The Problem With the Inc. 5000

It's a real accomplishment for those who make the list, but is top-line growth the most important goal?

Good Morning!

Here are today’s highlights:            

• Teamshares has raised $245 million to buy small businesses.

• More businesses—including bars and spas—are becoming kid-friendly.

• Businesses are speaking up about the need to hire more immigrants.

• Warehowz wants to be the Airbnb of warehousing.

GROWTH

The Inc. 5000 list is out, but Ami Kassar questions whether top-line growth is cause for celebration: “I do not intend to minimize the accomplishment of being on the list or creating a growing company. It's not easy, and I want to avoid judging anyone who uses the list for recognition or if it helps their company somehow. I wish there were a better way to recognize entrepreneurial success than by celebrating rapid top-line growth, and if I had a good idea about how to do this, I would want to make it happen. Unfortunately, I have worked with several companies obsessed with top-line growth (many wanting Inc. recognition) at the expense of everything else.”

• “When the dominoes start to fall, it isn't easy to clean them up. And when I see this pain, it makes me wonder about the merits of the Inc. 5000.” READ MORE

SELLING THE BUSINESS

Teamshares has raised $245 million to buy small businesses from retiring owners. You may recall we did a podcast with co-founder Michael Brown early this year: “A holding company that owns a notary service in Pennsylvania, a butcher shop in Minnesota, and more than 80 other small businesses around the U.S., has quietly raised a total of $245 million in venture capital. Teamshares buys small, profitable businesses with annual revenue of $1 million to $10 million and whose owners are retiring, making the New York-based company similar to a private-equity firm and an unusual bet for venture investors.” READ MORE

THE ECONOMY

U.S. mortgage rates just hit their highest level in more than 20 years: “The average 30-year fixed-rate mortgage — the most popular home loan in the United States — was 7.09 percent, up from 6.96 percent last week, Freddie Mac said on Thursday. A year earlier, the 30-year rate was 5.13 percent. Analysts say they expect mortgage rates to remain lofty in the near term, and to start cooling only gradually by the end of the year. The current rate is the highest since April 2002. Since then, home buyers enjoyed years of falling rates, which even dipped below 3 percent at the beginning of the pandemic.” READ MORE

PRICING

Child-care prices are rising at nearly twice the inflation rate: “The national average price of daycare and preschool services rose 6 percent in July from a year before, the Labor Department reported recently. That was nearly double the overall inflation rate of 3.2 percent, which was down from its recent peak of 9.1 percent in June last year. Parents could see their child-care bills climb higher this fall as providers boost tuition to cover rising costs and federal pandemic aid ceases. ‘We don’t have many other options, so we just have to take the hit,’ Danielle Ganje, a mother of three living in Blaine, Minn., said of recent price hikes.”

• “Many child-care providers closed permanently early in the pandemic, and child-care prices rose more slowly than the overall inflation rate from March 2021 to February 2023, while many Americans worked from home. Child-care inflation has picked up since then as workers returning to offices fueled more demand, pay for low-wage workers jumped amid labor shortages.”

• “Fran Bush, owner and director of the Model Kids Learning Academy, a child-care provider in Nashville, Tenn., said she has raised her tuition prices by about a third since before the pandemic, partly to cover higher labor costs. She said she had to boost her workers’ starting wages to $15 an hour from between $13 and $14 and pay bonuses to attract and retain teachers.”

• “Many providers also lose federal financial aid next month with the expiration of the $24 billion Child Care Stabilization Program, which was created in 2021 to help them pay their bills and stay open during the pandemic. ... Bush said she received at least $174,000 in federal pandemic aid from the program and a bit more from Tennessee. The money ‘really helped us keep the doors open, workers paid and costs affordable,’ she said. It helped keep ‘us from drowning.’” READ MORE

RETAIL

More businesses are becoming infant-friendly to accommodate parents who don’t want to pay for child care: “Instead of changing their lives to fit their children, these parents say they are trying to raise kids who fit their lives. They are also looking to avoid paying sky-high babysitting fees. The average hourly rate for babysitters on provider matching platform Care.com is up 44 percent since 2019, jumping from $16.25 to $23.35 an hour. On the way home from the hospital after giving birth, Allison Mayfield stopped for a margarita and ceviche at a Washington, D.C., cocktail bar. Mayfield’s baby, Louis, went with his parents to upscale eatery Le Diplomate for Bastille Day and slept next to an accordionist at 8 days old. ‘We’ve had friends completely change their way of life after having kids so we really wanted to start off with a sense of normalcy,’ says Mayfield, a nurse practitioner.”

• “The shift hasn’t been seamless with patrons of previously child-free establishments arguing that if a parent can afford a Michelin-star dinner, they can also afford a babysitter. Businesses have been more amenable to their new, younger patrons thanks to the rising demand.”

• “At Cheeks + Co spa in Pasadena, Calif., owner Christina Uzzardi now tells customers they’re welcome to leave their kids at reception or bring them into the room while they get a facial or wax. She instituted the policy after noticing a surge in tiny visitors over the past year and a half, compared with next-to-none before the pandemic.”

• “She only has three rules: Wear headphones when playing on a phone or tablet. No snacks. And no kids older than 1 in the room when mom gets a Brazilian or bikini wax. ‘It’s a little inappropriate,’ Uzzardi says.” READ MORE

HUMAN RESOURCES

Even in Iowa, businesses want more foreign workers: “The fate of a recent proposal at the statehouse underscores the tension for GOP lawmakers in a state that’s increasingly a stronghold for their party: Senator Julian Garrett of Warren County sponsored a bill that would mandate the use of E-Verify, a platform that allows employers to check documents provided by new hires to confirm they’re authorized to work in the US. The plan reflects the national GOP’s priority of cracking down on illegal immigration and mirrors a similar law that recently came into effect in Florida.”

• “But several local business groups in Iowa have opposed the bill. Joe Murphy, president of the Iowa Business Council, is one such opponent. He says what’s needed is a comprehensive, federal revamp of immigration laws rather than a state-by-state patchwork of rules. ‘It’s border security, it’s E-Verify, it’s visa quotas, it’s visa expansion,’ he says. ‘All of those things in totality.’”

• “Foreign-born workers have helped ease some of the pandemic-induced shortages—they were behind 60 percent of the nation’s workforce growth last year. Overall, immigrants account for a little less than 1 in 5 U.S. workers. In the Midwest, which includes Iowa, their share is smaller, at 10 percent.”

• “Hiring difficulties in Iowa have forced companies in labor-intensive manufacturing and processing industries to adapt. Auto-parts and accessories manufacturer Dee Zee has raised its base pay to increase its workforce of 1,000. It currently has roughly 60 openings.”

• “Weiler Products, a paving equipment manufacturer in Knoxville, Iowa, has received funding from the Iowa Economic Development Authority for recent factory expansions. The company’s loan forgiveness is contingent on adding a certain number of jobs—no easy feat amid the labor crunch.” READ MORE

The state of Washington is suing the O’Reilly Auto Parts chain for discriminating against pregnant workers: “Accommodations for pregnancy can mean limiting how much workers lift and handle hazardous materials, and allowing sitting, resting and flexibility for bathroom breaks. Ferguson alleges that O’Reilly has a practice of refusing such accommodations to pregnant workers and ‘routinely engaged in retaliation’ against women who sought those modifications to their work by demoting them, threatening to fire them and forcing them to take unpaid leave or quit. Ferguson said his office had received complaints from pregnant employees, prompting the civil rights division of his office to open a statewide investigation into O’Reilly.”

• “Women who worked for O’Reilly described being coerced to return to work before the end of their scheduled maternity leave, being denied breaks to pump breast milk, and being forced out of their jobs after asking for accommodations, according to the Attorney General’s Office.”

• “‘Our policies and practices are designed to, and do, comply with Washington’s Healthy Starts Act and the Law Against Discrimination,’ the company’s statement continued. ‘These policies and practices prohibit discrimination and retaliation against pregnant applicants and team members, provide for reasonable accommodation in compliance with these Acts, and prohibit retaliation for exercising their rights under them.’” READ MORE

LOGISTICS

Warehowz, which has a network of 2,500 warehouses across the country, wants to be the Airbnb of warehousing: “When Warehowz first started, it tried to identify companies that shipped products, but [chief revenue officer Rich] Oprison said the process was challenging. A huge number of companies ship their products, and identifying the decision-makers proved difficult. ‘It’s a real problem when we try to go direct,’ he said. ‘For us to go find those, it’s like finding a needle in a haystack.’ That created the shift in strategy. Warehowz has begun working with a small network of shipping and logistics firms, called third-party logistics companies, or 3PLs. These are organizations that help companies move products from one place to another.”

• “A large company like Amazon or Walmart conducts shipping and logistics internally, but most companies need help finding trucks and managing logistics. The 3PLs also have clients with warehouse needs, and Warehowz has been working with these companies to funnel business to its own network.”

• “He said the line of business has been fruitful and that the 3PLs have tapped into a new set of customers for Warehowz. ‘Our 3PLs have brought us everything from pizzas to caskets,’ Oprison said. ‘We actually have a company called Titan Caskets, which is online caskets.’” READ MORE

HOUSING

If there’s not enough housing, why are there so many vacant lots? “Despite a national housing shortage, tens of thousands of empty residential lots in Chicago, Detroit, Pittsburgh, and elsewhere are beyond the reach of developers or kept vacant by owners because of legal and government obstacles that cities are now trying to knock down. In block after block, occupied homes sit next door to vacant, weed-covered lots that have spread in hopscotch patterns across largely Black and Latino neighborhoods, depressing property values and property tax revenue. Neighbors say half-empty blocks draw crime.”

• “Cumbersome rules to resolve unpaid tax bills on abandoned lots keep away developers, and cheap tax assessments on vacant lots encourage owners to keep them off the market—perfect conditions for a downward housing spiral, according to officials seeking to resurrect the neighborhoods.”

• “Detroit officials want to triple property-tax bills on vacant land and reduce payments by an average of 30 percent for homeowners. The idea is to spur development on 30,000 neglected vacant lots held by owners who pay almost no taxes.”

• “In Pittsburgh, the city council this month passed a measure to more easily transfer the 13,000 or so city-owned lots and vacant properties to a municipal land bank and into the hands of developers or nonprofits. The city’s population is down by more than half since its peak in the 1950s.” READ MORE

TAXES

What should Amazon pay for blocking our streets with double-parked trucks? “We find ourselves in a de facto negotiation over how Amazon and other delivery networks will compensate the country for their partial takeover of the publicly funded road system that makes up a large part of their work space. Concessions can and should be extracted from Amazon. But the public’s leverage is weak, the political dynamics are complex, and the alternatives are fewer than they used to be. One can lament the shortsightedness that brought this state of affairs about. The 1992 Supreme Court decision Quill Corporation v. North Dakota, since overturned, absolved companies from collecting sales tax in states where they did not have a physical ‘nexus.’”

• “The Internet Tax Freedom Act of 1998, which blocked new taxes on internet access, also contained language banning ‘multiple’ and ‘discriminatory’ taxes on ecommerce, further tying states’ hands. The upshot was an enduring advantage for internet retailers over bricks-and-mortar stores. That outcome, though deplorable, is not easy to undo.”

• “Internet commerce has hollowed out the storefronts of old commercial zones and rendered them useless for anything but face-to-face services such as pouring espresso and painting nails. Those bricks-and-mortar businesses that Amazon and others eliminated were not just market competitors at an individual level — collectively, they provided an alternative retail infrastructure that might have allowed regulators to drive a harder bargain with Amazon.” READ MORE

THE 21 HATS PODCAST

When Business Owners Burn Out: This week, Shawn Busse and Jay Goltz discuss a recent Business Journal report that a lot of business owners are feeling burned out. Why is that, and what can owners do to avoid it? And have either Shawn or Jay been there? Plus: Shawn brings us up to date on the leadership transition he’s initiated, and—believe it or not—Jay has had another revelation about ESOPs. Also, do business owners need better regulation or no regulation? And which regulations are annoying Shawn and Jay the most right now?

• “I don't know that any of us have recovered from 2008. I mean, I know my business never really did, so I'm not saying it's not difficult out there. I'm just suggesting there are still some core basic things that people still aren't doing that would make their life easier.”

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren