The Pizza Redemption
The remarkable story behind Muhammad Abdul-Hadi and Down North Pizza includes hiring a staff that has spent a cumulative total of almost 60 years in prison.
Here are today’s highlights:
If Jim Koch had it to do over again, he’d do it differently.
In the city with the highest minimum wage, business owners are not happy.
You know all that talk about how collaboration suffers under WFH? A scientific study says it’s true.
We’ve got only a couple of slots left for the next 21 Hats gathering. Register now!
This is the last Morning Report of 2023: Thank you for spending time with us over the past year. We will see you again on January 2. In the meantime, best wishes for a wonderful holiday season.
THE 21 HATS PODCAST
So here was Muhammad Abdul-Hadi’s idea for a pizza joint: First, buy a building in one of the most troubled neighborhoods in one of the poorest big cities in the country. Open a restaurant despite having no experience in the food industry and do it during the pandemic when many restaurants are failing. And hire only people who, like Abdul-Hadi, are convicted felons. If that business plan sounds a little dicey to you, rest assured you would not be the first to suggest that to Abdul-Hadi. But he did it anyway. He built out the restaurant, and it opened in 2020 to lines that required people to wait as long as three hours for their pizza—thanks in part to a marketing plan that created excitement and scarcity by “dropping” pizzas the way some people drop special-edition sneakers. And now, Down North Pizza, which has been featured on best-of lists in national publications like Bon Appetit and The New York Times, is looking to expand. A special, year-end bonus episode.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
THE ENTREPRENEURIAL LIFE
Jim Koch, founder of Boston Beer Company, thinks he could have done better with work-life balance: “When your business is growing, it's very hard to prevent work from overtaking your life. If the business is succeeding, you're busting your ass to grow. If it isn't succeeding, you're busting your ass to save it. Life becomes a constant triage of work, family, friends, and health, and nobody gets it right. Brian Dyson, the former CEO of Coca-Cola Enterprises, likened work-life balance to juggling. The key, he said, is to understand that some balls are rubber and some are glass. Family and health are glass balls that can't be dropped without causing damage, while the work balls are rubber. They bounce back to you.”
“In the first few years of Boston Beer, I prioritized my two young kids. I was recently divorced, so time with them was crucial. My relationships with friends suffered, however. While I stayed in touch with a couple of friends and one even served on my board for many years, I lost contact with many others. Fortunately, I have reconnected with some of them.”
“Recently, my youngest daughter waited three hours for me to show up for a dinner. I was involved in an all-day mediation of an eight-figure contract dispute. It ended three hours late with no resolution. A rubber ball. My 25-year-old daughter spent the time writing a poem about all the times she lay in bed waiting to see me before she fell asleep and asking why, after all these years, I was still failing her. Ouch. Like I said, some balls are glass.”
“If I had it to do over again, I would be more ruthless about making time for my family—and showing up on time for them. I would have dropped a few more of those rubber balls.” READ MORE
West Hollywood has the highest minimum wage in the country, and businesses there are not happy: “Josiah Citrin, the owner and chef of a Santa Monica restaurant with two Michelin stars, opened a new steakhouse a few months ago off the Sunset Strip. He is already concerned about whether the restaurant can survive. The reason, Mr. Citrin said, is singular: a West Hollywood city mandate that workers be paid at least $19.08 an hour, the highest minimum wage in the country. ‘It’s very challenging,’ Mr. Citrin, 55, said of the new minimum wage, which took effect about two weeks before he opened his doors in July. ‘Really, it’s almost impossible to operate.’”
“His sentiment is widely shared among business owners in West Hollywood, a city of 35,000 known for restaurants, boutiques and progressive politics. In recent weeks, many owners have written to lawmakers, pleading for a moratorium on further increases to the minimum wage; another is scheduled for July, based on inflation.”
“The jaggedly shaped city is bordered by Beverly Hills to the west and Los Angeles to the north, south, and east. Some streets begin in Los Angeles, slice through West Hollywood and end in Beverly Hills. You can be in three cities — barring, of course, traffic — in a matter of minutes. And that means West Hollywood’s small businesses have competitors down the street with lower costs.”
“Beyond raising the minimum wage, the West Hollywood ordinance, which the City Council approved in 2021, requires that all full-time employees receive at least 96 hours a year of paid time off for sick leave, vacation or other personal necessities, as well as 80 hours that they can take off without pay.” READ MORE
Does working from home stifle collaboration and hamper innovation? “Many executives believe it does, but there haven't been many good studies to prove it. After all, remote work has been taking place on a mass scale only since 2020, and new ideas take years, if not decades, to develop into real-world applications. It's hard to measure something that hasn't happened yet. Now, though, a massive new study published in the journal Nature has shed new light on the effect of remote work on innovation. At the center of the study is a clever workaround. Even though remote work is a relatively new development in corporate settings, scientists and inventors have been collaborating over long distances for decades. So researchers at Oxford University and the University of Pittsburgh pored 20 million scientific studies and 4 million patent applications from around the world over the past half century.”
“Collaborating in person, the study found, really did produce more breakthroughs than remote work. And the farther away team members were from one another — even if they were in the same time zone — the worse chance they had of producing work that was groundbreaking.”
“Teams located in the same city, for example, were 22 percent more likely to produce innovative patents than teams spread out by several hundred miles or more — and 27 percent more likely to produce pioneering insights in scientific papers.” READ MORE
Andrew Selee, president of the Migration Policy Institute, says there’s one answer to both our immigration and job-shortage problems: “Immigration in the Southwest has dominated headlines over the past year. But that story is intertwined with another one that has gotten less attention: the labor market. Millions of jobs across the country have gone unfilled during 2023 because of an economic rebound and the aging of the U.S. workforce. Meanwhile, the U.S. government apprehended more than two million people trying to cross illegally between ports of entry in the fiscal year that ended in September, similar to the number the year before—people who are willing and eager to fill many of these jobs but have few legal avenues to get to the U.S. These two stories from the past year are often thought of separately. But they shouldn’t be.”
“Overall, almost 14 percent of the U.S. population and 17 percent of the workforce was born abroad, and 1 in 4 Americans have at least one foreign-born parent. Most population growth is now coming from immigration, and all of it will after 2042, according to current predictions.”
“Given that situation, the solution to our job crisis seems obvious: Bring in more people who will fill those jobs, and bring them in legally. But we aren’t doing that. The result is that in any given month in 2023, there were eight to 10 million jobs open.” READ MORE
COMMERCIAL REAL ESTATE
The coming year will be make or break for many office-building owners: “Many landlords have been able to extend their loans, often by putting in more capital. But a lot of those extensions are now expiring, and owners are losing hope that occupancy rates will rebound soon. That means many more office landlords will be compelled to pay off their mortgages, sell their properties at a steep discount, or hand their buildings over to their creditors. ‘In 2024, it’s game time,’ said Scott Rechler, chief executive of RXR Realty, a major owner of office buildings in the New York region. ‘Owners and lenders are going to have to come to terms as to where values are, where debt needs to be, and right-sizing capital structures for these buildings to be successful.’”
“While the number of full-time remote employees has dwindled, hybrid workplace policies look here to stay. In the fourth quarter, 62 percent of U.S. businesses allowed employees to work from home some days of the week, up from 51 percent in the first quarter, according to Scoop Technologies.”
“Kastle Systems, which tracks security-card swipes in 10 major U.S. cities, said that average office attendance is about half of its pre-pandemic level. Placer.ai, which tracks mobile phone data, puts it in the 60 percent to 65 percent range. But it also said the return rate has topped out.”
“That vacancy rate is poised to push higher because nearly half of office leases signed before the pandemic haven’t expired, CoStar said. When they do, many of the businesses will likely take less space than they are currently occupying, whether they are renewing or relocating.” READ MORE
The warehouse-building boom is over, but the sector remains healthy: “Unlike in the office sector, where future demand is now in doubt, warehouse landlords are hardly in crisis. Construction is still high by historical standards, vacancies are low, and mortgage defaults are rare. E-commerce activity continues to grow and the industry could thrive again if interest rates continue their recent decline.”
“Industrial property construction starts tumbled 48 percent in the first nine months of the year compared with the same period in 2022, according to data company CoStar. That was the largest drop for that period since 2009. The dollar volume of industrial real estate sales fell by 45 percent in the third quarter from a year earlier, according to MSCI Real Assets.”
“Higher debt costs and slowing leasing demand are the main culprits. The rates on many types of commercial mortgages have roughly doubled over the past year, and land prices haven’t fallen enough to make up for that, brokers say, making it harder to pay for construction.” READ MORE
Are we ready to stop building houses one at a time? “In 1969, the federal government announced that it would hand out millions of dollars in subsidies to companies willing to try something new: build houses in factories. Then as now, America was in the throes of a housing crisis. There weren’t enough places to live. Mass production provided Americans with abundant and cheap food, clothing, cars and other staples of material life. But houses were still hammered together by hand, on site. The federal initiative, Operation Breakthrough, aimed to drive up the production of housing — and to drive down the cost — by dragging the building industry into the 20th century. It didn’t work.”
“Two decades into the 21st century, nearly all U.S. homes are still built the old-fashioned way: one at a time, by hand. Completing a house took an average of 8.3 months in 2022, a month longer than it took to build a house of the same size back in 1971.”
“The tantalizing potential of factory-built housing, also known as modular housing, continues to attract investors and entrepreneurs, including a start-up called Fading West that opened a factory in 2021 in the Colorado mountain town of Buena Vista.”
“Charlie Chupp, the chief executive, previously ran a company that built and shipped all the pieces of new stores for Starbucks, Einstein Bros. Bagels and other restaurant chains. Fading West is seeking to apply a similar model to building homes and apartments.”
“Fading West says houses from its factory can be completed in as little as half the time and at as little as 80 percent of the cost of equivalent handmade homes, in part because the site can be prepared while the structure is built in the factory.” READ MORE
21 HATS LIVE: FORT WORTH
We have only a couple of slots left for our next in-person event: There will be no speakers, only participants. We’ll have two deep-dive peer group sessions, and everyone will help choose the topics. Bring your own challenges! Bring your own opportunities! The event will feature good food in private restaurant rooms, visits to cool businesses—especially Laura Zander’s Madelinetosh manufacturing operation—and most importantly, the priceless opportunity to compare notes with other business owners who are on similar journeys.
An agency created to bolster minority-owned businesses is under siege: “Of the targeted programs, the Minority Business Development Agency is the most imminently imperiled. Established in 1969 by President Richard M. Nixon by executive order, the agency seeks to remedy past and ongoing discrimination in the business world. It runs more than three dozen centers across the country that help minority-owned businesses secure financing and navigate the federal contracting process. The agency was made permanent in 2021 under the Infrastructure Investment and Jobs Act, which greatly increased its funding to $550 million over five years.”
“Earlier this year, three White male business owners sued the agency, alleging they were excluded from federal assistance because they don’t identify as Black, Latino, Native American, Asian, Pacific Islander or any other eligible minority group. The plaintiffs seek to invalidate the government’s presumption that certain races suffer inherently from social and economic disadvantage.”
“‘They are all interested in finding new ways to grow their business and would value the advice, grants, consulting services, access to programs, and other benefits offered by the MBDA,’ the lawsuit states. ‘But that agency won’t help them because of their race.’”
“The government points to ‘overwhelming Congressional evidence, compiled over decades, that demonstrates that members of certain groups have suffered, and continue to suffer, social or economic disadvantage that stunts their ability to participate in America’s free enterprise system.’”
“The Justice Department emphasized that the program’s services are not restricted to groups presumed disadvantaged but rather are open to any socially or economically disadvantaged person.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Do the Math. Lean into A.I. Play Squash: In our last Dashboard of 2023, Gene Marks talks about the nine habits that he believes have helped him build a business. Those habits include meeting regularly with his accountant, meeting regularly with his clients, and over-paying his employees. Gene saves what he considers the most important suggestion for last: “Make time to enjoy your family.”
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren