The Forbes Jinx
The Forbes Jinx
It’s kind of like the Sports Illustrated jinx, except it’s a little darker. Why do so many of the business magazine’s heroes end up facing prison time?
Good Morning!
Here are today’s highlights:
There’s a lot of talk about a looming credit crunch.
Thanks in part to government subsidies, America is building factories again (if it can find enough construction workers).
Though often overlooked, one group of workers tends to show up on time and work hard.
Most owners sell a business only once, which is why they often fall victim to more experienced buyers. Some advice.
MEDIA
Why do so many Forbes 30 Under 30 winners end up facing prison time? “[Charlie] Javice, as eagle-eyed Twitter users were quick to note, is not the first Forbes 30 Under 30 alum to suddenly be looking at decades in jail. In 2021, Sam Bankman-Fried, a self-described ‘effective altruist,’ made the list. Following the dramatic collapse of his former crypto exchange, FTX, he’s facing a litany of charges ranging from bribing a foreign government to money laundering to making unlawful political contributions. His colleague, Caroline Ellison, the former co-CEO of Alameda Research, made the list in 2022. In December, Ellison pleaded guilty to seven criminal charges carrying a maximum sentence of 110 years in prison – her cooperation means she’ll likely get a far more lenient punishment.”
“Another embarrassing Forbes alum is Martin ‘Pharma Bro’ Shkreli, who was in the finance category of the list in 2012. He was sentenced to seven years in prison in 2018 for securities fraud but got out of prison last year and immediately launched an investing newsletter.”
“While Elizabeth Holmes never actually made the 30 Under 30 list, she did headline the Forbes Under 30 Summit, so she gets an honorary mention. So does Trevor Milton, the founder of a hydrogen-powered truck company called Nikola, who was on a 2020 Forbes list called 12 under 40, listing the youngest billionaires on the Forbes 400.”
“‘The Forbes 30 Under 30 have collectively raised $5.3B in funding,’ the tech entrepreneur Chris Bakke tweeted on Tuesday. ‘The Forbes 30 Under 30 have also been arrested for frauds and scams worth over $18.5B. Incredible track record.’”
“The first number comes from Forbes and the second is Bakke’s own back-of-an-envelope calculation, but you get the gist: the line between innovator and fraudster seems to have become alarmingly thin.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Is There Really a Credit Crunch? Gene Marks says he’s not seeing it yet, but there’s reason to believe it’s coming. He also discusses the best password managers for businesses and explains why addressing the mental health of employees is a financial issue as well as an ethical issue and offers some suggestions. Plus: Gene says he expects unlimited paid time off to remain a much-sought-after benefit for employees even though in many ways it favors employers.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
MANUFACTURING
America is building factories again: “Construction spending related to manufacturing reached $108 billion in 2022, Census Bureau data show, the highest annual total on record—more than was spent to build schools, health care centers, or office buildings. New factories are rising in urban cores and rural fields, desert flats and surf towns. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.”
“The pursuit of speed and flexibility prompted sock manufacturer FutureStitch, which has factories in China and Turkey, to open a new one in Oceanside, Calif., last summer—the company’s first in the U.S.”
“Chief Executive Taylor Shupe said retailers don’t want to carry excess inventory in their stores, and the U.S. factory allows the company to quickly replenish stock.”
“He said the company is keeping its overseas factories but is adding a second in the U.S.—and maybe eventually a third—as it develops new products. ‘There is more and more equity around Made in the USA,’ said Mr. Shupe. ‘To me, this is here to stay.’”
“Huge government incentives are stoking the frenzy. The Biden administration, seeing electric vehicles and semiconductors as matters of national security, has devoted billions of dollars to expanding those industries in the U.S. States are kicking in billions more.” READ MORE
But there aren’t enough construction workers to handle all of those projects: “Spending on nonresidential construction for February, the most recent month available, totaled $982 billion, nearly 17 percent higher than a year earlier and steady with January, according to the U.S. Census Bureau. ‘I’ve got more work to look at and bid on than I could possibly handle,’ said Jeff Harper, president of Harper Construction in San Diego. ‘I’ve said no to 10 jobs in the last four months.’ Mr. Harper, whose company specializes in buildings for schools, universities, and military bases, said he is booked with jobs through most of 2024. He said projects are taking longer to complete because of waits for critical materials, particularly for electrical gear, and shortages of workers.”
“The backlog of nonresidential projects in the U.S. under contract but not yet started was 9.2 months in February, more than a month longer than the previous February, according to the Associated Builders and Contractors, a trade group based in Washington, D.C.”
“Caddell Construction said it recently completed distribution warehouses near Dallas and Charleston, S.C., with about 2.5 million square feet of space in each building. The contractor based in Montgomery, Ala., has opted not to pursue contracts for some larger buildings because of concerns about the availability of workers and materials needed for the projects, said Ricky Byrd, senior vice president for commercial construction.”
“‘There’s not enough talent in the market to do all the jobs that are out there,’ Mr. Byrd said. ‘We say no to projects more than we say yes these days. It’s part of managing our risk.’” READ MORE
HUMAN RESOURCES
Looking for hard workers? Try hiring older people: “Kip Conforti is hiring for a part-time position at one of two package-shipping stations that he owns in Pennsylvania. He’s filled such roles with high school and college students during two decades in business, but this time his top candidate is a man in his 70s. Mr. Conforti has grown weary of younger employees who, he says, arrive late for shifts, call out of work often, and spend more time scrolling social media feeds than chatting with customers. About a year ago, he tried something different—recruiting people who are more likely to carry AARP cards than the latest iPhone.”
“‘The learning curve is a bit longer,’ he says, ‘but once they get it, God, it’s refreshing. I say, This is what we’re doing today, and it gets done. Their shift starts at 9 and they’re here at 8:50. It’s their work ethic.’”
“KinderCare Learning Centers, which operates more than 1,500 child-care facilities, signed the pledge last August to expand recruiting efforts amid an acute child-care worker shortage. The AARP’s pledge program offers access to job boards and career fairs for workers over 50.”
“Less than a year in, KinderCare hasn’t tallied the resulting hires, but the payoff is already clear, says Travis Trautman, the company’s senior director of talent acquisition. ‘There’s a willingness from this group to work the opening shift or to close down for the day, to cover during lunches and breaks or even be on call as needed,’ he says. ‘I could go on and on about the value and benefits.’” READ MORE
They were heroes during the pandemic, but delivery drivers say gig work has gotten even harder: “When customers place an order through DoorDash or Uber Eats, they pay through the app and decide in advance of the delivery how much to tip. Drivers often cannot see the full tip until after they have dropped off the food, so they must cross their fingers and hope for at least a 10 percent tip. (Uber and DoorDash themselves pay drivers only a few dollars per trip, so most workers’ income comes from tips.) [Brantley] Bush, 56, is among the veteran food delivery drivers who employ a particular strategy: Go big, or don’t bother at all.”
“Their premise is simple. The profit margin on run-of-the mill delivery orders, like a pizza or a burrito, is quite low, especially factoring in gas prices. So these drivers focus on affluent areas, like Beverly Hills and the Pacific Palisades, rejecting scores of low-value orders while waiting for hours for a big get from a high-end restaurant.”
“Even for savvy drivers, trying to earn a living is often demoralizing and unpredictable, though the companies they work for are growing. In its most recent quarterly earnings report, Uber said its delivery business generated $14.3 billion in sales, a 6 percent increase from the same period a year ago.”
“DoorDash reported $14.4 billion in sales, up 29 percent from a year prior. Neither company is profitable, but the growth signals that food delivery remains popular even as more customers have returned to in-person dining.” READ MORE
Companies are looking for ways to punish workers who don’t come back to the office: “Earlier this year, Kelly decided to leave New York City to care for a sick relative. She figured she could move away while continuing to work remotely as a software engineer for Bloomberg, just as she’d done for the previous two years. But Kelly’s decision introduced her to the sharp end of office life in 2023, as companies try to persuade their employees to come back to the office. Her plans to move clashed with Bloomberg’s return-to-the-office directive.”
“In February, the company started applying more pressure. Employees were expected to use an internal system to record their location each day. Those who failed to work at their assigned office for the requisite three days a week—Bloomberg’s Manhattan headquarters, in Kelly’s case—started getting verbal reminders from their managers.”
“Earlier this month, according to correspondence seen by Fortune, its HR department informed Kelly by email that if she didn’t adhere immediately to the return-to-office policy, her employment would end. They would treat her case as one of ‘voluntary resignation.’”
“Although she made it clear that she would not be resigning, earlier this month Kelly received an email containing ‘termination instructions.’ ‘They are firing me,’ she says, ‘but they are refusing to admit that they are firing me.’” READ MORE
BUSINESS MODELS
Even used cars are coming with subscription fees: “The average lifespan of passenger vehicles has steadily ticked up in recent years and now sits at around 12 years in the U.S., with cars cycling through two or three or four owners before they hit the scrap heap. Carmakers are working on making those owners into subscribers too. ‘It’s a massive market,’ says Gary Silberg, who heads the global automotive sector at the accounting and advisory firm KPMG.”
“He says automakers are trying to use the increasingly software-stuffed car to resolve a ‘silly’ situation. ‘You spend all the money building the car, you spend all the money designing it and building factories, and yet you don’t get to talk to your customer,’ Silberg says. More connected vehicles and the apps that go along with them mean that automakers can.”
“General Motors spokesperson Anna Yu declined to share specific numbers on subscribers who drive used cars, but she says that ‘second owners are some of our most loyal customers’—often because they proactively reached out to ask about subscription-based products like OnStar or Super Cruise, its advanced driver assistance feature.”
“Cariad’s [Michael] Bensel says the VW-owned company is able to push ‘highly targeted digital campaigns’—that is, ads—directly onto drivers’ control panels or apps. The connectivity now present in some new and newer used cars, he says, also allows Cariad to pull data that help VW ‘better understand the usage of our vehicles as well as customer needs over a lifetime.’”
“More data, in other words, means automakers could maybe build better products attractive to drivers of cars both new and used—and likely helps tune those digital ads too.” READ MORE
FINANCE
Carey Smith says that if you pitch him for capital, you should cut the crap: “Verifiable information should be present throughout your materials and your pitch. We always ask a few basic questions to start: Why is your product interesting? What problem does it solve, and how? What's your best estimate of the total market? In response, what we usually receive is a deck full of pretty pictures but remarkably free of straight answers to those questions. After the initial slides come the market projections, and that's where things almost always take a turn for the absurd. Face it: When you claim your fancy toothbrush is a $30 billion global opportunity, it's pretty obvious that either you haven't done your homework or you need your head examined.”
“What investors like me want to see are realistic expectations about market size, as well as the reasonable and researched assumptions you made. They show that a founder genuinely understands the market.”
“So how do you get a better handle on your true market? Easy: You talk to people—everyone from potential customers to suppliers. And you do your own online market research. It's inexpensive and easier than ever before.”
“The thing I harp on most is having a strong business plan. When you're pitching, you should already have a plan in place. Include the highlights, with viable strategies, realistic timetables, and substantiated projections: how many units you aim to sell within a certain time, how much that will cost, and how you will measure success.” READ MORE
STARTUPS
Founders are still coming up with new metrics to value unprofitable startups: “Every money-making company describes its bottom line in the same way: profitable. Every unprofitable company, however, seems to have its own metrics for putting the most positive spin on financial results. A perusal of recent earnings reports reveals some of the standby favorites. There’s adjusted EBITDA profitability, dollar-based net retention rates, non-GAAP gross margins, non-GAAP net earnings … and the list goes on. Not everyone’s a fan. Berkshire Hathaway Vice Chair Charlie Munger once famously advised: ‘Every time you see the word EBITDA, you should substitute the words bullshit earnings.’”
“Luckily for startups, he’s not a venture capitalist. And for investors who really do focus on startups, some of the more unusual metrics do play a role in vetting companies that may be a ways from profitability.”
“These days, as startup backers shy away from high cash-burn, high-growth models, favored metrics are in flux. Companies are under more pressure to show they can get to break-even on comparatively modest capital infusions.”
“One of the metrics startups are tracking more assiduously now, per [Justin Bauer, chief product officer at Amplitude], is payback period for acquisition. This measures how long it takes to make enough money from a user to cover the marketing cost of getting them on the platform. Ideal time frames vary by industry, he said, but broadly it should be well below a year.” READ MORE
THE 21 HATS PODCAST
Paul Downs, Sarah Segal, and Laura Zander discuss how they think about the possibility of recession: Do they proceed with planned hires? Do they continue to spend on marketing? Do they look for unexpected opportunities? In addition, Sarah, having recently taken back ownership of her PR firm, asks Paul and Laura how they pay themselves, how much cash they keep on hand, and whether they think she should expand her offerings to include digital marketing. Plus: Laura, who’s acquired several businesses over the years, explains what she looks for, how she decides how much to pay, and why she’s come to see acquisitions as necessary for the survival of Jimmy Beans Wool. As usual, all three owners are remarkably generous about sharing their thinking and even their numbers.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren