The Problem with Business Books
In this week’s Dashboard episode, Shawn Busse says the advice business books peddle is often intended for a type of business that isn’t as prevalent as it once was.
Good Morning!
Here are today’s highlights:
“Did I send a text? Did I call them? Did I send an email? Did I send it on Slack?”
At least one fast-food chain in California is finding something to like about increased wages.
When you want to buy a business, but you don’t have the capital.
Why do restaurants keep offering those all-you-can-eat deals? (You know why.)
THE 21 HATS PODCAST: DASHBOARD
Why Business-Book Advice Doesn’t Work for You: This week, Shawn Busse talks about why the business-advice books we’ve all read often fall flat. Shawn says it’s because much of what they suggest is predicated on a traditional model of a business that makes widgets. As a result, that advice may work fine if you are a manufacturer, but it’s far less likely to help if your product or service is more customized. That may seem obvious but the thinking Shawn describes remains deeply embedded in the small business mindset. One example: the implementation of highly regimented processes. It can be great for some businesses, stifling for others.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
You can also read “Rethinking Your Value Model,” an article Shawn wrote.
MANAGEMENT
We still haven’t figured out hybrid work: “There is a name for all of the time we spend on the job puzzling out who’s on Zoom, who’s coming from down the hall, and who’s messaging from three time zones away: the ‘coordination tax.’ The term is used to refer to the logistical challenges of a growing enterprise. Now it is gaining traction among executives and workplace consultants to describe the increasing amounts of time workers spend getting in sync since millions began toggling between work-from-home arrangements and the office.”
“A few years into experimenting with hybrid work, more companies are acknowledging that it is here to stay and needs to be managed better. Some are adding more structure to remote- and hybrid-work policies. Others are deploying tools to help co-workers coordinate their in-office time.”
“As much as they relish the flexibility of hybrid work, many workers say the hassles of coordinating with co-workers aren’t easing with time. One reason is that while close to 40 percent of companies have hybrid-work models, only a fraction—8 percent—designate specific days for in-office work, according to data from Scoop Technologies, a software firm that tracks return-to-office policies.”
“‘Did I send a text? Did I call them? Did I send an email? Did I send it on Slack?’ He says all the back and forth and waiting for responses would throw off his work rhythm. He has since left and is now in a fully remote role where everyone largely sticks to Microsoft Teams.” READ MORE
HUMAN RESOURCES
Higher pay for fast-food workers in California may be improving retention: “[Monique] Pizano is one of about 850 general managers for Raising Cane’s, where her pay can reach $174,000 annually including bonuses based on her location’s sales and profit. The fast-growing chicken chain views its managers as critical partners, and the company, based in Baton Rouge, La., pays them to be perfectionists. ‘It’s been life-changing for my family,’ Pizano said about her job and earnings. California raised the minimum wage for fast-food workers to $20 an hour in April, a move backers said will help hundreds of thousands of people have a better quality of life in the high-cost state.”
“Gaining less attention was the requirement for chains to boost pay for managers. Big fast-food chains are required to pay salaried managers at least $83,200 to comply with California rules, up from $66,560. If not, operators need to pay their managers an hourly wage, plus overtime if they work more than 40 hours a week.”
“Raising Cane’s in March raised Pizano’s annual base salary to $85,000 from $79,000. The chain raised staff wages at the same time, Pizano said, delighting everyone who worked at the restaurant roughly 15 miles south of the city of Los Angeles. ... The increased pay is helping with worker retention, Raising Cane’s said.” READ MORE
BUYING A BUSINESS
Michael Girdley on solving the cold-start problem: “Lots of people don’t have enough personal capital to start with. Maybe you don’t make enough to save up for a business. Maybe you don’t want to put 100 percent of your net worth on the line. Maybe you have less risk tolerance because you have kids to look after. Some lucky people don’t have to solve this problem. Maybe you’ve got family money, or you’ve inherited a company or two. But if you don’t have a leg up like that, buying your first business can be a big hurdle. But that hurdle doesn’t have to stop you. There are a couple of great ways you can get your foot in the door, even if your capital is limited.”
“An SBA loan, specifically SBA 7(a), is a government program that lets you use debt for acquiring your first company. Depending on how you structure it, you can leverage to take on debt of up to 90 percent or more on a business. Some recent structures are going even higher, though high leverage always scares me – and should scare you, too.”
“Because they’re backed by the federal government, you can get very competitive terms, even when you don’t have a credit history. It’s an ideal program for getting off the ground. Right now, the ceiling for the loan value is $5 million, which is more than enough to get started. The risk of an SBA loan is the ‘personal guarantee.’”
“Sweat Equity: This is the work-your-way-to-ownership path. Basically, you go find someone who wants to retire out of their current business, and you buy into it over time. Work out a structure where you take a pay cut in exchange for equity. For example, say you’re a person normally worth $200,000 a year. That makes you a high value person in a business.”
“You strike a deal where you’ll get paid $50,000 a year for five years, but each year you gain a percentage of the business. At the end of the five years, you’ll own 80 percent. This can be win-win: you get a stable business, and the existing owner gets a transition plan out, help for five years, and they know their business is going to get taken care of.”
This of course is quite similar to Jay Goltz’s We-SOP idea. READ MORE
RETAIL
Can what was once an upscale mall survive by trading anchor tenants for small, independent businesses? “Joining the two nonprofits are a string of independent niche businesses that previously, likely wouldn’t have been able to lease space at what was once the city’s premier shopping destination. The new entrants include A&S Cell Accessories and Repairs, Hey Hi Toys, pet supply vending machine pop-up Paw Box, vintage store +Friends and Merkado, which sells Japanese kawaii (cute) products.”
