Discover more from The 21 Hats Morning Report
There’s a Green Wave Coming
And you may be surprised to learn, as Jay Goltz did on our latest podcast episode, that your business is positioned to take advantage of it.
Here are today’s highlights:
Millennials are making more purchasing decisions, which is changing the way sales people sell.
Jason Fried says he doesn’t care about maximizing profits, revenue, or shareholder value.
Gene Marks says he doesn’t feel compelled to offer a discount to clients that happen to be nonprofits.
Fewer businesses are demanding expansion space when they sign new leases.
THE 21 HATS PODCAST
There’s Big Money All Over the Place: This week, Shawn Busse tells Jay Goltz and Sarah Segal that he sees all kinds of opportunities for small businesses, including his own, in the coming wave of climate-related government spending and tax credits. Count Jay among the convinced. He’s got four buildings, five vans, a truck, some Sprinters and a parking lot where he could put a charging station. If there’s government money available for upgrades, he asks, “Why wouldn’t I do that?” Plus, Jay explains how he’s rethinking his search for an HR person. And Sarah tells us she’s ready to meet in the metaverse.
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Millennial buyers are transforming the sales profession: “Drop the hard sell. Try texting prospective buyers. And know that it might take dozens of meetings to close a deal. Such were some of the lessons shared at the Women in Sales Summit here this fall, where about 250 saleswomen networked, traded tactics, and considered one of the biggest questions consuming the sales profession: how to sell to millennial buyers. The cohort born between 1981 and 1996 is the biggest in the U.S. workforce, and now holds the largest number of decision-making roles in corporate buying, according to Forrester Research.”
“Now that millennials control the purse strings at many businesses, sales professionals are carving out new ways of closing deals on everything from business software to chemicals and office equipment.”
“Those tactics, some say, involve fewer trips to the golf course and more time corralling large buying teams that include senior managers, finance officials and end users at target companies.”
“And just as they do as consumers, many millennial corporate buyers like to research business products online and on their own before ever talking to a salesperson.”
“Most [purchasers in a recent survey] also said they expect to meet, in person or virtually, with a supplier’s senior leaders and existing customers before signing the dotted line. In turn, 75 percent said the cycle for buying decisions had gotten longer over the past 24 months.” READ MORE
Jason Fried says he doesn’t care about maximizing profits, revenues, or shareholder value: “I feel like this makes me an outcast in the business world. Part of the minority, the ones who simply ‘don’t get how it works.’ I get how it works. I just don’t care. I’m not interested in squeezing something so tight that I get every last drop. I don’t want, need, or care about every last drop. Those last drops usually don’t taste as good anyway. My thirst is usually well quenched far before that final drop. Am I interested in increasing profits? Yes. Revenues? Yes? Being more productive? Yes. Making our products easier, faster, and more useful? Yes. Making our customers and employees happier? Yes, absolutely. Do I love iterating and improving? Yes sir.”
“Do I want to make things better? All the time. But do I want to maximize ‘betterness’? No thanks.”
“I don’t mind leaving some water in the cloth, some drips in the glass, some money on the table.” READ MORE
Gene Marks wants to know if you feel compelled to give discounts to clients that are nonprofits? “Let’s say you’re running a small business. A technology services firm with about 10 people. You’re doing fine, but you’re working very hard to do fine. You’re serving hundreds of clients. And then a new client requests your services. Except, this client is different: it’s a nonprofit organization. And the executive director of this organization is asking for a discount. ‘I know your hourly rate is $175,’ she says. ‘But we’re a nonprofit — hopefully, you can give us a lower rate?’ This happens to me a few times a year. Does this happen to you? If you’re a small business owner, I bet it does. So what do you do?”
“On the one hand, you can be a charitable person and offer a discount to the nonprofit.”
“Or you can be a grinch and refuse to do so. But are you really being a grinch?”
“I don’t think so.” READ MORE
Because of a tax loophole, some suppliers have been demanding payment on Zelle: “Early this year, Benson Gitau, owner of Houston appliance reseller Vendapp, noticed that his suppliers were no longer accepting payments through Venmo, PayPal, or Cash App. ‘They’d just say, I prefer Zelle,’ he says. The share of his suppliers using Zelle jumped to 60 percent from 15 percent in a few weeks. ‘A couple of them talked about why. It’s because, at the end of the day, with Zelle or cash, they decide what to show to the IRS.’”
“He’s referring to an IRS rule change that came into effect on Jan. 1, 2022, requiring third-party payment processors such as Venmo and PayPal to issue 1099-K forms to any users who receive more than $600 in payments via their apps and also file them directly with the IRS.”
“Previously, Venmo and other apps issued 1099-Ks only for customers with gross payments exceeding $20,000 who’d made more than 200 such transactions. But small businesses nationwide have found a loophole: Zelle.”
“Zelle says the new rule doesn’t apply to it, a bank-to-bank payment service, because it’s a network that doesn’t hold funds.”
“‘It’s a dangerous game for tax cheats to migrate to Zelle,’ says [Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center]. ‘It wouldn’t be hard for the IRS to unravel that.’” READ MORE
Covid is still reducing productivity and keeping millions out of work: “Two-and-a-half years after Covid-19 emerged, reported infections are way down, pandemic restrictions are practically gone, and life in many respects is approaching normal. The labor force, however, is not. Researchers say the virus is having a persistent effect, keeping millions out of work and reducing the productivity and hours of millions more, disrupting business operations and raising costs. In the average month this year, nearly 630,000 more workers missed at least a week of work because of illness than in the years before the pandemic, according to Labor Department data.”
“Another half a million workers have dropped out of the labor force due to lingering effects from previous Covid infections, according to research by economists Gopi Shah Goda of Stanford University and Evan J. Soltas at the Massachusetts Institute of Technology.”
“Richard Onken, owner of an architecture and design firm in Elkhorn, Neb., said that about 60 percent of his two dozen employees, many working from home, got Covid in October 2020 during an early wave. When Omicron surged early this year, about a fifth of his employees got sick, with most absences lasting three or four days.”
“‘I think with Covid, we’ve gotten to the new normal,’ Mr. Onken said. Absences, along with people showing up but working less efficiently or at a lower capacity than normal, have bitten into productivity, he said, which makes it harder to meet clients’ expectations.”
“‘Clients are done with the Covid excuse,’ he said. ‘They’re not listening to it anymore.’” READ MORE
Real estate developers are delaying major office projects: “Some property developers view periods of economic uncertainty and weak office demand as good times to launch new projects. Because large-scale developments tend to take three to five years or longer, developers bet that tenants looking to trade up in office quality will be drawn to modern offices with lots of amenities, just as the economy is gaining steam. But soaring interest rates and the slow pace at which workers are returning to offices have even some risk-taking developers wary about the future. With office use only about half of what it was before the pandemic, some of the most active developers are postponing major projects and are losing their appetite for new developments.”
“The national office vacancy rate stands at 12.5 percent, up from 9.6 percent in 2019 and the highest since 2011, CoStar said. Just as worrisome for developers: 37 percent of the space under development remains available, more than double the rate in 2019 and approaching the record 39 percent in 2008, CoStar said.”
“Most businesses aren’t including expansion space when they sign new leases as they often did in the past, according to brokers. About 212 million square feet of sublease space is currently available, according to CoStar, a record high since 2005 when the company began tracking the metric.”
“Developers forging ahead say that demand remains strong for the highest-quality space with great locations and amenities such as restaurants, good views, fitness centers and daycare. Businesses adopting new workplace strategies feel it is worth paying higher rents for this space partly because they are leasing less and partly to encourage workers to return to the office for more days.” READ MORE
FOOD & BEVERAGE
Struggling restaurants are turning to renovations: “More than 50 percent of restaurant operators expect it to take a year or more before business returns to normal, according to the 2022 State of the Restaurant Industry report by the National Restaurant Association. Profit margins in 2022 will be impacted as food and labor costs climb. Lease rates are high and rising. Cluck Design Collaborative CEO and co-founder Kevin Kennedy says his firm remained busy throughout the pandemic. Interest in renovations is climbing, despite increased costs. ‘I think people are seeing it as now is the time to do it,’ he says.”
“Gais Construction says restaurant owners are looking to renovations for solutions, with efficiency topping the list of desired outcomes, says Michael Gais, vice president.”
“‘They were all about to close. It made them look at everything much closer,’ he says. ‘If you’re starting to get business again, I think your mindset is how do I maximize what I have.’”
“‘I think people’s renovations are going to speak to that,’ says Kris Reid, executive director of the Piedmont Culinary Guild. ‘This labor crisis is going to go on for a really long time.’” READ MORE
Travel demand has increased, but the supply of flights hasn’t kept up. And you know what that means: “The consumer-price index for airfare was up 43 percent in September from a year earlier, according to the U.S. Labor Department. Ticket prices were still depressed last year, but airfares in the CPI were up 8 percent from September 2019, according to Airlines for America, a trade group. Airlines stabilized their operations after a rocky start to summer that was marred by cancellations, delays, and lost baggage. But they did it by cutting back on the number of flights they offered, and executives say the industry’s growth will be hemmed in for the foreseeable future.”
“For airlines, that is proving to be a blessing in part, leading to higher fares that have helped cover a roughly 80 percent increase in jet fuel prices and revenues over the summer that beat those in 2019.”
“Flights departing in March 2023 are averaging $350 a domestic round-trip ticket—26 percent higher than at this time last year and 28 percent above 2019, though that could change if bookings don’t come through, according to Hopper, a booking app.” READ MORE
Insurers are facing a steep rise in reinsurance rates: “Reinsurers are reacting to five years of outsize catastrophe losses and growing worries that climate change is intensifying the risks from storms and wildfires, among other concerns. Hurricane Ian, which killed more than 130 people, is estimated to cost insurers from $40 billion to more than $70 billion, making it the nation’s second most-expensive natural disaster for the insurance industry. Hurricane Katrina cost more than $90 billion in today’s dollars.”
“Insurers are in the middle of negotiations with reinsurers, which are trying to boost rates by 10 percent to 30 percent. Nearly two-thirds of U.S. property-catastrophe coverage renews each Jan. 1, including for many large diversified U.S. and European insurers.”
“It is too soon to know if the reinsurers will get what they want. Carriers might buy less reinsurance to limit the increase in cost, taking on more risk themselves and possibly limiting premium increases they would pass on to their customers.” READ MORE
John Foley, co-founder and former CEO of Peloton, is starting a business to sell custom rugs direct to consumers: “The venture, called Ernesta, is expected to launch in spring 2023. On the company's website, Foley says the name Ernesta reflects his fascination with author Ernest Hemingway and also pays tribute to singer Robert Nesta ‘Bob’ Marley. The company aims to bring ‘gorgeous, design-focused custom rugs to homes and places of gathering through an enjoyable, frictionless, and affordable experience,’ the website states. The company promises a better buying experience for customers at the same price as a store-bought standard-sized rug.”
“The company will be entering a crowded space dominated by direct-to-consumer rugs like Ruggable, Flor, Revival, and well-established home decor brands like West Elm and Crate & Barrel that also sell rugs.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
This week, Gene Marks says there are still lots of ways to save on taxes this year, but he also issues a warning: It’s a mistake for owners to just take their financials to the same CPA every year and assume he or she is doing everything possible to minimize what you pay. Every few years, Gene advises, you should take your returns to a different accountant and see if fresh eyes spot alternative tax opportunities for you to consider. Plus: Why Gene thinks you should ignore those third-quarter GDP numbers, and why he says there are times when owners should fight back rather than accept a bad online review.
Thanks for reading, everyone. — Loren