The Early Warning Signs
In the latest 21 Hats Podcast, the owners talk about whether they are seeing signs of recession in their own businesses—and what their plans are.
Good morning!
Here are today’s highlights:
Gene Marks reports on a gusher of federal money headed for small businesses.
There’s an app that encourages employees to rate each other. Would you use it?
Old Navy is reminded how hard it is to be all things to all people.
Honest Tea, once an entrepreneurial success story, is being shuttered by Coke.
THE 21 HATS PODCAST
The Early Warning Signs: “I see it, and I feel it,” Liz Picarazzi tells Shawn Busse and Jay Goltz this week in a conversation about the looming recession many are predicting. But Liz is not hunkering down. In fact, she has launched an ambitious marketing campaign that relies not on Google AdWords but on Google Alerts. She’s also taking some advice from Carey Smith, the founder of Big Ass Fans, that she didn’t want to hear when it was first offered. Plus: How some owners trap themselves in miserable businesses. And Shawn, Jay, and Liz suggest regulations that need to die—with Jay going off on the way businesses are compelled to pay for unemployment insurance.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
FINANCE
Gene Marks reports that there’s a gusher of federal money headed for small businesses through the State Small Business Credit Initiative program: “What is the SSBCI? It’s a program under which the U.S. Treasury Department distributes money to states, which then give the money to lending and financing organizations — community development financial institutions (CDFIs), community banks, minority depository institutions, investors, and other nonprofits focused on economic development — to help local small businesses get access to capital that they otherwise would not have been able to tap. Back in 2011, more than $1.5 billion in SSBCI aid was used to fund entrepreneurs across the country. The new program, which was signed into law on March 11, 2021, as part of the American Rescue Plan Act, reauthorized and funded the SSBCI to the tune of $10 billion.”
“There remains some back-and-forth in Washington over timing and the final amounts. But representatives from the Treasury tell me that the funds should start rolling out this summer to the states and then from the states to participating community organizations.”
“So do you want a piece of this funding? You should start reaching out for information. A great place to find organizations in the region that are offering financing through the SSBCI program is on the Council of Development Finance Agencies’ State Resources Map.”
“Because the SSBCI money is intended to fund businesses that otherwise couldn’t get traditional funding (and, of course, help those businesses to create jobs), the financing requirements are less stringent than the requirements of a traditional bank loan.”
“SSBCI money will be used for:” venture capital programs, loan participation programs, loan guarantee programs, collateral support programs, and capital access programs.” READ MORE
OPPORTUNITY
L.A. restaurants are quietly expanding to Saudi Arabia: “Opening up Saudi Arabia to the western world is part of a larger initiative by the Saudi government to reframe its image as an oil-rich, authoritarian country with a legacy of human rights violations. That translates to spending hundreds of millions of dollars to bring influencers and celebrities, concerts, WWE matches, and Formula One races to Saudi Arabia. While some have welcomed these reforms, critics have accused Saudi leaders of attempting to ‘whitewash’ past human rights violations, in some cases pushing major celebrities to back out of events and others to use their platforms to call out leaders. However, that hasn’t seemed to deter L.A.-based food businesses from expanding.”
“While some restaurants like Fat Sal’s, Urth Caffé, and Randy’s have been open about their expansion to the Middle East, others have not.”
“Jon & Vinny’s, Petit Trois, Chi Spacca, Joans on Third, Avra, and The Palm have all done popups in Saudi Arabia’s capital recently or are planning to. But you will find little to no mention of that on their social media accounts or official websites.” READ MORE
CLOSINGS
Coke has decided to shut down the Honest Tea business it bought from Seth Goldman:
RETAIL
Old Navy decided to try to make clothes shopping more inclusive for women. It was a disaster: “Billed as one of the biggest launches in the brand’s history, Old Navy in August began offering all women’s clothing styles in size 0 to 30 and XS to 4X, making it one of the first retailers to place such a big bet on inclusive sizing. It did away with separate petite and plus-size departments and grouped all sizes of each style together. Mannequins in varying body shapes displayed the new wares. All sizes of a style were priced the same, a break with an industry practice in which retailers charge more for larger sizes. ... Soon after, however, Old Navy’s sales started to nosedive.”
“It ended up with too many extra-small and extra-large items and too few of the rest, a mismatch that frustrated customers and contributed to falling sales and a management shake-up.”
“Last month, Nancy Green, the chain’s president and chief executive, stepped down after less than two years running the brand. Gap warned that sales for the spring quarter would fall short of expectations in part due to troubles at Old Navy.”
