cites a survey from the American addiction site DrugAbuse.com which found that 22.5 percent of people admit to consuming drugs or alcohol at work, with one in five using cannabis while on the job. Glover points to the rise of remote work as the culprit. ‘In a remote work environment, there is less risk (of being caught) and way more temptation,’ she writes. This shift in the workplace ‘may enable someone to continue to use drugs problematically with little to no immediate consequences.’”
“My company is totally virtual. For all I know they’re micro-dosing, toking, snorting, injecting and doing shots all day. I can’t be responsible for their behavior, nor should I be. They’re grownups and — as long as it’s legal — they have every right to do whatever they need to do to deal with life on earth in these stressful times.”
“I have this attitude because that’s the nature of many businesses like mine. My people aren’t driving trucks loaded with toxic chemicals, supervising children, flying airplanes or providing medical care. I don’t have an office or production environment where the risk of an employee — like at a client of mine just a few weeks ago — needing a Narcan shot after collapsing in front of a slitting machine can pose a danger to others and themselves. My people are doing technical services and — like the cashier, the server, the hotel cleaner — if they make a mistake no one gets hurt or killed. Which is why we don’t have a drug policy.”
“I do, however, have a performance policy. If there’s a performance problem, then I’m involved. And I really don’t care about the reason. Be it drugs, mental health, or just a bad attitude I can work with the employee to get them help but at some point we’re going to have to part ways. No harm, no foul. My main concern is that my clients are happy. I have a business to run.” READ MORE
A new bill would give workers in Massachusetts protection against rogue employers: “The stories of workers hurt on the job and discouraged from reporting their injuries are constant, worker advocates say — and alarming. A cleaner who developed a hernia after lifting heavy garbage cans said her boss threatened to call immigration authorities if she admitted it was caused by work. A security guard who dislocated his shoulder during safety training was told the injury didn’t qualify for workers’ compensation benefits, and he never received any, despite being out of work for months. A teacher who broke her leg after slipping on a wet floor said her employer attributed the injury to a preexisting hip condition, leading the insurance company to stop paying her benefits.”
“It’s illegal for employers to prevent injured workers from filing workers’ comp claims, but if they do, employees have little recourse beyond hiring a lawyer to file a civil claim to recover lost wages and attorneys’ fees. This rarely happens, though, worker advocates note, because of the large undertaking that involves and the relatively small compensation that results.”
“A bill being considered by the state legislature would strengthen the existing law, proponents say, allowing the attorney general to enforce complaints of misconduct or retaliation and giving employees the ability to collect damages.”
“Nationwide, less than 40 percent of workers eligible for workers’ compensation benefits apply for them, according to the National Employment Law Project. Low-wage immigrant workers are even less likely to report injuries due in part to concerns that employers will retaliate against them.”
“The National Federation of Independent Business opposes changing workers’ compensation law, noting that the current system works well and is relatively affordable for employers. The proposed bill would open up employers to more legal challenges and cost them money, said Massachusetts state director Christopher Carlozzi.” READ MORE
ARTIFICIAL INTELLIGENCE
The next home of AI? New Jersey says it’s New Jersey: “Hanging high over San Francisco’s Union Square shopping district, a large, blue billboard boasts New Jersey is ‘the next home’ of AI. Excuse me? Well, according to the nonprofit Choose New Jersey, the Garden State has the ‘largest concentration of engineers and scientists per square mile and the third-highest share of STEM degrees awarded in the United States.’ Jokes aside, housing is a lot more affordable than it is here in the Bay Area. Installed recently, the billboard is part of a multi-city campaign that the privately funded Newark-based nonprofit says will run over the upcoming months to make the case that it has advantages over the city Mayor London Breed has called the ‘world capital of AI.’”
“‘New Jersey is proud to be leading the way when it comes to artificial intelligence,’ Choose New Jersey CEO and President Wesley Mathews told The Standard. ‘Our investments in talent and technology, paired with our collaborative ecosystem and infrastructure strength, position us as the premier East Coast hub for reimagining the future of this emerging technology, complementing the technological advances on the West Coast.’”
“But San Francisco’s AI community seems less than enthused about the idea. ‘Anyone in the field knows that SF is not just #1 in the U.S. for AI. It’s, to a first approximation, the *only* place in the U.S.,’ said Flo Crivello, the founder and CEO of AI workflow assistant Lindy. ‘In terms of AI market cap, it’s four times bigger than the rest of the U.S. combined.”’ READ MORE
INTELLECTUAL PROPERTY
David Chang says he will not enforce his condiment trademark afterall: “After days of public backlash over enforcing their trademark for ‘chile crunch,’ a term widely viewed as generic among producers of the Asian condiment, celebrity chef David Chang and his Momofuku company have reversed course and announced they will no longer enforce it. Momofuku’s new policy, as chief executive Marguerite Mariscal explained in a podcast with Chang on Friday, runs the risk that a larger company, such as Costco or Trader Joe’s, could sweep in and produce a similar product under the ‘chile crunch’ or ‘chili crunch’ names, effectively undermining the value of the trademark.”
“In an announcement sent to The Washington Post on Friday, a Momofuku spokesman noted that the company had believed its “chili crunch” brand name reflected the uniqueness of its product in the broader “chili crisp” condiment category.”
“But over ‘the past week, we have heard the feedback from our community and now understand that the term chili crunch carries broader meaning for many. We have no interest in owning a culture’s terminology and we will not be enforcing the trademark going forward,’ the spokesman wrote in the statement.” READ MORE
RETAIL
Malls aren’t dead yet: “Department stores — which were historically the most important real estate in the nation’s malls — are a different story. Department stores are struggling to compete against new online direct-to-consumer competitors and smaller brick-and-mortar retailers that have been able to keep up with the ever-changing demand of consumers. That struggle has forced store closures at familiar retailer names like JCPenney, Sears and Macy’s, the latter of which recently announced it would close up to 150 stores.”
“Top-tier malls, known as Class A malls, are pivoting toward an experiential model, replacing department stores with grocery stores, casinos, gyms, ice skating rinks and, in some cases, even residential apartments.”
“The shift in strategy has been working. Mall traffic has bounced back to near pre-pandemic occupancy levels, with customers embracing the experience-focused model. Mall owners are also capitalizing on the omnichannel strategy bolstering stores’ online presence in addition to their brick-and-mortar stores, creating a halo effect for retail sales.”
“All malls aren’t created equal, however. Lower-tier malls are feeling the effects of department store closures more acutely as inflation and economic pressures increasingly split consumers into two categories: luxury shoppers and discount shoppers. That’s also causing a split in the fortunes of America’s oversupply of malls, with affluent consumers flocking to higher-end malls, bargain-hunting shoppers heading to strip malls, with business declining in the middle tier.” READ MORE
Retail sales climbed higher than expected in March: “Consumers are still spending, clearly, despite inflation — but that spending looks a little different now than it has the past few years. They have pulled back in some places, like big ‘revenge’ purchases, for example. A lot of people bought stuff on the internet last month. Spending at nonstore retailers — think Amazon — rose 2.7 percent. That’s more than any other category. ‘People are spending less in department stores and more online,’ said Christine McDaniel at George Mason University’s Mercatus Center. She said while that’s not exactly a new trend, the increase is notable: ‘It just shows you how much Americans rely on e-commerce.’”
“In addition to all that online shopping, Gregory Daco, chief economist at EY-Parthenon, said people went out and spent money in person last month. ‘They were also spending freely at restaurants and bars, and in general-merchandise stores. They were also spending a little bit more at gasoline stations,’ he said. Though, he said, part of that was that gas prices were higher.”
“‘At the same time, they were exercising a little bit more caution when it comes to spending on electronics, clothing, and sporting goods,’ Daco added. Spending in all three of those categories dropped in March.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Is the Era of Free Marketing Over? This week, Shawn Busse talks about how much harder marketing keeps getting, especially for do-it-yourselfers. The cost of everything keeps going up, and the likely returns keep going down. As Shawn points out, it’s even getting expensive to advertise on podcasts. Wait! People pay to advertise on podcasts!!!!????
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren