The Temptation of Private Equity

Even just taking the calls from PE investors can feel a little like entering the Garden of Eden.

Good Morning!

Here are today’s highlights:            

• Is “feedback” becoming a dirty word?

• TikTok has signed up more than 200,000 sellers—including big brands—as it becomes an ecommerce platform.

• Another business rejects an ESOP in favor of a Perpetual Purpose Trust.

• More luxury apartments are trying to attract renters with pet amenities.

THE 21 HATS PODCAST

This week, Shawn Busse, Jennifer Kerhin, and William Vanderbloemen discuss private equity. Both William and Jennifer have been getting emails and calls from representatives of PE firms who come promising all kinds of gifts—connections, expertise, money to invest in the business, and money to take off the table—which is why the temptation can be great. “If anybody even just offered me a three-day vacation, I think I would jump at it,” Jennifer jokes. But of course PE firms do exact a price, possibly including control of what used to be your business, which is why Jennifer says she wonders whether she should even take the phone calls. Entering the conversation, she says, feels a little like entering the Garden of Eden. Do you take a bite of that apple?”

• Plus, Shawn thinks he’s found a better way to manage his company’s credit cards, and Jennifer gives us an update on her new website.

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

MANAGEMENT

There’s a new debate in HR: feedback or feedforward? “Employers around the country have good news for workers who dread chats about their performance: Feedback is on the way out. Many companies, executive coaches and HR professionals are looking to erase the anxiety-inducing word from the corporate lexicon, and some are urging it be replaced by what they see as a gentler, more constructive word: ‘feedforward.’ Feedback too often leaves workers feeling defeated, weighed down by past actions instead of considering the next steps ahead, but ‘feedforward’ encourages improvement and development, its proponents say.”

• “The canceling of feedback has its share of skeptics. It comes as younger generations—who can prefer a more positive, nurturing environment—are accounting for a larger share of the workforce, and companies increasingly focus on performance and efficiency following a pause on reviews during the pandemic.”

• “‘Feedback conversations, as they commonly exist today, activate a social-threat response in the brain interfering with the ability to think clearly, and raising heart rates,’ says Theresa Adams, senior HR knowledge adviser at human-resources trade association SHRM.”

• “Companies are also banishing another negatively charged term: ‘review,’ which they are replacing with ‘connect’ sessions, coaching, self-reflection and opportunity discussions.” READ MORE

ECOMMERCE

Can TikTok be as effective for selling as it is for marketing? “After nearly a year of testing, speculation and some internal upheaval, TikTok this week is rolling out TikTok Shop for all users in the United States. The company will expand the rollout of a Shop button on the app’s home screen, which sends people to a marketplace, and drive traffic to videos that contain Shop buttons for specific products. Both enable users to buy products in a few clicks without leaving the app. E-commerce is a significant bet for the company, which is hoping to translate the app’s power as a cultural trendsetter into another big new revenue stream. But it is a venture that other popular social platforms, including Instagram, have not succeeded with in the United States.”

• “To make it a hit, TikTok said, it is actively driving videos with shopping buttons into users’ feed. The company is also, for the time being, giving generous discounts and coupons to users who shop and forgoing commissions from many sellers.”

• “TikTok said that it had already signed up 200,000 sellers to TikTok Shop and that more than 100,000 creators could make videos and livestream with shopping buttons.”

• “The company said more than 90 percent of TikTok Shop’s sellers were U.S.-based, and Mr. Le Bourgeois emphasized that a slew of major brands like Benefit, Olay, L’Oreal and e.l.f. had joined or were planning to join TikTok Shop.” READ MORE

POLICY

Michael Bloomberg thinks asylum seekers should be allowed to work while they await a decision: “The process of receiving a work authorization can take a year or longer. In the meantime, how are asylum seekers expected to pay rent and feed themselves and their families? This amounts to state-enforced poverty and vagrancy — against people who have shown extraordinary fortitude and grit in journeying here, often at great risk, for the opportunity to work and build a better life.”

• “In New York City, denying people the ability to work is especially taxing because of a 1981 legal settlement, in which the city agreed to provide shelter to all homeless residents seeking it. That agreement was never intended to be a blanket guarantee of housing for an unprecedented flow of refugees, but that is what it has become.”

• “New York is hardly alone. Chicago, Philadelphia, Washington, Denver and other cities are also experiencing an influx of asylum seekers who have no housing and no means of legally earning money.”

• “Think about it: We have a system that essentially allows an unlimited number of people to cross our borders, forbids them from working, offers them free housing, and grants them seven years of residency before ruling on whether they can legally stay. It would be hard to devise a more backward and self-defeating system.” READ MORE

HUMAN RESOURCES

In  California, the fast-food industry has agreed to a $20 minimum wage: “Labor groups and fast-food companies in California reached an agreement over the weekend that will pave the way for workers in the industry to receive a minimum wage of $20 per hour. The deal, which will result in changes to Assembly Bill 1228, was announced by the Service Employees International Union on Monday, and will mean an increase to the minimum wage for California fast-food workers by April. In exchange, labor groups and their allies in the Legislature will agree to the fast-food industry’s demands to remove a provision from the bill that could have made restaurant companies liable for workplace violations committed by their franchisees.” READ MORE

TECHNOLOGY

Big changes are (finally) coming to the construction industry: “The basics of how buildings are constructed have remained mostly the same for nearly 100 years, but innovative building methods could transform the construction industry. Homes completed in three months with modular construction. Machines for 3D printing creating concrete columns to replace aging structures. Multistory buildings assembled with Lego-like blocks. Even robots replacing human workers for some jobs. Construction innovations like these could make building faster, less expensive and less reliant on manual labor. All of that is badly needed in this climate of soaring construction costs, loans with high interest rates and a labor shortage.”

• “One of the most advanced prefabricated residential developers in the nation is building hundreds of single-family homes and townhomes in Miami-Dade County. Texas-based Onx Homes has completed 350 homes in the Homestead area since it launched two years ago. COO Ravi Bhat said it can complete a house in less than three months, compared to an industry average of about seven months.”

• “Onx has manufacturing facilities in Homestead and Pompano Beach where it prefabricates major components before hauling them to the job sites and assembling them, Bhat said. It manufactures foundations, typically made with 13 to 17 blocks per home. It assembles bathroom pods, a nearly complete bathroom with electrical and plumbing. It produces outer walls of concrete and roof trusses made from fabricated recycled steel. It also uses steel frames for the interior walls.”

• “The only wood in Onx’s homes are in the cabinets and doors, Bhat said, so they’re resistant to termites. The concrete homes also have better insulation, so they reduce air-conditioning costs and there is less chance of water leaks, he said.” READ MORE

SUCCESSION

Here’s another business, Biohabitats, that has opted for a Perpetual Purpose Trust: “Maximizing shareholder financial returns is not what drives us. In fact, we believe this short-term driver is one of the leading causes of social and political inequity, climate change, biodiversity loss, and systemic racism. Traditional business models do little or nothing to address these issues head-on. While we are far from perfect, we believe there is a better way to practice capitalism for the good of the Earth and human well-being. We wanted to find a business model that not only allowed us to perpetuate our purpose, mission, and DNA, but one that embraced Nature as one of its primary stakeholders.”

• “As a husband and a father, I wanted to make sure that my family would be financially secure as I contemplated my future retirement. It was important to me (and to the other shareholders of Biohabitats) that we would be fairly compensated for the equity we have invested in the company. At the same time, I wanted to ensure that Biohabitats would have the capital it needed after the transition to continue to develop and thrive.”

• “We also looked at the possibility of becoming a worker cooperative, like REI, or officially converting to an Employee Stock Ownership Plan. Both these options were more appealing than a merger or acquisition, but both are structured to maximize profit at the expense of the company’s purpose, and both are structured as a commodity saleable to the highest bidder. Neither ensured that Biohabitats would not be sold in the future, and neither would codify or provide long-term protection of our mission and purpose.”

• “Because our purpose, mission, values, and DNA make us who we are, we settled on the Perpetual Purpose Trust. It enables us to lock in our purpose, mission, and values without being beholden to any investors not involved in the day-to-day business of Biohabitats.” READ MORE

• Earlier this year, I did a podcast with two business owners—of Zingerman’s and of Text-Em-All—who have created Perpetual Purpose Trusts. LISTEN HERE

REAL ESTATE

Luxury rentals are betting big on pet amenities: “Millions of Americans adopted pets while they were stuck at home during the pandemic. The influx of furry friends appears to have driven a new pet-centric trend in the Bay Area and beyond among posh urban apartment complexes and condominiums competing for well-heeled tenants. ‘We have tons of dogs, and most of our team has pets,’ said Chorus sales manager Olivia Williams, who is also a Chorus resident and dog owner. Williams said every building run by Sentral, which operates Chorus, has some kind of pet spa or park, especially in its new developments.”

• “Take the Fillmore Center. The centrally located, multi-building apartment complex has been a staple of the Fillmore District since the 1980s and since early 2020 has installed no fewer than three on-site dog parks.”

• “Over in East Cut, the freshly renamed Downtown neighborhood, various agencies and the area's community benefit district have earmarked an eye-watering $50 million for a 2.4-acre dog park under a Bay Bridge on-ramp near the Salesforce Tower.”

• “The new apartments at the 27-story complex Chorus SF come complete with Teslas for tenants, a theater, a rooftop pool and posh pet perks—including a pet spa.” READ MORE

Thanks for reading, everyone. — Loren