“Shoppers said Old Navy’s message of inclusivity resonates with them. But it is sometimes outweighed by the frustration of not being able to find their size.” READ MORE
HUMAN RESOURCES
Coinbase is asking employees to rate each other on their adherence to core values: “The cryptocurrency company has been piloting an app that collects employees' evaluations of their colleagues, including their managers, after meetings and other interactions, The Information reported Monday, citing two people with direct knowledge. Known as Dot Collector, the app was invented by Ray Dalio's hedge fund, Bridgewater Associates, and has been in use by Coinbase's HR and IT teams since the first quarter of this year, according to The Information. In the app, employees review how well their coworkers demonstrate 10 core values at Coinbase, including things like communication and ‘positive energy,’ per The Information. They can share their input in the form of a thumbs up, thumbs down, or neutral review.” READ MORE
THE ECONOMY
Europe’s economy slowed in May as factory orders flagged: “The survey underlines the series of obstacles that the global economy is facing this year, ranging from Covid-19 lockdowns in China, soaring energy and food prices, Russia’s invasion of Ukraine and a broadening drive by central banks to combat high inflation by increasing borrowing costs. Europe and Japan appear to be in the midst of a transition, with services still being buoyed by the gradual lifting of pandemic restrictions while manufacturing faces rising production costs and signs of weakening demand. In reaction, some global businesses have begun planning for a significant slowdown or a recession. READ MORE
As online sales slow, Amazon wants to unload excess warehouse space: “The online retail giant is seeking to sublease a minimum of 10 million square feet of warehouse space and is also exploring options to end or renegotiate leases with outside warehouse owners, according to a person familiar with the matter. The move follows the first quarterly loss in seven years for the company, which in April reported a decline in demand that has strained its warehouse operations after roughly two years of outsize growth.”
“The company in April reported its slowest growth in about two decades, with its quarterly products sales having flatlined and revenue at its online shopping business declining by 3 percent, the worst mark since the metric was first disclosed in 2016.”
“Online shopping in general has slowed down, losing many of the gains it recorded during the pandemic.” READ MORE
STARTUPS
A Korean startup, Tridge, is creating a global marketplace for fresh produce: “[The] company works directly with farmers and grocery stores, often buying from one and selling to the other to remove the lack of transparency and trust that permeates the global trade in fresh food. And when something interrupts that trade, Tridge can quickly find new buyers in other countries before the produce goes bad — much like the internet redirects traffic when one server in a network goes down.”
“What’s remarkable is that Tridge — the name is a portmanteau of transaction and bridge — works at low margins, slight enough that it doesn’t interfere with the flow of trade.”
“It can do this because its operations generate a valuable byproduct: data. Tridge records the price, quality and volume of every item it handles, and sells that data to both sellers and buyers, offsetting all the other costs.”
“Anyone can subscribe to Tridge’s intelligence platform and watch the world grow, harvest, pack and ship everything from Indonesian mangosteens to American lemons.” READ MORE
Two makers of baby formula have had to stop taking new customers: “The shortage of powdered baby formulas in American stores has meant a surge in demand for Bobbie and ByHeart, two young, direct-to-consumer formula companies. While a rush of new customers can be a dream, it can also be a death sentence for any company with limited production capacity. As such, both startups have reacted by halting new customer orders entirely. The reasoning: They don't want to leave their existing customers high and dry.”
“ByHeart, which operates its own manufacturing facility, says it is investing $30 million to boost its production capability, and has added a shift to its existing production. The facility now operates around the clock seven days a week, up from five days previously.”
“Bobbie, which is based in San Francisco, is certified USDA organic, and is manufactured at a facility in Vermont. In the week following Abbott Nutrition's formula recall in February, the company saw its customer count double. Now, it's encouraging potential customers to sign up for a mailing list to be notified by early June about when new orders will resume.” READ MORE
TECHNOLOGY
The last payphone in NYC was removed Monday: “The pay phone will find its next home at the Museum of the City of New York, where the newly installed exhibit Analog City looks back at life in the city before computers. The Midtown street pay phone was the last of roughly 8,000 public phones that were still in use around the city as of March 2015, according to the city’s Department of Information Technology and Telecommunications. The rise of smartphones made traditional pay phones less useful for people. The booths had also become a target for vandalism over the years.”
“The city has gradually been removing them from sidewalks since 2015 and replacing them with updated LinkNYC kiosks, which allow users to charge smartphones, access Wi-Fi and place phone calls.”
“Nostalgia lovers can also still find a few phone booth relics in New York, however. There are some private pay phones located around town and four permanent full-length booths, known as ‘Superman’ booths, on the Upper West Side.” READ MORE
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