“Any positive news over there is great,’ said Cameron Baird, a longtime San Francisco retail broker at Avison Young, who is not involved with the mall’s leases. He speculated the new lease rates were either heavily discounted or based on a percentage of sales. ‘There is no better time than now to be a tenant or buyer in the city,’ Baird said.”
“Despite these new leases, the mall remains more than 50 percent vacant with big box spaces like the former five-floor Nordstrom and movie theater still empty. The mall’s other anchor tenant, Bloomingdale’s, has a lease that runs until 2046, according to commercial mortgage-backed security loan data. Other notable brands still holding on at the Emporium include Lululemon, Zara, and H&M.”
“Desi Danganan, executive director of local nonprofit Kultivate Labs, told The Standard he personally reached out to JLL earlier this year to discuss transforming the mostly vacant fourth floor of the mall into a hub for Filipino cuisine, shopping, and culture.” READ MORE
LITIGATION
Businesses that didn’t get their Employee Retention Credit are suing the IRS: “A provision in the tax code allows taxpayers who have filed refund claims to sue the Internal Revenue Service if they have not heard from the agency within six months, or their claim was denied and they believe it to be legitimate. ‘A lot of small businesses are trying to decide: Should we keep waiting for the IRS or, since it's been more than six months since we filed our claim, should we go ahead and just file a refund lawsuit?’ says Brian Bernhardt, a partner at Fox Rothschild who focuses on federal tax issues.”
“The credit, which was authorized by the sprawling coronavirus aid package known as the CARES Act, sought to motivate employers to retain staff during the pandemic as unemployment skyrocketed. But the IRS has been unable to keep up with the tsunami of claims it received, both from legitimate entrepreneurs trying to stay afloat as well as fraudsters looking to take advantage of the agency's latest tax credit.”
“The agency stopped processing new ERC claims last September, citing rampant fraud. In April, the IRS clawed back hundreds of millions worth of ERCs that were erroneously claimed. Still, tax advisory firms and businesses alike have started turning to the courts to force the IRS's hand, although they have yet to triumph, as litigation tends to move slowly.” READ MORE
THE INSURANCE CRISIS
Now condominiums are getting hit with soaring policy costs: “Board members of the Highland Park Community Association in Mission Viejo, Calif., braced last year for a rise in insurance costs. Yet they were still shocked to receive a quote for over $170,000, which was more than four times what the association paid in 2022. Another 12 insurers declined to offer quotes, because wildfire risk has made insurers less willing to do business in California. The new policy provides up to $70.9 million in property coverage to this community of 208 townhomes and condominiums. But in the case of wildfire damage, the maximum coverage would be $2 million, said Mark Speros, the board’s president. ‘It was like a bombshell,’ he said.”
“Insurance costs are exploding for condo associations across the U.S., raising the cost of homeownership and making it harder for some owners to sell their units. Major losses from years of expensive natural disasters and higher rebuilding costs have pushed up property insurance prices for residential and commercial buildings in the U.S.”
“At the same time, many condos are aging and have deferred maintenance, making insurers wary of the potential for water-pipe leaks and other damage, insurance brokers say.”
“Many of the hardest-hit communities are in California and in Florida, where a new state law requiring older buildings to meet structural safety standards is also pushing up condo owners’ expenses.” READ MORE
MARKETING
Why do restaurants keep offering all-you-can-eat deals? “Last month, iconic American restaurant chain Red Lobster filed for Chapter 11 bankruptcy protection. There were many issues dragging down the seafood giant, but one of them was that Red Lobster had lost $11 million on its endless shrimp deal in just three months. Red Lobster shuttered more than 80 locations and laid off hundreds of workers, but all-you-can-eat shrimp? Still going. This is all the more stunning given that this is not the first time an all-you-can-eat-deal has put Red Lobster in financial distress. ‘They put together an endless bucket of crab promotion back in 2003,’ recalled restaurant consultant Aaron Allen. ‘The CEO was not watching the commodity markets — the price of crab shot through the roof — and she lost her job. It nearly killed them.’”
“All-you-can-eat deals have nearly killed a lot of restaurants, Allen said: Olive Garden lost millions on endless breadsticks; Pizza Hut lost big on its endless pizza buffet; Sizzler blamed its 1996 bankruptcy, in part, on people abusing the endless salad bar.”
“Apparently if you offer Americans all-they-can-eat, they will eat until you are bankrupt. So why do restaurants keep rolling out this deadly deal? ‘It’s like heroin … there’s a short high,’ Allen said. ‘They do get a short spike from it.’ Simply put: All-you-can-eat gets butts in seats. When Red Lobster’s endless shrimp deal was made permanent last year, customer traffic jumped 40 percent.”
“Red Lobster has modified its endless shrimp deal as it works to emerge from bankruptcy, Tristano pointed out. It now only offers endless shrimp on Mondays. And the price has gone from $20 to $25 or $30 in some locations.” READ MORE
THE 21 HATS PODCAST
I Decided to Slow Our Growth: This week, Jennifer Kerhin tells Shawn Busse and Jay Goltz that she finally managed to take her first real vacation since starting her business almost 20 years ago. The vacation is part of a decision she made last year to regroup a bit, in part by backing off on her sales and marketing outreach. The goal is to give her team and herself a bit of a respite while they catch their breath and while Jennifer institutes processes that will improve operations. Of course, that raises an obvious question: Will she be able to turn the growth back on when the time comes?
Plus: Shawn and Jay explain how they’ve eliminated negotiation from their hiring regimens. And all three debate who’s really responsible when owners pay for a marketing plan that doesn’t work: Is it the salesperson who pitched the plan? Or the owner who fell for the pitch?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren